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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, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-10392
U.S. BIOSCIENCE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 23-2460100
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
ONE TOWER BRIDGE 100 FRONT STREET 19428
WEST CONSHOHOCKEN, PA
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (610) 832-0570
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
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
</TABLE>
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.
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 13, 1998, the aggregate market value of the voting stock held by
non-affiliates of the registrant was $235,805,000.*
As of March 13, 1998, the number of outstanding shares of the registrant's
Common Stock was 24,239,822.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Portions of the registrant's definitive Proxy Statement with respect
to the registrant's 1998 Annual Meeting of Stockholders, to be filed
not later than 120 days after the close of the Registrant's fiscal
year.
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* 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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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, those discussed in this
Form 10-K, including, without limitation in the Section of Item 1 entitled
"Factors Affecting the Company's Prospects." As a result, the reader is
cautioned not to rely on these forward-looking statements.
The following discussion also 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.
PART I
ITEM 1. BUSINESS.
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
lodenosine (formerly 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, 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."
The company's NDA for NeuTrexin for the treatment of Pneumocystis carinii
pneumonia ("PCP"), an infection primarily associated with AIDS was approved by
the FDA and the Canadian regulatory authority, the Health Protection Branch
("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. NeuTrexin has received local health
regulatory approval in many EU countries. See "Principal Products - NeuTrexin."
The company's NDA for Ethyol 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 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."
On January 7, 1997 a U.S. patent was issued to the company for a crystalline
dosage form of Ethyol. The FDA has granted the company clearance to market this
new crystalline dosage form, which was launched in the United States in May 1997
by ALZA. See "Principal Products - Ethyol."
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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 26, 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/m/2/, in
conjunction with adequate hydration measures. Ethyol has received local health
regulatory approval in most 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 and of radiation therapy.
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 10
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, nelfinavir, 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.
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.
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Marketing and Distribution
In 1995 the company 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 is co-promoting Ethyol
with ALZA in the United States. See "Principal Products - Ethyol - Distribution
and Marketing Agreements." The company also 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 does not
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 certain foreign markets. 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 lodenosine
(formerly FddA), and its active metabolite FddI, which are reverse transcription
inhibitors now being evaluated in clinical trials for use in the treatment of
HIV and AIDS. See "Principal Products - Lodenosine (formerly 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 had 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."
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 15-person sales force and ALZA's approximately 100-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 continued
to be adversely affected in 1997 by other therapies that compete with Hexalen
for ovarian cancer patients, some of which were introduced in 1996. 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.
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As of March 2, 1998, Hexalen has been approved for the treatment of ovarian
cancer in 19 countries outside the United States, including Canada, the United
Kingdom, Australia, Israel, Sweden, Norway, China, South Korea, Egypt and Hong
Kong. Commercial sales of Hexalen outside the United States are made 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.
Orphan Drug Status. Under the orphan drug provisions of the Federal Food,
Drug, and Cosmetic Act (the "FFDCA"), Hexalen had received orphan drug marketing
exclusivity for its FDA approved indication for a period of seven years from
approval of its NDA (i.e., the FDA could not approve another altretamine product
for that indication during the seven-year period). Such exclusivity expired 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 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 10
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 15
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.
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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 and Portugal 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.
Manufacturing. The company is dependent on third party suppliers for the
manufacture of Hexalen. The company uses 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 10 years of
regulatory exclusivity in the EU markets upon approval. Following the positive
CPMP recommendation, the company received local regulatory approvals in 11 of
the 12 original EU member countries. As of March 2, 1998, local health
regulatory approvals for NeuTrexin have been received in 21 countries outside
the United States, including Canada, Denmark, France, Germany, Ireland,
Luxembourg, the United Kingdom, Spain, Greece, Sweden, Norway, Portugal, The
Netherlands, Italy and Argentina.
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 United
States. Under the terms of that agreement, the company directs the marketing
program. The company's approximately 15-person sales force and ALZA's
approximately 100 -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 and most of 1997 due, the company believes, to the promotional emphasis
placed on 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.
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Clinical Trials. The company is investigating NeuTrexin as an anticancer
agent. A Phase II study of escalating doses of NeuTrexin in combination with 5-
fluorouracil ("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. 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).
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. One of those
patents, a U.S. composition of matter patent on the form of NeuTrexin approved
for commercial sale, was issued March 15, 1983 and, pursuant to recent
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
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. As of March 2, 1998, supplementary protection has been granted in
France, Germany, 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 NeuTrexin to the Company."
Upon approval of the NDA for NeuTrexin in December 1993, the product
received seven years of orphan drug marketing exclusivity under the orphan drug
provisions of the FFDCA 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 drug
marketing exclusivity for
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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 for NeuTrexin 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 10 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 10 year period.
The company has also licensed its rights for NeuTrexin to another affiliate
of Schering, Scherico, Ltd. ("Scherico"), under two agreements, one covering
territories comprising Korea, Taiwan, Peru, Paraguay and six countries in the
Middle East (the "Korea/Taiwan/Peru/Paraguay/Middle East Territories) and the
other covering territories comprising Australia, Iran, Iraq, New Zealand and
over 30 countries in Eastern Europe and Africa (the "Eastern
Europe/Africa/Australia/New Zealand Territories"). Under these agreements,
which also grant rights to Ethyol, Scherico is required to pay the company
royalties and consulting fees, on a country-by-country basis, for 15 years
following the date of first commercial sale of NeuTrexin or Ethyol in that
country, subject to a one-year extension in certain circumstances. The license
for the East Europe/Africa/Australia/New Zealand Territories provides Scherico
with the right to negotiate for additional products the company wishes to
introduce into those territories. The license for the
Korea/Taiwan/Peru/Paraguay/Middle East Territories provides Scherico with the
right to expand the territory to include three additional countries in the
Middle East if they become available. See "Ethyol - Distribution and Marketing
Agreements."
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.
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.
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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. 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 14, 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/m/2/, in conjunction with adequate hydration measures. As of March 2, 1998,
Ethyol has received approvals from the following EU member countries: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, The
Netherlands, Portugal, Spain and the United Kingdom. The company, either
directly or through its overseas marketing partners, has been seeking additional
regulatory approvals for Ethyol.
Ethyol was approved for commercial sale in Canada in April, 1996 and
launched by an affiliate of Eli Lilly and Company in August, 1996. In addition
to approvals in the United States, Canada and the EU countries listed above,
Ethyol has received approvals from 25 countries throughout the world. 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 made crystalline Ethyol commercially available in the United States
in 1997 through ALZA, the company's exclusive distributor in the United States.
Marketing. Through an agreement with ALZA, Ethyol was launched in the
United States in April 1996. Under the terms of this agreement, 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 100 -person sales force with co-
promotion by the company's approximately 15-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 which the
company anticipates may 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 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 blood elements: red blood cells, neutrophils and platelets.
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.
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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 (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 10 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 15 (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 novel proprietary dosage forms of crystalline amifostine
and a novel method for manufacturing crystalline amifostine dosage forms. The
company was granted a U.S. Patent covering methods of manufacturing crystalline
amifostine dosage forms and the resulting dosage forms utilizing such method of
manufacture. The company also was granted 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, some of which have recently been
allowed.
Upon approval of the NDA for Ethyol in December 1995, the product received
seven years of orphan drug marketing exclusivity under the orphan drug
provisions of the FFDCA for the approved indication, as a chemoprotective agent
for cisplatin in the treatment of advanced ovarian cancer. During this seven-
year period, the FDA may not approve another company's NDA for the same drug
with the same indication. 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 drug marketing exclusivity for such approved indication.
In addition, upon approval of the NDA for Ethyol, the product became
entitled to a five year period of marketing exclusivity under the FFDCA, which
runs concurrently with the seven year orphan exclusivity. 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. This five year marketing
exclusivity does not, however, prohibit the submission or FDA approval of
subsequent full NDAs filed 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 10 years (9 years if ALZA exercises the option) based on
sales of Ethyol in the United States.
The company has entered into an exclusive marketing and distribution
agreement with Scherico, an affiliate of Schering, for Ethyol in the countries
comprising the EU and European Free Trade Association (the "European
Territories"). Under this agreement, Scherico purchases Ethyol from the
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company at a price based on a percentage of the net sales of Ethyol in Germany,
United Kingdom, Spain, Italy and France, and 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. 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. Sales of
Ethyol to Scherico for the European Territory have been gradually increasing.
In two separate agreements, the company has licensed Ethyol to Scherico in
Eastern Europe/Africa/Australia/New Zealand Territories and the
Korea/Taiwan/Peru/Paraguay/Middle East Territories. Under these agreements,
which also grant rights to NeuTrexin, Scherico is required to pay the company
royalties and consulting fees, on a country-by-country basis, for 15 years
following the date of first commercial sale of Ethyol or NeuTrexin in that
country, subject to a one-year extension in certain circumstances. Scherico
also paid milestone payments to the company upon approval of Ethyol in Australia
and South Africa. The license for the East Europe/Africa/Australia/New Zealand
Territories provides Scherico with the right to negotiate for additional
products the company wishes to introduce into those territories. The license
for the Korea/Taiwan/Peru/Paraguay/Middle East Territories provides Scherico
with the right to expand the territory to include three additional countries in
the Middle East if they become available.
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 10 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. 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 10 years following
the first commercial sale of the product.
The company is seeking a marketing partner for Ethyol for Japan.
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), carcinomatous meningitis and acute leukemia.
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Clinical Trials. Clinical trials of AZQ have been conducted under the
auspices of the National Cancer Institute ("NCI") for the treatment of gliomas,
carcinomatous meningitis 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.
License of AZQ to the Company. The company holds a non-exclusive license
from the United States government under two patents for methods of manufacturing
AZQ. The company is required to pay royalties to the United States government
based on net sales of AZQ manufactured using the licensed methods. The company
previously held an exclusive license from the United States Government to market
AZQ in the United States under a composition of matter patent for AZQ and two
patents for the use of AZQ as an antitumor agent, which patents have expired.
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
development and manufacture of AZQ drug substance for commercial supply with
which the company is working under a development services agreement for the
initial supplies of AZQ. To date all AZQ used in clinical trials has been
supplied by the NCI.
LODENOSINE (FORMERLY 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 known as FddA and its active metabolite, FddI,
for the treatment of HIV infection, HIV-related infection or HIV-related disease
in humans. The company has also entered into a Cooperative Research and
Development Agreement ("CRADA") with the National Cancer Institute ("NCI") for
clinical development of lodenosine (FddA).
Lodenosine (FddA) is an acid stable, purine-based nucleoside reverse
transcriptase inhibitor that was discovered, patented and developed
preclinically by researchers at the NCI. In a SCID (immune-deprived) mouse
model, lodenosine demonstrated potent antiviral activity against HIV and was
superior to AZT. In other laboratory studies, lodenosine has shown synergistic
activity with AZT, d4T and 3TC in addition to being active against HIV clinical
isolates that were resistant to these drugs.
Clinical Trials. The company is collaborating with the NCI on the clinical
development of lodenosine (FddA) under the CRADA. The collaborative Phase I
clinical trials of lodenosine in adult and pediatric patients are being
conducted at the NIH Clinical Center. The first clinical trial results from the
Phase I dose escalation study conducted under the CRADA demonstrated that
lodenosine had anti-HIV activity, defined as a reduction in HIV viral load, even
in patients who had failed other AIDS antiretroviral therapies including AZT,
3TC and d4T. The company intends to continue clinical development of this drug
under the CRADA, including an evaluation of once-daily dosing of lodenosine in
combination therapies. In addition to the collaborative studies under the
CRADA, the company plans to conduct NDA-directed studies of lodenosine.
Lodenosine is in the very early stages of clinical development. For a
description of the steps required before a drug may be marketed in the United
States see "Government Regulation."
License of Lodenosine (FddA) to the Company. The company obtained a
worldwide exclusive license from the United States Government for lodenosine 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.
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Patents. The United States 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 issued to
the United States Government on February 27, 1996 covering, inter alia, FddA and
FddI. A United States Patent issued to the United States Government on October
15, 1996 covering methods of using either FddA or FddI 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 a synthesis of FddA. The company has an
exclusive license to these patents. See "License of Lodenosine (FddA) to the
Company."
Manufacturing and Further Development. The company has had lodenosine
(FddA) manufactured in limited quantities to prepare for early clinical trials
and intends to rely on one or more third parties for supplies of lodenosine
that may be required for further clinical studies. The company is seeking a
commercial partner for the further development of lodenosine.
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.
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.
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 expired 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 certain viral
conditions. 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.
Distribution and Marketing Agreements. The company has licensed its rights
for PALA in the Latin America/Asia Territories to 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 PALA for up to 10 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 10 year period.
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) 10 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. Under the company's
agreements with Scherico for the Eastern Europe/Africa/Australia/New Zealand
Territories, Scherico has the right to negotiate for
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additional products the company wishes to introduce into those territories,
which right would apply to PALA if the company pursues the development of PALA
and determines to introduce PALA in those territories.
Manufacturing. The company has a development agreement with a third party
to manufacture the PALA drug substance and with another third party 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. 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.
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 or
parenterally. 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.
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 for the Eastern
Europe/Africa/Australia/New Zealand Territories, the company has granted to
Scherico a right to negotiate in good faith to license other products the
company wishes to introduce in those territories. See "Principal Products -
Ethyol - Distribution and Marketing Agreements" and "NeuTrexin - Distribution
and Marketing Agreements."
Pursuant to the company's distribution agreement with SCRAS, SCRAS has an
option to commercialize Hexalen in five EU countries. See "Principal Products -
Hexalen - Distribution and Marketing Agreements."
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RESEARCH AND DEVELOPMENT
Research. The company does not currently have proprietary research and
preclinical development facilities, since its 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 and performs some analytical
services on a contract basis. 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 its ability to
attract and recruit qualified investigating physicians and upon their ability to
accrue patients to the company's 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 $16,904,500 for 1997, $14,383,300
for 1996, $12,186,000 for 1995, and $116,450,900 for the period May 7, 1987
(inception) to December 31, 1997.
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 15
representatives plus ALZA's approximately 100-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.
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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
1997. 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."
The company is engaged in a business that is highly competitive. Many
companies, including well known pharmaceutical companies, are marketing
anticancer drugs, drugs to ameliorate or treat the side effects of cancer
therapies, and drugs for the treatment of AIDS and allied diseases, and are
seeking to develop new products and technologies for these applications. 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 drugs may become subject to generic competition at such
times as generic applications for drug approvals 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), Hoffmann-La Roche, Johnson & Johnson, 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., Hoffmann-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
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for in-licensing, since often their mission does not include bringing compounds
to market and they generally lack the capabilities to do so.
MANUFACTURING
The company has a small volume parenteral products 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.
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 discussions of the patent rights under "Principal Products."
Under these agreements, the company is obligated to pay royalties at 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 discussions 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. Since this recent legislation, the term of new United States patents
will commence on the date of grant and will terminate 20 years from the date on
which the earliest priority patent application was filed in the United States.
Patents existing at the time of this legislation and patents granted on an
application filed before June 8, 1995 have a term that is the longer of 20 years
from the earliest effective United States filing date or 17 years from the date
of grant. In other words, 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 affects 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
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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.
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. These agreements provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the company is to be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the agreements provide that all inventions conceived by the employee
shall be the exclusive property of the company. 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 provisions of the FFDCA, 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.
FDA may withdraw orphan exclusivity if it determines there are insufficient
quantities of the product available to the public. The company holds orphan
drug designations 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. The company's
orphan drug designation for Hexalen for advanced ovarian cancer expired in
December 1997. See "Principal Products."
Orphan drug marketing exclusivity is only available to the sponsor of the
first approved NDA for a product that has been designated as an orphan drug by
the FDA. Following the first such approved orphan drug NDA, the FDA would be
prohibited from approving another company's NDA for the same drug for the same
indication for a period of seven years. However, prior to the approval of the
first such orphan drug NDA, it is possible that more than one product may be
designated by the FDA as an orphan drug for the same indication. Therefore,
because only the first sponsor to obtain NDA approval of an orphan designated
drug is entitled to the benefits of market exclusivity, there is a risk that not
all sponsors who receive an orphan drug designation for a particular indication
will gain the benefits of such exclusivity or will not themselves be excluded
from the market.
The company has received several orphan drug designations for additional
uses of NeuTrexin and Ethyol. In addition, the company believes that several of
its other products and indications may also qualify for designations as orphan
drugs. There can be no assurance, however, that such orphan designated
products, or any products that may be designated as orphan drugs in the future,
will be the first such drug to receive FDA approval or will not themselves be
excluded from the market if FDA first approves a competing orphan drug NDA.
There also can be no assurance that the orphan drug provisions of the FFDCA will
not be amended, or that the benefits of the existing statute will remain in
effect.
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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. Failure to comply with applicable FDA requirements can,
among other things, result in Warning Letters, fines, suspensions of regulatory
approvals, product recalls or seizures, operating restrictions, injunctions, and
criminal prosecution.
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 Investigational New Drug application (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 an IND applicant will be allowed to commence clinical trials
following submission of an IND.
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, the 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 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 from
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six months to one year 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.
Under the Food and Drug Modernization Act of 1997 ("FDAMA"), the FDA may
determine that data from one such clinical trial may be sufficient. The FDA may
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.
Under FDAMA, the FDA is statutorily authorized to expedite (or "fast
track") the approval of certain drugs and biological products that are intended
for serious or life-threatening illnesses. The "fast tract" provisions of FDAMA
are intended to codify existing FDA Accelerated Approval Regulations. Fast
track approval is available when a product has been shown to have an effect on a
clinical or surrogate endpoint that is reasonably likely to predict clinical
benefit. Drugs that receive fast tract approval may be subject to certain
requirements, including that the sponsor conduct the necessary and appropriate
post-approval studies, and that the sponsor submit copies of all promotional
materials for FDA review during the pre-approval review period and for a period
of time following approval as specified by the FDA. Under FDAMA, the FDA may
withdraw the approval of a fast track product if: (1) the sponsor fails to
conduct any of the required post-approval studies of the product with due
diligence; (2) a post-approval study of the fast track product fails to verify
the product's clinical benefit; (3) other evidence demonstrates that the fast
tract product is not safe or effective under the conditions of use; or (4) the
sponsor disseminates false or misleading promotional materials regarding the
product.
Under existing Accelerated Approval Regulations promulgated prior to
enactment of FDAMA, which still are effective, 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 conditions 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
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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.
The product testing and approval process is likely to take a substantial
number of years and involves the expenditure of substantial resources. 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 may 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.
Under FDAMA, the FDA has been reauthorized to impose user fees on
manufacturers of prescription drugs. User fees were initially authorized under
the Prescription Drug User Fee Act of 1992, which was enacted to expedite FDA
review and approval of new drugs by providing the FDA with additional funding.
There are three kinds of user fees that can be imposed: (1) a one-time fee for
each single source prescription NDA or supplemental NDA that incorporates new
clinical data submitted on or after September 1, 1992; (2) an annual fee for
each establishment named in an NDA that manufactures the product in the NDA; and
(3) an annual fee for each single source prescription drug product marketed.
Under FDAMA, no user fees are assessed on NDAs for products designated as orphan
drugs, unless such application also includes a non-orphan indication.
The company also is subject to foreign regulatory requirements governing
clinical trials, manufacturing of products, marketing of products, product
approvals, marketing authorization, and pricing approvals. Whether or not FDA
approval has been obtained, approvals and/or authorizations 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 and/or
authorizations in their respective territories.
SCIENTIFIC ADVISORY BOARD AND 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
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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.
EMPLOYEES
As of December 31, 1997, the company employed 150 persons full-time, of
whom 50 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.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the company are as follows:
NAME AGE POSITION
- ---------------------- --- ------------------------------------------
C. Boyd Clarke 49 President, Chief Executive Officer and
Director
Robert I. Kriebel 55 Executive Vice President, Chief Financial
Officer, Treasurer and Director
Martha E. Manning 43 Senior Vice President, General Counsel
and Secretary
Donald O. Brown 55 Senior Vice President,
Pharmaceutical Operations
Wolfgang Oster, M.D. 41 Senior Vice President, Worldwide Clinical
Research
Barbara J. Scheffler 46 Senior Vice President, Corporate and
Scientific Affairs
Mr. Clarke was elected to the Board of Directors in September 1996 when he
joined the company as President and Chief Operating Officer. On March 10, 1998,
he was promoted to the position of President and Chief Executive Officer upon
the resignation of Philip S. Schein, M.D., who had been the Chief Executive
Officer and a director of the company since its formation in May 1987. From
1977 until Mr. Clarke joined the company, Mr. Clarke held various positions with
Merck & Co. and its affiliates, including Vice President, Strategy, Alliance
Management and 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
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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. 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.
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.
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.
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.
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FACTORS AFFECTING THE COMPANY'S PROSPECTS
The prospects of the company may be affected by a number of factors,
including the matters discussed below:
RELIANCE ON COLLABORATIVE MARKETING, MANUFACTURING AND SELLING ARRANGEMENTS
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 marketing,
manufacture and sale of its drug products. Should any collaborative partner,
especially ALZA, fail to develop or commercialize successfully any product to
which it has rights, the company's business may be negatively affected. No
assurance can be given that the companies with which the company has entered
into contractual arrangements to manufacture or commercialize its products will
give the company's products sufficiently high priority. In addition,
disagreements or disputes may arise between the company and its commercial
partners which could materially adversely affect the sale of the company's
products. The company may wish to enter into additional collaborative
arrangements to develop and commercialize its products in the future. There can
be no assurance that the company will be able to negotiate acceptable
collaborative arrangements in the future, or that such collaborative
arrangements will be successful.
FUTURE CAPITAL NEEDS; AVAILABILITY OF ADEQUATE FUNDS
The company believes that its current cash and investments and anticipated
revenues from product sales and other sources will be sufficient to cover the
company's anticipated level of cash requirements for at least three years.
However, there can be no assurance that the company will achieve significant
revenues or profitable operations. The company's future capital requirements
will depend on many factors, including continued expenditures for research and
development, marketing and administration, capital equipment and facilities; the
time and costs involved in obtaining regulatory approvals; the costs involved in
filing, prosecuting and enforcing patent claims; competing technological and
market developments; changes in the existing collaborative relationships and the
ability of the company to establish and maintain additional collaborative
arrangements; and the cost of manufacturing scale-up and effective
commercialization activities and arrangements. To the extent that existing
resources are insufficient to fund the company's activities, additional funds
may be raised, including through public or private financings. There can be no
assurance that additional financing will be available, or, if available, that it
will be available on acceptable terms. If additional funds are raised by
issuing equity securities, further dilution to then existing stockholders may
result. If adequate funds are not available, the company may be required to
significantly curtail one or more of its research, drug discovery or development
programs or obtain funds through arrangements with collaborative partners or
others that may require the company to relinquish rights to certain of its
technologies, product candidates or products.
UNCERTAINTY ASSOCIATED WITH CLINICAL TRIALS
The company is engaged in an extensive program of clinical trials which
hopefully will demonstrate the efficacy, safety and benefit to patients of its
marketed products and products in clinical development. There are significant
risks inherent in each stage of clinical drug development. The company or the
FDA may suspend clinical trials at any time if the patients participating in
such trials are being exposed to unacceptable health risks. Further, there can
be no assurance that human clinical trials will show any product or product
candidate to be safe or effective or that any such product will be approved by
the FDA for any indication sought by the company.
The rate of completion of the company's clinical trials is dependent upon,
among other factors, the rate of patient enrollment and the quality of the data.
Patient enrollment and completion of a study are a function of many factors,
including the size of the patient population, the nature of the protocol,
eligibility
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criteria for the study, whether the patient population can complete the
protocol, the proximity of patients to clinical sites and the ability of
investigators to continue follow up on patients with life threatening diseases.
Data quality is also a function of many factors, including the skill and
diligence of participating investigators, research staff and clinical monitors.
Delays in planned patient enrollment or in the retrieval of quality data may
result in increased costs and delays, which could have a material adverse effect
on the company. There can be no assurance that the company will not encounter
problems in its clinical trials which could cause the company or the FDA to
delay or suspend any of these trials or could cause the FDA to require
enrollment of additional patients or the completion of new studies.
There also can be no assurance that any clinical trials will be completed
successfully within any anticipated time period, if at all, with respect to any
of the company's products or product candidates. Negative results from clinical
trials involving the company's products, or negative assessments from regulatory
authorities of such results, would adversely affect the company's business.
NO ASSURANCE OF REGULATORY APPROVALS
The production and marketing of the company's products and its ongoing
research and development activities are subject to regulation by numerous
federal, state and local governmental authorities in the United States. Similar
regulatory authorities exist in other countries where the company intends to
test and market its products. Prior to marketing, any drug developed by the
company must undergo an extensive regulatory approval process. In addition,
each clinical study is conducted under the auspices of an independent
Institutional Review Board ("IRB"). In approving an institution's participation
in a clinical study, the IRB will consider, among other things, ethical factors,
the safety of patients and the possible liability of the host institution.
The regulatory process, which includes preclinical and clinical testing of
each drug candidate to establish its safety and efficacy, can take many years
and requires the expenditure of substantial resources. Data obtained from
preclinical and clinical activities are susceptible to varying interpretations
which could delay, limit or prevent FDA regulatory approval. In addition,
delays or rejections may be encountered based upon changes in FDA policy for
drug approval during the period of product development and FDA regulatory review
of each submitted new drug application. Similar delays may also be encountered
in foreign countries. There can be no assurance that, even after such time and
expenditures, regulatory approval will be obtained for any new drugs or
indications being developed by the company. Even if regulatory approval of a
drug is granted, such approval may entail limitations on the indicated uses for
which it may be marketed, and a marketed drug, its manufacturer and its
manufacturing facilities are subject to continual review and periodic
inspections. If previously unknown problems with a product, manufacturer or
facility are discovered after a product is approved and marketed, restrictions
may be placed on such product or manufacturers, including a withdrawal of the
product from the market. Failure to comply with the applicable regulatory
requirements can, among other things, result in fines, suspensions of regulatory
approvals, product recalls, operating restrictions and criminal prosecution. In
addition, the regulatory environment is subject to change, and additional
regulation may be established which could prevent or delay regulatory approval
of the company's products.
ACCELERATED APPROVAL REGULATIONS
The company's product Ethyol is approved for reduction of renal toxicity
associated with repeated administration of cisplatin in patients with non-small
cell lung cancer under the Accelerated Approval Regulations. 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
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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 conditions 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. There can be no
assurance that the FDA having granted accelerated approval of Ethyol for non-
small cell lung cancer, will not subsequently withdraw such approval.
UNCERTAINTY ASSOCIATED WITH HEALTH CARE DELIVERY AND THIRD-PARTY
REIMBURSEMENT
There continue to be significant changes in health care and the way health
care is delivered. For example, in the Balanced Budget Act of 1997, Congress
established reimbursement for prescription drugs under Medicare at 95 percent of
the drug's average wholesale price and additional reductions have been
recommended by the Health Care Financing Administration. 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. Government and other third-party
payors are increasingly attempting to contain health care costs by limiting both
coverage and the level of reimbursement for therapeutic products. If adequate
coverage and reimbursement levels are not provided by government and third-party
payors for uses of the company's products, the market acceptance of these
products would be adversely affected. Other 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.
TECHNOLOGICAL CHANGE AND COMPETITION
The company is engaged in a business that is highly competitive. Many
companies, including well known pharmaceutical companies, are marketing
anticancer drugs, drugs to ameliorate or treat the side effects of cancer
therapies, and drugs for the treatment of AIDS and allied diseases, and are
seeking to develop new products and technologies for these applications. Many
of these drugs, products and technologies are, or may be, in the future,
competitive with the company's drugs. In addition, treatment regimens for
patients with cancer and for patients with AIDS are changing rapidly as new
therapies and new combinations of existing therapies take hold in the practice
of medicine. The company's Phase III clinical studies for Ethyol are conducted
in conjunction with the administration of specific treatment regimens, and there
can be no assurance that the specified treatment regimens will remain the
standard of care until the studies are completed. Any such changes in the
standard of care during the company's Phase III studies could have a material
adverse effect on the company's business.
Many competing 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.
Many of these companies have a significantly greater ability to penetrate the
commercial market with significantly more sales representatives than the
company. 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. 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
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company's drugs may become subject to generic competition at such times as
generic applications for drug approvals may be filed and approved by the FDA.
DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS
The company's success will depend, in part, on its ability, and the ability
of its licensor(s), to obtain protection for its products and technologies under
United States and foreign patent laws, to preserve its trade secrets, and to
operate without infringing the proprietary rights of third parties. The company
has obtained rights to certain patents and patent applications and may, in the
future, seek rights from third parties to additional patents and patent
applications. There can be no assurance that patent applications relating to
the company's potential products or technologies (whether now or in the future
licensed by the company from others) will result in patents being issued, that
any issued patents will afford adequate protection to the company or not be
challenged, invalidated, infringed or circumvented, or that any rights granted
thereunder will afford competitive advantages to the company. Furthermore,
there can be no assurance that others have not independently developed, or will
not independently develop, similar products and/or technologies, or duplicate
any of the company's products or technologies, or, if patents are issued to, or
licensed by, the company, that others will not design around such patents.
There can be no assurance that the validity of any of the company's patents
or patents licensed to the company would be upheld if challenged by others in
litigation or that the company's activities would not infringe patents owned by
others. The company could incur substantial costs in defending itself in suits
brought against it or any of its licensors, or in suits in which the company may
assert, against others, patents in which the company has rights. Should the
company's products or technologies be found to infringe patents issued to third
parties, the manufacture, use and sale of the company's products could be
enjoined and the company could be required to pay substantial damages. In
addition, the company may be required to obtain licenses to patents or other
proprietary rights of third parties, in connection with the development and use
of its products and technologies. No assurance can be given that any licenses
required under any such patents or proprietary rights would be made available on
terms acceptable to the company, if at all. 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. Although a patent has a statutory presumption of validity in
the United States, the issuance of a patent is not conclusive as to such
validity or as to the enforceable scope of the claims of the patent. There can
be no assurance that the patents in which the company has rights will not be
successfully challenged in the future.
The company also relies on trade secrets and proprietary know-how which it
seeks to protect, in part, by confidentiality agreements with its employees,
consultants, advisors and others. There can be no assurance that employees of
the company, consultants, advisors, or others, will maintain the confidentiality
of such trade secrets or proprietary information, or that the trade secrets or
proprietary know-how of the company will not otherwise become known or be
independently developed by competitors in such a manner that the company will
have no practical recourse.
LIMITED MANUFACTURING EXPERIENCE
The company's ability to operate profitably will depend in part on its
ability to manufacture its products at a competitive cost. The manufacture of
sufficient quantities of new drugs is typically a time-consuming and complex
process. There can be no assurance that the company or any other party will be
able to manufacture any of its product candidates at a cost or in quantities
necessary to make commercially viable products.
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DEPENDENCE ON KEY PERSONNEL AND CONSULTANTS
The company is dependent on its key personnel and consultants, the loss of
whose services might impede the achievement of its research, development,
regulatory, manufacturing and/or marketing and sales objectives. Recruiting and
retaining qualified and experienced personnel to perform research and
development work in the future will be critical to the company's success. There
can be no assurance that the company will be able to retain such personnel on
acceptable terms given the competition among numerous pharmaceutical and health
care companies, universities and non-profit research institutions for
experienced candidates.
POTENTIAL PRODUCT LIABILITY AND ADEQUACY OF 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
company is engaged in research and development of new chemical entities. The
clinical testing of these compounds entails a high degree of risk. 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.
USE OF HAZARDOUS MATERIALS
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.
VOLATILITY OF STOCK PRICE
The market price of the company's Common Stock, like that of the securities
of many other high technology companies, has been and is likely to continue to
be highly volatile. Factors such as fluctuation in the company's operating
results, announcements of technological innovations or new commercial
therapeutic products developed by the company or its competitors, governmental
regulation, regulatory approvals, development in patent or other proprietary
rights, public concern as to the safety of drugs developed by the company and
general market conditions may have a significant effect on the market price of
the Common Stock.
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ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the company has the authority to issue up to
5,000,000 shares of preferred stock and to determine the designations, powers,
preferences, rights, qualifications, limitations, restrictions, and the
relative, participating, optional or other special rights of those shares
without any further stockholder action. The rights of the holders of the
company's common stock will be subject to, and may be adversely affected by, the
rights of the holders of any shares of preferred stock that may be issued in the
future. The issuance of preferred stock, or of rights to purchase preferred
stock, could be used to discourage an unsolicited acquisition proposal or have
the effect of making it more difficult for a third party to acquire a majority
of the outstanding voting stock of the company.
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 analytical
laboratory conducting small scale product analysis, testing and development.
This laboratory space is leased pursuant to a lease that expires June 30, 2000.
The company's United Kingdom operations are conducted through its
subsidiary, USB Pharma Limited, which was reorganized during 1997. These
operations are presently housed in a 1,362 square foot office in an office
building in Watford, Hertfordshire, England. This space is rented pursuant to a
three-year lease which began December 15, 1997. Before the reorganization,
these operations were housed in an 8,689 square foot office in an office
building, also in Watford, Hertfordshire, England, which space has been assigned
to a new tenant for the remainder of the ten-year lease term that began March
25, 1997. The assigned lease can be terminated at the end of five years subject
to an early termination fee of (Pounds)50,000. The company has guaranteed the
obligations of the new tenant under the assigned lease.
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 may be terminated effective in 2003.
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 has filed an
appeal, however, the date of a second hearing has not been fixed by the court.
It is not possible to evaluate how the case will be decided on appeal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
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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, 1997
First Quarter 17 3/8 11 3/8
Second Quarter 11 3/4 8 11/16
Third Quarter 12 1/16 9 1/4
Fourth Quarter 13 1/2 8 3/8
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
On March 13, 1998, there were 4,669 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.
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ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for each of the five years in
the period ended December 31, 1997, and the period May 7, 1987 (inception)
through December 31, 1997, 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)
YEAR ENDED DECEMBER, 31 through
----------------------------------------------------------- December 31,
STATEMENT OF OPERATIONS DATA:(1) 1997 1996 1995 1994 1993 1997
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales $ 12,986 $ 10,785 $ 8,724 $ 7,210 $ 2,361 $ 48,924
Net investment income 2,824 2,335 1,223 1,234 3,776 30,209
Licensing, royalty and other income 11,913 7,344 21,398 102 2,067 44,996
------------------------------------------------------------------------
Total revenues 27,723 20,464 31,345 8,546 8,204 124,129
Expenses:
Cost of sales 4,158 2,956 2,559 1,694 626 13,640
Selling, general and administrative costs 14,387 12,275 16,583 13,233 18,639 104,312
Research and development costs 16,904 14,383 12,186 17,608 19,404 116,450
Provision for litigation -- -- -- -- 10,165 10,165
Interest expense 183 537 255 52 -- 2,088
------------------------------------------------------------------------
Total expenses 35,632 30,151 31,583 32,587 48,834 246,655
------------------------------------------------------------------------
Net loss ($7,909) ($9,687) ($238) ($24,041) ($40,630) ($122,526)
========================================================================
Basic and diluted net loss per common share ($0.33) ($0.43) ($0.01) ($1.19) ($2.05) --
========================================================================
Weighted average number of common shares
outstanding(2) 23,872 22,396 20,436 20,127 19,802 --
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
BALANCE SHEET DATA:(1) 1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and investments $ 50,651 $ 36,677 $ 45,596 $ 24,428 $ 48,364
Working capital 44,841 34,126 42,577 21,536 43,377
Total assets 62,381 49,111 61,880 34,464 57,787
Long-term debt 1,135 1,845 19,088 997 387
Provision for litigation -- -- -- 2,301 10,165
Other long-term liabilities 1,832 1,462 1,036 788 588
Deficit accumulated during the development stage (122,526) (114,617) (104,930) (104,692) (80,651)
Stockholders' equity 47,024 36,894 28,788 23,939 38,090
</TABLE>
(1) In Thousands, except per share amounts
(2) After giving effect to the 1 for 2 reverse stock split effected
April 23, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion 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, those discussed in this
Form 10-K, including, without limitation in the Section of Item 1 entitled
"Factors Affecting the Company's Prospects." As a result, the reader is
cautioned not to rely on these forward-looking statements.
The following discussion also 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 in 1997 focused on the promotion and sale, in the
United States, of the company's three commercially available products, Ethyol,
NeuTrexin and Hexalen. The company further pursued several Phase III clinical
trials targeted to expand the current indications of Ethyol to include certain
radiation therapies and other chemotherapeutic agents and develop the use of
NeuTrexin in colorectal cancer. The company, in cooperation with the National
Cancer Institute, pursued preclinical and product development activities for the
development of lodenosine (FddA) which shows promise as an potentially important
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<PAGE>
component in the treatment of HIV infection. The company completed the sale of
a 4.9% interest to ALZA and also received a $10 million clinical milestone from
ALZA in connection with the company's Phase III trial of Ethyol used with Taxol
and carboplatin in patients with advanced non-small cell lung cancer. The
company signed an agreement for the commercialization of NeuTrexin in over 40
additional countries. The company was awarded a three year contract by the
National Cancer Institute to provide analytical services with estimated revenues
of $2 million. The company also reorganized its European clinical organization.
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 execution of an amendment in September 1996 to the
marketing 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 regimes,
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, lodenosine 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.
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, the company 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%
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<PAGE>
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 and PALA; 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.
RESULTS OF OPERATIONS
1997 Compared with 1996
Product sales increased to $12,985,800 for the year ended December 31,1997
from $10,785,200 in the prior year. The 20% increase is due to higher Ethyol
revenues from the company's major distribution partners, ALZA and Scherico,
which were partly offset by lower trade sales of NeuTrexin and Hexalen in the
United States. Ethyol revenue growth is attributable to the increasing trade
sales levels in the United States and Europe and the effects of an amendment to
the agreement with Scherico undertaken in September 1996. In the United
States, end-market sales, which are recorded by ALZA, increased to $20.6 million
for the full year 1997 as compared to $9.4 million in 1996. The company believes
that sales of NeuTrexin continued to be adversely affected by a decline in the
incidence and severity of Pneumocystis carinii pneumonia ("PCP") due to
improvements in treatment for human immunodeficiency virus (HIV) and the
prophylactic treatment of patients at risk for PCP. Despite the annual decline
in NeuTrexin sales, sales of the product increased markedly in the fourth
quarter of 1997 to levels not achieved since the second quarter of 1996. Sales
of Hexalen continue, the company believes, to be negatively affected by
competitive pressures.
Net investment income increased to $2,824,000 in the year ended December
31, 1997 as compared to $2,335,300 in 1996 because of a larger average portfolio
balance resulting from the funds raised in the ALZA stock purchase completed in
the first quarter of 1997.
Licensing, royalty and other income increased to $11,913,500 for the year
ended December 31, 1997 from $7,343,500 in the prior year period due principally
to the receipt of a $10 million milestone payment from ALZA for meeting a
clinical development milestone in connection the company's Phase III randomized
trial of Taxol, carboplatin and Ethyol, the company's cytoprotective agent, in
patients with advanced non-small cell lung cancer. The company also received,
in early 1997, a $397,000 payment from Scherico relating to Ethyol product
development.
Cost of sales, which consists of product manufacturing, testing,
distribution and royalty expenses, increased as a percentage of sales in the
year ended December 31, 1997, due principally to product mix, notably increased
sales of Ethyol to the company's distribution partners.
Selling, general and administrative costs for the year 1997 increased to
$14,386,700 from $12,274,800 in the corresponding 1996 period. The $2,111,900
increase is principally due to a $700,000 provision for the reorganization of
the company's European clinical research program and a $1,009,400 increase in
promotional
33
<PAGE>
spending. The remaining $402,500 increase is principally the net
result of increased personnel costs of $812,000 being partly offset by a
decrease in corporate and insurance expenses of $359,000 and lower travel
related expenditures of $65,900.
Research and development costs for year ended December 31, 1997 increased
to $16,904,500 from $14,383,300 in the corresponding 1996 period. The
$2,521,200 increase is principally due to increased payments for clinical
studies and related supplies of $1,575,900, higher personnel related costs of
$1,125,600 and travel expenses of $232,900, reflecting primarily the company's
phase III clinical trials of Ethyol for use in radiation therapy and for
broadened uses in chemotherapy and for clinical trials of NeuTrexin for use in
colorectal cancer.
Interest expense decreased to $183,400 for the full year 1997 from $537,600
in 1996 due principally to the conversion to equity, in early 1996, of the
company's entire $16.5 million convertible debenture issue.
The net loss for the year ended December 31, 1997 was $7,909,100 or $0.33
basic and diluted loss per common share as compared to a loss of $9,687,400 or
$0.43 basic and diluted loss per common share in the 1996 period.
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 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.
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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.
The net loss for 1996 was $9,687,400 or $0.43 basic and diluted loss per
common share. This compares to a net loss in 1995 of $237,800 or basic and
diluted loss per common share of $.01. 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 basic
and diluted 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, NeuTrexin
and Ethyol, and revenues received through distribution and sublicense
agreements. As of December 31, 1997, the company's cash and investments
totaled $50,650,800. The company's investment portfolio consists of securities
issued by the U.S. Government or its agencies and investment grade corporate
debt instruments.
During 1997, net cash used in operations amounted to $6,707,100
principally reflecting the net effect of the factors discussed above under
"Results of Operations" less non-cash charges of $1,130,000 principally
consisting of depreciation and losses on the disposal of property, plant and
equipment . 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.
On March 24, 1997, the company completed the sale of 1,178,882 shares of
the company's Common Stock to ALZA for gross consideration of $21,521,700 and
amended its marketing agreement with ALZA to
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spend $3.6 million of the proceeds on programs supporting Ethyol. At December
31, 1997, $1.9 million had not yet been spent. The company believes it's current
cash and investments 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.
The company's net capital expenditures were $876,600 for the year ended
December 31, 1997 and total $11,768,000 since inception. In April 1993, the
company purchased a sterile products production facility in The Netherlands.
Validation work and pilot production on this new facility were completed in
1995. The facility received regulatory approval for product manufacture and
distribution from the Dutch regulatory authority in June 1994 to manufacture the
company's products for distribution in the European Community, and the facility
was approved by the FDA to manufacture NeuTrexin for the U.S. market in May 1995
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
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 $3,740,400 in capital
improvements have been made since its purchase to make the facility operational
and expand its production capacity. Further capital expenditures, estimated at
$700,000 are planned during 1998.
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.
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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 an additional milestone payment of $10 million in the second quarter
of 1997. The final milestone payment of $5 million was paid in early 1998 and
will be recorded in that period.
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.
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 initial distribution
fees from ALZA did bring the company close to a break-even position for calendar
1995. In addition, the company reported net earnings in two recent periods: the
third quarter of 1996 as a result of non-recurring items relating to the
September 1996 amendment to its agreement with Scherico noted herein, and, the
second quarter and first half of 1997 due to the recording of the $10 million
milestone payment made by ALZA. 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, 1997, the company had an
accumulated deficit of $122,526,300.
The company has developed a plan to modify its management information
system to recognize the year 2000 and has begun converting critical data
processing systems. The company currently expects to be substantially complete
with this conversion by early 1999. The cost of conversion, which includes
internal costs, but excludes costs to upgrade and replace systems in the normal
course of business, is estimated at less than $200,000. The company does not
expect the conversion to have a significant effect on operations or the
company's financial results. As of December 31,1997, less than $50,000 has been
expended in this effort. The company will continue to implement systems with
strategic value and does not believe the conversion of
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systems to accommodate the year 2000 will have any material impact on these
projects or cause any significant delays or material adverse effects.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for reporting comprehensive income. SFAS 131 establishes standards
for annual and interim disclosures of operating segments, products and services,
geographic areas and major customers. Both SFAS 130 and SFAS 131 are effective
in 1998. The company is in the process of evaluating the disclosure requirements
of the new standards, the adoption of which will have no impact on the company's
results of operations or financial condition.
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.
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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.
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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, 1997 and 1996
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995 and the period May 7, 1987 (inception) through
December 31, 1997
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995 and the period May 7, 1987 (inception) through
December 31, 1997
Consolidated Statement of Stockholders' Equity for the period May 7,
1987 (inception) through December 31, 1997
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 no reports on Form 8-K during the last quarter of fiscal
year ended December 31, 1997.
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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 (incorporated by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K, filed with the Securities
and Exchange Commission on March 21, 1997)
4.1 Warrant Agreement dated as of June 6, 1994 by and between the
Registrant and Mellon 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 Mellon 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
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<PAGE>
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)
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)
10.3.3 Third Amendment to Lease Agreement between the Registrant and
Pickering Associates dated October 12, 1995
10.3.4 Fourth Amendment to Lease Agreement between the Registrant and
Pickering Acquisition Associates dated January 20, 1998
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 10.13.1to 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
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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)
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.
(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 21, 1997)
10.11.2 Second Amendment, dated May 6, 1996, to Agreement dated January 1, 1995
between Registrant and Applied Analytical Industries, Inc.
(incorporated by reference to Exhibit 10.11.2 to the Registrant's
Annual Report on Form 10-K, filed with the Securities and Exchange
Commission on March 21, 1997)
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. (incorporated
by reference to Exhibit 10.12.1 to the Registrant's Annual Report on
Form 10-K, filed with the Securities and Exchange Commission on March
21, 1997)
10.12.2 Amendment, dated December 12, 1995, to Agreement dated September 23,
1993 between the Registrant and Ben Venue Laboratories, Inc.
(incorporated by reference to Exhibit 10.12.2
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<PAGE>
to the Registrant's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on March 21, 1997)
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 Amended and Restated License Agreement dated May 10, 1994 between the
Registrant and Scherico, Ltd.
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)
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
4.2 to the Registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on May 9, 1997)
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)
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<PAGE>
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)
10.27 License Agreement between the Registrant and Scherico, Ltd. dated as
of November 6, 1997
10.27.1 Amendment No. 1 to License Agreement dated as of November 6, 1997
between the Registrant and Scherico, Ltd.
Executive Compensation Plans and Arrangements
10.28 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)
10.28.1 Agreement between the Registrant and Philip S. Schein, M.D. dated as of
March 10, 1998
10.29 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)
10.30 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)
10.31 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)
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<PAGE>
10.32 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)
10.33 U.S. Bioscience, Inc. 1992 Stock Option Plan, as amended (incorporated
by reference to Exhibit 4.3 to the Registrant's Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission May 9, 1997)
10.34 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)
10.35 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)
10.35.1 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)
10.36 U.S. Bioscience, Inc. Income Deferral Plan (incorporated by reference
to Exhibit 10.35 to the Registrant's Annual Report on Form 10-K
filed with the Securities and Exchange Commission on March 21, 1997)
10.37 U.S. Bioscience, Inc. 1996 Non-Employee Directors Stock Option Plan
(incorporated by reference to Exhibit 10.36 to the Registrant's
Annual Report on Form 10-K filed with the Securities and Exchange
Commission on March 21, 1997)
10.38 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)
10.38.1 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 September 3, 1996, between the
Registrant and C. Boyd Clarke
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)
10.40.1 Letter agreement dated May 5, 1997 between the Registrant and Robert L.
Capizzi, M.D.
46
<PAGE>
10.41 Form of Executive Severance Agreement executed with President and
Chief Operating Officer, Executive Vice President and Chief
Financial Officer, each Senior Vice President, each elected 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 (incorporated by reference to Exhibit
10.42 to the Registrant's Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 21, 1997)
10.43 Executive severance arrangement, dated March 4, 1997, between the
Registrant and Wolfgang Oster, M.D. (incorporated by reference to
Exhibit 10.43 to the Registrant's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on March 21, 1997)
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.
47
<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 13, 1998 By: /s/ C. Boyd Clarke
-------------------------------------
Title: President and Chief Executive Officer
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 C. Boyd
Clarke 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.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ C. Boyd Clarke Principal Executive Officer March 13, 1997
- ---------------------------- and Director
C. Boyd Clarke
/s/ Robert I. Kriebel Principal Financial Officer March 13, 1997
- ---------------------------- and Director
Robert I. Kriebel
/s/ Mark R. Bausinger Principal Accounting Officer March 13, 1997
- ----------------------------
Mark R. Bausinger
/s/ Paul Calabresi Director March 13, 1997
- ----------------------------
Paul Calabresi, M.D.
/s/ Robert L. Capizzi Director March 13, 1997
- ----------------------------
Robert L. Capizzi, M.D.
/s/ Douglas J. MacMaster Director March 13, 1997
- ----------------------------
Douglas J. MacMaster
/s/ Allen Misher Director March 13, 1997
- ----------------------------
Allen Misher, Ph.D.
/s/ Ellen V. Sigal Director March 13, 1997
- ----------------------------
Ellen V. Sigal, Ph.D.
/s/ Betsey Wright Director March 13, 1997
- ----------------------------
Betsey Wright
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors............................................ F-2
Consolidated Balance Sheets at December 31, 1997 and 1996................. F-3
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995 and the period May 7, 1987 (inception) through
December 31,1997........................................................... F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995 and the period May 7, 1987 (inception) through December 31,
1997....................................................................... F-5
Consolidated Statement of Stockholders' Equity for the period May 7, 1987
(inception) through December 31, 1997...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
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, 1997 and 1996, and the
related consolidated statements of operations, cash flows and stockholders'
equity for each of the three years in the period ended December 31, 1997, and
for the period May 7, 1987 (inception) through December 31, 1997. 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, 1997 and 1996,
and the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997, and for the period May 7,
1987 (inception) through December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
February 12, 1998
F-2
<PAGE>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26,569,400 $ 13,054,800
Investments 24,081,400 23,621,800
Accounts receivable, net 2,577,400 1,926,200
Interest receivable 269,700 220,700
Inventories 2,434,500 2,592,000
Other 1,298,400 1,620,400
--------------- ---------------
Total current assets 57,230,800 43,035,900
Property, plant and equipment at cost, less accumulated depreciation 5,149,800 6,075,200
--------------- ---------------
Total assets $ 62,380,600 $ 49,111,100
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued compensation and related payroll taxes payable $ 1,926,200 $ 1,717,700
Accrued clinical grants payable 2,790,500 1,611,600
Accrued product manufacturing costs payable 798,700 747,300
Accrued marketing costs payable 437,400 448,500
Accrued professional fees payable 977,200 658,000
Line of credit 745,300 664,600
Current maturities of long-term debt 747,100 732,200
Accounts payable and other accrued liabilities 3,967,500 2,329,700
--------------- ---------------
Total current liabilities 12,389,900 8,909,600
Long-term liabilities:
Long-term debt, net of current maturities 1,135,000 1,845,400
Other long-term liabilities 1,831,900 1,461,800
--------------- ---------------
Total long-term liabilities 2,966,900 3,307,200
--------------- ---------------
Total liabilities 15,356,800 12,216,800
Stockholders' equity:
Preferred stock, $.005 par value-5,000,000 shares authorized;
none issued -- --
Common stock, $.01 par value-50,000,000 shares authorized;
24,208,100 shares issued and outstanding at December 31, 1997,
and 22,879,900 shares issued and outstanding at December 31, 1996 242,100 228,800
Additional paid-in capital 169,905,800 151,244,400
Deficit accumulated during the development stage (122,526,300) (114,617,200)
Foreign currency translation adjustment (614,900) 48,200
Unrealized gain(loss) on investments 17,100 (9,900)
--------------- ---------------
Total stockholders' equity 47,023,800 36,894,300
--------------- ---------------
Total liabilities and stockholders' equity $ 62,380,600 $ 49,111,100
============== ==============
</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)
THROUGH
1997 1996 1995 DECEMBER 31, 1997
------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Net sales $ 12,985,800 $ 10,785,200 $ 8,724,000 $ 48,924,200
Net investment income 2,824,000 2,335,300 1,223,100 30,209,300
Licensing, royalty and other income 11,913,500 7,343,500 21,398,000 44,996,300
------------- ------------- ------------- --------------
27,723,300 20,464,000 31,345,100 124,129,800
Expenses:
Cost of sales 4,157,800 2,955,700 2,558,500 13,639,900
Selling, general and administrative costs 14,386,700 12,274,800 16,583,400 104,311,500
Research and development costs 16,904,500 14,383,300 12,186,000 116,450,900
Provision for litigation -- -- -- 10,165,000
Interest expense 183,400 537,600 255,000 2,088,800
------------- ------------- ------------- --------------
35,632,400 30,151,400 31,582,900 246,656,100
------------- ------------- ------------- --------------
Net loss $ (7,909,100) $ (9,687,400) $ (237,800) $ (122,526,300)
============ ============ ============ =============
Basic and diluted net loss per common share $ (0.33) $ (0.43) $ (0.01)
============ ============ ============
Weighted average number of common shares outstanding 23,872,000 22,395,600 20,436,100
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
U.S. BIOSCIENCE, INC.
( A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------
1997 1996
---------------- --------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (7,909,100) $ (9,687,400)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 819,100 1,054,800
Loss on disposal of property, plant and equipment 270,900
Compensation element of stock option grants 40,000
Gain (loss) on investments 26,900 8,700
Amortization of debenture interest -- 154,300
Change in accounts receivable (651,200) (1,123,700)
Change in interest receivable (49,000) (160,700)
Change in inventories 30,800 (482,900)
Change in other current assets 296,300 5,312,500
Change in current liabilities 48,100 (4,166,400)
Provision for litigation -- --
Change in other long-term liabilities 370,100 426,000
---------------- --------------
Total adjustments 1,202,000 1,022,600
---------------- --------------
Net cash provided by (used in) operating activities (6,707,100) (8,664,800)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 100,879,100 43,212,500
Purchase of investments (101,338,600) (62,875,300)
Purchase of property, plant and equipment (876,600) (1,057,200)
---------------- --------------
Net cash provided by (used in) investing activities (1,336,100) (20,720,000)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securities 21,441,000 191,900
Proceeds from exercise of stock options 730,300 1,258,800
Proceeds from loan -- --
Proceeds from line of credit 181,600 92,100
Repayment of long-term debt (606,500) (689,200)
---------------- --------------
Net cash provided by (used in) financing activities 21,746,400 853,600
Effect of exchange rate changes on cash (188,600) (32,800)
---------------- --------------
Net increase (decrease) in cash and cash equivalents 13,514,600 (28,564,000)
Cash and cash equivalents-beginning of period 13,054,800 41,618,800
---------------- --------------
Cash and cash equivalents-end of period $ 26,569,400 $ 13,054,800
=============== =============
Supplemental cash flow disclosure:
Interest paid $ 156,700 $ 629,100
Subordinate debentures and accrued interest converted to common stock -- $ 16,841,700
Interest paid to affiliate -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD MAY 7, 1987
------------------------ (INCEPTION)
THROUGH
1995 DECEMBER 31, 1997
-------------- ------------------
<S> <C> <C>
Change in Cash and Cash Equivalents
Cash flows provided by (used in) operating activities:
Net loss $ (237,800) $ (122,526,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 1,031,300 5,872,100
Loss on disposal of property, plant and equipment -- 270,900
Compensation element of stock option grants -- 5,343,400
Gain (loss) on investments (1,200) 175,000
Amortization of debenture interest 44,400 198,700
Change in accounts receivable (10,800) (2,577,200)
Change in interest receivable 64,100 (269,700)
Change in inventories (325,500) (2,627,400)
Change in other current assets (6,142,600) (1,276,300)
Change in current liabilities 5,106,200 7,346,000
Provision for litigation (59,500) 10,000,000
Change in other long-term liabilities (69,700) 1,831,800
-------------- ------------------
Total adjustments (363,300) 24,287,300
-------------- ------------------
Net cash provided by (used in) operating activities (601,100) (98,239,000)
Cash flows provided by (used in) investing activities:
Proceeds from investments matured and sold 25,197,200 3,258,495,700
Purchase of investments (16,427,100) (3,282,729,900)
Purchase of property, plant and equipment (516,600) (11,768,000)
-------------- ------------------
Net cash provided by (used in) investing activities 8,253,500 (36,002,200)
Cash flows provided by (used in) financing activities:
Proceeds from issuance of common stock and private placement of securiti 18,694,700 149,937,200
Proceeds from exercise of stock options 360,900 8,205,300
Proceeds from loan 2,400,000 3,219,100
Proceeds from line of credit 676,000 949,700
Repayment of long-term debt (214,700) (1,510,400)
-------------- ------------------
Net cash provided by (used in) financing activities 21,916,900 160,800,900
Effect of exchange rate changes on cash 367,600 9,700
-------------- ------------------
Net increase (decrease) in cash and cash equivalents 29,936,900 26,569,400
Cash and cash equivalents-beginning of period 11,681,900 --
-------------- ------------------
Cash and cash equivalents-end of period $ 41,618,800 $ 26,569,400
============= =================
Supplemental cash flow disclosure:
Interest paid $ 210,900 $ 1,035,100
Subordinate debentures and accrued interest converted to common stock -- $ 16,841,700
Interest paid to affiliate -- $ 1,005,800
See accompanying notes.
</TABLE>
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, 1997
<TABLE>
<CAPTION>
COMMON STOCK CLASS B STOCK
---------------------------- ---------------------------- ADDITIONAL
NUMBER OF NUMBER OF PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
-------------- ----------- -------------- ----------- ------------
<S> <C> <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 $ 1,000,000
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 1,000,000
Net loss for the year ended December 31, 1988 -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1988 4,500,000 45,000 1,000,000 5,000 1,000,000
Proceeds from exercise of stock options 1,300 -- -- -- 400
Compensation related to stock options -- -- -- -- 305,900
Issuance of shares ($12.00 per share, less costs) 1,250,000 12,500 -- -- 14,061,400
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 -- -- 15,367,700
Proceeds from exercise of stock options 142,900 1,400 -- -- 143,500
Compensation related to stock options -- -- -- -- 269,000
Issuance of shares ($18.00 per share, less costs) 2,012,500 20,200 -- -- 33,009,700
Net loss for the year ended December 31, 1990 -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1990 8,406,700 84,100 -- -- 48,789,900
Proceeds from exercise of stock options 250,300 2,500 -- -- 3,349,600
Compensation related to stock options -- -- -- -- 1,038,900
Issuance of shares ($57.00 per share, less costs) 1,150,000 11,500 -- -- 61,444,300
Issuance of shares for a 2 for 1 stock dividend 9,807,000 98,000 -- -- (98,000)
Net loss for the year ended December 31, 1991 -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1991 19,614,000 196,100 -- -- 114,524,700
Proceeds from exercise of stock options 132,200 1,400 -- -- 1,336,400
Compensation related to stock options -- -- -- -- 1,452,400
Net loss for the year ended December 31, 1992 -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1992 19,746,200 197,500 -- -- 117,313,500
Proceeds from exercise of stock options 53,300 500 -- -- 614,300
Compensation related to stock options -- -- -- -- 906,900
Net loss for the year ended December 31, 1993 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1993 19,799,500 198,000 -- -- 118,834,700
Proceeds from exercise of stock options 37,600 400 -- -- 404,900
Class action settlement 548,200 5,500 -- -- 7,753,200
Compensation related to stock options -- -- -- -- 1,330,300
Net loss for the year ended December 31, 1994 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1994 20,385,300 203,900 -- -- 128,323,100
Proceeds from exercise of stock options 101,400 1,000 -- -- 359,900
Class action settlement -- -- -- -- 2,241,200
Proceeds from private placement of securities 560,100 5,600 -- -- 2,233,500
Net loss for the year ended December 31, 1995 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1995 21,046,800 210,500 -- -- 133,157,700
Proceeds from exercise of stock options 255,500 2,500 -- -- 1,256,300
Conversion of warrants 200 -- -- -- 4,500
Conversion of debentures 1,577,400 15,800 -- -- 16,825,900
Net loss for the year ended December 31, 1996 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Unrealized gain (loss) on investments -- -- -- -- --
Balance at December 31, 1996 22,879,900 228,800 -- -- 151,244,400
-------------- ----------- -------------- ----------- ------------
Proceeds from exercise of stock options 149,300 1,500 -- -- 728,800
Compensation related to stock options -- -- -- -- 40,000
Issuance of shares ($18.256 per share, less costs) 1,178,900 11,800 -- -- 17,892,000
Conversion of warrants -- -- -- -- 600
Net loss for the year ended December 31, 1997 -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Unrealized gain (loss) on investments -- -- -- -- --
-------------- ----------- -------------- ----------- ------------
Balance at December 31, 1997 24,208,100 $ 242,100 -- $ -- $169,905,800
============== =========== ============== =========== ============
ACCUM- STOCK-
ULATED OTHER HOLDERS'
DEFICIT EQUITY EQUITY
-------------- ----------- ------------
Issuance of shares for initial cash contribution
of capital ($.01 per share of common stock
and $.005 per share of Class B stock) $ -- $ -- $ 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 (1,030,500) -- 19,500
Net loss for the year ended December 31, 1988 (1,556,800) -- (1,556,800)
-------------- ----------- ------------
Balance at December 31, 1988 (2,587,300) -- (1,537,300)
Proceeds from exercise of stock options -- -- 400
Compensation related to stock options -- -- 305,900
Issuance of shares ($12.00 per share, less costs) -- -- 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 (8,330,600) -- 7,099,600
Proceeds from exercise of stock options -- -- 144,900
Compensation related to stock options -- -- 269,000
Issuance of shares ($18.00 per share, less costs) -- -- 33,029,900
Net loss for the year ended December 31, 1990 (4,924,900) -- (4,924,900)
-------------- ----------- ------------
Balance at December 31, 1990 (13,255,500) -- 35,618,500
Proceeds from exercise of stock options -- -- 3,352,100
Compensation related to stock options -- -- 1,038,900
Issuance of shares ($57.00 per share, less costs) -- -- 61,455,800
Issuance of shares for a 2 for 1 stock dividend -- -- --
Net loss for the year ended December 31, 1991 (6,540,100) -- (6,540,100)
-------------- ----------- ------------
Balance at December 31, 1991 (19,795,600) -- 94,925,200
Proceeds from exercise of stock options -- -- 1,337,800
Compensation related to stock options -- -- 1,452,400
Net loss for the year ended December 31, 1992 (20,225,800) -- (20,225,800)
-------------- ----------- ------------
Balance at December 31, 1992 (40,021,400) -- 77,489,600
Proceeds from exercise of stock options -- -- 614,800
Compensation related to stock options -- -- 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 (80,651,000) (291,800) 38,089,900
Proceeds from exercise of stock options -- -- 405,300
Class action settlement -- 7,758,700
Compensation related to stock options -- -- 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 (104,692,000) 103,900 23,938,900
Proceeds from exercise of stock options -- -- 360,900
Class action settlement -- -- 2,241,200
Proceeds from private placement of securities -- -- 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 (104,929,800) 349,500 28,787,900
Proceeds from exercise of stock options -- -- 1,258,800
Conversion of warrants -- -- 4,500
Conversion of debentures -- -- 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 gain (loss) on investments -- (9,900) (9,900)
-------------- ----------- ------------
Balance at December 31, 1996 (114,617,200) 38,300 36,894,300
Proceeds from exercise of stock options -- -- 730,300
Compensation related to stock options -- -- 40,000
Issuance of shares ($18.256 per share, less costs -- -- 17,903,800
Conversion of warrants -- -- 600
Net loss for the year ended December 31, 1997 (7,909,100) -- (7,909,100)
Foreign currency translation adjustment -- (663,100) (663,100)
Unrealized gain (loss) on investments -- 27,000 27,000
-------------- ----------- ------------
Balance at December 31, 1997 $ (122,526,300) $ (597,800) $ 47,023,800
============== =========== ============
</TABLE>
See accompanying notes.
F-6
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS AND 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.
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 remain inactive since
inception.
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.
During March 1997 the company completed the sale of 1,178,882 shares of
common stock to ALZA Corporation ("ALZA") at a purchase price of $18.256 per
share for an aggregate investment of $21,521,700. The purchase price was 120% of
the average closing price of U.S. Bioscience, Inc. shares as traded on the AMEX
for the 10 days preceding the date of the agreement. Pursuant to an amendment
to the marketing agreement with ALZA in March 1997 (Note 9), the company is
required to spend $3.6 million of the proceeds on programs supporting Ethyol.
At December 31, 1997, $1.9 million had not been spent and is included in other
accrued liabilities on the balance sheet.
F-7
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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, 1997, the company's revenues have been derived principally
from the sale of drug products, Hexalen, NeuTrexin and Ethyol, licensing of
rights to develop and market certain products, from contract development
activities and from investment income. Expenses incurred have been primarily
for the development of its drugs and related therapies, marketing and sales
activities and corporate organizational and administrative activities.
2. ACCOUNTING POLICIES
Principles of Consolidation
The accompanying 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 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, 1997 and 1996
were classified as available for sale, with the unrealized gains and losses
reported as a separate component of stockholders' equity.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or fair
value.
Property, Plant and Equipment
Buildings, equipment and furniture and fixtures are depreciated by the
straight-line method over their useful lives for financial reporting purposes
and under accelerated methods 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.
F-8
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Fair Values of Financial Instruments
Fair values of cash equivalents, investments, accounts receivable,
payables, the line of credit and long term debt approximates their carrying
value.
Product Revenues
Product revenues are recognized upon shipment 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 1997
and 1996 a significant portion of the company's sales and accounts receivable
related to ALZA, the company's US distribution partner for Ethyol.
Research and Development Costs
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.
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
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128")
which was adopted for the year ended December 31, 1997. Under SFAS 128, basic
earnings per share is calculated by dividing the net loss by the weighted
average common shares outstanding for the period. Diluted earnings per share is
calculated by dividing net income by the weighted average common shares
outstanding for the period plus the dilutive effect of stock options, warrants
and convertible securities. The company incurred losses in 1997, 1996 and 1995
and therefore the effect of stock options, warrants and convertible securities
were anti-dilutive. Adoption of SFAS 128 had no impact on the company's reported
net loss per share.
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. Under APB 25, if 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. Note 11 to these
consolidated financial statements includes the required disclosures and pro
forma information provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("FASB 123").
F-9
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Impact of Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 130 establishes
standards for reporting comprehensive income. SFAS 131 establishes standards
for annual and interim disclosures of operating segments, products and services,
geographic areas and major customers. Both SFAS 130 and SFAS 131 are effective
in 1998. The company is in the process of evaluating the disclosure requirements
of the new standards, the adoption of which will have no impact on the company's
results of operations or financial condition.
3. INVESTMENTS
Investments are comprised of the following:
<TABLE>
<CAPTION>
Fair Value
Name of Issuer Principal Amortized at
and Title of Each Amount Cost Balance
- ---------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1997
U.S. Government obligations
Treasury Notes $ 1,995,600 $ 1,998,000 $ 2,000,000
Corporate Bonds 16,904,400 16,902,400 16,918,000
Corporate Discount Notes 5,031,600 5,163,900 5,163,400
---------------------------------------
Total $23,931,600 $24,064,300 $24,081,400
=======================================
DECEMBER 31, 1996
U.S. Government obligations
Treasury Notes $ 6,990,700 $ 6,985,000 $ 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 9,933,300 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 $23,631,700 $23,621,800
=======================================
</TABLE>
F-10
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
4. INVENTORIES
Inventory balances at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------
<S> <C> <C>
Raw Materials $ 752,000 $ 850,500
Work in process 1,376,000 1,121,500
Finished goods 306,500 620,000
--------------------------
Total $2,434,500 $2,592,000
==========================
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment balances at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------------
<S> <C> <C>
Land, buildings, and leasehold improvements $ 1,871,800 $ 2,071,900
Equipment, furniture and fixtures 8,965,700 9,079,700
Accumulated depreciation (5,687,700) (5,076,400)
---------------------------
Property, plant and equipment, net $ 5,149,800 $ 6,075,200
===========================
</TABLE>
6. LONG-TERM DEBT
Long-term debt at December 31, consisted of:
<TABLE>
<CAPTION>
1997 1996
------------------------
<S> <C> <C>
MELF equipment loan $ 180,600 $ 252,800
Mortgage loan 462,100 589,400
Term loan 1,100,000 1,700,000
Capital lease obligations 139,400 35,400
------------------------
$1,882,100 $2,577,600
Less current portion 747,100 732,200
------------------------
Long-term debt $1,135,000 $1,845,400
========================
</TABLE>
Maturities of long-term debt for each of the five years succeeding December
31, 1997 are as follows; 1998--$747,100; 1999--$643,000; 2000--$102,300; 2001--
$71,800; 2002--$53,500; and thereafter $264,400.
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
F-11
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 5.8%.
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.
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 5.375% and is
utilized by the company's subsidiary, USB Pharma B.V., for funding working
capital requirements. As of December 31, 1997 approximately $745,300 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. The weighted average interest rates on the line of credit for the
years ended December 31, 1997 and 1996 were 4.6% and 5.1%, respectively.
8. COMMITMENTS
The company leases office, warehouse and laboratory space under four
operating leases, the last of which terminates in December 2003. Future minimum
annual lease payments are as follows: 1998 --$733,700; 1999 -- $231,300; 2000 --
$169,600; 2001 -- $58,700; 2002 -- $60,400 and 2003 -- $62,200. Rent expense for
the year ended December 31, 1997 was $1,036,200; 1996 -- $911,400; 1995 --
$989,800; and May 7, 1987 (inception) through December 31, 1997 was $7,568,900.
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.
For the years ended December 31 listed below, the company has incurred
sales related royalty expense as follows: 1997 -- $728,300; 1996 -- $488,700;
1995 -- $328,800; and May 7. 1987 (inception) through December 31, 1997 --
$1,989,700.
F-12
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
As of December 31, 1997, 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 1998 and 1999. The
clinical investigators are compensated on a percentage of completion basis,
subject to compliance with other elements of the agreements. As of December 31,
1997, the clinical investigator agreements, in the aggregate, provide for
minimum payments of approximately $6,099,900 over the terms of the agreements,
of which approximately $3,408,700 had been paid through December 31, 1997.
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. In July 1997, ALZA made an additional
clinical milestone payment to the company of $10 million and in February 1998,
ALZA made the final clinical milestone payment of $5 million. 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. At December 31, 1997
the company accrued $100,000 payable to ALZA related to this agreement. There
can be no assurance that the marketing of Hexalen and NeuTrexin in the United
States will result in meaningful revenues to the company.
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 was paid in April 1996.
F-13
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 purchasing 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 additional milestone payments when additional
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 50 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 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 with respect to
possible acquisitions, financings, stock splits or dividends requiring the
availability of additional authorized common stock.
F-14
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 for 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 entitled 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 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.
At December 31, 1997, 5,768,500 shares of common stock were reserved for
issuance pursuant to company stock option plans and 548,100 shares of common
stock were reserved for issuance pursuant to the exercise of outstanding
warrants.
F-15
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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 to the company, 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 amended
in 1997, 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 Stock Option Plan, which is used to provide options
in lieu of fees to elected 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 STOCK OPTION NON-EMPLOYEE
STOCK STOCK OPTION NON-STATUTORY DIRECTORS NON-STATUTORY OPTION PLAN DIRECTORS
OPTION PLAN STOCK OPTION STOCK STOCK OPTION PLAN STOCK OPTION
PLAN PLAN OPTION PLAN PLAN
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 2,850,000 2,250,000 50,000
================================================================================================================
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
GRANTED 0 0 0 0 0 550,000 494,300 5,900
EXERCISED (26,700) (37,000) (2,700) 0 (6,200) (57,800) (19,000) 0
CANCELED (200) 0 0 0 (1,000) (110,400) (114,700) 0
- ------------------------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 145,200 516,800 34,200 0 217,500 1,877,900 1,060,400 5,900
DECEMBER 31, 1997
====================================================================================================================================
</TABLE>
<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 2,736,000 $0.15 $36.20 $8.95 1,145,300
DECEMBER 31, 1994
GRANTED 461,400 $4.62 $10.26 $5.80 --
EXERCISED (101,400) $0.15 $4.88 $3.55 --
CANCELED (619,500) $4.88 $36.20 $17.10 --
-----------------------------------------------------------------------
OPTIONS OUTSTANDING 2,476,500 $4.62 $30.20 $6.51 1,180,850
DECEMBER 31, 1995
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 3,183,400 $4.62 $30.20 $8.66 1,283,400
DECEMBER 31, 1996
GRANTED 1,050,200 $2.88 $15.00 $14.04 --
EXERCISED (149,400) $4.88 $4.88 $4.91 --
CANCELED (226,300) $4.88 $22.00 $12.52 --
- --------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING 3,857,900 $2.88 $30.20 $10.05 1,765,100
DECEMBER 31, 1997
==================================================================================================
</TABLE>
F-16
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
The price range of outstanding and exercisable stock options as at December 31,
1997 is as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED WEIGHTED OPTIONS WEIGHTED
OUT- AVERAGE AVERAGE EXERCISE- AVERAGE
RANGE OF OPTION STANDING REMAINING EXERCISE ABLE EXERCISE
EXERCISE PRICES AT CONTRACT PRICE AT PRICE
YEAR-END LIFE OUTSTANDING YEAR-END EXERCISABLE
(YEARS) OPTIONS OPTIONS
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.88 - $4.63 10,900 8.40 $ 3.68 8,000 $ 3.32
$ 4.88 - $4.88 1,619,900 4.89 $ 4.88 1,342,100 $ 4.88
$ 5.25 - $13.25 915,600 8.54 $11.59 221,800 $11.30
$13.38 - $14.75 1,043,500 9.10 $14.45 56,900 $13.49
$15.00 - $30.20 268,000 7.32 $19.15 136,300 $21.49
- -------------------------------------------------------------------------------
$ 2.88 - $30.20 3,857,900 7.08 $10.05 1,765,100 $ 7.24
===============================================================================
</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, except in the 1996 Non-employee Directors Stock Option Plan where options
are granted in lieu of annual fees. 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.
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 employee
incentive stock options.
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, 1996 and 1997; risk-free interest rate of
6.28%, 6.28% and 5.60% respectively; no expected dividend payments; volatility
factors of the expected market price of the company's common stock, based on
historical volatility, of 0.8999; 0.4252 and 0.5341 respectively; and a
weighted-average expected life of the option of 8.00, 8.00 and 6.12 years
respectively.
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.
F-17
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Net loss as reported under APB 25 ($7,909,100) ($9,687,400) ($237,800)
Stock option expense per FASB 123 (4,062,600) (1,304,400) (297,200)
-----------------------------------------
Pro forma net loss ($11,971,700) ($10,991,800) ($535,000)
Pro forma net loss per common share ($0.50) ($0.49) ($0.03)
</TABLE>
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 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 1997 on a monthly basis. The company funded pension costs
on a quarterly basis in 1997. 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,
1997--$1,226,400, 1996--$993,000 and 1995--$949,200. Employee benefit plan
costs for the period May 7, 1987 (inception) through December 31, 1997 total
$6,475,000.
13. INCOME TAXES
As of December 31, 1997, the company had a net operating loss carry forward
of approximately $132,740,000 for federal income tax purposes. In addition, the
company had a research and development tax credit carry forward of $5,338,000.
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, 1997 or any prior period for any net operating loss
carryforwards or other deferred tax assets generated during the year.
F-18
<PAGE>
U.S. BIOSCIENCE, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
Significant components of the company's estimated deferred tax assets and
liabilities as at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets
------------------- $ 48,091,200 $ 45,783,100
Net operating loss carryforwards/(1)/ 174,800 155,500
Book over income tax depreciation 5,338,000 4,630,000
Research and development tax credits 869,500 676,200
Other non-salary compensation and benefits 308,600 283,200
Other, principally reserves ------------ ------------
54,782,100 51,528,000
Total deferred tax assets
Deferred tax liabilities (121,200) (121,600)
------------------------ ------------ ------------
Prepaid expenses (121,200) (121,600)
------------ ------------
Total deferred tax liabilities 54,660,900 51,406,400
(54,660,900) (51,406,400)
------------ ------------
Valuation allowance for net deferred tax assets $ 0 $ 0
============ ============
Net deferred tax assets
</TABLE>
/(1)/ Includes estimated state and foreign net operating loss carryforwards of
$1,858,400.
Approximately $10,488,700 of tax benefits related to the exercise of stock
options is included in the deferred tax asset relating to 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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
Tax benefit at expected rate $ 2,689,000 $ 3,390,600
Permanent differences (370,600) (271,900)
Research and development tax credit 707,400 587,700
State taxes, net (217,900) (20,000)
Foreign tax rate differential (94,000) 0
Other 204,100 21,700
------------ ------------
Income tax benefit 2,918,000 3,708,100
Stock option benefit recorded in equity 335,500 739,000
Increase in valuation allowance (3,253,500) (4,447,100)
------------ ------------
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:
<TABLE>
<CAPTION>
Research
and
Net Operating Development
Losses Credits
------------- -----------
<S> <C> <C>
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
2012 9,011,000 708,000
------------- ----------
$132,740,000 $5,338,000
============= ==========
</TABLE>
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. CONTINGENCY
During February 1996, Ichthyol, Gesellschaft Cordes, Hermanni & Co. filed a
complaint for refrain, information and damages with the Regional Court of
Hamburg against the company on the grounds of trademark infringement in respect
of the use of the trademark "Ethyol" in Germany. During April 1996 the company
filed a reply to plaintiff's complaint stating the company'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 in January 1997, by the Regional Court of Hamburg at
which time the plaintiff was given leave of appeal against the judgement
rendered in favor of the company. The plaintiff has filed an appeal but the
date of the hearing has not been determined. The company believes the complaint
to be without merit and intends to defend itself vigorously. Accordingly, no
provision for this complaint has been provided for in the accompanying financial
statements.
F-20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT Page
- ------- ----
<S> <C> <C>
10.3.3 Third Amendment to Lease Agreement between the Registrant
and Pickering Associates dated October 12, 1995
10.3.4 Fourth Amendment to Lease Agreement between the Registrant
and Pickering Acquisition Associates dated January 20, 1998
10.15 Amended and Restated License Agreement dated May 10, 1994
between the Registrant and Scherico, Ltd.
10.27 License Agreement between the Registrant and Scherico, Ltd.
dated as of November 6, 1997
10.27.1 Amendment No. 1 to License Agreement dated as of November 6,
1997 between the Registrant and Scherico, Ltd.
10.28.1 Agreement between the Registrant and Philip S. Schein, M.D.
dated as of March 10, 1998
10.39 Executive Severance Agreement, dated September 3, 1996, between
the Registrant and C. Boyd Clarke
10.40.1 Letter agreement dated May 5, 1997 between the Registrant and
Robert L. Capizzi, M.D.
22 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP, Independent Auditors
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 10.3.3
THIRD AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS THIRD AMENDMENT TO LEASE AGREEMENT made this 12th day of
----------
October , 1995, by and between Pickering Acquisition Associates (hereinafter
----------
called "Landlord") and U.S. Bioscience, Inc., (hereinafter called "Tenant").
WITNESSETH
WHEREAS Landlord and Tenant are parties to a Lease Agreement dated June 15,
1992, such lease as previously amended and amended hereby (hereinafter called
"Lease"); and
WHEREAS Landlord and Tenant mutually desire to extend the term of the
Lease; and
WHEREAS the term of the lease shall be extended in accordance with the
terms, conditions and provisions as outlined herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Lease is hereby amended to extend the Term of the Lease for an
additional period of three (3) years commencing July 1, 1995 and continuing
through June 30, 1998 (the "Extended Term").
2. The Annual Fixed Rent during the Extended Term shall be One Hundred
Twenty Six Thousand, Six Hundred Dollars ($126,600) payable in equal monthly
installments of Ten Thousand Five Hundred Fifty Dollars ($10,550) commencing on
July 1, 1995 and continuing for a period of two (2) years, through June 30,
1997. Then Annual Fixed Rent during the third year of the Extended Term shall
be based on the formula set forth in Paragraph 4 below.
3. Tenant shall have the option to extend the Term of this Lease for one
additional period
<PAGE>
of two (2) years (such additional period, the "Extension Period") provided that
a) there is not in existence at the expiration of the Extended Term of this
Lease an event of default hereunder or event or circumstance which, with the
giving of notice or the passage of time, or both, would constitute a default
hereunder and b) Tenant gives Landlord written notice of its intent to exercise
such option, at least one hundred eighty (180) days prior to the expiration of
the extended Term (the "Option Notice"). During the Extension Period, all other
terms, conditions and provisions of this Lease, except rent as provided for
below and as otherwise contained in this Amendment, shall be applicable. In the
event Tenant fails to give the Option Notice to Landlord, as aforesaid, this
Lease and all Tenant's rights to possession of the Leased Premises hereunder,
shall expire at midnight on the last day of the Extended Term. During each year
of the Extension Period, Tenant shall pay Annual Fixed Rent in accordance with
Paragraph 4 below, as well as all additional rent required to be paid during the
Extended Term of this Lease, all at the times and places provided for during the
Extended Term.
4. Commencing on the first day of (i) the third year of the Extended Term
of this Lease, (ii) the first and second year of the Extension Period of this
Lease and (iii) any Renewal Period (as hereafter defined) (any a "Rent
Adjustment Date") and continuing until the expiration thereof, the Annual Fixed
Rent shall be an amount equal to the product obtained by multiplying the Annual
Fixed Rent during the first year of the Extended Term ($126,600) by a fraction,
the numerator of which shall be the Consumer Price Index (Consumer Price Index
for Urban Wage Earners and Clerical Workers US City Average Rent Series C-1
(1982-1984 = 100) as published by the United States Department of Labor ) for
the fourth month prior to the applicable Rent Adjustment Date and the
denominator of which shall be the same index for the month of April, 1995,
except that the annual fixed rent as adjusted shall increase not less than 3%
per year nor more than 5% per
<PAGE>
year. In the event the Department of Labor changes the base period used in
computing the aforesaid index, an adjustment shall be made to reflect the intent
of the parties hereto to provide for rental increases which relate to United
States governmental financial indices. If, for any reason, the aforesaid index
shall be discontinued, another appropriate financial index published by a United
States governmental agency or by a reputable financial institution shall be
used. If the parties cannot mutually agree upon a financial index to be used,
the same shall be determined by the chairman of the Department of Economics,
West Chester University, West Chester, Pennsylvania.
5. In the event Tenant exercises its option to extent the Term of this
Lease pursuant to Paragraph 3 above, and the Term is so extended, the Term of
this Lease shall be further extended for successive one (1) year periods (each a
"Renewal Period") upon the same terms, conditions and provisions in force
immediately prior to the end of the Extension Period or the then current Renewal
Period, (except for the amount of rent, which shall be calculated as set forth
in Paragraph 4 above), unless and until, at least one hundred eighty (180) days
prior to the end of the Extension Period, or the then current Renewal Period, as
the case may be, Landlord or Tenant gives the other party written notice that it
intends to terminate this Lease upon the expiration of the Extension Period or
the then current Renewal Period. Notwithstanding any termination of this Lease,
Tenant and Landlord acknowledge and agree that all payment and performance
obligations, that, by their nature, are intended to survive any such termination
shall survive until paid or performed in full by the applicable party.
6. Landlord will undertake at its sole cost and expense certain
improvements, as more particularly defined in Exhibit A, attached hereto, to
this Third Amendment to Lease Agreement, to the exterior of the Leased Premises
including replacement of windows, removal of wood siding, repainting of exterior
and updating building facade and entrance (the "Exterior
<PAGE>
Improvements"). Landlord shall complete the Exterior Improvements as soon as
practical after the execution of this Third Amendment to Lease Agreement.
Landlord will review the design and schedule for the Exterior Improvements with
Tenant prior to commencement of the work.
7. This Third Amendment to Lease Agreement supersedes and replaces the
Second Amendment to Lease Agreement dated February 8, 1995, which is of no
further force and effect.
8. Unless otherwise indicated, the word "Term" shall refer to the stated
term of this Lease, as extended, renewed or earlier terminated in accordance
with the terms hereof.
9. All other Terms, Conditions and Provisions of the Lease not
inconsistent herewith, are hereby ratified and confirmed.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Landlord and
Tenant, by their duly authorized officers, have executed this Third Amendment to
Lease Agreement as of the date first above written.
PICKERING ACQUISITION ASSOCIATES
By its General Partner as follows:
PBS Properties, LTD.
By its sole General Partner as follows:
PBS Properties, Inc.
Attest:
/s/ Peter O. Schultz, Jr.
- --------------------------- ---------------------------------------
David M. Boucher, Secretary Peter O. Schultz, Jr., President
Attest: U.S. BIOSCIENCE, INC.
By: By: /s/ Donald O. Brown
------------------------ ------------------------------------
<PAGE>
EXHIBIT 10.3.4
FOURTH AMENDMENT TO LEASE AGREEMENT
-----------------------------------
THIS FOURTH AMENDMENT TO LEASE AGREEMENT made this 20th day of January, 1998, by
---- -------
and between Pickering Acquisition Associates (hereinafter called "Landlord") and
U.S. Bioscience, Inc., (hereinafter called "Tenant").
WITNESSETH
WHEREAS Landlord and Tenant are parties to a Lease Agreement dated June 15,
1992, such lease as previously amended and amended hereby (hereinafter called
"Lease"); and
WHEREAS Tenant has given the Option Notice exercising its option to extend
the term of the Lease for an additional period of two (2) years as set forth
therein; and
WHEREAS the term of the Lease shall be extended in accordance with the
terms, conditions and provisions as outlined herein.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows:
1. The Lease is hereby amended to extend the term of the Lease for an
additional period of two (2) years commencing July 1, 1998 and continuing
through June 30, 2000 (the "extension
<PAGE>
Period").
2. The Annual Fixed Rent during the Extension Period shall be determined
in accordance with paragraph 4 of the Third Amendment to Lease Agreement dated
October 12, 1995, which amount shall be provided to Tenant by Landlord prior to
the commencement of the Extension Period.
3. All other Terms, Conditions and Provisions of the Lease not
inconsistent herewith, are hereby ratified and confirmed.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Landlord and
Tenant, by their duly authorized officers, have executed this Fourth Amendment
to Lease Agreement as of the date first above written.
PICKERING ACQUISITION ASSOCIATES
By its General Partner as follows:
PBS Properties, LTD.
By its sole General Partner as follows:
PBS Properties, Inc.
Attest:
/s/ Peter O. Schultz, Jr.
- ------------------------------ --------------------------------
David M. Boucher, Secretary Peter O. Schultz, Jr., President
Attest: U.S. BIOSCIENCE, INC.
By: By: /s/ Donald O. Brown
------------------------------- -----------------------------
<PAGE>
EXHIBIT 10.15
================================================================================
AMENDED AND RESTATED
LICENSE AGREEMENT
between
U.S. BIOSCIENCE, INC.
and
SCHERICO, LTD.
DATED MAY 10, 1994
(AS AMENDED AND RESTATED AS OF NOVEMBER 6, 1997)
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
---------------------------------------
PAGE
----
<S> <C> <C>
Recitals.................................................. 1
ARTICLE 1 Definitions............................................... 2
ARTICLE 2 Rights Granted............................................ 7
ARTICLE 3 Obligations of the Parties................................ 14
ARTICLE 4 Up-Front Payment/Royalty/Consulting Fee................... 20
ARTICLE 5 Promotion and Marketing................................... 23
ARTICLE 6 Confidentiality........................................... 24
ARTICLE 7 Additional Documents...................................... 26
ARTICLE 8 Indemnity/Insurance....................................... 26
ARTICLE 9 Breach/Remedies........................................... 28
ARTICLE 10 Recalls/Adverse Reactions................................. 29
ARTICLE 11 Licensor's Representations................................ 33
ARTICLE 12 Term/Termination.......................................... 33
ARTICLE 13 Post-Termination Obligations.............................. 36
ARTICLE 14 Independence of Parties................................... 38
ARTICLE 15 Non-Waiver................................................ 39
ARTICLE 16 Assignment................................................ 38
ARTICLE 17 Severability.............................................. 40
ARTICLE 18 Governing Law-Arbitration................................. 40
ARTICLE 19 Notices................................................... 41
ARTICLE 20 Amendment................................................. 42
ARTICLE 21 Government Approvals...................................... 42
ARTICLE 22 Consents and Approvals.................................... 43
ARTICLE 23 Press Releases/Announcements.............................. 43
</TABLE>
<PAGE>
INDEX OF ANNEXES
----------------
ANNEX I Patent Rights
ANNEX II Territory
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit 1.13 Product Specification
Exhibit 2.3 Fully Absorbed Cost
<PAGE>
AMENDED AND RESTATED
LICENSE AGREEMENT
-----------------
Agreement made the 10th day of May, 1994 (the "Effective Date") between
U.S. BIOSCIENCE, INC., a company organized and existing under the laws of the
State of Delaware, with offices at One Tower Bridge, 100 Front Street, 4th
Floor, West Conshohocken, Pennsylvania 19428 (hereafter "LICENSOR"), and
SCHERICO, LTD., a company organized and existing under the laws of Switzerland,
with offices at 2000 Galloping Hill Road, Kenilworth, New Jersey 07033 acting on
its own behalf and on behalf of its Affiliates (as hereafter defined)
(collectively "LICENSEE"), as amended and restated as of November 6, 1997.
WITNESSETH
----------
WHEREAS, LICENSOR has rights relating to a pharmaceutical product known as
Ethyol(R) (amifostine) which is being developed by Licensor for use in reducing
toxicities of chemotherapeutic cancer treatments and as a radioprotective agent;
and
WHEREAS, LICENSOR has rights relating to a pharmaceutical product known as
NeuTrexin(R) (trimetrexate glucuronate for injection) which is being developed
by Licensor for use in treating Pneumocystis carinii pneumonia ("PCP") and as an
anti-cancer agent; and
WHEREAS, LICENSOR and LICENSEE on February 14, 1992 entered into a License
Agreement (the "South American Agreement") that grants LICENSEE the right to
market Ethyol in certain countries
<PAGE>
in South America and Asia and certain rights relating to Option Products (as
defined in the South American Agreement); and
WHEREAS, LICENSOR wishes to have LICENSEE develop and market Ethyol and
NeuTrexin in certain additional territories, upon the terms and conditions
specified herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
hereafter set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Affiliate/s" of the relevant party hereto means any corporation or
other business entity (currently existing or later established during the term
of this Agreement) controlling, controlled by or under common control with such
party. For purposes hereof, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management policies of a person or entity (whether incorporated, not
incorporated or a partnership) through the ownership of voting securities or
voting rights by contract or otherwise.
1.2 "Cost-of-Goods" means the cost to LICENSEE or its designees of a
Product supplied by LICENSOR pursuant to Article 2.3 hereof.
2
<PAGE>
1.3 "Force Majeure" means acts or actions beyond the reasonable control of
the parties, including but not limited to strikes or other labor disputes,
riots, lockouts, civil commotions, war, actions or inactions of government,
fire, acts of God, flood, embargo, or any other cause or unforeseeable
supervening event of whatsoever nature (including shortages of labor and
materials).
1.4 "Fully Absorbed Cost" has the meaning set forth on EXHIBIT 2.3 hereto.
1.5 "Gross Margin" means the amount remaining after deducting from Net
Sales the Cost-of-Goods and the royalty and consulting fee payable to LICENSOR
under Article 4.1.C hereof.
1.6 "Health Registration Dossier" means a regulatory dossier prepared for
a Product (in the case of the Product Ethyol, claiming protection against
hematological toxicities associated with the use of alkylating agent(s),
including cyclophosphamide) for filing with the Committee for Proprietary
Medicinal Products, the United States Food and Drug Administration, the Canadian
Health Protection Board, or any other country mutually acceptable to LICENSOR
and LICENSEE.
1.7 "Improvement/s" shall mean with respect to a Product, any improvement
in (i) existing pharmaceutical and any new pharmaceutical formulations and
presentations; (ii) mode of delivery or new delivery system(s); (iii) additional
indications; (iv) new dosage; (v) changes in manufacturing procedure/production
monograph; or (vi) shelf-life extension.
3
<PAGE>
Over-the-counter versions of a Product and related improvements as defined in
items (i) through (vi) shall also be deemed to be "Improvements" for purposes of
this Agreement.
1.8 "Know-How" with respect to a Product and/or Improvements shall include
but shall not be limited to all confidential and proprietary processes,
specifications, formulae, techniques, practices and technical data relating to
formulation and packaging; existing analytical and clinical data, studies and
procedures; existing directions and specifications for the proper
transformation, compressing, packaging, storing, handling and transporting and
the methods and procedures of testing production batches.
1.9 "Minimum Chemoprotective Labelling" means the following labelling of
the Product Ethyol: protection against hematological toxicities associated with
the use of cyclophosphamide without protection against the associated tumor and
without any restriction limiting use of the Product Ethyol to ovarian cancer.
1.10 "Net Sales" means the gross invoiced value charged by LICENSEE or its
designees (e.g., Affiliates, sub-licensees, distributors) for Products in the
Territory to independent third parties less sales and similar taxes; returns;
allowances; duties; freight and shipping insurance charges; ordinary trade,
quantity and cash discounts; and government mandated rebates. Any sale of a
Product between or among LICENSEE and its Affiliates, sub-licensees or
distributors for resale, shall be
4
<PAGE>
excluded from the computation of Net Sales, but Net Sales shall include any
subsequent sale to an independent third party by LICENSEE, or by any of
LICENSEE's Affiliates, sublicensees or distributors. Net Sales shall include
commercial use by LICENSEE or its designees (i.e., Affiliate, sub-licensees,
distributors) and shall be calculated at the fair value of the commercial use by
LICENSEE or such designee. For purposes of determining whether LICENSEE has the
right to manufacture a Product pursuant to Section 2.1 hereof, duties; freight;
and shipping insurance shall not be deducted in calculating Net Sales.
1.11 "Patent Rights" means rights under the patents and patent applications
listed in ANNEX I hereto and to any foreign counterparts thereof in the
Territory in which LICENSOR or any of its Affiliates has any right, title,
interest, or control, or hereafter obtains such, to the extent of LICENSOR's
interest therein (and to the extent acquired from third parties, which LICENSOR
shall have the right to license for purposes of this Agreement), including,
without limitation, any and all reissues, extensions (or other governmental
actions in respect of such patents or patent applications which provide
exclusive rights to the patent holder in the patented subject matter beyond the
original patent expiration date), substitutions, confirmations, registrations,
revalidations, additions, continuations, continuations-in-part or divisions of
or to any of the foregoing which are hereafter granted in the Territory. Patent
Rights shall include all Patent Rights to Improvements in the Territory
5
<PAGE>
and any and all patent applications, issued patents, foreign counterparts, and
the like (including, without limitation, any and all reissues, extensions (or
other governmental actions in respect of such patents or patent applications
which provide exclusive rights to the patent holder in the patented subject
matter beyond the original patent expiration date), substitutions,
confirmations, registrations, revalidations, additions, continuations,
continuations-in-part or divisions of or to any of the foregoing which are
hereafter granted in the Territory and which claim Improvements to a Product.
From time to time hereunder, LICENSOR shall update ANNEX I.
1.12 "Product" means any product containing as its sole active ingredient
Ethyol(R) (amifostine) or NeuTrexin(R) (trimetrexate glucuronate for injection)
and any Improvements thereto, as further described in the Product
Specifications. The term "Product" also shall include any pharmaceutical
product containing Ethyol(R) (amifostine) or NeuTrexin(R) (trimetrexate
glucuronate for injection) in combination with another active ingredient,
including combination packages containing separate active ingredients, in each
case, subject to the agreement of the parties in writing as to the method for
allocating to Net Sales the Product portion of the combination and any other
terms and conditions applicable to such combination product under this
Agreement. The terms "Product Ethyol" and "Product NeuTrexin" are used in this
Agreement to identify a Product with specificity.
6
<PAGE>
1.13 "Product Specifications" means the general specifications for a
Product set forth as EXHIBIT 1.13 hereto, as such may be modified to reflect an
Improvement. The Product Specifications also shall be reasonably supplemented
and/or modified from time to time to the extent required by any regulatory
authority in the Territory with respect to obtaining or maintaining a Regulatory
Approval, and may otherwise be modified only by the written agreement of
LICENSEE and LICENSOR. The Product Specifications and any supplements or
modifications thereto shall be documented in such reasonable level of detail as
is customary in the pharmaceutical industry.
1.14 "Territory" means the countries listed on ANNEX II attached hereto and
made a part hereof, as such may be expanded in accordance with Article 2.9
hereof or reduced pursuant to Article 12.4 hereof.
1.15 "Trademark" means the trademark Ethyol(R) or the trademark
NeuTrexin(R) and "Trademarks" means the trademarks Ethyol(R) and NeuTrexin(R),
or, if for any reason either such name is not available or otherwise appropriate
in a particular country, any substitute or additional trademarks selected by
LICENSEE, after consultation with LICENSOR, to promote, market and sell a
Product in a country in the Territory.
ARTICLE 2
RIGHTS GRANTED
--------------
2.1 LICENSOR hereby grants to LICENSEE the exclusive right to utilize
such rights as are held by LICENSOR to develop, use,
7
<PAGE>
promote, market and sell (directly or indirectly) each Product in the Territory
pursuant to the Know-How, Patents and Improvements. LICENSEE shall have the
right to manufacture a Product in bulk or finished form if LICENSEE's Gross
Margin on such Product is less than 71% during any consecutive twelve (12) month
period; in such event, LICENSEE shall have the right, but not the obligation,
for the balance of the term of this Agreement, to manufacture (or have
manufactured) such Product in accordance with this Agreement, directly or
indirectly through LICENSEE's Affiliates anywhere in the world for sale in the
Territory, or through third parties to be previously approved by LICENSOR in
writing, which approval shall not be unreasonably withheld. Insofar as permitted
as of the Effective Date under any existing license agreements held by LICENSOR
or its Affiliates, LICENSEE shall have the right to sub-license its rights under
this Agreement to any third party/ies in the Territory, subject to LICENSOR's
written approval, which approval shall not be unreasonably withheld. During the
period that LICENSOR is manufacturing a Product for LICENSEE hereunder, if
LICENSEE's Gross Margin on such Product is less than 71% during any consecutive
three (3) month period, LICENSEE shall so advise LICENSOR and shall provide to
LICENSOR reasonable documentation supporting its position that its Gross Margin
on such Product is less than 71%.
2.2 LICENSOR agrees and shall cause its Affiliates to agree not to grant
any rights to a Product in the Territory to any third party other than LICENSEE,
except that LICENSOR may
8
<PAGE>
manufacture or cause a third party to manufacture either or both Products inside
the Territory.
2.3 Except as provided in Article 2.1 and until such time, if ever, that
LICENSEE manufactures a Product as provided in Article 2.1, LICENSOR shall
supply (either directly or through a third party manufacturer) LICENSEE's
requirements of such Product in accordance with a Supply Agreement to be entered
into by the parties on reasonable terms, which are normal and customary in the
pharmaceutical industry. Under any such supply agreement LICENSOR shall warrant
that the Product that is the subject of such agreement when sold by LICENSOR to
LICENSEE for the Territory will meet the Product Specifications for such
Product. The price of a Product to LICENSEE shall be LICENSOR's or its
Affiliates' Fully Absorbed Cost plus twelve percent (12%) or "invoiced cost".
The term "invoiced cost" shall mean that price at which LICENSOR or its
Affiliate(s) purchase a Product in finished form from independent third parties;
provided however that "invoiced cost" shall not exceed LICENSOR's then current
Fully Absorbed Cost. In the event that the price at which LICENSOR purchases a
Product in finished form from an independent third party is more than LICENSOR's
then current Fully Absorbed Cost, LICENSOR shall have the right to discontinue
supply of such Product for LICENSEE, subject to LICENSOR's obligation to
continue supply of such Product for LICENSEE for a reasonable period of time to
allow LICENSEE to qualify a manufacturing facility to manufacture such Product.
9
<PAGE>
If LICENSOR's ability to supply LICENSEE's requirements of a Product should
be impaired for any reason, including Force Majeure, LICENSOR shall promptly
provide written notice to LICENSEE of this fact and the parties shall meet in
good faith to discuss an appropriate solution.
2.4 As soon as it is reasonably feasible, but no later than the date of
health registration filing under a New Drug Application or its foreign
equivalent, of a Product utilizing any Improvements in the United States, Japan,
or in any country which is now or later becomes a member of the European
Community, LICENSOR agrees to disclose to LICENSEE, to the extent it shall have
the right to do so during the term of this Agreement or any extensions thereof,
all Improvements to such Product for the Territory. Such Improvements will be
made available on an exclusive and royalty-free basis, and at no charge
whatsoever to LICENSEE other than the royalty and consulting fee set forth in
Article 4.1 C. payable on account of the sale of the Product incorporating such
Improvement(s).
2.5 Subject to the provisions of Section 3.13 of this Agreement, as
soon as it is reasonably feasible, but no later than the date of health
registration filing of a Product by LICENSEE in the Territory utilizing any
Improvements (other than Improvements provided by LICENSOR), LICENSEE agrees to
disclose to LICENSOR, to the extent it shall have the right to do so during the
term of this Agreement or any extensions thereof, all Improvements to such
Product.
10
<PAGE>
2.6 LICENSOR agrees that it, through its Chief Executive Officer and/or
other executives and/or other qualified professionals of LICENSOR reasonably
acceptable to LICENSEE, shall act as consultant to LICENSEE (such persons being
collectively referred to as "Consultants"). As requested by LICENSEE,
Consultants will provide support to LICENSEE and its Affiliates as is reasonable
and appropriate, which support may include but shall not be limited to (i)
assisting in the development of clinical development plans, (ii) meeting with
investigators and other thought leaders and (iii) meeting with regulatory
officials in the Territory. All salaries of Consultants shall be paid by
LICENSOR and any and all reasonable travel and out-of-pocket expenses incurred
by Consultants shall be shared equally by LICENSOR and LICENSEE.
2.7 LICENSEE shall promote, market and sell each Product in the
Territory under the corresponding Trademark(s). Unless prohibited by local law,
all finished dosage form containers and labelling material for a Product shall
provide that such Product is manufactured by and is being sold under license
from "U.S. Bioscience, Inc." If a Product is not being manufactured by
LICENSOR, all finished dosage form containers and labelling material for such
Product shall provide that such Product is under license from "U.S. Bioscience,
Inc." LICENSEE shall appropriately identify, in compliance with local laws,
each Product being commercialized in the Territory with any Patent numbers or
appropriate patent legend applicable to such Product.
11
<PAGE>
LICENSOR shall apply for and diligently prosecute a trademark registration for
the Trademarks in South Africa, Australia and New Zealand. LICENSOR shall renew
and maintain the Trademark(s) filed in its name at its cost and expense, and
shall defend such Trademark(s) in accordance with Section 3.11 hereof. In the
event that LICENSEE makes a determination that a trademark registration should
be filed for a Trademark in any other country in the Territory, LICENSEE shall
so advise LICENSOR in writing. Within fifteen (15) business days of such
notification, LICENSOR shall advise LICENSEE in writing as to whether LICENSOR
will make such filing in its own name and at its own expense. In the event
LICENSOR determines that LICENSOR will not make such filing, LICENSEE agrees to
file or cause to be filed an application in such country in the Territory for
the Trademark and to diligently prosecute such application. Any such filings
shall be in LICENSEE's name and at LICENSEE's cost and expense. LICENSEE shall
renew and maintain the Trademark(s) filed in its name at its own cost and
expense, and shall defend such Trademark(s) in accordance with Section 3.11
hereof. LICENSOR hereby grants to LICENSEE the right to become a Registered User
or recorded licensee of the Trademarks, if required by the laws of the
Territory. In those countries in the Territory wherein LICENSOR is the
registered Trademark owner, LICENSOR hereby grants LICENSEE an exclusive,
royalty-free license to use the Trademarks in any country in the Territory in
connection with the exercise of the rights granted herein. Any Trademarks filed
in LICENSEE's
12
<PAGE>
name hereunder shall be transferred to LICENSOR upon expiration or termination
of this Agreement, in accordance with Article 13.2 hereof. Other than the rights
expressly granted under this Agreement, LICENSEE shall have no other rights to
use the Trademarks.
2.8 If LICENSOR in its sole discretion decides to use a third party (third
party does not include an Affiliate of LICENSOR) to develop or commercialize any
other of its pharmaceutical products in the Territory, whether under license,
distribution agreement or otherwise, LICENSOR shall notify LICENSEE in writing
of its decision. If LICENSEE wishes to make an offer for the right to
commercialize such other product, it shall notify LICENSOR of LICENSEE's
interest, in writing, within ten (10) business days after receiving LICENSOR's
notice. If LICENSEE so elects, LICENSEE and LICENSOR shall negotiate in good
faith to reach mutually agreeable terms with respect to such product. If an
agreement is not reached within eighty (80) days after LICENSEE's election to
make an offer, LICENSOR shall be free to negotiate and enter into a transaction
with other third parties.
2.9 LICENSEE shall have the right to expand the Territory to include the
country of Egypt upon the lapse of preexisting rights to commercialize the
Products that have been granted by LICENSOR to RAMCO PHARM. LICENSOR shall
notify LICENSEE if the right to commercialize Ethyol in Egypt becomes available,
and LICENSEE shall thereafter have thirty (30) days in which to elect
13
<PAGE>
to include Egypt within the Territory under the terms of this Agreement. In
addition, LICENSEE shall have the right to expand the Territory to include the
country of Lebanon, which right shall be exercisable by notice to such effect
delivered by LICENSEE to LICENSOR not later than December 31, 1997.
ARTICLE 3
OBLIGATIONS OF THE PARTIES
--------------------------
3.1 LICENSEE agrees that if it undertakes to manufacture a Product under
Article 2.1 hereof, it shall do so in compliance with Good Manufacturing
Practices and pursuant to specifications contained in the Know-How as long as
such specifications are acceptable to local authorities in the Territory. In
discharging its obligations hereunder, LICENSEE agrees to observe all applicable
laws and regulations, and shall obtain all necessary licenses, permits and
authorizations to market each Product in the Territory.
3.2 LICENSEE shall use the Know-How and Patents only in connection with
the development, manufacture, use, packaging, promotion, marketing and sale of
the Products in the Territory and only to the extent permitted under this
Agreement.
3.3 LICENSEE agrees to use its diligent efforts to file or cause to be
filed in each country in the Territory, in its own name or in the name of any of
its Affiliates, an application for the health registration of each Product and
any applications for pricing and reimbursement approvals required to market each
Product, and to use its commercially reasonable diligent efforts
14
<PAGE>
to achieve the broadest indication for each Product approval based on the Health
Registration Dossier for such Product supplied by LICENSOR hereunder,
substantially consistent with the final recommendation of the European Union's
Committee for Proprietary Medicinal Products and/or the United States Food and
Drug Administration, all at LICENSEE's cost and expense. LICENSEE shall
diligently seek to obtain all such approvals and authorizations.
3.4 For the purposes set forth under Article 3.3 and subject to the
provisions of Article 6 hereof, LICENSOR agrees to make available or cause to
make available to LICENSEE all LICENSOR health registration data (including,
without limitation certificates of free sale or their equivalent) and all
applicable scientific data available to LICENSOR in any country in the world;
provided however that data which is the property of a third party will only be
- ----------------
provided to LICENSEE if LICENSOR has the right to do so or to the extent that
such third party has consented to providing such data to LICENSEE, and/or to
grant rights of reference to all of such data so as to enable LICENSEE (or its
Affiliates) to secure regulatory approval and manufacture, use, promote, market
and sell the Products in the Territory and only to the extent permitted under
this Agreement. To the extent that it is contractually permitted, LICENSOR shall
also share or cause to be shared with LICENSEE all data available in any country
in the world to LICENSOR or its Affiliates from any third party which data the
parties mutually agree shall be
15
<PAGE>
useful to secure health registration approval for a Product in the Territory.
3.5 LICENSOR and LICENSEE agree to consult each other to enable LICENSEE
to file an application for the health registration of each Product containing a
dossier meeting all regulatory requirements in each country of the Territory.
3.6 LICENSEE shall conduct or cause to be conducted such local clinical
trials as LICENSEE reasonably deems necessary and shall bear the costs for same,
including all costs associated with any pricing/marketing approvals. All data
generated by LICENSEE related to a Product shall be made available to LICENSOR
free of charge for use outside the Territory only in connection with the
Product. Subject to the provisions of Article 6 hereof, LICENSOR shall have the
right to disclose said data to LICENSOR's sub-licensees and/or consultants for
use outside the Territory as long as LICENSOR secures from such sub-licensees
and/or consultants in writing the obligation to disclose to LICENSEE all data
related to such Product generated by them for LICENSEE's use in the Territory.
3.7 Should LICENSEE decide, consistent with the provisions of Article
3.3, not to file or cause to be filed an application for health registration or
not to market after receipt of health registration approval of a Product in any
country or countries in the Territory, LICENSEE shall promptly communicate so in
writing to LICENSOR, and LICENSEE shall thereafter have no further obligation to
commercialize such Product in such country or
16
<PAGE>
countries. LICENSOR shall then have the right to license such Product in the
country(ies) in question to a third party licensee. Such right shall be in
addition to any rights LICENSOR may have under Article 12.4 hereof.
3.8 LICENSEE agrees to submit to LICENSOR:
(1) An accounting of all sales of each Product by units and sales
(in U.S. Dollars), on a calendar quarter basis, within sixty (60) days
after the close of each calendar quarter. Such accounting shall show gross
sales and Net Sales on a country-by-country and Product-by-Product basis;
(2) From time to time, and to the extent LICENSEE is able, any other
reports which LICENSOR may reasonably require.
3.9 LICENSEE shall use each of the Trademark(s) solely in the packaging,
promotion, marketing and sale of the respective Product in the Territory.
3.10 If LICENSEE undertakes the manufacture of a Product pursuant to
Article 2.1 hereof, LICENSEE agrees that upon prior written notice of at least
five (5) business days, LICENSOR or its designee shall have the right, at all
reasonable times, to inspect the Product manufactured by or for LICENSEE at the
manufacturing sites as well as the methods of manufacturing and packaging.
LICENSOR shall also have the right, upon giving the above referred written
notice, to perform audits from time to
17
<PAGE>
time at all reasonable times in order to verify LICENSEE's compliance with Good
Manufacturing Practices.
3.11 LICENSEE agrees not to acquire and not to claim any right, title or
interest in the Know-How and/or Patent Rights as a result of or pursuant to this
Agreement, except for those Improvements developed by LICENSEE. The parties
agree to immediately notify each other in writing of any infringement of the
Patent Rights or the Trademarks or claims that the Patent Rights or the
Trademarks may infringe, which may come to their attention, and agree to join
each other, if requested by the owner of the Patent Rights or the Trademarks in
question and at the owner's expense, in taking action against the infringement
or otherwise for the protection or the defense of such Patent Rights or
Trademark(s). In the event LICENSOR does not wish to take the necessary action
to defend or to protect the Patent Rights or the Trademarks or to prosecute any
infringement of the Patent Rights or the Trademark(s), LICENSEE shall have the
right, but not the obligation, to do so at LICENSEE's expense, and in such case,
any proceeds resulting from such action shall be the exclusive property of
LICENSEE. Under this Agreement, the LICENSOR shall have no obligation to
maintain the Patent Rights in the Territory. In the event that LICENSOR elects
not to maintain any of the Patent Rights, LICENSOR shall so advise LICENSEE in a
timely manner to enable LICENSEE to take appropriate action, at its expense, to
maintain the particular patent involved or to continue prosecution of the
particular patent application. The
18
<PAGE>
LICENSOR shall remain the owner of all of the Patent Rights even if LICENSEE
elects to maintain any Patent Rights under this provision.
3.12 If LICENSEE undertakes the manufacture of a Product pursuant to
Article 2.1 hereof, LICENSEE agrees to conduct such quality control tests and to
implement such quality control procedures as the parties shall mutually agree.
In such event, LICENSOR agrees to provide to LICENSEE, its Affiliates and/or
designees, at LICENSOR's cost and expense, all reasonable technical assistance
which LICENSEE may require in connection with the application of the Know-How to
the manufacture of such Product.
3.13 To the extent LICENSEE shall have the right to do so, any
Improvements developed by LICENSEE or its designees (e.g., Affiliates, sub-
licensees or distributors) during the life of this Agreement shall be licensed
to LICENSOR on a perpetual, exclusive and royalty-free basis: (i) for use in
connection with the Products outside the Territory; (ii) for use in connection
with the Products in the Territory upon termination or expiration of this
Agreement; and (iii) for use in connection with the Products in any country in
the Territory upon termination of this Agreement with respect to such country.
LICENSOR shall have the right to grant royalty-free sublicenses of the foregoing
licenses in the event LICENSOR has obtained from its sub-licensees in writing an
exclusive and royalty-free grant-back license of sub-licensees' Improvements for
use in the Territory exclusively by
19
<PAGE>
LICENSEE or its designees or with the written consent of LICENSEE which consent
shall not be unreasonably withheld.
3.14 LICENSEE shall not actively promote or advertise either of the
Products outside the Territory and shall not establish a branch or distribution
depot for the sale of either of the Products outside the Territory, except as
otherwise authorized in writing by LICENSOR.
LICENSEE shall use its diligent efforts subject to all laws and regulations
applicable to LICENSEE to cause its sub-licensees and/or distributors to
undertake to comply with LICENSEE's obligations under this Article 3.14 and
shall take the necessary action to enforce said undertakings, and if necessary
upon mutual written agreement of LICENSOR and LICENSEE, to discontinue supply of
any Product to the sub-licensees and/or distributors who have breached this
undertaking.
ARTICLE 4
UP-FRONT PAYMENT/ROYALTY/CONSULTING FEE
---------------------------------------
4.1 In consideration of the rights granted under this Agreement,
LICENSEE shall pay or cause to be paid to LICENSOR:
A. on the date of execution of this Agreement, the amount of
United States Dollars One Hundred Thousand (U.S. $100,000.00) (the "Up-
front Payment"). The Up-front Payment shall be fully credited against the
royalties to be paid by LICENSEE under Article 4.1 C. (i) below and as set
forth under Article 4.1 D. below.
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<PAGE>
B. upon the occurrence of the events set forth below, the
corresponding milestone payment (the "Milestone Payments") which shall not
be credited against the royalties to be paid by LICENSEE under Article 4.1
C. below:
<TABLE>
<CAPTION>
Milestone Payment (in
- --------- United
States Dollars)
------------------
<S> <C>
Receipt by LICENSEE of marketing $200,000
approval (excluding any pricing and
reimbursement approvals) of the
Product Ethyol in Australia with
Minimum Chemoprotective Labelling
Receipt by LICENSEE of marketing $100,000
approval (excluding any pricing and
reimbursement approvals) of the
Product Ethyol in South Africa with
Minimum Chemoprotective Labelling
</TABLE>
provided however, that if Product Ethyol approval is achieved without Minimum
- ----------------
Chemoprotective Labelling in Australia, in order to retain its rights hereunder
with respect to Australia, LICENSEE shall be required to pay to LICENSOR a
milestone payment of United States Dollars One Hundred Thousand ($100,000); and
if the Product Ethyol approval is achieved without Minimum Chemoprotective
Labelling in South Africa, in order to retain its rights hereunder with respect
to South Africa, LICENSEE shall be required to pay to LICENSOR a milestone
payment of United States Dollars Fifty Thousand ($50,000). If LICENSEE elects
not to make a Milestone payment which has become due, LICENSEE's rights with
respect to the country to which the Milestone payment relates shall terminate.
C. subject to the provisions of Article 4.1 D., the following
royalty and consulting fee during each calendar year during the term of
this Agreement:
(i) a royalty of 6% of the Net Sales; and
(ii) a fee for the consulting services rendered pursuant to
Article 2.6 hereof, equal to 6% of the Net Sales.
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<PAGE>
D. It is agreed the Up-front Payment shall be credited against
payments due from LICENSEE pursuant to Section 4.1 C.(i) until the credit
due for the Up-front Payment has been fully exhausted, at which time
LICENSEE shall pay to LICENSOR such royalty in accordance with the terms of
this Agreement.
4.2 Except as otherwise provided in this Article 4, all payments due to
LICENSOR pursuant to Article 4.1 C. above, shall be in United States Dollars (or
in local currency as notified in writing from time to time by LICENSOR) paid
within sixty (60) days of the end of each calendar quarter. Such payments shall
be by wire transfer in immediately available funds to such bank and account as
LICENSOR shall notify LICENSEE, in writing, from time to time hereunder.
LICENSEE shall use diligent efforts in taking any and all action which may be
required under the laws, rules, regulations and the like in the Territory,
including but not limited to timely application to the appropriate authorities,
to ensure that payment shall be made within the time stipulated herein.
LICENSEE shall bear all expenses in connection with obtaining such
authorizations.
4.3 The royalty and consulting fee in Article 4.1 C. shall be calculated
on a quarterly basis. Where applicable, the exchange rate shall be the spot
rate of exchange for the sale of United States Dollars at close of business
prevailing at Citibank, New York on the last business day of each quarter.
22
<PAGE>
4.4 LICENSEE agrees to maintain at its principal offices or at those of
its Affiliates accurate and complete books and records of its gross sales and
Net Sales of each Product, and related expenses, consistent with sound business
and accounting practices and in such form and in such detail as to enable the
amount payable hereunder by LICENSEE to LICENSOR to be determined. LICENSEE
shall permit LICENSOR or its designee or any independent certified accountant
appointed by LICENSOR and reasonably acceptable to LICENSEE, at LICENSOR's
expense, to examine such books and records at all reasonable times for the
purpose of (i) verifying LICENSEE's reports and accounting submitted to LICENSOR
hereunder and (ii) determining the correctness of the payments made by LICENSEE
hereunder; provided however, that such examinations shall take place not more
-----------------
often than once per calendar year.
ARTICLE 5
PROMOTION AND MARKETING
-----------------------
5.1 LICENSEE shall use its diligent efforts to promote, market and sell
(or to cause to be promoted, marketed and sold) each Product throughout the
Territory at its own expense. Such efforts will be commensurate with those
efforts LICENSEE utilizes on behalf of its own products of similar commercial
potential.
5.2 As may reasonably be required by LICENSEE, LICENSOR shall supply
LICENSEE or its designee free of charge, if LICENSOR's contractual rights allow
for it, LICENSOR's or LICENSOR's sub-licensees' released specimens of such
samples,
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<PAGE>
displays, sales promotion material and literature available to LICENSOR or
LICENSOR's sub-licensees outside the Territory.
5.3 LICENSOR agrees to provide LICENSEE, at LICENSOR's Fully Absorbed
Cost, such reasonable quantities of each Product as may be required for clinical
trials in the Territory.
5.4 Prior to LICENSEE's launching of each Product, the parties shall
agree on the uses for which LICENSEE shall promote (or cause to promote) such
Product. Any other additional uses or deletions/changes to the agreed upon uses,
shall be mutually agreed by the parties in writing.
5.5 In their activities contemplated by this Agreement, LICENSEE and its
Affiliates shall comply with all applicable laws and regulations, including
without limitation, laws and regulations of the countries in the Territory.
LICENSEE shall cause its designees (e.g. Affiliates, sub-licensees and
distributors) to comply with all applicable laws and regulations, including
without limitation, laws and regulations of the countries in the Territory.
ARTICLE 6
CONFIDENTIALITY
---------------
6.1 Subject to the provisions of Article 6.3 and except as otherwise
provided under this Agreement, any and all confidential information given by
either party to the other under this Agreement shall not be disclosed to any
third party and shall not be used for purposes other than the fulfillment of
obligations under this Agreement.
24
<PAGE>
6.2 The following information is excluded from the provisions of Article
6.1:
a) information which, at the time of disclosure, is in the public
domain;
b) information which, after disclosure, becomes part of the public
domain by publication or otherwise, except by breach of this Agreement;
c) information which a party can establish by competent proof was
in its possession at the time of disclosure and was not acquired, directly
or indirectly, from the other party or acquired from any third party
subject to any obligation of confidentiality to the disclosing party;
d) information which is required by law, administrative or judicial
order to be disclosed, provided that such disclosure is subject to all
applicable governmental or judicial protection available for like material
and the party relying on this exception notifies the other party in writing
in advance of such intended disclosure, promptly after the notifying party
becomes aware of the disclosure requirement; or
e) information which is independently developed by the receiving
party without the aid, application or use of information disclosed by the
other party.
6.3 The parties agree to disclose or make available any confidential
information received under this Agreement only to
25
<PAGE>
those of their employees, agents, sublicensees and consultants to whom it shall
be reasonably necessary in order to facilitate their performance hereunder and
only after they have undertaken to comply with all of the confidentiality
obligations hereunder.
6.4 The provisions of this Article 6 shall survive the expiration or
termination of this Agreement for a period of five (5) years.
ARTICLE 7
ADDITIONAL DOCUMENTS
--------------------
7.1 Where required by law, LICENSEE and LICENSOR agree to execute or
cause to be executed, at LICENSEE's cost and expense, all documents, including
but not limited to documents related to the Trademark(s), local license
agreements and local technical service agreements in order to allow the parties
to perform all of their obligations and exercise their respective rights under
this Agreement.
ARTICLE 8
INDEMNITY/INSURANCE
-------------------
8.1 LICENSOR hereby agrees to indemnify, save, defend and hold
LICENSEE and its directors, officers and employees (a "LICENSEE Indemnified
Party") harmless from and against any and all suits, claims, actions, demands,
liabilities, expenses (including legal fees) and/or losses resulting from (i)
the breach by LICENSOR of any covenant, representation or warranty contained in
this Agreement, (ii) any negligent act or omission of LICENSOR (or any Affiliate
thereof) in the manufacture of a
26
<PAGE>
Product or any other activity conducted by LICENSOR under this Agreement, (iii)
the failure of a Product manufactured by LICENSOR for the Territory to meet the
Product Specifications for such Product, or (iv) the successful enforcement by a
LICENSEE Indemnified Party of any of the foregoing.
8.2 LICENSEE hereby agrees to indemnify, save, defend and hold LICENSOR
and its directors, officers and employees (a "LICENSOR Indemnified Party")
harmless from and against any and all suits, claims, actions, demands,
liabilities, expenses (including legal fees) and/or losses resulting from (i)
the breach by LICENSEE of any covenant, representation or warranty contained in
this Agreement, (ii) the negligent promotion, handling, storage, disposal,
marketing and/or sale of a Product or any other activity conducted by LICENSEE
under this Agreement, or (iii) the successful enforcement by a LICENSOR
Indemnified Party of any of the foregoing.
8.3 Each party shall, during the term of this Agreement, maintain
commercially reasonable amounts of insurance (but not less than $5,000,000) from
a reputable insurance carrier (or, in the case of LICENSEE, maintain a self-
insurance program) for liability insurance, including products liability and
contractual liability insurance adequately covering such party's obligations
under this Agreement. If during the term of this Agreement LICENSOR
demonstrates that it has sufficient financial resources to adopt a self-
insurance program for such insurance requirements, LICENSEE shall not
unreasonably withhold its
27
<PAGE>
consent to the adoption by LICENSOR of such a program. Each party shall provide
the other party with evidence of such insurance or self-insurance program, upon
request.
8.4 The respective indemnification obligations of the parties hereto in
this Article 8 shall survive the termination or expiration of this Agreement for
ten years.
ARTICLE 9
BREACH/REMEDIES
---------------
9.1 In addition to the termination rights granted under Article 12.2,
any material breach by a party hereto of its obligations or representations
hereunder shall grant the other party the right to seek all remedies available
under applicable law including but not limited to compensation for all losses
and damages suffered by the non-breaching party, costs and expenses (including
attorneys' fees). With respect to any claim by one party against the other
arising out of the performance or failure of performance of the other party
under this Agreement, the parties expressly agree that the liability of such
party to the other party for such breach shall be limited under this Agreement
or otherwise at law or equity to direct damages only and in no event shall a
party be liable for, indirect, incidental or consequential damages, including
without limitation, lost profits.
28
<PAGE>
ARTICLE 10
RECALLS/ADVERSE REACTIONS
-------------------------
10.1 In the event that any governmental agency or authority issues a
recall or takes similar action in connection with any quantity of either Product
in the Territory, LICENSEE shall advise LICENSOR immediately in writing, and
LICENSOR and LICENSEE shall agree on an appropriate course of action. LICENSOR
shall bear all expenses of any recall unilaterally requested by it and not
concurred in by LICENSEE acting reasonably, or of any recalls caused by
LICENSOR's gross negligence or misconduct. LICENSEE shall bear all expenses of
any recall unilaterally requested by it and not concurred in by LICENSOR acting
reasonably, or of any recall caused by LICENSEE's gross negligence or
misconduct. The expenses of all other recalls shall be equally shared between
LICENSOR and LICENSEE. For the purposes of this Agreement, expenses of recall
to be borne by the parties hereunder include, without limitation, the expenses
of notification and destruction or return of the recalled Product but not the
expenses or service fees associated with personnel time, which shall be borne by
the party incurring the same.
10.2 The parties hereby agree that the following terms will govern
disclosures of each party to the other with respect to adverse event reporting
relating to each Product:
A. An Adverse event ("AE") is defined as:
1. any experience which is adverse, including what are commonly
described as adverse or undesirable experiences, adverse
29
<PAGE>
events, adverse reactions, side effects, or death due to any cause associated
with, or observed in conjunction with the use of a drug, biological product, or
device in humans, whether or not considered related to the use of the Product:
(i) occurring in the course of the use of the Product,
(ii) associated with, or observed in conjunction with Product
overdose, whether accidental or intentional,
(iii) associated with, or observed in conjunction with Product
abuse, and/or
(iv) associated with, or observed in conjunction with Product
withdrawal.
2. any significant failure of expected pharmacological or biological
therapeutic action (with the exception of in clinical trials).
B. Serious or Non-Serious is defined as:
1. A serious AE is one that is life threatening or fatal, permanently
disabling, requires in-patient hospitalization or prolonged hospitalization, or
is a congenital anomaly, cancer or overdose. In addition, end organ toxicity,
including hematological, renal, hepatic, and central nervous system AEs, may be
considered serious. In laboratory tests in animals, a serious AE includes any
experience suggesting significant risk for human subjects.
30
<PAGE>
2. A non-serious AE is any AE which does not meet the criteria for a
serious AE.
C. Life-threatening is defined as: the patient is at immediate risk of
death from the AE as it occurs.
D. End-Organ Toxicity is defined as: A medically significant event or lab
value change in which a patient may not necessarily be hospitalized or disabled,
but is clinically significant enough to warrant monitoring (e.g. seizures, blood
dyscrasias).
E. Expected or unexpected is defined as:
1. Expected AE - An AE which is listed in the Investigator's Brochure
for clinical trials, included in local labelling (e.g., Summary of Product
Characteristics) for Marketed Drugs, or in countries with no local labelling, in
the Corporate Standard Prescribing Document.
2. Unexpected AE - An AE that does not meet the criteria for an
expected AE or an AE which is listed but differs from that event in terms of
severity or specificity.
F. Associated with or related to the use of the drug is defined as: A
reasonable possibility exists that the AE was caused by the Product.
G. Un-associated or unrelated to the use of the Product is defined as one
that does not meet the criteria for associated or related to the use of the
Product.
10.3 All initial reports and follow-ups (oral or written) for any and all
serious and unexpected AEs (other than with
31
<PAGE>
respect to animal studies) which become known to a party (other than from
disclosure by or on behalf of the other party) must be communicated by telephone
or telefax to the other party within twenty four (24) hours upon receipt of the
information by the disclosing party with written confirmation to follow as soon
as it becomes available, but in no event later than three days after initial
communication of the AE.
10.4 For AEs from animal studies which suggest a potential significant
risk for humans, a written report must be forwarded to the other party as soon
as the results are received by the party making the report.
10.5 Within thirty (30) days of receipt of a request from the other party,
but not more often than as required by any regulatory agency, each party will
give the other party a print out or computer disk of all AEs reported to it and
its Affiliates relating to either Product within the last year.
10.6 If either party wishes access to AE reports of the other party
relating to a Product, upon request of that party the other party shall make
available its records (including computer disks) for viewing and copying by the
other party.
10.7 Disclosure of information hereunder by a party to the other party
shall continue as so long as either party and/or its Affiliates or designees
continue to clinically test or market a Product. LICENSEE's obligations
regarding AE reporting relate to territories in the world that are the subject
of a license or
32
<PAGE>
other commercial relationship for Product between LICENSOR and LICENSEE.
10.8 LICENSEE shall make timely submissions of safety reports to
regulatory authorities in the countries in the Territory as required by local
law. LICENSEE shall notify investigators of safety reports as required by local
law. LICENSEE shall notify LICENSOR of any such reports.
ARTICLE 11
LICENSOR'S REPRESENTATIONS
--------------------------
11.1 By entering into this Agreement, LICENSOR represents that, subject
to obtaining the W-L Consent (as defined in Section 22.1), neither this
Agreement nor the transactions contemplated hereunder conflict with or violate
or will conflict with or violate the terms of any existing oral or written
commitment, obligation, arrangement, understanding or contract to which LICENSOR
or any of its principals is a party or by which any of them or the Products are
bound, or would require LICENSEE to make to any third party any payment of
royalty, or any compensation whatsoever as a result hereof.
ARTICLE 12
TERM/TERMINATION.
-----------------
12.1 Subject to the other provisions of this Agreement and of this Article
12, this Agreement shall be effective, for each country of the Territory, as of
the Effective Date and year first above written and shall be in full force and
effect with respect to the Products for a period of fifteen (15) years from the
date
33
<PAGE>
of first commercial sale of the first Product in such country, provided,
however, that the term of this Agreement shall be extended for one additional
year, on a country by country basis, for each country in which (i) the first
commercial sale of the second Product in such country shall have been made more
than one year after the first commercial sale of the first Product in such
country and (ii) LICENSOR shall have met all of its obligations under Section
12.4 with respect to both Products.
12.2 Either party shall have the right to terminate this Agreement by
giving to the other not less than ninety (90) days' prior written notice in the
event that the other shall, at any time, commit a material breach of any of its
obligations hereunder (other than a material breach which would give rise to a
right of LICENSOR to terminate this Agreement in whole or in part under Section
12.4 hereof) and fail to cure such material breach during the period of said
notice.
12.3 This Agreement may be terminated without further notice by either
party if the other should become insolvent or should make or seek to make an
arrangement with or an assignment for the benefit of creditors; or if
proceedings in voluntary or involuntary liquidation or pursuant to any other
insolvency law shall be instituted by, on behalf of or against the other party
or if a receiver or trustee of the other party' s property shall be appointed.
12.4 This Agreement may be terminated upon written notice by LICENSOR to
LICENSEE as to a particular country or countries
34
<PAGE>
with respect to a particular Product or Products if LICENSEE has failed to file
an application for marketing approval of such Product in such country within one
year from the receipt by LICENSEE of a Health Registration Dossier; if however,
the applicable regulatory authority in a country requires, as to a Product,
proof of regulatory approval or of a free sale certificate (or its equivalent)
from some other jurisdiction or requires that LICENSEE conduct additional
clinical trials or imposes any additional regulatory requirement, LICENSOR's
rights to terminate as to such Product provided in this sentence shall not arise
until one year from LICENSEE's receipt of proof of such regulatory approval or
of such free sale certificate (or its equivalent), completion of such additional
clinical trials or fulfillment of such additional requirement. LICENSEE shall
use diligent efforts to achieve approvals for each Product in each country in
the Territory. If LICENSEE is required to conduct additional clinical trials in
a country in the Territory prior to filing for marketing approval of a Product,
LICENSEE shall use diligent efforts to conduct such trial(s), provided the
conduct of such trials is commercially reasonable. If the conduct of such trials
is not commercially reasonable and LICENSEE has not achieved Net Sales with
respect to a Product in such country as required hereunder, LICENSOR shall have
the right to terminate LICENSEE's rights with respect to such Product in such
country. Subject to suspension of performance hereunder for any period during
which Force Majeure requires suspension of performance,
35
<PAGE>
this Agreement shall expire as to any country with respect to a Product if Net
Sales of such Product are not made in such country by the earlier of: three (3)
years from the date on which LICENSEE received a Health Registration Dossier
from LICENSOR for such Product or six months from the date on which such Product
may first be sold legally and pricing and/or reimbursement approvals have been
received by LICENSEE in such country in the Territory.
12.5 This Agreement may be terminated by LICENSEE with respect to a
Product in one or more countries in the Territory upon 90 days written notice to
LICENSOR.
ARTICLE 13
POST-TERMINATION OBLIGATIONS
----------------------------
13.1 Upon a partial or full termination of this Agreement for any reason
whatsoever or upon expiration of the same, LICENSOR shall, at its option, either
(i) grant LICENSEE the right to fully exhaust or cause to be exhausted all
stocks of each Product on hand on the date of termination or expiration in each
country of the Territory as to which the termination or expiration applies, as
well as the right to use any stocks of packaging materials, excipients and
labels (hereafter "Materials") on hand in the manufacture of such Products or
(ii) re-purchase such stocks of each such Product and Materials at a price to be
mutually agreed by the parties.
13.2 Subject to the provisions of this Article 13.2 and the rights which
may be granted to LICENSEE pursuant to Article 13.1
36
<PAGE>
(i), upon the expiration or full or partial termination of this Agreement,
LICENSEE and its Affiliates (i) shall not themselves, or in association with any
other person or entity, use the Trademarks relating to any terminated Product in
any country of the Territory as to which the termination or expiration applies,
and (ii) shall not register in any terminated country in the Territory any
trademark which is confusingly similar to the Trademarks relating to any such
terminated Product, and (iii) shall transfer and assign to LICENSOR, without
charge, all of their rights, title and interest in such Trademarks in each such
country in the Territory and shall execute all such instruments and agreements
as shall be necessary or appropriate to effectuate the transfer of ownership to
LICENSOR in and to such Trademarks and to cancel any applicable recorded
licenses or Registered User Agreements for such Trademarks; it is agreed that
this covenant shall survive the termination or expiration of this Agreement, for
so long as LICENSOR has valid enforceable rights to the Trademarks in the
Territory.
13.3 Upon the expiration or a partial or full termination of this
Agreement, LICENSEE and its Affiliates (i) shall transfer and assign to
LICENSOR, all registrations and permits or similar documentation necessary for
the sale of each Product in each country of the Territory as to which the
expiration or termination applies, including without limitation, health
registrations (applications and approvals), pricing and/or reimbursement
approvals and permits; (reasonable out-of-pocket
37
<PAGE>
costs of such transfer and assignments shall be borne by LICENSOR); (ii) in the
event LICENSEE is manufacturing a Product hereunder as to which the expiration
or termination applies, LICENSEE shall cooperate with LICENSOR to achieve an
orderly transition of the manufacturing process and ensure supply of such
Product in the Territory; (iii) shall provide LICENSOR with samples of
promotional materials used for each Product in each country in the Territory as
to which the expiration or termination applies; (iv) shall provide LICENSOR with
customer lists developed for marketing each Product in each country in the
Territory as to which the expiration or termination applies; and (v) shall
perform such other actions and shall execute, acknowledge and deliver all such
assignments, transfers, consents and other documents as may be reasonably
necessary to effectuate an orderly transfer to LICENSOR of all rights necessary
to commercialize the Products in each country in the Territory as to which the
expiration or termination applies (reasonable out-of-pocket costs of such
assistance shall be borne by LICENSOR).
13.4 Upon any termination or expiration of this Agreement, LICENSEE shall
submit payment to LICENSOR for any earned but unpaid royalties or milestones.
ARTICLE 14
INDEPENDENCE OF PARTIES
-----------------------
14.1 It is agreed that the parties hereto are independent contractors and
engage in the operation of their own respective businesses. Neither of the
parties hereto shall be considered
38
<PAGE>
the agent of the other nor shall it have authority to enter into any contract or
assume any obligation for the other party or make any warranties or
representations on behalf of the other party. Moreover, nothing in this
Agreement shall be construed to establish a relationship of co-partners or joint
venturers between the parties.
ARTICLE 15
NON-WAIVER
----------
15.1 Either party's failure, at any time, to exercise or enforce any
right conferred upon it hereunder, shall not be deemed to be a waiver of any
such right or operate to bar the exercise or performance thereof at any time or
times thereafter, nor shall its waiver of any right hereunder at any given time,
including rights to any payment, be deemed a waiver thereof for any other time.
ARTICLE 16
ASSIGNMENT
----------
16.1 Subject to the provisions of this Article 16, neither this Agreement
nor any of the rights or obligations hereunder shall be assigned by either party
by judicial process or otherwise, to any person, firm, company or corporation
without the prior written consent of the other party, except that LICENSOR shall
have the right to assign this Agreement in the event (i) LICENSOR is absorbed by
merger into a third party other than into any of its Affiliates, or (ii)
LICENSOR sells, transfers and assigns all of its assets including all its
rights,
39
<PAGE>
title and interest to the Product to any third party other than any of
LICENSOR's Affiliates, or (iii) there is a change in the stock ownership of
LICENSOR so that such ownership falls under the "control" of a third party other
than any of LICENSOR's Affiliates. For the purposes hereof, the term "control"
shall have the same meaning as that set forth in Article 1.1.
16.2 LICENSEE and LICENSOR shall have the right to assign this Agreement
to any of their respective Affiliates.
ARTICLE 17
SEVERABILITY
------------
17.1 If any provision of this Agreement shall be deemed ineffective or
invalid, the remaining provisions hereof shall not be affected thereby and shall
continue to be in full force and effect.
ARTICLE 18
GOVERNING LAW/ARBITRATION.
--------------------------
18.1 In the event that any controversy or claim shall arise under, out of,
or in connection with, or relating to this Agreement or the breach thereof, the
party initiating such controversy or making such claim shall provide to the
other party a written notice containing a brief and concise statement of the
initiating party's claims, together with relevant facts supporting them. During
a period of thirty (30) days, or such longer period as may be mutually agreed
upon in writing by the parties, following the date of said notice, the parties
shall make good faith efforts to settle the dispute. Such efforts will
40
<PAGE>
include, but shall not be limited to, full presentation of both parties' claims
and responses, with or without the assistance of counsel, before the President
of Schering-Plough International, Inc. and the President of LICENSOR. If the
parties are unable to reach accord using the procedures set forth in this
Section, either party may initiate arbitration proceedings in accordance with
Section 18.2 hereof by so serving notice on the other party.
18.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. Any disputes between the parties arising in
connection with this Agreement shall be settled through arbitration to be held
in New York under the rules of the American Arbitration Association. Any
arbitration award shall be final and binding on the parties. The documented
costs and expenses arising from arbitration shall be borne by the losing party.
ARTICLE 19
NOTICES
-------
19.1 Any notices required or permitted to be given hereunder, shall be in
writing and shall be sent by telefax and reconfirmed within forty-eight (48)
hours by prepaid registered air mail (return receipt requested) or recognized
courier service to the following addresses or to such other addresses as the
parties may communicate to each other as per the provisions herein. All notices
shall be deemed served five (5) days after telefax transmission.
41
<PAGE>
To LICENSOR: U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street, 4th Floor
West Conshohocken, Pennsylvania 19428
Attn.: President
Telefax: (215) 832-4500
Copy to: U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street, 4th Floor
West Conshohocken, Pennsylvania 19428
Attn.: General Counsel
Telefax: (215)832-4535
To LICENSEE: SCHERICO, LTD.
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: President,
Schering-Plough International, Inc.
Telefax: (908) 298-5379
Copy to: SCHERING-PLOUGH CORPORATION, INC.
Law Department
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: Senior Legal Director, Licensing
Telefax: (908) 298-4766
ARTICLE 20
AMENDMENT
---------
20.1 No amendment, change, modification or alteration of the terms and
conditions of this Agreement shall be binding upon LICENSOR or LICENSEE unless
in writing and signed by a duly authorized officer of the party to be charged.
ARTICLE 21
GOVERNMENT APPROVALS
--------------------
42
<PAGE>
21.1 This Agreement and all obligations herein shall be subject to and
conditioned upon the receipt of any and all required approvals from the
applicable governmental authorities of the Territory or any agency,
instrumentality or subdivision thereof. All registration fees and/or stamp
duties in connection with the registration of this Agreement shall be paid by
LICENSEE.
ARTICLE 22
CONSENTS AND APPROVALS
----------------------
22.1 The parties hereto represent that they have obtained all required
consents and approvals, including but not limited to their own corporate and
third parties' required approval (if any) to enter into this Agreement,
provided, however, that the consent of Warner-Lambert Company (the "W-L
Consent") is required in connection with the addition of the Product NeuTrexin
to this Agreement and is being sought by the parties contemporaneously with the
amendment and restatement of this Agreement effected as of November 6, 1997.
ARTICLE 23
PRESS RELEASES/ANNOUNCEMENTS
----------------------------
23.1 All press releases, or other written or verbal public announcements
relating to this Agreement and the transactions hereunder, and the method of
release for publication thereof will be subject to the written approval of the
parties hereto, which approval shall not be unreasonably withheld. Nothing in
the foregoing shall prohibit a party from making such disclosures to
43
<PAGE>
the extent deemed necessary under applicable federal or state securities laws;
in such event, however, the disclosing party shall use good faith efforts to
consult with the other party prior to such disclosure.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
U.S. BIOSCIENCE, INC. SCHERICO, LTD.
By: /s/C. Boyd Clarke By: /s/ Hans-Jorg Kummer
-------------------------- ----------------------------
As its: President & COO As its: President
---------------------- ------------------------
44
<PAGE>
ANNEX I
-------
Patent Rights
CRYSTALLINE AMIFOSTINE COMPOSITIONS AND METHODS FOR THE PREPARATION AND USE OF
SAME
App. # App. Date
------ ---------
South Africa 93/5532 July 30, 1993
PCT Designated States
- ---------------------
Australia PCT/US93/07222 July 20, 1993
Belarus (not filed)
Bulgaria
Czech Republic
Hungary
Kazakhstan
Mongolia
New Zealand
O.A.P.I. (all)
Poland
Romania
Russian Federation
Slovak Republic (not filed)
Ukraine (not filed)
WATER-SOLUBLE SALTS OF 2,4-DIAMINO-5-METHYL-6-((3,4,5-
TRIMETHOZYANILINO)METHYL)QUINAZOLINE, COMPOSITIONS CONTAINING SUCH SALTS AND THE
PRODUCTION OF SUCH SALTS
Patent No. P10/1987, granted on November 1, 1987 by the Zanzibar government
(Zanzibar)
45
<PAGE>
ANNEX II
--------
Territory
---------
Eastern Europe
- Bulgaria
- Czech Republic
- Hungary
- Poland
- Romania
- Slovakia
- As to the Product Ethyol, any country within the USSR immediately prior
to its dissolution on December 25, 1991
- As to the Product NeuTrexin, any country within the USSR immediately
prior to its dissolution on December 25, 1991 except: Azerbaijan,
Kazakistan (Kazakhstan), Kyrgyzstan, Turkmenstan and Uzbekistan
- Any country within the territory of the former Yugoslavia, including
without limitation:
Bosnia-Herzegovina
Croatia
Serbia
Slovenia
Macedonia
Montenegro
Australia
Iran
Iraq
New Zealand
South Africa, including the following homelands and former homelands:
Bophuthatswana
Lesotho
Swaziland
Transkei
Venda
Botswana
Namibia
Zimbabwe
Algeria
Cameroon (OAPI)
Ivory Coast (OAPI)
Malawi
Morocco
Senegal (OAPI)
Tanzania
Tunisia
Zambia
46
<PAGE>
EXHIBIT 1.13
RELEASE SPECIFICATIONS FOR THE PRODUCTS
47
<PAGE>
EXHIBIT 2.3
Fully Absorbed Cost shall be calculated in accordance with applicable Generally
Accepted Accounting Principles ("GAAP"), is defined as:
Included:
- ---------
1. Direct raw materials, actives (including intermediates), excipients and
labelling and packaging materials (vials etc.).
2. Direct labor costs.
3. Costs for quality control and stability testing.
4. Indirect labor costs, production supplies and chemicals, and general
factory overhead. These costs should be allocated to Product based upon
methodology in current practice within the manufacturing site which will
generally be in accordance with GAAP. Such allocation may be based upon
direct labor hours, machine hours or such other methodology as the
companies may agree in advance in writing.
Excluded
- --------
1. Idle and excess capacity.
2. Manufacturing start-up costs.
3. Costs of research batches which are part of Product development (unless
such batches are used by Licensee for product development or research
activities within the Territory).
48
<PAGE>
EXHIBIT 10.27
================================================================================
LICENSE AGREEMENT
between
U.S. BIOSCIENCE, INC.
and
SCHERICO, LTD.
DATED AS OF NOVEMBER 6, 1997
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
--------------------------------------- ----
<S> <C> <C>
Recitals............................... 1
ARTICLE 1 Definitions............................ 2
ARTICLE 2 Rights Granted......................... 7
ARTICLE 3 Obligations of the Parties............. 13
ARTICLE 4 Up-Front Payment/Royalty/Consulting Fee 19
ARTICLE 5 Promotion and Marketing................ 21
ARTICLE 6 Confidentiality........................ 22
ARTICLE 7 Additional Documents................... 24
ARTICLE 8 Indemnity/Insurance.................... 24
ARTICLE 9 Breach/Remedies........................ 26
ARTICLE 10 Recalls/Adverse Reactions.............. 26
ARTICLE 11 Licensor's Representations............. 31
ARTICLE 12 Term/Termination....................... 31
ARTICLE 13 Post-Termination Obligations........... 34
ARTICLE 14 Independence of Parties................ 36
ARTICLE 15 Non-Waiver............................. 37
ARTICLE 16 Assignment............................. 37
ARTICLE 17 Severability........................... 38
ARTICLE 18 Governing Law-Arbitration.............. 38
ARTICLE 19 Notices................................ 39
ARTICLE 20 Amendment.............................. 40
ARTICLE 21 Government Approvals................... 40
ARTICLE 22 Consents and Approvals................. 41
ARTICLE 23 Press Releases/Announcements........... 41
</TABLE>
<PAGE>
INDEX OF ANNEXES
----------------
ANNEX I Patent Rights
ANNEX II Territory
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit 1.12 Product Specification
Exhibit 2.3 Fully Absorbed Cost
<PAGE>
LICENSE AGREEMENT
-----------------
Agreement made as of the 6th day of November, 1997 (the "Effective Date")
between U.S. BIOSCIENCE, INC., a company organized and existing under the laws
of the State of Delaware, with offices at One Tower Bridge, 100 Front Street,
4th Floor, West Conshohocken, Pennsylvania 19428 (hereafter "LICENSOR"), and
SCHERICO, LTD., a company organized and existing under the laws of Switzerland,
with offices at 2000 Galloping Hill Road, Kenilworth, New Jersey 07033 acting on
its own behalf and on behalf of its Affiliates (as hereafter defined)
(collectively "LICENSEE").
WITNESSETH
----------
WHEREAS, LICENSOR has rights relating to a pharmaceutical product known as
Ethyol(R) (amifostine) which is being developed by Licensor for use in reducing
toxicities of chemotherapeutic cancer treatments and as a radioprotective agent;
and
WHEREAS, LICENSOR has rights relating to a pharmaceutical product known as
NeuTrexin(R) (trimetrexate glucuronate for injection) which is being developed
by Licensor for use in treating Pneumocystis carinii pneumonia ("PCP") and as an
anti-cancer agent; and
WHEREAS, LICENSOR and LICENSEE on February 14, 1992 entered into a License
Agreement that grants LICENSEE the right to market Ethyol in certain countries
in South America and Asia; and
<PAGE>
WHEREAS, LICENSOR wishes to have LICENSEE develop and market Ethyol and
NeuTrexin in certain additional territories, upon the terms and conditions
specified herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
hereafter set forth, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Affiliate/s" of the relevant party hereto means any corporation or
other business entity (currently existing or later established during the term
of this Agreement) controlling, controlled by or under common control with such
party. For purposes hereof, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") means the
possession, direct or indirect, of the power to direct or cause the direction of
the management policies of a person or entity (whether incorporated, not
incorporated or a partnership) through the ownership of voting securities or
voting rights by contract or otherwise.
1.2 "Cost-of-Goods" means the cost to LICENSEE or its designees of a
Product supplied by LICENSOR pursuant to Article 2.3 hereof.
1.3 "Force Majeure" means acts or actions beyond the reasonable control of
the parties, including but not limited to
2
<PAGE>
strikes or other labor disputes, riots, lockouts, civil commotions, war, actions
or inactions of government, fire, acts of God, flood, embargo, or any other
cause or unforeseeable supervening event of whatsoever nature (including
shortages of labor and materials).
1.4 "Fully Absorbed Cost" has the meaning set forth on EXHIBIT 2.3 hereto.
1.5 "Gross Margin" means the amount remaining after deducting from Net
Sales the Cost-of-Goods and the royalty and consulting fee payable to LICENSOR
under Article 4.1.C hereof.
1.6 "Health Registration Dossier" means a regulatory dossier prepared for
a Product for filing with the Committee for Proprietary Medicinal Products, the
United States Food and Drug Administration, the Canadian Health Protection
Board, or any other country mutually acceptable to LICENSOR and LICENSEE.
1.7 "Improvement/s" shall mean with respect to a Product, any improvement
in (i) existing pharmaceutical and any new pharmaceutical formulations and
presentations; (ii) mode of delivery or new delivery system(s); (iii) additional
indications; (iv) new dosage; (v) changes in manufacturing procedure/production
monograph; or (vi) shelf-life extension. Over-the-counter versions of a Product
and related improvements as defined in items (i) through (vi) shall also be
deemed to be "Improvements" for purposes of this Agreement.
1.8 "Know-How" with respect to a Product and/or Improvements shall include
but shall not be limited to all
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confidential and proprietary processes, specifications, formulae, techniques,
practices and technical data relating to formulation and packaging; existing
analytical and clinical data, studies and procedures; existing directions and
specifications for the proper transformation, compressing, packaging, storing,
handling and transporting and the methods and procedures of testing production
batches.
1.9 "Net Sales" means the gross invoiced value charged by LICENSEE or its
designees (e.g., Affiliates, sub-licensees, distributors) for Products in the
Territory to independent third parties less sales and similar taxes; returns;
allowances; duties; freight and shipping insurance charges; ordinary trade,
quantity and cash discounts; and government mandated rebates. Any sale of a
Product between or among LICENSEE and its Affiliates, sub-licensees or
distributors for resale, shall be excluded from the computation of Net Sales,
but Net Sales shall include any subsequent sale to an independent third party by
LICENSEE, or by any of LICENSEE's Affiliates, sublicensees or distributors. Net
Sales shall include commercial use by LICENSEE or its designees (i.e.,
Affiliate, sub-licensees, distributors) and shall be calculated at the fair
value of the commercial use by LICENSEE or such designee. For purposes of
determining whether LICENSEE has the right to manufacture a Product pursuant to
Section 2.1 hereof, duties; freight; and shipping insurance shall not be
deducted in calculating Net Sales.
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1.10 "Patent Rights" means rights under the patents and patent applications
listed in ANNEX I hereto and to any foreign counterparts thereof in the
Territory in which LICENSOR or any of its Affiliates has any right, title,
interest, or control, or hereafter obtains such, to the extent of LICENSOR's
interest therein (and to the extent acquired from third parties, which LICENSOR
shall have the right to license for purposes of this Agreement), including,
without limitation, any and all reissues, extensions (or other governmental
actions in respect of such patents or patent applications which provide
exclusive rights to the patent holder in the patented subject matter beyond the
original patent expiration date), substitutions, confirmations, registrations,
revalidations, additions, continuations, continuations-in-part or divisions of
or to any of the foregoing which are hereafter granted in the Territory. Patent
Rights shall include all Patent Rights to Improvements in the Territory and any
and all patent applications, issued patents, foreign counterparts, and the like
(including, without limitation, any and all reissues, extensions (or other
governmental actions in respect of such patents or patent applications which
provide exclusive rights to the patent holder in the patented subject matter
beyond the original patent expiration date), substitutions, confirmations,
registrations, revalidations, additions, continuations, continuations-in-part or
divisions of or to any of the foregoing which are hereafter granted in the
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Territory and which claim Improvements to a Product. From time to time
hereunder, LICENSOR shall update ANNEX I.
1.11 "Product" means any product containing as its sole active ingredient
Ethyol(R) (amifostine) or NeuTrexin(R) (trimetrexate glucuronate for injection)
and any Improvements thereto, as further described in the Product
Specifications. The term "Product" also shall include any pharmaceutical
product containing Ethyol(R) (amifostine) or NeuTrexin(R) (trimetrexate
glucuronate for injection) in combination with another active ingredient,
including combination packages containing separate active ingredients, in each
case, subject to the agreement of the parties in writing as to the method for
allocating to Net Sales the Product portion of the combination and any other
terms and conditions applicable to such combination product under this
Agreement. The terms "Product Ethyol" and "Product NeuTrexin" are used in this
Agreement to identify a Product with specificity.
1.12 "Product Specifications" means the general specifications for a
Product set forth as EXHIBIT 1.12 hereto, as such may be modified to reflect an
Improvement. The Product Specifications also shall be reasonably supplemented
and/or modified from time to time to the extent required by any regulatory
authority in the Territory with respect to obtaining or maintaining a Regulatory
Approval, and may otherwise be modified only by the written agreement of
LICENSEE and LICENSOR. The Product Specifications and any supplements or
modifications
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thereto shall be documented in such reasonable level of detail as is customary
in the pharmaceutical industry.
1.14 "Territory" means the countries listed on ANNEX II attached hereto and
made a part hereof, as such may be expanded in accordance with Article 2.9
hereof or reduced pursuant to Article 12.4 hereof.
1.15 "Trademark" means the trademark Ethyol(R) or the trademark
NeuTrexin(R) and "Trademarks" means the trademarks Ethyol(R) and NeuTrexin(R),
or, if for any reason either such name is not available or otherwise appropriate
in a particular country, any substitute or additional trademarks selected by
LICENSEE, after consultation with LICENSOR, to promote, market and sell a
Product in a country in the Territory.
ARTICLE 2
RIGHTS GRANTED
--------------
2.1 LICENSOR hereby grants to LICENSEE the exclusive right to utilize
such rights as are held by LICENSOR to develop, use, promote, market and sell
(directly or indirectly) each Product in the Territory pursuant to the Know-How,
Patents and Improvements. LICENSEE shall have the right to manufacture a Product
in bulk or finished form if LICENSEE's Gross Margin on such Product is less than
71% during any consecutive twelve (12) month period; in such event, LICENSEE
shall have the right, but not the obligation, for the balance of the term of
this Agreement, to manufacture (or have manufactured) such Product in accordance
with this Agreement, directly or indirectly through LICENSEE's Affiliates
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anywhere in the world for sale in the Territory, or through third parties to be
previously approved by LICENSOR in writing, which approval shall not be
unreasonably withheld. Insofar as permitted as of the Effective Date under any
existing license agreements held by LICENSOR or its Affiliates, LICENSEE shall
have the right to sub-license its rights under this Agreement to any third
party/ies in the Territory, subject to LICENSOR's written approval, which
approval shall not be unreasonably withheld. During the period that LICENSOR is
manufacturing a Product for LICENSEE hereunder, if LICENSEE's Gross Margin on
such Product is less than 71% during any consecutive three (3) month period,
LICENSEE shall so advise LICENSOR and shall provide to LICENSOR reasonable
documentation supporting its position that its Gross Margin on such Product is
less than 71%.
2.2 LICENSOR agrees and shall cause its Affiliates to agree not to grant
any rights to a Product in the Territory to any third party other than LICENSEE,
except that LICENSOR may manufacture or cause a third party to manufacture
either or both Products inside the Territory.
2.3 Except as provided in Article 2.1 and until such time, if ever, that
LICENSEE manufactures a Product as provided in Article 2.1, LICENSOR shall
supply (either directly or through a third party manufacturer) LICENSEE's
requirements of such Product in accordance with a Supply Agreement to be entered
into by the parties on reasonable terms, which are normal and customary in the
pharmaceutical industry. Under any such supply agreement
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LICENSOR shall warrant that the Product that is the subject of such agreement
when sold by LICENSOR to LICENSEE for the Territory will meet the Product
Specifications for such Product. The price of a Product to LICENSEE shall be
LICENSOR's or its Affiliates' Fully Absorbed Cost plus twelve percent (12%) or
"invoiced cost". The term "invoiced cost" shall mean that price at which
LICENSOR or its Affiliate(s) purchase a Product in finished form from
independent third parties; provided however that "invoiced cost" shall not
exceed LICENSOR's then current Fully Absorbed Cost. In the event that the price
at which LICENSOR purchases a Product in finished form from an independent third
party is more than LICENSOR's then current Fully Absorbed Cost, LICENSOR shall
have the right to discontinue supply of such Product for LICENSEE, subject to
LICENSOR's obligation to continue supply of such Product for LICENSEE for a
reasonable period of time to allow LICENSEE to qualify a manufacturing facility
to manufacture such Product.
If LICENSOR's ability to supply LICENSEE's requirements of a Product should
be impaired for any reason, including Force Majeure, LICENSOR shall promptly
provide written notice to LICENSEE of this fact and the parties shall meet in
good faith to discuss an appropriate solution.
2.4 As soon as it is reasonably feasible, but no later than the date of
health registration filing under a New Drug Application or its foreign
equivalent, of a Product utilizing any Improvements in the United States, Japan,
or in any country which
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is now or later becomes a member of the European Community, LICENSOR agrees to
disclose to LICENSEE, to the extent it shall have the right to do so during the
term of this Agreement or any extensions thereof, all Improvements to such
Product for the Territory. Such Improvements will be made available on an
exclusive and royalty-free basis, and at no charge whatsoever to LICENSEE other
than the royalty and consulting fee set forth in Article 4.1 C. payable on
account of the sale of the Product incorporating such Improvement(s).
2.5 Subject to the provisions of Section 3.13 of this Agreement, as soon
as it is reasonably feasible, but no later than the date of health registration
filing of a Product by LICENSEE in the Territory utilizing any Improvements
(other than Improvements provided by LICENSOR), LICENSEE agrees to disclose to
LICENSOR, to the extent it shall have the right to do so during the term of this
Agreement or any extensions thereof, all Improvements to such Product.
2.6 LICENSOR agrees that it, through its Chief Executive Officer and/or
other executives and/or other qualified professionals of LICENSOR reasonably
acceptable to LICENSEE, shall act as consultant to LICENSEE (such persons being
collectively referred to as "Consultants"). As requested by LICENSEE,
Consultants will provide support to LICENSEE and its Affiliates as is reasonable
and appropriate, which support may include but shall not be limited to (i)
assisting in the development of clinical development plans, (ii) meeting with
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investigators and other thought leaders and (iii) meeting with regulatory
officials in the Territory. All salaries of Consultants shall be paid by
LICENSOR and any and all reasonable travel and out-of-pocket expenses incurred
by Consultants shall be shared equally by LICENSOR and LICENSEE.
2.7 LICENSEE shall promote, market and sell each Product in the
Territory under the corresponding Trademark(s). Unless prohibited by local law,
all finished dosage form containers and labelling material for a Product shall
provide that such Product is manufactured by and is being sold under license
from "U.S. Bioscience, Inc." If a Product is not being manufactured by
LICENSOR, all finished dosage form containers and labelling material for such
Product shall provide that such Product is under license from "U.S. Bioscience,
Inc." LICENSEE shall appropriately identify, in compliance with local laws,
each Product being commercialized in the Territory with any Patent numbers or
appropriate patent legend applicable to such Product. LICENSOR shall apply for
and diligently prosecute a trademark registration for the Trademarks in South
Africa, Australia and New Zealand. LICENSOR shall renew and maintain the
Trademark(s) filed in its name at its cost and expense, and shall defend such
Trademark(s) in accordance with Section 3.11 hereof. In the event that LICENSEE
makes a determination that a trademark registration should be filed for a
Trademark in any other country in the Territory, LICENSEE shall so advise
LICENSOR in writing. Within fifteen (15) business days of such notification,
LICENSOR
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shall advise LICENSEE in writing as to whether LICENSOR will make such filing in
its own name and at its own expense. In the event LICENSOR determines that
LICENSOR will not make such filing, LICENSEE agrees to file or cause to be filed
an application in such country in the Territory for the Trademark and to
diligently prosecute such application. Any such filings shall be in LICENSEE's
name and at LICENSEE's cost and expense. LICENSEE shall renew and maintain the
Trademark(s) filed in its name at its own cost and expense, and shall defend
such Trademark(s) in accordance with Section 3.11 hereof. LICENSOR hereby grants
to LICENSEE the right to become a Registered User or recorded licensee of the
Trademarks, if required by the laws of the Territory. In those countries in the
Territory wherein LICENSOR is the registered Trademark owner, LICENSOR hereby
grants LICENSEE an exclusive, royalty-free license to use the Trademarks in any
country in the Territory in connection with the exercise of the rights granted
herein. Any Trademarks filed in LICENSEE's name hereunder shall be transferred
to LICENSOR upon expiration or termination of this Agreement, in accordance with
Article 13.2 hereof. Other than the rights expressly granted under this
Agreement, LICENSEE shall have no other rights to use the Trademarks.
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ARTICLE 3
OBLIGATIONS OF THE PARTIES
--------------------------
3.1 LICENSEE agrees that if it undertakes to manufacture a Product under
Article 2.1 hereof, it shall do so in compliance with Good Manufacturing
Practices and pursuant to specifications contained in the Know-How as long as
such specifications are acceptable to local authorities in the Territory. In
discharging its obligations hereunder, LICENSEE agrees to observe all applicable
laws and regulations, and shall obtain all necessary licenses, permits and
authorizations to market each Product in the Territory.
3.2 LICENSEE shall use the Know-How and Patents only in connection with
the development, manufacture, use, packaging, promotion, marketing and sale of
the Products in the Territory and only to the extent permitted under this
Agreement.
3.3 LICENSEE agrees to use its diligent efforts to file or cause to be
filed in each country in the Territory, in its own name or in the name of any of
its Affiliates, an application for the health registration of each Product and
any applications for pricing and reimbursement approvals required to market each
Product, and to use its commercially reasonable diligent efforts to achieve the
broadest indication for each Product approval based on the Health Registration
Dossier for such Product supplied by LICENSOR hereunder, substantially
consistent with the final recommendation of the European Union's Committee for
Proprietary Medicinal Products and/or the United States Food and
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Drug Administration, all at LICENSEE's cost and expense. LICENSEE shall
diligently seek to obtain all such approvals and authorizations.
3.4 For the purposes set forth under Article 3.3 and subject to the
provisions of Article 6 hereof, LICENSOR agrees to make available or cause to
make available to LICENSEE all LICENSOR health registration data (including,
without limitation certificates of free sale or their equivalent) and all
applicable scientific data available to LICENSOR in any country in the world;
provided however that data which is the property of a third party will only be
- ----------------
provided to LICENSEE if LICENSOR has the right to do so or to the extent that
such third party has consented to providing such data to LICENSEE, and/or to
grant rights of reference to all of such data so as to enable LICENSEE (or its
Affiliates) to secure regulatory approval and manufacture, use, promote, market
and sell the Products in the Territory and only to the extent permitted under
this Agreement. To the extent that it is contractually permitted, LICENSOR shall
also share or cause to be shared with LICENSEE all data available in any country
in the world to LICENSOR or its Affiliates from any third party which data the
parties mutually agree shall be useful to secure health registration approval
for a Product in the Territory.
3.5 LICENSOR and LICENSEE agree to consult each other to enable LICENSEE
to file an application for the health
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registration of each Product containing a dossier meeting all regulatory
requirements in each country of the Territory.
3.6 LICENSEE shall conduct or cause to be conducted such local clinical
trials as LICENSEE reasonably deems necessary and shall bear the costs for same,
including all costs associated with any pricing/marketing approvals. All data
generated by LICENSEE related to a Product shall be made available to LICENSOR
free of charge for use outside the Territory only in connection with the
Product. Subject to the provisions of Article 6 hereof, LICENSOR shall have the
right to disclose said data to LICENSOR's sub-licensees and/or consultants for
use outside the Territory as long as LICENSOR secures from such sub-licensees
and/or consultants in writing the obligation to disclose to LICENSEE all data
related to such Product generated by them for LICENSEE's use in the Territory.
3.7 Should LICENSEE decide, consistent with the provisions of Article
3.3, not to file or cause to be filed an application for health registration or
not to market after receipt of health registration approval of a Product in any
country or countries in the Territory, LICENSEE shall promptly communicate so in
writing to LICENSOR, and LICENSEE shall thereafter have no further obligation to
commercialize such Product in such country or countries. LICENSOR shall then
have the right to license such Product in the country(ies) in question to a
third party licensee. Such right shall be in addition to any rights LICENSOR
may have under Article 12.4 hereof.
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3.8 LICENSEE agrees to submit to LICENSOR:
(1) An accounting of all sales of each Product by units and sales
(in U.S. Dollars), on a calendar quarter basis, within sixty (60) days
after the close of each calendar quarter. Such accounting shall show gross
sales and Net Sales on a country-by-country and Product-by-Product basis;
(2) From time to time, and to the extent LICENSEE is able, any other
reports which LICENSOR may reasonably require.
3.9 LICENSEE shall use each of the Trademark(s) solely in the packaging,
promotion, marketing and sale of the respective Product in the Territory.
3.10 If LICENSEE undertakes the manufacture of a Product pursuant to
Article 2.1 hereof, LICENSEE agrees that upon prior written notice of at least
five (5) business days, LICENSOR or its designee shall have the right, at all
reasonable times, to inspect the Product manufactured by or for LICENSEE at the
manufacturing sites as well as the methods of manufacturing and packaging.
LICENSOR shall also have the right, upon giving the above referred written
notice, to perform audits from time to time at all reasonable times in order to
verify LICENSEE's compliance with Good Manufacturing Practices.
3.11 LICENSEE agrees not to acquire and not to claim any right, title or
interest in the Know-How and/or Patent Rights as a result of or pursuant to this
Agreement, except for those
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Improvements developed by LICENSEE. The parties agree to immediately notify each
other in writing of any infringement of the Patent Rights or the Trademarks or
claims that the Patent Rights or the Trademarks may infringe, which may come to
their attention, and agree to join each other, if requested by the owner of the
Patent Rights or the Trademarks in question and at the owner's expense, in
taking action against the infringement or otherwise for the protection or the
defense of such Patent Rights or Trademark(s). In the event LICENSOR does not
wish to take the necessary action to defend or to protect the Patent Rights or
the Trademarks or to prosecute any infringement of the Patent Rights or the
Trademark(s), LICENSEE shall have the right, but not the obligation, to do so at
LICENSEE's expense and in such case, any proceeds resulting from such action
shall be the exclusive property of LICENSEE. Under this Agreement, the LICENSOR
shall have no obligation to maintain the Patent Rights in the Territory. In the
event that LICENSOR elects not to maintain any of the Patent Rights, LICENSOR
shall so advise LICENSEE in a timely manner to enable LICENSEE to take
appropriate action, at its expense, to maintain the particular patent involved
or to continue prosecution of the particular patent application. The LICENSOR
shall remain the owner of all of the Patent Rights even if LICENSEE elects to
maintain any Patent Rights under this provision.
3.12 If LICENSEE undertakes the manufacture of a Product pursuant to
Article 2.1 hereof, LICENSEE agrees to conduct such
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quality control tests and to implement such quality control procedures as the
parties shall mutually agree. In such event, LICENSOR agrees to provide to
LICENSEE, its Affiliates and/or designees, at LICENSOR's cost and expense, all
reasonable technical assistance which LICENSEE may require in connection with
the application of the Know-How to the manufacture of such Product.
3.13 To the extent LICENSEE shall have the right to do so, any
Improvements developed by LICENSEE or its designees (e.g., Affiliates, sub-
licensees or distributors) during the life of this Agreement shall be licensed
to LICENSOR on a perpetual, exclusive and royalty-free basis: (i) for use in
connection with the Products outside the Territory; (ii) for use in connection
with the Products in the Territory upon termination or expiration of this
Agreement; and (iii) for use in connection with the Products in any country in
the Territory upon termination of this Agreement with respect to such country.
LICENSOR shall have the right to grant royalty-free sublicenses of the foregoing
licenses in the event LICENSOR has obtained from its sub-licensees in writing an
exclusive and royalty-free grant-back license of sub-licensees' Improvements for
use in the Territory exclusively by LICENSEE or its designees or with the
written consent of LICENSEE which consent shall not be unreasonably withheld.
3.14 LICENSEE shall not actively promote or advertise either of the
Products outside the Territory and shall not establish a branch or distribution
depot for the sale of either
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of the Products outside the Territory, except as otherwise authorized in writing
by LICENSOR.
LICENSEE shall use its diligent efforts subject to all laws and regulations
applicable to LICENSEE to cause its sub-licensees and/or distributors to
undertake to comply with LICENSEE's obligations under this Article 3.14 and
shall take the necessary action to enforce said undertakings, and if necessary
upon mutual written agreement of LICENSOR and LICENSEE, to discontinue supply of
any Product to the sub-licensees and/or distributors who have breached this
undertaking.
ARTICLE 4
UP-FRONT PAYMENT/ROYALTY/CONSULTING FEE
---------------------------------------
4.1 In consideration of the rights granted under this Agreement,
LICENSEE shall pay or cause to be paid to LICENSOR the amount of $100,000 (the
"Up-front Payment") pursuant to a side letter between the parties dated as of
the date hereof. In addition, LICENSEE shall pay or cause to be paid to
LICENSOR the following royalty and consulting fee during each calendar year
during the term of this Agreement:
(i) a royalty of 6% of the Net Sales; and
(ii) a fee for the consulting services rendered pursuant to
Article 2.6 hereof, equal to 6% of the Net Sales.
It is agreed that no portion of the Up-front Payment shall be credited against
payments due from LICENSEE pursuant to clause (i) or (ii) above.
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4.2 Except as otherwise provided in this Article 4, all payments due to
LICENSOR pursuant to Article 4.1 above, shall be in United States Dollars (or in
local currency as notified in writing from time to time by LICENSOR) paid within
sixty (60) days of the end of each calendar quarter. Such payments shall be by
wire transfer in immediately available funds to such bank and account as
LICENSOR shall notify LICENSEE, in writing, from time to time hereunder.
LICENSEE shall use diligent efforts in taking any and all action which may be
required under the laws, rules, regulations and the like in the Territory,
including but not limited to timely application to the appropriate authorities,
to ensure that payment shall be made within the time stipulated herein.
LICENSEE shall bear all expenses in connection with obtaining such
authorizations.
4.3 The royalty and consulting fee in Article 4.1 shall be calculated on
a quarterly basis. Where applicable, the exchange rate shall be the spot rate
of exchange for the sale of United States Dollars at close of business
prevailing at Citibank, New York on the last business day of each quarter.
4.4 LICENSEE agrees to maintain at its principal offices or at those of
its Affiliates accurate and complete books and records of its gross sales and
Net Sales of each Product, and related expenses, consistent with sound business
and accounting practices and in such form and in such detail as to enable the
amount payable hereunder by LICENSEE to LICENSOR to be determined. LICENSEE
shall permit LICENSOR or its designee or
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any independent certified accountant appointed by LICENSOR and reasonably
acceptable to LICENSEE, at LICENSOR's expense, to examine such books and records
at all reasonable times for the purpose of (i) verifying LICENSEE's reports and
accounting submitted to LICENSOR hereunder and (ii) determining the correctness
of the payments made by LICENSEE hereunder; provided however, that such
----------------
examinations shall take place not more often than once per calendar year.
ARTICLE 5
PROMOTION AND MARKETING
-----------------------
5.1 LICENSEE shall use its diligent efforts to promote, market and sell
(or to cause to be promoted, marketed and sold) each Product throughout the
Territory at its own expense. Such efforts will be commensurate with those
efforts LICENSEE utilizes on behalf of its own products of similar commercial
potential.
5.2 As may reasonably be required by LICENSEE, LICENSOR shall supply
LICENSEE or its designee free of charge, if LICENSOR's contractual rights allow
for it, LICENSOR's or LICENSOR's sub-licensees' released specimens of such
samples, displays, sales promotion material and literature available to LICENSOR
or LICENSOR's sub-licensees outside the Territory.
5.3 LICENSOR agrees to provide LICENSEE, at LICENSOR's Fully Absorbed
Cost, such reasonable quantities of each Product as may be required for clinical
trials in the Territory.
5.4 Prior to LICENSEE's launching of each Product, the parties shall agree
on the uses for which LICENSEE shall promote
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(or cause to promote) such Product. Any other additional uses or
deletions/changes to the agreed upon uses, shall be mutually agreed by the
parties in writing.
5.5 In their activities contemplated by this Agreement, LICENSEE and its
Affiliates shall comply with all applicable laws and regulations, including
without limitation, laws and regulations of the countries in the Territory.
LICENSEE shall cause its designees (e.g. Affiliates, sub-licensees and
distributors) to comply with all applicable laws and regulations, including
without limitation, laws and regulations of the countries in the Territory.
ARTICLE 6
CONFIDENTIALITY
---------------
6.1 Subject to the provisions of Article 6.3 and except as otherwise
provided under this Agreement, any and all confidential information given by
either party to the other under this Agreement shall not be disclosed to any
third party and shall not be used for purposes other than the fulfillment of
obligations under this Agreement.
6.2 The following information is excluded from the provisions of Article
6.1:
a) information which, at the time of disclosure, is in the public
domain;
b) information which, after disclosure, becomes part of the public
domain by publication or otherwise, except by breach of this Agreement;
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c) information which a party can establish by competent proof was in
its possession at the time of disclosure and was not acquired, directly or
indirectly, from the other party or acquired from any third party subject
to any obligation of confidentiality to the disclosing party;
d) information which is required by law, administrative or judicial
order to be disclosed, provided that such disclosure is subject to all
applicable governmental or judicial protection available for like material
and the party relying on this exception notifies the other party in writing
in advance of such intended disclosure, promptly after the notifying party
becomes aware of the disclosure requirement; or
e) information which is independently developed by the receiving party
without the aid, application or use of information disclosed by the other
party.
6.3 The parties agree to disclose or make available any confidential
information received under this Agreement only to those of their employees,
agents, sublicensees and consultants to whom it shall be reasonably necessary in
order to facilitate their performance hereunder and only after they have
undertaken to comply with all of the confidentiality obligations hereunder.
6.4 The provisions of this Article 6 shall survive the expiration or
termination of this Agreement for a period of five (5) years.
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ARTICLE 7
ADDITIONAL DOCUMENTS
--------------------
7.1 Where required by law, LICENSEE and LICENSOR agree to execute or
cause to be executed, at LICENSEE's cost and expense, all documents, including
but not limited to documents related to the Trademark(s), local license
agreements and local technical service agreements in order to allow the parties
to perform all of their obligations and exercise their respective rights under
this Agreement.
ARTICLE 8
INDEMNITY/INSURANCE
-------------------
8.1 LICENSOR hereby agrees to indemnify, save, defend and hold
LICENSEE and its directors, officers and employees (a "LICENSEE Indemnified
Party") harmless from and against any and all suits, claims, actions, demands,
liabilities, expenses (including legal fees) and/or losses resulting from (i)
the breach by LICENSOR of any covenant, representation or warranty contained in
this Agreement, (ii) any negligent act or omission of LICENSOR (or any Affiliate
thereof) in the manufacture of a Product or any other activity conducted by
LICENSOR under this Agreement, (iii) the failure of a Product manufactured by
LICENSOR for the Territory to meet the Product Specifications for such Product,
or (iv) the successful enforcement by a LICENSEE Indemnified Party of any of the
foregoing.
8.2 LICENSEE hereby agrees to indemnify, save, defend and hold LICENSOR
and its directors, officers and employees (a
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"LICENSOR Indemnified Party") harmless from and against any and all suits,
claims, actions, demands, liabilities, expenses (including legal fees) and/or
losses resulting from (i) the breach by LICENSEE of any covenant, representation
or warranty contained in this Agreement, (ii) the negligent promotion, handling,
storage, disposal, marketing and/or sale of a Product or any other activity
conducted by LICENSEE under this Agreement, or (iii) the successful enforcement
by a LICENSOR Indemnified Party of any of the foregoing.
8.3 Each party shall, during the term of this Agreement, maintain
commercially reasonable amounts of insurance (but not less than $5,000,000) from
a reputable insurance carrier (or, in the case of LICENSEE, maintain a self-
insurance program) for liability insurance, including products liability and
contractual liability insurance adequately covering such party's obligations
under this Agreement. If during the term of this Agreement LICENSOR
demonstrates that it has sufficient financial resources to adopt a self-
insurance program for such insurance requirements, LICENSEE shall not
unreasonably withhold its consent to the adoption by LICENSOR of such a program.
Each party shall provide the other party with evidence of such insurance or
self-insurance program, upon request.
8.4 The respective indemnification obligations of the parties hereto in
this Article 8 shall survive the termination or expiration of this Agreement for
ten years.
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ARTICLE 9
BREACH/REMEDIES
---------------
9.1 In addition to the termination rights granted under Article 12.2,
any material breach by a party hereto of its obligations or representations
hereunder shall grant the other party the right to seek all remedies available
under applicable law including but not limited to compensation for all losses
and damages suffered by the non-breaching party, costs and expenses (including
attorneys' fees). With respect to any claim by one party against the other
arising out of the performance or failure of performance of the other party
under this Agreement, the parties expressly agree that the liability of such
party to the other party for such breach shall be limited under this Agreement
or otherwise at law or equity to direct damages only and in no event shall a
party be liable for, indirect, incidental or consequential damages, including
without limitation, lost profits.
ARTICLE 10
RECALLS/ADVERSE REACTIONS
-------------------------
10.1 In the event that any governmental agency or authority issues a
recall or takes similar action in connection with any quantity of either Product
in the Territory, LICENSEE shall advise LICENSOR immediately in writing, and
LICENSOR and LICENSEE shall agree on an appropriate course of action. LICENSOR
shall bear all expenses of any recall unilaterally requested by it and not
concurred in by LICENSEE acting reasonably, or of any recalls
26
<PAGE>
caused by LICENSOR's gross negligence or misconduct. LICENSEE shall bear all
expenses of any recall unilaterally requested by it and not concurred in by
LICENSOR acting reasonably, or of any recall caused by LICENSEE's gross
negligence or misconduct. The expenses of all other recalls shall be equally
shared between LICENSOR and LICENSEE. For the purposes of this Agreement,
expenses of recall to be borne by the parties hereunder include, without
limitation, the expenses of notification and destruction or return of the
recalled Product but not the expenses or service fees associated with personnel
time, which shall be borne by the party incurring the same.
10.2 The parties hereby agree that the following terms will govern
disclosures of each party to the other with respect to adverse event reporting
relating to each Product:
A. An Adverse event ("AE") is defined as:
1. any experience which is adverse, including what are commonly
described as adverse or undesirable experiences, adverse events, adverse
reactions, side effects, or death due to any cause associated with, or observed
in conjunction with the use of a drug, biological product, or device in humans,
whether or not considered related to the use of the Product:
(i) occurring in the course of the use of the Product,
(ii) associated with, or observed in conjunction with Product
overdose, whether accidental or intentional,
27
<PAGE>
(iii) associated with, or observed in conjunction with Product
abuse, and/or
(iv) associated with, or observed in conjunction with Product
withdrawal.
2. any significant failure of expected pharmacological or biological
therapeutic action (with the exception of in clinical trials).
B. Serious or Non-Serious is defined as:
1. A serious AE is one that is life threatening or fatal, permanently
disabling, requires in-patient hospitalization or prolonged hospitalization, or
is a congenital anomaly, cancer or overdose. In addition, end organ toxicity,
including hematological, renal, hepatic, and central nervous system AEs, may be
considered serious. In laboratory tests in animals, a serious AE includes any
experience suggesting significant risk for human subjects.
2. A non-serious AE is any AE which does not meet the criteria for a
serious AE.
C. Life-threatening is defined as: the patient is at immediate risk of
death from the AE as it occurs.
D. End-Organ Toxicity is defined as: A medically significant event or lab
value change in which a patient may not necessarily be hospitalized or disabled,
but is clinically significant enough to warrant monitoring (e.g. seizures, blood
dyscrasias).
E. Expected or unexpected is defined as:
28
<PAGE>
1. Expected AE - An AE which is listed in the Investigator's Brochure
for clinical trials, included in local labelling (e.g., Summary of Product
Characteristics) for Marketed Drugs, or in countries with no local labelling, in
the Corporate Standard Prescribing Document.
2. Unexpected AE - An AE that does not meet the criteria for an
expected AE or an AE which is listed but differs from that event in terms of
severity or specificity.
F. Associated with or related to the use of the drug is defined as: A
reasonable possibility exists that the AE was caused by the Product.
G. Un-associated or unrelated to the use of the Product is defined as one
that does not meet the criteria for associated or related to the use of the
Product.
10.3 All initial reports and follow-ups (oral or written) for any and all
serious and unexpected AEs (other than with respect to animal studies) which
become known to a party (other than from disclosure by or on behalf of the other
party) must be communicated by telephone or telefax to the other party within
twenty four (24) hours upon receipt of the information by the disclosing party
with written confirmation to follow as soon as it becomes available, but in no
event later than three days after initial communication of the AE.
10.4 For AEs from animal studies which suggest a potential significant
risk for humans, a written report must be forwarded
29
<PAGE>
to the other party as soon as the results are received by the party making the
report.
10.5 Within thirty (30) days of receipt of a request from the other party,
but not more often than as required by any regulatory agency, each party will
give the other party a print out or computer disk of all AEs reported to it and
its Affiliates relating to either Product within the last year.
10.6 If either party wishes access to AE reports of the other party
relating to a Product, upon request of that party the other party shall make
available its records (including computer disks) for viewing and copying by the
other party.
10.7 Disclosure of information hereunder by a party to the other party
shall continue as so long as either party and/or its Affiliates or designees
continue to clinically test or market a Product. LICENSEE's obligations
regarding AE reporting relate to territories in the world that are the subject
of a license or other commercial relationship for Product between LICENSOR and
LICENSEE.
10.8 LICENSEE shall make timely submissions of safety reports to
regulatory authorities in the countries in the Territory as required by local
law. LICENSEE shall notify investigators of safety reports as required by local
law. LICENSEE shall notify LICENSOR of any such reports.
30
<PAGE>
ARTICLE 11
LICENSOR'S REPRESENTATIONS
--------------------------
11.1 By entering into this Agreement, LICENSOR represents that, subject
to obtaining the W-L Consent (as defined in Section 22.1), neither this
Agreement nor the transactions contemplated hereunder conflict with or violate
or will conflict with or violate the terms of any existing oral or written
commitment, obligation, arrangement, understanding or contract to which LICENSOR
or any of its principals is a party or by which any of them or the Products are
bound, or would require LICENSEE to make to any third party any payment of
royalty, or any compensation whatsoever as a result hereof.
ARTICLE 12
TERM/TERMINATION.
-----------------
12.1 Subject to the other provisions of this Agreement and of this Article
12, this Agreement shall be effective, for each country of the Territory, as of
the Effective Date and year first above written and shall be in full force and
effect with respect to the Products for a period of fifteen (15) years from the
date of first commercial sale of the first Product in such country, provided,
however, that the term of this Agreement shall be extended for one additional
year, on a country by country basis, for each country in which (i) the first
commercial sale of the second Product in such country shall have been made more
than one year after the first commercial sale of the first Product in such
31
<PAGE>
country and (ii) LICENSOR shall have met all of its obligations under Section
12.4 with respect to both Products.
12.2 Either party shall have the right to terminate this Agreement by
giving to the other not less than ninety (90) days' prior written notice in the
event that the other shall, at any time, commit a material breach of any of its
obligations hereunder (other than a material breach which would give rise to a
right of LICENSOR to terminate this Agreement in whole or in part under Section
12.4 hereof) and fail to cure such material breach during the period of said
notice.
12.3 This Agreement may be terminated without further notice by either
party if the other should become insolvent or should make or seek to make an
arrangement with or an assignment for the benefit of creditors; or if
proceedings in voluntary or involuntary liquidation or pursuant to any other
insolvency law shall be instituted by, on behalf of or against the other party
or if a receiver or trustee of the other party' s property shall be appointed.
12.4 This Agreement may be terminated upon written notice by LICENSOR to
LICENSEE as to a particular country or countries with respect to a particular
Product or Products if LICENSEE has failed to file an application for marketing
approval of such Product in such country within one year from the receipt by
LICENSEE of a Health Registration Dossier; if however, the applicable regulatory
authority in a country requires, as to a Product, proof of regulatory approval
or of a free sale
32
<PAGE>
certificate (or its equivalent) from some other jurisdiction or requires that
LICENSEE conduct additional clinical trials or imposes any additional regulatory
requirement, LICENSOR's rights to terminate as to such Product provided in this
sentence shall not arise until one year from LICENSEE's receipt of proof of such
regulatory approval or of such free sale certificate (or its equivalent),
completion of such additional clinical trials or fulfillment of such additional
requirement. LICENSEE shall use diligent efforts to achieve approvals for each
Product in each country in the Territory. If LICENSEE is required to conduct
additional clinical trials in a country in the Territory prior to filing for
marketing approval of a Product, LICENSEE shall use diligent efforts to conduct
such trial(s), provided the conduct of such trials is commercially reasonable.
If the conduct of such trials is not commercially reasonable and LICENSEE has
not achieved Net Sales with respect to a Product in such country as required
hereunder, LICENSOR shall have the right to terminate LICENSEE's rights with
respect to such Product in such country. Subject to suspension of performance
hereunder for any period during which Force Majeure requires suspension of
performance, this Agreement shall expire as to any country with respect to a
Product if Net Sales of such Product are not made in such country by the earlier
of: three (3) years from the date on which LICENSEE received a Health
Registration Dossier from LICENSOR for such Product or six months from the date
on which such Product may first be sold legally and pricing and/or reimbursement
33
<PAGE>
approvals have been received by LICENSEE in such country in the Territory.
12.5 This Agreement may be terminated by LICENSEE with respect to a
Product in one or more countries in the Territory upon 90 days written notice to
LICENSOR.
ARTICLE 13
POST-TERMINATION OBLIGATIONS
----------------------------
13.1 Upon a partial or full termination of this Agreement for any reason
whatsoever or upon expiration of the same, LICENSOR shall, at its option, either
(i) grant LICENSEE the right to fully exhaust or cause to be exhausted all
stocks of each Product on hand on the date of termination or expiration in each
country of the Territory as to which the termination or expiration applies, as
well as the right to use any stocks of packaging materials, excipients and
labels (hereafter "Materials") on hand in the manufacture of such Products or
(ii) re-purchase such stocks of each such Product and Materials at a price to be
mutually agreed by the parties.
13.2 Subject to the provisions of this Article 13.2 and the rights which
may be granted to LICENSEE pursuant to Article 13.1 (i), upon the expiration or
full or partial termination of this Agreement, LICENSEE and its Affiliates (i)
shall not themselves, or in association with any other person or entity, use the
Trademarks relating to any terminated Product in any country of the Territory as
to which the termination or expiration applies, and (ii) shall not register in
any terminated country in the
34
<PAGE>
Territory any trademark which is confusingly similar to the Trademarks relating
to any such terminated Product, and (iii) shall transfer and assign to LICENSOR,
without charge, all of their rights, title and interest in such Trademarks in
each such country in the Territory and shall execute all such instruments and
agreements as shall be necessary or appropriate to effectuate the transfer of
ownership to LICENSOR in and to such Trademarks and to cancel any applicable
recorded licenses or Registered User Agreements for such Trademarks; it is
agreed that this covenant shall survive the termination or expiration of this
Agreement, for so long as LICENSOR has valid enforceable rights to the
Trademarks in the Territory.
13.3 Upon the expiration or a partial or full termination of this
Agreement, LICENSEE and its Affiliates (i) shall transfer and assign to
LICENSOR, all registrations and permits or similar documentation necessary for
the sale of each Product in each country of the Territory as to which the
expiration or termination applies, including without limitation, health
registrations (applications and approvals), pricing and/or reimbursement
approvals and permits; (reasonable out-of-pocket costs of such transfer and
assignments shall be borne by LICENSOR); (ii) in the event LICENSEE is
manufacturing a Product hereunder as to which the expiration or termination
applies, LICENSEE shall cooperate with LICENSOR to achieve an orderly transition
of the manufacturing process and ensure supply of such Product in the Territory;
(iii) shall provide LICENSOR with
35
<PAGE>
samples of promotional materials used for each Product in each country in the
Territory as to which the expiration or termination applies; (iv) shall provide
LICENSOR with customer lists developed for marketing each Product in each
country in the Territory as to which the expiration or termination applies; and
(v) shall perform such other actions and shall execute, acknowledge and deliver
all such assignments, transfers, consents and other documents as may be
reasonably necessary to effectuate an orderly transfer to LICENSOR of all rights
necessary to commercialize the Products in each country in the Territory as to
which the expiration or termination applies (reasonable out-of-pocket costs of
such assistance shall be borne by LICENSOR).
13.4 Upon any termination or expiration of this Agreement, LICENSEE shall
submit payment to LICENSOR for any earned but unpaid royalties or milestones.
ARTICLE 14
INDEPENDENCE OF PARTIES
-----------------------
14.1 It is agreed that the parties hereto are independent contractors and
engage in the operation of their own respective businesses. Neither of the
parties hereto shall be considered the agent of the other nor shall it have
authority to enter into any contract or assume any obligation for the other
party or make any warranties or representations on behalf of the other party.
Moreover, nothing in this Agreement shall be construed to establish a
relationship of co-partners or joint venturers between the parties.
36
<PAGE>
ARTICLE 15
NON-WAIVER
----------
15.1 Either party's failure, at any time, to exercise or enforce any
right conferred upon it hereunder, shall not be deemed to be a waiver of any
such right or operate to bar the exercise or performance thereof at any time or
times thereafter, nor shall its waiver of any right hereunder at any given time,
including rights to any payment, be deemed a waiver thereof for any other time.
ARTICLE 16
ASSIGNMENT
----------
16.1 Subject to the provisions of this Article 16, neither this Agreement
nor any of the rights or obligations hereunder shall be assigned by either party
by judicial process or otherwise, to any person, firm, company or corporation
without the prior written consent of the other party, except that LICENSOR shall
have the right to assign this Agreement in the event (i) LICENSOR is absorbed by
merger into a third party other than into any of its Affiliates, or (ii)
LICENSOR sells, transfers and assigns all of its assets including all its
rights, title and interest to the Product to any third party other than any of
LICENSOR's Affiliates, or (iii) there is a change in the stock ownership of
LICENSOR so that such ownership falls under the "control" of a third party other
than any of LICENSOR's Affiliates. For the purposes hereof, the term "control"
shall have the same meaning as that set forth in Article 1.1.
37
<PAGE>
16.2 LICENSEE and LICENSOR shall have the right to assign this Agreement
to any of their respective Affiliates.
ARTICLE 17
SEVERABILITY
------------
17.1 If any provision of this Agreement shall be deemed ineffective or
invalid, the remaining provisions hereof shall not be affected thereby and shall
continue to be in full force and effect.
ARTICLE 18
GOVERNING LAW/ARBITRATION.
--------------------------
18.1 In the event that any controversy or claim shall arise under, out of,
or in connection with, or relating to this Agreement or the breach thereof, the
party initiating such controversy or making such claim shall provide to the
other party a written notice containing a brief and concise statement of the
initiating party's claims, together with relevant facts supporting them. During
a period of thirty (30) days, or such longer period as may be mutually agreed
upon in writing by the parties, following the date of said notice, the parties
shall make good faith efforts to settle the dispute. Such efforts will include,
but shall not be limited to, full presentation of both parties' claims and
responses, with or without the assistance of counsel, before the President of
Schering-Plough International, Inc. and the President of LICENSOR. If the
parties are unable to reach accord using the procedures set forth in this
Section,
38
<PAGE>
either party may initiate arbitration proceedings in accordance with Section
18.2 hereof by so serving notice on the other party.
18.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of New York. Any disputes between the parties arising in
connection with this Agreement shall be settled through arbitration to be held
in New York under the rules of the American Arbitration Association. Any
arbitration award shall be final and binding on the parties. The documented
costs and expenses arising from arbitration shall be borne by the losing party.
ARTICLE 19
NOTICES
-------
19.1 Any notices required or permitted to be given hereunder, shall be in
writing and shall be sent by telefax and reconfirmed within forty-eight (48)
hours by prepaid registered air mail (return receipt requested) or recognized
courier service to the following addresses or to such other addresses as the
parties may communicate to each other as per the provisions herein. All notices
shall be deemed served five (5) days after telefax transmission.
To LICENSOR: U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street, 4th Floor
West Conshohocken, Pennsylvania 19428
Attn.: President
Telefax: (215) 832-4500
Copy to: U.S. BIOSCIENCE, INC.
One Tower Bridge
100 Front Street, 4th Floor
39
<PAGE>
West Conshohocken, Pennsylvania 19428
Attn.: General Counsel
Telefax: (215) 832-4535
To LICENSEE: SCHERICO, LTD.
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: President,
Schering-Plough International, Inc.
Telefax: (908) 298-5379
Copy to: SCHERING-PLOUGH CORPORATION, INC.
Law Department
2000 Galloping Hill Road
Kenilworth, New Jersey 07033
Attn.: Senior Legal Director, Licensing
Telefax: (908) 298-4766
ARTICLE 20
AMENDMENT
---------
20.1 No amendment, change, modification or alteration of the terms and
conditions of this Agreement shall be binding upon LICENSOR or LICENSEE unless
in writing and signed by a duly authorized officer of the party to be charged.
ARTICLE 21
GOVERNMENT APPROVALS
--------------------
21.1 This Agreement and all obligations herein shall be subject to and
conditioned upon the receipt of any and all required approvals from the
applicable governmental authorities of the Territory or any agency,
instrumentality or subdivision thereof. All registration fees and/or stamp
duties in connection
40
<PAGE>
with the registration of this Agreement shall be paid by LICENSEE.
ARTICLE 22
CONSENTS AND APPROVALS
----------------------
22.1 The parties hereto represent that they have obtained all required
consents and approvals, including but not limited to their own corporate and
third parties' required approval (if any) to enter into this Agreement,
provided, however, that the consent of Warner-Lambert Company (the "W-L
Consent") is required in connection with the rights granted to LICENSEE with
respect to the Product NeuTrexin under this Agreement and is being sought by the
parties contemporaneously with the negotiation of this Agreement.
ARTICLE 23
PRESS RELEASES/ANNOUNCEMENTS
----------------------------
23.1 All press releases, or other written or verbal public announcements
relating to this Agreement and the transactions hereunder, and the method of
release for publication thereof will be subject to the written approval of the
parties hereto, which approval shall not be unreasonably withheld. Nothing in
the foregoing shall prohibit a party from making such disclosures to the extent
deemed necessary under applicable federal or state securities laws; in such
event, however, the disclosing party shall use good faith efforts to consult
with the other party prior to such disclosure.
41
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
U.S. BIOSCIENCE, INC. SCHERICO, LTD.
By: /s/ C. Boyd Clarke By: /s/ Hans-Jorg Kummer
----------------------------- ---------------------------
As its: President & COO As its: President
----------------------- -----------------------
42
<PAGE>
ANNEX I
-------
Patent Rights
CRYSTALLINE AMIFOSTINE COMPOSITIONS AND METHODS FOR THE PREPARATION AND USE OF
SAME
App. # App. Date
------ ---------
Republic of Korea 700370/95 July 30, 1993
Taiwan 8210635 July 28, 1993
43
<PAGE>
ANNEX II
--------
Territory
---------
Korea
Taiwan
Peru
Paraguay
44
<PAGE>
EXHIBIT 1.12
RELEASE SPECIFICATIONS FOR THE PRODUCTS
45
<PAGE>
EXHIBIT 2.3
Fully Absorbed Cost shall be calculated in accordance with applicable Generally
Accepted Accounting Principles ("GAAP"), is defined as:
Included:
- ---------
1. Direct raw materials, actives (including intermediates), excipients and
labelling and packaging materials (vials etc.).
2. Direct labor costs.
3. Costs for quality control and stability testing.
4. Indirect labor costs, production supplies and chemicals, and general
factory overhead. These costs should be allocated to Product based upon
methodology in current practice within the manufacturing site which will
generally be in accordance with GAAP. Such allocation may be based upon
direct labor hours, machine hours or such other methodology as the
companies may agree in advance in writing.
Excluded
- --------
1. Idle and excess capacity.
2. Manufacturing start-up costs.
3. Costs of research batches which are part of Product development (unless
such batches are used by Licensee for product development or research
activities within the Territory).
46
<PAGE>
EXHIBIT 10.27.1
AMENDMENT
This AMENDMENT is to the License Agreement dated as of November 6, 1997
(hereinafter, the Agreement) between U. S. Bioscience, Inc. (hereinafter,
Licensor) and Scherico, Ltd. (hereinafter, Licensee), and is effective as of
January 13, 1998.
Any terms used herein which are defined in the Agreement shall have the meanings
ascribed to them in the Agreement.
If there is a conflict between a provision of the Agreement and this Amendment,
then this Amendment shall prevail.
The parties hereto agree to amend the Agreement as follows:
1. A new Section 2.8 is hereby added to the Agreement as follows:
2.8 Licensee shall have the right to expand the Territory to
include the countries of Saudi Arabia, Jordan and United Arab Emirates
upon the lapse of preexisting rights to commercialize the Products
that have been granted by Licensor to Al-Haya Medical Company, Al-
Faiasel Drugstore and Pharmatrade (Abu Dhabi), respectively. Licensor
shall notify Licensee if the right to commercialize the Products in
any such country becomes available, and Licensee shall thereafter have
thirty (30) days in which to elect to include such country within the
Territory under the terms of this Agreement.
2. Annex II is hereby amended by the addition of the following countries to
the Territory:
Kuwait
Qatar
Oman
Bahrain
Lebanon
Syria
3. For the countries listed in paragraph 2 above, the notification period
provided in Section 2.7 of the Agreement is hereby waived, and it is agreed
that the Licensee shall immediately file applications for the Trademark(s)
pursuant to Section 2.7 of the Agreement.
This Amendment, to the extent set forth herein, amends, modifies and supplements
the Agreement. Except as expressly modified herein, all of the terms and
provisions of the Agreement remain in full force and effect and cannot be
amended, modified or changed in any way whatsoever except by a written
instrument duly executed by the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their authorized representatives on the dates indicated below.
U.S. BIOSCIENCE, INC. SCHERICO, LTD.
By: /s/ Barbara Deptula By: /s/ Hans-Jorg Kummer
------------------------------------ ---------------------------------
Title: VP Licensing & Bus. Development Title: Director
-------------------------------- ------------------------------
Date: January 13, 1998 Date: January 29, 1998
-------------------------------- -------------------------------
2
<PAGE>
Exhibit 10.28.1
AGREEMENT
---------
PHILIP S. SCHEIN, M.D. (hereafter "Dr. Schein"), and U.S. BIOSCIENCE,
INC. (hereafter "U.S. Bioscience") desire and agree to enter into this agreement
as of March 10, 1998, pursuant to the following terms and conditions. In
consideration of the mutual covenants and agreements herein contained, and
intending to be legally bound, the parties hereto agree as follows:
1. Dr. Schein hereby resigns as Chairman and Chief Executive Officer
("CEO") of U.S. Bioscience and from all other capacities including, but not
limited to, his membership on the Board of Directors of U.S. Bioscience and as a
Trustee of the U.S. Bioscience, Inc. Savings Plan and the U..S. Bioscience, Inc.
Money Purchase Pension Plan, and terminates his employment effective March 10,
1998, and accepts a position as a consultant as specified herein.
2. For and in consideration of the undertakings of Dr. Schein as set
forth herein, U.S. Bioscience shall retain Dr. Schein as a consultant for a two
year period commencing March 10, 1998 and continuing through March 10, 2000
("Term"), and provide Dr. Schein the following compensation and benefits:
(a) Consulting fees to be paid as salary during the Term of
$15,496.27 per bi-weekly pay period, less normal withholding and payroll
taxes and any other deductions as may be authorized by Dr. Schein, to be
paid on a bi-weekly pay schedule.
(b) Company-paid medical benefits (including health, dental and
prescription drug), less dependent cost on the same basis as is provided to
senior
<PAGE>
executives and other employees of U.S. Bioscience throughout the Term, or
until other substantially equivalent employer-provided medical insurance is
available, whichever occurs first, subject to Dr. Schein's right to
continue such coverage under COBRA. In the event that Dr. Schein obtains
other employment and medical coverage, he will promptly advise U.S.
Bioscience and health care coverage pursuant to this subsection 2(b) shall
cease.
(c) Group life insurance benefit during the Term, on the same
basis as is provided to senior executives and other employees of U.S.
Bioscience. It is agreed and understood that as of March 10, 1998, Dr.
Schein will no longer be entitled to participate in U.S. Bioscience's
benefit plans for (i) Supplemental Long Term Disability, (ii) Supplemental
Life Insurance, (iii) SERP, (iv) 401(k), and (v) Money Purchase Pension
Plan; provided that Dr. Schein shall continue to be entitled to all
benefits available or accrued under such plans through March 10, 1998.
(d) The right to continue to vest non-statutory stock options
during the Term and the right during the Term and for a period of three
months following the Term to a cashless exercise of such vested options.
(e) The rights to indemnification and advancement of expenses
presently provided pursuant to U.S. Bioscience's certificate of
incorporation and bylaws, or such greater rights as subsequently may be
adopted by amendment thereto, in respect of service as an officer and/or
director of U.S. Bioscience. In addition, U.S. Bioscience shall, to the
fullest extent not prohibited by law,
-2-
<PAGE>
indemnify Dr. Schein for all actions and services provided by him within
the scope of his duties as a consultant.
3. Separate and apart from the foregoing, U.S. Bioscience shall pay
Dr. Schein $19,732.00, which represents unused accrued vacation hours, accrued
through March 10, 1998, less normal withholding and payroll taxes. After March
10, 1998, Dr. Schein shall not accrue additional vacation benefits.
4. It is expressly agreed and understood that U.S. Bioscience does
not have and will not have any obligation to provide Dr. Schein at any time in
the future with any payments, benefits or considerations other than those
recited herein.
5. (a) In consideration for the payments, benefits and agreements
of U.S. Bioscience contained herein, Dr. Schein releases and discharges U.S.
Bioscience and its past, present and future officers, directors, attorneys,
employees, agents, successors and assigns, jointly and severally, from any and
all actions, charges, causes of action or claims of any kind, known or unknown,
which against any of them, he, his heirs, agents, successors or assigns ever
had, now have or hereafter may have arising out of any matter, occurrence or
event existing or occurring prior to the execution hereof, including, without
limitation: any claims relating to or arising out of his employment with U.S.
Bioscience, including but not limited to, any claims for unpaid or withheld
wages, benefits, bonuses and/or other compensation of any kind, including
accrued sick pay and vacation; any claims for attorneys' fees, costs or
expenses; any claims of discrimination based on sex, age, race, religion, color,
creed, handicap, citizenship, national origin or any other factor prohibited by
Federal, State or Local law, including but not limited to, any claims under
Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment
Act,
-3-
<PAGE>
the Pennsylvania Human Relations Act, the Americans With Disabilities Act,
and the Employee Retirement Income Security Act of 1974, as amended; and any and
all common law claims whatsoever, whether existing or hereinafter recognized,
including but not limited to, breach of contract, libel, slander, fraud,
promissory estoppel, breach of covenant of good faith and fair dealing,
equitable estoppel, misrepresentation or wrongful discharge. Excluded from this
Release are only: claims which arise subsequent to the execution of this
Agreement; actions to enforce vested rights under any option agreement, 401(k)
or retirement plan; and actions to enforce this Agreement and/or the Executive
Severance Agreement as described and amended in Section 27, below.
(b) U.S. Bioscience, intending to be legally bound, does hereby
release and discharge Dr. Schein from any and all manner of actions and causes
of action, suits, debts, claims and demands arising from conduct or actions
undertaken by him in good faith within the scope of his employment and authority
as Chairman and Chief Executive Officer of U.S. Bioscience.
6. Dr. Schein shall make himself available to U.S. Bioscience for up
to 500 hours of consulting services during the Term with respect to matters
mutually agreed upon in good faith. Such matters may include, but shall not be
limited to (a) preparing and presenting regulatory applications for U.S.
Bioscience products, (b) speaking on behalf of U.S. Bioscience or its products,
(c) assisting in addressing clinical or preclinical questions, (d) assisting in
preparing position papers, (e) contacting potential investigators on behalf of
U.S. Bioscience and assisting in study design, and (f) assisting U.S. Bioscience
in assigning, obtaining, maintaining, and enforcing all proprietary rights
relating to inventions he conceived or reduced to practice during
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<PAGE>
his employment with U.S. Bioscience that relate to any of U.S. Bioscience's
products, services or activities of which he is aware. U.S. Bioscience will make
reasonable efforts to provide Dr. Schein with advance notice when requesting his
services and he will make reasonable efforts to adapt his schedule to comply
with U.S. Bioscience's reasonable requests. Upon the request of Dr. Schein, in
connection with any U.S. Bioscience request for consulting services hereunder,
U.S. Bioscience shall advise Dr. Schein if in the reasonable judgment of U. S.
Bioscience a disclosure of material non-public information will be required in
order to render the requested consulting services. In the event Dr. Schein
chooses to provide such services, U.S. Bioscience shall identify the information
disclosed to Dr. Schein which U.S. Bioscience considers to be material non-
public information. Such consulting services may be performed by telephone
and/or by written communication and may require Dr. Schein's presence at U.S.
Bioscience's facilities or his travel outside of the greater Philadelphia area.
U.S. Bioscience shall advance to Dr. Schein or reimburse promptly all costs and
expenses related to such consulting services, including but not limited to,
secretarial support services, literature searches, slide preparation, conference
registration, travel and accommodations, and other reasonable expenses
appropriate to Dr. Schein's representation of U.S. Bioscience at conferences and
professional meetings. It is understood that such expenses shall be subject to
approval in advance by U.S. Bioscience.
7. Dr. Schein will not disclose to any other person or company, or
use for his own personal benefit, except as may be necessary in the performance
of his duties as a consultant for U.S. Bioscience, any confidential or
proprietary information disclosed to him or of which he becomes aware by reason
of his employment or consulting association with U.S. Bioscience. Such
confidential and/or proprietary information shall include all data and
information relating to
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<PAGE>
the business of U.S. Bioscience, whether or not it constitutes a trade secret,
which is or has been disclosed to Dr. Schein or of which Dr. Schein has become
aware or shall become aware as a consequence of his employment or consulting
relationship with U.S. Bioscience and which has value to U.S. Bioscience,
including, but not limited to, information relating to scientific and research
work of U.S. Bioscience, clinical, pharmacological and toxicological data,
regulatory filings, products, methods, processes, licenses, projects,
developments, formulas, and the financial or business affairs of U.S. Bioscience
regarding existing or potential business ventures and/or relationships,
employees or employees' compensation, projections, plans, development,
accounting and marketing studies or analyses and all information, improvements,
invention proposals and patent applications which have been conceived or reduced
to practice including, but not limited to, those conceived by Dr. Schein during
the Term of his employment by U.S. Bioscience or while performing consulting
services during the term of this Agreement excepting only such information which
shall have become a part of the public domain.
8. Without prior written consent of U.S. Bioscience, while Dr.
Schein is engaged by U.S. Bioscience as a consultant and continuing through the
period ending one (1) year after the conclusion of the Term, Dr. Schein will
not solicit or divert, either directly or indirectly, on his own behalf or in
the service of or on behalf of any other, or attempt to solicit or divert or
appropriate any business opportunity related to the pharmaceutical business of
which Dr. Schein became aware while an employee of U.S. Bioscience or may become
aware in the course of his service as a consultant to U.S. Bioscience during the
Term of this Agreement.
9. Without prior written consent of U.S. Bioscience, during the
Term, Dr. Schein will not solicit, induce or assist anyone else in soliciting
or inducing any current employee
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of U.S. Bioscience to terminate his/her employment with U.S.Bioscience to accept
employment with Dr. Schein or in any business with which he is associated.
10. (a) During the Term, Dr. Schein will not engage in or render any
services to or be employed by any Competing Business (as defined below).
(b) Dr. Schein agrees that he will not engage in or render any
services to or be employed by any business or enterprise that makes, uses, sells
or seeks regulatory approval for generic substitutes for any of the company's
products that as of the date of this Agreement are approved by the United States
Food and Drug Administration i.e. amifostine, trimetrexate glucuronate and
altretamine.
11. Dr. Schein acknowledges and agrees that the type and periods of
restrictions imposed in this Agreement are fair and reasonable, and that such
restrictions are intended solely to protect the legitimate interests of U.S.
Bioscience, rather than to prevent Dr. Schein from earning a livelihood. Dr.
Schein recognizes that U.S. Bioscience competes on a worldwide basis and that
the access to confidential information that Dr. Schein had make it necessary for
U.S. Bioscience to restrict Dr. Schein's post-employment activities in the
limited market in which U.S. Bioscience competes and in which Dr. Schein's
access to confidential information and other proprietary information could be
used to the detriment of U.S. Bioscience.
12. Dr. Schein acknowledges and agrees that if he should breach any
of the covenants, restrictions and agreements contained herein, irreparable loss
and injury would result to U.S. Bioscience, and that damage arising out of such
a breach may be difficult to ascertain. Dr. Schein therefore agrees that, in
addition to all other remedies provided at law or at equity, U.S. Bioscience may
petition and obtain from a court of law or equity all necessary temporary,
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<PAGE>
preliminary and permanent injunctive relief to prevent a breach by Dr. Schein of
any covenant contained in this Agreement. Dr. Schein agrees further, that if it
is determined by a court that he has breached the terms of this Agreement, U.S.
Bioscience shall be entitled to recover from him all costs and attorneys' fees
incurred as a result of its attempt to redress such a breach or to enforce its
rights and protect its legitimate interests.
13. The term "Competing Business" shall mean those businesses whose
products compete directly with U.S. Bioscience Products. U.S. Bioscience
Products means all products in which U.S. Bioscience has rights including,
without limitation, proprietary or commercial rights.
14. All documents, notes and other materials of any nature relating
to any confidential or proprietary information of U.S. Bioscience that are or
have been generated by Dr. Schein or come into his possession shall be owned
exclusively by U.S. Bioscience. Dr. Schein will not take any original of the
foregoing and will return the same to U.S. Bioscience upon request. In addition
to the foregoing, Dr. Schein will not publish any confidential or proprietary
information of U.S. Bioscience without the prior written consent of U.S.
Bioscience.
15. In any action brought by either party for enforcement of the
rights given by this Agreement, the prevailing party shall be entitled to
payment by the other of all reasonable attorneys' fees and costs incurred due to
or resulting from the action.
16. In the event of Dr. Schein's death prior to the receipt of all
amounts to which he is entitled hereunder, such amounts (including, without
limitation, all amounts due pursuant to Section 2 hereof) shall be paid to Dr.
Schein's spouse, or such other beneficiary as Dr. Schein may name by written
notice to U.S. Bioscience.
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<PAGE>
17. Neither party shall engage in any communications that disparage
or interfere with the other party's existing or prospective business
relationships.
18. This Agreement embodies the complete understanding and agreement
between U.S. Bioscience and Dr. Schein and supersedes any and all other prior
agreements between them, oral or written, express or implied, except for the
Executive Severance Agreement described below and the option agreements
previously issued to Dr. Schein and paragraphs 7 and 8 of Dr. Schein's
Employment Agreement dated March 1, 1993.
19. This Agreement shall be governed by the law of the Commonwealth
of Pennsylvania and any suit against U.S. Bioscience or Dr. Schein claiming a
breach hereof shall be maintained in a state or federal court in Pennsylvania.
20. Nothing in this Agreement is to be construed as an admission or
concession of liability or wrongdoing by either U.S. Bioscience or Dr. Schein.
21. Dr. Schein recognizes and acknowledges that the obligation of
U.S. Bioscience to provide the consideration recited herein is expressly
contingent upon his fulfillment and satisfaction of the obligations set forth
herein and recognizes that if he should fail to comply fully with any of the
provisions set forth herein, U.S. Bioscience may seek any appropriate remedy
including the recovery of damages, including any amounts paid pursuant to this
Agreement for such breach of the Agreement. Notwithstanding the foregoing, any
failure by Dr. Schein to accept any particular consulting assignments on the
basis that such consulting assignments would require disclosure to Dr. Schein
of material non-public information shall not constitute a breach of this
Agreement. Notwithstanding the foregoing, any failure or inability of U.S.
Bioscience in
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<PAGE>
whole or in part to utilize Dr. Schein's consulting services pursuant to Section
6 hereof shall not constitute a failure on the part of Dr. Schein to comply with
his obligations hereunder.
22. It is agreed and understood that Dr. Schein will make himself
available and cooperate in any reasonable manner during the Term and thereafter
to provide assistance to U.S. Bioscience as may be reasonably requested with due
notice for the purpose of concluding any matters that may arise in the future
relating to Dr. Schein's term of employment or consultant services with U.S.
Bioscience. It is understood that such cooperation and assistance shall be
requested and rendered on a basis not to interfere with any subsequent
employment or enterprise engaged in by Dr. Schein. It is agreed that, in the
event that Dr. Schein is requested to provide assistance during the period in
which he is receiving payments from U.S. Bioscience pursuant to paragraph 2, he
shall be reimbursed for reasonable out-of-pocket expenses incurred in providing
such assistance. In the event that such assistance is provided after the
cessation of the payments specified in paragraph 2, Dr. Schein shall be
reimbursed for reasonable out-of-pocket expenses and shall be compensated at a
rate of $450 per hour for time spent in providing such assistance.
23. Dr. Schein agrees and represents that:
(a) He has read carefully all of the terms of this Agreement;
(b) He has been encouraged to review this Agreement with an
attorney;
(c) He understands the meaning and effect of the terms of this
Agreement;
(d) He has been advised that he has at least twenty-one (21) days
to determine whether he wishes to enter into this Agreement;
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<PAGE>
(e) He understands that he has seven (7) days from the date of
execution of this Agreement to revoke his execution thereof;
(f) The entry into and execution of this Agreement is of his own
free will and a voluntary act without compulsion of any kind; and
(g) No promise or inducement not expressed herein has been made
to him.
24. U.S. Bioscience hereby represents to Dr. Schein that it has all
requisite corporate power and authority to enter into this Agreement and perform
its obligations hereunder, and that this Agreement has been duly authorized,
executed and delivered by U.S. Bioscience and constitutes its legal, valid and
binding obligation, enforceable against it in accordance with its terms.
25. If any part or term of this Agreement is subsequently determined
by any court of competent jurisdiction to be unenforceable or illegal, such
determination shall not affect the enforceability, legality or binding nature of
any other term or provision of this Agreement.
26. The parties to this Agreement are parties to an Executive
Severance Agreement dated October 14, 1991 (the "Executive Severance
Agreement"). Dr. Schein agrees that in the event he becomes eligible to receive
compensation under the Executive Severance Agreement, such compensation shall be
reduced by an amount equal to the amount paid to Dr. Schein under this
Agreement. The Executive Severance Agreement shall cease to be applicable to
Dr. Schein in accordance with paragraph 2(b) of the Executive Severance
Agreement.
27. Upon the written request of Dr. Schein, U.S. Bioscience agrees to
extend for one additional year, the Term of this Agreement as set forth in this
paragraph 27. Such
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<PAGE>
approval shall not be unreasonably withheld. During any such extension, U.S.
Bioscience shall not be required to make any payments or provide any benefits or
considerations to Dr. Schein except as set forth expressly in this paragraph 27.
As consideration for such extension, Dr. Schein agrees to make himself available
to U.S. Bioscience for up to 50 hours of consulting services with respect to
mutually agreeable matters. During the term of such one year extension and for
three months thereafter, Dr. Schein shall have the right to continue to vest
non-statutory stock options and the right to a cashless exercise of such vested
options.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
/s/ Philip S. Schein
- ------------------------------
Philip S. Schein, M.D.
residing at 605 Old Gulph Road
Bryn Mawr, PA 19010
U.S. BIOSCIENCE, INC.
/s/ Robert I. Kriebel
- ------------------------------
Robert I. Kriebel
Executive Vice President,
Chief Financial Officer and Treasurer
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<PAGE>
EXHIBIT 10.39
U.S. Bioscience, Inc.
Executive Severance Agreement
with C. Boyd Clarke
Table of Contents
Page
----
1. Employment . . . . . . . . . . . . . . . . . . 2
2. Effective Date and Term. . . . . . . . . . . . 2
3. Position and Duties. . . . . . . . . . . . . . 4
4. Place of Performance . . . . . . . . . . . . . 4
5. Compensation and Benefits. . . . . . . . . . . 6
(a) Base Salary
(b) Compensation Elements
(c) Expenses
(d) Company Plans
(e) Fringe Benefits
(f) Vacations
(g) Acceleration of Outstanding Stock Options
(h) Changes Made Within 180 Days
Preceding the Effective Date
6. Unauthorized Disclosure . . . . . . . . . . . . 12
7. Termination of Employment . . . . . . . . . . . 13
(a) Death
(b) Disability
(c) Cause
(d) Termination by the Executive
(e) Notice of Termination
8. Compensation Upon Company Termination Without Cause
or Executive Resignation for Good Reason . . . . 14
9. Compensation Upon Termination of Employment Upon
Death or Disability, or During Disability, or
for Cause or Upon Resignation . . . . . . . . . . 18
<PAGE>
(a) Death
(b) Disability
(c) Cause
(d) Resignation
Page
----
10. No Mitigation . . . . . . . . . . . . . . . . . . 20
11. Successors; Binding Agreement . . . . . . . . . . 20
12. Participation in Certain Plans. . . . . . . . . . 22
13. Certain Expenses. . . . . . . . . . . . . . . . . 23
14. Certain Agreements of the Executive . . . . . . . 23
15. Section 280G of the Internal Revenue Code
of 1986 . . . . . . . . . . . . . . . . . . . . . 26
16. Arbitration . . . . . . . . . . . . . . . . . . . 30
17. Definitions . . . . . . . . . . . . . . . . . . . 31
18. Miscellaneous . . . . . . . . . . . . . . . . . . 39
<PAGE>
U.S. Bioscience, Inc.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
September 3, 1996
C. Boyd Clarke
President and Chief Operating Officer
U.S. Bioscience, Inc.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
Dear Mr. Clarke:
U.S. Bioscience, Inc. (the "Company") considers that establishing and
maintaining a sound and vital management is essential to protecting and
enhancing the best interests of the Company and its stockholders. In this
connection, the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control exists, and that it is of
the utmost importance to the Company and its stockholders, because of such
possibility, to provide for the continuity of management and its uninterrupted
attention and dedication to the affairs of the Company. Accordingly, the Board
of Directors of the Company (the "Board") has determined that
<PAGE>
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including yourself (referred
to in this agreement as the "Executive"), to their assigned duties without
distraction in the face of the potentially disturbing circumstances that could
arise from a change in control of the Company or rumors thereof.
In order to induce you to remain in the employ of the Company, or any
present or future subsidiary (hereinafter included, as appropriate, in the term
"Company"), this agreement sets forth the terms on which your employment
relationship with the Company will continue in the event of a "Change in Control
of the Company" (this term and other terms capitalized in this agreement are
defined where first used and/or are defined in paragraph 17), and the severance
benefits that will be provided to you if your employment with the Company is
terminated on or after the Effective Date (a) by the Company for any reason
other than your death, your Disability or Cause, or (b) by you as a result of a
resignation for Good Reason (any of which events are defined as a
"Termination").
1. Employment. The Company agrees to continue to employ the
----------
Executive, and the Executive agrees to continue to serve the Company, on the
terms and conditions set forth in this agreement, for the period commencing on
the Effective Date and
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thereafter for the term provided in paragraph 2 unless sooner terminated in
accordance with the terms of this agreement.
2. Effective Date and Term.
-----------------------
(a) This agreement shall become binding upon the parties as of the
date of this agreement, provided that this agreement shall not become binding
unless it is executed by the Executive and delivered to the Company within the
time set forth on the last page of this agreement. However, anything in this
agreement to the contrary notwithstanding, neither this agreement nor any
provision thereof shall be operative, and neither the Company nor the Executive
shall have any rights or obligations under this agreement, until the Effective
Date. This agreement shall define the respective rights and obligations of the
Company and the Executive for a period of three years (or longer where expressly
provided) commencing on the Effective Date (the "Employment Term"), without
further action by either party, unless this agreement is sooner terminated by
the Company or the Executive by mutual agreement or in accordance with
subparagraph (b) below. This agreement, however, shall be of no further force
and effect upon (i) receipt by the Company of notice from the Executive of the
Executive's intent to terminate employment if such notice does not state
specifically that the Executive is terminating employment for Good Reason or
(ii) the cessation of
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the Executive's active employment relationship with the Company for any reason
prior to the Effective Date.
(b) Unless otherwise provided in the writing referred to in paragraph
3, this agreement shall terminate upon any material diminution more than 180
days prior to the Effective Date in the positions, powers or duties of the
Executive as they exist as of the date of this agreement.
3. Position and Duties. The Executive presently serves the Company
-------------------
as an executive officer of the Company, with such titles, powers and duties as
have been assigned to the Executive from time to time by the Board. Unless
changed by the Board prior to the Effective Date, the Executive shall serve in
such positions and shall have such powers and duties during the Employment Term.
The Executive shall have such other powers and duties as may from time to time
be prescribed by the Board after the Effective Date, provided such powers and
duties are consistent with the Executive's powers and duties immediately prior
to the Effective Date. The Executive shall devote substantially all of the
Executive's working time and efforts to the business and affairs of the Company
except for permitted vacation, illness or incapacity; provided, however, that
nothing in this agreement shall preclude the Executive from devoting reasonable
periods required for serving as a director or member of a committee of any
organization involving no conflict of
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interest with the interests of the Company, from engaging in charitable and
community activities and from managing the Executive's personal investments and
affairs, provided that such activities do not materially interfere with the
regular performance of the Executive's duties and responsibilities under this
agreement.
4. Place of Performance. In connection with the Executive's
--------------------
employment by the Company, the Executive shall be based at the Company's
principal executive offices and shall not be required to be absent therefrom on
travel status or otherwise in any calendar year more than (i) forty-five days if
the Executive has worked less than 730 days for the Company preceding the
Effective Date or (ii) one-half the number of days the Executive was absent from
the office on travel status during the 730 days preceding the Effective Date.
The Company shall not relocate its principal executive offices to a location
which is more than 30 road miles from its principal executive offices on the
Effective Date and which is also both more than 25 road miles from the
Executive's then current residence and more than 10 road miles further from the
Executive's then current residence than the location of the principal executive
offices on the Effective Date. If after the Effective Date the Company
relocates its principal executive offices to a new location contrary to its
agreement in this Paragraph 4, and the Executive waives the
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<PAGE>
Executive's right to terminate this agreement for "Good Reason" by reason of the
failure of the Company to comply with its agreement in this Paragraph 4, then
the Company will promptly pay (or reimburse the Executive for) all reasonable
moving expenses incurred by the Executive relating to a change of the
Executive's then current residence to a new residence 10 or more road miles
closer to the new location of the Company's principal executive offices in
connection with any such relocation of the Company's principal executive
offices.
5. Compensation and Benefits.
-------------------------
(a) Base Salary. The Executive shall receive a base salary at the
-----------
annual rate in effect on the Effective Date, or at such greater annual rate as
the Board shall from time to time determine ("Base Salary"), payable in
accordance with the Company's normal payroll practices. Commencing on the
January 1 next following the Effective Date, the Executive's Base Salary shall
be subject to increase (but not decrease) each calendar year during the
Employment Term by no less than the average percentage increase in base salary
for that particular year given to the Company's other executives (positions in
the Company which are titled as Vice President or higher as of the date of this
agreement and, in the event of any change or changes in titles in the future,
positions in the Company, regardless of the actual title assigned, which have
duties and responsibilities
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<PAGE>
commensurate with those exercised by individuals acting as Vice President or
higher in the Company as of the date of this agreement). The annual Base Salary
increase will be calculated as follows: (i) the percentage increases for all
executives will be aggregated and divided by the number of executives; (ii) the
percentage increases for only those executives whose percentage increases are
greater than the average determined pursuant to subparagraph (i) will be
aggregated and divided by the number of those executives; (iii) each executive
whose percentage increase was less than the average percentage increase
determined pursuant to subparagraph (i) will have the Executive's percentage
increase increased to the average determined pursuant to subparagraph (ii).
(b) Compensation Elements. The Executive shall receive Compensation
----------------------
Elements at the same level (in dollars or as a percentage of Base Salary,
depending on how historically calculated) as in effect immediately prior to the
Effective Date. "Compensation Elements" shall not include the Executive's Base
Salary and as used herein shall mean annual or other bonuses, incentive
compensation and other items of compensation of a nature to be reported to the
Internal Revenue Service as "wages, tips and other compensation", and amounts
deferred under a Company deferred compensation plan whether or not reportable to
the Internal Revenue Service as current income.
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<PAGE>
(c) Expenses. The Executive shall be entitled to receive prompt
--------
reimbursement for all reasonable expenses incurred by the Executive in
performing services hereunder, in accordance with the reimbursement practices in
effect immediately prior to the Effective Date, provided that the Executive
accounts for them in accordance with Company policy.
(d) Company Plans. The Executive shall be and continue to be a full
-------------
participant in the Company's stock option plans and any other plans in effect
immediately prior to the Effective Date, with at least the same reward
opportunities that have theretofore been provided. Nothing in this agreement
shall preclude improvement of reward opportunities in such plans or other plans.
(e) Fringe Benefits. The Executive shall be entitled to participate
---------------
in or receive benefits under all the Company's employee benefit plans and
arrangements (collectively "Fringe Benefits") which are the greater of the
employee benefits and perquisites (i) then provided by the Company to any other
employee of the Company with comparable authority or duties (and in any event
not less than provided to any other executive or other employee of the Company
with junior authority or duties), or (ii) those applicable to the Executive in
effect immediately prior to the Effective Date, or plans or arrangements
providing the Executive with at least equivalent benefits. In determining
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<PAGE>
the equivalency of benefits with respect to any tax qualified pension or
retirement plan, if such plan is terminated or modified in a manner detrimental
to the Executive, the Executive shall receive in lieu thereof cash payments,
grossed up to offset the additional federal, state and local income tax
liabilities the Executive will incur as a result of receiving such payments, (i)
in the case of any defined benefit plan, in an amount equal to the difference
between the present value of the accrued benefit the Executive would have
received if the plan had not been terminated or modified to his detriment and
the present value of the accrued benefit the Executive is entitled to under such
plan as modified or terminated, (ii) in the case of any defined contribution
plan, other than with respect to any 401(k) cash or deferred arrangement feature
of such plan, in an amount equal to the Company contributions that would have
been required to be made to the plan for the Executive's benefit if the plan had
not been so modified or terminated, and (iii) in the case of a 401(k) cash or
deferred arrangement feature of a defined contribution plan, in an amount equal
to the Company matching contribution that would have been made for the
Executive's benefit if the plan had not been so modified or terminated and the
Executive had made the maximum salary reduction contribution permitted by the
plan on the Effective Date. With respect to Fringe Benefits other than those
attributable to tax qualified
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<PAGE>
plans, the equivalent benefits to be provided to the Executive shall be in the
aggregate with respect to such Fringe Benefits rather than on a benefit by
benefit basis. "Fringe Benefits" as used herein shall mean employee benefits,
including, without limitation, any savings or retirement plan, disability,
medical, dental, executive medical reimbursement, life, accident, health,
umbrella liability and other insurance programs, vacation (including any accrued
vacation consistent with Company policy), floating holidays, car allowances and
purchases, office support, accommodations and staff and any other perquisites
provided by the Company. In lieu of the Executive's participation in or receipt
of benefits under any such plan or arrangement, the Executive may at the
Executive's request participate in or receive benefits under any pension plan,
profit-sharing plan, savings plan, life insurance or health-and-accident plan or
arrangement made available by the Company on or following the Effective Date to
its executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements.
(f) Vacations. Without limiting the generality of subparagraph (e)
---------
above, the Executive shall be entitled to the number of paid vacation days in
each calendar year determined by the Company from time to time for its executive
officers (prorated in any calendar year during which the Executive is
-10-
<PAGE>
employed hereunder for less than the entire such year in accordance with the
number of days in such calendar year during which the Executive is so employed),
consistent with the Executive's positions and length of service with the
Company. Any accrued but unused vacation time due the Executive on the Effective
Date shall remain the Company's obligation, to be paid to the Executive upon
termination of employment. The Executive shall also be entitled to all paid
holidays given by the Company to its executives.
(g) Acceleration of Outstanding Stock Options. With respect to all
-----------------------------------------
options held by the Executive, while serving the Company as a payroll employee
of the Company, on the Effective Date to purchase securities of the Company, or
of any other company that is, or is affiliated with, any successor company
described is paragraph 11, that become exercisable, in whole or in part, after
the Effective Date, the exercise date of all such options shall automatically
accelerate to the Effective Date. [Note: Before selling securities acquired
through the exercise of options, the Executive should consult the Executive's
counsel with respect to reporting obligations and potential short-swing profit
liability of the Executive pursuant to Section 16 of the Securities Exchange Act
of 1934.]
(h) Changes Made Within 180 Days Preceding the Effective Date. In the
------------------------------------------ --------------
event that the Executive's Base Salary
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<PAGE>
and/or Compensation Elements and/or Fringe Benefits are reduced, or there is any
material reduction in the positions, powers or duties of the Executive, within
180 days preceding the Effective Date, such Base Salary and/or Compensation
Elements and/or Fringe Benefits and/or positions, powers or duties, as the case
may be, shall upon the Effective Date be restored retroactively to their
previous levels, notwithstanding the Executive's agreement to such reduction
prior to the Effective Date. If the Executive's employment is terminated by the
Company other than by reason of the Executive's Disability or Cause, or if the
Executive shall terminate the Executive's employment for reasons equivalent to
Good Reason, within 180 days preceding a Change in Control of the Company, this
agreement shall become operative retroactively to the date of such termination
of employment, and such date of termination of employment shall be deemed to be
the Effective Date for purposes of this agreement. Under such circumstances, in
addition to the Executive's rights and obligations under paragraph 8 and
elsewhere in this agreement, the Executive shall be entitled, subject to the
provisions of paragraph 15, to a lump sum payment, payable when the amount
payable pursuant to paragraph 8(b) is payable, in an amount determined by
calculating the Fair Market Value on the date of the Change in Control of the
Company (not the date deemed to be the Effective Date) of all securities of the
Company which were subject to purchase options
-12-
<PAGE>
held by the Executive on the date of the Executive's termination of employment
but which were not exercisable following such termination of employment, and
subtracting from such amount the aggregate exercise price of all such options.
6. Unauthorized Disclosure. During the Employment Term and
-----------------------
thereafter, the Executive shall not make any Unauthorized Disclosure; i.e. shall
not disclose to any person, other than an employee of the Company or a person to
whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Executive of the Executive's duties as an executive of the
Company, any confidential information obtained by the Executive while in the
employ of the Company with respect to any of the Company's products,
improvements, formulas, processes, customers, methods of distribution or methods
of manufacture; provided, however, that confidential information shall not
include any information known generally to the public (other than as a result of
unauthorized disclosure by the Executive) or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that conducted by the Company.
The obligations of the Executive under this paragraph 6 shall be in
addition to any other obligation of non-disclosure the Executive may have under
the law or under any other agreement with the Company in effect on the Effective
Date.
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<PAGE>
7. Termination of Employment.
-------------------------
(a) Death. The Executive's employment shall terminate upon the
-----
Executive's death.
(b) Disability. The Company may terminate the Executive's
----------
employment upon the Executive's Disability.
(c) Cause. The Company may terminate the Executive's employment
-----
for Cause.
(d) Termination by the Executive. The Executive may terminate
----------------------------
the Executive's employment (i) for Good Reason, (ii) if the Executive's health
should become impaired to an extent that makes the continued performance of the
Executive's duties hazardous to the Executive's physical or mental health or
life, or (iii) by giving at least 30 days prior written notice to the Company of
the Executive's intention to terminate employment, for any reason at any time
after the third anniversary of the Effective Date or after the Executive reaches
age 65, whichever first occurs.
(e) Notice of Termination. Any termination by the Company
---------------------
pursuant to subparagraph (b) ("Disability") or (c) ("Cause") above or by the
Executive pursuant to subparagraph (d) above shall be communicated by written
Notice of Termination to the other party hereto.
8. Compensation Upon Company Termination Without Cause or Executive
----------------------------------------------------------------
Resignation for Good Reason. If the Company
- ---------------------------
-14-
<PAGE>
shall terminate the Executive's employment other than pursuant to paragraph 7(b)
("Disability") or paragraph 7(c) ("Cause"), or if the Executive shall terminate
employment for Good Reason, then
(a) The Company shall pay the Executive the Executive's full Base
Salary at the rate in effect on the Date of Termination, Compensation Elements
(at the level in effect at Date of Termination) and Fringe Benefits, through the
Date of Termination.
(b) In lieu of any further Base Salary and Compensation Elements
to be paid to the Executive for periods subsequent to the Date of Termination,
the Company shall pay as severance pay to the Executive, on or before the later
of the tenth day following the Date of Termination or the tenth day following
receipt of the determination of Independent Tax Counsel and the election of the
Executive referred to in paragraph 15(a), a lump sum equal to the product of
multiplying the highest annual compensation (Base Salary plus Compensation
Elements) paid or payable by the Company to the Executive with respect to each
of the three calendar years ending with the year in which the Date of
Termination occurs (annualized with respect to a partial calendar year), by the
number of years (including any fraction of a year) remaining in the Employment
Term subsequent to the Date of Termination.
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<PAGE>
With respect to a Compensation Element not yet paid or accrued with
respect to any year (including the year in which the Date of Termination
occurs), such Compensation Element will, for purposes of this subparagraph (b),
be deemed to be payable to the Executive with respect to any such year in the
amount, or according to the formula, indicated in such Executive's engagement
letter to be expected with respect to such year or, if such amount or formula to
be expected is not indicated in an engagement letter, then in the average
annualized amount (in relation to Base Salary if relevant) most recently paid or
payable by the Company to other Company executives with the same status (e.g.
Executive Vice President, Senior Vice President, Vice President, etc.) or, if
there is no executive with the same status, in an amount equal to the average
annualized amount most recently paid by the Company to all executives one status
level above and one status level below the Executive's status level.
(c) In lieu of any further Fringe Benefits (including any 401(k)
savings plan) to be paid to the Executive for periods subsequent to the Date of
Termination (except with respect to the Company's pension plan, as hereinafter
provided), the Company shall pay as severance pay to the Executive, on or
before the later of the tenth day following the Date of Termination or the tenth
day following receipt of the
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<PAGE>
determination of Independent Tax Counsel and the election of the Executive
referred to in paragraph 15(a), a lump sum equal to the product of multiplying
$30,000 by the number of years (including any fraction of a year) remaining in
the Employment Term subsequent to the Date of Termination. The foregoing payment
shall not affect any rights of the Executive under the Consolidated Omnibus
Budget Reconciliation Act (popularly known as COBRA) amendments to the
Employment Retirement Income Security Act, as amended.
(d) The Company will pay as severance pay to the Executive, on or
before the later of the tenth day following the Date of Termination or the tenth
day following receipt of the determination of Independent Tax Counsel and the
election of the Executive referred to in paragraph 15(a), an amount (the
"Pension Payment") equal to the sum of (i) the amount, if any, by which the
Executive's nonforfeitable accrued benefit in the U.S. Bioscience, Inc. Money
Purchase Pension Plan (the "Pension Plan") on the Date of Termination,
determined with credit for service (solely for the purpose of determining the
Executive's nonforfeitable percentage of his accrued benefit) during the
Severance Period, exceeds such benefit determined without credit for service
during the Severance Period and (ii) the product of the Executive's Adjusted
Vesting Percentage and the Company contributions that would have been allocated
to the Pension Plan
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<PAGE>
on behalf of the Executive during the Severance Period in accordance with the
terms of the Pension Plan in effect on the Date of Termination and assuming the
Executive continued to earn the same annual compensation during the Severance
Period as the Executive was earning on the Date of Termination. The Company will
gross up the Pension Payment to offset the additional federal, state and local
income tax liabilities the Executive or the Executive's estate will incur as a
result of receiving the Pension Payment. "Adjusting Vesting Percentage" shall
mean the Executive's nonforfeitable percentage interest, if any, in the
Executive's accrued benefit under the Pension Plan on the Date of Termination
determined as if the Executive's Date of Termination occurred on the last day of
the Employment Term. "Severance Period" shall mean the period commencing on the
Date of Termination and ending on the last day of the Employment Term.
(e) In lieu of receiving in a lump sum the payments provided in
subparagraphs (b) and (c) above, the Executive may, in a writing delivered to
the Company prior to the date that such amount would otherwise become payable,
elect to receive such amount on the next January 1 or in two or more, but not
more than five, substantially equal annual installments commencing on the next
January 1 and continuing until such amount has been paid in full. The Company
shall not be obligated to establish any reserve or other fund with respect to
the payment
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<PAGE>
of such amount, and, unless the Company shall fail to pay any such installment
within ten days of the date on which it is payable, the Executive shall have no
right to receive such amount other than as provided in the above election.
9. Compensation Upon Termination of Employment Upon Death or
---------------------------------------------------------
Disability, or During Disability, or For Cause or Upon Resignation.
- ------------------------------------------------------------------
(a) Death. If the Executive's employment shall be terminated by
-----
reason of death, the Company shall pay to the Executive's designee identified in
a written designation filed by the Executive with the Company during the
Executive's lifetime or, if there be no such designation, to the Executive's
estate, in a lump sum, an amount equal to the Executive's Base Salary and
Compensation Elements at the level in effect at date of death through the date
of death and for a period of 26 additional weeks. This amount shall be
exclusive of and in addition to any payments the Executive's surviving spouse,
beneficiaries or estate may be entitled to receive pursuant to any pension or
employee Fringe Benefit maintained by the Company.
(b) Disability. During any period that the Executive fails to perform
----------
the Executive's duties hereunder as a result of incapacity due to physical or
mental illness or injury, the Executive shall continue to receive the
Executive's full Base Salary, Compensation Elements and Fringe Benefits until
the
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<PAGE>
Executive's employment is terminated pursuant to the provisions of this
agreement. After termination, the Executive shall be paid 100% of the
Executive's Base Salary and Compensation Elements (at the level in effect at
Date of Termination) through the Date of Termination and for a period of 26
additional weeks (less any consecutive period of time immediately prior to the
Date of Termination during which the Executive failed to perform the Executive's
duties hereunder as a result of incapacity due to physical or mental illness or
injury, calculating such consecutive period of time starting upon expiration of
any sick leave to which the Executive would be entitled, independent of this
subparagraph (b), during such consecutive period of time), which payments shall
be made notwithstanding the death of the Executive during such payment period.
Thereafter the Executive shall be paid an annual amount equal to the amount that
the Executive would have received under any disability plan(s) of the Company in
effect on the Effective Date, but in no event for a shorter period of time than
five years; provided, that such payments shall terminate effective upon the
death of the Executive except to the extent that such payments would have
continued under any disability plan(s) of the Company in effect on the Effective
Date. All payments provided for in this subparagraph (b) shall be reduced by any
disability payments
-20-
<PAGE>
actually paid to the Executive pursuant to plans provided by the Company.
(c) Cause. If the Executive's employment shall be terminated for
-----
Cause, the Company shall pay the Executive, subject to any offsetting claim
asserted by the Company in good faith, the Executive's full Base Salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given.
(d) Resignation. If the Executive terminates this agreement pursuant
-----------
to paragraph 7(d)(iii), the Executive shall receive as severance pay on the
tenth day following the Date of Termination the amount of the Executive's Base
Salary through the Date of Termination at the rate in effect at the time Notice
of Termination is given.
10. No Mitigation. The Executive shall not be required to mitigate
-------------
the amount of any payment to be made to the Executive pursuant to paragraph 8 or
paragraph 9 by seeking employment or otherwise, and nothing earned by the
Executive following the termination of the Executive's employment under this
agreement shall affect the amount of any payment required to be made to or in
respect of the Executive pursuant to paragraph 8 or paragraph 9.
11. Successors; Binding Agreement.
-----------------------------
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<PAGE>
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, to expressly
assume and agree to perform this agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of such succession shall be a breach of this agreement and shall
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled to hereunder if the Executive
terminated employment for Good Reason, except that for purposes of implementing
the foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in this agreement, "Company" shall mean
the Company and any successor to its business and/or assets which executes and
delivers the agreement provided for in this paragraph 11 or which otherwise
becomes bound by this agreement by operation of law.
(b) This agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives. If the Executive should die while any amounts would still be
payable to the Executive hereunder if the Executive had continued
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<PAGE>
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this agreement to the Executive's designee
identified in a written designation filed by the Executive with the Company
during the Executive lifetime or, if there be no such designation, to the
Executive's estate.
12. Participation in Certain Plans. Nothing in this agreement
------------------------------
shall prevent or limit the Executive's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices
provided by the Company and for which the Executive may qualify, nor shall
anything herein limit or otherwise affect such rights as the Executive may have
under any stock option or other agreements with the Company. Amounts which are
(or become by virtue of this agreement) vested benefits or which the Executive
is otherwise entitled to receive under any plan, policy, practice or program of
the Company at or subsequent to the Date of Termination shall, unless otherwise
provided herein, be payable in accordance with such plan, policy, practice or
program. Without limiting the foregoing, neither the termination of the
Executive's employment by the Company for any reason whatsoever (including
termination by the Company for Cause), nor termination of employment because of
the Executive's death, shall result in a forfeiture, reduction or other
diminution of any of the Executive's entitlements or benefits
-23-
<PAGE>
which are vested as of such date or, in the absence of this agreement, would
continue to be exercisable by or otherwise be available to the Executive,
including, without limitation, funded benefits under any qualified plans of the
Company, vested stock options, unfunded benefits and entitlements under any
Company disability plan and other insurance programs of the Company.
13. Certain Expenses. The Company agrees to pay, to the full
----------------
extent permitted by law, all reasonable legal fees and expenses which the
Executive may reasonably incur as a result of any contest by the Company or
others of the validity or enforceability of, or liability under, any provision
of this agreement (including as a result of any contest by the Executive about
the amount of any payment pursuant to paragraph 13 hereof), provided that, in
the case of matters between the Executive and the Company, the Executive shall
have prevailed (after all appeals and appeal periods) in such litigation with
respect to such matters. Such right to reimbursement of reasonable legal fees
and expenses shall be immediate upon the presentment, after the Executive has
prevailed in such litigation, by the Executive of written billings for such
reasonable fees and expenses. The Executive shall be paid interest on any
payments of such expenses, or any other payments under this agreement, that are
overdue, at the rate per annum equal to the prime rate quoted
-24-
<PAGE>
from time to time by the principal New York City branch of The Bank of New York
or any successor thereto.
14. Certain Agreements of the Executive.
-----------------------------------
(a) The Executive agrees that the Executive will not file any lawsuit
or administrative claim of any kind against the Company arising from the
Executive's employment by or termination of employment with the Company except
with respect to the matters referred to in subparagraphs (c)(i), (ii) or (iii)
hereof. The Executive also agrees that the Executive will refrain from
disparagement of the Company and, except with respect to the matters referred to
in subparagraphs (c)(i), (ii) or (iii) hereof, from testifying against the
Company in any type of proceeding unless compelled to do so by appropriate
judicial order. The Executive agrees to give testimony and otherwise cooperate
(including attending meetings) as reasonably requested by the Company regarding
any claim, lawsuit or action involving matters relating in any way to the
Executive's employment by the Company and the Company agrees to reimburse the
Executive for the Executive's reasonable expenses in so cooperating.
Notwithstanding the foregoing, nothing stated by the Executive under oath in a
judicial or administrative proceeding shall be deemed a violation of the terms
and provisions of this agreement.
(b) The Company shall, to the full extent permitted by law, indemnify
the Executive and the Executive's
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<PAGE>
personal and legal representatives to the extent provided in paragraphs A and B
of Article SIX of the Company's Certificate of Incorporation as it exists on the
date this agreement becomes binding.
(c) The Executive, on behalf of the Executive and the Executive's
heirs and personal representatives, hereby unconditionally releases the Company
and its affiliates from and forever discharges them against any and all actions,
suits or claims in law or in equity arising from a termination of employment
which the Executive may have or will have, whether known or unknown, other than
any actions, suits or claims (i) which relate to injury, intentional or
otherwise, to the person or property, misrepresentation, defamation, the right
of privacy, misuse of legal procedure, survival or wrongful death, products
liability, or interference, unrelated to the Executive's acts as an employee,
officer or director of the Company, with contractual relations or prospective
advantage, or (ii) which relate to any amounts, benefits or service credits for
benefits which are owed or owing to the Executive or on the Executive's behalf,
as an employee, officer or director of the Company, and which have not been
received by the Executive, reimbursed to the Executive or paid or funded by the
Company on the Executive's behalf as of the Date of Termination, or (iii) which
arise under this agreement. Notwithstanding the foregoing, (A) nothing in this
agreement
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<PAGE>
shall prevent the Executive from participating as a member of a class of
security holders of the Company in any litigation or proceeding brought against
the Company by such class of security holders, or prevent the Executive from
receiving any dividends or proceeds payable to members of any class of security
holders who instituted a proceeding or litigation against the Company or
otherwise payable to security holders of the Company generally and (B) the
Executive shall be entitled to receive an amount, based upon the Executive's
ownership of Company securities, equal to any award paid to any class of
security holders of the Company in any litigation or proceeding brought against
the Company by a class of security holders as if the Executive were a member of
such class (without duplication of payments and subject to the same burdens as
members of such class).
15. Section 280G of the Internal Revenue Code of 1986.
-------------------------------------------------
(a) Anything in this agreement to the contrary notwithstanding, in
the event that it shall be concluded by independent tax counsel ("Independent
Tax Counsel") designated by the Executive and reasonably acceptable to the
Company that any payment or distribution by the Company to or for the
Executive's benefit (whether paid or payable or distributed or distributable
pursuant to the terms of this agreement or otherwise) (a "Payment") will be
nondeductible by the Company for federal income tax purposes because of Section
280G (or any successor
-27-
<PAGE>
provision) of the Internal Revenue Code of 1986, as amended (the "Code"), then
the aggregate present value of amounts payable or distributable to or for the
Executive's benefit pursuant to this agreement shall be reduced (but not below
zero) to the "Reduced Amount." The "Reduced Amount" shall be an amount expressed
in present value that maximizes the aggregate present value of Payments without
causing any Payments to be nondeductible because of said Section 280G of the
Code. The determination of the Reduced Amount shall be made within 30 business
days after the Date of Termination by Independent Tax Counsel, who shall provide
detailed calculations thereof to the Company and to the Executive; provided,
however, that the Executive may, in the Executive's sole discretion, elect which
and how much of the amounts and/or benefits to be received by the Executive
shall be eliminated or reduced (as long as after such election the present value
of the amounts payable or distributable to the Executive hereunder equals the
Reduced Amount), and shall advise the Company in writing of such election within
30 business days of the Executive's receipt of Independent Tax Counsel's
determination. If no such election is made by the Executive within such 30-day
period, the Company may elect which of such amounts and/or benefits shall be
eliminated or reduced (as long as after such election the present value of the
amounts payable or distributable to the Executive hereunder equals the Reduced
-28-
<PAGE>
Amount) and shall notify the Executive promptly of such election. For purposes
of this calculation, present value shall be determined in accordance with
Section 280G of the Code and any regulations thereunder. As promptly as
practicable following the Date of Termination, the Company shall pay to the
Executive or distribute for the Executive's benefit such amounts as are then due
to the Executive under this agreement or otherwise and shall promptly pay to the
Executive or distribute for the Executive's benefit in the future such amounts
as become due to the Executive under this agreement or otherwise.
(b) Within 30 days after the giving of a Notice of Termination, the
Executive shall designate Independent Tax Counsel, and the Company shall
indicate whether such Independent Tax Counsel is acceptable to the Company as
soon as practicable thereafter. The Company and the Executive shall promptly
provide such Independent Tax Counsel with such information as such Independent
Tax Counsel shall reasonably request in connection with its initial or any
subsequent determination. Both the Company and the Executive shall promptly
inform the Independent Tax Counsel of any audits, claims, arbitrations, or
administrative or judicial proceedings which may affect the determination of
Independent Tax Counsel regarding the Reduced Amount or any Overpayment or
Underpayment, including, without limitation, any examination by the Internal
Revenue Service of
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<PAGE>
the returns of the Company or the Executive, or any claim by the Company or the
Executive regarding the obligations of one to the other. Subsequent to the
initial determination of the Reduced Amount, if any, Independent Tax Counsel
shall not be required to consider whether an Overpayment or Underpayment has
been made unless requested to do so by the Company or the Executive. The Company
and the Executive may, by agreement, appoint a replacement or substitute
Independent Tax Counsel.
(c) Because of the uncertainty in the application of Section 280G of
the Code, it is possible that amounts will have been paid or distributed by the
Company to the Executive or for the Executive's benefit pursuant to this
agreement which should not have been so paid or distributed ("Overpayment") or
that additional amounts which will have not been paid or distributed by the
Company to the Executive or for the Executive's benefit pursuant to this
agreement could have been so paid or distributed ("Underpayment"), in each case,
consistent with the calculation of the Reduced Amount hereunder. Subject to the
last paragraph of this paragraph 15, in the event that Independent Tax Counsel
determines that an Overpayment has been made because of a mistake in fact or law
or because of a final determination involving the Payments by a court, or in
connection with an Internal Revenue Service proceeding which is no longer
subject to appeal, any such Overpayment shall be treated for all
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<PAGE>
purposes as a loan to the Executive which the Executive shall repay to the
Company together with interest at the applicable federal rate provided for in
Section 7872(f)(2)(B) of the Code; provided, however, that no amount shall be
payable by the Executive to the Company if and to the extent such payment would
not reduce the amount which is subject to taxation under Section 4999 of the
Code. Subject to the last paragraph of this paragraph 15, in the event that
Independent Tax Counsel determines that an Underpayment has occurred because of
a mistake in fact or law or because of a final determination involving the
Payments by a court or in connection with an Internal Revenue Service
proceeding, any such Underpayment shall be promptly paid by the Company to the
Executive or for the Executive's benefit together with interest at the
applicable federal rate provided for in Section 7872(f)(2)(B) of the Code. In
calculating amounts required to be repaid by the Executive to the Company
pursuant to any Overpayment, the Overpayment shall be deemed to consist of the
most recent payments from the Company to Executive hereunder, in reverse order
of payment, and interest on such Overpayment shall run from the dates on which
the payments constituting the Overpayment were made.
(d) The Executive and the Company agree that each will in all cases
file tax returns on a basis consistent with any determination made or conclusion
reached under this paragraph 15,
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<PAGE>
and will defend such position to the extent practicable in the event a contrary
position is taken by the Internal Revenue Service. The Executive shall be
entitled to reimbursement of reasonable counsel fees and expenses in connection
with any such defense. In addition, the Company shall pay all of the reasonable
fees and expenses of Independent Tax Counsel.
16. Arbitration. Any dispute arising under or in connection with
-----------
this agreement, including claims by the Executive for violation of any federal,
state or local statute or ordinance, shall be settled exclusively by arbitration
held in the City of Philadelphia, Pennsylvania in accordance with the rules of
the American Arbitration Association then in effect or, if the parties so agree,
held in the City of Philadelphia, Pennsylvania in accordance with the rules of
procedure of Judicate, Inc. then in effect. Judgment may be entered on the
award in any court having jurisdiction; provided, however, that the Company
shall be entitled to seek a restraining order or injunction in any court of
competent jurisdiction to prevent any continuation of any violation of paragraph
6 hereof.
17. Definitions.
-----------
(a) "Adjusted Vesting Percentage" as used herein shall have the
meaning set forth in paragraph 8(d).
(b) "Base Salary" as used herein shall have the meaning set forth
in paragraph 5(a).
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<PAGE>
(c) "Board" and "Board of Directors" as used herein shall mean
the Board of Directors of the Company.
(d) The Company shall have "Cause" to terminate the Executive's
employment upon (i) the willful failure by the Executive to substantially
perform the Executive's duties hereunder, other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or leaves of
absence to which the Executive is entitled, which failure is not remedied in a
reasonable time after receipt of written notice from the Company to do so, (ii)
an act or acts of fraud, misappropriation or criminal conduct of the Executive
involving or relating in any material way to the Company, or the willful
engaging by the Executive in gross misconduct or personal dishonesty materially
injurious to the Company, (iii) the willful violation by the Executive of the
provisions of paragraph 6 ("Unauthorized Disclosure"), provided that such
violation results in material injury to the Company, or (iv) engaging by the
Executive in any activity in competition with the Company while employed by the
Company (other than ownership of less than two percent of the stock of any class
of a publicly-owned corporation regardless of such corporation's line of
business). For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" if it was done, or omitted to be
done, in good faith and with reasonable belief that such
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<PAGE>
action or omission was in the best interest of the Company. The Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a copy of the resolution, duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of
the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to the Executive and an opportunity for the Executive,
together with the Executive's counsel, to be heard before the Board prior to its
taking such action), finding that in the good faith opinion of the Board the
Executive engaged in conduct set forth above in clause (i), (ii), (iii) or (iv),
above, and specifying the particulars thereof.
(e) A "Change in Control of the Company" 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, Form 8-K promulgated under the Exchange Act; or
(ii) any person, entity or group (within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Exchange Act), other than any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
subsidiary of the
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<PAGE>
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.
(f) "Code" as used herein shall mean the Internal Revenue Code of
1986, as amended.
(g) "Company" as used herein shall mean U.S. Bioscience, Inc.
and, as appropriate, any present or future subsidiary of U.S. Bioscience, Inc.,
and shall have the meaning set forth in paragraph 11(a).
(h) "Compensation Elements" as used herein shall have the meaning
set forth in paragraph 5(b).
(i) "Date of Termination" as used herein shall mean (i) if the
Executive's employment is terminated by death, the date of death, (ii) if the
Executive's employment is terminated pursuant to paragraph 7(b) ("Disability"),
thirty days
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after Notice of Termination is given (provided that the Executive shall not have
returned to the performance of the Executive's duties on a full-time basis
during such thirty day period), (iii) if the Executive's employment is
terminated pursuant to paragraph 7(c) ("Cause") or paragraph (d)(iii), the date
specified in the Notice of Termination, (iv) if the Executive's employment is
terminated pursuant to paragraph 7(d)(i) ("Good Reason"), thirty days after
Notice of Termination is given, or the date specified in paragraph 11, whichever
comes first, and (v) if the Executive's employment is terminated for any other
reason, the date on which a Notice of Termination is given.
(j) The Company's termination of the Executive's employment
shall be deemed to be based upon the Executive's "Disability" if, (i) as a
result of the Executive's incapacity due to physical or mental illness or
injury, the Executive shall have been absent from, or unable to perform, the
Executive duties hereunder on a full time basis for at least 90 business days
within any period of 180 consecutive calendar days (even if such period of 180
days began prior to the Effective Date), and within 30 days after written Notice
of Termination is given shall not have returned to the performance of such
duties on a full time basis, or (ii) the Company's Board of Directors determines
in good faith that the Executive has become so seriously incapacitated that the
Executive's resumption of duties within 90
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calendar days is a practical impossibility and such determination is confirmed
in writing by a physician independent of the Company.
(k) "Effective Date" as used herein shall mean the date on which
there shall have occurred a Change in Control of the Company, or on an earlier
date as set forth in Paragraph 5(h).
(l) "Employment Term" as used herein shall have the meaning set
forth in paragraph 2(a).
(m) "Exchange Act" as used herein shall have the meaning set
forth in paragraph 17(e)(i).
(n) "Executive" as used herein shall have the meaning set forth
on the first page of this agreement.
(o) Fair Market Value of a security of the Company shall be the
amount determined to be such by the Board of Directors of the Company acting in
good faith; provided, however, that if a security of the Company is, or was
within thirty days preceding the Effective Date, traded in a public market, then
the Fair Market Value of the security on the Effective Date shall be, if the
security is listed on a national securities exchange or included in the NASDAQ
National Market System, the last reported sale price thereof on the Effective
Date or the last date preceding the Effective Date that the security traded in a
public market, or, if the security is not so listed or included, the
-37-
<PAGE>
mean between the last reported "bid" and "asked" prices thereof on the Effective
Date or the last date preceding the Effective Date that the security traded in a
public market, as reported on NASDAQ, or, if not so reported, as reported by the
National Quotation Bureau, Inc. or, if not so reported, as reported in another
customary financial reporting service.
(p) "Fringe Benefits" as used herein shall have the meaning set
forth in paragraph 5(e).
(q) "Good Reason" shall as used herein mean (i) any significant
change in the nature or scope of the authority, powers, functions, duties,
responsibilities and status attached to the positions held by the Executive on
the Effective Date, (ii) any removal of the Executive from, or any failure to
re-elect the Executive to, any of the offices (or failure to renominate the
Executive and seek the election of the Executive to any directorships) which the
Executive held on the Effective Date, except in connection with termination of
the Executive's employment for Cause, (iii) any failure by the Company to comply
with paragraph 5 ("Compensation and Benefits") which is not remedied within 30
days after receipt by the Company of written notice to such effect from the
Executive, (iv) any failure by the Company to comply with paragraph 4 ("Place of
Performance") which is not remedied within 30 days after receipt by the Company
of written notice to such effect from the Executive, (v) a
-38-
<PAGE>
determination by the Executive made in good faith that as a result of a Change
in Control of the Company, and a change in circumstances which has thereafter
significantly affected the Executive's positions, the Executive is unable to
carry out the authority, powers, functions or duties attached to the Executive's
positions and the situation is not remedied within 30 days after receipt by the
Company of written notice to such effect from the Executive, (vi) failure of the
Company to obtain the assumption of and agreement to perform this agreement by
any successor as contemplated by paragraph 11, or (vii) a breach by the Company
of any provision of this agreement not embraced within the foregoing clauses (i)
through (vi) which is not agreed to in writing by the Executive or remedied
within 30 days after receipt by the Company of written notice to such effect
from the Executive.
(r) "Independent Tax Counsel" as used herein shall have the
meaning set forth in paragraph 15(a).
(s) "Legal representatives" as used herein shall include, without
limitation, attorney-in-fact and guardians.
(t) "Notice of Termination" as used herein shall mean a notice
which shall indicate the specific termination provision in this agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide
-39-
<PAGE>
a basis for termination of the Executive's employment under the provision so
indicated.
(u) "Overpayment" as used herein shall have the meaning set forth
in paragraph 15(c).
(v) "Payment" as used herein shall have the meaning set forth in
paragraph 15(a).
(w) "Pension Plan" as used herein shall have the meaning set
forth in paragraph 8(d).
(x) "Personal representatives" as used herein shall include,
without limitation, executors and administrators.
(y) "Reduced Amount" as used herein shall have the meaning set
forth in paragraph 15(a).
(z) "Severance Period" as used herein shall have the meaning set
forth in paragraph 8(d).
(aa) "Termination" as used herein shall have the meaning set
forth on the second page of this agreement.
(bb) "Unauthorized Disclosure" as used herein shall have the
meaning set forth in paragraph 6.
(cc) "Underpayment" as used herein shall have the meaning set
forth in Paragraph 15(c).
18. Miscellaneous.
-------------
(a) Indulgences, Etc. Neither the failure nor any delay on the part
----------------
of either party to exercise any right, remedy, power or privilege under this
agreement shall operate as
-40-
<PAGE>
a waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any
other right, remedy, power or privilege, nor shall any waiver of any right,
remedy, power or privilege with respect to any occurrence be construed as a
waiver of such right, remedy, power or privilege with respect to any other
occurrence. No waiver shall be effective unless it is in writing and is signed
by the party asserted to have granted such waiver.
(b) Controlling Law. This agreement and all questions relating to
---------------
its validity, interpretation, performance and enforcement (including, without
limitation, provisions concerning limitations of actions), shall be governed by
and construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-laws doctrines of such state or other
jurisdiction to the contrary, and without the aid of any canon, custom or rule
of law requiring construction against the draftsman.
(c) Notices. All notices, requests, demands and other communications
-------
required or permitted under this agreement shall be in writing and shall be
deemed to have been duly given, made and received only when personally
delivered, or on the day specified for delivery when deposited with a courier
service such as Federal Express for delivery to the intended addressee, or two
-41-
<PAGE>
days following the day when deposited in the United States mails, by registered
or certified mail, postage prepaid, return receipt requested, addressed as set
forth below:
(i) If to the Executive:
C. Boyd Clarke
U.S. Bioscience, Inc.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
(ii) If to the Company:
U.S. Bioscience, Inc.
One Tower Bridge
100 Front Street
West Conshohocken, PA 19428
Attention: Secretary
In addition, notice by mail shall be by air mail if posted outside of
the continental United States.
Any party may alter the address to which communications or copies are
to be sent by giving notice of such change of address in conformity with the
provisions of this paragraph for the giving of notice.
-42-
<PAGE>
(d) Binding Nature of Agreement; No Assignment.
------------------------------------------
This agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives, successors and
assigns, except that neither party may assign or transfer his, her or its rights
or obligations under this agreement without the prior written consent of the
other party hereto, except to the extent set forth in paragraph 11 hereof.
(e) Provisions Separable. The provisions of this agreement are
--------------------
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
(f) Entire Agreement. This agreement contains the entire
----------------
understanding between the parties hereto with respect to the subject of the
Executive's employment and severance upon a Change in Control of the Company,
and supersedes all prior and contemporaneous agreements and understandings,
inducements or conditions, express or implied, oral or written, except as herein
contained. The express terms hereof control and supersede any course of
performance and/or usage of the trade inconsistent with any of the terms hereof.
This agreement may not be modified or amended other than by an agreement in
writing. Upon becoming
-43-
<PAGE>
operative this agreement shall supersede the provisions of any employment
agreement, engagement letter or arrangement (collectively "existing employment
arrangements") then in effect between the Company and the Executive to the
extent that this agreement and the existing employment arrangements are
inconsistent; the existing employment arrangements shall not be terminated in
their entirety upon this agreement becoming operative unless inconsistent with
this agreement in their entirety.
(g) Paragraph Headings. The paragraph headings in this agreement are
------------------
for convenience only; they form no part of this agreement and shall not affect
its interpretation.
(h) Gender, Etc. Words used herein, regardless of the number and
-----------
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context indicates is appropriate.
(i) Number of Days. In computing the number of days for purposes of
--------------
this agreement, all days shall be counted, including Saturdays, Sundays and
holidays; provided, however, that if the final day of any time period (including
the effective date of a notice or other communication given hereunder) falls on
a Saturday, Sunday or holiday on which federal banks are or may
-44-
<PAGE>
elect to be closed, then the final day shall be deemed to be the next day which
is not a Saturday, Sunday or such holiday.
(j) Withholding. The Company shall have the right, in connection with
-----------
any payments made to the Executive pursuant to this agreement, to withhold, or
require the Executive to pay to the Company, an amount sufficient to provide for
taxes required to be withheld by law.
The Company, intending to be legally bound hereby, has duly executed
and delivered this agreement in the Commonwealth of Pennsylvania as of the date
first written above. If you are in agreement with all of the foregoing, please
execute and deliver the enclosed copy of this agreement to the Company no later
than ten days from the date hereof.
U.S. BIOSCIENCE, INC.
By /s/ Robert I. Kriebel
----------------------------
Sr. Vice President
Finance and Administration
I agree, intending to be legally bound hereby.
/s/ C. Boyd Clarke
------------------------------
C. Boyd Clarke
-45-
<PAGE>
EXHIBIT 10.40.1
May 5, 1997
Robert L. Capizzi, M.D.
100 Turnbridge Circle
Haverford, PA 19041
Re: AGREEMENT DATED AS OF MARCH 4, 1996 (THE "AGREEMENT")
-----------------------------------------------------
Dear Dr Capizzi:
The purpose of this letter is to confirm our arrangements to extend your
consulting relationship with U.S. Bioscience by modifying the Agreement in
certain respects, as follows. All capitalized terms used herein are used as
defined in the Agreement.
As provided in the Agreement, your Term as an employee and Senior Scientific
Advisor would terminate at the close of business on May 31, 1997. We are very
pleased that you have agreed to continue to serve as a consultant to U.S.
Bioscience from May 31, 1997 through May 31, 1998 (the "Consulting Term"), which
Consulting Term may be extended by mutual agreement of the parties, under the
following terms and conditions:
(a) All of the stock options granted to you by U.S. Bioscience on or
before February 21, 1995 will continue to vest during the Consulting
Term, and you will be entitled to exercise (including cashless
exercise) these options, to the extent vested, during the Consulting
Term and for a period of three months thereafter. The options granted
to you on March 11, 1996 will continue to vest and will remain
exercisable in accordance with the terms set forth in the Non-
Statutory Stock Option dated March 11, 1996.
(b) At all times during the Consulting Term when you are also a director
of U.S. Bioscience, you will have the same rights as a director of
U.S. Bioscience as those afforded, from time to time, to the other
directors. For purposes of determining your eligibility for annual
director's fees payable to non-employee directors, or options in lieu
thereof under the 1996 Non-employee Directors Stock Option Plan, you
will be considered to be a non-employee director of U.S. Bioscience
from and after the date of May 31, 1997.
(c) You will provide at the request of U.S. Bioscience consulting services
during the Consulting Term. The parties acknowledge that it is
difficult to predict with
<PAGE>
Robert L. Capizzi, M.D.
May 5, 1997
Page 2
precision the exact number of hours of consulting services that will be
requested and provided under this Agreement, however, you shall be
required to provide at least 40 hours of consulting services per year
hereunder. Such consulting services may include, but shall not be
limited to: (i) speaking on behalf of U.S. Bioscience or its products;
(ii) assistance in addressing clinical or preclinical questions; (iii)
assistance in preparing position papers; (iv) contacting potential
investigators on behalf of U.S. Bioscience and assisting in study
design; and (v) assisting U.S. Bioscience to assign, obtain, maintain
and enforce proprietary rights relating to inventions conceived or
reduced to practice during your employment with U.S. Bioscience which
relate to any of its products, services or activities. U.S. Bioscience
will make reasonable efforts to provide you with advance notice when
requesting your services and you will make reasonable efforts to adapt
your schedule to comply with U.S. Bioscience's reasonable requests.
Certain of the consulting services may be performed by telephone and/or
by written communication and other such services may require your
presence, whether at U.S. Bioscience's facilities, potential
investigators' facilities, meeting with regulatory authorities,
professional meetings, meetings arranged by commercial partners, or
otherwise. It is expressly understood and agreed that during the
Consulting Term you may be employed on a full-time basis. You represent
to U.S. Bioscience that the terms of this letter do not, and will not,
conflict with the terms of any of your employment or consulting
arrangements. Consulting services in excess of 80 hours per year during
the Consulting Term shall be compensated at a rate to be mutually
agreed by the parties. U.S. Bioscience shall advance to you or
reimburse promptly all reasonable costs and expenses related to such
consulting services, including but not limited to secretarial support
services, literature searches, slide preparation, conference
registration, travel and accommodations, and other reasonable expenses
appropriate to your representation of U.S. Bioscience at conferences
and professional meetings. It is understood that such expenses shall be
subject to written approval in advance by U.S. Bioscience.
(d) In rendering consulting services hereunder, you will make appropriate
disclosure to third parties (e.g., IRB's, potential investigators,
research subjects, regulatory authorities, professionals) of all
financial ties and relationships between you and U.S. Bioscience. You
also agree to make appropriate disclosure in connection with any of
your publications which relate to any U.S. Bioscience compound.
(e) You will comply with federal securities laws and regulations with
respect to transactions in U.S. Bioscience securities, as well as the
procedures and practices
<PAGE>
Robert L. Capizzi, M.D.
May 5, 1997
Page 3
set forth in the U.S. Bioscience Securities Law Guidebook, as amended
from time to time.
(f) The parties confirm that at the termination of your Term as an
employee, May 31, 1997, you shall no longer be eligible to receive the
benefits set forth in the Agreement under Section 2(a), 2(c) or 2(d).
Except as modified by this letter, the parties agree that the Agreement is
confirmed to be and shall remain in full force and effect.
Please indicate your acceptance of the terms set forth in this letter in the
space provided below and return it to me. An additional executed copy of this
letter is enclosed for your file.
Sincerely yours,
U.S. Bioscience, Inc.
By: /s/ Philip S. Schein
-----------------------------
Philip S. Schein, M.D.
Chairman and Chief Executive Officer
Accepted and agreed as of the 8th day of May, 1997:
---
/s/ Robert L. Capizzi
- ----------------------------
Robert L. Capizzi, M.D.
<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 Statements
(Form S-8 No. 33-43981, Form S-8 No. 33-63456, Form S-8 No. 33-82108, Form S-8
No. 33-12611 and Form S-8 No. 333-26735) 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 12, 1998 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, 1997.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS OF U.S.
BIOSCIENCE, INC. FOR THE PERIOD(S) INDICATED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 26,569,400
<SECURITIES> 24,081,400
<RECEIVABLES> 2,879,400
<ALLOWANCES> 302,000
<INVENTORY> 2,434,500
<CURRENT-ASSETS> 57,230,800
<PP&E> 10,837,500
<DEPRECIATION> 5,687,700
<TOTAL-ASSETS> 62,380,600
<CURRENT-LIABILITIES> 12,398,900
<BONDS> 2,966,900
0
0
<COMMON> 242,100
<OTHER-SE> 46,781,700
<TOTAL-LIABILITY-AND-EQUITY> 62,380,600
<SALES> 12,985,800
<TOTAL-REVENUES> 27,723,300
<CGS> 4,157,800
<TOTAL-COSTS> 35,449,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,400
<INCOME-PRETAX> (7,909,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,909,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,909,100)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
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