<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 16, 2000
REGISTRATION NO. 333-30350
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SUPERGEN, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2834 91-1841574
(State or other jurisdiction (Primary Standard Industrial (IRS Employer
of Classification Code Number) Identification Number)
incorporation or organization)
</TABLE>
TWO ANNABEL LANE, SUITE 220
SAN RAMON, CALIFORNIA 94583
(925) 327-0200
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JOSEPH RUBINFELD
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
SUPERGEN, INC.
TWO ANNABEL LANE, SUITE 220
SAN RAMON, CALIFORNIA 94583
(925) 327-0200
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
KATHLEEN B. BLOCH PETER T. HEALY
JUNLING MA O'Melveny & Myers LLP
JAY D. HANSEN Embarcadero Center West
Wilson Sonsini Goodrich & Rosati 275 Battery Street
Professional Corporation San Francisco, CA 94111-3305
650 Page Mill Road (415) 984-8833
Palo Alto, CA 94304-1050
(650) 493-9300
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Prospectus (Not Complete)
Issued March 16, 2000
The information in this prospectus is not complete and may be changed without
notice. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities, and we are not soliciting offers to buy these
securities, in any state where the offer or sale of these securities is not
permitted.
<PAGE>
2,730,000 SHARES
[SUPERGEN LOGO]
COMMON STOCK
----------------
SuperGen, Inc. is offering 2,000,000 shares of common stock, and the selling
stockholders are offering 730,000 shares of our common stock in a firmly
underwritten offering. We will not receive any of the proceeds from the sale of
shares by the selling stockholders.
------------------------
Our common stock is traded on the Nasdaq National Market under the symbol
"SUPG." The last reported sale price for our common stock on the Nasdaq National
Market on February 25, 2000 was $61.75 per share.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
------------------------
<TABLE>
<CAPTION>
Per Share Total
----------- -----------
<S> <C> <C>
Offering price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to SuperGen $ $
Offering Proceeds to Selling Stockholders $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The selling stockholders have granted the underwriters the right to purchase
up to an additional 409,500 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time within thirty days after
this offering. Banc of America Securities LLC expects to deliver the shares of
common stock to investors on , 2000.
BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL
SECURITIES
WARBURG DILLON READ LLC
------------------------
, 2000.
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY
SHARES OF SUPERGEN, INC. COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF
THIS PROSPECTUS OR OF ANY SALE OF THE SUPERGEN, INC. COMMON STOCK. IN THIS
PROSPECTUS, REFERENCES TO "SUPERGEN," "WE," "US" AND "OUR" REFER TO
SUPERGEN, INC. AND ITS SUBSIDIARIES. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE
YOU WITH INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT
IS LEGAL TO SELL THESE SECURITIES.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 5
Note Regarding Forward-Looking Statements................... 14
Use of Proceeds............................................. 15
Price Range of Our Common Stock............................. 16
Dividend Policy............................................. 16
Capitalization.............................................. 17
Selected Financial Data..................................... 18
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 25
Management.................................................. 39
Selling Stockholders........................................ 42
Description of Capital Stock................................ 43
Underwriting................................................ 45
Legal Matters............................................... 47
Experts..................................................... 47
Where You Can Find More Information......................... 48
Index to Financial Statements............................... F-1
</TABLE>
------------------------
Nipent, Spartaject, Extra and Surface Safe are our trademarks. All other
trademarks used in this prospectus are the property of their respective owners.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE MAKING AN INVESTMENT DECISION. THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS. OUR ACTUAL PERFORMANCE MAY DIFFER FROM THAT
PREDICTED IN SUCH STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING THOSE SET
FORTH IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE
INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITIERS' OVER-ALLOTMENT OPTION.
SUPERGEN, INC.
We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of oncology therapies for solid tumors
and hematological malignancies. We seek to minimize the time, expense and
technical risk associated with drug commercialization by identifying and
acquiring pharmaceutical compounds in the later stages of development, rather
than committing significant resources to the research phase of drug discovery.
We intend to retain significant participation in the commercialization of our
proprietary products by funding and undertaking human clinical development
ourselves. We believe this will allow us to maximize the commercial value of our
products by either directly marketing our products or licensing them on more
favorable terms than would be available if licensed earlier in the development
cycle.
Our lead product candidate is rubitecan, an oral chemotherapy compound in
the camptothecin class which is in pivotal Phase III clinical trials for
pancreatic cancer, the fourth leading cause of death by cancer in the United
States. Rubitecan is a second-generation topoisomerase I inhibitor that causes
single-strand breaks in the DNA of rapidly dividing tumor cells. We believe that
rubitecan may have significant advantages over many existing anticancer drugs.
These advantages include increased survival, oral dosing and a superior side
effect profile. We believe that rubitecan is a platform drug for leadership in
the treatment of a broad array of solid tumors and hematological malignancies.
Results of a Phase II clinical trial conducted by the Stehlin Foundation for
Cancer Research using rubitecan for treatment of pancreatic cancer indicate a
favorable comparison with historical treatment options in terms of quality of
life, survival data and tumor size reduction. In this Phase II trial the median
survival in the 60 evaluable patients who took the required eight week course of
therapy was nearly nine months, significantly greater than the average survival
time of four to five months under other treatment methods.
We are evaluating rubitecan in three separate stand-alone pivotal Phase III
clinical trials for pancreatic cancer. The trials are randomized, unblinded
studies being conducted in approximately 200 centers and are designed to include
up to 1,800 patients. The primary endpoint of these trials is survival. We
commenced these trials in November 1998 and we have over 700 patients currently
enrolled. If any one of these trials is successful we anticipate filing a New
Drug Application with the U.S. Food and Drug Administration, or FDA, by early
2001.
We are aggressively pursuing additional Phase II and III trials using
rubitecan both as a single therapeutic agent and in combination with other
anticancer agents in both solid tumors and hematological malignancies. We intend
to make available to physicians copies of peer-reviewed medical journal articles
and other validated scientific information related to these trials. We believe
this will provide physicians with more up-to-date product information and will
better enable them to meet their patients' medical needs.
In December 1999 we entered into an alliance with Abbott Laboratories under
which Abbott will market and distribute rubitecan and invest in shares of our
common stock. We will co-promote rubitecan with Abbott in the United States and
Abbott has exclusive rights to market rubitecan outside of the United States. In
the U.S. market, we will share profits from product sales equally with Abbott.
1
<PAGE>
Outside the U.S. market, Abbott will pay us royalties and transfer fees based on
product sales. We will remain responsible for pursuing and funding the clinical
development of rubitecan and obtaining regulatory approval for the product in
the United States, Canada and the member states of the European Union.
We will receive a number of equity investments and cash payments from Abbott
which, when aggregated, amount to approximately $150 million. Each equity
investment and cash payment is conditioned upon the achievement of certain
developmental and sales milestones. In January 2000 we received a $26.5 million
equity investment from Abbott. In addition, we granted Abbott an option to
purchase up to 49% of the outstanding shares of our common stock at an exercise
price of $85 per share which expires in March 2003.
We are also pursuing the clinical development of Nipent and decitabine for
the treatment of certain solid tumor cancers and hematological disorders. We
acquired Nipent from Warner-Lambert Company in 1996 and we are selling this drug
in the United States for the treatment of hairy cell leukemia, a type of
B-lymphocytic leukemia. We believe that Nipent has a unique mechanism of action
and Phase II trials indicate that it may have activity in a variety of other
hematologic cancers. In oncology, we are pursuing treatments for lymphatic
malignancies and disorders, such as cutaneous T-cell lymphoma, chronic
lymphocytic leukemia, non-Hodgkin's lymphoma and peripheral T-cell lymphoma. In
addition, Nipent has shown activity in various autoimmune diseases, including
graft-versus-host disease which is not responsive to standard therapies, and
rheumatoid arthritis. We estimate the United States markets for both
graft-versus-host disease and rheumatoid arthritis are larger than the market
for Nipent's leukemia applications. We are conducting Phase I clinical trials in
both of these indications.
Decitabine has been successful in multiple Phase II trials in the United
States and Europe for treating myelodysplastic syndromes, or MDS, chronic
myeloid leukemia and acute myeloid leukemia. Based on positive results from
these studies, we are finalizing the protocol for a randomized Phase III study
comparing decitabine to best supportive care for MDS. We expect to commence
patient enrollment for this study in 2000. In addition, preliminary results
suggest that decitabine has activity in solid tumors such as non-small cell lung
cancer. Phase I clinical trials with decitabine are underway for this
indication.
We incorporated in March 1991 as a California corporation and changed our
state of incorporation to Delaware in November 1997. Our executive offices are
located at Two Annabel Lane, Suite 220, San Ramon, California, 94583, and our
telephone number at that address is (925) 327-0200. We maintain a website on the
internet at WWW.SUPERGEN.COM. Our website, and the information contained
therein, is not a part of this prospectus.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us......................... 2,000,000 shares
Common stock offered by the selling stockholders... 730,000 shares
Common stock to be outstanding after the
offering......................................... 29,654,757 shares
Use of proceeds by us.............................. We intend to use our proceeds from this
offering:
- for research and development activities,
including expansion of clinical trials;
- to enhance sales and marketing efforts in
advance of the potential launch of rubitecan;
- to finance possible acquisitions of
complimentary products, technologies or
businesses;
- to lease and improve new facilities and
potentially enhance manufacturing capabilities;
and
- for working capital and other general
corporate purposes.
Nasdaq National Market Symbol...................... SUPG
</TABLE>
The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of January 31, 2000 and
does not include the following:
- 3,499,230 shares of common stock reserved for issuance under our 1993
Stock Option Plan, 1996 Directors' Stock Option Plan and 1998 Employee
Stock Purchase Plan, and under options assumed in connection with our
acquisition of Sparta Pharmaceuticals, Inc. Of these reserved shares,
options to purchase 3,325,580 shares of common stock were outstanding as
of January 31, 2000 at a weighted exercise price of $9.59 per share, and
- 6,312,502 shares of common stock issuable upon exercise of warrants
outstanding as of January 31, 2000 at a weighted average exercise price of
$15.32 per share. In September 1999 we notified holders of warrants issued
in connection with our initial public offering that we will redeem any
such warrants that remain unexercised on April 16, 2000 at a redemption
price of $0.25 per share. As of January 31, 2000 there were 3,062,452 of
such warrants outstanding with an exercise price of $9.00 per share.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present a summary of our financial data included
elsewhere in the prospectus. You should read the following data together with
the more detailed information contained in "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and related notes appearing elsewhere
in this prospectus.
The summary balance sheet data as of December 31, 1999 is presented on an
actual basis and is also presented to reflect:
- on a pro forma basis, our sale of 933,394 shares of common stock to Abbott
in January 2000 with proceeds of $26.5 million; and
- on a pro forma as adjusted basis, our sale of 2,000,000 shares of common
stock in this offering at an assumed public offering price of $61.75 per
share, less estimated underwriting discounts and estimated offering
expenses to be paid by us.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------------
1995 1996 1997 1998 1999
------------ ---------- ---------- ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net revenue.............................. $ 13 $ 264 $ 1,802 $ 3,004 $ 4,744
Cost of sales............................ -- 283 1,539 1,925 2,032
Research and development................. 2,174 6,152 8,583 10,511 17,346
Selling, general and administrative...... 643 2,894 4,952 7,046 10,517
Acquisition of in-process research and
development............................ -- 442 3,506 -- 10,850
------- ------- -------- -------- --------
Loss from operations..................... (2,804) (9,507) (16,778) (16,478) (36,001)
Other income (expense)................... 75 749 782 901 (984)
------- ------- -------- -------- --------
Net loss................................. $(2,729) $(8,758) $(15,996) $(15,577) $(36,985)
======= ======= ======== ======== ========
Basic and diluted net loss per share..... $ (0.22) $ (0.55) $ (0.85) $ (0.77) $ (1.58)
Shares used to compute basic and diluted
net loss per share..................... 12,629 15,961 18,765 20,353 23,352
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED(1)
-------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $27,554 $54,054 $169,484
Total assets................................................ 53,478 79,978 $195,408
Long-term debt.............................................. -- -- --
Stockholders' equity........................................ 44,768 71,268 $186,698
</TABLE>
- ------------------------
(1) Does not include the proceeds from the exercise of outstanding common
stock warrants. On September 20, 1999, we issued a notice of redemption of
warrants for the purchase of common stock issued at the time of our initial
public offering. If all such warrants that remained outstanding at December 31,
1999 are exercised prior to the redemption date of April 16, 2000, we will
receive approximately $33.6 million.
4
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW, TOGETHER WITH ALL
OF THE OTHER INFORMATION INCLUDED IN OR INCORPORATED BY REFERENCE INTO THIS
PROSPECTUS, BEFORE MAKING AN INVESTMENT DECISION. THE RISKS AND UNCERTAINTIES
DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. IF ANY OF THE FOLLOWING RISKS
ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED. IN SUCH CASE, THE TRADING PRICE OF
OUR COMMON STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
IF THE RESULTS OF FURTHER CLINICAL TESTING INDICATE THAT OUR PROPOSED PRODUCTS
ARE NOT SAFE AND EFFECTIVE FOR HUMAN USE, OUR BUSINESS WILL SUFFER.
Most of our products are in the development stage and prior to their sale
will require the commitment of substantial resources. All of the potential
proprietary products that we are currently developing will require extensive
preclinical and clinical testing before we can submit any application for
regulatory approval. Before obtaining regulatory approvals for the commercial
sale of any of our products, we must demonstrate through pre-clinical testing
and clinical trials that our product candidates are safe and effective in
humans. Conducting clinical trials is a lengthy, expensive and uncertain
process. Completion of clinical trials may take several years or more. The
length of time generally varies substantially according to the type, complexity,
novelty and intended use of the product candidate. Our clinical trials may be
suspended at any time if we or the FDA believe the patients participating in our
studies are exposed to unacceptable health risks. We may encounter problems in
our studies which will cause us or the FDA to delay or suspend the studies. Our
commencement and rate of completion of clinical trials may be delayed by many
factors, including:
- ineffectiveness of the study compound, or perceptions by physicians that
the compound is not effective for a particular indication;
- inability to manufacture sufficient quantities of compounds for use in
clinical trials;
- failure of the FDA to approve our clinical trial protocols;
- slower than expected rate of patient recruitment;
- inability to adequately follow patients after treatment;
- unforeseen safety issues;
- lack of efficacy during the clinical trials; or
- government or regulatory delays.
The clinical results we have obtained to date do not necessarily predict
that the results of further testing, including later-stage controlled human
clinical testing, will be successful. If our trials are not successful, or are
perceived as not successful by the FDA or physicians, our business, financial
condition and results of operations will be harmed.
IF WE FAIL TO OBTAIN REGULATORY MARKETING APPROVALS IN A TIMELY MANNER, OUR
BUSINESS WILL SUFFER.
Even if we believe our trials are successful, the FDA may require additional
clinical testing and, therefore we would have to commit additional unanticipated
resources. The FDA has substantial discretion in the drug approval process. We
cannot assure you that we will obtain the necessary regulatory approvals to
market our products. The FDA and comparable agencies in foreign countries impose
substantial requirements for the introduction of both new pharmaceutical
products and generic products through lengthy and detailed clinical testing
procedures, sampling activities and other costly and time-consuming compliance
procedures. We have not yet received marketing approval for any of our
internally developed proprietary products. Our proprietary drugs and products
will require lengthy
5
<PAGE>
clinical trials along with FDA and comparable foreign agency review as new
drugs. Our generic drugs will also require regulatory review and approval.
We cannot predict with certainty if or when we might submit for regulatory
review those products currently under development. Once we submit our potential
products for review, we cannot assure you that the FDA or other regulatory
agencies will grant approvals for any of our pharmaceutical products on a timely
basis or at all. Sales of our products outside the United States will be subject
to regulatory requirements governing clinical trials and marketing approval.
These requirements vary widely from country to country and could delay the
introduction of our products in those countries.
IF OUR RELATIONSHIP WITH ABBOTT IS NOT SUCCESSFUL, OUR BUSINESS COULD BE HARMED.
Our strategic relationship with Abbott is important to our success. However,
that relationship may not be successful. We cannot assure you that we will
receive any additional payments from Abbott or that the relationship will be
commercially successful. The transactions contemplated by our agreements with
Abbott, including the equity purchases and cash payments, are subject to
numerous risks and conditions. For example:
- we may fail to achieve clinical and sales milestones;
- rubitecan may fail to achieve regulatory approval domestically and
internationally;
- rubitecan may not be commercially successful;
- Abbott may fail to perform its obligations under our agreements, such as
failing to devote sufficient resources to marketing rubitecan; and
- our agreements with Abbott may be terminated in their entirety or on a
territory-by-territory basis against our will.
The occurrence of any of these events could severely harm our business.
WE HAVE GRANTED CERTAIN RIGHTS TO ABBOTT THAT COULD NEGATIVELY AFFECT YOUR
INVESTMENT.
We have granted Abbott an option to purchase shares of our common stock so
that upon its exercise Abbott will own up to 49% of our outstanding common
stock. Our ability to satisfy this contractual obligation is subject to a number
of conditions outside of our control, including:
- stockholder approval of an increase in the number of shares of our
authorized common stock;
- stockholder approval of a potential change in control under the rules of
the Nasdaq National Market; and
- clearance of the purchase by federal antitrust regulators.
If we do not satisfy any of these conditions, Abbott could terminate our
relationship. If we obtain all necessary approvals and Abbott exercises its
option, the stock ownership of our other stockholders will be diluted and Abbott
will have significant influence over us. Abbott's right to exercise this option,
and Abbott's share ownership after exercise, may discourage other parties from
acquiring us.
Abbott has a right of first discussion with respect to our product portfolio
and a right of first refusal to acquire us. These rights may discourage third
parties from bidding on any assets that we wish to sell or license and may
discourage acquisition bids. These provisions may limit the price that investors
might be willing to pay in the future for shares of our common stock.
6
<PAGE>
WE HAVE A HISTORY OF OPERATING LOSSES AND AN ACCUMULATED DEFICIT, WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY IN THE FUTURE, AND WE MAY NEED TO OBTAIN
ADDITIONAL FUNDING.
We incurred cumulative losses of $92.9 million for the period from inception
through December 31, 1999. These losses included non-cash charges of
$18.4 million for the acquisition of in-process research and development.
Currently we are not profitable and we expect to continue to incur substantial
operating losses at least through 2000 and into 2001. Our ability to achieve
profitability will depend primarily on our ability to obtain regulatory approval
for and successfully commercialize rubitecan. Our success will also depend, to a
lesser extent, on our ability to develop and obtain regulatory approval of
Nipent for indications other than hairy cell leukemia and to bring our
proprietary products to market. Our ability to become profitable will also
depend upon a variety of other factors, including the following:
- increases in the level of our research and development, including the
timing and costs of any expansion of clinical trials;
- regulatory approvals of competing products, or expanded labeling approvals
of existing products;
- increases in sales and marketing expenses related to the commercial launch
of rubitecan;
- delays in or inadequate commercial sales of rubitecan, once regulatory
approvals have been received; and
- expenditures associated with acquiring products, technologies or companies
and further developing these assets.
We cannot predict the outcome of these factors and we cannot assure you that we
will ever become profitable.
Even if we do become profitable, we may need substantial additional funding.
We expect that our rate of spending will accelerate as a result of increased
clinical trial costs and expenses associated with regulatory approval and
commercialization of our products now in development. We anticipate that our
capital resources after this offering will be adequate to fund operations and
capital expenditures at least through 2001. However, if we experience
unanticipated cash requirements during this period, we could require additional
funds much sooner. Our business, results of operations and cash flows will be
adversely affected if we fail to obtain adequate funding in a timely manner, or
at all. We may receive funds from the sale of equity securities, or the exercise
of outstanding warrants and stock options. Additionally, we may receive funds
upon the achievement of certain developmental and sales milestones pursuant to
our agreement with Abbott. However, we cannot assure you that any of those
fundings will occur, or if they occur, that they will be on terms favorable to
us. Also, the dilutive effect of those fundings could adversely affect our
results per share.
WE HAVE LIMITED SALES AND MARKETING CAPABILITIES AND NO DISTRIBUTION
CAPABILITIES AND MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE OUR PRODUCTS.
We currently have limited sales and marketing resources and no distribution
capability. Although we have 18 sales and marketing personnel focusing on the
sale of our products to hospitals and hospital buying groups, we anticipate
relying on third parties to sell and market some of our primary products. For
instance, we will co-promote the potential sale of rubitecan with Abbott.
However, we may not be able to enter into additional sales and marketing
arrangements with others on acceptable terms, if at all. If our arrangements
with third parties are not successful, or if we are unable to enter into
third-party arrangements, then we may need to substantially expand our sales and
marketing force. We may not succeed in enhancing our sales and marketing
capabilities or have sufficient resources to do so. If we do develop such
capabilities, we will compete with other companies that have experienced and
well-funded sales and marketing operations. We currently rely on third parties
to distribute our
7
<PAGE>
products and expect to continue to do so in the future. If we fail to establish
successful sales and marketing capabilities or fail to enter into successful
marketing arrangements with third parties, or if our third party distributors
fail to perform their obligations, our business, financial condition and results
of operations will be materially and adversely affected.
IF WE FAIL TO COMPLY WITH THE GOVERNMENTAL REGULATIONS, OUR BUSINESS WILL
SUFFER.
All new drugs, including our products under development, are subject to
extensive and rigorous regulation by the FDA, and comparable agencies in state
and local jurisdictions and in foreign countries. These regulations govern,
among other things, the development, testing, manufacturing, labeling, storage,
premarket approval, advertising, promotion, sale and distribution of our
products. Satisfaction of these requirements typically takes several years and
the time needed to satisfy them may vary substantially, based on the type,
complexity and novelty of the pharmaceutical product. The effect of government
regulation may be to delay or to prevent marketing of our potential products for
a considerable period of time and to impose costly procedures upon our
activities. If regulatory approval of our products is granted, such approval may
impose limitations on the indicated uses for which our products may be marketed.
Further, even if regulatory approval is obtained for a product, later discovery
of previously unknown problems may result in restrictions of the product,
including withdrawal of the product from the market.
Among the conditions for FDA approval of all of our products in development
is the requirement that the manufacturer's (at either our facilities or those of
a third party manufacturer) quality control and manufacturing procedures conform
to current Good Manufacturing Practices, or GMPs, which must be followed at all
times. The FDA and foreign regulatory authorities strictly enforce GMP
requirements through periodic unannounced inspections. We cannot assure you that
the FDA will determine that our facilities and manufacturing procedures or any
third party manufacturer of our products will conform to GMP requirements.
Additionally, we or our third party manufacturer must pass a preapproval
inspection before we can obtain marketing approval for any of our products in
development. Failure to comply with applicable FDA and other regulatory
requirements can result in sanctions being imposed on us or the manufacturers of
our products including warning letters, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, refusals of the FDA to grant premarket approval or to allow
us to enter into government supply contracts, withdrawals of previsouly approved
marketing applications, civil fines and criminal prosecutions.
The FDA's policies may change and additional government regulations may be
promolgated which could prevent or delay regulatory approval of our products. We
cannot predict the likelihood of adverse governmental regulation which may arise
from future legislative or administrative action, either in the United States or
abroad.
IF WE FAIL TO COMPETE EFFECTIVELY, PARTICULARLY AGAINST LARGER, MORE ESTABLISHED
PHARMACEUTICAL COMPANIES WITH GREATER RESOURCES, OUR BUSINESS WILL SUFFER.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. These factors include financial resources,
research and development capabilities, and manufacturing and marketing
experience and resources. If we are able to establish and maintain a significant
proprietary position with respect to our proprietary products, competition will
likely depend primarily on the effectiveness of our products, their acceptance
in the marketplace and their pricing and the number, gravity and severity of
their unwanted side effects as compared to alternative products.
Our competitors have substantially greater financial, research and
development, manufacturing and marketing experience and resources than we do and
represent substantial long-term competition for us.
8
<PAGE>
These competitors and probable competitors include established companies such as
Eli Lilly & Co., Ortho-McNeil Pharmaceutical, Amgen Inc., Bristol-Myers Squibb
Company and Immunex Corp. If these companies succeed in developing
pharmaceutical products that are more effective or less costly than any that we
may develop or market, our business will suffer.
THE PATENTS ON THE COMPOUNDS FOR WHICH WE ARE DEVELOPING GENERIC AND EXTRA
PRODUCTS ARE HELD BY THIRD PARTIES. IF THESE PATENTS ARE EXPANDED IN SCOPE OR DO
NOT EXPIRE WHEN ANTICIPATED, OUR BUSINESS COULD SUFFER.
We plan to develop and market several generic and Extra drugs based on
existing compounds, some of which are currently protected by one or more patents
held by others. If the existing patent protection for these drugs is maintained
or expanded, it is unlikely that we will be able to market our own generic and
Extra versions of those drugs without obtaining a license from the patent owner,
which may not be available on commercially acceptable terms, or at all.
WE DEPEND ON THIRD PARTIES FOR MANUFACTURING AND STORAGE OF OUR PRODUCTS AND OUR
BUSINESS MAY BE HARMED IF THE MANUFACTURE OF OUR PRODUCTS IS INTERRUPTED OR
DISCONTINUED.
We have no manufacturing facilities and we currently rely on third parties
for manufacturing activities related to all of our products. As we develop new
products and increase sales of our existing products, we must establish and
maintain relationships with manufacturers to produce and package sufficient
supplies of our finished pharmaceutical products, including rubitecan.
Our manufacturing strategy presents the following risks:
- delays in scale-up to quantities needed for multiple clinical trials could
delay clinical trials, regulatory submissions and commercialization of our
products in development;
- our current and future manufacturers are subject to ongoing periodic
unannounced inspection by the FDA and corresponding state agencies for
compliance with strictly enforced GMP regulations and similar foreign
standards, and we do not have control over our third-party manufacturers'
compliance with these regulations and standards;
- if we need to change to other commercial manufacturing contractors, the
FDA and comparable foreign regulators must approve these contractors prior
to our use. This would require new testing and compliance inspections. The
new manufacturers would have to be educated in, or themselves develop
substantially equivalent processes necessary for, the production of our
products. In addition, the FDA and comparable foreign regulators would
need to approve the new manufacturers;
- if market demand for our products increases suddenly, our current
manufacturers might not be able to fulfill our commercial needs, which
would require us to seek new manufacturing arrangements and may result in
substantial delays in meeting market demand; and
- we may not have intellectual property rights, or may have to share
intellecual rights, to any improvements in the manufacturing processes or
new manufacturing processes for our products.
Any of these factors could delay clinical trials or commercialization of our
products under development, interfere with current sales, entail higher costs
and result in our being unable to effectively sell our products.
In addition, we store the majority of the unpurified, bulk form of Nipent at
a single location. Improper storage, fire, natural disaster, theft or other
conditions at this location that may lead to the loss or destruction of the bulk
concentrate could adversely affect our business, results of operations and cash
flows. We are currently negotiating a long-term agreement with the vendor that
purifies our current supply of crude concentrate to continue its purification
services. However, we cannot assure you
9
<PAGE>
that we will be able to finalize the agreement. If we are not able to do so, our
supply of Nipent may be interrupted while we seek to locate another facility and
have that facility approved by the FDA. The delay could adversely affect our
business, results of operations and cash flows.
We do not currently intend to manufacture any pharmaceutical products,
although we may choose to do so in the future. If we decide to manufacture
products, we would be subject to the regulatory risks and requirements described
above. We will also be subject to similar risks regarding delays or difficulties
encountered in manufacturing these pharmaceutical products and we will require
additional facilities and substantial additional capital. In addition, we have
only limited experience in manufacturing pharmaceutical products. We cannot
assure you that we would be able to manufacture any of these products
successfully in accordance with regulatory requirements and in a cost-effective
manner.
ASSERTING, DEFENDING AND MAINTAINING INTELLECTUAL PROPERTY RIGHTS COULD BE
DIFFICULT AND COSTLY AND FAILURE TO DO SO WILL HARM OUR ABILITY TO COMPETE AND
THE RESULTS OF OUR OPERATIONS.
If competitors develop substantially equivalent proprietary information and
techniques or otherwise gain access to our trade secrets, if our trade secrets
are disclosed or if we cannot effectively protect our rights to unpatented trade
secrets, our business will be harmed.
The pharmaceutical fields are characterized by a large number of patent
filings. A substantial number of patents have already been issued to other
pharmaceutical companies, research or academic institutions or others.
Competitors may have filed applications for or have been issued patents and may
obtain additional patents and proprietary rights related to products or
processes that compete with or are similar to ours. We may not be aware of all
of the patents potentially adverse to our interests that may have been issued to
others.
We actively seek patent protection for our proprietary products and
technologies. We have a number of United States patents and also have licenses
to, or assignments of, numerous patents issued both in the United States and
elsewhere. We may also license our patents outside the United States.
Limitations on patent protection outside the United States, and differences in
what constitutes patentable subject matter in countries outside the United
States, may limit the protection we have on patents or licenses of patents
outside the United States.
Litigation may be necessary to protect our patent position, and we cannot be
certain that we will have the required resources to pursue the necessary
litigation or otherwise to protect our patent rights. Our efforts to protect our
patents may fail. In addition to pursuing patent protection in appropriate
cases, we also rely on trade secret protection for unpatented proprietary
technology. However, trade secrets are difficult to protect. Our trade secrets
or those of our collaborators may become known or may be independently
discovered by others.
Our proprietary products are dependent upon compliance with numerous
licenses and agreements. These licenses and agreements require us to make
royalty and other payments, reasonably exploit the underlying technology of the
applicable patents, and comply with regulatory filings. If we fail to comply
with these licenses and agreements, we could lose the underlying rights to one
or more of these potential products, which would adversely affect our business,
results of operations and cash flows.
10
<PAGE>
From time to time we receive correspondence inviting us to license patents
from third parties. Although we know of no pending patent infringement suits,
discussions regarding possible patent infringements or threats of patent
infringement litigation either related to patents held by us or our licensors or
our products or proposed products, there has been, and we believe that there
will continue to be, significant litigation in the pharmaceutical industry
regarding patent and other intellectual property rights. Claims may be brought
against us in the future based on patents held by others. These persons could
bring legal actions against us claiming damages and seeking to enjoin clinical
testing, manufacturing and marketing of the affected product. If we become
involved in any litigation, it could consume a substantial portion of our
resources, regardless of the outcome of the litigation. If any of these actions
are successful, in addition to any potential liability for damages, we could be
required to obtain a license to continue to manufacture or market the affected
product. We cannot assure you whether we would prevail in any of these actions
or that we could obtain any licenses required under any of these patents on
acceptable terms, if at all.
IF WE LOSE KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL, HIGHLY
SKILLED PERSONNEL REQUIRED FOR THE EXPANSION OF OUR ACTIVITIES, OUR BUSINESS
WILL SUFFER.
Our success is dependent on key personnel, including Dr. Rubinfeld, our
President and Chief Executive Officer, and members of our senior management and
scientific staff. To successfully expand our operations, we will need to attract
and retain additional, highly skilled individuals, particularly in the areas of
sales, marketing, clinical administration, manufacturing and finance. We compete
with other companies for the services of existing and potential employees. We
believe our compensation and benefits packages are competitive for our
geographical region and our industry group. However, we may be at a disadvantage
to the extent that potential employees may favor larger, more established
employers.
THE CONTINUING EFFORTS OF GOVERNMENT AND THIRD-PARTY PAYERS TO CONTAIN OR REDUCE
THE COSTS OF HEALTHCARE MAY ADVERSELY AFFECT OUR REVENUES AND PROFITABILITY.
Our revenues and profitability may be affected by the continuing efforts of
governmental and third-party payers to contain or reduce the costs of health
care. We cannot predict the effect that these health care reforms may have on
our business, and it is possible that any of these reforms will adversely affect
our business. In addition, in both the United States and elsewhere, sales of
prescription pharmaceuticals are dependent in part on the availability of
reimbursement to the consumer from third-party payers, like government and
private insurance plans. Third-party payers are increasingly challenging the
prices charged for medical products and services. If our current and proposed
products are not considered cost-effective, reimbursement to the consumer may
not be available or be sufficient to allow us to sell products on a competitive
basis.
WE MAY BE SUBJECT TO PRODUCT LIABILITY LAWSUITS AND OUR INSURANCE MAY BE
INADEQUATE TO COVER DAMAGES.
Clinical trials or marketing of any of our current and potential products
may expose us to liability claims from the use of these products. We currently
carry product liability insurance. However, we cannot be certain that we will be
able to maintain insurance on acceptable terms for clinical and commercial
activities or that the insurance would be sufficient to cover any potential
product liability claim or recall. If we fail to have sufficient coverage, our
business, results of operations and cash flows could be adversely affected.
IF WE ARE UNABLE TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS, OUR BUSINESS
MAY BE HARMED.
We are subject to federal, state and local laws and regulations governing
the use, manufacture, storage, handling and disposal of hazardous materials and
waste products. We currently maintain a
11
<PAGE>
supply of several hazardous materials at our facilities. In the event of an
accident, we could be held liable for any damages that result, and the liability
could exceed our resources. While we currently outsource our research and
development programs involving the controlled use of biohazardous materials, if
in the future we conduct these programs, we might be required to incur
significant cost to comply with environmental laws and regulations.
THE REDEMPTION OF OUR OUTSTANDING PUBLIC WARRANTS MAY CAUSE THE PRICE OF OUR
COMMON STOCK TO FALL AND MAY RESULT IN DILUTION.
On September 20, 1999, we issued a notice of redemption of warrants for the
purchase of shares of our common stock that we issued in connection with our
initial public offering. These warrants enable the holder to purchase shares of
our common stock at a price of $9.00 per share. As of January 31, 2000, there
were 3,062,452 of such warrants outstanding. We will redeem the warrants that
are outstanding as of April 16, 2000 at a price of $0.25 per share. We expect
that holders of the warrants will choose to exercise these warrants rather than
have them redeemed if the price of our common stock trades above $9.00 per share
during the period immediately preceding April 16, 2000. If these holders elect
to sell the common stock issued upon exercise of the warrants, the price of our
common stock may fall.
Our issuance of common stock at a price of $9.00 per share may result in
dilution to other holders of common stock and may cause the price of our common
stock to fall. In addition, if the price of our common stock for the 30 day
trading period following April 16, 2000 is less than $19.46, or in some cases
$17.56, we may be required to issue additional shares of common stock to
investors that bought our common stock in privately negotiated transactions in
September 1999. Any such issuance would have a dilutive effect on holders of our
common stock.
ANTI-TAKEOVER PROVISIONS MAY PREVENT YOU FROM REALIZING A PREMIUM RETURN.
Anti-takeover provisions of our certificate of incorporation and bylaws make
it more difficult for a third party to acquire us, even if doing so would be
beneficial to our stockholders. These provisions include:
- authorization of the issuance of up to 2,000,000 shares of our preferred
stock;
- elimination of cumulative voting; and
- elimination of stockholder action by written consent.
Our bylaws establish procedures, including notice procedures, with regard to
the nomination, other than by or at the direction of our board of directors, of
candidates for election as directors or for stockholder proposals to be
submitted at stockholder meetings.
We are also subject to Section 203 of the Delaware General Corporation Law,
an anti-takeover provision. In general, Section 203 of the Delaware General
Corporation Law prevents a stockholder owning 15% or more of a corporation's
outstanding voting stock from engaging in business combinations with a Delaware
corporation for three years following the date the stockholder acquired 15% or
more of a corporation's outstanding voting stock. This restriction is subject to
exceptions, including the approval of the board of directors and of the holders
of at least two-thirds of the outstanding shares of voting stock not owned by
the interested stockholder.
These provisions are expected to discourage different types of coercive
takeover practices and inadequate takeover bids and to encourage persons seeking
to acquire control of our company to first negotiate with us.
We believe that the benefits of increased protection of our potential
ability to negotiate with the proponents of unfriendly or unsolicited proposals
to acquire or restructure us outweigh the
12
<PAGE>
disadvantages of discouraging those proposals because, among other things,
negotiation of those proposals could result in an improvement of their terms.
BECAUSE CURRENT OFFICERS, DIRECTORS, AND ABBOTT OWN A LARGE PERCENTAGE OF OUR
STOCK, THESE STOCKHOLDERS MAY BE ABLE TO CONTROL US AND ALSO PREVENT POTENTIALLY
BENEFICIAL ACQUISITIONS OF OUR COMPANY BY OTHERS.
As of January 31, 2000, our officers, directors, Abbott and their affiliates
owned approximately 20% of the outstanding shares of our common stock, not
including stock issuable upon exercise of options or warrants. If these
stockholders were to exercise all of their options and warrants, they would
collectively own a majority of our common stock. These stockholders, if acting
together, may be able to influence the election of our directors and other
matters requiring approval by our stockholders. This concentration of ownership
may also delay or prevent a third party from acquiring us. These stockholders
may have interests that differ from our other stockholders, particularly in the
context of potentially beneficial acquisitions of our company by others. For
example, to the extent that these stockholders are our employees, they may be
less inclined to vote for acquisitions of our company by others involving the
termination of their employment or diminution of their responsibilities or
compensation.
THE TRADING PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE AND MAY FLUCTUATE DUE TO
FACTORS BEYOND OUR CONTROL.
The trading price of our common stock is subject to significant fluctuations
in response to numerous factors, including:
- variations in anticipated or actual results of operations;
- announcements of new products or technological innovations by competitors;
- FDA approval or rejection of pending applications and regulatory
enforcement actions;
- changes in earnings estimates of operational results by analysts; and
- results of clinical trials.
Moreover, the stock market from time to time has experienced extreme price and
volume fluctuations, which have particularly affected the market prices for
emerging growth companies and which have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of our common stock. During the past two years from the
date of this prospectus, the market price per share of our common stock has
fluctuated between approximately $5 and $77.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS OF THIS
OFFERING.
Our management will have broad discretion regarding how we use the net
proceeds of the offering. Investors will be relying on the judgment of
management regarding the application of the proceeds of the offering. The result
and effectiveness of our use of the proceeds are uncertain.
13
<PAGE>
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements deal with our
current plans, intentions, beliefs and expectations and statements of future
economic performance. Statements containing terms such as "believe," "do not
believe," "plan," "expect," "intend," "estimate," "anticipate" and other phrases
of similar meaning are considered to contain uncertainty and are forward-looking
statements.
Forward looking statements involve known and unknown risks and uncertainties
which may cause our actual results in future periods to differ materially from
what is currently anticipated. We make cautionary statements in certain sections
of this prospectus, including under "Risk Factors." You should read these
cautionary statements as being applicable to all related forward-looking
statements wherever they appear in:
- this prospectus and materials referred to in this prospectus;
- the materials incorporated by reference into this prospectus; and
- our press releases.
No forward-looking statement is a guarantee of future performance and you should
not place undue reliance on any forward-looking statement.
14
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $115.4 million from the
sale of 2,000,000 shares of common stock by us, based on an assumed public
offering price of $61.75 per share and after deducting the underwriting
discounts and estimated offering expenses. We will receive no proceeds from
shares sold by the selling stockholders.
We will retain broad discretion in the allocation of the net proceeds of
this offering. We currently intend to use the proceeds from this offering:
- for research and development activities, including expansion of clinical
trials;
- to enhance sales and marketing efforts in advance of the potential launch
of rubitecan;
- to finance possible acquisitions of complimentary products, technologies
or businesses;
- to lease and improve new facilities and potentially enhance manufacturing
capabilities; and
- for working capital and other general corporate purposes.
We cannot determine the cost, timing and amount of funds required for such
purposes at this time. The amounts and timing of these expenditures will vary
depending upon a number of factors, including the amount of net cash used in our
operations, competitive and technological developments, and the rate of growth,
if any, of our business. Pending such uses, we intend to invest the net proceeds
of this offering in interest bearing, investment grade securities.
15
<PAGE>
PRICE RANGE OF OUR COMMON STOCK
Our common stock trades on the Nasdaq National Market under the symbol
"SUPG." The following table sets forth the high and low bid information for our
common stock for each quarterly period in the two most recent fiscal years as
reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1998
Quarter ended March 31, 1998................................ $15.13 $11.69
Quarter ended June 30, 1998................................. 17.75 9.63
Quarter ended September 30, 1998............................ 12.50 5.13
Quarter ended December 31, 1998............................. 9.31 5.38
1999
Quarter ended March 31, 1999................................ $12.38 $ 8.19
Quarter ended June 30, 1999................................. 19.38 10.25
Quarter ended September 30, 1999............................ 24.00 14.81
Quarter ended December 31, 1999............................. 34.75 21.25
2000
Quarter ended March 31, 2000 (through February 25, 2000).... $65.50 $27.50
</TABLE>
On February 25, 2000, the last reported sale price for our common stock on
the Nasdaq National Market was $61.75 per share. As of January 31, 2000, there
were 537 holders of record of our common stock.
We also have one class of warrants trading on the Nasdaq National Market
under the symbol "SUPGW," and one class of warrants trading on the Nasdaq
Smallcap Market under the symbol "SUPGZ." The SUPGW warrants have an exercise
price of $9.00 per share and the SUPGZ warrants have an exercise price of $18.18
per share. We will redeem any outstanding SUPGW warrants on April 16, 2000 and
the SUPGZ warrants will expire on August 12, 2001. On February 25, 2000, the
last reported sale price for the SUPGW warrants was $53.50 per warrant, and the
last sale price for the SUPGZ warrants was $46.75 per warrant.
DIVIDEND POLICY
We have never paid cash dividends on our capital stock and do not expect to
pay any dividends in the foreseeable future. We intend to retain future
earnings, if any, for use in our business.
16
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999. Our capitalization is also presented:
- on a pro forma basis to reflect the sale of 933,394 shares of common stock
to Abbott in January 2000 with proceeds of $26.5 million; and
- on a pro forma as adjusted basis to reflect the sale by us of 2,000,000
shares of common stock in this offering, at an assumed public offering
price of $61.75 per share less estimated underwriting discounts and
estimated offering expenses to be paid by us.
You should read this information together with the consolidated financial
statements and the notes to these statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------
PRO FORMA AS
ACTUAL PRO FORMA ADJUSTED
-------- --------- ------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Long-term debt.............................................. $ -- $ -- $ --
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares
authorized; none outstanding.......................... -- -- --
Common stock, $0.001 par value; 40,000,000 shares
authorized; 25,477,770 shares issued and outstanding,
actual; 26,411,164 shares issued and outstanding, pro
forma; 28,411,164 shares issued and outstanding, pro
forma as adjusted..................................... 25 26 28
Additional paid-in capital.............................. 138,461 164,960 280,388
Deferred compensation................................... (835) (835) (835)
Accumulated other comprehensive loss.................... (5) (5) (5)
Accumulated deficit..................................... (92,878) (92,878) (92,878)
-------- -------- --------
Total stockholders' equity.......................... 44,768 71,268 186,698
-------- -------- --------
Total capitalization............................ $ 44,768 $ 71,268 $186,698
======== ======== ========
</TABLE>
17
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1997,
1998, and 1999 and the balance sheet data as of December 31, 1998 and 1999 are
derived from our financial statements that have been audited by Ernst & Young
LLP, independent auditors. These financial statements are included elsewhere in
this prospectus. The statement of operations data for the nine months ended
December 31, 1995 and the year ended December 31, 1996, and the balance sheet
data at December 31, 1995, 1996 and 1997 are derived from our financial
statements audited by Ernst & Young LLP. Those financial statements are not
included in this prospectus. You should read the following selected financial
data together with the more detailed information contained in our financial
statements and related notes that appear elsewhere in this prospectus and the
following section, "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -----------------------------------------
1995 1996 1997 1998 1999
------------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue............................... $ 13 $ 264 $ 1,802 $ 3,004 $ 4,744
Operating expenses:
Cost of sales........................... -- 283 1,539 1,925 2,032
Research and development................ 2,174 6,152 8,583 10,511 17,346
Selling, general, and administrative.... 643 2,894 4,952 7,046 10,517
Acquisition of in-process research and
development........................... -- 442 3,506 -- 10,850
------- ------- -------- -------- --------
Loss from operations...................... (2,804) (9,507) (16,778) (16,478) (36,001)
Interest income........................... 75 749 782 901 1,016
Amortization of loan commitment fee....... -- -- -- -- (2,000)
------- ------- -------- -------- --------
Net loss.................................. $(2,729) $(8,758) $(15,996) $(15,577) $(36,985)
======= ======= ======== ======== ========
Basic and diluted net loss per share...... $ (0.22) $ (0.55) $ (0.85) $ (0.77) $ (1.58)
Shares used in computing basic and diluted
net loss per share...................... 12,629 15,961 18,765 20,353 23,352
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable
securities.................................. $1,815 $13,915 $ 23,326 $ 11,913 $ 27,554
Total assets.................................. 2,162 17,936 30,772 19,793 53,478
Long-term debt................................ -- -- -- -- --
Stockholders' equity.......................... 1,651 15,707 28,567 16,818 44,768
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YOU SHOULD READ THE FOLLOWING DISCUSSION TOGETHER WITH OUR CONSOLIDATED
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE RESULTS DISCUSSED BELOW ARE NOT NECESSARILY INDICATIVE OF THE RESULTS TO BE
EXPECTED IN ANY FUTURE PERIODS. TO THE EXTENT THAT THE INFORMATION PRESENTED IN
THIS DISCUSSION ADDRESSES FINANCIAL PROJECTIONS, INFORMATION OR EXPECTATIONS
ABOUT OUR PRODUCTS OR MARKETS OR OTHERWISE MAKES STATEMENTS ABOUT FUTURE EVENTS,
SUCH STATEMENTS ARE FORWARD-LOOKING AND ARE SUBJECT TO A NUMBER OF RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
STATEMENTS MADE.
OVERVIEW
Since our incorporation in 1991 we have devoted substantially all of our
resources to our product development efforts. Our product revenues to date have
been limited and have been principally from sales of Nipent, which we are
marketing in the United States for the treatment of hairy cell leukemia. As a
result of our substantial research and development expenditures and minimal
product revenues, we have incurred cumulative losses of $92.9 million for the
period from inception through December 31, 1999. These losses included non-cash
charges of $18.4 million for the acquisition of in-process research and
development.
We seek to minimize the time, expense and technical risk associated with
drug commercialization by identifying and acquiring pharmaceutical compounds in
the later stages of development, rather than committing significant resources to
the research phase of drug discovery. During 1999, we acquired or licensed a
number of product candidates in clinical trials through our acquisition of
Sparta, our acquisition of decitabine from Pharmachemie and our license of
inhalation technology from the Research Development Foundation. These product
candidates will require significant additional expenditures to complete the
clinical development necessary to gain marketing approval from the FDA and
equivalent foreign regulatory agencies.
We are pursuing the clinical and regulatory development of our product
candidates internally and expect to continue to incur operating losses at least
through 2000 and into 2001. This is due primarily to projected increases in our
spending for the development of our product candidates, especially rubitecan,
which is in pivotal Phase III clinical trials. Our ability to become profitable
will depend upon a variety of factors, including regulatory approvals of our
products, the timing of the introduction and market acceptance of our products
and competing products, increases in sales and marketing expenses related to the
launch of rubitecan and our ability to control our costs.
As part of our strategy, we intend either to market our products ourselves
or co-promote these products with partners. In December 1999, we entered into an
alliance with Abbott under which Abbott will undertake to market and distribute
rubitecan and invest in shares of our common stock. We will co-promote rubitecan
with Abbott in the United States and Abbott has exclusive rights to market
rubitecan outside of the United States. In the U.S. market, we will share
profits from product sales equally with Abbott. Outside the U.S. market, Abbott
will pay us royalties and transfer fees based on product sales. We will remain
responsible for pursuing and funding the clinical development of rubitecan and
obtaining regulatory approval for the product in the United States, Canada and
the member states of the European Union.
In addition, we will receive a number of equity investments and cash
payments from Abbott which, when aggregated, amount to approximately
$150 million. Each equity investment and cash payment is conditioned upon the
achievement of developmental or sales milestones. We also granted Abbott an
option to purchase up to 49% of the shares of our common stock outstanding at
the time of exercise. The exercise price of the option is $85 per share, and the
option expires in March 2003. In January
19
<PAGE>
2000, we received a $26.5 million equity investment from Abbott related to the
rubitecan agreement. In December 1999, we also entered into a separate U.S.
Distribution Agreement for Nipent with Abbott, which has a minimum five-year
term, and in January 2000 we received a $5.0 million payment from Abbott under
this agreement.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
Net sales were $4.7 million in 1999 compared to $3.0 million in 1998. The
increase in net sales was due primarily to higher sales volumes of Nipent in
1999. Net sales of Nipent amounted to $4.2 million in 1999 compared to
$2.7 million in 1998. This volume increase resulted from a 110% sales increase
of Nipent under a supply agreement with the Warner-Lambert Company for sales
outside North America, together with a 43% increase in U.S. sales.
Gross margins were 57% in 1999 compared to 36% in 1998. The lower gross
margin in 1998 was due to a $667,000 charge to cost of sales for unabsorbed
fixed product manufacturing costs, as production of Nipent fell short of the
minimum level of production for which we were obligated to pay our contract
manufacturer. Margins on our product sales may not be indicative of future
margins due to variations in average selling prices and manufacturing costs.
Research and development expenses were $17.3 million in 1999 compared to
$10.5 million in 1998. The increased expense was primarily due to increased
clinical trial expenditures for rubitecan and Nipent, a corresponding increase
in the research and development staff, and increased charges for acquired
license rights. We expect research and development expenses to continue to
increase in the future as we pursue the clinical and regulatory development of
our products.
Selling, general and administrative expenses increased to $10.5 million in
1999 compared to $7.0 million in 1998. The increase was primarily due to
additional expenditures to support Nipent sales, including promotional
materials, trade shows, and speaker programs, as well as the costs associated
with the expansion of our sales and professional services staffs. Additionally,
higher compensation, legal, investor relations and business development expenses
in the administrative area, offset somewhat by a decrease in consulting fees,
contributed to the increase over 1998. We expect selling, general and
administrative expenses to continue to increase in the future as we receive
regulatory approvals for, and begin to market, our products.
Acquisition of in-process research and development amounted to
$10.9 million in 1999. This non-cash charge included $7.5 million related to
drug candidates under development by Sparta at the time of its acquisition by us
and $3.4 million related to the acquisition of decitabine from Pharmachemie. We
had no comparable charges for in-process research and development in 1998.
In March 1999, we entered into a credit arrangement with Tako Ventures LLC,
or Tako, granted Tako a security interest in our assets and issued Tako a
warrant to purchase 500,000 shares of unregistered common stock as a loan
commitment fee. In September 1999 we terminated this credit arrangement and
incurred an expense of $2.0 million. We had no comparable charges for 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
Net sales were $3.0 million in 1998 compared to $1.8 million in 1997. The
increase in net sales was due primarily to higher sales volumes of Nipent in
1998. This volume increase resulted principally from sales of Nipent under a
supply agreement for sales outside North America.
Gross margin was higher in 1998 due primarily to lower Nipent unit costs. In
1998, virtually all Nipent sales consisted of our own manufactured inventory. In
1997, sales of Nipent consisted entirely of inventory acquired from
Warner-Lambert Company and the relatively high unit cost of that
20
<PAGE>
inventory affected our margins. The unit cost of manufactured Nipent has been,
and is expected to continue to be, significantly lower than the unit cost
assigned to the Nipent inventory acquired from Warner-Lambert Company. This
positive effect upon margin was partially offset by lower selling prices for
Nipent sold under the supply agreement and a $667,000 charge to cost of sales
for unabsorbed fixed product manufacturing costs, as production of Nipent fell
short of the minimum level of production for which we were obligated to pay our
contract manufacturer.
Research and development expenses were $10.5 million in 1998 compared to
$8.6 million in 1997. Product formulation and development costs associated with
rubitecan, Nipent and mitomycin contributed to the overall increase in expenses
in 1998. Costs attributable to expansion of the research and development staff
also contributed to the increase in research and development expense, as did our
investment of $200,000 in a related party in the first quarter of 1998.
Selling, general and administrative expenses were $7.0 million in 1998
compared to $5.0 million in 1997. This increase was primarily due to costs
reflecting the continued expansion of the sales and marketing group in 1998, as
we began media advertising for Nipent and expanded our participation at
strategic trade shows. Selling, general and administrative expenses also
increased due to consultancy costs relating to investor relations, patent
related legal fees, information technology services and higher personnel costs.
We incurred no charges for the acquisition of in-process research and
development in 1998 compared to $3.5 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Our cash, cash equivalents and marketable securities totaled $27.6 million
at December 31, 1999 compared to $11.9 million at December 31, 1998. In
January 2000, we received a $26.5 million equity investment and a $5.0 million
cash payment from Abbott. Also in January 2000, 668,288 warrants were exercised
resulting in gross proceeds of $6.0 million.
During the year ended December 31, 1999, we raised an aggregate of
$36.4 million in cash through sales of our common stock to institutional
investors. Some of these transactions reflected discounts to the market price of
our stock at the transaction date. We believe that such discounted selling price
was reasonable in light of the volatility of our stock price, the magnitude of
the transactions and our capital needs at the time of the transactions.
The net cash used in operating activities of $23.6 million in 1999 primarily
reflected the net loss for the period of $37.0 million, offset by non-cash
charges related to the acquisition of in-process research and development,
acquisition of license rights and amortization of loan commitment fees.
We believe that our current cash, cash equivalents, marketable securities
and the funds received in January 2000 from Abbott, the warrant exercises and
the proceeds of this offering will satisfy our cash requirements at least
through December 31, 2001. Our primary planned uses of cash during that period
are:
- for research and development activities, including expansion of clinical
trials;
- to enhance sales and marketing efforts in advance of the potential launch
of rubitecan;
- to lease and improve new facilities and potentially enhance manufacturing
capabilities; and
- to finance possible acquisitions of complimentary products, technologies
and businesses.
21
<PAGE>
On September 20, 1999, we issued a notice of redemption of warrants for the
purchase of shares of our common stock that we issued in connection with our
initial public offering. These warrants enable the holder to purchase shares of
our common stock at a price of $9.00 per share. As of January 31, 2000, there
were 3,062,452 of such warrants outstanding. We will redeem the warrants that
are outstanding as of April 16, 2000 at a price of $0.25 per warrant. We expect
that holders of the warrants will choose to exercise these warrants rather than
have them redeemed if the price of our common stock trades above $9.00 per share
during the period immediately preceding April 16, 2000. The exercise of these
warrants could result in our receiving an additional $27.6 million in cash and
issuing an additional 3,062,452 shares of common stock.
During the third quarter of 1999, we terminated a promissory note issued to
Tako that provided us with a line of credit for up to $5.0 million. When this
promissory note was terminated, Tako's security interest in our assets was
eliminated.
We believe that our need for additional funding will increase in the future
and that our continued ability to raise additional funds from external sources
will be critical to our success. We continue to actively consider future
contractual arrangements that would require significant financial commitments.
If we experience currently unanticipated cash requirements, we could require
additional capital much sooner than presently anticipated. We may seek such
additional funding through public or private financings or collaborative or
other arrangements with third parties. We may not be able to obtain additional
funds on acceptable terms, if at all.
ACQUISITION OF IN-PROCESS RESEARCH AND DEVELOPMENT AND RELATED ASSETS
FACTORS CONSIDERED WHEN EVALUATING IPR&D
Acquired in-process research and development, or IPR&D, represents the value
assigned to research and development projects that were commenced but not yet
completed at the date of acquisition and which, if unsuccessful, have no
alternative future use in research and development activities or otherwise. In
accordance with Statement of Financial Accounting Standards No. 2 "Accounting
for Research and Development Costs," as interpreted by FASB Interpretation
No. 4, amounts assigned to acquired IPR&D meeting the above criteria must be
expensed at the date of consummation of the transaction. Accordingly, we record
a non-recurring charge for this acquired IPR&D at the date of acquisition.
The development of any of the acquired IPR&D into technologically feasible
and commercially viable products depends principally on the successful
performance of additional clinical trials. Though we currently expect that the
acquired IPR&D will be successfully developed, the proposed products may never
be commercially viable.
YEAR ENDED DECEMBER 31, 1999
SPARTA DRUG CANDIDATES
In August 1999, we completed our acquisition of Sparta, a biopharmaceutical
company engaged in developing technologies and drugs for the treatment of a
number of life-threatening diseases, including cancer, cardiovascular disorders,
chronic metabolic diseases and inflammation.
22
<PAGE>
Approximately $7.5 million of the purchase price was allocated to acquired
IPR&D. The Sparta research and development programs were valued as follows:
<TABLE>
<CAPTION>
<S> <C>
Oral anticancer drug for the treatment of breast, colorectal
and other cancers (5-FP, a prodrug of 5-FU)............... $3,430,000
Chronic metabolic disease drug (PZG)........................ 1,380,000
Spartaject method for the delivery of certain anti-cancer
compounds................................................. 2,640,000
----------
$7,450,000
==========
</TABLE>
- 5-FP, or 5-fluoro pyrimidinone, is a pyrimidinone-based prodrug that is
converted to 5-FU, or 5-fluorouracil by the liver. This drug candidate was
in Phase I clinical trials at the date of the acquisition. Prodrug
technology involves administering an inactive compound, known as a
prodrug, which is absorbed in the digestive tract and is converted to an
active agent in the liver by a localized enzyme.
- Animal studies and early clinical studies of PZG suggest that it may help
to control the blood sugar and lipid abnormalities of diabetes.
- Spartaject drug delivery technology is a drug delivery system that
accommodates poorly water-soluble and water insoluble compounds by
encapsulating them with a fatty (phospholipid) layer. Currently, there are
ongoing Phase I clinical trials applying the Spartaject drug delivery
technology to busulfan for use in bone marrow ablation and for the
treatment of neoplastic meningitis.
We identified and valued the purchased research and development through
extensive interviews and discussions with appropriate management and scientific
personnel. We also analyzed the data provided by Sparta concerning Sparta's
development projects, their respective stage of development, the time and
resources needed to complete them, their expected income generating ability,
target markets, and associated risks. Using an income approach that reflects the
present value of the projected free cash flows generated by each individual
IPR&D project identified, we focused on the income producing capabilities of the
acquired technologies and quantified the present value of the future economic
benefits expected to be derived from each. In the aggregate, we estimate that
the total remaining development costs necessary to advance the three drug
candidates through the regulatory process will be approximately $45 million. We
expect this regulatory development process to occur over several years with
potential product introductions through 2005. The effective tax rate utilized
for the analysis was 40%. The discount rate used to value Sparta's IPR&D was
31%. The discount rate considers an assumed weighted average cost of capital of
22% at the date of acquisition and a risk premium to reflect the risk associated
with the stage of development of each of the Sparta projects. Additional amounts
of the purchase consideration were recorded as intangible assets related to
existing licensing rights, acquired workforce and goodwill.
DECITABINE
In September 1999, we acquired worldwide rights to decitabine, a
chemotherapeutic agent owned by Pharmachemie. Decitabine has been successful in
multiple Phase II trials in the United States and Europe for treating
myelodysplastic syndromes, or MDS, chronic myeloid leukemia and acute myeloid
leukemia. The FDA has not granted marketing approval to use decitabine for the
treatment of any disease.
In the decitabine acquisition we issued 171,123 shares of unregistered
common stock valued at $3.4 million, which we charged to IPR&D. In assigning the
purchase price to IPR&D, we considered, among other factors, our intentions for
the future use of the acquired project, its stage of completion, the lack of
alternative future uses of the technology, and that no other tangible or
intangible assets
23
<PAGE>
were acquired. We believe decitabine has a unique mechanism of action that may
demonstrate its effectiveness in acute leukemias and other hematological
malignancies. We currently estimate that the completion of the clinical trials
and submission to the FDA of a New Drug Application could occur in 2002 and the
research and development costs to complete those processes will be approximately
$6.0 to $8.0 million. Revenues could begin with the introduction of a product in
2002.
YEAR ENDED DECEMBER 31, 1997
In 1997, we incurred the following charges for the acquisition of IPR&D:
- $831,000 related to the acquisition of the generic anticancer drug
etoposide;
- a non-cash charge of $1.9 million for the acquisition of rubitecan; and
- $800,000, consisting of a non-cash charge of $750,000 and $50,000 of
additional cash expenses, for the acquisition of a patent royalty
agreement and other intellectual property related to our ongoing
obesity/diabetes product candidate, RF 1051.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, or SFAS 133. SFAS 133 establishes new accounting and
reporting standards for derivative financial instruments and for hedging
activities. SFAS 133 requires us to measure all derivatives at fair value and to
recognize them in the balance sheet as an asset or liability, depending on our
rights or obligations under the applicable derivative contract. We will adopt
SFAS 133 no later than the first quarter of fiscal year 2001. SFAS 133 is not
expected to have an impact on our consolidated results of operations, financial
position or cash flows.
RECENTLY ISSUED STAFF ACCOUNTING BULLETIN
In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, or SAB. The SAB details the
criteria that must be met for recording revenue. In addition, the SAB also
provides guidance on the disclosures (both in footnotes and in Management's
Discussion and Analysis of Financial Condition and Results of Operations)
registrants should make about their revenue recognition policies and the impact
of events and trends on revenue. The SAB states that all registrants are
expected to apply the accounting and disclosures described in it no later than
the first fiscal quarter of the fiscal year beginning after December 15, 1999.
The application of SAB is not expected to have any effect on our financial
condition or results of operations.
UPDATE ON YEAR 2000 ISSUE
We did not experience any systems problems relating to the Year 2000 issue.
Upon review of our internal systems and after consultation with our vendors, we
determined that we did not have any material exposure to such computer problems
and that the software and systems required to operate our business were Year
2000 compliant. We do not expect to incur any material expenditures relating to
Year 2000 systems remediation.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Due to the short-term nature of our interest bearing assets, we believe that
our exposure to interest rate market risk is not significant.
24
<PAGE>
BUSINESS
OVERVIEW
We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of oncology therapies for solid tumors
and hematological malignancies. We seek to minimize the time, expense and
technical risk associated with drug commercialization by identifying and
acquiring pharmaceutical compounds in the later stages of development, rather
than committing significant resources to the research phase of drug discovery.
STRATEGY
Our primary objective is to become a leading supplier of oncology therapies
for solid tumors and hematological malignancies. Key elements of our strategy
include:
- LICENSING OR BUYING RIGHTS TO LEAD COMPOUNDS RATHER THAN ENGAGING IN PURE
DISCOVERY RESEARCH. We identify and seek to license or buy rights to
products or compounds that are typically in human clinical development. We
then seek to enhance and complete the product development and bring the
product to market. We believe that our approach minimizes the significant
financial investment required by pure discovery research and reduces the
risk of failure in developing a commercially viable product.
- CAPITALIZING ON OUR EXISTING CLINICAL EXPERTISE TO MAXIMIZE THE COMMERCIAL
VALUE OF OUR PRODUCTS. We intend to retain significant participation in
the commercialization of our proprietary products by funding and
undertaking human clinical development ourselves. We believe this will
allow us to maximize the commercial value of our products by either
directly marketing our products or licensing the products on more
favorable terms than would be available earlier in the development cycle.
Our management and clinical staff have significant experience in
developing oncology therapies and bringing products to market.
- UTILIZING TECHNOLOGIES TO DEVELOP PRODUCTS FOR IMPROVED DELIVERY AND
ADMINISTRATION OF EXISTING COMPOUNDS. We are focused on the application of
our technologies to the development of improved formulations of existing
anticancer agents, which will be marketed as brand name pharmaceuticals.
We believe that incorporating our technologies with these compounds will
result in products with improved delivery and/or administration. The
development of these products is subject to the New Drug Application, or
NDA, approval process.
- EXPANDING THE SCOPE OF OUR DEVELOPMENT EFFORTS IN ONCOLOGY. We are
implementing a strategy to commercialize oncology products in a number of
therapies, such as immunotherapies and vaccines, photodynamic therapy and
biotechnology-based drugs, and other areas, such as diagnostic agents and
prophylaxis.
25
<PAGE>
PRODUCTS AND PRODUCTS IN DEVELOPMENT
The following table outlines our products and products in development, their
indication or intended use, their therapeutic category and their regulatory
status:
<TABLE>
<CAPTION>
COMPOUND INDICATION OR INTENDED USE THERAPEUTIC CATEGORY REGULATORY STATUS
- -------- -------------------------- -------------------- -----------------
<S> <C> <C> <C>
Rubitecan Pancreatic cancer Cancer Phase III
Myelodysplastic syndromes/Chronic Cancer Phase II
myelo-monocytic leukemia
Various other solid tumor cancers Cancer Phase II
Nipent Hairy cell leukemia Cancer Approved
Cutaneous T-cell lymphoma/ Cancer Phase II
Percutaneous T-cell lymphoma
Chronic lymphocytic leukemia Cancer Phase II
Low grade non-Hodgkin's, lymphoma Cancer Phase II
Graft-versus-host disease Immunological Phase I
Rheumatoid arthritis Immunological Phase I
Decitabine Myelodysplastic syndromes Cancer Phase II
Acute myeloid leukemia/Chronic Cancer Phase II
myeloid leukemia
Non-small cell lung cancer Cancer Phase I/II
Sickle cell anemia Hematological Phase I
RF1010 Anemia Hematological Phase II
RF1051 Diabetes/Obesity Metabolic Phase II
PZG Diabetes Metabolic Phase II
</TABLE>
ONCOLOGY PRODUCTS AND PRODUCTS IN DEVELOPMENT
RUBITECAN
Rubitecan is an oral chemotherapy compound in the camptothecin class which
we licensed from the Stehlin Foundation for Cancer Research in 1997. Rubitecan
is a second-generation topoisomerase I inhibitor that causes single-strand
breaks in the DNA of rapidly dividing tumor cells. We believe that rubitecan may
have significant advantages over many existing anticancer drugs, including oral
dosing and a superior side effect profile. In particular, we believe that the
compound causes significantly less inhibition of bone marrow function, due in
part to its dosing schedule, which provides for a cycle of five days of
administration followed by two days of recovery. In clinical trials, the
observed side effects are mild to moderate hematological toxicities, low-grade
cystitis, infrequent and mild hair loss and gastrointestinal disorders. Finally,
as an oral drug that can be taken at home, rubitecan may provide patients with
additional convenience and improved quality of life, and may reduce healthcare
costs. We believe that rubitecan is a platform drug for leadership in the
treatment of a broad array of solid tumors and hematological malignancies. We
are seeking rapid development of rubitecan and hope to obtain expedited review
by the FDA of the drug for pancreatic cancer, for which there are limited
treatment options. In addition to patent protection, we have orphan drug
designation for this disease which may provide us with seven years of marketing
exclusivity in the United States after FDA approval.
26
<PAGE>
PANCREATIC CANCER
Pancreatic cancer is associated with high patient mortality, causing more
than 75,000 deaths annually in the United States and Europe. It is the fourth
leading cause of death by cancer in the United States with an average survival
time of four to five months following diagnosis. The current therapeutic
treatment options most commonly used to treat pancreatic cancer include
5-fluorouracil, or 5-FU, and Gemzar.
Results of a Phase II clinical trial conducted by the Stehlin Foundation
using rubitecan for treatment of pancreatic cancer indicate a favorable
comparison with historical treatment options in terms of quality of life,
survival data and tumor size reduction. The results of this Phase II trial
suggest that the median survival in the 60 evaluable patients who took at least
the required minimum eight week course of therapy was nearly nine months,
markedly greater than the average survival time of four to five months under
historical treatment methods. Overall, previously untreated patients who used
rubitecan survived much longer than those patients treated with Gemzar.
We are evaluating rubitecan in three separate stand-alone pivotal Phase III
clinical trials for pancreatic cancer. The trials are randomized, unblinded
studies being conducted in approximately 200 centers and are designed to include
up to 1,800 patients. The primary endpoint of these trials is survival. We
commenced these trials in November 1998 and we have over 700 patients currently
enrolled. If any one of these trials is successful, we anticipate filing an NDA
with the FDA by early 2001. The protocols are outlined as follows:
<TABLE>
<CAPTION>
PROTOCOLS MAXIMUM PATIENTS
- ------------------------------------------------------------ ----------------
<S> <C>
Rubitecan or Gemzar in patients who have not undergone
chemotherapy 1,000
Rubitecan or 5-FU in patients who have failed Gemzar 400
Rubitecan or other therapies in patients who have failed
other prior therapies 400
</TABLE>
MYELODYSPLASTIC SYNDROMES
Myelodysplastic syndromes, or MDS, are a group of conditions that have in
common abnormalities in the blood-producing cells of the bone marrow. The
conditions are fatal, although patients can live for several years after
diagnosis. Treatment of patients with MDS has generally proven disappointing.
The most common current treatment is management by supportive measures, such as
blood transfusion, or the administration of antibiotics to fight infections.
Hematopoietic growth factors also have been used to treat MDS.
We are conducting a Phase II study at the M.D. Anderson Cancer Center
enrolling patients with a diagnosis of MDS, as well as related conditions such
as chronic myeloid leukemia, or CML, and chronic myelo-monocytic leukemia. We
expect to enroll approximately 100 patients in this trial. Based on preliminary
positive results from this study, we are finalizing the protocol of a randomized
Phase III study comparing rubitecan to best supportive care. We expect to
commence patient enrollment for this study in the second quarter of 2000. The
principal endpoints will be response and clinical benefit. This planned Phase
III trial is designed to secure approval for this indication.
OTHER POTENTIAL INDICATIONS
Studies have shown rubitecan to be active in more than 30 human and animal
tumor models in indications such as breast, lung, colorectal, ovarian and
prostate cancers. We are aggressively pursuing additional Phase II trials using
rubitecan both as a single therapeutic agent and in combination with other
anticancer agents in solid tumors and hematological malignancies. We intend to
make available to physicians copies of peer-reviewed medical journal articles
and other validated scientific information related to these trials. We believe
this will provide physicians with more up-to-date product information and will
better enable them to meet their patients' medical needs.
In addition, we are currently conducting pilot studies using rubitecan in
combination with other chemo-therapeutic agents. In studies to date, rubitecan
has not exhibited any of the cardiac, pulmonary, hepatic or renal toxicities
that limit the acute and/or chronic dosages of several chemotherapeutics. In
addition, some early studies suggest rubitecan could be used to treat cancer on
a chronic rather than acute basis.
27
<PAGE>
In December 1999, we entered into license and research agreements with the
Clayton Foundation for Research and its technology transfer organization,
Research Development Foundation. Under the terms of the agreements, we acquired
worldwide rights to inhaled versions of formulations of camptothecins, including
rubitecan. Phase I clinical studies with inhaled rubitecan for the treatment of
lung cancer and pulmonary metastatic disease are currently underway at the M.D.
Anderson Cancer Center and the Baylor College of Medicine.
NIPENT
Nipent, generically known as pentostatin, inhibits a key enzyme in the DNA
synthesis process and results in cytotoxicity, primarily in lymphocytes. The
specific mechanism differs from other chemotherapy agents, therefore making
Nipent novel and unique. Nipent's preferential effect on lymphocytes, with
little effect on other normal tissue, creates an interest in this product for
the treatment of cancers of the lymphoid system and other hematologic cancers.
HAIRY CELL LEUKEMIA
We acquired Nipent from the Parke-Davis division of the Warner-Lambert
Company in 1996 and we are selling this drug in the United States for the
treatment of hairy cell leukemia, a type of B-lymphocytic leukemia.
Warner-Lambert retained a worldwide, royalty-free license to sell Nipent but has
agreed not to sell Nipent in North America through September 2006. In 1997,
Warner-Lambert further agreed to buy Nipent from us for all of its sales outside
the United States through at least October 2004. We are permitted to sell Nipent
outside of North America for diseases other than cancer until September 2006, at
which time we may sell the drug worldwide for any disease.
OTHER INDICATIONS
We believe that Nipent has a unique mechanism of action and Phase II trials
indicate that it may have activity in a variety of other hematologic cancers. In
oncology, we are pursuing treatments for lymphatic malignancies and disorders,
such as cutaneous T-cell lymphoma, chronic lymphocytic leukemia, low grade
non-Hodgkin's lymphoma and peripheral T-cell lymphoma. Nipent has received
orphan drug designation by the FDA for use against cutaneous T-cell lymphoma and
chronic lymphocytic leukemia. As with rubitecan, we are pursuing trials that
will lead to peer reviewed articles indicating efficacy of Nipent in various
leukemias.
In addition, Nipent has shown activity in various autoimmune diseases,
including graft-versus-host disease which is not responsive to standard
therapies, and rheumatoid arthritis. We estimate the United States markets for
both graft-versus-host disease and rheumatoid arthritis are larger than the
market for Nipent's current applications. We are conducting Phase I clinical
trials in both of these indications. If results from ongoing trials are
consistent with previously completed trials, we intend to pursue development of
Nipent for both of these diseases.
DECITABINE
Decitabine is an antimetabolite cytotoxic agent that we acquired from a
subsidiary of Teva Pharmaceuticals in September 1999. Decitabine is a pyrimidine
analog that has a mechanism of action that is unique from other chemically
related compounds, such as gemcitabine and cytosine arabinoside. Decitabine's
mechanism is related to DNA hypomethylation. Methylation of DNA is a major
mechanism regulating gene expression. Researchers have determined that an
increase in methylation of DNA results in blocking the activity of several genes
that regulate cell division and differentiation, known as "suppressor genes."
With suppressor genes blocked, cell division becomes unregulated, causing
cancer. In studies researchers have demonstrated that decitabine reduces the
methylation of DNA, leading to reexpression of suppressor genes and a resulting
redifferentiation and maturation of
28
<PAGE>
the cancer cells back to normal. Researchers have also shown that decitabine
treatment restores sensitivity of tumors to treatment by drugs such as cisplatin
by reversing drug resistance.
Researchers have shown decitabine to be effective in multiple Phase II
trials in the United States and Europe for treating MDS, CML and acute myeloid
leukemia. Based on positive results from these studies, we are finalizing the
protocol of a randomized Phase III study comparing decitabine to best supportive
care for MDS. We expect to commence patient enrollment for this study in 2000.
The principal endpoints will be response and clinical benefit. This planned
Phase III trial is designed to secure approval for this indication. Decitabine
has received orphan drug designation from the FDA for MDS.
In addition to MDS, clinical studies have shown that decitabine is effective
in a variety of other hematological malignancies such as acute myeloid leukemia
and CML. Preliminary results also suggest activity in solid tumors such as
non-small cell lung cancer. Phase I clinical trials with decitabine are underway
for this indication. Scientific data also suggests that decitabine may be
applicable for treatment of non malignant diseases such as sickle cell anemia.
Phase I clinical trials are underway for treatment of sickle cell anemia using
decitabine.
NON-ONCOLOGY PROPRIETARY PRODUCTS
We are developing certain non-oncology products, including RF 1010, RF 1051
and pyrazinoylguanidine, or PZG. RF 1010 is an analog of a naturally occurring
human non-androgenic hormone. We have conducted Phase II trials using RF 1010 to
treat various forms of anemia and neutropenia. These diseases destroy red and
white blood cells and thereby weaken the immune system, leaving patients
susceptible to infections that could result in serious illness or death.
RF 1051, which is a naturally occurring substance in humans, has applications
for treatment of diabetes and obesity. Our Phase II trials have indicated that
this proprietary oral drug may cause the body to store less fat or use more fat
to produce energy. We have received orphan drug designation for RF 1051 in the
treatment of Prader-Willi Syndrome, a type of genetic obesity. PZG is a product
for treatment of Type II, or adult-onset, diabetes. Animal studies and early
clinical studies of PZG suggest that it may help to control the blood sugar and
lipid abnormalities of diabetes, and may have utility in treating a lipid
disorder unrelated to diabetes called hypertriglyceridemia, obesity,
hypertension and the uremia of renal failure. We recently initiated a small,
well-defined and controlled Phase II study to characterize the hypoglycemic and
lipid-lowering effects of PZG in Type II diabetics.
TECHNOLOGIES
We are focused on the application of our technologies to the development of
improved formulations of existing anticancer agents, which will be marketed as
brand name pharmaceuticals. We believe that incorporating our technologies with
these compounds will result in products with improved delivery and/or
administration. The development of these products is subject to the NDA approval
process.
EXTRA TECHNOLOGY
We have developed several applications for our proprietary Extra technology.
We believe this technology significantly improves the safety profile and
handling characteristics of several anticancer drugs currently on the market. In
March 1994, we acquired exclusive worldwide rights to the patented cyclodextrin
technology used in our Extra technology from Janssen Biotech, N.V. and others.
29
<PAGE>
Many generic anticancer drugs are available only in a powder form that must
be mixed into a solution before injection into a vein. If successful, our Extra
technology will produce a ready-to-inject, stable solution that will ease
administration and save time by eliminating the potentially dangerous mixing
procedure. It could also provide safety benefits for those administering the
dose by reducing their risk of exposure to the drug. Moreover, we believe that
our ready-to-inject stable solutions may have a significantly longer shelf life
at room temperature than the mixed solutions. In addition, many existing
anticancer pharmaceuticals, including those under development by us, are potent
toxins that can cause serious irreversible damage to a patient's muscle or skin
should the drug accidentally leak during injection. We believe that our Extra
technology may increase the safety of these existing anticancer drugs by
shielding the tissue from the drug at the injection site. The drug is released
upon circulation within the bloodstream. We believe that each of these features
will result in our Extra products having a significant competitive advantage
over their counterparts currently on the market.
EXTRA PRODUCTS UNDER DEVELOPMENT
We filed an NDA for Mito Extra, our Extra formulation of mitomycin, in
December 1997, which was accepted by the FDA in February 1998. We are in the
process of responding to an FDA request for additional formulation,
manufacturing and clinical information. In addition, we are evaluating our Extra
technology for additional applications of other generic anticancer agents as
well as Nipent.
SPARTAJECT DRUG DELIVERY TECHNOLOGY
Spartaject drug delivery technology is a drug delivery system that
accommodates poorly water-soluble and water insoluble compounds by encapsulating
them with a fatty layer, known as a phospholipid. The Spartaject technology
involves coating particles of a drug that are of submicron or near micron size
with a membrane-forming phospholipid layer, thereby permitting the creation of a
suspension of the drug rather than a solution, and its intravenous injection
without the use of potentially toxic solubilizing agents. As a result, the
Spartaject technology may reduce toxicity created by other injectable forms of
delivery and potentially increase efficacy by facilitating delivery of compounds
whose prior intravenous delivery was impractical because of solubility-related
formulation difficulties.
SPARTAJECT PRODUCT UNDER DEVELOPMENT
Busulfan is currently marketed in an oral dosage form by Glaxo
Wellcome Inc. It is frequently used "off-label" as a bone marrow ablating agent
prior to bone marrow transplants. In 1998 we completed a Phase I clinical trial
of Spartaject busulfan at each of Johns Hopkins Oncology Center and Duke
University Medical Center. Additional Phase I clinical trials in pediatric bone
marrow ablation and neoplastic meningitis were initiated at St. Jude's
Children's Hospital and Duke University Medical Center.
ORAL PRODRUG DELIVERY TECHNOLOGY
Oral prodrug delivery technology involves administering an inactive
compound, known as a prodrug, which is absorbed in the digestive tract and is
converted to an active agent in the liver by an enzyme located there. Oral
prodrug delivery technology could potentially enable the oral delivery of drugs
that are otherwise only used in an intravenous formulation. The resulting active
compounds may pass through the systemic circulation and act at peripheral sites.
We are applying the Oral prodrug delivery technology to compounds selected for
their potential either to serve as oral delivery agents for systemically active
chemotherapeutic or radiosensitizing drugs previously available only in
intravenous form.
30
<PAGE>
ORAL PRODRUG DELIVERY PRODUCTS
5-FP, or 5-fluoro pyrimidinone, is a pyrimidinone based prodrug that is
converted to 5-FU, or 5-fluorouracil, by the liver. 5-FU is currently sold
generically only in an intravenous form. It is widely used in the treatment of
breast, colorectal and other cancers. We have completed a Phase I trial with
5-FP and are evaluating strategies regarding its further clinical development.
IPdR is a pyrimidinone based prodrug that converts into IUdR, a compound
that has been under investigation by the National Cancer Institute, or NCI, in
animals and humans as a potential agent to sensitize cancer cells to radiation.
We were recently awarded a Phase II Small Business Innovation Research Grant by
the NCI of up to approximately $750,000, which is designated to be used to bring
IPdR into Phase I trials.
GENERIC ANTICANCER DRUGS
As part of our Extra product development efforts we pursued development of
generic versions of existing anticancer agents. To date we have received
Abbreviated New Drug Application, or ANDA, approval for our generic mitomycin,
which we are selling in the United States. We believe that the total estimated
United States sales for generic anticancer products have decreased over the last
few years due to increased competition. We also believe sales for these generics
may continue to decrease as a result of competitive factors. These factors may
include reductions in the per unit sales price, the introduction of additional
generics as well as other cancer drugs, new formulations for these drugs and the
use of different therapies. Therefore, we currently intend to limit our
development of generic products to those that we feel either require minimal
effort to submit an ANDA and obtain marketing clearance or that offer
significant market opportunities.
STRATEGIC AND COLLABORATIVE RELATIONSHIPS
We identify and license or buy rights to products or compounds that are
typically in human clinical development. We then seek to enhance and complete
the product development and bring the product to market internally or through
collaborations with others. We have entered into a variety of strategic
relationships and licensing agreements in pursuing our business. Some of our
more significant relationships are as follows:
ABBOTT LABORATORIES
In December 1999, we entered into agreements with Abbott under which Abbott
will undertake to market and distribute our products and invest in shares of our
common stock. One of the agreements covers the development, marketing and
distribution of rubitecan. Under this agreement, we will co-promote rubitecan
with Abbott within the United States and Abbott has exclusive rights to market
rubitecan outside the United States. In the U.S. market, we will share profits
from product sales equally with Abbott. Outside of the U.S. market, Abbott will
pay us royalties and transfer fees based on product sales. We will remain
responsible for pursuing and funding the clinical development of rubitecan and
to obtain regulatory approval of the product in the United States, Canada and
the member states of the European Union. Abbott is responsible for obtaining
regulatory approval of the product in the other countries in the world. We will
retain responsibility for manufacturing, packaging, sterilization and labeling
of the product and Abbott shall be the exclusive distributor of the product
throughout the world.
In addition, under the agreements Abbott will purchase shares of our common
stock in an amount of up to $81.5 million in nine tranches over a period of time
and will make certain other cash payments to us which, when aggregated with the
equity investments, amount to approximately $150 million. The purchase price of
the securities will be determined based on the market price of our common stock
at the time of the purchase. Each equity investment and cash payment is tied to
and conditioned upon the
31
<PAGE>
achievement of certain milestones based on, among other things, steps in the
regulatory approval process both in the United States and other countries in the
international territory, the launch of the product in particular territories and
the target sales of the product. In January 2000 Abbott made a $26.5 million
equity investment.
We also granted Abbott an option to purchase up to 49% of the shares of our
common stock outstanding at the time of the exercise. The exercise price of the
option is $85 per share, and the option expires in March 2003. Abbott's ability
to exercise the option is conditioned upon, among other things, the continued
effectiveness of the worldwide distribution agreement for rubitecan-related
products. In addition, Abbott has a right of first discussion with respect to
our product portfolio and a right of first refusal to acquire us.
We entered into a distribution agreement for Nipent in December 1999. Under
the terms of the Nipent distribution agreement, Abbott will become the exclusive
U.S. distributor for a period of five years. We retain U.S. marketing rights for
Nipent. In January 2000, Abbott made a $5 million cash payment to us in
connection with the granting of the exclusive distribution rights.
STEHLIN FOUNDATION FOR CANCER RESEARCH
In September 1997 we licensed the exclusive worldwide royalty-bearing rights
to rubitecan from the Stehlin Foundation for Cancer Research, a Houston, Texas
based cancer research clinic. The Stehlin Foundation was established in 1969 by
Dr. John S. Stehlin, Jr. M.D., a surgical oncologist, for the express purpose of
conducting basic research that can be applied directly to improving the
treatment of patients with cancer. All research is clinically oriented and
conducted at the Stehlin Foundation's facility in Houston, Texas. In
November 1999 we amended our agreement with the Stehlin Foundation to broaden
the definition of licensed compounds to include certain analogues of rubitecan.
Under these agreements we are required to seek commercial applications for
rubitecan. We are required to pay the Stehlin Foundation approximately
$10 million for research and must make cash royalty payments and cash or stock
milestone payments to the Stehlin Foundation as we develop and commercialize
rubitecan.
NEW DRUG DEVELOPMENT AND APPROVAL PROCESS
Regulation by governmental authorities in the United States and other
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in our ongoing research and development activities. All of
our products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical testing and clinical trials and other pre-marketing
approval requirements by the FDA and regulatory authorities in other countries.
In the United States, various federal, and in some cases state statutes and
regulations also govern or impact upon the manufacturing, safety, labeling,
storage, record-keeping and marketing of such products. The lengthy process of
seeking required approvals and the continuing need for compliance with
applicable statutes and regulations, require the expenditure of substantial
resources. Regulatory approval, when and if obtained, may be limited in scope
which may significantly limit the indicated uses for which a product may be
marketed. Further, approved drugs, as well as their manufacturers, are subject
to ongoing review and discovery of previously unknown problems with such
products may result in restrictions on their manufacture, sale or use or in
their withdrawal from the market.
The process for new drug approval has many steps, including:
DRUG DISCOVERY. In the initial stages of drug discovery before a compound
reaches the laboratory, tens of thousands of potential compounds are randomly
screened for activity against an assay assumed to be predictive for particular
disease targets. This drug discovery process can take several years. Once a
company locates a "screening lead", or starting point for drug development,
isolation and structural
32
<PAGE>
determination may begin. The development process results in numerous chemical
modifications to the screening lead in an attempt to improve the drug properties
of the lead. After a compound emerges from this process, the next steps are to
conduct further preliminary studies on the mechanism of action, further in
vitro, or test tube, screening against particular disease targets and finally,
some in vivo, or animal, screening. If the compound passes these barriers, the
toxic effects of the compound are analyzed by performing preliminary exploratory
animal toxicology. If the results demonstrate acceptable levels of toxicity, the
compound emerges from the basic research mode and moves into the preclinical
phase.
PRECLINICAL TESTING. During the preclinical testing stage, laboratory and
animal studies are conducted to show biological activity of the compound against
the targeted disease, and the compound is evaluated for safety. These tests
typically take approximately three and one-half years to complete, and must be
conducted in compliance with Good Laboratory Practice, or GLP, regulations.
INVESTIGATIONAL NEW DRUG APPLICATION. During the preclinical testing, an
IND is filed with the FDA to begin human testing of the drug. The IND becomes
effective if not rejected by the FDA within 30 days. The IND must indicate the
results of previous experiments, how, where and by whom the new studies will be
conducted, the chemical structure of the compound, the method by which it is
believed to work in the human body, any toxic effects of the compound found in
the animal studies and how the compound is manufactured. All clinical trials
must be conducted in accordance with Good Clinical Practice, or GCP,
regulations. In addition, an Institutional Review Board, or IRB, comprised of
physicians at the hospital or clinic where the proposed studies will be
conducted, must review and approve the IND. The IRB also continues to monitor
the study. Progress reports detailing the results of the clinical trials must be
submitted at least annually to the FDA. In addition, the FDA may, at any time
during the 30-day period or at any time thereafter, impose a clinical hold on
proposed or ongoing clinical trials. If the FDA imposes a clinical hold,
clinical trials cannot commence or recommence without FDA authorization and then
only under terms authorized by the FDA. In some instances, the IND application
process can result in substantial delay and expense.
Some limited human clinical testing may be done under a Physician's IND in
support of an IND application and prior to receiving an IND. A Physician's IND
is an IND application that allows a single individual to conduct a clinical
trial. A Physician's IND does not replace the more formal IND process, but can
provide a preliminary indication as to whether further clinical trials are
warranted, and can, on occasion, facilitate the more formal IND process.
Clinical trials are typically conducted in three sequential phases, but the
phases may overlap.
PHASE I CLINICAL TRIALS. After an IND becomes effective, Phase I human
clinical trials can begin. These tests, involving usually between 20 and 80
healthy volunteers or patients, typically take approximately one year to
complete. The tests study a drug's safety profile, and may include the safe
dosage range. The Phase I clinical studies also determine how a drug is
absorbed, distributed, metabolized and excreted by the body, and the duration of
its action. Phase I/II trials are normally conducted for anticancer product
candidates.
PHASE II CLINICAL TRIALS. In Phase II clinical trials, controlled studies
are conducted on approximately 100 to 300 volunteer patients with the targeted
disease. The primary purpose of these tests is to evaluate the effectiveness of
the drug on the volunteer patients as well as to determine if there are any side
effects. These studies generally take approximately two years, and may be
conducted concurrently with Phase I clinical trials. In addition, Phase I/II
clinical trials may be conducted to evaluate not only the efficacy of the drug
on the patient population, but also its safety.
PHASE III CLINICAL TRIALS. This phase typically lasts about three years and
usually involves 1,000 to 3,000 patients. During the Phase III clinical trials,
physicians monitor the patients to determine efficacy and to observe and report
any reactions that may result from long-term use of the drug.
33
<PAGE>
NEW DRUG APPLICATION. After the completion of all three clinical trial
phases, if there is substantial evidence that the drug is safe and effective, an
NDA is filed with the FDA. The NDA must contain all of the information on the
drug gathered to that date, including data from the clinical trials. NDAs are
often over 100,000 pages in length.
The FDA reviews all NDAs submitted before it accepts them for filing and may
request additional information rather than accepting an NDA for filing. In such
an event, the NDA must be resubmitted with the additional information and,
again, is subject to review before filing. Once the submission is accepted for
filing, the FDA begins an in-depth review of the NDA. Under the Federal Food,
Drug and Cosmetic Act, the FDA has 180 days in which to review the NDA and
respond to the applicant. The review process is often significantly extended by
FDA requests for additional information or clarification regarding information
already provided in the submission. The FDA may refer the application to an
appropriate advisory committee, typically a panel of clinicians, for review,
evaluation and a recommendation as to whether the application should be
approved. The FDA is not bound by the recommendation of an advisory committee.
If FDA evaluations of the NDA and the manufacturing facilities are favorable,
the FDA may issue either an approval letter or an approvable letter, which
usually contains a number of conditions that must be met in order to secure
final approval of the NDA. When and if those conditions have been met to the
FDA's satisfaction, the FDA will issue an approval letter, authorizing
commercial marketing of the drug for certain indications. If the FDA's
evaluation of the NDA submission or manufacturing facilities is not favorable,
the FDA may refuse to approve the NDA or issue a not approvable letter.
MARKETING APPROVAL. If the FDA approves the NDA, the drug becomes available
for physicians to prescribe. Periodic reports must be submitted to the FDA,
including descriptions of any adverse reactions reported. The FDA may request
additional studies (Phase IV) to evaluate long-term effects.
PHASE IV CLINICAL TRIALS AND POST MARKETING STUDIES. In addition to studies
requested by the FDA after approval, these trials and studies are conducted to
explore new indications. The purpose of these trials and studies and related
publications is to broaden the application and use of the drug and its
acceptance in the medical community.
ORPHAN DRUG DESIGNATION. The FDA may grant orphan drug designation to drugs
intended to treat a "rare disease or condition," which is generally a disease or
condition that affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting a NDA. After the FDA
grants orphan drug designation, the generic identity of the therapeutic agent
and its potential orphan use are disclosed publicly by the FDA. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory review and approval process. If a product that has orphan drug
designation subsequently receives FDA approval for the indication for which it
has such designation, the product is entitled to orphan exclusivity, which means
the FDA may not approve any other applications to market the same drug for the
same indication, except in very limited circumstances, for seven years.
Rubitecan has received orphan drug designation from the FDA.
APPROVALS OUTSIDE OF THE UNITED STATES. Steps similar to those in the
United States must be undertaken in virtually every other country comprising the
market for our products before any such product can be commercialized in those
countries. The approval procedure and the time required for approval vary from
country to country and may involve additional testing. There can be no assurance
that approvals will be granted on a timely basis or at all. In addition,
regulatory approval of prices is required in most countries other than the
United States. There can be no assurance that the resulting prices would be
sufficient to generate an acceptable return to us.
34
<PAGE>
FDA MODERNIZATION ACT OF 1997
The Food and Drug Administration Modernization Act of 1997, or FDAMA, was
enacted, in part, to ensure the timely availability of safe and effective drugs,
biologics and medical devices by expediting the FDA review process for new
products. FDAMA establishes a statutory program for the approval of "fast track
products." The fast track provisions essentially codifies FDA's Accelerated
Approval regulations for drugs and biologics. A "fast track product" is defined
as a new drug or biologic intended for the treatment of a serious or
life-threatening condition that demonstrates the potential to address unmet
medical needs for such a condition. Under the new fast track program, the
sponsor of a new drug or biologic may request the FDA to designate the drug or
biologic as a "fast track product" at any time during the clinical development
of the product. FDAMA specifies that the FDA must determine if the product
qualifies for fast track designation within 60 days of receipt of the sponsor's
request. Approval of an NDA for a fast track product can be based on an effect
on a clinical endpoint or on a surrogate endpoint that is reasonably likely to
predict clinical benefit. Approval of a fast track product may be subject to
post-approval studies to validate the surrogate endpoint or confirm the effect
on the clinical endpoint, and prior review of copies of all promotional
materials. If a preliminary review of the clinical data suggests efficacy, the
FDA may initiate review of sections of an application for a "fast track product"
before the application is complete. This "rolling review" is available if the
applicant provides a schedule for submission of remaining information and pays
applicable user fees. However, the Prescription Drug User Fees Act time period
does not begin until the complete application is submitted.
We intend to seek fast track designation to secure expedited review of
appropriate products. It is uncertain if fast track designation will be
obtained. We cannot predict the ultimate impact, if any, of the new fast track
process on the timing or likelihood of FDA approval of rubitecan or any of our
other potential products.
Physicians may prescribe drugs for uses that are not described in the
product's labeling for uses that differ from those tested by us and approved by
the FDA. Such "off-label" uses are common across medical specialties and may
constitute the best treatment for many patients in varied circumstances. The FDA
does not regulate the behavior of physicians in their choice of treatments. The
FDA does, however, restrict manufacturer's communications on the subject of
off-label use. Companies cannot actively promote FDA-approved drugs for
off-label uses, but a recent court decision now allows them to disseminate to
physicians articles published in peer-reviewed journals, like THE NEW ENGLAND
JOURNAL OF MEDICINE, that discuss off-label uses of approved products. To the
extent allowed by law, we intend to disseminate peer-reviewed articles on our
products to our physician customers.
EXTRA DRUG DEVELOPMENT
Each Extra product candidate contains an active drug substance which has
already been approved by the FDA and may already also have generic versions
approved by the FDA. The excipient for the Extra technology has also been
approved by the FDA in a non-oncology application. To gain approval to market,
we must provide data to the FDA to support the safety, efficacy and quality of
each Extra product, but these data may be more limited in scope and content than
would be required for a new chemical entity. While extensive clinical trials may
not be required, we will be required to provide clinical data that demonstrate
that the administration of our Extra formulation results in the same presence of
the drug in the body as that of the generic version, within clinically
acceptable statistical guidelines. Overall, the data packages we will submit to
the FDA for Extra product candidates may be smaller than a typical NDA and may
take less time to review.
We also expect that, after the safety and quality of the Extra technology
have been adequately demonstrated to the FDA, future Extra submissions will be
able to cross-refer to these data, further streamlining our submissions.
35
<PAGE>
GENERIC DRUG DEVELOPMENT
For certain drugs that are generic versions of previously approved products,
there is an abbreviated FDA approval process. A sponsor may submit an
Abbreviated Application for:
- a drug product that is the "same" as the drug product listed in the
approved drug product list published by the FDA (the "listed drug") with
respect to active ingredient(s), route of administration, dosage form,
strength and conditions of use recommended in the labeling;
- a drug product that differs with regard to certain changes from a listed
drug if the FDA has approved a petition from a prospective applicant
permitting the submission of an Abbreviated Application for the changed
product; and
- a drug that is a duplicate of, or meets the monograph for, an approved
antibiotic drug.
An Abbreviated Application need not contain the clinical and preclinical
data supporting the safety and effectiveness of the product. The applicant must
instead demonstrate that the product is bioequivalent to the listed drug. FDA
regulations define bioequivalence as the absence of a significant difference in
the rate and the extent to which the active ingredient moiety becomes available
at the site of drug action when administered at the same molar dose under
similar conditions in an appropriately designed study. If the approved generic
drug is both bioequivalent and pharmaceutically equivalent to the listed drug,
the agency may assign a code to the product in an FDA publication that will
represent a determination by the agency that the product is therapeutically
equivalent to the listed drug. This designation will be considered by third
parties in determining whether the generic drug will be utilized as an
alternative to the listed drug.
SALES AND MARKETING
We currently have 18 employees focused on sales and marketing of our
products to hospitals in the United States. The large majority of these
hospitals are members of hospital buying groups. We have focused our efforts on
selling generic products to these groups since they control a significant
majority of the hospital business in the oncology and blood disorder
pharmaceutical market. We also market our products, including Nipent, to private
practice oncology clinics, oncology distributors and drug wholesalers.
Oncologists/hematologists, oncology nurses and oncology pharmacists are included
in each of these classes of customers.
Since acceptance of our products from each buying group can be time
consuming, there may be significant delays before we can win bids and generate
sales revenue. However, we have taken significant steps toward product
acceptance. A large number of these buying groups, including Premier Purchasing
Partners, Novation, Kaiser Permanente, and the Department of Veteran Affairs,
have given us approved vendor status. In addition, we have gained recognition as
an approved vendor in each state that requires registration or licensing before
bidding for those customers. We will continue to target these large buying
groups and, as we attain market share, bid with other buying groups while
seeking to minimize any price erosion that may occur.
There are approximately 5,000 private practice oncologists/hematologists in
the United States. These physicians usually purchase oncology products through
distributors, with whom we have developed relationships. The four major oncology
distributors in the United States are Oncology Therapeutic Network Joint
Venture, L.P., Florida Infusion Services, Inc., National Specialty
Services, Inc. and Priority Healthcare Corporation. These distributors control
approximately 60% of the private practice oncology clinics, which in turn
represent approximately 30% of the oncology-related pharmaceutical market. We
have taken significant steps in building relationships with these distributors,
all of which distribute Nipent. Our sales force will also continue to target the
important private practice oncology clinics within their assigned territories.
We also sell to large drug wholesalers that supply hospitals and hospital buying
groups.
36
<PAGE>
Our sales group is divided into three regions. Each region is headed by a
manager with extensive industry experience who supervises specialty oncology
sales representatives. We plan to expand our sales force upon receipt of
additional approvals of our products under development. Our sales and marketing
group conducts direct sales, sponsors speakers' programs, works with
distributors, performs market research analysis, develops marketing strategies,
creates and implements educational and promotional programs, establishes pricing
and product advertising and maintains compliance with hospital and other buying
groups.
MANUFACTURING
We currently outsource manufacturing for all of our products to United
States and foreign suppliers. We expect to continue to outsource manufacturing
in the near term. We believe our current suppliers will be able to efficiently
manufacture our bulk proprietary and generic compounds in sufficient quantities
and on a timely basis, while maintaining product quality. We seek to maintain
quality control over manufacturing through ongoing inspections, rigorous review,
control over documented operating procedures and thorough analytical testing by
outside laboratories. We believe that our current strategy of outsourcing
manufacturing is cost-effective since we avoid the high fixed costs of plant,
equipment and large manufacturing staffs and conserve our resources.
The FDA must issue marketing clearance and deem a manufacturer acceptable
under current GMP before production of bulk proprietary, finished
pharmaceuticals or generic compounds for commercial sale may begin. Once a bulk
proprietary or generic compound is manufactured on our behalf, it is sent to one
or more domestic manufacturers that process it into the finished proprietary,
Extra or generic dosage forms. We currently follow these procedures for our
marketed products, Nipent and mitomycin. We then ship our finished proprietary
and generic products to an outside vendor for distribution to our customers.
We have entered agreements with a domestic entity for the future production
of our bulk generics required for both our Extra and generic dosage forms. We
have licensed from this manufacturer, on an exclusive basis, proprietary
fermentation technology for anticancer antibiotic agents. In the future, we may
adapt this proprietary fermentation technology to produce other bulk generics.
In December 1997, we received approval from the FDA to commercially
manufacture Nipent at our designated vendors' manufacturing site using our
proprietary manufacturing process. We believe we own sufficient bulk inventory
for the manufacture of Nipent to meet our clinical and commercial needs for the
near future. In April 1998, the FDA approved our application for the production
of bulk mitomycin using the fermentation technology described above.
We intend to continue evaluating our manufacturing requirements and may
establish or acquire our own facilities to manufacture our products for
commercial distribution if we feel doing so would reduce costs or improve
control and flexibility of product supply.
PATENTS AND PROPRIETARY TECHNOLOGY
We actively pursue a policy of seeking patent protection for our proprietary
products and technologies, whether developed in-house or from outside
acquisition. We have acquired licenses to or assignments of numerous United
States patents covering certain of our proprietary drugs and have received or
licensed patents related to our Extra, Spartaject and Oral Prodrug technologies.
In addition to pursuing patent protection in appropriate cases, we rely on
trade secret protection for our unpatented proprietary technology. We also
pursue a policy of having our employees and consultants execute proprietary
information agreements upon commencement of employment or consulting
relationships with us. These agreements provide that all confidential
information developed
37
<PAGE>
or made known to the individual during the course of the relationship is
confidential except in specified circumstances.
COMPETITION
There are many companies, both public and private, including well-known
pharmaceutical companies, that are engaged in the development and sale of
pharmaceutical products for some of the applications that we are pursuing. Our
competitors and probable competitors include Eli Lilly, Ortho-McNeil
Pharmaceutical, Amgen, Bristol-Myers Squibb and Immunex. These companies have
substantially greater financial, research and development, manufacturing and
marketing experience and resources than we do and represent substantial
long-term competition for us. These companies may succeed in developing
pharmaceutical products that are more effective or less costly than any we may
develop or market.
Factors affecting competition in the pharmaceutical industry vary depending
on the extent to which the competitor is able to achieve a competitive advantage
based on proprietary technology. If we are able to establish and maintain a
significant proprietary position with respect to our proprietary products,
competition will likely depend primarily on the effectiveness of the product and
the number, gravity and severity of its unwanted side effects as compared to
alternative products. Companies compete with respect to generic products
primarily on price and, to a lesser extent, on name recognition and the
reputation of the manufacturer in its target markets. Moreover, the number of
competitors offering a particular generic product could dramatically affect
price and gross margin for that product or an Extra product based on that
generic product. We may be at a disadvantage in competing with more established
companies based on price or market reputation. In addition, increased
competition in a particular generic market would likely lead to significant
price erosion for our generic products and Extra products based on such generic
products. This would have a negative effect on our sales and potential gross
profit margins. For example, we believe that the total estimated United States
sales for our proposed generic products, and generic products upon which we
propose to base our Extra products, have decreased in recent years due to
increased competition. We believe that sales volumes and unit prices of these
generics may continue to decrease as a result of competitive factors. These
factors include the introduction of additional generics and other cancer drugs,
the desire of some companies to increase their market share, new formulations
for those drugs and the use of different therapies.
Extensive research and development efforts and rapid technological progress
characterize the industry in which we compete. Although we believe that our
proprietary position may give us a competitive advantage with respect to our
proposed nongeneric drugs, we expect development of new products to continue.
Discoveries by others may render our current and potential products
noncompetitive. Our competitive position also depends on our ability to attract
and retain qualified scientific and other personnel, develop effective
proprietary products, implement development and marketing plans, obtain patent
protection and secure adequate capital resources.
EMPLOYEES
As of January 31, 2000, we had 81 full-time employees, 40 of whom were
involved in research and development, including clinical activities. We use
consultants and temporary employees to complement our staffing. Our employees
are not subject to any collective bargaining agreements, and we regard our
relations with employees to be good.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
38
<PAGE>
MANAGEMENT
Our executive officers and their ages as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
Joseph Rubinfeld, Ph.D.................... 67 Chief Executive Officer, President and
Director
Edward L. Jacobs.......................... 53 Executive Vice President, Commercial
Operations
Luigi Lenaz, M.D.......................... 58 Senior Vice President of Clinical Research
and Medical Affairs
Rajesh C. Shrotriya, M.D.................. 55 Executive Vice President and Chief
Scientific Officer
Ronald H. Spair........................... 44 Senior Vice President, Chief Financial
Officer and Secretary
Denis Burger, Ph.D........................ 56 Director
Lawrence J. Ellison....................... 55 Director
Walter J. Lack............................ 51 Director
Julius A. Vida, Ph.D...................... 71 Director
Daniel Zurr, Ph.D......................... 54 Director
</TABLE>
JOSEPH RUBINFELD, PH.D. co-founded the Company in 1991. He has served as
Chief Executive Officer, President, and a director of the Company since our
inception and was Chief Scientific Officer from inception until September 1997.
Dr. Rubinfeld was one of the four initial founders of Amgen in 1980 and served
as Vice President and Chief of Operations until 1983. From 1987 to 1990, he was
a Senior Director at Cetus Corporation. From 1968 to 1980, Dr. Rubinfeld was
employed at Bristol-Myers Company International Division in a variety of
positions, most recently as Vice President and Director of Research and
Development. While at Bristol-Myers, Dr. Rubinfeld was instrumental in licensing
the original anticancer line of products for Bristol-Myers, including Mitomycin
and Bleomycin. Before that time, Dr. Rubinfeld was a research scientist with
several pharmaceutical and consumer product companies including Schering-Plough
Corporation and Colgate-Palmolive Co. He received his B.S. in chemistry from
C.C.N.Y., and his M.A. and Ph.D. in chemistry from Columbia University.
Dr. Rubinfeld has numerous patents and/or publications on a wide range of
inventions and developments, including the 10-second developer for Polaroid
film, manufacture of cephalosporins and the first commercial synthetic
biodegradable detergent. In 1984, Dr. Rubinfeld received the Common Wealth Award
for Invention.
EDWARD L. JACOBS became our Executive Vice President, Commercial Operations
in March 1999. Prior to joining us Mr. Jacobs served as Senior Vice President,
Commercial Operations at Sequus Pharmaceuticals, Inc. from November 1997 to
March 1999. Between January 1995 and November 1997, Mr. Jacobs served as
President and Chief Executive Officer of Trilex Pharmaceuticals Inc., now Titan
Pharmaceuticals. Prior to his association with Trilex, Mr. Jacobs served in a
variety of senior management positions with pharmaceutical companies, including
Chief Executive at Transplant Therapeutics Inc., Vice President and General
Manager of Syncor International Inc., Vice President at NEORX Corporation,
Business Director of Pharmacia and Upjohn (Adria Labs, Inc.), and Johnson &
Johnson (McNeil). Mr. Jacobs received a B.A. in Political Science/Journalism
from California State University at Northridge.
39
<PAGE>
LUIGI LENAZ, M.D. has served as our Senior Vice President of Clinical
Research and Medical Affairs since October 1997. Before joining us, he was
Senior Medical Director, Oncology Franchise Management for Bristol-Myers Squibb
from 1990 to 1997 and was Director, Scientific Affairs, Anti-Cancer for
Bristol-Myers Squibb from 1978 to 1990. Dr. Lenaz was a Post Doctoral Fellow at
both the Memorial Sloan-Kettering Cancer Center in New York and the National
Cancer Institute in Milan, Italy. He received his medical training at the
University of Bologna Medical School in Bologna, Italy.
RAJESH C. SHROTRIYA, M.D. has served as our Executive Vice President and
Chief Scientific Officer since October 1997 and as Senior Vice President and
Special Assistant to the President from January 1997 to September 1997. Before
joining us, Dr. Shrotriya was Vice President and Chief Medical Officer of MGI
Pharma, Inc., an oncology company, from August 1994 to October 1996. Previously
he spent 18 years at Bristol-Myers Squibb in a variety of positions most
recently as Executive Director, Worldwide CNS Clinical Research. Dr. Shrotriya
received his medical training in India at Grant Medical College in Bombay, Delhi
University and the Armed Forces Medical College in Poona.
RONALD H. SPAIR became our Senior Vice President and Chief Financial Officer
in August 1999. Prior to joining us, Mr. Spair was Chief Financial Officer of
Sparta Pharmaceuticals, Inc., a development stage pharmaceutical company, from
March 1996 until August 1999. He has worked in the biotechnology industry since
1990. From October 1993 until March 1996, Mr. Spair served as Vice President and
Chief Financial Officer of Lexin Pharmaceutical Corporation, a development stage
biopharmaceutical company. Before joining Lexin, Mr. Spair served as Vice
President, Chief Financial Officer and Assistant Secretary of Envirogen, Inc.,
an environmental biotechnology company, from May 1990 to August 1993. Mr. Spair
received a B.S. in Accounting and an M.B.A. from Rider College. He is a licensed
Certified Public Accountant in New Jersey.
DENIS BURGER, PH.D. has served as a member of our board of directors since
January 1996. Dr. Burger has served as President and Chief Operating Officer of
AVI BioPharma, Inc. (formerly AntiVirals, Inc.) a biotechnology company
specializing in gene-targeted therapeutic products and cancer immunotherapy
since February 1992 and as Chief Executive Officer since February 1996.
Dr. Burger was a co-founder of Epitope, Inc., a biotechnology company, and
served as its Chairman from 1981 until 1990. He has also been the general
partner of Sovereign Ventures, LLC, a biotechnology consulting and merchant
banking venture since 1991. Dr. Burger is a member of the Board of Directors of
AVI BioPharma, Inc. and Trinity Biotech, PLC. He received his B.A. in
Bacteriology and Immunology from the University of California, Berkeley, and his
M.S. and Ph.D. in Microbiology and Immunology from the University of Arizona,
Tucson.
LAWRENCE J. ELLISON has been a member of our board of directors since
June 1997. Mr. Ellison is Chief Executive Officer and Chairman of the Board of
Directors of Oracle Corporation, a company he founded in May 1977. Mr. Ellison
is co-chairman of California's Council on Information Technology and is a member
of the Board of Directors of Apple Computer, Inc., a computer hardware company,
Liberate Technologies, a computer software company and Spring Group.
WALTER J. LACK has served as a director of the Company since February 2000.
Mr. Lack is a partner of Engstrom, Lipscomb & Lack, a Los Angeles, California
law firm that he founded in 1974. Mr. Lack has acted as a special arbitrator for
the Superior Court of the State of California since 1976 and for the American
Arbitration Association since 1979. He is a member of the International Academy
of Trial Lawyers and an Advocate of the American Board of Trial Advocates.
Mr. Lack also serves as a director of HCC Insurance Holdings, Inc.,
Microvision Inc. and Spectrum Laboratories, Inc.
JULIUS A. VIDA, PH.D. has served as a member of our board of directors since
January 1996. Since June 1993, Dr. Vida has served as President of Vida
International Pharmaceutical Consultants. From 1976 to May 1993, Dr. Vida worked
at Bristol-Myers, where he served as Vice President of Business Development,
Licensing and Strategic Planning from 1991 to 1993, as Vice President of
Licensing from 1985 to 1991 and as Director of Licensing from 1982 to 1985.
Dr. Vida is a member of the Board of
40
<PAGE>
Directors of Biomatrix, Inc. and Medarex, Inc., both biotechnology companies.
Dr. Vida received his Ph.D. in Chemistry from Carnegie Mellon University and his
M.B.A. from Columbia University.
DANIEL ZURR, PH.D. has been a member of our board of directors since
January 1994. Dr. Zurr currently serves as President and Chief Executive Officer
of Quark Biotech, Inc. (formerly Expression Systems, Inc.). Dr. Zurr served as
Scientific Director and Business Development Director of the Pharmaceutical
Division of Israel Chemicals, Ltd., an Israeli limited liability company, from
1984 to 1985. He also served as Director of Licensing at G.D. Searle & Company,
Limited, from 1980 to 1983. He was Chief Executive Officer of Plantex-Ikapharm,
an Israeli pharmaceutical company, from 1975 to 1980. Dr. Zurr received his
M.Sc. at the Hebrew University of Jerusalem and his Ph.D. from the Imperial
College University of London in 1972.
BOARD COMMITTEES
Our board of directors currently has two standing committees, an Audit
Committee and a Compensation Committee. The Audit Committee is composed of
Mr. Lack, Dr. Vida and Dr. Zurr, and the Compensation Committee is composed of
Mr. Lack, Dr. Burger and Dr. Zurr. We have no nominating committee or committee
performing similar functions.
AUDIT COMMITTEE. The Audit Committee monitors our corporate financial
reporting and our internal and external audits. This committee reports to the
board the results of its examinations and provides recommendations based on its
findings. The functions of this committee include tracking our progress in
responding to its recommended improvements, evaluating our internal accounting
controls, nominating independent auditors, and apprising the board of any
significant financial matters that require board attention. The Audit Committee
held one meeting during 1999.
COMPENSATION COMMITTEE. The Compensation Committee reviews our executive
compensation policy, including equity compensation for our senior executive
officers, and makes recommendations to the board regarding such matters. The
Compensation Committee met one time during 1999.
41
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth information for each selling stockholder, as
of January 31, 2000. Beneficial ownership is determined in accordance with SEC
rules and includes securities that the selling stockholder has the right to
acquire within 60 days after January 31, 2000. The information does not
necessarily indicate beneficial ownership for any other purpose. Except as
otherwise indicated, we believe that the selling stockholders have sole voting
and investment power with respect to all shares of the common stock shown as
beneficially owned by them, subject to community property laws where applicable.
Joseph Rubinfeld is our Chief Executive Officer, President and chairman of our
board of directors, Lawrence J. Ellison, the beneficial owner of Tako Ventures
LLC, is one of our directors, Rajesh C. Shrotriya is our Executive Vice
President and Chief Scientific Officer and Luigi Lenaz is our Senior Vice
President of Clinical Development and Medical Affairs.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
BENEFICIALLY OWNED TO BE BENEFICIALLY OWNED
BEFORE OFFERING AFTER OFFERING(1)
----------------------- SHARES TO BE ------------------------
NAME NUMBER PERCENTAGE OFFERED NUMBER PERCENTAGE
- ---- ---------- ---------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Tako Ventures LLC (2)................... 4,493,683 15.3% 650,000 3,843,683 12.2%
Joseph Rubinfeld (3).................... 2,736,607 9.6% 50,000 2,686,607 8.8%
Rajesh C. Shrotriya (4)................. 137,138 * 20,000 117,138 *
Luigi Lenaz (5)......................... 69,702 * 10,000 59,702 *
</TABLE>
- ------------------------
* Represents less than 1% of our outstanding common stock.
(1) Excludes shares that may be sold pursuant to the underwriters' exercise of
their over-allotment option.
(2) Includes 1,775,000 shares of common stock issuable upon exercise of
immediately exercisable warrants. If the underwriters fully exercise their
over-allotment option, Tako Ventures LLC will sell an additional 305,000
shares resulting in its beneficial ownership after the offering being
3,538,683 shares or 11.3% of the shares of our common stock outstanding
after the offering.
(3) Includes 1,696,500 shares held jointly by Joseph and Loretta Rubinfeld,
husband and wife, 20,000 shares held individually by Joseph Rubinfeld,
35,000 shares held by Joseph and Loretta Rubinfeld as custodians under the
California Uniform Transfers to Minors Act, 976,666 shares issuable upon
exercise of options to purchase shares of common stock exercisable by Joseph
Rubinfeld at March 31, 2000, and options to purchase 8,441 shares of common
stock exercisable by Loretta Rubinfeld at March 31, 2000. If the
underwriters fully exercise their over-allotment option, Dr. Rubinfeld will
sell an additional 104,500 shares resulting in his beneficial ownership
after the offering being 2,582,107 shares or 8.4% of the shares of our
common stock outstanding after the offering.
(4) Includes 137,055 shares issuable upon exercise of options to purchase common
stock.
(5) Includes 65,479 shares issuable upon exercise of options to purchase common
stock.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 40,000,000 shares of common stock
and 2,000,000 shares of preferred stock. Immediately after the offering, based
on shares outstanding as of January 31, 2000, we estimate there will be
29,654,757 shares of common stock issued and outstanding and no shares of
preferred stock issued and outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Stockholders may not cumulate
votes in connection with the election of directors. Our common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to our common stock. All
outstanding shares of common stock are fully paid and non-assessable, and the
shares of common stock to be outstanding upon completion of the offering will be
fully paid and non-assessable.
PREFERRED STOCK
Our board has the authority, subject to limitations prescribed by law, to
issue these shares of preferred stock in one or more series, to fix the rights,
preferences, privileges and restrictions, qualifications and limitations
(including, without limitation, dividend rates, conversion rights, voting
rights, rights and terms of redemption, sinking fund provisions and liquidation
preferences) granted to or imposed upon any unissued and undesignated shares of
preferred stock and to fix the number of shares constituting any series and the
designations of those series, without any further vote or action by the
stockholders (subject to applicable stock exchange rules).
WARRANTS
At January 31, 2000, warrants to purchase the following shares of our common
stock were outstanding:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE ISSUE DATE EXPIRATION DATE
---------------- --------------- ---------- ---------------
<S> <C> <C> <C> <C>
PUBLICLY TRADED....................... 3,062,452 $ 9.00 1996 2001
211,725 18.18 1999 2001
NON-PUBLICLY TRADED................... 93,050 $ 5.00 1995 2000
13,350 7.20 1996 2001
1,045,000 13.50 1997 2007
230,000 10.35 1997 2007
500,000 11.00 1998 2004
1,143,575 12.00 - 655.31 1999 2001 - 2004
---------
TOTAL................................. 6,299,152
=========
</TABLE>
In addition, upon exercise, the holders of the $7.20 warrants to purchase
13,350 shares will receive an additional warrant to acquire 13,350 shares at
$9.00 per share. These additional warrants will expire in 2001.
On September 20, 1999, we issued a notice of redemption of our 1996 publicly
traded $9.00 warrants. As of January 31, 2000, there were 3,062,452 of such
warrants outstanding. We will redeem any of these warrants that are still
outstanding as of April 16, 2000 at a price of $0.25 per share. We expect that
holders of the warrants will choose to exercise these warrants rather than have
them redeemed if the price of our common stock trades above $9.00 per share
during the period immediately preceding April 16, 2000.
43
<PAGE>
We can redeem the $5.00 warrants for $0.25 each upon 30 days written notice,
if the closing bid price exceeds $10.00 for specified periods of time.
ANTI-TAKEOVER PROVISIONS
The provisions of Delaware law, our certificate of incorporation and our
bylaws described below may have the effect of delaying, deferring or
discouraging another person from acquiring control of our company.
DELAWARE LAW
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. This section prevents certain
Delaware corporations from engaging, under limited circumstances, in a "business
combination," which includes a merger or sale of more than 10% of the
corporation's assets, with any "interested stockholder," which is defined to
include a stockholder who owns 15% or more of the corporation's outstanding
voting stock, as well as affiliates and associates of such stockholder, for
three years following the date that the stockholder became an "interested
stockholder" unless:
- the transaction is approved by the board prior to the date the "interested
stockholder" attained that status;
- upon the closing of the transaction that resulted in the stockholder's
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced; or
- on or subsequent to the date the "business combination" is approved by the
board and authorized at an annual or special meeting of stockholders by at
least two-thirds of the outstanding voting stock that is not owned by the
"interested stockholder."
A Delaware corporation may "opt out" of this provision with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares.
However, we have not "opted out" of this provision. Section 203 could prohibit
or delay mergers or other takeover or change-in-control attempts and,
accordingly, may discourage attempts to acquire us.
BYLAW PROVISIONS
Our bylaws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or a special meeting of the stockholders may
only be taken if it is properly brought before the meeting. Our stockholders may
not take any action by written consent instead of by a meeting. Our certificate
of incorporation provides that our board of directors may issue preferred stock
with voting or other rights without stockholder action.
Our bylaws provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us, which may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.
TRANSFER AGENT AND REGISTRAR
Chase Mellon Shareholder Services serves our transfer agent and registrar of
our common stock.
LISTING
Our common stock is quoted on the Nasdaq National Market under the symbol
"SUPG."
44
<PAGE>
UNDERWRITING
We and the selling stockholders are offering the shares of common stock
described in this prospectus through a number of underwriters. Banc of America
Securities LLC, Lehman Brothers Inc., Prudential Securities Incorporated and
Warburg Dillon Read LLC are the representatives of the underwriters. We and the
selling stockholders have entered into an underwriting agreement with the
representatives. Subject to the terms and conditions of the underwriting
agreement, we and the selling stockholders have agreed to sell to the
underwriters, and each underwriter has separately agreed to purchase, the number
of shares of common stock listed next to its name below at the public offering
price, less the underwriting discounts and commissions described on the cover
page of the prospectus:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Banc of America Securities LLC..............................
Lehman Brothers Inc.........................................
Prudential Securities Incorporated..........................
Warburg Dillon Read LLC.....................................
---------
Total................................................... 2,730,000
=========
</TABLE>
The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any of
them. The underwriters will sell the shares to the public when and if the
underwriters buy the shares from us and the selling stockholders.
The underwriters initially will offer the shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow
selected dealers a concession of not more than $ per share. The
underwriters may also allow, and any other dealers may reallow, a concession of
not more than $ per share to some other dealers. If all the shares
are not sold at the public offering price, the underwriters may change the
public offering price and the other selling terms. No change in the public
offering price will vary the proceeds to be received by us as specified on the
cover page of this prospectus. The common stock is offered subject to a number
of conditions, including:
- the receipt and acceptance of the common stock by the underwriters; and
- the right on the part of the underwriters to reject orders in whole or in
part.
The selling stockholders have granted the underwriters an option to buy up
to 409,500 additional shares of common stock. These additional shares would
cover sales of shares by the underwriters that exceed the number of shares
specified in the table above. The underwriters may exercise this option at any
time within 30 days after the date of the prospectus. If the underwriters
exercise this option, they will each purchase, subject to a number of terms and
conditions, additional shares approximately in proportion to the amounts
specified above. If purchased, the underwriters will offer such additional
shares on the same terms as those on which the 2,730,000 shares are being
offered.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares:
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share underwriting discounts and commissions..... $ $
Total underwriting discounts and commissions to be
paid by us......................................... $ $
Total underwriting discounts and commissions to be
paid by the selling stockholders................... $ $
</TABLE>
45
<PAGE>
The expenses of this offering, not including the underwriting discounts and
commissions, are estimated to be approximately $660,000 and will be paid by us.
Expenses of this offering, exclusive of the underwriting discounts and
commissions, include the SEC filing fee, the NASD filing fee, Nasdaq listing
fees, legal and accounting fees, printing expenses, transfer agent and registrar
and other miscellaneous fees.
We, our executive officers and directors, certain of our stockholders and
the selling stockholders have entered into lock-up agreements with the
underwriters. Under these agreements, subject to exceptions, we may not issue
any new shares of common stock, and our executive officers and directors,
certain shareholders and the selling stockholders may not offer, sell, contract
to sell or otherwise dispose of or hedge any common stock or securities
convertible into or exchangeable for shares of common stock. These restrictions
will be in effect for a period of 60 days after the date of the prospectus for
us, our executive officers and directors (other than those who are selling
stockholders) and certain of our stockholders, and for a period of 90 days after
the date of the prospectus for the selling stockholders. At any time and without
notice, Banc of America Securities LLC may, in its sole discretion, release all
or some of the securities from these lock-up agreements.
We and the selling stockholders will indemnify the underwriters against some
liabilities, including some liabilities under the Securities Act. If we or the
selling stockholders are unable to provide this indemnification, we and the
selling stockholders will contribute to payments the underwriters may be
required to make in respect of those liabilities.
One or more of the underwriters may facilitate the marketing of this
offering online, either directly or through one or more of their affiliates. In
those cases, prospective investors may view offering terms and a prospectus
online and, depending upon the particular underwriter, place orders online or
through their financial advisors.
In our September 1999 round of private financing, an affiliate of Lehman
Brothers, Inc., one of the underwriters, purchased from us 170,843 shares of
common stock at an effective price of $17.56 per share and warrants to purchase
common stock at exercise prices ranging from $22.50 to $60 per share. The Lehman
Brothers affiliate invested on the same terms as the other investors in that
offering. Lehman Brothers, Inc. was not involved as a placement agent or in any
other capacity in that offering. In addition, our decision to call the initial
public offering warrants for redemption gives the investors in that offering,
including the Lehman Brothers affiliate, the anti-dilution right to receive
additional newly-issued shares of our common stock if the average closing price
of our common stock for the 30 days following redemption falls below $17.56 per
share.
In connection with the offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:
- short sales;
- over-allotment;
- purchases to cover positions created by short sales; and
- stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. In order to cover a
short position, the underwriters may bid for purchase shares of common stock in
the open market or may exercise their over-allotment option. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can
46
<PAGE>
require the underwriters that sold those shares as part of this offering to
repay the underwriting discounts and commissions received by them.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
In connection with the offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M. Rule 103 permits passive
market making during the period when Regulation M would otherwise prohibit
market activity by the participants in this offering. Passive market making may
occur during the business day before the pricing of this offering, before the
commencement of offers or sales of the common stock. Passive market makers must
comply with applicable volume and price limitations and must be identified as a
passive market maker. In general, a passive market maker must display its bid at
a price not in excess of the highest independent bid for the security. If all
independent bids are lowered below the passive market maker's bid, however, the
bid must then be lowered when purchase limits are exceeded. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during a
specified period and must be discontinued when such limit is reached.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
LEGAL MATTERS
The validity of the issuance of common stock will be passed upon for us by
Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California. Certain legal
matters will be passed upon for the underwriters by O'Melveny & Myers LLP, San
Francisco, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1999 and 1998, and for each of the three
years in the period ended December 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
47
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our filings are available to the public over the
internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's Public Reference Rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. The Public Reference Room in
Washington D.C. is located at 450 Fifth Street, N.W. Please call the SEC at
1-800-SEC-0330 for further information on the Public Reference Rooms.
Information concerning us is also available for inspection at the offices of the
Nasdaq National Market, Reports Section, 1735 K Street, N.W., Washington, D.C.
20006.
The SEC allows us to "incorporate by reference" the information we file with
it, which means that we can disclose important information to you by referring
you to those documents. The information incorporated by reference is an
important part of this prospectus, and information that we file later with the
SEC will automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934
after the date of this prospectus until the termination of the offering:
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
- Current Report on Form 8-K filed on December 23, 1999, as amended on
January 7, 2000 and March 16, 2000;
- The description of our common stock contained in our registration
statement on Form 8-A, filed on January 18, 1996, including any amendment
or report filed for the purpose of updating the description;
- All other reports filed in accordance with Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 since December 31, 1999.
This prospectus is part of a registration statement on Form S-3 filed with
the SEC under the Securities Act of 1933. This prospectus does not contain all
of the information set forth in the registration statement. You should read the
registration statement for further information about us and our common stock.
You may request a copy of these filings at no cost. Please direct your requests
to:
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, California 94583
Attn: Investor Relations
(925) 327-0200
You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front page of those documents.
48
<PAGE>
SUPERGEN, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
SuperGen, Inc.
We have audited the accompanying consolidated balance sheets of
SuperGen, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of SuperGen, Inc.
at December 31, 1999 and 1998 and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
Palo Alto, California
February 18, 2000
F-2
<PAGE>
SUPERGEN, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 22,546 $ 8,614
Marketable securities..................................... 5,008 3,299
Accounts receivable, net.................................. 1,754 712
Other receivables......................................... 5,000 --
Inventories............................................... 1,368 1,245
Prepaid expenses and other current assets................. 2,879 706
-------- --------
Total current assets.................................... 38,555 14,576
Property, plant and equipment, net.......................... 2,923 2,939
Developed technology at cost, net........................... 1,707 1,266
Goodwill and other intangibles, net......................... 2,036 --
Investment in stock of related parties...................... 5,938 500
Due from related party...................................... 450 450
Other assets................................................ 1,869 62
-------- --------
Total assets............................................ $ 53,478 $ 19,793
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................. $ 2,694 $ 2,451
Deferred revenue.......................................... 894 --
Accrued employee benefits................................. 955 524
-------- --------
Total current liabilities............................... 4,543 2,975
Deferred revenue............................................ 4,167 --
-------- --------
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.001 par value; 2,000,000 shares
authorized;
none outstanding........................................ -- --
Common stock, $.001 par value; 40,000,000 shares
authorized; 25,477,770 and 20,969,953 shares issued and
outstanding at December 31, 1999 and 1998,
respectively............................................ 25 21
Additional paid in capital................................ 138,461 72,818
Deferred compensation..................................... (835) --
Accumulated other comprehensive loss...................... (5) (128)
Accumulated deficit....................................... (92,878) (55,893)
-------- --------
Total stockholders' equity.............................. 44,768 16,818
-------- --------
Total liabilities and stockholders' equity.............. $ 53,478 $ 19,793
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales................................................... $ 4,744 $ 3,004 $ 1,802
Operating expenses:
Cost of sales............................................. 2,032 1,925 1,539
Research and development.................................. 17,346 10,511 8,583
Selling, general, and administrative...................... 10,517 7,046 4,952
Acquisition of in-process research and development........ 10,850 -- 3,506
-------- -------- --------
Total operating expenses................................ 40,745 19,482 18,580
-------- -------- --------
Loss from operations........................................ (36,001) (16,478) (16,778)
Interest income............................................. 1,016 901 782
Amortization of loan commitment fee......................... (2,000) -- --
-------- -------- --------
Net loss.................................................... $(36,985) $(15,577) $(15,996)
======== ======== ========
Basic and diluted net loss per share........................ $ (1.58) $ (0.77) $ (0.85)
======== ======== ========
Weighted average shares used in basic and diluted net loss
per share calculation..................................... 23,352 20,353 18,765
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON ACCUMULATED
STOCK ADDITIONAL OTHER
------------------- PAID IN DEFERRED COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION LOSS DEFICIT TOTAL
-------- -------- ---------- ------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1997......... 16,930 $ 17 $ 40,010 $ -- $ -- $(24,320) $ 15,707
Comprehensive loss:
Net loss........................ -- -- -- -- -- (15,996) (15,996)
Other comprehensive
loss--Unrealized loss on
investments................... -- -- -- -- (93) -- (93)
--------
Comprehensive loss................ (16,089)
Issuance of common stock and
warrants in connection with the
Tako Ventures, LLC private
placement, net of offering costs
of $268......................... 2,550 3 22,679 -- -- -- 22,682
Repurchase of common stock from
Israel Chemicals, Ltd, including
transaction costs of $26........ (740) (1) (7,891) -- -- -- (7,892)
Issuance of common stock in
connection with a private
placement, net of offering costs
of $4........................... 889 1 9,773 -- -- -- 9,774
Issuance of common stock for
acquisition of in-process
research and development........ 183 -- 1,875 -- -- -- 1,875
Issuance of common stock upon
exercise of warrants and stock
options......................... 366 -- 2,179 -- -- -- 2,179
Compensation expense from grants
of options to vendors and
acceleration of option
vesting......................... -- -- 331 -- -- -- 331
------ ---- -------- ----- ----- -------- --------
Balances at December 31, 1997....... 20,178 20 68,956 -- (93) (40,316) 28,567
Comprehensive loss:
Net loss........................ -- -- -- -- -- (15,577) (15,577)
Other comprehensive
loss--Unrealized loss on
investments................... -- -- -- -- (35) -- (35)
--------
Comprehensive loss................ (15,612)
Issuance of common stock in
connection with a private
placement, net of offering costs
of $368......................... 460 1 2,631 -- -- -- 2,632
Issuance of common stock for
acquisition of patent royalty
agreement and other intellectual
property........................ 75 -- 750 -- -- -- 750
Issuance of common stock upon
exercise of warrants and stock
options......................... 134 -- 190 -- -- -- 190
Issuance of common stock in
connection with employee stock
purchase plan................... 16 -- 103 -- -- -- 103
Issuance of common stock to Tako
Ventures, LLC................... 107 -- -- -- -- -- --
Compensation expense from grants
of options to vendors and
acceleration of option
vesting......................... -- -- 188 -- -- -- 188
------ ---- -------- ----- ----- -------- --------
Balances at December 31, 1998....... 20,970 21 72,818 -- (128) (55,893) 16,818
Comprehensive loss:
Net loss........................ -- -- -- -- -- (36,985) (36,985)
Other comprehensive
loss--Unrealized gain on
investments................... -- -- -- -- 123 -- 123
--------
Comprehensive loss................ (36,862)
Issuance of common stock and
warrants in connection with
private placements, net of
offering costs of $2,156........ 2,759 3 36,440 -- -- -- 36,443
Issuance of common stock for
acquisition of in-process
research and development and
license agreements.............. 280 -- 5,356 -- -- -- 5,356
Issuance of common stock to
Clayton Foundation in connection
with research agreements........ 36 -- 1,191 -- -- -- 1,191
Issuance of common stock to AVI
Biopharma, Inc.................. 100 -- 2,825 -- -- -- 2,825
Issuance of common stock and
warrants in connection with
acquisition of Sparta
Pharmaceuticals, Inc............ 429 -- 9,370 -- -- -- 9,370
Issuance of common stock upon
exercise of warrants and stock
options......................... 820 1 5,489 -- -- -- 5,490
Issuance of common stock in
connection with employee stock
purchase plan................... 23 -- 227 -- -- -- 227
Issuance of common stock to Tako
Ventures, LLC................... 61 -- 379 -- -- -- 379
Issuance of warrants to Tako
Ventures, LLC in connection with
promissory note................. -- -- 2,000 -- -- -- 2,000
Compensation expense from stock
option grants to consultants and
vendors......................... -- -- 1,419 -- -- 1,419
Deferred compensation............. -- -- 947 (947) -- -- --
Amortization of deferred
compensation.................... -- -- 112 -- -- 112
------ ---- -------- ----- ----- -------- --------
Balances at December 31, 1999....... 25,478 $ 25 $138,461 $(835) $ (5) $(92,878) $ 44,768
====== ==== ======== ===== ===== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
SUPERGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net loss.................................................. $(36,985) $(15,577) $(15,996)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 910 585 470
Amortization of deferred compensation................... 112 -- --
Gain on sale of property and equipment.................. -- (19) --
Amortization of loan commitment fee..................... 2,000 -- --
Expense related to stock options and warrants granted to
non-employees......................................... 1,419 188 331
Non-cash charges related to acquisition of in-process
research and development.............................. 10,850 -- 2,625
Non-cash charges related to acquisition of license
agreements............................................ 916 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (1,005) (648) 57
Inventories........................................... (123) 183 146
Prepaid expenses and other assets..................... (2,166) (7) (599)
Accounts payable and other liabilities................ 467 1,520 (159)
Due to related parties................................ -- -- (334)
Amount due under asset purchase agreements............ -- -- (500)
-------- -------- --------
Net cash used in operating activities....................... (23,605) (13,775) (13,959)
Investing activities:
Purchase of marketable securities......................... (5,725) (5,363) (167)
Maturities of marketable securities....................... 2,240 2,077 --
Purchase of property and equipment........................ (457) (672) (2,556)
Sale of property and equipment............................ -- 96 --
Acquisition of Sparta Pharmaceuticals, net of cash
acquired................................................ 510 -- --
Acquisition of developed technology....................... -- -- (150)
Purchase of equity investment in related party............ (2,500) -- (500)
-------- -------- --------
Net cash used in investing activities....................... (5,932) (3,862) (3,373)
Financing activities:
Issuance of common stock, net of issuance costs........... 43,469 2,925 34,635
Repurchase of common stock................................ -- -- (7,892)
-------- -------- --------
Net cash provided by financing activities................... 43,469 2,925 26,743
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 13,932 (14,712) 9,411
Cash and cash equivalents at beginning of period............ 8,614 23,326 13,915
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 22,546 $ 8,614 $ 23,326
======== ======== ========
Supplemental Disclosures of Cash Flow Information:
Non-cash investing and financing activities:
Issuance of common stock related to acquistion of
developed technology.................................. $ 1,040 -- --
Issuance of common stock related to research
agreement............................................. 1,191 -- --
Issuance of common stock related to equity investment in
related party......................................... 2,825 -- --
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
SuperGen, Inc. ("SuperGen", "we", "us" or the "Company") was incorporated in
California in March 1991. We changed our state of incorporation to Delaware in
1997. We are an emerging pharmaceutical company dedicated to the acquisition,
rapid development and commercialization of oncology therapies for solid tumors
and hematological malignancies. We operate in one industry segment -- the
pharmaceutical industry.
PRINCIPLES OF CONSOLIDATION
Our consolidated financial statements include the accounts of Sparta
Pharmaceuticals, Inc. ("Sparta") from August 12, 1999, the date of acquisition,
and two wholly-owned subsidiaries, which are immaterial.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires us to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results may differ from those estimates.
REVENUE RECOGNITION
Our net sales relate principally to two pharmaceutical products. We
recognize sales revenue upon shipments to customers, with allowances provided
for estimated returns and exchanges. Cash advance payments received in
connection with distribution agreements or research grants are deferred and
recognized ratably over the period of the respective agreements.
Our principal customers are clinics, hospitals and hospital buying groups in
the United States and drug distributors and wholesalers in the United States and
Europe. We do not require collateral from our customers.
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
Cash and cash equivalents include bank demand deposits, certificates of
deposit, marketable securities with initial maturities of three months or less
and money market funds which invest primarily in U.S. government obligations and
commercial paper. These instruments are highly liquid and are subject to
insignificant market risk.
Marketable securities consist of corporate or government debt securities and
equity securities that have a readily ascertainable market value and are readily
marketable. These investments are reported at fair value. All marketable
securities are designated as available-for-sale, with unrealized gains and
losses included in equity.
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. We incurred advertising costs of
$731,000 in 1999, $418,000 in 1998 and $227,000 in 1997.
F-7
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenditures, including direct and allocated
expenses, are charged to expense as incurred.
EQUITY INVESTMENTS
Equity investments in securities without readily determinable fair value are
either expensed upon acquisition or carried at cost, depending upon our estimate
of the near term viability of the investee and underlying net assets. We
periodically review those carried at cost and believe the amounts continue to be
realizable.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market value. Inventories were as follows at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Raw materials............................................... $ 183 $ 210
Work in process............................................. 935 511
Finished goods.............................................. 250 524
------ ------
$1,368 $1,245
====== ======
</TABLE>
Bulk materials for our primary pharmaceutical product must be purified at a
United States Food and Drug Administration (FDA) approved facility that meets
stringent Good Manufacturing Practices standards. We currently use a single
vendor to perform this manufacturing process using our own equipment located at
the vendor's site. We have contracted with a separate vendor to manufacture the
Nipent finished dosage at its approved facility. In addition, we store the
majority of our bulk raw materials at a single storage location. Although there
are a limited number of vendors who may be qualified to perform these services,
we believe that other vendors could be engaged to provide similar services on
comparable terms. However, the time required to locate and qualify other vendors
or replace lost bulk inventory could cause a delay in manufacturing that might
be financially and operationally disruptive.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation of building,
equipment and furniture and fixtures is provided on a straight-line basis over
the estimated original useful lives of the respective assets, which range from 3
to 31 years. Manufacturing equipment is amortized to cost of sales on a
units-manufactured basis expected to approximate six years. Leasehold
improvements are amortized over the shorter of the life of the lease or their
estimated useful lives using the straight-line method.
F-8
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment consist of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land and building.......................................... $ 1,983 $1,867
Equipment.................................................. 592 509
Furniture and fixtures..................................... 1,686 1,395
------- ------
Total property and equipment............................... 4,261 3,771
Less accumulated depreciation and amortization............. (1,338) (832)
------- ------
Property, plant and equipment, net......................... $ 2,923 $2,939
======= ======
</TABLE>
DEVELOPED TECHNOLOGY
Developed technology related to the acquisition of Nipent is being amortized
to cost of sales on a units-manufactured basis over a period expected to
approximate six years. Developed technology related to other acquired products
is being amortized on a straight-line basis over five years. Accumulated
amortization was $379,000 and $155,000 at December 31, 1999 and 1998,
respectively. Recoverability of developed technology is periodically assessed
based upon expected future cash flows of the related product.
INTANGIBLE ASSETS
Intangible assets, including trademarks, covenants not to compete, acquired
workforce and customer lists, are stated at cost and amortized on a
straight-line basis over their estimated useful lives of six months to five
years. Goodwill, which represents the excess of acquisition cost over the net
assets acquired, is being amortized on a straight-line basis over five years. As
of December 31, 1999 accumulated amortization was $179,000.
MAJOR CUSTOMERS
Our major customers include a number of buying groups. The percentage of
sales of each of these major customers to total net sales for the years ended
December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Warner-Lambert Company..................................... 27% 20% --%
Customer A................................................. 15 10 10
Customer B................................................. 8 10 9
Customer C................................................. 8 6 16
Customer D................................................. 8 0 10
Customer E................................................. 7 16 12
Customer F................................................. 3 1 11
All others................................................. 24 37 32
--- --- ---
Total...................................................... 100% 100% 100%
=== === ===
</TABLE>
F-9
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share is computed by dividing net loss
by the weighted average number of shares outstanding during the year.
As we have reported operating losses each period since our inception, the
effect of assuming the exercise of options and warrants would be anti-dilutive
and, therefore, basic and diluted loss per share are the same. The anti-dilutive
securities that we have omitted from the calculation of basic net loss per
common share are disclosed in Notes 3 and 4.
STOCK-BASED COMPENSATION
We account for stock options under the provisions of Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" as permitted by
Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." Accordingly, we do not record compensation expense
for stock option grants to employees when the exercise price equals or exceeds
the market price of the Company's common stock on the date of grant.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of ("SFAS 121"), the Company reviews long-lived assets, including
property and equipment, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully
recoverable. Under SFAS 121, an impairment loss would be recognized when
estimated undiscounted future cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount. Impairment,
if any, is assessed using discounted cash flows. Through December 31, 1999,
there have been no such losses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" ("SFAS 133") which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on our
results of operations or financial condition when adopted as we hold no
derivative financial instruments and do not currently engage in hedging
activities.
RECLASSIFICATIONS
We have reclassified certain prior year amounts, as well as amounts reported
in Forms 10-Q filed in 1999, to conform to the current year's presentation.
F-10
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. AVAILABLE-FOR-SALE-SECURITIES
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED GAINS ESTIMATED
COST (LOSSES) FAIR VALUE
AT DECEMBER 31, 1999: --------- ---------- ----------
<S> <C> <C> <C>
U.S. corporate debt securities.............................. $24,609 $ (10) $24,599
Marketable equity securities................................ 5,492 5 5,497
------- ----- -------
Total..................................................... $30,101 $ (5) $30,096
======= ===== =======
AT DECEMBER 31, 1998:
U.S. corporate debt securities.............................. $ 2,220 $ 2 $ 2,222
U.S. government debt securities............................. 1,223 11 1,234
Marketable equity security.................................. 167 (141) 26
------- ----- -------
Total..................................................... $ 3,610 $(128) $ 3,482
======= ===== =======
Balance sheet classification:
AT DECEMBER 31, 1999:
Amounts included in cash and cash equivalents............... $17,834 $ 4 $17,838
Marketable securities....................................... 5,017 (9) 5,008
Investment in stock of related parties...................... 5,325 113 5,438
Other assets................................................ 1,925 (113) 1,812
------- ----- -------
Total..................................................... $30,101 $(118) $30,096
======= ===== =======
AT DECEMBER 31, 1998:
Amounts included in cash and cash equivalents............... $ 157 $ -- $ 157
Marketable securities....................................... 3,286 13 3,299
Other assets................................................ 167 (141) 26
------- ----- -------
Total..................................................... $ 3,610 $(128) $ 3,482
======= ===== =======
</TABLE>
Available-for-sale securities at December 31, by contractual maturity, are
shown below (in thousands):
<TABLE>
<CAPTION>
ESTIMATED FAIR
VALUE
-------------------
1999 1998
-------- --------
<S> <C> <C>
Debt securities
Due in one year or less.................................. $22,846 $1,391
Due after one year through three years................... 1,753 2,065
------- ------
24,599 3,456
Marketable equity securities............................... 5,497 26
------- ------
Total.................................................... $30,096 $3,482
======= ======
</TABLE>
Realized gains and losses on the sale of available-for-sale securities for
the years ended December 31, 1999 and 1998 were not material.
F-11
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY
COMMON STOCK
In September 1999, we issued 561,000 shares of unregistered common stock to
an institutional investor. As part of this transaction we also issued to the
investor three-year warrants to purchase 336,600 shares of our common stock at a
price of $20.00 per share. As partial compensation to the placement agent, we
issued 30,855 five-year warrants to purchase unregistered common stock at $20.00
per share. After deducting $500,000 in commissions and fees from the gross
proceeds of $9,099,000, the net proceeds from this transaction totaled
$8,599,000.
In September 1999, we issued 469,819 shares of unregistered common stock to
a group of institutional investors. As part of this transaction we also issued
to the investors three-year warrants to purchase 140,946 shares of our common
stock at a price of $22.50 per share. Additionally, the investors were issued
two-year warrants to purchase an aggregate of 140,946 shares of our common
stock, with 46,981, 46,981 and 46,984 warrants having exercise prices of $30,
$45 and $60 per share, respectively. As partial compensation to the placement
agent, we issued five-year warrants to purchase 26,161 shares of our common
stock at $22.075 per share. After deducting $495,000 in commissions and fees
from the gross proceeds of $8,250,000, the net proceeds from this transaction
totaled $7,755,000.
In September 1999, we issued 64,243 shares of unregistered common stock to
an institutional investor. As part of this transaction we also issued three-year
warrants to purchase 19,273 shares of our common stock at a price of $22.1875
per share. Additionally, the investor was issued two-year warrants to purchase
an aggregate of 19,273 shares of our common stock, with 6,244, 6,244 and 6,245
warrants having exercise prices of $30, $45 and $60 per share, respectively. As
partial compensation to the placement agent, we issued five-year warrants to
purchase 3,975 shares of our common stock at $22.01 per share. After deducting
$75,000 in commissions and fees from the gross proceeds of $1,250,000, the net
proceeds from this transaction totaled $1,175,000.
In August 1999, we issued 463,600 shares of registered common stock to an
institutional investor. As part of this transaction we also issued to the
investor three-year warrants to purchase 231,800 shares of common stock at a
price of $18.00 per share and granted registration rights in connection with
these warrants. As partial compensation to the placement agent, we issued 25,498
five-year warrants to purchase unregistered common stock at $18.00 per share.
After deducting $414,000 in commissions and fees from the gross proceeds of
$7,520,000, the net proceeds from this transaction totaled $7,106,000.
In May 1999, we issued 1,000,000 shares of registered common stock to an
institutional investor, for net proceeds totaling $9,728,000. In June 1999, we
issued 200,000 shares of registered common stock to two institutional investors.
The net proceeds from these two institutional investors totaled $2,080,000.
The stock issuance transactions noted above reflected discounts to the
market price of our stock at the transaction dates. These discounts resulted
from prior discussions with the investors and the selling prices per share were
based on a negotiated average market price. We believe that the selling prices
were reasonable in light of the volatility of our stock price, the magnitude of
the transactions, and our capital needs.
In December 1998, we closed a private placement and issued 460,000 shares of
unregistered restricted common stock for net proceeds of $2,632,000. We granted
registration rights in connection with this transaction. This transaction
reflected a discount of 4% to a weighted average stock price for
F-12
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
a specific period of time prior to the purchase. The method of calculation of
the purchase price and the related discount resulted from arms-length
negotiations with the purchaser, an institutional investor.
In December 1997, we entered into an agreement to acquire certain
intellectual property rights related to a compound in development in exchange
for shares of unregistered restricted common stock and $50,000 in cash. We did
not grant registration rights in connection with this transaction. In March
1998, this agreement was finalized and we issued 74,416 shares of unregistered
restricted common stock.
In September 1997, we issued 183,458 shares of unregistered restricted
common stock to acquire exclusive worldwide rights to a patented anticancer
compound, rubitecan. We did not grant registration rights in connection with
this transaction.
In August 1997, we closed a private placement for approximately $9.8
million. We issued a total of 888,907 shares of unregistered restricted common
stock for this placement in September and October 1997. We did not grant
registration rights in connection with this transaction. This transaction
reflected a discount of approximately 20% to the market price of our stock at
the time of the offering.
In August 1997, we executed a definitive agreement with Israel Chemicals
Ltd. ("ICL"), our largest stockholder at that time, and repurchased 740,000 of
the 2,571,000 shares of common stock then held by ICL for $10.63 per share, or a
total of $7.9 million, plus transaction costs. Under the terms of the agreement,
ICL relinquished all of its international marketing rights to our products and
released us from all residual obligations remaining from their strategic
investment in us.
In June 1997, we entered into an agreement with Tako Ventures, LLC ("Tako"),
an investment entity controlled by Lawrence J. Ellison, Founder and Chairman of
Oracle Corporation, for a private placement of unregistered restricted common
stock. Under this agreement, Tako purchased 1,700,000 shares of unregistered
restricted common stock in July 1997 for $15.3 million and was issued an option,
which it exercised in November 1997, to purchase 850,000 additional shares of
unregistered restricted common stock at $9.00 per share. Related offering costs
were $268,000. In connection with the purchases of stock under this agreement:
- Tako received warrants to acquire up to an additional 1,275,000 shares of
unregistered common stock at $13.50 per share. These warrants will expire
in June 2007.
- Tako received registration rights covering the shares issued and issuable
in connection with this agreement.
- For a period of five years from the date of the purchase Tako is subject
to restrictions regarding sales of the shares issued or issuable in
connection with this agreement.
- Mr. Ellison was granted a seat on our board of directors.
This agreement contains provisions regarding sales or issuances of stock
below a set minimum price of $9.00 per share during a two-year period commencing
June 1997. Sales or issuances of stock below the set minimum price would result
in adjustments to the exercise price of the Tako warrants and the issuance of
additional shares of common stock, at no cost to Tako. As the sales price of the
shares sold in the December 1998 private placement was below the set minimum
price, we issued an additional 107,333 shares to Tako and reduced the warrant
exercise price for 230,000 shares from $13.50 to $10.35.
F-13
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The initial purchase of shares under this agreement reflected a discount to
market of approximately 20%. We have calculated the aggregate value of the
options and warrants issued in this transaction, using the Black Scholes
valuation model, to be approximately $6.7 million.
The Black-Scholes valuation model was developed for use in estimating the
fair value of traded options and warrants that are fully transferable. The
options and warrants issued to Tako have characteristics significantly different
than those of traded options and warrants. In addition, valuation models such as
the Black-Scholes model require the input of highly subjective assumptions
including the expected stock price volatility. The significant inputs we used in
this valuation were volatility of 0.6, expected life of seven years, and a
risk-free interest rate of 4.5%. Changes in the subjective input assumptions can
materially affect the estimate of fair value of options and warrants. Therefore,
in our opinion, existing valuation models do not necessarily provide a reliable
single measure of the fair value of the option and warrants issued in this
transaction.
The stock purchase agreement with Tako also gave Tako certain rights to
participate in future sales of common stock at comparable terms and conditions.
In January 1999, Tako exercised its rights and purchased 61,350 shares of
unregistered common stock for a purchase price of $379,000, net of fees. Tako
was granted registration rights in connection with this transaction.
WARRANTS
At December 31, 1999, warrants to purchase the following shares of our
common stock were outstanding:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE ISSUE DATE EXPIRATION DATE
---------------- -------------- ---------- -----------------
<S> <C> <C> <C> <C>
Publicly traded....... 3,730,740 $ 9.00 1996 2001
220,124 18.18 1999 2001
Non-publicly traded... 99,050 5.00 1995 2000
278,500 7.20 1996 2001
1,045,000 13.50 1997 2007
230,000 10.35 1997 2007
500,000 11.00 1998 2004
1,143,575 12.00-655.31 1999 2001-2004
---------
Total................. 7,246,989
=========
</TABLE>
In addition, upon exercise, the holders of the $7.20 warrants to purchase
278,500 shares will receive an additional warrant to acquire 278,500 shares at
$9.00 per share. These additional warrants will expire in 2001.
On September 20, 1999 we issued a notice of redemption of our 1996 publicly
traded $9.00 warrants. We will redeem any of these warrants that are outstanding
as of April 16, 2000 at a price of $0.25 per share. Under the terms of the
warrant agreement defining the rights of these warrants, all rights of warrant
holders other than the right to receive the redemption price per warrant equal
to $0.25 per warrant will terminate from and after April 16, 2000.
F-14
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. STOCKHOLDERS' EQUITY (CONTINUED)
SHARES RESERVED FOR FUTURE ISSUANCE
We have reserved shares of common stock for future issuance as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
--------- ---------
<S> <C> <C>
Stock options outstanding.............................. 3,359,963 3,232,176
Stock options, available for grant..................... 114,115 191,968
Warrants to purchase common stock...................... 7,246,989 5,623,563
Shares available for Employee Stock Purchase Plan...... 60,674 83,869
</TABLE>
4. STOCK OPTION PLANS
We have 4,400,000 shares of common stock authorized for issuance upon the
grant of incentive stock options or nonstatutory stock options to employees,
directors, and consultants under our stock option plans. The number of shares to
be purchased, their price, and the terms of payment are determined by our Board
of Directors, provided that the exercise price for incentive stock options
cannot be less than the fair market value on the date of grant. The options
granted generally expire ten years after the date of grant and become
exercisable at such times and under such conditions as determined by the Board
of Directors (generally over a four or five year period).
A summary of our stock option activity and related information follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE FAIR
NUMBER OF EXERCISE OPTIONS VALUE AT
SHARES PRICE EXERCISABLE GRANT DATE
--------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997....................... 1,906,000 $ 5.46 882,062
Granted at fair value............................ 949,000 14.65 $7.53
Exercised........................................ (161,250) 3.38
Forfeited........................................ (51,686) 11.50
---------
Balance at December 31, 1997..................... 2,642,064 8.80 1,384,425
Granted at fair value............................ 759,898 8.76 4.60
Exercised........................................ (134,489) 1.43
Forfeited........................................ (35,297) 10.40
---------
Balance at December 31, 1998..................... 3,232,176 9.08 1,825,972
Granted at fair value............................ 657,353 14.77 8.95
Granted at less than fair value.................. 124,000 12.56 8.76
Exercised........................................ (557,233) 6.68
Forfeited........................................ (96,333) 8.41
---------
Balance at December 31, 1999..................... 3,359,963 $10.72 2,113,791
=========
</TABLE>
F-15
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS (CONTINUED)
Information concerning the options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE REMAINING NUMBER EXERCISE
RANGE NUMBER PRICE CONTRACTUAL LIFE EXERCISABLE PRICE
- ----- --------- -------- ---------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.135 to $5.875........................ 681,386 $ 4.71 6.55 486,908 $ 4.43
6.00 to 6.50........................... 607,577 6.09 6.69 541,041 6.04
6.56 to 12.00.......................... 599,701 9.40 8.39 231,916 10.01
12.06 to 14.75......................... 640,699 13.47 7.50 451,229 13.44
14.94 to 17.50......................... 617,500 15.69 7.99 397,747 15.61
18.00 to 31.81......................... 213,100 24.14 9.84 4,950 21.37
--------- ---------
$0.135 to $31.81........................ 3,359,963 $10.72 7.55 2,113,791 $ 9.52
========= =========
</TABLE>
During the year ended December 31, 1999, in connection with the grant of
certain stock options to employees and officers, we recorded deferred stock
compensation for financial statement reporting purposes of $947,000,
representing the difference between the exercise price and the deemed fair value
of our common stock for financial reporting purposes on the date the stock
options were granted. Deferred compensation is included as a component of
stockholders' equity and is being amortized to expense on a straight line basis
over four years, the vesting period of the options. During the year ended
December 31, 1999, we recorded amortization of deferred stock compensation
expense of $112,000.
Pro forma information regarding net loss and net loss per share is required
by FASB Statement 123. We calculated this pro-forma information using the fair
value method of accounting for employee stock options under that Statement. We
estimated the fair value for these options at the date of grant using the
Black-Scholes option valuation model with the following assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rate................................... 5.34% 5.39% 6.34%
Dividend yield............................................ -- -- --
Expected volatility....................................... 0.7 0.6 0.6
Expected life (in years).................................. 4.9 4.4 4.4
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting requirements and are fully
transferable. Employee stock options have characteristics significantly
different than those of traded options. In addition, option valuation models
require the input of highly subjective assumptions including the expected stock
price volatility, and changes in the subjective input assumptions can materially
affect the estimate of fair value of an employee stock option. Therefore, in our
opinion, existing option valuation models do not necessarily provide a reliable
single measure of the fair value of our employee stock options.
F-16
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. STOCK OPTION PLANS (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss (in thousands).............. $(43,836) $(19,073) $(18,332)
Pro forma loss per share....................... (1.88) (0.94) (0.98)
</TABLE>
5. ACQUISITION ACTIVITY AND RELATED IN-PROCESS RESEARCH AND DEVELOPMENT
SPARTA PHARMACEUTICALS, INC.
In August 1999, we completed our acquisition of Sparta
Pharmaceuticals, Inc., a biopharmaceutical company engaged in developing
technologies and drugs for the treatment of a number of life-threatening
diseases, including cancer, cardiovascular disorders, chronic metabolic
diseases, and inflammation.
On the effective date of the merger, Sparta became a wholly-owned subsidiary
of the Company. The Company issued 429,082 shares of its common stock, with a
fair value of $7,800,000, and 220,945 common stock warrants, with a fair value
of $1,558,000, to former Sparta stockholders. The Company assumed approximately
2.9 million options and warrants to purchase Sparta common stock and converted
such options to SuperGen options and warrants to acquire approximately 110,600
shares of SuperGen common stock. The $12,000 value of the options assumed is
included in the purchase price and as a component of stockholders' equity in the
consolidated financial statements. Additionally, the Company recorded
transaction related costs of approximately $262,000, which when aggregated with
the above consideration brings the total cost of the acquisition to $9,632,000.
The acquisition has been accounted for by the purchase method of accounting
and, accordingly, the results of operations of Sparta for the period from August
12, 1999 are included in the accompanying consolidated financial statements.
Assets acquired and liabilities assumed have been recorded at their estimated
fair values. Approximately $7,450,000 of the purchase price was allocated to
acquired in-process research and development ("IPR&D"). The Sparta research and
development programs currently in process were valued as follows:
<TABLE>
<CAPTION>
<S> <C>
Oral anticancer drug for the treatment of breast, colorectal
and other cancers (5-FP, a prodrug of 5-FU)............... $3,430,000
Chronic metabolic disease drug (PZG)........................ 1,380,000
Spartaject method for the delivery of certain anti-cancer
compounds................................................. 2,640,000
----------
$7,450,000
==========
</TABLE>
Acquired in-process research and development represents the value assigned
in a purchase business combination to research and development projects of the
acquired business that were commenced but not yet completed at the date of
acquisition and which, if unsuccessful, have no alternative future use in
research and development activities or otherwise. In accordance with Statement
of Financial Accounting Standards No. 2 "Accounting for Research and Development
Costs," as interpreted by FASB Interpretation No. 4, amounts assigned to
acquired in-process research and development meeting the above criteria must be
charged to expense at the date of consummation of
F-17
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION ACTIVITY AND RELATED IN-PROCESS RESEARCH AND DEVELOPMENT
(CONTINUED)
the purchase business combination. Accordingly, we recorded a non-recurring
charge for this acquired in-process research and development at the date of
acquisition.
The allocation of the purchase price for Sparta resulted in goodwill of
approximately $1.4 million and intangibles and work force value of $500,000.
Goodwill and intangibles will be amortized over five years and work force value
over six months.
The following unaudited pro forma financial summary is presented as if the
operations of the Company and Sparta were combined as of January 1, 1999. The
unaudited pro forma combined results are not necessarily indicative of the
actual results that would have occurred had the acquisition been consummated at
that date, or of the future operations of the combined entities. Nonrecurring
charges, such as the acquired in-process research and development charge of
$7,450,000 are not reflected in the following pro forma financial summary:
PRO FORMA FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1999 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
(IN THOUSAND, EXCEPT PER
SHARE AMOUNTS)
Net sales.............................................. $ 5,032 $ 3,617
Net loss............................................... (31,514) (19,639)
Basic and diluted net loss per share................... $ (1.35) $ (0.96)
</TABLE>
DECITABINE
In September 1999, we acquired the worldwide rights to decitabine, a
chemotherapeutic agent owned by Pharmachemie B.V., a subsidiary of Teva
Pharmaceuticals. Decitabine is a pyrimidine analog that has a mechanism of
action that is unique from other chemically related compounds, such as
gemcitabine and cytosine arabinoside. Decitabine's mechanism is related to DNA
hypomethylation. The FDA has not granted marketing approval to use decitabine
for the treatment of any disease.
The acquisition involved an exchange of 171,123 shares of unregistered
SuperGen common stock valued at $3,400,000, which we charged to IPR&D. In
assigning the purchase price to IPR&D, we considered, among other factors, our
intentions for the future use of the acquired project, its stage of completion,
the lack of alternative future uses of the technology, and that no other
tangible or intangible assets were acquired.
OTHER ACQUISITIONS
In December 1999, we entered into license and research agreements with the
Clayton Foundation for Research and its technology transfer organization,
Research Development Foundation. Under the terms of the agreements, we acquired
worldwide rights to inhaled versions of formulations of camptothecins, including
rubitecan, and taxanes, including paclitaxel (Taxol). The license rights were
acquired for 28,799 shares of common stock with an aggregate value of $916,000,
which we charged to research and development. The Clayton Foundation agreed to
perform the research in exchange for 36,130 shares of common stock. As the
research had not started as of December 31, 1999, the aggregate value of the
shares of $1,191,000 has been included in prepaid expenses and other current
assets.
F-18
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION ACTIVITY AND RELATED IN-PROCESS RESEARCH AND DEVELOPMENT
(CONTINUED)
In July 1999, we acquired the Surface Safe product line from Aldorr Inc., a
medical technology development company. Surface Safe is a two-step towelette
disposable cleaning system used to decontaminate work surfaces where
chemotherapeutic preparation is conducted. Aldorr assigned us patents and
trademarks related to the Surface Safe product line and granted us an
irrevocable, exclusive, worldwide, perpetual and royalty-free license to use the
licensed know-how and any other intellectual property owned or licensed by
Aldorr related to the Surface Safe product line. Aldorr will provide technology
transfer assistance over a brief transitional period and has agreed not to
compete with us in this marketplace for a period of five years. We also obtained
a customer list from Aldorr. The aggregate value of the 79,546 shares of our
unregistered common stock paid to Aldorr was estimated to be $1,040,000, and was
allocated to the covenant not to compete, the customer list, trademark, and the
developed technology based on estimated fair values on the acquisition date. The
recorded assets will be amortized over five years.
In December 1997, we entered into an agreement to acquire certain
intellectual property rights related to a compound in development in exchange
for $1,000,000 in shares of unregistered SuperGen common stock (which was valued
at $750,000 for accounting purposes) and $50,000 in cash. We recorded the total
consideration as a charge to in-process research and development in 1997 and
issued 74,416 shares of unregistered common stock in March 1998.
In September 1997, we acquired exclusive worldwide rights to a patented
anticancer compound, rubitecan, from the Stehlin Foundation for Cancer Research
("Stehlin"). We paid consideration of $2,500,000 in shares of SuperGen common
stock (which constituted 183,458 shares of such stock, was valued at $1,875,000
for accounting purposes and was recorded as a charge for the acquisition of
in-process research and development). We also agreed to make monthly cash
payments to Stehlin of $100,000 until the earlier of the date of FDA marketing
approval of rubitecan or four years. We paid Stehlin $1,200,000 in 1999,
$1,300,000 in 1998, and $600,000 in 1997. Our agreement with Stehlin also calls
for additional payments in SuperGen common stock upon the achievement of
specified milestones and royalties on any product sales.
In November 1999, we amended our agreement with Stehlin to broaden the
definition of licensed compounds to include certain analogues of rubitecan.
Under these agreements, we increased our monthly cash payments to $200,000 and
are required to seek commercial applications for rubitecan. We are required to
pay the Stehlin Foundation approximately $10 million for research and must make
cash royalty payments and cash or stock milestone payments to the Stehlin
Foundation as we develop and commercialize rubitecan.
In May 1997, we entered into a supply agreement for an ongoing source of
bulk paclitaxel, an anticancer drug currently sold by Bristol-Myers Squibb
Company under the tradename Taxol. Under this agreement we paid $400,000 in 1997
and we charged that payment to research and development expense. We have no
further obligation to this supplier although we may purchase bulk paclitaxel
from them in the future.
In January 1997, we purchased from Immunex Corporation the rights to its
version of the generic anticancer drug etoposide. The acquisition included the
Abbreviated New Drug Application, Immunex's inventory of the product, records
relating to the production of etoposide, and data, information and know-how
relating to the manufacture, testing, storage and regulatory status of
etoposide. We paid approximately $1,315,000 in cash of which we allocated
$334,000 to inventory and $150,000 to
F-19
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACQUISITION ACTIVITY AND RELATED IN-PROCESS RESEARCH AND DEVELOPMENT
(CONTINUED)
developed technology. We recorded the remainder of the purchase price as a
charge for the acquisition of in-process research and development.
6. AGREEMENTS WITH ABBOTT LABORATORIES
In December 1999, we entered into agreements with Abbott Laboratories
("Abbott") under which Abbott will undertake to market and distribute our
products, and invest in shares of our common stock.
One agreement covers the development, marketing and distribution of
rubitecan. Under this agreement, we will co-promote rubitecan with Abbott within
the United States and Abbott has exclusive rights to market rubitecan outside
the United States. In the U.S. market, we will share profits from product sales
equally with Abbott. Outside of the U.S. market, Abbott will pay us royalties
and transfer fees based on product sales. We will remain responsible for
pursuing and funding the clinical development of rubitecan and to obtain
regulatory approval of the product in the United States, Canada and the member
states of the European Union. Abbott is responsible for obtaining regulatory
approval of the product in the other countries in the world. We will retain
responsibility for manufacturing, packaging, sterilization and labeling of the
product and Abbott shall be the exclusive distributor of the product throughout
the world.
In addition, under the agreements Abbott will purchase shares of our common
stock in an amount of up to $81.5 million in nine tranches over a period of time
and will make other cash payments to us which, when aggregated with the equity
investments, amount to approximately $150 million. The purchase price of the
common stock acquired by Abbott will be determined based on the market price of
our common stock on the purchase date. In January 2000, Abbott made a $26.5
million equity investment in connection with the first of the nine tranches.
Each subsequent equity investment and cash payment is conditioned upon the
achievement of certain regulatory and product sale milestones.
We also granted Abbott an option to purchase up to 49% of the shares of our
common stock outstanding at the time of the exercise. The exercise price is $85
per share, and the option expires in March 2003. Abbott's ability to exercise
the option is conditioned upon, among other things, the continued effectiveness
of the worldwide distribution agreement for rubitecan-related products. In
addition Abbott has a right of first discussion with respect to our product
portfolio and a right of first refusal to acquire us.
Under the terms of the December 1999 Nipent distribution agreement, Abbott
will become the exclusive U.S. distributor of Nipent for a period of five years.
We retain U.S. marketing rights for Nipent. In accordance with this agreement,
in January 2000, Abbott made a $5 million cash payment to the Company. This
amount is included in other accounts receivable and deferred revenue at
December 31, 1999.
7. RELATED PARTY TRANSACTIONS
In December 1999, we entered into an agreement with AVI BioPharma Inc.
("AVI") whereby we acquired one million shares of AVI common stock, which
amounted to approximately seven and one half percent (7.5%) of AVI's outstanding
common stock, for $2.5 million cash and 100,000 shares of our common stock at
$28.25 per share. As part of the agreement, we also acquired exclusive
negotiating rights through February 2000 for the United States market for
Avicine, AVI's proprietary
F-20
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS (CONTINUED)
cancer vaccine currently in late-stage clinical testing against a variety of
solid tumors. Avicine is a non-toxic immunotherapy that neutralizes the effect
of a tumor-associated antigen on cancer cells, while stimulating the body's
immune system to react against the foreign tumor. The president of AVI is a
member of our Board of Directors. The president and chief executive officer of
SuperGen is a member of the Board of Directors of AVI.
In March 1999, we entered into a promissory note with Tako, whereby Tako
agreed to advance us up to $5,000,000 through December 31, 1999. Advances under
this agreement would be secured by substantially all our assets. In connection
with this transaction, we issued Tako a five-year warrant to acquire 500,000
shares of unregistered common stock at an exercise price of $11.00 per share. We
calculated the value of the warrant at $2,000,000 using the Black-Scholes
valuation model. In September 1999, we terminated this promissory note thereby
releasing any security interest that Tako had in our assets. The value of the
warrant was charged to expense in 1999.
At the beginning of 1998, we had consulting agreements with two
stockholders, who were both then directors of the Company. Both individuals
resigned their directorships in 1998 and we made no payments in 1998 pursuant to
their consulting agreements. In August 1997, we advanced $240,000 to one of
these individuals as payment for services to be performed under the terms of his
consulting agreement for the ensuing two years. Of the total payments made to
this director/stockholder in 1997 of $356,000, $156,000 was included in general
and administrative expenses. In September 1998, the Board of Directors
terminated this consulting agreement and forgave the amount due relating to
services not yet rendered, and we charged the remaining $200,000 to general and
administrative expense in 1998.
Formerly, two SuperGen directors were directors of a privately-held company
conducting research and development work partially funded by SuperGen. We
provided research funding to this company of $245,000 in 1998, and $325,000 in
1997. In addition, we own less than 1% of this company as of December 31, 1999
and 1998. We carry our investment in this company at no value.
At December 31, 1999 and 1998, we owned 10% of another privately-held
company performing research and development work almost exclusively for SuperGen
as well as selling SuperGen certain research supplies. We paid this company
$448,000 in 1999, $331,000 in 1998, and $464,000 in 1997 for services and
supplies. We carry our investment in this company at no value.
Two SuperGen director/stockholders are directors and stockholders of a
privately-held development stage biotechnology company headquartered in Israel.
In June 1997, we made an equity investment of $500,000 in this company's
preferred stock, which represents less than 1% of the outstanding shares as of
December 31, 1999. We carry our investment in this company at cost. In
November 1997, we leased approximately one-third of the laboratory square
footage at the SuperGen Pharmaceutical Research Institute to this company for
$3,000 per month for three years, plus its pro-rata share of specified common
expenses. We also completed certain building and laboratory improvements and
purchased furniture on behalf of this company for a total of approximately
$750,000, which is to be reimbursed. As of December 31, 1999 and 1998, $450,000
of the amount to be reimbursed was unpaid and is classified as due from related
party.
F-21
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES
We lease our administrative facilities under a noncancelable operating
lease, which may be renewed for one period of five years. Future minimum rentals
under all operating leases with terms greater than one year are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- ------------------------
<S> <C>
2000........................................................ $ 310
2001........................................................ 380
2002........................................................ 273
2003........................................................ 272
2004 and thereafter......................................... 723
------
$1,958
======
</TABLE>
Rent expense was $283,000 in 1999, $259,000 in 1998, and $155,000 in 1997.
We maintain an employment contract with one key employee requiring payments
of $750,000 in 2000.
We also have entered into technology license agreements allowing us access
to certain technologies. These agreements generally require royalty payments
based upon the sale of approved products incorporating the technology under
license. No sales of such products have occurred as of December 31, 1999.
We have also entered into manufacturing and service agreements for certain
manufacturing services, the supply of research materials and the performance of
specified research studies. These agreements require payments based upon the
performance of the manufacturing entity, delivery of the research materials or
the completion of the studies.
9. INCOME TAXES
The significant components of our deferred tax assets at December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net operating loss carryforwards........................ $ 32,810 $ 16,140
Purchased in-process technology......................... 1,720 1,930
Research and development credit carryforwards........... 2,370 1,090
Capitalized research and development.................... 5,260 920
Other................................................... 220 50
-------- --------
Total deferred tax assets............................... 42,380 20,130
Valuation allowance..................................... (42,380) (20,130)
-------- --------
Net deferred tax assets................................. $ -- $ --
======== ========
</TABLE>
The valuation allowance increased by $22,250,000 during 1999, and by
$6,030,000 during 1998.
As of December 31, 1999 we had net operating loss carryforwards for federal
income tax purposes of approximately $94,000,000 expiring in the years 2008
through 2019. At December 31, 1999, we had
F-22
<PAGE>
SUPERGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
research and development credit carryforwards for federal income tax purposes of
approximately $1,800,000 which expire in the years 2008 through 2014.
Because of the "change in ownership" provisions of the Tax Reform Act of
1986, utilization of certain of our tax net operating loss carryforwards and tax
credit carryforwards are subject to an annual limitation. As a result of the
annual limitation, a portion of these carryforwards will expire before
ultimately becoming available to reduce future income tax liabilities.
10. EMPLOYEE BENEFIT PLANS
In December 1996, we adopted a 401(k) Profit Sharing Plan (the "401(k)
Plan") for all eligible employees with over six months of service. We may be
obligated to make contributions to the plan to comply with statutory
requirements. Voluntary employee contributions to the 401(k) Plan may be matched
50% by the Company, up to 3% of each participant's annual compensation. Our
expense relating to contributions made to employee accounts under the 401(k)
Plan was approximately $120,000 in 1999, $102,000 in 1998, and $97,000 in 1997.
In May 1998 we established the 1998 Employee Stock Purchase Plan ("ESPP")
and reserved 100,000 shares of common stock for issuance thereunder. Employees
participating in the ESPP are granted the right to purchase shares of common
stock at a price per share that is the lower of:
- 85% of the fair market value of a share of common stock on the first day
of an offering period or,
- 85% of the fair market value of a share of common stock on the last day of
that offering period.
In 1999, we issued 9,022 and 14,173 shares through the ESPP at $15.19 and
$6.38, respectively. In 1998, we issued 16,131 shares through the ESPP at $6.38
per share.
11. SUBSEQUENT EVENT
On February 18, 2000, we entered into an agreement with AMUR
Pharmaceuticals, Inc. ("AMUR") to purchase their patents and patent applications
in exchange for 15,000 shares of our common stock and 200,000 warrants to
purchase our common stock. The warrants have a term of two years and an exercise
price of $40.00 per share. The transaction is subject to several conditions,
including our board approval and AMUR board and shareholder approval.
F-23
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------
2,730,000 SHARES
[SUPERGEN LOGO]
----------------
PROSPECTUS
, 2000
------------------------
BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES
WARBURG DILLON READ LLC
----------------
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The registrant will pay all reasonable expenses incident to the registration
of the shares other than any commissions and discounts of underwriters, dealers
or agents. Such expenses are set forth in the following table. All of the
amounts shown are estimates except the SEC registration fee and NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC registration fee........................................ $ 39,247
NASD filing fee............................................. $ 15,366
Nasdaq National Market listing fee.......................... $ 17,500
Legal fees and expenses..................................... $250,000
Accounting fees and expenses................................ $ 50,000
Printing and engraving...................................... $175,000
Transfer agent fees......................................... $ 5,000
Miscellaneous expenses...................................... $107,887
--------
Total....................................................... $660,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by Section 145 of the Delaware General Corporation Law, the
registrant's amended and restated certificate of incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the bylaws of
the registrant provide that: (1) the registrant is required to indemnify its
directors and executive officers and persons serving in such capacities in other
business enterprises at the registrant's request, to the fullest extent
permitted by Delaware law, including in those circumstances in which
indemnification would otherwise be discretionary; (2) the registrant may, in its
discretion, indemnify employees and agents in those circumstances where
indemnification is not required by law; (3) the registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with defending a proceeding, except that it is not required to
advance expenses to a person against whom the registrant brings a claim for
breach of the duty of loyalty, failure to act in good faith, intentional
misconduct, knowing violation of law or deriving an improper personal benefit;
(4) the rights conferred in the bylaws are not exclusive, and the registrant is
authorized to enter into indemnification agreements with its directors,
executive officers and employees; and (5) the registrant may not retroactively
amend the bylaw provisions in a way that it adverse to such directors, executive
officers and employees in these matters.
The registrant's policy is to enter into indemnification agreements with
each of its directors and executive officers that provide the maximum indemnity
allowed to directors and executive officers by Section 145 of the Delaware
General Corporation Law and the bylaws, as well as certain additional procedural
protections. In addition, such indemnification agreements provide that the
registrant's directors and executive officers will be indemnified to the fullest
possible extent not prohibited by law against all expenses, including attorney's
fees, and settlement amounts paid or incurred by them in any action or
proceeding, including any derivative action by or in the right of the
registrant, on account of their services as directors or executive officers of
the registrant or as directors or officers of any other company or enterprise
when they are serving in such capacities at the request of the registrant. The
registrant will not be obligated pursuant to the indemnification agreements to
indemnify or advance expenses to an indemnified party with respect to
proceedings or claims initiated by the indemnified
II-1
<PAGE>
party and not by way of defense, except with respect to proceedings specifically
authorized by the registrant's board of directors or brought to enforce a right
to indemnification under the indemnification agreement, the registrant's bylaws
or any statute or law. Under the agreements, the registrant is not obligated to
indemnify the indemnified party (1) for any expenses incurred by the indemnified
party with respect to any proceeding instituted by the indemnified party to
enforce or interpret the agreement, if a court of competent jurisdiction
determines that each of the material assertions made by the indemnified party in
such proceeding was not made in good faith or was frivolous; (2) for any amounts
paid in settlement of a proceeding unless the registrant consents to such
settlement; (3) with respect to any proceeding brought by the registrant against
the indemnified party for willful misconduct, unless a court determines that
each of such claims was not made in good faith or was frivolous; (4) on account
of any suit in which judgment is rendered against the indemnified party for an
accounting of profits made from the purchase or sale by the indemnified party of
securities of the registrant pursuant to the provisions of Section16(b) of the
Securities Exchange Act of 1934, and related laws; (5) on account of the
indemnified party's conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest, or to constitute willful misconduct or a
knowing violation of the law; (6) an account of any conduct from which the
indemnified party derived an improper personal benefit; (7) on account of
conduct the indemnified party believed to be contrary to the best interests of
the registrant or its stockholders; (8) on account of conduct that constituted a
breach of the indemnified party's duty of loyalty to the registrant or its
stockholders; or (9) if a final decision by a court having jurisdiction in the
matter shall determine that such indemnification is not lawful.
The indemnification provision in the bylaws and the indemnification
agreements entered into between the registrant and its directors and executive
officers may be sufficiently broad to permit indemnification of the registrant's
officers and directors for liabilities arising under the Securities Act of 1933.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1+ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (previously filed)
</TABLE>
- ------------------------
* Previously filed.
+ Incorporated by reference from the registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 19, 1998.
ITEM 17. UNDERTAKINGS.
Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
II-2
<PAGE>
(b) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement; provided,
however, that paragraphs (a) and (b) above do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by Inference pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
registration statement.
2. That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
4. That, for the purpose of determining any liability under the Securities
Act, each filing of Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act, (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
5. To deliver or cause to be delivered with the prospectus, to each person
to whom the prospectus is sent or given, the latest annual report to security
holders that is incorporated by reference in the prospectus and furnished
pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Exchange Act; and, where interim financial information required to be presented
by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
6. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses incurred or paid
by a director, officer, or controlling person of Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of San Ramon, state of California, on March 16, 2000.
<TABLE>
<S> <C> <C>
SUPERGEN, INC.
By: /s/ JOSEPH RUBINFELD
-----------------------------------------
Joseph Rubinfeld
CHIEF EXECUTIVE OFFICER, PRESIDENT AND
DIRECTOR
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOSEPH RUBINFELD Chief Executive Officer, President
-------------------------------------- and Director (Principal Executive March 16, 2000
Joseph Rubinfeld Officer)
/s/ RONALD H. SPAIR
-------------------------------------- Chief Financial Officer (Principal March 16, 2000
Ronald H. Spair Financial and Accounting Officer)
*
-------------------------------------- Director March 16, 2000
Lawrence J. Ellison
*
-------------------------------------- Director March 16, 2000
Daniel Zurr
*
-------------------------------------- Director March 16, 2000
Denis Burger
*
-------------------------------------- Director March 16, 2000
Julius Vida
*
-------------------------------------- Director March 16, 2000
Walter J. Lack
</TABLE>
<TABLE>
<S> <C> <C>
/s/ RONALD H. SPAIR
---------------------------------
Ronald H. Spair
*By: ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- -------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement
4.1+ Specimen Common Stock Certificate
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, P.C.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Counsel (included in Exhibit 5.1)
24.1* Power of Attorney (previously filed)
</TABLE>
- ------------------------
* Previously filed.
+ Incorporated by reference from the registrant's Report on Form 10-K filed
with the Securities and Exchange Commission on March 19, 1998.
<PAGE>
Exhibit 1.1
- --------------------------------------------------------------------------------
2,730,000 SHARES
SUPERGEN, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED MARCH 16, 2000
BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
WARBURG DILLON READ LLC
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES.................................................................2
A. Representations and Warranties of the Company and the Selling Stockholders..............................2
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS......................................................2
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS...................................................3
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY...............................................3
(d) THE UNDERWRITING AGREEMENT.....................................................................3
(e) AUTHORIZATION OF THE COMMON SHARES.............................................................3
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS.............................................4
(g) NO MATERIAL ADVERSE CHANGE.....................................................................4
(h) INDEPENDENT ACCOUNTANTS........................................................................4
(i) PREPARATION OF THE FINANCIAL STATEMENTS........................................................4
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES............................5
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS.................................................5
(l) STOCK EXCHANGE LISTING.........................................................................6
(m) EXCHANGE ACT COMPLIANCE........................................................................6
(n) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED.......................................................................................6
(o) NO MATERIAL ACTIONS OR PROCEEDINGS.............................................................7
(p) INTELLECTUAL PROPERTY RIGHTS...................................................................7
(q) ALL NECESSARY PERMITS, ETC.....................................................................7
(r) TITLE TO PROPERTIES............................................................................7
(s) TAX LAW COMPLIANCE.............................................................................8
(t) COMPANY NOT AN "INVESTMENT COMPANY"............................................................8
(u) INSURANCE......................................................................................8
(v) NO PRICE STABILIZATION OR MANIPULATION.........................................................8
(w) RELATED PARTY TRANSACTIONS.....................................................................8
(x) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS....................................................8
(y) COMPANY'S ACCOUNTING SYSTEM....................................................................9
(z) COMPLIANCE WITH ENVIRONMENTAL LAWS.............................................................9
(aa) ERISA COMPLIANCE..............................................................................10
(bb) YEAR 2000.....................................................................................10
B. Representations and Warranties of the Selling Stockholders.............................................10
(a) THE UNDERWRITING AGREEMENT....................................................................10
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY...................................................10
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED................................11
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD......................................................11
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED............................11
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS.......................................................11
(g) NO FURTHER CONSENTS, ETC......................................................................12
(h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS.................................12
(i) NO PRICE STABILIZATION OR MANIPULATION........................................................12
(j) REVIEW OF COMPANY'S REPRESENTATIONS AND WARRANTIES............................................12
(k) REVIEW OF PROSPECTUS..........................................................................12
i
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES..............................................12
(a) THE FIRM COMMON SHARES........................................................................12
(b) THE FIRST CLOSING DATE........................................................................13
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE...........................................13
(d) PUBLIC OFFERING OF THE COMMON SHARES..........................................................14
(e) PAYMENT FOR THE COMMON SHARES.................................................................14
(f) DELIVERY OF THE COMMON SHARES.................................................................15
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS....................................................15
SECTION 3. ADDITIONAL COVENANTS..........................................................................15
A. Covenants of the Company...............................................................................15
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS................................15
(b) SECURITIES ACT COMPLIANCE.....................................................................16
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES ACT MATTERS.................16
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS....................................16
(e) BLUE SKY COMPLIANCE...........................................................................17
(f) USE OF PROCEEDS...............................................................................17
(g) TRANSFER AGENT................................................................................17
(h) EARNINGS STATEMENT............................................................................17
(i) PERIODIC REPORTING OBLIGATIONS................................................................17
(j) COMPANY TO PROVIDE COPY OF THE PROSPECTUS IN FORM THAT MAY BE DOWNLOADED FROM THE
INTERNET......................................................................................17
(k) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES..........................................18
(l) FUTURE REPORTS TO THE REPRESENTATIVES.........................................................18
B. Covenants of the Selling Stockholders..................................................................19
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES..........................................19
(b) DELIVERY OF FORMS W-8 AND W-9.................................................................19
SECTION 4. PAYMENT OF EXPENSES...........................................................................19
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.............................................20
(a) ACCOUNTANTS' COMFORT LETTER...................................................................20
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO OBJECTION FROM NASD..............20
(c) NO MATERIAL ADVERSE CHANGE....................................................................21
(d) OPINION OF COUNSEL FOR THE COMPANY............................................................21
(e) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY......................................21
(f) OPINION OF FDA REGULATORY COUNSEL FOR THE COMPANY.............................................21
(g) OPINION OF COUNSEL FOR THE UNDERWRITERS.......................................................22
(h) OFFICERS' CERTIFICATE.........................................................................22
(i) BRING-DOWN COMFORT LETTER.....................................................................22
(j) OPINIONS OF COUNSEL FOR THE SELLING STOCKHOLDERS..............................................22
(k) SELLING STOCKHOLDERS' CERTIFICATE.............................................................23
(l) SELLING STOCKHOLDERS' DOCUMENTS...............................................................23
ii
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
----
(m) LOCK-UP AGREEMENT FROM CERTAIN SECURITYHOLDERS OF THE COMPANY OTHER THAN SELLING
STOCKHOLDERS..................................................................................23
(n) ADDITIONAL DOCUMENTS..........................................................................23
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.......................................................24
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT...............................................................24
SECTION 8. INDEMNIFICATION...............................................................................24
(a) INDEMNIFICATION OF THE UNDERWRITERS...........................................................24
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS....................................25
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES............................................26
(d) SETTLEMENTS...................................................................................27
SECTION 9. CONTRIBUTION..................................................................................27
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS............................................29
SECTION 11. TERMINATION OF THIS AGREEMENT.................................................................29
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY...........................................30
SECTION 13. NOTICES.......................................................................................30
SECTION 14. SUCCESSORS....................................................................................31
SECTION 15. PARTIAL UNENFORCEABILITY......................................................................31
SECTION 16. GOVERNING LAW PROVISIONS......................................................................32
(a) CHOICE OF LAW.................................................................................32
(b) CONSENT TO JURISDICTION.......................................................................32
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND DELIVER COMMON SHARES..........32
SECTION 18. GENERAL PROVISIONS............................................................................32
</TABLE>
iii
<PAGE>
UNDERWRITING AGREEMENT
March 16, 2000
BANC OF AMERICA SECURITIES LLC
Lehman Brothers Inc.
Prudential Securities Incorporated
Warburg Dillon Read LLC
As Representatives of the several Underwriters
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. SuperGen, Inc., a Delaware corporation (the
"Company), proposes to issue and sell to the several underwriters named in
SCHEDULE A (the "Underwriters") an aggregate of 2,000,000 shares of its Common
Stock, par value $0.001 per share (the "Common Stock"); and the stockholders of
the Company named in SCHEDULE B (collectively, the "Selling Stockholders")
severally propose to sell to the Underwriters an aggregate of 730,000 shares of
Common Stock. The 2,000,000 shares of Common Stock to be sold by the Company and
the 730,000 shares of Common Stock to be sold by the Selling Stockholders are
collectively called the "Firm Common Shares." In addition, the Selling
Stockholders have severally granted to the Underwriters an option to purchase up
to an additional 409,500 shares (the "Optional Common Shares") of Common Stock,
as provided in Section 2, each Selling Stockholder selling up to the amount set
forth opposite such Selling Stockholder's name in SCHEDULE B. The Firm Common
Shares and, if and to the extent such option is exercised, the Optional Common
Shares are collectively called the "Common Shares." Banc of America Securities
LLC ("BAS"), Lehman Brothers Inc., Prudential Securities Incorporated and
Warburg Dillon Read LLC have agreed to act as representatives of the several
Underwriters (in such capacity, the "Representatives") in connection with the
offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-3
(File No. 333-30350), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including all documents incorporated or deemed to be incorporated by reference
therein and any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act or the
Securities Exchange Act of 1934 and the rules and regulations promulgated
thereunder (collectively, the "Exchange Act"), is called the "Registration
Statement." Any registration statement filed by the Company pursuant to Rule
462(b) under the Securities Act is called the "Rule 462(b) Registration
Statement," and from and after the date and time of filing of the Rule 462(b)
Registration Statement the term "Registration Statement" shall include the Rule
462(b) Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the "Prospectus";
provided, however, if the Company has, with the consent of BAS, elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's
1
<PAGE>
prospectus subject to completion (each, a "preliminary prospectus")
dated February 28, 2000 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to (i) the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR") and (ii) the Prospectus shall be deemed
to include any "electronic Prospectus" provided for use in connection with the
offering of the Common Shares as contemplated by Section 3(A)(k) of this
Agreement. All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated" in
the Registration Statement or the Prospectus (and all other references of like
import) shall be deemed to mean and include all such financial statements and
schedules and other information which is or is deemed to be incorporated by
reference in the Registration Statement or the Prospectus, as the case may be;
and all references in this Agreement to amendments or supplements to the
Registration Statement or the Prospectus shall be deemed to mean and include the
filing of any document under the Exchange Act which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be.
The Company and each of the Selling Stockholders hereby
confirm their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The
Registration Statement and any Rule 462(b) Registration Statement have
been declared effective by the Commission under the Securities Act. The
Company has complied to the Commission's satisfaction with all requests
of the Commission for additional or supplemental information. No stop
order suspending the effectiveness of the Registration Statement or any
Rule 462(b) Registration Statement is in effect and no proceedings for
such purpose have been instituted or are pending or, to the best
knowledge of the Company, are contemplated or threatened by the
Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T under the Securities Act), was identical to
the copy thereof delivered to the Underwriters for use in connection
with the offer and sale of the Common Shares. Each of the Registration
Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and
at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information
2
<PAGE>
relating to any Underwriter furnished to the Company in writing by the
Representatives expressly for use therein. There are no contracts or
other documents required to be described in the Prospectus or to be
filed as exhibits to the Registration Statement which have not been
described or filed as required.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to the Representatives one copy of the manually signed
signature page to the Registration Statement and of each consent and
certificate of experts filed as a part thereof, and conformed copies of
the Registration Statement (without exhibits) and preliminary
prospectuses and the Prospectus, as amended or supplemented, in such
quantities and at such places as the Representatives have reasonably
requested for each of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later
of the Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares other
than a preliminary prospectus, the Prospectus or the Registration
Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting the rights and remedies of creditors or
by general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement,
other than the Selling Stockholders with respect to the Common Shares
included in the Registration Statement, except for such rights as have
been duly waived.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business or operations, whether or not
arising from transactions in the ordinary course of business, of the
Company and its subsidiaries, considered as one entity (any such change
is called a "Material Adverse Change"); (ii) the Company and its
subsidiaries, considered as one entity, have not incurred any material
liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction
or agreement not in the ordinary course of business; and (iii) there
has been no dividend or distribution of any kind declared, paid or made
by the Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of
any class of capital stock.
3
<PAGE>
(h) INDEPENDENT ACCOUNTANTS. Ernst & Young LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the Commission as a part of the
Registration Statement and included or incorporated by reference in the
Prospectus, are independent public or certified public accountants as
required by the Securities Act and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). Arthur Andersen LLP, who have
expressed their opinion with respect to certain financial statements
(which term as used in this Agreement includes the related notes
thereto) and supporting schedules incorporated by reference in the
Registration Statement and the Prospectus, are independent public or
certified public accountants as required by the Securities Act and the
Exchange Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration
Statement and included or incorporated by reference in the Prospectus
present fairly the consolidated financial position of the Company and
its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The
supporting schedules included or incorporated by reference in the
Registration Statement present fairly the information required to be
stated therein. Such financial statements and supporting schedules have
been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are
required to be included or incorporated by reference in the
Registration Statement. The financial data set forth in the Prospectus
under the captions "Prospectus Summary--Summary Consolidated Financial
Data", "Selected Financial Data" and "Capitalization" fairly present
the information set forth therein on a basis consistent with that of
the audited financial statements contained in the Registration
Statement. The pro forma financial data of the Company and its
subsidiaries included under the caption "Prospectus Summary--Summary
Consolidated Financial Data" and elsewhere in the Prospectus and in the
Registration Statement present fairly the information contained
therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have
been properly presented on the bases described therein, and the
assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions and circumstances referred to therein.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement. Each of the Company and each subsidiary is duly
qualified as a foreign corporation to transact business and is in good
standing in the State of California and each other jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except for
such jurisdictions (other than the State of California) where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. All of the
issued and outstanding capital stock of each subsidiary has been duly
authorized and validly issued, is fully paid and nonassessable and is
owned by the Company, directly or through subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance or claim.
The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries
listed in Exhibit 21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999.
4
<PAGE>
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" (other
than for subsequent issuances, if any, pursuant to employee benefit
plans described in the Prospectus or upon exercise of outstanding
options or warrants described in the Prospectus). The Common Stock
(including the Common Shares) conforms in all material respects to the
description thereof contained in the Prospectus. All of the issued and
outstanding shares of Common Stock (including the shares of Common
Stock to be sold to the Underwriters by the Selling Stockholders) have
been duly authorized and validly issued, are fully paid and
nonassessable and have been issued in compliance with federal and state
securities laws. None of the outstanding shares of Common Stock were
issued in violation of any preemptive rights, rights of first refusal
or other similar rights to subscribe for or purchase securities of the
Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase,
or equity or debt securities convertible into or exchangeable or
exercisable for, any capital stock of the Company or any of its
subsidiaries other than those accurately described in the Prospectus.
The description of the Company's stock option, stock bonus and other
stock plans or arrangements, and the options or other rights granted
thereunder, set forth or incorporated by reference in the Prospectus is
an accurate summary and fairly presents the information required to be
shown with respect to such plans, arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Stock (including the
Common Shares) is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934 (the "Exchange Act") and is listed on
the Nasdaq National Market, and the Company has taken no action
designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting
the Common Stock from the Nasdaq National Market, nor has the Company
received any notification that the Commission or the National
Association of Securities Dealers, Inc. (together with its regulatory
subsidiary, NASD Regulation, Inc., the "NASD") is contemplating
terminating such registration or listing.
(m) EXCHANGE ACT COMPLIANCE. The documents incorporated or
deemed to be incorporated by reference in the Prospectus, at the time
they were or hereafter are filed with the Commission, complied and will
comply in all material respects with the requirements of the Exchange
Act, and, when read together with the other information in the
Prospectus, at the time the Registration Statement and any amendments
thereto become effective and at the First Closing Date and the Second
Closing Date, as the case may be, will not contain an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the fact required to be stated
therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(n) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of
its subsidiaries is in violation of its charter or by-laws or is in
default (or, with the giving of notice or lapse of time, would be in
default) ("Default") under any indenture, mortgage, loan or credit
agreement, note, contract, franchise, lease or other instrument to
which the Company or any of its subsidiaries is a party or by which it
or any of them may be bound, or to which any of the property or assets
of the Company or any of its subsidiaries is subject (each, an
"Existing Instrument"), except for such Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
The Company's execution, delivery and performance of this Agreement and
consummation of the transactions contemplated hereby and by the
Prospectus (i) have been duly authorized by all necessary corporate
action and will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary, (ii) will not
conflict with or constitute a breach of, or Default under, or result in
the
5
<PAGE>
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, or require the consent of any other party to, any Existing
Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate,
result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and
from the NASD.
(o) NO MATERIAL ACTIONS OR PROCEEDINGS. There is no legal or
governmental action, suit or proceeding pending or, to the Company's
knowledge, threatened (i) against or affecting the Company or any of
its subsidiaries, or (ii) which has as the subject thereof any officer
or director of, or property owned or leased by, the Company or any of
its subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility
that such action, suit or proceeding might be determined adversely to
the Company or such officer, director or subsidiary and (B) any such
action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by
this Agreement. No labor dispute with the employees of the Company or
any of its subsidiaries, or to the Company's knowledge, with the
employees of any principal supplier of the Company, exists or, to the
Company's knowledge, is threatened or imminent, which could reasonably
be expected to result in a Material Adverse Change.
(p) INTELLECTUAL PROPERTY RIGHTS. Except as otherwise
disclosed in the Prospectus, The Company and its subsidiaries own or
possess or can obtain without significant expense sufficient
trademarks, trade names, patent rights, copyrights, licenses,
approvals, trade secrets and other similar rights (collectively,
"Intellectual Property Rights") reasonably necessary to conduct their
businesses as now conducted; and the expected expiration of any of such
Intellectual Property Rights would not reasonably be expected to result
in a Material Adverse Change. Neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with
asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a
Material Adverse Change.
(q) ALL NECESSARY PERMITS, ETC. Except as otherwise disclosed
in the Prospectus, the Company and each subsidiary possess such valid
and current certificates, authorizations or permits issued by the
appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the
Company nor any subsidiary has received any notice of proceedings
relating to the revocation or modification of, or non-compliance with,
any such certificate, authorization or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, could reasonably be expected to result in a Material Adverse
Change.
(r) TITLE TO PROPERTIES. Except as otherwise disclosed in the
Prospectus, the Company and each of its subsidiaries has good and
marketable title to all the properties and assets reflected as owned in
the financial statements referred to in Section 1(A)(i) above (or
elsewhere in the Prospectus), in each case free and clear of any
security interests, mortgages, liens, encumbrances, equities, claims
and other defects, except such as do not materially and adversely
affect the value of such property and do not materially interfere with
the use made or proposed to
6
<PAGE>
be made of such property by the Company or such subsidiary. The real
property, improvements, equipment and personal property held under
lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the
Company or such subsidiary.
(s) TAX LAW COMPLIANCE. The Company and its subsidiaries have
filed all necessary federal, state and foreign income and franchise tax
returns or have properly requested extensions thereof and have paid all
taxes required to be paid by any of them, and, if due and payable, any
related or similar assessment, fine or penalty levied against any of
them, except for any tax, assessment, fine or penalty that is being
contested in good faith. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred
to in Section 1(A)(i) above in respect of all federal, state and
foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been
finally determined.
(t) COMPANY NOT AN "INVESTMENT COMPANY". The Company has been
advised of the rules and requirements under the Investment Company Act
of 1940, as amended (the "Investment Company Act"). The Company is not,
and after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of Investment Company Act and
will conduct its business in a manner so that it will not become
subject to the Investment Company Act.
(u) INSURANCE. The Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as
are generally deemed adequate and customary for their businesses. The
Company has no reason to believe that it or any subsidiary will not be
able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar
institutions as may be necessary or appropriate to conduct its business
as now conducted and at a cost that would not reasonably be expected to
result in a Material Adverse Change. Neither of the Company nor any
subsidiary has been denied any insurance coverage which it has sought
or for which it has applied.
(v) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action
designed to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(w) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or
any subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(x) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its subsidiaries nor, to the knowledge of the
Company's Chief Executive Officer or Chief Financial Officer, any
employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(y) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a
system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as
7
<PAGE>
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not
reasonably be expected to, individually or in the aggregate, result in
a Material Adverse Change (i) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
law or regulation relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum and petroleum products (collectively, "Materials
of Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
subsidiaries under applicable Environmental Laws, or noncompliance with
the terms and conditions thereof, nor has the Company or any of its
subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that
alleges that the Company or any of its subsidiaries is in violation of
any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no
written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from
the presence, or release into the environment, of any Material of
Environmental Concern at any location owned, leased or operated by the
Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or
by operation of law; and (iii) to the Company's knowledge, there are no
past or present actions, activities, circumstances, conditions, events
or incidents, including, without limitation, the release, emission,
discharge, presence or disposal of any Material of Environmental
Concern, that reasonably could result in a violation of any
Environmental Law or form the basis of a potential Environmental Claim
against the Company or any of its subsidiaries or against any person or
entity whose liability for any Environmental Claim the Company or any
of its subsidiaries has retained or assumed either contractually or by
operation of law.
(aa) ERISA COMPLIANCE. The Company and its subsidiaries and
any "employee benefit plan" (as defined under the Employee Retirement
Income Security Act of 1974, as amended, and the regulations and
published interpretations thereunder (collectively, "ERISA"))
established or maintained by the Company, its subsidiaries or their
"ERISA Affiliates" (as defined below) are in compliance in all material
respects with ERISA. "ERISA Affiliate" means, with respect to the
Company or a subsidiary, any member of any group of organizations
described in Sections 414(b),(c),(m) or (o) of the Internal Revenue
Code of 1986, as amended, and the regulations and published
interpretations thereunder (the "Code") of which the Company or such
subsidiary is a member. No "reportable event" (as defined under ERISA)
has occurred or is reasonably expected to occur with respect to any
"employee benefit plan" established or
8
<PAGE>
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates. No "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates, if such
"employee benefit plan" were terminated, would have any "amount of
unfunded benefit liabilities" (as defined under ERISA). Neither the
Company, its subsidiaries nor any of their ERISA Affiliates has
incurred or reasonably expects to incur any liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any
"employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of
the Code. Each "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates that is
intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to
act, which would cause the loss of such qualification.
(bb) YEAR 2000. All disclosure regarding year 2000 compliance
that is required to be described under the Securities Act has been
included in the Prospectus. The Company has not incured significant
operating expenses or costs to ensure that its information systems will
be year 2000 complaint, other than as disclosed in the Prospectus.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Underwriters shall be
deemed to be a representation and warranty by the Company to each Underwriter as
to the matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. In
addition to the representations, warranties and covenants set forth in Section
1(A), each Selling Stockholder represents, warrants and covenants to each
Underwriter as follows:
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and
except as the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(b) THE CUSTODY AGREEMENT AND POWER OF ATTORNEY. Each of the
(i) Custody Agreement signed by such Selling Stockholder and
ChaseMellon Shareholder Services LLC, as custodian (the "Custodian"),
relating to the deposit of the Common Shares to be sold by such Selling
Stockholder (the "Custody Agreement") and (ii) Power of Attorney
appointing certain individuals named therein as such Selling
Stockholder's attorneys-in-fact (each, an "Attorney-in-Fact") to the
extent set forth therein relating to the transactions contemplated
hereby and by the Prospectus (the "Power of Attorney"), of such Selling
Stockholder has been duly authorized, executed and delivered by such
Selling Stockholder and is a valid and binding agreement of such
Selling Stockholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable
law and except as the enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating
to or affecting the rights and remedies of creditors or by general
equitable principles.
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS
OBTAINED. Such Selling Stockholder has, and on the First Closing Date
and the Second Closing Date (as defined below) will have, good and
valid title to all of the Common Shares which may be sold by such
Selling Stockholder pursuant to this Agreement on such date and the
legal right and power, and all authorizations and approvals required by
law and, if applicable, under its charter or by-laws, to enter into
this Agreement and its Custody Agreement and Power of Attorney, to
sell, transfer and
9
<PAGE>
deliver all of the Common Shares which may be sold by such Selling
Stockholder pursuant to this Agreement and to comply with its other
obligations hereunder and thereunder.
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the
Common Shares which are sold by such Selling Stockholder pursuant to
this Agreement will pass good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED. The execution and delivery by such Selling Stockholder of,
and the performance by such Selling Stockholder of its obligations
under, this Agreement, the Custody Agreement and the Power of Attorney
will not contravene or conflict with, result in a breach of, or
constitute a Default under, or require the consent of any other party
to, the charter or by-laws or other organizational documents of such
Selling Stockholder, if applicable, or any other material agreement or
instrument to which such Selling Stockholder is a party or by which it
is bound or under which it is entitled to any right or benefit, any
provision of applicable law or any judgment, order, decree or
regulation applicable to such Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental authority or agency, is required
for the consummation by such Selling Stockholder of the transactions
contemplated in this Agreement, except such as have been obtained or
made and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling
Stockholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering
contemplated by this Agreement, except for such shares as are included
in the Registration Statement and except for such rights as have been
duly waived.
(g) NO FURTHER CONSENTS, ETC. Except for the (i) exercise by
such Selling Stockholder of certain registration rights pursuant to the
Convertible Secured Note, Option and Warrant Purchase Agreement dated
as of June 17, 1997 (which registration rights have been duly exercised
pursuant thereto) and (ii) consent of such Selling Stockholder to the
respective number of Common Shares to be sold by all of the Selling
Stockholders pursuant to this Agreement, no consent, approval or waiver
is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale
or purchase by the Underwriters of any of the Common Shares which may
be sold by such Selling Stockholder under this Agreement or the
consummation by such Selling Stockholder of any of the other
transactions contemplated hereby.
(h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE
PROSPECTUS. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date and the Second Closing
Date will be, true, correct, and complete in all material respects, and
does not, and on the First Closing Date and the Second Closing Date
will not, contain any untrue statement of a material fact or omit to
state any material fact necessary to make such information not
misleading. Such Selling Stockholder confirms as accurate the number of
shares of Common Stock set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling
Stockholders" (both prior to and after giving effect to the sale of the
Common Shares).
10
<PAGE>
(i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling
Stockholder has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Common Shares.
(j) REVIEW OF COMPANY'S REPRESENTATIONS AND WARRANTIES. Such
Selling Stockholder has no reason to believe that the representations
and warranties of the Company contained in Section 1(A) of this
Agreement are not true and correct.
(k) REVIEW OF PROSPECTUS. Such Selling Stockholder is
familiar with the Registration Statement and the Prospectus and has
no knowledge of any material fact, condition or information not
disclosed in the Registration Statement or the Prospectus which has
had or may reasonably be expected to cause a Material Adverse Change
and is not prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
Any certificate signed by or on behalf of any Selling
Stockholder and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by such Selling
Stockholder to each Underwriter as to the matters covered thereby.]
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) THE FIRM COMMON SHARES. Upon the terms herein set forth,
(i) the Company agrees to issue and sell to the several Underwriters an
aggregate of 2,000,000 Firm Common Shares and (ii) the Selling
Stockholders agree to sell to the several Underwriters an aggregate of
730,000 Firm Common Shares, each Selling Stockholder selling the number
of Firm Common Shares set forth opposite such Selling Stockholder's
name on SCHEDULE B. On the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the
conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company and the Selling Stockholders the
respective number of Firm Common Shares set forth opposite their names
on SCHEDULE A. The purchase price per Firm Common Share to be paid by
the several Underwriters to the Company and the Selling Stockholders
shall be $[___] per share.
(b) THE FIRST CLOSING DATE. Delivery of certificates for the
Firm Common Shares to be purchased by the Underwriters and payment
therefor shall be made at the offices of BAS, 600 Montgomery Street,
San Francisco, California (or such other place as may be agreed to by
the Company and the Representatives) at 6:00 a.m. San Francisco time,
on [___], or such other time and date not later than 10:30 a.m. San
Francisco time, on [___] as the Representatives shall designate by
notice to the Company (the time and date of such closing are called the
"First Closing Date"). The Company and the Selling Stockholders hereby
acknowledge that circumstances under which the Representatives may
provide notice to postpone the First Closing Date as originally
scheduled include, but are in no way limited to, any determination by
the Company or the Representatives to recirculate to the public copies
of an amended or supplemented Prospectus or a delay as contemplated by
the provisions of Section 10.
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In
addition, on the basis of the representations, warranties and
agreements herein contained, and upon the terms but subject to the
conditions herein set forth, the Selling Stockholders hereby grant an
option to the several Underwriters to purchase, severally and not
jointly, up to an aggregate of 409,500 Optional Common Shares from the
Selling Stockholders at the purchase price per share to be paid
11
<PAGE>
by the Underwriters for the Firm Common Shares. The option granted
hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at
any time (but not more than once) upon notice by the Representatives to
the Company and the Selling Stockholders, which notice may be given at
any time within 30 days from the date of this Agreement. Such notice
shall set forth (i) the aggregate number of Optional Common Shares as
to which the Underwriters are exercising the option, (ii) the names and
denominations in which the certificates for the Optional Common Shares
are to be registered and (iii) the time, date and place at which such
certificates will be delivered (which time and date may be simultaneous
with, but not earlier than, the First Closing Date; and in such case
the term "First Closing Date" shall refer to the time and date of
delivery of certificates for the Firm Common Shares and the Optional
Common Shares). Such time and date of delivery, if subsequent to the
First Closing Date, is called the "Second Closing Date" and shall be
determined by the Representatives and shall not be earlier than three
nor later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, (a) each
Underwriter agrees, severally and not jointly, to purchase the number
of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be
purchased as the number of Firm Common Shares set forth on SCHEDULE A
opposite the name of such Underwriter bears to the total number of Firm
Common Shares and (b) each Selling Stockholder agrees, severally and
not jointly, to sell the number of Optional Common Shares (subject to
such adjustments to eliminate fractional shares as the Representatives
may determine) that bears the same proportion to the total number of
Optional Common Shares to be sold as the number of Optional Common
Shares set forth in SCHEDULE B opposite the name of such Selling
Stockholder bears to the total number of Optional Common Shares. The
Representatives may cancel the option at any time prior to its
expiration by giving written notice of such cancellation to the Company
and the Selling Stockholders.
(d) PUBLIC OFFERING OF THE COMMON SHARES. The Representatives
hereby advise the Company and the Selling Stockholders that the
Underwriters intend to offer for sale to the public, as described in
the Prospectus, their respective portions of the Common Shares as soon
after this Agreement has been executed and the Registration Statement
has been declared effective as the Representatives, in their sole
judgment, determine is advisable and practicable.
(e) PAYMENT FOR THE COMMON SHARES. Payment for the Common
Shares to be sold by the Company shall be made at the First Closing
Date by wire transfer of immediately available funds to the order of
the Company. Payment for the Common Shares to be sold by the Selling
Stockholders shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the Custodian.
It is understood that the Representatives have been
authorized, for their own accounts and the accounts of the several
Underwriters, to accept delivery of and receipt for, and make payment
of the purchase price for, the Firm Common Shares and any Optional
Common Shares the Underwriters have agreed to purchase. BAS,
individually and not as a Representative of the Underwriters, may (but
shall not be obligated to) make payment for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received
by the Representatives by the First Closing Date or the Second Closing
Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
Each Selling Stockholder hereby agrees that (i) it will
pay all stock transfer taxes, stamp duties and other similar taxes, if
any, payable upon the sale or delivery of the Common
12
<PAGE>
Shares to be sold by such Selling Stockholder to the several
Underwriters, or otherwise in connection with the performance of such
Selling Stockholder's obligations hereunder and (ii) the Custodian is
authorized to deduct for such payment any such amounts from the
proceeds to such Selling Stockholder hereunder and to hold such amounts
for the account of such Selling Stockholder with the Custodian under
the Custody Agreement.
(f) DELIVERY OF THE COMMON SHARES. The Company and the Selling
Stockholders shall deliver, or cause to be delivered a credit
representing the Firm Common Shares to an account or accounts at The
Depository Trust Company as designated by the Representatives for the
accounts of the Representatives and the several Underwriters at the
First Closing Date, against the irrevocable release of a wire transfer
of immediately available funds for the amount of the purchase price
therefor. The Selling Stockholder shall also deliver, or cause to be
delivered a credit representing the Optional Common Shares to an
account or accounts at The Depository Trust Company as designated by
the Representatives for the accounts of the Representatives and the
several Underwriters, at the Second Closing Date, as the case may be,
against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor.
Notwithstanding the foregoing, to the extent the Representatives so
elect at least three full business days prior to the First Closing Date
or the Second Closing Date, as the case may be, the Company and the
Selling Stockholders shall deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters
certificates for the Firm Common Shares to be sold by them at the First
Closing Date, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price
therefor; and the Company and the Selling Stockholders shall also
deliver, or cause to be delivered, to the Representatives for the
accounts of the several Underwriters, certificates for the Optional
Common Shares the Underwriters have agreed to purchase from them at the
First Closing Date or the Second Closing Date, as the case may be,
against the irrevocable release of a wire transfer of immediately
available funds for the amount of the purchase price therefor. In such
case, the certificates for the Common Shares shall be in definitive
form and registered in such names and denominations as the
Representatives shall have requested at least two full business days
prior to the First Closing Date (or the Second Closing Date, as the
case may be) and shall be made available for inspection on the business
day preceding the First Closing Date (or the Second Closing Date, as
the case may be) at a location in New York City as the Representatives
may designate.
Time shall be of the essence, and delivery at the time and
place specified in this Agreement is a further condition to the
obligations of the Underwriters.
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than
12:00 p.m. on the second business day following the date the Common
Shares are first released by the Underwriters for sale to the public,
the Company shall deliver or cause to be delivered, copies of the
Prospectus in such quantities and at such places as the Representatives
shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees
with each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending
on the later of the First Closing Date or such date, as in the opinion
of counsel for the Underwriters, the Prospectus is no longer required
by law to be delivered in connection with sales by an Underwriter or
dealer (the "Prospectus
13
<PAGE>
Delivery Period"), prior to amending or supplementing the Registration
Statement (including any registration statement filed under Rule 462(b)
under the Securities Act) or the Prospectus (including any amendment or
supplement through incorporation by reference of any report filed under
the Exchange Act), the Company shall furnish to the Representatives for
review a copy of each such proposed amendment or supplement, and the
Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this
Agreement, the Company shall promptly advise the Representatives in
writing (i) of the receipt of any comments of, or requests for
additional or supplemental information from, the Commission, (ii) of
the time and date of any filing of any post-effective amendment to the
Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date
that any post-effective amendment to the Registration Statement becomes
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any proceedings to remove, suspend or terminate from listing or
quotation the Common Stock from any securities exchange upon which it
is listed for trading or included or designated for quotation, or of
the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any
time, the Company will use its best efforts to obtain the lifting of
such order at the earliest possible moment. Additionally, the Company
agrees that it shall comply with the provisions of Rules 424(b), 430A
and 434, as applicable, under the Securities Act and will use its
reasonable efforts to confirm that any filings made by the Company
under such Rule 424(b) were received in a timely manner by the
Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances when the
Prospectus is delivered to a purchaser, not misleading, or if in the
opinion of the Representatives or counsel for the Underwriters it is
otherwise necessary to amend or supplement the Prospectus to comply
with law, the Company agrees promptly to discuss in good faith with the
Representatives regarding, and if they jointly decide, to prepare and
(subject to Section 3(A)(a) hereof) file with the Commission and
furnish at its own expense to the Underwriters and to dealers,
amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of
the circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE
PROSPECTUS. The Company agrees to furnish the Representatives, without
charge, during the Prospectus Delivery Period, as many copies of the
Prospectus and any amendments and supplements thereto (including any
documents incorporated or deemed incorporated by reference therein) as
the Representatives may reasonably request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register
the Common Shares for sale under (or obtain exemptions from the
application of) the state securities or blue sky laws or Canadian
provincial securities laws of those jurisdictions designated by the
Representatives, shall comply with such laws and shall continue such
qualifications, registrations and exemptions in effect so long as
required for the distribution of the Common Shares. The Company shall
not be required
14
<PAGE>
to qualify as a foreign corporation or to take any action that would
subject it to general service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation
as a foreign corporation. The Company will advise the Representatives
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at
the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described
under the caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at
its expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company
will make generally available to its security holders and to the
Representatives an earnings statement (which need not be audited)
covering the twelve-month period ending on the final day of the quarter
that includes the one year anniversary of the "effective date of the
Registration Statement" (as defined in Rule 158(c) under the Securities
Act) that satisfies the provisions of Section 11(a) of the Securities
Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act. Additionally, the Company
shall report the use of proceeds from the issuance of the Common Shares
as may be required under Rule 463 under the Securities Act.
(j) COMPANY TO PROVIDE COPY OF THE PROSPECTUS IN FORM THAT MAY
BE DOWNLOADED FROM THE INTERNET. Upon the request of the
Representatives, the Company shall cause to be prepared and delivered,
at its expense, within one business day from the effective date of this
Agreement, to the Representatives an "electronic Prospectus" to be used
by the Underwriters in connection with the offering and sale of the
Common Shares. As used herein, the term "electronic Prospectus" means a
form of Prospectus, and any amendment or supplement thereto, that meets
each of the following conditions: (i) it shall be encoded in an
electronic format, satisfactory to BAS, that may be transmitted
electronically by BAS and the other Underwriters to offerees and
purchasers of the Common Shares for at least the Prospectus Delivery
Period; (ii) it shall disclose the same information as the paper
Prospectus and Prospectus filed pursuant to EDGAR, except to the extent
that graphic and image material cannot be disseminated electronically,
in which case such graphic and image material shall be replaced in the
electronic Prospectus with a fair and accurate narrative description or
tabular representation of such material, as appropriate; and (iii) it
shall be in or convertible into a paper format or an electronic format,
satisfactory to BAS, that will allow investors to store and have
continuously ready access to the Prospectus at any future time, without
charge to investors (other than any fee charged for subscription to the
Internet as a whole and for on-line time). The Company hereby confirms
that it has included or will include in the Prospectus filed pursuant
to EDGAR or otherwise with the Commission and in the Registration
Statement at the time it was declared effective an undertaking that,
upon receipt of a request by an investor or his or her representative
within the Prospectus Delivery Period, the Company shall transmit or
cause to be transmitted promptly, without charge, a paper copy of the
Prospectus.
15
<PAGE>
(k) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES.
During the period of 90 days following the date of the Prospectus, the
Company will not, without the prior written consent of BAS (which
consent may be withheld at the sole discretion of BAS), directly or
indirectly, sell, offer, contract or grant any option to sell, pledge,
transfer or establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of or transfer, or announce the offering of, or file any registration
statement under the Securities Act in respect of, any shares of Common
Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares
of Common Stock (other than as contemplated by this Agreement with
respect to the Common Shares); provided, however, that the Company may
issue shares of its Common Stock upon exercise of any option award that
is outstanding on the date hereof and that was issued under any stock
option, stock bonus or other stock plan or arrangement described in the
Prospectus.
(l) FUTURE REPORTS TO THE REPRESENTATIVES. During the period
of two years hereafter the Company will furnish to BAS at 600
Montgomery Street, San Francisco, CA 94111 (i) as soon as practicable
after the end of each fiscal year, copies of the Annual Report of the
Company containing the balance sheet of the Company as of the close of
such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the
Company's independent public or certified public accountants; (ii) as
soon as practicable after the filing thereof, copies of each proxy
statement, Annual Report on Form 10-K, Quarterly Report on Form 10-Q,
Current Report on Form 8-K or other report filed by the Company with
the Commission, the NASD or any securities exchange; and (iii) as soon
as available, copies of any report or communication of the Company
mailed generally to holders of its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such
Selling Stockholder will not, without the prior written consent of BAS
(which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell
(including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares
of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Securities Exchange Act of
1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of
trading on the date 90 days after the date of the Prospectus.
(b) DELIVERY OF FORMS W-8 AND W-9. To deliver to the
Representatives or the Custodian, as applicable, prior to the First
Closing Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Stockholder is a non-United States
person) or Form W-9 (if the Selling Stockholder is a United States
Person).
BAS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or any Selling
Stockholder of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs,
fees and expenses incurred in connection with the performance of their
obligations hereunder and in connection with the
16
<PAGE>
transactions contemplated hereby, including without limitation (i) all expenses
incident to the issuance and delivery of the Common Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's counsel,
independent public or certified public accountants and other advisors, (v) all
costs and expenses incurred in connection with the preparation, printing,
filing, shipping and distribution of the Registration Statement (including
financial statements, exhibits, schedules, consents and certificates of
experts), each preliminary prospectus and the Prospectus, and all amendments and
supplements thereto, and this Agreement, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or blue sky laws or the provincial securities laws of
Canada, and, if requested by the Representatives, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 14 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholders further agree with each Underwriter
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of their obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Stockholders, (ii) fees
and expenses of the Custodian and (iii) expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by such Selling Stockholders to the
Underwriters hereunder (which taxes, if any, may be deducted by the Custodian
under the provisions of Section 2 of this Agreement).
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from Ernst & Young LLP, independent
public or certified public accountants for the Company, a letter dated
the date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and
information of the type ordinarily included in accountant's "comfort
letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Representatives shall have received such additional number of
conformed
17
<PAGE>
copies of such accountants' letter as the Representatives may
reasonably request for each of the several Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER;
NO OBJECTION FROM NASD. For the period from and after effectiveness of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with
the Commission (including the information required by Rule
430A under the Securities Act) in the manner and within the
time period required by Rule 424(b) under the Securities Act;
or the Company shall have filed a post-effective amendment to
the Registration Statement containing the information required
by such Rule 430A, and such post-effective amendment shall
have become effective; or, if the Company elected to rely upon
Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed
a Term Sheet with the Commission in the manner and within the
time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of
the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment to the Registration
Statement, shall be in effect and no proceedings for such
purpose shall have been instituted or threatened by the
Commission; and
(iii) the NASD shall have raised no objection to the
fairness and reasonableness of the underwriting terms and
arrangements.
(c) NO MATERIAL ADVERSE CHANGE. For the period from and after
the date of this Agreement and prior to the First Closing Date and,
with respect to the Optional Common Shares, the Second Closing Date, in
the judgment of the Representatives there shall not have occurred any
Material Adverse Change.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and the Second Closing Date the Representatives shall have
received the favorable opinion of Wilson Sonsini Goodrich & Rosati
Professional Corporation, counsel for the Company, dated as of such
Closing Date, the form of which is attached as EXHIBIT A (and the
Representatives shall have received such additional number of conformed
copies of such counsel's legal opinion as the Representatives may
reasonably request for each of the several Underwriters).
(e) OPINION OF INTELLECTUAL PROPERTY COUNSEL FOR THE COMPANY.
On each of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Wilson
Sonsini Goodrich & Rosati Professional Corporation, counsel for the
Company, as to certain intellectual property matters, dated as of such
Closing Date, the form of which is attached as EXHIBIT B (and the
Representatives shall have received such additional number of conformed
copies of such counsel's legal opinion as the Representatives may
reasonably request for each of the several Underwriters).
(f) OPINION OF FDA REGULATORY COUNSEL FOR THE COMPANY. On each
of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion of Wilson
Sonsini Goodrich & Rosati Professional Corporation, Food and Drug
Administration ("FDA") regulatory counsel for the Company, as to
certain regulatory matters, dated as of such Closing Date, the form of
which is attached as EXHIBIT C (and the Representatives shall have
received such additional number of conformed copies of such
18
<PAGE>
counsel's legal opinion as the Representatives may reasonably request
for each of the several Underwriters).
(g) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the
First Closing Date and the Second Closing Date the Representatives
shall have received the favorable opinion of O'Melveny & Myers LLP,
counsel for the Underwriters, dated as of such Closing Date, in form
and substance satisfactory to the Representatives, with respect to the
sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as
the Representatives may reasonably require (and the Representatives
shall have received such additional number of conformed copies of such
counsel's legal opinion as the Representatives may reasonably request
for each of the several Underwriters). The Company shall have furnished
to such counsel such documents as they may have reasonably requested
for the purpose of enabling them to pass upon such matters.
(h) OFFICERS' CERTIFICATE. On each of the First Closing Date
and the Second Closing Date the Representatives shall have received a
written certificate executed by the Chairman of the Board, Chief
Executive Officer or President of the Company and the Chief Financial
Officer or Chief Accounting Officer of the Company, dated as of such
Closing Date, to the effect set forth in subsections (b)(ii) of this
Section 5, and further to the effect that:
(i) for the period from and after the date of this
Agreement and prior to such Closing Date, there has not
occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of
the Company set forth in Section 1(A) of this Agreement are
true and correct with the same force and effect as though
expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements
hereunder and satisfied all the conditions on its part to be
performed or satisfied hereunder at or prior to such Closing
Date.
(i) BRING-DOWN COMFORT LETTER. On each of the First Closing
Date and the Second Closing Date the Representatives shall have
received from Ernst & Young LLP, independent public or certified public
accountants for the Company, a letter dated such date, in form and
substance satisfactory to the Representatives, to the effect that they
reaffirm the statements made in the letter furnished by them pursuant
to subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more
than three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and the Representatives shall have
received such additional number of conformed copies of such
accountants' letter as the Representatives may reasonably request for
each of the several Underwriters).
(j) OPINIONS OF COUNSEL FOR THE SELLING STOCKHOLDERS. On each
of the First Closing Date and the Second Closing Date the
Representatives shall have received the favorable opinion or opinions
of counsel for each Selling Stockholder (which may be different counsel
for each Selling Stockholder and may be Company counsel), dated as of
such Closing Date, the form of which is attached as EXHIBIT D (and the
Representatives shall have received such additional number of conformed
copies of such counsels' legal opinions as the Representatives may
reasonably request for each of the several Underwriters).
19
<PAGE>
(k) SELLING STOCKHOLDERS' CERTIFICATE. On each of the First
Closing Date and the Second Closing Date the Representatives shall
receive a written certificate executed by the Attorney-in-Fact of each
Selling Stockholder, dated as of such Closing Date, to the effect that:
(i) the representations, warranties and covenants of
such Selling Stockholder set forth in Section 1(B) of this
Agreement are true and correct with the same force and effect
as though expressly made by such Selling Stockholder on and as
of such Closing Date; and
(ii) such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to
be performed or satisfied at or prior to such Closing Date.
(l) SELLING STOCKHOLDERS' DOCUMENTS. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by
the Representatives copies of the Powers of Attorney and Custody
Agreements executed by each of the Selling Stockholders and such
further information, certificates and documents as the Representatives
may reasonably request.
(m) LOCK-UP AGREEMENT FROM CERTAIN SECURITYHOLDERS OF THE
COMPANY OTHER THAN SELLING STOCKHOLDERS. On the date hereof, the
Company shall have furnished to the Representatives an agreement in the
form of EXHIBIT E hereto, or such other form as may be acceptable to
the Representatives, from each director, officer and each beneficial
owner of 5% or more of the Company's Common Stock (as defined and
determined according to Rule 13d-3 under the Exchange Act), and such
agreements shall be in full force and effect on each of the First
Closing Date and the Second Closing Date.
(n) ADDITIONAL DOCUMENTS. On or before each of the First
Closing Date and the Second Closing Date, the Representatives and
counsel for the Underwriters shall have received such information,
documents and opinions as they may reasonably require for the purposes
of enabling them to pass upon the issuance and sale of the Common
Shares as contemplated herein, or in order to evidence the accuracy of
any of the representations and warranties, or the satisfaction of any
of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied or is not waived by the Representatives,
this Agreement may be terminated by the Representatives by notice to the Company
and the Selling Stockholders at any time on or prior to the First Closing Date
and, with respect to the Optional Common Shares, at any time prior to the Second
Closing Date, which termination shall be without liability on the part of any
party to any other party, except that Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement
is terminated by the Representatives pursuant to Section 5, Section 7, Section
10, Section 11 (other than Section 11(i)(y), (ii) or (iii)) or Section 17, or if
the sale to the Underwriters of the Common Shares on the First Closing Date is
not consummated because of any refusal, inability or failure on the part of the
Company or the Selling Stockholders to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all
out-of-pocket expenses that shall have been reasonably incurred by the
Representatives and the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not
20
<PAGE>
limited to reasonable fees and disbursements of counsel, printing expenses,
travel expenses, postage, facsimile and telephone charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) the effectiveness of the Registration Statement under
the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by the Company or the Representatives by notice to each of the other parties
hereto, and any such termination shall be without liability on the part of (a)
the Company or the Selling Stockholders to any Underwriter, except that the
Company shall be obligated to reimburse the expenses of the Representatives and
the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter to
the Company or the Selling Stockholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS.
(1) The Company agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense,
as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company),
insofar as such loss, claim, damage, liability or expense (or actions
in respect thereof as contemplated below) arises out of or is based (i)
upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv)
in whole or in part upon any failure of the Company to perform its
obligations hereunder or under law; (v) or any untrue statement or
alleged untrue statement of any material fact contained in any audio or
visual materials provided by the Company or based upon written
information furnished by or on behalf of the Company including, without
limitation, slides, videos, films or tape recordings, used in
connection with the marketing of the Shares, including, without
limitation, statements communicated to securities analysts employed by
the Underwriters; or (vi) any act or failure to act or any alleged act
or failure to act by any Underwriter in connection with, or relating in
any manner to, the Common Stock or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon any matter
covered by clause (i) or (ii) above, provided that the Company shall
not be liable under this clause (vi) to the extent that a court of
competent jurisdiction shall have determined by a final judgment that
such loss, claim, damage, liability or action resulted directly from
any such acts or failures to act undertaken or omitted to be taken by
such Underwriter through its gross negligence or willful misconduct;
and to reimburse each Underwriter and each such controlling person for
any and all expenses
21
<PAGE>
(including the fees and disbursements of counsel chosen by BAS) as such
expenses are reasonably incurred by such Underwriter or such
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; PROVIDED, HOWEVER, that the foregoing
indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, that such
loss, claim, damage, liability or expense arises out of or is based
upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly
for use in the Registration Statement, any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto); and PROVIDED,
FURTHER, that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or
expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the
sale of the Common Shares to such person, and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage, liability or expense. The indemnity agreement
set forth in this Section 8(a)(1) shall be in addition to any
liabilities that the Company may otherwise have.
(2) Each of the Selling Stockholders, severally and not
jointly, agrees to to indemnify and hold harmless each Underwriter, its
officers and employees, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act and the Exchange
Act against any loss, claim, damage, liability or expense, as incurred,
to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or
state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such
loss, claim, damage, liability or expense (or actions in respect
thereof as contemplated below) arises out of or is based (i) upon any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; in the case of subparagraphs (i) and (ii) of this
Section 8(a)(2) to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information
furnished to the Company or any Underwriter by such Selling
Stockholder, directly or through such Selling Stockholder's
representatives, specifically for use in the preparation thereof; or
(iii) in whole or in part upon any inaccuracy in the representations
and warranties of such Selling Stockholder contained herein; or (iv) in
whole or in part upon any failure of such Selling Stockholder to
perform its obligations hereunder or under law; or (v) any act or
failure to act or any alleged act or failure to act by any Underwriter
in connection with, or relating in any manner to, the Common Stock or
the offering contemplated hereby, and which is included as part of or
referred to in any loss, claim, damage, liability or action arising out
of or based upon any matter covered by clause (i) or (ii) above,
provided that the Company shall not be liable under this clause (v) to
the extent that a court of competent jurisdiction shall have determined
by a final judgment that such loss, claim, damage, liability or
22
<PAGE>
action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct; and to reimburse each Underwriter and
each such controlling person for any and all expenses (including the
fees and disbursements of counsel chosen by BAS) as such expenses are
reasonably incurred by such Underwriter or such controlling person in
connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action;
PROVIDED, HOWEVER, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent,
but only to the extent, that such loss, claim, damage, liability or
expense arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company or
the Selling Stockholders by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto); and provided,
further, that with respect to any preliminary prospectus, the foregoing
indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or
expense purchased Common Shares, or any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to the
Underwriter pursuant to Section 2 and a copy of the Prospectus (as then
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on
behalf of such Underwriter to such person, if required by law so to
have been delivered, at or prior to the written confirmation of the
sale of the Common Shares to such person, and if the Prospectus (as so
amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage, liability or expense; and PROVIDED, FURTHER,
that the Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for
which they each shall be responsible. The indemnity agreement set forth
in this Section 8(a)(2) shall be in addition to any liabilities that
the Selling Stockholders may otherwise have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND
OFFICERS. Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, each of its directors, each of
its officers who signed the Registration Statement, the Selling
Stockholders and each person, if any, who controls the Company or any
Selling Stockholder within the meaning of the Securities Act or the
Exchange Act, against any loss, claim, damage, liability or expense, as
incurred, to which the Company, or any such director, officer, Selling
Stockholder or controlling person may become subject, under the
Securities Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the
written consent of such Underwriter), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or
alleged untrue statement of a material fact contained in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or arises out of or is based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement,
any preliminary prospectus, the Prospectus (or any amendment or
supplement thereto), in reliance upon and in conformity with written
information furnished to the Company and the Selling Stockholders by
the Representatives expressly for use therein; and to reimburse the
Company, or any such director, officer, Selling Stockholder or
controlling person for any legal and other expense reasonably incurred
by the Company, or any such director, officer, Selling Stockholder or
controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action. Each of the Company and each of the
Selling Stockholders, hereby acknowledges that the only
23
<PAGE>
information that the Representatives or the Underwriters have furnished
to the Company and the Selling Stockholders expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) are the information set forth
in the table in the first paragraph, the information on the concession
and reallowance in the third paragraph, and the information in the
eleventh, twelfth and thirteenth paragraphs under the caption
"Underwriting" in the Prospectus; and the Underwriters confirm that
such information is correct. The indemnity agreement set forth in this
Section 8(b) shall be in addition to any liabilities that each
Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES.
Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying
party under this Section 8, notify the indemnifying party in writing of
the commencement thereof, but the omission so to notify the
indemnifying party will not relieve it from any liability hereunder to
the extent it is not materially prejudiced as a proximate result of
such failure and in any event shall not relieve it from any liability
which it may have otherwise than on account of this indemnity
agreement. In case any such action is brought against any indemnified
party and such indemnified party seeks or intends to seek indemnity
from an indemnifying party, the indemnifying party will be entitled to
participate in, and, to the extent that it shall elect, jointly with
all other indemnifying parties similarly notified, by written notice
delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that a conflict may arise between
the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying
party, the indemnified party or parties shall have the right to select
separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of such indemnifying party's election so to
assume the defense of such action and approval by the indemnified party
of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof unless (i) the indemnified party shall have employed
separate counsel in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party
shall not be liable for the expenses of more than one separate counsel
(together with local counsel), approved by the indemnifying party (BAS
in the case of Section 8(b) and Section 9), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of
the indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8
shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party
agrees to indemnify the indemnified party against any loss, claim,
damage, liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written
24
<PAGE>
consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party
in accordance with such request prior to the date of such settlement.
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement, compromise or consent to the
entry of judgment in any pending or threatened action, suit or
proceeding in respect of which any indemnified party is or could have
been a party and indemnity was or could have been sought hereunder by
such indemnified party, unless such settlement, compromise or consent
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in
Section 8 is for any reason held to be unavailable to or otherwise insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (a) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Selling Stockholders, on the
one hand, and the Underwriters, on the other hand, from the offering of the
Common Shares pursuant to this Agreement or (b) if the allocation provided by
clause (a) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (a)
above but also the relative fault of the Company and the Selling Stockholders,
on the one hand, and the Underwriters, on the other hand, in connection with the
statements or omissions or inaccuracies in the representations and warranties
herein which resulted in such losses, claims, damages, liabilities or expenses,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other hand, in connection with the offering of the Common
Shares pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Common Shares
pursuant to this Agreement (before deducting expenses) received by the Company
and the Selling Stockholders, and the total underwriting discount received by
the Underwriters, in each case as set forth on the front cover page of the
Prospectus (or, if Rule 434 under the Securities Act is used, the corresponding
location on the Term Sheet) bear to the aggregate initial public offering price
of the Common Shares as set forth on such cover. The relative fault of the
Company and the Selling Stockholders, on the one hand, and the Underwriters, on
the other hand, shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact or any such inaccurate or alleged
inaccurate representation or warranty relates to information supplied by the
Company or the Selling Stockholders, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
25
<PAGE>
Notwithstanding the provisions of this Section 9, (a) no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public and (b) no
Selling Stockholder shall be required to contribute any amount in excess of the
gross proceeds received by such Selling Stockholder in connection with the
Common Shares sold by it to the Underwriters under this Agreement. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters' obligations
to contribute pursuant to this Section 9 are several, and not joint, in
proportion to their respective underwriting commitments as set forth opposite
their names in SCHEDULE A. For purposes of this Section 9, each officer and
employee of an Underwriter and each person, if any, who controls an Underwriter
within the meaning of the Securities Act and the Exchange Act shall have the
same rights to contribution as such Underwriter, and each director of the
Company, each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company with the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as the
Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on SCHEDULE A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the Representatives with the consent of the non-defaulting
Underwriters, to purchase the Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date. If, on the
First Closing Date or the Second Closing Date, as the case may be, any one or
more of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company for
the purchase of such Common Shares are not made within 48 hours after such
default, this Agreement shall terminate without liability of any party to any
other party except that the provisions of Section 4, Section 6, Section 8 and
Section 9 shall at all times be effective and shall survive such termination. In
any such case either the Representatives or the Company shall have the right to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company and the Selling Stockholders if at any time (i) (x) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq National Market, or (y) trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or materially limited, or minimum or maximum
prices shall have been generally established on any of such stock exchanges by
the Commission or the NASD; (ii) a general banking moratorium shall have been
26
<PAGE>
declared by any of federal, New York, Delaware or California authorities; (iii)
there shall have occurred any outbreak or escalation of national or
international hostilities or any crisis or calamity, or any change in the United
States or international financial markets, or any substantial change or
development involving a prospective substantial change in United States' or
international political, financial or economic conditions, as in the judgment of
the Representatives is material and adverse and makes it impracticable to market
the Common Shares in the manner and on the terms described in the Prospectus or
to enforce contracts for the sale of securities; (iv) in the reasonable judgment
of the Representatives there shall have occurred any Material Adverse Change
that makes it impractical or inadvisable to continue with the offering; or (v)
the Company shall have sustained a loss by strike, fire, flood, earthquake,
accident or other calamity of such character as in the judgment of the
Representatives may interfere materially with the conduct of the business and
operations of the Company regardless of whether or not such loss shall have been
insured. Any termination pursuant to this Section 11 shall be without liability
on the part of (a) the Company or the Selling Stockholders to any Underwriter,
except that if this Agreement is terminated pursuant to this Section 11 (other
than Sections 11(i)(y), (ii) or (iii)) the Company and the Selling Stockholders
shall be obligated to reimburse the expenses of the Representatives and the
Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the
Company or the Selling Stockholders, or (c) of any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholders and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholders, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-913-5558
Attention: Richard A. Smith
with a copy to:
Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-5553
Attention: Jeffrey R. Lapic, Esq.
27
<PAGE>
and to:
O'Melveny & Myers LLP
Embarcadero Center West
275 Battery Street, Suite 2600
San Francisco, CA 94111-3305
Facsimile: (415) 984-8701
Attention: Peter T. Healy, Esq.
If to the Company:
SuperGen, Inc.
Two Annabel Lane, Suite 220
San Ramon, California 94583
Facsimile: (925) 327-7347
Attention: Joseph Rubinfeld
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 493-9300
Attention: John V. Roos, Esq.
If to the Selling Stockholders:
ChaseMellon Shareholder Services LLC
235 Montgomery Street, 23rd Floor
San Francisco, California 94104
Facsimile: (415) 743-1423
Attention: Sharon Magidson
with a copy to:
Wilson Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 493-9300
Attention: John V. Roos, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
28
<PAGE>
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS.
(a) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) CONSENT TO JURISDICTION. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the
transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America
located in the City and County of San Francisco or the courts of the
State of California in each case located in the City and County of San
Francisco (collectively, the "Specified Courts"), and each party
irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of
any such court (a "Related Judgment"), as to which such jurisdiction is
non-exclusive) of such courts in any such suit, action or proceeding.
Service of any process, summons, notice or document by mail to such
party's address set forth above shall be effective service of process
for any suit, action or other proceeding brought in any such court. The
parties irrevocably and unconditionally waive any objection to the
laying of venue of any suit, action or other proceeding in the
Specified Courts and irrevocably and unconditionally waive and agree
not to plead or claim in any such court that any such suit, action or
other proceeding brought in any such court has been brought in an
inconvenient forum.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL
AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders shall fail
to sell and deliver to the Underwriters the Common Shares to be sold and
delivered by such Selling Stockholders at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholders pursuant to this Agreement at the First Closing Date or the
Second Closing Date, then the Underwriters shall have the right, by written
notice from the Representatives to the Company and the Selling Stockholders, to
postpone the First Closing Date or the Second Closing Date, as the case may be,
but in no event for longer than seven days in order that the required changes,
if any, to the Registration Statement and the Prospectus or any other documents
or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
29
<PAGE>
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
[Signature pages follows.]
30
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company and the Custodian the
enclosed copies hereof, whereupon this instrument, along with all counterparts
hereof, shall become a binding agreement in accordance with its terms.
Very truly yours,
SUPERGEN, INC.
By:__________________________
[Name]
[title]
TAKO VENTURES LLC
By:__________________________
ATTORNEY-IN-FACT
JOSEPH RUBINFELD
By:__________________________
ATTORNEY-IN-FACT
RAJESH C. SHROTRIYA
By:__________________________
ATTORNEY-IN-FACT
LUIGI LENAZ
By:__________________________
ATTORNEY-IN-FACT
S-1
<PAGE>
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in San Francisco, California as of the date first above
written.
BANC OF AMERICA SECURITIES LLC
LEHMAN BROTHERS INC.
PRUDENTIAL SECURITIES INCORPORATED
WARBURG DILLON READ LLC
Acting as Representatives of the
several Underwriters named in
the attached SCHEDULE A.
By: BANC OF AMERICA SECURITIES LLC
By:_______________________________
Managing Director
S-2
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS
NUMBER OF
FIRM
COMMON
SHARES TO BE
UNDERWRITERS PURCHASED
- ----------------------------------------------------------------------- ---------------------
<S> <C>
Banc of America Securities LLC....................................... [____]
Lehman Brothers Inc.................................................. [____]
Prudential Securities Incorporated................................... [____]
Warburg Dillon Read LLC.............................................. [____]
..................................................................... [____]
..................................................................... [____]
- ----------------------------------------------------------------------- ---------------------
Total....................................................... 2,730,000
=====================
</TABLE>
Schedule A
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
SELLING STOCKHOLDERS
SELLING STOCKHOLDER MAXIMUM NUMBER
NUMBER OF FIRM OF OPTIONAL
COMMON SHARES COMMON SHARES
TO BE SOLD TO BE SOLD
- ------------------------------------------ ------------------------- ------------------------
<S> <C> <C>
Tako Ventures LLC..................... 650,000 305,000
Joseph Rubinfeld...................... 50,000 104,500
Rajesh C. Shrotriya................... 20,000 0
Luigi Lenaz........................... 10,000 0
- ------------------------------------------ ------------------------- ------------------------
Total........................ 730,000 409,500
====================================================
</TABLE>
Schedule B
<PAGE>
EXHIBIT A
COMPANY COUNSEL OPINION
References to the Prospectus in this EXHIBIT A include any
supplements thereto at the Closing Date.
Such counsel shall state that they have examined, among other
things, the Registration Statement and the Prospectus, which terms shall include
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1998 and each Form 10-Q, Form 8-K and any and all amendments thereto filed by
the Company subsequent to the end of such fiscal year and prior to the date of
such opinion letter, all of which are incorporated by reference in the
Registration Statement and the Prospectus (the "Incorporated Documents"), and in
their opinion:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the State of California and in
each other jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of business,
except for such jurisdictions (other than the State of California) where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(vi) The authorized, issued and outstanding capital stock
of the Company (including the Common Stock) conform to the descriptions thereof
set forth or incorporated by reference in the Prospectus. All of the outstanding
shares of Common Stock (including the shares of Common Stock owned by Selling
Stockholders) have been duly authorized and validly issued, are fully paid and
nonassessable and, to the best of such counsel's knowledge, have been issued in
compliance with the registration and qualification requirements of federal and
state securities laws. The form of certificate used to evidence the Common Stock
is in due and proper form and complies with all applicable requirements of the
charter and by-laws of the Company and the General Corporation Law of the State
of Delaware. The description of the Company's stock option, stock bonus and
other stock plans or arrangements, and the options or other rights granted and
exercised thereunder, set forth in the Prospectus accurately and fairly presents
the information required to be shown with respect to such plans, arrangements,
options and rights.
(vii) No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to subscribe
for or purchase securities of the Company being sold in the offering arising (i)
by operation of the charter or by-laws of the Company or the General Corporation
Law of the State of Delaware or (ii) to the best knowledge of such counsel,
otherwise, other than rights which have been duly waived.
(viii) The Underwriting Agreement has been duly authorized,
executed and delivered by the Company [, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.]
A-1
<PAGE>
(ix) The Common Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant to the
Underwriting Agreement and, when issued and delivered by the Company pursuant to
the Underwriting Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(x) To the best knowledge of such counsel, no stop order
suspending the effectiveness of either of the Registration Statement or (the
Rule 462(b) Registration Statement, if any), has been issued under the
Securities Act and no proceedings for such purpose have been instituted or are
pending or are contemplated or threatened by the Commission. Any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
(xi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus including any document incorporated by
reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus including any document incorporated by reference
therein, as of their respective effective or issue dates (other than the
financial statements and supporting schedules included or incorporated by
reference therein or in exhibits to or excluded from the Registration Statement,
as to which no opinion need be rendered) comply as to form in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act.
(xii) The Common Shares have been approved for listing on
the Nasdaq National Market.
(xiii) The statements (i) in the Prospectus under the
captions "Risk Factors--Anti-takeover provisions may prevent you from realizing
a premium return," "Description of Capital Stock", "Management's Discussion and
Analysis and Results of Operations-Liquidity" (regarding the Company's
agreements with Abbott Laboratories) and (ii) in Item 14 and Item 15 of the
Registration Statement, insofar as such statements constitute matters of law,
summaries of legal matters, the Company's charter or by-law provisions,
documents or legal proceedings, or legal conclusions, has been reviewed by such
counsel and fairly present and summarize, in all material respects, the matters
referred to therein.
(xiv) To the knowledge of such counsel, there are no legal
or governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
(xv) To the best knowledge of such counsel, there are no
Existing Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
(xvi) No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority or
agency, is required for the Company's execution, delivery and performance of the
Underwriting Agreement and consummation of the transactions contemplated thereby
and by the Prospectus, except as has been obtained and except as required under
the Securities Act, applicable state securities or blue sky laws and from the
NASD.
(xvii) The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its obligations
thereunder (other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no opinion
need be rendered) (i) have been duly authorized by all necessary corporate
action on the part of the Company; (ii) will not result in any violation of the
provisions of the charter or by-laws of the
A-2
<PAGE>
Company or any subsidiary; (iii) will not constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company pursuant to any material
Existing Instrument known to such counsel; or (iv) to the knowledge of such
counsel, will not result in any violation of any law, administrative regulation
or administrative or court decree applicable to the Company.
(xviii) The Company is not, and after receipt of payment for
the Common Shares will not be, an "investment company" within the meaning of
Investment Company Act.
(xix) Except as disclosed in the Prospectus, to the
knowledge of such counsel, there are no persons with registration or other
similar rights to have any equity or debt securities registered for sale under
the Registration Statement or included in the offering contemplated by the
Underwriting Agreement, other than the Selling Stockholders, except for such
rights as have been duly waived.
(xx) To the knowledge of such counsel, the Company is not
in violation of its charter or by-laws or any law, administrative regulation or
administrative or court decree applicable to the Company or in Default in the
performance or observance of any obligation, agreement, covenant or condition
contained in any material Existing Instrument, except in each such case for such
violations or Defaults as would not, individually or in the aggregate, result in
a Material Adverse Change.
In addition, such counsel shall state that the Registration
Statement (and the Rule 462(b) Registration Statement, if any), has been
declared effective by the Commission under the Securities Act.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public or certified public
accountants for the Company and with representatives of the Underwriters at
which the contents of the Registration Statement and the Prospectus, and any
supplements or amendments thereto, and related matters were discussed and,
although such counsel is not passing upon and does not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included or incorporated by reference in the Registration
Statement or the Prospectus or any amendments or supplements thereto).
A-3
<PAGE>
EXHIBIT B
INTELLECTUAL PROPERTY OPINION
References to the Prospectus in this EXHIBIT B include any
supplements thereto at the Closing Date.
Such counsel shall state that they act as the Company's
intellectual property counsel and in such capacity are familiar with the
technology used by the Company in its business and the manner of its use thereof
and have read the Registration Statement and the Prospectus, including
particularly the portions of the Registration Statement and the Prospectus
referring to the Company's patents, patent rights or licenses, trademarks or
trademark rights, service marks, copyrights, maskwork rights, collaborative
research, licenses or royalty arrangements or agreements, trade secrets,
know-how or proprietary techniques, including processes and substances, or other
proprietary information or materials (collectively "Intellectual Property") and
in their opinion:
(i) The statements in the Prospectus under the captions
"Risk Factors--Asserting, defending and maintaining intellectual property rights
could be difficult and costly and failure to do so will harm our ability to
compete and the results of our operations," "--The patents on the compounds for
which we are developing generic and Extra products are held by third parties. If
these patents are expanded in scope or do not expire when anticipated, our
business could suffer," and "Business--Patents and Proprietary Technology,"
insofar as such statements constitute matters of law, legal conclusions or
summaries of legal matters relating to Intellectual Property, or descriptions of
the Company's Intellectual Property, have been reviewed by such counsel and
fairly present and summarize, in all material respects, the matters referred to
therein.
(ii) Such counsel knows of no material action, suit, claim
or proceeding relating to or affecting the Intellectual Property which is
pending or threatened against the Company.
(iii) The Company is listed in the records of the United
States Patent and Trademark Office as the holder of record of the patents listed
on a schedule to such opinion (the "Patents") and each of the applications
listed on a schedule to such opinion (the "Applications"). To the knowledge of
such counsel, there are no claims of third parties to any ownership interest or
lien with respect to any of the Patents or Applications. Such counsel is not
aware of any material defect in form in the preparation or filing of the
Applications on behalf of the Company. To the knowledge of such counsel, the
Applications are being pursued by the Company. To the knowledge of such counsel,
the Company owns as its sole property the Patents and pending Applications;
(iv) The Company is listed in the records of the
appropriate foreign offices as the sole holder of record of the foreign patents
listed on a schedule to such opinion (the "Foreign Patents") and each of the
applications listed on a schedule to such opinion (the "Foreign Applications").
Such counsel knows of no claims of third parties to any ownership interest or
lien with respect to the Foreign Patents or Foreign Applications. Such counsel
is not aware of any material defect of form in the preparation or filing of the
Foreign Applications on behalf of the Company. To the knowledge of such counsel,
the Foreign Applications are being pursued by the Company. To the knowledge of
such counsel, the Company owns as its sole property the Foreign Patents and
pending Foreign Applications; and
(v) Such counsel knows of no reason why the Patents or
Foreign Patents are not valid as issued. Such counsel has no knowledge of any
reason why any patent to be issued as a result of any Application or Foreign
Application would not be valid or would not afford the Company useful patent
protection with respect thereto.
B-1
<PAGE>
EXHIBIT C
FDA REGULATORY OPINION
References to the Prospectus in this EXHIBIT C include any
supplements thereto at the Closing Date.
Such counsel shall state that they act as the Company's Food
and Drug Administration ("FDA") counsel and in such capacity are familiar with
the Company's submissions to and relations with the FDA. Such counsel shall
further state that they have read the Registration Statement and the Prospectus,
including particularly those portions of the Registration Statement and the
Prospectus describing (a) the Company's FDA applications and the status thereof
and (b) the Federal Food, Drug, and Cosmetic Act ("FDC Act"), the Public Health
Service Act ("PHS Act") or the FDA regulations (such matters (a) and (b)
collectively, the "FDA Regulatory Matters") and in their opinion:
(i) The statements in the Prospectus under the captions
"Risk Factors--If the results of further clinical testing indicate that our
proposed products are not safe and effective for human use, our business will
suffer," "--If we fail to obtain regulatory marketing approvals in a timely
manner, our business will suffer," "--If we fail to comply with governmental
regulations, our business will suffer," "--We depend on third parties for
manufacturing and storage of our products and our business may be harmed if the
manufacture of our products is interrupted or discontinued," "Business--Products
and Products in Development" "Business--Technologies," "Business--Generic
Anticancer Drugs," "Business--New Drug Development and Approval Process" and
"Business--Manufacturing," insofar as such statements constitute legal
conclusions under the FDC Act, the PHS Act or FDA regulations or summaries of
FDA Regulatory Matters, have been reviewed by such counsel and fairly present
and summarize, in all material respects, the matters referred to therein.
(ii) Such counsel knows of no material action, suit, claim
or proceeding relating to FDA Regulatory Matters which is pending or threatened
against the Company or any of its officers or directors, nor is such counsel
aware of any material violations of the FDC Act, the PHS Act or FDA regulations
by the Company.
(iii) The Company has filed the Investigational New Drug
("IND") applications and New Drug Approval ("NDA") applications and orphan drug
designation applications with the FDA listed on SCHEDULE 1 to such letter
(collectively, the "US Applications"). The FDA has not denied any of the
Company's US Applications, other than as noted on SCHEDULE 1. Apart from such
denied US Applications, such counsel is not aware of any material defect in form
in the preparation or filing of the US Applications, other than as noted in
SCHEDULE 1. To the knowledge of such counsel, apart from such denied US
Applications, the US Applications are being diligently pursued by the Company,
other than as noted in SCHEDULE 1. To the knowledge of such counsel, the Company
is the sole owner of the US Applications, other than as noted in SCHEDULE 1.
(iv) The FDA has issued to the Company the IND approval
letters, the NDA approval letters and orphan drug designations listed on
SCHEDULE 2 to such opinion, and none of such approvals or designations has been
modified, revoked or rescinded.
(v) The Company has filed the applications with foreign
regulators listed on SCHEDULE 3 to such letter (collectively, the "Foreign
Applications"). No foreign authority has denied any of the Company's Foreign
Applications, other than as noted on SCHEDULE 3. Apart from such denied Foreign
Applications, such counsel is not aware of any material defect in form in the
preparation or filing
C-1
<PAGE>
of the Foreign Applications, other than as noted in SCHEDULE 3. To the knowledge
of such counsel, apart from such denied Foreign Applications, the Applications
are being diligently pursued by the Company, other than as noted in SCHEDULE 3.
To the knowledge of such counsel, the Company is the sole owner of the Foreign
Applications, other than as noted in SCHEDULE 3.
(vi) The foreign authorities named in SCHEDULE 4 have issued
to the Company the approvals listed on SCHEDULE 4 to such opinion, and none of
such approvals has been modified, revoked or rescinded.
C-2
<PAGE>
EXHIBIT D
SELLING STOCKHOLDER COUNSEL OPINION
The opinion of such counsel shall be rendered to the
Representatives at the request of the Company or the Selling Stockholder, as
applicable, and shall so state therein. References to the Prospectus in this
EXHIBIT D include any supplements thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding agreement
of, such Selling Stockholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(ii) The execution and delivery by each Selling Stockholder
that is a limited liability company of, and the performance by such Selling
Stockholder of its obligations under, the Underwriting Agreement and its Custody
Agreement and its Power of Attorney will not contravene or conflict with, result
in a breach of, or constitute a default under, the organizational documents of
such Selling Stockholder, or, to the best of such counsel's knowledge, violate
or contravene any provision of applicable law or regulation, or violate, result
in a breach of or constitute a default under the terms of any other agreement or
instrument to which such Selling Stockholder is a party or by which it is bound,
or any judgment, order or decree applicable to such Selling Stockholder of any
court, regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder.
(iii) To such counsel's knowledge, such Selling Stockholder
has good and valid title to all of the Common Shares which may be sold by such
Selling Stockholder under the Underwriting Agreement and in the case of each
Selling Stockholder that is a limited liability company has the legal right and
power, and all authorizations and approvals required under its organizational
documents to enter into the Underwriting Agreement and its Custody Agreement and
its Power of Attorney, to sell, transfer and deliver all of the Common Shares
which may sold by such Selling Stockholder under the Underwriting Agreement and
to comply with its other obligations under the Underwriting Agreement, its
Custody Agreement and its Power of Attorney.
(iv) Each of the Custody Agreement and Power of Attorney of
such Selling Stockholder has been duly authorized, executed and delivered by
such Selling Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles.
(v) Assuming that the Underwriters purchase the Common
Shares which are sold by such Selling Stockholder pursuant to the Underwriting
Agreement for value, in good faith and without notice of any adverse claim, the
delivery of such Common Shares pursuant to the Underwriting Agreement will pass
good and valid title to such Common Shares, free and clear of any security
interest, mortgage, pledge, lieu encumbrance or other claim.
(vi) To such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing with, any court or
governmental authority or agency, is required for the consummation by such
Selling Stockholder of the transactions contemplated in the Underwriting
D-1
<PAGE>
Agreement, except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
D-2
<PAGE>
EXHIBIT E
FORM OF LOCK-UP AGREEMENT
February 18, 2000
Banc of America Securities LLC
Lehman Brothers Inc.
Prudential Securities Incorporated
Warburg Dillon Read LLC
As Representatives of the Several Underwriters
c/o Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Re: SUPERGEN, INC. (THE "COMPANY")
Ladies and Gentlemen:
The undersigned is an owner of record or beneficially of
certain shares of Common Stock of the Company ("Common Stock") or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Common Stock (the "Offering") for
which you will act as the representatives of the underwriters. The undersigned
recognizes that the Offering will be of benefit to the undersigned and will
benefit the Company by, among other things, raising additional capital for its
operations. The undersigned acknowledges that you and the other underwriters are
relying on the representations and agreements of the undersigned contained in
this letter in carrying out the Offering and in entering into underwriting
arrangements with the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby
agrees that the undersigned will not, without the prior written consent of Banc
of America Securities LLC (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 60 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
With respect to the Offering only, the undersigned waives any
registration rights relating to registration under the Securities Act of any
Common Stock owned either of record or beneficially by the undersigned,
including any rights to receive notice of the Offering.
This agreement is irrevocable and will be binding on the
undersigned and the respective successors, heirs, personal representatives, and
assigns of the undersigned.
E-1
<PAGE>
----------------------------------------
PRINTED NAME OF HOLDER
By:
-------------------------------------
SIGNATURE
---------------------------------------
PRINTED NAME OF PERSON SIGNING*
*(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf of
an entity)
E-2
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 3 to the Registration Statement (Form S-3) and related prospectus
of SuperGen, Inc. for the registration of 3,139,500 shares of its common stock
and to the inclusion therein of our report dated February 18, 2000, with respect
to the consolidated financial statements of SuperGen, Inc. for the year ended
December 31, 1999, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Palo Alto, California
March 14, 2000
