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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___ to ___.
Commission file number 0-26862
DEPOTECH CORPORATION
(Exact name of Registrant as specified in its charter)
CALIFORNIA 33-0387911
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification No.)
Organization)
10450 SCIENCE CENTER DRIVE
SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices, zip code)
(619) 625-2424
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: No par value, 13,165,136 shares as of July 31, 1997
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DEPOTECH CORPORATION
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1 Financial Statements
Condensed Balance Sheets as of
June 30, 1997 and December 31, 1996....................... 1
Condensed Statements of Operations
for the Three and Six Months ended
June 30, 1997 and 1996.................................... 2
Condensed Statements of Cash Flows
for the Six Months ended
June 30, 1997 and 1996.................................... 3
Notes to Condensed Financial Statements................... 4
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations.......... 6
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Securities Holders..... 14
Item 6 Exhibits and Reports on Form 8-K.......................... 15
Signatures....................................................... 16
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOTECH CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
(Unaudited) (Note)
ASSETS
Current assets:
Cash and cash equivalents $ 602,547 $ 1,966,626
Short-term investments 24,736,972 16,231,471
Accounts receivable from Chiron collaboration 1,066,129 614,580
Other current assets 942,200 1,160,394
------------ ------------
Total current assets 27,347,848 19,973,071
Property and equipment, net 22,179,563 16,851,574
Other assets 863,082 783,760
------------ ------------
Total assets $ 50,390,493 $ 37,608,405
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 4,601,956 $ 2,573,087
Current portion of obligations under capital leases and loans 2,091,043 2,040,578
Current portion of notes payable 1,189,950 493,481
------------ ------------
Total current liabilities 7,882,949 5,107,146
Deferred revenue -- 54,839
Obligations under capital leases, less current portion 3,073,044 4,129,750
Notes payable, less current portion 3,665,469 1,709,813
Deferred rent 1,856,806 1,377,623
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
13,155,279 and 11,543,816 shares issued and outstanding at
June 30, 1997 and December 31, 1996, respectively 87,165,087 67,797,617
Deferred compensation related to stock options (135,716) (161,960)
Unrealized gain(loss) on investments 4,996 (10,886)
Accumulated deficit (53,122,142) (42,395,537)
------------ ------------
Total shareholders' equity 33,912,225 25,229,234
------------ ------------
Total liabilities and shareholders' equity $ 50,390,493 $ 37,608,405
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date, but does not include all of
the disclosures required by generally accepted accounting principles.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOTECH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(Unaudited) (Unaudited)
Contract revenue $ 760,149 $ 1,464,301 $ 1,931,959 $ 2,664,955
Milestone payment 1,000,000 -- 1,000,000 --
------------ ------------ ------------ ------------
Total revenue 1,760,149 1,464,301 2,931,959 2,664,955
Costs and expenses:
Research and development 5,698,303 4,449,094 10,081,206 7,720,498
General and administrative 1,022,009 818,767 1,955,604 1,605,028
Repurchase of marketing rights 2,000,000 -- 2,000,000 --
------------ ------------ ------------ ------------
Total costs and expenses 8,720,312 5,267,861 14,036,810 9,325,526
------------ ------------ ------------ ------------
Loss from operations (6,960,163) (3,803,560) (11,104,851) (6,660,571)
Interest income 390,718 424,412 844,511 935,771
Interest expense (246,316) (177,743) (466,265) (322,326)
------------ ------------ ------------ ------------
Net loss $ (6,815,761) $ (3,556,891) $(10,726,605) $ (6,047,126)
============ ============ ============ ============
Net loss per share $ (0.52) $ (0.31) $ (0.82) $ (0.53)
============ ============ ============ ============
Shares used in computing
net loss per share 13,116,053 11,456,702 13,074,428 11,388,639
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DEPOTECH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1997 1996
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<S> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net cash used by operating activities $ (7,638,495) $ (6,382,413)
INVESTING ACTIVITIES
Purchases of short-term investments (22,082,975) (9,214,545)
Proceeds from sale of short-term investments 13,593,356 17,597,998
Purchases of property and equipment (6,212,200) (2,336,019)
Restricted cash (37,119) --
------------ ------------
Net cash provided (used) by investing activities (14,738,938) 6,047,434
FINANCING ACTIVITIES
Repayments on capital lease obligations (1,006,241) (842,955)
Reimbursement for assets refinanced as capital leases -- 3,254
Repayments on notes payable (275,412) --
Proceeds from notes payable 2,927,537 199,645
Proceeds from issuance of common stock, net 19,367,470 349,159
------------ ------------
Net cash provided (used) by financing activities 21,013,354 (290,897)
------------ ------------
Net decrease in cash and cash equivalents (1,364,079) (625,876)
Cash and cash equivalents at beginning of period 1,966,626 5,883,911
------------ ------------
Cash and cash equivalents at end of period 602,547 5,258,035
Short-term investments at end of period 24,736,972 24,148,184
------------ ------------
Cash, cash equivalents and short-term investments at end of period $ 25,339,519 $ 29,406,219
============ ============
SUPPLEMENTAL INFORMATION
Property and equipment acquired through capital leases $ -- $ 3,337,461
============ ============
Interest paid $ 466,265 $ 322,327
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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DEPOTECH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation and Significant Accounting Policies
The interim unaudited condensed financial statements contained herein
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These interim unaudited condensed financial
statements should be read in conjunction with the Company's December 31, 1996
audited financial statements. In management's opinion, the unaudited information
includes all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial position, results of
operations and cash flows for the periods presented. Interim results are not
necessarily indicative of results to be expected for the full year. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
2. Net Loss Per Share
Net loss per share is computed using the weighted average number of
common shares outstanding during the period. Common share equivalents have not
been included in the computation, since their effect would have been
anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share", regarding the calculation of primary earnings per
share, which will be adopted in January 1998. The Company does not anticipate
that the adoption of this standard will have a material impact to the Company.
3. Chiron Collaboration
In March 1994, the Company entered into a collaborative agreement with
Chiron Corporation ("Chiron") to develop and commercialize sustained-release
formulations of DepoCyt(TM) and certain Chiron proprietary products using the
Company's drug delivery technology. Cumulative reimbursable costs for clinical
trials and process development incurred by the Company under this agreement
totaled $10.0 million through June 30, 1997 and $7.7 million through June 30,
1996.
In June 1997, DepoTech reacquired rights to DepoCyt in Canada and Europe
from Chiron for aggregate cash payments of up to $13.7 million. Chiron will
retain exclusive marketing rights to DepoCyt in the U.S. A $2.0 million cash
payment is payable to Chiron by December 31, 1997 and has been expensed at June
30, 1997. If, prior to December 31, 1998, the U.S. Food and Drug Administration
("FDA") issues a letter or other notification to DepoTech indicating that
DepoCyt is approvable or approved, the remaining balance of $11.7 million shall
be payable no later than December 31, 1998. If no FDA notification is received
prior to December 31, 1998, the remaining amount shall
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DEPOTECH CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
be payable no later than six months from the earlier of U.S. or European Union
regulatory notification that the application to market or sell DepoCyt is
approvable or approved. If all applications for regulatory approval to sell
DepoCyt in the U.S. and European Union are permanently withdrawn, DepoTech shall
be relieved of any obligation to pay the remaining $11.7 million. Therefore,
such amount will be recorded upon the receipt of the required notification.
4. Subsequent Event
In July 1997, DepoTech entered into a Marketing and Distribution
Agreement with Pharmacia & Upjohn S.p.A ("P&U"), an affiliate of Pharmacia &
Upjohn Inc., for rights to market and sell DepoCyt in countries outside the
United States. The Company will manufacture DepoCyt and receive a share of the
net sales of DepoCyt sold by P&U. The Company received a cash payment of $2.0
million upon execution of the agreement and will receive additional payments
upon achievement of certain regulatory milestones. The agreement also provides
for reimbursement of certain clinical trial expenses and regulatory fees
incurred by the Company. The initial cash payment of $2.0 million and future
milestone payments totaling up to the obligation to Chiron of $13.7 million will
be set aside in a restricted cash account for payment to Chiron for the
repurchase of DepoCyt rights.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Since its inception in October 1989, DepoTech Corporation ("DepoTech" or
the "Company") has devoted substantially all of its resources to the development
of its potential products. To date, the Company has not received any revenues
from the sale of products. The Company has funded its development programs
primarily from equity-derived working capital, equipment lease financing and
through strategic alliances with other companies. The Company has been
unprofitable since its inception and expects to incur additional operating
losses over at least the next 18 months. As of June 30, 1997, the Company's
accumulated deficit was approximately $53.1 million.
The following discussion is qualified in its entirety by the more
detailed information and the Condensed Financial Statements and Notes thereto
appearing elsewhere in this Quarterly Report, including the information under
"Risks and Uncertainties." This Quarterly Report may contain, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from the
results discussed in such forward-looking statements. Factors that could cause
or contribute to such differences include those discussed under "Risks and
Uncertainties."
RESULTS OF OPERATIONS
The Company had total revenue of $1.8 million for the three months ended
June 30, 1997 compared to $1.5 million for the same period in 1996. Total
revenue for the six months ended June 30, 1997 increased to $2.9 million from
$2.7 million in 1996. Included in total revenue for the second quarter of 1997
is a milestone payment from Chiron Corporation ("Chiron") of $1 million paid to
DepoTech upon the filing of a New Drug Application for DepoCyt in the U.S. Total
revenue in 1997 and 1996 was derived primarily from reimbursement of 50% of the
U.S. clinical trial and manufacturing scale-up expenses for the Company's lead
product, DepoCyt, an anti-cancer drug, under a collaborative agreement with
Chiron. In addition, Chiron reimbursed DepoTech for 100% of pre-clinical
development costs and feasibility studies performed on Chiron proprietary
products. The decline in contract revenue in 1997 compared to 1996 was primarily
attributable to the completion of manufacturing scale-up for DepoCyt. Revenue
may fluctuate from period to period depending on the level of clinical and
process development activity for projects under collaborative agreements and the
achievement of future milestones.
Research and development expenses for the second quarter ended June 30,
1997 increased to $5.7 million compared to $4.4 million for the same period in
1996. Research and development expenses for the six months ended June 30, 1997
increased to $10.1 million from $7.7 million in 1996. Factors contributing to
these increases include expanded efforts in clinical trials, manufacturing
scale-up, and preclinical development of potential DepoFoam(TM) products. The
Company is continuing Phase III clinical studies of DepoCyt in neoplastic
meningitis arising from leukemia and lymphoma, as well as a Phase IV
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nonrandomized trial in solid tumor patients. Earlier this year, DepoTech began a
Phase I clinical trial of DepoCyt in pediatric patients and a Phase I study of
DepoMorphine(TM) sustained-release encapsulated morphine sulfate to treat acute
post-surgical pain. Manufacturing scale-up of DepoMorphine is underway. The
Company has completed a Phase I study of DepoAmikacin(TM) and is completing work
necessary to move into follow-on clinical studies. Additionally, the Company
completed certain preclinical and feasibility studies on various formulations of
DepoIGF-1 with partner, Chiron. Further, the Company is evaluating the
feasibility of developing several early stage compounds internally and for
corporate partners. Research and development expenses are expected to continue
to increase during 1997.
General and administrative expenses for the second quarter of 1997
increased to $1.0 million from $0.8 million for the same period in 1996. General
and administrative expenses for the six months ended June 30, 1997 increased to
$2.0 million from $1.6 million for the comparable period in the prior year.
These increases were primarily due to expansion in administrative staffing and
higher facility expenses. Also, under the collaborative agreement with Chiron,
the Company is obligated to share equally in the funding of sales, marketing and
distribution expenses for DepoCyt. Included in general and administrative
expenses are 50% of these expenses incurred for DepoCyt prior to the onset of
any product revenue. General and administrative expenses are expected to
continue to increase during 1997.
Chiron and DepoTech had been jointly developing DepoCyt in the U.S.,
Canada and Europe since March 1994. In June 1997, DepoTech acquired rights to
DepoCyt in Canada and Europe from Chiron. Chiron will retain exclusive marketing
rights to DepoCyt in the U.S. Included in operating expenses for the quarter
ended June 30, 1997 were expenses of $2 million associated with the repurchase
which will be payable to Chiron by December 31, 1997. In July 1997, DepoTech
entered into a Marketing and Distribution Agreement with Pharmacia & Upjohn
S.p.A ("P&U"), an affiliate of Pharmacia & Upjohn Inc., for rights to market and
sell DepoCyt in countries outside the United States.
Interest income was $0.4 million and $0.8 million for the three and six
months ended June 30, 1997 compared to $0.4 million and $0.9 million for the
same periods in 1996. Interest expense was $0.2 million and $0.5 million for the
three and six months ended June 30, 1997 compared to $0.2 million and $0.3
million for the comparable periods in 1996. The increase in interest expense for
the six month period was due to higher balances outstanding for obligations
under capital leases and notes payable.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through June 30, 1997, DepoTech has financed its
operations primarily through public and private placements of equity securities,
which provided aggregate net proceeds of approximately $86.9 million, and
through capital equipment leases and notes payable. In October 1995, the Company
completed its initial public offering of common stock with net proceeds of $38.1
million. In January 1997, the
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Company completed the private placement of 1.5 million newly issued shares of
common stock raising net proceeds of $18.9 million.
Chiron and DepoTech had been jointly developing DepoCyt in the U.S.,
Canada and Europe since March 1994. In June 1997, DepoTech acquired rights to
DepoCyt in Canada and Europe from Chiron for aggregate cash payments of up to
$13.7 million. Chiron will retain exclusive marketing rights to DepoCyt in the
U.S. A $2 million cash payment is payable to Chiron by December 31, 1997. If,
prior to December 31, 1998, the U.S. Food and Drug Administration ("FDA") issues
a letter or other notification to DepoTech indicating that DepoCyt is approvable
or approved, the remaining balance of $11.7 million shall be payable no later
than December 31, 1998. If no FDA notification is received prior to December 31,
1998, the remaining amount shall be payable no later than six months from the
earlier of U.S. or European Union regulatory notification that the application
to market or sell DepoCyt is approvable or approved. If all applications for
regulatory approval to sell DepoCyt in the U.S. and European Union are
permanently withdrawn, DepoTech shall be relieved of any obligation to pay the
remaining $11.7 million.
In July 1997, DepoTech entered into a Marketing and Distribution
Agreement with P&U for rights to market and sell DepoCyt in countries outside
the United States. P&U will be responsible for submitting regulatory filings,
labeling, packaging, distribution, marketing and sales of DepoCyt in this
territory. The Company will manufacture DepoCyt and receive a share of the net
sales of DepoCyt sold by P&U. The Company received a cash payment of $2.0
million upon execution of the agreement and may receive additional payments of
up to $17.0 million upon achievement of certain regulatory milestones. The
agreement also provides for reimbursement of certain clinical trial expenses and
regulatory fees incurred by the Company. The initial cash payment of $2.0
million and future milestone payments totaling up to the obligation to Chiron of
$13.7 million will be set aside in a restricted cash account for payment to
Chiron for the repurchase of DepoCyt rights.
As of June 30, 1997, the Company had cash, cash equivalents and
short-term investments of $25.3 million as compared to $18.2 million at December
31, 1996. The increase of $7.1 million in cash, cash equivalents and short-term
investments was due primarily to the $18.9 million net proceeds received from
the private placement which was partially offset by net cash used to fund
operations of $7.6 million and payments totaling $4.6 million for new capital
expenditures and repayment of capital lease obligations and notes payable. In
May 1996, the Company signed a bank credit facility for $9.0 million to finance
future capital equipment purchases, of which $5.1 million had been utilized
through June 30, 1997. Working capital increased to $19.5 million as of June 30,
1997 compared to $14.9 million as of December 31, 1996.
For the six months ended June 30, 1997, the Company financed an
aggregate of $2.9 million for property and equipment through bank credit
facilities. The Company intends to continue to fund capital expenditures through
external financing supplemented by internal cash resources where appropriate.
The Company leases a built-to-suit facility housing most of its administrative,
research, clinical and manufacturing activities. The
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minimum rental commitment for this facility ranges from $2.4 million to $4.3
million per year over the next 19 years, based upon pre-established annual rent
increases. The Company is installing a manufacturing line in this facility to
support clinical and commercial production of products under development. The
cost of equipment and tenant improvement expenses are estimated to total
approximately $6.1 million in 1997 of which $3.6 million had been incurred
through June 30, 1997. DepoTech intends to finance such expenditures through new
and existing bank credit facilities. The Company has a right of first refusal
and right of first offer to purchase land located adjacent to its headquarters
which must be exercised on or before October 15, 1997. At present, the Company
is negotiating to extend the exercise period for an additional 18 months.
The Company's operations to date have consumed substantial amounts of
cash, which is expected to continue over the foreseeable future. The amount of
net losses and the time required for the Company to achieve profitability are
highly uncertain. There can be no assurance that the Company will be able to
achieve profitability at all or on a sustained basis. It is the Company's
intention to fund product research, development, manufacturing, and sales and
marketing costs through additional collaborative relationships with suitable
corporate partners. There can be no assurance that the Company will enter into
collaborative arrangements with corporate partners or that any agreements
resulting from these discussions will successfully reduce the Company's funding
requirements. Additional equity or debt financing will be required, and there
can be no assurance that these funds will be available on terms favorable to the
Company, if at all. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its product
development programs or obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, product candidates or products that the Company would not
otherwise relinquish.
DepoTech anticipates that its existing available cash, cash equivalents
and short-term investments, committed future contract revenue, projected funding
from equipment financing and interest income will be adequate to satisfy its
capital requirements and fund operating losses into 1998. The Company's future
capital requirements will depend on many factors, including continued scientific
progress on its products and process development programs, progress with
preclinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing and maintaining
patents, competing technological and market developments, changes in existing
collaborative relationships, the ability of the Company to establish development
or additional collaborative arrangements, the cost of manufacturing scale-up,
and the establishment of effective sales and marketing arrangements.
RISKS AND UNCERTAINTIES
This Quarterly Report may contain, in addition to historical
information, forward-looking statements that involve risk and uncertainties. The
Company's actual results could differ materially from the results discussed in
such forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below as well as those discussed elsewhere
in this Quarterly Report.
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EARLY STAGE COMPANY. DepoTech's products are at an early stage of
development, and, to date, only three of the Company's DepoFoam formulations
have been subject to human clinical testing. The Company's potential products
will require extensive research, formulation, development, preclinical and
clinical testing, and may involve a lengthy regulatory approval process prior to
commercialization. There can be no assurance that DepoCyt, DepoMorphine,
DepoAmikacin, or any of the Company's other products or potential products will
prove safe and effective in clinical trials, meet applicable regulatory
standards, be capable of being produced in commercial quantities at acceptable
cost or be successfully commercialized. In addition, there can be no assurance
that preclinical or clinical testing will accurately predict safety or efficacy
in broader human use, or that delays in the regulatory approval process will not
arise, delaying approval longer than currently anticipated. Even if all of the
Company's products prove to be safe and effective and are approved for marketing
by the FDA and other regulatory authorities, there can be no assurance that
health care providers, payors and patients will accept the Company's products.
Any failure of the Company to achieve technical feasibility, demonstrate safety,
achieve clinical efficacy, obtain regulatory approval or, together with its
partners, successfully market products would have a material adverse effect on
the Company.
In April 1997, the Company completed a New Drug Application for DepoCyt
for the treatment of neoplastic meningitis arising from solid tumors. As with
all drugs subject to the accelerated approval, the FDA requested that the
Company conduct a Phase IV clinical trial on DepoCyt which is in process. There
can be no assurance that the data from the DepoCyt Phase III clinical trials
will be sufficient to gain FDA approval for marketing for any indication, that
additional results from ongoing pivotal Phase III trials will be consistent with
earlier results or that the Phase IV and other clinical trials of DepoCyt will
generate positive results. Any of these occurrences would have a material
adverse effect on the Company.
GOVERNMENT REGULATION; UNCERTAINTY OF OBTAINING REGULATORY APPROVAL.
DepoTech's research and development activities are, and its future business will
be, subject to significant regulation by governmental authorities in the United
States, primarily by the FDA, and internationally. The clinical testing and the
regulatory review process for new drugs or biologics requires substantial time,
effort and expense. There can be no assurance that any approval will be granted
to the Company's development products on a timely basis, if at all. The FDA or
its international equivalent may refuse to approve a drug or biological product
for commercial sale or shipment if applicable statutory and/or regulatory
criteria are not satisfied, or may require additional testing or information.
There can be no assurance that such additional testing or the provision of such
additional information, if required, will not have a material adverse effect on
the Company. Also, the regulatory process can be modified by legislatures, the
FDA or international regulators, in a manner that could have a material adverse
effect on the Company.
LIMITED MANUFACTURING EXPERIENCE; RISK OF SCALE-UP; RELIANCE ON
MANUFACTURING PROCESS. The Company has no experience manufacturing products for
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commercial purposes. The Company has scaled-up its manufacturing operations to
meet initial commercial requirements for DepoCyt but these operations will
require satisfactory resolution of inspectional observations from an initial
pre-approval inspection by the FDA, a necessary step in the regulatory approval
process to market this product. For all other products, the Company will need to
scale-up its current manufacturing operations. The Company will also need to
comply with current Good Manufacturing Practices ("cGMPs") and other regulations
prescribed by various regulatory agencies in the United States and other
countries to achieve the required levels of production of each of its products
and to obtain and retain marketing approval, if any. Failure by the Company to
successfully scale-up its manufacturing processes or to comply with cGMPs and
other regulations would have a material adverse effect on the Company, including
the loss of manufacturing rights to DepoCyt under the Chiron and P&U agreements.
To date, the Company has relied on a particular proprietary method of
manufacture. There can be no assurance that this method will be applicable to
all pharmaceuticals or biologics the Company desires to commercialize. Further,
the yield of product incorporated into the delivery system is likely to be
highly variable for different therapeutic agents. Finally, the Company will need
to successfully meet any manufacturing challenges associated with the specific
characteristics of the drug to be encapsulated.
DEPENDENCE UPON PARTNERS FOR DEVELOPMENT AND COMMERCIALIZATION. The
Company does not currently possess all of the resources necessary to develop,
complete the FDA approval process for and commercialize all of its potential
therapeutic products. The Company hopes to enter into collaborative arrangements
with other companies to fund research, development and clinical trials, to
assist in obtaining regulatory approvals and to commercialize its products in
the United States and internationally. In addition, the Company's ability to
apply its drug delivery technology to a broad range of pharmaceuticals will
depend upon its ability to establish and maintain collaborative arrangements
because the rights to many of the pharmaceuticals most suited to the Company's
drug delivery technology are currently owned or controlled by third parties.
While the Company has entered into preliminary arrangements to test the
feasibility of its delivery technology with certain pharmaceuticals and has
entered into more extensive collaborations with Chiron and P&U, there can be no
assurance that the Company will be able to enter into additional collaborations
to develop commercial applications of its drug delivery technology. In addition,
there can be no assurance that the Company will be able to enter into or
maintain existing or future collaborations or that such collaborations will be
successful. The failure of the Company to enter into a collaboration with the
owner of rights to a particular formulation or pharmaceutical would preclude the
Company from developing its drug delivery technology with respect to such
formulation or pharmaceutical. The failure to enter into or maintain existing or
future collaborations would have a material adverse effect on the Company.
LIMITED SALES AND MARKETING CAPABILITY. Commercialization of the
Company's products is expected to be expensive and time-consuming. To the extent
the Company relies on its collaborators for sales and marketing capability, the
Company will be dependent on the efforts of third parties and there can be no
assurance that any of these collaborators will successfully market or distribute
the Company's products.
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PATENTS AND PROPRIETARY TECHNOLOGY. DepoTech relies on a combination of
technical leadership, patents, trade secrets, copyright and trademark protection
and nondisclosure agreements to protect its proprietary rights. There can be no
assurance that any patents issued to the Company will provide significant
protection or will not be challenged or that, the Company will be issued any
additional patents. Even if such patents are enforceable, the Company
anticipates that any attempts to enforce its patents would be time consuming and
costly. Additionally, the coverage claimed in a patent application can be
significantly reduced before the patent is issued. Defense of any lawsuit or
failure to obtain a license to intellectual property rights of third parties
could have a material adverse affect on the Company.
POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as the announcements of
technological innovations or new products by the Company, its competitors and
other third parties, as well as variations in the Company's results of
operations, market conditions, analysts' estimates and the stock market in
general may cause the market price of the Company's common stock to fluctuate
significantly. Also, future sales of shares by existing shareholders pursuant to
Rule 144 of the Securities Act of 1933, as amended, or through the exercise of
outstanding registration rights, could have an adverse effect on the price of
the Company's common stock.
12
<PAGE> 15
PART II - OTHER INFORMATION
Item 1 Legal Proceedings. None
Item 2 Change in Securities. None.
Item 3 Defaults Upon Senior Securities. None
13
<PAGE> 16
PART II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The Company's 1997 Annual Meeting of Shareholders ("Annual Meeting") was
held on May 14, 1997. The matters voted on at the Annual Meeting were:
1. To elect a Board of Directors.
2. To approve amendments to the Company's 1995 stock option/issuance plan.
3. To ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the year ending December 31, 1997.
The results of the shareholders' vote on each matter set forth below:
1. Elect a Board of Directors
<TABLE>
<CAPTION>
Nominees For Withheld
- -------- --- --------
<S> <C> <C>
Roger C. Davisson 10,212,077 275,959
George W. Dunbar Jr. 10,209,877 278,159
Edward L. Erickson 10,211,677 276,359
Stephen B. Howell, M.D., 10,209,177 278,859
Fred A. Middleton 10,211,677 276,359
Peter Preuss 10,211,877 276,159
Pieter J. Strijkert, Ph.D. 9,931,911 556,125
</TABLE>
2. Approve amendments to stock option plan
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 6,455,866
Against 2,882,646
Abstain 8,419
Broker Non-Votes 1,141,105
</TABLE>
3. Ratify auditors
<TABLE>
<CAPTION>
Votes
-----
<S> <C>
For 10,481,232
Against 2,075
Abstain 4,729
</TABLE>
14
<PAGE> 17
Item 5 Other Information. None.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.1 David B. Thomas Employment Agreement dated June 30, 1997.
10.2# The Company's 1995 Stock Option /Stock Issuance Plan, as
amended (Exhibit 99.1).
10.3* Amendment #2 to Collaboration Agreement, dated June 5, 1997
between DepoTech Corporation and Chiron Corporation (Exhibit
2.1).
</TABLE>
(b) Reports on Form 8-K
On June 20, 1997 the Company filed a Current Report on Form 8-K
dated June 5, 1997 providing the required disclosures regarding
its repurchase of certain rights to DepoCyt from Chiron
Corporation.
# Incorporated by reference to the same-numbered exhibit (except as otherwise
indicated) to the Company's Registration Statement on Form S-8 ( No.
333-28531).
* Incorporated by reference to the same numbered exhibit (except as otherwise
indicated) to the Company's Current Report on Form 8-K filed June 20, 1997.
15
<PAGE> 18
DEPOTECH CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEPOTECH CORPORATION
/s/ Edward L. Erickson
--------------------------------------------
Date: August 13, 1997 Edward L. Erickson
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Dana S. McGowan
--------------------------------------------
Date: August 13, 1997 Dana S. McGowan
Vice President, Finance
Chief Financial Officer
(Principal Financial and Accounting Officer)
16
<PAGE> 1
EXHIBIT 10.1
[DEPOTECH CORPORATION LETTERHEAD]
Date: June 30, 1997
To: David B. Thomas
From: Ed Erickson
Subject: Employment Agreement
Dear David:
Consistent with our discussions concerning your continued employment with
DepoTech Corporation (the "Company"), this letter will constitute the Employment
Agreement (the "Agreement") setting forth the terms of your employment from and
after the date of this agreement, and separation of employment from the Company.
By signing this Agreement, you will be agreeing to these terms. It is important
that you understand clearly both what your benefits and obligations are and what
is expected of you by the Company.
1. TRANSITION PERIOD: (a) Commencing on the date of this Agreement, and
continuing through December 31, 1999, (hereinafter referred to as the
"Transition Period"), you and the Company are in agreement on your
continued employment and the future discontinuance of your employment
with the Company. Subject to the terms and conditions of this
Agreement, inclusive but not limited to, Section 6, during the
Transition Period, you shall remain a regular full-time employee and
officer of the Company. The parties may mutually agree in writing to
extend the Transition Period, but neither is under any obligation to do
so (hereinafter referred to as the "extended Transition Period").
(b) By December 31, 1999, provided you have continued employment with
the Company through this date, you and the Company may elect to execute
a Consulting Agreement as specified in Attachment A ("Consulting
Agreement"), to be effective beginning January 1, 2000. In the event
that a Consulting Agreement is executed, vesting in any "renewal" or
other Incentive Stock Option Grant(s) awarded during the Transition
Period will continue until the termination of the Consulting Agreement.
2. DUTIES: During the Transition Period you will be responsible for
performing those assignments you currently perform, and have
responsibilities substantially similar to such responsibilities you
currently have, including responsibility for Quality Assurance,
Regulatory Affairs (cGMP, cGLP, cGCP), Quality Control, Microbiology
and Post Marketing Surveillance. You will work with the Sr. Director of
Human Resources to effect the transition of the MIS team to his
organization by December 31, 1997. During the Transition Period, you
will devote your energies to your employment with the Company, and your
efforts and abilities to achieving FDA approval of DepoCyt, toward
making significant progress on and achieving milestones in other key
projects, such as DepoMorphine and DepoAmikacin, or such other projects
as may be pursued within the company, and as agreed with the Chief
Executive Officer (CEO). Finally, you will make yourself available to
the Company for the purpose of transitioning your work to other
employees and to answer any questions regarding matters assigned to you
before the effective date of separation, as defined below.
<PAGE> 2
3. Position Title and Salary: During the Transition Period, your title
will remain Senior Vice President, Quality Assurance and Regulatory
Affairs. Your base salary will be subject to the normal review of, and
changes to, salaries of all SMC members, effective on January 1, of
each year of employment. All salary payments will be less customary and
applicable deductions for taxes and health and other benefits. All
salary payments during the Transition Period shall be made on or about
the time of the Company's normal bi-monthly pay cycle.
4. BENEFITS: During the Transition Period, the Company will continue your
current health benefits, Long Term Disability, Life Insurance, and
participation in the Company's 401(k) and ESPP plans.
5. EXPIRATION OF TRANSITION PERIOD: Your separation of employment with the
Company will occur on the last day of the Transition Period, unless
your separation of employment occurs sooner pursuant to Section 6,
(Termination), or is extended pursuant to Section 1, (the "Transition
Period"). As part of this Agreement, the Company agrees to provide you
with the following additional compensation and benefits package:
a. CASH BONUS: Upon issuance by the FDA, of an "Approvable
Letter" for DepoCyt, the Company will recommend to the Board
of Directors that a portion of your 1997 Management Incentive
Bonus is "moved ahead". This amount will be no less than fifty
(50) percent of the Management Incentive Bonus for 1997, which
is targeted at 25% of base salary.
b. ACCELERATED STOCK Option Grant Vesting: If your employment
ends prior to the last day of the Transition Period due to (1)
disability longer than three (3) months, or (2) death, the
Company confirms that the vesting of remaining unvested Stock
Options will accelerate in their entirety. In addition, in the
event of a change of control of the Company, the Company
confirms that the vesting of remaining unvested Stock Options
will accelerate in accordance with the terms of the DepoTech
Corporation 1995 Stock Option/Stock Issuance Plan, Article
Five, Section One, subsection (D):
ISO GRANT 10,000 SHARES GRANTED 03-23-94
ISO GRANT 200 SHARES GRANTED 09-28-95
ISO GRANT 6,750 SHARES GRANTED 01-16-96
ISO GRANT 5,006 SHARES GRANTED 02-26-97
ISO GRANT 78,000 SHARES GRANTED 06-30-97
c. MANAGEMENT INCENTIVE BONUS: During the Transition Period, you
will be eligible for Management Incentive Bonus consideration,
to be paid out in 1998, 1999 and 2000, for fiscal years 1997,
1998 and 1999, respectively, based on the combination of your
performance and that of the Company during each fiscal year.
The Management Incentive Bonus target is currently twenty five
percent (25%) of base salary, however it can be as little as
0% or as high as 42% of base salary depending on overall
company and individual performance. The 1997 Management
Incentive Bonus paid out in 1998 will be net of any bonus
payment made pursuant to Section 5 subsection (a).
d. EXTENDED BENEFITS: You and your eligible dependents will be
entitled to continue your medical coverage, pursuant to COBRA,
for 18 months following the effective date of separation at
your own expense. It is understood that the Company reserves
the right to change health plans at any time. All other
employee benefits, including Long Term Disability, Life
Insurance, 401(k) and ESPP plan participation will expire on
the effective date of the separation.
e. FTO BALANCE: The Company further agrees to pay you all earned
but unused FTO pay as of the date of separation.
David B. Thomas
2
#40167
<PAGE> 3
In consideration for the above package, you will be required to sign a release
agreement with the Company releasing it from any and all litigation or claims
which is set for at Section 11 of this Agreement.
6. TERMINATION: Either party may terminate your employment during the
Transition Period or any extended Transition Period, under the
following terms and conditions:
a. You may terminate your employment with the Company during the
Transition Period, for any reason, upon thirty (30) days
written notice to the Company. Upon such a termination, your
employment will be terminated and all compensation and
benefits pursuant to Sections 3 and 4 will end. If you resign,
you will not be entitled to any compensation or benefits
described in Section 5 subsections (a-c).
b. The Company reserves the right to terminate your employment
during the Transition Period or any extended Transition Period
"for cause". "For cause" termination includes: (a) a material
breach of the terms of this Agreement; (b) refusal or failure
to perform the duties assigned to you pursuant to this
Agreement, following notice from the company of such refusal
or failure and a reasonable opportunity to cure; (c) major
infractions of the Company's standards of conduct as set forth
in Company policies, following notice from the Company of such
infractions and a reasonable opportunity to cure; (d) your
acceptance of employment or consultancy with another entity or
person such that you can no longer devote your full energies
to employment with the Company; or (e) disability longer than
three (3) months or death. Upon termination "for cause", all
compensation and benefits pursuant to Sections 3 and 4 will
end. In addition, you will not be entitled to any compensation
or benefits described in Section 5, subsections (a-c), except
in the case of (e), disability longer than three (3) months or
death, you will be entitled to the benefits described in
Section 5 subsection (b) Accelerated Stock Option Grant
Vesting.
c. After December 31, 1998, the Company reserves the right to
terminate your employment, for reasons other than cause, by
providing written notice six months prior to taking such
action. In the event your employment is terminated, you will
not be entitled to any compensation or benefits described in
Section 5, subsections (a-b). In addition, any Management
Incentive Bonus to be paid, will be prorated to the number of
months worked during the year in which your employment ends.
d. No later than June 30, 1999, the Company will either (a) offer
to extend your employment beyond December 31, 1999, or (b)
will notify you in writing that your employment will terminate
as scheduled on December 31, 1999, according to the terms of
this agreement and that notice at this time will be in lieu of
any lump sum payment.
e. Prior to December 31, 1999, you and the Company will mutually
agree whether a Consulting Agreement, as specified in Section
1 subsection (b), will be executed.
7. CONFIDENTIALITY: You agree that as a specific condition to the
performance of this Agreement by the Company, you will not disclose for
any purpose, the terms of this Agreement or the negotiations leading up
to this Agreement to any person, except to your immediate family or as
may be necessary for purposes of securing legal or tax advice or as
otherwise may be required by law.
David B. Thomas
3
#40167
<PAGE> 4
8. INVENTIONS/CONFIDENTIAL INFORMATION: You agree that the Employee
Proprietary Information and Inventions Agreement signed by you shall
remain in full force and effect following the effective date of
separation. In addition, we wish to remind you of your obligations
regarding the confidentiality of the Company's commercial and technical
proprietary information. You understand and agree that all confidential
and proprietary information that you may have received during your
employment or may receive during the Transition Period with the Company
shall remain strictly confidential and held by you in confidence.
9. GOODWILL AND COMPLIANCE WITH COMPANY POLICIES: You agree that you shall
not make, encourage or otherwise cause to be made any negative or
disparaging comments or statements (whether verbal or written) about
the Company or take any action which will place the Company in a bad
light or false light. You further agree that during the Transition
Period you will abide by and comply with the policies and procedures of
the Company.
10. NO ADMISSION: This Agreement shall not be construed or used as an
admission of liability or wrongdoing by either you or the Company.
11. RELEASE: In return for the above promises and payments to you, you
agree that you will not file or cause to be filed any charges,
lawsuits, or other actions of any kind against the Company, its agents,
successors, officers, directors, or employees, arising out of, or
relating in any way to, your employment and/or separation of your
employment with the Company including, but not limited to actions
alleging breach of contract, tort, legal actions under Title VII of the
Civil Rights Act of 1964, as amended, Section 1981 of the Civil rights
Act of 1866, the Veterans Readjustment Assistance Act, the
Rehabilitation Act of 1973, the Americans with Disabilities Act, or any
other State, Federal or local law concerning age, race, religion,
national origin, handicap, or any other form of discrimination, or any
other law or regulation.
You understand and agree that all rights under Section 1542 of the
Civil Code of the State of California are hereby expressly waived. It
is understood that Section 1542 of the California Civil Code provides
as follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE
TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE
MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR."
12. ENTIRE UNDERSTANDING: This Agreement, including the attachments hereto,
contains the entire understanding between you and the Company relating
to your continued employment, and eventual separation, superseding all
prior understandings and agreements between the parties, if any.
13. ARBITRATION: In the event of a dispute over the performance,
interpretation or validity of this Agreement, the parties agree to
submit any and all disputes relating to this Agreement to binding
arbitration before JAMS/Endispute, Southern California. Any arbitration
award shall be final and binding on the parties and may be entered in
any court having jurisdiction.
14. APPLICABLE LAW: This Agreement will be governed by laws of the State of
California, without regard to the principles of conflicts of laws.
David, you are entitled by law to review this Agreement for a period of 21 days.
The Company encourages you to use this opportunity to review the Agreement with
an attorney. Should you decide not to use the full 21 days, then you knowingly
and voluntarily waive any claims that you were not in fact given 21 days to
consult an attorney and/or review the Agreement.
In addition, for a period of seven (7) days following your execution of this
Agreement, you may revoke this Agreement, and the Agreement shall not become
effective or enforceable until the revocation period
David B. Thomas
4
#40167
<PAGE> 5
has expired. Any revocation within the seven days must be in writing, addressed
to Thomas Swedberg SPHR at DepoTech Corporation's address (10450 Science Center
Drive, San Diego, CA 92121). If you revoke this Agreement, it shall not be
effective or enforceable and you will not receive the benefits described in
Sections 3, 4 and 5 (a-c).
If you agree with the foregoing package and release, please sign below. You
agree that you have read and understand this Agreement, and that you have signed
it freely and voluntarily.
Sincerely,
/s/ EDWARD L. ERICKSON
- ------------------------------------
Edward L. Erickson
President and CEO
Agreed: /s/ DAVID B. THOMAS 7/11/97
---------------------------------------- -----------------------
David B. Thomas Date
David B. Thomas
5
#40167
<PAGE> 6
EXHIBIT A
CONSULTING AGREEMENT
This consulting agreement is made and entered into this ( ) day of (Month),
(Year), by and between DepoTech Corporation, a California corporation, having
its principal place of business at 10450 Science Center Drive, San Diego,
California 92121 ("Company") and David B. Thomas, an individual, residing at 325
Punta Baja Drive, Solana Beach, California 92075-1720 (Consultant).
WHEREAS, Company desires to retain Consultant to perform certain services, and
Consultant is agreeable to doing so;
NOW, THEREFORE, in consideration of the foregoing recitals and of the mutual
covenants and conditions set forth below, the parties agree as follows:
1. SERVICES FEES. Consultant hereby is retained as an independent contractor to
provide consulting services described in Exhibit A1 hereto. Consultant shall
receive consulting fees for such services and reimbursement for reasonable
business travel and expenses as set forth in Exhibit A1 hereto. Such consulting
services shall be performed as requested from time to time by the Company's
executive officers.
2. TERM. The initial term of this Agreement shall commence on the date hereof
and continue for a period of one (1) year ("Consulting Period"). Consultant's
services shall be rendered as requested by Company and in a manner satisfactory
to Company. Consultant and Company agree that during the term of this Agreement,
Consultant will provide approximately One Hundred Twenty (120) days of
consulting services. This Agreement shall be cancelable by either party upon the
giving of ninety (90) days prior written notice.
3. MANNER OF PERFORMANCE. Consultant represents that Consultant has the
requisite expertise, ability and legal right to render the consulting services,
and will perform the consulting services in an efficient manner and in
accordance with the terms of this Agreement. Consultant will abide by all laws,
rules and regulations that apply to the performance of the consulting services
and when on Company premises, will comply with Company's policies with respect
to conduct of visitors.
4. Confidentiality.
(a) Consultant recognizes that in performing services under this Agreement he
will have contact with information of substantial value to Company, which is
not generally known and which gives Company an advantage over its
competitors who do not know or use it, including but not limited to
improvements to the DepoFoam Technology, techniques, drawings, processes,
inventions, developments, sales and customer information, and business and
financial information, relating to the business, products, practices or
techniques of Company and of any other corporation or entity that may be a
party to a particular transaction with the Company (hereinafter referred to
as "Confidential Information"). Confidential Information shall also include
information belonging to a third party which Company is obligated to keep
confidential from others. Consultant agrees, at all times, to regard and
preserve as confidential such Confidential Information, and to refrain from
publishing or disclosing any part of such Confidential Information and from
using it except on behalf of Company, without prior written consent of
Company. Consultant further agrees, at all times, to refrain from any other
acts or omissions that would reduce the value of such Confidential
Information to Company.
David B. Thomas
1
#40187
<PAGE> 7
(b) Upon termination of this Agreement, Consultant agrees to promptly surrender
to Company all documents or items which are the property of Company or which
contain or comprise such Confidential Information.
(c) Consultant's duties of confidence to Company and other duties pursuant to
this Agreement, shall survive the termination of this Agreement for any
reason.
5. REPORTS. Any reports, specifications or other materials prepared by
Consultant for the purpose of or pursuant to this Agreement shall be the
property of Company exclusively and shall be maintained in confidence by
Consultant.
6. INVENTIONS.
(a) Consultant agrees to promptly and fully disclose in writing to Company any
invention, discovery, development, improvement, method or product, know-how
and data, whether or not patentable, which are made, conceived or reduced to
practice by Consultant during the term of this Agreement that result from
any work performed by Consultant for Company pursuant to this Agreement.
(b) Consultant agrees that such inventions shall be the sole property of Company
and agrees to assign and hereby assigns to Company such inventions.
7. INDEPENDENT CONTRACTOR. Consultant's relationship with the Company is and
shall be that of an independent contractor, and neither party is authorized to
nor shall act as the agent of the other. Consultant agrees that he will be
solely responsible for the payment of all taxes relating to the compensation
paid pursuant to this Agreement.
8. NOTICES. Unless otherwise provided, any notice required or permitted under
this agreement shall be given in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or upon deposit with the
United States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address for such party set forth in
the introductory paragraph above, or at such other address as such party may
designate by ten (10) days' advance written notice to the other parties.
9. REMEDIES. Consultant acknowledges that any disclosure or unauthorized use of
Confidential Information will constitute a material breach of this Agreement and
cause substantial harm to Company for which damages would not be a fully
adequate remedy, and, therefore, in the event of any such breach, in addition,
to other available remedies, Company shall have the right to obtain injunctive
relief.
10. ATTORNEYS' FEES. If any action at law or in equity is necessary to enforce
or interpret the terms of this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees, costs and necessary disbursements in addition to
other relief to which such party may be entitled.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Consultant, and
inure to the benefit of, the parties hereto and their respective heirs,
successors, assigns, and personal representatives; provided, however, that it
shall not be assignable by Consultant.
12. AMENDMENT AND MODIFICATION. No amendment, modification or supplement of this
Agreement shall be binding unless executed in writing and signed by all of the
parties hereto.
David B. Thomas
2
#40187
<PAGE> 8
13. ENTIRE AGREEMENT: Governing Law. This Agreement contains the entire
understanding of the parties with respect to the matters contained herein. This
Agreement shall supersede any and all previous and existing Consulting
Agreements between Company and Consultant. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to principles of conflicts of law.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
DepoTech Corporation, a California corporation
By: ______________________________________
CONSULTANT
By:_______________________________________
(Name)
David B. Thomas
3
#40187
<PAGE> 9
EXHIBIT A1
SCOPE OF SERVICES OF CONSULTANT.
The scope of consulting work contemplated by this Agreement shall be as follows:
Provide consultation on an as requested basis concerning Quality Assurance,
Quality Control, Regulatory Affairs (e.g. cGMP, cGLP, cGCP), and Post Marketing
Surveillance work, issues, plans and actions. Provide information and assistance
to the heads of these functions to improve the overall content, quality, cost or
timeliness of the work being done within their organizations.
Provide consultation on an as requested basis to the heads of Quality Assurance,
Quality Control, Regulatory Affairs, and Post Marketing Surveillance to increase
their knowledge, skills and competencies in their respective area(s) of
responsibility.
Provide consultation to the President and SMC on an as requested basis for long
and short term strategic and operational planning, marketing and business
development planning and other general planning.
Participate on an as requested basis in meetings with vendors, customers,
regulatory agencies and other organizations to provide historical and practical
knowledge and perspective for information sharing and decision making.
CONSULTING FEES.
Consultant shall be compensated as follows:
Consultant shall receive a monthly retainer equal to the average of the base
salary paid to him by the Company during the twelve (12) months immediately
preceding the execution of the Consulting Agreement, prorated to ten (10) days
per month. Consultant's services are expected to be required for no less than
one hundred twenty (120) days during the Consulting Period. Consultant will
submit to the Company a record of all days worked during each month, plus an
invoice for all reasonable business related travel and expenses.
During the Consulting Period, previously awarded but unvested Stock Options will
continue to vest according to the schedule for each Stock Option Grant.
Consultant will be reimbursed for all reasonable business related travel and
entertainment expenses according to Company policy.
David B. Thomas
4
#40187
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 603
<SECURITIES> 24,737
<RECEIVABLES> 1,066
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 27,348
<PP&E> 26,060
<DEPRECIATION> (3,880)
<TOTAL-ASSETS> 50,390
<CURRENT-LIABILITIES> 7,883
<BONDS> 0
87,165
0
<COMMON> 0
<OTHER-SE> (53,253)
<TOTAL-LIABILITY-AND-EQUITY> 50,390
<SALES> 0
<TOTAL-REVENUES> 2,932
<CGS> 0
<TOTAL-COSTS> 10,081
<OTHER-EXPENSES> 2,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 466
<INCOME-PRETAX> (10,727)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,727)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,727)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> 0
</TABLE>
