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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 March 31, 1998 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, 14,521,542 shares as of April 30, 1998
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DEPOTECH CORPORATION
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Balance Sheets as of
March 31, 1998 (Unaudited) and December 31, 1997.......... 1
Condensed Statements of Operations
for the Three Months ended
March 31, 1998 and 1997 (Unaudited)....................... 2
Condensed Statements of Cash Flows
for the Three Months ended
March 31, 1998 and 1997 (Unaudited)....................... 3
Notes to Condensed Financial Statements................... 4
Item 2 Management's Discussion and Analysis
of Financial Condition and Results of Operations.......... 5
Item 3 Quantitative and Qualitative Disclosures About Market
Risk...................................................... 21
PART II OTHER INFORMATION
Item 1 Legal Proceedings........................................ 22
Item 6 Exhibits and Reports on Form 8-K......................... 22
Signatures....................................................... 23
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DEPOTECH CORPORATION
CONDENSED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
1998 1997
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ASSETS (Unaudited) (Note)
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Current assets:
Cash and cash equivalents $ 2,405,389 $ 6,194,153
Short-term investments 18,808,393 21,166,402
Accounts receivable from collaborations 1,474,496 1,361,837
Other current assets 1,180,586 1,141,210
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Total current assets 23,868,864 29,863,602
Property and equipment, net 27,445,146 26,948,328
Deposits and other assets 921,983 857,756
============= =============
Total assets $ 52,235,993 $ 57,669,686
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued liabilities $ 3,040,526 $ 3,250,460
Current portion of obligations under capital leases 2,003,689 2,037,416
Current portion of note payable 2,837,591 2,509,467
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Total current liabilities 7,881,806 7,797,343
Obligations under capital leases, less current portion 1,592,382 2,089,931
Note payable, less current portion 7,116,265 6,901,982
Deferred rent 2,529,177 2,313,133
Other long-term liabilities 436,558 494,506
Shareholders' equity:
Common stock, no par value; 30,000,000 shares authorized,
14,430,594 and 14,237,216 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 102,372,226 101,970,346
Deferred compensation related to stock options, net (417,230) (109,472)
Unrealized (loss) gain on short-term investments (14,733) 15,784
Accumulated deficit (69,260,458) (63,803,867)
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Total shareholders' equity 32,679,805 38,072,791
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Total liabilities and shareholders' equity $ 52,235,993 $ 57,669,686
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</TABLE>
See accompanying notes to condensed financial statements.
Note: The balance sheet at December 31, 1997 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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DEPOTECH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
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THREE MONTHS ENDED
MARCH 31,
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1998 1997
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(UNAUDITED)
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Contract revenue $ 1,214,733 $ 1,171,810
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Total revenue 1,214,733 1,171,810
Costs and expenses:
Research and development 5,411,138 4,382,903
General and administrative 1,260,783 933,595
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Total costs and expenses 6,671,921 5,316,498
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Loss from operations (5,457,188) (4,144,688)
Interest income 360,078 453,793
Interest expense (359,481) (219,949)
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Net loss $ (5,456,591) $ (3,910,844)
============ ============
Basic and diluted net loss per share $ (0.38) $ (0.30)
============ ============
Shares used in computing
basic and diluted net loss per share 14,363,523 13,032,336
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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DEPOTECH CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1998 1997
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(Unaudited)
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OPERATING ACTIVITIES
Net cash used by operating activities $ (5,056,189) $ (4,823,206)
INVESTING ACTIVITIES
Purchases of short-term investments (3,041,443) (22,093,588)
Proceeds from sale of short-term investments 5,368,935 11,215,866
Purchases of property and equipment (1,114,831) (1,685,767)
Restricted cash (25,847) (37,119)
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Net cash provided (used) by investing activities 1,186,814 (12,600,608)
FINANCING ACTIVITIES
Repayments on capital lease obligations (531,276) (499,791)
Repayments on note payable (562,494) (137,706)
Proceeds from note payable 1,104,901 1,575,604
Proceeds from issuance of common stock, net 69,480 19,096,268
------------ ------------
Net cash provided by financing activities 80,611 20,034,375
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Net (decrease) increase in cash and cash equivalents (3,788,764) 2,610,561
Cash and cash equivalents at beginning of period 6,194,153 1,966,626
------------ ------------
Cash and cash equivalents at end of period 2,405,389 4,577,187
Short-term investments at end of period 18,808,393 27,031,227
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Cash, cash equivalents and short-term investments at end of period $ 21,213,782 $ 31,608,414
============ ============
SUPPLEMENTAL INFORMATION
Interest paid $ 359,481 $ 219,949
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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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, 1997
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
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"), which replaced
the calculation of primary and fully diluted net loss per share with basic and
diluted net loss per share. Basic net loss per share is calculated using the
weighted-average number of common shares outstanding.
3. New Accounting Standards
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS 130") and
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("FAS 131"). Comprehensive loss is not
materially different from the net loss disclosed on the statements of operations
and the Company operates in one business segment.
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4. Chiron Collaboration
In March 1994, the Company entered into a collaboration agreement ("the
Collaboration 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. Under the
agreement, Chiron purchased 400,000 shares of the Company's Series C preferred
stock for $6.25 per share, or an aggregate consideration of $2.5 million, and a
warrant to purchase 365,000 shares of Series C preferred stock at an exercise
price of $6.25 per share for $1.0 million. The warrant was terminated and
converted into a marketing rights fee to the Company upon the achievement of a
development milestone in January 1995.
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 United States. An initial
$2.0 million cash payment was paid by DepoTech to Chiron and expensed in 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. Therefore, such amount will be recorded upon
the receipt of the required notification.
Reimbursable clinical and manufacturing scale up costs for DepoCyt
incurred by the Company totaled $10.4 million through March 31, 1998 and $8.7
million through March 31, 1997.
The Collaboration Agreement also provides for the joint development of
DepoFoam formulations of certain compounds proprietary to Chiron ("Chiron
Products"). The agreement provides that Chiron will pay the Company for its
feasibility efforts. Chiron must fund one feasibility program for a Chiron
Product per year or lose its option to develop DepoFoam formulations of
additional Chiron proprietary compounds. Through April 1997, the Company had
completed feasibility studies on four Chiron proprietary compounds. No further
feasibility studies on Chiron Products will be performed under the Collaboration
Agreement.
Both the Company and Chiron have the ability to terminate a portion or
all of the collaboration at certain intervals and with advance notice.
5. Pharmacia & Upjohn Agreement
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. P&U will generally be
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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 by P&U of certain clinical trial expenses and regulatory fees
incurred by the Company. Cumulative reimbursable costs incurred by the Company
under this agreement totaled $1.6 million as of March 31, 1998.
Both the Company and P&U have the ability to terminate a portion or all
of the collaboration at certain intervals and with advance notice.
6. Contingencies
In April 1998, a class action suit was filed against the Company and
two of its former officers in the United States District Court for the Southern
District of California. The lawsuit alleges violations of the federal
securities laws and purports to seek unspecified monetary damages on behalf of
a class of shareholders who purchased DepoTech common stock during the period
April 1, 1996 through December 18, 1997. The Company believes that the lawsuit
is without merit and intends to defend it vigorously.
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ITEM 2
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 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 two years.
As of March 31, 1998, the Company's accumulated deficit was approximately $69.3
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 revenues of $1.2 million for the three months
ended March 31, 1998 and 1997. Total revenues in 1998 were principally generated
by the Company's collaborative agreements with Chiron Corporation ("Chiron") and
Pharmacia & Upjohn S.p.A., an affiliate of Pharmacia & Upjohn, Inc. ("P&U").
Total revenues for the three months ended March 31, 1997 were principally
generated by the Company's collaborative agreement with Chiron. Total revenues
were primarily derived from reimbursement of certain clinical trial and
manufacturing scale-up expenses for the Company's lead product, DepoCyt(TM), an
anti-cancer drug, under the collaborative agreements. In addition, Chiron
reimbursed DepoTech for 100% of certain pre-clinical and feasibility studies
performed on their behalf. Further, DepoTech is reimbursed for conducting
feasibility studies for various pharmaceutical companies. Revenues 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 first quarter ended March 31,
1998 increased to $5.4 million compared to $4.4 million for the same period in
1997. Factors contributing to this increase include expanded efforts in clinical
trials, manufacturing scale-up and preclinical development of potential
DepoFoam(TM) products. A non-randomized Phase IV clinical trial of DepoCyt in
solid tumor patients is continuing, as are randomized trials of DepoCyt in
leukemia and lymphoma patients. DepoTech is also conducting a dose-finding study
of DepoCyt in pediatric patients. In addition, clinical trials and manufacturing
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scale-up of DepoMorphine(TM) sustained-release encapsulated morphine sulfate to
treat acute post-surgical pain are underway. Further, the Company is evaluating
the feasibility of developing several early stage compounds for corporate
partners. Research and development expenses are expected to continue to increase
during 1998.
General and administrative expenses for the first quarter of 1998
increased to $1.3 million from $0.9 million for the same period in 1997. The
increase was primarily due to expansion in administrative staffing. In addition,
the Company reduced its workforce in February 1998. Included in general and
administrative expenses in the first quarter of 1998 is $0.1 million of
severance and outplacement expenses associated with the workforce reduction.
Interest income was $0.4 million for the three months ended March 31,
1998 compared to $0.5 million for the same period in 1997. Interest expense
increased to $0.4 million for the three months ended March 31, 1998 from $0.2
million for the comparable period in 1997. The increase in interest expense was
due to a higher balance outstanding for the note payable.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through March 31, 1998, DepoTech has financed its
operations primarily through public and private placements of equity securities,
which provided aggregate net proceeds of approximately $101.9 million, and
through capital equipment leases and notes payable.
Chiron and DepoTech had been jointly developing DepoCyt in the U.S.,
Canada and Europe since March 1994. In June 1997, DepoTech reacquired rights to
DepoCyt in Canada and Europe from Chiron for aggregate cash payments of up to
$13.7 million, of which $2.0 million was paid to Chiron in December 1997. Chiron
will retain exclusive marketing rights to DepoCyt in the U.S. 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 U.S. 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
P&U to reimburse the Company for certain clinical trial expenses and regulatory
fees incurred by the Company. Future
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milestone payments, if any, totaling up to the obligation to Chiron of $11.7
million will be set aside in a restricted cash account for payment to Chiron for
the repurchase of DepoCyt rights.
As of March 31, 1998, the Company had cash, cash equivalents and
short-term investments of $21.2 million as compared to $27.4 million at December
31, 1997. The decrease of $6.2 million in cash, cash equivalents and short-term
investments was due primarily to net cash used to fund operations of $5.1
million and repayment of capital lease obligations and note payable totaling
$1.1 million. Working capital decreased to $16.0 million as of March 31, 1998
compared to $22.1 million as of December 31, 1997.
The Company has financed its capital expenditures through capital leases
and bank credit lines. At March 31, 1998, the Company has capital lease
obligations and a note payable associated with capital expenditures totaling
$13.5 million of which principal payments of $4.8 million is payable over the
next twelve months. All borrowings are secured by the capital equipment
financed. The terms of the Company's loan agreement with a bank contains a
covenant requiring the Company to maintain certain cash balances. At March 31,
1998, the company was in compliance with the terms of the covenant. The Company
is required to post some form of cash collateral if the covenant is violated.
The Company leases its headquarters which house most of its administrative,
research, clinical and manufacturing activities. The minimum rental commitment
for this facility ranges from $2.5 million to $4.3 million per year over the
next 18 years, based upon pre-established annual rent increases.
In April 1998, a class action suit was filed against the Company and
two of its former officers alleging violations of the federal securities laws
and purporting to seek unspecified monetary damages on behalf of a class of
shareholders. The Company believes that the lawsuit is without merit and
intends to defend it vigorously.
The Year 2000 Issue is the result of computer programs written in the
past that use two digits rather than four to define the applicable year. As a
result, these computer programs may not properly recognize calendar dates
beginning in the Year 2000. This problem may cause systems to fail or
miscalculate causing disruptions of operations, including a temporary inability
to process transactions or engage in similar normal business activities.
The Company believes that the total internal Year 2000 Issue costs will
be minimal and that the Year 2000 conversion requirements will be achieved
through routine upgrades to its software programs. The Company expects to
complete these upgrades by the end of 1998. These costs and the expected
completion date are based on management's best estimates and there can be no
assurance that these estimates will be achieved and actual results could differ
materially from those anticipated. The Company has also initiated communications
with all of its significant suppliers to determine the extent to which the
Company's systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. There can be no assurance that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have an adverse effect on the Company's systems.
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. DepoTech anticipates that
its existing available cash, cash equivalents and short-term
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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 through 1998. The development and
commercialization of the Company's potential products will require substantial
funds to conduct research and development and preclinical and clinical testing
of products and to manufacture and commercialize any products that are approved
for commercial sale. The Company's future capital requirements will depend on
many factors, including, without limitation, the time and costs involved in
obtaining regulatory approvals, continued scientific progress in its products
and process development programs and changes in existing collaborative programs.
The Company anticipates that it will be required to raise additional capital in
the near-term in order to continue to conduct its operations. Such capital may
be raised through public or private financings, as well as collaborative
arrangements, borrowings and other available sources. There can be no assurance
that additional funding, if necessary, will be available on favorable terms if
at all. If adequate funds are not available, the Company will be required to
curtail operations significantly or to obtain funds through entering into
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, potential products or
potential markets that the Company would not otherwise relinquish. The failure
to receive additional funding would have a material adverse effect on the
Company.
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.
Early Stage Company. DepoTech's products are at an early stage of
development, and, to date, only three of the Company's DepoFoam formulations,
DepoCyt, DepoMorphine and DepoAmikacin, have been subject to any 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 expected by the Company. 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.
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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 U.S. Food and Drug Administration ("FDA").
Pharmaceutical products intended for therapeutic use in humans are governed
principally by the Federal Food, Drug, and Cosmetic Act, as amended, and by the
FDA regulations in the United States and by comparable laws and regulations in
foreign countries. DepoTech is also subject to regulation under the food and
drug statutes and regulations of the State of California.
In April 1997, the Company completed a New Drug Application ("NDA") for
DepoCyt for the treatment of NM from solid tumors. As with all drugs subject to
accelerated approval, the FDA requested that the Company conduct a Phase IV
clinical trial on DepoCyt which is in process. In December 1997, the Oncologic
Drugs Advisory Committee ("ODAC") declined to recommend approval of DepoCyt for
use in patients with NM from solid tumors. In April 1998, DepoTech submitted, to
the FDA, an amendment to the NDA which provided data from a Phase IV clinical
trial of NM from solid tumors and interim data from a Phase III study of NM from
lymphomas. Submission of the amendment approximately doubled the number of
patients treated with DepoCyt under review, and extended the review time for an
FDA decision by three months, to July 28, 1998. The final decision regarding the
approval of new therapeutics resides with FDA officials subsequent to any
recommendation of ODAC. The Company has been notified by the FDA's District
Office that they are recommending approval for commercial manufacturing of
DepoCyt. However, this does not imply FDA product approval of DepoCyt which
currently remains subject to FDA review as described above.
There can be no assurance that the data from the Phase III clinical
trial reported to date will be sufficient to gain FDA approval, that additional
results from the still ongoing arms of the pivotal Phase III trial for NM from
lymphomas and leukemia will be positive and/or confirm earlier results or that
the Phase IV, pediatric, European and other clinical trials of DepoCyt will
generate positive results. There can be no assurance that these results and data
will meet the requirements for regulatory approvals necessary to commercialize
DepoCyt in the United States or otherwise. Any of these occurrences could have a
material adverse effect on the Company and its ability to fund the further
development and commercialization of DepoCyt and its other products.
The clinical testing and FDA 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 on a timely basis, if at all. The
FDA may refuse to approve a 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 information, if required, will not
have a material adverse effect on the Company. Also, the regulatory process can
be modified by Congress or the FDA in a manner that could materially affect the
Company.
In 1988, the FDA issued regulations intended to expedite the
development, evaluation and marketing of new therapeutic products to treat
life-threatening and severely
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debilitating illnesses for which no satisfactory alternative therapies exist.
These regulations provide for early consultation between the sponsor and the FDA
in the design of both preclinical studies and clinical trials. At the present
time, DepoCyt is being developed under such an accelerated program. There can be
no assurance, however, that any future products the Company may develop will be
eligible for evaluation by the FDA under the 1988 regulations. In addition,
there can be no assurance that DepoCyt or any future products (if eligible) will
be approved for marketing at all or, if approved for marketing, will be approved
for marketing sooner than would be traditionally expected. Regulatory approval
granted under these regulations may be restricted by the FDA as necessary to
ensure the safe use of the drug. In addition, post-marketing clinical studies,
sometimes called Phase IV studies, will be required for products approved under
this provision.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to
drugs intended to treat a "rare disease or condition," which generally is a
disease or condition that affects populations of fewer than 200,000 individuals
in the United States. Under current law, orphan drug designation confers United
States marketing exclusivity upon the first company to receive FDA approval to
market such designated drug for the designated indication for a period of seven
years following approval of the NDA, subject to certain limitations. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the
regulatory approval process. In June 1993, the Company obtained an orphan drug
designation for DepoCyt from the FDA to treat NM. There can be no assurance that
the Company will receive the first FDA approval to market DepoCyt to treat NM,
and thus, receive market exclusivity for DepoCyt to treat NM arising from
leukemia, lymphoma or solid tumor metastases. There can be no assurance that the
scope of protection or the level of marketing exclusivity that is currently
afforded by orphan drug designation and marketing approval will remain in effect
in the future.
For marketing outside the United States, the Company will be subject to
foreign regulatory requirements governing human clinical trials, manufacturing
and marketing approval for drugs and biologics in such foreign jurisdictions. In
January 1998, the Company's marketing partner, P&U, submitted a Marketing
Authorization Application for DepoCyt to the European Medicines Evaluation
Agency. The requirements relating to the conduct of clinical trials,
manufacturing, product licensing, pricing and reimbursement vary widely from
country to country and there can be no assurance that the Company or any of its
partners will meet and sustain any such requirements.
Future Capital Needs. The development and commercialization of the
Company's products will require substantial funds to conduct research and
development and preclinical and clinical testing of products and to manufacture
and commercialize any products that are approved for commercial sale. The
Company has a contractual commitment arising from the Chiron collaboration to
fund 50% of the sales and marketing expenses incurred for DepoCyt in the United
States. In June 1997, DepoTech reacquired rights to DepoCyt in Canada and Europe
from Chiron for aggregate cash payments of up to $13.7 million, of which $2.0
million was expensed and paid to Chiron in December 1997. If prior to December
31, 1998, the FDA issues a letter or other notification to DepoTech indicating
that DepoCyt is approvable or approved, the remaining balance of
12
<PAGE> 15
$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 month 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.
The Company leases its headquarters housing most of its administrative,
research and clinical and manufacturing activities. The minimum rental
commitment for this facility ranges from approximately $2.5 million to $4.3
million per year, over 18 years, with a future minimum rental commitment, based
upon pre-established annual rent increases. In addition, the company has
financed its capital expenditures through capital leases and bank credit lines.
At March 31, 1998, the Company has capital lease obligations and notes payable
associated with capital expenditures totaling $13.5 million of which principal
payments of $4.8 million is payable over the next twelve months. All borrowings
are secured by the capital equipment financed. The terms of the Company's loan
agreement with a bank contains a covenant requiring the Company to maintain
certain cash balances. At March 31, 1998, the company was in compliance with the
terms of the covenant. The Company is required to post some form of cash
collateral if the covenant is violated. There can be no assurance that the
Company will be able to successfully reach agreement with the lender regarding
the amount of cash collateral required.
The Company's additional future capital requirements will depend on many
factors, including continued scientific progress in 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 patents, competing technological and market developments, changes in
existing collaborative relationships, the ability of the Company to establish
development arrangements, the cost of establishing effective sales and marketing
arrangements. To date, the Company has not received any revenues from product
sales. The Company anticipates that its existing available cash, cash
equivalents and short-term investments, committed future contract revenue,
projected funding from equipment and other financing and interest income will be
adequate to satisfy its capital requirements and fund operations through 1998.
Uncertainty of Additional Funding. The Company anticipates that it will
be required to raise additional capital in the near-term in order to continue to
conduct its operations. Such capital may be raised through public or private
financings, as well as collaborative arrangements, borrowings and other
available sources. There can be no assurance that additional funding, if
necessary, will be available on favorable terms if at all. If adequate funds are
not available, the Company will be required to curtail operations significantly
or to obtain funds through entering into arrangements with collaborative
partners or others that may require the Company to relinquish rights to certain
of its technologies, potential products or potential markets that the Company
would not otherwise relinquish. The failure to receive additional funding would
have a material adverse effect on the Company.
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<PAGE> 16
Limited Manufacturing Experience, Risk of Scale-Up. The Company has no
experience manufacturing products for commercial purposes. The Company's
manufacturing operations will need to meet ongoing commercial requirements for
all markets in which products have been approved. The Company has been notified
by the FDA's District Office that they are recommending approval for commercial
manufacturing of DepoCyt. However, this does not imply FDA product approval of
DepoCyt which currently remains subject to FDA review. The manufacturing
operations for DepoCyt may require passing preapproval inspection by regulatory
agencies for countries in which there are regulatory filings to market DepoCyt.
For all other products, the Company will need to significantly scale-up its
current manufacturing operations and comply with cGMPs and other regulations
prescribed by various regulatory agencies in the United States and other
countries to achieve the prescribed quality and required levels of production of
such products and to obtain marketing approval. Failure by the Company to
successfully scale-up its manufacturing operations or to comply with cGMPs and
other regulations would have a material adverse impact on the Company, including
the loss of manufacturing rights under the Chiron Agreement and the P&U
Agreement.
History of Operating Losses; Uncertainty of Future Profitability. The
Company has incurred an accumulated deficit of $69.3 million through March
31,1998. The Company expects to continue to incur substantial losses over at
least the next two years as the Company's research and development efforts,
clinical testing activities and manufacturing scale-up and sales and marketing
arrangement efforts expand. All of the Company's revenues to date have consisted
of contract revenues, milestone payments and interest income. No revenues have
been generated from product sales. There can be no assurance that the Company
can generate sufficient product or contract revenue to become profitable or
sustain profitability.
Legal Proceedings. In April 1998, a class action suit was filed against
the Company and two of its former officers in the United States District Court
for the Southern District of California. The lawsuit alleges violations of the
federal securities laws and purports to seek unspecified monetary damages on
behalf of a class of shareholders who purchased DepoTech common stock during the
period April 1, 1996 through December 18, 1997. The Company believes that the
lawsuit is without merit and intends to defend against it vigorously. The
pending litigation against the Company and any future litigation against the
company or its employees, regardless of the outcome, may result in substantial
costs and expense to the Company and significant diversions of time and effort
by the Company's personnel. Depending on the amount and timing, an unfavorable
resolution of such litigation could materially affect the Company's business,
future results of operations, cash flow, or financial condition.
Dependence Upon Partners for Development and Commercialization. The
Company does not currently possess all the resources necessary to develop,
complete the FDA approval process for and commercialize any of its potential
therapeutic products. The Company intends to enter into collaborative
arrangements with other companies to fund research, development and clinical
trials, to assist in obtaining regulatory approvals in the United States and
internationally and to commercialize its products. 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 by
third parties. While the Company has entered into preliminary collaborations to
test feasibility of its delivery technology with certain compounds and has
entered into 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
14
<PAGE> 17
failure to enter into or maintain existing or future collaborations would have a
material adverse effect on the Company.
The Company's partners may pursue parallel development of other drug
delivery technologies that may compete with the Company's drug delivery
technology. In addition, definitive agreements negotiated with such partners may
provide that these partners may terminate the collaboration at any time without
significant penalty. Both the Company and Chiron under the Chiron Agreement and
P&U under the P&U Agreement have the ability to terminate a portion or all of
the collaboration at certain intervals and with advance notice. Termination of a
portion or all of the Chiron Agreement and/or P&U Agreement would have a
material adverse effect on the Company. To date the Company has retained the
rights to formulate and manufacture its products and intends in the future
generally to formulate and manufacture pharmaceuticals for partners, however,
certain partners may choose to formulate or manufacture their own formulations,
thereby limiting one or more potential sources of revenue for DepoTech. In
addition, the Company believes that it may be precluded from entering into
arrangements with companies whose products compete with products sold by its
partners. The Company also will have limited or no control over the resources
that any partner may devote to the Company's products, over partners'
development efforts, including the design and conduct of clinical trials, or
over the pricing of products. There can be no assurance that any of the
Company's present or future collaborative partners will perform their
obligations as expected or will devote sufficient resources to the development,
clinical testing or marketing of the Company's potential products. Any parallel
development by a partner of alternate drug delivery technologies, preclusion
from entering into competitive arrangements, failure to obtain timely regulatory
approvals, premature termination of a collaborative agreement or failure by a
partner to devote sufficient resources to the development and commercialization
of the Company's products would have a material adverse effect on the Company.
Reliance on Technology Rights From Research Development Foundation. In
February 1994, the Company entered into an Assignment Agreement with the RDF,
pursuant to which RDF assigned to DepoTech exclusive rights to the RDF
Technology. As consideration for the assignment of the RDF Technology, DepoTech
will pay RDF an earned royalty on gross revenues from the sale by DepoTech or
its collaborators of products incorporating the RDF Technology. The Company's
products, including DepoCyt, may incorporate the RDF Technology. In certain
other circumstances, DepoTech will pay RDF a percentage of the royalties or
other consideration received by DepoTech from licensees (or, if greater, the
amount of royalty DepoTech would have owed had it engaged in the same conduct as
the licensees). In addition, RDF retains the right to terminate the agreement or
to convert the exclusive nature of the rights granted under the agreement into a
nonexclusive license in the event that the Company does not satisfy its
contractual obligations, including making certain minimum annual payments.
Additional termination events include bankruptcy, a material uncured breach of
the agreement by DepoTech or a contest by DepoTech of the patents included in
the RDF Technology. The termination of the Assignment Agreement or the
conversion of its
15
<PAGE> 18
exclusive nature to a nonexclusive agreement would have a material adverse
effect on the Company.
Patents and Proprietary Technology. DepoTech relies on a combination of
technical leadership, patent, trade secret, copyright and trademark protection
and nondisclosure agreements to protect its proprietary rights. As of March 2,
1998, the Company owned or had exclusive rights to 10 issued or allowed United
States patents, 10 pending United States patent applications, 45 issued foreign
patents and 53 pending foreign applications on file covering various aspects of
its drug delivery technology. The Company intends to file additional patent
applications in the future. There can be no assurance that the Company will be
issued any additional patents or that, if any patents are issued, they will
provide the Company with significant protection or will not be challenged. Even
if such patents are enforceable, the Company anticipates that any attempt to
enforce its patents would be time consuming and costly. Moreover, the laws of
some foreign countries do not protect the Company's proprietary rights in the
products to the same extent as do the laws of the United States.
The patent positions of pharmaceutical, biotechnology and drug delivery
companies, including DepoTech, are uncertain and involve complex legal and
factual issues. Additionally, the coverage claimed in a patent application can
be significantly reduced before the patent is issued. As a consequence, there
can be no assurance that any of the Company's patent applications will result in
the issuance of patents or, if any patents issue, that they will provide
significant proprietary protection or will not be circumvented or invalidated.
Because patent applications in the United States are maintained in secrecy until
patents issue and publication of discoveries in the scientific or patent
literature often lag behind actual discoveries, the Company cannot be certain
that it was the first inventor of inventions covered by its pending patent
applications or that it was the first to file patent applications for such
inventions. Moreover, the Company may have to participate in interference
proceedings declared by the United States Patent and Trademark Office to
determine priority of invention that could result in substantial cost to the
Company, even if the eventual outcome is favorable to the Company. There can be
no assurance that the Company's patents, if issued, would be held valid by a
court of competent jurisdiction. An adverse outcome of any patent litigation
could subject the Company to significant liabilities to third parties, require
disputed rights to be licensed from or to third parties or require the Company
to cease using the technology in dispute.
There can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such
assertions will not result in costly litigation or require the Company to obtain
a license to intellectual property rights of such parties. There can be no
assurance that any such licenses would be available on terms acceptable to the
Company, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block the
Company's ability to further develop or commercialize its products in the United
States and abroad and could result in the award of substantial damages. Defense
of any lawsuit or failure to obtain any such license could have a material
adverse affect on the Company. Finally, litigation, regardless of outcome, could
result in substantial cost to and a diversion of efforts by the Company.
16
<PAGE> 19
Dependence on Suppliers. The Company currently relies on a limited
number of suppliers to provide the materials used to manufacture its DepoFoam
formulations. Certain of these materials are purchased only from one supplier.
In the event the Company could not obtain adequate quantities of necessary
materials from its existing suppliers, there can be no assurance that the
Company would be able to access alternative sources of supply within a
reasonable period of time or at commercially reasonable rates. Regulatory
requirements applicable to pharmaceutical products tend to make the substitution
of suppliers costly and time-consuming. The unavailability of adequate
commercial quantities, the inability to develop alternative sources, a reduction
or interruption in supply or a significant increase in the price of materials
could have a material adverse effect on the Company's ability to manufacture and
market its products.
Reliance on Manufacturing Process. 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 may be highly variable for different therapeutic agents.
Finally, the Company will need to successfully meet any manufacturing challenges
associated with the characteristics of the drug to be encapsulated. The physical
and chemical stability of the DepoFoam formulation may vary with each
therapeutic agent over time and under various storage conditions. There can be
no assurance that the manufacturing process will result in economically viable
yields of product or that it will produce formulations of therapeutic products
sufficiently stable under suitable storage conditions to be commercially useful.
In the event that the Company decides to pursue alternative manufacturing
methods for some or all of its drugs, there can be no assurance that these
methods will prove to be commercially practical or that the Company will have or
be able to acquire rights to use such alternative methods.
Limited Sales and Marketing Capability. Commercialization of the
Company's products is expected to be expensive and time-consuming. In the event
that the Company elects to participate directly in sales and marketing efforts
for the Company's products, the Company will need to build such capability in
the targeted markets. The Company currently has a limited marketing staff. There
can be no assurance that the Company will be able to establish an adequate sales
and marketing capability in any or all targeted markets or that it will be
successful in gaining market acceptance for its products. To the extent the
Company enters into co-promotion or other licensing arrangements, any revenues
received by the Company will be dependent on the efforts of third parties and
there can be no assurance that such efforts will be successful. To the extent
the Company relies on its collaborators, there can be no assurance that any of
these collaborators or their sublicensees will successfully market or distribute
the Company's products or that the Company will be able to establish a
successful direct sales organization, co-promotion or distribution arrangements.
Access to Drugs. The Company's ability to develop and commercialize its
technology will be affected by the Company's or its partners' access to the
drugs that are to be formulated. The Company intends in certain circumstances to
rely on the ability of its
17
<PAGE> 20
partners to provide access to the drugs that are to be formulated for use with
DepoFoam. There can be no assurance that the Company's partners will be able to
provide access to drug candidates for formulation in DepoFoam, or that, if such
access is provided, the Company or its partner will not be alleged or determined
to be infringing on third parties' rights and will not be prohibited from using
the drug or be found liable for damages that may not be subject to
indemnification. Any restriction on access or liability for damages would have a
material adverse effect on the Company. See "--Dependence Upon Partners for
Development and Commercialization."
Dependence on Key Personnel. The success of the Company is highly
dependent, in part, on its ability to retain highly qualified personnel,
including senior management and scientific personnel. Competition for such
personnel is intense and the inability to retain additional key employees or the
loss of one or more current key employees could adversely affect the Company.
There can be no assurance that the Company will be successful in retaining
required personnel in the future.
Highly Competitive Industry. The drug delivery, pharmaceutical and
biotechnology industries are highly competitive and rapidly evolving, with
significant developments expected to continue at a rapid pace. The Company's
success will depend upon maintaining a competitive position and developing
products and technologies for efficient and cost-effective drug delivery. The
Company's products will compete with other formulations of drugs and with other
drug delivery systems. There can be no assurance that any of the Company's
products will have advantages that will be significant enough to cause medical
professionals to use them. DepoTech believes that its products will compete on
the basis of quality, efficacy, cost, convenience, safety and patient
compliance. New drugs or further development in alternative drug delivery
methods may provide greater therapeutic benefits for a specific drug or
indication, or may offer comparable performance at lower cost than those offered
by the Company's DepoFoam drug delivery system. The Company is aware of many
other competitors in the field of drug delivery, including competitors
developing injectable or implantable drug delivery systems, oral drug delivery
technologies, passive transdermal systems, electrotransport systems, oral
transmucosal systems and inhalation systems. There can be no assurance that
developments by others will not render the Company's products or technologies
uncompetitive or obsolete. Many of the Company's existing or potential
competitors have substantially greater research and development capabilities,
experience, manufacturing, marketing, financial and managerial resources than
the Company. Furthermore, acquisitions of competing drug delivery companies by
large pharmaceutical companies could enhance competitors' financial, marketing
and other resources. Accordingly, the Company's competitors may succeed in
developing competing technologies, obtaining FDA approval or gaining market
share for products more rapidly than the Company.
Product Liability; Availability of Insurance. The design, development
and manufacture of the Company's products involve an inherent risk of product
liability claims and associated adverse publicity. The Company obtained clinical
trial product liability insurance for its human clinical trials and intends to
obtain insurance for future clinical trials of other products under development
and for potential product liability associated with the commercial sale of the
Company's products. There can be no
18
<PAGE> 21
assurance, however, that the Company will be able to obtain or maintain
insurance for any of its clinical trials or commercial products. Although the
Company currently maintains general liability insurance, there can be no
assurance that the coverage limits of the Company's insurance policies will be
adequate. Product liability insurance is expensive, difficult to obtain and may
not be available in the future on acceptable terms or at all. A successful claim
brought against the Company in excess of the Company's insurance coverage would
have a material adverse effect upon the Company.
Year 2000 Compliance. Year 2000 Issue is the result of computer programs
written in the past that use two digits rather than four to define the
applicable year. As a result, these computer programs may not properly recognize
calendar dates beginning in the Year 2000. This problem may cause systems to
fail or miscalculate causing disruptions of operations, including a temporary
inability to process transactions or engage in similar normal business
activities.
The Company believes that the total internal Year 2000 Issue costs will
be minimal and that the Year 2000 conversion requirements will be achieved
through routine upgrades to its software programs. The Company expects to
complete these upgrades by the end of 1998. These costs and the expected
completion date are based on management's best estimates and there can be no
assurance that these estimates will be achieved and actual results could differ
materially from those anticipated. The Company has also initiated communications
with all of its significant suppliers to determine the extent to which the
Company's systems are vulnerable to those third parties' failure to remediate
their own Year 2000 Issues. There can be no assurance that the systems of other
companies on which the Company's systems rely will be timely converted and will
not have an adverse effect on the Company's systems.
Hazardous Materials. The Company's research and development involves the
controlled use of hazardous materials, chemicals and various radioactive
compounds. The risk of accidental contamination or injury from these materials
cannot be completely eliminated. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the resources of the Company. The Company may incur substantial cost to
comply with environmental regulations.
No Dividends. The Company currently intends to retain any future
earnings for use in its business and does not anticipate paying any cash
dividends in the future. Pursuant to a bank credit facility, DepoTech may not,
without the bank's prior written consent pay or declare dividends except for
dividends payable solely in the Company's stock.
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, the status of submissions to the FDA or its international
equivalent, as well as variations in the Company's results of operations, market
conditions, analysts' estimates and the stock
19
<PAGE> 22
market generally (and stock market perceptions of the pharmaceutical,
biotechnology and/or drug delivery industries specifically) may cause the market
price of the Company's Common Stock to fluctuate significantly. Companies such
as DepoTech have, in recent years, experienced dramatic stock price volatility.
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.
Possible Anti-Takeover Effect of Certain Charter Provisions. The
Company's Articles of Incorporation includes certain charter provisions which
may discourage certain types of transactions involving an actual or potential
change in control of the Company, including transactions in which shareholders
might otherwise receive a premium for their shares over the current market
prices, and may limit the ability of the shareholders to approve transactions
that they may deem to be in their best interests. The Board of Directors also
has the authority to issue up to 5,000,000 shares of Preferred Stock in one or
more series and to fix the rights, priorities, preferences, qualifications,
limitations and restrictions, including the dividend rates, conversion rights,
voting rights, terms of redemption, terms of sinking funds, liquidation
preferences and the number of shares constituting any series, without any
further vote or action by the shareholders, which could decrease the amount of
earnings and assets available for distribution to holders of Common Stock or
adversely affect the rights and powers, including voting rights, of the holders
of the Common Stock. The issuance of Preferred Stock may have the effect of
delaying or preventing a change in control of the Company and may adversely
affect the rights of the holders of Common Stock.
20
<PAGE> 23
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
None
21
<PAGE> 24
PART II - OTHER INFORMATION
Item 1 Legal Proceedings.
In April 1998, a class action suit was filed against the Company and two
of its former officers in the United States District Court for the Southern
District of California. The lawsuit alleges violations of the federal securities
laws and purports to seek unspecified monetary damages on behalf of a class of
shareholders who purchased DepoTech common stock during the period April 1, 1996
through December 18, 1997. The Company believes that the lawsuit is without
merit and intends to defend against it vigorously.
Item 2 Change in Securities. None
Item 3 Defaults Upon Senior Securities. None
Item 4 Submission of Matters to a Vote of Security Holders. None
Item 5 Other Information. None
Item 6 Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
10.1 Amended and Restated Consulting Agreement Between DepoTech
Corporation and Stephen B. Howell, M.D. dated March 1, 1998.
10.2 Consulting Agreement Between DepoTech Corporation and Stephen B.
Howell dated March 16, 1998.
10.3 Confidential Separation Agreement Between DepoTech Corporation
and Linda Paradiso, DVM dated January 7, 1998.
10.4 Common Stock Purchase Warrant Agreement Between DepoTech
Corporation and Sanderling Management Company, LLC dated
February 25, 1998.
27.1 Financial Data Schedule
</TABLE>
22
<PAGE> 25
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/ Fred A. Middleton
---------------------------------
Date: May 15, 1998 Fred A. Middleton
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Dana S. McGowan
---------------------------------
Date: May 15, 1998 Dana S. McGowan
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
23
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED
CONSULTING AGREEMENT
This Amended and Restated Consulting Agreement is made and entered into
this 1st day of March, 1998, 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 STEPHEN B. HOWELL, M.D., an
individual, residing at 13612 Nogales Drive, Del Mar, California 92014
("Consultant").
WHEREAS, Company desires to retain Consultant to perform certain
services, and Consultant is agreeable to doing so; and
WHEREAS, Company and Consultant desire to amend and restate certain
provisions of that certain Consulting Agreement dated as of November 1, 1993, as
previously amended pursuant to Amendment No. 1 to Consulting Agreement dated May
25, 1995 (the "Prior Agreement").
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 A hereto.
Consultant shall receive consulting fees for such services and reimbursement for
expenses as set forth in Exhibit A hereto. Such consulting services shall be
performed as requested from time to time by Company's executive officers.
2. Term. The initial term of this Agreement shall commence on November
1, 1997 and continue through October 31, 1999. Consultant's services shall be
rendered as requested by Company and in a manner satisfactory to Company. This
Agreement shall be cancelable by either party upon the giving of thirty (30)
days prior written notice; provided, in the event that the Company terminates
this Agreement prior to its term, Consultant shall continue to receive
consulting fees and reimbursement for expenses as set forth in Exhibit A hereto
for a period equal to the greater of (a) twelve (12) months from the date of
termination or (b) through October 31, 1999.
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.
-1-
<PAGE> 2
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.
(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 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.
-2-
<PAGE> 3
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 Proprietary 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.
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.
[Remainder of Page Intentionally Left Blank]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
DEPOTECH CORPORATION, a California
corporation
By: /s/ John P. Longenecker
--------------------------------
Title: President and Chief
Operating Officer
------------------------------
CONSULTANT
By: /s/ STEPHEN B. HOWELL
--------------------------------
STEPHEN B. HOWELL, M.D.
Social Security No.: ###-##-####
<PAGE> 5
EXHIBIT A
Scope of Services of Consultant:
The scope of consulting work contemplated by this Agreement shall be as
follows:
The Consultant shall act as "Senior Medical Advisor" to the Board of Directors
and management team of the Company, including: (i) input to and review of the
Company's product portfolio in terms of new product ideas, strategic balance,
medical applications and product positioning; (ii) review and opinion on new
drug delivery technologies; (iii) identification and evaluation of new molecular
entities as candidates for formulation and DepoFoam(TM) or new drug delivery
technologies being developed or considered by DepoTech; (iv) access and
introductions as the need may arise to Consultant's personal contacts (subject
to Consultant's agreement on a case-by-case basis) in the medical, scientific
and business communities; and (v) membership on the Company's Strategy
Committee.
Consulting Fees:
Consultant shall be compensated as follows:
At the rate of $40,000.00 per year, assuming contribution of at least 25 days
but no more than 35 days per year, excluding travel time, to be billed no less
frequently than monthly. The fee shall be paid to Consultant.
Compensation payable pursuant to this Agreement will be reviewed annually by the
Compensation Committee of the Board of Directors on the basis of fairness and
comparability to the officers of the Company taking into account the pro-rata
share of Consultant's time actually spent in consulting to DepoTech.
Reimbursement of Expenses:
Consultant shall be reimbursed for reasonable expenses on approval of
the CEO.
A-1
<PAGE> 1
EXHIBIT 10.2
CONSULTING AGREEMENT
This Consulting Agreement is made and entered into this 16th day of
March, 1998, 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 STEPHEN B. HOWELL, M.D., an individual,
residing at 13612 Nogales Drive, Del Mar, California 92014 ("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; Issuance of Stock. (a) Consultant hereby is retained
as an independent contractor to provide consulting services described in Exhibit
A hereto. Consultant shall receive consulting fees for such services and
reimbursement for expenses as set forth in Exhibit A hereto. Such consulting
services shall be performed as requested from time to time by Company's
executive officers.
(b) In addition to the consulting fees for such services and
reimbursement for expenses as set forth in Section 1(a) above, Company shall
issue to Consultant Twenty Five Thousand (25,000) shares (the "Shares") of
Company Common Stock in recognition of Consultant's past services related to
consulting services described in Exhibit A (performed prior to the date of this
Agreement). Such Shares shall be issued within sixty (60) days of the date of
this Agreement, with an issue date of the date of this Agreement.
(c) Consultant hereby acknowledges, in connection with the
issuance of the Shares under Section 1(b), as follows:
(i) The issuance of the Shares has not been registered
under the Securities Act of 1933, as amended (the "1933 Act") and such
Shares are being issued to Consultant in reliance upon the exemption
from such registration provided by Section 4(2) of the 1933 Act.
Consultant hereby confirms that Consultant has been informed that the
Shares are restricted securities under the 1933 Act and may not be
resold or transferred unless the Shares are first registered under the
Federal securities laws or unless an exemption from such registration is
available. Accordingly, Consultant hereby acknowledges that Consultant
is prepared to hold the Shares for an indefinite period and that
Consultant is aware that SEC Rule 144 issued under the 1933 Act which
exempts certain resales of unrestricted securities is not presently
available to exempt the resale of the Shares from the registration
requirements of the 1933 Act.
-1-
<PAGE> 2
ii) Consultant shall make no disposition of the Shares (other
than a transfer of title to the Shares effected pursuant to Consultant's
will or the laws of intestate succession following Consultant's death)
unless and until there is compliance with all of the following
requirements: (A) Consultant shall have provided Company with a written
summary of the terms and conditions of the proposed disposition; (B)
Consultant shall have complied with all requirements of this Agreement
applicable to the disposition of the Shares; and (C) Consultant shall
have provided Company with written assurances, in form and substance
satisfactory to Company, that the proposed disposition does not require
registration of the Shares under the 1933 Act or all appropriate action
necessary for compliance with the registration requirements of the 1933
Act or any exemption from registration available under the 1933 Act
(including Rule 144) has been taken.
(iii) The Corporation shall not be required (i) to transfer on
its books any Shares which have been sold or transferred in violation of
the provisions of this Agreement or (ii) to treat as the owner of the
Shares, or otherwise to accord voting, dividend or liquidation rights
to, any transferee to whom the Shares have been transferred in
contravention of this Agreement.
(d) The stock certificates for the Shares shall be endorsed with the
following restrictive legend: "The shares represented by this certificate have
not been registered under the Securities Act of 1933. The shares may not be sold
or offered for sale in the absence of (a) an effective registration statement
for the shares under such Act, (b) a 'no action' letter of the Securities and
Exchange Commission with respect to such sale or offer or (c) satisfactory
assurances to the Corporation that registration under such Act is not required
with respect to such sale or offer."
2. Term. The term of this Agreement shall commence on March 16, 1998 and
continue through March 16, 1999 ("Term"). Consultant's services shall be
rendered as requested by Company and in a manner satisfactory to Company. The
Agreement may not be terminated by Company or Consultant during the Term.
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.
-2-
<PAGE> 3
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.
(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 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.
-3-
<PAGE> 4
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 Proprietary 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.
13. Entire Agreement; Governing Law. This Agreement contains the entire
understanding of the parties with respect to the matters contained herein. 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.
[Remainder of Page Intentionally Left Blank]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
DEPOTECH CORPORATION, a California
corporation
By: /s/ John P. Longenecker
---------------------------------
Title: President and Chief
Operating Officer
------------------------------
CONSULTANT
By: /s/ STEPHEN B. HOWELL
---------------------------------
STEPHEN B. HOWELL, M.D.
Social Security No.: ###-##-####
<PAGE> 6
EXHIBIT A
Scope of Services of Consultant:
The scope of consulting work contemplated by this Agreement shall be as
follows:
The Consultant shall provide consulting services to Company, at the direction of
the Company's chief executive officer, for: (i) DepoCyt data analysis and (ii)
preparation and attendance of meetings of the Company with the United States
Food and Drug Administration ("FDA") and the Oncologic Drugs Advisory Committee
to the FDA.
Consulting Fees:
Consultant shall be compensated as follows:
At the rate of $138,000 per year, assuming contribution of at least forty nine
percent (49%) of a full-time effort, to be billed no less frequently than
monthly. The fee shall be paid to Consultant.
Reimbursement of Expenses:
Consultant shall be reimbursed for reasonable expenses on approval of
the President.
A-1
<PAGE> 1
EXHIBIT 10.3
Date: January 7, 1998
To: Linda Paradiso, DVM
From: John Longenecker
Subject: Confidential Separation Agreement
Dear Linda:
Consistent with our discussions concerning your voluntary termination of
employment and separation from DepoTech (the "Company") this letter will
constitute the Confidential Separation Agreement (the "Agreement") setting forth
the terms of your employment 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 are and what is expected of
you by the Company.
1. Transition Period: Commencing on January 7, 1998 and continuing until
January 30, 1998 (hereinafter referred to as the "transition period"), you
and the Company will be on notice of the discontinuance of your employment
with the Company. During this transition period, you shall remain a regular
full-time employee of the Company. The parties may mutually agree in
writing to extend this transition period, but neither is under any
obligation to do so (hereinafter referred to as the "extended transition
period"). Any written extension of the transition period will effectively
change the date on which employment with the company will terminate.
2. Duties: 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.
3. Salary: During the transition period the Company agrees to pay you your
full monthly base salary of $14,583.33 less applicable deductions for taxes
and health and other benefits. All salary payments during this 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/Separation of Employment: Your employment
with the Company will terminate on January 30, 1998, unless sooner
terminated pursuant to paragraph 6, the "Termination", or extended pursuant
to paragraph 1, the "Transition Period". As part of your Separation, the
Company agrees to provide you with the following additional compensation
and benefits package:
a. Severance Payment: The Company agrees to provide a lump sum
severance payment equal to six (6) months base salary ($87,500),
less applicable taxes, on the date the transition period ends, as
defined in paragraph 5, above.
<PAGE> 2
Linda Paradiso 2
03/24/98
b. Accelerated Stock Option Grant Vesting: The Company agrees to
accelerate the vesting of all remaining unvested Stock Option
Grants awarded in these quantities and on the following dates:
ISO GRANT 2,050 SHARES GRANTED 02-26-97
ISO GRANT 8,000 SHARES GRANTED 04-28-97
The exercise period for all vested shares will be 90 days
following the date the transition period ends.
c. Management Incentive Bonus: You will be eligible for 1997
Management Incentive Bonus consideration to be paid out in 1998,
based on the combination of your performance and that of the
Company during the 1997 fiscal year. The Management Incentive
Bonus target for 1997 is twenty percent (20%) of base salary,
however it can be as little as 0% or as high as 33% of base
salary depending on overall company and individual performance.
This bonus shall be no less than the average bonus granted to all
other Vice Presidents.
d. Outplacement: The Company further agrees to provide you with up
to one hundred eighty (180) days job search
preparation/assistance with the firm of Lee Hecht Harrison
following the date the transition period ends.
e. Extended Benefits: You and your eligible dependents will be
entitled to continue your medical coverage, pursuant to COBRA,
for an additional 18 months from the date the transition period
ends, 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
date the transition period ends.
f. FTO Balance: The Company further agrees to pay you all earned but
unused FTO pay as of the date the transition period ends.
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 five (5) days written
notice to the Company. Upon such a termination, your employment
will be terminated and all compensation and benefits pursuant to
paragraphs 3 and 4 will end. In addition, you will not be
entitled to any compensation or benefits described in paragraph 5
subsections (a-d).
b. The Company reserves the right to terminate your employment
during the transition period or any extended transition period
for cause. Cause for termination includes: (a) a material breach
of the terms of this Agreement; (b ) major infractions of the
Company's standards of conduct as set forth in Company policies;
or (c) your acceptance of employment with another entity or
person such that you can no longer devote your full energies to
employment with the Company. Upon termination for cause, all
compensation and benefits pursuant to paragraphs 3 and 4 will
end.
In addition, you will not be entitled to any compensation or
benefits described in paragraph 5 subsections (a -d).
<PAGE> 3
Linda Paradiso 3
03/24/98
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 existence of this Agreement, 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.
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 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. The Company further
agrees that it will not hinder Linda J. Paradiso in her efforts to obtain
alternative employment by encouraging or otherwise causing to be made any
negative or disparaging comments or statements (whether verbal or written)
regarding her employment with the Company. Nor will the Company place Linda
J. Paradiso in a bad light or false light during or after the transition
period.
10. No Admission: This severance package or Agreement shall not be construed or
used as an admission of liability or wrongdoing by either you or the
Company.
11. General Release: In consideration of the above promises and payments to be
made to you, you fully and forever release and discharge the Company and
each of its current, former and future parents, subsidiaries, related
entities, employee benefit plans and their fiduciaries, predecessors,
successors, officers, directors, shareholders, agents, employees and
assigns (collectively, "Releasees"), with respect to any and all claims,
liabilities and causes of action, of every nature, kind and description, in
law, equity or otherwise, which have arisen, occurred or existed at any
time prior to the signing of this Agreement, including, without limitation,
any and all claims, liabilities and causes of action arising out of or
relating to your employment with the Company or the cessation of that
employment.
12. Knowing Waiver of Employment - Related Claims: You acknowledge that you
understand and agree that you are waiving any and all rights you may have
had or now have, to pursue against any of the Releasees any and all
remedies available to you under any employment - related causes of action,
including without limitation, claims of wrongful discharge, breach of
contract, breach of the covenant of good faith and fair dealing, fraud,
violation of public policy, defamation, discrimination, personal injury,
physical injury, emotional distress, claims under Title VII of the Civil
Rights Act of 1964, as amended, the Age Discrimination in employment Act,
the Americans With Disabilities Act, the Federal Rehabilitation Act, the
Family and Medical Leave Act, the California Fair Employment and Housing
Act, the California Family Rights Act, the Equal Pay Act of 1963, the
provisions of the California Labor Code and any other federal, state or
local laws and regulations relating to employment, conditions of employment
(including wage and hour lows) and/or employment discrimination. You
specifically acknowledge and agree that you waive any claim against the
Company arising out of the termination of your employment with the Company
which the parties have agreed will become effective on or before January
30, 1998.
<PAGE> 4
Linda Paradiso 4
03/24/98
13. Waiver of Civil Code Section 1542: You expressly waive any and all rights
and benefits conferred upon you by Section 1542 of the Civil Code of the
State of California, which states 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."
You expressly agree and understand that the Release given by you pursuant
to this Agreement applies to all unknown, unsuspected and unanticipated
claims, liabilities and causes of action which you may have against the
Company or any of the other Releasees, as of the date this agreement is
executed.
14. Severability of Release Provisions: You agree that if any provision of the
release given by you under this Agreement is found to be unenforceable, it
will not affect the enforceability of the remaining provisions and the
courts may enforce all remaining provisions to the extent permitted by law.
15. Promise to Refrain from Suit or Administrative Action: You promise and
agree that you will never sue the Company or any of the other Releasees, or
otherwise institute or participate in any legal or administrative
proceedings against the Company or any of the other Releasees, with respect
to any claim covered by the release provisions of this Agreement, including
but not limited to claims arising out of your employment with Company or
the cessation of that employment, unless you are compelled by legal process
to do so.
16. Indemnification: Not withstanding Linda Paradiso's departure from the
Company, in the event that a claim is made against Linda Paradiso in
connection with her performance of her job duties while employed by
DepoTech Corporation, the Company will indemnify Linda Paradiso under the
conditions and to the extent required by California Labor Code Section
2802. Nothing in this Agreement shall constitute a waiver of any objections
or defenses available to the Company, which are expressly reserved.
17. Entire Understanding: This Agreement contains the entire understanding
between you and the Company relating to your Separation and severance
package, superseding all prior understandings and agreements between the
parties, if any.
18. 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.
19. Applicable Law: This Agreement will be governed by California Law.
Linda, 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
Separation Agreement, you may revoke this Separation Agreement, and the
Separation Agreement shall not become effective or enforceable until the
revocation period has expired. Any revocation within the seven days must be in
writing, addressed to Thomas Swedberg, SPHR at DepoTech Corporation's address.
If you revoke this Separation Agreement, it shall not be affective or
enforceable and you will not receive the benefits described in paragraphs 3, 4
and 5 (a-d).
<PAGE> 5
Linda Paradiso 5
03/24/98
If you agree with the foregoing package and release, please sign below. You
agree that you have read and understand this Separation Agreement, and that you
have signed it freely and voluntarily.
Sincerely,
/s/ John P. Longenecker
John P. Longenecker
Senior Vice President and COO
Agreed:
/s/ Linda Paradiso 1/12/98
---------------------------------------- -----------------------
Linda Paradiso, DVM Date
<PAGE> 1
EXHIBIT 10.4
THE TRANSFER OF THIS WARRANT IS SUBJECT TO
RESTRICTIONS CONTAINED HEREIN. THIS WARRANT
HAS BEEN ISSUED IN RELIANCE UPON THE
REPRESENTATION OF THE HOLDER THAT IT HAS BEEN
ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH
A VIEW TOWARD THE RESALE OR OTHER DISTRIBUTION
THEREOF. NEITHER THIS WARRANT NOR THE SHARES
ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS.
DEPOTECH CORPORATION
COMMON STOCK PURCHASE WARRANT
To Subscribe for and Purchase February 25, 1998
Shares of Common Stock
of DEPOTECH CORPORATION
VOID AFTER 5:00 P.M.,
PACIFIC TIME
FEBRUARY 24, 2001
THIS CERTIFIES that, for value received, SANDERLING MANAGEMENT COMPANY,
LLC, or its registered assigns (the "Holder"), is entitled to subscribe for and
purchase from DEPOTECH CORPORATION, a California corporation (hereinafter called
the "Corporation"), up to One Hundred Thousand (100,000) shares (subject to
adjustment as hereinafter provided) of fully paid and non-assessable Common
Stock of the Corporation, (the "Common Stock"), at $4.375 per share (such price
as from time to time to be adjusted as hereinafter provided being hereinafter
called the "Warrant Price"), at any time from May 25, 1998 but at or prior to
5:00 p.m. Pacific time on February 24, 2001 (the "Exercise Period") subject,
however, to the provisions and upon the terms and conditions hereinafter set
forth.
This Warrant and any Warrant or Warrants subsequently issued upon
exchange or transfer hereof are hereinafter collectively called the "Warrant."
Section 1. Exercise of Warrant. The rights represented by this Warrant
may be exercised by the Holder, in whole or in part (but not as to fractional
shares) at any time or from time to time in part, but not as to a fractional
share of Common Stock, by the
<PAGE> 2
completion of the purchase form attached hereto and by the surrender of this
Warrant (properly endorsed) at the office of the Corporation as it may designate
by notice in writing to the Holder hereof at the address of the Holder appearing
on the books of the Corporation, and by payment to the Corporation of the
Warrant Price for each share purchased, in cash, or by certified or official
bank check, or by tender of shares of Common Stock held for the required period
of time, if any, along with a written statement specifying that the Holder
intends to pay the Exercise Price by tender of such shares (such shares to be
valued at fair market value (as such term is defined below) on the date on which
the Corporation receives the Warrant, the shares of Common Stock and such
written statement, or such later date as specified therein). In the event of any
exercise of the rights represented by this Warrant, a certificate or
certificates for the shares of Common Stock so purchased, registered in the name
of the Holder, or its nominee or other party designated in the purchase form by
the Holder hereof, shall be delivered to the Holder within a reasonable time,
but in no event more than thirty (30) business days after the date in which the
rights represented by this Warrant shall have been so exercised; and, unless
this Warrant has expired or has been exercised in full, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the Holder within such time. The person in whose name any
certificate for shares of Common Stock is issued upon exercise of this Warrant
shall for all purposes be deemed to have become the Holder of record of such
shares on the date on which this Warrant was surrendered and payment of the
Warrant Price, except that, if the date of such surrender and payment is a date
on which the stock transfer books of the Corporation are closed, such person
shall be deemed to have become the Holder of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
No fractional shares shall be issued upon exercise of this Warrant and no
payment or adjustment shall be made upon any exercise on account of any cash
dividends on the Common Stock issued upon such exercise. If any fractional
interest in a share of Common Stock would, except for the provision of this
Section 1, be delivered upon such exercise, the Corporation, in lieu of delivery
of a fractional share thereof, shall pay to the Holder an amount in cash equal
to the current market price of such fractional share as determined pursuant to
Section 2(c) below.
Section 2. Net Issuance.
(a) Right to Convert. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder shall have the
right to convert this Warrant or any portion thereof (the "Conversion Right")
into shares of Common Stock as provided in this Section 2 at any time or from
time to time during the Exercise Period. Upon exercise of the Conversion Right
with respect to a particular number of shares subject to the Warrant (the
"Converted Warrant Shares"), the Corporation shall deliver to the Holder
(without payment by the Holder of any exercise price or any cash or other
consideration) that number of shares of fully paid and nonassessable Common
Stock computed using the following formula:
-2-
<PAGE> 3
X = Y (A - B)
-----
A
Where X = the number of shares of Common Stock to be delivered to
the holder
Y = the number of Converted Warrant Shares
A = the fair market value of one share of the Corporation's
Common Stock on the Conversion Date (as defined below)
B = the per share exercise price of the Warrant (as adjusted
to the Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to the Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Corporation shall pay to the Holder an amount in cash equal to the
fair market value of the resulting fractional share on the Conversion Date (as
defined below). Shares issued pursuant to the Conversion Right shall be treated
as if they were issued upon the exercise of the Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by
the Holder by the surrender of the Warrant at the principal office of the
Corporation together with a written statement specifying that the Holder thereby
intends to exercise the Conversion Right and indicating the total number of
shares under the Warrant that the Holder is exercising through the Conversion
Right. Such conversion shall be effective upon receipt by the Corporation of the
Warrant together with the aforesaid written statement, or on such later date as
is specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new warrant
evidencing the balance of the shares remaining subject to the Warrant, shall be
issued as of the Conversion Date and shall be delivered to the Holder promptly
following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this
Section 2, fair market value of a share of Common Stock on the Conversion Date
shall mean:
(i) If traded on a stock exchange, the fair market
value of the Common Stock shall be deemed to be the average of the closing
selling prices of the Common Stock on the stock exchange determined by the Board
to be the primary market for the Common Stock over the ten (10) trading day
period (or such shorter period immediately following the closing of an initial
public offering) ending on the date prior to the Conversion Date, as such prices
are officially quoted in the composite tape of transactions on such exchange;
(ii) If traded over-the-counter, the fair market value of
the Common Stock shall be deemed to be the average of the closing bid prices
(or, if such information is available, the closing selling prices) of the Common
Stock over the ten (10) trading day
-3-
<PAGE> 4
period (or such shorter period immediately following the closing of an initial
public offering) ending on the date prior to the Conversion Date, as such prices
are reported by the National Association of Securities Dealers through its
Nasdaq system or any successor system; and
(iii) If there is no public market for the Common Stock,
then the fair market value shall be determined by the Board of Directors of the
Corporation.
Section 3. Stock Splits, Consolidation, Merger and Sale. In the event
that the outstanding shares of Common Stock shall be split, combined or
consolidated, by dividend, reclassification or otherwise, into a greater or
lesser number of shares of Common Stock, the Warrant Price in effect immediately
prior to such combination or consolidation and the number of shares purchasable
under this Warrant shall, concurrently with the effectiveness of such
combination or consolidation, be proportionately adjusted. If there shall be
effected any consolidation or merger of the Corporation with another
corporation, or a sale of all or substantially all of the Corporation's assets
to another corporation, and if the holders of Common Stock shall be entitled
pursuant to the terms of any such transaction to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such consolidation, merger or sale, lawful and adequate provisions shall be made
whereby the Holder of this Warrant shall thereafter have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the exercise
of such Warrant, such shares of stock, securities or assets as may be issuable
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore so receivable had such consolidation, merger or sale not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of the Holder to the end that the provisions hereof
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities or assets thereafter deliverable upon the exercise of this
Warrant.
Section 4. Stock to Be Reserved; Issue Tax; Books.
(a) The Corporation will at all times reserve and keep available
out of its authorized Common Stock, solely for the purpose of issue upon the
exercise of this Warrant as herein provided, such number of shares of Common
Stock as shall then be issuable upon the exercise of this Warrant. The
Corporation shall from time to time in accordance with applicable law increase
the authorized amount of its Common Stock if at any time the number of shares of
Common Stock remaining unissued and available for issuance shall not be
sufficient to permit exercise of this Warrant. The Corporation covenants that
all shares of Common Stock which shall be so issued shall be duly and validly
issued and fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, and, without limiting the generality
of the foregoing, the Corporation will take all such action as may be necessary
to assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirements of any
national securities exchange upon which shares of capital stock of the
Corporation may be listed.
-4-
<PAGE> 5
(b) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Holders of this
Warrant for any issuance tax in respect thereof provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the Holder of this Warrant.
(c) The Corporation will at no time close its transfer books
against the transfer of the shares of Common Stock (or Common Stock issued upon
the conversion of Common Stock) issued or issuable upon the exercise of this
Warrant in any manner which interferes with the timely exercise of this Warrant.
Section 5. Notices of Record Dates. In the event of
(a) any taking by the Corporation of a record of the Holders of
any class of securities for the purpose of determining the Holders thereof who
are entitled to receive any dividend or other distribution (other than cash
dividends out of earned surplus), or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, or
(b) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation or
any transfer of all or substantially all the assets of the Corporation to or
consolidation or merger of the Corporation with or into any other corporation,
or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Corporation, then and in each such event the Corporation will
give notice to the Holder of this Warrant specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and stating the amount and character of such dividend, distribution or
right, and (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the Holders of record of Common Stock will be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up. Such notice shall be given at
least ten (10) days and not more than ninety (90) days prior to the date therein
specified, and such notice shall state that the action in question or the record
date is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") or to a favorable vote
of shareholders, if either is required.
Section 6. No Shareholder Rights or Liabilities. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a shareholder
of the Corporation. No provision hereof, in the absence of affirmative action by
the Holder hereof to purchase shares of Common Stock, and no mere enumeration
hereon of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Warrant Price or as a shareholder of the
Corporation, whether such liability is asserted by the Corporation or by
creditors of the Corporation.
-5-
<PAGE> 6
Section 7. Representations of Holder. The Holder hereby represents and
acknowledges to the Corporation that:
(a) this Warrant, the Common Stock issuable upon exercise of this
Warrant and any securities issued with respect to any of them by way of a stock
dividend or stock split or in connection with a recapitalization, merger,
consolidation or other reorganization will be "restricted securities" as such
term is used in the rules and regulations under the Securities Act and that such
securities have not been and will not be registered under the Securities Act or
any state securities law, and that such securities must be held indefinitely
unless registration is effected or transfer can be made pursuant to appropriate
exemptions;
(b) the Holder has read, and fully understands, the terms of this
Warrant set forth on its face and the attachments hereto, including the
restrictions on transfer contained herein;
(c) the Holder has either a pre-existing personal or business
relationship with the Corporation or one of its officers, directors or
controlling persons;
(d) the Holder is purchasing for investment for its own account
and not with a view to or for sale in connection with any distribution of this
Warrant, the Common Stock of the Corporation issuable upon exercise of this
Warrant or the Common Stock of the Corporation issuable upon conversion of the
Common Stock and it has no intention of selling such securities in a public
distribution in violation of the federal securities laws or any applicable state
securities laws; provided that nothing contained herein will prevent Holder from
transferring such securities in compliance with the terms of this Warrant and
the applicable federal and state securities laws;
(e) the Holder is an "accredited investor" within the meaning of
paragraph (a) of Rule 501 of Regulation D promulgated by the Securities and
Exchange Commission (the "Commission") and an "excluded purchaser" within the
meaning of Section 25102(f) of the California Corporate Securities Law of 1968;
and
(f) the Corporation may affix the following legend (in addition
to any other legend(s), if any, required by applicable state corporate and/or
securities laws) to certificates for shares of Common Stock (or other
securities) issued upon exercise of this Warrant and the shares of Common Stock
issued upon conversion of the Common Stock ("Warrant Shares"):
"These securities have not been registered under the Securities
Act of 1933, as amended. They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration
statement in effect with respect to the securities under such Act
or an opinion of counsel satisfactory to the Company that such
registration is not required or unless sold pursuant to Rule 144
of such Act."
Section 8. Notice of Proposed Transfers. The Holder of this Warrant, by
acceptance hereof, agrees to comply in all respects with the provisions of this
Section 7. Prior to any
-6-
<PAGE> 7
proposed transfer of this Warrant or any Warrant Shares, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the Holder of such securities shall give written notice to the
Corporation of such Holder's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall be accompanied (except in transactions in
compliance with Rule 144) by either (i) a written opinion of legal counsel which
shall be reasonably satisfactory to the Corporation addressed to the Corporation
and reasonably satisfactory in form and substance to the Corporation's counsel,
to the effect that the proposed transfer of the Warrant and/or Warrant Shares
may be effected without registration under the Securities Act, or (ii) a "no
action" letter from the Commission to the effect that the transfer of such
securities without registration will not result in a recommendation by the staff
of the Commission that enforcement action be taken with respect thereto,
whereupon the Holder of such securities shall be entitled to transfer such
securities in accordance with the terms of the notice delivered by the Holder to
the Corporation. Each new certificate evidencing the Warrant and/or Warrant
Shares so transferred shall bear the appropriate restrictive legends set forth
in Section 7 above, except that such certificate shall not bear such restrictive
legend if, in the opinion of counsel for the Corporation, such legend is not
required in order to establish or assist in compliance with any provisions of
the Securities Act or any applicable state securities laws.
Section 9. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant
is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as
to indemnity or otherwise as it may in its discretion reasonably impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Corporation, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall be at any time enforceable by
anyone.
Section 10. Presentment. Prior to due presentment of this Warrant
together with a completed assignment form attached hereto for registration of
transfer, the Corporation may deem and treat the Holder as the absolute owner of
the Warrant, notwithstanding any notation of ownership or other writing thereon,
for the purpose of any exercise thereof and for all other purposes, and the
Corporation shall not be affected by any notice to the contrary.
Section 11. Notice. Notice or demand pursuant to this Warrant shall be
sufficiently given or made, if sent by first-class mail, postage prepaid,
addressed, if to the Holder of this Warrant, to the Holder at its last known
address as it shall appear in the records of the Corporation, and if to the
Corporation, at 10450 Science Center Drive, San Diego, California 92121,
Attention: Secretary. The Corporation may alter the address to which
communications are to be sent by giving notice of such change of address in
conformity with the provisions of this Section 11 for the giving of notice.
Section 12. Governing Law. The validity, interpretation and performance
of this Warrant shall be governed by the laws of the State of California without
regard to principles of conflicts of laws.
-7-
<PAGE> 8
Section 13. Successors, Assigns. Subject to the restrictions on transfer
by Holder set forth in Section 8 hereof, all the terms and provisions of the
Warrant shall be binding upon and inure to the benefit of and be enforceable by
the respective successors and assigns of the parties hereto.
Section 14. Amendment. This Warrant may be modified, amended or
terminated by a writing signed by the Corporation and the Holder.
Section 15. Severability. Should any part but not the whole of this
Warrant for any reason be declared invalid, such decision shall not affect the
validity of any remaining portion, which remaining portion shall remain in force
and effect as if this Warrant had been executed with the invalid portion thereof
eliminated, and it is hereby declared the intention of the parties hereto that
they would have executed the remaining portion of this Warrant without including
therein any such part which may, for any reason, be hereafter declared invalid.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be duly
executed and delivered on and as of the day and year first above written by one
of its officers thereunto duly authorized.
DEPOTECH CORPORATION, a California
corporation
Dated: February 25, 1998 By: /s/ John P. Longenecker
-------------------------------------
John P. Longenecker
President and Chief Operating Officer
The undersigned Holder agrees and accepts this Warrant and
acknowledges that it has read and confirms each of the representations
contained in Section 7.
By: /s/ FRED A. MIDDLETON
---------------------------------
Fred A. Middleton
General Partner
Its: Sanderling Management Company
---------------------------------
Address: 2730 Sand Hill Road
---------------------------------
Suite 200
---------------------------------
Menlo Park, CA 94025
---------------------------------
[SIGNATURE PAGE TO
DEPOTECH COMMON STOCK PURCHASE WARRANT]
-8-
<PAGE> 9
PURCHASE FORM
(To be executed by the Warrant Holder if he desires to exercise the Warrant in
whole or in part)
To: DEPOTECH CORPORATION
The undersigned, whose Social Security or other
identifying number is ________, hereby irrevocably elects the right of purchase
represented by the within Warrant for, and to purchase thereunder,
_________________________________ shares of securities provided for therein and
tenders payment herewith to the order of
DEPOTECH CORPORATION
in the amount of
$__________
The undersigned requests that certificates for such shares be issued as follows:
Name: _____________________________
Address: __________________________
Deliver to: _______________________
Address: __________________________
and, if said number of shares shall not be all the shares purchasable hereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of, and delivered to, the undersigned
at the address stated below Address: _____________________________
Dated: _________________ , 19__
Signature___________________ (Signature must
conform in all respects to the name of the
Warrant Holder as specified on the face of
the Warrant, without alteration,
enlargement or any change whatsoever)
-9-
<PAGE> 10
ASSIGNMENT
(To be executed by the Warrant Holder if he desires to effect a transfer of the
Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns
and transfers unto _________________________________ whose Social Security or
other identification number is____________________________ [residing/located] at
______________________ the attached Warrant, and
appoints_____________________________ residing at
________________________________________
_________________________________________
the undersigned's attorney-in-fact to transfer said Warrant on the books of the
Corporation, with full power of substitution in the premises.
Dated: ________________ , 19 .
In the presence of:
- ---------------------------- ______________________________
(Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of
the Warrant, without alteration,
enlargement or any change
whatsoever).
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,405
<SECURITIES> 18,808
<RECEIVABLES> 1,474
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 23,869
<PP&E> 32,998
<DEPRECIATION> (5,553)
<TOTAL-ASSETS> 52,236
<CURRENT-LIABILITIES> 8,318
<BONDS> 0
0
0
<COMMON> 102,372
<OTHER-SE> (69,692)
<TOTAL-LIABILITY-AND-EQUITY> 52,236
<SALES> 0
<TOTAL-REVENUES> 1,215
<CGS> 0
<TOTAL-COSTS> 5,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 359
<INCOME-PRETAX> (5,457)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,457)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> 0.00
</TABLE>
