<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1999
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 0-22147
ILEX ONCOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2699185
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
11550 I.H. 10 West, Suite 100
San Antonio, Texas 78230
(Address of principal executive offices)
(Zip Code)
(210) 949-8200
(Registrant's telephone number, including area code)
------------------
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.
On August 9, 1999, there were outstanding 16,368,879 Common Stock, $.01
par value, of the registrant.
<PAGE> 2
ILEX ONCOLOGY, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1: Financial Statements
Consolidated Balance Sheets - December
31, 1998 and June 30, 1999 3-4
Consolidated Statements of Operations - For the three and six
month periods ended June 30, 1998 and June 30, 1999 5
Consolidated Statements of Cash Flows - For the six month
periods ended June 30, 1998 and June 30, 1999 6
Notes to the Consolidated Financial Statements 7-11
Item 2: Management's Discussion and Analysis of Financial Condition 12-18
and Results of Operations
Item 3: Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Items 1-6: Other Information 20
SIGNATURES 22
</TABLE>
-2-
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ILEX ONCOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
December 31, 1999
ASSETS 1998 (unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,581 $ 5,243
Investments in marketable securities 18,999 9,702
Accounts receivable, net of allowance for
doubtful accounts of $150 at December 31,
1998 and June 30, 1999:
Billed 2,685 3,209
Unbilled 863 2,591
Prepaid expenses and other 1,194 664
------------ ------------
Total current assets 30,322 21,409
------------ ------------
NONCURRENT ASSETS:
Investment in and advances to:
Research and development partnerships 228 1,379
Contract research affiliate 473 --
Intangible asset, net of amortization 6,704 --
Other 75 --
Investments in marketable securities 445 275
------------ ------------
Total noncurrent assets 7,925 1,654
------------ ------------
PROPERTY AND EQUIPMENT, Net of accumulated
depreciation and amortization of $1,374 and
$2,337 at December 31, 1998 and June 30, 1999,
respectively 4,441 3,948
------------ ------------
Total assets $ 42,688 $ 27,011
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-3-
<PAGE> 4
ILEX ONCOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
December 31, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 (unaudited)
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable-
Related parties $ 215 $ 58
Other 1,107 859
Accrued subcontractor costs-
Related parties 239 549
Other 1,878 2,066
Accrued liabilities 908 2,033
Deferred revenue 2,033 3,110
------------ ------------
Total current liabilities 6,380 8,675
------------ ------------
OTHER LONG-TERM LIABILITIES 404 491
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value; 40,000 shares
authorized; 12,653 and 12,980 shares issued
and outstanding at December 31, 1998 and
June 30, 1999, respectively; 629 shares to
be issued at June 30, 1999 127 136
Additional paid-in capital 67,623 76,598
Receivables on sale of common stock (46) --
Accumulated deficit (31,283) (58,372)
Treasury Stock: 39,000 shares at December 31,
1998 and June 30, 1999 (517) (517)
------------ ------------
Total stockholders' equity 35,904 17,845
------------ ------------
Total liabilities and stockholders' equity $ 42,688 $ 27,011
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-4-
<PAGE> 5
ILEX ONCOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, June 30,
-------- --------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Product development $ 1,279 $ 1,159 $ 2,090 $ 2,069
Contract research services, net 2,795 3,031 4,923 5,567
---------- ---------- ---------- ----------
Total revenue 4,074 4,190 7,013 7,636
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Research and development costs 3,563 3,944 9,302 7,496
Direct costs of research services 3,333 3,331 5,607 6,175
General and administrative 1,206 1,500 2,244 2,514
Special charges -- 13,882 -- 13,882
---------- ---------- ---------- ----------
Total operating expenses 8,102 22,657 17,153 30,067
---------- ---------- ---------- ----------
OPERATING LOSS (4,028) (18,467) (10,140) (22,431)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Equity in income (losses) of:
Research and development partnerships (903) (1,264) (2,359) (1,889)
Contract research affiliate 24 (3,133) 79 (3,310)
Interest income 449 228 1,016 540
Gain (loss) on sale of securities -- 27 -- 1
---------- ---------- ---------- ----------
NET LOSS $ (4,458) $ (22,609) $ (11,404) $ (27,089)
========== ========== ========== ==========
BASIC AND DILUTED NET LOSS PER SHARE $ (.36) $ (1.74) $ (.93) $ (2.11)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES USED IN COMPUTING
BASIC AND DILUTED LOSS PER SHARE OF
COMMON STOCK 12,306 12,955 12,293 12,829
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-5-
<PAGE> 6
ILEX ONCOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (11,404) $ (27,089)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 886 1,322
Special charges -- 13,882
Net activity of research and development partnerships
and contract research affiliate 293 513
Valuation of warrants issued in payment as licensing fees 3,143 --
Change in assets and liabilities-
(Increase) decrease in assets-
Accounts receivable, net (960) (2,251)
Prepaid expenses and other (45) 596
Other noncurrent asset -- 75
Increase (decrease) in liabilities-
Accounts payable (334) (37)
Accrued liabilities 694 237
Advance billings 51 1,077
Other long-term liabilities (8) (18)
---------- ----------
Net cash used in operating activities (7,684) (11,693)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net activity of marketable securities transactions 3,891 9,467
Advances to research and development partnership (1,652) (1,000)
Purchase of property and equipment (1,429) (470)
Acquisition, net of cash acquired -- (380)
---------- ----------
Net cash provided by (used in) investing activities 810 7,617
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock for cash, net of issuance cost 148 2,692
Collections of receivables on sale of common stock -- 46
---------- ----------
Net cash provided by financing activities 148 2,738
---------- ----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,726) (1,338)
CASH AND CASH EQUIVALENTS, beginning of period 22,655 6,581
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 15,929 $ 5,243
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest -- --
Income taxes -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-6-
<PAGE> 7
ILEX ONCOLOGY, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999
(Amounts in Thousands, Except Share Information,
Per Share Information or As Otherwise Indicated)
1. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The accompanying interim consolidated financial statements presented herein
include the accounts of ILEX Oncology, Inc. and its wholly-owned
subsidiaries("the Company"). All significant intercompany transactions and
accounts have been eliminated in consolidation. These interim consolidated
financial statements have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In management's
opinion, all adjustments which are necessary for a fair presentation of
financial position and results of operations have been made. It is recommended
that these interim consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The results of
operations for any interim period are not necessarily indicative of the results
of operations for the entire year. Certain prior period amounts have been
reclassified to conform to the current period presentation.
2. SPECIAL CHARGES:
The Company has recorded special charges totaling $13.9 million in the
second quarter. As discussed below, these charges include the recognition of
$12.3 million of costs associated with the termination of the Company's
agreements with PRN Research, Inc. (PRN) and $1.6 million of charges related to
other items.
In July 1997, the Company entered into an assignment agreement and a
services agreement with PRN under which the Company and PRN agreed to jointly
market their clinical trial service capabilities. In accordance with these
agreements, the Company issued 312,188 and 314,600 common shares to PRN in July
1997 and 1998, respectively. The value of the shares issued was recorded as an
intangible asset and was being amortized over the term of the agreements. The
Company also agreed to issue up to an additional 629,200 shares to PRN over a
two-year period if PRN remained in compliance with various provisions of the
agreements. Additionally, 1,255,988 common shares could have been issued over a
four-year period if certain milestones were achieved. Effective June 30, 1999,
the Company and PRN terminated the agreements and the Company recorded an
approximate $12.3 million special charge associated with the value of the
remaining 629,200 shares to be issued and the write-off, in accordance with
Financial Accounting Standard 121, of the net intangible asset associated with
the PRN agreements. The Company has no further obligation with respect to the
assignment agreement or with respect to the contingent shares under the services
agreement.
-7-
<PAGE> 8
The remaining $1.6 million in special charges is composed of a $750
accrual for a debt guarantee of an unaffiliated site management organization
which management believes to be uncollectable, a $350 write-down of computer
equipment and an approximate $500 write-off of an operating lease commitment for
manufacturing equipment which management has determined will not be utilized.
3. Statements of Cash Flows:
Noncash financing and investing activities for the quarters ended June 30, 1998
and 1999, include the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Issuance of common stock to PRN $ $ 6,292
Net assets acquired in acquisition (see note 6) 111
Settlement of accounts payable
through acquisition -- 535
</TABLE>
4. LOSS PER SHARE:
Diluted net loss per share is equal to basic net loss per share as the effect of
all common stock equivalents is antidilutive.
5. INVESTMENTS IN AND ADVANCES TO RESEARCH AND DEVELOPMENT PARTNERSHIPS AND
CONTRACT RESEARCH AFFILIATE:
In May 1997, the Company entered into an agreement with LeukoSite, Inc.
("LeukoSite"), for an equally owned joint venture, L&I Partners, L.P. ("L&I"),
for research collaboration endeavors. The following is summarized information
for L&I as of and for the three and six months ended June 30, 1999 (unaudited):
Summarized Income Statement Information
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Revenue $ -- $ --
Research and development expenses 2,532 3,818
Other income 4 5
------------ ------------
Net loss $ (2,528) $ (3,813)
============ ============
</TABLE>
Summarized Balance Sheet Information
June 30, 1999
<TABLE>
<S> <C>
Assets $ 1,568
Liabilities 4,055
Partners' equity (deficit) (2,487)
</TABLE>
-8-
<PAGE> 9
6. ACQUISITION AND AGREEMENT TERMINATION COSTS:
On June 1, 1999, ILEX Oncology Services, Inc. (IOS) acquired certain
assets and liabilities of the former Pharma Forschung Kaufbeuren GmbH (PFK)
offices in the United Kingdom through its new, wholly-owned subsidiary, ILEX
Services, Limited. The acquisition, for $541, was accounted for as a purchase,
and provides ILEX with two locations from which European clinical trials will be
managed and supported: Edinburgh, Scotland and Guildford, England. Also on June
1, 1999, IOS incurred one-time exit costs of approximately $2.9 million in
letter of credit guarantee funding costs and a write-off of its remaining
investment in PFK. While the Company continues to hold a 40% interest in PFK,
management believes the funding provided to PFK under the letter of credit is
uncollectable and accordingly has expensed such amount as additional losses
attributable to its contract research affiliate.
7. SUBSEQUENT EVENTS:
On July 16, 1999, the Company completed a $20 million private placement
of 2,389,200 shares of common stock. The shares were sold at a 15% discount from
the average 30-day trading price.
On July 16, 1999, the Company acquired Convergence Pharmaceuticals,
Inc., (Convergence) of Boston, MA, a privately held research-based
pharmaceutical company with an emerging portfolio of angiogenesis and DNA repair
inhibitors. Under the terms of the purchase agreement, ILEX acquired Convergence
in exchange for 1 million shares of the Company's common stock, and an
additional earn-out of up to 1 million shares to be issued to Convergence's
founders if certain development milestones are met. The Company also assumed
$1.0 million in Convergence debt as part of the purchase. While the Company is
still reviewing the appraisal and valuation, it anticipates that a substantial
portion of the purchase price will be expensed as in-process research and
development.
8. SEGMENT INFORMATION:
The Company has two reportable segments: products and services. The products
segment is involved in the development of proprietary compounds for the
treatment and prevention of cancer. The services segment provides contract
research services for the development, manufacturing, and regulatory approval of
oncology compounds. The Company's reportable segments are strategic business
units that are managed separately because each business requires different
technology and marketing strategies.
The Company has reclassified certain 1998 segment income statement amounts
between its two operating segments for purposes of comparability with current
year presentation. The effect of these reclassifications on the three and six
months ended June 30, 1998 is to decrease research & development costs by $18
and $51, respectively, increase the cost of contract research services by $466
and $992, respectively, and to reduce corporate general & administrative costs
by $448 and $941, respectively.
The accounting policies of the segments are the same as those of the Company.
The Company evaluates performance based on the profit or loss from operations
before income taxes.
-9-
<PAGE> 10
Selected Segment Information
(unaudited)
<TABLE>
<CAPTION>
For the three months ended For the three months ended
June 30, 1998 June 30, 1999
------------- -------------
Services Products Total Services Products Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 2,795 $ 1,279 $ 4,074 $ 3,031 $ 1,159 $ 4,190
Intersegment revenues 1,885 0 1,885 2,462 0 2,462
-------- -------- -------- -------- -------- --------
Total revenues 4,680 1,279 5,959 5,493 1,159 6,652
Direct costs 4,869 3,912 8,781 5,156 4,581 9,737
Special charges 0 0 0 12,847 8 12,855
-------- -------- -------- -------- -------- --------
Segment operating income (loss) (189) (2,633) (2,822) (12,510) (3,430) (15,940)
Equity in income (losses) in research and
development partnerships and clinical research
affiliate 24 (903) (879) (3,133) (1,264) (4,397)
-------- -------- -------- -------- -------- --------
Segment net income (loss) $ (165) $ (3,536) $ (3,701) $(15,643) $ (4,694) $(20,337)
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
For the six months ended For the six months ended
June 30, 1998 June 30, 1999
------------- -------------
Services Products Total Services Products Total
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue from external customers $ 4,923 $ 2,090 $ 7,013 $ 5,567 $ 2,069 $ 7,636
Intersegment revenues 3,512 0 3,512 5,684 0 5,684
-------- -------- -------- -------- -------- --------
Total revenues 8,435 2,090 10,525 11,251 2,069 13,320
Direct costs 8,472 9,949 18,421 10,196 9,159 19,355
Special charges 0 0 0 12,847 8 12,855
-------- -------- -------- -------- -------- --------
Segment operating income (loss) (37) (7,859) (7,896) (11,792) (7,098) (18,890)
Equity in income (losses) in research and
development partnerships and clinical research
affiliate
79 (2,359) (2,280) (3,310) (1,889) (5,199)
-------- -------- -------- -------- -------- --------
Segment net income (loss) $ 42 $(10,218) $(10,176) $(15,102) $ (8,987) $(24,089)
======== ======== ======== ======== ======== ========
</TABLE>
-10-
<PAGE> 11
Reconciliation of Segment Information
To Consolidated Totals
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------- -------
1998 1999 1998 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
RESEARCH and DEVELOPMENT COSTS:
Reportable products segment direct costs $ 3,912 $ 4,581 $ 9,949 $ 9,159
Elimination of intersegment gross profit (349) (637) (647) (1,663)
------------ ------------ ------------ ------------
Consolidated research and development costs $ 3,563 $ 3,944 $ 9,302 $ 7,496
============ ============ ============ ============
DIRECT COSTS of RESEARCH SERVICES:
Reportable services segment direct costs $ 4,869 $ 5,156 $ 8,472 $ 10,196
Elimination of intersegment expenses (1,536) (1,825) (2,865) (4,021)
------------ ------------ ------------ ------------
Consolidated direct costs of research services $ 3,333 $ 3,331 $ 5,607 $ 6,175
============ ============ ============ ============
OPERATING LOSS:
Reportable segment operating loss $ (2,822) $ (15,940) $ (7,896) $ (18,890)
Corporate special charges 0 (1,027) 0 (1,027)
Corporate general and administrative expense (1,206) (1,500) (2,244) (2,514)
------------ ------------ ------------ ------------
Consolidated operating loss $ (4,028) $ (18,467) (10,140) $ (22,431)
============ ============ ============ ============
NET LOSS:
Reportable segment net loss $ (3,701) $ (20,337) $ (10,176) $ (24,089)
Corporate special charges 0 (1,027) 0 (1,027)
Corporate general and administrative expense (1,206) (1,500) (2,244) (2,514)
Gain on sale of marketable securities 0 27 0 1
Interest income 449 228 1,016 540
------------ ------------ ------------ ------------
Consolidated net loss $ (4,458) $ (22,609) $ (11,404) $ (27,089)
============ ============ ============ ============
</TABLE>
-11-
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
Certain statements contained in this Quarterly Report on Form 10-Q,
including statements regarding the anticipated development and expansion of the
Company's business, expenditures, the intent, belief or current expectations of
the Company, its directors or its officers, primarily with respect to the future
operating performance of the Company and other statements contained herein
regarding matters that are not historical fact, are "forward-looking statements"
(as such term is defined in the Private Securities Litigation Reform Act of
1995). Because such statements include risks and uncertainties, actual results
may differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, those discussed in other filings including those contained in
the Company's Registration Statement on Form S-1, the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, and in other reports filed with
the Securities and Exchange Commission. The Company does not intend to update
these forward-looking statements.
GENERAL
The Company is engaged in the businesses of (i) acquiring rights to
(generally in exchange for the payment of licensing fees and future royalty
payments), and developing for commercialization, drugs for the treatment of
patients with cancer and for the prevention of cancer and (ii) providing
clinical research, development and manufacturing services on a contract basis to
pharmaceutical and biotechnology companies engaged in the development of
oncology products.
The Company currently has no products available for sale; however, the
Company anticipates CAMPATH(R) will receive FDA approval to be marketed
commercially within the next year. However, no assurances can be made that the
FDA will grant such approval or, if the FDA does grant such approval, that
CAMPATH(R) will be accepted in the marketplace. The Company has incurred losses
and expects to incur losses for the foreseeable future as the Company's research
and development expenditures increase. The Company's revenue for the foreseeable
future will be limited to development funding under its collaborative
relationships, fee-for-service revenues pursuant to contracts with its CRO
clients, interest income, income from partnerships and other miscellaneous
income.
The following is a discussion of the financial condition and results of
operations for the Company for the three-month and six-month periods ended June
30, 1998 and 1999. It should be read in conjunction with the Interim
Consolidated Financial Statements of the Company, the Notes thereto and other
financial information included elsewhere in this report and in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
-12-
<PAGE> 13
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE
30, 1998
Operating Revenues
Total revenue increased from approximately $4.1 million in the second
quarter of 1998 to $4.2 million in the second quarter of 1999. The increase of
approximately $0.1 million, or 2%, was due to an additional $0.2 million of
contract research revenues. The $0.2 million, or 7%, increase in contract
research services revenues to $3.0 million, compared to approximately $2.8
million in the second quarter of 1998, reflects an increase in both the number
of contracts underway as well as in the size and duration of the contract
research projects.
Operating Expenses
Research and Development Costs. Research and development costs
increased from approximately $3.6 million in the second quarter of 1998 to $3.9
million in the second quarter of 1999. This increase of $0.3 million, or 8%, was
primarily attributable to costs associated with increased research and
development costs associated with the advancing development of eflornithine.
General and Administrative Costs. General and administrative costs
increased from approximately $1.2 million in the second quarter of 1998 to $1.5
million in the second quarter of 1999. This increase of $0.3 million, or 25%,
was primarily attributable to various costs associated with the growth of the
Company.
Direct Costs of Research Services. Direct costs of research services
did not change significantly between the second quarter 1998 and 1999, with
costs of approximately $3.3 million in both periods.
Special Charges. The Company has recorded special charges totaling
$13.9 million in the second quarter. As discussed below, these charges include
the recognition of $12.3 million of costs associated with the termination of the
Company's agreements with PRN Research, Inc. (PRN) and $1.6 million of charges
related to other items.
In July 1997, the Company entered into an assignment agreement and a
services agreement with PRN under which the Company and PRN agreed to jointly
market their clinical trial service capabilities. In accordance with these
agreements, the Company issued 312,188 and 314,600 common shares to PRN in July
1997 and 1998, respectively. The value of the shares issued was recorded as an
intangible asset and was being amortized over the term of the agreements. The
Company also agreed to issue up to an additional 629,200 shares to PRN over a
two-year period if PRN remained in compliance with various provisions of the
agreements. Additionally, 1,255,988 common shares could have been issued over a
four-year period if certain milestones were achieved. Effective June 30, 1999
the Company and PRN terminated the agreements and the Company recorded an
approximate $12.3 million special charge associated with the value of the
remaining 629,200 shares to be issued and the write-off, in accordance with
Financial Accounting Standard 121, of the net intangible asset associated with
the PRN agreements. The Company has no further obligation with respect to the
assignment agreement or with respect to the contingent shares under the services
agreement.
-13-
<PAGE> 14
The remaining $1.6 million in special charges is composed of a $750
accrual for a debt guarantee of an unaffiliated site management organization
which management believes to be uncollectable, a $350 write-down of computer
equipment and an approximate $500 write-off of an operating lease commitment for
manufacturing equipment which management has determined will not be utilized.
Equity in Income (Losses) of Research and Development Partnerships and Contract
Research Affiliate
Equity in losses of research and development partnerships increased
from $0.9 million in the second quarter of 1998 to $1.3 million in the second
quarter 1999. The increase of $0.4 million, or 44%, is due to the increase in
costs related to the development of CAMPATH(R), which is being developed in a
joint venture with LeukoSite Inc.
Equity in income (losses) of contract research affiliate decreased from
$24,000 in the second quarter of 1998 to ($3.1) million in the second quarter of
1999. Approximately $2.9 million of the increased losses resulted from one-time
exit costs to fund a letter of credit guarantee to PFK and a write-off of the
Company's remaining investment in PFK. While the Company continues to hold a 40%
interest in PFK, management believes the funding provided to PFK under the
letter of credit is uncollectable and accordingly has expensed such amount as
additional losses attributable to its contract research affiliate.
Net Interest Income
Net interest income decreased from approximately $0.4 million in the
second quarter of 1998 to $0.3 million in the second quarter of 1999. This
decrease of $0.1 million, or 25%, is attributable to a decrease in aggregate
average balances of cash, cash equivalents and investments in marketable
securities.
Net Loss Per Share
The net loss per share increased $1.38 from ($.36) in the second
quarter of 1998 to ($1.74) in the second quarter of 1999 due to the reasons set
forth above.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30,
1998
Operating Revenues
Total revenue increased from approximately $7.0 million in the first
half of 1998 to $7.6 million in the first half of 1999. The increase of
approximately $0.6 million, or 9%, was due to an additional $0.6 million of
contract research revenues. The $0.6 million, or 12%, increase in contract
research services revenues to $5.6 million, compared to approximately $4.9
million in the first half of 1998, reflects an increase in both the number of
contracts underway as well as in the size and duration of the contract research
projects.
Operating Expenses
Research and Development Costs. Research and development costs
decreased from approximately $9.3 million in the first half of 1998 to $7.5
million in the first half of 1999. This decrease of $1.8 million, or 24%, was
primarily attributable to costs associated with a one-time fee of $3.3
-14-
<PAGE> 15
million in the first half of 1998 for the in-licensing of THP-Dox, offset
primarily by increased research and development costs associated with the
advancing development of eflornithine.
General and Administrative Costs. General and administrative costs
increased from approximately $2.2 million in the first half of 1998 to $2.5
million in the first half of 1999. This increase of $.3 million, or 14%, was
primarily attributable to various costs associated with the growth of the
Company.
Direct Costs of Research Services. Direct costs of research services
increased from $5.6 million in the first half of 1998 to $6.2 million in the
first half of 1999. This increase of $0.6 million, or 11%, is primarily
attributable to increases in first quarter 1999 as compared to first quarter
1998 related to expenditures required to support growth in the number and size
of contract research contracts, including staffing expenses and facility and
equipment expansion.
Special Charges. The Company has recorded special charges totaling
$13.9 million in the second quarter. As discussed below, these charges include
the recognition of $12.3 million of costs associated with the termination of the
Company's agreements with PRN Research, Inc. (PRN) and $1.6 million of charges
related to other items.
In July 1997, the Company entered into an assignment agreement and a
services agreement with PRN under which the Company and PRN agreed to jointly
market their clinical trial service capabilities. In accordance with these
agreements, the Company issued 312,188 and 314,600 common shares to PRN in July
1997 and 1998, respectively. The value of the shares issued was recorded as an
intangible asset and was being amortized over the term of the agreements. The
Company also agreed to issue up to an additional 629,200 shares to PRN over a
two-year period if PRN remained in compliance with various provisions of the
agreements. Additionally, 1,255,988 common shares could have been issued over a
four-year period if certain milestones were achieved. Effective June 30, 1999
the Company and PRN terminated the agreements and the Company recorded an
approximate $12.3 million special charge associated with the value of the
remaining 629,200 shares to be issued and the write-off, in accordance with
Financial Accounting Standard 121, of the net intangible asset associated with
the PRN agreements. The Company has no further obligation with respect to the
assignment agreement or with respect to the contingent shares under the services
agreement.
The remaining $1.6 million in special charges is composed of a $750
accrual for a debt guarantee of an unaffiliated site management organization
which management believes to be uncollectable, a $350 write-down of computer
equipment and an approximate $500 write-off of an operating lease commitment for
manufacturing equipment which management has determined will not be utilized.
Equity in Income (Losses) of Research and Development Partnerships and Contract
Research Affiliate
Equity in losses of research and development partnerships decreased
from $2.4 million in the first half of 1998 to $1.9 million in the first half
1999. The decrease of $0.5 million is due to the reduction in manufacturing
costs for CAMPATH(R), which is being developed in a joint venture with LeukoSite
Inc. During the first half of 1998, the joint venture incurred substantial
expense for the manufacturing of CAMPATH(R) for use in the ongoing clinical
-15-
<PAGE> 16
trials. These manufacturing expenses decreased during the first half of 1999.
Equity in income (losses) of contract research affiliate decreased from
$79,000 in the first half of 1998 to ($3.3) million in the first half of 1999.
Approximately $2.9 million of the increased losses resulted from one-time exit
costs to fund a letter of credit guarantee to PFK and a write-off of the
Company's remaining investment in PFK. While the Company continues to hold a 40%
interest in PFK, management believes the funding provided to PFK under the
letter of credit is uncollectable and accordingly has expensed such amount as
additional losses attributable to its contract research affiliate.
Net Interest Income
Net interest income decreased from approximately $1.0 million in the
first half of 1998 to $0.5 million in the first half of 1999. This decrease of
$0.5 million, or 50%, is attributable to a decrease in aggregate average
balances of cash, cash equivalents and investments in marketable securities.
Net Loss Per Share
The net loss per share increased $1.18 from ($.93) in the first half of
1998 to ($2.11) in the first half of 1999 due to the reasons set forth above.
SEASONALITY
ILEX expects that results of operations in the future will fluctuate
significantly from period to period. Such fluctuations may result from numerous
factors, including the amount and timing of revenues earned under existing or
future collaborative relationships or joint ventures, if any, technological
advances and determinations as to the commercial potential of compounds, the
progress of the Company's drug development programs, the receipt of regulatory
approvals, acquisitions, the timing of start-up expenses for new facilities and
equipment, changes in the Company's mix of services, the cost of preparing,
filing, prosecuting, maintaining, defending and enforcing patent claims and
other intellectual property rights, the status of competing products and
technologies and the timing and availability of financing for the Company,
including existing or future strategic alliances and joint ventures with third
parties. In addition, with respect to the Company's contract research services
revenues, fluctuations may result due to a number of factors, including the
commencement, completion or cancellation of large contracts and progress of
ongoing contracts. ILEX believes that comparisons of its quarterly and annual
historical results may not be meaningful and should not be relied upon as an
indication of future performance.
-16-
<PAGE> 17
INCOME TAXES
The availability of the NOL carryforward to reduce U.S. federal taxable
income is subject to various limitations under the Internal Revenue Code of 1986
(the "Code"), as amended, in the event of an ownership change as defined in
Section 382 of the Code. The Company experienced a change in ownership interest
in excess of 50 percent as defined under the Code upon the consummation of its
offering of Series B convertible preferred stock. The Company does not believe
that this change in ownership significantly impacts the Company's ability to
utilize its net operating loss and tax credit carryforwards as of December 31,
1998, because the amount of the cumulative limitation (based upon the Company's
current market capitalization) during the carryforward period exceeds the total
amount of NOL and tax credit carryforwards. The Company did not experience a
change in control under the Code as the result of its initial public offering.
There was no material ownership change during the six-month period ended June
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
ILEX has financed its operations primarily through the sale of its
capital stock, through development and licensing fee revenues provided by its
collaborative partners under its collaborative agreements and through
fee-for-service or participatory revenues pursuant to contracts with its CRO
clients. The Company receives payments under collaborative agreements primarily
in the form of development funding, milestone payments, if milestones are
achieved, and royalties, if products are commercialized.
To date, the majority of the Company's expenditures have been for
research and development activities, including associated general and
administrative expense and losses incurred by joint ventures. ILEX expects
research and development expenses to increase for the next several years as its
development programs progress. In addition, general and administrative expenses
necessary to support such expanded programs are also expected to increase over
the next several years. At June 30, 1999, the Company had cash, cash equivalents
and investments in marketable securities of approximately $15.2 million and
working capital of approximately $12.7 million. As disclosed below, cash, cash
equivalents and investments in marketable securities increased to approximately
$35.2 million on July 16, 1999 as a result of a $20 million private placement of
the Company's common stock, which was sold at a 15% discount from the average
30-day trading price. The Company expects such amounts to be used primarily to
support continued research and development of its compounds, expand its CRO
services business, for general and administrative expenses and for other general
corporate purposes.
As of June 30, 1999, the Company had no material commitments for
capital expenditures.
On June 1, 1999, ILEX Oncology Services, Inc. (IOS) acquired certain
assets and liabilities of the former Pharma Forschung Kaufbeuren GmbH (PFK)
offices in the United Kingdom through its new, wholly-owned subsidiary, ILEX
Services, Limited. The acquisition, for $541,000 in cash, provides ILEX with two
locations from which European clinical trials will be managed and supported:
Edinburgh, Scotland and Guildford, England.
On July 16, 1999, the Company acquired Convergence Pharmaceuticals,
Inc., (Convergence) of Boston, MA, a privately held research-based
pharmaceutical company with an emerging portfolio of angiogenesis and DNA repair
inhibitors. Under the terms of the purchase agreement, ILEX acquired
-17-
<PAGE> 18
Convergence in exchange for 1 million shares of ILEX common stock, and an
additional earn-out of up to 1 million shares to be issued to Convergence's
founders if certain development milestones are met. The Company also assumed
$1.0 million in Convergence debt as part of the purchase.
ILEX's future expenditures and capital requirements will depend on
numerous factors, including without limitation, the progress of its research and
development programs, the progress of its non-clinical and clinical testing, the
magnitude and scope of these activities, the time and costs involved in
obtaining regulatory approvals, the cost of filing, prosecuting, defending and
enforcing any patent claims and other intellectual property rights, competing
technological and market developments, changes in or termination of existing
collaborative arrangements, the ability of the Company to establish, maintain
and avoid termination of collaborative arrangements, and the purchase of capital
equipment and acquisitions of compounds, technologies or businesses. The
Company's cash requirements are expected to continue to increase each year as it
expands its activities and operations. There can be no assurance that the
Company will ever be able to generate product revenue or achieve or sustain
profitability. The Company expects its cash, cash equivalents, and marketable
securities will be adequate to cover all of its obligations for the next year.
COMPUTER SYSTEMS AND YEAR 2000 ISSUES
The "Year 2000" issue concerns the potential exposures related to the
automated generation of business and financial misinformation resulting from the
application of computer programs which have been written using two digits,
rather than four, to define the application year of business transactions. The
Company's information technology management team has conducted a comprehensive
assessment of the Company's computer systems to identify the systems that could
be affected by the Year 2000, and has determined that the Company's computer
systems are Year 2000 compliant. As such, the Company believes that, based upon
currently available information, it will incur no material costs associated with
becoming Year 2000 compliant. The Company is completing its confirmation of the
Year 2000 readiness of its material customers, service providers, key licensees,
and its material vendors. Failure of the Company, its software providers or the
Company's customers or vendors to adequately address the Year 2000 issue could
result in misstatement of reported financial information, scientific data or
otherwise materially and adversely affect the Company's business, financial
condition and results of operations.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in the "Year 2000 Information and Readiness Disclosure
Act" which was signed into law on October 19, 1998. Such act provides added
protection from liability for certain public and private statements concerning a
company's Year 2000 readiness.
-18-
<PAGE> 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of loss that may impact the financial
position, results of operations, or cash flows of the Company due to adverse
changes in financial market prices, including interest rate risk, foreign
currency exchange rate risk, commodity price risk, and other relevant market
rate or price risks.
The Company is exposed to some market risk through interest rates,
related to its investment of its cash, cash equivalents, and marketable
securities of approximately $15.2 million at June 30, 1999. These funds are
generally invested in highly liquid treasury bills and money market accounts
with short-term maturities. As such instruments mature and the funds are
re-invested, the Company is exposed to changes in market interest rates. This
risk is not considered material and the Company manages such risk by continuing
to evaluate the best investment rates available for short-term high quality
investments. The Company has not used derivative financial instruments in its
investment portfolio.
The Company's European operations are denominated in local currency.
The Company has unhedged transaction exposures in these currencies. The Company
has not entered into any forward foreign exchange contracts for speculative,
trading or other purposes.
-19-
<PAGE> 20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: Not Applicable
Item 2. Changes in Securities: Not Applicable
Item 3. Defaults Upon Senior Securities: Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders was held on May 26, 1999.
(b) Annual Meeting of Shareholders or until their successors
have been elected and qualified:
Gary V. Woods Richard L. Love
A. Dana Callow, Jr. John L. Cassis
Jason S. Fisherman, M.D. Ruskin C. Norman, M.D.
Daniel D. Von Hoff, M.D. Joseph S. Bailes, M.D.
(c) (1) The directors in (b) above were elected by the following
votes:
<TABLE>
<CAPTION>
Shares Shares
Nominee voted for withheld
------- --------- --------
<S> <C> <C>
Gary V. Woods 9,346,425 9,200
Richard L. Love 9,346,425 9,200
A. Dana Callow, Jr. 9,346,425 9,200
John L. Cassis 9,346,425 9,200
Jason S. Fisherman, M.D. 9,346,425 9,200
Ruskin C. Norman, M.D. 9,346,425 9,200
Daniel D. Von Hoff, M.D. 9,346,425 9,200
Joseph S. Bailes, M.D. 9,346,425 9,200
</TABLE>
(d) that with respect to the proposal to ratify the appointment
of Arthur Andersen LLP as the Company's independent public
accountants for the fiscal year ending December 31, 1999,
9,351,725 shares of Common Stock were voted "For", 2,000
shares were voted "Against" and 1,900 shares abstained from
voting.
Item 5. Other Information: Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 2.1: Plan of Merger and Acquisition Agreement
dated July 16, 1999 by and among ILEX
Oncology, Inc., ILEX Acquisition, Inc.,
Convergence Pharmaceuticals, Inc., Vikas
Sukhatme, Raghuram Kalluri, Ralph
Weichselbaum, Donald Kufe, Glenn C. Rice and
Tsuneya Ohno (incorporated herein by
reference to Exhibit 2.1 of the Company's
current report on Form 8-K dated July 16,
1999 and filed on July 30, 1999)
-20-
<PAGE> 21
Exhibit 10.1 Employment Agreement dated July 16, 1999 by
and between ILEX Oncology, Inc. and Glenn C.
Rice (incorporated herein by reference to
Exhibit 10.1 of the Company's current report
on Form 8-K dated July 16, 1999 and filed on
July 30, 1999)
Exhibit 10.2 Registration Rights Agreement dated July 16,
1999 among ILEX Oncology, Inc., Vikas
Sukhatme, Raghuram Kalluri, Ralph
Weichselbaum, Donald Kufe, Glenn C. Rice
Tsuneya Ohno, Stephen Dolezalek, Beth Israel
Deaconess Medical Center and Arch
Development Corporation (incorporated herein
by reference to Exhibit 10.2 of the
Company's current report on Form 8-K dated
July 16, 1999 and filed on July 30, 1999)
Exhibit 10.3* Stock Purchase Agreement dated July 16, 1999
by and between ILEX Oncology, Inc. and each
of the Investors (as defined therein)
Exhibit 11.1*: Computation of Net Loss Per Share
Exhibit 27.1*: Financial Data Schedule
(b) Reports on Form 8-K: Not Applicable
- ------------
* Filed herewith.
-21-
<PAGE> 22
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.
ILEX ONCOLOGY, INC.
(Registrant)
Dated: August 13, 1999 By: /s/ Richard L. Love
----------------- ---------------------------------------
Richard L. Love
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 13, 1999 By: /s/ Michael T. Dwyer
----------------- ---------------------------------------
Michael T. Dwyer
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------- -----------
<S> <C>
Exhibit 10.3 Stock Purchase Agreement dated July 16, 1999
by and between ILEX Oncology, Inc. and each
of the Investors (as defined therein)
Exhibit 11.1: Computation of Net Loss Per Share
Exhibit 27.1: Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into as of the
16th day of July, 1999, by and between ILEX Oncology, Inc., a Delaware
corporation, (the "Company"), and each of the Investors listed on the Schedule
of Investors attached hereto as Schedule A (collectively, the "Investors" and
individually, each an "Investor").
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale. Subject to the terms and conditions hereof, the
Investors agree to purchase from the Company, and the Company agrees to issue
and sell to the Investors, an aggregate number of shares of the Company's common
stock, $.01 par value, equal to the quotient obtained by dividing (x)
$20,000,000 by (y) 85% of the Market Price (the "Shares") for an aggregate
purchase price of twenty million dollars ($20,000,000) (the "Purchase Price").
The number of Shares to be sold by the Company to each Investor and the
aggregate consideration to be received by the Company from each Investor is set
forth opposite Investor's name on the Schedule of Investors attached hereto.
"Market Price" shall mean the average of the closing bid and asked prices of a
share of Common Stock for the 30 consecutive trading days immediately prior to
the Closing Date.
1.2 The Closing. The closing ("Closing") of the purchase and sale of
the Shares shall take place in such manner as the parties may mutually agree.
The date of the Closing is hereinafter referred to as the "Closing Date." At the
Closing, the Company shall deliver stock certificates representing the Shares in
such denomination and registered in the name of each Investor as set forth on
the Schedule of Investors upon delivery to the Company by each Investor of the
aggregate amount of the purchase price of the Shares to be purchased by such
Investor as set forth on the Schedule of Investors in United States dollars in
immediately available funds by wire transfer to an account designated prior to
the Closing Date in writing by the Company for such purpose.
ARTICLE II
REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Investors as follows:
2.1 Organization, Good Standing and Qualification. The Company: (a) is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware; (b) has all requisite corporate power and
authority to own and operate its properties and assets and to carry on its
business as it is presently being conducted and as proposed to be conducted; and
(c) is qualified and is in good standing as a foreign corporation in all other
jurisdictions in which the failure so to qualify would have a material adverse
effect on its business or properties.
2.2 Capitalization. Immediately prior to the Closing, the authorized
capital of the Company consists of 60,000,000 shares of Common Stock, of which
12,979,678 shares were issued
<PAGE> 2
and outstanding on July 15, 1999, all of which have been validly issued, and are
fully paid and non-assessable, and 20,000,000 shares of Preferred Stock, none of
which were issued and outstanding on the date hereof.
2.3 Authorization. All corporate action on the part of the Company and
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the performance of all obligations of
the Company hereunder and the authorization, issuance and delivery of the Shares
has been taken or will be taken on or prior to the Closing, and this Agreement
constitutes a valid and legally binding obligation of the Company.
2.4 Valid Issuance of Shares. When issued in accordance with the terms
of this Agreement, the Shares shall be duly and validly authorized and issued
(including, without limitation, issued in compliance with applicable federal and
state securities laws), fully paid and non-assessable and not subject to any
preemptive rights, liens, claims or encumbrances, or other restriction on
transfer. Furthermore, the certificates representing the Shares will be in due
and proper form and have been duly and validly executed by the officers of the
Company named thereon.
2.5 Governmental Consents. All consents, approvals, orders,
authorizations, registrations, qualifications, designations, declarations or
filings of or with any federal, state or local governmental authority on the
part of the Company required in connection with the consummation of the
transactions contemplated herein have been or shall be obtained prior to the
Closing and shall be effective as of the Closing.
2.6 Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Company's knowledge and belief,
any basis therefor or threat thereof, against or affecting the Company which
question the validity of this Agreement or the right of the Company to enter
into it, or to consummate the transactions contemplated hereby, or which might
result, either individually or in the aggregate, in any material adverse change
in the business, prospects, conditions, affairs or operations of the Company or
in any of the properties or assets, or in any material impairment of the right
or ability of the Company to carry on its business as now conducted or as
proposed to be conducted. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving the
prior employment of any of the Company's employees, use in connection with the
Company's business of any information or techniques allegedly proprietary to any
former employers of the Company's employees, or obligations of the Company's
employees under any agreements with their prior employers. The Company is not a
party or subject to the provisions of any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality. There is no
action, suit, proceeding or investigation by the Company currently pending or
which the Company intends to initiate.
2.7 No Conflict With Other Instruments. The Company is not in violation
or default of any provisions of its Amended and Restated Certificate of
Incorporation or Bylaws, as amended, or of any instrument, judgment, order,
writ, decree or contract to which it is a party or by which it is bound or, to
its knowledge, of any provision of federal or state statute, rule or regulation
applicable to the Company, which violation or default would be materially
adverse to the Company. The execution, delivery and performance of this
Agreement will not result in any violation of, be in conflict with, or
constitute a default under, with or without the passage of time or the giving of
-2-
<PAGE> 3
notice: (a) any provision of the Company's Certificate of Incorporation or
Bylaws; (b) any provision of any judgment, decree or order to which the Company
is a party or by which it is bound; (c) any material contract, obligation or
commitment to which the Company is a party or by which it is bound; or (d) to
the Company's knowledge, any statute, rule or governmental regulation applicable
to the Company.
2.8 Securities and Financial Statement Matters. Company has duly filed
in a timely manner (without any permitted extension) all reports (the "SEC
Reports") required to be filed by Company with the Securities and Exchange
Commission (the "SEC") under the Securities Exchange Act of 1934, as amended
(the "1934 Act"). The SEC Reports (including, in each case, without limiting the
generality thereof, the audited and unaudited financial statements of Company
included therein) when filed contained all statements required to be stated
therein in accordance with the 1934 Act and did not contain any untrue statement
of material fact or omit to state a material fact necessary to make any of the
statements contained therein not misleading in light of the circumstances under
which they were made and otherwise complied in all material respects with the
applicable requirements of the 1934 Act. The consolidated financial statements
included in the SEC Reports comply as to form with the requirements of
Regulation S-X, as promulgated by the SEC under the Securities Act of 1933, as
amended (the "1933 Act"), and are derived from the applicable books and records
of Company, have been prepared in conformity with generally accepted accounting
principles (as required by Regulation S-X) and present fairly the financial
condition, results of operations, changes in security holders' equity and cash
flows of Company on a consolidated basis, as at the close of business, or for
the period ended, on the date of each of such financial statements.
2.9 Absence of Certain Changes or Events. Except as disclosed in the
financial statements referred to in Section 2.8, the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, or as otherwise
disclosed in Section 2.9 of the Disclosure Schedule attached hereto, since March
31, 1999, neither Company nor any of its subsidiaries or affiliates has incurred
any liabilities or obligations, direct or contingent, or entered into any
transactions, not in the ordinary course of business, that are material to
Company and its subsidiaries and affiliates, taken as a whole, and there has not
been (i) any material change in the capital stock of the Company or its
subsidiaries that would have a Material Adverse Effect (as defined below) or
(ii) any event, change or occurrence which individually or in the aggregate
might (x) have a material adverse effect on the condition (financial or other),
assets, business, or results of operations of Company, taken as a whole, (y)
materially adversely affect Company's ability to consummate any of the
transactions contemplated hereby or to perform its obligations under this
Agreement or (each of (x) and (y) being referred to herein, individually or in
the aggregate as a "Material Adverse Effect"). No event has occurred since March
31, 1999, with respect to which Company would be required to file a Current
Report on Form 8-K under the 1934 Act.
2.10 Corporate Documents. The Amended and Restated Certificate of
Incorporation and Bylaws, as amended, of the Company are in the form previously
provided to each Investor.
2.11 Registration Rights. Except as provided in Section 2.11 of the
Disclosure Schedule, the Company is under no contractual obligation to register
(now or in the future, whether contingent
-3-
<PAGE> 4
or not) under the 1933 Act any of its presently outstanding securities or any of
its securities that may subsequently be issued.
2.12 Brokers and Finders. The Company has not retained any investment
banker, broker, finder, consultant or intermediary and is not obligated to any
such person for any fee, in connection with the transactions contemplated by
this Agreement.
2.13 SEC Documents. The Company has provided to each Investor its
Annual Report on Form 10-K for the year ended December 31, 1998, its Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999, and its proxy
statement with respect to the Annual Meeting of Stockholders held on May 26,
1999.
2.14 Investment Company Act. The Company is not an "investment company"
or a company controlled by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended.
2.15 Compliance with Law. The business of the Company is not being
conducted in violation of any material law, ordinance or regulation of any
governmental entity (including, without limitation, those relating to
environmental protection and occupational safety and health practices). All
material governmental approvals, permits and licenses required to conduct the
current business of the Company have been obtained and are in full force and
effect and are being complied with in all material respects.
2.16 Form S-3. The Company is a registrant qualified and entitled to
use a registration statement on Form S-3.
ARTICLE III
REPRESENTATIONS OF EACH INVESTOR
Each Investor represents and warrants to the Company as follows:
3.1 Authorization. The Investor has full power and authority to enter
into this Agreement. This Agreement constitutes a valid and legally binding
obligation of each Investor.
3.2 Brokers and Finders. No Investor has retained any investment
banker, broker, finder, consultant or intermediary and is not obligated to any
such person for any fee, in connection with the transactions contemplated by
this Agreement.
ARTICLE IV
SECURITIES LAWS
4.1 Securities Laws Representations and Covenants of the Investors.
Each Investor represents, warrants and covenants to the Company as follows:
-4-
<PAGE> 5
(a) Purchase Entirely for Own Account. The Shares are being
acquired for investment for each Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and no Investor has any present intention of selling, granting any participation
in, or otherwise distributing the same. No Investor has any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Shares. No Investor was organized solely for the purpose of acquiring the
Shares.
(b) Disclosure of Information. Each Investor believes it has
received all information it considers necessary or appropriate for deciding
whether to purchase the Shares. Each Investor has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Shares.
(c) Investment Experience. Each Investor has previously invested in
companies in the development stage, can bear the economic risks of the
investment and has such knowledge and experience in financial or business
matters that it is capable of evaluating the merits and risks of its investment
in the Shares.
(d) Accredited Investor. Each Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, of the SEC under the 1933
Act.
(e) Restricted Securities. Each Investor understands that the
Shares it is purchasing pursuant to this Agreement are characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations the Shares may be resold
without registration under the 1933 Act only in certain limited circumstances.
In this connection, each Investor is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the 1933
Act.
(f) Disposition of Shares. No Investor will dispose of any of the
Shares (other than pursuant to SEC Rules 144 or 144A or any similar or analogous
rule or rules) unless and until (i) such Investor shall have notified the
Company of the proposed disposition and the circumstances surrounding the
proposed disposition and, if reasonably requested by the Company, such Investor
shall have furnished the Company with an opinion of counsel reasonably
satisfactory in form and substance to the Company to the effect that such
disposition will not require registration under the 1933 Act; or (ii) there is
in effect a registration statement under the 1933 Act covering the proposed
disposition and the proposed disposition is made in accordance with such
registration statement.
4.2 Legends. The certificates evidencing the Shares may bear the
restrictive legend set forth below:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS. NEITHER THE SECURITIES NOR ANY
INTEREST THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER
-5-
<PAGE> 6
THE ACT AND SUCH STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH, IN THE OPINION OF
COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY
SATISFACTORY TO THE COUNSEL FOR THIS CORPORATION, IS AVAILABLE.
ARTICLE V
CONDITIONS OF THE INVESTORS' OBLIGATIONS AT THE CLOSING
The obligations of the Investors under this Agreement to purchase the
Shares from the Company are subject to the fulfillment on or before the Closing
of each of the following conditions, any of which may be waived in writing by
the Investors:
5.1 Representations and Warranties. The representations and warranties
of the Company contained in Article II of this Agreement shall be true on and as
of the Closing with the same effect as though such representation and warranties
had been made on and as of the Closing.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
5.3 Compliance Certificate. The Company shall have delivered to the
Investors a certificate dated as of the Closing, executed by an executive
officer of the Company and in a form reasonably acceptable to the Investor,
certifying that the conditions set forth in Sections 5.1 and 5.2 have been
satisfied and that there has been no material adverse change in the assets,
properties, prospects, condition, affairs, operations or business of the
Company, as now conducted or as proposed to be conducted, since the date of this
Agreement.
5.4 Proceedings and Documents. All corporate and other proceedings
taken by the Company in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Investors, and the Investors shall have received all
such documents as it may have reasonably requested.
5.5 Acquisition of Convergence. The Company shall have completed the
acquisition of Convergence Pharmaceuticals, Inc.
5.6 Opinion of Counsel. The Investors shall have received an opinion
from the Company's counsel, dated as of the Closing and in a form and substance
reasonably acceptable to the Investors, to the effect that:
(a) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and the Company
has the requisite corporate power and authority to own its properties and to
conduct its business;
(b) The Company has the corporate power and authority to execute,
deliver and perform its obligations under the terms of the Agreement. This
Agreement has been duly authorized, executed
-6-
<PAGE> 7
and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except (i) as the enforceability thereof may be limited by bankruptcy,
insolvency or other laws relating to or affecting creditors' rights generally,
(ii) as rights to indemnity and contribution may be limited under applicable law
or by principles of public policy and (iii) as such enforceability may be
limited or affected by general principles of equity, whether applied by a court
of law or equity;
(c) The execution, delivery and performance by the Company with the
terms of this Agreement do not violate any provision of the Company's
Certificate of Incorporation or By-laws and, to such counsel's knowledge, do not
conflict with or constitute a default under the provisions of any judgment,
writ, decree or order known to such counsel or any material agreement to which
the Company is a party or by which it is bound and which is filed as an exhibit
to, or incorporated by reference in, the Company's Form 10-K for the fiscal year
ended December 31, 1998, and the Company's Form 10-Q for the quarter ended March
31, 1999;
(d) All consents, approvals, orders or authorizations of, and all
qualifications, registrations, designations, declarations, or filings with, any
federal, Delaware or Texas governmental authority required to be made prior to
the Closing in connection with the consummation of the transactions contemplated
by this Agreement have been made or obtained, and are effective, and such
counsel is not aware of any proceedings, or threat thereof, which question the
validity thereof;
(e) Based in part upon the representations of the Investors set
forth in this Agreement, the offer and sale of the Shares pursuant to the terms
of this Agreement are exempt from the registration requirements of Section 5 of
the Securities Act;
(f) To such counsel's knowledge, there is no action, proceeding or
investigation pending or threatened against the Company, which questions the
validity of this Agreement, or any action be taken by the Company pursuant to or
in connection with the Agreement;
(g) The Shares have been duly authorized and, when issued in
compliance with this Agreement, will be fully paid and non-assessable and will
be free of any liens or encumbrances created by the Company; and
(h) There are no preemptive rights with respect to the issuance and
sale of the Shares and there are no restrictions on transfer of the Shares other
than those arising under federal and state securities laws.
5.7 SBA Sideletter. The Company shall have executed the letter
agreement between the Company, Chase Venture Capital Associates, L.P. and ILEX
Chase Partners (Alto Bio), LLC attached hereto as Exhibit 5.7 regarding small
business matters (the "Small Business Sideletter").
-7-
<PAGE> 8
ARTICLE VI
CONDITIONS OF THE COMPANY'S OBLIGATIONS AT THE CLOSING
The obligations of the Company under this Agreement to issue and sell
the Shares to the Investor are subject to the fulfillment on or before the
Closing of each of the following conditions, any of which may be waived in
writing by the Company:
6.1 Representations and Warranties. The representation and warranties
of each Investor contained in Article III and Article IV of this Agreement shall
be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. The Investors shall at the Closing pay
the Purchase Price upon delivery by the Company of a certificate representing
the Shares.
ARTICLE VII
POST-CLOSING COVENANTS OF THE COMPANY
With a view to making available to the Investors the benefits of SEC
Rule 144 and any other rule or regulation of the SEC that may at any time permit
the Investors to sell securities of the Company to the public without
registration, the Company agrees to use best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act.
ARTICLE VIII
REGISTRATION RIGHTS
8.1 Registration Rights. As soon after Closing as is reasonably
practicable, the Company will use its best efforts to file a registration
statement on Form S-3 (or any successor to Form S-3) (or other appropriate
registration statement) with the SEC and such applications or other filings as
required under applicable state securities or blue sky laws sufficient to permit
the public offering of the Shares to be made on a continuous basis pursuant to
Rule 415 under the 1933 Act, and shall use its best efforts to cause such
registration statement to be declared effective so that the Shares will be
registered for the offering on such Form. Notwithstanding the foregoing, the
Company shall not be obligated to effect a registration (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the 1933 Act; or (ii) if the Company shall
furnish to the Investors a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the Company
the filing of a registration statement would require the disclosure of material
information that the Company has a bona fide business purpose for preserving as
confidential and that is not then otherwise required to be disclosed, then the
Company's obligation to use its best efforts to file a registration statement
shall be deferred for a period not to exceed 180 days from the date of such
notice.
-8-
<PAGE> 9
8.2 Registration Procedures and Expenses. As provided in Section 8.1
hereof, the Company shall, as expeditiously as is reasonably practicable, do
each of the following:
(a) prepare and file with the SEC a registration statement with
respect to the Shares and, subject to the limitations under Section 8.1 hereof,
use its best efforts to cause such registration statement to become effective
and remain effective for two years as provided herein;
(b) cooperate with the Investors and any underwriter who shall sell
the Shares in connection with their review of the Company made in connection
with such registration;
(c) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective until the
earlier to occur of the sale of all of the Shares by the Investors or the second
anniversary of the effectiveness of the registration statement, and to comply
with the provisions of the 1933 Act and the 1934 Act, with respect to the
disposition of all the Shares covered by such registration statement for such
period;
(d) furnish to the Investors such number of copies of the
prospectus forming a part of such registration statement (including each
preliminary prospectus), in conformity with the requirements of the 1933 Act,
and such other documents as the Investors may reasonably request in order to
facilitate the disposition of the Shares; and
(e) notify the Investors, at any time when a prospectus relating to
the Shares is required to be delivered under the 1933 Act, of the happening of
any event as a result of which the prospectus forming a part of such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing, prepare and furnish to the Investor a reasonable
number of copies of any supplement to or any amendment of such prospectus that
may be necessary so that, as thereafter delivered to the purchasers of the
Shares, such prospectus shall not include any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing.
8.3 Agreement by each Investor. In the event that each Investor
participates, pursuant to this Article 8, in the offering of the Shares, such
Investor shall:
(a) furnish the Company all material information reasonably
requested by the Company concerning the Investor and the proposed method of sale
or other disposition of the Shares and such other information and undertakings
as shall be reasonably required in connection with the preparation and filing of
the registration statement covering the Shares in order to ensure full
compliance with the 1933 Act and the rules and regulations of the SEC
thereunder;
(b) cooperate in good faith with the Company and its underwriters,
if any, in connection with such registration, including placing the Shares in
escrow or custody to facilitate the sale and distribution thereof, provided that
such escrow or custody arrangement shall be no more
-9-
<PAGE> 10
restrictive upon the Investors than upon any other holder of stock of the
Company for the benefit of whom such registration is undertaken; and
(c) make no further sales or other dispositions, or offers
therefor, of the Shares under such registration statement if, during the
effectiveness of such registration statement, an intervening event should occur
which, in the opinion of counsel to the Company, makes the prospectus included
in such registration statement no longer comply with the 1933 Act, so long as
written notice containing the facts and legal conclusions relied upon by the
Company in this regard has been received by each Investor from the Company,
until such time as each Investor has received from the Company copies of a new,
amended or supplemented prospectus complying with the 1933 Act, which prospectus
shall be delivered to the Investors by the Company as soon as practicable after
such notice.
8.4 Allocation of Expenses. The Company shall pay the costs and
expenses in connection therewith, other than the attorneys' fees of the
Investors; provided, however, that the Investors shall pay all underwriting
discounts, selling commissions and stock transfer taxes attributable to the
Shares under such registration statement.
8.5 Indemnification.
(a) Upon the registration of any of the Shares under the 1933 Act
pursuant to Article 8 hereof, each of the Investors registering such shares,
severally and not jointly, shall indemnify and hold harmless the Company, each
director and officer of the Company, each underwriter and any person who
controls the Company or such underwriter within the meaning of Section 5 of the
1933 Act, and the Company's accountants and legal counsel, against all expenses,
claims, losses, damages and liabilities (or actions or proceedings in respect
thereof) including any of the foregoing incurred in settlement of any commenced
or threatened litigation, arising out of or based upon any untrue statement (or
alleged untrue statement) of any material fact, or omission (or alleged
omission) of any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading contained in any such registration statement, preliminary
prospectus or final prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration qualification
or compliance, if such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company or its
underwriter by or on behalf of such Investor specifically for use therein.
(b) The Company will indemnify each Investor, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 5 of the 1933 Act, against all
expenses, claims, losses, damages and liabilities (or actions or proceedings in
respect thereof), including any of the foregoing incurred in settlement of any
commenced or threatened litigation, arising out of or based upon any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereof, incident to any such registration,
qualification or compliance, or arising out of or based upon any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in the light of
-10-
<PAGE> 11
the circumstances in which they were made, not misleading, provided that the
Company will not be liable to indemnify such Investor(s) or a underwriter in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of a Investor or a
underwriter specifically for use therein.
(c) Each party entitled to indemnification under this Section 8.5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld). Without limiting the generality of the foregoing, the Indemnified
Party may withhold its consent to any such counsel who also acts as counsel to
the Indemnifying Party (with respect to such claim or otherwise) if the
Indemnified Party reasonably believes that there exists a conflict of interest
between the Indemnified Party and the Indemnifying Party, with respect to such
claim or litigation. In such event, the Indemnifying Party shall bear the
expense of another counsel who shall represent the Indemnified Party and any
other persons or entities who have indemnification rights from the Indemnifying
Party hereunder, with respect to such claim or litigation, and shall be selected
as provided in the first sentence of this Section 8.5(c). The Indemnified Party
may participate in such defense at such party's expense (except to the extent
that the Indemnifying Party is required to pay the expense of such counsel
pursuant to this Section 8.5(c), and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
causes material harm to the Indemnifying Party's defense such claim or
litigation. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability with respect to such claim or
litigation.
(d) If the indemnification provided for in this Section 8.5(d) is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by or on
behalf of the Indemnifying Party or by the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
-11-
<PAGE> 12
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement (together with any attachments or
exhibits including, without limitation, the Registration Rights Agreement)
constitutes the entire agreement between the Company and the Investors relating
to the subject matter hereof, and no party shall be liable or bound to the other
in any manner by any warranties, representations or covenants except as
specifically set forth herein.
9.2 Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Except as expressly provided in this Agreement and the
Registration Rights Agreement, nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto or their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas without application of the choice
of laws provisions of such laws.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Headings. The headings used in this Agreement are for convenience
and shall not by themselves be considered in construing or interpreting this
Agreement.
9.6 Notices. Any notice required or permitted hereunder shall be given
in writing and shall be conclusively deemed effectively given upon either (a)
personal delivery; (b) one day after facsimile transmission to the facsimile
number indicated below and evidenced by a written record of completed
transmission to such number; or (c) five days after deposit in the United States
mail, by registered or certified mail, postage prepaid, addressed to the
following address, or to such other address as the party may designate by ten
(10) days' advance written notice to the other party:
If to the Investors:
At the address on the Company's stock ledger, or such other address
as may be provided by such Investor;
-12-
<PAGE> 13
If to the Company:
ILEX Oncology, Inc.
11550 I.H. 10 West, Suite 100
San Antonio, Texas 78230
Attn: President
Facsimile No: (210) 949-8227
9.7 Survival of Warranties. The warranties, representations and
covenants of the parties contained in or made pursuant to this Agreement shall
survive the execution and deliver of this Agreement and the Closing and shall in
no way be affected by any investigation of the subject matter thereof by or on
behalf of the Investors; provided, however, that such representations and
warranties need only be accurate as of the date of such execution and delivery
and as of the Closing.
9.8 Finder's Fees. Each party agrees to indemnify and hold harmless the
other party from and against any liability for any commission or compensation in
the nature of investment banking or finder's fees in connection with the
transactions contemplated by this Agreement (and the costs and expenses of
defending against such liability or asserted liability) for which the
indemnifying party or any of its officers, employees or representatives is
responsible.
9.9 Expenses. On the Closing Date, the Company will pay the reasonable
legal fees and expenses of the Investors up to $20,000, in connection with the
negotiation, execution, delivery and performance of this Agreement.
9.10 Amendments and Waivers. Except as expressly provided in this
Agreement, any provision of this Agreement may be amended only by the mutual
written agreement of the parties and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only in a written document executed by the
waiving party.
9.11 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.12 Regulatory Matters. Each Investor agrees to cooperate with the
Company in all reasonable respects in complying with the terms and provisions of
the Small Business Sideletter, provided that no Investor shall be required under
this Section 9.12 to take any action that would adversely affect in any material
respect such Investor's rights under this Agreement or as a stockholder of the
Company.
-13-
<PAGE> 14
IN WITNESS WHEREOF the parties have executed this Agreement effective
as of the day and year first above written.
ILEX ONCOLOGY, INC.
By:
-----------------------------------------
Richard L. Love
President
INVESTORS:
ALTA BIOPHARMA PARTNERS, L.P.
By: Alta BioPharma Management, LLC
By:
-------------------------------
Managing Partner
ILEX CHASE PARTNERS (ALTA BIO), LLC
By: Alta/Chase BioPharma Management, LLC
By:
-----------------------------------------
Member
ALTA EMBARCADERO
BIOPHARMA PARTNERS, LLC
By:
-----------------------------------------
Member
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By:
-----------------------------------------
By:
-------------------------------
Managing Partner
--------------------------------------------
B. J. McCombs
-14-
<PAGE> 15
ADVENT HEALTH CARE AND LIFE
SCIENCES II LIMITED PARTNERSHIP
By: Advent International Limited Partnership,
General Partner
By: Advent International Corporation,
General Partner
By:
------------------------------------
Vice President/Senior
Vice President
ADVENT HEALTH CARE AND LIFE
SCIENCES II BETEILIGUNG GMBH & CO. KG
By: Advent Health Care and Life Sciences II
Verwaltungs GmbH, General Partner
By: Advent International Limited Partnership,
Managing General Partner
By: Advent International Corporation, General
Partner
By:
------------------------------------
Vice President/Senior
Vice President
ADVENT PARTNERS HLS II LIMITED PARTNERSHIP
By: Advent International Corporation, General
Partner
By:
------------------------------------
Vice President/Senior
Vice President
ADVENT PARTNERS LIMITED PARTNERSHIP
By: Advent International Corporation,
General Partner
By:
------------------------------------
Vice President/Senior
Vice President
-15-
<PAGE> 16
SCHEDULE A
SCHEDULE OF INVESTORS
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF SHARES PURCHASE
NAME AND ADDRESS TO BE PURCHASED PRICE ($)
---------------- ---------------- -----------
<S> <C> <C>
Alta BioPharma Partners, L.P. 742,547 $ 6,215,859
Alta Embarcadero BioPharma, LLC 27,988 $ 234,288
ILEX Chase Partners (Alta Bio), LLC 424,065 $ 3,549,852
Chase Venture Capital Associates, L.P. 238,920 $ 2,000,000
B. J. McCombs 119,460 $ 1,000,000
Advent Health Care and Life Sciences II Limited
Partnership 757,974 $ 6,345,000
Advent Health Care and Life Sciences II
Beteiligung GmbH & Co. KG 58,894 $ 493,000
Advent Partners HLS II Limited Partnership 16,844 $ 141,000
Advent Partners Limited Partnership 2,509 $ 21,000
--------- -----------
TOTAL 2,389,201 $20,000,000
========= ===========
</TABLE>
A-1
<PAGE> 17
DISCLOSURE SCHEDULE
to
Stock Purchase Agreement
among
the Company and the Investors
Section 2.9
Certain Changes
On May 26, 1999 the Board of Directors of ILEX approved a write-off of up to $20
million in largely non-cash value of investments in affiliates and certain other
non-productive assets and commitments in the CRO business.
Section 2.11
Registration Rights
Registration Rights Agreement dated July 16, 1999, among ILEX Oncology, Inc. and
Shareholders of Convergence Pharmaceuticals, Inc.
Registration Rights Agreement dated January 22, 1999, among ILEX Oncology, Inc.
and Eli Lilly and Company.
Registration Rights Agreement dated as of July 9, 1997, among ILEX Oncology,
Inc. and PRN Research, Inc.
Fourth Amended and Restated Registration Rights Agreement dated December 11,
1996.
A-2
<PAGE> 1
EXHIBIT 11.1
ILEX ONCOLOGY, INC.
COMPUTATION OF NET LOSS PER SHARE
(In Thousands, Except Per Share Amount)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1998 1999 1998 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE
Net Loss $ (4,458) $ (22,609) $ (11,404) $ (27,089)
Weighted average number of shares of Common
Stock outstanding 12,306 12,955 12,293 12,829
Basic net loss per share $ (.36) $ (1.74) $ (.93) $ (2.11)
========== ========== ========== ==========
COMPUTATION OF DILUTED LOSS PER SHARE
Net Loss $ (4,458) $ (22,609) $ (11,404) $ (27,089)
Weighted average number of shares of Common Stock and
Common Stock equivalents outstanding:
Weighted average number of shares of Common
Stock outstanding
12,306 12,955 12,293 12,829
Weighted average number of Common Stock equivalents
applicable to stock options and warrants (1) 411 323 361 431
---------- ---------- ---------- ----------
Common Stock and Common Stock equivalents 12,717 13,278 12,654 13,260
========== ========== ========== ==========
Diluted net loss per share $ (.35) $ (1.70) $ (.90) $ (2.04)
========== ========== ========== ==========
</TABLE>
(1) This calculation is submitted in accordance with Item 601(b)11 of
regulation S-K although it is not required by SFAS No. 128 because it is
antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the Balance
Sheet as of June 30, 1999, and the Statement of Operations for the period then
ended and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,243
<SECURITIES> 9,977
<RECEIVABLES> 5,950
<ALLOWANCES> 150
<INVENTORY> 0
<CURRENT-ASSETS> 21,409
<PP&E> 6,285
<DEPRECIATION> 2,337
<TOTAL-ASSETS> 27,011
<CURRENT-LIABILITIES> 8,675
<BONDS> 0
0
0
<COMMON> 136
<OTHER-SE> 17,709
<TOTAL-LIABILITY-AND-EQUITY> 27,011
<SALES> 0
<TOTAL-REVENUES> 7,636
<CGS> 0
<TOTAL-COSTS> 13,671
<OTHER-EXPENSES> 13,882
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (27,089)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,089)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,889)
<EPS-BASIC> (2.11)
<EPS-DILUTED> (2.11)
</TABLE>
