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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission File No. 0-24241
V.I. TECHNOLOGIES, INC.
-----------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-3238476
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 Duryea Road, Melville, New York 11747
-----------------------------------------
(Address of principal executive offices)(Zip code)
Registrant's telephone number, including area code: (516) 752-7314
- -------------------------------------------------------------------------------
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 ( )
The number of shares outstanding of each of the Registrant's classes of common
stock as of October 31, 1999
Title of Class Shares Outstanding
Common Stock, $.01 par value 12,528,643
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V. I. TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements:
Condensed balance sheets at October 2, 1999
and January 2, 1999 3
Condensed statements of operations for
the quarter and three quarters
ended October 2, 1999 and October 3, 1998 4
Condensed statement of stockholders' equity
for the three quarters ended
October 2, 1999 5
Condensed statements of cash flows for the
three quarters ended October 2, 1999
and October 3, 1998 6
Notes to condensed financial statements 7
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 15
Market Risk
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
V. I. TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
(In thousands, except for share and per share data)
<TABLE>
<CAPTION>
October 2,
1999 January 2,
(Unaudited) 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,172 $ 35,265
Trade receivables ` 8,981 3,967
Other receivables, net 715 594
Due from related parties, net 49 313
Inventory 2,570 2,512
Prepaid expenses and other current assets 1,005 987
----------- -----------
Total current assets 35,492 43,638
Property, plant and equipment, net 35,117 30,821
Other assets, net 1,274 766
----------- -----------
Total assets $ 71,883 $ 75,225
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,687 $ 2,687
Current portion of capital lease obligations 1,272 1,272
Accounts payable and accrued expenses 9,557 6,576
----------- -----------
Total current liabilities 13,516 10,535
Long-term debt, less current portion 5,855 7,731
Capital lease obligations, less current portion 2,390 3,324
----------- -----------
Total liabilities 21,761 21,590
----------- -----------
Stockholders' equity:
Preferred stock, par value $.01 per share; authorized
1,000,000 at October 2, 1999 and January 2, 1999;
no shares issued and outstanding - -
Common stock, par value $.01 per share; authorized
29,000,000
shares; issued and outstanding 12,514,033 at October 2, 125 124
1999 and
12,359,148 at January 2, 1999
Additional paid-in-capital 86,940 86,575
Accumulated deficit (36,943) (33,064)
----------- -----------
Total stockholders' equity 50,122 53,635
----------- -----------
Total liabilities and stockholders' equity $ 71,883 $ 75,225
=========== ===========
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
3
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except for share and per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
------------------------------------ -------------------------------------
<S> <C> <C> <C> <C>
Revenue $10,502 $11,660 $30,996 $23,727
Costs and expenses:
Cost of sales 6,296 7,818 17,683 17,923
Research and development, net 913 1,894 5,024 5,288
Selling, general and administrative
expenses 2,330 1,648 7,322 5,187
Charge related to R&D restructuring 2,338 - 2,338 -
Charge related to product recall - - 2,645 -
Charge related to research collaboration - - - 2,202
--------------- --------------- --------------- ----------------
Total operating costs and expenses 11,877 11,360 35,012 30,600
--------------- --------------- --------------- ----------------
Income (loss) from operations (1,375) 300 (4,016) (6,873)
Interest income (expense), net 49 186 137 (552)
--------------- --------------- --------------- ----------------
Net income (loss) $(1,326) $ 486 $(3,879) $(7,425)
=============== =============== =============== ================
Basic and diluted net income (loss) per $(0.11) $0.04 $(0.31) $(0.75)
share
=============== =============== =============== ================
Weighted average shares used in calculation
of:
Basic earnings per share 12,476 12,250 12,439 9,897
Diluted earnings per share 12,476 13,218 12,439 9,897
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
4
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock Common Stock Paid-In Accumulated Stockholders'
(Shares) (Amount) Capital Deficit Equity
-------------- -------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at January 2, 1999 12,359,148 $124 $86,575 $(33,064) $53,635
Compensation expense in connection
with acceleration of option vesting - - 4 - 4
Issuance of shares of common stock
upon exercise of stock options and
purchases under the Employee Stock
Purchase Plan 154,885 1 361 - 362
Net loss - - - (3,879) (3,879)
-------------- -------------- --------------- ----------------- -----------------
Balance at October 2, 1999 12,514,033 $125 $86,940 $(36,943) $50,122
============== ============== =============== ================= =================
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
5
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V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
October 2, October 3
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (3,879) $(7,425)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,356 3,021
Compensation expense in connection with acceleration of
option vesting 4 284
Charge related to research collaboration - 2,202
Accretion of interest on customer advance 139 -
Changes in operating accounts:
Trade receivables (5,014) (3,207)
Other receivables, net (121) 855
Due to/from related parties 264 (10)
Inventory (58) (2,037)
Prepaid expenses and other current assets 161 (394)
Deferred revenue - 1,816
Deferred costs (815) -
Accounts payable and accrued expenses 2,981 1,682
--------------- ---------------
Net cash used in operating activities (3,982) (3,213)
--------------- ---------------
Cash flows used in investing activities:
Additions to property, plant and equipment (6,524) (2,496)
--------------- ---------------
Net cash used in investing activities (6,524) (2,496)
--------------- ---------------
Cash flows (used in) provided by financing activities:
Proceeds from sale of common stock, net of
issuance costs - 44,899
Proceeds from issuance of common stock upon exercise
of options 362 195
Principal repayment of long-term debt (2,015) (2,016)
Principal repayment of capital lease obligations (934) (704)
--------------- ---------------
Net cash (used in) provided by financing activities (2,587) 42,374
--------------- ---------------
Net (decrease) increase in cash and cash equivalents (13,093) 36,665
Cash and cash equivalents at beginning of year 35,265 5,250
--------------- ---------------
Cash and cash equivalents at end of period $ 22,172 $31,915
=============== ===============
</TABLE>
The accompanying notes are an integral part of the condensed financial
statements.
6
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V. I. TECHNOLOGIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements of V.I.
Technologies, Inc. (the Company or VITEX) have been prepared in accordance
with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all material adjustments (consisting of normal recurring accruals)
necessary for a fair presentation have been included. Operating results
for the quarter and three quarters ended October 2, 1999 are not
necessarily indicative of the results that may be expected for the year
ended January 1, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on
Form 10-K for the year ended January 2, 1999.
Certain reclassifications were made to prior year amounts to conform to the
1999 presentation.
Stock Split
In February 1998, the Board of Directors authorized and the stockholders
approved a 1-for-2.795 reverse split of the Company's common stock, which
became effective on February 23, 1998. All share and per share amounts
included in the accompanying condensed financial statements and footnotes
have been restated to reflect the reverse stock split.
Fiscal Year
As reported in the Company's Form 8-K filed August 11, 1998, the Company
changed from a calendar year to a 52-53 week fiscal year ending on the
Saturday closest to December 31, beginning with the fiscal year ending
January 2, 1999.
Research and Development
All research and development costs are charged to operations as incurred.
Reimbursement for research and development costs incurred in accordance
with collaborative agreements is recognized as an offset to research and
development costs in the period in which the eligible costs are incurred by
the Company. Such reimbursement totaled $.2 million and $.5 million for
the quarter ended October 2, 1999 and October 3, 1998, respectively, and
$1.5 million and $1.0 million for the three quarters ended October 2, 1999
and October 3, 1998, respectively.
2. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding. Diluted earnings (loss) per
share is computed on the basis of the weighted average number of common
shares outstanding plus the effect of outstanding stock options and
warrants calculated using the "treasury stock" method. Earnings (loss) per
share for the quarter ended October 2, 1999 and three quarters ended
October 2, 1999 and October 3, 1998 do not include the assumed exercise of
stock options and warrants because the effect of such inclusion would be
antidilutive. As of October 2, 1999, the Company had 1,765,131 options and
warrants outstanding.
7
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3. Inventory
Inventory consists of the following (in thousands):
October 2, January 2,
1999 1999
-------------- ---------------
Work in process $1,359 $1,382
Supplies 1,211 1,130
$2,570 $2,512
============== ===============
4. Charge Related to Product Recall
On April 16, 1999, the Company initiated a voluntary recall of lots of
PLAS+SD which were found to contain a heightened presence of parvovirus
B19. This recall, which was a precautionary measure, was completed on May
12, 1999. Results for the second quarter ended July 3, 1999 included one-
time costs associated with the recall amounting to $2,918,000, or $.24 per
share. In the accompanying condensed statements of operations, the charge
related to product recall of $2,645,000 includes the write-off of inventory
lots with heightened levels of parvovirus B19, production testing, other
direct recall expenses and a reserve for an equitable sharing of recall
costs incurred by the Company's exclusive distributor of PLAS+SD, the
American National Red Cross (ARC). Costs associated with idle production
facilities during the recall period, in the amount of $273,000, are
included in cost of sales.
Since the initial recall, the Company has developed and validated a
process to screen untreated plasma for parvovirus B19 prior to commencing
the manufacturing process. This screening uses an experimental, highly
sensitive Polymerase Chain Reaction (PCR) test in order to ensure that this
virus is below specified laboratory levels. The Company has applied to
the FDA for a parvovirus B19 label claim with approval expected in early
2000.
5. Research and Development Restructuring
In July 1999, the Company recorded a research and development restructuring
charge in the amount of $2.3 million, or $.18 per share, in connection with
the anticipated merger with Pentose Pharmaceuticals, Inc. (Note 7). The
charge covers the anticipated costs of workforce reduction programs of
$1,712,000 and other integration-related expenses including the elimination
of duplicate facilities and excess capacity of $626,000. Through October 2,
1999, approximately $624,000 of the anticipated costs have been funded.
6. American National Red Cross Sales Incentive Program
During the quarter ended October 2, 1999, the ARC announced a plan to
accelerate to a full conversion of fresh frozen plasma to PLAS+SD, the
Company's virally inactivated transfusion plasma, over the course of the
next year. Additionally, the ARC announced a significant reduction in
pricing for this product and a standard, national pricing policy. To
support this major initiative by the ARC and promote use of PLAS+SD, the
Company has offered a sales incentive program under which the ARC can earn
credits to be applied to future purchases if certain pricing and market
penetration milestones are achieved. The incentive program has a one-year
period and encompasses an agreement with the ARC to defer by one year the
first scheduled repayment under the $3,000,000 advance from the ARC. The
success of the ARC in increasing market share and the eventual cost to the
Company of this program cannot be estimated at this time.
7. Pentose Merger
On July 28, 1999, the Company and Pentose Pharmaceuticals, Inc. (Pentose),
a privately held company, signed an Agreement and Plan of Merger and
Reorganization pursuant to which Pentose would be merged with and into the
Company. The proposed merger, which is subject to shareholder approval by
both companies, and the satisfaction of other closing conditions, is
structured as an all stock transaction with an estimated value of $41
million, based upon the closing price of the common stock of the Company on
July 27, 1999. Pentose shareholders will receive shares of common stock of
the Company such that, postmerger, they will own 34% of the outstanding
shares of the combined company. All outstanding options, warrants or
8
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other rights to acquire capital stock of Pentose will be assumed by the
Company upon the closing of the transaction. The transaction will be
accounted for under the purchase method of accounting by the Company and it
is expected that the Company will record a $34 million charge for acquired
in-process research and development costs. The merger is anticipated to
close on or about November 12, 1999.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Overview
V.I. Technologies, Inc. is a leading developer of a broad portfolio of blood
products and systems using its proprietary viral inactivation technologies. The
Company's technologies are intended to address the risks of viral contamination
in blood products, including plasma, plasma derivatives, red blood cells and
platelets. Viral inactivation processes have the potential to eliminate viruses
that are enveloped by lipid membranes such as hepatitis B virus (HBV), hepatitis
C virus (HCV) and HIV, the virus that causes AIDS, and non-enveloped viruses
such as hepatitis A virus (HAV) and parvovirus B19 and other known and unknown
pathogens.
On July 28, 1999, the Company announced that it had signed an Agreement and Plan
of Merger and Reorganization pursuant to which Pentose Pharmaceuticals, Inc., a
privately held company developing viral inactivation products, would be merged
with and into the Company. The agreement, which is subject to shareholder
approval by the shareholders of both companies and the satisfaction of other
closing conditions, is structured as an all stock transaction under terms of
which Pentose shareholders will own 34% of the outstanding shares of the
combined company. The transaction is valued at approximately $41 million, based
on the closing price of the Company's common stock on July 27, 1999, and will
be treated as a purchase for accounting purposes. Approximately, $34 million of
the transaction value will be written off as in-process research and development
costs. The Company has recorded a $2.3 million restructuring charge for
severance and other integration-related expenses, including the elimination of
duplicate facilities and excess capacity, operational realignment and related
workforce reductions for the quarter ended October 2, 1999 in anticipation of
the merger. The merger is expected to be completed on or about November 12,
1999, although the Company cannot assure that all of the closing conditions will
be satisfied and the transaction will close within that time frame. Pentose is
developing a proprietary viral inactivation technology, called Inactine
compounds, that in preclinical studies have inactivated all classes of viruses
known to infect blood - both enveloped and non-enveloped viruses - in a highly
selective manner. Pentose's most advanced Inactine development program is for
use in red blood cells. The Company has submitted and received approval for an
Investigational New Drug (IND) application for this program and expects to begin
clinical trials within the next three months. Inactines also have applicability
for viral inactivation of plasma and platelets.
V.I .Technologies reported a net loss of $1.3 million for the third quarter
ended October 2, 1999, including one-time costs of $2.3 million related to the
restructuring of research and development, and its accumulated deficit to that
date was $36.9 million. Operating results will vary from period to period and,
accordingly, the results for the quarter and three quarters ended October 2,
1999 may not necessarily be indicative of results to be expected in future
periods. The significant risk factors that affect the Company are described in
its annual report on Form 10-K for the year ended January 2, 1999.
The Company's revenues are derived from the manufacture and sale of plasma
fractions and transfusion plasma:
. Plasma Fractions. VITEX produces plasma fractions principally for Bayer
Corporation (Bayer) under terms of a processing agreement whose initial term
extends through 2001. Under this agreement, Bayer is obligated to provide
the Company with a specified quantity of plasma annually and the Company is
obligated to return plasma fractions to Bayer within certain specified
periods. The agreement is structured as a take-or-pay arrangement under
which Bayer is obligated to pay VITEX a fixed fee per liter of fractionated
plasma whether or not Bayer fulfills its obligation to supply plasma to the
Company. In the event that VITEX does not provide fractions as required
under the agreement, or upon the occurrence of other events of default,
Bayer has certain rights to take over and operate the fractionation portion
of the Company's production facility.
The Company is currently utilizing all of its existing fractionation plasma
capacity. Due to an industry-wide shortage of fractionation capacity, and
in conjunction with solicitations from Bayer and others, the Company
completed in the third quarter ended October 2, 1999 a 15% expansion of its
fractionation capacity. The Company is currently examining the cost/benefit
of further expansions. Although the Company believes that it can achieve
attractive margins on the newly increased volumes, there can be no assurance
as to the eventual commercial success of expansion.
. Transfusion Plasma. PLAS+SD, the first of the Company's virally inactivated
products, received marketing clearance from the United States Food and Drug
Administration (FDA) on May 6, 1998. Commercial scale production of PLAS+SD,
a pooled transfusion plasma which utilizes the Company's solvent/detergent
(SD) viral inactivation technology to inactivate lipid-enveloped viruses,
began in June 1998. PLAS+SD was the
10
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first, and is the only FDA approved, virally inactivated blood component
available for use in the United States. The product is sold under an
exclusive Amended and Restated Supply, Manufacturing and Distribution
Collaboration Agreement, dated October 1, 1998 (Distribution Agreement) with
the American National Red Cross (ARC) which expires in 2002. Under the
Distribution Agreement, the ARC, which is the largest supplier of
transfusion plasma to hospitals in the United States, providing about 45% of
the transfusion plasma used annually, is required to purchase minimum stated
quantities of PLAS+SD to maintain its exclusive rights. Once the ARC places
its annual purchase order with VITEX, it is obligated to supply VITEX with a
sufficient quantity of plasma to enable VITEX to fulfill the order. The ARC
must pay for the amount of PLAS+SD specified in the purchase order even if
it is unable to supply sufficient quantities of plasma. In the past, there
has been variability in the rate of plasma supply from the ARC. This
situation could recur in future periods, which could negatively impact the
timing of revenue recognition, production scheduling and ultimately,
production costs. Under the Distribution Agreement, the ARC is required to
pay to the Company a fixed price per unit of PLAS+SD, plus a royalty which
is initially fixed. Beyond a specified volume, the royalty becomes variable,
based on equal sharing of the amount by which the average selling price by
the ARC exceeds a stated amount. The Company and the ARC have each committed
to spend minimum amounts for marketing PLAS+SD during the two-year period
ending September 2000. The Company's spending commitment is expected to be
satisfied, to a large extent, by the cost of its sales force, which was
hired in January 1999.
The Company is delivering PLAS+SD under the second purchase order of the ARC
Distribution Agreement. The Distribution Agreement requires the ARC to
achieve certain end-user sales levels in order to maintain its exclusive
distribution rights. Failure to achieve these sales levels could result in
termination of the Distribution Agreement by either the ARC or the Company.
Although end customer sales of PLAS+SD have risen since the product was
introduced, end-user market penetration has increased at a slower rate than
anticipated. There can be no assurance that PLAS+SD will continue to
increase or maintain its current level of market acceptance among blood
centers, physicians, patients and health care payers.
During the quarter ended October 2, 1999, the ARC announced a plan to
accelerate to a full conversion of fresh frozen plasma to PLAS+SD over the
course of the next year. Additionally, the ARC announced a significant
reduction in pricing for this product and a standard, national pricing
policy. To support this major initiative by the ARC and promote use of
PLAS+SD, the Company has offered a sales incentive program under which the
ARC can earn credits to be applied to future purchases if certain pricing
and market penetration milestones are achieved. The incentive program has a
one-year period and encompasses an agreement with the ARC to defer by one
year the first scheduled repayment under the $3,000,000 advance from the
ARC. The success of the ARC in increasing market share and the eventual cost
to the Company of this program cannot be estimated at this time.
During April 1999, in connection with PLAS+SD Phase IV safety studies, the
Company observed several seroconversions to parvovirus B19 in healthy
volunteers who received the product from production lots which were found to
contain high concentrations of the virus. Although there was no evidence of
clinical disease typical of parvovirus B19 associated with these
seroconversions, on April 16, 1999, the Company initiated a voluntary recall
of lots of PLAS+SD that were found to contain heightened levels of
parvovirus B19 DNA. In the second quarter, one-time costs in the amount of
$2,918,000 were recorded in connection with this event. The Company has
implemented parvovirus B19 Polymerase Chain Reaction (PCR) screening in its
product release process which uses experimental, highly sensitive PCR
testing in order to ensure that this virus is below specified laboratory
levels. The Company has completed formal validation of the technique and
applied to the FDA for a parvovirus B19 label claim with approval expected
in early 2000.
The Company's other virally inactivated blood products are all under development
and include:
. Universal PLAS+SD. Universal PLAS+SD is a product under development by the
Company, which is intended to improve upon PLAS+SD. In addition to having
the same characteristics and benefits as PLAS+SD, Universal PLAS+SD would
eliminate the need for matching donor and recipient blood types. Universal
PLAS+SD is prepared using patented technology, exclusively licensed from the
New York Blood Center (NYBC), which binds and removes specific antibodies
present in donor plasma that would otherwise cause an immune response in the
recipient. The Company has filed with the FDA an amendment to its current
IND application for Universal PLAS+SD in order to allow the Company to
initiate pivotal clinical trials.
11
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. Universal PLAS+SD II. Universal PLAS+SD II adds a second method of viral
inactivation to Universal PLAS+SD. In addition to inactivating enveloped
viruses, the Company is evaluating alternative technologies, including
Pentose Inactine compounds and ultra violet light, intended to inactivate
known non-enveloped viruses, such as parvovirus B19 and HAV, and may offer
added protection against other non-enveloped viruses. Universal PLAS+SD II
is at an early stage of development and, consequently, there can be no
assurance that the Company will be able to successfully develop, secure
approval for or commercialize this product.
. VITEX Fibrin Sealant. The Company is developing its VITEX Fibrin Sealant for
use during surgical procedures to augment or replace sutures or staples for
wound closure. Enrollment for a Phase III clinical trial to evaluate the
product's ability to reduce blood loss following carotid artery surgery was
completed during the second quarter of 1999. The Company plans to conduct an
additional Phase III study under new FDA guidelines published in early 1999
and believes that such a trial will provide broader label claims for use in
multiple surgical settings. The Company's fibrin sealant development is
jointly funded by United States Surgical Corporation (U.S. Surgical) which
has entered into an exclusive worldwide distribution agreement with VITEX.
U.S. Surgical was acquired by Tyco Corporation in 1998. The effects, if any,
of this acquisition on the development program and the eventual success of
the product cannot be assessed at this time.
. VITEX Red Blood Cell Concentrates. The Company has been working to develop
virally inactivated red blood cell concentrates (RBCC) based on the use of
light activated compounds that respond to specific wavelengths of light and
has entered into an agreement with Pall Corporation regarding the
development and distribution of systems for the viral inactivation of RBCC.
Following the completion of the Pentose merger described above, the Company
intends to focus its future efforts in red cells on the Pentose Inactine
technology and plans to incorporate this technology into the agreement with
Pall Corporation.
The field of transfusion medicine and therapeutic use of blood products is
characterized by rapid technological change. Product development involves a
high degree of risk, and there can be no assurance that the Company's product
development efforts will result in any commercial success.
Results of Operations
Revenue
Revenue was $10.5 million for the quarter compared to $11.7 million in last
year's third quarter. The decrease from quarter to quarter resulted from reduced
PLAS+SD volumes from the ARC in accordance with the October 1, 1998 amended ARC
Distribution Agreement. For the three quarters ended October 2, 1999, revenue
increased to $31.0 million from $23.7 million for the same period last year.
The increase for the three quarters was primarily due to the initiation of sales
of PLAS+SD, which was approved by the FDA in May 1998. Sales of plasma fractions
were also higher for the quarter and year-to-date, as a result of increased
processing volume and higher unit pricing in accordance with the Company's
processing agreement with Bayer.
Cost of Sales
Cost of sales was $6.3 million for the quarter, compared to $7.8 million for the
third quarter of 1998. For the three quarters ended October 2, 1999, cost of
sales amounted to $17.7 million, compared to $17.9 million for the three
quarters ended October 3, 1998. The decrease for both the quarter and three
quarters was primarily due to additional processing costs in the prior year
related to the production ramp-up of PLAS+SD.
As a percentage of revenue, cost of sales was 60% and 57%, respectively, for the
quarter and three quarters ended October 2, 1999. This was a significant
improvement from the comparative 1998 periods of 7% and 19%, respectively, as
sales of PLAS+SD did not commence until the Company received marketing approval
from the FDA in May 1998. In addition, the Company continued to strengthen both
its plasma fractionation and PLAS+SD manufacturing processes, resulting in
improved margins from the previous quarter. The increase in the percentage of
cost of sales in the third quarter of 1999 compared to the three quarters ended
October 2, 1999 is attributable to the annual shut down which occurred in July
1999.
Research and Development
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Research and development costs decreased $1.0 million for the third quarter to
$.9 million, compared to $1.9 million for the third quarter of 1998. For the
three quarters ended October 2, 1999, research and development costs decreased
to $5.0 million from $5.3 million for the three quarters ended October 3, 1998.
The decrease in research and development costs for the quarter and three
quarters ended October 2, 1999 was attributable to the July, 1999 research and
development restructuring in anticipation of the Pentose merger.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $.7 million in the third
quarter of 1999 to $2.3 million, compared to $1.6 million for last year's
quarter. For the three quarters ended October 2, 1999, selling general and
administrative expenses increased to $7.3 million from $5.2 million for the
three quarters ended October 3, 1998. The increase for the quarter and three
quarters ended October 2, 1999, was principally due to marketing costs
associated with PLAS+SD and the hiring of new personnel, including the national
sales force in December 1998. Although the Company is reducing its general and
administrative expenses in certain areas, expected increases in sales and
marketing expenditures relating to PLAS+SD will likely offset these reductions,
resulting in a similar level of selling, general and administrative expenditures
throughout the remainder of the year.
Charge Related to R&D Restructuring
In July 1999, the Company recorded a $2.3 million, or $.18 per share, research
and development restructuring charge in connection with the anticipated merger
with Pentose Pharmaceuticals, Inc. The charge covers the anticipated costs of
workforce reduction programs and other integration-related expenses, including
the elimination of duplicate facilities and excess capacity.
Charge Related to Product Recall
During the second quarter of 1999, the Company recorded a one-time charge
associated with the recall amounting to $2,918,000, or $.24 per share. In the
condensed statements of operations, the charge related to product recall of
$2,645,000 includes the write-off of inventory lots with heightened levels of
parvovirus B19, production testing, other direct recall expenses and a reserve
for an equitable sharing of recall costs incurred by the Company's exclusive
distributor, the ARC.
Charge Related to Research Collaboration
During the first quarter of 1998, the Company recorded a one-time charge of $2.2
million in connection with its research collaboration with Pall Corporation.
The charge occurred in connection with an equity investment in the Company made
by Pall under the collaboration agreement and reflects the difference between
the amount paid for the shares issued to Pall and the fair market value of the
common stock at that date.
Net Interest Expense
The Company earned net interest income of $.05 million during the quarter ended
October 2, 1999, compared to $.2 million for the third quarter of 1998. During
the three quarters ended October 2, 1999, the Company earned net interest income
of $.1 million compared to the three quarters ended October 3, 1998 when the
Company incurred net interest expense of $.6 million. The change for the three
quarters reflects the reduced level of debt outstanding during 1999, combined
with the interest earned on cash balances, including the proceeds from the
Company's initial public offering. Included in net interest income during the
quarter and three quarters ended October 2, 1999 are non-cash charges of $.07
million and $.2 million, respectively, representing the accretion of the balance
of the Company's non-interest bearing advance from the ARC. Additionally, the
Company recorded $.07 million of interest income as a result of the one-year
deferral of the principal payment originally due to ARC in May 2001.
Liquidity and Capital Resources
The Company has historically financed its operations primarily through sales of
common stock, issuance of long-term debt and capital lease financing
arrangements. In addition to these financing methods, the Company generates
cash from revenues derived under its Processing Agreement with Bayer Corporation
and the sale of PLAS+SD to the ARC. The Company also receives research and
development funding, under a collaboration agreement from U.S. Surgical,
13
<PAGE>
for the direct costs associated with clinical and regulatory activities for the
development of its fibrin sealant and from Pall Corporation, as part of a cost
sharing agreement, in connection with the research collaboration described
previously. At October 2, 1999, the Company had working capital of $22.8
million, including cash and cash equivalents of $22.2 million, compared to
working capital of $33.1 million, including cash and cash equivalents of $35.3
million, at January 2, 1999.
During the three quarters ended October 2, 1999, the Company used $4.0 million
of cash to fund its operations. This was primarily a result of an increase in
receivables due to sales of PLAS+SD, partially offset by an increase in accounts
payable and accrued expenses, reflecting accruals for the charge taken as a
result of the R&D restructuring and the product recall. Cash used in investing
activities of $6.5 million during the three quarters ended October 2, 1999, was
primarily related to the Company's renovation of its production facility. Cash
used in financing activities of $2.6 million was primarily related to scheduled
repayments of the Company's long-term debt and capital lease obligations.
The Company believes that its existing funds and funds expected to be generated
from operations will be sufficient to meet cash requirements in the foreseeable
future.
Year 2000
Some of the Company's older computer software programs were written using two
digit fields rather than four digit fields to define the applicable year (i.e.,
"98" in the computer code refers to the year "1998"). As a result, time-
sensitive functions of those software programs could misinterpret dates after
January 1, 2000, to refer to the twentieth century rather than the twenty-first
century (i.e., "02" could be interpreted as "1902" rather than "2002" (the Year
2000 Issue). This could cause system failures or miscalculations resulting in
inaccuracies in computer output or disruptions of operations, including, among
other things, inaccurate processing of financial information and/or temporary
inability to process transactions, manufacture products, or engage in similar
normal business activities.
The Company's plan to resolve the Year 2000 issue involves the following four
phases: assessment, testing, remediation and maintenance. To date the Company
has fully completed its assessment of all systems that could be significantly
affected by the Year 2000 Issue. The completed assessment indicated that most of
the Company's significant information, financial reporting and manufacturing
systems were at risk. Affected manufacturing systems include program logic
controllers used in various aspects of the manufacturing process.
The Company has fully tested and remediated all information, financial reporting
and manufacturing systems and has developed its contingency plan for critical
applications which primarily involve manual workaround procedures.
The Company has no systems, which directly interface with either customers or
vendors. The Company has queried and of collected responses from its important
suppliers and contractors that do not share information systems with the Company
(external agents). To date, the Company is not aware of any external agent Year
2000 issue that would materially impact the Company's results of operations,
liquidity, or capital resources.
The Company utilized both internal and external resources to reprogram, replace,
test, and implement hardware and software for Year 2000 modifications. The total
cost of the Year 2000 project is approximately $450,000 of which $305,000 is
attributable to the purchase of new software and operating equipment, which has
been capitalized. Through October 2, 1999, the Company had incurred costs of
approximately $410,000 (of which $145,000 has been expensed) relating to all
phases of the Year 2000 project. The remaining $40,000 relates to continued Year
2000 compliance monitoring and repair of hardware and software.
The Company's plan to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. There can be no guarantee that these estimates will be achieved
and actual results could differ materially.
Forward-Looking Statements
Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Form 10-Q include "forward-looking
statements" within the meaning of Section 21E of the Securities Exchange Act of
1934 (the "Exchange Act"). All statements other than statements of historical
information provided herein are forward-looking statements and may contain
information about financial results, economic conditions, trends and
14
<PAGE>
known uncertainties. These forward-looking statements involve risks and
uncertainties, such as quarterly fluctuations in operating results, the timely
availability of new products, market acceptance of the Company's products, and
the impacts of competitive products and pricing. The forward-looking statements
contained herein are subject to certain risks and uncertainties that could cause
actual results to differ materially from those reflected in the forward-looking
statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect management's analysis, judgment, belief or expectation
only as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or circumstances that
arise after the date hereof. In addition to the disclosure contained herein,
readers should carefully review any disclosure of risks and uncertainties
contained in other documents the Company has filed with the Securities and
Exchange Commission pursuant to the Exchange Act, including its annual report on
Form 10-K for the year ended January 2, 1999.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's earnings and cash flows are subject to fluctuations due to changes
in interest rates primarily from its investment of available cash balances in
money market funds with portfolios of investment grade corporate and U.S.
government securities and, secondarily, its long-term debt arrangements. Under
its current policies, the Company does not use interest rate derivative
instruments to manage exposure to interest rate changes.
15
<PAGE>
PART II. - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(d) Use of proceeds information is provided herewith in connection with the
Company's initial public offering ("the Offering"). The Company's
Registration Statement on Form S-1 (File No. 333-46933) was declared
effective by the Securities and Exchange Commission on June 9, 1998. The
first closing for the Offering was held on July 15, 1998. The Offering has
terminated.
In the Offering, the Company sold in its two closings, an aggregate of
3,325,000 shares (with an aggregate offering price to the public of
$39,900,000) out of the 3,450,000 shares of Common Stock (with an aggregate
offering price of $41,400,000) registered in the Offering. The managing
underwriters of the Offering were Cowen & Company and SBC Warburg Dillon
Read, Inc. After expenses, the Company's net proceeds from the offering
were $35,868,000. The Company has utilized these proceeds to: (i) fund
capital investments, primarily for improvements and expansion of its
manufacturing facility ($8,300,000), (ii) fund research and development
projects ($8,200,000), (iii) repay debt ($3,700,000) and (iv) fund PLAS+SD
marketing, selling and manufacturing operations ($1,900,000). The Company
will continue to use the remaining net proceeds to fund costs associated
with the marketing and distribution of PLAS+SD, clinical trials, research
and development and capital investments, including the expansion of the
manufacturing facility and other general corporate purposes. Unused
proceeds of the Offering are invested in money market funds with portfolios
of investment grade corporate and U.S. government securities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.1 Restated Certificate of Incorporation of the Registrant. Incorporated
by reference to Exhibit 3.8 to the Registrant's Registration Statement
on Form S-1, filed with the Commission on February 26, 1998 (File No.
333-46933).
4.2 Amended and Restated By-Laws of the Registrant. Incorporated by
reference to Exhibit 3.10 to the Registrant's Registration Statement
on Form S-1, filed with the Commission on February 26, 1998 (File No.
333-46933).
4.3 Form of Certificate for Common Stock. Incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on Form S-1,
filed with the Commission on February 26, 1998 (File No. 333-46933).
10.1 Separation Agreement and General Release between Bernard Horowitz,
Ph.D. and V.I. Technologies, Inc. executed on September 13, 1999.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended October 2,
1999.
16
<PAGE>
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.
V.I. TECHNOLOGIES, INC.
-----------------------
(Registrant)
Date: November 15, 1999 /s/ John R. Barr
- ------------------------- ----------------
John R. Barr
President, Chief Executive Officer
Date: November 15, 1999 /s/ Thomas T. Higgins
- ------------------------- ---------------------
Thomas T. Higgins
Executive Vice President, Operations
and Chief Financial Officer
17
<PAGE>
Exhibit 10.1
------------
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
Separation Agreement and General Release ("Agreement") executed this ___
day of September 1999, by and between Bernard Horowitz, Ph.D. ("Dr. Horowitz" or
"Releasor") and V.I. Technologies, Inc. ("VITEX" or "the Company").
WHEREAS, Dr. Horowitz and VITEX entered into an Employment Agreement
dated January 15, 1998 (the "Employment Agreement") a copy of which is annexed
hereto as Exhibit "B"; and
WHEREAS, Dr. Horowitz has expressed his intention to voluntarily
terminate his employment pursuant to the provisions of (P)4.3 of the Employment
Agreement;
NOW, THEREFORE, for good and valuable consideration, the sufficiency of
which is hereby acknowledged, it is hereby agreed that:
1. DR. HOROWITZ'S RESIGNATION
--------------------------
(a) Dr. Horowitz hereby irrevocably gives notice of his intention to
resign from his employment at VITEX, effective October 1, 1999, and
VITEX accepts that resignation. Dr. Horowitz and VITEX expressly
acknowledge that this Agreement supercedes and replaces the Employment
Agreement and except as otherwise provided herein, effective October
1, 1999, the Employment Agreement, and all terms, conditions, and
obligations set forth therein, will expire and will be declared null
and void.
2. THE SEVERANCE PAYMENT, VESTING OF STOCK OPTIONS, AND LIFE
---------------------------------------------------------
INSURANCE
---------
(a) As used herein, the term "Severance Period" refers to the one
year period beginning on October 1, 1999 and ending on September 30,
2000.
(b) Subject to Dr. Horowitz's execution of this Agreement, VITEX shall
pay Dr. Horowitz severance equivalent to one year's salary at his
current rate of pay, a total of $198,919.00 (the "Severance Payment"),
less applicable withholding taxes and deductions. The Severance
Payment will be made in two (2) equal installments, paid six months
apart, less applicable withholding taxes and deductions. The first
such payment will be made on or before October 20, 1999.
(i) Dr. Horowitz expressly acknowledges that he will not be
entitled to any annual bonus payment pursuant to (P)3.2
of the Employment Agreement.
(c) Subject to the approval of the Compensation Committee of the
Board of Directors of VITEX, (i) the stock options granted to Horowitz
in 1995 and 1997 to purchase 223,614 shares (at $2.795 per share) and
125,224 shares (at $8.39 per
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<PAGE>
share) respectively, of VITEX common stock, $.01 par value per share
under the Equity Incentive Plan (the "Stock Options"), shall fully
vest, to the extent they have not previously vested, on October 1,
1999, and (ii) Horowitz shall be permitted to exercise the Stock
Options at any time prior to the tenth anniversary of the date of
grant of such options, in accordance with the terms of the Equity
Incentive Plan and the stock option agreements executed thereunder (as
modified by this Agreement).
(d) Dr. Horowitz's participation in VITEX's medical and dental benefit
plans will continue for the duration of the Severance Period, and will
terminate on September 30, 2000, at which time, and on an annual basis
thereafter for as long as he is alive, he will be offered the
opportunity to enroll in any major medical and dental insurance plans
VITEX provides to its full time, senior management staff. If he
chooses to enroll in such plans, the cost to Dr. Horowitz will be as
though he were still actively employed by VITEX.
(e) The life insurance referenced in (P)3.8 of the Employment
Agreement will remain in force (to the extent the policy is payable to
Dr. Horowitz's family), at VITEX's cost, until the end of the
Severance Period (September 30, 2000).
(f) Except as provided herein, Dr. Horowitz's participation in all
other benefit plans will cease on October 1, 1999.
3. CONTINUED MEMBERSHIP ON VITEX'S BOARD OF DIRECTORS
--------------------------------------------------
(a) Dr. Horowitz will remain a member of VITEX's Board of Directors
after October 1, 1999. Dr. Horowitz expressly acknowledges that he
has been given no guarantees with respect to his continued membership
on the Board of Directors. Dr. Horowitz agrees that if the Board of
Directors requests his resignation from the Board of Directors for any
reason, he will immediately tender his resignation as a Director of
VITEX. After the expiration of the Severance Period, if Dr. Horowitz
remains a member of the Board of Directors, he will be entitled to
receive the same benefits received by other members of the Board of
Directors.
4. CONSULTING SERVICES
-------------------
(a) Although under no obligation to do so, Dr. Horowitz may perform
consulting services to VITEX. Any such consulting services will be
performed upon reasonable notice, at mutually agreeable times and
locations. Dr. Horowitz agrees that during the Severance Period he
will not seek, nor is he entitled to, any additional compensation for
any such consulting services, unless he has provided more than 800
hours of services during the Severance Period. Dr. Horowitz will be
compensated for each hour of consulting services provided during the
Severance Period in excess of 800 hours at the rate of $200.00 per
hour.
(b) After the expiration of the Severance Period, and beginning on
October 1, 2000, Dr. Horowitz will begin receiving quarterly retainer
payments of $25,000.00 as compensation for consulting services to be
provided during the following calendar quarter (e.g. the October 1,
2000 payment will cover services rendered
2
<PAGE>
during the fourth quarter of 2000). Such payments will be made on the
first day of each quarter during which the contemplated services are
to be provided. These quarterly retainer payments will continue until
such time as this consulting arrangement is terminated by VITEX or Dr.
Horowitz in the manner described below. The $25,000.00 retainer will
constitute full compensation for up to 200 hours of consulting
services provided during the quarter. Dr. Horowitz will be compensated
for each hour of consulting services in excess of 200 hours during a
calendar quarter at the rate of $200.00 per hour.
(i) The consulting arrangement described in this sub paragraph
"4(b)" can be terminated by either Dr. Horowitz or VITEX, at any
time, with 90 days notice.
5. CONSIDERATION AND FULL DISCHARGE
--------------------------------
a) Dr. Horowitz agrees that the aggregate consideration provided in
this Agreement:
(i) exceeds any payment, benefit, or other thing of value
to which he might otherwise be entitled under any
policy, plan or procedure of VITEX, and
(ii) is in full discharge of any and all of VITEX's
liabilities and obligations to him, whether written or
oral, including, without limitation, any bonus,
deferred bonus, accrued vacation pay, severance payment
or any other contractual or other obligation,
compensation or remuneration that may be owed to Dr.
Horowitz by VITEX.
6. GENERAL RELEASE
---------------
(a) For good and valuable consideration, the receipt of which is
hereby acknowledged, Dr. Horowitz for himself and for his heirs,
executors, administrators, trustees, legal representatives and assigns
(hereinafter, collectively referred to as ("Releasors"), hereby
forever release and discharge VITEX, or any of VITEX's past, present
or future parent entities, partners, subsidiaries, affiliates,
divisions, employee benefit and/or pension plans or funds, successors
and assigns and any of its or their past, present or future directors,
officers, attorneys, agents, trustees, administrators, employees, or
assigns (whether acting as agents for VITEX or in their individual
capacities) (collectively referred to as "Releasees") from any and all
claims, demands, causes of action, and liabilities of any kind
whatsoever (upon any legal or equitable theory, whether contractual,
common-law, statutory, federal, state, local, or otherwise), whether
known or unknown, by reason of any act, omission, transaction or
occurrence which Releasors ever had, now have or hereafter can, shall
or may have against Releasees up to and including the Agreement
Effective Date, as defined in Paragraph 10(c) below.
Without limiting the generality of the foregoing, Releasors hereby
release and discharge Releasees from:
3
<PAGE>
(i) any and all claims relating to Dr. Horowitz's
employment by VITEX, the terms and conditions of such
employment, the employee benefits related to his
employment and/or his separation from such employment;
(ii) any and all claims of employment discrimination and/or
retaliation under any federal, state or local statute
or ordinance, including without limitation, any and all
claims under Title VII of the Civil Rights Act of 1964
as amended; the Age Discrimination in Employment Act,
the Older Workers Benefit Protection Act, the Americans
with Disabilities Act; the Family and Medical Leave Act
of 1993; the Employee Retirement Income Security Act;
the New York State Human Rights Law; and the New York
City Human Rights Law;
(iii) any and all claims for wrongful discharge and/or
breach of employment contract (including, but not
limited to the Employment Agreement) or any claims
related to compensation or benefits, including claims
for bonus or deferred payments;
(iv) any and all claims for defamation, libel or slander
against any Releasees; and
(v) any and all claims for attorney's fees, costs
disbursements and the like;
which Releasors ever had, now have or hereafter can, shall or may have
against Releasees for, upon or by reason of any act, omission,
transaction or occurrence up to and including the date of the
execution of this Agreement.
(b) Dr. Horowitz agrees, unless such agreement is otherwise prohibited
by law, that he will not commence, maintain, prosecute or participate
(except as compelled by legal process) in any action or proceeding of
any kind (judicial or administrative) against Releasees, arising out
of any act, omission, transaction or occurrence occurring up to and
including the Agreement Effective Date, as defined in paragraph 10(c)
below.
(c) Dr. Horowitz further agrees, unless such agreement is otherwise
prohibited by law, that he will not seek or accept any award or
settlement from any source or proceeding with respect to any claim or
right covered by paragraphs "6(a) and (b)" and that this Agreement
shall act as a bar to recovery in any such proceedings.
4
<PAGE>
7. CONFIDENTIALITY
---------------
(a) Dr. Horowitz acknowledges that this Agreement and all terms and
conditions thereof shall be kept strictly confidential and shall not
be disclosed by Dr. Horowitz to anyone, except to the extent required
by law; except that Dr. Horowitz may disclose the terms of this
Agreement to his spouse, accountant, attorney and/or his financial
advisor, who shall be instructed that the Agreement and its terms are
to be kept confidential. In the event of any breach of this
provision, Dr. Horowitz consents to the entry of injunctive relief in
the United States District Court for the Southern District of New
York, and further, inasmuch as the damages from any material breach of
this confidentiality provision cannot be ascertained, Dr. Horowitz
agrees that a material breach of this provision by Dr. Horowitz shall
result in the payment by Dr. Horowitz to VITEX of liquidated damages
in the amount of $198,919.00. Notwithstanding the foregoing, this
paragraph shall not apply to Dr. Horowitz if he is acting in his
capacity as director of VITEX.
(b) VITEX acknowledges that this Agreement and all terms and
conditions thereof shall be kept strictly confidential and shall not
be disclosed by any officer or director of VITEX to anyone, except to
the extent required by law and to those persons whose efforts are
required to effectuate the terms of this Agreement; except that VITEX,
through its officers, may disclose the terms of this Agreement to
VITEX's attorneys and/or accountants, who shall be instructed that the
Agreement and its terms are to be kept confidential.
(c) The parties agree that this Agreement and the attached General
Release may be used as evidence only in a subsequent proceeding in
which any of the parties allege a breach of this Agreement or the
attached General Release.
8. NON-DISPARAGEMENT
-----------------
(a) Dr. Horowitz agrees that he will not disparage (or induce or
encourage others to disparage) VITEX, any of its past or present
directors, officers, agents, trustees, administrators, attorneys or
employees with respect to any events relating to his employment with
VITEX, including, without limitation, disparaging any of such parties
in connection with disclosing the facts or circumstances surrounding
his separation from employment with VITEX or criticizing VITEX's
business strategy. For the purposes of this Agreement, the term
"disparage" means any comments or statements which would adversely
affect in any manner: (i) the conduct of VITEX's business; or (ii) the
business reputation or relationships of VITEX and/or any of its past
or present directors, officers, agents, trustees, administrators,
attorneys or employees. Notwithstanding the foregoing, this paragraph
shall not apply to Dr. Horowitz if he is acting in his capacity as a
director of VITEX.
(b) VITEX agrees not to disparage Dr. Horowitz. For purposes of this
subparagraph, the term "disparage" means any statements made by VITEX
senior officers or directors, or any statements made officially by
VITEX that adversely affect Dr. Horowitz's personal or professional
reputation.
5
<PAGE>
9. COMPANY DOCUMENTS AND PROPERTY
------------------------------
(a) Dr. Horowitz agrees not to copy or take any books, notes or documents
belonging to VITEX without its express written consent. In this regard, Dr.
Horowitz acknowledges that he has had access to confidential, sensitive or
proprietary information during the course of his employment at VITEX. Unless
compelled by judicial process, Dr. Horowitz agrees that he will not, for herself
or any other person or entity, directly or indirectly divulge, communicate or in
any way make use of any confidential, sensitive, or proprietary information
acquired in the performance of his services or in connection with the
performance of such services for VITEX without the prior written consent of
VITEX. Upon receipt of judicial process or governmental request for such
information, Dr. Horowitz shall immediately notify VITEX and shall cooperate
with VITEX in efforts to limit such disclosure and shall not make such
disclosure unless compelled to do so. For the purpose of this Agreement, all
information acquired during the course of Dr. Horowitz's employment and in
connection with such employment shall be deemed to be confidential, sensitive or
proprietary, unless VITEX shall have published said information. Not
withstanding the foregoing, it is understood that (i) Dr. Horowitz brought
certain materials with him when he joined VITEX and that such materials do not
belong to VITEX, (ii) Dr. Horowitz may retain published scientific works and
slides which he collected while an employee of VITEX. '
(b) If Dr. Horowitz has not already done so, he shall immediately
return to VITEX all Company property in his possession (with the
exception of a computer which VITEX has permitted Dr. Horowitz to
retain) including, but not limited to credit cards, building passes,
airline tickets, facsimile machines, paging devices and portable
telephones.
(c) If Dr. Horowitz has not already done so, he shall immediately
deliver to VITEX all correspondence, documents, papers and other media
containing information about the accounts, clients, interests, or
business of VITEX together with all copies in his possession.
10. REVIEW AND REVOCATION PERIODS
-----------------------------
(a) Dr. Horowitz shall have at least twenty-one (21) days from the
date of receipt, or until September 30, 1999, to consider the terms
and conditions of this Agreement. Dr. Horowitz may accept this
Agreement by signing it, having his signature notarized and returning
it to James Northrup, VITEX, Inc., 155 Duryea Road, Melville, NY
11747, by no later than 5:00 p.m. on September ___, 1999. Further,
Dr. Horowitz may sign and return this Release at any time prior to
September 30, 1999.
(b) After signing this Release, Dr. Horowitz shall have seven (7) days
to revoke this Agreement by indicating his desire to do so in writing
(a) addressed to James Northrup, at the address listed above, and (b)
received by Mr. Northrup no later than 5:00 p.m. on the seventh (7th)
day following the date Dr. Horowitz signs this Agreement.
(c) The effective date of this Agreement shall be the eighth (8th) day
following Dr. Horowitz's signing of this Agreement (the "Agreement
Effective Date"), provided Dr. Horowitz does not revoke this Agreement
during the revocation
6
<PAGE>
period. In the event Dr. Horowitz does not accept this Agreement as
set forth above, or revokes this Agreement during the Revocation
Period, this Agreement including but not limited to the obligation of
the Releasees to provide the payments, and provide the benefits,
referred to in paragraph "2" and "3" above, shall automatically be
deemed null and void.
11. Dr. Horowitz acknowledges that: (a) he has carefully read this
Agreement in its entirety; (b) he has had an opportunity to consider
fully the terms of this Agreement for at least twenty-one (21) days;
(c) he has been advised by VITEX in writing to consult with an
attorney of his choosing in connection with this Agreement; (d) he
fully understands the significance of all of the terms and conditions
of this Agreement; (e) he has discussed it with his independent legal
counsel, or has had a reasonable opportunity to do so; (f) he has had
answered to his satisfaction any questions he has asked with regard to
the meaning and significance of any of the provisions of this
Agreement; (g) he is signing this Agreement voluntarily and of his own
free will and assents to all the terms and conditions contained
herein; (h) the amounts being paid hereunder are in excess of those
amounts he would be entitled to if he did not sign this Agreement; and
(i) that as of December 23, 1999 his employment relationship with
VITEX will be permanently and irrevocably severed and that to the full
extent permitted by law he will not be eligible for rehire or re-
employment with any of the Releasees, that he will not apply for re-
employment with any of the Releasees and that the Releasees have no
obligation, now or at any time in the future, to rehire or re-employ
him in any capacity, that any future decision by any of the Releasees
not to hire him will be based upon this subparagraph and that he will
not assert any claims against any Releasees based upon such decision.
ADDITIONAL PROVISIONS
- ---------------------
12. The making of this Agreement is not intended, and shall not be
construed, as an admission that Releasees have violated any federal,
state or local law (statutory or decisional), ordinance or regulation,
breached any contract, or committed any wrong whatsoever against Dr.
Horowitz.
13. This Agreement is binding upon, and shall inure to the benefit
of, the parties and their respective heirs, executors, administrators,
successors and assigns.
14. This Agreement shall be interpreted, construed and governed
according to the laws of the State of New York.
15. If any provision of this Agreement shall be held by a court of
competent jurisdiction to be illegal, void, or unenforceable, such
provision shall be of no force and effect. However, the illegality or
unenforceability of such provision shall have no effect upon, and
shall not impair the enforceability of, any other provision of this
Agreement; provided, however, that, upon any finding by a court of
competent jurisdiction that the release and covenants provided for by
paragraphs "5," and "6" of this Agreement are illegal, void, or
unenforceable, Dr. Horowitz agrees, at the Releasees option, either to
return promptly to VITEX the amounts paid to his or paid on his behalf
pursuant to this Agreement or to execute a release, waiver and/or
covenant that is legal and enforceable. Further, if Dr. Horowitz
seeks to challenge
7
<PAGE>
the validity of or otherwise vitiate this Agreement or any provision
thereof (including, without limitation, paragraphs "5,"and "6"), Dr.
Horowitz shall, as a precondition, be required to repay to VITEX the
amounts paid to him or paid on his behalf pursuant to the terms of
this Agreement. Finally, any breach of the terms of paragraphs "5,"
"6," "7," "8," and/or "9" shall constitute a material breach of this
Agreement as to which the Releasees may seek appropriate relief
(including but not limited to repayment of the amounts paid to him or
paid on his behalf referred to this Agreement) in a court of competent
jurisdiction.
17. The paragraph and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. This Agreement (together with the accompanying cover letter)
constitutes the complete understanding between the parties and
supersedes any and all Releases, understandings, and discussions,
whether written or oral, between the parties. No other promises or
agreements shall be binding unless in writing and signed after the
Agreement Effective Date by the parties to be bound thereby.
WHEREFORE, Dr. Horowitz places his hand on the dates hereinafter set
forth.
Bernard Horowitz, Ph.D.
/s/ Bernard Horowitz Date September 13, 1999
- --------------------------------- ------------------------
On this 13th day of September , 1999, before me personally appeared Bernard
---- -----------
Horowitz, Ph.D., to me known personally and known to me to be the individual
described herein, whose name is subscribed to, and who executed the above
Agreement and General Release.
/s/Howell Bramson
- ------------------
Notary Public
Agreed:
V.I.Technologies, Inc.
By: /s/ John Barr
-------------
John Barr
President & Chief Executive Officer
8
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