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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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
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<S> <C>
Item 1. Financial Statements:
Condensed balance sheets at October 2, 1999 (restated)
and January 2, 1999 3
Condensed statements of operations for
the quarter and three quarters
ended October 2, 1999 (restated) 4
and October 3, 1998
Condensed statement of stockholders' equity
for the three quarters ended 5
October 2, 1999 (restated)
Condensed statements of cash flows for the
three quarters ended October 2, 1999 (restated) 6
and October 3, 1998
7
Notes to condensed financial statements
Item 2. Management's Discussion and Analysis of 10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
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
(Restated)
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<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
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Total current assets 35,492 43,638
Property, plant and equipment, net 35,117 30,821
Other assets, net 1,274 766
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Total assets $ 71,883 $ 75,225
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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 14,057 6,576
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Total current liabilities 18,016 10,535
Long-term debt, less current portion 5,855 7,731
Capital lease obligations, less current portion 2,390 3,324
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Total liabilities 26,261 21,590
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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, 1999 and
12,359,148 at January 2, 1999 125 124
Additional paid-in-capital 86,940 86,575
Accumulated deficit (41,443) (33,064)
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Total stockholders' equity 45,622 53,635
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Total liabilities and stockholders' equity $ 71,883 $ 75,225
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</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
(Restated) (Restated)
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Revenue $10,502 $11,660 $30,996 $23,727
Less: ANRC Incentive Program (4,500) (4,500)
-------------- ------------ ------------- ------------
Net revenue 6,002 11,660 $26,496 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 (5,875) 300 (8,516) (6,873)
Interest income (expense), net 49 186 137 (552)
-------------- ------------ ------------- ------------
Net income (loss) $(5,826) $ 486 $(8,379) $(7,425)
============== ============ ============= ============
Basic and diluted net income (loss) per share $ (0.47) $ 0.04 $ (0.67) $ (0.75)
============== ============ ============= ============
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>
4
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The accompanying notes are an integral part of the condensed financial
statements.
V. I. TECHNOLOGIES, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Common Common Additional
Stock 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 - - - (8,379) (8,379)
------------- ---------- ----------- ------------- -------------
Balance at October 2, 1999 (Restated) 12,514,033 $125 $86,940 $(41,443) $45,622
============= ========== =========== ============= =============
</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
(Restated)
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<S> <C> <C>
Cash flows (used in) operating activities:
Net loss $(8,379) $(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 - 2202
Accretion of interest on customer advance 139 -
Changes in operating accounts:
Trade receivables (5,013) (3,207)
Other receivables, net (121) 855
Due to/from related parties 264 (10)
Inventory (57) (2,037)
Prepaid expenses and other current assets 160 (394)
Deferred revenue - 1,816
Deferred costs (815) -
Accounts payable and accrued expenses 7,481 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
<PAGE>
3. Inventory
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
October 2, January 2,
1999 1999
------------ --------------
<S> <C> <C>
Work in process $1,359 $1,382
Supplies 1,211 1,130
------------ --------------
$2,570 $2,512
============ ==============
</TABLE>
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 one-year
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 to reduce ARC
inventory levels, the Company has offered an incentive program under
which the ARC can earn a rebate for units of PLAS+SD shipped by ARC to
end customers subsequent to October 1, 1999. This rebate is to be
applied against purchases if certain pricing milestones are achieved.
The 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. Based on ARC's projected sales during
the one year period of the incentive plan, the Company has estimated
and recorded a charge of $4.5 million for the projected costs of the
incentives. This charge against net revenue has been reflected as a
restatement of the Company's results for the quarter and three-quarters
ended October 2, 1999 increasing the Company's net loss by $4.5 million
in both periods.
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
8
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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
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. Accordingly, $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 $5.8 million for the third quarter
ended October 2, 1999 as restated, including one-time costs of $2.3 million
related to the restructuring of research and development, and its accumulated
deficit to that date was $41.4 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 one year
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 to reduce ARC inventory levels, the Company has offered an
incentive program under which the ARC can earn a rebate on units of
PLAS+SD shipped by ARC to end customers subsequent to October 1, 1999.
This rebate will be applied against purchases if certain pricing
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.
Based on ARC's projected sales during the one year period of the
incentive plan, the Company has estimated and recorded a charge of
$4.5 million for the projected costs of the incentives. This charge
against net revenue has been reflected as a restatement of the
Company's results for the quarter and three-quarters ended October 2,
1999 increasing the Company's net loss by $4.5 million in both
periods.
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
11
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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.
. 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
Net revenue
Net revenue was $6.0 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, and the recording of $4.5 million for the cost of the
ARC sales incentive program initiated in the quarter ended October 2, 1999. For
the three quarters ended October 2, 1999, net revenue increased to $26.5 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. The increases in PLAS+SD and plasma fractions revenues was offset in part
by the recognition of the $4.5 million charge for the ARC sales incentive
program.
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, excluding the ARC sales
incentive of $4.5 million. 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
12
<PAGE>
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
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.
13
<PAGE>
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, 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 $17.5
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.
14
<PAGE>
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 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: February 18, 2000 /s/ John R. Barr
- --------------------------- ------------------------------------
John R. Barr
President, Chief Executive Officer
Date: February 18, 2000 /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
<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
<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:
<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.
<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.
<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
<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
<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 13/th/ 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
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