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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission File No. 0-10736
MGI PHARMA, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-1364647
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, Minnesota 55343
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Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 612/935-7335
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 par value,
Common Stock
Purchase Rights
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___
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-affiliates of
the Registrant as of March 17, 1997 was approximately $60,801,886 (based on the
closing price of such stock as reported by The Nasdaq Stock Market on such
date).
The number of shares outstanding of each of the Registrant's classes
of common stock, as of March 17, 1997, was: Common Stock, $.01 par value;
14,091,665 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction G, the responses to Items 5, 6, 7 and
8 of Part II of this report are incorporated herein by reference to certain
information contained in the Registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1996, and the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference to certain
information contained in the Registrant's definitive Proxy Statement for its
1997 Annual Meeting of Shareholders to be held on May 13, 1997.
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PART I
ITEM 1. BUSINESS
General
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MGI PHARMA, INC. ("MGI" or "the Company") is a human pharmaceutical company
that acquires, develops and markets pharmaceutical for niche areas of medicine,
addressing currently unmet medical needs.
During 1996, its primary business activities were (i) marketing
pharmaceutical products in the United States, (ii) developing potential new
pharmaceutical products, and (iii) acquiring additional product candidates for
both development and marketing opportunities. Commercial efforts focused on
marketing Salagen(R) Tablets, sales of which increased 60 percent over the
previous year. The Company also marketed Didronel(R) I.V. Infusion, which
continued to lose market share during 1996. Clinical development efforts
included preparing a supplemental new drug application ("sNDA") for a second
indication of Salagen(R) Tablets; conducting Phase IV post-marketing studies for
the initial, approved indication of Salagen Tablets; initiating and advancing a
Phase I clinical study with MGI 114; and conducting several preclinical animal
studies. The Company also continued to work on manufacturing and related
processes for all of its marketed and development-stage products. Product
acquisition efforts resulted in the addition of Dihydro-5-Azacytidine ("DHAC")
from ILEX Oncology, Inc. During the year, MGI discontinued development of its
phosphoramidate compound.
MGI currently markets oncology products through its own commercial
organization in the United States. The Company sells to pharmaceutical
wholesalers in the United States who distribute MGI's drugs to retail and
hospital pharmacies. To commercialize its products in foreign markets, MGI uses
international partnerships. As of December 1996, MGI had agreements with three
international pharmaceutical companies to develop and market Salagen(R) Tablets
for the European, Japanese and Canadian markets, respectively, as well as
distribution agreements with three additional companies for the smaller markets
of Taiwan, Israel and Korea. MGI also has a marketing alliance for DIDRONEL(R)
I.V. Infusion in Canada, and a development and marketing agreement for MGI 114
in Japan.
The Company was incorporated in Minnesota in November 1979. Its principal
executive offices are located at 9900 Bren Road East, Suite 300E, Minnetonka,
Minnesota 55343, and its phone number is (612) 935-7335.
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Business Strategy
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The Company acquires, develops and markets pharmaceutical for niche areas of
medicine, addressing currently unmet medical needs. To date, MGI has focused on
the oncology (cancer) market, but it intends to expand into the rheumatology
sector.
MGI focuses on medical niche markets because it believes such markets can be
reached effectively by a relatively small sales force. In the United States, the
number of physicians in a particular subspecialty is usually relatively small
and these physicians tend to be concentrated in major metropolitan areas.
Current trends in pharmaceutical detailing are expected to reduce the number of
pharmaceutical sales targets as decisions relating to use of prescription drugs
consolidate and become more centralized.
The Company believes that its ability to accomplish its long-term business
plan depends upon its success in acquiring new compounds to develop and market.
The Company is actively searching for new products to acquire, preferably later-
stage development opportunities or already marketable pharmaceutical products.
This strategy reduces MGI's risk of product failure since most products acquired
are past the initial discovery stage. Such products have already passed, or have
a higher than average chance of passing, preliminary toxicity testing and have
demonstrated some efficacy in animals or humans. MGI also focuses its efforts
on small molecule products because they are generally easier and less costly to
make. MGI believes that acquiring products that meet such requirements may
allow it to reduce product development time frames, reduce the research
rejection rate due to safety and toxicity concerns, and achieve a higher
probability of product effectiveness. MGI believes there are a number of
compounds that meet these requirements available for licensing from universities
and other research organizations such as biotechnology companies and other
pharmaceutical companies.
By using contract manufacturers to make its products, MGI also controls its
investment in capital. MGI believes there are a sufficient number of high
quality contract manufacturers available to fulfill its near-term production
needs for both clinical and commercial use. MGI intends to continue to utilize
contract manufacturing until it is necessary and economical to add internal
capacity.
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Principal Products
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SALAGEN(R) TABLETS
Salagen(R) Tablets (pilocarpine hydrochloride) have been marketed in the
United States by MGI PHARMA since 1994 as a treatment for radiation-induced
xerostomia (chronic dry mouth) in head and neck cancer patients. To further
expand potential revenues from Salagen Tablets, MGI studied the drug's ability
to treat dry mouth and dry eyes (keratoconjunctivitis sicca) associated with
Sjogren's Syndrome, an autoimmune disease that gradually destroys the moisture
producing glands in the body. In February 1997, MGI submitted a supplemental New
Drug Application to the FDA for this second indication.
Head and Neck Cancer Market
Radiation therapy used to treat head and neck cancers can permanently damage
salivary glands, resulting in significant chronic reduction of saliva
production. This reduction in saliva can result in pain, discomfort, difficulty
in eating and sleeping, rapid tooth decay, periodontal disease, oral infection
and severe halitosis. More than 25,000 head and neck cancer patients receive
radiation therapy annually, and currently, over 100,000 patients suffer from
this chronic condition in the U.S. Other therapies used to treat this condition
are generally considered by physicians and patients to be inadequate and are
limited to products that act as wetting agents such as water, lozenges, and
saliva substitutes. Salagen(R) Tablets work by stimulating the residual
functioning tissue in the damaged salivary glands to increase saliva production,
providing patients with a longer-term solution for chronic dry mouth.
Following the marketing launch of Salagen(R) Tablets in the head and neck
cancer market in 1994, the FDA required MGI to conduct several Phase IV studies
which the Company is pursuing. These studies include (i) a two-year
carcinogenicity bioassay in rats; (ii) long-term clinical trials in Sjogren's
syndrome patients to further clarify the relationship of baseline salivary flow
to the effect of Salagen(R) Tablet therapy as well as provide additional safety
data for 5 mg and 10 mg doses; and (iii) determination of the metabolic
clearance rate of Salagen(R) Tablets in a subset of patients with renal and
hepatic insufficiency.
Sjogren's Syndrome Market
Sjogren's syndrome is a chronic and progressive autoimmune disorder in which
the body's own immune system attacks the moisture producing glands, particularly
the salivary and lacrimal glands, causing them to lose their ability to produce
saliva and tears.
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The syndrome is characterized by dryness and discomfort in the mouth and
eyes and can be manifested alone (primary Sjogren's) or together with one of
several connective tissue disorders (secondary Sjogren's).
The complexity of the disorder as well as the lack of an accepted set of
diagnostic criteria have resulted in a range of estimates of the prevalence
(between 500,000 and 1,000,000+). It should be noted that the total prevalence
of the disease exceeds the actual number of diagnosed and treated patients,
The majority of people affected by Sjogren's syndrome are women aged 40 and
older. Primary Sjogren's often remains undiagnosed until the symptoms become
sufficiently severe and intolerable that a physician is consulted. Secondary
Sjogren's is frequently detected as part of an examination for a connective
tissue disorder, particularly rheumatoid arthritis. Thus, the actual number of
diagnosed Sjogren's syndrome patients at any point in time is approximately
500,000 patients or half the prevalence of the disease.
Current therapies address symptoms of the condition rather than its exact
underlying cause, which is unknown. The decision to initiate treatment as well
as the intensity of therapy is directly related to the severity of the patient's
symptoms and level of patient complaints, resulting in a true prescription
market potential of an estimated 200,000 individuals.
DIDRONEL(R) I.V. INFUSION
DIDRONEL(R) I.V. Infusion is used to treat hypercalcemia (elevation of blood
calcium) of malignancy, which is the most common life-threatening metabolic
disorder associated with cancer. Hypercalcemia causes mental confusion, nausea
and vomiting, loss of kidney function, and, if left untreated, death. The
condition affects up to 20% of all cancer patients sometime during the course of
their disease, but appears to be most prevalent with tumors that have
metastasized to bone (usually lung and breast tumors).
MGI purchased DIDRONEL(R) I.V. Infusion from Procter & Gamble
Pharmaceutical, Inc. in January 1990 for the purpose of setting up MGI's sales
and marketing organization in advance of introducing a major product to the
market. Although sales of DIDRONEL(R) I.V. Infusion have declined over the last
several years following the introduction of more effective competing products,
sales of this product enabled MGI to establish its sales and marketing
organization, develop relationships with key oncologists across the United
States, and build a presence in the medical community.
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ACYLFULVENES
In September 1993, MGI acquired the rights to the acylfulvenes, a new
category of anti-cancer agents that have the potential to treat solid tumors,
including those that do not respond to or have become resistant to other
therapies. While still in the early stages of development, these compounds have
a novel mechanism of action that appears to inhibit the growth of tumor cells
without being excessively toxic to healthy cells. Laboratory and animal studies
with these agents have demonstrated their ability to kill human tumors growing
in animals more effectively than conventional anti-cancer agents. During 1994,
MGI made progress in the preclinical development of one particular acylfulvene
analog, MGI 114 (6-HMAF). Preclinical efficacy studies with this analog showed
impressive results against human tumors transplanted to mice, especially non-
small cell lung, breast, squamous cell carcinoma and colon tumors. Dainippon
Pharmaceutical Co., Ltd., MGI's Japanese partner for acylfulvene development,
replicated MGI's results against these tumor lines in addition to others.
Preclinical toxicity testing of MGI 114 began in late 1994 and is ongoing. An
Investigational New Drug application was submitted to the FDA in September 1995
and human Phase I clinical safety testing was initiated in December 1995 and
advanced throughout 1996. MGI expects this study to continue in 1997 until such
time that a maximum tolerated dose is reached. The Company also anticipates that
it will initiate a second Phase I trial with this drug during 1997 to broaden
the number of patients exposed to the drug. The combined data will then be used
in determining appropriate guidelines for entering a Phase II study. In October
1996, the Company entered into a clinical trials agreement with the National
Cancer Institute ("NCI") under which NCI will sponsor and oversee (at its own
expense) clinical research using MGI 114 in its network of designated cancer
centers. MGI anticipates that these trials will commence during 1997.
DHAC (DIHYDRO-5-AZACYTIDINE)
DHAC is a drug acquired by MGI in December 1996 from ILEX Oncology, Inc. It
is a hypomethylating agent that has the potential to treat several types of
cancers and genetic blood diseases, including myelodysplastic syndromes ("MDS"),
mesothelioma lung cancers associated with asbestos exposure, prostate cancer,
and thalassemia major (a fatal genetic blood disorder). Many of these diseases,
as well as numerous others, are characterized by the loss of critical gene
expression. In theory, the hypomethylation of these genes and reactivation of
their expression could reduce cancer growth and restore normal cell development.
As a hypomethylating agent, DHAC has demonstrated its therapeutic value and
human anti-tumor activity in line with this theory in early human clinical tests
with malignant melanoma and mesothelioma.
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During 1997, MGI intends to initiate a Phase II study with DHAC to treat
MDS, a family of blood-related cancers affecting up to 10,000 people in the
United States annually. The Company also plans to initiate a Phase I/II study in
hormone refractory prostate cancer by the end of 1997. In the United States,
approximately 40,000 men die each year from prostate cancer, while another
240,000 new cases are diagnosed.
Research and Development
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MGI maintains active development programs for several other new drug
candidates for possible future marketing opportunities. In doing so, MGI has
incurred significant research and development costs and anticipates more of the
same in the coming years. The Company's research and development expenses
increased 8 percent in 1996 over 1995 due mostly to the preparation of the sNDA
for Salagen Tablets and the ongoing Phase I program for MGI 114. In 1997, MGI
anticipates that research and development spending will in part be related to
the Company's ability to generate revenues mainly from sales in the United
States of Salagen(R) Tablets, as well as funds received from Dainippon
Pharmaceutical, the Company's Japanese partner for the acylfulvenes. Future
research and development funds may be secured from internally generated funds,
debt or equity financings, joint ventures, strategic alliances, co-promotion
arrangements or other sources of capital. A merger or acquisition may also be
considered in order to expand the research and development pipeline and allow
for a greater capital mass of products to be introduced in the market by the MGI
sales force.
Manufacturing
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MGI does not have and does not intend to develop facilities to manufacture
any of its drugs in the near future. The Company's marketed and development
stage pharmaceutical are manufactured under various agreements with third party
manufacturers. MGI's manufacturing and quality assurance personnel do, however,
authorize, monitor, and approve virtually all aspects of the manufacturing
process. In-process and finished product inventories are analyzed through
independent testing laboratories and the results reviewed and approved by MGI
prior to release for distribution.
MGI generally carries at least one year of inventory of each of its
marketable products as safety stock. To support this practice, the Company tries
to secure dual suppliers for each product category whenever possible. The
Company also has a policy to fill orders by wholesalers on demand, and does not
carry a backlog of orders at any time.
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SALAGEN(R) TABLETS
MGI obtains pilocarpine hydrochloride, the active drug substance for the
manufacture of Salagen(R) Tablets, under a supply agreement with EM Industries,
Incorporated of Hawthorne, New York. The refined raw material is an extract from
a plant grown and processed in South America. The Company believes that the
supply of pilocarpine hydrochloride is adequate for the foreseeable future.
Salagen(R) Tablets are currently manufactured at Boehringer Ingelheim
Pharmaceutical, Inc. ("Boehringer") in Ridgefield, Connecticut and at Global
Pharm Inc. in Toronto, Ontario, Canada pursuant to manufacturing contracts
between MGI and each of those companies. Boehringer has notified MGI that it
will be closing its Ridgefield plant and will discontinue providing contract
manufacturing services to third parties such as MGI, although Boehringer will
continue to provide contract manufacturing services to MGI through the
expiration of the Company's supply agreement in March 1998. The Company is
presently in the process of identifying a backup manufacturer for Salagen(R)
Tablets to replace Boehringer at the expiration of the Company's supply
agreement.
DIDRONEL(R) I.V. INFUSION
Pharmaceutical grade etidronate disodium for the manufacture of DIDRONEL(R)
I.V. Infusion is obtained from Procter & Gamble Pharmaceutical, Inc. in Norwich,
New York, under a supply agreement. The agreement provides for automatic renewal
for one-year terms unless either party gives written notice of termination at
least 180 days prior to the end of each calendar year. DIDRONEL(R) I.V. Infusion
is currently manufactured at a wholly owned subsidiary of Akorn, Inc. in
Decatur, Illinois. Ben Venue Laboratories, Inc. of Bedford, Ohio is an approved
alternate contract manufacturer of DIDRONEL(R) I.V. Infusion.
OTHER MANUFACTURING AGREEMENTS
As a regular part of its business, MGI establishes from time to time
contract manufacturing arrangements for its development-stage pharmaceutical.
These arrangements are typically short-term and generally include supply
agreements for the active pharmaceutical drug substance and development-scale
manufacturing contracts for the production of clinical supplies.
Patents and Protection of Proprietary Technology
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MGI intends to use patents and orphan drug designation to protect its
licensed technology. The term of a U.S. patent issued from an application filed
before June 8, 1995 is the longer of seventeen years from its issue date or
twenty years from its effective filing date. The term of a U.S. patent issuing
from an
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application filed after June 8, 1995 is twenty years from its effective filing
date. All of the allowed applications or patents referenced below were filed
prior to, or issued from applications filed before June 8, 1995. The Drug Price
and Competition and Patent Term Restoration Act of 1984 (Public Law 98-417) and
the Generic Animal Drug and Patent Term Restoration Act (Public Law 100-670)
generally provide that a patent relating to, among other items, a human drug
product, may be extended for a period of up to five years by the United States
Commissioner of Patents and Trademarks if the patented item was subject to
regulatory review by the FDA before the item was marketed. Under these acts, a
product's regulatory review period (which consists generally of the period from
the time when the exemption to permit clinical investigations becomes effective
until the FDA grants marketing approval for the product) forms the basis for
determining the length of the extension an applicant may receive. There can be
no assurance that any issued patents will provide competitive advantages for
particular products or will not be challenged or circumvented by competitors, or
that any patent applications will be approved.
Orphan drugs are currently provided seven years market exclusivity for an
approved indication following approval to market by the FDA. Orphan drug
designation for the Company's products does not, however, insulate the Company
from other manufacturers attempting to develop an alternate drug for the
designated indication, or the designated drug for another, separate indication.
There can be no assurance that the Company will be able to obtain orphan drug
status with respect to any of its products or as to the precise scope of
protection that may be afforded by such status.
Current patent and orphan drug status with respect to certain of MGI's
products are as follows:
. Pilocarpine hydrochloride (the active drug in Salagen(R) Tablets) was
designated an orphan drug for the treatment of radiation-induced xerostomia
in head and neck cancer patients by the FDA in September 1990. Upon FDA
approval of Salagen(R) Tablets for marketing on March 22, 1994, MGI notified
the Office of Orphan Products Development of the FDA of its intention to
exercise orphan drug exclusivity, thereby affording seven years of
exclusivity for Salagen(R) Tablets for that indication. In February 1992,
pilocarpine hydrochloride was designated an orphan drug as a treatment for
xerostomia and keratoconjunctivitis sicca in Sjogren's syndrome patients.
. In April 1996, the U.S. Patent and Trademark Office notified the Company
that it would grant two patents covering MGI 114 and additional acylfulvene
analogs. In June and October 1996, these patents were issued to the
University of California, from which the Company holds an exclusive license,
covering MGI 114 and certain other acylfulvene analogs. These
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patents complement two previously issued (both on August 8, 1995) U.S.
patents covering a method of using MGI 114 and other acylfulvene analogs to
inhibit certain tumor cell growth. The Company also has licensed, pending or
granted foreign patents on MGI 114 and its analogs in over 30 countries
worldwide. Patent applications covering an even broader base of acylfulvene
analogs compounds are pending in the United States.
. DHAC was designated an orphan drug for the treatment of mesothelioma by
the FDA in 1992. A provisional patent application related to the use of DHAC
in the treatment of hormone refractory prostate cancer was filed by ILEX
Oncology, Inc. in the U. S. Patent and Trademark Office on July 22, 1996.
The Company has obtained federal trademark registration on the "Salagen"
trademark and is seeking broad trademark protection for "Salagen" worldwide. In
addition, the Company uses the federally registered "DIDRONEL" trademark under a
license agreement with Proctor & Gamble Pharmaceutical.
Competition
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The pharmaceutical industry is intensely competitive, based mostly on
product performance and pricing. Many members of the industry have resources far
greater than MGI, providing them with potentially greater flexibility in
developing and marketing their products. Additionally, the biotechnology
industry may intensify competition as new developments are brought to market.
While the Company will seek to protect its products from direct competition
through filing patents, seeking marketing exclusivity under the Orphan Drug Act,
and maintaining technical information as trade secrets, there is no way to
insulate the Company from competition from products with different chemical
composition or products made using different technology. There can be no
assurance that the Company will be successful in its plan to gain product
specific protection for each of its pharmaceutical or that developments by
others will not render the Company's products noncompetitive or obsolete. The
pharmaceutical industry is also characterized by a large number of companies,
none of which have a major market share. consolidation within the industries
has already become a means by which companies are expanding market share and
additional consolidation within the industry is expected.
Salagen(R) Tablets is the first systemic pharmacologic treatment for dry
mouth. Persons suffering from dry mouth in the past have used water, sugar-free
hard candies and lozenges and over-the-counter saliva substitutes to moisten
their mouths. The Company does not believe that any of these products are direct
competitors, but anticipates that they may be used in conjunction with
Salagen(R) Tablets.
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Government Regulation
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In order to manufacture and market most health care products for human use,
approval of the FDA and comparable agencies in foreign countries must first be
obtained. The FDA has established mandatory procedures to regulate the
manufacturing and testing process to assure safety, potency and efficacy of the
final product. The procedure for seeking and obtaining FDA approval of a new
product involves many steps, including animal testing and clinical testing on
humans to determine safety, efficacy and potential toxicity. Even after initial
FDA approval has been obtained, further studies may be required to provide
additional data on safety in order to obtain approval for uses other than those
for which the product was initially tested. The process of seeking and obtaining
FDA approval of a new product can take several years and often involves the
expenditure of substantial resources without any assurance that approval for
marketing will be granted. Moreover, such approval may entail limitations on the
indicated uses for which a drug may be marketed. Even if FDA approval is
obtained, there can be no assurance of commercial success for any product. Post-
marketing testing and surveillance programs may also be required. In addition,
before, during and after the process of approval, the Company's prescription
drug products must all be manufactured in accordance with Good Manufacturing
Practices as set forth by the FDA. FDA approval may also be required to export
certain human health care products. As the Company expands the reach of its
products world-wide through alliances such as those described earlier, the
Company's products will be subject to similar regulatory requirements of
regulatory agencies comparable to the FDA in other countries.
The health care industry is changing rapidly as the public, government,
medical professionals and the pharmaceutical industry examine ways to broaden
medical coverage while controlling health care costs. The Company is unable to
predict when any proposed health care reforms will be implemented, if ever, or
the effect of any implemented reforms on the Company's business.
Federal, state and local environmental laws and regulations do not
materially affect the Company's operations and the Company believes that it is
currently in material compliance with such applicable laws and regulations.
Human Resources
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As of March 17, 1997, MGI had 63 full time employees. Twenty seven of MGI's
employees are engaged in the Company's marketing and selling effort, 21 are
involved in pharmaceutical development, including regulatory interaction and
manufacturing, and 15 are in other management or administrative positions. No
employee of the Company is represented by a labor union or is subject to a
collective bargaining agreement. The Company believes that its relations with
its employees are satisfactory.
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Export Sales
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Although MGI provides bulk drug substance and marketable drug product (for
Salagen(R) Tablets) to its international partners and distributors,
respectively, the dollar amount relative to such transfers have, to date, been
immaterial to MGI's financial condition. The Company does have, and will
continue to maintain, appropriate international transfer prices for the sale of
products to licensees and distributors.
ITEM 2. PROPERTIES
The Company leases office space consisting of approximately 15,000 square
feet in the Opus Center complex located in Minnetonka, Minnesota for its
operations. The office lease will expire in September 1999. The Company
believes that its existing facilities will be adequate to meet its needs for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq National Market under
the symbol "MOGN." The information contained under the headings "Market Price
and Related Matters" and "Stock Prices" on the inside back cover of the
Company's Annual Report to Shareholders for the year ended December 31, 1996
(the "Annual Report to Shareholders"), is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the heading "Selected Financial Data"
on page 28 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 14
through 16 of the Annual Report to Shareholders is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information contained in the Financial Statements and Notes thereto
and the Independent Auditors' Report on pages 17 through 26 of the Annual Report
to Shareholders is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the headings "Election of Directors"
and "Executive Officers of the Company" on pages 2 through 5 of the Company's
Proxy Statement for its 1997 Annual Meeting of Shareholders, to be held on May
13, 1997 (the "Proxy Statement"), is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive Compensation"
on pages 6 through 14 of the Proxy Statement is incorporated herein by
reference, other than the subsection thereunder entitled "Report of Compensation
Committee on Executive Compensation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of
Certain Beneficial Owners and Management" on pages 16 through 17 of the Proxy
Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Transactions" on
page 17 of the Proxy Statement is incorporated herein by reference.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
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Section Reference in the
Annual Report to Shareholders
-----------------------------
Balance Sheets at *
December 31, 1996 and 1995
Statements of Operations *
for the Three Years Ended December 31, 1996
Statements of Cash Flows *
for the Three Years Ended December 31, 1996
Statements of Stockholders' *
Equity for the Three Years Ended December 31, 1996
Notes to Financial Statements *
Independent Auditors' Report *
* The financial statements and the Independent Auditors' Report listed above,
which are included in the Annual Report to Shareholders, are incorporated by
reference in Item 8 hereof.
Except for the financial statements listed above and the items specifically
incorporated by reference in Items 5, 6, 7 and 8 hereof, the Annual Report to
Shareholders is not deemed to be "filed" as part of this Annual Report on Form
10-K.
2. Financial Statement Schedules
-----------------------------
Page in this
Annual Report
-------------
Independent Auditors' Report on 22
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts 23
All other schedules have been omitted because they are not applicable or
not
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required, or because the required information is included in the financial
statements or the notes thereto.
3. Exhibits
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Exhibit No.
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3.1 Restated Articles of Incorporation (Incorporated by reference to Exhibit
3.1 to the Company's Registration Statement on Form S-2, File No. 33-
40763).
3.2 Restated Bylaws of the Company, as amended to date (Incorporated by
reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
4.1 Specimen certificate for shares of Common Stock of the Company
(Incorporated by reference to Exhibit 4.1 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between the Company and
Norwest Bank Minneapolis, National Association (including the form of
Right Certificate attached as Exhibit A thereto) (Incorporated by
reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.1 1993 Nonemployee Director Stock Option Plan (Incorporated by reference to
Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.2 Nonemployee Director Stock Option Plan (Incorporated by reference to
Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.3 Deferred Compensation Plan for Nonemployee Directors (Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1995).
*10.4 1994 Stock Incentive Plan (Incorporated by reference to Exhibit 10.3 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1994).
*10.5 1984 Stock Option Plan (Incorporated by reference to Exhibit 10.4 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1994).
16
<PAGE>
*10.6 1982 Incentive Stock Option Plan (Incorporated by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
*10.7 Stock Acquisition Assistance Loan Program (Incorporated by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
*10.8 1997 Stock Incentive Plan
*10.9 Money Purchase Retirement Plan Supplement Program (Incorporated by
reference to Exhibit 10.7 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
*10.10 Retirement, Separation Agreement and Release, dated December 31, 1995
with Kenneth F. Tempero. (Incorporated by reference to Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the year ended December 31,
1995.)
*10.11 Termination Agreement, dated as of January 1, 1992, with Charles C.
Muscoplat (Incorporated by reference to Exhibit 10.9 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
*10.12 Termination Agreement, dated as of January 1, 1992, with James V. Adam
(Incorporated by reference to Exhibit 10.10 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
*10.13 Termination Agreement, dated as of January 1, 1992, with Lori-jean Gille.
(Incorporated by reference to Exhibit 10.13 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
*10.14 Termination Agreement, dated as of July 10, 1995, with Jon C. Lee.
(Incorporated by reference to Exhibit 10.14 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
*10.15 Separation Agreement and Mutual Release, dated as of October 21, 1996,
with Rajesh C. Shrotriya.
*10.16 Termination Agreement, dated as of April 29, 1996, with Charles N.
Blitzer.
*10.17 Stock Purchase and Loan Agreement, dated May 14, 1996, between the
Company and Charles N. Blitzer.
17
<PAGE>
10.18 Lease Agreement, dated August 7, 1989, with ALSCOR Investors Joint
Venture, as amended by that certain Amendment to Office Lease, dated
October 30, 1989, with ALSCOR Investors Joint Venture (Incorporated by
reference to Exhibit 10.11 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.19 Second Amendment to Office Lease, dated May 3, 1991 between the Company
and ALSCOR Investors Joint Venture (Incorporated by reference to Exhibit
10.12 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.20 Third Amendment to Office Lease, dated September 23, 1992 between the
Company and ALSCOR Investors Joint Venture (Incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.21 Fourth Amendment to Office Lease, dated September 23, 1992 between the
Company and ALSCOR Investors Joint Venture (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.22 Fifth Amendment to Office Lease, dated March 10, 1995 between the Company
and ALSCOR Investors Joint Venture (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.23 Sixth Amendment to Office Lease, dated March 21, 1997 between the Company
and ALSCOR Investors Joint Venture.
10.24 Trademark License Agreement, dated as of December 31, 1989, between the
Company and Norwich Eaton Pharmaceutical, Inc. (Incorporated by reference
to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.25 Supply and License Agreement, dated March 19, 1992, among E Merck Fine
Chemicals Division, EM Industries and the Company (Incorporated by
reference to Exhibit A to Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.26 Supply Agreement, dated December 21, 1993, between the Company and
Boehringer Ingelheim Pharmaceutical, Inc. (Incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
18
<PAGE>
10.27 Development, Marketing and Cooperation Agreement, dated October 23,
1995, between the Company and Dainippon Pharmaceutical Co., Ltd.
(Incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995).
10.28 Manufacturing Agreement, dated December 12, 1995, between the Company
and Global Pharm Inc. (Incorporated by reference to Exhibit 10.25 to the
Company's Annual Report on Form 10-K for the year ended December 31,
1995).
**10.29 Promotion Agreement, dated March 11, 1997, between the Company and
Schein Pharmaceutical, Inc.
11 Computation of Net Income (Loss) Per Common Share.
13 1996 Annual Report to Shareholders.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation Reform Act
of 1995.
* Items that are management contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of this Form 10-K.
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended,
confidential portions of Exhibit 10.29 have been deleted and filed
separately with the Securities and Exchange Commission pursuant to a request
for confidential treatment.
(b) Reports on Form 8-K
-------------------
The Company filed no reports on Form 8-K during the quarter ended December
31, 1996.
19
<PAGE>
MGI PHARMA, INC. RETIREMENT SAVINGS PLAN
The following financial statements and schedules of the Company's Retirement
Savings Plan are included herein in lieu of filing a Form 11-K for such plan,
pursuant to General Instruction F to Form 10-K and Rule 15d-21:
Page in this
Annual Report
-------------
Statements of Net Assets Available for
Participants at December 31, 1996 and 1995 25
Statements of Changes in Net Assets Available
for Participants in the years ended December 31,
1996 and 1995 26
Notes to Financial Statements 28
Schedule 1 - Schedule of Investments Held at
End of Plan Year 32
Schedule 2 - Reportable Transactions 33
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 28, 1997 MGI PHARMA, INC.
By /s/ James V. Adam
---------------------------------------
James V. Adam
Vice President, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title
- --------- -----
Charles N. Blitzer* President, Chief )
Executive Officer )
(principal executive )
officer) and Director )
)
James V. Adam Vice President, Chief )
Financial Officer )
(principal financial )
and accounting officer)
) By /s/ James V. Adam
-----------------
Frederick W. Armstrong* Director ) James V. Adam
) Pro se and as
Charles E. Austin* Director ) Attorney-in Fact*
)
David E. Collins* Director )
)
Hugh E. Miller* Director ) Dated: March 28, 1997
)
Robert W. Powell, Jr.* Director )
)
Timothy G. Rothwell* Director )
)
Lee J. Schroeder* Director )
* By Power of Attorney filed with this report as Exhibit 24 hereto.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
MGI PHARMA, INC.:
Under date of February 7, 1997, we reported on the balance sheets of MGI PHARMA,
INC., as of December 31, 1996 and 1995, and the related statements of
operations, cash flows, and stockholders' equity for each of the years in the
three-year period ended December 31, 1996, as contained in the 1996 Annual
Report to Shareholders. These financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for the year 1996.
In connection with our audits of the aforementioned financial statements, we
also have audited the related financial statement schedule as listed in the
accompanying index. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.
In our opinion, such financial schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly, in all material
respects, the information set forth herein.
/s/KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1997
22
<PAGE>
Schedule II
MGI PHARMA, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
----------------------------------
Balance at Charged to Costs Charged to Balance at
Description Beginning of Period and Expenses Other Accounts Deductions End of Period
- ----------------------------- ------------------- ---------------- -------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996
Deducted from asset accounts:
Accounts receivable allowance $160,535 $152,795 $ -- $245,075 (1) $ 68,255
Inventory valuation allowance 181,458 160,000 70,685 25,662 (2) 386,481
-------- -------- ------- -------- --------
Total $341,993 $312,795 $70,685 $270,737 $454,736
======== ======== ======= ======== ========
Year ended December 31, 1995
Deducted from asset accounts:
Accounts receivable allowance $146,606 $114,157 $ -- $100,228 (1) $160,535
Inventory valuation allowance 13,562 300,000 -- 132,104 (2) 181,458
-------- -------- ------- -------- --------
Total $160,168 $414,157 $ -- $232,332 $341,993
======== ======== ======= ======== ========
Year ended December 31, 1994:
Deducted from asset accounts:
Accounts receivable allowance $ 14,770 $234,566 $ -- $102,730 (1) $146,606
Inventory valuation allowance -- 51,294 -- $ 37,732 (2) 13,562
-------- -------- ------- -------- --------
Total $ 14,770 $285,860 $ -- $140,462 $160,168
======== ======== ======= ======== ========
</TABLE>
(1) Discounts by customers, or write-off of uncollectible accounts, net of
recoveries.
(2) Destruction of returned or obsolete inventory, or inventory rework costs.
23
<PAGE>
MGI PHARMA, INC. Retirement Savings Plan
Financial Statements and Schedules
1996
<PAGE>
STATEMENTS OF NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
INVESTMENTS AT FAIR VALUE:
Shares of registered investments companies:
Invesco Stable Value $ 183,800 $ 315,301
Vanguard Group:
Fixed Income, GNMA 72,550 85,502
World, International Growth 228,750 207,416
Fidelity Investments:
Puritan 274,097 183,847
Retirement Growth 267,475 205,432
MGI PHARMA, INC. common stock 532,160 506,786
Participant notes receivable 48,284 17,574
---------- ----------
1,607,116 1,521,858
---------- ----------
RECEIVABLES:
Contributions receivable:
Employer 137,033 103,212
Employees - 3,098
---------- ----------
137,033 106,310
---------- ----------
CASH 14,125 -
---------- ----------
NET ASSETS AVAILABLE FOR PARTICIPANTS $ 1,758,274 $ 1,628,168
========== ==========
</TABLE>
____________________________________________
See accompanying notes to financial statements.
25
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
Year Ended December 31, 1996
-----------------------------------------------------------------------------------------------------
Shares of registered investment companies
-----------------------------------------------------------
Invesco Vanguard Group Fidelity Investments MGI
---------------------- ----------------------
Stable Fixed Income, World Intl. Retirement Common Participant
Value GNMA Growth Puritan Growth Stock Notes Other Total
----- ---- ------ ------- ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ -- $ (1,485) $ 21,351 $ 5,395 $ (12,960) $ (32,648) $ -- $ -- $ (20,347)
Dividends 12,395 5,054 9,769 29,909 32,434 -- -- -- 89,561
Interest -- -- -- -- -- -- 4,406 -- 4,406
--------- --------- --------- --------- --------- --------- -------- --------- ----------
12,395 3,569 31,120 35,304 19,474 (32,648) 4,406 -- 73,620
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Contributions:
Employer -- -- -- -- -- 78,195 -- 137,033 215,228
Participants 29,845 9,355 41,378 56,247 63,944 25,196 -- -- 225,965
--------- --------- --------- --------- --------- --------- -------- --------- ----------
29,845 9,355 41,378 56,247 63,944 103,391 -- 137,033 441,193
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Total additions 42,240 12,924 72,498 91,551 83,418 70,743 4,406 137,033 514,813
--------- --------- --------- --------- --------- --------- -------- --------- ----------
DISTRIBUTIONS (64,650) (14,692) (114,055) (44,124) (29,160) (113,496) (4,530) -- (384,707)
TRANSFERS BETWEEN FUNDS, NET (109,091) (11,184) 62,891 42,823 7,785 68,127 30,834 (92,185) --
--------- --------- --------- --------- --------- --------- -------- --------- ----------
Net increase (decrease) (131,501) (12,952) 21,334 90,250 62,043 25,374 30,710 44,848 130,106
NET ASSETS AVAILABLE FOR
PARTICIPANTS:
BEGINNING OF YEAR 315,301 85,502 207,416 183,847 205,432 506,786 17,574 106,310 1,628,168
--------- --------- --------- --------- --------- --------- -------- --------- ----------
END OF YEAR $183,800 $ 72,550 $ 228,750 $ 274,097 $ 267,475 $ 532,160 $ 48,284 $ 151,158 $1,758,274
========= ========= ========= ========= ========= ========= ======== ========= ==========
</TABLE>
__________________________________________
See accompanying notes to financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PARTICIPANTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
Year Ended December 31, 1995
----------------------------------------------------------------------------------------
Shares of registered investment companies
--------------------------------------------------------------------
Guaranteed Invesco Vanguard Group Fidelity Investments
---------------------------- ---------------------
Investment Stable Fixed Income World Intl. Retirement
Contract Value GNMA Growth Puritan Growth
-------- ----- ---- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $ - $ - $ 5,956 $ 20,110 $ 17,679 $ 13,156
Dividends - 16,937 5,218 5,511 8,649 18,168
Interest 3,693 - - - - -
------------ ----------- -------------- -------- -------- ----------
3,693 16,937 11,174 25,621 26,328 31,324
------------ ----------- -------------- -------- -------- ----------
Contributions:
Employer - - - - - -
Participants 1,611 37,960 15,226 36,308 60,701 55,728
------------ ----------- -------------- -------- -------- ----------
1,611 37,960 15,226 36,308 60,701 55,728
------------ ----------- -------------- -------- -------- ----------
Total additions 5,304 54,897 26,400 61,929 87,029 87,052
------------ ----------- -------------- -------- -------- ----------
DISTRIBUTIONS - (1,810) (1,915) (1,668) (1,749) (9,541)
TRANSFERS BETWEEN FUNDS, NET (306,284) 262,214 2,058 1,636 12,006 30,907
------------ ----------- -------------- -------- -------- ----------
Net increase (decrease) (300,980) 315,301 26,543 61,897 97,286 108,418
NET ASSETS AVAILABLE FOR PARTICIPANTS:
BEGINNING OF YEAR 300,980 - 58,959 145,519 86,561 97,014
------------ ----------- -------------- -------- -------- ----------
END OF YEAR $ - $ 315,301 $ 85,502 $207,416 $183,847 $ 205,432
============ =========== ============== ======== ======== ==========
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------------------------
Shares of registered investment companies
---------------------------------------------------------------
MGI
Common Participant
Stock Notes Receivables Total
----- ----- ----------- -----
<S> <C> <C> <C> <C>
ADDITIONS TO NET ASSETS:
Investment income:
Net appreciation (depreciation)
in fair value of investments $(172,654) $ - $ - $ (115,753)
Dividends - - - 54,483
Interest - 1,225 - 4,918
--------- ----------- ------------- ----------
(172,654) 1,225 - (56,352)
--------- ----------- ------------- ----------
Contributions:
Employer 139,174 - 103,212 242,386
Participants 30,523 - 3,098 241,155
--------- ----------- ------------- ----------
169,697 - 106,310 483,541
--------- ----------- ------------- ----------
Total additions (2,957) 1,225 106,310 427,189
--------- ----------- ------------- ----------
DISTRIBUTIONS (5,331) (1,600) - (23,614)
TRANSFERS BETWEEN FUNDS, NET (3,853) 1,544 (78,801) (78,573)
--------- ----------- ------------- ----------
Net increase (decrease) (12,141) 1,169 27,509 325,002
NET ASSETS AVAILABLE FOR PARTICIPANTS:
BEGINNING OF YEAR 518,927 16,405 78,801 1,303,166
--------- ----------- ------------- ----------
END OF YEAR $ 506,786 $ 17,574 $ 106,310 $1,628,168
========= =========== ============= ==========
</TABLE>
___________________________________________
See accompanying notes to financial statements.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MGI PHARMA, INC. Retirement Savings Plan
(unaudited)
1. Description of Plan
-------------------
The following description of the MGI PHARMA, INC. Retirement Savings Plan
(the "Plan") provides only general information. Participants should refer
to the Summary Plan Description for a more complete description of the
Plan's provisions. The plan is a defined contribution retirement savings
plan sponsored by MGI PHARMA, INC. ("MGI"). It conforms to Section 401(k)
of the Internal Revenue Code and therefore defers income taxes on
qualifying contributions and Plan earnings. The Plan benefits eligible
employees by accumulating retirement assets during their working careers
through employee participation in a systematic savings and investment
program to which MGI also contributes. The Plan is administered by an
Administrative Committee appointed for that purpose by MGI's Board of
Directors and all Plan administrative costs are currently borne by MGI.
At December 31, 1996, 51 employees were participants in the Plan. The Plan
is available to every employee of MGI who completes six months of
employment, is at least 21 years old, and is scheduled for at least 1,000
hours of service annually. Eligible employees may participate in the Plan
through: (1) contributions of up to 10% of their compensation; (2) employer
matching contributions equal to 50% of employee contributions, up to 6% of
an employee's compensation; (3) employer discretionary contributions; and
(4) employee rollover contributions. Contributions are subject to certain
limitations.
Employee contributions and related earnings are directed by the participant
into available investment options and are fully vested at all times.
Employer contributions are in the form of MGI common stock. At December 31,
1996, employer directed balances totaled $405,142 of the MGI common stock
fund. Employer contributions are 20% vested after completion of two years
of employment, 40% after three years, 75% after four years and 100% after
five years. Employer discretionary contributions are allocated to a
participant's account based upon his/her pro rata share of total recognized
compensation during the year. Forfeitures are used to reduce the amount of
MGI's contributions to the Plan.
28
<PAGE>
A participant's account may mature and be distributed upon the occurrence
of one of the following: (1) death, (2) retirement, (3) the attainment of
70-1/2 years of age, (4) termination of employment, (5) termination of the
Plan or (6) upon certain MGI "change in control" events. Distributions may
be a lump sum of cash and MGI common stock held in a participant's account.
Investments
-----------
The following investment alternatives are available to participants:
Registered Investment Companies Funds:
Invesco Funds Group:
Stable Value - The INVESCO Retirement Trust Stable Value Fund ("Stable
Value Fund") seeks to provide a high level of current income while
preserving principal, primarily by investing in a diversified
portfolio of investment contracts with insurance companies, banks or
other financial institutions. An investment contract is an agreement
to provide a specific rate of return for a period of time. Risk in
these contracts relates to the financial performance of the issuing
entity and in certain cases a portfolio of marketable securities
securing the investment.
Vanguard Group:
Fixed Income, GNMA - The GNMA portfolio is part of the Fixed Income
Securities Fund, a no-load, open-end, diversified fund that seeks to
provide a high level of current income while maintaining a high level
of principal protection and liquidity. The portfolio invests at least
80% of its assets in Government National Mortgage Association ("GNMA"
or "Ginnie Mae") pass-through mortgage backed certificates
representing part ownership of a pool of mortgage loans. The mortgage
loans underlying GNMA certificates are guaranteed by the full faith
and credit of the U.S. Government.
World, International Growth - The International Growth Portfolio is
part of the World Fund, a no load, open end, diversified equity
security fund. The portfolio seeks to provide long-term capital growth
by investing primarily in equity securities of growth companies
located outside the United States.
Fidelity Investments:
Puritan - The Puritan fund is an open-end, diversified security fund
that seeks to primarily provide income by investing in common stocks,
preferred stocks and bonds.
29
<PAGE>
Retirement Growth - The Retirement Growth fund is an open-end,
diversified securities fund that seeks long-term capital growth by
investing primarily in common stocks. It may realize capital gains
without regard to shareholders' current tax liability since it is
designed for investors in tax qualified retirement plans.
MGI PHARMA, INC. common stock - MGI PHARMA, INC. (the Plan Sponsor) common
stock is publicly traded, with trades reported on the NASDAQ National
Market System. MGI is a pharmaceutical company that acquires, develops and
markets innovative and differentiated products for niche markets of unmet
medical need. MGI has not paid, and has no present intention of paying cash
dividends on its common stock.
Participant Notes Receivable
----------------------------
Participants may borrow from their accounts a minimum of $1,000 up to the
lesser of $50,000 or one-half of their balances. Loan transactions are
treated as transfers between the relevant investment fund and the
Participant Notes fund. Loan terms generally cannot exceed five years. The
loans are secured by balances in the participant's accounts and bear
interest fixed at 1% above the prime rate upon initiation of the loan.
Principal and interest is paid by monthly or more frequent installments.
2. Summary of Accounting Policies
------------------------------
Basis of Accounting
-------------------
The financial statements of the Plan are prepared under the accrual method
of accounting.
Investment Valuation and Income Recognition
-------------------------------------------
Plan investments are stated at fair value. Shares of registered investment
companies are valued at quoted market prices that represent the net asset
value of shares held by the Plan at year-end. Company stock is valued at
its quoted market price of $4.25 and $4.4375 per share at December 31, 1996
and 1995, respectively. Participant notes receivable are valued at cost
which approximates fair value.
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on
the ex-dividend date. Investment income is allocated to participants'
accounts based upon their pro rata share of the respective investment
balance during the income period.
Payment of Benefits
-------------------
Benefits are recorded when paid.
30
<PAGE>
3. Federal Income Taxes
--------------------
The Plan received a tax qualification letter from the Internal Revenue
Service stating that it is a qualified plan under the Internal Revenue Code
("IRC"), and therefore the associated trust is exempt from federal income
taxes. Following the qualification letter, the Plan administration believes
operation of the Plan has been performed in a manner to maintain compliance
with the applicable requirements of the IRC.
4. Party-in-interest Transactions
------------------------------
The Plan engaged in transactions involving the acquisition or disposition
of units of participation in collective investment funds of the Trustee,
which is a party-in-interest with respect to the Plan. These transactions
are not considered "prohibited transactions" under ERISA and are for short-
term investment of cash balances pending reinvestment.
5. Plan Termination
----------------
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100 percent vested in their accounts.
31
<PAGE>
Schedule 1
SCHEDULE OF INVESTMENTS HELD AT END OF PLAN YEAR
MGI PHARMA, INC. Retirement Savings Plan
December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Number Fair Market
Description of shares/units Cost Value
- ----------- --------------- ---------- -----------
<S> <C> <C> <C>
Shares of registered investment companies:
Invesco Stable Value 183,800 $ 183,800 $ 183,800
Vanguard Group:
Fixed Income, GNMA 7,099 70,467 72,550
World, International Growth 13,897 205,522 228,750
Fidelity Investments:
Puritan 15,899 259,274 274,097
Retirement Growth 15,470 280,184 267,475
MGI PHARMA, INC. common stock 125,214 801,704 532,160
Participant notes receivable 48,284 48,284 48,284
---------- ----------
Total $1,849,235 $1,607,116
========== ==========
</TABLE>
32
<PAGE>
Schedule 2
REPORTABLE TRANSACTIONS
MGI PHARMA, INC. Retirement Savings Plan
Year ended December 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Total Total Total Dollar Total Dollar
Number Number Value of Value Net Gain
Description of Purchases of Sales Purchases of Sales or (Loss)
- ----------- ------------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Shares of registered investment companies:
Invesco Stable Value 88 12 57,074 190,331 -0-
Vanguard Group:
Fixed Income, GNMA 55 9 15,074 21,209 (5,004)
World, International Growth 80 7 107,067 104,719 (1,042)
Fidelity Investments:
Puritan 82 13 145,358 60,424 1,622
Retirement Growth 79 11 119,791 44,774 943
MGI PHARMA, INC. common stock 25 12 185,974 124,188 (13,643)
</TABLE>
33
<PAGE>
EXHIBIT INDEX
MGI PHARMA, INC.
Annual Report on Form 10-K
For
Year Ended December 31, 1996
Exhibit
Number Description
- ------ -----------
3.1 Restated Articles of Incorporation (Incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-2, File No. 33-40763).
3.2 Restated Bylaws of the Company, as amended to date
(Incorporated by reference to Exhibit 3.2 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
4.1 Specimen certificate for shares of Common Stock of
the Company (Incorporated by reference to Exhibit 4.1 to
the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
4.2 Rights Agreement, dated as of January 19, 1988, between
the Company and Norwest Bank Minneapolis, National
Association (including the form of Right Certificate
attached as Exhibit A thereto) (Incorporated by referenc
to Exhibit 4.2 to the Company's Annual Report on Form 10
for the year ended December 31, 1994).
10.1 1993 Nonemployee Director Stock Option Plan (Incorporate
by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.2 Nonemployee Director Stock Option Plan (Incorporated by
reference to Exhibit 10.2 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
<PAGE>
10.3 Deferred Compensation Plan for Nonemployee Directors
(Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995).
10.4 1994 Stock Incentive Plan (Incorporated by reference to
Exhibit 10.3 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.5 1984 Stock Option Plan (Incorporated by reference to
Exhibit 10.4 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.6 1982 Incentive Stock Option Plan (Incorporated by
reference to Exhibit 10.5 to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994).
10.7 Stock Acquisition Assistance Loan Program (Incorporated
by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.8 1997 Stock Incentive Plan.
10.9 Money Purchase Retirement Plan Supplement Program
(Incorporated by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1994).
10.10 Retirement, Separation Agreement and Release, dated
December 31, 1995 with Kenneth F. Tempero. (Incorporated
by reference to Exhibit 10.9 the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.)
10.11 Termination Agreement, dated as of January 1, 1992, with
Charles C. Muscoplat (Incorporated by reference to
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.12 Termination Agreement, dated as of January 1, 1992,
with James V. Adam (Incorporated by reference to
Exhibit 10.10 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
<PAGE>
10.13 Termination Agreement, dated as of January 1, 1992,
with Lori-jean Gille. (Incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.)
10.14 Termination Agreement, dated as of July 10, 1995, with
Jon C. Lee. (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report of
Form 10-K for the year ended December 31, 1995.)
10.15 Separation Agreement and Mutual Release, dated as of
October 21, 1996 with Rajesh C. Shrotriya.
10.16 Termination Agreement, dated as of April 29, 1996,
with Charles N. Blitzer.
10.17 Stock Purchase and Loan Agreement, dated May 14, 1996,
between the Company and Charles N. Blitzer.
10.18 Lease Agreement, dated August 7, 1989, with ALSCOR
Investors Joint Venture, as amended by that certain
Amendment to Office Lease, dated October 30, 1989, with
ALSCOR Investors Joint Venture (Incorporated by reference
to Exhibit 10.11 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.19 Second Amendment to Office Lease, dated May 3, 1991
between the Company and ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.20 Third Amendment to Office Lease, dated September
23, 1992 between the Company and ALSCOR Investors
Joint Venture (Incorporated by reference to Exhibit
10.13 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994).
10.21 Fourth Amendment to Office Lease, dated September 23,
1992 between the Company and ALSCOR Investors Joint
Venture (Incorporated by reference to Exhibit 10.14
to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994).
<PAGE>
10.22 Fifth Amendment to Office Lease, dated March 10, 1995
between the Company and ALSCOR Investors Joint Venture
(Incorporated by reference to Exhibit 10.15 to the
Company's Annual Report on Form 10-K for the year
ended December 31, 1994).
10.23 Sixth Amendment to Office Lease, dated March 21, 1997
between the Company and ALSCOR Investors Joint Venture.
10.24 Trademark License Agreement, dated as of December
31, 1989, between the Company and Norwich Eaton
Pharmaceutical, Inc. (Incorporated by reference to
Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.25 Supply and License Agreement, dated March 19, 1992,
among E Merck Fine Chemicals Division, EM Industries
and the Company (Incorporated by reference to Exhibit A
to Exhibit 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1992).
10.26 Supply Agreement, dated December 21, 1993, between
the Company and Boehringer Ingelheim Pharmaceutical,
Inc. (Incorporated by reference to Exhibit 10.18
to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994).
10.27 Development, Marketing and Cooperation Agreement,
dated October 23, 1995, between the Company and Dainippon
Pharmaceutical Co., Ltd. (Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995).
10.28 Manufacturing Agreement, dated December 12, 1995,
between the Company and Global Pharm Inc. (Incorporated
by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.)
**10.29 Promotion Agreement, dated March 11, 1997, between the
Company and Schein Pharmaceutical, Inc.
<PAGE>
11 Computation of Net Income (Loss) Per Common Share.
13 1996 Annual Report to Shareholders.
23 Consent of KPMG Peat Marwick LLP.
24 Powers of Attorney.
27 Financial Data Schedule.
99 Cautionary Statements under the Private Securities Litigation Reform
Act of 1995
** Pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as
amended, confidential portions of Exhibit 10.29 have been deleted and
filed separately with the Securities and Exchange Commission pursuant
to a request for confidential treatment.
<PAGE>
EXHIBIT 10.8
MGI PHARMA, INC.
1997 STOCK INCENTIVE PLAN
(As Approved by Shareholders on ________________________, 1997)
Section 1. Purpose; Effect on Prior Plans.
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(a) Purpose. The purpose of the MGI PHARMA, INC. 1997 Stock Incentive
Plan (the "Plan") is to promote the interests of MGI PHARMA, INC. (the
"Company") and its stockholders by aiding the Company in attracting and
retaining personnel necessary for the future success of the Company, to
offer such personnel incentives to put forth maximum efforts for the
success of the Company's business and to afford such personnel an
opportunity to acquire a proprietary interest in the Company.
(b) Effect on Prior Plans. From and after the date on which the
Company's stockholders approve this Plan, no awards or stock options shall
be granted under the Prior Plans. All outstanding stock options and
restricted stock unit awards granted prior to the date on which the
Company's stockholders approve this Plan shall remain outstanding in
accordance with the terms thereof.
Section 2. Definitions.
- -----------------------
As used in the Plan, the following terms shall have the meanings set
forth below:
(a) "Affiliate" shall mean (i) any entity that, directly or indirectly
through one or more intermediaries, is controlled by the Company and (ii)
any entity in which the Company has a significant equity interest, in each
case as determined by the Committee.
(b) "Award" shall mean any Option, Stock Appreciation Right,
Restricted Stock, Restricted Stock Unit, Performance Award, Dividend
Equivalent or Other Stock-Based Award granted under the Plan.
(c) "Award Agreement" shall mean any written agreement, contract or
other instrument or document evidencing any Award granted under the Plan.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and any regulations promulgated thereunder.
(e) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan, which shall
consist of members appointed from time to time by the Board of Directors
and shall be comprised of not less than two directors. Each member of the
Committee shall be a
<PAGE>
"Non-Employee Director" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m) of the Code.
(f) "Company" shall mean MGI PHARMA, INC., a Minnesota corporation,
and any successor corporation.
(g) "Dividend Equivalent" shall mean any right granted under
Section 6(d) of the Plan.
(h) "Eligible Person" shall mean any employee, officer, director,
consultant or independent contractor providing services to the Company or any
Affiliate who the Committee determines to be an Eligible Person.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair market
value of such property determined by such methods or procedures as shall be
established from time to time by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of Section
422 of the Code or any successor provision.
(k) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock Option.
(l) "Option" shall mean an Incentive Stock Option or a Non-Qualified
Stock Option.
(m) "Other Stock-Based Award" shall mean any right granted under
Section 6(f) of the Plan.
(n) "Participant" shall mean an Eligible Person designated to be
granted an Award under the Plan.
(o) "Performance Award" shall mean any right granted under
Section 6(c) of the Plan.
(p) "Person" shall mean any individual, corporation, partnership,
association or trust.
(q) "Plan" shall mean this 1997 Stock Incentive Plan, as amended from
time to time.
2
<PAGE>
(r) "Prior Plans" shall mean the Company's 1994 Stock Incentive Plan,
as amended, the Company's 1984 Stock Option Plan, as amended, and the Company's
1982 Incentive Stock Option Plan, as amended.
(s) "Reload Option" shall mean any Option granted under
Section 6(a)(iv) of the Plan.
(t) "Restricted Stock" shall mean any Share granted under
Section 6(b) of the Plan.
(u) "Restricted Stock Unit" shall mean any unit granted under
Section 6(b) of the Plan evidencing the right to receive a Share (or a cash
payment equal to the Fair Market Value of a Share) at some future date.
(v) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Securities Exchange Act of 1934, as amended,
or any successor rule or regulation.
(w) "Shares" shall mean shares of Common Stock, $.01 par value, of
the Company or such other securities or property as may become subject to Awards
pursuant to an adjustment made under Section 4(c) of the Plan.
(x) "Stock Appreciation Right" shall mean any right granted under
Section 6(e) of the Plan.
Section 3. Administration.
- --------------------------
(a) Power and Authority of the Committee. The Plan shall be
administered by the Committee. Subject to the express provisions of the Plan
and to applicable law, the Committee shall have full power and authority to:
(i) designate Participants; (ii) determine the type or types of Awards to be
granted to each Participant under the Plan; (iii) determine the number of Shares
to be covered by (or with respect to which payments, rights or other matters are
to be calculated in connection with) each Award; (iv) determine the terms and
conditions of any Award or Award Agreement; (v) amend the terms and conditions
of any Award or Award Agreement and accelerate the exercisability of Options or
the lapse of restrictions relating to Restricted Stock or other Awards;
(vi) determine whether, to what extent and under what circumstances Awards may
be exercised in cash, Shares, other securities, other Awards or other property,
or canceled, forfeited or suspended; (vii) determine whether, to what extent and
under what circumstances cash, Shares, other securities, other Awards, other
property and other amounts payable with respect to an Award under the Plan shall
be deferred either automatically or at the election of the holder thereof or the
Committee; (viii) interpret and administer the Plan and any instrument or
agreement relating to, or Award made under, the Plan; (ix) establish, amend,
suspend or waive such rules and regulations and appoint such
3
<PAGE>
agents as it shall deem appropriate for the proper administration of the Plan;
and (x) make any other determination and take any other action that the
Committee deems necessary or desirable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all designations,
determinations, interpretations and other decisions under or with respect to the
Plan or any Award shall be within the sole discretion of the Committee, may be
made at any time and shall be final, conclusive and binding upon any
Participant, any holder or beneficiary of any Award and any employee of the
Company or any Affiliate.
(b) Delegation. The Committee may delegate its powers and duties
under the Plan to one or more officers of the Company or any Affiliate or a
committee of such officers, subject to such terms, conditions and limitations as
the Committee may establish in its sole discretion; provided, however, that the
Committee shall not delegate its powers and duties under the Plan (i) with
regard to officers or directors of the Company or any Affiliate who are subject
to Section 16 of the Securities Exchange Act of 1934, as amended or (ii) in such
a manner as would cause the Plan not to comply with the requirements of Section
162(m) of the Code.
Section 4. Shares Available for Awards.
- ---------------------------------------
(a) Shares Available. Subject to adjustment as provided in
Section 4(d), the number of Shares available for granting Awards under the Plan
shall be equal to the sum of (i) 1,200,000 and (ii) any Shares that are
represented by awards granted under the Prior Plans, which are forfeited, expire
or are canceled without the delivery of Shares or which result in the forfeiture
of Shares back to the Company. In addition, any Shares granted under the Plan
which are forfeited back to the Company because of the failure to meet an Award
contingency or condition shall again be available for delivery pursuant to new
Awards granted under the Plan. Any Shares covered by an Award (or portion of an
Award) granted under the Plan, which is forfeited or canceled, expires or is
settled in cash, shall be deemed not to have been delivered for purposes of
determining the maximum number of Shares available for delivery under the Plan.
Likewise, any Shares that are used by a Participant as full or partial payment
to the Company of the purchase price relating to an Award, or in connection with
satisfaction of tax obligations relating to an Award in accordance with the
provisions of Section 8 of the Plan, shall again be available for granting
Awards under the Plan. Further, Shares issued under the Plan through the
settlement, assumption or substitution of outstanding awards or obligations to
grant future awards as a condition of the Company acquiring another entity shall
not reduce the maximum number of Shares available for delivery under the Plan.
(b) Accounting for Awards. For purposes of this Section 4, if an
Award entitles the holder thereof to receive or purchase Shares, the number of
Shares covered by such Award or to which such Award relates shall be counted on
the date
4
<PAGE>
of grant of such Award against the aggregate number of Shares available
for granting Awards under the Plan.
(c) Incentive Stock Options. Notwithstanding the foregoing, the
number of Shares available for granting Incentive Stock Options under the Plan
shall not exceed 1,200,000, subject to adjustment as provided in the Plan and
Section 422 or 424 of the Code or any successor provisions.
(d) Adjustments. In the event that the Committee shall determine
that any dividend or other distribution (whether in the form of cash, Shares,
other securities or other property), recapitalization, stock split, reverse
stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase or exchange of Shares or other securities of the
Company, issuance of warrants or other rights to purchase Shares or other
securities of the Company or other similar corporate transaction or event
affects the Shares such that an adjustment is determined by the Committee to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and type of Shares (or other securities or other property) which
thereafter may be made the subject of Awards, (ii) the number and type of Shares
(or other securities or other property) subject to outstanding Awards and (iii)
the purchase or exercise price with respect to any Award; provided, however,
that the number of Shares covered by any Award or to which such Award relates
shall always be a whole number.
(e) Award Limitations Under the Plan. No Eligible Person may be
granted any Award or Awards, the value of which Awards are based solely on an
increase in the value of the Shares after the date of grant of such Awards, for
more than 450,000 Shares, subject to adjustment as provided in the Plan, in the
aggregate, during any consecutive three calendar years. The foregoing
limitation specifically includes the grant of any "performance-based" Awards
within the meaning of Section 162(m) of the Code.
Section 5. Eligibility.
- -----------------------
Any Eligible Person, including any Eligible Person who is an officer
or director of the Company or any Affiliate, shall be eligible to be designated
a Participant. In determining which Eligible Persons shall receive an Award and
the terms of any Award, the Committee may take into account the nature of the
services rendered by the respective Eligible Persons, their present and
potential contributions to the success of the Company or such other factors as
the Committee, in its discretion, shall deem relevant. Notwithstanding the
foregoing, an Incentive Stock Option may only be granted to full or part-time
employees (which term as used herein includes, without limitation, officers and
directors who are also employees) and an Incentive Stock Option shall not be
granted to an employee of an Affiliate
5
<PAGE>
unless such Affiliate is also a "subsidiary corporation" of the Company within
the meaning of Section 424(f) of the Code or any successor provision.
Section 6. Awards.
- ------------------
(a) Options. The Committee is hereby authorized to grant Options to
Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Exercise Price. The purchase price per Share purchasable under
an Option shall be determined by the Committee; provided, however, that
such purchase price shall not be less than 100% of the Fair Market Value of
a Share on the date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part and
the method or methods by which, and the form or forms (including, without
limitation, cash, Shares, promissory notes, other securities, other Awards
or other property, or any combination thereof, having a Fair Market Value
on the exercise date equal to the relevant exercise price) in which,
payment of the exercise price with respect thereto may be made or deemed to
have been made.
(iv) Reload Options. The Committee may grant Reload Options,
separately or together with another Option, pursuant to which, subject to
the terms and conditions established by the Committee and any applicable
requirements of Rule 16b-3 or any other applicable law, the Participant
would be granted a new Option when the payment of the exercise price of a
previously granted option is made by the delivery of Shares owned by the
Participant pursuant to Section 6(a)(iii) hereof or the relevant provisions
of another plan of the Company, and/or when Shares are tendered or
forfeited as payment of the amount to be withheld under applicable income
tax laws in connection with the exercise of an Option, which new Option
would be an Option to purchase the number of Shares not exceeding the sum
of (A) the number of Shares so provided as consideration upon the exercise
of the previously granted option to which such Reload Option relates and
(B) the number of Shares, if any, tendered or withheld as payment of the
amount to be withheld under applicable tax laws in connection with the
exercise of the option to which such Reload Option relates pursuant to the
relevant provisions of the plan or agreement relating to such option.
Reload Options may be granted with respect to Options previously granted
under the Plan or
6
<PAGE>
any other stock option plan of the Company, and may be granted in
connection with any Option granted under the Plan or any other stock option
plan of the Company at the time of such grant. Such Reload Options shall
have a per share exercise price equal to the Fair Market Value as of the
date of grant of the new Option. Any Reload Option shall be subject to
availability of sufficient Shares for grant under the Plan.
(b) Restricted Stock and Restricted Stock Units. The Committee is
hereby authorized to grant Awards of Restricted Stock and Restricted Stock Units
to Participants with the following terms and conditions and with such additional
terms and conditions not inconsistent with the provisions of the Plan as the
Committee shall determine:
(i) Restrictions. Shares of Restricted Stock and Restricted Stock
Units shall be subject to such restrictions as the Committee may impose
(including, without limitation, any limitation on the right to vote a Share
of Restricted Stock or the right to receive any dividend or other right or
property with respect thereto or with respect to a Restricted Stock Unit),
which restrictions may lapse separately or in combination at such time or
times, in such installments or otherwise as the Committee may deem
appropriate. Shares of Restricted Stock shall contain a restriction
providing for a vesting period of not less than one year.
(ii) Stock Certificates. Any Restricted Stock granted under the Plan
shall be evidenced by issuance of a stock certificate or certificates or
may be in the form of a bookkeeping entry, which certificate or
certificates shall be held by the Company and which bookkeeping entry shall
be evidenced in the records of the Company's transfer agent in an account
maintained for the Participant. Such certificate or certificates, or
entries on the records of the transfer agent, as the case may be, shall be
registered in the name of the Participant and shall bear an appropriate
legend referring to the terms, conditions and restrictions applicable to
such Restricted Stock. In the case of Restricted Stock Units, no Shares
shall be issued at the time such Awards are granted.
(iii) Forfeiture; Delivery of Shares. Except as otherwise determined
by the Committee, upon termination of employment (as determined under
criteria established by the Committee) during the applicable restriction
period, all Shares of Restricted Stock and all Restricted Stock Units at
such time subject to restriction shall be forfeited and reacquired by the
Company; provided, however, that the Committee may, when it finds that a
waiver would be in the best interest of the Company, waive in whole or in
part any or all remaining restrictions with respect to Shares of Restricted
Stock or Restricted Stock Units. Any Share representing Restricted Stock
that is no longer subject to restrictions shall be delivered to the holder
thereof promptly
7
<PAGE>
after the applicable restrictions lapse or are waived or applicable
restrictions shall be lifted from the records of the transfer agent, as the
case may be. Upon the lapse or waiver of restrictions and the restricted
period relating to Restricted Stock Units evidencing the right to receive
Shares, such Shares shall be issued and delivered to the holders of the
Restricted Stock Units.
(c) Performance Awards. The Committee is hereby authorized to grant
Performance Awards to Participants subject to the terms of the Plan and any
applicable Award Agreement. A Performance Award granted under the Plan (i) may
be denominated or payable in cash, Shares (including, without limitation,
Restricted Stock), other securities, other Awards or other property and (ii)
shall confer on the holder thereof the right to receive payments, in whole or in
part, upon the achievement of such performance goals during such performance
periods as the Committee shall establish. Subject to the terms of the Plan and
any applicable Award Agreement, the performance goals to be achieved during any
performance period, the length of any performance period, the amount of any
Performance Award granted, the amount of any payment or transfer to be made
pursuant to any Performance Award and any other terms and conditions of any
Performance Award shall be determined by the Committee.
(d) Dividend Equivalents. The Committee is hereby authorized to
grant to Participants Dividend Equivalents under which such Participants shall
be entitled to receive payments (in cash, Shares, other securities, other Awards
or other property as determined in the discretion of the Committee) equivalent
to the amount of cash dividends paid by the Company to holders of Shares with
respect to a number of Shares determined by the Committee. Subject to the terms
of the Plan and any applicable Award Agreement, such Dividend Equivalents may
have such terms and conditions as the Committee shall determine.
(e) Stock Appreciation Rights. The Committee is hereby authorized to
grant Stock Appreciation Rights to Participants subject to the terms of the Plan
and any applicable Award Agreement. A Stock Appreciation Right granted under
the Plan shall confer on the holder thereof a right to receive upon exercise
thereof the excess of (i) the Fair Market Value of one Share on the date of
exercise (or, if the Committee shall so determine, at any time during a
specified period before or after the date of exercise) over (ii) the grant price
of the Stock Appreciation Right as specified by the Committee, which price shall
not be less than 100% of the Fair Market Value of one Share on the date of grant
of the Stock Appreciation Right; provided, however, that such grant price may be
less than 100% of the Fair Market Value of one Share on the date of grant of the
Stock Appreciation Right if such right is granted to replace a stock option of
the Company based on the excess of the Fair Market Value of a Share over the
exercise price of such stock option. Subject to the terms of the Plan and any
applicable Award Agreement, the grant price, term, methods of exercise, dates of
exercise, methods of settlement and any other terms and conditions of any Stock
Appreciation Right shall be as determined by the
8
<PAGE>
Committee. The Committee may impose such conditions or restrictions on the
exercise of any Stock Appreciation Right as it may deem appropriate.
(f) Other Stock-Based Awards. The Committee is hereby authorized to
grant to Participants such other Awards that are denominated or payable in,
valued in whole or in part by reference to, or otherwise based on or related to,
Shares (including, without limitation, securities convertible into Shares), as
are deemed by the Committee to be consistent with the purpose of the Plan;
provided, however, that such grants must comply with Rule 16b-3 and applicable
law. Subject to the terms of the Plan and any applicable Award Agreement, the
Committee shall determine the terms and conditions of such Awards. Shares or
other securities delivered pursuant to a purchase right granted under this
Section 6(f) shall be purchased for such consideration, which may be paid by
such method or methods and in such form or forms (including without limitation,
cash, Shares, promissory notes, other securities, other Awards or other property
or any combination thereof), as the Committee shall determine, the value of
which consideration, as established by the Committee, shall not be less than
100% of the Fair Market Value of such Shares or other securities as of the date
such purchase right is granted.
(g) General.
(i) No Cash Consideration for Awards. Awards shall be granted for no
cash consideration or for such minimal cash consideration as may be
required by applicable law.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with or in substitution for any other Award or any award granted
under any plan of the Company or any Affiliate other than the Plan. Awards
granted in addition to or in tandem with other Awards or in addition to or
in tandem with awards granted under any such other plan of the Company or
any Affiliate may be granted either at the same time as or at a different
time from the grant of such other Awards or awards.
(iii) Forms of Payment under Awards. Subject to the terms of the
Plan and of any applicable Award Agreement, payments or transfers to be
made by the Company or an Affiliate upon the grant, exercise or payment of
an Award may be made in such form or forms as the Committee shall determine
(including, without limitation, cash, Shares, promissory notes, other
securities, other Awards or other property or any combination thereof), and
may be made in a single payment or transfer, in installments or on a
deferred basis, in each case in accordance with rules and procedures
established by the Committee. Such rules and procedures may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment
9
<PAGE>
or deferred payments or the grant or crediting of Dividend Equivalents with
respect to installment or deferred payments.
(iv) Limits on Transfer of Awards. No Award and no right under any
such Award shall be transferable by a Participant otherwise than by will or
by the laws of descent and distribution; provided, however, that, if so
determined by the Committee, a Participant may, in the manner established
by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Participant and receive any property distributable with
respect to any Award upon the death of the Participant; and provided,
further, except in the case of an Incentive Stock Option, Awards may be
transferable as specifically provided in any applicable Award Agreement
pursuant to terms determined by the Committee. Except as otherwise provided
in any applicable Award Agreement (other than an Award Agreement relating
to an Incentive Stock Option), pursuant to terms determined by the
Committee, each Award or right under any Award shall be exercisable during
the Participant's lifetime only by the Participant or, if permissible under
applicable law, by the Participant's guardian or legal representative. No
Award or right under any such Award may be pledged, alienated, attached or
otherwise encumbered, and any purported pledge, alienation, attachment or
encumbrance thereof shall be void and unenforceable against the Company or
any Affiliate.
(v) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee.
(vi) Restrictions; Securities Exchange Listing. All certificates for
Shares or other securities delivered under the Plan pursuant to any Award
or the exercise thereof shall be subject to such stop transfer orders and
other restrictions as the Committee may deem advisable under the Plan or
the rules, regulations and other requirements of the Securities and
Exchange Commission and any applicable federal or state securities laws,
and the Committee may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions. If the
Shares or other securities are traded on a securities exchange, the Company
shall not be required to deliver any Shares or other securities covered by
an Award unless and until such Shares or other securities have been
admitted for trading on such securities exchange.
Section 7. Amendment and Termination; Adjustments.
- --------------------------------------------------
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company
may amend, alter, suspend, discontinue or terminate the Plan; provided, however,
10
<PAGE>
that, notwithstanding any other provision of the Plan or any Award Agreement,
without the approval of the stockholders of the Company, no such amendment,
alteration, suspension, discontinuation or termination shall be made that,
absent such approval:
(i) would violate the rules or regulations of the National
Association of Securities Dealers, Inc. or of any securities exchange that
are applicable to the Company; or
(ii) would cause the Company to be unable, under the Code, to grant
Incentive Stock Options under the Plan.
(b) Amendments to Awards. The Committee may waive any conditions of
or rights of the Company under any outstanding Award, prospectively or
retroactively. The Committee may not amend, alter, suspend, discontinue or
terminate any outstanding Award, prospectively or retroactively, without the
consent of the Participant or holder or beneficiary thereof, except as otherwise
herein provided.
(c) Correction of Defects, Omissions and Inconsistencies. The
Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
Section 8. Income Tax Withholding; Tax Bonuses.
- -----------------------------------------------
(a) Withholding. In order to comply with all applicable federal or
state income tax laws or regulations, the Company may take such action as it
deems appropriate to ensure that all applicable federal or state payroll,
withholding, income or other taxes, which are the sole and absolute
responsibility of a Participant, are withheld or collected from such
Participant. In order to assist a Participant in paying all or a portion of the
federal and state taxes to be withheld or collected upon exercise or receipt of
(or the lapse of restrictions relating to) an Award, the Committee, in its
discretion and subject to such additional terms and conditions as it may adopt,
may permit the Participant to satisfy such tax obligation by (i) electing to
have the Company withhold a portion of the Shares otherwise to be delivered upon
exercise or receipt of (or the lapse of restrictions relating to) such Award
with a Fair Market Value equal to the amount of such taxes or (ii) delivering to
the Company Shares other than Shares issuable upon exercise or receipt of (or
the lapse of restrictions relating to) such Award with a Fair Market Value equal
to the amount of such taxes.
(b) Tax Bonuses. The Committee, in its discretion, shall have the
authority, at the time of grant of any Award under this Plan or at any time
thereafter, to approve cash bonuses to designated Participants to be paid upon
their
11
<PAGE>
exercise or receipt of (or the lapse of restrictions relating to) Awards in
order to provide funds to pay all or a portion of federal and state taxes due as
a result of such exercise or receipt (or the lapse of such restrictions). The
Committee shall have full authority in its discretion to determine the amount of
any such tax bonus.
Section 9. General Provisions.
- ------------------------------
(a) No Rights to Awards. No Eligible Person, Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Eligible Persons, Participants or
holders or beneficiaries of Awards under the Plan. The terms and conditions of
Awards need not be the same with respect to any Participant or with respect to
different Participants.
(b) Award Agreements. No Participant will have rights under an Award
granted to such Participant unless and until an Award Agreement shall have been
duly executed on behalf of the Company.
(c) No Limit on Other Compensation Arrangements. Nothing contained
in the Plan shall prevent the Company or any Affiliate from adopting or
continuing in effect other or additional compensation arrangements, and such
arrangements may be either generally applicable or applicable only in specific
cases.
(d) No Right to Employment. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate, nor will it affect in any way the right of the Company
or an Affiliate to terminate such employment at any time, with or without cause.
In addition, the Company or an Affiliate may at any time dismiss a Participant
from employment free from any liability or any claim under the Plan, unless
otherwise expressly provided in the Plan or in any Award Agreement.
(e) Governing Law. The validity, construction and effect of the Plan
or any Award, and any rules and regulations relating to the Plan or any Award,
shall be determined in accordance with the laws of the State of Minnesota.
(f) Severability. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction
or would disqualify the Plan or any Award under any law deemed applicable by the
Committee, such provision shall be construed or deemed amended to conform to
applicable laws, or if it cannot be so construed or deemed amended without, in
the determination of the Committee, materially altering the purpose or intent of
the Plan or the Award, such provision shall be stricken as to such jurisdiction
or Award, and the remainder of the Plan or any such Award shall remain in full
force and effect.
12
<PAGE>
(g) No Trust or Fund Created. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of any unsecured general creditor of the
Company or any Affiliate.
(h) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash shall be paid in lieu of any fractional Shares or whether such
fractional Shares or any rights thereto shall be canceled, terminated or
otherwise eliminated.
(i) Headings. Headings are given to the Sections and subsections of
the Plan solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of the Plan or any provision thereof.
(j) Other Benefits. No compensation or benefit awarded to or
realized by any Participant under the Plan shall be included for the purpose of
computing such Participant's compensation under any compensation-based
retirement, disability, or similar plan of the Company unless required by law or
otherwise provided by such other plan.
Section 10. Section 16(b) Compliance.
- -------------------------------------
The Plan is intended to comply in all respects with Rule 16b-3 or any
successor provision, as in effect from time to time and in all events the Plan
shall be construed in accordance with the requirements of Rule 16b-3. If any
Plan provision does not comply with Rule 16b-3 as hereafter amended or
interpreted, the provision shall be deemed inoperative. The Board, in its
absolute discretion, may bifurcate the Plan so as to restrict, limit or
condition the use of any provision of the Plan to participants who are officers
or directors subject to Section 16 of the Securities and Exchange Act of 1934,
as amended, without so restricting, limiting or conditioning the Plan with
respect to other participants.
Section 11. Effective Date of the Plan.
- ---------------------------------------
The Plan shall be effective as of the date of approval of the Plan by
the shareholders of the Company.
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<PAGE>
Section 12. Term of the Plan.
- -----------------------------
Awards shall only be granted under the Plan during a five-year period
beginning on the effective date of the Plan. However, unless otherwise expressly
provided in the Plan or in an applicable Award Agreement, any Award theretofore
granted may extend beyond the end of such five-year period, and the authority of
the Committee provided for hereunder with respect to the Plan and any Awards,
and the authority of the Board of Directors of the Company to amend the Plan,
shall extend beyond the end of such period.
14
<PAGE>
EXHIBIT 10.15
SEPARATION AGREEMENT
AND MUTUAL RELEASE
------------------
This Separation Agreement and Mutual Release ("Separation Agreement")
is made and entered into this 22nd day of October, 1996, by and between
Rajesh C. Shrotriya, M.D. ("Shrotriya"), a resident of the State of
Minnesota, and MGI PHARMA, INC. ("MGI"), a Minnesota corporation.
WHEREAS, Shrotriya was employed by MGI from August 9, 1994, through
October 31, 1996;
WHEREAS, Shrotriya has elected to resign his position with MGI,
effective October 31, 1996;
WHEREAS, it is the desire of Shrotriya and MGI to set forth the terms
and conditions relating to Shrotriya's separation from employment and to
resolve all potential disputes related directly or indirectly to
Shrotriya's employment with MGI and/or the termination of his employment,
in accordance with this Separation Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Separation Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged,
IT IS AGREED, by and between the undersigned, as follows:
A. COMPENSATION AND BENEFITS TO SHROTRIYA
(1) Compensation to Shrotriya: MGI will pay Shrotriya the severance
payment described in the "Termination Agreement" dated August 9, 1994 (a
copy of
PAGE 1 OF 10
<PAGE>
which is attached hereto as Exhibit A). As specified in Paragraph 2 (iii) of
the Termination Agreement, MGI will provide Shrotriya a severance payment "equal
to twelve (12) times [his] monthly salary . . .." This severance compensation
will be provided to Shrotriya in a single lump-sum payment, less all federal and
state tax withholdings, as well as any other appropriate deductions.
(2) Vacation: MGI also will provide Shrotriya compensation for XXX days of
accrued but unused vacation, less all federal and state tax withholdings, as
well as any other appropriate deductions.
(3) Benefits: (a) As of November 1, 1996, Shrotriya will have the
opportunity to continue certain benefits, at his own expense, by making the
requisite COBRA payments. These COBRA payments will provide Shrotriya the
following benefits: (1) life insurance coverage; (2) medical and dental
coverage; and (3) accidental death and dismemberment coverage. Shrotriya's COBRA
benefits will expire in 18 months, or when Shrotriya elects to discontinue these
benefits, whichever occurs earlier.
(b) With respect to MGI's retirement plans -- its 401-K plan and its
Money Purchase Retirement Plan -- Shrotriya is fully vested in those plans and
will receive contributions corresponding to his employment with MGI through
October 31, 1996.
(c) With respect to MGI's Stock Option program, Shrotriya will be
eligible to exercise his options in accordance with the terms of the stock
option grants in relation to a resignation date of October 31, 1996.
PAGE 2 OF 10
<PAGE>
(d) As of November 1, 1996, Shrotriya will not be eligible for the
following benefits: (1) short-term disability coverage; and (2) long-term
disability coverage.
(4) Timing of Severance Compensation: MGI will make the severance and
vacation payments in conjunction with the normal payroll disbursements at the
end of October, 1996.
(5) No Legal Entitlement to Compensation and Benefits: Shrotriya agrees
that MGI does not have any legal obligation to provide him the compensation
described in Paragraph (1) above. MGI has agreed to provide Shrotriya the
compensation described in Paragraph (1) above to reach an expeditious and
amicable resolution of any potential employment-related disputes, to facilitate
Shrotriya's transition to alternative employment, and to minimize the potential
attorneys' fees and management time that would be expended in the event that any
potential dispute between the parties was not resolved amicably.
(6) Inclusive of All Income and Other Benefits: Shrotriya understands and
agrees that the compensation and benefits described in Paragraphs (1)-(3) above
are inclusive of any and all income and other benefits for which he may be, is,
or would have been eligible, had his employment with MGI continued.
B. FULL COMPROMISE/GENERAL RELEASE
(7) Full Compromise: Shrotriya specifically understands and agrees that
the payment and acceptance of the consideration described in Paragraphs (1)-(3)
above is in full, final, and complete compromise, settlement, and satisfaction
of any
PAGE 3 OF 10
<PAGE>
and all claims which Shrotriya could have asserted in any litigation
against MGI, its subsidiaries, affiliates, and related corporate entities,
and/or the current or former directors, officers, employees, attorneys, and
agents of MGI and/or its subsidiaries, affiliates, and related corporate
entities.
(8) General Release of MGI: Shrotriya, for and on behalf of himself and
his heirs, administrators, executors, successors and assigns, agrees to, and
hereby does, release, acquit, and forever discharge MGI and its affiliates,
subsidiaries, and related companies, and the current and former directors,
officers, members, agents, attorneys, servants, independent contractors and
employees of MGI and all its related entities (the "Released Parties"), from any
and all claims, whether direct or indirect, fixed or contingent, known or
unknown, which Shrotriya ever had, has, or may claim to have, for, upon, or by
reason of any matter, act or thing prior to the date of this Separation
Agreement, including but not limited to: any cause of action Shrotriya could
have asserted in any litigation against any of the Released Parties; any cause
of action or claim relating to Shrotriya's association with or employment by
MGI; any cause of action relating to any statements or actions by MGI or any of
the Released Parties; and/or any cause of action or claim relating to
Shrotriya's decision to resign or MGI's decision to terminate his employment.
This General Release specifically encompasses, but is not limited to, claims
that could be brought under Title VII, 42 U.S.C. (S) 2000(e) et seq., as amended
by the Civil Rights Act of 1991; the Age Discrimination in Employment Act, 29
U.S.C. (S) 621 et seq.; the Americans With Disabilities Act, 42 U.S.C. (S)(S)
12101-12213; the Employee Retirement
PAGE 4 OF 10
<PAGE>
Income Security Act (ERISA), 29 U.S.C. (S) 1001, et seq.; the Fair Labor
Standards Act, 29 U.S.C. (S) 201, et seq.; the National Labor Relations Act, 29
U.S.C. (S) 151, et seq., the Worker Adjustment Retraining and Notification Act,
29 U.S.C. (S) 2101, et seq., and any other federal or state statute, including
any attorneys' fees, liquidated damages, punitive damages, costs or
disbursements that could be awarded in connection with these or any other
statutory claims. This General Release also specifically encompasses any and all
claims grounded in contract or tort theories, including, but not limited to:
Breach of contract; tortious interference with contractual relations; promissory
estoppel; breach of the implied covenant of good faith and fair dealing; breach
of employee handbooks, manuals or other policies; wrongful discharge; wrongful
discharge in violation of public policy; assault; battery; fraud; false
imprisonment; invasion of privacy; intentional or negligent misrepresentation;
defamation, including libel and slander, discharge defamation and self-
defamation; intentional or negligent infliction of emotional distress;
negligence; breach of fiduciary duty; negligent hiring, retention or
supervision; whistleblower claims; and/or any other tort theory based on either
intentional or negligent conduct of any kind, including any attorneys' fees,
liquidated damages, punitive damages, costs or disbursements that could be
awarded in connection with these or any other common law claims.
(9) General Release of Shrotriya: MGI, for and on behalf of itself, its
affiliates, subsidiaries, and related companies, hereby does release, acquit and
forever discharge Shrotriya from any and all claims, whether direct or indirect,
fixed or
PAGE 5 OF 10
<PAGE>
contingent, known or unknown, which MGI or its related companies ever had, has
or may claim to have for, upon, or by reason of any matter, act, or thing, prior
to the date of this Separation Agreement, including but not limited to, any acts
performed by Shrotriya at any time during the period he was employed by MGI.
C. RIGHTS TO CONSIDER AND RESCIND
(10) Right to Consider Executing this Separation Agreement: Shrotriya
understands that he has twenty-one (21) calendar days to consider whether he
should execute this Separation Agreement. Shrotriya further understands,
however, that he is not required to take the entire 21-day period to decide
whether he wishes to execute this Separation Agreement and that he may do so on
an accelerated basis without prejudice to his own or MGI's rights under this
Separation Agreement.
(11) Right to Rescind or Revoke: Shrotriya understands that he has the
right to rescind or revoke this Agreement for any reason within fifteen (15)
calendar days after he signs it. Shrotriya understands that this Agreement will
not become effective or enforceable until the applicable rescission period has
expired. Shrotriya understands that if he wishes to rescind, the rescission must
be in writing and hand-delivered or mailed to the Company. If hand-delivered,
the rescission must be: (a) addressed to Mr. Charles N. Blitzer, President and
Chief Executive Officer, MGI PHARMA, INC., Suite 300 E. Opus Center, 9900 Bren
Road East, Minneapolis, Minnesota 55343-9667; and (b) delivered to Mr. Charles
N. Blitzer within the fifteen- (15) day period. If mailed, the rescission must
be: (a) postmarked within the fifteen-
PAGE 6 OF 10
<PAGE>
(15) day period; (b) addressed to Mr. Charles N. Blitzer, President and Chief
Executive Officer, MGI PHARMA, INC., Suite 300 E. Opus Center, 9900 Bren Road
East, Minneapolis, Minnesota 55343-9667; and (c) sent by certified mail, return
receipt requested.
D. MISCELLANEOUS
(12) Inquiries from Prospective Employers: If MGI receives a call from a
prospective employer of Shrotriya, that call will be routed to Ms. Lori-jean
Gille or another MGI executive designated by MGI. Ms. Gille or the other
designated executive will disclose to the prospective employer Shrotriya's dates
of employment, Shrotriya's positions/titles, Shrotriya's compensation, and any
other information Shrotriya specifically authorizes, in writing, Ms. Gille or
the other designated executive to disclose.
(13) Letter of Reference: If requested by Shrotriya, MGI will provide him a
mutually acceptable letter of reference upon the expiration of the rescission
period set forth in Paragraph (11) above. MGI will draft this letter and provide
it to Shrotriya for his review. MGI retains the sole discretion regarding the
contents of the letter of reference. If authorized in writing by Shrotriya, MGI
will provide the reference letter to any of the prospective employers described
in Paragraph (12) above.
(14) Announcement: Shrotriya and MGI agree that it would be mutually
beneficial to announce Shrotriya's resignation to other MGI employees.
Therefore,
PAGE 7 OF 10
<PAGE>
Shrotriya and MGI agree that MGI may publicly disclose the announcement attached
hereto as Exhibit B.
(15) Mutual Non-disparagement Agreement: Shrotriya agrees that he will not
disparage MGI, its directors, officers, employees and agents, and/or any MGI
products or services. MGI's Board of Directors and officers agree that they will
not disparage Shrotriya.
(16) No Admission of Fault: Shrotriya agrees that MGI's willingness to
enter into this Separation Agreement does not constitute, and should not be
construed as, any admission of liability or fault on the part of MGI or any of
MGI's employees.
(17) No Future Employment: Shrotriya agrees that he waives any claim to
reinstatement and/or future employment with MGI, its subsidiaries, affiliates,
or related corporate entities. Shrotriya further agrees that at no time
following the execution of this Separation Agreement will he seek employment
with MGI or its related corporate entities.
(18) Proprietary Information: Shrotriya agrees that he will not disclose
any MGI proprietary or confidential information or any MGI trade secrets to any
company (including his future employers) or individual. Shrotriya's obligations
to maintain the confidentiality of MGI's information are specified in the
"Employee Agreement With MGI PHARMA, INC. Relating to Patent and Confidential
Information," dated August 9, 1994, which document is attached hereto as Exhibit
C,
PAGE 8 OF 10
<PAGE>
which is incorporated herein by reference and which survives this Separation
Agreement.
(19) Complete Agreement: Shrotriya agrees that there are no covenants,
promises, undertakings, or understandings outside of this Separation Agreement,
except as specifically set forth herein. Any modification of, or addition to,
this Separation Agreement must be in writing, signed by all parties.
(20) Severability: Should any provision of this Separation Agreement be
held invalid or illegal, such illegality shall not invalidate the whole of this
Separation Agreement, but, rather, the Separation Agreement shall be construed
as if it did not contain the illegal part, and the rights and obligations of the
parties shall be construed and enforced accordingly.
(21) Knowing and Voluntary Agreement: Shrotriya agrees that he has entered
into this agreement knowingly and voluntarily. Shrotriya further acknowledges
that MGI recommended that he review this Agreement with counsel and that he has
had an adequate opportunity to do so.
(22) Governing Law: This Separation Agreement and General Release shall be
governed by, and interpreted in accordance with, the laws of the State of
Minnesota.
s/ Rajesh C. Shrotriya
------------------------------
RAJESH C. SHROTRIYA
Subscribed and sworn to before me
this 22nd day of October, 1996.
s/ Teresa Johnson
- ----------------------------------
Notary Public
PAGE 9 OF 10
<PAGE>
MGI PHARMA, INC.
By s/ Charles N. Blitzer
---------------------------------
Charles N. Blitzer
Its President and Chief
Executive Officer
Subscribed and sworn to before me
this 22nd day of October, 1996.
s/ Teresa Johnson
- --------------------------------
Notary Public
PAGE 10 OF 10
<PAGE>
EXHIBIT 10.16
TERMINATION AGREEMENT
This Agreement is made as of the 29th day of April, 1996, between MGI
PHARMA, INC., a Minnesota corporation, with its principal offices at Suite 300E
Opus Center, 9900 Bren Road East, Minnetonka, Minnesota 55343 (the "Company")
and Charles N. Blitzer ("Employee"), residing at 13608 Canal Vista Court,
Potomac, Maryland 20854.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon Employee's separation from
employment with the Company under any of the circumstances described herein; and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interests of the Company and its shareholders to provide
stable conditions of employment for Employee notwithstanding the possibility,
threat or occurrence of certain types of change in control, thereby enhancing
the Company's ability to attract and retain highly qualified people.
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of Employee notwithstanding the possibility, threat or occurrence of
a bid to take over control of the Company, and to induce Employee to remain in
the employ of the Company, and for other good and valuable consideration, the
Company and Employee agree as follows:
1. Term of Agreement. The term of this Agreement shall commence on the date
hereof as first written above and shall continue through December 31, 1996;
provided that commencing on January 1, 1997 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless not later than twelve months prior to such January 1, the Company shall
have given notice that it does not wish to extend this Agreement (which notice
may not, in any event, be given sooner than January 1, 1997); and provided,
further, that notwithstanding any such notice by the Company not to extend, this
Agreement shall continue in effect for a period of 24 months beyond the term
provided herein if a Change in Control (as defined in Section 3(i) hereof) shall
have occurred during such term.
1
<PAGE>
2. Termination of Employment
(i) Prior to a Change in Control. Prior to a Change in Control (as defined
in Section 3(i) hereof), the Company may terminate Employee from employment with
the Company at will, with or without Cause (as defined in Section 3(iii)
hereof), at any time.
(ii) After a Change in Control
(a) From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement, the Company shall not
terminate Employee from employment with the Company except as provided in this
Section 2(ii) or as a result of Employee's Disability (as defined in Section
3(iv) hereof) or his death.
(b) From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement, the Company shall have the
right to terminate Employee from employment with the Company at any time
during the term of this Agreement for Cause (as defined in Section 3(iii)
hereof), by written notice to the Employee, specifying the particulars of the
conduct of Employee forming the basis for such termination.
(c) From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement: (x) the Company shall have the
right to terminate Employee's employment without Cause (as defined in Section
3(iii) hereof), at any time; and (y) the Employee shall, upon the occurrence
of such a termination by the Company without Cause, or upon the voluntary
termination of Employee's employment by Employee for Good Reason (as defined
in Section 3(ii) hereof), be entitled to receive the benefits provided in
Section 4 hereof. Employee shall evidence a voluntary termination for Good
Reason by written notice to the Company given within 60 days after the date of
the occurrence of any event that Employee knows or should reasonably have
known constitutes Good Reason for voluntary termination. Such notice need only
identify the Employee and set forth in reasonable detail the facts and
circumstances claimed by Employee to constitute Good Reason.
Any notice given by Employee pursuant to this Section 2 shall be
effective five business days after the date it is given by Employee.
2
<PAGE>
3. Definitions
(i) A "Change in Control" shall mean:
(a) a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or successor provision thereto, whether or not the Company
is then subject to such reporting requirement;
(b) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of
securities of the Company representing 35% or more of the combined voting
power of the Company's then outstanding securities;
(c) the Continuing Directors (as defined in Section 3(v) hereof) cease
to constitute a majority of the Company's Board of Directors; provided that
such change is the direct or indirect result of a proxy fight and contested
election or elections for positions on the Board of Directors; or
(d) the majority of the Continuing Directors (as defined in Section
3(v) hereof) determine in their sole and absolute discretion that there has
been a change in control of the Company.
(ii) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Employee's employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof) or for death:
(a) the assignment to Employee of employment responsibilities which
are not of comparable responsibility and status as the employment
responsibilities held by Employee immediately prior to a Change in Control;
(b) a reduction by the Company in Employee's base salary as in effect
immediately prior to a Change in Control;
(c) an amendment or modification of the Company's incentive
compensation program (except as may be required by applicable law) which
affects the terms or administration of the program in a manner adverse to
the interest of Employee
3
<PAGE>
as compared to the terms and administration of such program immediately
prior to a Change in Control;
(d) the Company's requiring Employee to be based anywhere other than
within 50 miles of Employee's office location immediately prior to a Change
in Control, except for requirements of temporary travel on the Company's
business to an extent substantially consistent with Employee's business
travel obligations immediately prior to a Change in Control;
(e) except to the extent otherwise required by applicable law, the
failure by the Company to continue in effect any benefit or compensation
plan, stock ownership plan, stock purchase plan, bonus plan, life insurance
plan, health-and-accident plan or disability plan in which Employee is
participating immediately prior to a Change in Control (or plans providing
Employee with substantially similar benefits), the taking of any action by
the Company which would adversely affect Employee's participation in, or
materially reduce Employee's benefits under, any of such plans or deprive
Employee of any material fringe benefit enjoyed by Employee immediately
prior to such Change in Control, or the failure by the Company to provide
Employee with the number of paid vacation days to which Employee is
entitled immediately prior to such Change in Control in accordance with the
Company's vacation policy as then in effect; or
(f) the failure by the Company to obtain, as specified in Section 5(i)
hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.
(iii) "Cause" shall mean termination by the Company of Employee's
employment based upon (a) the willful and continued failure by Employee
substantially to perform his duties and obligations (other than any such failure
resulting from his incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Employee's termination for Good
Reason) or (b) the willful engaging by Employee in misconduct which is
materially injurious to the Company, monetarily or otherwise. For purposes of
this Section 3(iii), no action or failure to act on Employee's part shall be
considered "willful" unless done, or omitted to be done, by Employee in bad
faith and without reasonable belief that his action or omission was in the best
interests of the Company.
(iv) "Disability" shall mean any physical or mental condition which would
qualify Employee for a disability benefit under the Company's long-term
disability plan.
4
<PAGE>
(v) "Continuing Director" shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, who is not an Acquiring Person (as hereinafter defined) or an
Affiliate or Associate (as hereinafter defined) of an Acquiring Person, or a
representative of an Acquiring Person or of any such Affiliate or Associate, and
who (a) was a member of the Board of Directors on the date of this Agreement as
first written above or (b) subsequently becomes a member of the Board of
Directors, if such person's initial nomination for election or initial election
to the Board of Directors is recommended or approved by a majority of the
Continuing Directors. For purposes of this Section 3(v): "Acquiring Person"
shall mean any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) who or which, together with all Affiliates and Associates of such
person, is the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the shares of Common Stock of the Company
then outstanding, but shall not include the Company, any subsidiary of the
Company or any employee benefit plan of the Company or of any subsidiary of the
Company or any entity holding shares of Common Stock organized, appointed or
established for, or pursuant to the terms of, any such plan; and "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
12b-2 promulgated under the Exchange Act.
4. Benefits upon Termination under Section 2(ii)(c)
(i) Upon the termination (voluntary or involuntary) of the employment of
Employee pursuant to Section 2(ii)(c) hereof, Employee shall be entitled to
receive the benefits specified in this Section 4. The amounts due to Employee
under subparagraphs (a), (b) and (c) of this Section 4(i) shall be paid to
Employee not later than one business day prior to the date that the termination
of Employee's employment becomes effective. All benefits to Employee pursuant to
this Section 4(i) shall be subject to any applicable payroll or other taxes
required by law to be withheld.
(a) The Company shall pay to Employee any and all amounts payable to
Employee pursuant to any standard or general severance policy of the
Company or its Board of Directors;
(b) In lieu of any further base salary payments to Employee for
periods subsequent to the date that the termination of Employee's
employment becomes effective, the Company shall pay as severance pay to
Employee a lump-sum cash amount equal to thirty-six (36) times the
Employee's monthly base salary (as in effect in the month preceding the
month in which the termination becomes effective or as in
5
<PAGE>
effect in the month preceding the Change in Control, whichever is higher);
(c) The Company shall also pay to Employee all legal fees and expenses
incurred by Employee as a result of such termination of employment
(including all fees and expenses, if any, incurred by Employee in seeking
to obtain or enforce any right or benefit provided to Employee by this
Agreement whether by arbitration or otherwise); and
(d) Any and all contracts, agreements or arrangements between the
Company and Employee prohibiting or restricting the Employee from owning,
operating, participating in, or providing employment or consulting services
to, any business or company competitive with the Company at any time or
during any period after the date the termination of Employee's employment
becomes effective, shall be deemed terminated and of no further force or
effect as of the date the termination of Employee's employment becomes
effective, to the extent, but only to the extent, such contracts,
agreements or arrangements so prohibit or restrict the Employee; provided
that the foregoing provisions shall not constitute a license or right to
use any proprietary information of the Company and shall in no way affect
any such contracts, agreements or arrangements insofar as they relate to
nondisclosure and nonuse of proprietary information of the Company
notwithstanding the fact that such nondisclosure and nonuse may prohibit or
restrict the Employee in certain competitive activities.
(ii) Employee shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 4 shall not be reduced
by any compensation earned by Employee as a result of any employment by another
employer or from any other source.
(iii) In the event that any payment or benefit received or to be received
by Employee in connection with a Change in Control of the Company or termination
of Employee's employment (whether payable pursuant to the terms of this
Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
Change in Control of the Company) (collectively, the "Total Payments") would not
be deductible (in whole or in part) by the Company or such other person making
such payment or providing such benefit solely as a result of Section 280G of the
Code, the amount payable to Employee
6
<PAGE>
pursuant to Section 4(i)(b) hereof shall be reduced until no portion of the
Total Payments is not deductible solely as a result of Section 280G of the Code
or such amount payable to Employee pursuant to Section 4(i)(b) is reduced to
zero. For purposes of this limitation, (a) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company and acceptable to Employee does not constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code (such as payments payable
pursuant to the Company's standard or general severance policies); (b) the
payment pursuant to Section 4(i)(b) shall be reduced only to the extent
necessary so that the Total Payments (other than those referred to in the
immediately preceding clause (a)) in their entirety constitute reasonable
compensation within the meaning of Section 280G(b)(4)(B) of the Code, in the
opinion of the tax counsel referred to in the immediately preceding clause (a);
and (c) the value of any other non-cash benefit or of any deferred cash payment
included in the Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the
Code. In case of uncertainty as to whether all or some portion of a payment is
or is not payable to Employee under this Agreement, the Company shall initially
make the payment to the Employee, and Employee agrees to refund to the Company
any amounts ultimately determined not to have been payable under the terms
hereof.
5. Successors and Binding Agreement
(i) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Company), by agreement in form and substance
satisfactory to Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and shall entitle Employee to
compensation from the Company in the same amount and on the same terms as
Employee would be entitled hereunder if employee terminated Employee's
employment after a Change in Control for Good Reason, except that for purposes
of implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the date that the termination of Employee's employment
becomes effective. As used in this Agreement, "Company" shall mean the Company
and any successor to its business and/or assets which executes and delivers the
agreement provided for in this Section 5(i) or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
7
<PAGE>
(ii) This Agreement is personal to Employee, and Employee may not assign or
transfer any part of Employee's rights or duties hereunder, or any compensation
due to Employee hereunder, to any other person. Notwithstanding the foregoing,
this Agreement shall inure to the benefit of and be enforceable by Employee's
personal or legal representatives, executors, administrators, heirs,
distributees, devisees and legatees.
6. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in the
Minneapolis-St. Paul metropolitan area, in accordance with the applicable rules
of the American Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction.
7. Modification; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
8. Notice. All notices, requests, demands and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days'
prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.
10. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original,
8
<PAGE>
but all of which together shall constitute one and the same instrument.
11. Governing Law. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity and performance, and without taking into
consideration the conflict of law provisions of such state.
12. Effect of Agreement; Entire Agreement. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof and
constitutes the entire agreement of the parties relating to the subject matter
hereof; provided that this Agreement shall not supersede or limit in any way
Employee's rights under any benefit plan, program or arrangements in accordance
with their terms.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, all as of the date first written above.
MGI PHARMA, INC.
By s/ Lori-jean Gille
---------------------------------
Its V.P., General Counsel
-----------------------------
EMPLOYEE
s/ Charles N. Blitzer
----------------------------------
Charles N. Blitzer
9
<PAGE>
EXHIBIT 10.17
AGREEMENT
---------
THIS AGREEMENT made and entered into as of the 14th day of May, 1996, by
and between MGI PHARMA, INC., a Minnesota corporation (the "Company"), and
Charles N. Blitzer, an individual resident of Potomac, Maryland ("Blitzer").
WHEREAS, in connection with Blitzer's acceptance of employment with the
Company, the Company wishes to sell Blitzer shares of the Company's common stock
so that Blitzer will have a vested interest in the successful and profitable
operation of the Company; and
WHEREAS, Blitzer desires to purchase shares of the Company's common stock
on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and of the respective
undertakings of the parties set forth below and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and Blitzer agree as follows:
1. Stock Subscription. Blitzer agrees to purchase from the Company, and the
Company hereby agrees to sell to Blitzer, in accordance with the terms of this
Agreement, that number of whole shares of Common Stock (the "Shares") having an
aggregate fair market value of Fifty-seven Thousand Dollars ($57,000.00). The
fair market value of each of the Shares to be purchased by Blitzer shall be the
closing price of one share of the Company's common stock on the Nasdaq New
Market System on the date of purchase.
2. Manner of Payment. The purchase price will be payable to the Company
contemporaneously with the execution of this agreement by delivery to the
Company of Blitzer's promissory note (the "Promissory Note"), which Promissory
Note shall be in the form of the attached Exhibit A.
3. Delivery of the Shares. Upon receipt from Blitzer of the Promissory
Note, the Company shall issue and deliver to Blitzer duly authorized and
executed stock certificates representing the Shares.
4. Investment Representation. Blitzer hereby represents and agrees that the
Shares are being acquired for investment purposes and not with the view toward
the distribution or sale thereof in a public offering within the meaning of the
federal Securities Act of 1933, as amended (the "Securities Act"). Blitzer
acknowledges that such shares will be restricted stock within the meaning of the
Securities Act, that they will not be registered under either the federal or
applicable state securities law, and that the Company will be relying upon the
foregoing investment representation in issuing such shares to Blitzer. Blitzer
acknowledges that the transferability of such shares will be subject to
restrictions imposed by all
<PAGE>
applicable federal and state security laws and agrees that the certificates
evidencing such shares may be imprinted with an appropriate legend setting forth
these restrictions on transferability.
5. Registration Right. Upon written request by Blitzer, the Company
shall prepare and file a registration statement on Form S-3 (the "Registration
Statement") under the Securities Act covering the sale of the Shares by Blitzer
and shall use reasonable best efforts to cause such Registration Statement to
become and remain effective for a period of [6] months after the effective date
of the Registration Statement (the "Effective Period"), or such shorter period
that shall terminate (i) when all the Shares covered by the Registration
Statement have been sold or (ii) at any time when Blitzer is entitled to sell
all the Shares without registration under the Securities Act pursuant to Rule
144 (or any similar rule or regulation). Blitzer agrees, however, that if
requested by the Company, he will not effect any sale of Shares pursuant to the
Registration Statement for a period of not more than [90] days during the
Effective Period if deemed necessary (i) by the Company or any underwriter in
connection with the offering of shares of Company common stock, or (ii) by the
Company if the Company is in possession of material information that has not
been disclosed to the public and the Company reasonably deems disclosure of such
information in a registration statement to be inadvisable. The Company shall
bear all costs and fees associated with the registration including, without
limitation, the following fees, costs and expenses: all registration, filing and
Nasdaq fees, printing expenses, fees and disbursements of the Company's counsel
and accountants, all internal Company expenses, and all legal fees and
disbursements and other expenses of complying with state securities or blue sky
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of counsel and accountants for
Blitzer, underwriting discounts and commissions and transfer taxes for Blitzer
shall be borne by Blitzer.
6. Miscellaneous. This Agreement shall be binding upon, shall inure to the
benefit of and be enforceable against the Company and Blitzer and their
respective heirs, successors and assigns. This Agreement shall in all respects
be governed, enforced and interpreted in accordance with the laws of the state
of Minnesota.
IN WITNESS WHEREOF, the Company and Blitzer have executed this agreement as of
the date set forth in the first paragraph.
MGI PHARMA, INC. /s/ Charles N. Blitzer
--------------------------
Charles N. Blitzer
By /s/ Lori-jean Gille
------------------------
Its V.P., General Counsel
------------------------
-2-
<PAGE>
EXHIBIT 10.23
3/20/97
SIXTH AMENDMENT TO OFFICE LEASE
THIS SIXTH AMENDMENT TO OFFICE LEASE is made this 21st day of March, 1997,
by and between ALSCOR INVESTORS JOINT VENTURE, a Minnesota general partnership
(hereinafter referred to as "Lessor"), and MGI PHARMA, INC., a Minnesota
corporation (hereinafter referred to as "Lessee").
WITNESSETH THAT:
WHEREAS, Lessor and Lessee have entered into that certain Office Lease
dated August 7, 1989, as amended by Amendment to Office Lease dated October 30,
1989; Second Amendment to Office Lease dated May 3, 1991; Third Amendment to
Office Lease dated September 23, 1992; Fourth Amendment to Office Lease dated
September 23, 1992 and Fifth Amendment to Office Lease dated March 10, 1995,
concerning that certain Premises located on the third floor of the East Wing of
the Office Complex known and described as Opus Center located at 9900 Bren Road
East, Minnetonka, Minnesota 55343; and
WHEREAS, Lessee desires to extend the term of the Lease and Lessor has
agreed to such extension upon the following terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The term of the Lease is hereby extended for a period of two (2)
years, commencing October 1, 1997 and terminating September 30, 1999 (the
"Second Renewal Term:).
2. Base Rent during the Second Renewal Term for all of the Premises shall
be payable at the rate of One Hundred Sixty-Five Thousand Two Hundred Forty-Two
and 04/100 Dollars ($165,242.04) per annum, payable monthly, in equal
installments of Thirteen Thousand Seven Hundred Seventy and 17/100 Dollars
($13,770.17).
3. During the Second Renewal Term, the so-called "stops" for "excess Real
Estate Taxes" and for "Excess Operating Expenses" set forth in Subparagraphs A.3
and A.5., respectively, of said Article II shall each be Zero Dollars ($0.00).
4. The Premises is being leased during the Second Renewal Term in its "as
is" condition as of commencement of the Second Renewal Term; provided, however,
Lessor shall provide a tenant improvement allowance of Nineteen
<PAGE>
Thousand Nine Hundred Seventy-Five and 00/100 Dollars ($19,975.00) to Lessee for
"Tenant Improvements to be selected by Lessee subject to the provisions of
Article VIII of the Lease and to be installed in the Premises by Lessor and paid
for by Lessee subject to Lessor's providing an allowance in the aforesaid
amount. Such Tenant Improvements shall be installed by Lessor subsequent to
completion of appropriate design documentation and agreement between Lessor and
Lessee as to the price of the Tenant Improvements to be installed. In the event
Lessee desires any Tenant Improvements having a price in excess of the
allowance, Lessee shall pay such excess in cash to Lessor upon substantial
completion. In the event Lessee does not utilize all of the aforesaid allowance
for Tenant Improvements, Lessee shall not be entitled to any rebate, credit or
reduced rent for the amount of said unutilized allowance.
5. Paragraph 5 of said Fifth Amendment to Office Lease dated March 10,
1995 is hereby deleted and of no further force and effect.
6. Lessee represents that Lessee has dealt directly with, and only with,
Normandale Properties, Inc. and Woodbridge Partners Inc., as brokers in
connection with this Sixth Amendment to Office Lease, and that insofar as Lessee
knows, no other broker negotiated or participated in negotiations thereof or is
entitled to any commission in connection therewith. Lessee agrees that Lessee
shall be responsible for the payment of any commission due to Woodbridge
Partners Inc. in connection with this Sixth Amendment to Office Lease.
7. Except as amended herein, all other terms of the Lease shall remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth Amendment
to Office Lease as of the day and year first above written.
ALSCOR INVESTORS JOINT VENTURE MGI PHARMA, INC.
(Lessor) (Lessee)
By Opus Corporation, General Partner
/s/ Mark Rauenhorst By /s/Lori-jean Gille
-------------------------------------
Mark Rauenhorst, President Its Vice President, General Counsel
-2-
<PAGE>
EXHIBIT 10.29
PROMOTION AGREEMENT
BETWEEN
MGI PHARMA, INC.
AND
SCHEIN PHARMACEUTICAL, INC.
DATED
MARCH 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1 INTRODUCTORY PROVISIONS ......................................... 1
1.1 Defined Terms .............................................. 1
1.2 Other Rules of Interpretation .............................. 3
Article 2 REPRESENTATIONS AND WARRANTIES .................................. 4
2.1 Schein Warranties .......................................... 4
2.2 MGI Warranties ............................................. 4
Article 3 APPOINTMENT OF MGI .............................................. 4
3.1 Appointment of MGI ......................................... 4
3.2 Exclusivity and Retained Rights ............................ 5
3.3 Covenant ................................................... 5
3.4 Rights of the Parties ...................................... 5
3.5 Additional Product ......................................... 5
Article 4 MANAGEMENT OF PROMOTION ......................................... 6
4.1 Establishment of Marketing and Development
Committee .................................................. 6
4.2 Functions of the Committee ................................. 6
4.3 Preparation and Submission of Development and
Marketing Plans ............................................ 7
4.4 Dispute Resolution ......................................... 7
4.5 Contact Person ............................................. 7
Article 5 PRODUCT DEVELOPMENT ............................................. 8
5.1 Product Development ........................................ 8
5.2 Costs of Product Development ............................... 8
5.3 Overall Development Responsibility ......................... 8
Article 6 MANUFACTURE, DISTRIBUTION AND REGULATORY MATTERS ................ 8
6.1 Manufacture, Supply and Distribution of Product ............ 8
6.2 Pricing .................................................... 8
6.3 Regulatory Compliance ...................................... 8
6.4 Product Recall ............................................. 9
Article 7 PROMOTIONAL ACTIVITIES ......................................... 9
7.1 Promotional Obligation ..................................... 9
7.2 Training ................................................... 9
7.3 Promotional Materials ......................................10
7.4 Advisory Board .............................................10
</TABLE>
i
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<TABLE>
<S> <C>
7.5 Conduct of MGI Sales Force ................................10
7.6 Overall Marketing Responsibility ...........................11
7.7 Costs of Co-Promotion ......................................11
7.8 Reports on Promotional Activities ..........................11
Article 8 JOINT OBLIGATIONS ...............................................11
8.1 Assistance and Notifications to Other Party ................11
8.2 Market Surveys .............................................12
8.3 Withdrawal of Product ......................................12
Article 9 COMPENSATION ....................................................12
9.1 Determination of Profits ...................................12
9.2 Promotion Fee ..............................................13
9.3 Payments and Sales Reports .................................14
9.4 Books and Records ..........................................14
Article 10 INDEMNIFICATION .................................................15
10.1 Indemnification by MGI ....................................15
10.2 Indemnification by Schein .................................16
10.3 Insurance .................................................17
10.4 Survival ..................................................17
Article 11 CONFIDENTIALITY AND NON-HIRE ....................................17
11.1 Non-Use and Non-Disclosure ................................17
11.2 Marking ...................................................17
11.3 Exclusions ................................................17
11.4 Duration; Surviving Obligation ............................18
11.5 Prior Agreements ..........................................18
11.6 Non-Hire Obligation .......................................18
Article 12 TERM AND TERMINATION ............................................19
12.1 Term ......................................................19
12.2 Termination for Cause .....................................19
12.3 Termination for Withdrawal of the Product .................19
12.4 Rights and Obligations on Termination or Expiration .......20
12.5 No Compensation ...........................................21
Article 13 GENERAL PROVISIONS ..............................................21
13.1 Entire Agreement .........................................21
13.2 LIMITATION OF LIABILITY ...................................21
13.3 Assignment ................................................21
13.4 Amendment .................................................21
13.5 Severability ..............................................21
13.6 Notices ...................................................22
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
13.7 Waiver ....................................................22
13.8 Counterparts ..............................................23
13.9 Governing Law .............................................23
13.10 Force Majeure .............................................23
13.11 Relationship ..............................................23
</TABLE>
iii
<PAGE>
PROMOTION AGREEMENT
THIS AGREEMENT is made as of March 11, 1997 (the "Effective Date") and
between MGI PHARMA, INC. ("MGI"), 300E Opus Center, 9900 Bren Road East,
Minnetonka, Minnesota 55343-9667 and Schein Pharmaceutical, Inc. ("Schein"), 100
Campus Drive, Florham Park, NJ 07932.
Recitals
--------
A. MGI acquires, develops and markets pharmaceuticals that it believes
address currently unmet medical needs or significantly improve upon current
therapies and has experience in promoting pharmaceuticals for oncological
indications.
B. Schein has certain rights and know-how relating to the Product (as
hereinafter defined) and is currently manufacturing and marketing the Product.
C. The intent of this Promotion Agreement is to increase sales of the
Product in the oncology sector in the U.S. by using MGI's experience. MGI
desires to co-promote the Product in the oncology sector in the United States,
and Schein desires to grant to MGI the right, which shall be exclusive as to
third parties and semi-exclusive as to Schein, to co-promote the Product in such
field and territory, all upon the intent, terms and conditions set forth in this
Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto have agreed as follows:
ARTICLE 1 INTRODUCTORY PROVISIONS
-----------------------
1.1 Defined Terms. The following terms, when used in capitalized form in this
-------------
Agreement, shall have the meanings set forth below:
(a) "Accounts and Physicians" shall mean those accounts and physicians
which are on the agreed list for MGI's promotional efforts hereunder,
as determined by the Committee and to be attached hereto as Exhibit A.
(b) "Affiliate" when used with reference to either party shall mean any
entity controlling, controlled by or under common control with the
said party. For purposes hereof, "control" shall mean ownership,
directly or indirectly, of more than fifty percent (50%) of the
securities having the right to vote for the election of directors, in
the case of a corporation, and more than fifty percent (50%) of the
beneficial interest
1
<PAGE>
in the capital, in the case of a business entity other than a corporation.
(c) "Best Efforts" shall mean those efforts that would be made by a
reasonably prudent business person acting in good faith, in the
exercise of reasonable commercial judgment and in a manner consistent
with the applicable party's overall business strategy.
(d) "Committee" shall have the meaning set forth in Section 4.1 hereof.
(e) "Confidential Information" shall mean all proprietary or confidential
information of a party, including, without limitation, any information
on the markets, customers, suppliers, patents or patent applications,
inventions, products, procedures, designs, formulas, business plans,
financial projections, organizations, employees or consultants or any
other similar aspects of a party's present or future business, the
secrecy of which confers a competitive advantage upon that party.
(f) "Co-Promotion Date" shall mean the date on which MGI commences co-
promoting hereunder. MGI shall give Schein written notice of such
date.
(g) "Cost of Goods" shall mean Schein's current manufacturing costs for
the Product, accounted for in accordance with full absorption costing
and Generally Accepted Accounting Principles, consistently applied.
(h) "Development Plans" shall have the meaning set forth in Section 4.3
hereof.
(i) "DMF" shall mean the Drug Master File required to manufacture, market
and sell the Product in bulk form in the United States.
(j) "FDA" shall mean the United States Food and Drug Administration.
(k) "Field" shall mean use in the treatment of anemia in connection with
oncology.
(l) "Incremental Sales Volume" shall mean ***
(m) "Marketing Plan" shall have the meaning set forth in Section 4.3.
*** Denotes confidential information that has been omitted from the
exhibit and filed separately, accompanied by a confidential treatment
request, with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
2
<PAGE>
(n) "Net Sales" shall mean the invoiced amount billed to independent third
parties by Schein (but not including invoices relating to transactions
between Schein and its Affiliates) with respect to the Product in the
Territory, less trade discounts, chargebacks, terms, administrative
fees, credits or allowances including those granted on account of
price adjustments, returns or rebates, if any, incurred or granted.
(o) "Net Oncology Sales" shall mean ***
(p) "NDA" shall mean the new drug application required to manufacture,
market and sell Product in finished dosage form in the United States.
(q) "Product" shall mean that injectable iron product known as InFeD (iron
dextran for injection, USP).
(r) "Profits" shall mean ***
(s) "Territory" shall mean the United States.
1.2 Other Rules of Interpretation. Unless the context clearly indicates
-----------------------------
otherwise, the following rules shall govern the interpretation of this
Agreement:
(a) The definitions of all terms defined herein shall apply equally to the
singular, plural, and possessive forms of such terms;
(b) All references herein to "days" shall mean calendar days;
(c) All references to "quarters" shall mean calendar quarters; and
*** Denotes confidential information that has been omitted from the
exhibit and filed separately, accompanied by a confidential treatment
request, with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
3
<PAGE>
(d) All references to "Sections" shall mean the corresponding Sections of
this Agreement and all references to "Articles" shall mean the
corresponding Articles of this Agreement.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Schein Warranties. Schein represents and warrants to MGI that:
-----------------
(a) it has the legal right and power to enter into this Agreement;
(b) it has taken all necessary corporate action to authorize and perform
this Agreement;
(c) it has not entered into any inconsistent prior obligations that would
impair the rights being granted to MGI hereunder; and
(d) it knows of no third party claims that would challenge or impair the
exercise of the rights granted to MGI herein.
2.2 MGI Warranties. MGI represents and warrants to Schein that:
---------------
(a) it has the legal right and power to enter into this Agreement;
(b) it has taken all necessary corporate action to authorize and perform
this Agreement;
(c) it has not entered into any inconsistent prior obligations that would
impair its ability to perform its obligations hereunder; and
(d) it knows of no third party claims that would challenge or impair its
ability to perform its obligations hereunder.
ARTICLE 3 APPOINTMENT OF MGI
------------------
3.1 Appointment of MGI. Schein hereby appoints MGI, and MGI hereby accepts
------------------
such appointment, as its exclusive agent to detail and promote the Product in
the Field within the Territory during the term of the Agreement. The parties
acknowledge and agree that MGI shall be entitled to promote the Product to any
physician who treats anemia in oncology patients, whether such physician is a
generalist or a radiologist, oncologist, hematologist or other specialist. The
parties further acknowledge and agree that the rights granted herein shall not
preclude Schein from detailing and promoting the Product in the Field within the
Territory.
4
<PAGE>
3.2 Exclusivity and Retained Rights. Schein shall not grant the right to
-------------------------------
promote Product in the Field and in the Territory to any other entity during the
term of the Agreement. Except as otherwise expressly provided in this
Agreement, Schein shall be responsible for maintaining (or, to the extent
permissible under existing contracts with third parties, causing such third
parties to maintain) all rights in and to the Product including, but not limited
to, the NDA for the Product, the Drug Master File for the Product, and all
manufacturing, distribution, patent, copyright and trademark rights relating to
the Product.
3.3 Covenant. During the term of this Agreement and for the twelve (12) month
--------
period following expiration or termination of this Agreement, MGI shall not
prepare product registrations or conduct research or development, license,
promote or market any injectable iron products, other than the Product, in the
Territory.
3.4 Rights of the Parties. Schein shall retain all proprietary and property
---------------------
interests in the Product until the point of sale and in all supporting sales,
promotional and training materials. MGI will not have nor represent that it has
any control over, or proprietary or property interests in, the Product or in any
sales, promotional or training materials. Nothing contained herein shall be
deemed to grant MGI, either expressly or impliedly, a license or other right or
interest in any patent, trademark or other intellectual property of Schein or
its Affiliates except as may be necessary for MGI to promote and detail the
Product as provided in this Agreement. MGI acknowledges that Schein shall
retain all copyrights in and to all sales, promotional and training materials
created or used in connection with the promotion of the Product.
3.5 Additional Products. During the term of this Agreement, including any
------------------
extensions or renewal terms, Schein shall promptly inform MGI if it develops any
other injectable iron products for use in the Field ("Additional Products") and
shall further notify MGI in writing whether Schein intends to market any
Additional Product itself or to co-promote the Additional Product with a third
party. If Schein intends to market such Additional Product exclusively itself,
or license or otherwise transfer ownership or distribution rights to a third
party at any time (including a co-promotion right as set forth below), MGI shall
have the right to terminate this Agreement upon ninety (90) days' written notice
to Schein and MGI shall be entitled to post-termination compensation as set
forth in Section 9.1. Such termination shall not be deemed a breach of this
Agreement. If Schein intends to co-promote such Additional Product with a third
party, MGI shall have an exclusive right of first negotiation with respect to
such rights to such Additional Product, exercisable upon written notice to
Schein not later than thirty (30) days after receipt of Schein's notice. If
MGI so exercises such right of first negotiation, the parties shall negotiate
5
<PAGE>
in good faith for a period of ninety (90) days the terms of such co-promotion.
ARTICLE 4 MANAGEMENT OF PROMOTION
-----------------------
4.1 Establishment of Marketing and Development Committee. Within fifteen (15)
----------------------------------------------------
days of the Effective Date, the parties shall establish a Marketing and
Development Committee (the "Committee"), composed of six (6) members, three (3)
representatives chosen by Schein and three (3) representatives chosen by MGI.
Such individuals shall be chosen from the party's senior management team, and
shall have expertise in marketing and sales, business and/or medical and
clinical affairs. The Chair of the Committee shall be a representative of
Schein. The first meeting of the Committee shall be held not more than 30 days
after the Effective Date. Thereafter, the Committee will meet quarterly, or
more or less often as the Committee determines to be appropriate. Such
meetings shall be in person, or by telephone if mutually acceptable by the
parties, and will be scheduled at mutually convenient times. If the meeting is
in person, it shall be held in a place alternately selected by Schein and MGI.
Each party will bear its own costs for attendance at Committee meetings. All
decisions of the Committee must be made by an affirmative vote of a majority of
all voting members of the Committee. Any disputes within the Committee will be
resolved pursuant to Section 4.4.
4.2 Functions of the Committee. The responsibilities of the Committee shall be
--------------------------
to establish projections, detailing goals, marketing plans, promotional and
clinical programs and to make other plans and take such other actions as may be
agreed by the parties. In particular, the Committee will:
(a) establish guidelines to govern the promotion of Product by MGI;
(b) review, comment upon and approve each Development Plan and Marketing
Plan (subject to Schein's final approval);
(c) monitor whether third party or governmental actions (e.g. third party
publication, labeling changes including FDA mandated labeling changes
or label changes that expand indications for Product usage in the
Field, new discovery, new product on the market, industry or medical
guidelines for expanded usage of the Product in the Field,
infringement of trademark rights) are having, or are likely to have, a
material effect on Net Sales or Profits for the Product and suggest
adjustments to the Marketing Plan and/or recommend to the parties
amendments to this Agreement to respond to such third party or
governmental actions;
6
<PAGE>
(d) develop and update, on a quarterly basis, a rolling 12 month forecast
of projected unit sales of the Product in the Field and the Territory
and estimated Profits and Incremental Sales Volumes for the Territory.
Such forecasts shall be made to assist Schein in planning its Product
production and shall be non-binding; and
(e) approve the proposed list of Accounts and Physicians and determine
which Accounts and Physicians have a high potential for prescribing
the Product in the Field, to be attached hereto as part of Exhibit A,
which may be changed from time to time in writing upon the mutual
agreement of the parties hereto.
4.3 Preparation and Submission of Development and Marketing Plans. The
-------------------------------------------------------------
Committee shall prepare and adopt a development plan (the "Development Plan")
and a marketing plan (the "Marketing Plan") for each calendar year during the
term of this Agreement. The Development Plan shall set forth the development
strategy for the Product, including proposed clinical trials and protocols and
other development activities to be performed by each of the parties during such
calendar year and timetables for each activity. The Marketing Plan shall set
forth the marketing strategy and tactics to be used in promoting the Product in
the Field and in the Territory for such calendar year. The first draft of each
Development Plan and Marketing Plan shall be prepared by Schein, after
consultation with MGI. Through the Committee, Schein shall consult with MGI on
the Development Plans and Marketing Plans, and MGI shall have the right to
review and comment on such plans, particularly with respect to clinical study
design and placement. Final decisions on the Development Plans and Marketing
Plans will be made by Schein in a manner that is not arbitrary and is consistent
with the intent and goals of the parties as set forth in this Agreement.
4.4 Dispute Resolution. In the event of a disagreement between the parties as
------------------
to any matters within the scope of the responsibilities of the Committee, the
Committee will, diligently and in good faith, seek to resolve the matter in
dispute. Any dispute which the Committee is unable to resolve, despite its good
faith efforts, within thirty (30) days of first being addressed or any dispute
between the parties arising under Section 9.1 of the Agreement shall be promptly
referred to the President of MGI and the President, Retail and Specialty
Products Division of Schein who will discuss and use their Best Efforts to
resolve such dispute.
4.5 Contact Person. MGI and Schein shall each appoint an individual to serve
--------------
as a primary contact to communicate to the other with respect to day-to-day
issues of performance of the parties' obligations under this Agreement. Such
contact persons shall serve as ex-officio members of the Committee if not
appointed thereto.
7
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ARTICLE 5 PRODUCT DEVELOPMENT
-------------------
5.1 Product Development. Schein may conduct additional clinical studies with
-------------------
respect to the Product, in order to support marketing of the Product in the
Field; provided, that, Schein shall spend no less than one hundred thousand
dollars ($100,000) in each of the first two years after the Effective Date for
clinical studies for Products in the Field. Schein shall consult with MGI and
seek the advice of MGI with respect to all such studies. It is understood and
agreed that any clinical trials relating to the Product that are being conducted
as of the Effective Date are outside of the scope of this Section 5.1.
5.2 Costs of Product Development. Schein shall bear all of its costs and
----------------------------
expenses, and all of MGI's out-of-pocket costs and expenses related to
additional clinical development of the Product; provided that such costs and
expenses are pre-approved in writing by Schein. MGI shall bear its own internal
costs related to such development.
5.3 Overall Development Responsibility. Except as explicitly set forth in this
----------------------------------
Agreement, Schein shall be responsible for all development activities relating
to Product, including, but not limited to, all clinical studies and regulatory
matters.
ARTICLE 6 MANUFACTURE, DISTRIBUTION AND REGULATORY MATTERS
------------------------------------------------
6.1 Manufacture, Supply and Distribution of Product. Schein shall manufacture
-----------------------------------------------
the Product in accordance with good manufacturing practices as the same are or
from time to time shall be established by applicable statute or regulation of
the FDA and by the NDA. Schein shall use its Best Efforts to perform, or cause
to be performed, all manufacturing, labeling, packaging, warehousing,
maintenance of inventory, distribution, order entry, customer services and all
other activities to supply and distribute the Product in order to fill the
orders generated by the activities of MGI hereunder. MGI will promptly forward
to Schein any Product orders that it may receive. All orders for the Product
are subject to acceptance by Schein, in whole or in part.
6.2 Pricing. The decision on selling price, discounts and rebates for the
-------
Product shall be that of Schein. If Schein intends to increase or decrease the
listed selling price, it shall notify MGI simultaneously with notice to its
sales force.
6.3 Regulatory Compliance. Unless otherwise required by law, Schein will
---------------------
retain exclusive authority and responsibility for complying with all regulatory
requirements and maintaining all government agency contacts relating to the
8
<PAGE>
Product, including, but not limited to, maintaining and updating the NDA for the
Product; the development and submission of regulatory filings regarding new
indications (if any, and at its sole discretion); the reporting of any adverse
drug reactions to the FDA; the filing of promotional materials with the FDA; and
the payment of Medicaid and other governmental rebates which in Schein's sole
judgment are due and owing. All Product complaints shall be handled in
accordance with the "Complaint Handling Procedures" attached hereto as Exhibit
B.
6.4 Product Recall. In the event that (i) Schein determines that an event,
--------------
incident or circumstance has occurred which may result in the need for a recall
or other removal of the Product or any lot or lots thereof from the market in
the Territory, (ii) the FDA requires a recall of the Product or (iii) the FDA
requires distribution of a "Dear Doctor" letter, Schein shall promptly advise
MGI with respect thereto. With respect to (i), Schein shall, in its sole
discretion, have the right to order a recall or other removal after such
notification. With respect to (ii) and (iii), Schein shall order such recall or
distribute such "Dear Doctor Letter" after such notification. Schein shall bear
all costs associated with any actions taken pursuant to this Section 6.4.
ARTICLE 7 PROMOTIONAL ACTIVITIES
----------------------
7.1 Promotional Obligation. MGI shall use its Best Efforts to promote the
----------------------
Product in the Field and in the Territory to the Accounts and Physicians,
consistent with the parties' marketing plan. MGI shall use Best Efforts to meet
the annual detailing requirements set forth in Exhibit A. MGI further agrees to
use its Best Efforts to make at least *** of the required detail calls in the
primary position to those Accounts and Physicians which the Committee determines
may have a high potential for prescribing the Product in the Field. The
Committee may, from time to time, approve a different proportion of required
details or a different call position to such group of high potential
prescribers.
7.2 Training. Schein will provide adequate training to MGI's sales force prior
--------
to the commencement of promotion by MGI. The initial training will take place
at either MGI's facilities or another agreed upon location and will be scheduled
so as to have the training of the MGI sales force completed not later than
ninety (90) days after the Effective Date. Subsequent to such initial training,
Schein will invite the MGI sales force to attend any training sessions which are
provided by Schein for the purpose of upgrading information relating to sales of
the Product. It is understood that such subsequent training sessions (i) will
be provided on an as-needed basis by Schein after discussions between MGI and
Schein regarding the content and format of such sessions and (ii) are subject to
the approval of the Committee. Schein and MGI shall each bear its respective
out-of-pocket expenses incurred in connection
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
9
<PAGE>
with such training. Schein will supply members of the MGI sales force, without
charge to MGI, with copies of adequate sales training material relating to
Product.
7.3 Promotional Materials. Schein shall have the primary responsibility for
---------------------
developing promotional materials in the Field, in consultation with MGI. Schein
shall coordinate development of such materials with advertising agencies. All
promotional materials for use of the Product in the Field shall include MGI's
name and Schein's name, as practicable. Promotional materials for use of the
Product outside of the Field shall include Schein's name only. Schein shall
provide reasonable quantities of copies of its promotional materials for the
Product, at no cost to MGI.
7.4 Advisory Board. Schein will expand the medical education activities of its
--------------
existing Advisory Board with respect to use of the Product in the Field. MGI
shall have the right to attend all meetings of the Advisory Board that have
oncologists in participation. As to any other sessions of the Advisory Board,
MGI shall be able to so attend only upon Schein's previous approval which
approval shall not be unreasonably withheld. MGI shall have the right to review
and comment on the board's medical education activities, and shall have access
to members of the board for speaker's bureau purposes and for other promotional
activities for the Product in the Field and Territory. All expenses related to
the activities of the Advisory Board will be borne by Schein except that MGI
shall bear the costs of its attendance at Advisory Board meetings.
7.5 Conduct of MGI Sales Force. In accordance with the Marketing Plan and the
--------------------------
terms and conditions of this Agreement, and subject to the Federal Food, Drug
and Cosmetic Act, all regulations promulgated pursuant thereto and any and all
applicable state laws and regulations, MGI shall use its Best Efforts to direct
its MGI sales force to detail the Product in the Field and the Territory to so
persuade such appropriate physicians, to prescribe and use the Product. The MGI
sales force shall conduct details and shall execute the programs set forth in
the Marketing Plan. Schein may, from time to time and upon reasonable prior
notice, request that a Schein employee be allowed to work jointly with the MGI
sales force for certain details. Upon the authorization of MGI sales
management, such authorization not to be unreasonably withheld, MGI will
accommodate such request, provided that Schein shall be responsible for bearing
all costs associated with its employee engaging in such activity. MGI shall
cause its sales force, and all other employees, agents and representatives of
MGI, to comply with all applicable laws, regulations and guidelines in
connection with the marketing, advertising and promotion of the Product,
including the Medicare/Medicaid Anti-Kickback Statute and the Federal Food, Drug
and Cosmetic Act and the regulations promulgated thereunder, including, without
limitation, the Prescription Drug Marketing Act.
10
<PAGE>
7.6 Overall Marketing Responsibility. Except as explicitly set forth in this
--------------------------------
Agreement, Schein shall be responsible for all marketing activities relating to
the Product, including, but not limited to, all regulatory matters,
communications with physicians and approval of all marketing materials and the
substantive content of all marketing scripts.
7.7 Costs of Co-Promotion. Except as otherwise expressly set forth in this
---------------------
Agreement, (i) the parties shall each bear the costs and expenses of their
respective sales forces (including salaries, commissions and the like) and their
own internal marketing costs and (ii) Schein and MGI shall share equally all
other out-of-pocket expenses incurred in co-promoting the Product, excluding
such sales force and internal marketing costs. Upon request, MGI and Schein
shall provide each other with invoices and other written documentation in order
to document such expenses. MGI will implement a bonus system for the Product
for MGI's sales force that is proportional to MGI's total bonus system for its
sales force, based on a ratio, the numerator of which is *** and the
denominator of which is MGI's total details for such calendar year.
7.8 Reports on Promotional Activities. MGI shall provide Schein with a
---------------------------------
quarterly written report of its promotional activities in the form set forth in
Exhibit C hereto, such reports to be submitted no less often than forty-five
(45) days of the end of each calendar quarter.
ARTICLE 8 JOINT OBLIGATIONS
-----------------
8.1 Assistance and Notifications to Other Party. Each party agrees to provide
-------------------------------------------
to the other reasonable assistance and to take actions reasonably requested by
the other party that are necessary to enable the other party to comply with its
obligations hereunder and with any law or regulation applicable to the Product,
including, but not limited to, Schein's meeting its reporting and other
obligations under Sections 6.3. and 6.4. Such assistance and actions shall
include, among other things: (i) MGI promptly reporting to Schein adverse drug
reactions of which it becomes aware, so as to permit Schein to meet its FDA
reporting and other obligations in a timely fashion in accordance with Exhibit
B; (ii) Schein carrying out any FDA-mandated notifications relating to the
Product in accordance with Exhibit B; (iii) Schein immediately notifying MGI of
any inquiry or other contact by the FDA or any other governmental agency or
authority with Schein or its Affiliates relating to the Product, except that
Schein will notify MGI only of such inquiries or contacts which may materially
affect MGI's performance of its obligations relating to the Product under this
Agreement or which may adversely affect Schein's ability to manufacture and
supply the Product; and (iv) Schein promptly notifying MGI of any adverse drug
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
11
<PAGE>
reactions to the Product or any regulatory action with respect to Product.
Schein will make available to MGI all FDA-authorized procedures and forms
necessary for MGI to meet its obligations hereunder.
8.2 Market Surveys. Each party hereto may, at its discretion and expense,
--------------
undertake such market surveys, research or analyses relating to the Product as
it deems fit, and such surveys, research or analyses shall remain the property
of the party undertaking same. Each party shall make such surveys, research and
analyses specifically relating to the Product available to the other party at no
cost to that other party. Schein may request that MGI undertake market surveys,
research or analyses relating to the Product and MGI may, in its sole
discretion, elect to undertake such surveys, research or analyses.
8.3 Withdrawal of Product. Each party agrees to notify the other immediately
---------------------
of any pending or threatened event which may lead to withdrawal of Product from
the market, including, without limitation: (i) actual or threatened regulatory
action by the FDA or other governmental entity, including, but not limited to,
the loss by Schein of any right necessary to market Product; or (ii) safety
concerns relating to Product. The final decision as to whether to so withdraw
Product shall be within Schein's sole discretion. In the event of such
withdrawal of Product, the rights of the parties shall be governed by Section
12.3 hereof.
ARTICLE 9 COMPENSATION
------------
9.1 Determination of Profits. The parties shall determine Profits for the
------------------------
Product for the applicable quarter as follows:
(a) Prior to the Co-Promotion Date, the parties shall determine the
quarterly baseline for Net Oncology Sales of the Product in the Field
and in the Territory (the "Baseline"), as follows: ***
*** Denotes confidential information that has been omitted from the
exhibit and filed separately, accompanied by a confidential treatment
request, with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
12
<PAGE>
(b) The intent of the parties is to share the Profits from all sales of
Product to the Field, according to the percentages set forth in
Section 9.2. ***
Within sixty (60) days of the Effective Date, the parties shall use
their Best Efforts to agree upon a more accurate multiplier ***. If
such a multiplier is agreed upon, the parties shall amend this
Agreement in writing as appropriate to implement the revised
multiplier. If the parties fail to agree on a revised multiplier for
determining Profits, the *** multiplier shall be used, until such time
as the parties agree in writing to an alternative system for tracking
Profits. In the event that either party determines that the definition
of Net Oncology Sales or the provisions of Section 9.1 are operating
in a materially unfair manner to such party according to the intent of
this Agreement, the parties agree to attempt to resolve such
unfairness according to the provisions of Section 4.4.
(c) Incremental Sales Volume and Profits shall be determined using such
Baseline and Net Oncology Sales figures. MGI shall be entitled to
receive the portion of such Profits as provided in Section 9.2. ***
9.2 Promotion Fee. Schein and MGI shall share *** the Profits for sales of
-------------
the Product made during the first two years following the Co-Promotion Date. For
sales of the Product made during any renewal terms or extensions of this
Agreement, MGI shall receive *** of Profits up to the level of the Incremental
Sales Volume achieved during the second year following the Co-Promotion Date,
plus *** of the Profits above such level of Incremental Sales Volume. In
addition, subject to Section 12.4(b), upon any termination or expiration of this
Agreement, MGI shall be entitled to receive for
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
13
<PAGE>
sales of Product made during the first twelve (12) months following such
termination or expiration, a payment equal to *** of Profits that would have
been payable to MGI hereunder had the Agreement not expired or been terminated,
provided however that such payment shall not exceed an amount greater than ***
times the total payments received by MGI from Schein in the twelve (12) month
period immediately preceding the termination or expiration of this Agreement.
9.3 Payments and Sales Reports. Schein shall pay MGI on a quarterly basis
--------------------------
MGI's share of Profits for the quarter then ending. Schein shall make such
quarterly payments within forty-five (45) days of the end of the applicable
quarters. Each payment shall be accompanied by a report setting forth the basis
for the payment, including the Profits, Incremental Sales Volume, Net Oncology
Sales, Net Sales and Cost of Goods for such quarter, for the Product. Schein
shall also provide MGI with (a) monthly report of actual sales of the Product in
the Territory, including quarter-to-date sales and (b) detailed quarterly
reports of actual sales of the Product in the Territory.
9.4 Books and Records.
-----------------
(a) Schein shall keep adequate and complete books and records related to
the Product according to its internal record retention policy. Such
books and records shall include all information necessary to verify
the total amount and computation of the Net Oncology Sales, Net Sales,
Cost of Goods, Incremental Sales Volume and Profits hereunder. Upon
request, but no more than once per calendar year, Schein shall
provide MGI with access, during regular business hours and upon
reasonable prior notice, and subject to the confidentiality
undertakings contained in this Agreement, to Schein's books and
records relating to the Product solely for the purpose of verifying
the accuracy of the calculations hereunder for the calendar year then
ended.
(b) MGI shall keep adequate and complete books and records related to its
co-promotional activities hereunder for a period of not less than five
(5) years following completion of the fiscal year in which such
activities occurred. Such books and records shall include all
information necessary to verify MGI's co-promotional activities
hereunder. Upon request, but no more than once per calendar year, MGI
shall provide Schein with access, during regular business hours and
upon reasonable prior notice, and subject to the confidentiality
undertakings contained in this Agreement, to MGI's books and records
relating to its co-promotional activities solely for verifying such
activities for the
*** Denotes confidential information that has been omitted from the
exhibit and filed separately, accompanied by a confidential treatment
request, with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
14
<PAGE>
calendar year then ended.
(c) Such audit may be performed by the auditing party or by its
independent auditors. If such audit shows any underpayment or
overpayment, a correcting payment or refund, together with interest at
the current prime lending rate established by leading New York banks
as published in The Wall Street Journal shall be made within thirty
-----------------------
(30) days of completion of such audit and submission of the results
thereof, with details of the calculations included therein. The costs
of such audit shall be borne by the auditing party; provided that the
audited party shall reimburse the auditing party its actual out-of-
pocket expenses of such audit, if such audit reveals any underpayment
of amounts owing hereunder of more than Ten Thousand Dollars ($10,000)
or five percent (5%), whichever is greater, for any period covered by
such audit.
(d) All information obtained in the course of such audits shall be deemed
to be Confidential Information of the audited party, and in addition
to the restrictions imposed by Article 11, the auditing party shall
not be entitled to make copies of any of the books and records of the
audited party nor to take such books and records (or any copies
thereof) from the audited party's premises.
ARTICLE 10 INDEMNIFICATION
---------------
10.1 Indemnification by MGI.
----------------------
(a) MGI hereby indemnifies and holds harmless Schein and its Affiliates (a
"Schein Indemnified Party") from and against all liabilities, damages,
losses, costs and expenses (including reasonable attorney's fees)
arising out of: (i) claims, suits or proceedings brought by a third
party arising out of the promotion of the Product by MGI hereunder,
including, without limitation, the negligence, gross negligence or
willful misconduct of MGI in connection with its promotion of the
Product hereunder; or (ii) breach by MGI of its warranties, covenants
or agreements made herein or any misrepresentation by MGI in or in
connection with this Agreement.
(b) Whenever a Schein Indemnified Party becomes aware of a claim, suit or
proceeding as to which it believes it is entitled to indemnification
under this Article 10, such Schein Indemnified Party shall give notice
in writing to MGI, shall permit MGI to assume exclusive control of the
15
<PAGE>
defense or settlement of the matter, and shall provide, at the expense
of MGI, all authority, information and assistance which MGI may
reasonably request for purposes of such defense; notwithstanding the
foregoing, MGI shall not settle, offer to settle or admit liability in
any claim, action, suit or proceeding in which it controls the defense
if such settlement, offer or admission could impose any liability on
Schein without the written consent of an officer of Schein, which
consent will not be unreasonably withheld. If a single law firm
engaged by MGI would be subject to any material conflict of interest
in representing one or more of such Parties, MGI shall not be required
to waive such conflict and may, instead, request separate
representation of the Schein Indemnified Party by an independent law
firm at the expense of MGI. A Schein Indemnified Party may engage its
own counsel, at its own expense, to monitor the defense of any such
matter.
10.2 Indemnification by Schein.
-------------------------
(a) Schein hereby indemnifies and holds harmless MGI and its Affiliates
(an "MGI Indemnified Party") from and against all liabilities,
damages, losses, costs and expenses (including reasonable attorney's
fees) arising out of: (i) claims, suits or proceedings brought by a
third party arising out of the manufacture, advertising, promotion,
use or sale of the Product by Schein, including, without limitation,
products liability and intellectual property infringement (except to
the extent subject to MGI's indemnification obligation under Section
10.1(a)); or (ii) breach of any warranty, covenant or agreement of
Schein contained in this Agreement or any misrepresentation by Schein
in or in connection with this Agreement.
(b) Whenever an MGI Indemnified Party becomes aware of a claim, suit or
proceeding as to which it believes it is entitled to indemnification
under this Article 10, it shall give notice in writing to Schein,
shall permit Schein to assume exclusive control of the defense or
settlement of the matter, and shall provide, at the expense of Schein,
all authority, information and assistance which Schein may reasonably
request for purposes of such defense; notwithstanding the foregoing,
Schein shall not settle, offer to settle or admit liability in any
claim, action, suit or proceeding in which it controls the defense if
such settlement, offer or admission could impose any liability on MGI
without the written consent of an officer of MGI, which consent will
not be unreasonably withheld. If a single law firm engaged by Schein
would be subject to any material conflict of interest in representing
one or more of such
16
<PAGE>
Parties, Schein shall not be required to waive such conflict and may,
instead, request separate representation of the MGI Indemnified Party
by an independent law firm at the expense of Schein. An MGI
Indemnified Party may engage its own counsel, at its own expense, to
monitor the defense of any such matter.
10.3 Insurance. Each party shall obtain and maintain, at its sole expense,
---------
broad form comprehensive general liability insurance, including products
liability in the case of Schein, in amounts which are commercially reasonable in
light of such party's business and activities hereunder, but in no event less
than $10 million, providing insurance coverage for claims and suits arising from
the development, manufacture, promotion, use, distribution or sale of the
Product, as appropriate, in the Territory.
10.4 Survival. The parties' obligations under this Article 10 shall survive the
--------
termination of this Agreement for any reason.
ARTICLE 11 CONFIDENTIALITY AND NON-HIRE
----------------------------
11.1 Non-Use and Non-Disclosure. Each party acknowledges and agrees that all
--------------------------
the other party's Confidential Information is confidential and proprietary to
the disclosing party. Each party shall not use or disclose to any third party
the other party's Confidential Information without the other party's prior
written consent for any purpose other than as permitted or required hereunder.
Each party shall take the same reasonable measures necessary to prevent any
disclosure by its employees, agents, contractors, sublicensees, or consultants
of the other party's Confidential Information as it applies to the protection of
its own Confidential Information.
11.2 Marking. To be entitled to protection as Confidential Information, all
-------
Schein or MGI documents containing that party's Confidential Information shall
be appropriately and clearly marked as "Proprietary," "Secret," "Confidential,"
or other words to similar effect. If a disclosure of Confidential Information
is made orally, as in a meeting, the disclosing party shall indicate the nature
of that information at the time of its disclosure and shall confirm such
designation in writing within ten (10) days of the date of such disclosure to
the receiving party.
11.3 Exclusions. Information shall not be considered Confidential Information
----------
hereunder if it:
(a) was already in the possession of the receiving party prior to its
receipt from the disclosing party, as shown by the receiving party's
books and records;
17
<PAGE>
(b) is, or becomes, part of the public knowledge or literature through no
fault, act or omission of the receiving party, provided, however, that
Confidential Information shall not be deemed to have entered the
public domain by reason of its having been filed with the FDA or any
other applicable governmental agency;
(c) is, or becomes, available to the receiving party from a source other
than the disclosing party, which source has rightfully obtained the
same information and has no obligation of confidentiality to the
disclosing party with respect to it;
(d) is made available on an unrestricted basis by the disclosing party to
a third party unaffiliated with the disclosing party; or
(e) is required to be revealed pursuant to law, provided, however, the
receiving party which is under any such requirement of law shall give
reasonable notice (pursuant to the provisions of Section 13.6) to the
disclosing party of such requirement and shall cooperate with the
disclosing party in reasonable legal efforts to limit or mitigate any
such revelation so as to preserve the proprietary nature of any
Confidential Information contained therein.
11.4 Duration; Surviving Obligation. Each party's obligations of non-use and
------------------------------
non-disclosure of the other party's Confidential Information shall apply during
the term of this Agreement and shall also survive for a period of five (5) years
after its termination or expiration for any reason.
11.5 Prior Agreements. The non-disclosure and non-use provisions of this
----------------
Agreement hereby supersede the provisions of the Confidential Disclosure
Agreement dated November 5, 1996, provided, however, that this Article 11 shall
be deemed retroactive to the effective date of the Confidential Disclosure
Agreement.
11.6 Non-Hire Obligation. Each of Schein and MGI agrees that during the term of
-------------------
this Agreement and for a period of one year after the termination of this
Agreement for whatever reason, neither it nor any of its Affiliates shall,
except with the prior written consent of the other party, offer employment to or
employ any person in the other party's sales force if such person was involved
in promoting the Product under this Agreement.
18
<PAGE>
ARTICLE 12 TERM AND TERMINATION
--------------------
12.1 Term. Unless earlier terminated in accordance with Section 12.2 or 12.3,
----
this Agreement shall be in effect from the Effective Date until the second (2nd)
anniversary of the Co-Promotion Date, and shall thereafter renew automatically
for additional one (1) year periods unless either party provides the other party
with one (1) year's advance written notice of its non-renewal of this Agreement.
12.2 Termination for Cause.
---------------------
(a) Either party may terminate this Agreement at any time by giving notice
in writing to the other party, which shall be effective immediately,
if the other party files a petition of any type as to its bankruptcy,
is declared bankrupt, becomes insolvent, makes an assignment for the
benefit of creditors, goes into liquidation or receivership, or
otherwise loses legal control of its business.
(b) Schein may terminate this Agreement at any time by giving notice in
writing to MGI, which shall be effective ninety (90) days after
receipt thereof by MGI, if (i) MGI fails to meet at least ninety
percent (90%) of its pro rata quarterly detailing requirements as set
forth in Exhibit A for two (2) consecutive quarters or (ii) MGI meets
less than one hundred percent (100%) but more than ninety percent
(90%) of its pro rata quarterly detailing requirements as set forth in
Exhibit A for two (2) consecutive quarters and thereafter fails to
achieve such percentage of such detailing requirements for the two (2)
immediately subsequent quarters so that MGI has met its aggregate
detailing requirements for such four (4) quarter period.
(c) Either party may terminate this Agreement at any time by giving notice
in writing to the other party, if the other party is in material
breach of this Agreement and has failed to cure such breach within
thirty (30) days after its receipt of written notice of breach from
the non-breaching party therefor, in the case of breach of any
obligation to make payment as and when due hereunder, or within sixty
(60) days of the receipt of written notice of breach from the non-
breaching party in the case of any other material obligation
hereunder.
12.3 Termination for Withdrawal of the Product. This Agreement may be
-----------------------------------------
terminated at any time, without advance notice by either party, if the Product
is withdrawn from the market in the Territory pursuant to Section 6.4 above.
19
<PAGE>
12.4 Rights and Obligations on Termination or Expiration. If this Agreement is
---------------------------------------------------
terminated or expires for any reason, the parties shall have the following
rights and obligations:
(a) Termination or expiration of this Agreement shall not release either
party from the obligation to make payment of all amounts then due and
payable;
(b) MGI shall be entitled to receive its share of Profits accruing prior
to the effective date of such termination or expiration and for the
one (1) year period thereafter, as set forth in Section 9.1 above;
provided, however, that if Schein terminates this Agreement for (i)
MGI's failure to meet at least ninety percent (90%) of its pro rata
quarterly detailing requirements as set forth in Exhibit A for two (2)
consecutive quarters or (ii) MGI's misbranding or misrepresentation of
the Product or other action or failure to act by MGI, which
misbranding, misrepresentation, action or failure to act has a
material adverse impact on Net Sales in the Field, the following shall
apply: (A) if MGI has made less than eighty percent (80%) of the
detail calls required hereunder in the twelve (12) month period
immediately preceding termination or if MGI has misbranded or
misrepresented the Product or otherwise committed an act or failed to
act, which misbranding, misrepresentation, action or failure to act
has had a material adverse impact on Net Sales in the Field, MGI shall
not be entitled to receive its share of Profits for such one (1) year
period after termination, and (B) if MGI has made less than ninety
percent (90%) but more than eighty percent (80%) of the detail calls
required during such twelve (12) month period, MGI shall be entitled
to receive its share of Profits for such one (1) year period, but such
amount shall be reduced by one percent (1%) for each percentage by
which MGI's actual detailing efforts are less than one hundred percent
(100%) of MGI's detailing requirements for such period all in
accordance with the provisions of Section 9.3;
(c) Each party's respective obligations of non-use and non-disclosure
under Article 11 shall survive as provided in Section 11.4;
(d) Each party's respective obligations of indemnification under Article
10 (as provided in Section 10.3) and rights and obligations under
Section 9.4 shall survive such termination or expiration of this
Agreement; and
(e) Upon any termination or expiration of this Agreement, MGI shall
20
<PAGE>
transfer and assign to Schein all of MGI's right, title and interest in and
to any sales or promotional materials for the Product (including, without
limitation, any copyrights therein) upon reimbursement by Schein of MGI's
out-of-pocket expenses for such materials.
12.5 No Compensation. The parties agree that, subject to the above provisions
---------------
of Section 12.4, and without prejudice to any other remedies at law or in equity
that either party may have in respect of any breach of this Agreement, neither
party shall be entitled to or claim that it is entitled to any consequential or
incidental damages as a result of or arising out of any termination in
accordance with this Article 12, whether claimed as loss of good will, foregone
profits, lost investments, or otherwise.
ARTICLE 13 GENERAL PROVISIONS
------------------
13.1 Entire Agreement. This Agreement constitutes the entire agreement of the
----------------
parties with respect to the subject matter hereof and thereof and supersede all
the parties' previous correspondence, term sheets, understandings, agreements
and representations, oral or written, including the Confidential Disclosure
Agreement.
13.2 LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN SECTIONS 2.1, 2.2, ARTICLE
-----------------------
10 OR IN THE EVENT OF A MATERIAL BREACH BY EITHER PARTY OF THE LIMITATIONS SET
FORTH IN ARTICLE 11 ABOVE, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY
LOSS, EXPENSE OR DAMAGE ARISING OUT OF OR RESULTING FROM THIS AGREEMENT OR FOR
ANY SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGES.
13.3 Assignment. Neither party shall assign or otherwise transfer its rights or
----------
obligations under this Agreement except with the prior written consent of the
other party; provided that no such consent for a transfer to an entity shall be
required and all rights and obligations arising hereunder shall inure to the
benefit of that entity if it is (a) an Affiliate of either party, (b) the
successor in interest of one party by reason of sale, merger or operation of
law, or (c) has acquired all or substantially all of the assets and business of
a party.
13.4 Amendment. This Agreement may not be modified or amended, in whole or in
---------
part, except by a written agreement signed by both parties.
13.5 Severability. If one or more of the provisions of this Agreement is
------------
subsequently declared invalid or unenforceable, this Agreement shall be treated
as though that provision were not in this Agreement, and this shall not affect
the validity or enforceability of the remaining provisions of this Agreement
(unless
21
<PAGE>
those provisions that are invalidated or unenforceable are clearly material and
inseparable from the other provisions). The Agreement as modified shall be
applied and construed to reflect substantially the good faith intent of the
parties and to achieve the economic effects originally intended by the terms
hereof.
13.6 Notices. Except as may be otherwise provided in this Agreement, any
-------
notice, demand or request given, made or required to be made shall be in writing
and shall be effective, unless otherwise provided herein, when received after
delivery by (a) registered air mail, postage prepaid; (b) facsimile with
electronic confirmation of receipt; or (c) by express mail or a reputable
courier at the addresses set forth below or to any other address that a party
specifies in writing:
If to MGI: MGI PHARMA, INC.
300E Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
Attn: Lori-jean Gille, Vice President,
General Counsel
Facsimile: (612) 935-0468
With copy to: Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402
Attn: Karin A. Keitel
Facsimile: (612) 340-8827
If to Schein: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attn: President, Retail and
Specialty Products Division
Facsimile: (201) 593-5820
With copy to: Schein Pharmaceutical, Inc.
100 Campus Drive
Florham Park, NJ 07932
Attn: General Counsel
Facsimile: (201) 593-5820
13.7 Waiver. Either party's failure or delay in exercising any remedy for
------
default shall not be deemed a waiver of that or any subsequent default of that
provision or
22
<PAGE>
of any other provision hereof.
13.8 Counterparts. This Agreement shall be executed in two (2) or more
------------
counterparts, each of which shall be deemed an original.
13.9 Governing Law. This Agreement shall be governed by, and interpreted and
-------------
construed in accordance with, the laws of the State of New York, excluding its
choice of law rules.
13.10 Force Majeure. If performance of this Agreement or of any obligation
-------------
hereunder (except payment of monies due) is prevented, restricted or interfered
with by: fire or other casualty or accident; strikes or labor disputes; war or
other violence; unavailability of or delays in procuring materials, power or
supplies; any law, order, proclamation, regulation, ordinance, demand or
requirement of any governmental or intergovernmental agency or body; or any
other act or condition whatsoever beyond the reasonable control of the party
affected thereby, the party so affected shall be excused from such performance
during the time such prevention, restriction or interference persists so long as
such party takes all actions available to it to limit the duration of such
prevention, restriction or interference.
13.11 Relationship. The parties are independent contractors and shall not
------------
be deemed to have formed any partnership, joint venture or other relationship.
Neither party shall make, or represent to any other person that it has the power
or authority to make, any financial or other commitment on behalf of the other
party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
MGI PHARMA, INC. SCHEIN PHARMACEUTICAL, INC.
By /s/ Charles N. Blitzer By /s/ Michael D. Casey
-------------------------------------- -------------------------------
Charles N. Blitzer Michael D. Casey
President and Chief Executive Officer President, Retail and Specialty
Products Division
23
<PAGE>
EXHIBIT A
DETAILING REQUIREMENTS AND TARGETED ACCOUNTS AND PHYSICIANS
1. Annual Detailing Requirements:
*** details to the Accounts and Physicians
At least *** of the required detail calls shall be made in the primary
position to those Accounts and Physicians which the Committee
determines may have a high potential for prescribing the Product in
the Field.
2. Accounts and Physicians (including list of high potential prescribers)
[To be determined by the Committee]
3. Dedicated Cancer Centers
[To be determined by the parties]
*** Denotes confidential information that has been omitted from the exhibit and
filed separately, accompanied by a confidential treatment request, with the
Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities
Exchange Act of 1934, as amended.
24
<PAGE>
EXHIBIT B -- COMPLAINT HANDLING PROCEDURES
The purpose of this appendix is to establish written procedures for the
communication and processing of Product complaints received by MGI. Acting in
accord with this Agreement will facilitate compliance with Federal
Requirements as set forth in 21 CFR 211.198 (complaint files) and 21 CFR
310.305/21 CFR 314.80 (postmarketing reporting of adverse drug reactions).
A. Complaint Reporting:
1. Complaints reported directly to MGI will be forwarded to the Supervisor of
Clinical Affairs at Schein; MGI may, at its option, forward summarized
reports or reports in complete form.
2. All adverse drug experience complaints reported to MGI will be communicated
to Schein within three working days of report receipt. Schein will be
responsible for completion and submission to the Food and Drug Administration
of Form FDA-3500A where appropriate.
3. Complaint reports which may meet NDA-Field Alert Report Criteria [21 CFR
314.81(b)(1)] will be promptly communicated to Schein, enabling FDA
notification by Schein within three working days. Schein will advise MGI of
NDA Field Alert Report submission and forward a copy of any such report to
the Complaint Coordinator (see A.1 above) of MGI.
B. Complaint Investigation:
1. Schein will investigate all complaints, including complaints associated with
Product's active or inactive ingredients, container/closure system, general
Product quality, distribution or handling.
C. Communications with Complainant:
1. Schein will be responsible for review of complaint evaluation information and
preparation of a written response.
2. In situations requiring submission of adverse drug experience reports, Schein
will be responsible for any follow-up communications which may be required in
order to facilitate timely completion and submission of FDA Form-3500A's.
D. Product Recall:
1. In carrying out a recall, both parties will fully cooperate in notifying
customers to follow instructions agreed upon by the parties.
25
<PAGE>
EXHIBIT C
FORM OF MGI REPORT ON PROMOTIONAL ACTIVITIES
26
<PAGE>
Exhibit 11
COMPUTATION OF NET LOSS PER COMMON SHARE
MGI PHARMA, INC.
(Unaudited)
The following information is required in computations of primary and fully
diluted loss per common share in each year ended December 31:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
LOSS:
Loss $(6,621,747) $(2,614,478) $(9,696,946)
COMMON SHARES:
Adjusted weighted shares
outstanding (a) 13,178,790 12,508,639 11,784,027
LOSS PER COMMON SHARE:
Net loss $ (0.50) $ (0.21) $ (0.82)
</TABLE>
(a) Net loss per common share shown on the face of the statements of operations
is the equivalent of a simple capital structure presentation since it
excludes common stock equivalents as their effect is antidilutive. There
are no pro forma fully diluted share outstanding adjustments, so primary
and fully diluted share amounts are identical.
<PAGE>
EXHIBIT 13
MGI Pharma 96 AR
[FC Artwork]
Acquire
Develop
Market
Accomplishing our Strategy
<PAGE>
In 1996, MGI made several changes critical to its evolution as a company,
resulting in: New Leadership . New Sales Force . New Products . Record Sales .
New Organizational Structure . Advancing Clinical Studies . New International
Partners and Regulatory Approvals . New Attitudes . Fresh Opportunities .
New Beginnings...
Table of Contents
1 Corporate Highlights
2 Shareholders' Letter
6 Acquiring Products
8 Developing Products
12 Marketing Products
14 Management's Discussion and Analysis
17 Financial Statements and Notes
26 Auditors' Report
29 Corporate Information
<PAGE>
[Officer Photos:]
From Left to Right, Top to Bottom:
Jon C. Lee -- Vice President, Sales and Marketing
Charles C. Muscoplat, Ph.D. -- Executive Vice President
Lori-jean Gille -- Vice President, General Counsel and Secretary
James V. Adam -- Vice President, Chief Financial Officer
and 1997 has the promise of continued success. Under new leadership and with
rejuvenated determination, our strategy of acquisition, development and
marketing will continue to evolve, creating dramatic results for MGI PHARMA. Our
people will make it happen - for the patients, our shareholders and themselves.
<PAGE>
Dear Shareholders
Having joined MGI PHARMA in April 1996, I am pleased to report that our company
has undergone a significant transformation and has advanced several steps in its
evolution as a commercial organization. Our accomplishments in expanding sales
of Salagen(R) Tablets, advancing clinical trials and acquiring new products
leave us well positioned for even more meaningful progress in 1997.
Financial Results
Boding well for the future, product sales were a bright spot for MGI in 1996,
increasing 40 percent over 1995. This helped to offset the drop in one-time
licensing fees from the previous year. Revenues (which include product sales,
licensing fees and interest income) totaled $9.6 million in 1996, compared to
$13.3 million in 1995. In 1995, MGI received one-time licensing payments
totaling $5.2 million.
MGI's 1996 results were also affected by the decision to make several strategic
investments in our future, including the acquisition of new products. As a
result, MGI posted a net loss of $6,621,747, or 50 cents per share, for 1996,
compared to a net loss of $2,614,478, or 21 cents per share, in 1995.
In September 1996, we raised $5.6 million in cash through a public offering,
providing us additional capital for growth. At year end, we had approximately
$18 million in cash and $20 million in total assets.
MGI's 1996 Achievements
Every segment of our business made solid progress in 1996. Here are just some of
the highlights:
Sales and Marketing
We rebuilt, retrained and revitalized our entire sales organization, filling all
territories with highly competent and motivated associates. Our sales and
marketing organization drove sales of Salagen(R) Tablets up 60 percent by
establishing the product as an important medical advancement in the treatment of
radiation-induced dry mouth.
We expanded our international network for Salagen(R) Tablets to include Korea by
entering into a distribution agreement with Hyundai Pharmaceutical, Co., Ltd.,
of Seoul, Korea. To date, MGI has six international partners for Salagen(R)
Tablets, including Chiron, B.V. for Europe, Pharmacia & Upjohn for Canada,
Megapharm, Ltd. for Israel, Kissei Pharmaceutical Co., Ltd. for Japan, and
Sintong Chemical Industrial Ltd. for Taiwan.
Salagen(R) was approved in Canada, Israel, Ireland, France, and Greece during
1996 as a treatment for radiation-induced dry mouth. In Israel, Salagen(R) also
was approved for dry mouth associated with Sjogren's syndrome, an autoimmune
disease. Chiron, B.V. began marketing the product in Ireland and Greece during
1996, but as of the end of the year, they were still negotiating with the French
regulatory agency on pricing. Megapharm, Ltd. began marketing Salagen(R) in
Israel late in 1996, while Pharmacia & Upjohn will launch the product in Canada
in 1997.
Chiron, B.V. also submitted applications for marketing approval of Salagen(R)
Tablets in 10 additional European countries under the European Mutual
Recognition Procedure. The countries were Austria, Belgium, Finland, Germany,
Italy, Luxembourg, The Netherlands, Portugal, Spain, and Sweden. There is every
hope that approval in these countries could happen in 1997.
2
<PAGE>
Presentations related to the medical benefits of Salagen(R) were made throughout
the year at more than half a dozen major medical conventions, helping to educate
the medical community about the benefits of the drug.
Clinical Trials
We completed the Phase III clinical trials for Salagen(R) Tablets as a potential
treatment for the dry mouth and dry eyes associated with Sjoren's syndrome. In
February 1997, we submitted the supplemental New Drug Application for this
indication to the U.S. Food and Drug Administration.
We initiated and advanced a Phase I trial for MGI 114, one of our potential new
anti-tumor agents, evaluating the drug's safety at increasingly higher doses.
The Phase I program will continue until a maximum tolerable dose is reached, at
which time a Phase II study will be initiated to evaluate the drug's
effectiveness against tumors in humans.
We signed a co-development agreement with the National Cancer Institute for MGI
114, whereby they will sponsor clinical trials complementing MGI's efforts to
develop the compound into a useful treatment for a variety of cancers.
"BY focusing our efforts ON REACHING PROFITABILITY, AND JUDICIOUSLY TAKING
ADVANTAGE OF SELECTED OPPORTUNITIES FOR THE LONGER TERM, WE CAN BUILD MGI INTO A
SUCCESSFUL BUSINESS."
[Portrait of] Charles N. Blitzer
President and CEO
<TABLE>
<CAPTION>
Phase of Development
Medical Regulatory
Specialty Phase I Phase II Phase II Review Marketing
<S> <C> <C> <C> <C> <C> <C>
Salagen(R)-Radiation- Cancer X
INFeD(R) Cancer X
Didronel(R) I.V. Infusion Cancer X
Salagen(R) - Sjogren's Rheumatology X
Oxypurinol Rheumatology X
DHAC Cancer X
MGI 114 Cancer X
</TABLE>
3
<PAGE>
New Products
We acquired the rights to two exciting new development products and entered into
a promotion arrangement for a third. These products, which offer MGI near-, mid-
and long-term opportunities, are: INFeD(R) (intravenous iron dextran),
Oxypurinol and Dihydro-5-azacytidine (DHAC).
The U.S. Patent office granted two broad-based patents for the acylfulvene
family of anti-cancer compounds, of which MGI 114 is the lead analog. These
patents complement two previously issued U.S. patents covering methods of using
acylfulvenes to inhibit certain tumor cell growth.
Board of Directors
We added two new members to our board of directors, both of whom are experienced
pharmaceutical executives: Timothy G. Rothwell, president of worldwide
pharmaceutical operations at Rhone-Poulenc Rorer, and David E. Collins, former
president of the consumer products division at Schering-Plough, Inc., who is now
a very active healthcare consultant and educator.
While we welcome our two new board members, we must also say goodbye to Robert
W. Powell, Jr., a long-time board member who has decided not to stand for re-
election. Bob has been a good friend to MGI, sharing his guidance and wisdom
over the years. We thank him for his dedication and wish him well in the future.
Re-Establishing the Vision for 1997 and Beyond
When I joined the company in April 1996, my first task was to resolve the
following questions:
. Direction -- Who are we and where are we going?
. Strategy -- How will we get there?
. Structure -- What people and resources do we need to get us there?
. Compelling Science -- Will we have products that physicians and patients
care about?
. Measurement -- How will we evaluate our efforts?
. Product Sales . Licensing . Interest/Other
[BAR GRAPH OF Sales in millions]
94 = $4.3
95 = $4.6
96 = $6.5
[BAR GRAPH OF Revenues in millions]
94 = $ 6.8
95 = $13.3
96 = $ 9.6
[BAR GRAPH OF Results in millions]
94 = $(9.7)
95 = $(2.6)
96 = $(6.6)
4
<PAGE>
Our direction, or mission, is to acquire, develop and market pharmaceutical
products for niche areas of major unmet medical need. These niche areas are
characterized by small patient and physician populations that can be
sufficiently serviced by a small, focused sales force. Oncology (cancer) and
rheumatology, the two medical fields on which we are concentrating initially,
qualify exceptionally well as niche markets because:
. Both treat diseases for which there are few, if any, known cures,
representing areas of significant unmet medical need.
. Both encompass numerous subsets of disease categories, all of which have
their own characteristics affecting relatively small numbers of patients.
. Comparatively few physicians specialize in each group (approximately
8,000 oncologists and 3,400 rheumatologists in the United States), making them
reasonable populations for a focused sales force to reach.
Our strategy is to in-license and acquire the rights to pharmaceuticals,
primarily targeting late-stage products, for human clinical development and
marketing. We will also continue to seek out promotional opportunities, like
INFeD(R), where we could complement another company's marketing efforts,
extending their reach into other markets.
To implement this strategy, we re-established the necessary structure over the
last several months, most notably, the revamping of our sales force under Jon C.
Lee, a veteran sales and marketing leader whose 30-year career has been spent
building successful sales forces. We also redefined other corporate departments
to streamline efforts and improve communications. As a result, James V. Adam now
leads finance, international and operations, Charles C. Muscoplat oversees
clinical development and new business activities, and Lori-jean Gille heads up
legal, regulatory and administration. We believe this structure will provide the
leadership and incentives the company needs to achieve its objectives.
We believe we have compelling science and will work to unearth additional
opportunities that could prove to be exciting new medical therapies with the
potential to significantly improve the quality of life for thousands of patients
suffering from niche diseases. For example, Salagen(R) Tablets (pilocarpine
hydrochloride) is gaining acceptance as an important medical therapy for
radiation-induced xerostomia, or dry mouth, a condition that Dentistry Today
recently called a complex condition that can be "extremely serious and
debilitating." In this article, Mark S. Chambers, DMD, MS, from the department
of head and neck surgery at The University of Texas M.D. Anderson Cancer Center,
states, "Clinical trials suggest that tablet pilocarpine is an important
medicine in treating patients with xerostomia."
In closing, we believe much has been accomplished to prepare MGI for the
challenges ahead, both near- and long-term. In the near-term, our success will
be measured by our ability to reach profitability. While we don't expect this to
occur in 1997, we do expect to continue to grow revenues while managing
expenditures wisely, moving us closer to our goal. By focusing all our efforts
in this direction, and judiciously taking advantage of selected opportunities
for the longer term, we can build a successful business.
For MGI, 1997 will be a year of continued implementation. We ask for your
continued faith in our efforts and the understanding that the road to commercial
viability is an evolutionary one. We hope that our deeds in 1996 prove that we
are moving in the right direction.
/s/ Charles N. Blitzer
Charles N. Blitzer
President and Chief Executive Officer
5
<PAGE>
ACQUIRE
Through selective acquisition of promising drugs, MGI intends to build a
balanced portfolio of products to feed its commercial operation and drive
revenues upward. Immediate needs are to acquire drugs that will produce healthy
returns in the near-term and help MGI move closer to profitability, while
keeping an eye out for longer-term products with greater potential. In 1996 and
early 1997, MGI acquired the rights to two new development products and entered
into a promotional arrangement for a third product.
New Products:
. INFeD(R) [ARTWORK]
. Dihydro-5-azacytidine (DHAC)
. Oxypurinol
6
<PAGE>
MGI PHARMA acquires drugs to expand its pipeline of marketed pharmaceutical
products rather than conducting its own basic laboratory research. MGI's focus
on later-stage products allows the company to diminish risk and reduce
development timelines. Additionally, the company's size allows it to turn small
market opportunities into potentially profitable ventures. Sources of products
include large pharmaceutical companies that cannot justify supporting small
drugs; other small drug-related companies, including biotechnology firms, that
do not have a means to market their products; and universities and research
institutions whose charter is to conduct basic research and not later-stage
development work and commercialization. MGI's acquisition strategy allows it to
capitalize on its strengths in clinical development and commercialization to
fill a need in the pharmaceutical industry and deliver medically important
products for niche diseases to the market.
[ARTWORK]
In February 1997, MGI entered into a promotional arrangement with Schein
Pharmaceuticals, Inc., for INFeD(R), a drug that treats iron deficiency anemia
caused by a variety of diseases and therapies. Schein has successfully marketed
INFeD(R) as a treatment for anemia associated with renal dialysis for the last
couple of years. By the middle of 1997, MGI will begin promoting the drug in the
oncology market as a treatment for iron deficiency anemia resulting from cancer,
chemotherapy or radiation therapy. Anemia caused by cancer therapy affects as
many as 30 percent of the 1.5 million cancer patients in the United States. It
can progress to the point that the anti-tumor therapy must be temporarily
stopped, compromising the long-term effectiveness of the therapy.
In December 1996, MGI acquired two products from ILEX Oncology, Inc.: Oxypurinol
for the rheumatology market and DHAC for the cancer sector. Oxypurinol is a
second-line therapy for recurrent gout, a rheumatologic disease that can be
life-threatening if left untreated. Data from a 20-year compassionate-use study
suggests that Oxypurinol could be useful in about two percent of the one million
Americans with recurrent gout who are allergic to the first-line therapy for the
disease. MGI will analyze this data and discuss its findings with the FDA for
possible future promotion.
DHAC is a drug that may prove to have several applications in cancer, including
myelodysplastic syndromes (MDS), mesothelioma lung cancers associated with
asbestos exposure, prostate cancer, and thalassemia major (a fatal genetic blood
disease). DHAC has interesting potential for each of these diseases because it
appears to have a unique gene-switching mechanism, as well as an attractive
safety profile.
7
<PAGE>
DEVELOP
MGI PHARMA's development strategy is to move products through the human clinical
development process quickly and efficiently, while maintaining the highest
standards of quality. Salagen(R) Tablets' availability as a marketed product
proves that MGI has the resources and capabilities needed to manage this high-
risk venture successfully. In 1997, MGI will expand development efforts to
include newly acquired products in addition to the ongoing development of MGI
114.
1997 Product Development Goals:
. MGI 114 -- Advance Phase I program
. DHAC -- Initiate Phase II study for myelodysplastic syndromes
. DHAC -- Initiate Phase I study for hormone refractory prostate cancer
. Salagen(R) Tablets -- Complete Phase IV studies in cancer patients
. Salagen(R) Tablets -- Initiate Phase IV studies in Sjogren's
syndrome patients
[PHOTO OF:]
Daniel D. Von Hoff, M.D., F.A.C.P.
8
<PAGE>
[PHOTOS OF:]
Charles L. Vogel, M.D., F.A.C.P.
Margaret A. Tempero, M.D.
Acylfulvenes
One of MGI's most exciting development programs continues to be MGI 114, the
lead compound from a family of promising anti-tumor agents called the
acylfulvenes. In various animal and laboratory tests with human tumor cells, the
acylfulvenes appear to be more effective than currently approved drugs in
treating cancers of the lung, breast, colon and skin. They are chemically
modified versions of natural substances produced by the Omphalotus illudens
mushroom. They appear to have a mechanism of tumor-killing action that is
distinct from other anti-tumor drugs and they appear to remain active against
tumors that are resistant to existing anti-tumor drugs.
In December 1995, MGI initiated a Phase I human clinical trial with MGI 114,
marking the first time the drug had been administered directly to humans. The
goal of this study is to examine the drug's safety, as well as patients'
tolerance for the drug. MGI will continue moving forward with this study until
it reaches the maximum tolerated dose.
To provide additional guidance on MGI 114's development path, MGI PHARMA
established an advisory board for the compound, comprised of several leading
cancer investigators (listed on page 11). In January 1997, this board convened
to discuss MGI 114's results to date and potential development programs. As a
result of this meeting, MGI plans to initiate a second Phase I study during 1997
to broaden the number of patients exposed to the drug, which will be useful in
defining a Phase II program.
9
<PAGE>
The National Cancer Institute (NCI) also became involved with MGI 114 in 1996 by
entering into a development agreement with MGI PHARMA. Several NCI studies with
MGI 114 are expected to begin late in 1997, complementing MGI's own efforts to
develop the drug. The NCI's involvement is important due to the major role it
plays in the discovery and development of anti-cancer agents in the United
States. It is the largest sponsor of such research, funding a clinical trials
network that includes more than 7,000 investigators at cooperative groups,
cancer centers, university hospitals and institutions throughout the United
States.
[Photo of:]
Esteban Cvitkovic, M.D.
Gary R. Hudes, M.D.
[ARTWORK]
DHAC
DHAC is a member of a family of hypomethylating agents that have a distinct
method of action, giving them the potential to treat various diseases
characterized by the loss of critical gene expression. Animal and early clinical
trials with DHAC have shown that it is a potent hypomethylating agent with
demonstrated anti-tumor activity. DHAC also appears to have a unique safety
profile with the distinct advantage of not suppressing the bone marrow, a common
dose-limiting problem for many cancer drugs.
While DHAC may prove to have many applications, MGI will begin developing the
drug initially for myelodysplastic syndromes (MDS) and prostate cancer. MDS is
comprised of a group of blood disorders that often progress to leukemia and is
characterized by low blood counts and abnormal blood-forming cells in the bone
marrow. MDS affects approximately 10,000 people in the United States. MGI
intends to initiate a Phase II study for this indication late in 1997.
10
<PAGE>
More than 40,000 men die in the United States each year from prostate cancer and
approximately 240,000 new cases are diagnosed. DHAC appears to have
characteristics that could reduce the aggressiveness of certain prostate
cancers. It may also be able to improve a patient's responsiveness to currently
available hormone therapy. To build upon the data collected to date, MGI will
begin a Phase I study late in 1997 in hormone refractory prostate cancer
patients.
Phase IV Studies
To support MGI's commercialized products, the company intends to conduct several
post-marketing studies to collect additional efficacy data. In 1997, MGI intends
to complete several current studies with Salagen(R) Tablets in cancer patients
that the company believes will provide further evidence of the drug's ability to
treat the symptoms of dry mouth. Additionally, MGI plans to initiate similar
studies to support the anticipated launch of Salagen(R) Tablets for the
Sjogren's syndrome indication. All of these studies will hopefully be published
in leading medical journals, aiding the company's marketing efforts.
MGI 114
Advisory Board
Daniel D. Von Hoff, M.D., F.A.C.P.
Director, Institute for Drug Development
Cancer Therapy and Research Center
San Antonio, Texas
Esteban Cvitkovic, M.D.
Medical Oncologist
Service d'Oncologie Medicale,
Hopital Paul Brousse
Villejuif, France
S. Gail Eckhardt, M.D.
Associate Director,
Institute for Drug Development
Cancer Therapy and Research Center
San Antonio, Texas
Robert A.Figlin, M.D., F.A.C.P.
Associate Program Director,
Solid Tumor Oncology
UCLA, Jonsson Comprehensive Cancer Center
Los Angeles, California
Mark R. Green, M.D.
Director, Hollings Cancer Center
Medical University of South Carolina
Charleston, South Carolina
Gary R. Hudes, M.D.
Director, Developmental Chemotherapy
Fox Chase Cancer Center
Philadelphia, Pennsylvania
Margaret A. Tempero, M.D.
Deputy Director
UNMC/Eppley Cancer Center
University of Nebraska Medical Center
Omaha, Nebraska
Charles L. Vogel, M.D., F.A.C.P.
Medical Director, South Florida
Comprehensive Cancer Centers
Mount Sinai Comprehensive Breast Center
Miami Beach, Florida
George Wilding, M.D.
Director, Medical Oncology Program
University of Wisconsin Comprehensive Cancer Center
Madison, Wisconsin
11
<PAGE>
[BAR GRAPH OF Salagen(R) Sales in millions]
94 = $3.0
95 = $3.7
96 = $5.9
MARKET
MGI PHARMA's commercial organization markets specialized products to niche areas
of medicine, currently focusing on the fields of oncology and rheumatology. The
Company is working to position itself as one of the leading specialized medical
sales and marketing organizations in the United States. Building its commercial
capabilities toward this end, MGI has been aggressively increasing sales of
Salagen(R) Tablets and assimilating additional products for near and immediate
promotion.
MGI's Commercial Organization:
. Twenty-two seasoned sales representatives strategically positioned across
the United States
. Strong sales management team
. Innovative marketing programs
. Internal sales and marketing support
. Managed care and government initiative programs
12
<PAGE>
By successfully implementing its marketing strategy, MGI PHARMA is making
strides toward reaching and maintaining profitability. In 1996, MGI set out to
implement its newly revised marketing plan targeted at increasing sales of
Salagen(R) Tablets. Thanks to the hard work of the company's re-established and
experienced sales force, MGI was successful on all fronts, producing the
following results:
Photo of:
Bob Reising -- Jim Shields
MGI's Directors of Sales
. Sales of Salagen(R) Tablets increased 60 percent over the previous year.
. The average number of prescriptions written daily for Salagen(R) Tablets
increased 47 percent during 1996, with the size of the average prescription
increasing six percent.
. The number of prescriptions written by radiation oncologists, our targeted
physician group, grew by 108 percent, indicating that our messages and efforts
are making headway.
. Our Dry Mouth Hotline (1-800-644-4811) for head and neck cancer patients
was established and is accepting over 200 calls per month from both patients and
caregivers.
. The average circulation of Comfort Zone, our radiation-induced dry mouth
newsletter, exceeds 6,000 people, and the mailing list is still growing.
. Our international partners used our data and support to attain approval
for Salagen(R) Tablets in five additional countries in 1996, while applications
for approval were submitted in an additional 10 countries.
Building on this solid foundation, MGI's major commercial goals in 1997 are to
continue to expand product sales and to broaden the company's perspective beyond
Salagen(R) Tablets.
Sales efforts with Salagen(R) Tablets in the cancer market have evolved to a new
level, moving our focus to include more medical oncologists. New marketing plans
for 1997 include detailed targeting activities, as well as speakers and in-
service programs.
We are also preparing for the launch of Salagen(R) Tablets in the rheumatology
market as a treatment for the symptoms of dry mouth and dry eyes in Sjogren's
syndrome patients, the product's second indication. We submitted a supplemental
new drug application to the FDA in February 1997 for this indication. Activities
to support a marketing launch include completing a marketing plan and
identifying key rheumatologists who specialize in treating Sjogren's syndrome
patients.
Of significance to our evolution as a commercial organization is the promotional
arrangement with Schein Pharmaceuticals for the marketing of INFeD(R) to the
oncology market. We expect to begin marketing this product by mid-1997,
complementing Schein's current efforts in the renal dialysis market. As we roll
out this program, we will remain focused on managing our sales and marketing
resources effectively so as to positively impact overall product sales.
1997 Goals
- ----------
1 Optimize Salagen(R) Sales
2 Add New Products
3 Continue to Build International Relationships
13
<PAGE>
management's discussion and analysis of financial condition and results of
operations
Overview
MGI PHARMA, INC. (MGI or the Company) is a pharmaceutical company that acquires,
develops and markets innovative and differentiated products for niche markets of
unmet medical need. The Company is primarily focused on products that treat
cancer or improve the quality of life for cancer patients. It intends to expand
into the rheumatology market upon approval of Salagen(R) Tablets as a treatment
of symptoms associated with Sjogren's syndrome. The Company currently markets
its products to physicians throughout the United States, with sales made to
pharmaceutical wholesalers for ultimate delivery to patients through drug
distribution channels. Sales of Salagen(R) Tablets account for the vast majority
of Company sales. The Company is commercializing its products outside the United
States through various alliances, and has agreements with several international
pharmaceutical companies to commercialize Salagen(R) Tablets abroad, including
the major markets of Europe, Japan and Canada. Product development efforts
include continued development of Salagen(R) Tablets, to expand use of this drug
beyond its already approved indication, and development of acylfulvenes, a
family of compounds with potential to become effective cancer therapies.
Exclusive rights to acylfulvenes for Japan were granted to Dainippon
Pharmaceutical Co., Ltd. under a cooperative development and commercialization
agreement in 1995.
Results of Operations
The Company's 1996 net loss of $6,621,747 compares with net losses of $2,614,478
and $9,696,946 in 1995 and 1994, respectively. The pattern of losses is
predominately driven by realization of non-recurring licensing revenue in 1995.
Sales revenues increased 40% to $6,459,550 in 1996, following an 8% increase
from $4,276,027 in 1994 to $4,607,231 in 1995. The increases reflect increasing
sales of Salagen(R) Tablets, partially reduced by continuation of the long-term
decline in sales of DIDRONEL(R) I.V. Infusion. Quarter-to-quarter sales revenues
increased 32% in the 1996 fourth quarter, following a 2% decrease in the 1996
third quarter. MGI sales revenues will fluctuate from quarter to quarter, due to
periodic adjustments in wholesaler buying patterns. The trend in retail demand
for Salagen(R) Tablets, as estimated using shipment activity from wholesalers to
pharmacies, has continued to grow.
Cost of sales decreased 12% to $677,610 in 1996, following a 37% increase from
$563,490 in 1994 to $771,912 in 1995. Although sales increased in 1996, the
decrease in cost of sales results from the impact of an additional $140,000
provided for excess inventory in 1995 compared to 1996. Additionally, the
product mix is changing with increasing Salagen(R) Tablet sales and declining
DIDRONEL(R) I.V. Infusion sales. Management believes that cost of sales as a
percent of sales of approximately 10% should continue for its current products.
[BAR GRAPH OF Licensing Revenues in millions]
94 = $1.6
95 = $7.7
96 = $2.2
14
<PAGE>
Licensing revenue decreased 72% to $2,170,460 in 1996, following a 372% increase
from $1,636,343 in 1994 to $7,718,094 in 1995. The decrease from 1995 to 1996,
as well as the increase from 1994 to 1995, results from non-recurring licensing
revenue in 1995, including a $3 million payment from DEKALB Genetics
Corporation, in conjunction with the transfer of certain non-core agricultural
technology to DEKALB, and a $1 million milestone payment from Chiron, B.V.,
following approval of Salagen(R) Tablets for marketing in the United Kingdom. In
1995, the Company also received nearly $3 million from Dainippon, in conjunction
with granting the license to develop and market acylfulvenes in Japan. However,
the magnitude of the 1996 decrease was lessened by $1,485,000 in recurring
quarterly milestone payments received from Dainippon. Future licensing revenues
will likely fluctuate between years and from one quarter to the next depending
on current partners' achievement of milestones and the amount of their recurring
royalty generating activities, and the timing of initiating additional licensing
relationships.
Interest and other income decreased 1% to $949,982 in 1996, following an 8%
increase from $884,066 in 1994 to $957,785 in 1995. Although the average amount
of funds available for investment increased in 1996, compared to 1995, the
decrease results from a decreased investment yield. The increase in the amount
of funds available for investment in 1996 reflects the net proceeds of $5.5
million from the September 1996 issuance of common shares in a public offering.
The increase in interest income from 1994 to 1995 results from an increased
investment yield in 1995, as compared to 1994.
[BAR GRAPH OF S G & A Expenses in millions]
94 = $8.8
95 = $7.5
96 = $7.7
Research and development expense increased 8% to $7,865,475 in 1996, following a
17% increase from $6,196,076 in 1994 to $7,266,597 in 1995. Expenses in 1996
included continued development of Salagen(R) Tablets, in advance of filing a
Supplemental New Drug Application with the FDA during the 1997 first quarter,
and of acylfulvenes. Additionally, the Company acquired two development
compounds in the 1996 fourth quarter at a cost of approximately $1 million.
Research and development spending is expected to remain near the 1996 rate
through 1997, as development increases for new development compounds, and
decreases for Salagen(R) Tablets.
Selling, general and administrative expenses increased 2% to $7,658,654 in 1996,
following a 15% decrease from $8,845,171 in 1994 to $7,487,413 in 1995. The 1996
increase reflects the restructuring of the Company's field sales organization.
Most open territory sales positions from the first half of 1996 are now staffed,
and new sales and marketing efforts targeting concurrent use of Salagen(R)
Tablets and better conversion of initial prescribing into ongoing refills have
been implemented. The 1995 decrease results from the effect of non-recurring
1994 selling expenses associated with the 1994 launch of Salagen(R) Tablets.
15
<PAGE>
Liquidity and
Capital Resources
At December 31, 1996, the Company had cash and cash equivalents and investments
of $17,887,823 and working capital of $15,819,637 compared to $17,978,931 and
$15,973,086, respectively, at December 31, 1995. During the year ended December
31, 1996, the Company used cash of $6,145,084 to fund its operating activities,
and received $5,497,611 in cash from the issuance of common stock in a public
offering.
[BAR GRAPH OF Total Cash and Investments in millions]
94 = $16.6
95 = $18.0
96 = $17.9
Cash in excess of current operating needs is invested in marketable securities
in accordance with the Company's investment policy. This policy emphasizes
principal preservation, so it requires strong issuer credit ratings and limits
the amount of credit exposure from any one issuer or industry.
Substantial amounts of capital are required for pharmaceutical development and
commercialization efforts. For continued development and commercialization of
MGI 114, Salagen(R) Tablets and prospective products acquired from the Company's
in-licensing strategy, the Company plans to utilize cash provided from the
growth in sales of Salagen(R) Tablets, collaborative arrangements and existing
liquid assets. If these sources of capital are insufficient, the Company will
seek other sources of funding, including additional equity issuances, or it will
manage the pace of developing its product candidates.
Cautionary Statement
The Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and section 21E of the
Securities Exchange Act of 1934, as amended. These statements include statements
regarding intent, belief, or current expectations of the Company and it's
management. These forward-looking statements are not guarantees of future
performance and involve a number of risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in
these statements. Factors that might cause such differences include, but are not
limited to dependence on sales of Salagen(R) Tablets, dependence on a license
and acquisition strategy, uncertainty of strategic alliances, and other risks
and uncertainties detailed from time to time in the Company's filings with the
Securities and Exchange Commission, including Exhibit 99 to its Annual Report on
Form 10-K for the year ending December 31, 1996.
16
<PAGE>
<TABLE>
<CAPTION>
balance sheets
December 31, December 31,
-----------------------------
1996 1995
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 8,220,569 $ 9,075,569
Short-term investments.......................................... 9,667,254 8,903,362
Receivables, less allowance of $68,254 and $160,535............. 1,079,970 730,180
Inventories, net................................................ 594,164 1,003,278
Prepaid expenses................................................ 53,436 43,417
----------- -----------
Total current assets............................................. 19,615,393 19,755,806
Equipment and furniture,
at cost less accumulated depreciation of $775,810 and $681,467... 227,134 243,197
Other assets..................................................... 320,517 515,991
----------- -----------
Total assets..................................................... $20,163,044 $20,514,994
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable................................................ $ 744,052 $ 1,277,713
Accrued expenses................................................ 3,043,993 2,497,682
Other current liabilities....................................... 7,711 7,325
----------- -----------
Total current liabilities........................................ 3,795,756 3,782,720
----------- -----------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 authorized shares,
14,081,574 and 12,781,608 issued shares......................... 140,816 127,816
Additional paid-in capital...................................... 88,789,495 82,872,883
Notes receivable from officers.................................. (104,933) (432,082)
Accumulated deficit............................................. (72,458,090) (65,836,343)
----------- -----------
Total stockholders' equity....................................... 16,367,288 16,732,274
----------- -----------
Commitments (Note 5)
Total liabilities and stockholders' equity....................... $20,163,044 $20,514,994
=========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
statements of
operations
Year Ended
December 31,
------------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Revenues:
Sales.................................. $ 6,459,550 $ 4,607,231 $ 4,276,027
Licensing.............................. 2,170,460 7,718,094 1,636,343
Interest and other..................... 949,982 957,785 884,066
-----------------------------------------
9,579,992 13,283,110 6,796,436
-----------------------------------------
Costs and Expenses:
Research and development............... 7,865,475 7,266,597 6,196,076
Cost of sales.......................... 677,610 771,912 563,490
Selling, general and administrative.... 7,658,654 7,487,413 8,845,171
Amortization of intangible assets...... -- 371,666 888,645
-----------------------------------------
16,201,739 15,897,588 16,493,382
-----------------------------------------
Net loss................................ $(6,621,747) $(2,614,478) $(9,696,946)
=========================================
Net loss per common share............... $ (0.50) $ (0.21) $ (0.82)
Weighted average number
of common shares outstanding............ 13,178,790 12,508,639 11,784,027
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
statements of
cash flows
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Operating Activities:
Net loss............................................... $(6,621,747) $(2,614,478) $(9,696,946)
Adjustments for non-cash items:
Depreciation and asset amortization................... 96,907 476,702 1,011,682
Unearned revenue amortization......................... -- (777,778) (388,889)
Facility rent abatement............................... -- (39,264) (77,572)
Benefit plan contribution............................. 210,981 185,501 140,070
Change in operating assets and liabilities:
Receivables........................................... (349,790) (245,327) (244,009)
Inventories........................................... 409,114 383,631 (986,504)
Prepaid expenses...................................... (10,019) 552,329 (595,488)
Accounts payable and accrued expenses................. 119,084 331,682 696,718
Unearned revenue...................................... -- -- 1,166,667
Other current liabilities............................. 386 19,435 (41,455)
-----------------------------------------
Net cash used in operating activities................ (6,145,084) (1,727,567) (9,015,726)
-----------------------------------------
Investing Activities:
Purchase of investments................................ (23,802,567) (21,469,232) (21,945,336)
Maturity of investments................................ 23,038,675 22,474,454 30,290,649
Purchase of equipment and furniture.................... (80,844) (4,066) (114,960)
Payments on notes receivable........................... 480,924 160,066 16,440
Other.................................................. (9,817) (94,038) (15,226)
-----------------------------------------
Net cash provided by (used in) investing activities.. (373,629) 1,067,184 8,231,567
-----------------------------------------
Financing Activities:
Proceeds from issuance of shares, net.................. 5,497,611 2,837,687 2,333,333
Issuance of shares under employee stock plans.......... 166,102 170,259 494,747
-----------------------------------------
Net cash provided by financing activities............ 5,663,713 3,007,946 2,828,080
----------------------------------------
Increase (decrease) in cash and cash equivalents....... (855,000) 2,347,563 2,043,921
Cash and cash equivalents at beginning of year......... 9,075,569 6,728,006 4,684,085
-----------------------------------------
Cash and cash equivalents at end of year............... $ 8,220,569 $ 9,075,569 $ 6,728,006
=========================================
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
statements of
stockholders' equity
<TABLE>
<CAPTION>
Notes
Total Additional Receivable
Stockholders' Common Paid-in from Accumulated
Equity Stock Capital Officer Deficit
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993............. $115,575 $76,592,239 $(437,388) $(53,524,919) $22,745,507
Exercise of stock options,
126,640 shares........................... 1,266 448,861 (144,525) -- 305,602
Employee stock purchase plan,
26,295 shares............................ 263 176,882 -- -- 177,145
Employee retirement savings plan
contribution, 18,064 shares.............. 181 157,147 -- -- 157,328
Strategic alliance issuance,
217,054 shares........................... 2,170 2,331,163 -- -- 2,333,333
Note payment............................. -- -- 16,327 -- 16,327
Net loss................................. -- -- -- (9,696,946) (9,696,946)
----------------------------------------------------------------------
Balance at December 31, 1994............. 119,455 79,706,292 (565,586) (63,221,865) 16,038,296
Exercise of stock options,
16,847 shares............................ 169 68,820 -- -- 68,989
Employee stock purchase plan,
31,746 shares............................ 317 100,953 -- -- 101,270
Employee retirement savings plan
contribution, 37,471 shares.............. 375 166,631 -- -- 167,006
Issuance of shares, 750,000 shares....... 7,500 2,830,187 -- -- 2,837,687
Note payment............................. -- -- 133,504 -- 133,504
Net loss................................. -- -- -- (2,614,478) (2,614,478)
----------------------------------------------------------------------
Balance at December 31, 1995............. 127,816 82,872,883 (432,082) (65,836,343) 16,732,274
Exercise of stock options,
15,746 shares............................ 158 60,054 -- -- 60,212
Employee stock purchase plan,
28,203 shares............................ 282 105,608 -- -- 105,890
Employee retirement savings plan
contribution, 44,325 shares.............. 443 208,457 -- -- 208,900
Issuance of shares, 1,200,000 shares..... 12,000 5,485,611 -- -- 5,497,611
Other issuances, 11,692 shares........... 117 56,882 (56,999) -- --
Note payment............................. -- -- 384,148 -- 384,148
Net loss................................. -- -- -- (6,621,747) (6,621,747)
----------------------------------------------------------------------
Balance at December 31, 1996............. $140,816 $88,789,495 $(104,933) $(72,458,090) $16,367,288
=====================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
notes to financial statements
1. Summary of Significant Accounting Policies
Description of Business
MGI PHARMA, INC. (MGI or the Company) is a pharmaceutical company that acquires,
develops and markets innovative and differentiated products for niche markets of
unmet medical need. The Company is primarily focused on products that treat
cancer or improve the quality of life for cancer patients. It intends to expand
into the rheumatology market upon approval of Salagen(R) Tablets as a treatment
of symptoms associated with Sjogren's syndrome. The Company currently markets
its products to physicians throughout the United States, with sales made to
pharmaceutical wholesalers for distribution to the ultimate consumers of Company
products. Sales of Salagen(R) Tablets account for the vast majority of Company
sales. The Company is commercializing its products outside the United States
through various alliances, and has agreements with several international
pharmaceutical companies to commercialize Salagen(R) Tablets abroad including
the major markets of Europe, Japan and Canada. Product development efforts
include continued development of Salagen(R) Tablets, to expand use of this drug
beyond its already approved indication, and development of acylfulvenes, a
family of compounds with potential to become effective cancer therapies.
Exclusive rights to acylfulvenes for Japan were granted to Dainippon
Pharmaceutical Co., Ltd. under a cooperative development and commercialization
agreement in 1995.
Cash, Cash Equivalents and Short-Term Investments
The Company considers highly liquid marketable securities with remaining
maturities of ninety days or less at the time of purchase to be cash
equivalents. Other highly liquid marketable securities with remaining maturities
of one year or less at the time of purchase are classified as short-term
investments.
The Company classifies short-term marketable security investments as held-to-
maturity investments because it has the intent and the ability to hold its
investments to maturity. As such, they are stated at amortized cost, which
approximates estimated fair value. Amortized cost is adjusted for amortization
of premiums and discounts to maturity, and this amortization is included in
interest and other income in the accompanying statements of operations.
Concentration of Credit Risk
Financial instruments that may subject the Company to significant concentrations
of credit risk consist primarily of short-term marketable security investments
and trade receivables.
Cash in excess of current operating needs is invested in accordance with the
Company's investment policy. This policy emphasizes principal preservation, so
it requires strong issuer credit ratings and limits the amount of credit
exposure from any one issuer or industry.
The Company grants credit primarily to pharmaceutical wholesale distributors
throughout the United States in the normal course of business. Customer credit
worthiness is routinely monitored and collateral is not normally required.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in, first-out basis.
Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed Of, which prescribes accounting and
reporting standards when circumstances indicate that the carrying amount of an
asset may not be recoverable. No cumulative effect adjustment occurred as a
result of this change in accounting principle.
Intangible Assets
In connection with its 1990 acquisition of DIDRONEL(R) I.V. Infusion, the
Company recognized $8,205,249 of intangible assets under the purchase method of
accounting. The acquired assets were recorded at their estimated fair market
values as of the date of acquisition, with the excess purchase price over these
values recorded as goodwill. These assets, including goodwill, were fully
amortized at December 31, 1995.
21
<PAGE>
Sales Recognition
Sales and related costs are recognized upon shipment of product to customers.
Sales are recorded net of provisions for returns, discounts, Medicaid rebates
and chargebacks.
Licensing Revenue Recognition
Licensing revenue is recognized when underlying performance criteria for payment
have been met and the Company has an unconditional right to such payment.
Depending on license agreement terms, recognition criteria may be satisfied upon
achievement of milestones, passage of time or product sales by the licensee.
Payments received by the Company in excess of amounts earned are classified as
unearned revenue.
Stock Based Compensation
The Company applies APB Opinion No. 25 in accounting for the issuance of stock
incentives to employees and directors and, accordingly, no compensation expense
has been recognized in the financial statements. Effective January 1, 1996, in
accordance with Statement of Financial Accounting Standards No. 123, Accounting
for Stock Based Compensation, pro forma information reflecting compensation cost
for such issuances is presented in the Stockholders' Equity footnote.
Advertising and
Promotion Expense
Costs of advertising and promotion are expensed as incurred and were $1,012,727,
$1,163,320 and $2,182,908 in 1996, 1995 and 1994, respectively. The Company has
not deferred costs related to direct-response advertising.
Depreciation
Depreciation of equipment and furniture is provided over the estimated useful
lives of the respective assets on a straight-line basis. Estimated useful lives
of equipment and furniture range from three to ten years.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for future tax consequences attributable to differences between the
financial carrying amounts of existing assets and liabilities and their
respective tax bases.
Loss Per Common Share
Loss per common share is based upon the weighted average number of shares
outstanding during each period. Common stock equivalents are not included as
their effect is antidilutive.
Use of Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
affecting reported asset and liability amounts and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Basis of Presentation
Certain prior year amounts have been reclassified to conform with the current
year presentation.
2. Short-Term Investments
Held-to-maturity investments, stated at amortized cost, which approximates
estimated fair value, at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Corporate notes.............. $5,031,651 $ --
Certificates of deposit...... 2,052,786 --
Commercial paper............. 1,583,916 7,896,851
Closed-end investment
companies.................... -- 1,006,511
Bankers acceptance........... 998,901 --
---------- ----------
$9,667,254 $8,903,362
========== ==========
</TABLE>
3. Inventories
Inventories at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Raw materials and supplies.. $ 25,856 $ 26,631
Work in process............. 107,080 68,387
Finished products........... 847,710 1,089,718
Valuation allowance......... (386,482) (181,458)
--------- ----------
$ 594,164 $1,003,278
========= ==========
</TABLE>
22
<PAGE>
4. Accrued Expenses
Accrued expenses at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Product development
commitments............. $1,615,397 $ 476,049
Bonuses................. 493,519 356,826
Retirement commitment... 243,721 655,468
Technology licensing
commitment.............. 40,894 253,243
Other accrued expenses.. 650,462 756,096
---------- ----------
$3,043,993 $2,497,682
========== ==========
</TABLE>
5. Leases
The Company leases office space and computer software under noncancelable lease
agreements that contain renewal options and require the Company to pay operating
costs, including property taxes, insurance and maintenance. Rent expense for all
operating leases was $357,161, $334,534 and $401,023 in 1996, 1995 and 1994,
respectively. Future minimum lease payments under noncancelable lease agreements
approximate $235,000 for 1997 and $0 thereafter.
6. Licensing Arrangements
During 1995, MGI entered into a cooperative development and commercialization
agreement with Dainippon Pharmaceutical Co., Ltd., a Japanese pharmaceutical
company, whereby MGI granted Dainippon exclusive rights to its acylfulvenes in
Japan. Under this agreement, Dainippon is expected to make $12 million in
milestone payments during a precommercial phase and MGI will participate in the
commercial success of the drug product in Japan by supplying Dainippon with bulk
drug substance. The precommercial phase will conclude upon receipt of approval
to market the first acylfulvene product in Japan and payment of the approval
milestone by Dainippon. Approximately $5 million was received through December
31, 1996, with the remaining milestone payments scheduled to be received during
the next four years. In conjunction with this 1995 agreement, MGI issued 750,000
shares of common stock to Dainippon and received net proceeds of $2.8 million
from this issuance.
Also during 1995, MGI transferred certain non-core agricultural technology to
DEKALB Genetics Corporation. DEKALB made a one-time payment of $3 million to MGI
for these rights. Separately, a non-recurring $1 million milestone payment was
received in 1995 from Chiron, B.V. following approval of Salagen(R) Tablets for
marketing in the United Kingdom. A strategic alliance was established with
Chiron in 1992 for commercialization of Salagen(R) Tablets in Europe.
During 1994, MGI licensed exclusive rights to commercialize Salagen(R) Tablets
in Japan to Kissei Pharmaceutical Co., Ltd., a Japanese pharmaceutical company.
Kissei is scheduled to make certain milestone payments, with the final milestone
payment due upon its filing for product approval in Japan. MGI will participate
in commercial success of the product through royalty payments based on product
sales in Japan. In conjunction with this 1994 license, MGI issued 217,054 shares
of common stock to Kissei at a premium over market value. The issuance premium
of $1,166,667 was amortized evenly to licensing revenues through December 31,
1995. Total proceeds of $3.5 million from the stock issuance were used to
supplement funding of MGI's clinical studies with Salagen(R) Tablets as a
potential treatment for chronic dry mouth and dry eye symptoms resulting from
Sjogren's syndrome.
To build its product pipeline, the Company licenses rights to develop and
market pharmaceutical compounds from others. Under these licenses, the Company
may be required to pay up-front, development services and milestone fees. In
addition, the Company may be required to pay royalties on net sales upon
marketing the products. Within three months or less of providing notice, the
Company may terminate these licenses. All material, noncancelable commitments
were recognized as of December 31, 1996.
7. Stockholders' Equity
Public Stock Offering
On September 9, 1996, the Company issued 1,200,000 shares of common stock at $5
per share in a public offering and received proceeds of $5,497,611 (net of
issuance expenses).
Common Stock Purchase Rights
Each share of the Company's common stock has one Common Stock Purchase Right
(Right) attached. Each Right entitles shareholders to buy one-half of one share
of MGI common stock at an initial exercise price of $12 (subject to adjustment).
The Rights become exercisable only if certain change in ownership control events
occur and the Company does not redeem the Rights. The Rights expire on
February 2, 1998, if not previously redeemed or exercised.
23
<PAGE>
Stock Incentive Plans
Under stock incentive plans, designated persons (including officers, directors,
and employees) have been or may be granted rights to acquire Company common
stock. These rights include stock options and other equity rights. At December
31, 1996, 2,309,804 shares of common stock remain reserved for issuance, of
which 452,352 shares remain available for grant.
Stock options become exercisable over varying periods and expire up to ten
years from date of grant. Options may be granted in the form of incentive stock
options or nonqualified stock options. The option price for incentive stock
options cannot be less than fair market value on the date of the grant. The
option price for nonqualified stock options may be set by the Board of
Directors. At December 31, 1996, options representing 1,030,145 shares were
exercisable, with an average exercise price of $7.29.
Stock option activity in the three years ended December 31, 1996 is summarized
as follows:
<TABLE>
<CAPTION>
Number Average price
of shares per share
--------- -------------
<S> <C> <C>
Outstanding at
December 31, 1993........ 995,078 $ 7.89
...........Granted 407,137 12.95
...........Exercised (151,883) 5.08
...........Canceled (63,090) 13.16
--------- ------
Outstanding at
December 31, 1994........ 1,187,242 9.70
...........Granted 661,350 5.73
...........Exercised (16,847) 4.10
...........Canceled (210,692) 9.06
--------- ------
Outstanding at
December 31, 1995........ 1,621,053 8.23
...........Granted 908,707 4.70
...........Exercised (15,746) 3.82
...........Canceled (656,562) 7.25
--------- ------
Outstanding at
December 31, 1996........ 1,857,452 6.88
========= ======
</TABLE>
Loans to officers were made for the purchase of stock, exercise of options and
payment of associated tax obligations. The loans are full recourse, unsecured
obligations. At December 31, 1996, $104,933 of principal remains outstanding,
which is payable upon demand. The portion required to exercise options is
presented as "Notes receivable from officers" within stockholders' equity and
the remaining balance is presented as "Other assets" in the accompanying balance
sheets. In connection with a 1996 loan, non-cash financing and investing
activity totaling $56,999 was recognized.
The per share weighted-average fair value of stock options granted during
1996 and 1995 was $2.27 and $2.64 on the date of grant, using the Black Scholes
option-pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Expected dividend yield.............. 0% 0%
Risk free interest rate.............. 6.5% 6.25%
Expected volatility.................. 101 105
Expected life, in years.............. 5 5
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its stock incentive
plans for designated persons and, accordingly, no compensation cost has been
recognized for stock options granted under its stock incentive plans in the
financial statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options under SFAS No. 123, the
Company's net loss would have increased to the pro forma amounts as shown below:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Net loss:
....As reported $(6,621,747) $(2,614,478)
....Pro forma $(7,787,810) $(3,101,513)
Net loss per common share:
....As reported $ (0.50) $ (0.21)
....Pro forma $ (0.59) $ (0.25)
</TABLE>
Pro forma net loss reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
No. 123 is not reflected in the pro forma net loss amounts presented above
because compensation cost is reflected over the options' vesting period and
compensation cost for options granted prior to January 1, 1995 is not
considered.
24
<PAGE>
Employee Stock Purchase Plan
Under the Company's employee stock purchase plan, substantially all employees
may purchase shares of common stock at the end of semiannual purchase periods at
a price equal to the lower of 85% of the stock's fair market value on the first
or last day of that period. Plan funding occurs throughout the purchase period
by pre-elected payroll deductions of up to 15% of regular pay. Since purchases
are employee funded, no compensation expense results from the plan. Shares
issued under the plan were 28,203, 31,746, and 26,295 at average prices of
$3.75, $3.19, and $6.74 per share in 1996, 1995 and 1994, respectively. At
December 31, 1996, 72,525 shares remain reserved for future issuance under the
plan.
Retirement Savings Plan
The Company's retirement savings plan conforms to Section 401(k) of the Internal
Revenue Code and participation is available to substantially all employees.
Under the savings plan, participants may contribute a percentage of their
eligible compensation for investment in Company common stock or other investment
vehicles. The Company matches a portion of employees' contributions and may also
make discretionary contributions ratably to all eligible employees. Company
contributions are made in the form of Company common stock and become fully
vested when an employee attains five years of service. Contribution expense was
$210,981, $185,501, and $140,070 in 1996, 1995 and 1994, respectively. The
Company had 351,846 shares reserved for future issuance under the savings plan
at December 31, 1996.
Preferred Stock
At December 31, 1996, 10,000,000 shares of preferred stock remain issuable.
Issuance is subject to Board of Directors' action.
8. Money Purchase Retirement Plan
The Company sponsors a money purchase retirement plan covering substantially all
employees. Under the plan, the Company contributes a percentage of participating
employees' eligible compensation. Company contributions resulted in expense of
$126,564, $139,717, and $126,095 in 1996, 1995 and 1994, respectively.
9. Income Taxes
The Company incurred losses for both book and tax purposes for each of the years
in the three-year period ended December 31, 1996, and, accordingly, no income
taxes were provided. Effective tax rates differ from statutory federal income
tax rates in the years ended December 31, 1996, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal
income tax rate.................... (35.0)% (35.0)% (35.0)%
Valuation allowance increase....... 23.6 44.3 40.7
Research activities credit......... 1.9 (7.9) (2.5)
State income taxes,
net of federal benefit............. (2.5) (2.5) (2.5)
Other.............................. 12.0 1.1 (0.7)
---- ---- ----
0.0% 0.0% 0.0%
==== ==== ====
</TABLE>
Deferred taxes as of December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Receivable allowances $ 71,516 $ 121,631
Inventory allowances 144,930 68,047
Miscellaneous
accrued expenses 142,207 396,936
Net operating
loss carryforward 28,393,513 26,481,668
Research
credit carryforward 1,975,055 2,097,143
Alternative minimum
tax credit carryforward 48,295 48,295
------------ ------------
30,775,516 29,213,720
Less valuation allowanance (30,756,986) (29,192,132)
------------ ------------
$ 18,530 $ 21,588
============ ============
Deferred tax liabilities:
Tax depreciation
greater than book $ 18,530 $ 21,588
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $76,000,000 for federal income tax purposes, which begin to expire
in 1997. Additionally, the Company had research credit carryforwards of
approximately $1,975,000, which begin to expire in 1997. The net change in the
valuation allowance for the years ended December 31, 1996 and 1995 was an
increase of $1,564,854 and $1,158,485, respectively.
25
<PAGE>
independent
auditors' report
The Board of Directors and Stockholders
MGI PHARMA, INC.:
We have audited the accompanying balance sheets of MGI PHARMA, INC. as of
December 31, 1996 and 1995, and the related statements of operations, cash flows
and stockholders' equity for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MGI PHARMA, INC. as of December
31, 1996 and 1995, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
February 7, 1997
26
<PAGE>
MGI PHARMA, INC.
Board of Directors
and Executive Officers
Directors
Frederick W. Armstrong, 65, retired in January 1992 as Vice President at
American Cyanamid Company, a chemical, pharmaceutical, agricultural and consumer
products company. He has been a member of MGI's Board since March 1988. Mr.
Armstrong is also a director of CYTEC Industries, Inc.
Charles E. Austin, 69, retired from American Cyanamid Company in February 1980
as Vice President and joined MGI's Board of Directors in March 1981. Mr. Austin
is also a director of Embrex Inc., Cytogen, Inc., and Hyal Pharmaceutical, Inc.
Charles N. Blitzer, 55, joined MGI PHARMA in April 1996 as President, Chief
Executive Officer and Director. Prior to joining the company he was President
and Chief Executive Officer of Oncologix, Inc. From 1977 through 1992, Mr.
Blitzer also held a variety of management positions at Marion Laboratories, Inc.
and Marion Merrell Dow Pharmaceuticals, Inc.
David E. Collins, 62, is a healthcare consultant and educator. He retired in
October 1994 as President of Schering-Plough Healthcare Products, a division of
Schering-Plough Corporation. Mr. Collins joined MGI's Board of Directors in
November 1996. He is also Chairman of the Board at Penederm, Inc., and a
director at Calypte Biomedical Corp.
Hugh E. Miller, 61, retired as Vice Chairman and Director in December 1990 from
ICI Americas Inc., a chemical, pharmaceutical, agricultural, consumer and
specialty products company. He joined MGI's Board of Directors in October 1992.
Mr. Miller is also a director of Wilmington Trust Co., Inc.
Robert W. Powell, Jr., 65, is an advisor to Aegis Research Corporation. He
retired in August 1992 as Vice President and Treasurer of Martin Marietta
Corporation, an aerospace, technology, electronics and information management
company. Mr. Powell, who has been a member of MGI's Board of Directors since
December 1988, will not stand for re-election to MGI's Board in 1997.
Timothy G. Rothwell, 46, is President of Rhone-Poulenc Rorer Inc. Prior to this
position he was Chief Executive Officer and President of the pharmaceuticals
business in the United States for Sandoz Pharmaceuticals. Mr. Rothwell joined
MGI's Board of Directors in November 1996.
Lee L. Schroeder, 68, is President and Director of Lee Schroeder & Associates,
Inc., a pharmaceutical consulting company. Mr. Schroeder retired in April 1985
from Sandoz, Inc. as Executive Vice President. He joined MGI's Board of
Directors in May 1989. He is also a director of Ascent Pediatrics, Inc., Harris
Laboratories, Interneuron Pharmaceuticals, Inc. and Celgene Corporation.
Executive Officers
[Photos accompany each officer:]
Charles N. Blitzer
- ------------------
President and Chief Executive Officer
Charles C. Muscoplat
- --------------------
Executive Vice President
James V. Adam
- -------------
Vice President, Chief Financial Officer
Lori-jean Gille
- ---------------
Vice President, General Counsel and Secretary
Jon C. Lee
- ----------
Vice President, Sales and Marketing
27
<PAGE>
Selected financial data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Statement of operations:
Year ended December 31,
-------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues.......................... $ 9,580 $13,283 $ 6,796 $ 3,778 $ 4,693
Total costs and expenses................ 16,202 15,897 16,493 15,501 13,940
-------------------------------------------------
Net loss................................ $(6,622) $(2,614) $(9,697) $(11,723) $(9,247)
-------------------------------------------------
Net loss per common share............... $ (.50) $ (.21) $ (.82) $ (1.03) $ (.83)
Weighted average shares outstanding..... 13,179 12,509 11,784 11,415 11,210
</TABLE>
<TABLE>
<CAPTION>
Balance sheet data:
December 31,
------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and investments.. $17,888 $17,979 $16,637 $ 22,938 $32,216
Total assets............................ 20,163 20,515 20,284 25,641 35,956
Total liabilities....................... 3,796 3,783 4,245 2,895 2,912
Common stockholders' equity (a)......... 16,367 16,732 16,038 22,745 33,044
</TABLE>
(a) No common stock cash dividends have been declared or paid by the Company.
<TABLE>
<CAPTION>
Quarterly data:
Year ended December 31,
First Second Third Fourth
1996
<S> <C> <C> <C> <C>
Total revenues....................... $ 2,117 $ 2,259 $ 2,229 $ 2,975
Net income (loss).................... (804) (1,255) (1,983) (2,581)
Net income (loss) per share.......... $ (0.06) $ (0.10) $ (0.15) $ (0.18)
Weighted average shares outstanding.. 12,784 12,796 13,096 14,030
1995
Total revenues....................... $ 2,511 $ 1,954 $ 1,707 $ 7,111
Net income (loss).................... (1,267) (1,553) (1,791) 1,997
Net income (loss) per share.......... $ (0.11) $ (0.12) $ (0.14) $ 0.16
Weighted average shares outstanding.. 11,951 12,600 12,731 12,742
</TABLE>
Income (loss) per common share is computed based upon the weighted average
number of shares outstanding during each period. Common stock equivalents are
not included as their effect is antidilutive or immaterial.
28
<PAGE>
corporate information
Market Price
and Related Matters
MGI PHARMA's common stock trades on the Nasdaq National Market under the symbol
MOGN. As of March 4, 1997, MGI had approximately 1,061 shareholders of record
and 14,091,665 shares of common stock outstanding. The Company has not paid cash
dividends on its common stock and has no present intention of paying cash
dividends on its common stock.
The following table sets forth the high and low last daily sales prices as
reported by Nasdaq. Prices represent transactions between dealers and do not
reflect retail markups, markdowns, or commissions, and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Stock Prices
High Low
1996 ---------------
<S> <C> <C>
First Quarter $5 7/8 $3 3/4
Second Quarter 6 5/8 3 5/8
Third Quarter 6 1/2 4 5/8
Fourth Quarter 5 3/8 4
1995
First Quarter $6 3/4 $3 7/8
Second Quarter 4 3/4 3 45/64
Third Quarter 6 3/8 3 5/8
Fourth Quarter 6 1/2 4 3/8
</TABLE>
Auditors
KPMG Peat Marwick LLP
Minneapolis, Minnesota
SEC Form 10-K
A copy of the Company's annual report to the Securities and Exchange Commission
on Form 10-K is available without charge upon written request to:
MGI PHARMA, INC.
Investor Relations
Suite 300E, Opus Center
9900 Bren Road East
Minnetonka, MN 55343-9667
Annual Meeting of Shareholders
The annual meeting of shareholders will be held on May 13, 1997 at 3:30 p.m. at
the Minneapolis Marriott Southwest, 5801 Opus Parkway, Minnetonka, Minnesota
55343.
Shareholder Inquiries
Shareholders and prospective investors are welcome to call or write the Company
with questions or requests for additional information. Inquiries should be
directed to Investor Relations at MGI PHARMA, 612-935-7335.
Outside Legal Counsel
Dorsey & Whitney LLP
Minneapolis, Minnesota
Transfer Agent and Registrar
Norwest Bank Minnesota, N.A.
P.O. Box 738
South Saint Paul, Minnesota 55075-0738
800-468-9716
612-450-4064
<PAGE>
[Back Cover Art:]
MGI Pharma LOGO
1996 Annual Report
MGI address and phone number
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Stockholders
MGI PHARMA, INC.:
We consent to incorporation by reference in the Registration Statements
(Nos. 2-80845, 2-92340, 2-94654, 33-13785, 33-23098, 33-23099, 33-37254,
33-42341, 33-65026, 33-65032 and 33-79024) on Form S-8 of MGI PHARMA, INC., of
our reports dated February 7, 1997, relating to the balance sheets of MGI
PHARMA, INC. as of December 31, 1996 and 1995, and the related statements of
operations, cash flows, stockholders' equity and the related financial statement
schedule for each of the years in the three-year period ended December 31, 1996,
which reports are included in or incorporated by reference in the annual report
on Form 10-K of MGI PHARMA, INC.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
March 26, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints James V. Adam and Lori-jean Gille,
and each of them, his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign an Annual Report on
Form 10-K of MGI PHARMA, INC., and any and all amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-in-
fact and agents, each acting alone, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
- --------- ----- ----
/s/ Charles N. Blitzer President and Chief Executive March 28, 1997
- ---------------------------
Charles N. Blitzer Officer (Principal Executive
Officer)
/s/ James V. Adam Vice President, Chief March 28, 1997
- ---------------------------
James V. Adam Financial Officer (Principal
Financial and Accounting
Officer)
/s/ Frederick W. Armstrong Director March 28, 1997
- ---------------------------
Frederick W. Armstrong
/s/ Charles E. Austin Director March 28, 1997
- ---------------------------
Charles E. Austin
/s/ David E. Collins Director March 28, 1997
- ---------------------------
David E. Collins
/s/ Hugh E. Miller Director March 28, 1997
- ---------------------------
Hugh E. Miller
/s/ Robert W. Powell, Jr. Director March 28, 1997
- ---------------------------
Robert W. Powell, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING BALANCE SHEET OF MGI PHARMA, INC. AS OF DECEMBER 31, 1996, AND THE
RELATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 8,220,569
<SECURITIES> 9,667,254
<RECEIVABLES> 1,079,970
<ALLOWANCES> 68,254
<INVENTORY> 594,164
<CURRENT-ASSETS> 19,615,393
<PP&E> 227,134
<DEPRECIATION> 775,810
<TOTAL-ASSETS> 20,163,044
<CURRENT-LIABILITIES> 3,795,756
<BONDS> 0
0
0
<COMMON> 16,367,288
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 20,163,044
<SALES> 6,459,550
<TOTAL-REVENUES> 9,579,992
<CGS> 677,610
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,865,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,621,747)
<INCOME-TAX> 0
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<PAGE>
Exhibit 99
MGI PHARMA, INC.
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements to encourage companies to provide
prospective information without fear of litigation so long as those statements
are identified as forward looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in the statement. The Company desires to
take advantage of these "safe harbor" provisions and is filing this Exhibit
99 in order to do so. Accordingly, the Company hereby identifies the following
important factors which could cause the Company's actual results to differ
materially from any such results which may be projected, forecast, estimated or
budgeted by the Company in forward looking statements made by the Company from
time to time in reports, proxy statements, registration statements and other
written communications, or in oral forward looking statements made from time to
time by the Company's officers and agents.
LACK OF PROFITABLE OPERATIONS
The Company's revenues have not been sufficient to offset all the expenses
involved in operating a pharmaceutical company including research, development
and production. The Company had net losses of $2,614,478 and $6,621,747 for the
years ended 1995 and 1996, respectively. At December 31, 1996 the Company had
an accumulated deficit of $72,458,090. To the extent the Company is unable to
achieve profitability, its ability to continue its operations will depend upon
its ability to secure additional funds from other sources. Revenue may display
significant variations due to the impact of new contract and licensing
arrangements, the completion or termination of those contracts and arrangements
and the timing and amounts of milestone payments. The Company's profitability
will be dependent on its success in developing, obtaining regulatory approvals
for and effectively marketing its products. There can be no assurance as to
whether the Company will be able to achieve and sustain profitability.
DEPENDENCE ON SALES OF SALAGEN(R) TABLETS
The Company derives substantially all of its product revenues from the sale
of Salagen(R) Tablets. For the year ended December 31, 1996, U.S. sales of
Salagen Tablets were $5,926,681, representing 92% of total product sales for the
period. In 1995, annual U.S. sales of Salagen Tablets were $3,692,814,
representing 80% of 1995 product sales. Accordingly, any factor adversely
affecting Salagen Tablets sales could have a material adverse effect on the
Company's business, financial condition and results of operations. Although
Salagen Tablets were awarded orphan drug status by the U.S. Food and Drug
Administration (the "FDA") as a treatment of xerostomia induced by radiation
therapy, the seven years of market exclusivity provided by orphan designation
expires in March 2001. Moreover, the Company anticipates that sales of its other
product, DIDRONEL(R) I.V. Infusion, which represented 7% and 20% of product
sales for 1996 and for 1995, respectively, will continue to decline in the
future due to the introduction of competitive products.
<PAGE>
DEPENDENCE ON LICENSE AND ACQUISITION STRATEGY
The Company has adopted a license and acquisition strategy to build its
product pipeline and expects to increase its sales over time through a series of
strategic acquisitions of new pharmaceutical product opportunities which the
Company can develop and market. The Company's strategy for growth is dependent
upon its continued ability to identify and acquire new pharmaceutical products
targeted at niche markets which can be promoted through the Company's existing
marketing and distribution channels. Because the Company does not engage in
proprietary research and development of new products, it must rely upon the
willingness of others to sell or license pharmaceutical product opportunities to
the Company. Other companies, including those with substantially greater
financial, marketing and sales resources, are competing with the Company to
acquire such products. There can be no assurance that the Company will be able
to acquire rights to additional products on acceptable terms, if at all. The
failure of the Company to acquire additional products or to promote or market
commercially successful products would have a material adverse effect on the
Company's future business, financial condition and results of operations.
Further, the marketing strategy, distribution channels and levels and bases of
competition with respect to newly acquired products may be different than those
of the Company's current products and there can be no assurance that the Company
will be able to compete favorably in those product categories.
UNCERTAINTY OF STRATEGIC ALLIANCES
The Company's strategy for the exploitation of foreign markets for its
products is to enter into strategic alliances with various multinational and
foreign pharmaceutical companies. The Company has entered into alliances with
various companies related to the marketing of Salagen Tablets and the
development of the acylfulvenes. Revenues from strategic alliances consist of
milestone payments and royalty payments. Licensing revenue was $7,718,094 for
1995 and $2,170,460 for 1996, comprising 58% and 23%, respectively, of total
revenues. Future licensing revenues will likely fluctuate from quarter to
quarter and year to year depending on the achievement of milestones by the
Company's partners, the amount of royalty generating activities, and the timing
of initiating additional licensing relationships. Additionally, royalties are
based on sales in local currencies and, therefore, the U.S. Dollar value of such
royalties will fluctuate with currency exchange rates. Although the Company
believes that its partners in these alliances have an economic motivation to
perform their contractual responsibilities, the amount and timing of resources
to be devoted to these activities are not within the control of the Company.
Moreover, the terms of these alliances generally provide that they may be
terminated prior to their expiration under circumstances that may also be
outside the control of the Company. The early termination of one or more of
these strategic alliances could adversely affect the Company's business,
financial condition and results of operations. There can also be no assurance
that the Company will be able to negotiate additional strategic alliances on
acceptable terms or that such alliances will be successful.
UNCERTAINTY OF ACCESS TO CAPITAL
The Company may need to raise additional funds to acquire or license
additional products, to fund operating losses until such time as the Company
achieves sustained profitability, to support the marketing and sales of
additional products and to obtain working capital which may be needed from
<PAGE>
time to time. The Company may seek additional funding through public and private
financing, including equity financing. Adequate funds for these purposes,
whether through the financial markets or from other sources, may not be
available when needed or on terms acceptable to the Company. Insufficient funds
may cause the Company to delay, scale back, or abandon some or all of its
product acquisition and licensing programs or marketing.
DEPENDENCE ON SOLE SUPPLIER
The Company relies on E. Merck Fine Chemicals Division as its sole supplier
of pilocarpine hydrochloride, the active ingredient necessary for the
manufacture of Salagen Tablets. The Company believes that E. Merck Fine
Chemicals Division accounts for a substantial majority of the worldwide supply
of Good Manufacturing Practices ("GMP") grade pilocarpine hydrochloride, and
that there is no other producer of pilocarpine hydrochloride which accounts for
a significant portion of the worldwide supply. The processing facility and raw
material requirements for the production of pilocarpine hydrochloride present
significant barriers to entry of new producers in this market. Although the
Company believes that it would be able to procure adequate supplies of
pilocarpine hydrochloride on a timely basis from an alternate source, the
Company has not identified any such alternate source and disruptions in supplies
would have a material adverse effect on the Company's business, financial
condition and results of operations.
RELIANCE ON THIRD PARTY MANUFACTURERS
The Company does not have any manufacturing facilities and is currently
relying on two third-party manufacturers for the production of Salagen Tablets.
The Company intends to continue to rely on others to manufacture its products,
including any products that it may acquire, and has no plans to establish any
manufacturing operations. The manufacture of the Company's products are subject
to GMP regulations prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. There can be no assurance
that the Company's current manufacturers will comply with all applicable
regulatory standards, or that the Company would be able to identify an
alternative third party manufacturer on terms acceptable to the Company or on
any terms.
INTENSE COMPETITION; UNCERTAINTY OF TECHNOLOGICAL CHANGE
The manufacture and sale of pharmaceuticals is highly competitive. Many of
the Company's competitors are large well-known pharmaceutical companies which
have considerably greater financial, sales, marketing and technical resources
than those of the Company. Additionally, many of the Company's present and
potential competitors have research and development capabilities that may allow
such competitors to develop new or improved products that may compete with the
Company's products. The pharmaceutical industry is characterized by rapid
product development and technological change. The Company's pharmaceuticals
could be rendered obsolete or uneconomical by the development of new
pharmaceuticals to treat the conditions addressed by the Company's products, or
as the result of technological advances affecting the cost of production. There
can be no assurance that the Company will be able to compete effectively, that
additional competitors will not enter the market, or that competition will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
<PAGE>
PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
products. The Company was awarded orphan drug status for Salagen Tablets as a
treatment for xerostomia induced by radiation therapy. Orphan designation
provides seven years market exclusivity after product registration. The Company
holds an exclusive license on two broad-based patents covering MGI 114 and
other analogs in the Company's family of acylfulvenes, a new class of potential
anti-cancer compounds.
There can be no assurance that the Company will be able to obtain patents
for any future products or that any current or future issued or licensed patents
or know-how will afford protection against competitors with similar technologies
or processes, or that any such patents will not be infringed upon or designed
around by others. In addition, there can be no assurance that others will not
independently develop proprietary technologies and processes which are the same
as or substantially equivalent to those of the Company. The Company could also
incur substantial costs in defending itself in suits brought against it based on
such patents or in bringing suits to protect such patents or patents licensed by
the Company against infringement. Additionally, the Company protects its
proprietary technology and processes in part by confidentiality agreements with
its collaborative partners, employees and consultants. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any breach, or that the Company's trade secrets will not
otherwise become known or independently discovered by competitors.
FLUCTUATIONS IN OPERATING RESULTS
The Company's results of operations may vary from period to period due to a
variety of factors including continuing demand for the Company's products, the
introduction of new products, the continued stream of licensing and royalty
revenues, expenditures incurred to acquire or license and promote additional
pharmaceuticals, interruptions in or availability of supply by third-party
manufacturers, the introduction of new products by the Company or its
competitors, changes in sales and marketing expenditures and general economic
and industry conditions which affect customer demand. Because the Company's
operating expenses are based on anticipated sales levels, variations in the
timing of recognition of revenue could cause significant fluctuations from
period to period and may result in unanticipated earnings shortfalls or losses.
There can be no assurance that the Company will be successful in maintaining or
improving its profitability or avoiding losses in any future period.
GOVERNMENT REGULATION
Government regulation in the United States and abroad is a significant
factor in the development, production, and marketing of the Company's products.
Prior to marketing, each of the Company's products must undergo an extensive
testing and regulatory approval process conducted by the FDA and by comparable
agencies in other countries. The testing and approval process can take several
years and require the expenditure of substantial resources, and there can be no
assurance that any product that the Company may develop will be approved by the
FDA or any foreign regulatory authority in a timely manner, if at all.
Generally, only a very small percentage of newly discovered
<PAGE>
pharmaceutical compounds that enter preclinical development are approved for
sale.
The Company depends on external laboratories and medical institutions to
conduct its preclinical and clinical testing in compliance with clinical and
laboratory practices required by the FDA. The data obtained from preclinical
and clinical testing are subject to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in FDA personnel or policy for drug approval
during the period of development and by changes in the requirements for
regulatory review of each submitted New Drug Application ("NDA"). Moreover,
even if the FDA approves the marketing application of a product, such approval
may entail commercially unacceptable limitations on the uses, or "indications,"
for which a product may be marketed, and further studies may be required to
provide additional data on product safety or effectiveness. The FDA also
requires post-marketing adverse event surveillance programs to monitor the
product's side effects.
An FDA approved product and its manufacturer are subject to continual
regulatory review and the later discovery of previously unknown problems with a
product or manufacturer may result in restrictions or sanctions on such product
or manufacturer, including the withdrawal of such product from the market. Most
changes in the manufacturing procedures used by the Company for any of the
Company's approved products and any change in manufacturer will require the
approval of the FDA prior to their implementation which could have an adverse
effect upon the Company's ability to continue the commercialization or sale of a
product.
In certain countries, the sales price of a product must also be approved
after marketing approval is granted. No assurance can be given that
satisfactory prices can be obtained in foreign markets even if marketing
approval is granted by foreign regulatory authorities.
UNCERTAINTIES RELATED TO PHARMACEUTICAL PRICING AND REIMBURSEMENT
The profitability of the Company will depend in part on the availability of
adequate reimbursement for the Company's products from third-party payers, such
as government entities, private health insurers and managed care organizations.
Third-party payers are increasingly challenging the pricing of medical services
and products. Although the Company currently has no problem with third-party
reimbursement, there can be no assurance that reimbursement will be available in
the future for the Company's new or existing products, or that such third-party
reimbursement will be adequate. If adequate reimbursement levels are not
provided by government entities and other third-party payers for the Company's
products, the Company's business, financial condition and results of operations
would be materially adversely affected. Further, a number of legislative and
regulatory proposals aimed at changing the nation's health care system have been
proposed in recent years. While the Company cannot predict whether any such
proposals will be adopted, or the effect that any such proposal may have on its
business, such proposals, if enacted, could have a material adverse effect on
the Company's business, financial condition and results of operations.
<PAGE>
POTENTIAL PRODUCT LIABILITY; LIMITED INSURANCE COVERAGE
The Company faces an inherent risk of exposure to product liability claims
in the event that the use of its product is alleged to have resulted in adverse
effects. Such risk exists even with respect to those products that are
manufactured in regulated and licensed facilities or otherwise possess
regulatory approval for commercial sale. While the Company has taken, and
continues to take, what it believes are appropriate precautions, there can be no
assurance that it will avoid significant product liability exposure. The Company
currently has product liability insurance in the amount of $10 million per
occurrence and in the aggregate for the year. Although to date the Company has
not been the subject of any product liability claims, there can be no assurance
that such insurance will be sufficient to cover potential claims. Further, there
can be no assurance that adequate insurance coverage will be available in the
future on commercially reasonable terms, if at all, or that a product liability
claim would not materially adversely affect the Company's business, financial
condition and results of operations.
RISK OF PRODUCT RECALL
Product recalls may be issued at the discretion of the Company, the FDA,
the U. S. Federal Trade Commission or other government agencies having
regulatory authority for product sales, and may occur due to disputed labeling
claims, manufacturing issues, quality defects or other reasons. Although none
of the Company's products have been the subject of a recall, no assurance can be
given that product recalls will not occur in the future. Any product recall
could materially adversely affect the Company's business, financial condition
and results of operations.
DEPENDENCE UPON KEY MANAGEMENT
The future success of the Company is largely dependent upon a number of key
management personnel. The loss of the services of one or more key employees, or
the inability of the Company to attract and retain skilled management and
marketing and sales personnel in the future, could have a material adverse
effect on the Company's business, financial condition and results of operations.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock, like that of the securities
of other small pharmaceutical companies, has fluctuated significantly in recent
years and is likely to fluctuate in the future. From time to time the market
for securities has also experienced significant price and volume fluctuations
that are unrelated to the operating performance of such companies. In addition,
announcements by the Company or others regarding commercial products, patents or
proprietary rights, the progress of clinical trials or government regulation,
public concern as to the safety of drugs, the issuance of securities analysts'
reports and general market conditions may each have a significant effect on the
market price of the Common Stock. Fluctuations in financial performance from
period to period also may have a significant impact on the market price of the
Common Stock.
