<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-17085
TECHNICLONE CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 95-3698422
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
14282 Franklin Avenue, Tustin, California 92780-7017
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (714) 508-6000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED, SINCE LAST REPORT)
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__.
APPLICABLE ONLY TO CORPORATE ISSUERS:
(INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.)
81,215,305 shares of Common Stock
outstanding as of November 30, 1999
<PAGE>
TECHNICLONE CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE SECOND QUARTER ENDED OCTOBER 31, 1999
TABLE OF CONTENTS
THE TERMS "WE", "US", "OUR," AND "THE COMPANY" AS USED IN THIS FORM ON 10-Q
REFERS TO TECHNICLONE CORPORATION, TECHNICLONE INTERNATIONAL CORPORATION, ITS
FORMER SUBSIDIARY, CANCER BIOLOGICS INCORPORATED, WHICH WAS MERGED INTO THE
COMPANY IN JULY, 1994 AND ITS WHOLLY-OWNED SUBSIDIARY PEREGRINE PHARMACEUTICALS,
INC., WHICH WAS ACQUIRED IN APRIL, 1997.
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
A Cautionary Statement Regarding Forward-Looking Statements................................ 3
Item 1. Financial Statements ...................................................................... 4
Consolidated Balance Sheets at October 31, 1999 and April 30, 1999 ........................ 4
Consolidated Statements of Operations for the three and six month periods ended October
31, 1999 and 1998 ......................................................................... 6
Consolidated Statement of Stockholders' Equity for the six months ended October 31, 1999... 7
Consolidated Statements of Cash Flows for the six months ended October 31, 1999 and 1998... 8
Notes to Consolidated Financial Statements ................................................ 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 16
Company Overview .......................................................................... 17
Other Risk Factors of Our Company ......................................................... 20
Item 3. Quantitative and Qualitative Disclosures About Market Risk ................................ 32
PART II OTHER INFORMATION
Item 1. Legal Proceedings.......................................................................... 32
Item 2. Changes in Securities and Use of Proceeds ................................................. 32
Item 3. Defaults Upon Senior Securities ........................................................... 33
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 33
Item 5. Other Information ......................................................................... 33
Item 6. Exhibits and Reports on Form 8-K........................................................... 34
</TABLE>
2
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PART I FINANCIAL INFORMATION
----------------------------
A CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS. Except for
historical information contained herein, this Quarterly Report on Form 10-Q
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act and Section 21E of the Exchange Act. In light of the
important factors that can materially affect results, including those set forth
elsewhere in this Form 10-Q, the inclusion of forward-looking information should
not be regarded as a representation by the Company or any other person that the
objectives or plans of the Company will be achieved, as actual results may
differ materially from those forward-looking statements as set forth in this
Report. We will encounter competitive, technological, financial and business
challenges which will make it more difficult than expected to continue to
develop, market and manufacture our products. Our challenges may include, but
are not limited to: competitive conditions within the industry, which may change
adversely; the development of our products may not occur if demand for our
products has weakened; the market may not accept our products; we may not be
able to retain existing key management personnel; our forecasts may not
accurately anticipate market demand; and there may be other material adverse
changes in our operations or business. In addition, certain important factors
affecting the forward-looking statements made herein include, but are not
limited to, the risks and uncertainties associated with completing pre-clinical
and clinical trials for our technologies; obtaining additional financing to
support our operations; obtaining regulatory approval for our technologies;
complying with other governmental regulations applicable to our business;
obtaining the raw materials necessary in the development of such compounds;
consummating collaborative arrangements with corporate partners for product
development; achieving milestones under collaborative arrangements with
corporate partners; developing the capacity to manufacture, market and sell our
products, either directly or indirectly with collaborative partners; developing
market demand for and acceptance of such products; competing effectively with
other pharmaceutical and biotechnological products; attracting and retaining key
personnel; protecting proprietary rights; accurately forecasting operating and
capital expenditures, other capital commitments, or clinical trial costs and
general economic conditions. Our assumptions relating to budgeting, marketing,
product development and other management decisions are subjective in many
respects and thus susceptible to interpretations and periodic revisions based on
actual experience and business developments, the impact of which may cause us to
alter our capital expenditure or other budgets, which may in turn affect our
business, financial position and our results of operations.
3
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1999 AND APRIL 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
OCTOBER 31, APRIL 30,
1999 1999
---------------- ----------------
UNAUDITED
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 644,000 $ 2,385,000
Other receivables, net of allowance for doubtful accounts of
$362,000 (October) and $201,000 (April) 57,000 279,000
Inventories 62,000 57,000
Prepaid expenses and other current assets 211,000 280,000
Covenant not-to-compete with former officer 97,000 213,000
---------------- ----------------
Total current assets 1,071,000 3,214,000
PROPERTY:
Laboratory equipment 2,250,000 2,098,000
Leasehold improvements 73,000 71,000
Furniture, fixtures and computer equipment 869,000 838,000
---------------- ----------------
3,192,000 3,007,000
Less accumulated depreciation and amortization (1,322,000) (1,067,000)
---------------- ----------------
Property, net 1,870,000 1,940,000
OTHER ASSETS:
Note receivable, net of allowance for doubtful notes of
$1,839,000 (October) and zero (April) - 1,863,000
Other, net 148,000 353,000
---------------- ----------------
Total other assets 148,000 2,216,000
---------------- ----------------
TOTAL ASSETS $ 3,089,000 $ 7,370,000
================ ================
</TABLE>
4
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 1999 AND APRIL 30, 1999 (CONTINUED)
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
OCTOBER 31, APRIL 30,
1999 1999
----------------- -----------------
UNAUDITED
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,339,000 $ 898,000
Deferred license revenue 3,000,000 3,000,000
Accrued clinical trial site fees 669,000 691,000
Notes payable 106,000 106,000
Accrued legal and accounting fees 264,000 314,000
Accrued royalties and license fees 335,000 310,000
Due to former officers under severance agreements 464,000 329,000
Other current liabilities 130,000 357,000
----------------- -----------------
Total current liabilities 6,307,000 6,005,000
NOTES PAYABLE 3,445,000 3,498,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock- $.001 par value; authorized 5,000,000 shares:
Class C convertible preferred stock, shares outstanding -
91 shares (October 31, 1999); 121 shares (April 30, 1999);
liquidation preference of $91,000 at October 31, 1999 - -
Common stock-$.001 par value; authorized 150,000,000 shares;
outstanding - 79,470,939 shares (October 31, 1999);
73,372,205 shares (April 30, 1999) 79,000 73,000
Additional paid-in capital 94,896,000 90,779,000
Accumulated deficit (101,331,000) (92,678,000)
----------------- -----------------
(6,356,000) (1,826,000)
Less notes receivable from sale of common stock (307,000) (307,000)
----------------- -----------------
Total stockholders' deficit (6,663,000) (2,133,000)
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,089,000 $ 7,370,000
================= =================
</TABLE>
See accompanying notes to consolidated financial statements
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5
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<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTH PERIODS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ ------------------------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
COSTS AND EXPENSES:
Research and development $ 2,758,000 $ 2,306,000 $ 4,742,000 $ 4,157,000
General and administrative 990,000 1,186,000 1,970,000 2,478,000
Provision for uncollectable
note receivable 1,887,000 - 1,887,000 -
Interest 88,000 96,000 176,000 336,000
---------------- ---------------- ---------------- ----------------
Total costs and expenses 5,723,000 3,588,000 8,775,000 6,971,000
Interest and other income 61,000 84,000 124,000 161,000
NET LOSS $ (5,662,000) $ (3,504,000) $ (8,651,000) $ (6,810,000)
================ ================ ================ ================
Net loss before preferred stock
accretion and dividends $ (5,662,000) $ (3,504,000) $ (8,651,000) $ (6,810,000)
Preferred stock accretion and
dividends:
Imputed dividends on Class C
Preferred Stock (1,000) - (2,000) (11,000)
Accretion of Class C Preferred
Stock Discount - - - (531,000)
================ ================ ================ ================
Net Loss Applicable to Common Stock $ (5,663,000) $ (3,504,000) $ (8,653,000) $ (7,352,000)
================ ================ ================ ================
Weighted Average Shares Outstanding 78,245,795 66,440,756 76,632,859 63,093,696
================ ================ ================ ================
BASIC AND DILUTED LOSS PER SHARE $ (0.07) $ (0.05) $ (0.11) $ (0.12)
================ ================ ================ ================
</TABLE>
See accompanying notes to consolidated financial statements
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6
<PAGE>
<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NOTES
ADDITIONAL RECEIVABLE NET
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED FROM SALE OF STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT COMMON STOCK DEFICIT
--------- --------- ------------- ---------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES - May 1, 1999 121 $ - 73,372,205 $ 73,000 $ 90,779,000 $ (92,678,000) $ (307,000) $ (2,133,000)
Accretion of Class C preferred
stock dividends (2,000) (2,000)
Common stock issued upon
conversion of Class C
preferred stock (30) 50,873 -
Common stock issued upon
exercise of Class C warrants
and Equity Line warrants 67,398 31,000 31,000
Common stock issued for cash
upon exercise of stock
options 548,584 1,000 329,000 330,000
Common stock issued under the
Equity Line for cash 5,431,879 5,000 3,451,000 3,456,000
Stock-based compensation 306,000 306,000
Net loss (8,651,000) (8,651,000)
--------- --------- ------------- ---------- ------------- -------------- ------------- -------------
BALANCES - October 31, 1999 91 $ - 79,470,939 $ 79,000 $ 94,896,000 $(101,331,000) $ (307,000) $ (6,663,000)
========= ========= ============= ========== ============= ============== ============= =============
</TABLE>
See accompanying notes to consolidated financial statements
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7
<PAGE>
<TABLE>
TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
SIX MONTHS ENDED OCTOBER 31,
1999 1998
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,651,000) $ (6,810,000)
Adjustments to reconcile net loss to net cash used in operating
activities:
Provision for uncollectable note receivable 1,887,000 -
Depreciation and amortization 251,000 511,000
Stock-based compensation and common stock issued for
interest, services and under severance agreements 306,000 451,000
Severance expense 251,000 351,000
Loss on disposal of assets - 6,000
Changes in operating assets and liabilities:
Other receivables 175,000 20,000
Inventories, net (5,000) (41,000)
Prepaid expenses and other current assets 69,000 50,000
Other assets 205,000 6,000
Accounts payable and accrued legal and accounting fees 391,000 434,000
Accrued clinical trial site fees (22,000) 318,000
Accrued royalties and license termination fees 25,000 (179,000)
Other accrued expenses and current liabilities (227,000) 78,000
------------------ ------------------
Net cash used in operating activities (5,345,000) (4,805,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Property acquisitions (181,000) (388,000)
Decrease in other assets 23,000 -
------------------ ------------------
Net cash used in investing activities (158,000) (388,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 3,817,000 6,952,000
Proceeds from issuance of Class C Preferred Stock - 530,000
Payment received on notes receivable from sale of common stock - 27,000
Principal payments on notes payable (53,000) (2,442,000)
Payment of Class C preferred stock dividends (2,000) (11,000)
------------------ ------------------
Net cash provided by financing activities 3,762,000 5,056,000
------------------ ------------------
8
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TECHNICLONE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND 1998 (UNAUDITED) (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED OCTOBER 31,
1999 1998
------------------ ------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (1,741,000) $ (137,000)
CASH AND CASH EQUIVALENTS, beginning of period 2,385,000 1,736,000
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 644,000 $ 1,599,000
================== ==================
SUPPLEMENTAL INFORMATION:
Interest paid $ 176,000 $ 100,000
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements
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9
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited financial statements
have been prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business.
As shown in the financial statements, the Company experienced losses in fiscal
1999 and during the first six months of fiscal 2000 and has an accumulated
deficit of $101,331,000 at October 31, 1999. In addition, as of October 31,
1999, the Company had cash and cash equivalents of $644,000, a working capital
deficit of $5,236,000 and is operating at substantially reduced levels. These
factors, among others, raise substantial doubt about the Company's ability to
continue as a going concern.
The Company must raise additional funds to sustain research and
development, provide for future clinical trials and continue its operations
until it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company plans to obtain required financing
through one or more methods, including obtaining additional equity or debt
financing and negotiating additional licensing or collaboration agreements with
another company. There can be no assurances that the Company will be successful
in raising such funds on terms acceptable to it, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of the Company's product candidates. The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional financing as may
be required and, ultimately, to attain successful operations. Currently, the
Company does not have sufficient cash on hand to meet its obligations on a
timely basis and is operating at significantly reduced levels. Management knows
that additional capital must be raised in the near term to support the Company's
continued operations and other short-term cash needs. If the Company does not
raise additional cash by December 31, 1999, the Company may have to file for
protection under the laws of bankruptcy and may have to adopt the liquidation
basis of accounting.
On November 19, 1999, the Company exercised its Put option and received
gross proceeds of approximately $337,500 in exchange for 1,563,157 shares of
Common Stock, including commission shares, pursuant to a Regulation D Common
Stock Equity Line Subscription Agreement the (the "Equity Line Agreement"). The
aforementioned Put option was made pursuant to a limited, one-time waiver by the
institutional investors, whereby the investors reduced the minimum bid price
requirement under the Equity Line Agreement from $0.50 per share during the ten
trading days immediately prior to the closing date for such funding to $0.40 per
share during such ten-day period. Under the original terms under the Equity Line
Agreement, if the closing bid price of the Company's Common Stock falls below
$0.50 or if the Company is delisted from The Nasdaq SmallCap Market, the Company
would have no access to funds under the Equity Line. The Company believes it has
sufficient cash on hand at November 30, 1999 to pay expenses at significantly
reduced levels through December 31, 1999.
10
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
The accompanying unaudited consolidated financial statements contain
all adjustments (consisting of only normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the consolidated
financial position of the Company at October 31, 1999 and 1998, and the
consolidated results of its operations and its consolidated cash flows for the
six month periods ended October 31, 1999 and 1998. Although the Company believes
that the disclosures in the financial statements are adequate to make the
information presented not misleading, certain information and footnote
disclosures normally included in the consolidated financial statements have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission. The consolidated financial statements included herein
should be read in conjunction with the consolidated financial statements of the
Company, included in the Company's Annual Report on Form 10-K for the year ended
April 30, 1999, filed with the Securities and Exchange Commission on July 28,
1999.
Results of operations for the interim periods covered by this Report
may not necessarily be indicative of results of operations for the full fiscal
year.
INVENTORIES. Inventories consist of raw materials and supplies and are
stated at the lower of first-in, first-out cost or market.
NOTE RECEIVABLE. During December 1998, the Company completed the sale
and subsequent leaseback of its two facilities and recorded an initial note
receivable from the buyer of $1,925,000. In accordance with the related lease
agreement, if the Company is in default under the lease agreement, including but
not limited to, filing a petition for bankruptcy or failure to pay the basic
rent within five(5) days of being due, the note receivable shall be deemed to be
immediately satisfied in full and the buyer shall have no further obligation to
the Company for such note receivable. Although the Company has made all payments
under the lease agreement and has not filed for protection under the laws of
bankruptcy, the Company does not have sufficient cash on hand to meet its
obligations on a timely basis and is operating at significantly reduced levels.
If the Company does not raise additional cash by December 31, 1999, the Company
may have to file for protection under the laws of bankruptcy and may have to
adopt the liquidation basis of accounting. Due to the uncertainty of the
Company's ability to pay its lease obligations on a timely basis, the Company
has established a 100% provision for the note receivable in the amount of
$1,887,000 as of October 31, 1999.
RECLASSIFICATION. Certain reclassifications were made to the prior
period balances to conform them to the current period presentation.
NET LOSS PER SHARE. Net loss per share is calculated by adding the net
loss for the three and six month periods to the Preferred Stock dividends and
Preferred Stock issuance discount accretion on the Class C Preferred Stock
during the three and six month periods divided by the weighted average number of
shares of Common Stock outstanding during the same period. Shares issuable upon
the exercise of common stock warrants and options have been excluded from the
per share calculation for the three and six month period ended October 31, 1999
and 1998 because their effect is antidilutive.
11
<PAGE>
TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS. Effective May 1, 1998, the Company
adopted SFAS No. 130, Reporting Comprehensive Income, which establishes
standards for reporting and displaying comprehensive income and its components
in the consolidated financial statements. For the three and six month periods
ended October 31, 1999 and 1998, the Company did not have any components of
comprehensive income as defined in SFAS No. 130.
The Company adopted SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" on May 1, 1998. SFAS No. 131 established
standards of reporting by publicly held businesses and disclosures of
information about operating segments in annual financial statements, and to a
lesser extent, in interim financial reports issued to stockholders. The adoption
of SFAS No. 131 had no impact on the Company's consolidated financial statements
as the Company operates in one industry segment engaged in the research,
development and commercialization of targeted cancer therapeutics.
During June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" which
will be effective for the Company beginning May 1, 2001. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments imbedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statements of financial position and measure those
instruments at fair value. The Company has not determined the impact on the
consolidated financial statements, if any, upon adopting SFAS No. 133.
2. STOCKHOLDERS' EQUITY
During June 1998, the Company secured access to $20,000,000 under a
Common Stock Equity Line ("Equity Line") with two institutional investors,
expiring in June 2001. Under the terms of the Equity Line, the Company may, in
its sole discretion, and subject to certain restrictions, periodically sell
("Put") shares of the Company's Common Stock for up to $20,000,000 upon the
effective registration of the Put shares, which occurred on January 15, 1999.
Unless an increase is otherwise agreed to, $2,250,000 of Puts can be made every
quarter, subject to share issuance volume limitations identical to the share
resale limitations set forth in Rule 144(e). In addition, if the Company's
closing bid price falls below $1.00 on any day during the ten trading days prior
to the Put, the Company's ability to access funds under the Equity Line in the
Put is limited to 15% of what would otherwise be available. If the closing bid
price of the Company's Common Stock falls below $0.50 or if the Company is
delisted from The Nasdaq SmallCap Market, the Company would have no access to
funds under the Equity Line. If the Company is able to access funds under the
Equity Line, the Company had $10,075,000 available for future Puts.
12
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Future Puts under the Equity Line are priced at a discount equal to the
greater of $0.20 or 17.5% off the lowest closing per share bid price during the
ten trading days immediately preceding the date on which such shares are sold to
the institutional investors.
At the time of each Put, the investors will be issued warrants,
exercisable only on a cashless basis and expiring on December 31, 2004, to
purchase up to 10% of the amount of Common Stock issued to the investor at the
same price as the purchase of the shares sold in the Put.
If the Company does not exercise the full amount of its Put rights,
then the Company will issue Commitment Warrants on the first, second, and third
anniversary of the Equity Line. The number of Commitment Warrants to be issued
on each anniversary date will be equal to ten percent (10%) of the quotient of
the difference of $6,666,666, $13,333,333 and $20,000,000 (Commitment Amounts),
respectively, less the actual cumulative total dollar amount of Puts which have
been exercised by the Company prior to such anniversary date divided by the
market price of the Company's Common Stock. On June 24, 1999, the first
anniversary date of the agreement, the Company issued Commitment Warrants to
purchase up to 17,721 shares of the Company's Common Stock at $1.50 per share,
exercisable on a cashless basis only.
3. CONTINGENCY
On March 18, 1999, the Company was served with notice of a lawsuit
filed in Orange County Superior Court for the State of California (Superior
Court) by a former employee alleging a single cause of action for wrongful
termination. The Company believes this lawsuit is barred by a severance
agreement and release signed by the former employee following his termination
and the Company is vigorously defending the action. On September 13, 1999, the
Superior Court granted Techniclone a Motion for Summary Judgement and the
Company was not obligated for any damages. On November 12, 1999, a Notice of
Entry of Judgement was filed by the Superior Court.
4. SUBSEQUENT EVENTS
On November 3, 1999, three of the Company's five Board members, Larry
O. Bymaster, Rockell Hankin and Chairman Thomas R. Testman, resigned. The
remaining directors appointed Mr. Eric Swartz and Mr. Carl Johnson as new Board
members. Mr. Swartz is the Principal of a branch office of Dunwoody Brokerage
Services, Inc., the placement agent under the Company's existing Common Stock
Equity Line Agreement. Mr. Johnson is a securities counsel for Dunwoody. The
Board appointed incumbent director William C. Shepherd to serve as Chairman of
the Board. In addition, on the same day, Mr. Bymaster resigned from his position
as President and Chief Executive Officer and Steven C. Burke resigned from this
position as Chief Financial Officer and Corporate Secretary to pursue other
personal and business interests. The Board appointed Dr. John N. Bonfiglio,
Techniclone's Vice President of Technology and Business Development, as Interim
President. On November 28, 1999, William C. Shepherd resigned as Chairman of the
Board.
13
<PAGE>
TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
On November 18, 1999, the Company entered into an agreement under the
Equity Line Agreement pursuant to a limited, one-time waiver by the
institutional investors, whereby the investors reduced the minimum bid price
requirement under the Equity Line Agreement from $0.50 per share during the ten
trading days immediately prior to the closing date for such funding to $0.40 per
share during such ten-day period.
On November 19, 1999, in consideration of a commitment by Swartz
Private Equity, LLC to fund a $35,000,000 equity line financing over a three
year term, the Company issued Swartz Private Equity, LLC a five-year warrant to
purchase up to 750,000 shares of the Company's Common Stock at an initial
exercise price of $0.46875 per share subject to reset provisions as defined in
the agreement. Mr. Eric Swartz, a member of the Board of Directors, maintains a
50% ownership in Swartz Private Equity, LLC.
The Company has certain obligations under license agreements with
various universities and institutions that have granted rights to us for the
Vasopermeation Enhancement Agents (VEAs) technology and Vascular Targeting
Agents (VTAs) technology. If the Company defaults under the terms of the license
agreements, which includes, but is not limited to, filing for bankruptcy, not
paying the minimum royalties, not paying patent legal fees and other amounts due
under the agreements, then the license agreements would be terminated and the
related technologies would revert back to the respective university or
institution. On November 29, 1999, the Company received a notice from the
University of Texas Southwestern Medical Center (the University) to terminate
such license agreements for the non-payment of patent legal fees in the amount
of approximately $117,000. If the Company is unable to make such payment by
December 29, 1999, the Company would be in default under the agreements and
certain rights to the VTA technology would revert back the University. The
Company currently intends on making such payment by the December 29, 1999
deadline, although there can be no assurance that the Company will not default
under the terms of the license agreements for future amounts due under the
agreements and there can be no assurance that we will not be forced into filing
for protection under the laws of bankruptcy.
On November 29, 1999, the Company entered into a 90-day option
agreement with a multinational pharmaceutical company to potentially license a
specific use of the TNT technology for a nonrefundable $50,000 option fee.
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TECHNICLONE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
On December 1, 1999, the Company defaulted on its monthly interest
payment of $27,500 to Biotechnology Development Ltd. on a $3,300,000 note
payable. The note payable was issued to Biotechnology Development Ltd. upon the
Company re-acquiring the Oncolym(R) distribution rights. The note payable bears
simple interest at a rate of 10% per annum, payable monthly, and is due on March
1, 2001. The note is collateralized by all tangible assets of the Company,
excluding tangible assets not located on the Company's Tustin, California
premises and those assets previously pledged and held as collateral under
separate agreements. Upon the Company defaulting on its interest payment,
Biotechnology Development Ltd. may, at its option, declare the note payable of
$3,300,000 to be immediately due and payable. The Company and Biotechnology
Development Ltd. are currently in negotiations regarding a waiver of the
default.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
GOING CONCERN. The accompanying unaudited financial statements have
been prepared on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. As
shown in the financial statements, the Company experienced losses in fiscal 1999
and during the first six months of fiscal 2000 and has an accumulated deficit of
$101,331,000 at October 31, 1999. In addition, as of October 31, 1999, the
Company had cash and cash equivalents of $644,000, a working capital deficit of
$5,236,000 and is operating at substantially reduced levels. These factors,
among others, raise substantial doubt about the Company's ability to continue as
a going concern.
The Company must raise additional funds to sustain research and
development, provide for future clinical trials and continue its operations
until it is able to generate sufficient additional revenue from the sale and/or
licensing of its products. The Company plans to obtain required financing
through one or more methods including, obtaining additional equity or debt
financing and negotiating additional licensing or collaboration agreements with
another company. There can be no assurances that the Company will be successful
in raising such funds on terms acceptable to it, or at all, or that sufficient
additional capital will be raised to complete the research, development, and
clinical testing of the Company's product candidates. The Company's continuation
as a going concern is dependent on its ability to generate sufficient cash flow
to meet its obligations on a timely basis, to obtain additional financing as may
be required and, ultimately, to attain successful operations. Currently, the
Company does not have sufficient cash on hand to meet its obligations on a
timely basis and is operating at significantly reduced levels. Management knows
that additional capital must be raised in the near term to support the Company's
continued operations and other short-term cash needs. If the Company does not
raise additional cash by December 31, 1999, the Company may have to file for
protection under the laws of bankruptcy and may have to adopt the liquidation
basis of accounting.
On November 19, 1999, the Company exercised its Put option and received
gross proceeds of approximately $337,500 in exchange for 1,563,157 shares of
Common Stock, including commission shares, pursuant to a Regulation D Common
Stock Equity Line Subscription Agreement the (the "Equity Line Agreement"). The
aforementioned Put option was made pursuant to a limited, one-time waiver by the
institutional investors, whereby the investors reduced the minimum bid price
requirement under the Equity Line Agreement from $0.50 per share during the ten
trading days immediately prior to the closing date for such funding to $0.40 per
share during such ten-day period. Under the original terms under the Equity Line
Agreement, if the closing bid price of the Company's Common Stock falls below
$0.50 or if the Company is delisted from The Nasdaq SmallCap Market, the Company
would have no access to funds under the Equity Line. The Company believes it has
sufficient cash on hand at November 30, 1999 to pay expenses at significantly
reduced levels through December 31, 1999.
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COMPANY OVERVIEW. Techniclone Corporation is a biopharmaceutical
company engaged in the research, development and commercialization of targeted
cancer therapeutics. We develop product candidates based primarily on our
proprietary collateral (indirect) tumor targeting technologies for the treatment
of solid tumors and a direct tumor-targeting agent for the treatment of
refractory malignant lymphoma.
Collateral (indirect) tumor targeting is the therapeutic strategy of
targeting peripheral structures and cell types, other than the viable cancer
cells directly, as a means to treat solid tumors. We are currently developing
three collateral (indirect) targeting agents for the treatment of solid tumors:
Tumor Necrosis Therapy, which is potentially capable of carrying a variety of
therapeutic agents to the interior of solid tumors and irradiating the tumor
from the inside out; Vasopermeation Enhancement Agents, which potentially
increases the permeability of the tumor site and consequently can increase the
concentration of killing agents at the core of the tumor; and Vascular Targeting
Agents, which potentially creates a blockage within the capillaries and blood
vessels that supply solid tumors with nutrients, thus potentially destroying the
tumor.
A Phase II clinical trial of our Tumor Necrosis Therapy agent (called
Cotara(TM)) for the treatment of malignant glioma (brain cancer) is currently
being conducted at The Medical University of South Carolina, University of
California at Los Angeles, Temple University, University of Utah-Salt Lake City
and Carolina Neurosurgery & Spine Association. In addition, our Tumor Necrosis
Therapy agent is being used in an equivalent Phase I clinical trial for the
treatment of pancreatic, prostrate and liver cancers at a clinical trial site in
Mexico City. We are collaborating with outside scientists for preclinical
studies on Vasopermeation Enhancement Agents and on Vascular Targeting Agents.
On March 8, 1999, we entered into a license agreement with Schering
A.G., Germany, a major multinational pharmaceutical company, with respect to the
development, manufacture and marketing of our direct tumor targeting agent
candidate, Oncolym(R). At the time we entered into the license agreement with
Schering A.G., Germany, Oncolym(R) was in a Phase II/III clinical trial for the
treatment of non-Hodgkin's B-cell Lymphoma. Under the agreement, Schering A.G.,
Germany controls the clinical development program and funds 80% of the clinical
trial costs. The current Phase II/III clinical trial has been stopped. Schering
A.G., Germany has advised the Company that they anticipate starting a Phase II
dosing trial for 18 patients under a new dosing regiment during the first
quarter of 2000. As part of this Oncolym(R) agreement, Schering A.G., Germany
and Techniclone entered into negotiations concerning the terms of a possible
licensing transaction on the Vascular Targeting Agents technology. The Company
and Schering A.G., Germany have suspended negotiations regarding the Vascular
Targeting Agents technology and the Company is currently in discussions with
other interested parties. We cannot be certain whether we will be successful in
entering into a licensing transaction on the Vascular Targeting Agents
technology on terms satisfactory to us, if at all.
RESULTS OF OPERATIONS. The Company's net loss of $5,662,000, before
preferred stock discount accretion and dividends, for the quarter ended October
31, 1999 represents an increase in net loss of $2,158,000 in comparison to the
net loss of $3,504,000 for the prior year quarter ended October 31, 1998. This
17
<PAGE>
increase in the net loss for the quarter ended October 31, 1999 is due to a
$2,135,000 increase in total costs and expenses combined with a decrease in
interest and other income of $23,000. The Company's net loss of $8,651,000 for
the six months ended October 31, 1999 represents an increase in net loss of
$1,841,000 compared to a net loss of $6,810,000 for the six months ended October
31, 1998. The increased loss for the six months ended October 31, 1999 is due to
a $1,804,000 increase in total costs and expenses combined with a $37,000
decrease in interest and other income.
The Company's total costs and expenses increased $2,135,000 during the
quarter ended October 31, 1999, in comparison to the same prior quarterly period
ended October 31, 1998. This increase in total costs and expenses resulted
primarily from a one-time charge to earnings of $1,887,000 during the quarter
ended October 31, 1999 for the estimated provision for a note receivable that
may not be collected if the Company defaults under its lease agreement. The
future payments on the note receivable are contingent upon the Company's ability
to pay its monthly lease obligation on a timely basis. In addition, the
remaining increase in total costs and expenses during the quarter ended October
31, 1999 is due to an increase in research and development expenses of $452,000
offset by a decrease in general and administrative expenses of $196,000 and a
decrease in interest expense of $8,000.
The Company's total costs and expenses increased $1,804,000 for the six
months ended October 31, 1999 compared to the same period in the prior year.
This six month increase in expenses resulted primarily from the aforementioned
one-time charge to earnings of $1,887,000 during the quarter ended October 31,
1999 for the estimated provision of an uncollectable note receivable combined
with an increase in research and development expenses of $585,000. These amounts
were offset by a decrease in general and administrative expenses of $508,000 and
a decrease in interest expense of $160,000.
The increase in research and development expenses of $452,000 and
$585,000 during the quarter and six months ended October 31, 1999, respectively,
primarily relates to increased research fees from MDS Nordion associated with
the development of a commercial radiolabeling facility combined with an increase
in patent legal fees associated with the Vascular Targeting Agent technology. In
addition, during the quarter and six months ended October 31, 1999, the Company
incurred increased building lease expense related to the sale and subsequent
leaseback of the Company's facilities in December 1998 partially offset by a
corresponding decrease in depreciation expense on the related building.
The decrease in general and administrative expenses of $196,000 during
the quarter ended October 31, 1999 compared to the quarter ended October 31,
1998 resulted primarily from a decrease in annual shareholder meeting costs due
to less expensive mailing and printing arrangements combined with a decrease in
legal fees. General and administrative expenses decreased approximately $508,000
for the six months ended October 31, 1999 compared to the same period in the
prior year primarily due to the above mentioned decreases combined with a
decrease in severance expenses associated with the Company's former Chief
Executive Officer and a decrease in consulting fees and other general expenses.
18
<PAGE>
The decrease in interest expense of approximately $8,000 for the
quarter ended October 31, 1999 compared to the same period in the prior year is
primarily due to a decrease in mortgage interest expense on the Company's two
facilities which were sold and subsequently leased back in December 1998
partially offset by an increase in interest charges on a $3,300,000 note payable
to Biotechnology Development Ltd. related to the buyback of the Oncolym(R)
rights in March 1999. Interest expense decreased $160,000 for six-month period
ended October 31, 1999 compared to the same period in the prior year primarily
due to interest charges on construction costs incurred in the prior year six
month period related to manufacturing facility enhancements combined with
mortgage interest on the Company's facilities, both of which were not incurred
in the current six-month period. Such decrease was partially offset by an
increase in interest charges on a $3,300,000 note payable to Biotechnology
Development Ltd. related to the buyback of the Oncolym(R) rights in March 1999.
The decrease in interest and other income of $23,000 and $37,000 during
the three and six month periods ended October 31, 1999, respectively, compared
to the same periods in the prior year is primarily due to a decrease in rental
income as one of the Company's sub-tenants had completed their lease term in
March 1999 and the other sub-tenant had completed their lease term in September
1999. The Company is currently seeking new sub-tenants. The Company does not
expect to generate product sales for at least the next year.
LIQUIDITY AND CAPITAL RESOURCES. The Company experienced losses in
fiscal 1999 and during the first six months of fiscal 2000 and has an
accumulated deficit of $101,331,000 at October 31, 1999. In addition, as of
October 31, 1999, the Company had cash and cash equivalents of $644,000, a
working capital deficit of $5,236,000 and is operating at substantially reduced
levels. These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern.
On November 19, 1999, the Company exercised its Put option and received
gross proceeds of $337,500 in exchange for 1,563,157 shares of Common Stock,
including commission shares, pursuant to a Regulation D Common Stock Equity Line
Subscription Agreement the (the "Equity Line Agreement"). The aforementioned Put
option was made pursuant to a limited, one-time waiver by the institutional
investors, whereby the investors reduced the minimum bid price requirement under
the Equity Line Agreement from $0.50 per share during the ten trading days
immediately prior to the closing date for such funding to $0.40 per share during
such ten-day period. Under the original terms of the Equity Line Agreement, if
the closing bid price of the Company's Common Stock falls below $0.50 or if the
Company is delisted from The Nasdaq SmallCap Market, the Company would have no
access to funds under the Equity Line. The Company believes it has sufficient
cash on hand at November 30, 1999 to pay expenses at significantly reduced
levels through December 31, 1999. Management knows that additional capital must
be raised in the near term to support the Company's continued operations and
other short-term cash needs. If the Company does not raise additional cash by
December 31, 1999, the Company may have to file for protection under the laws of
bankruptcy and may have to adopt the liquidation basis of accounting. On the
majority of trading days since October 19, 1999, the minimum closing bid price
of the Company's Common Stock has fallen below $0.50 per share which would
preclude the Company from additional Puts under the Equity Line. If the Company
is able to meet the draw requirements under the Equity Line, the Company has
$10,075,000 available for future Puts.
19
<PAGE>
We have significant commitments to expend additional funds for
preclinical development, clinical trials, radiolabeling contracts, license
contracts, severance arrangements and consulting. If we obtain the necessary
funding, we expect operating expenditures related to clinical trials to increase
in the future as our clinical trial activity increases and scale-up for clinical
trial production continues. We have experienced negative cash flows from
operations since our inception, and we expect the negative cash flow from
operations to continue for the foreseeable future. We expect that the monthly
negative cash flow will continue for at least the next year as a result of
activities in connection with the Phase II clinical trials of Cotara(TM) and the
equivalent Phase I clinical trials of Cotara(TM) in Mexico and the development
costs associated with Vasopermeation Enhancement Agents ("VEAs") and Vascular
Targeting Agents ("VTAs").
There can be no assurance that we will be successful in raising such
funds on terms acceptable to us, or at all, or that sufficient capital will be
raised to complete the research and development of our product candidates.
COMMITMENTS. At October 31, 1999, we had no capital commitments,
although we have significant obligations, most of which are contingent, for
payments to licensors for technologies and in connection with the acquisition of
the Oncolym(R) rights previously owned by Alpha Therapeutic Corporation
("Alpha").
OTHER RISK FACTORS OF OUR COMPANY
- ---------------------------------
IF WE CANNOT OBTAIN ADDITIONAL FUNDING, OUR PRODUCT DEVELOPMENT AND
COMMERCIALIZATION EFFORTS MAY BE REDUCED OR DISCONTINUED AND WE MAY HAVE TO FILE
FOR PROTECTION UNDER THE LAWS OF BANKRUPTCY.
At October 31, 1999, we had $644,000 in cash and cash equivalents. We
have expended substantial funds on the development of our product candidates and
for clinical trials. As a result, we have had negative cash flows from
operations since inception and expect the negative cash flows from operations to
continue for the foreseeable future. We currently have commitments to expend
additional funds for antibody and radioactive isotope combination services,
clinical trials, product development contracts, license contracts, severance
arrangements, employment agreements, consulting agreements, and for the
repurchase of marketing rights to certain product technology. If we obtain the
necessary funding, we expect operating expenditures related to clinical trials
to increase in the future as clinical trial activity increases and expansion for
clinical trial production continues. We also expect that the monthly negative
cash flows will continue. We will require additional funding to sustain our
research and development efforts, provide for future clinical trials, expand our
manufacturing and product commercialization capabilities, and continue our
operations until we are able to generate sufficient revenue from the sale and/or
licensing of our products.
During June 1998, we secured access to $20,000,000 under a Common Stock
Equity Line (Equity Line) with two institutional investors. The Equity Line
expires in June 2001. Under the terms of the Equity Line, we may, in our sole
discretion, and subject to certain restrictions, periodically sell ("Put")
shares of our Common Stock for up to $20,000,000 upon the effective registration
of the Put shares. Up to $2,250,000 of Puts, unless an increase is otherwise
agreed to, can be made every quarter, subject to the satisfaction of certain
conditions, including share issuance volume limitations identical to the share
resale limitations set forth in Rule 144(e). In addition, if the closing bid
20
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price of our Common Stock falls below $1.00 during the ten trading days prior to
the call date, then the amount of Puts will be limited to 15% of what would
otherwise be available. If the closing bid price of the Company's Common Stock
falls below $0.50 or if the Company is delisted from The Nasdaq SmallCap Market,
the Company would have no access to funds under the Equity Line. The closing bid
price of the Company's Common Stock has fallen below $0.50 on most trading days
since October 19, 1999, and management is uncertain whether it will be able to
make any additional Puts under the Equity Line. If we are able to meet all the
draw requirements under the Equity Line, we had $10,075,000 available for future
Puts.
We must raise additional funds to sustain research and development,
provide for future clinical trials and continue our operations until we are able
to generate sufficient additional revenue from the sale and/or licensing of our
products. We plan to obtain required financing through one or more methods
including, obtaining additional equity or debt financing and negotiating
additional licensing or collaboration agreements with another company. There can
be no assurances that we will be successful in raising such funds on terms
acceptable to us, or at all, or that sufficient additional capital will be
raised to complete the research, development, and clinical testing of our
product candidates. Our continuation as a going concern is dependent on its
ability to generate sufficient cash flow to meet our obligations on a timely
basis, to obtain additional financing as may be required and, ultimately, to
attain successful operations. Currently, we do not have sufficient cash on hand
to meet our obligations on a timely basis and we are operating at significantly
reduced levels. We know that additional capital must be raised in the near
future to support our continued operations and other short-term cash needs. We
believe that we have sufficient cash on hand as of November 30, 1999 to pay
minimal expenses through December 31, 1999. If we do not raise additional cash
by December 31, 1999, we may have to file for protection under the laws of
bankruptcy and we may have to adopt the liquidation basis of accounting.
IF WE DEFAULT UNDER OUR LICENSE AGREEMENTS, THEN WE MAY LOSE CERTAIN
TECHNOLOGIES UNDER DEVELOPMENT.
We have certain obligations under license agreements with various
universities and institutions that have granted rights to us for the
Vasopermeation Enhancement Agents (VEAs) and Vascular Targeting Agents (VTAs)
technologies. If we default under the terms of the license agreements, which
defaults include, but are not limited to, filing for bankruptcy, not paying the
minimum royalties, not paying patent legal fees and other amounts due under the
agreements, then the license agreements would be terminated and the related
technologies would revert back to the respective university or institution. On
November 29, 1999, we received a notice from the University of Texas
Southwestern Medical Center (the University) to terminate our license agreements
for the non-payment of patent legal fees in the amount of approximately
$117,000. If we are unable to make such payment by December 29, 1999, we would
be in default under the agreements and certain rights to the VTA technology
would revert back the University. We currently intend on making such payment by
the December 29, 1999 deadline, although there can be no assurance that we will
not default under the terms of the license agreements for future amounts due
under the agreements and there can be no assurance that we will not be forced
into filing for protection under the laws of bankruptcy. The loss of any
technology would have a material adverse affect on our business and would
negatively impact our financial performance.
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WE HAVE HAD SIGNIFICANT LOSSES AND ANTICIPATE FUTURE LOSSES IF FUNDING IS
AVAILABLE.
We have experienced significant losses since inception. As of October
31, 1999, our accumulated deficit was approximately $101,331,000. We expect to
incur significant additional operating losses in the future if funding is
available and we expect cumulative losses to continue due to ongoing research
and development efforts, preclinical studies and clinical trials, and expansion
of manufacturing and product commercialization capabilities. We also expect
losses to fluctuate substantially from quarter to quarter. All of our products
are currently in development, preclinical studies or clinical trials, and no
revenues have been generated from commercial product sales. To achieve and
sustain profitable operations, we must successfully develop and obtain
regulatory approval for our products, either alone or with others, and must also
manufacture, introduce, market and sell our products. The time frame necessary
to achieve market success for our products is long and uncertain. We do not
expect to generate significant product revenues for at least the next year.
There can be no guarantee that we will ever generate product revenues sufficient
to become profitable or to sustain profitability.
PROBLEMS IN PRODUCT DEVELOPMENT MAY CAUSE OUR CASH DEPLETION RATE TO INCREASE.
Our ability to obtain financing and to manage expenses and our cash
depletion rate is key to the continued development of product candidates and the
completion of ongoing clinical trials. Our cash depletion rate will vary
substantially from quarter to quarter as we fund non-recurring items associated
with clinical trials, product development, antibody manufacturing and facility
expansion and scale-up, patent legal fees and various consulting fees. We have
limited experience with clinical trials, and if we encounter unexpected
difficulties with our operations or clinical trials, we may have to expend
additional funds, which would increase our cash depletion rate.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY NOT BE SUCCESSFUL.
Since inception, we have been engaged in the development of drugs and
related therapies for the treatment of people with cancer. Our product
candidates, which have not received regulatory approval, are generally in the
early stages of development. If the initial results from any of the clinical
trials are poor, those results will adversely affect our ability to raise
additional capital, which will affect our ability to continue full-scale
research and development for our antibody technologies. In addition, product
candidates resulting from our research and development efforts, if any, are not
expected to be available commercially for at least the next year. Our products
currently in clinical trials represent a departure from more commonly used
methods for cancer treatment. These products, if approved, may experience
under-utilization by doctors who are unfamiliar with their application in the
treatment of cancer. As with any new drug, doctors may be inclined to continue
to treat patients with conventional therapies, in most cases chemotherapy,
rather than new alternative therapies. We or our marketing partner may be
required to implement an aggressive education and promotion plan with doctors in
order to gain market recognition, understanding and acceptance of our products.
Market acceptance could also be affected by the availability of third-party
reimbursement. Accordingly, we cannot guarantee that our product development
efforts, including clinical trials, or commercialization efforts will be
successful or that any of our products, if approved, can be successfully
marketed.
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WE MAY NOT BE ABLE TO EXPAND OUR FACILITIES TO IMPLEMENT COMMERCIAL PRODUCTION
OF OUR PRODUCTS.
In order to conduct clinical trials on a timely basis, obtain
regulatory approval and be commercially successful, we must expand our
manufacturing and product commercialization processes so that our product
candidates, if approved, can be manufactured and produced in commercial
quantities. To date, we have expended significant funds for the expansion of our
antibody manufacturing capabilities for clinical trial requirements for two of
our product candidates and for refinement of the production processes. We intend
to use existing antibody manufacturing capacity to meet the clinical trial
requirements for these two product candidates and to support the initial
commercialization of these product candidates, if approved. In order to provide
additional capacity, we must successfully negotiate agreements with contract
antibody manufacturers to have these products produced, the cost of which is
estimated to be several million dollars in start-up costs and additional
production costs on a "per run basis". Such contracts would also require an
additional investment estimated at five to nine million dollars over the next
two years for antibody radiolabeling services and related equipment and related
production area enhancements, and for vendor services associated with technology
transfer assistance, expansion and production start-up and for regulatory
assistance. We have limited manufacturing experience, and cannot make any
guarantee as to our ability to expand our manufacturing operations, the
suitability of our present facility for clinical trial production or commercial
production, our ability to make a successful transition to commercial production
or our ability to reach an acceptable agreement with one or more contract
manufacturers to produce any of our other product candidates, if approved, in
clinical or commercial quantities.
OUR TECHNOLOGY AND PRODUCTS MAY PROVE INEFFECTIVE OR BE TOO EXPENSIVE TO MARKET
SUCCESSFULLY.
Our future success is significantly dependent on our ability to develop
and test workable products for which we will seek approval from the United
States Food and Drug Administration to market to certain defined patient groups.
There is a significant risk as to the performance and commercial success of our
technology and products. The products we are currently developing will require
significant additional laboratory and clinical testing and investment over the
foreseeable future. Our proposed products may not prove to be effective in
clinical trials or they may cause harmful side effects during clinical trials.
In addition, our product candidates, if approved, may prove impracticable to
manufacture in commercial quantities at a reasonable cost and/or with acceptable
quality. Any of these factors could negatively affect our financial position and
results of operations.
OUR DEPENDENCY ON A LIMITED NUMBER OF SUPPLIERS MAY NEGATIVELY IMPACT OUR
ABILITY TO COMPLETE CLINICAL TRIALS AND MARKET OUR PRODUCTS.
We currently procure, and intend in the future to procure, our antibody
radioactive isotope combination services ("radiolabeling") under negotiated
contracts with two domestic entities, one Canadian entity and one European
entity. We cannot guarantee that these suppliers will be able to qualify their
facilities or label and supply antibody in a timely manner, if at all. Prior to
commercial distribution of any of our products, if approved, we will be required
to identify and contract with a company for commercial antibody manufacturing
and radioactive isotope combination services. We also currently rely on, and
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expect in the future to rely on, our current suppliers for all or a significant
portion of the raw material requirements for our antibody products. An antibody
that has been combined with a radioactive isotope cannot be stockpiled against
future shortages. Accordingly, any change in our existing or future contractual
relationships with, or an interruption in supply from, any such third-party
service provider or antibody supplier could negatively impact our ability to
complete ongoing clinical trials and to market our products, if approved.
IF OUR RELATIONSHIP WITH SCHERING A.G., GERMANY TERMINATES, IT COULD ADVERSELY
AFFECT OUR BUSINESS.
In March 1999, we entered into a license agreement with Schering A.G.,
Germany for the worldwide development, marketing and distribution of our direct
tumor targeting agent product candidate, Oncolym(R). Under the agreement,
Schering A.G., Germany has assumed control of the clinical development program,
regulatory approvals in the United States and all foreign countries and sales
and marketing of this product candidate. Schering A.G., Germany may terminate
the agreement under a number of circumstances as defined in the agreement,
including thirty days' written notice given at any time prior to receiving
regulatory approval. We are relying on Schering A.G., Germany to apply its
expertise and know-how to the development, launch and sale of this product
candidate. If Schering A.G., Germany decides to discontinue the development of
this product candidate and terminates our license agreement, we may have to
discontinue development, commercialization and clinical testing of this product
candidate, which could negatively affect our operations and financial
performance. In connection with our agreement with Schering A.G., Germany for
Oncolym(R), Schering A.G., Germany had also agreed to discuss the development
and commercialization of our Vascular Targeting Agent technology. These
discussions regarding the Vascular Targeting Agent technology between us and
Schering A.G., Germany have been suspended although the Company is currently in
discussions with various other interested parties. We cannot guarantee that
Schering A.G., Germany will devote the resources necessary to successfully
develop and/or market any product candidate.
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WE DO NOT HAVE A SALES FORCE TO MARKET OUR PRODUCTS.
At the present time, we do not have a sales force to market any of our
products, if and when they are approved. We intend to sell our products in the
United States and internationally in collaboration with one or more marketing
partners. If and when we receive approval from the United States Food and Drug
Administration for our initial product candidates, the marketing of these
products will be contingent upon our ability to either license or enter into a
marketing agreement with a large company or our ability to recruit, develop,
train and deploy our own sales force. We do not presently possess the resources
or experience necessary to market any of our product candidates. Other than an
agreement with Schering A.G., Germany with respect to the marketing of our
direct tumor targeting agent product candidate, we presently have no agreements
for the licensing or marketing of our product candidates, and we cannot assure
that we will be able to enter into any such agreements in a timely manner or on
commercially favorable terms, if at all. Development of an effective sales force
requires significant financial resources, time and expertise. We cannot assure
that we will be able to obtain the financing necessary to establish such a sales
force in a timely or cost effective manner, if at all, or that such a sales
force will be capable of generating demand for our product candidates, if and
when they are approved.
WE MAINTAIN ONLY LIMITED PRODUCT LIABILITY INSURANCE AND MAY BE EXPOSED TO
CLAIMS IF OUR INSURANCE COVERAGE IS INSUFFICIENT.
The manufacture and sale of human therapeutic products involves an
inherent risk of product liability claims. We maintain only limited product
liability insurance. We cannot assure that we will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Product liability
insurance is expensive, difficult to obtain and may not be available in the
future on acceptable terms, if at all. Our inability to obtain sufficient
insurance coverage on reasonable terms or to otherwise protect against potential
product liability claims in excess of our insurance coverage, if any, or a
product recall could negatively impact our financial position and results of
operations.
EARTHQUAKES MAY DAMAGE OUR FACILITIES.
Our corporate and research facilities, where the majority of our
research and development activities are conducted, are located near major
earthquake faults, which have experienced earthquakes in the past. Although we
carry limited earthquake insurance, in the event of a major earthquake or other
disaster in or near the greater Southern California area, our facilities may
sustain significant damage and our operations could be negatively affected.
THE LIQUIDITY OF OUR COMMON STOCK WILL BE ADVERSELY AFFECTED IF OUR COMMON STOCK
IS DELISTED FROM THE NASDAQ SMALLCAP MARKET.
The Common Stock of the Company is presently traded on The Nasdaq
SmallCap Market. To maintain inclusion on The Nasdaq SmallCap Market, we must
continue to have either net tangible assets of at least $2,000,000, market
capitalization of at least $35,000,000, or net income (in either our latest
fiscal year or in two of our last three fiscal years) of at least $500,000. In
25
<PAGE>
addition, we must meet other requirements, including, but not limited to, having
a public float of at least 500,000 shares and $1,000,000, a minimum closing bid
price of $1.00 per share of Common Stock (without falling below this minimum bid
price for a period of 30 consecutive trading days), at least two market makers
and at least 300 stockholders, each holding at least 100 shares of Common Stock.
At various times since October 19, 1999, we have failed to meet the $35,000,000
market capitalization requirement. In addition, since September 9, 1999, the
closing bid price of our Common Stock has been less than $1.00 per share. The
Company has been notified by The Nasdaq Stock Market that, if the Company cannot
achieve compliance with the applicable standard by meeting the minimum closing
bid price requirement for at least 10 consecutive trading days by January 27,
2000, the Company's Common Stock will be delisted at the opening of business on
January 31, 2000. In addition, we could be delisted at any time by The Nasdaq
SmallCap Market for not meeting the minimum market capitalization requirement.
If we are delisted by the The Nasdaq SmallCap Market, the market value of the
Common Stock could fall and holders of Common Stock would likely find it more
difficult to dispose of the Common Stock.
In addition, if the minimum closing bid price of the Common Stock is
not at least $1.00 per share for 10 consecutive trading days before we make a
call for proceeds under our Regulation D Common Stock Equity Line Subscription
Agreement with two institutional investors or if the Common Stock ceases to be
included on The Nasdaq SmallCap Market, we would have limited or no access to
funds under the Regulation D Common Stock Equity Line Subscription Agreement. In
addition, we and broker-dealers effecting transactions in the Common Stock may
become subject to additional disclosure and reporting requirements applicable to
low-priced securities, which may reduce the level of trading activity in the
secondary market for the Common Stock and limit or prevent investors from
readily selling their shares of Common Stock.
THE SALE OF SUBSTANTIAL SHARES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
As of November 30, 1999, we had approximately 81,215,000 shares of
Common Stock outstanding. We are also obligated to issue up to an additional
approximately 171,000 shares of Common Stock upon conversion of 50 outstanding
shares of our 5% Adjustable Convertible Class C Preferred Stock and the cash
exercise of the related warrants (assuming a market price of our Common Stock of
$0.50 per share). Moreover, an additional approximately 14,146,000 shares of
Common Stock are issuable upon the exercise of outstanding options and other
warrants at an average exercise price of $1.82.
During June 1998, we secured access to $20,000,000 under a Common Stock
Equity Line ("Equity Line") with two institutional investors, expiring in June
2001. Under the terms of the Equity Line, the Company may, in its sole
discretion, and subject to certain restrictions, periodically sell ("Put")
shares of the Company's Common Stock for up to $20,000,000. Unless an increase
is otherwise agreed to, $2,250,000 of Puts can be made every quarter, subject to
share issuance volume limitations identical to the share resale limitations set
forth in Rule 144(e). If the Company's closing bid price falls below $1.00 on
any day during the ten trading days prior to the Put, the Company's ability to
access funds under the Equity Line in the Put is limited to 15% of what would
otherwise be available. If the closing bid price of the Company's Common Stock
falls below $0.50 or if the Company is delisted from The Nasdaq SmallCap Market,
the Company would have no access to funds under the Equity Line. If the Company
is able to access funds under the Equity Line, the Company had $10,075,000
available for future Puts. Future Puts under the Equity Line are priced at a
26
<PAGE>
discount equal to the greater of $0.20 or 17.5% off the lowest closing per share
bid price during the ten trading days immediately preceding the date on which
such shares are sold to the institutional investors. At the time of each Put,
the investors will be issued warrants, exercisable only on a cashless basis and
expiring on December 31, 2004, to purchase up to 10% of the amount of Common
Stock issued to the investor at the same price as the purchase of the shares
sold in the Put. If we are able to draw upon the Equity Line, we may issue up to
an additional approximately 40,636,000 shares of Common Stock (assuming a market
price of our Common Stock of $0.50 per share) at our sole option, from time to
time, in exchange for an aggregate purchase price of $10,075,000, which includes
commission shares and warrants equal to 10% of the shares of Common Stock issued
under such agreement, which must be exercised on a cashless basis only.
The conversion rate applicable to our Class C Preferred Stock and the
purchase price for the shares of Common Stock and warrants to be issued under
the Regulation D Common Stock Equity Line Subscription Agreement are at a
significant discount to the market price of the Common Stock. The sale and
issuance of these shares of Common Stock, as well as subsequent sales of shares
of Common Stock in the open market, may cause the market price of the Common
Stock to fall and might impair our ability to raise additional capital through
sales of equity or equity-related securities, whether under the Regulation D
Common Stock Equity Line Subscription Agreement or otherwise.
OUR HIGHLY VOLATILE STOCK PRICE AND TRADING VOLUME MAY ADVERSELY AFFECT THE
LIQUIDITY OF THE COMMON STOCK.
The market price of the Common Stock, and the market prices of
securities of companies in the biotechnology industry generally, has been highly
volatile and is likely to continue to be highly volatile. Also, the trading
volume in the Common Stock has been highly volatile, ranging from as few as
44,000 shares per day to as many as 19 million shares per day over the past few
years, and is likely to continue to be highly volatile. The market price of the
Common Stock may be significantly impacted by many factors, including
announcements of technological innovations or new commercial products by us or
our competitors, disputes concerning patent or proprietary rights, publicity
regarding actual or potential medical results relating to products under
development by us or our competitors and regulatory developments and product
safety concerns in both the United States and foreign countries. These and other
external factors have caused and may continue to cause the market price and
demand for the Common Stock to fluctuate substantially, which may limit or
prevent investors from readily selling their shares of Common Stock and may
otherwise negatively affect the liquidity of the Common Stock.
WE MAY NOT BE ABLE TO COMPETE WITH OUR COMPETITORS IN THE BIOTECHNOLOGY
INDUSTRY.
The biotechnology industry is intensely competitive. It is also subject
to rapid change and sensitive to new product introductions or enhancements. We
expect to continue to experience significant and increasing levels of
competition in the future. Virtually all of our existing competitors have
greater financial resources, larger technical staffs, and larger research
budgets than we have, as well as greater experience in developing products and
running clinical trials. Two of our competitors, IDEC Pharmaceuticals
Corporation and Coulter Pharmaceuticals, Inc., each has a lymphoma antibody that
may compete with our direct tumor targeting agent product, Oncolym(R). IDEC
Pharmaceuticals Corporation is currently marketing its lymphoma product for low
27
<PAGE>
grade non-Hodgkin's lymphoma and we believe that Coulter Pharmaceuticals, Inc.
will be marketing its respective lymphoma product prior to the time our
Oncolym(R) product will be submitted to the United States Food and Drug
Administration for marketing approval. Coulter Pharmaceuticals, Inc. has also
announced that it intends to conduct clinical trials of its antibody treatment
for intermediate and/or high-grade non-Hodgkin's lymphomas. In addition, there
may be other companies which are currently developing competitive technologies
and products or which may in the future develop technologies and products which
are comparable or superior to our technologies and products. Some or all of
these companies may also have greater financial and technical resources than we
have. Accordingly, we cannot assure that we will be able to compete successfully
with our existing and future competitors or that competition will not negatively
affect our financial position or results of operations in the future.
WE MAY NOT BE SUCCESSFUL IF WE ARE UNABLE TO OBTAIN AND MAINTAIN PATENTS AND
LICENSES TO PATENTS.
Our success depends, in large part, on our ability to obtain or
maintain a proprietary position in our products through patents, trade secrets
and orphan drug designations. We have been granted several United States patents
and have submitted several United States patent applications and numerous
corresponding foreign patent applications, and have also obtained licenses to
patents or patent applications owned by other entities. However, we cannot
assure that any of these patent applications will be granted or that our patent
licensors will not terminate any of our patent licenses. We also cannot
guarantee that any issued patents will provide competitive advantages for our
products or that any issued patents will not be successfully challenged or
circumvented by our competitors. Although we believe that our patents and our
licensors' patents do not infringe on any third party's patents, we cannot be
certain that we can avoid litigation involving such patents or other proprietary
rights. Patent and proprietary rights litigation entails substantial legal and
other costs, and we may not have the necessary financial resources to defend or
prosecute our rights in connection with any litigation. Responding to, defending
or bringing claims related to patents and other intellectual property rights may
require our management to redirect our human and monetary resources to address
these claims and may take years to resolve.
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY BE REDUCED OR
DISCONTINUED DUE TO DIFFICULTIES OR DELAYS IN CLINICAL TRIALS.
We may encounter unanticipated problems, including development,
manufacturing, distribution, financing and marketing difficulties, during the
product development, approval and commercialization process. Our product
candidates may take longer than anticipated to progress through clinical trials
or patient enrollment in the clinical trials may be delayed or prolonged
significantly, thus delaying the clinical trials. Delays in patient enrollment
will result in increased costs and further delays. If we experience any such
difficulties or delays, we may have to reduce or discontinue development,
commercialization or clinical testing of some or all of our product candidates.
Schering A.G., Germany has advised us that they have stopped the current Phase
II/III clinical development program for our direct tumor targeting agent product
candidate. The Company anticipates that Schering AG will initiate a new Phase II
clinical study using a single dose in the first quarter of 2000. If Schering
A.G., Germany decides to discontinue the development of this product candidate
and terminates our license agreement for the worldwide development, distribution
and marketing of this product candidate, we may have to discontinue development,
commercialization and clinical testing of this product candidate.
28
<PAGE>
OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION EFFORTS MAY BE REDUCED OR
DISCONTINUED DUE TO DELAYS OR FAILURE IN OBTAINING REGULATORY APPROVALS.
We will need to do substantial additional development and clinical
testing prior to seeking any regulatory approval for commercialization of our
product candidates. Testing, manufacturing, commercialization, advertising,
promotion, export and marketing, among other things, of our proposed products
are subject to extensive regulation by governmental authorities in the United
States and other countries. The testing and approval process requires
substantial time, effort and financial resources and we cannot guarantee that
any approval will be granted on a timely basis, if at all. Companies in the
pharmaceutical and biotechnology industries have suffered significant setbacks
in conducting advanced human clinical trials, even after obtaining promising
results in earlier trials. Furthermore, the United States Food and Drug
Administration may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk. Even if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which it may be
marketed. Accordingly, we may experience difficulties and delays in obtaining
necessary governmental clearances and approvals to market our products, and we
may not be able to obtain all necessary governmental clearances and approvals to
market our products. At least initially, we intend, to the extent possible, to
rely on licensees to obtain regulatory approval for marketing our products. The
failure by us or our licensees to adequately demonstrate the safety and efficacy
of any of our product candidates under development could delay, limit or prevent
regulatory approval of the product, which may require us to reduce or
discontinue development, commercialization or clinical testing of some or all of
our product candidates.
OUR PRODUCTS, IF APPROVED, MAY NOT BE COMMERCIALLY VIABLE DUE TO HEALTH CARE
REFORM AND THIRD-PARTY REIMBURSEMENT LIMITATIONS.
Recent initiatives to reduce the federal deficit and to reform health
care delivery are increasing cost-containment efforts. We anticipate that
Congress, state legislatures and the private sector will continue to review and
assess alternative benefits, controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, price controls on pharmaceuticals and other fundamental
changes to the health care delivery system. Legislative debate is expected to
continue in the future, and market forces are expected to drive reductions of
health care costs. Any such changes could negatively impact the commercial
viability of our products, if approved. Our ability to successfully
commercialize our product candidates, if and when they are approved, will depend
in part on the extent to which appropriate reimbursement codes and authorized
cost reimbursement levels of such products and related treatment are obtained
from governmental authorities, private health insurers and other organizations,
such as health maintenance organizations. In the absence of national Medicare
coverage determination, local contractors that administer the Medicare program,
within certain guidelines, can make their own coverage decisions. Accordingly,
29
<PAGE>
there can be no assurance that any of our product candidates, if approved and
when commercially available, will be included within the then, current Medicare
coverage determination or the coverage determination of state Medicaid programs,
private insurance companies and other health care providers. In addition,
third-party payors are increasingly challenging the prices charged for medical
products and services. The trend toward managed health care and the growth of
health maintenance organizations in the United States may all result in lower
prices for our products, if approved and when commercially available, than we
currently expect. The cost containment measures that health care payors and
providers are instituting and the effect of any health care reform could
negatively affect our financial performance, if and when one or more of our
products are approved and available for commercial use.
OUR MANUFACTURING AND USE OF HAZARDOUS AND RADIOACTIVE MATERIALS MAY RESULT IN
OUR LIABILITY FOR DAMAGES, INCREASED COSTS AND INTERRUPTION OF ANTIBODY
SUPPLIES.
The manufacturing and use of our products require the handling and
disposal of the radioactive isotope I131. We currently rely on, and intend in
the future to rely on, our current contract manufacturers to combine antibodies
with radioactive I131 isotope in our products and to comply with various local,
state, national or international regulations regarding the handling and use of
radioactive materials. Violation of these regulations by these companies or a
clinical trial site could significantly delay completion of the trials.
Violations of safety regulations could occur with these manufacturers, so there
is also a risk of accidental contamination or injury. Accordingly, we could be
held liable for any damages that result from an accident, contamination or
injury caused by the handling and disposal of these materials, as well as for
unexpected remedial costs and penalties that may result from any violation of
applicable regulations. In addition, we may incur substantial costs to comply
with environmental regulations. In the event of any noncompliance or accident,
the supply of antibodies for use in clinical trials or commercial products could
also be interrupted.
OUR OPERATIONS AND FINANCIAL PERFORMANCE COULD BE NEGATIVELY AFFECTED IF WE
CANNOT ATTRACT AND RETAIN KEY PERSONNEL.
Our success is dependent, in part, upon a limited number of key
executive officers and technical personnel remaining employed with us, including
Dr. John N. Bonfiglio, our Interim President and Dr. Terrence Chew, our V.P. of
Clinical and Regulatory Affairs. We also believe that our future success will
depend largely upon our ability to attract and retain highly-skilled research
and development and technical personnel. We face intense competition in our
recruiting activities, including larger companies with greater resources. We do
not know if we will be successful in attracting or retaining skilled personnel.
The loss of certain key employees or our inability to attract and retain other
qualified employees could negatively affect our operations and financial
performance.
30
<PAGE>
OUR BUSINESS MAY BE ADVERSELY AFFECTED IF OUR COMPUTER SYSTEMS AND THE
COMPUTER SYSTEMS OF OUR SUPPLIERS ARE NOT YEAR 2000 COMPLIANT.
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The year 2000 problem is
pervasive and complex. The issue is whether computer systems will properly
recognize date-sensitive information in the year 2000 due to the fact that the
programming in most computer systems uses a two digit year value, which value
will rollover to "00" as of January 1, 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. We have identified substantially all of our information technology ("IT")
and non-IT systems, including major hardware and software platforms in use and
we have modified and upgraded our hardware, software of IT and non-IT systems to
be year 2000 compliant. We do not presently believe that the year 2000 problem
will pose significant operational problems for our internal computer systems or
have a negative affect on our operations. However, we cannot assure that any
year 2000 compliance problems of our suppliers will not negatively affect our
operations. Because uncertainty exists concerning the potential costs and
effects associated with any year 2000 compliance, we intend to continue to make
efforts to ensure that third parties with whom we have relationships are year
2000 compliant. We have not incurred significant costs to date associated with
year 2000 compliance and presently believe estimated future costs will not be
material. However, actual results could differ materially from our expectations
due to unanticipated technological difficulties or project delays. If any third
parties upon which we rely are unable to address the year 2000 issue in a timely
manner, although we are uncertain as to our worst case consequences, it could
have an adverse impact on our operations, including delaying our clinical trial
programs. In order to minimize this risk, we have developed a contingency plan,
and we intend to devote all resources required to attempt to resolve any
significant year 2000 problems in a timely manner.
31
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ------- ----------------------------------------------------------
A significant change in interest rates would not have a
material adverse affect on the Company's financial position or results
of operations due to the amount of cash on hand at October 31, 1999,
which consists of highly liquid investments, and as the Company's debt
instruments have fixed interest rates and terms.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
- ------- ------------------
On March 18, 1999, the Company was served with notice of a
lawsuit filed in Orange County Superior Court for the State of
California (Superior Court) by a former employee alleging a single
cause of action for wrongful termination. The Company believes this
lawsuit is barred by a severance agreement and release signed by the
former employee following his termination and the Company is vigorously
defending the action. On September 13, 1999, the Superior Court granted
Techniclone a Motion for Summary Judgement and the Company was not
obligated for any damages. On November 12, 1999, a Notice of Entry of
Judgement was filed by the Superior Court.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
- ------- ------------------------------------------
The following is a summary of transactions by the Company
during the quarterly period commencing on August 1, 1999 and ending on
October 31, 1999 involving issuance and sales of the Company's
securities that were not registered under the Securities Act of 1933,
as amended (the "Securities Act").
On various dates during the quarter ended October 31, 1999,
the Company issued an aggregate of 2,742,886 shares of the Company's
Common Stock to the two institutional investors and the placement agent
under the Equity Line, for an aggregate purchase price of $1,587,500,
pursuant to an Equity Line draw and also issued warrants to the two
institutional investors and placement agent to purchase up to 274,287
shares of Common Stock, which warrants are immediately exercisable on a
cashless basis only and expire on December 31, 2004.
On various dates during the quarter ended October 31, 1999,
the Company issued an aggregate of 13,025 shares of the Company's
Common Stock to one institutional investor upon the cashless exercise
of 48,870 warrants issued under the Equity Line.
The issuances of the securities of the Company in the above
transactions were deemed to be exempt from registration under the Securities Act
by virtue of Section 4(2) thereof or Regulation D promulgated thereunder, as a
transaction by an issuer not involving a public offering. The recipient of such
securities either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
32
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
- ------- --------------------------------
On December 1, 1999, the Company defaulted on its monthly interest
payment of $27,500 to Biotechnology Development Ltd. on a $3,300,000 note
payable. The note payable was issued to Biotechnology Development Ltd. upon the
Company re-acquiring the Oncolym(R) distribution rights. The note payable bears
simple interest at a rate of 10% per annum, payable monthly, and is due on March
1, 2001. The note is collateralized by all tangible assets of the Company,
excluding tangible assets not located on the Company's Tustin, California
premises and those assets previously pledged and held as collateral under
separate agreements. Upon the Company defaulting on its interest payment,
Biotechnology Development Ltd. may, at its option, declare the note payable of
$3,300,000 to be immediately due and payable. The Company and Biotechnology
Development Ltd. are currently in negotiations regarding a waiver of the
default.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- ------- ----------------------------------------------------
The Company held an annual meeting of stockholders' on October 20,
1999. The directors elected at the meeting were Larry O. Bymaster, Rockell N.
Hankin, William C. Shepherd, Clive R. Taylor, M.D. Ph.D., and Thomas R. Testman.
The following represent matters voted upon and the results of the voting:
<TABLE>
<CAPTION>
FOR AGAINST OR WITHHELD
------------------- ----------------------
<S> <C> <C>
1) Election of Directors:
Larry O. Bymaster 59,616,200 5,273,156
Rockell N. Hankin 59,869,557 5,019,799
William C. Shepherd 60,592,832 4,296,524
Clive R. Taylor, M.D. Ph.D. 60,472,457 4,416,899
Thomas R. Testman 59,790,665 5,098,691
2) To approve an amendment to the Company's
Certificate of Incorporation to increase
the authorized number of shares of Common
Stock from 120,000,000 shares to
150,000,000 shares. 53,832,767 11,056,589
3) To ratify the appointment of Ernst &
Young LLP as independent auditors of the
Company for the fiscal year ended April 30,
1999 and for the fiscal year ending April
30, 2000. 61,643,981 3,245,375
</TABLE>
ITEM 5. OTHER INFORMATION. None.
- ------- ------------------
33
<PAGE>
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
- ------- --------------------------------
(a) Exhibits:
Exhibit Number Description
-------------- -----------
10.60 Change in Control Agreement dated August 4, 1999
between Registrant and John N. Bonfiglio, V.P. of
Technology and Business Development.
10.61 Change in Control Agreement dated August 4, 1999
between Registrant and Larry O. Bymaster, President
and Chief Executive Officer.
10.62 Change in Control Agreement dated August 4, 1999
between Registrant and Steven C. Burke, Chief
Financial Officer and Corporate Secretary.
10.63 Change in Control Agreement dated September 27, 1999
between Registrant and Terrence Chew, V.P of
Clinical and Regulatory Affairs.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
Current Report on Form 8-K as filed with the
Commission on October 19, 1999 reporting the
reduction of all operations other than clinical
trials, including an approximate 50% reduction in
the Company's workforce.
34
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TECHNICLONE CORPORATION
By: /s/ John N. Bonfiglio
-------------------------------------
Interim President (signed both as
an officer duly authorized to sign on
behalf of the Registrant and chief
accounting officer)
35
EXHIBIT 10.60
[Letterhead of Techniclone Corporation]
August 4, 1999
Dr. John N. Bonfiglio
Vice President of Technology and Business Development
Techniclone Corporation
14282 Franklin Avenue
Tustin, California 92780
Dear Dr. Bonfiglio:
Techniclone Corporation, for itself, its successors and assigns
(collectively, the "COMPANY") considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel
in a period of uncertainty regarding the business climate surrounding Company's
future. In this regard, the Board of Directors of the Company (the "BOARD")
recognizes that the possibility of a Change in Control (as defined below) of the
Company's ownership exists and that such possibility, and the uncertainty and
questions which it necessarily raises among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders in this period when their undivided attention and
commitment to the best interests of the Company and its shareholders are
particularly important.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control of the Company. This
Agreement is not intended to alter materially the compensation and benefits that
you could reasonably expect in the absence of a Change in Control of the Company
and, accordingly, this Agreement, though taking effect upon execution hereof,
will be operative only upon a Change in Control of the Company.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the benefits set forth in
this letter agreement (the "AGREEMENT") in the event you are involuntarily or
constructively terminated from your position with the Company at any time during
a two year period (a "TERMINATION") following the date of a Change in Control of
the Company (as defined in SECTION 2 hereof) under the circumstances described
below. For the purposes of this Agreement, involuntary or constructive
Termination shall include, without limitation:
(i) a reduction by the Company in your base salary, bonus computation
or title, or a substantial reduction in your responsibilities as in
effect immediately prior to the Change in Control or as the same may be
increased from time to time or a change in employment conditions deemed
by you to be materially adverse from those in effect immediately prior
to the Change in Control;
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 2
(ii) a failure by the Company to continue any bonus plans in effect as
of the date of a Change in Control (the "BONUS PLANS") or a failure by
the Company to continue you as a participant in the Bonus Plans on at
least the same basis as you presently participate in accordance with
the Bonus Plans as of the date immediately prior to the Change in
Control;
(iii) without your express written consent, the Company's requiring you
to be based anywhere other than within 25 miles of your present office
location, except for required travel on the Company's business to an
extent substantially consistent with your recent business travel
obligations;
(iv) the failure by the Company to continue in effect any stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health-and-accident plan or disability plan in which you are
participating at the time of a Change in Control of the Company (or
plans providing you with substantially similar benefits), or the taking
of any action by the Company which would materially and adversely
affect your participation in or materially reduce your benefits under
any of such plans;
(v) the taking of any action by the Company which would deprive you of
any material fringe benefit enjoyed by you at the time of the Change in
Control or the failure by the Company to provide you with the number of
paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date of the
Change in Control;
(vi) the failure by the Company to obtain the assumption or the
agreement to perform this Agreement by any successor of the Company;
and
(vii) any other involuntary Termination; and
none of the actions causing such Termination (including, without limitation,
those in the foregoing paragraphs (i) through (vii) above) is a result of (a) an
act or acts of dishonesty by you constituting a felony for which you are
convicted concerning your personal enrichment at the Company's expense, or (b)
refusal by you (except by reason of incapacity due to illness or accident) to
comply with the provisions of any confidentiality agreement between you and the
Company.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through August 4, 2001. At the end of each full two
year term of this Agreement, this Agreement shall be automatically renewed for
an additional two year period, unless the Company, at its sole and absolute
discretion, notifies you of nonrenewal, such notice to be delivered in writing
at least ninety (90) days prior to the end of the two year period. Upon notice
of nonrenewal, you will be entitled to the protection afforded under this
Agreement for the remaining term of this Agreement.
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 3
2. CHANGE IN CONTROL. All benefits set forth hereunder shall be payable
to you in the event (i) a Change in Control of the Company (as defined below)
shall take place during the term of this Agreement, AND (ii) a Termination shall
occur at any time within the two year period immediately following the Change in
Control. For purposes of this Agreement a Change in Control of the Company shall
mean 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"), whether or not
the Company is then subject to such reporting requirement; provided that,
without limitation, such a Change in Control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding voting securities; (ii)
there is a merger or consolidation of the Company in which the Company does not
survive as an independent public company; (iii) the primary business or
businesses of the Company for which your services are principally performed are
disposed of by the Company pursuant to a liquidation of the Company, a sale of
substantially all the assets (including stock of a subsidiary) of the Company or
such primary business, or otherwise; or (iv) during any period of two (2)
consecutive years during the term of this Agreement, individuals who, at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period.
3. COMPENSATION FOLLOWING TERMINATION.
(a) Subject to the terms and conditions of this Agreement,
after a Change in Control of the Company which occurs during the term
of this Agreement, followed by your termination of employment at any
time during the two-year period immediately following the Change in
Control, and if such termination is a "Termination" as defined above,
you shall be entitled to (A) a lump sum payment, within fifteen (15)
days following your Termination, in an amount equal to one (1.0) times
the highest annual level of total cash compensation (including any and
all bonus amounts) paid to you by the Company (as reported on Form W-2)
during the three calendar years ended immediately prior to your
Termination, (B) the immediate vesting of all previously granted but
unvested stock options to acquire securities from the Company and
outstanding on the date of the Termination, and (C) continuing health
coverage for a period of twelve (12) months, at a level commensurate
with that which you enjoyed with the Company immediately prior to such
Change in Control.
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 4
(b) You shall not be required to mitigate the amount of any payment provided for
in this SECTION 3 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this SECTION 3 be reduced by any
amounts to which you shall be entitled by law (nor shall payment hereunder be
deemed in lieu of such amounts), any compensation earned by you as the result of
employment by another employer or by retirement benefits after the date of
Termination or voluntary termination, or otherwise, PROVIDED, HOWEVER, without
otherwise diminishing your rights, any benefits or amounts payable hereunder,
any amount payable under this SECTION 3 shall be reduced by the amount of any
severance payment to which you may be entitled under any agreement of employment
with the Company which is payable as a result of your termination of employment
with the Company and, PROVIDED FURTHER, you shall first look to any such other
agreement providing for payment upon your termination of employment with the
Company prior to payment hereunder.
4. TAX TREATMENT. It is the intention that no portion of the payment
made under SECTION 3 hereof (the "TERMINATION PAYMENT") or any other payment
under this Agreement, or payments to or for your benefit under any other
agreement or plan be deemed to be an excess parachute payment as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), or
its successors. It is agreed that the present value of the Termination Payment
and any other payment to or for your benefit in the nature of compensation,
receipt of which is contingent on the Change in Control of the Company, and to
which Section 280G of the Code or any successor provision thereto applies (in
the aggregate "TOTAL PAYMENTS") shall not exceed an amount equal to one dollar
less than the maximum amount which you may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G of the Code or
any successor provision. Present value for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) the Code or any successor
provision.
Within six (6) days following delivery of written notice by the Company
to you of the Company's belief that there is a payment due or benefit due which
will result in an excess parachute payment as defined in Section 280G of the
Code or any successor provision, the Company and you, at the Company's expense,
shall obtain the opinion of legal counsel and certified public accountants, as
the Company and you may mutually agree upon, which opinions need not be
unqualified, which sets forth (i) the amount of your Base Period Income, as
defined in Section 280G of the Code, (ii) the present value of Total Payments,
and (iii) the amount and present value of any excess parachute payments.
In the event such opinions determine that there would be an excess
parachute payment, the Termination Payment hereunder or any other payment
determined by such counsel to be includable in Total Payments shall be reduced
or eliminated in the following order: (i) by the amount of any options to
purchase shares of the Company's capital stock which have had their vesting
rights accelerated hereunder, and then (ii) by the amount of any cash received
hereunder, so that under the bases of calculation set forth in such opinions
there will be no excess parachute payment. The provisions of this Section,
including the calculations, notices, and opinions provided for herein shall be
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 5
based upon the conclusive presumption that (X) the compensation and benefits
provided herein and (Y) any other compensation, including but not limited to any
accrued benefits, earned by you prior to the Change in Control of the Company
pursuant to the Company's compensation programs if such payments would have been
made in the future in any event, even though the timing of such payment is
triggered by the Change in Control of the Company, is reasonable, provided,
however, that in the event such legal counsel so requests in connection with the
Section 280G opinion required by this Section, the Company and you shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by you. In
the event that the provisions of Sections 280G and 4999 of the Code or any
successor provision are repealed without succession this Section shall be of no
further force or effect.
5. SUCCESSORS; BINDING AGREEMENT.
(a) 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 to
assume expressly and agree in writing to perform this Agreement.
Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this
Agreement and shall require the Company to pay to you compensation from
the Company in the same amount and on the same terms as you would be
entitled hereunder following a Change in Control of the Company coupled
with a Termination, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which you shall receive such compensation
from the Company. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devises, legatee or other designee or, if
there is no such designee to your estate.
6. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of a change of address shall be effective only upon receipt.
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 6
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. 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. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements or understandings relating to the subject
matter hereof.
11. HEADINGS. The headings of the Articles and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
13. ATTORNEYS' FEES. In the event any party to this Agreement initiates
any action, suit, motion, application, arbitration or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application, arbitration or other
proceeding, or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the nonprevailing party or judgment debtor, including costs
and fees on appeal, if any.
<PAGE>
Dr. John N. Bonfiglio
August 4, 1999
Page 7
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECHNICLONE CORPORATION
a Delaware corporation
By: /s/ Larry O. Bymaster
-------------------------------------
Larry O. Bymaster, President and
Chief Executive Officer
AGREED TO THIS 4th
day of August, 1999
/s/ John N. Bonfiglio
- --------------------------------
Dr. John N. Bonfiglio
Approved by the Board of Directors of Techniclone Corporation on July 28, 1999.
EXHIBIT 10.61
[Letterhead of Techniclone Corporation]
August 4, 1999
Mr. Larry O. Bymaster
President and Chief Executive Officer
Techniclone Corporation
14282 Franklin Avenue
Tustin, California 92780
Dear Mr. Bymaster:
Techniclone Corporation, for itself, its successors and assigns
(collectively, the "COMPANY") considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel
in a period of uncertainty regarding the business climate surrounding Company's
future. In this regard, the Board of Directors of the Company (the "BOARD")
recognizes that the possibility of a Change in Control (as defined below) of the
Company's ownership exists and that such possibility, and the uncertainty and
questions which it necessarily raises among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders in this period when their undivided attention and
commitment to the best interests of the Company and its shareholders are
particularly important.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control of the Company. This
Agreement is not intended to alter materially the compensation and benefits that
you could reasonably expect in the absence of a Change in Control of the Company
and, accordingly, this Agreement, though taking effect upon execution hereof,
will be operative only upon a Change in Control of the Company.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the benefits set forth in
this letter agreement (the "Agreement") in the event you are involuntarily or
constructively terminated from your position with the Company at any time during
a two year period (a "Termination") following the date of a Change in Control of
the Company (as defined in Section 2 hereof) under the circumstances described
below. For the purposes of this Agreement, involuntary or constructive
Termination shall include, without limitation:
(i) a reduction by the Company in your base salary, bonus computation
or title, or a substantial reduction in your responsibilities as in
effect immediately prior to the Change in Control or as the same may be
increased from time to time or a change in employment conditions deemed
by you to be materially adverse from those in effect immediately prior
to the Change in Control;
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 2
(ii) a failure by the Company to continue any bonus plans in effect as
of the date of a Change in Control (the "BONUS PLANS") or a failure by
the Company to continue you as a participant in the Bonus Plans on at
least the same basis as you presently participate in accordance with
the Bonus Plans as of the date immediately prior to the Change in
Control;
(iii) without your express written consent, the Company's requiring you
to be based anywhere other than within 25 miles of your present office
location, except for required travel on the Company's business to an
extent substantially consistent with your recent business travel
obligations;
(iv) the failure by the Company to continue in effect any stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health-and-accident plan or disability plan in which you are
participating at the time of a Change in Control of the Company (or
plans providing you with substantially similar benefits), or the taking
of any action by the Company which would materially and adversely
affect your participation in or materially reduce your benefits under
any of such plans;
(v) the taking of any action by the Company which would deprive you of
any material fringe benefit enjoyed by you at the time of the Change in
Control or the failure by the Company to provide you with the number of
paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date of the
Change in Control;
(vi) the failure by the Company to obtain the assumption or the
agreement to perform this Agreement by any successor of the Company;
and
(vii) any other involuntary Termination; and
none of the actions causing such Termination (including, without limitation,
those in the foregoing paragraphs (i) through (vii) above) is a result of (a) an
act or acts of dishonesty by you constituting a felony for which you are
convicted concerning your personal enrichment at the Company's expense, or (b)
refusal by you (except by reason of incapacity due to illness or accident) to
comply with the provisions of any confidentiality agreement between you and the
Company.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through August 4, 2001. At the end of each full two
year term of this Agreement, this Agreement shall be automatically renewed for
an additional two year period, unless the Company, at its sole and absolute
discretion, notifies you of nonrenewal, such notice to be delivered in writing
at least ninety (90) days prior to the end of the two year period. Upon notice
of nonrenewal, you will be entitled to the protection afforded under this
Agreement for the remaining term of this Agreement.
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 3
2. CHANGE IN CONTROL. All benefits set forth hereunder shall be payable
to you in the event (i) a Change in Control of the Company (as defined below)
shall take place during the term of this Agreement, AND (ii) a Termination shall
occur at any time within the two year period immediately following the Change in
Control. For purposes of this Agreement a Change in Control of the Company shall
mean 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"), whether or not
the Company is then subject to such reporting requirement; provided that,
without limitation, such a Change in Control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding voting securities; (ii)
there is a merger or consolidation of the Company in which the Company does not
survive as an independent public company; (iii) the primary business or
businesses of the Company for which your services are principally performed are
disposed of by the Company pursuant to a liquidation of the Company, a sale of
substantially all the assets (including stock of a subsidiary) of the Company or
such primary business, or otherwise; or (iv) during any period of two (2)
consecutive years during the term of this Agreement, individuals who, at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period.
3. COMPENSATION FOLLOWING TERMINATION.
(a) Subject to the terms and conditions of this Agreement,
after a Change in Control of the Company which occurs during the term
of this Agreement, followed by your termination of employment at any
time during the two-year period immediately following the Change in
Control, and if such termination is a "Termination" as defined above,
you shall be entitled to (A) a lump sum payment, within fifteen (15)
days following your Termination, in an amount equal to one and one-half
(1.5) times the highest annual level of total cash compensation
(including any and all bonus amounts) paid to you by the Company (as
reported on Form W-2) during the three calendar years ended immediately
prior to your Termination, (B) the immediate vesting of all previously
granted but unvested stock options to acquire securities from the
Company and outstanding on the date of the Termination, and (C)
continuing health coverage for a period of eighteen (18) months, at a
level commensurate with that which you enjoyed with the Company
immediately prior to such Change in Control.
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 4
(b) You shall not be required to mitigate the amount of any payment provided for
in this SECTION 3 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this SECTION 3 be reduced by any
amounts to which you shall be entitled by law (nor shall payment hereunder be
deemed in lieu of such amounts), any compensation earned by you as the result of
employment by another employer or by retirement benefits after the date of
Termination or voluntary termination, or otherwise, PROVIDED, HOWEVER, without
otherwise diminishing your rights, any benefits or amounts payable hereunder,
any amount payable under this SECTION 3 shall be reduced by the amount of any
severance payment to which you may be entitled under any agreement of employment
with the Company which is payable as a result of your termination of employment
with the Company and, PROVIDED FURTHER, you shall first look to any such other
agreement providing for payment upon your termination of employment with the
Company prior to payment hereunder.
4. TAX TREATMENT. It is the intention that no portion of the payment
made under SECTION 3 hereof (the "TERMINATION PAYMENT") or any other payment
under this Agreement, or payments to or for your benefit under any other
agreement or plan be deemed to be an excess parachute payment as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), or
its successors. It is agreed that the present value of the Termination Payment
and any other payment to or for your benefit in the nature of compensation,
receipt of which is contingent on the Change in Control of the Company, and to
which Section 280G of the Code or any successor provision thereto applies (in
the aggregate "TOTAL PAYMENTS") shall not exceed an amount equal to one dollar
less than the maximum amount which you may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G of the Code or
any successor provision. Present value for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) the Code or any successor
provision.
Within six (6) days following delivery of written notice by the Company
to you of the Company's belief that there is a payment due or benefit due which
will result in an excess parachute payment as defined in Section 280G of the
Code or any successor provision, the Company and you, at the Company's expense,
shall obtain the opinion of legal counsel and certified public accountants, as
the Company and you may mutually agree upon, which opinions need not be
unqualified, which sets forth (i) the amount of your Base Period Income, as
defined in Section 280G of the Code, (ii) the present value of Total Payments,
and (iii) the amount and present value of any excess parachute payments.
In the event such opinions determine that there would be an excess
parachute payment, the Termination Payment hereunder or any other payment
determined by such counsel to be includable in Total Payments shall be reduced
or eliminated in the following order: (i) by the amount of any options to
purchase shares of the Company's capital stock which have had their vesting
rights accelerated hereunder, and then (ii) by the amount of any cash received
hereunder, so that under the bases of calculation set forth in such opinions
there will be no excess parachute payment. The provisions of this Section,
including the calculations, notices, and opinions provided for herein shall be
based upon the conclusive presumption that (X) the compensation and benefits
provided herein and (Y) any other compensation, including but not limited to any
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 5
accrued benefits, earned by you prior to the Change in Control of the Company
pursuant to the Company's compensation programs if such payments would have been
made in the future in any event, even though the timing of such payment is
triggered by the Change in Control of the Company, is reasonable, provided,
however, that in the event such legal counsel so requests in connection with the
Section 280G opinion required by this Section, the Company and you shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by you. In
the event that the provisions of Sections 280G and 4999 of the Code or any
successor provision are repealed without succession this Section shall be of no
further force or effect.
5. SUCCESSORS; BINDING AGREEMENT.
(a) 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 to
assume expressly and agree in writing to perform this Agreement.
Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this
Agreement and shall require the Company to pay to you compensation from
the Company in the same amount and on the same terms as you would be
entitled hereunder following a Change in Control of the Company coupled
with a Termination, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which you shall receive such compensation
from the Company. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devises, legatee or other designee or, if
there is no such designee to your estate.
6. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of a change of address shall be effective only upon receipt.
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 6
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. 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. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements or understandings relating to the subject
matter hereof.
11. HEADINGS. The headings of the Articles and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
13. ATTORNEYS' FEES. In the event any party to this Agreement initiates
any action, suit, motion, application, arbitration or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application, arbitration or other
proceeding, or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the nonprevailing party or judgment debtor, including costs
and fees on appeal, if any.
<PAGE>
Mr. Larry O. Bymaster
August 4, 1999
Page 7
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECHNICLONE CORPORATION
a Delaware corporation
By: /s/ Steven C. Burke
----------------------------------------
Steven C. Burke, Chief Financial Officer
AGREED TO THIS 4th
day of August, 1999
/s/ Larry O. Bymaster
- ------------------------------
Larry O. Bymaster
Approved by the Board of Directors of Techniclone Corporation on July 28, 1999.
EXHIBIT 10.62
[Letterhead of Techniclone Corporation]
August 4, 1999
Mr. Steven C. Burke
Chief Financial Officer
Techniclone Corporation
14282 Franklin Avenue
Tustin, California 92780
Dear Mr. Burke:
Techniclone Corporation, for itself, its successors and assigns
(collectively, the "COMPANY") considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel
in a period of uncertainty regarding the business climate surrounding Company's
future. In this regard, the Board of Directors of the Company (the "BOARD")
recognizes that the possibility of a Change in Control (as defined below) of the
Company's ownership exists and that such possibility, and the uncertainty and
questions which it necessarily raises among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders in this period when their undivided attention and
commitment to the best interests of the Company and its shareholders are
particularly important.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control of the Company. This
Agreement is not intended to alter materially the compensation and benefits that
you could reasonably expect in the absence of a Change in Control of the Company
and, accordingly, this Agreement, though taking effect upon execution hereof,
will be operative only upon a Change in Control of the Company.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the benefits set forth in
this letter agreement (the "Agreement") in the event you are involuntarily or
constructively terminated from your position with the Company at any time during
a two year period (a "Termination") following the date of a Change in Control of
the Company (as defined in Section 2 hereof) under the circumstances described
below. For the purposes of this Agreement, involuntary or constructive
Termination shall include, without limitation:
(i) a reduction by the Company in your base salary, bonus computation
or title, or a substantial reduction in your responsibilities as in
effect immediately prior to the Change in Control or as the same may be
increased from time to time or a change in employment conditions deemed
by you to be materially adverse from those in effect immediately prior
to the Change in Control;
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 2
(ii) a failure by the Company to continue any bonus plans in effect as
of the date of a Change in Control (the "BONUS PLANS") or a failure by
the Company to continue you as a participant in the Bonus Plans on at
least the same basis as you presently participate in accordance with
the Bonus Plans as of the date immediately prior to the Change in
Control;
(iii) without your express written consent, the Company's requiring you
to be based anywhere other than within 25 miles of your present office
location, except for required travel on the Company's business to an
extent substantially consistent with your recent business travel
obligations;
(iv) the failure by the Company to continue in effect any stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health-and-accident plan or disability plan in which you are
participating at the time of a Change in Control of the Company (or
plans providing you with substantially similar benefits), or the taking
of any action by the Company which would materially and adversely
affect your participation in or materially reduce your benefits under
any of such plans;
(v) the taking of any action by the Company which would deprive you of
any material fringe benefit enjoyed by you at the time of the Change in
Control or the failure by the Company to provide you with the number of
paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date of the
Change in Control;
(vi) the failure by the Company to obtain the assumption or the
agreement to perform this Agreement by any successor of the Company;
and
(vii) any other involuntary Termination; and
none of the actions causing such Termination (including, without limitation,
those in the foregoing paragraphs (i) through (vii) above) is a result of (a) an
act or acts of dishonesty by you constituting a felony for which you are
convicted concerning your personal enrichment at the Company's expense, or (b)
refusal by you (except by reason of incapacity due to illness or accident) to
comply with the provisions of any confidentiality agreement between you and the
Company.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through August 4, 2001. At the end of each full two
year term of this Agreement, this Agreement shall be automatically renewed for
an additional two year period, unless the Company, at its sole and absolute
discretion, notifies you of nonrenewal, such notice to be delivered in writing
at least ninety (90) days prior to the end of the two year period. Upon notice
of nonrenewal, you will be entitled to the protection afforded under this
Agreement for the remaining term of this Agreement.
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 3
2. CHANGE IN CONTROL. All benefits set forth hereunder shall be payable
to you in the event (i) a Change in Control of the Company (as defined below)
shall take place during the term of this Agreement, and (ii) a Termination shall
occur at any time within the two year period immediately following the Change in
Control. For purposes of this Agreement a Change in Control of the Company shall
mean 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"), whether or not
the Company is then subject to such reporting requirement; provided that,
without limitation, such a Change in Control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding voting securities; (ii)
there is a merger or consolidation of the Company in which the Company does not
survive as an independent public company; (iii) the primary business or
businesses of the Company for which your services are principally performed are
disposed of by the Company pursuant to a liquidation of the Company, a sale of
substantially all the assets (including stock of a subsidiary) of the Company or
such primary business, or otherwise; or (iv) during any period of two (2)
consecutive years during the term of this Agreement, individuals who, at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period.
3. COMPENSATION FOLLOWING TERMINATION.
(a) Subject to the terms and conditions of this Agreement,
after a Change in Control of the Company which occurs during the term
of this Agreement, followed by your termination of employment at any
time during the two-year period immediately following the Change in
Control, and if such termination is a "Termination" as defined above,
you shall be entitled to (A) a lump sum payment, within fifteen (15)
days following your Termination, in an amount equal to one (1.0) times
the highest annual level of total cash compensation (including any and
all bonus amounts) paid to you by the Company (as reported on Form W-2)
during the three calendar years ended immediately prior to your
Termination, (B) the immediate vesting of all previously granted but
unvested stock options to acquire securities from the Company and
outstanding on the date of the Termination, and (C) continuing health
coverage for a period of twelve (12) months, at a level commensurate
with that which you enjoyed with the Company immediately prior to such
Change in Control.
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 4
(b) You shall not be required to mitigate the amount of any payment provided for
in this SECTION 3 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this SECTION 3 be reduced by any
amounts to which you shall be entitled by law (nor shall payment hereunder be
deemed in lieu of such amounts), any compensation earned by you as the result of
employment by another employer or by retirement benefits after the date of
Termination or voluntary termination, or otherwise, PROVIDED, HOWEVER, without
otherwise diminishing your rights, any benefits or amounts payable hereunder,
any amount payable under this SECTION 3 shall be reduced by the amount of any
severance payment to which you may be entitled under any agreement of employment
with the Company which is payable as a result of your termination of employment
with the Company and, PROVIDED FURTHER, you shall first look to any such other
agreement providing for payment upon your termination of employment with the
Company prior to payment hereunder.
4. TAX TREATMENT. It is the intention that no portion of the payment
made under SECTION 3 hereof (the "TERMINATION PAYMENT") or any other payment
under this Agreement, or payments to or for your benefit under any other
agreement or plan be deemed to be an excess parachute payment as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), or
its successors. It is agreed that the present value of the Termination Payment
and any other payment to or for your benefit in the nature of compensation,
receipt of which is contingent on the Change in Control of the Company, and to
which Section 280G of the Code or any successor provision thereto applies (in
the aggregate "TOTAL PAYMENTS") shall not exceed an amount equal to one dollar
less than the maximum amount which you may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G of the Code or
any successor provision. Present value for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) the Code or any successor
provision.
Within six (6) days following delivery of written notice by the Company
to you of the Company's belief that there is a payment due or benefit due which
will result in an excess parachute payment as defined in Section 280G of the
Code or any successor provision, the Company and you, at the Company's expense,
shall obtain the opinion of legal counsel and certified public accountants, as
the Company and you may mutually agree upon, which opinions need not be
unqualified, which sets forth (i) the amount of your Base Period Income, as
defined in Section 280G of the Code, (ii) the present value of Total Payments,
and (iii) the amount and present value of any excess parachute payments.
In the event such opinions determine that there would be an excess
parachute payment, the Termination Payment hereunder or any other payment
determined by such counsel to be includable in Total Payments shall be reduced
or eliminated in the following order: (i) by the amount of any options to
purchase shares of the Company's capital stock which have had their vesting
rights accelerated hereunder, and then (ii) by the amount of any cash received
hereunder, so that under the bases of calculation set forth in such opinions
there will be no excess parachute payment. The provisions of this Section,
including the calculations, notices, and opinions provided for herein shall be
based upon the conclusive presumption that (X) the compensation and benefits
provided herein and (Y) any other compensation, including but not limited to any
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 5
accrued benefits, earned by you prior to the Change in Control of the Company
pursuant to the Company's compensation programs if such payments would have been
made in the future in any event, even though the timing of such payment is
triggered by the Change in Control of the Company, is reasonable, provided,
however, that in the event such legal counsel so requests in connection with the
Section 280G opinion required by this Section, the Company and you shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by you. In
the event that the provisions of Sections 280G and 4999 of the Code or any
successor provision are repealed without succession this Section shall be of no
further force or effect.
5. SUCCESSORS; BINDING AGREEMENT.
(a) 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 to
assume expressly and agree in writing to perform this Agreement.
Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this
Agreement and shall require the Company to pay to you compensation from
the Company in the same amount and on the same terms as you would be
entitled hereunder following a Change in Control of the Company coupled
with a Termination, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which you shall receive such compensation
from the Company. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devises, legatee or other designee or, if
there is no such designee to your estate.
6. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of a change of address shall be effective only upon receipt.
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 6
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. 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. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements or understandings relating to the subject
matter hereof.
11. HEADINGS. The headings of the Articles and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
13. ATTORNEYS' FEES. In the event any party to this Agreement initiates
any action, suit, motion, application, arbitration or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application, arbitration or other
proceeding, or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the nonprevailing party or judgment debtor, including costs
and fees on appeal, if any.
<PAGE>
Mr. Steven C. Burke
August 4, 1999
Page 7
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECHNICLONE CORPORATION
a Delaware corporation
By: /s/ Larry O. Bymaster
-----------------------------------
Larry O. Bymaster, President and
Chief Executive Officer
AGREED TO THIS 4th
day of August, 1999
/s/ Steven C. Burke
- -----------------------------
Steven C. Burke
Approved by the Board of Directors of Techniclone Corporation on July 28, 1999.
EXHIBIT 10.63
[Letterhead of Techniclone Corporation]
September 27, 1999
Dr. Terrence Chew
Vice President, Clinical and Regulatory Affairs
Techniclone Corporation
14282 Franklin Avenue
Tustin, California 92780
Dear Dr. Chew:
Techniclone Corporation, for itself, its successors and assigns
(collectively, the "COMPANY") considers it essential to the best interests of
its shareholders to foster the continued employment of key management personnel
in a period of uncertainty regarding the business climate surrounding Company's
future. In this regard, the Board of Directors of the Company (the "BOARD")
recognizes that the possibility of a Change in Control (as defined below) of the
Company's ownership exists and that such possibility, and the uncertainty and
questions which it necessarily raises among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its shareholders in this period when their undivided attention and
commitment to the best interests of the Company and its shareholders are
particularly important.
Accordingly, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including yourself, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a Change in Control of the Company. This
Agreement is not intended to alter materially the compensation and benefits that
you could reasonably expect in the absence of a Change in Control of the Company
and, accordingly, this Agreement, though taking effect upon execution hereof,
will be operative only upon a Change in Control of the Company.
In order to induce you to remain in the employ of the
Company, the Company agrees that you shall receive the benefits set forth in
this letter agreement (the "AGREEMENT") in the event you are involuntarily or
constructively terminated from your position with the Company at any time during
a two year period (a "TERMINATION") following the date of a Change in Control of
the Company (as defined in SECTION 2 hereof) under the circumstances described
below. For the purposes of this Agreement, involuntary or constructive
Termination shall include, without limitation:
(i) a reduction by the Company in your base salary, bonus computation
or title, or a substantial reduction in your responsibilities as in
effect immediately prior to the Change in Control or as the same may be
increased from time to time or a change in employment conditions deemed
by you to be materially adverse from those in effect immediately prior
to the Change in Control;
<PAGE>
Dr. Terrence Chew
September 27, 1999
Page 2
(ii) a failure by the Company to continue any bonus plans in effect as
of the date of a Change in Control (the "BONUS PLANS") or a failure by
the Company to continue you as a participant in the Bonus Plans on at
least the same basis as you presently participate in accordance with
the Bonus Plans as of the date immediately prior to the Change in
Control;
(iii) without your express written consent, the Company's requiring you
to be based anywhere other than within 25 miles of your present office
location, except for required travel on the Company's business to an
extent substantially consistent with your recent business travel
obligations;
(iv) the failure by the Company to continue in effect any stock
ownership plan, stock purchase plan, stock option plan, life insurance
plan, health-and-accident plan or disability plan in which you are
participating at the time of a Change in Control of the Company (or
plans providing you with substantially similar benefits), or the taking
of any action by the Company which would materially and adversely
affect your participation in or materially reduce your benefits under
any of such plans;
(v) the taking of any action by the Company which would deprive you of
any material fringe benefit enjoyed by you at the time of the Change in
Control or the failure by the Company to provide you with the number of
paid vacation days to which you are then entitled in accordance with
the Company's normal vacation policy in effect on the date of the
Change in Control;
(vi) the failure by the Company to obtain the assumption or the
agreement to perform this Agreement by any successor of the Company;
and
(vii) any other involuntary Termination; and
none of the actions causing such Termination (including, without limitation,
those in the foregoing paragraphs (i) through (vii) above) is a result of (a) an
act or acts of dishonesty by you constituting a felony for which you are
convicted concerning your personal enrichment at the Company's expense, or (b)
refusal by you (except by reason of incapacity due to illness or accident) to
comply with the provisions of any confidentiality agreement between you and the
Company.
1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof
and shall continue in effect through September 27, 2001. At the end of each full
two year term of this Agreement, this Agreement shall be automatically renewed
for an additional two year period, unless the Company, at its sole and absolute
discretion, notifies you of nonrenewal, such notice to be delivered in writing
at least ninety (90) days prior to the end of the two year period. Upon notice
of nonrenewal, you will be entitled to the protection afforded under this
Agreement for the remaining term of this Agreement.
<PAGE>
Dr. Terrence Chew
September 27, 1999
Page 3
2. CHANGE IN CONTROL. All benefits set forth hereunder shall be payable
to you in the event (i) a Change in Control of the Company (as defined below)
shall take place during the term of this Agreement, and (ii) a Termination shall
occur at any time within the two year period immediately following the Change in
Control. For purposes of this Agreement a Change in Control of the Company shall
mean 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"), whether or not
the Company is then subject to such reporting requirement; provided that,
without limitation, such a Change in Control shall be deemed to have occurred if
(i) any "person" (as such term is used in Section 13(d) and 14(d) of the
Exchange Act), other than a trustee or other fiduciary holding securities under
an employee benefit plan of the Company, is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing thirty-five percent (35%) or more of the
combined voting power of the Company's then outstanding voting securities; (ii)
there is a merger or consolidation of the Company in which the Company does not
survive as an independent public company; (iii) the primary business or
businesses of the Company for which your services are principally performed are
disposed of by the Company pursuant to a liquidation of the Company, a sale of
substantially all the assets (including stock of a subsidiary) of the Company or
such primary business, or otherwise; or (iv) during any period of two (2)
consecutive years during the term of this Agreement, individuals who, at the
beginning of such period constitute the Board, cease for any reason to
constitute at least a majority thereof, unless the election of each director who
was not a director at the beginning of such period has been approved in advance
by directors representing at least two-thirds of the directors then in office
who were directors at the beginning of the period.
3. COMPENSATION FOLLOWING TERMINATION.
(a) Subject to the terms and conditions of this Agreement,
after a Change in Control of the Company which occurs during the term
of this Agreement, followed by your termination of employment at any
time during the two-year period immediately following the Change in
Control, and if such termination is a "Termination" as defined above,
you shall be entitled to (A) a lump sum payment, within fifteen (15)
days following your Termination, in an amount equal to one (1.0) times
the highest annual level of total cash compensation (including any and
all bonus amounts) paid to you by the Company (as reported on Form W-2)
during the three calendar years ended immediately prior to your
Termination, (B) the immediate vesting of all previously granted but
unvested stock options to acquire securities from the Company and
outstanding on the date of the Termination, and (C) continuing health
coverage for a period of twelve (12) months, at a level commensurate
with that which you enjoyed with the Company immediately prior to such
Change in Control.
<PAGE>
Dr. Terrence Chew
September 27, 1999
Page 4
(b) You shall not be required to mitigate the amount of any payment provided for
in this SECTION 3 by seeking other employment or otherwise, nor shall the amount
of any payment or benefit provided for in this SECTION 3 be reduced by any
amounts to which you shall be entitled by law (nor shall payment hereunder be
deemed in lieu of such amounts), any compensation earned by you as the result of
employment by another employer or by retirement benefits after the date of
Termination or voluntary termination, or otherwise, PROVIDED, HOWEVER, without
otherwise diminishing your rights, any benefits or amounts payable hereunder,
any amount payable under this SECTION 3 shall be reduced by the amount of any
severance payment to which you may be entitled under any agreement of employment
with the Company which is payable as a result of your termination of employment
with the Company and, PROVIDED FURTHER, you shall first look to any such other
agreement providing for payment upon your termination of employment with the
Company prior to payment hereunder.
4. TAX TREATMENT. It is the intention that no portion of the payment
made under Section 3 hereof (the "TERMINATION PAYMENT") or any other payment
under this Agreement, or payments to or for your benefit under any other
agreement or plan be deemed to be an excess parachute payment as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "CODE"), or
its successors. It is agreed that the present value of the Termination Payment
and any other payment to or for your benefit in the nature of compensation,
receipt of which is contingent on the Change in Control of the Company, and to
which Section 280G of the Code or any successor provision thereto applies (in
the aggregate "TOTAL PAYMENTS") shall not exceed an amount equal to one dollar
less than the maximum amount which you may receive without becoming subject to
the tax imposed by Section 4999 of the Code or any successor provision or which
the Company may pay without loss of deduction under Section 280G of the Code or
any successor provision. Present value for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) the Code or any successor
provision.
Within six (6) days following delivery of written notice by the Company
to you of the Company's belief that there is a payment due or benefit due which
will result in an excess parachute payment as defined in Section 280G of the
Code or any successor provision, the Company and you, at the Company's expense,
shall obtain the opinion of legal counsel and certified public accountants, as
the Company and you may mutually agree upon, which opinions need not be
unqualified, which sets forth (i) the amount of your Base Period Income, as
defined in Section 280G of the Code, (ii) the present value of Total Payments,
and (iii) the amount and present value of any excess parachute payments.
In the event such opinions determine that there would be an excess
parachute payment, the Termination Payment hereunder or any other payment
determined by such counsel to be includable in Total Payments shall be reduced
or eliminated in the following order: (i) by the amount of any options to
purchase shares of the Company's capital stock which have had their vesting
rights accelerated hereunder, and then (ii) by the amount of any cash received
hereunder, so that under the bases of calculation set forth in such opinions
there will be no excess parachute payment. The provisions of this Section,
including the calculations, notices, and opinions provided for herein shall be
based upon the conclusive presumption that (X) the compensation and benefits
<PAGE>
Dr. Terrence Chew
September 27, 1999
Page 5
provided herein and (Y) any other compensation, including but not limited to any
accrued benefits, earned by you prior to the Change in Control of the Company
pursuant to the Company's compensation programs if such payments would have been
made in the future in any event, even though the timing of such payment is
triggered by the Change in Control of the Company, is reasonable, provided,
however, that in the event such legal counsel so requests in connection with the
Section 280G opinion required by this Section, the Company and you shall obtain,
at the Company's expense, and the legal counsel may rely on in providing the
opinion, the advice of a firm of recognized executive compensation consultants
as to the reasonableness of any item of compensation to be received by you. In
the event that the provisions of Sections 280G and 4999 of the Code or any
successor provision are repealed without succession this Section shall be of no
further force or effect.
5. SUCCESSORS; BINDING AGREEMENT.
(a) 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 to
assume expressly and agree in writing to perform this Agreement.
Failure of the Company to obtain such assumption and agreement prior to
the effectiveness of any such succession shall be a breach of this
Agreement and shall require the Company to pay to you compensation from
the Company in the same amount and on the same terms as you would be
entitled hereunder following a Change in Control of the Company coupled
with a Termination, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective
shall be deemed the date on which you shall receive such compensation
from the Company. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisee and legatees.
If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to your devises, legatee or other designee or, if
there is no such designee to your estate.
6. NOTICE. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
Registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the attention of the Board
with a copy to the Secretary of the Company, or to such other address as either
party may have furnished to the other in writing in accordance herewith, except
that notice of a change of address shall be effective only upon receipt.
<PAGE>
Dr. Terrence Chew
September 27, 1999
Page 6
7. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. 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. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California.
8. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Parties with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements or understandings relating to the subject
matter hereof.
11. HEADINGS. The headings of the Articles and Paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
12. SEVERABILITY. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable provisions with
provisions which will achieve, to the extent possible, the economic, business
and other purposes of the void or unenforceable provisions.
13. ATTORNEYS' FEES. In the event any party to this Agreement initiates
any action, suit, motion, application, arbitration or other proceeding which
concerns the interpretation or enforcement of this Agreement, the prevailing
party in such action, suit, motion, application, arbitration or other
proceeding, or judgment creditor, shall be entitled to recover its costs and
attorneys' fees from the nonprevailing party or judgment debtor, including costs
and fees on appeal, if any.
<PAGE>
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our agreement on this subject.
Sincerely,
TECHNICLONE CORPORATION
a Delaware corporation
By: /s/ Larry O. Bymaster
-------------------------------------
Larry O. Bymaster, President and
Chief Executive Officer
AGREED TO THIS 27th
day of September, 1999
/s/ Terrence Chew
- ----------------------------------
Dr. Terrence Chew
Approved by the Board of Directors of Techniclone Corporation on September 27,
1999.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10-Q FOR THE PERIOD ENDED 10/31/99.
</LEGEND>
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<NAME> TECHNICLONE CORPORATION
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