SECURITIES AND EXCHANGE COMMISSION CONFORMED
Washington, D.C. 20549 COPY
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 1999
-------------
OR
| | TANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to
------------- --------------
Commission file number 333-02015
---------
CYTOGEN CORPORATION
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 22-2322400
- -------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
600 COLLEGE ROAD EAST, CN 5308, PRINCETON, NJ 08540-5308
--------------------------------------------------------
(Address of Principal Executive Offices and Zip Code)
Registrant's telephone number, including area code (609) 750-8200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class Outstanding at August 10, 1999
- ---------------------------- ------------------------------
Common Stock, $.01 par value 70,275,280
<PAGE>
PART I - FINANCIAL INFORMATION
- -------------------------------
Item I - Consolidated Financial Statements
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents ....................................... $ 5,332 $ 3,015
Receivable on common stock sold ................................. -- 2,500
Accounts receivable, net ........................................ 2,997 1,362
Inventories ..................................................... 176 250
Other current assets ............................................ 551 330
--------- ---------
Total current assets ......................................... 9,056 7,457
--------- ---------
Property and Equipment:
Leasehold improvements .......................................... 9,080 9,438
Equipment and furniture ......................................... 4,958 7,350
--------- ---------
14,038 16,788
Less-Accumulated depreciation and amortization .................. (12,152) (14,163)
--------- ---------
Net property and equipment ................................... 1,886 2,625
--------- ---------
Other Assets ........................................................ 1,414 818
--------- ---------
$ 12,356 $ 10,900
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Current portion of long-term liabilities ........................ $ 104 $ 848
Accounts payable and accrued liabilities ........................ 4,525 7,386
--------- ---------
Total current liabilities .................................. 4,629 8,234
--------- ---------
Long-Term Liabilities ............................................... 2,264 2,223
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 5,400,000 shares authorized -
Series C Junior Participating Preferred Stock, $.01 par value,
200,000 shares authorized, none issued and outstanding .. -- --
Common stock, $.01 par value, 89,600,000 shares authorized,
67,175,000 and 61,950,000 shares issued and outstanding
in 1999 and 1998, respectively ............................... 672 619
Additional paid-in capital ...................................... 306,110 301,836
Accumulated deficit ............................................. (301,319) (302,012)
--------- ---------
Total stockholders' equity ................................... 5,463 443
--------- ---------
$ 12,356 $ 10,900
========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
2
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(All amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Product related:
ProstaScint ................................................ $ 1,661 $ 1,458 $ 3,253 $ 2,996
Quadramet .................................................. -- 220 -- 220
Others ..................................................... 157 172 321 468
--------- --------- --------- ---------
Total product sales .............................. 1,818 1,850 3,574 3,684
Quadramet royalties ........................................ 262 33 461 1,664
--------- --------- --------- ---------
Total product related ............................ 2,080 1,883 4,035 5,348
License and contract .......................................... 2,370 579 2,739 1,246
--------- --------- --------- ---------
Total revenues ................................... 4,450 2,462 6,774 6,594
--------- --------- --------- ---------
Operating Expenses:
Cost of product and contract manufacturing revenues ........... 1,170 1,935 2,274 3,835
Research and development ...................................... 981 2,682 2,038 5,763
Acquisition of technology rights .............................. 1,214 -- 1,214 --
Equity loss in Targon subsidiary .............................. -- -- -- 1,020
Selling and marketing ......................................... 1,082 1,283 2,028 2,334
General and administrative .................................... 981 1,216 1,892 2,621
--------- --------- --------- ---------
Total operating expenses ......................... 5,428 7,116 9,446 15,573
--------- --------- --------- ---------
Operating loss ................................... (978) (4,654) (2,672) (8,979)
Gain on sale of laboratory and
manufacturing facilities ...................................... -- -- 3,298 --
Interest income ................................................ 56 222 151 428
Interest expense .................................................. (42) (220) (84) (437)
--------- --------- --------- ---------
Net income (loss) ................................................. (964) (4,652) 693 (8,988)
Dividends on series B preferred stock ............................. -- (37) -- (119)
--------- --------- --------- ---------
Net income (loss) to common stockholders .......................... $ (964) $ (4,689) 693 $ (9,107)
========= ========= ========= =========
Net income (loss) per common share
Basic and diluted ............................................. $ (0.01) $ (0.08) $ 0.01 $ (0.17)
========= ========= ========= =========
Weighted average common shares outstanding
Basic ......................................................... 65,632 55,334 64,884 54,065
========= ========= ========= =========
Diluted ....................................................... 65,632 55,334 65,042 54,065
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
</TABLE>
3
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................................... $ 693 $ (8,988)
------------ ------------
Adjustments to reconcile net income (loss) to cash
used for operating activities:
Acquisition of technology rights.................................... 1,214 -
Depreciation and amortization ...................................... 519 677
Imputed interest ................................................... (8) 81
Stock option and warrant grants .................................... 142 11
Write down of assets ............................................... 53 -
Gain on sale of laboratory and manufacturing facilities ............ (3,298) -
Equity loss in Targon subsidiary ................................... - 1,020
Changes in assets and liabilities:
Accounts receivable, net ....................................... (1,627) 2,547
Inventories .................................................... 74 130
Other assets ................................................... (23) 59
Accounts payable and accrued liabilities ....................... (3,600) 124
Other liabilities .............................................. 71 87
------------ ------------
Total adjustments ............................... (6,483) 4,736
------------ ------------
Net cash used for operating activities ........................... (5,790) (4,252)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash acquired from Prostagen Inc. (see Note 2)......................... 550 -
Net proceeds from sale of laboratory and
manufacturing facilities .............................................. 3,584 -
Purchases of property and equipment........................................ (93) (92)
------------ ------------
Net cash provided by (used for) investing activities.............. 4,041 (92)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock..................................... 4,840 26
Payment of long-term liabilities .......................................... (774) (65)
------------ ------------
Net cash provided by (used for) financing activities.............. 4,066 (39)
------------ ------------
Net increase (decrease) in cash and cash equivalents ...................... 2,317 (4,383)
Cash and cash equivalents, beginning of period............................. 3,015 7,401
------------ ------------
Cash and cash equivalents, end of period .................................. $ 5,332 $ 3,018
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
4
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical
company engaged in the development, commercialization and marketing of products
to improve diagnosis and treatment of prostate disease, and of products for
unmet needs in the broader urological and oncology markets. Cytogen has three
products on the market including ProstaScint(R), a prostate cancer diagnostic,
Quadramet(R), a treatment of bone cancer pain and OncoScint(R), an imaging agent
for colorectal and ovarian cancers. Cytogen also holds the intellectual property
rights to prostate specific membrane antigen ("PSMA"), a unique antigen under
development for immunotherapeutic and other approaches, particularly in the area
of prostate cancer.
Basis of Consolidation
The consolidated financial statements include the accounts of CYTOGEN and
its wholly- owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
Basis of Presentation
The consolidated financial statements of CYTOGEN Corporation are unaudited
and include all adjustments which, in the opinion of management, are necessary
to present fairly the financial condition and results of operations as of and
for the periods set forth in the Consolidated Balance Sheets, Consolidated
Statements of Operations and Consolidated Statements of Cash Flows. All such
accounting adjustments are of a normal, recurring nature. The consolidated
financial statements do not include all of the information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles and should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission, which includes financial statements as of and for the year ended
December 31, 1998. The results of the Company's operations for any interim
period are not necessarily indicative of the results of the Company's operations
for any other interim period or for a full year.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all
highly-liquid investments with a maturity of three months or less at the time of
purchase.
5
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
Net Income (Loss) Per Share
Basic net income (loss) per common share is based upon the weighted
average common shares outstanding during each period. Diluted net income per
common share is based upon the weighted average common shares outstanding and
common share equivalents which represent the incremental common shares that
would have been outstanding under certain employee stock options and warrants,
upon assumed exercise of dilutive stock options and warrants. The common stock
equivalents were excluded from the diluted net loss per share calculation for
the three months ended June 30, 1999 and 1998 and six months ended June 30,
1998, as their effect would be antidilutive.
2. ACQUISITION OF PROSTAGEN, INC.:
On June 15, 1999, CYTOGEN reacquired the rights for immunotherapy to its
PSMA technology by acquiring 100% of the outstanding capital stock of Prostagen
Inc. ("Prostagen") for 2,050,000 shares of CYTOGEN common stock, plus
transaction costs. The acquisition was accounted for using the purchase method
of accounting, whereby the purchase price was allocated to the assets acquired
and liabilities assumed from Prostagen based on their respective fair values at
the acquisition date. The excess of the purchase price over the fair value of
the net tangible assets of approximately $1.2 million was assigned to acquired
technology rights and has been recorded as a non-cash charge to operations in
the accompanying financial statements. Acquired technology rights reflects the
value of the PSMA technology development projects underway at the time of the
Prostagen acquisition. The Company may issue up to an additional 450,000 shares
of CYTOGEN common stock upon the satisfactory termination of lease obligations
assumed in the Prostagen acquisition.
The Company had sublicensed PSMA to Prostagen for prostate cancer
immunotherapy in 1996. In connection with the acquisition, CYTOGEN acquired
approximately $550,000 in cash, a minority ownership in Northwest
Biotherapeutics, Inc., which is developing PSMA for cell therapy, and a contract
with Velos, Inc. for marketing a cancer patient software management program for
hospitals and health care payors. In addition, the Company may issue up to an
additional $4.0 million worth of CYTOGEN common stock (based on the value at the
time of issuance) if certain milestones are achieved in the PSMA development
program. In addition the Company may issue up to 500,000 shares upon beneficial
resolution of other contractual arrangements entered by Prostagen.
3. PROGENICS PHARMACEUTICALS, INC. JOINT VENTURE:
On June 15, 1999, CYTOGEN entered into a joint venture with Progenics
Pharmaceuticals, Inc. ("Progenics") to develop vaccine and antibody-based
immunotherapeutic products utilizing CYTOGEN's proprietary PSMA technology. The
joint venture will be owned equally by CYTOGEN and Progenics. Progenics will
fund up to $3 million of development costs of the program. After that point, the
6
<PAGE>
CYTOGEN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
Company and Progenics will equally share the future costs of the program.
CYTOGEN has the exclusive North American marketing rights on products developed
by the joint venture. In connection with the licensing of the PSMA technology to
the joint venture, CYTOGEN will receive $2 million in payments of which $500,000
was received in June 1999, with the balance to be paid in installments through
December 31, 2001. As a result, CYTOGEN recorded approximately $1.8 million in
license fee revenue during the three months ended June 30, 1999, based on the
net present value of the future payments (using a discount rate of 10%).
4. SALE OF LABORATORY AND MANUFACTURING FACILITIES:
In January 1999, the Company sold certain of its laboratory and
manufacturing facilities to Bard BioPharma L.P., a subsidiary of Purdue Pharma
L.P. ("Purdue"), for $3.9 million. CYTOGEN also signed a three-year agreement
under which two of CYTOGEN's products, ProstaScint and OncoScint CR/OV, will
continue to be manufactured by CYTOGEN at its former facility. As a result of
the sale, the Company recognized a gain of approximately $3.3 million in its
consolidated statement of operations during the first quarter of 1999.
5. SALES OF CYTOGEN COMMON STOCK:
In January 1999, the Company sold 2,666,667 shares of CYTOGEN common
stock to a subsidiary of The Hillman Company for an aggregate price of $2.0
million or $0.75 per share. Also in January, the Company exercised a put right
granted to CYTOGEN under a $12.0 million equity line agreement with an
institutional investor, for the sale of 475,342 shares of common stock at an
aggregate price of $500,000 or $1.0519 per share. The Company will not draw on
the remaining $11.5 million of the equity line agreement and plans to take steps
to deregister shares which were previously registered with the Securities and
Exchange Commission ("SEC") to be issued under the facility.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
7
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Background. To date, the Company's revenues have resulted primarily from
(i) sales and royalties from ProstaScint, Quadramet and OncoScint CR/OV; (ii)
payments received from contract manufacturing and research services pursuant to
agreements; (iii) fees generated from the licensing of its technology and
marketing rights to its products; and (iv) milestone payments received when
events stipulated in the collaborative agreements with third parties have been
achieved.
In June 1999, CYTOGEN reacquired the rights for immunotherapy to its PSMA
technology by acquiring 100% of the outstanding capital stock of Prostagen. The
Company had sublicensed PSMA to Prostagen for prostate cancer immunotherapy in
1996. In connection with the acquisition, CYTOGEN acquired approximately
$550,000 in cash, a minority ownership in Northwest Biotherapeutics, Inc. which
is developing PSMA for cell therapy, and a contract with Velos, Inc. for
marketing a cancer patient software management program for hospitals and health
care payors (see Note 2 to the Consolidated Financial Statements).
Also in June 1999, CYTOGEN entered into a joint venture with Progenics to
develop vaccine and antibody-based immunotherapeutic products utilizing
CYTOGEN's proprietary PSMA technology. The joint venture will be owned equally
by CYTOGEN and Progenics. Progenics will fund up to $3 million of development
costs of the program. After that point, the Company and Progenics will equally
share the future costs of the program. CYTOGEN has exclusive North American
marketing rights on products developed by the joint venture (see Note 3 to the
Consolidated Financial Statements).
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
Second quarters ended June 30, 1999 and 1998
Revenues. Total revenues for the second quarter of 1999 were $4.5 million
compared to $2.5 million for the same period in 1998 with the increase primarily
attributable to licensing fees. Product related revenues, which included product
sales and royalties, accounted for 47% of total revenues in 1999, versus 76%
from the same period of 1998. License and contract revenues accounted for the
remainder of revenues.
Product related revenues for the second quarter in 1999 and 1998 were $2.1
million and $1.9 million, respectively. ProstaScint accounted for 80% and 77% of
product related revenues in the second quarter of 1999 and 1998, respectively,
while revenues from Quadramet accounted for 13% of product related revenues for
both comparable quarters in 1999 and 1998. Sales of ProstaScint were $1.7
million in the second quarter of 1999 compared to $1.5 million in the second
quarter of 1998. ProstaScint sales have experienced growth since product launch,
however, there can be no assurance that such growth will continue. Revenues from
Quadramet increased to $262,000 in the second quarter of 1999 from $253,000 in
the second quarter of 1998. From the time of product launch in 1997 through June
1998, CYTOGEN recorded royalty revenues for Quadramet based on minimum
contractual payments, which were in excess of actual sales. Subsequent to June
8
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
1998, the minimum royalty arrangement was discontinued and CYTOGEN recorded
product revenues from Quadramet based on actual sales. Beginning in 1999, the
Quadramet royalties are based on net sales of Quadramet by Berlex Laboratories
("Berlex"), CYTOGEN's new marketing partner for Quadramet. Berlex relaunched the
product in March 1999. Although CYTOGEN believes that Berlex is an advantageous
marketing partner, and that the product offers clinical advantages, there can be
no assurance that Quadramet will, following the re-launch of the product,
achieve market acceptance on a timely basis or sufficiently to result in
significant revenues for CYTOGEN.
Other product sales included revenues from OncoScint CR/OV which were
$158,000 in 1999 compared to $169,000 in the comparable period of 1998. The
Company sells OncoScint for diagnostic use in ovarian and colorectal cancer. The
Company is experiencing competition in the colorectal market and expects this
competition to increase.
License and contract revenues for the second quarter in 1999 and 1998 were
$2.4 million and $579,000, respectively, and included $212,000 and $427,000 of
contract manufacturing revenues in 1999 and 1998, respectively. The Company is
phasing out contract manufacturing services, due to the sale of the
manufacturing facility earlier this year, and expects to receive no further
revenues from this service after 1999. The 1999 license fee included
approximately $1.8 million of revenues from the licensing of PSMA to a joint
venture between CYTOGEN and Progenics (see Note 3 to the Consolidated Financial
Statements). License and contract research revenues have fluctuated in the past
and may fluctuate in the future.
Operating Expenses. Total operating expenses for the second quarter of
1999 were $5.4 million and included a non-cash charge of approximately $1.2
million related to the acquisition of technology rights from Prostagen (see Note
2 to the Consolidated Financial Statements). Total operating expenses for the
second quarter of 1998 were $7.1 million. The decrease from the prior year
period was a result of savings realized from various actions taken in 1999 and
1998, including the sale of the manufacturing facility which reduced the cost of
manufacturing the Company's products, closure of the Cellcor Inc. ("Cellcor")
subsidiary in September 1998, corporate downsizing, and the curtailing of
certain basic research and clinical programs. The savings over the prior year
period included $765,000 from cost of product and contract manufacturing
revenues, $1.1 million from the Cellcor closure, $641,000 from the termination
and curtailing of certain basic research and clinical programs, and $206,000
from cost containment efforts in general and administrative services.
Cost of product and contract manufacturing revenues for the second quarter
of 1999 were $1.2 million compared to $1.9 million recorded in the same period
of the prior year. The decrease from the prior year period is due to decreased
contract manufacturing costs associated with decreased contract manufacturing
activities in 1999 and lower manufacturing costs for CYTOGEN products. Under a
January 1999 agreement with Purdue, employees involved in manufacturing will
remain CYTOGEN employees, but Purdue will absorb their labor costs except for
time spent on manufacturing CYTOGEN products. The majority of maintenance and
facility related costs are absorbed by Purdue. Under that agreement, CYTOGEN
manufacturing employees may be hired by Purdue.
9
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Research and development expenses for the second quarter of 1999 were
$981,000 compared to $2.7 million recorded in the same period of 1998. The
decrease from the prior year period is due to the curtailing of certain of the
Company's product development efforts including the closure of Cellcor, the
termination of certain basic research programs and the scale back of various
clinical programs.
Acquisition of technology rights of $1.2 million represents a non-cash
charge related to the acquisition of Prostagen (see Note 2 to the Consolidated
Financial Statements).
Selling and marketing expenses were $1.1 million for the second quarter of
1999 compared to $1.3 million in the same period of 1998. These expenses reflect
the marketing efforts for ProstaScint product and expenses to establish and
maintain PIE(TM) ("Partners in Excellence") program, a network of accredited
nuclear medicine imaging centers ("PIE Site") that are certified as proficient
in the interpreting of the ProstScint scans. As of July 28, 1999, there were 278
PIE Sites. The decrease in expenditures over the prior year period is due to the
timing of certain marketing programs.
General and administrative expenses for the second quarter of 1999 were
$981,000 compared to $1.2 million for the comparable period in 1998. The
decrease from the prior year is due to various cost containment efforts
implemented in 1999 and 1998 including closure of Cellcor and corporate
downsizing.
Interest Income/Expense. Interest income for the second quarter of 1999
was $56,000 compared to $222,000 in the same period of 1998. Interest income
during 1998 included interest realized from a $10.0 million note due from Targon
Corporation ("Targon"), which was canceled as a result of the sale of the
Company's interest in Targon during 1998 to Elan Corporation, plc ("Elan").
Interest expense for the second quarter of 1999 was $42,000 compared to
$220,000 recorded in the same period of 1998. Interest expense during 1998
included interest associated with a $10.0 million note due to Elan, which was
canceled as a result of the sale of the Company's interest in Targon.
Net Loss. Net loss to common stockholders for the second quarter in 1999
was $964,000 compared to a net loss of $4.7 million incurred in the same period
of 1998. The net loss per common share was $0.01 on 65.6 million average common
shares outstanding compared to a loss of $0.08 on 55.3 million average common
shares outstanding for the same period in 1998.
10
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Six months ended June 30, 1999 and 1998
Revenues. Total revenues for the first half of 1999 and 1998 were $6.8
million and $6.6 million, respectively. Product related revenues, which included
product sales and royalties, accounted for 60% of total revenues in 1999 versus
81% in the comparable period of 1998. License and contract revenues accounted
for the remainder of revenues.
Product related revenues for the first half of 1999 and 1998 were $4.0
million and $5.3 million, respectively. ProstaScint accounted for 81% and 56% of
product related revenues in the first half of 1999 and 1998, respectively, while
revenues from Quadramet accounted for 11% and 35% of product related revenues
for the first half of 1999 and 1998, respectively. Sales of ProstaScint were
$3.3 million in 1999 compared to $3.0 million in 1998. Revenues from Quadramet
decreased to $461,000 in the first half of 1999 from $1.9 million in the same
period of 1998. From the time of product launch in 1997 through June 1998,
CYTOGEN recorded royalty revenues for Quadramet based on minimum contractual
payments, which were in excess of actual sales. Subsequent to June 1998, the
minimum royalty arrangement was discontinued and CYTOGEN recorded product
revenues from Quadramet based on actual sales. Beginning in 1999, the Quadramet
royalties are based on net sales of Quadramet by Berlex.
Other product sales, including revenues from OncoScint CR/OV, were
$321,000 in 1999 compared to $468,000 in the comparable period of 1998. The
decrease from the prior year is due, in part, to the discontinuation of the
autolymphocyte therapy treatment program resulted from the closure of Cellcor
subsidiary. Revenues from OncoScint CR/OV were $321,000 in 1999 versus $431,000
in the same period of 1998. The decrease in OncoScint sales was a result of
customers delaying orders pending a new production run with an extended shelf
life. The Company is also experiencing increasing competition in the colorectal
market.
License and contract revenues for the first half of 1999 and 1998 were
$2.7 million and $1.2 million, respectively, and included $501,000 and $912,000
of contract manufacturing revenues in 1999 and 1998, respectively. The Company
is phasing out contract manufacturing services and expects to receive no further
revenues from this service after 1999. The 1999 license fee included $1.8
million of revenue from the licensing of PSMA to a joint venture formed by
CYTOGEN and Progenics (see Note 3 to the Consolidated Financial Statements).
Operating Expenses. Total operating expenses for the first half of 1999
were $9.4 million and included a non-cash charge of $1.2 million related to the
acquisition of technology rights from Prostagen. Total operating expenses for
the comparable period in 1998 were $15.6 million. The decrease from the prior
year period was a result of savings realized from various actions taken in 1999
and 1998, including the sale of the manufacturing facility which reduced the
cost of manufacturing the Company's products, closure of the Cellcor subsidiary,
corporate downsizing, the termination of product development efforts through
Targon, and the termination and curtailing of certain basic research and
clinical programs. The savings over the prior year period included $1.6 million
from cost of product and contract manufacturing revenues, $2.3 million from the
Cellcor closure, $1.0 million due to the sale of Targon, $1.6 million from the
termination and curtailment of certain basic research and clinical programs, and
$632,000 from cost containment efforts in general and administrative services.
11
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Cost of product and contract manufacturing revenues for the first half of
1999 were $2.3 million compared to $3.8 million recorded in the same period of
the prior year. The decrease from the prior year period is due to decreased
contract manufacturing costs associated with decreased contract manufacturing
activities in 1999 and lower manufacturing costs for CYTOGEN products.
Research and development expenses for the first half of 1999 were $2.0
million compared to $5.8 million recorded in the same period of 1998. The
decrease from the prior year period is due to the curtailing of certain of the
Company's product development efforts including the closure of Cellcor, the
termination of basic research programs and the scale back of various clinical
programs.
Acquisition of technology rights of $1.2 million represents a non-cash
charge related to the acquisition of Prostagen (see Note 2 to the Consolidated
Financial Statements).
Equity loss in Targon subsidiary was $1.0 million during 1998. The Company
sold its interest in Targon in 1998.
Selling and marketing expenses were $2.0 million for the first half of
1999 compared to $2.3 million in the same period of 1998. These expenses reflect
the marketing efforts for ProstaScint product and expenses to establish and
maintain PIE program. The decrease in expenditures over the prior year period is
due to the timing of certain marketing programs.
General and administrative expenses for the first half of 1999 were $1.9
million compared to $2.6 million for the comparable period in 1998. The decrease
from the prior year is due to various cost containment efforts implemented in
1999 and 1998, including the closure of Cellcor and corporate downsizing.
Gain on sale of laboratory and manufacturing facilities. The Company
recorded a gain of $3.3 million during 1999 resulting from a sale of certain of
the Company's laboratory and manufacturing facilities to Purdue for $3.9 million
in January 1999.
Interest Income/Expense. Interest income for the first half of 1999 was
$151,000 compared to $428,000 in the same period of 1998. Interest income during
1998 included interest realized from a $10.0 million note due from Targon, which
was canceled as a result of the sale of the Company's interest in Targon.
Interest expense for the first half of 1999 was $84,000 compared to
$437,000 recorded in the same period of 1998. Interest expense during 1998
included interest associated with a $10.0 million note due to Elan, which was
canceled as a result of the sale of the Company's interest in Targon.
12
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
Net Income (Loss). Net income to common stockholders for the first half of
1999 was $693,000 compared to a net loss of $9.1 million incurred in the same
period of 1998. The basic earnings per common share were $0.01 on 64.9 million
average common shares outstanding compared to a loss of $0.17 on 54.1 million
average common shares outstanding for the same period in 1998. The 1999 diluted
earnings per common share were $0.01 on 65.0 million average common shares
outstanding compared to a diluted loss per share of $0.17 on 54.1 million
average common shares outstanding in the same period of 1998.
Liquidity and Capital Resources
The Company's cash and cash equivalents were $5.3 million as of June 30,
1999, compared to $3.0 million as of December 31, 1998. The cash used for
operating activities for the six months ended June 30, 1999 was $5.8 million
versus $4.3 million in the same period of 1998. Cash used for operating
activities during 1999 included a final payment of $1.0 million to The Dupont
Pharmaceuticals Company ("Dupont") for Quadramet manufacturing commitment and
payments of various 1998 restructuring costs including severances. During 1998
the Company received $3.8 million of guaranteed minimum royalty payments from
DuPont pursuant to a previous marketing arrangement which ended in June 1998.
Historically, the Company's primary sources of cash have been proceeds
from the issuance and sale of its stock through public offerings and private
placements, product related revenues, revenues from contract manufacturing and
research services, fees paid under its license agreements and interest earned on
its cash and short term investments.
In August 1999, the Company sold to the State of Wisconsin Investment
Board 3,105,590 shares of CYTOGEN common stock at an aggregate price of $5.0
million or $1.61 per share.
In connection with the acquisition of Prostagen in June 1999, the Company
received $550,000 in cash along with other assets held by Prostagen (see Note 2
to the Consolidated Financial Statements). Also in June, CYTOGEN received its
first payment of $500,000 related to the licensing of PSMA technology to a joint
venture between CYTOGEN and Progenics. The remaining balance of $1.5 million
will be paid in installments through December 31, 2001 (see Note 3 to the
Consolidated Financial Statements).
In January 1999, the Company sold its manufacturing and laboratory
facilities for $3.9 million, of which $744,000 of the proceeds was used to repay
the outstanding balance of a term loan entered in 1998.
In January 1999, CYTOGEN sold 2,666,667 shares to a subsidiary of The
Hillman Company at $0.75 per share for a total of $2.0 million. The shares were
sold under a registration statement.
13
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
In October 1998, the Company entered into an agreement with Kingsbridge
Capital Ltd. ("Kingsbridge") for a $12 million common stock equity line.
Pursuant to the Equity Line Agreement, the Company, subject to the satisfaction
of certain conditions was granted the right to issue and sell to Kingsbridge,
and Kingsbridge would be obligated to purchase up to $12 million of CYTOGEN
common stock from time to time (collectively, the "Put Rights") over a two year
period. In January 1999, the Company exercised a Put Right for the sale of
475,342 shares of common stock at an aggregate price of $500,000 or $1.0519 per
share. The Company will not draw on the remaining $11.5 million of the equity
line agreement and plans to take steps to deregister shares which were
previously registered with the SEC to be issued under the facility.
Quadramet. Under an exclusive license agreement in October 1998 with
Berlex for the manufacture and sale of Quadramet, Berlex will pay CYTOGEN
royalties on net sales of Quadramet, as well as milestone payments based on
achievement of certain sales levels. In connection with the Berlex agreement,
CYTOGEN granted Berlex a warrant to purchase 1,000,000 shares of CYTOGEN common
stock at an exercise price of $1.002 per share through October 2003, which is
exercisable after the earlier of one year or the achievement of defined sales
levels.
CYTOGEN paid DuPont $1 million in the first quarter of 1999 as final
payment for the securing of the long-term manufacturing commitment for
Quadramet.
ProstaScint. ProstaScint was launched in February 1997. Significant cash
will be required to support the Company's marketing program and expansion and
maintenance of the PIE program.
In 1996, CYTOGEN entered into an agreement with C.R Bard Inc. ("Bard")
(the "Co-Promotion Agreement") to market and promote ProstaScint, pursuant to
which Bard will make payments upon the occurrence of certain milestones, which
include expansion of co-marketing rights in selected countries outside the U.S.
During the term of the Co-Promotion Agreement, Bard will receive
performance-based compensation for its services. In the six months ended June
30, 1999 and 1998, the Company recorded $325,000 and $300,000, respectively, for
Bard commissions.
The Company's capital and operating requirements may change depending upon
various factors, including: (i) the success of the Company and its strategic
partners in manufacturing, marketing and commercialization of its other
products; (ii) the amount of resources which the Company devotes to clinical
evaluations and the expansion of marketing and sales capabilities; (iii) results
of clinical trials and research and development activities; and (iv) competitive
and technological developments.
The Company's financial objectives are to meet its capital and operating
requirements through revenues from existing products, license and research
contracts, and control of spending. To achieve its strategic objectives, the
Company may enter into research and development partnerships and acquire,
in-license and develop other technologies, products or services. Certain of
these strategies may require payments by the Company in either cash or stock in
addition to the costs associated with developing and marketing a product or
14
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations Cont'd)
technology. The Company currently has no commitments or specific plans for
acquisitions or strategic alliances. However, the Company believes that, if
successful, such strategies may increase long term revenues. There can be no
assurance as to the success of such strategies or that resulting funds will be
sufficient to meet cash requirements until product revenues are sufficient to
cover operating expenses. To fund these strategic and operating activities, the
Company may sell equity and debt securities as market conditions permit or enter
into credit facilities.
New Jersey has enacted legislation permitting certain New Jersey
Corporations to sell net operating tax losses and research and development
credits. The state developed procedures to implement the program through changes
to the legislation. The Company has submitted an application to sell $9.2
million of tax benefits. However, no assurance can be given as to timing of the
approval of the Company to sell the benefits, the amount the approval may be
for, or the period over which the benefit may be realized.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
acquisition of products and complementary technologies, research and
development, clinical studies and regulatory activities, and to further its
marketing and sales. The Company expects that its existing capital resources as
of June 30, 1999, together with the $5.0 million receipt from the sale of
CYTOGEN common stock to the State of Wisconsin Investment Board in August 1999
and decreased operating costs will be adequate to fund the Company's operations
through the year 2000. No assurance can be given that the Company will not
consume a significant amount of its available resources before that time. In
addition, the Company expects that it will have additional requirements for debt
or equity capital, irrespective of whether and when it reaches profitability,
for further development of products, product and technology acquisition costs,
and working capital.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including the successful
commercialization of its products, the costs associated with the acquisition of
complementary products and technologies, progress in its product development
efforts, the magnitude and scope of such efforts, progress with clinical trials,
progress with regulatory affairs activities, the cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the expansion of strategic
alliances for the sales, marketing, manufacturing and distribution of its
products. To the extent that the currently available funds and revenues are
insufficient to meet current or planned operating requirements, the Company will
be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Based on the Company's historical ability to raise capital and current
market conditions, the Company believes other financing alternatives are
available. There can be no assurance that the financing commitments described
above or other financial alternatives will be available when needed or at terms
commercially acceptable to the Company or that the Company would have adequate
authorized unissued shares available for issuance without stockholder approval.
15
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
If adequate funds are not available, the Company may be required to delay,
further scale back or eliminate certain aspects of its operations or attempt to
obtain funds through arrangements with collaborative partners or others that may
require the Company to relinquish rights to certain of its technologies, product
candidates, products or potential markets. If adequate funds are not available,
the Company's business, financial condition and results of operations will be
materially and adversely affected.
Year 2000 Compliance
The "Year 2000 problem" describes the concern that certain computer
applications, which use two digits rather than four to represent dates, will
interpret the year 2000 as 1900 and malfunction on January 1, 2000.
CYTOGEN's Internal Systems. The efficient operation of the Company's
business is dependent in part on its computer software programs and operating
systems (collectively, Programs and Systems). These Programs and Systems are
used in several key areas of the Company's business, including clinical,
purchasing, inventory management, sales, shipping, and financial reporting, as
well as in various administrative functions. The Company has completed its
evaluation of the Program and Systems to identify any potential year 2000
compliance problem. As a result, the Company's Programs and Systems were
modified and replaced with fully compliant systems. The Company believes that it
has achieved year 2000 compliance on internal systems.
Readiness of Third Parties. The Company is also working with its
processing banks, network providers and manufacturing partners to ensure their
systems are year 2000 compliant. All these costs will be borne by the
processors, network and software companies and manufacturing partners. In July a
letter was sent to all vendors requesting a written statement indicating status
of their compliance be received on or before August 23, 1999. Most responses
have been received. Currently, the Company's processing banks and manufacturing
partners are in the process of completing their year 2000 compliance programs.
If the manufacturing partners systems fail on January 1, 2000 the Company's
revenues may be adversely impacted. In the event that some or all of the
processing banks are unable to be compliant, the Company will switch merchant
year 2000 accounts to those that are compliant.
Risks Associated with the Year 2000. The Company is not aware, at this
time, of any Year 2000 non-compliance that will not be fixed by the Year 2000.
However, some risks that the Company faces include: the failure of internal
information systems, defects in its work environment, a slow down in its
customers' ability to make payments, and the availability of products for sale.
Contingency Plans. The Company is in the process of developing contingency
plans to address a worst case year 2000 scenario. This contingency plan is
expected to be completed by August 31, 1999.
16
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations (Cont'd)
=============================
Cautionary Statement
The foregoing discussion contains historical information as well as
forward looking statements that involve a number of risks and uncertainties. In
addition to the risks discussed above, among other factors that could cause
actual results to differ materially from expected results are the following: (i)
the Company's ability to access the capital markets in the near term and in the
future for continued funding of existing projects and for the pursuit of new
projects; (ii) the ability to attract and retain personnel needed for business
operations and strategic plans; (iii) the timing and results of clinical
studies, and regulatory approvals; (iv) market acceptance of the Company's
products, including programs designed to facilitate use of the products, such as
the PIE Program; (v) demonstration over time of the efficacy and safety of the
Company's products; (vi) the degree of competition from existing or new
products; (vii) the decision by the majority of public and private insurance
carriers on whether to reimburse patients for the Company's products; (viii) the
profitability of its products; (ix) the ability to attract, and the ultimate
success of, strategic partnering arrangements, collaborations, and acquisition
candidates; (x) the ability of the Company and its partners to identify new
products as a result of those collaborations that are capable of achieving FDA
approval, that are cost-effective alternatives to existing products and that are
ultimately accepted by the key users of the product; (xi) the success of the
Company's marketing partners in obtaining marketing approvals in Canada and in
European countries, in achieving milestones and achieving sales of products
resulting in royalties; and (xii) the ability to protect and practice the
Company's intellectual property, including patents and know-how.
17
<PAGE>
PART II - OTHER INFORMATION
Item 2 - Sale of Uregistered Securities
- -------
In June 1999, the Company issued 2,050,000 shares of CYTOGEN
common stock and may issue additional shares in connection with the
acquisition of Prostagen (see Note 2 to the Consolidated Financial
Statements). The shares were issued pursuant to Regulation D under the
Securities Act of 1933, as amended (the "Act"). Each purchaser of the
securities issued represented, and is to the best of the Company's
knowledge, an accredited investor within the meaning of Rule 501 under
the Act, except for one purchaser, who represented, and has to the
best of the Company's knowledge, such knowledge and experience in
financial and business matters that he is capable of evaluating the
merits and risks of the transaction. The offering met the conditions
within Regulation D.
Item 4 - Submission of Matters to the Vote of Security Holders
- ------
On June 16, 1999, the Company held its annual meeting of stockholders
to elect directors; to consider and vote on approval of the 1999
CYTOGEN Corporation Non-Employee Director Stock Option Plan; and
transact such other business as might be brought before the meeting.
The following tables set forth information regarding the number of
votes cast for, against or withheld, abstentions and broker non-votes,
with respect to each matter presented at the meeting. Under the rules
of the Nasdaq Stock Market, brokers who hold shares in street name for
customers who are beneficial owners of those shares may be prohibited
from giving a proxy to vote shares held for such customers on certain
matters without specific instructions from such customers (broker
non-votes). Under Delaware law, abstentions and broker non-votes are
counted as shares represented at the meeting for purposes of
determining the presence or absence of a quorum at a stockholders
meeting. The election of directors is decided by a plurality of the
votes cast. Therefore, votes that are withheld have no effect on the
outcome of the vote. Adoption of the remaining proposal required the
affirmative vote of a majority of shares cast at the meeting.
Therefore, abstentions and broker non-votes have no effect on the
vote.
(i) Election of Directors:
Against or Broker
Nominee For Withheld Abstentions Non-Votes
------- --- ---------- ----------- ---------
John E. Bagalay Jr. 58,992,054 2,900,618 N/A N/A
Ronald J. Brenner 59,817,856 2,074,816 N/A N/A
Stephen K. Carter 60,206,825 1,685,847 N/A N/A
James A. Grigsby 60,047,983 1,844,689 N/A N/A
Robert F. Hendrickson 60,088,768 1,803,904 N/A N/A
H. Joseph Reiser 60,625,214 1,267,458 N/A N/A
18
<PAGE>
(ii) Adopt the 1999 CYTOGEN Corporation Non-Employee Director Stock
Option Plan.
Against or Broker
For Withheld Abstentions Non-Votes
--- ---------- ----------- ---------
52,807,968 8,534,894 549,810 N/A
(iii) No other business was transacted at the meeting.
Item 6 - Exhibits and Reports on Form 8-K
- -------
(a) Exhibits:
3.1 By-Laws of CYTOGEN Corporation, as amended. Filed herewith.
10.1 The 1999 CYTOGEN Corporation Non-Employee Directors Stock
Option Plan. Filed herewith.*
27 Financial Data Schedule (Submitted to SEC only in electronic
format).
* Compensatory Plan
19
<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.
CYTOGEN CORPORATION
Date August 13, 1999 By /s/ Jane M. Maida
------------------- ----------------------------
Jane M. Maida
Chief Accounting Officer
(Authorized Accounting Officer)
20
EXHIBIT 3.1
B Y - L A W S
OF
CYTOGEN CORPORATION
(a Delaware corporation)
(as amended April 1, 1999)
ARTICLE I
OFFICES
SECTION 1. OFFICES. The corporation shall maintain its registered office in
the State of Delaware at 100 West Tenth Street, City of Wilmington, County of
New Castle and its resident agent at such address is The Corporation Trust
Company. The Corporation may also have offices in such other places in the
United States or elsewhere as the Board of Directors may, from time to time,
appoint or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the
election of directors and for such other business as may properly be conducted
at such meeting shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors shall determine
by resolution and set forth in the notice of the meeting. In the event that the
Board of Directors fails to so determine the time, date and place for the annual
meeting, it shall be held, beginning in 1981, at the principal office of the
Corporation at 10 o'clock A.M. on the last Friday in February of each year.
SECTION 2. SPECIAL MEETINGS. special meetings of stockholders, unless
otherwise prescribed by statute, may be called by the Chairman of the Board, the
President or by resolution of the Board of Directors and shall be called by the
President or Secretary upon the written request of not less than 50% in interest
of the stockholders entitled to vote thereat. Notice of each special meeting
shall be given in accordance with Section 3 of this Article II. Unless otherwise
permitted by law, business transacted at any special meeting of stockholders
shall be limited to the purpose stated in the notice.
<PAGE>
SECTION 3. NOTICE OF MEETINGS. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting,
which shall state the place, date and time of the meeting, and, in the case of a
special meeting, the purposes for which the meeting is called, shall be mailed
to or delivered to each stockholder of record entitled to vote thereat. Such
notice shall be given not less than ten (10) days nor more than sixty (60) days
before the date of any such meeting.
SECTION 4. QUORUM. Unless otherwise required by law or the Certificate of
Incorporation, the holders of a majority of the issued and outstanding stock
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders.
SECTION 5. VOTING. Unless otherwise provided in the certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder. Upon the request of not less than 10% in
interest of the stockholders entitled to vote at a meeting, voting shall be by
written ballot. All elections of directors shall be decided by plurality vote.
Unless otherwise required by law, these By-laws or the Certificate of
Incorporation, all other corporate action shall be decided by majority vote of
the shares cast on the proposed action.
SECTION 6. INSPECTORS. The Board of Directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count and
tabulate all votes, ballots or consents, determine the results, and do such acts
as are proper to conduct the election or vote with fairness to all stockholders.
2
<PAGE>
On request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as an inspector of an election of directors.
SECTION 7. CHAIRMAN OF MEETINGS. The Chairman of the Board of Directors of
the Corporation, if one is elected, or, in his absence or disability, the
President of the Corporation, shall preside at all meetings of the stockholders.
SECTION 8. SECRETARY OF MEETING. The Secretary of the Corporation shall act
as Secretary at all meetings of the stockholders. In the absence or disability
of the Secretary, the Chairman of the Board of Directors or the President shall
appoint a person to act as Secretary at such meetings.
SECTION 9. LISTS OF STOCKHOLDERS. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, showing the address of each
stockholder and the number and class of shares held by each. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten days prior
to the meeting, el 'ther at a place within the city where the meeting is to be
held, which shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the meeting and may be inspected by any stockholder who is
present.
SECTION 10. ACTION WITHOUT MEETING. Unless otherwise provided by the
Certificate of Incorporation, any action required by law to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
such meetings, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
3
<PAGE>
SECTION 11. ADJOURNMENT. At any meeting of stockholders of the Corporation,
if less than a quorum be present, a majority of the stockholders entitled to
vote thereat, present in person or by proxy, shall have the power to adjourn the
meeting from time to time without notice other than announcement at the meeting
until a quorum shall be present. Any business may be transacted at the adjourned
meeting which might have been transacted at the meeting originally noticed. If
the adjournment is for more than thirty days, or if after the adjournment a new
record date, as provided for in Section 5 of Article V of these By-Laws, is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. POWERS. The property, business and affairs of the Corporation
shall be managed and controlled by its Board of Directors. The Board shall
exercise all of the powers and duties conferred by law except as provided by the
Certificate of Incorporation or these By-Laws.
SECTION 2. NUMBER AND TERM. The number of directors shall be fixed at no
less than two nor more than seven. Within the limits specified above, the number
of directors shall be fixed from time to time by the Board. The Board of
Directors shall be elected by the stockholders at their annual meeting, and each
director shall be elected to serve for the term of one year and until his
successor shall be elected and qualify or until his earlier resignation or
removal. Directors need not be stockholders.
SECTION 3. RESIGNATIONS. Any director may resign at any time. Such
resignation shall be made in writing, and shall take effect at the time
specified therein, and if no time is specified, at the time of its receipt by
the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective.
SECTION 4. REMOVAL. Any director or the entire Board of Directors may be
removed either for or without cause at any time by the affirmative vote of the
holders of a majority of the shares entitled to vote for the election of
directors at any annual or special meeting of the stockholders called for that
purpose. Vacancies thus created may be filled at such meeting by the affirmative
4
<PAGE>
vote of a majority of the stockholders entitled to vote, or, if the vacancies
not so filled, by the directors as provided in Section 5 of this Article III.
SECTION 5. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as provided in
Section 4 of this Article III, vacancies occurring in any directorship and newly
created directorship may be filled by a majority vote of the remaining directors
then in office. Any director so chosen shall hold office for the unexpired term
of his predecessor and until his successor shall be elected and qualify or until
his earlier death, resignation or removal. The Board may not fill the vacancy
created by removal of a director by electing the director so removed.
SECTION 6. MEETINGS. The newly elected. directors shall hold their first
meeting to organize the Corporation, elect officers and transact any other
business which may- properly come before the meeting. An annual organizational
meeting of the Board of Directors shall be held immediately after each annual
meeting of the stockholders, or at such time and place as may be noticed for the
meeting. Regular meetings of the Board may be held without notice at such places
and times as shall be determined from time to time by resolution of the
directors. Special meetings of the Board shall be called by the President or by
the Secretary on the written request of any director with at least two days'
notice to each director and shall be held at such place as may be determined by
the directors or as shall be stated in the notice of the meeting.
SECTION 7. QUORUM, VOTING AND ADJOURNMENT. A majority of the total number
of directors or any committee thereof shall constitute a quorum for the
transaction of business. The vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board. In the
absence of a quorum, a majority of the directors present thereat may adjourn
such meeting to another time and place. Notice of such adjourned meeting need
not be given if the time and place of such adjourned meeting are announced at
the meeting so adjourned.
SECTION 8. COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the Board, designate one or more committees, including but not
limited to an Executive Committee and an Audit Committee, each such committee to
5
<PAGE>
consist of one or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee to replace
any absent or disqualified member at any meeting of the committee. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority- of the Board of Directors in the
management of the business and, affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority to amend the Certificate of
Incorporation, adopt an agreement of merger or consolidation, recommend to the
stockholders the sale, lease, or exchange of all or substantially all of the
Corporation's properties and assets, recommend to the stockholders a dissolution
of the Corporation or a revocation of a dissolution or to amend these By-laws.
Unless a resolution of the Board expressly provides, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock of the Corporation. All committees of the Board shall report their
Proceedings to the Board when recruited.
SECTION 9. ACTION WITHOUT A MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these By-laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting if all members of the Board or any committee
thereof consent thereto in writing.
SECTION 10. COMPENSATION. The Board of Directors shall have the authority
to fix the compensation of directors for their services. A director may also
serve the Corporation in other capacities and receive compensation therefor.
SECTION 11. TELEPHONIC MEETING. Unless otherwise restricted by the
Certificate of Incorporation, members of the Board, or any committee designated
by the Board, may participate in a meeting by means of conference telephone or
similar communications equipment in which all persons participating in the
meeting can hear each other. Participation in such telephonic meeting shall
constitute the presence in person at such meeting.
ARTICLE I'V
OFFICERS
SECTION 1. The officers of the Corporation shall include a President, a
Secretary and one or more subordinate officers, all of whom shall be elected by
the Board of Directors and who shall hold office for a term of one year and
6
<PAGE>
until their successors are elected and qualify or until their earlier
resignation or removal. In addition, the Board of Directors may elect a Chairman
of the Board,, one or more Vice Presidents, including an Executive Vice
President, a Treasurer and one or more Assistant Treasurers and one or more
Assistant Secretaries, who shall hold their office for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors. The initial officers shall be elected at the
first meeting of the Board of Directors and, thereafter, at the annual
organizational meeting of the Board held after each annual meeting of the
stockholders. Any number of offices -may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint
such other officers and agents as it deems advisable, who shall hold their
office for such terms and shall exercise and perform such powers and duties as
shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors shall be a
member of the Board and shall preside at all meetings of the Board of Directors
and of the stockholders. In addition, the Chairman of the Board shall have such
powers and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the Chief Executive Officer of
the Corporation. He shall exercise such duties as customarily pertain to the
office of President and Chief Executive Officer, and shall have general and
active management of the property, business and affairs of the Corporation,
subject to the supervision and control of the Board. He shall perform such other
duties as prescribed from time to time by the Board or these By-laws.
In the absence, disability or refusal of the Chairman of the Board to act,
or the vacancy of such office, the President shall preside at all meetings of
the stockholders and of the Board of Directors. Except as the Board of Directors
shall otherwise authorize, the President shall execute bonds, mortgages and
other contracts on behalf of the Corporation, and shall cause the seal to be
affixed to any instrument requiring it and, when so affixed, the seal shall be
attested by the signature of the Secretary or the Treasurer or an Assistant
Secretary or an Assistant Treasurer.
7
<PAGE>
SECTION 5. VICE PRESIDENTS. Each Vice President, if any are elected, of
whom one or more may be designated an Executive Vice President, shall have such
powers and shall perform such duties as shall be assigned to him by the
President or the Board of Directors.
SECTION 6. TREASURER. The Treasurer shall have custody of the corporate
funds, securities, evidences of indebtedness and other valuables of the
Corporation and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation. He shall deposit all moneys
and other valuables in -IL--he name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation, taking proper vouchers therefor. He shall
render to the President and Board of Directors, upon their request, a report of
the financial condition of the Corporation. If required by the Board of
Directors, he shall give the Corporation a bond for the faithful discharge of
his duties in such amount and with such surety as the Board shall prescribe.
The Treasurer shall have such further powers and perform such other duties
incident to the office of Treasurer as from time to time assigned to him by the
Board.
SECTION 7. SECRETARY. The Secretary shall be the Chief Administrative
Officer of the Corporation and shall: (a) cause minutes of all meetings of the
stockholders and directors to be recorded and kept; (b) cause all notices
required by these By-Laws or otherwise to be given properly; (c) see that the
minute books, stock books, and other nonfinancial books, records and papers of
the Corporation are kept properly; and (d) cause all reports, statements,
returns, certificates and other documents to be prepared and filed when and as
required. The Secretary shall have such further powers and perform such other
duties as prescribed from time to time by the Board.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. Each Assistant
Treasurer and each Assistant Secretary, if any are elected, shall be vested with
all the Powers and shall perform all the duties of the Treasurer and Secretary,
respectively, in the absence or disability of such officer, unless or until the
Board of' Directors shall otherwise determine. In addition, Assistant Treasurers
and Assistant Secretaries shall have such powers and shall perform such duties
as shall be assigned to them by the Board.
8
<PAGE>
SECTION 9. CORPORATE FUNDS AND CHECKS. The funds of the Corporation shall
be kept in such depositories as shall from time to time be prescribed by the
Board of Directors. All checks or other orders for the payment of money shall be
signed by the President or the Treasurer or such other person or agent as may
from time to time be authorized and with such countersignature, if any, as may
be required by the Board of Directors.
SECTION 10. CONTRACTS AND OTHER DOCUMENTS. The President or Treasurer, or
such other- officer or officers as may from time to time be authorized by the
Board of Directors, shall have power to sign and execute on behalf of the
Corporation deeds, conveyances and contracts, and any and all other documents
requiring execution by the Corporation.
SECTION 11. OWNERSHIP OF STOCK OF ANOTHER CORPORATION. The President or the
Treasurer, or such other officer or agent as shall be authorized by the Board of
Directors, shall have the power and authority, on behalf of the Corporation, to
attend and to vote at any meeting of stockholders of any corporation in which
the Corporation holds stock and may exercise, on behalf of the corporation, any
and all of the rights and powers incident the ownership of such stock at any
such meeting, including authority to execute and deliver proxies and consents on
behalf of the corporation.
SECTION 12. DELEGATION OF DUTIES. In the absence, disability or refusal of
any officer to exercise and perform his duties, the Board of Directors may
delegate to another officer such powers or duties.
SECTION 13. RESIGNATION AND REMOVAL. Any officer of the Corporation may be
removed from office for or without cause at any time by the Board of Directors.
Any officer may resign at any time in the same manner prescribed under Section 3
of Article III of these By-laws.
SECTION 14. VACANCIES. The Board of Directors shall have power to fill
vacancies occurring in any office.
ARTICLE V
STOCK
9
<PAGE>
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by, or in the name of the
Corporation by, the Chairman of the Board or the President or a Vice President
and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number and class of shares of stock in the Corporation
owned by him. Any or all of the signatures on the certificate may be a
facsimile. The Board of Directors shall have the power to appoint one or more
transfer agents and/or registrars for the transfer or registration of
certificates of stock of any class, and may require stock certificates to be
countersigned or registered by one or more of such transfer agents and/or
registrars.
SECTION 2. TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable upon its books by the holders thereof, in person or by their duly
authorized attorneys or legal representatives, upon surrender to the Corporation
by delivery thereof to the person in charge of the stock and transfer books and
ledgers. Such certificates shall be cancelled and new certificates shall
thereupon be issued. A record shall be made of each transfer. Whenever any
transfer of shares shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of the transfer if, when the certificates are
presented, both the transferor and transferee request the Corporation to do so.
The Board shall have power and authority to make such rules and regulations as
it may deem necessary or proper concerning the issue, transfer and registration
of certificates for shares of stock of the corporation.
SECTION 3. LOST CERTIFICATES. A new certificate of stock may be issued in
the place of any certificate previously issued by the Corporation, alleged to
have been lost, stolen, destroyed or mutilated, and the Board of Directors may,
in their discretion, require the owner of such lost, stolen, destroyed or
mutilated certificate, or his legal representative, to give the Corporation a
bond, in such sum as the Board may direct, not exceeding double the value of the
stock, in order to indemnify the Corporation against any claims that may be made
against it in connection therewith.
SECTION 4. STOCKHOLDERS OF RECORD. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder
thereof, in fact, and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
10
<PAGE>
not it shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 5. STOCKHOLDERS RECORD DATE. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting, provided, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
SECTION 6. DIVIDENDS. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may at any regular or special meeting, out
of funds legally available therefor, declare dividends upon the stock of the
Corporation. Before the declaration of any dividend, the Board of Directors may
set apart, out of any funds of the Corporation available for dividends, such sum
or sums as from time to time in their discretion may be deemed proper for
working capital or as a reserve fund to meet contingencies or for such other
purposes as shall be deemed conducive to the interests of the Corporation.
ARTICLE VI
NOTICE AND WAIVER OF NOTICE
SECTION 1. NOTICE. Whenever any written notice is required to be given by
law, the Certificate of Incorporation or these By-Laws, such notice, if mailed,
shall be deemed to be given when deposited in the United States mail, postage
prepaid, addressed to the person entitled to such notice at his address as it
appears on the books and records of the Corporation. Such notice may also be
sent by telegram.
SECTION 2. WAIVER OF NOTICE. Whenever notice is required to be given by
law, the Certificate of Incorporation or these By-laws, a written waiver thereof
signed by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
11
<PAGE>
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any meeting of the stockholders, directors, or members of a
committee of the Board need be specified in any written waiver of notice.
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. AMENDMENTS. These By-Laws may be amended or repealed or new
By-Laws may be adopted by the affirmative vote of a majority of the Board of
Directors at any regular or special meeting of the Board. If any By-Law
regulating an impending election of directors is adopted, amended or repealed by
the Board, there shall be set forth in the notice of the next meeting of
shareholders for the election of directors the By-Law(s) so adopted, amended, or
repealed, together with a precise statement of the changes made. By-Laws adopted
by Board of Directors may be amended or repealed by shareholders.
ARTICLE VITI
SECTION 1. SEAL. The seal of the Corporation shall be circular in form and
shall have the name of the corporation on the circumference and the jurisdiction
and year of incorporation in the center.
SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall end on
September 30 of each year, or such other twelve consecutive months as the Board
of Directors may designate.
ARTICLE IX
INDEMNIFICATION
SECTION 1. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
12
<PAGE>
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
SECTION 2. Each person who has or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director, officer, employee or agent of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity as a director, officer, employee or agent or
in any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in this Section 2, the Corporation shall indemnify any such person
seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 2 shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition as authorized
by the Board of Directors; provided, however, that if the Delaware General
Corporation Law so requires, the payment of such expenses incurred by a
13
<PAGE>
director, officer, employee or agent of the Company in his or her capacity as
such in advance of the final disposition of a proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director,
officer, employee or agent of the Company, to repay all amounts so advanced if
it shall ultimately be determined that such director, officer, employee or agent
of the Company is not entitled to be indemnified under this Section 2 or
otherwise.
SECTION 3. If a claim under Section 2 of this Article IX is not paid in
full by the Corporation within 30 days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standard of conduct which makes it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard of
conduct.
SECTION 4. The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition conferred
in this Article IX shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the Certificate of
incorporation, these By-Laws, agreement, vote of stockholders or disinterested
directors or otherwise.
14
<PAGE>
SECTION 5. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
15
EXHIBIT 10.1
CYTOGEN CORPORATION
1999 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose; Effective Date.
(a) The purposes of this Plan are to further the interests of Cytogen
Corporation (the "Company") by retaining the services of persons now serving as
non-employee Directors of the Company, attracting and retaining the services of
persons capable of serving on the Board of Directors of the Company, and by
providing such persons with an incentive that aligns their interests with the
interests of the Company's shareholders.
(b) This Plan will become effective on approval of the Plan by the affirmative
vote of the majority of shares present in person or represented by proxy at a
meeting of the shareholders of the Company and cast on the proposal for approval
of the Plan.
2. Definitions.
Whenever used in this Plan, the following terms will have the meanings set forth
in this Section:
"Board of Directors" means the Board of Directors of the Company.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, par value $.0l per share, of the Company.
"Date of Grant" means with respect to any Option the date the Option will become
effective under the provisions of this Plan.
"Disability" means inability of a Director to engage in any substantial gainful
activity by reason of a medically determinable physical or mental impairment
which reasonably can be expected to last for a continuous period of not less
than six months.
"Eligible Director" means, as of any time, a person who is a director of the
Company but is not then an Employee.
"Employee" means any person employed by the Company (including, without
limitation, a person employed by the Company who is also an officer or director
of the Company).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and rules
and regulations promulgated thereunder.
"Exercise Price" means with respect to any Option the price per share which must
be paid upon exercise of the Option.
<PAGE>
"Fair Market Value" means (i) if the Common Stock is traded in a market in which
actual transactions are reported, the average of the high and low prices at
which the Common Stock is reported to have traded on the relevant date in all
markets on which trading in the Common Stock is reported, or if there is no
reported sale of the Common Stock on the relevant date, the mean of the highest
reported bid price and lowest reported asked price for the Common Stock on the
relevant date, (ii) if the Common Stock is Publicly Traded but only in markets
in which there is no reporting of actual transactions, the mean of the highest
reported bid price and the lowest reported asked price for the Common Stock on
the relevant date, or (iii) if the Common Stock is not Publicly Traded, the
value of a share of Common Stock as determined by the most recent annual
valuation prepared by an independent expert at the request of the Board of
Directors.
"Major Event" means when (i) the Company enters into one or more definitive
agreements to merge or consolidate the Company with or into another corporation,
or to sell or otherwise dispose of all or substantially all of the Company's
assets, or to effect any other transaction, consolidation or reorganization
having similar results or effect; (ii) any person other than the Company makes a
tender or exchange offer for more than 50% of Common Stock pursuant to which
purchases of any amount of Common Stock are made; or (iii) stock representing
more than 50% of the voting power of the Company is acquired by any person other
than the Company in any one or more transactions occurring in any 24-month
period.
"Option" means any option granted under this Plan.
"Option Agreement" means an agreement, in such form as may be determined by the
Board of Directors or the Committee, executed and delivered by the Company to
the holder of any Option with respect to that option.
"Option Shares" means, with respect to any Option, the maximum number of shares
of Common Stock which may be acquired under the option prior to its expiration.
"Plan" means the Cytogen Corporation 1999 Directors Stock Option Plan.
"Publicly Traded" means, with respect to any class of stock, that the class of
stock is required to be registered under Section 12 of the Securities Exchange
Act of 1934, as amended, or that stock of that class has been sold within the
preceding 12 months in an underwritten public offering.
"Termination of Service" means the time when a Director ceases to serve as a
Director for any reason, including without limitation by reason of resignation,
retirement, removal, death or Disability.
3. Administration of the Plan.
(a) The Compensation Committee of the Board of Directors will be responsible for
the administration of this Plan. The Committee shall consist of two or more
non-employee directors of the Company who meet the definition of "outside
director" under the provisions of Section 162(m) of the Code and the definition
2
<PAGE>
of "non-employee director" under the provisions of the Exchange Act. No member
of the Committee shall have been within one year prior to appointment to, or
while serving on, the Committee granted or awarded equity securities of the
Company pursuant to this or any other plan of the Company except to the extent
that participation in any such plan or receipt of any such grant or award would
not adversely affect the Committee member's status as a "non-employee director"
or as an "outside director".
(b) The Committee shall (i) determine or provide for the terms and conditions of
grant Agreements, and all election and other forms, which terms and conditions
shall not be inconsistent with this Plan, (ii) interpret the Plan and (iii) make
all other decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.
(c) No member of the Board of Directors or of any committee of the Board of
Directors shall be liable for any act or omission of the Board or any committee,
or of any other member of the Board or any committee, or for any act or omission
on his own part, in connection with the administration of this Plan unless it
resulted from the member's own willful misconduct.
4. Persons Eligible to Receive options.
Options shall be granted only to Eligible Directors.
5. Stock Subject to the Plan.
The maximum number of shares of Common Stock as to which Options may be granted
under this Plan is 500,000 shares, subject to adjustment as provided in Section
8. If any option expires or is cancelled, surrendered or forfeited without being
exercised in full, the number of shares as to which the option is not exercised
will once again become shares as to which new Options may be granted. The Common
Stock which is issued on exercise of Options may be authorized but unissued
shares or shares which have been issued and reacquired by the Company.
6. Grants of Options.
(a) The grants of options under this Plan shall be automatic and
non-discretionary. Each Option shall be exercisable on the terms and subject to
the conditions specified in Section 7. No Option granted under this Plan shall
be an "incentive stock option" within the meaning of Section 422A of the Code.
(b) Effective on approval of the Plan by the shareholders, each person who is on
that date an Eligible Director shall be granted an Option to purchase twenty one
thousand (21,000) shares of Common Stock (the "Initial Option").
(c) Each person who is appointed a director of the Company after the date of
approval of the Plan by the Shareholders and is an Eligible Director as of such
date shall be granted an Option to purchase a pro rata portion of ten thousand
3
<PAGE>
(10,000) shares of Common Stock, based upon the number of full months remaining
from the date of election until the one year anniversary month of the preceding
annual meeting, as of the effective date of their appointment.
(d) On the day following each annual meeting of the stockholders of the Company,
commencing with the 2000 annual meeting, each person who is on that date an
Eligible Director and was re-elected at that meeting shall be granted an Option
to purchase 10,000 shares of Common Stock. In addition, a Chairman of the Board
of Directors, unless the Compensation Committee of the Board determines
otherwise, shall receive an additional grant of fifteen thousand (15,000) shares
of Common Stock.
(e) Each Option provided for in this Section 6 shall be granted automatically
and without further action by the Company, the Board of Directors or the
Company's stockholders. Promptly after the Date of Grant of each Option provided
for in this Section 6, the Company shall cause an Option Agreement to be
executed and delivered to the holder of the Option. No other Options may be
granted at any time under this Plan.
7. Option Provisions.
(a) Exercise Price. The Exercise Price of the Initial Option will be 200% of the
Fair Market Value of the Common Stock on the Date of Grant of the Option. The
Exercise Price of each Option other than the Initial Option will be 100% of the
Fair Market Value of the Common Stock on the Date of Grant of the Option.
(b) Term; Vesting.
(i) No Option granted under this Plan may be exercised more than 10 years after
the Date of Grant of the option.
(ii) Except as provided in Sections 7(b)(iii), 7(f), 7(g) and 7(h), the Initial
Option shall become exercisable in one-third increments annually on the first,
second, and third anniversaries of the Date of Grant, and Options other than the
Initial Option shall become exercisable in full on the first anniversary of the
Date of Grant.
(iii) Upon the occurrence of a Major Event, all of the Option Shares covered by
an Option shall become immediately available for purchase upon exercise of the
option, without regard to the vesting provisions of Section 7(b)(ii).
(c) Exercise of Options. An Option may be exercised in whole or in part at any
time, or from time to time, during its term. To exercise an Option, the person
exercising the Option must deliver to the Company, at its principal office:
(i) a notice of exercise of the Option, which states the extent to which the
option is being exercised; and
4
<PAGE>
(ii) payment in full in cash, which may be satisfied by a check, in an amount
equal to the Exercise Price of the option times the number of shares as to which
it is being exercised.
(d) Delivery of Stock Certificates. As promptly as practicable after an option
is exercised, the Company will deliver to the person who exercises the Option,
certificates registered in that person's name representing the number of shares
of Common Stock which were purchased by the exercise of the option. Each
certificate may bear a legend to indicate, if applicable, that the Common Stock
represented by the certificate was issued in a transaction which was not
registered under the Securities Act of 1933, as amended, and may only be sold or
transferred in a transaction which is registered under that Act or is exempt
from the registration requirements of that Act.
(e) Nontransferability of Options. During the lifetime of a person to whom an
option is issued, the Option may be exercised only by that person or his or her
guardian or legal representative. An Option may not be assigned, pledged or
hypothecated in any way, will not be subject to execution, and will not be
transferable otherwise than by will or the laws of descent and distribution. The
Company will not recognize any attempt to assign, transfer, pledge, hypothecate
or otherwise dispose of an option contrary to the provisions of this Plan, or
any levy of any attachment or similar process upon any Option, and, except as
expressly stated in this Plan, the Company will not be required to, and will
not, issue Common Stock on exercise of an option to anyone who claims to have
acquired that option from the person to whom it was granted.
(f) Termination of Service of Director Holding an Option Other Than Because of
Death or Disability. Subject to the provisions of Sections 7(b) and 7(h), if
there is a Termination of Service of a director to whom an Option has been
granted, other than by reason of the director's death or disability, or
retirement, each Option held by the director may be exercised until the earlier
of (x) the end of the three-month period immediately following the date of
Termination of service, or (y) the expiration of the term of the option.
(g) Death or Disability of Director Holding an Option. Notwithstanding the
provisions of Section 7(b), if there is a Termination of Service of a director
to whom an option has been granted by reason of the director's death or
disability, or a former director dies within three months following the date of
his or her Termination of Service, each option held by the Director on the date
of the Director's Termination of Service may be exercised in full (i.e., in
respect of up to 100% of the Option shares, regardless of the time elapsed since
the Date of Grant) until the earlier of (x) the end of the one-year period
immediately following the date of Termination of service or (y) the expiration
of the term of the option. In the event of an Eligible Director's death, all of
such person's outstanding Options will transfer to the maximum extent permitted
by law to such person's designated Beneficiary. Each Eligible Director may name,
from time to time, any beneficiary or beneficiaries (which may be named
contingently or successively) as his or her Beneficiary for purposes of this
Plan. Each designation shall be on a form prescribed by the Company, will be
effective only when delivered to the Company and when effective will revoke all
prior designations by the Eligible Director. If an Eligible Director dies with
5
<PAGE>
no such beneficiary designation in effect, such person's Options will be
transferable by will or pursuant to the laws of descent and distribution
applicable to such person.
(h) Retirement or Resignation. If there is a Termination of Service of a
Director by reason of the Director's retirement or resignation at any time after
the Director has reached age 55 with a minimum of three years' service as a
non-employee director, each Option held by the Director on the date of the
Director's Termination of Service may be exercised in full (i.e., in respect of
up to 100% of the Option Shares, regardless of the time elapsed since the Date
of Grant) until the earlier of (x) the end of the five year period immediately
following the date of Termination of Service or (y) the expiration of the term
of the option.
8. Recapitalization, reorganizations, stock splits and the like.
(a) The existence of outstanding Options shall not affect in any way the right
or power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or the
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business or any other corporate act or proceeding, whether
of a similar character or otherwise. Except as hereinafter expressly provided,
the issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or on conversion of shares or obligations of the
Company convertible into such shares or other securities, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number, class
or price of shares of Common Stock then subject to outstanding options.
(b) If as a result of any (i) reorganization or liquidation of the Company or
(ii) reclassification of the Company's capital stock, stock splits, stock splits
in the form of dividends, reverse stock splits, or similar recapitalizations of
the Company, or (iii) consolidation or merger of the Company with or into
another corporation, or sale of all or substantially all the assets of the
Company (a reorganization or liquidation of the Company or reclassification of
the Company's capital stock, or a merger, consolidation or sale of the type
described in this subsection being a "Corporate Transaction") while an Option is
outstanding, the holders of the Common Stock become entitled to receive with
respect to their Common Stock, securities or assets other than, or in addition
to, their Common Stock, upon exercise of that Option the holder will receive
what the holder would have owned if the holder had exercised the Option
immediately before the first Corporate Transaction which occurred while the
option was outstanding and had not disposed of anything the holder would have
received as a result of that and all subsequent Corporate Transactions.
6
<PAGE>
9. Rights of Option Holder.
The holder of an Option will not have any rights as a stockholder by reason of
holding that Option. Upon exercise of an Option, the holder will be deemed to
acquire the rights of a stockholder when, but not before, the issuance of Common
Stock as a result of the exercise is recorded in the stock records of the
Company.
10. Laws and Regulations.
The obligation of the Company to sell and deliver shares of Common Stock on
exercise of options will be subject to the condition that legal counsel for the
Company be satisfied that the sale and delivery will not violate the Securities
Act of 1933, as amended, or any other applicable laws, rules or regulations.
11. Reservation of Shares.
The Company will at all times keep reserved for issuance on exercise of options
a number of authorized but unissued or reacquired shares of Common Stock equal
to the maximum number of shares the Company may be required to issue on exercise
of outstanding options (assuming no subsequent adjustments under Section 8).
12. Amendment of the Plan.
The Board of Directors may at any time and from time to time modify or amend
this Plan in any respect effective at any date the Board of Directors
determines; provided, that without the approval of the stockholders of the
Company the Board of Directors may not, (i) except as provided in Section 8,
increase the maximum number of shares of Common Stock which may be issued on
exercise of Options granted under this Plan; (ii) change the provisions of
Section 6 or Section 7; (iii) change the categories of persons eligible to
receive options under this Plan; or (iv) otherwise materially increase (within
the meaning of Rule 16b-3 of the Exchange Act) the benefits accruing under this
Plan. No modification or amendment of this Plan will, without the consent of the
holder of an outstanding Option, adversely affect the holder's rights under that
Option. Notwithstanding approval by shareholders, the Board may amend this Plan
without further shareholder approval to add provisions required or enabled by
changes to Rule 16b-3.
13. Termination of the Plan.
This Plan will terminate on June 16, 2008, unless sooner terminated. The Board
of Directors may suspend or terminate this Plan at any time or from time to
time, but no such action may adversely affect the rights of a person holding an
outstanding Option. The applicable terms of the Plan, and any terms and
conditions as applicable to Options granted prior to such date, shall survive
the termination of the Plan and continue to apply to such Options.
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 AND THE CONSOLIDATED
STATEMENTS OF OPERATIONS FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,332,000
<SECURITIES> 0
<RECEIVABLES> 3,070,000
<ALLOWANCES> (73,000)
<INVENTORY> 176,000
<CURRENT-ASSETS> 551,000
<PP&E> 14,038,000
<DEPRECIATION> (12,152,000)
<TOTAL-ASSETS> 12,356,000
<CURRENT-LIABILITIES> 4,629,000
<BONDS> 0
0
0
<COMMON> 672,000
<OTHER-SE> 4,791,000
<TOTAL-LIABILITY-AND-EQUITY> 12,356,000
<SALES> 3,574,000
<TOTAL-REVENUES> 6,774,000
<CGS> 2,274,000
<TOTAL-COSTS> 4,302,000
<OTHER-EXPENSES> 5,144,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,000
<INCOME-PRETAX> 693,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 693,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 693,000
<EPS-BASIC> 0.01
<EPS-DILUTED> 0.01
</TABLE>
