CELSION CORP
8-K, 2000-02-03
ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS
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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):   February 3, 2000
                                                    ----------------



                               CELSION CORPORATION
                               -------------------
             (Exact name of registrant as specified in its charter)


         Maryland                     000-14242               52-1256615
- ------------------------------      --------------           ------------
(State or other jurisdiction       (Commission file        (I.R.S. Employer
of incorporation)                      number )          Identification Number)


10220-I Old Columbia Road  Columbia, Maryland                    21046-1705
- --------------------------------------------------------------------------------
  (Address of principal executive offices)                       (Zip Code)


        Registrant's telephone number, including area code (410) 290-5390
                                                           --------------

                                       -1-

<PAGE>

Item 5. Other Events.

Completion of  Recent Equity Financing
- --------------------------------------

         On January 31, 2000,  Celsion  Corporation (the "Company")  consummated
the sale of 4,852.5  shares of a new Series A 10%  Convertible  Preferred  Stock
("Preferred  Stock"),  at a price of  $1,000.00  per share,  to  investors  in a
private  placement  offering (the  "Offering").  The Offering was made through a
placement  agent  ("Placement  Agent")  which is a  broker-dealer  member of the
National  Association of Securities Dealers,  and shares of Preferred Stock were
sold  only  to  accredited  investors  under  Regulation  D  promulgated  by the
Securities and Exchange Commission.

         The Company  received net  proceeds of  $4,231,675  from the  Offering,
intended to be used for completion of current  clinical trials for the Company's
treatment  systems,  for further research and development in connection with the
thermo-liposome technology licensed to the Company by Duke University, for other
research projects, and for working capital.

New Executive Employment Agreements
- -----------------------------------

         Under its  agreement  with the Placement  Agent in connection  with the
Offering,   the  Company  was  required  to  enter  into  three-year  employment
agreements  with Spencer J. Volk,  the Company's  President and Chief  Executive
Officer,  and with  Augustine  Y.  Cheung,  the  Company's  Chairman  and  Chief
Scientific Officer. The new agreements were entered into prior to the closing of
the  Offering,  and are  effective  as of  January  1,  2000.  The  terms of the
Company's  prior  executive  employment  arrangements  and a summary  of the new
agreements are as follows:

         1.    In May 1997, the Company and Spencer J. Volk, President and Chief
Executive  Officer,  entered  into a one-year  executive  employment  agreement,
automatically   renewable  annually  for  additional   one-year  periods  unless
terminated by either party at least 90 days prior to the end of the then current
one-year  period.  The  agreement  provided  for an  initial  annual  salary  of
$240,000,  which was to be  adjusted  to at least  $360,000  upon the  Company's
successful raising of an aggregate of at least $5,000,000 in additional capital.
In addition,  Mr. Volk was awarded  incentive  compensation of 500,000 shares of
Common Stock of the Company at commencement  of his employment.  He also had the
right to receive up to 1,400,000  additional  shares subject both to an increase
in the Company's capital base and to Mr. Volk's continued employment.  Under Mr.
Volk's leadership,  the Company achieved the specified capital goals. But, as of
September  30, 1999,  Mr. Volk had  received  only  1,000,000 of the  additional
shares.  At the request of the  Company,  he deferred  receipt of the  remaining
400,000 shares to a later date.  Similarly,  although the pre- condition for Mr.
Volk's salary  adjustment had been met, Mr. Volk agreed,  at the further request
of the  Company,  to waive the salary  increase  due him for any period prior to
September 30, 1999.

         2.    With regard to the deferred 400,000 shares, on November 11, 1999,
the Company requested Mr. Volk to waive his right under his existing  employment
agreement to receive such shares. Simultaneously, (i) the Company granted him an

                                       -2-

<PAGE>



option to purchase 400,000 shares of restricted Common Stock at a price equal to
two-thirds  of the average  closing price of Common Stock during the prior three
trading days (which closing price amounted to approximately $0.75 per share) and
(ii) the Company  agreed to issue 100,000 shares of Common Stock to him no later
than February 15, 2000. Mr. Volk agreed to the Company's proposal.

         3.    The new executive  employment  agreement  between the Company and
Dr. Cheung  provides for an annual salary of $240,000 per year  commencing as of
January 1, 2000. As a form of bonus,  the agreement  grants Dr. Cheung an option
to purchase up to 300,000  shares of Common Stock at intervals  until October 1,
2002 at an exercise  price equal to the average  closing  price of the Company's
Common Stock during the Company's  fiscal quarter ended December 31, 1999, which
price is expected to approximate  $1.22 per share. If Dr. Cheung continues to be
employed by the Company on each  exercise  date, he will be entitled to exercise
the bonus option in three separate  installments  of 100,000 shares each. He may
exercise the first  installment after March 15, 2000, the next installment after
October 1,  2001,  and the final  installment  after  October  1,  2002.  Shares
purchased under the bonus option will be subject to restrictions on transfer for
a minimum period of two years after purchase.  Dr. Cheung's employment agreement
also  grants to him  performance-  based  options to purchase up to a maximum of
700,000  incentive shares of Common Stock, at exercise prices ranging from a low
of $0.80 to a high of $1.60 per share, on achieving five  significant  corporate
milestones.  Those performance  objectives  include obtaining final FDA approval
for Company  products,  consummating  alliances  with  strategic  marketing  and
distribution  partners,  and  attaining  annual  pre-tax  earnings  of at  least
$1,000,000  for the Company.  A  performance-based  option may be exercised only
after the  milestone  has been  achieved  and  during  the term of Dr.  Cheung's
employment.  Shares  issued on exercise  of  performance-based  options  will be
subject to  restrictions  comparable to those imposed on the annual bonus option
shares.

         4.    At the request of the Placement  Agent and the Company,  Mr. Volk
agreed to  terminate  his prior  employment  agreement  and to enter  into a new
three-year  employment  agreement.  Mr.  Volk's  salary in fiscal year 2000 will
continue to be $240,000. His compensation  arrangements contain annual bonus and
performance-based  option provisions  similar to those contained in Dr. Cheung's
employment  agreement,  except  that Mr.  Volk will be issued an initial  annual
bonus option for the  purchase of 250,000  shares in fiscal year 2000 instead of
the 100,000 share bonus option provided for that year in Dr. Cheung's agreement.
(The annual bonus for each of fiscal 2001 and 2002 will be 100,000 shares, as in
Dr.  Cheung's  agreement.)  For the  2001  fiscal  year and the  balance  of the
contract term, Mr. Volk's annual salary will be $360,000, of which only $240,000
will be paid on a current  basis.  The  salary  differential  will  accrue as an
unpaid  obligation  to Mr.  Volk at the rate of $10,000  per month,  and will be
represented by a junior convertible note of the Company, carrying interest at an
annual rate of 8.75%,  payable  interest only until  September  30, 2001.  After
October 1, 2001, the outstanding principal amount of the note will be payable in
four quarterly  installments of principal and interest.  However, the balance of
the note will become payable in full,  and regular salary  payments will be made
at the annual rate of $360,000 when the Company  achieves  annual revenues of at
least $2.5 million.  At the option of Mr. Volk, the balance  payable at any time
under the  note will be convertible into shares of  Common Stock of  the Company

                                       -3-

<PAGE>



at a price equal to 80% of the average closing price of such Common Stock during
any ten  consecutive  trading  days (as  selected by Mr.  Volk) within the forty
trading days immediately prior to the date of any conversion of the note.

         5.    The new  agreements  for each  executive  provide  for  continued
payment of salary and benefits  during the full terms of the  agreements  in the
event of a change of control of the Company. A change of control is defined as a
merger,  asset sale, tender offer or other substantial change in voting control,
or the  election of a new majority of the Board of Directors or of three or more
directors whose election is opposed by a majority of the Board. In addition, the
agreements provide for Consumer Price Index adjustments,  restrictive  covenants
and  confidentiality  and other  protections in the form  generally  included in
employment agreements for senior management.

Commencement of Clinical Trials
- -------------------------------

         Phase I clinical  studies for the  Company's  breast  cancer  treatment
system have begun at The Center for Breast Surgery (a Columbia/HCA  affiliate in
West  Palm  Beach,  Florida),  and at  Harbor  Medical  Center  in Los  Angeles,
California, encompassing a total of 10 patients. An expanded Phase I study began
in December  at  Montefiore  Medical  Center in New York,  New York,  which will
include a total of 10 patients. The purpose of the latter study is to evaluate a
revised protocol designed to shorten  treatment time and simplify  equipment and
software used in connection with the system.

Terms of Preferred Stock Sold in Offering
- -----------------------------------------

         In connection with the Offering,  the Company has filed, with the State
of Maryland,  Articles  Supplementary which designate and set forth the terms of
the Preferred Stock sold to investors in the Offering. Shares of Preferred Stock
have a  liquidation  preference  of $1,000 each,  are non-  voting,  and carry a
dividend of $100.00 per year,  payable  semi-annually  in  fractional  shares of
Preferred Stock, calculated at a valuation of $100.00 per share.

         Shares of Preferred Stock (the "Shares")  carry the following  exchange
and conversion rights:

         1.    If  the  Company   undertakes  a  registered   public   offering,
consisting of either (x) its equity securities or (y) units ("Units")  comprised
of equity  securities  of the  Company  and of shares of any  subsidiary  of the
Company (the  securities  and/or Units to be sold in such public  offering being
referred to as the "Public  Offering  Securities"),  and such public offering is
consummated  within 12 months after the closing of the Offering,  each holder of
Preferred  Stock will be notified of such public  offering  and must,  within 30
days,  elect  either (a) to exchange  100% of the Shares  (including  Shares and
fractional Shares issued as dividends) for such Public Offering Securities at an
exchange price equal to 70% of the public  offering price of the Public Offering
Securities,  or (b) to exchange 50% of the Shares for Public Offering Securities
on the same  terms  and  convert  the  remainder  of the  Shares  held  into the


                                       -4-

<PAGE>



Company's Common Stock ("Common Stock") at a conversion price of $0.41 per share
of  Common  Stock,  as such  price may be  adjusted  from time to time for stock
splits, stock combinations,  recapitalizations or otherwise (as so adjusted, the
"Conversion  Price").  If any holder of the Shares does not elect  either (a) or
(b) above within the 30-day  period after  notification,  all rights of any such
holder to exchange such Shares for Public Offering Securities or to convert such
Shares into Common Stock shall, if the public offering is consummated within the
12-month period, lapse and terminate,  and the Company will, within a reasonable
time thereafter,  redeem the Shares so held at a redemption price of 105% of the
liquidation value of the Shares and in accordance with applicable law.

         In addition, if the Company,  within 12 months after the closing of the
Offering,  consummates a sale of any Company subsidiary to a public company or a
merger of such subsidiary  into a public company (a "Disposition  Transaction"),
for  consideration   consisting  of  securities  of  such  public  company  (the
"Disposition Securities"), each holder of Shares purchased in this Offering will
be  similarly  notified  and will have a 30-day  period to elect  either  (a) to
exchange  100% of the  holder's  Shares for such  Disposition  Securities  at an
exchange  price  equal  to 70%  of  the  price  of  the  Disposition  Securities
established in the Disposition Transaction, or (b) to exchange 50% of the Shares
for  Disposition  Securities  on the same terms and convert the remainder of the
Shares into Common Stock at the  Conversion  Price.  If any holder of the Shares
does  not  elect  either  (a)  or (b)  above  within  the  30-day  period  after
notification,  all  rights  of any such  holder  to  exchange  such  Shares  for
Disposition Securities or to convert such Shares into Common Stock shall, if the
Disposition  Transaction  public  offering is  consummated  within the  12-month
period,  lapse and  terminate,  and the Company will,  within a reasonable  time
thereafter,  redeem  the  Shares  so held at a  redemption  price of 105% of the
liquidation value of the Shares and in accordance with applicable law.

         (2)   If  such  public  offering  or  Disposition  Transaction  is  not
consummated  within 12 months after the closing of the  Offering,  then,  at the
election of the holder at any time,  and subject to the  condition in (3) below,
the Shares may be converted,  in whole or in part,  into shares of the Company's
Common Stock at the Conversion Price.

         (3)   In addition,  if at any time subsequent to the first  anniversary
of the  closing  of the  Offering  (no sale of  Public  Offering  Securities  or
Disposition Transaction having been consummated by such first anniversary),  the
Company undertakes a public offering consisting only of Common Stock for its own
account,  then,  at the specific  election of the Company and upon notice to the
holders of the  Preferred  Stock,  such holders may be required to convert their
shares of Preferred Stock into Common Stock at the Conversion Price.

         (4)   The  Company  has no present  plan or  intention  concerning  any
Disposition   Transaction,   and  no  such  Transaction  has  been  proposed  or
considered.  Also, while the Company intends to pursue  financing  opportunities
which may arise in the future,  it has no present plan for a public  offering of
its securities.



                                       -5-

<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 hereunto duly authorized.



Date:  February 3, 2000


                                                   CELSION CORPORATION
                                             ---------------------------------
                                                       (Registrant)


                                             By:/s/ Spencer J. Volk
                                                --------------------
                                                Spencer J. Volk, President and
                                                Chief Executive Officer

                                       -6-



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