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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1998
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File No. 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA
(State or other jurisdiction of
incorporation or organization)
36-4010347
(I.R.S. Employer
Identification No.)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices) (Zip Code)
(423) 769-4012
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
---- ----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
----
Issuer's revenues for its most recent fiscal year: $392,599.
The approximate aggregate market value of voting stock held by non-affiliates
computed as of March 12, 1999, based upon the last sale price of the Common
Stock reported on the Nasdaq National Over the Counter Market was approximately
$64,139,511.25. For purposes of this calculation only, the registrant has
assumed that its directors and executive officers, and any person who has filed
a Schedule 13D, are affiliates.
The number of shares outstanding of each of the Issuer's classes of common
equity, as of March 12, 1999: 36,875,020
Documents Incorporated By Reference: Portions of the registrant's definitive
proxy statement for its 1999 annual
meeting of stockholders are incorporated
by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY HISTORY
Photogen Technologies, Inc., through its wholly-owned subsidiary
Photogen, Inc. (collectively, the "Company" or "Photogen"), is a development
stage company focused on creating new health care products based on its
proprietary simultaneous two photon excitation and other light-based
technologies (in the field generally known as "photodynamic therapy"). The
Company has discovered new methods for using light to activate photoactive
agents within tissue sufficient to produce a range of beneficial therapeutic and
diagnostic outcomes. The interaction of light and photoactive agents is often
called "photochemistry." This may be accomplished at the tissue's surface or
within deep tissue either non-invasively or by minimally invasive means. These
technologies involve methods, materials and devices that may be used to produce
light and photoactive agents that will destroy diseased cells, remove tissue or
identify and diagnose disease. The Company and its business are subject to
certain Risk Factors summarized below.
The Company is the successor by merger to Bemax Corporation ("Bemax").
Bemax was a California corporation organized in 1984 to develop and market
computer printer products. Bemax completed a public offering in April 1985 of
1,000,000 Units (consisting of one share of common stock and one warrant to
acquire an additional share of common stock) at a price of $1.00 per Unit. None
of the warrants were exercised and all have since expired. Bemax remained in the
development stage and, due to lack of capital, it ceased operations in November
1988. From 1988 through May 1997, the Company (and its predecessors) remained
inactive while seeking and evaluating possible acquisition candidates.
In 1994, Theodore Tannebaum, Robert J. Weinstein, M.D. and another
investor acquired control of Bemax. In March 1995, Bemax merged into its
wholly-owned Nevada subsidiary named M T Financial Group, Inc. ("M T Financial")
which was organized in 1994. M T Financial was the surviving corporation and
Bemax thereby changed its state of incorporation from California to Nevada. As
part of that merger, each two shares of Bemax common stock were converted into
one share of M T Financial common stock.
In May 1997, Photogen, Inc. merged with a subsidiary of M T Financial
and became M T Financial's wholly-owned subsidiary. In connection with M T
Financial's acquisition of Photogen, the following occurred (in addition to
certain other material events discussed in the Company's filings with the
Securities and Exchange Commission):
- M T Financial changed its name to "Photogen Technologies, Inc."
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- In exchange for their interest in Photogen, Inc., the Company
issued shares to the five Photogen principals, resulting in their
ownership at that time of 67% of the Company's outstanding common
stock; Mr. Tannebaum, Dr. Weinstein and two other investors
retained beneficial ownership of 30% of the outstanding common
stock; and the public (approximately 450 stockholders at that
time) retained 3% of the then outstanding common stock.
- Drs. Wachter, Fisher, Dees, Weinstein and Mr. Smolik were elected
to the Board of Directors of the Company and Photogen, Inc.; Drs.
Wachter and Weinstein and Mr. Smolik were elected to the
Executive Committee; and Mr. Smolik became Chief Executive
Officer of both entities.
- The Company's Articles of Incorporation and By-laws were amended
to implement unanimous voting requirements by the Board of
Directors and Executive Committee regarding certain extraordinary
events.
- Dr. Weinstein and two other investors purchased additional shares
of common stock for an aggregate of $1,803,450 and, with Mr.
Tannebaum, made a capital contribution to the Company so that its
cash and cash equivalents equaled $3,000,000.
Since May 1997, the Company has obtained laboratory space, commenced
animal research studies, raised $7 million in a private placement and engaged in
the other activities described below. The Company currently has ten employees
who work primarily on matters for Photogen, Inc., one of whom works on a
part-time basis.
COMPANY TECHNOLOGY
The Company's primary business focus is in the field of photodynamic
therapy. The "photodynamic process" involves the interaction of electromagnetic
energy at a specific wavelength with chemicals or compounds that are sensitive
to that energy (a photoactive agent). The result of that interaction is either
therapeutic (destruction of diseased cells, bacteria, viruses or other
pathogens) or diagnostic (identification of diseased cells). Current
photodynamic therapies are based on the use of visible and infrared light, which
are forms of electromagnetic energy. These various forms of electromagnetic
energy are differentiated by their wavelength (measured in nanometers ("nm")).
For example, x-rays (another form of electromagnetic energy) are very short
wavelength light waves. Photogen's technologies provide capability for
photodynamic therapy in a broad sector of the electromagnetic spectrum.
Photodynamic therapy is of great interest because it offers the
potential for non-invasive or minimally invasive treatment of diseases like
cancer while avoiding chemotherapy, traditional radiation therapy, surgery and
the discomfort and hazards associated with these treatments. The Company
believes that photodynamic treatments, may be administered multiple times
without
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creating a resistant or more virulent form of the disease, may be easily
administered and cost less than conventional treatments.
In the early 1900's, scientists began to explore the phenomenon that
when ingested, certain compounds produced tissue irritation following exposure
to sunlight. These early observations resulted in two important medical
applications of light and photoactive agents: laser surgery and photodynamic
treatment of disease. Subsequently, light delivered by a laser has been used in
"bloodless" surgery and other applications ranging from removing tattoos to
removing wrinkles. The first application of photodynamic therapy was the use of
the photoactive agent Psoralen and ultraviolet light to treat severe cases of
psoriasis (a chronic skin disease). PHOTOFRIN(R) is a recently approved
photoactive agent used with red light to treat esophageal cancer and non-small
cell lung cancer. Psoralen and PHOTOFRIN(R), both of which were developed and
are owned by others, are the only therapeutic photoactive agents currently
approved by the United States Food and Drug Administration (the "FDA").
Each photoactive agent has unique chemical and biological
characteristics, and requires light or other electromagnetic energy of a
specific wavelength to produce a therapeutic effect. The activated agent has a
short life and impacts only those cells containing the agent that are exposed to
the required light energy. Photoactive agents are generally inactive in the
absence of light. However, exposure to light at a specific wavelength transforms
the photoactive agent so that the agent binds with DNA, making it impossible for
the cell to survive; or the activated agent reacts with oxygen in the cell to
produce a short-lived, highly toxic compound called singlet oxygen that destroys
all cellular components it contacts.
The human body also contains its own mixture of photoactive agents that
can be used to produce a desirable therapeutic effect. These photoactive agents
are used in laser surgery, skin resurfacing, hair removal and delicate eye
surgery. Typically, a laser is used to provide light energy at a certain
wavelength. Water, blood, proteins and other compounds absorb this light and
convert the energy to highly localized heat. The targeted tissue's temperature
quickly rises, causing cells to explode or burn at the point of illumination.
Photoactive agents used by the Company's competitors are activated when
the agent absorbs a single unit of light energy (a photon) at the required
wavelength. This process of activation is called "single photon absorption."
Lasers or high-intensity lamps are commonly used to provide light with the
necessary energy. Single photon absorption activates photoactive agents present
in any tissue or cell along the entire path of the light beam. Since the beam --
and therefore the site of activation -- cannot be limited to diseased cells or
tissues, healthy tissue that contains the photoactive agent and that is in the
path of the laser light beam will also be damaged (referred to as collateral
cell damage).
The ability to effectively treat diseased cells within tissue is
further limited by the natural tendency of tissue components to absorb and
scatter light. Tissue components such as water, blood, proteins and melanin all
absorb and scatter light energy at different wavelengths. In
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essence, scatter occurs when light (photons) bounces off various tissue
components. Both absorption and scatter reduce energy in the light beam
available to activate photoactive agents. This reduction can be so
significant that it limits the effective treatment depth to a few millimeters
or less, based on the wavelength of light used. This limitation is especially
important in the treatment of large tumors where the light may not be able to
penetrate the entire tumor mass or where diseased cells are located
centimeters deep within the body. For these reasons, the Company believes its
competitors' applications have been limited to surface treatments or to
treatments in which the diseased tissue is reached through endoscopes,
catheters or other invasive means.
Photodynamic processes that use longer wavelength light hold the
promise of both deeper penetration without requiring invasive treatment and of
improving minimally invasive treatments that rely on catheters, endoscopes and
similar tools to deliver light because scatter and unwanted absorption are
reduced. An effective photodynamic therapy should combine a sufficient amount of
light energy to activate (or "excite") the photoactive agent at wavelengths that
can reach the targeted cells deeper within the body, causing minimal collateral
tissue damage and avoiding the risks and other side effects associated with
short wavelength ultraviolet light.
The Company has discovered methods for using light energy to activate
photoactive agents that address many of the limitations of current photodynamic
therapy processes based on single photon absorption. The Company's technologies
use a special beam of light to activate photoactive agents, offering
improvements in the areas of photodynamic therapy and photodiagnostics. The
Company's proprietary technologies are described below. Each of the Company's
technologies are in the experimental or preclinical development stage; and the
description of these technologies contains "forward-looking statements" that are
subject to the Risk Factors described below. The Company has obtained or filed
for patent protection on these technologies with the United States Patent and
Trademark Office (see "Patents and Status," below for a description of patents
awarded and patent applications pending):
- Simultaneous two photon excitation
- Multiphoton excitation
- Non-invasive diagnostics
- Ultra-short pulsed delivery of light energy
- Cellular targeting
- Photoactive agents
- Radiosensitizers and x-ray contrast agents
1. SIMULTANEOUS TWO PHOTON EXCITATION. One of the Company's proprietary
activation technologies is based on "simultaneous two photon excitation." The
Company's technology uses light at a lower energy level and at a longer
wavelength to activate photoactive agents. The Company believes simultaneous two
photon excitation will permit non-invasive treatment at depths greater than
those achieved by the current single photon absorption processes
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used by its competitors. Using light energy at longer wavelengths should
minimize tissue interference caused by absorption and scatter and should
increase the effective treatment depth.
Photogen's simultaneous two photon excitation technology uses an
ultra-short pulsed laser to deliver long wavelength light energy to molecules of
a photoactive agent designed to cause the desired therapeutic or diagnostic
effect. However, unlike conventional photodynamic methods that use a single
short wavelength photon carrying 100% of the energy necessary to excite the
molecule, Photogen's invention uses two photons -- each of which contains only a
portion of the light energy of the single photon used in traditional
photodynamic therapy. Together, however, Photogen's two photons contain 100% of
the light energy necessary to activate the photoactive agent and enable the
desired photochemistry to occur.
Simultaneous two photon excitation provides the potential to control or
limit the site of agent activation. Single photon absorption is a linear
process, activating photoactive agents all along the light beam path. Photogen's
combination of two lower energy photons, together with the use of optics to
focus the beam, enables three dimensional control over the activation site and
reduces the potential for collateral cell damage. The ability to specifically
treat the target tissue should improve the overall safety and efficacy of
photodynamic therapy. Delivering the light energy in the form of very short
pulses also improves the efficacy of photodynamic therapy. Specially programmed
lasers deliver high levels of energy with an extremely short pulse width to
perform the desired photochemistry while minimizing the risk of tissue damage
(burning, excessive heating, etc.).
Using two longer wavelength photons also means that the Company can
select from a much larger group of potential photoactive agents. Compounds that
are activated with a single photon at 500 nm make poor photoactive agents
because tissue absorption and scatter are extremely high at this wavelength.
Because the Company's simultaneous two photon excitation technology uses longer
wavelength light energy, Photogen believes that new highly active photoactive
drugs will be developed (by the Company or by third parties) that can be
effectively activated. Photogen's commercial opportunities should therefore not
be limited to agents it develops, which provides an opportunity for the Company
to collaborate with other drug developers.
2. MULTIPHOTON ACTIVATION. The Company's research into two photon
excitation processes has lead the Company to experiment with using more than
two photons to achieve a specific photochemical result. The result may be to
kill diseased cells, or it may be the removal of tissue located in the light
beam's focus. The Company is pursuing multiphoton activation in its
experiments regarding melanoma treatment, hair removal, and other ablative
applications.
3. NON-INVASIVE DIAGNOSTICS. Simultaneous two photon excitation,
ultra-short pulsed lasers and cellular targeting, when combined with signal
processing technology described in one of the Company's patents, may enable
the development of safe, sensitive, non-invasive diagnostic
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procedures. Such a laser-based procedure could improve early detection of
diseases like breast cancer.
To date, x-rays have been the most popular tool for discovering many
forms of cancer and other diseases. The danger and limitations of repeated
exposure to x-rays are well known; unfortunately, no other imaging technique has
so far been able to replace x-rays. A safe and improved alternative to x-rays
for soft tissue diagnosis is important because it can provide early detection of
disease. In the case of breast cancer, x-ray mammography, MRI and other
techniques can only detect suspicious masses at sizes greater than 0.5 cm, and
cannot distinguish between a benign calcification or a malignant tumor.
There are a number of alternative techniques being developed, but
none the Company is aware of offers the potential sensitivity of a
laser-based diagnostic system. A laser system, coupled with targeted
flourescent diagnostic agents (see "Cellular Targeting," below), has the
potential to identify suspicious masses and provide a diagnosis at the same
time. Photogen's process will require the use of a cell-specific, fluorescent
diagnostic agent. In this process, the "targeted" agent would be administered
to the patient and should travel to and concentrate in the diseased tissue.
Laser light would be used to activate the diagnostic agent, causing it to
fluoresce and produce a detectable signal used to locate and diagnose the
diseased tissue. If the diagnostic agent is specific for a certain type of
cancer, for example, and a mass is found, the diagnostician may conclude that
the mass must be cancerous because the diagnostic agent would attach only to
cancerous tissue. Therefore, detection and diagnosis would be possible in
one procedure. Problems faced by developers of competing laser diagnostic
systems result from detecting light emitted by tissue and converting the
detected signals into two or three dimensional images. While there are many
software processes that convert signals to images (a process called
tomography) the Company believes these laser processes have so far been
unable to produce images that meet the requirements for sensitivity and early
detection. The Company is not aware of any laser mammography devices
currently approved by the FDA.
The Company's two photon diagnostic technology has been used in
laboratory experiments to generate and detect a signal through 5 mm of chicken
breast tissue. Much additional work will be required to fully evaluate this
procedure.
4. ULTRA-SHORT PULSED DELIVERY OF LIGHT ENERGY. The method by which the
light energy is packaged and delivered contributes to the safety and efficacy of
simultaneous two photon or multiphoton excitation. Delivering light energy in
very short bursts facilitates completion of the desired photochemistry. However,
the pulse duration is not long enough to begin an undesirable destructive
reaction. The Company uses ultra-short pulsed, high peak power laser light to
activate photoactive agents. Laser systems that produce this type of light are
available from third parties and meet commercial size and utility requirements.
While these systems are more expensive than conventional laser systems,
technological advances and increasing use of these lasers in materials
processing may result in price decreases. Currently, the Company does not expect
to manufacture laser equipment but instead plans to collaborate
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with laser manufacturers who would design and produce the laser. The Company
does not have any formal collaborative agreement with a laser manufacturer for
those purposes at this time.
Photogen's invention uses an ultra-short pulsed high peak power
laser to generate vast numbers of photons concentrated in the beam's focus.
This capability is most significant when used in laser surgery. Despite the
current success of lasers for surgery, the Company believes there is a need
for devices that offer reduced damage to adjacent tissue, better spatial
control and improved treatment margins. The Company believes that the use of
ultra-short pulsed, high peak power lasers may provide valuable enhancements
to current procedures. For example, such light can be used to activate water
in cells to quickly destroy cells. This capability is especially useful in
surgery and in the removal of surface cells. The expected advantage of this
approach is that there may be much less damage to adjacent tissue, less
post-procedure swelling and faster healing.
5. CELLULAR TARGETING. The Company has demonstrated, IN VITRO, the
ability to add a targeting molecule to a photoactive agent, use the targeting
molecule to deliver the photoactive agent to a specific cellular target, and
then activate the photoactive agent to destroy the cell. Increasing the
specificity of the photoactive agent or delivering the agent directly to the
target tissue are ways to enhance overall treatment specificity. Company
scientists are continuing to pursue development of targeted photoactive agents
that will allow cell-specific delivery, diagnosis and treatment.
6. PHOTOACTIVE AGENTS. Company scientists are exploring development of
new photoactive agents that are preferentially absorbed in diseased cells and
may be activated with the Company's simultaneous two photon and multiphoton
activation technology. The Company has identified one agent for this purpose and
has confirmed its performance in animal models for surface treatments. The
Company is investigating other agents for deeper tissue treatment.
7. RADIOSENSITIZERS AND X-RAY CONTRAST AGENTS. A radiosensitizer is
a chemical agent that works with x-rays to enhance the cellular destruction
achieved by traditional x-ray treatment. Company scientists, working with
third party researchers, have been experimenting with photoactive agents that
can interact with x-rays (which are very short wavelength light). Photogen's
observations may lead to the discovery that certain photoactive agents may
improve the x-rays's ability to destroy diseased cells. This development may
help surgeons clearly identify tumor margins prior to or during surgery and
improve existing x-ray treatment by reducing the x-ray dosage required to
destroy tumor cells.
RESEARCH PROJECTS
The Company is currently involved in or recently concluded a variety of
research projects in its own laboratories and through collaborative arrangements
with third parties. To facilitate research and product development, the Company
intends to use the following model:
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- The Company plans to conduct research, either in its own
laboratories or through collaborative arrangements with
third parties to confirm the technical feasibility of a
particular technology.
- Once technical feasibility is demonstrated, the Company
begins the process of identifying a potential commercial
application.
- After a potential commercial application is identified,
the Company plans to seek third party clinical
researchers to demonstrate commercial feasibility of the
technology in animal models and generate the data
required to design and begin human trials.
- When researchers have demonstrated commercial
feasibility, the Company plans to apply for FDA approval
to commence human trials to market a product.
- After the Company has obtained FDA approval for a
product, the Company intends to enter into collaborative
arrangements with third parties to manufacture, market
and sell the product.
The Company believes its strategy of using outside researchers
experienced in the targeted research area and in photodynamic therapy offers the
fastest pathway to human clinical trials and ultimately to product approval. The
Company intends to continue to pursue this strategy where appropriate in order
to enhance in-house research programs, facilitate clinical testing and gain
access to additional technology. Strategic collaborations are not, however,
without risk. See "Risk Factors -- Reliance on Third Parties and Collaborative
Relationships," below.
Currently, the Company's collaborative agreements have been
dedicated to performing preclinical studies on animals. The results obtained
from these studies to date are discussed below. The Company's technologies
must undergo significant additional testing and regulatory approval before
the Company can commercialize any of these technologies. See "Risk Factors,"
below.
1. MACULAR DEGENERATION OF THE EYE. In October 1998, the Company
executed a research agreement with Massachusetts Eye and Ear Infirmary
("MEEI"), a teaching affiliate of Harvard Medical School. Joan W. Miller,
M.D. is the Principal Investigator. This agreement has a term ending in June
1999 and covers preclinical research that will evaluate the technology for
treatments of age-related macular degeneration ("AMD") of the eye (additional
research may be undertaken under the agreement by consent of the parties).
According to the American Academy of Ophthalmology and the International
Association of Online Ophthalmologists, AMD affects up to 13 million
Americans by progressively damaging the center portion of the retina. AMD is
a leading cause of reduced eyesight in the senior population, rarely seen
before age 55. Patients
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lose the ability to look straight ahead and distinguish fine detail or read
small print, and must eventually rely on peripheral vision. Eighty percent of
the AMD cases are the "dry" form, which cannot be treated and causes gradual
vision loss. The remaining cases are the more severe "wet" form, in which
abnormal blood vessels grow under the retina. It is the "wet" form that the
Company's research with MEEI aims to address. MEEI has the right to patent any
new inventions arising out of the agreement, and the Company has the right to
obtain an exclusive license concerning any such invention.
2. OCULAR MELANOMA. In December 1998, the Company executed a second
research agreement with MEEI. This agreement covers preclinical research to
evaluate the Company's technology for the treatment of ocular melanoma. Lucy
H. Young, Ph.D., M.D., is the Principal Investigator. While ocular melanoma
is a relatively rare disease (about 2,000 cases per year in the United
States), it is the most prominent primary cancer of the eye in adults and
there are few treatments for this condition. This research agreement will
evaluate the Company's technology as a basis for an alternative treatment
that the Company believes could offer advantages over current radiotherapy or
surgical treatment options. The Company intends to use the data gained
through this evaluation to determine whether its technology is effective in
the destruction of ocular melanoma. This agreement, currently set for a term
ending in August 1999, also provides that research extensions may be
undertaken by MEEI by agreement with the Company. MEEI has the right to
patent any new inventions arising out of this agreement, and the Company has
the right to obtain an exclusive license concerning any invention.
3. PROSTATE AND LUNG CANCER. In October 1998, the Company executed
an agreement with Massachusetts General Hospital for work to be carried out
at its Center for Imaging and Pharmaceutical Research ("CIPR") which will
initially involve preclinical research on the treatment of prostate and lung
cancer using the Company's simultaneous two-photon excitation technology.
Gerald L. Wolf, Ph.D., M.D., is the Principal Investigator. The research
under the first protocol is expected to be completed in 1999. This agreement
has a term ending in September 2003 and contemplates that additional projects
may be performed as agreed by the parties.
Prostate cancer is a malignancy that develops in the prostate gland, a
gland that is important for the proper function of the male reproductive tract.
Cancer of the prostate is the most common cancer among American men affecting
about one in five men during the course of a lifetime. Although incidence
increases with age, this cancer can occur in younger men as well. This form of
cancer very often occurs even without symptoms. This research project will look
at treatments for prostate cancer using simultaneous two-photon excitation
technology.
This research agreement will also look at possible treatments for
lung cancer using simultaneous two-photon excitation technology. Most types
of lung cancer can be categorized into small cell and non-small cell. In
general, the small cell type is usually spread by the time of diagnosis and
is treated by chemotherapy and/or radiation therapy. The non-small cell type
may not have spread at the time of diagnosis and surgical resection of this
type may be possible. Lung cancer can
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spread to almost any area of the body, with common sites being the brain, bones,
bone marrow and liver. The incidence is one out of every 1,000 people, with a
peak incidence occurring when a person is between 55 and 65 years old.
Massachusetts General Hospital has the right to patent any new inventions
arising out of the research agreement and the Company has the right to obtain an
exclusive license concerning any such invention.
4. MELANOMA STUDY. The Company in its laboratory performed research
assessing the use of ultra-short pulsed light to directly activate melanin and
its precursors to kill melanoma cells. Preliminary results of that research were
announced in September 1998. Tumors produced in mice were treated by scanning
the affected area with light from an ultra-short pulsed laser. Tumors ranging in
size from 6 to 10 mm in diameter and up to 3 mm deep, when treated with
ultra-short pulsed laser light using simultaneous two photon excitation,
produced a visible "blanching" effect, resulting from the interaction between
melanin and the light. After treatment, tumor volume was reduced by 100 percent
with little or no scarring. Tumors treated with conventional, continuous wave,
laser light produced only a minimal response. Results of a single treatment with
the Company's simultaneous two photon excitation technology showed that mice
with tumors 6 to 10 mm in diameter and 3 mm deep presented no evidence of tumor
recurrence after three weeks. Tumors 5 to 7 mm deep showed some recurrence three
weeks after treatment. However, the photodynamic process achieved with the
Company's technology was confined to the confocal (concentrated region of light)
area of the laser beam, which reached a depth of approximately 3-5 mm and
recurrence was therefore not surprising.
5. TREATMENT SYSTEMS. The Company has been working with a laser
manufacturer to design ultra-short pulsed laser systems for photodynamic
treatment of melanoma and age-related macular degeneration. Two prototype
systems have been assembled that include a beam scanning and focusing device. In
addition, the Company has developed laser control software. Company scientists
are working on a third prototype system to be used for surface treatments such
as hair removal.
6. NATIONAL INSTITUTES OF HEALTH STUDY. The Company has been working
on research pursuant to a Phase 1 Small Business Innovation Research ("SBIR")
Project grant of $99,927 from the National Institutes of Health National
Cancer Institute. The Company announced these results in March 1998. During
the course of the SBIR project, the Company demonstrated successful
multiphoton activation of an FDA approved photoactive drug in a living
organism. That study also indicated that the Company's simultaneous
two-photon laser beam could be directed at a target area in a mouse liver
with little or no collateral damage to other tissues outside the target area.
In contrast, conventional single-photon excitation produced damage on the
laser beam line of flight and in some cases severely damaged non-targeted
organs. This research was performed primarily in the Company's laboratory,
with some additional assistance through a research contract with the
University of Tennessee School of Veterinary Medicine. The Company is
planning to seek additional grants from the National Institutes of Health to
conduct additional studies regarding the efficacy of its technologies.
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7. BARRETTS ESOPHAGUS. Barretts esophagus is a precancerous condition
of the esophagus created by excessive acid reflux. The esophagus is the
thin-walled tube that conveys food to the stomach. Because of its thin walls and
multiple tissue structures, successful photodynamic therapy must avoid
penetrating the esophagus and damaging deeper tissue layers. Problems with
conventional photodynamic therapy have been "burn through" (light that
perforates the esophageal wall), and deep tissue damage creating post treatment
strictures. The Company in its laboratory demonstrated selective targeting of a
drug topically applied in murine esophageal tissue. The potential benefits of
this approach in humans may be reduced treatment cost and improved safety and
efficacy. The Company plans to begin preclinical trials in canines for treatment
of Barretts esophagus.
8. RADIOSENSITIZER STUDY. The Company has demonstrated that a new class
of photodynamic therapy agents may potentially be successful radiosensitizers. A
drug injected directly into a tumor grown on the side of a laboratory mouse was
retained in the tumor for many days with small amounts of leakage and produced
enough x-ray contrast to clearly identify the tumor images on a conventional CT
scan. The Company believes these early results indicate that the drug may be
sufficient for use in imaging tumor margins and as a radiosensitizer. Ideally,
use of this agent should enable significant reduction in the x-ray dosage
required to kill the target tissue. Availability of such an agent would allow
redefinition of radiation therapy. The safety risks of radiation would be
significantly reduced with reduced dosage, and efficacy may be improved through
the use of the radiosensitizer. These developments could expand the use of
radiation therapy and, when used as a contrast agent that more clearly
identifies tumor margins, could allow surgeons to improve surgical removal of
tumors.
9. HAIR REMOVAL STUDY. The Company in its laboratory is investigating
the use of ultra-short pulsed laser light to remove hair. The Company believes
the mechanism is the same as that for treating melanoma: the melanin in the hair
follicle and melanocytes become the photoactive agent and destroys the hair
follicle when activated. The Company is utilizing a mouse model to show
technical feasibility and may work toward commencing further preclinical and
human clinical trials.
10. DIAGNOSTIC EXPERIMENTS. In its laboratory, the Company is
experimenting with the diagnostic capabilities of simultaneous two-photon
excitation. The Company conducted initial experiments on a chicken breast (used
to simulate tissue). The Company has demonstrated its capability to retrieve
signals through 5 mm of chicken breast using the common dye fluorescein. The
Company will continue these experiments through 1999 with the goal of assessing
the technical and commercial viability of this approach.
PATENTS AND STATUS
The Company is continuing to pursue patent protection for its
proprietary technologies with the U. S. Patent and Trademark Office, and in
various foreign jurisdictions. The Company plans to prosecute, assert and defend
its patent rights whenever appropriate. However, securing
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patent protection does not necessarily assure the Company of competitive
success. See "Risk Factors -- Uncertainties Regarding Patent Matters," below.
The Company is currently the owner of two patents issued by the U.S. Patent and
Trademark Office which are set to expire in 2016.
In November 1998, the U.S. Patent and Trademark Office issued Patent
Number 5,829,448 to the Company containing 68 claims directed to the Company's
innovations for methods for the treatment of plant or animal tissue with
simultaneous two-photon excitation of at least one photoactive molecular agent
or using two-photon excitation within a confocal region. Other methods claimed
in the patent include the treatment of cancer in plant or animal tissue. Not all
of the claimed methods recite simultaneous two-photon excitation, however, and
some are for deep tissue photoactivation. Also in November 1998, the Patent and
Trademark Office issued Patent Number 5,832,931 to the Company containing 79
claims. This patent is directed to the Company's methods for improved
selectivity in photoactivation and detecting molecular diagnostic agents and the
imaging of plant or animal tissue containing photoactive molecular agents. The
method includes treating the tissue with light sufficient to promote
simultaneous two-photon activation of the photoactive agent. This process causes
the photoactive agent to emit energy that can be detected as a signal or
alternatively, used to image deep tissue. The patent also includes a method for
imaging of a particular volume of material containing photoactive molecular
agents.
At the United States level, three divisional patent applications are
pending that address claims related to the two existing patents described above.
The Company has also filed United States patent applications that are directed
to inventions in the field of radio-contrast agents and related methods; methods
for treating tissue using a radiosensitizer; multiphoton activation technology;
additional photodynamic treatment methods for surface treatment of disease; and
melanoma destruction.
The Company has also filed patent applications, corresponding to the
two patents issued in the United States, under the Patent Cooperation Treaty
("PCT") covering a number of foreign countries. A preliminary examination
report has been received at the international level, indicating the novelty,
inventive step and industrial applicability of the claims of each PCT
application. The European (EPO) regional phases of the PCT applications have
been entered into in Australia, Canada, China, Israel, Korea, New Zealand,
and Singapore, with applications in other countries expected to follow.
Like other entities whose research is sponsored in any manner by the
United States Government, the Company's two patents are subject to two
Confirmatory Licenses in favor of the United States Government as required by
applicable federal regulations. The genesis of the Company's simultaneous
two-photon excitation technology took place at the Oak Ridge National Laboratory
under the auspices of the United States Department of Energy. These regulations
required the Company to agree to convey to the Government, upon the Government's
request, rights in the technology if the Company decides not to continue
prosecution of the patent applications or if the Company does not wish to retain
title to the inventions covered in the
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<PAGE>
patents. The Government also retains certain "march-in rights" which permit the
Department of Energy to use the technology under certain circumstances,
including if that action is necessary because the Company has not taken or is
not expected to take effective steps to achieve practical application of the
inventions; it is necessary to alleviate health or safety needs not being met by
the Company; or to meet the requirements for public use specified in certain
federal regulations and those requirements are not being met by the Company. The
Company intends to prosecute patent applications and in other respects develop
the inventions so the Government will not exercise its rights under these
Confirmatory Licenses.
BUSINESS STRATEGY
The Company's overall objective is to leverage its knowledge in
photochemistry, biochemistry and chemistry and its proprietary technologies
through contractual collaborations with third parties and to thereby produce
products and generate revenues.
To achieve this goal, the Company plans to utilize the following
strategy:
1. Address product development by demonstrating basic technical
feasibility in mouse models internally, and then conduct formal
preclinical studies with third party clinicians who are
experienced in photodynamic therapy and the applicable
indication. The Company will use the expertise of the third
party clinicians to collect data necessary to begin human
trials.
2. Utilize contractual collaborative arrangements with third
parties to access the skills and resources required to design,
test, obtain regulatory approval, manufacture, sell and support
photoactive agents, treatment, diagnostic and surgical laser
devices that incorporate simultaneous two photon excitation and
the Company's other technologies. These third parties will be
selected on the basis of their capability to provide the
industrial design required to produce photoactive agents and/or
lasers and integrate the various components into a functional
treatment device that complies with FDA regulations.
3. Focus initial product development on applications that do not
require a photoactive agent (such as hair removal, melanoma)
and laser devices and activation systems that can be used to
activate existing photoactive agents. (See Table II below.) The
Company expects to follow development of these activation
systems with future development of proprietary photoactive
agents, targeting agents and deep tissue applications.
4. Consider opportunities in fields related to photoactivation,
including high-energy photons (x-rays) and visible and infrared
photons, for technological licensing if those opportunities
could lead to faster development of products and FDA approval.
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<PAGE>
5. Market new products through selective collaborative
relationships with third parties already operating in targeted
markets.
The Company does not expect to generate revenues from operations in the
near future. The Company's first revenues, if any, are expected to derive from
licensing fees and royalties from collaborative relationships. Thereafter, if
and when the Company develops a saleable product, the Company expects to
generate revenues from product sales. The Company's ability to successfully
develop and manufacture any product is subject to numerous contingencies and
uncertainties, including certain Risk Factors described below.
Currently, the Company has not developed any products that are
available to manufacture and sell to the public or a pricing structure for any
potential products. The Company has identified five product development
opportunities which range in regulatory complexity from a 510(k) premarket
notification process to a more complex new drug application (NDA) approval from
the FDA (see "Government Regulations," below). The Company believes its
technologies have potential applications in the following three market areas
shown on Table I:
TABLE I
POTENTIAL APPLICATIONS AND PRODUCTS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
APPLICATION POTENTIAL PRODUCTS
- -----------------------------------------------------------------------------------------
<S> <C>
Photodynamic treatment of diseases Photoactive agents
Light delivery systems
Disease-specific targeting agents
Delivery of treatment services to patients
- -----------------------------------------------------------------------------------------
Diagnostic imaging Laser based imaging systems
Imaging agents
Disease-specific targeting agents
Delivery of treatment services to patients
- -----------------------------------------------------------------------------------------
Surgical laser devices Treatment tools
Delivery of treatment services to patients
- -----------------------------------------------------------------------------------------
</TABLE>
With the initiation of preclinical studies for certain medical
conditions, the Company's focus will shift from proving the general feasibility
of the technology underlying these potential products to developing actual
products and procedures that will allow the Company to proceed to human trials.
The Company is currently planning to concentrate its clinical testing and
product development efforts towards devices and drugs that treat the medical
conditions shown on Table II. The Company presently hopes to commence necessary
human trials for some of these indications in late 1999 or in 2000.
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TABLE II
CURRENT PRODUCTS PLANNED FOR DEVELOPMENT
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
MEDICAL CONDITION PRODUCT STATUS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Ocular Melanoma Laser device In preclinical studies
- ----------------------------------------------------------------------------------------------------
Skin diseases Laser device and drug In preclinical studies
- ----------------------------------------------------------------------------------------------------
Macular degeneration Laser device and drug In preclinical studies
- ----------------------------------------------------------------------------------------------------
Psoriasis Drug and light source Preclinical studies expected
to begin late 1999
- ----------------------------------------------------------------------------------------------------
Barretts esophagus Laser device and drug Preclinical studies expected
to begin late 1999
- ----------------------------------------------------------------------------------------------------
Hair removal Laser device Determining technical
feasibility
- ----------------------------------------------------------------------------------------------------
Radio sensitizer Drug Determining technical
feasibility
- ----------------------------------------------------------------------------------------------------
Deep tissue cancer Radiation sensitizer Determining technical
feasibility
- ----------------------------------------------------------------------------------------------------
</TABLE>
The Company's objectives, business strategy and product development
efforts are subject to change based on numerous factors, including the results
of preclinical and clinical testing, the availability of suitable collaborative
relationships, the nature of competition, regulatory requirements and the
availability of capital. The Company's business strategy contains
"forward-looking statements" and its ability to implement its strategy and
achieve and sustain any revenues is subject to certain Risk Factors, described
below.
SCIENTIFIC ADVISORY COUNCIL
In September 1998, the Company announced the formation of its
Scientific Advisory Council. The Council was organized to provide scientific
advice and counsel to the Board of Directors and Company management team. It is
charged with providing guidance and recommendations to help the Company pursue
commercially important applications, benefit from the latest developments in
chemistry, biochemistry, laser design and photochemistry, avoid investing
Company resources in unprofitable areas, benefit fully from the Company's
proprietary technologies, become properly staffed and equipped, and advance its
interests by facilitating the development of licenses and collaborative
agreements.
In addition to the Company's President, the following persons serve on
the Council:
<TABLE>
<S> <C>
- Daniel Tosteson, Ph.D., M.D. - Former Dean of the Faculty of Medicine of Harvard
Medical School and an accomplished contributor in
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
the fields of molecular biology and medical
education
- Harry Morrison, Ph.D. - Dean of Purdue School of Science and specialist in
the fields of photochemistry and photobiology
</TABLE>
Each member of the Council (other than the Company's President) has
entered into a consulting agreement with the Company providing for the
confidentiality of the Company's proprietary information, and also entered into
an award agreement providing for the grant of non-qualified stock options
(vesting over five years) under the Company's 1998 Long Term Incentive
Compensation Plan.
GOVERNMENT REGULATIONS
All of the products the Company presently contemplates developing will
require approval of the United States Food and Drug Administration ("FDA") for
sales and use within the United States and of comparable foreign agencies for
sales outside the United States. The FDA and comparable regulatory agencies
impose substantial requirements on the manufacturing and marketing of
pharmaceutical products and medical devices. These agencies and other entities
regulate, among other things, research and development activities and the
testing, manufacture, quality control, safety, effectiveness, labeling, storage,
record keeping, approval, advertising and promotion of the Company's proposed
products. Because the Company has not yet completed preclinical testing of any
products, the Company has not submitted any information to the FDA regarding any
of its proposed products. See "Risk Factors -- Extensive Government Regulations;
Unproven Drug and Device Safety and Efficacy; No Clinical Trials," below.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following:
- preclinical laboratory and animal tests;
- submission of an application which must become effective
before clinical trials may begin;
- adequate and well-controlled human clinical trials to
establish the safety and efficacy of the product in its
intended indication; and
- FDA approval of the application.
For pharmaceutical products, preclinical tests include laboratory
evaluation of the product, its chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of the product. If
the FDA is satisfied with the results and data from
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<PAGE>
preclinical tests, it will authorize human trials. Human clinical trials are
typically conducted in three sequential phases which may overlap. Each of the
three phases involves testing and study of specific aspects of the effects of
the pharmaceutical on human subjects, including testing for safety, dosage
tolerance, side effects, absorption, metabolism, distribution, excretion and
clinical efficacy.
Historically, obtaining FDA approval for photodynamic therapies has
been a significant challenge. Not only must the photoactive agent be approved
as a drug, but the laser activation system must also be approved as a medical
device. The FDA has dealt with this "combination product" by delegating
authority for overall approval to the drug side of the agency. Accordingly,
when a photodynamic therapy agent is approved as a drug, it is approved for a
specific indication under its specific labeling. The Company is aware of only
one laser that has been approved to deliver the treatment, and currently
PHOTOFRIN(R) (which was developed and is owned by another company) has been
approved for use in treating esophageal cancer and non-small cell lung
cancer. Drug manufacturers have reported progress with the new photodynamic
agents known as SnET2 and ALA (aminolevuline acid). Both drugs are in Phase
II/III clinical trials and are being developed by others.
The FDA is also gaining experience with lasers through the many 510(k)
and premarket approval submissions for non-photodynamic therapy laser
applications. Medical devices can be cleared for commercial distribution through
a notification to the FDA under Section 510(k) of the applicable statute. The
510(k) notification must demonstrate to the FDA that the device is as safe and
effective or substantially equivalent to a legally marketed device that was or
is currently on the United States market and therefore does not require
premarket approval. Certain devices that sustain human life, are of substantial
importance in preventing impairment of human health, or which present a
potential unreasonable risk of illness or injury, are subject to special
controls through a premarket approval ("PMA") process in order to obtain
marketing clearance.
The Company has been working with outside FDA consultants to assist it
in developing product specific approval strategies, preparing the required
submittals, guiding the Company through the regulatory process, and providing
input to the design and site selection of human clinical studies. Photogen
prefers to select products for developing and addressing indications for which
there are no other available treatments, that involve only a laser device, or
that utilize a photoactive drug already approved for other IN VIVO applications.
The Company believes this approach will allow the FDA to make the best use of
its existing experience with medical lasers, while allowing the Company to
introduce the FDA reviewers to the benefits of its photodynamic therapy
applications. The goal of this strategy is to obtain early approval for a few
lead products, and accelerate approvals of other products which will require
more time to review.
The testing and approval process requires substantial time, effort, and
financial resources, and the Company may not obtain FDA approval on a timely
basis, if at all. Success in preclinical or early stage clinical trials does not
assure success in later stage clinical trials. The FDA or the research
institution sponsoring the trials may suspend clinical trials or may not permit
trials to advance from one phase to another at any time on various grounds,
including a finding that the
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<PAGE>
subjects or patients are being exposed to an unacceptable health risk. Once
issued, a product approval may be withdrawn if compliance with regulatory
standards is not maintained or if problems occur after the product reaches the
market. If regulatory approval of a product is granted, such approval may impose
limitations on the indicated uses for which a product may be marketed. In
addition, the FDA may require testing and surveillance programs to monitor the
effectiveness of approved products that have been commercialized, and the agency
has the power to prevent or limit further marketing of a product based on the
results of these post-marketing programs. Further, later discovery of previously
unknown problems with a product may result in restrictions on the product,
including its withdrawal from the market. Marketing the Company's products
abroad will require similar regulatory approvals and is subject to similar
risks.
The Company, in the ordinary course of business, must also comply with
a variety of other federal and state governmental regulations. These regulations
impose, among other things, standards of conduct, recordkeeping, labeling and
reporting. Specific regulations affecting the Company's current and proposed
operations are environmental discharge requirements, good laboratory practices
governing use of biological substances, good manufacturing practices regarding
the manufacture of drugs and other products, animal care and use regulations,
laws and regulations relating to labor, the use of lasers and general business
practices. The Company does not presently anticipate the cost of compliance in
these areas, other than obtaining FDA approval, to present a major obstacle to
the Company achieving its goals.
Another form of regulation that will impact the Company's business are
the recent developments in health care reimbursement and delivery practices as a
means to better control health care costs. See "Risk Factors -- Uncertainties
Regarding Reimbursement and Health Care Reform," below. The Company believes
that changes in health care reimbursement practices by health insurers and third
party payors may lead to an increased interest in alternative medical procedures
and methods such as photodynamic therapy and laser based procedures which may
generally be less complicated and costly than traditional surgery and radiation.
For these reasons, the Company believes that it may be possible for photodynamic
therapy to become an attractive alternative procedure for health insurers and
third party payors.
COMPETITION
The industry in which the Company operates is intensely competitive,
and there is rapid change with respect to technology for the diagnosis and
treatment of diseases. Existing or future pharmaceutical and laser companies,
government entities and universities may create developments that accomplish
similar functions to the Company's technologies in ways that are less expensive,
receive faster regulatory approval, or receive greater market acceptance than
the Company's products. See "Risk Factors -- Company Faces Substantial
Competition," below.
The Company's competitors generally have greater capital resources and
access to capital; greater internal resources for activities in research and
development, clinical testing and trials, production and distribution; existing
collaborative relationships with third parties; and have made
20
<PAGE>
greater progress in the preclinical and clinical testing of their products.
In addition, the Company's competitors may be disinclined to form
collaborative relationships with the Company directly, or to permit their
collaborative partners to work with the Company. See "Risk Factors --
Reliance on Third Parties and Collaborative Relationships," below.
The Company is aware of one competitor, QLT PhotoTherapeutics, that has
already received FDA approval for use of its proprietary photoactive agent,
PHOTOFRIN(R), in treatment of esophageal cancer and non-small cell lung cancer.
Other competitors, namely Miravant, Inc. and Dusa Pharmaceuticals, have advanced
their proprietary photoactive agents to Phase II/III clinical trials. Laser
manufacturers are also making progress in using laser technologies to treat
certain indications. For example, Indigo Medical, Inc., a subsidiary of Johnson
& Johnson, uses a laser to treat prostate cancer. In addition, there have been
many dramatic developments in treatments for cancer and other diseases that do
not involve photodynamic therapy. These treatments include new chemotherapy
agents, vaccines, hyperthermic treatments, and ultrasound. All of these
alternatives potentially compete with products the Company may offer because
they provide alternative methods and treatments for certain indications.
The Company believes that its unique technologies may offset to an
extent the disadvantages from its competitive position. The Company's
technology, based on the two photon or multiphoton excitation model, may change
the traditional emphasis in photodynamic therapy from the drug to the light
delivery source. The Company believes this may enable it to add value to
existing and future products of drug manufacturers. In addition, the unique
properties of the Company's laser activation process may give it a competitive
advantage over other light delivery methods that require invasive procedures.
RISK FACTORS
The Company cannot assure shareholders that it will successfully
achieve its goals or the commercial development of its technology in the
foreseeable future. This Form 10-KSB and other filings, announcements and
documents of the Company and oral statements of Company representatives contain
"forward-looking statements," within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Act"), which involve risks, uncertainties
and other factors that may cause the Company's actual results or performance to
differ materially from any results or performance expressed or implied by such
forward-looking statements.
Forward-looking statements include statements which are predictive in
nature, which depend upon or refer to future events or conditions, which include
words such as "expects," "anticipates," "intends," "plans," "believes,"
"estimates," or similar expressions, or which, like those under "Risk Factors,"
involve hypothetical events. In addition, any statements concerning future
financial performance (including future revenues, earnings or growth rates),
ongoing business strategies or prospects, and possible future Company actions,
which may be provided by management are also forward-looking statements as
defined by the Act. Forward-looking statements are based on current expectations
and projections about future events and are subject
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<PAGE>
to risks, uncertainties, and assumptions about the Company, economic and market
factors and the industries in which the Company does business, among other
things. These statements are not guaranties of future performance and the
Company has no specific intention to update these statements.
Actual events and results may differ materially from those expressed or
forecasted in forward-looking statements due to a number of factors. Factors
that could cause or contribute to such differences include, but are not limited
to, the following risk factors:
DEVELOPMENT STAGE COMPANY; COMPANY DOES NOT HAVE ANY PRODUCTS. The
Company and its technology are in an early stage of development. The Company
does not have any products for sale and has not generated any revenues from
sales. The Company does not expect to generate any revenues for at least
several years. The products the Company currently contemplates developing
will require significant additional research and development, preclinical and
clinical testing and regulatory approval prior to commercialization. The
Company's ability to successfully develop marketable products is dependent
upon many factors, including obtaining required regulatory approvals,
manufacturing products at an acceptable cost and with appropriate quality,
and successfully marketing any approved products. The likelihood of the
Company achieving profitable operations must be considered in light of these
and other risks, expenses, complications, problems and delays inherent in
establishing a new business and developing and marketing new and innovative
technologies and products, particularly medical device and pharmaceutical
products. Additionally, as a result of changing economic considerations,
market, clinical or regulatory conditions, or clinical trial results, the
Company may shift its focus or determine not to pursue further one or more of
the projects it is currently pursuing.
COMPANY HAS A HISTORY OF LOSSES; CANNOT ASSURE FUTURE PROFITS OR
PAYMENT OF DIVIDENDS. The Company incurred losses of $554,702 in 1997 and
$1,973,913 in 1998, and the Company expects to incur substantial and increasing
losses for at least the next several years as its financial resources are used
for research and development, preclinical and clinical testing and regulatory
activities, manufacturing, marketing and related expenses. The time frame
necessary to perform these tasks for any individual product is long and
uncertain and cannot be predicted at this time. The Company may not be able to
achieve or maintain profitability in the future. The Company has not declared or
paid any cash dividends to stockholders, and the Company does not expect to do
so in the foreseeable future.
EXTENSIVE GOVERNMENT REGULATIONS; UNPROVEN DRUG AND DEVICE SAFETY
AND EFFICACY; NO CLINICAL TRIALS. The Company's proposed products are subject
to extensive regulation by the FDA. The FDA, pursuant to the Food, Drug and
Cosmetic Act and related regulations, regulates the clinical testing,
manufacture, labeling, marketing distribution and sale of medical devices.
None of the Company's proposed drug and device products have completed the
FDA's extensive 510(k) premarket notification or premarket approval process
which includes preclinical
22
<PAGE>
and clinical testing for efficacy and safety in animals and humans. Compliance
with this process is required for regulatory approval of proposed products prior
to commercial use and noncompliance may result in fines, injunctions, civil
penalties, criminal prosecution, total or partial suspension of production,
product recall or seizure, or failure of the FDA to grant premarket clearance or
approval for such products. This process may take at least several years, and
the Company may encounter problems or delays. If clinical trials are successful,
the Company's proposed products may not demonstrate sufficient safety or
efficacy to warrant approval by the FDA or other domestic or foreign regulatory
authorities and any approvals may not cover the clinical symptoms or
circumstances relating to the proposed medical procedure or product (clinical
indications) for which the Company seeks approval.
RELIANCE ON THIRD PARTIES AND COLLABORATIVE RELATIONSHIPS. The Company
does not have, and does not intend to develop, manufacturing or clinical testing
facilities for its proposed products. The Company intends to enter into
collaborative relationships with third parties in connection with the research
and development, preclinical and clinical testing, manufacturing, marketing and
distribution of its proposed products. The Company will also be dependent on
third parties for the supply of laser products and for supplies of photodynamic
drugs. The Company may be unable to negotiate acceptable collaborative and
supply arrangements, and any collaborative arrangements may not present the
Company with marketable products at competitive prices. Collaborative
relationships may limit or restrict the Company or may not give the Company an
adequate supply of necessary resources. Further, the Company's collaborative
partners might develop or pursue alternative technologies either on their own or
with others, including the Company's competitors, as a means of developing or
marketing products for the diseases targeted by the collaborative programs and
the Company's proposed products. Failure of a collaborative partner to perform
under its agreement or its failure to meet regulatory standards could delay or
prematurely terminate clinical testing.
RELIANCE ON EMPLOYEES AND CONSULTANTS. The Company is also highly
dependent upon five employees and several consultants for scientific and
management expertise. These individuals have entered into employment or
consulting agreements, confidentiality and/or non-competition agreements with
the Company. In the event an employee or consultant materially breaches or
terminates any of these agreements, it could have a material adverse effect on
the Company's research, results of operations and financial condition.
SUBSTANTIAL ADDITIONAL FINANCING REQUIRED. The Company has not had any
positive cash flows from operations since it began operations and will expend
substantial funds in connection with its research and product development
programs. The Company will require substantial additional funding (the amount of
which cannot be accurately estimated at this time; however, the amount could be
at least $50 million) to continue or undertake its research and development
activities, clinical testing and to commence coordination of manufacturing,
marketing, sales, distribution and administrative activities. Depending on
market conditions, the Company will attempt to raise additional capital through
stock and debt offerings, collaborative relationships and other available
sources. Additional funds may not be available on acceptable
23
<PAGE>
terms (if at all) and existing stockholders may be diluted as a result of those
offerings. See "Management's Discussion and Analysis of Financial Condition or
Plan of Operation," below.
COMPANY FACES SUBSTANTIAL COMPETITION. Many of the Company's
competitors have substantially greater financial, technical and human resources
than the Company and, alone or through collaborative arrangements, have
substantially greater experience in developing products, conducting preclinical
or clinical testing, obtaining regulatory approvals, manufacturing and
marketing. The Company's competitors include firms in the field of photodynamic
therapy as well as firms in other fields generally relating to the diagnosis and
treatment of disease but which use different technologies or scientific and
medical approaches. Some of these firms have drugs or devices that are in
advanced stages of clinical trials and regulatory approvals. Examples of such
technologies are novel drugs, hyperthermic and ultrasound procedures. The
Company's competitors could develop technologies and obtain patent protection
that could render the Company's technologies or products obsolete or less
competitive. Due to the inherent risk of failure associated with the testing,
development and production of new and innovative technologies, the Company's
technologies and products may be found to be ineffective, have unanticipated
limitations or otherwise be unsuccessful in the marketplace. See "Competition"
above.
UNCERTAINTIES REGARDING REIMBURSEMENT AND HEALTH CARE REFORM. Third
party payors (including health insurers, managed care entities and similar
organizations) are increasingly challenging the price of medical procedures and
services and establishing guidelines which may limit physicians' selections of
products and procedures. It is uncertain as to what extent third party payors
will provide reimbursement for health care procedures and services (especially
those using innovative technologies) and adequate reimbursement coverage may not
be available to enable the Company to achieve market acceptance of its proposed
products or to maintain price levels sufficient to achieve or maintain any
profits on its proposed products. Failure by third party payors to provide
reimbursement for procedures using the Company's proposed products could have a
material adverse affect on the Company's business, results of operations and
financial condition. The Company cannot predict the proposed legislation or
regulations, if any, relating to third party coverage or reimbursement or the
effect of that legislation or regulations on the Company's business, operations
or financial condition. See "Government Regulations," above.
UNCERTAINTIES REGARDING PATENT MATTERS. The Company's success will
depend, in part, on its ability to obtain, assert and defend its patents,
protect trade secrets and operate without infringing the proprietary rights
of others. There is a risk that Company's patent applications will not result
in issued patents. There are also risks that any issued patents will not
provide the Company with proprietary protection or competitive advantages,
will be designed around by others, will be challenged by others and held to
be invalid or unenforceable or that the patents of others will have a
material adverse effect on the Company. The Company can only conduct limited
searches of patent applications to determine whether the Company's
technologies infringe on any patent or patent application because United
24
<PAGE>
States patent applications are maintained in secrecy until a patent is issued.
Accordingly, existing or future patents or patent applications of the Company's
competitors may conflict with the Company's patents or patent applications,
which could have a material adverse affect on the Company's research and
development activities or competitive position. Litigation over patents and
other intellectual property rights occurs frequently in the biotechnology and
related health care device and drug industry in which the Company operates.
Litigation and other proceedings regarding patent and other intellectual
property matters can be expensive and time consuming, regardless of whether the
Company prevails. Intellectual property disputes are often settled through
licensing arrangements and the costs associated with those arrangements can be
high and may involve the payment of ongoing royalties. If any of the Company's
patents are challenged or the Company challenges a patent or patent application,
the Company cannot guarantee that it would prevail, that licenses necessary to
settle a patent or other intellectual property dispute would be available, or
that the Company could redesign its technologies to avoid any claimed
infringement. As a result, an adverse outcome in a patent or intellectual
property dispute could have a material adverse effect on the Company's research,
results of operations and financial condition. The Company also seeks to protect
its proprietary technology and processes in part by confidentiality agreements;
however, these agreements may be breached and the Company may not have adequate
remedies for any breach. The Company's trade secrets may in other ways become
known or be independently discovered by competitors. See "Patents and Status,"
above.
CONTROL BY EXISTING STOCKHOLDERS. As of December 31, 1998, the
Company's officers, directors and principal stockholders who beneficially own 5%
or more of the Company's Common Stock controlled approximately 85% of the
outstanding common stock. Several of the Company's principal stockholders are
also parties to a Voting Agreement concerning the election of certain designees
to the Board of Directors of the Company and Photogen, Inc. These stockholders
will be able to elect the Company's directors and will have the ability to
significantly influence the Company and the direction of its business and
affairs. This concentration of ownership may delay or prevent a change in
control of the Company, and may also result in the scarcity of outstanding
shares currently available for purchase on the open markets. These factors may
affect the market and the market price for the common stock in ways that do not
reflect the intrinsic value of the Company's stock. See "Security Ownership of
Certain Beneficial Owners and Management" in the Company's definitive proxy
statement for the 1999 annual meeting of stockholders, "Possible Volatility of
Stock Price," and "Management's Discussion and Analysis of Financial Condition
or Plan of Operation," below.
POSSIBLE VOLATILITY OF STOCK PRICE. The market price of the Company's
Common Stock, like that of the securities of other companies generally in the
biotechnology and similar scientific fields, has fluctuated significantly
recently and is likely to fluctuate in the future. The market for securities of
such companies has experienced significant price and volume fluctuations that
are unrelated to the operating performance of such companies. In addition,
announcements by the Company or others regarding scientific discoveries,
technological innovations, commercial products, patents or proprietary rights,
the progress of preclinical or clinical trials or government regulation, public
concern as to the safety of devices
25
<PAGE>
or drugs, the issuance of securities analysts' reports and general market
conditions may all have a significant effect on the market price of the
Company's Common Stock. Changes in the financial performance of the Company
from period to period, and the amount of the Company's stock available in the
market compared to demand for such stock (see "Control by Existing
Stockholders" above), may also significantly impact the market price of the
Common Stock. The Company's stock is not listed on an exchange at this time.
IMPACT OF YEAR 2000. If the computer systems of the Company or
certain third parties with which the Company relies upon for services are not
timely converted or the third party fails to address and correct its own Year
2000 issues, the Company could incur an adverse affect on its systems or
results of operations. See "Management's Discussion and Analysis of Financial
Condition or Plan of Operation -- Year 2000 Issues," below.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and laboratory consists of
approximately 4,000 square feet in Knoxville, Tennessee. Approximately 1,000
square feet of the facility are subject to a Lease Agreement between
Photogen, Inc. and the landlord. The Company leases the balance of space in
this facility under a Consent and Assignment of Lease from Genase, L.L.C.
and, therefore, is subject to Genase, L.L.C.'s Master Lease with P.C. Powell
and Wilma Powell (several directors of the Company are associated with
Genase, L.L.C.). The Company's lease also entitles it to use certain
scientific equipment located in this facility. The property and equipment are
in good condition. In the opinion of management, the Company's interest in
the facility is adequately covered by insurance. The Company pays a monthly
rental of $4,680 for the facility (including certain equipment) plus charges
for utilities and similar items. The leases expire in 1999 and 2000
respectively, and the Company has two options to renew the leases for
additional terms of three years each. The Company also has an option to
purchase the facility at any time during the term of the lease or any renewal
period. There are no present plans for further improvement or development of
the leased space, although the Company may acquire or lease additional
facilities or equipment as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation or
proceeding and is not aware of any material litigation or proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company for a vote
during the fourth quarter of the 1998 fiscal year.
26
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company maintains no active trading market for its common stock,
however, the Common Stock has been traded in the over-the-counter "bulletin
board" market from time to time under the symbol "PHGN."
The high and low trading prices for the Company's common stock during
each quarter of the last two fiscal years are set forth below.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
(Amounts in $)
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter .625 .625 18.75 10.75
2nd Quarter --- --- 28.00 17.75
3rd Quarter 5.00 2.00 20.75 10.00
4th Quarter 12.00 4.375 19.00 10.25
</TABLE>
For the period January 1, 1999 through March 12, 1999, the high and
low trading prices for the Company's common stock were $13.50 and $8.00
respectively. Trading volume for the period January 1, 1999 through March 12,
1999 was approximately 286,900 shares. The foregoing information was obtained
from the National Association of Securities Dealers as reported in the
over-the-counter "bulletin board." The quotations generally reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions. The foregoing information for 1997 and
1998, however, reflects trade prices, and not bid or ask prices, because the
small number of trades through market makers for the Company's stock
historically has not yielded meaningful bid and ask prices. See "Risk Factors
- -- Control by Existing Stockholders" and "Possible Volatility of Stock Price"
above, regarding the possible effects of the concentrated ownership of the
Company's stock on the market and price of the stock.
In 1998, the Company granted qualified and non-qualified stock options
pursuant to its 1998 Long Term Incentive Plan ("Plan") to purchase an aggregate
of 92,500 shares of its common stock. The options each have vesting requirements
over five years from the date of grant.
27
<PAGE>
The Company is subject to two registration rights agreements. Under
the first agreement, if the Company registers any common stock before
February 26, 2000 it must offer one shareholder piggyback registration for
316,665 shares of Company stock he owns. Under the second agreement, the
Company granted certain incidental registration rights to the holders of
warrants covering an aggregate of 260,000 shares of Company Stock owned by a
shareholder; which warrants are exercisable before May 15, 2002.
Approximately 35,476,928 shares of common stock are "restricted stock"
or are beneficially owned by persons who as of December 31, 1998 were
affiliates of the Company as defined in Rule 144 under the Securities Act. A
portion of those shares would be eligible for resale by Company affiliates and
others who have satisfied the requisite holding periods, subject to the volume
limitations and other provisions of Rule 144 and applicable law.
As of December 31, 1998, the Company's common stock was held by
approximately 227 shareholders, including brokers holding stock in "street
name."
Holders of the Company's common stock are entitled to receive such
dividends as may be declared by its Board of Directors. The Company has not
declared or paid dividends on its common stock, and the Company does not
anticipate paying any dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION.
UNCERTAINTIES RELATING TO COMPANY. The Company is principally
engaged in the research and development of drugs and medical device products
for use in photodynamic therapy and diagnostic applications. The Company has
not completed development of any product or process at this time and has no
revenue from operations. Portions of the discussion in this Item contain
forward-looking statements and are subject to the Risk Factors described
above.
RESULTS OF OPERATIONS. The Company has not generated revenues from
the sale of any proposed products or other operations, and continues to
experience losses. The Company's net loss increased from $554,702 in 1997 to
$1,973,913 in 1998. The increase in losses are attributable primarily to
expenses related to pursuing patent protection for the Company's technology,
designing and acquiring equipment and commencing animal studies and other
research, and other general and administrative costs. The Company expects to
continue to incur increasing losses for at least the next several years as it
intensifies its research and development, preclinical and clinical testing,
regulatory approval activities and engages in or provides for the manufacture
and/or sale of any products that the Company may develop. In particular, the
Company is presently a party to four research contracts with various third
parties that will require an expenditure of a total of $458,000 over the
remaining terms of those contracts for the protocols currently under
investigation (see "Plan of Operation" below).
28
<PAGE>
The Company's revenue increased from $107,133 in 1997 to $392,599 in
1998 which primarily was a result of investment income on the proceeds from
the sale of common stock in the Company's recent 1998 private placement and
1997 restructuring. The proceeds from the sales of the Company's common stock
are invested primarily in United States Government obligations. Because the
Company has no revenues from operations at this time, investment of such
funds in that manner is necessary to enable the Company to avoid becoming
subject to the Investment Company Act of 1940. The Company's 1998 expenses
have been reduced by $99,927 representing proceeds of a grant from the
National Institutes of Health National Cancer Institute. Although the Company
intends to seek further grant funding from the National Institutes of Health
and other organizations, the Company considers this and any future grants to
be non-recurring.
LIQUIDITY; CAPITAL RESOURCES. On March 13, 1998, the Company
completed a private placement of 875,000 shares of common stock for $8.00 a
share to a number of accredited investors. The Company received $7,000,000 in
gross proceeds from this offering. Primarily as a result of funds received in
this offering, the Company increased its cash and government securities from
$1,614,044 in 1997 to $6,334,331 in 1998. The Company expects to use these
funds for the matters described below in "Plan of Operations" and for other
corporate purposes. The Company's use of its cash and capital resources is
presently about $300,000 per month. At that rate, the Company will exhaust
its funds by approximately May 2000. The Company can adjust its use of cash
and capital by not renewing or by modifying research contracts or by seeking
alternative methods of paying for portions of the research contract
obligations, such as issuing stock of the Company rather than paying in cash
(which may dilute stockholders).
The Company expects to consider additional financing transactions in
the future. See "Risk Factors -- Substantial Additional Financing Required."
PATENT AND OPERATIONAL MATTERS. The Company is continuing to pursue
patent protection for its proprietary technologies with the U. S. Patent and
Trademark Office, and in various foreign jurisdictions. See "Patents and Status"
and "Risk Factors -- Uncertainties Regarding Patent Matters," above. The Company
recently filed patent applications covering inventions in the following areas:
- Radiocontrast (x-ray contrast) agents and methods
- Radiosensitizer, methods for treating tissue using a
radiosensitizer
- Multiphoton activation technology
- Additional photodynamic therapy methods for surface
treatment of disease
- Melanoma destruction
The Company continues to pursue development of proprietary technologies
as a result of its research in chemistry, photochemistry, and biochemistry.
However, the Company cannot guarantee that it will develop new patentable
technology, or that commercial products will be
29
<PAGE>
developed from those technologies and successfully sold. The Company recently
renewed its research agreement with the University of Tennessee School of
Veterinary Medicine which in the next phase of research will focus on
preclinical research on photodynamic therapy for Barretts esophagus. The Company
also plans to seek another Phase I grant from the National Institutes of Health
for work on imaging of Photogen's proprietary photodynamic agents, and a Phase
II grant to begin to commercialize its multiphoton activation process in
specific applications. The Phase II grants are typically larger than Phase I
grants and the Company may seek as much as $750,000 (although the Company cannot
be certain that it will be awarded any further grant funds). The Company plans
to continue to pursue preclinical and clinical testing of proposed products in
the areas of chemistry, photochemistry and biochemistry, but the Company cannot
assure investors that it will be able to successfully develop and obtain
proprietary protection for new technologies or that it can develop products from
these technologies that can be commercialized. The Company has not entered into
any collaborative agreements for the development of any specific product and
does not expect to do so until further research and clinical trials are
concluded.
The Company is occupying approximately 4,000 square feet of office and
laboratory space in Knoxville, Tennessee. The Company pays a monthly rental of
$4,680 for the facility (including certain equipment) plus charges for utilities
and similar items. The Company is proceeding to equip its laser research and
development laboratory with certain laser equipment systems made available by a
large laser manufacturer. The Company has received, installed and started-up two
ultra-short pulsed laser systems required for conduct of animal studies for use
in the photodynamic treatment of melanoma and age-related macular degeneration.
In June 1999, the Company anticipates the delivery of another laser system for
use in hair removal. The Company has completed development of a software package
for use in the control and operation of its laser systems. The Company increased
its investment in office and laboratory equipment from approximately $209,768 in
1997 to $846,114 in 1998. The Company expects to spend an additional $890,000
during the 1999 fiscal year to acquire the instruments necessary to support
animal preclinical trials, and development of its proprietary photoactive agent
and targeting systems.
PLAN OF OPERATION. During the next twelve or more months, the Company
intends to concentrate on completing its preclinical studies, preparing and
filing documents with the FDA, and designing and initiating human clinical
trials. This effort will require continued progress in the areas of system
design and drug development. In addition, the Company plans to continue to
conduct research on new photodynamic therapy agents and diagnostic systems.
During the twelve months ended December 31, 1998, the Company spent
approximately $610,000 to acquire the laboratory instruments necessary to
support preclinical and clinical trials, and on development of its proprietary
photoactive agent and targeting systems. During the next twelve months the
Company expects to spend approximately $160,000 to $610,000 to acquire laser
systems and related hardware required to support new clinical activities at well
known clinical research centers. The research contracts to which the Company is
currently a party, in the aggregate, will require the Company to spend $458,000
during the 1999 fiscal year for the
30
<PAGE>
projects presently contemplated under those agreements. Additional projects may
be undertaken with those institutions with compensation to be agreed upon at
that time.
The Company is evaluating its future needs for laboratory and office
space and for scientific, managerial and support personnel. See "Risk Factors"
above. The Company may exercise its renewal option under its lease, which will
involve an increase in rent of about $.50 per square foot; and the Company
intends to link expansion of facilities and staff to completion of technical and
financial milestones. The Company presently anticipates slowly adding additional
personnel to support its current activities, while deferring any substantial
growth in hiring and acquisition of space and equipment until the final results
of preclinical and human trials are known. In 1998, the Company hired two
full-time employees and one part-time employee to provide personnel for
administrative functions and laboratory assistance. The Company has also
contracted for veterinary pathology and software development services. The
Company anticipates working with other consultants to provide assistance in
preparing FDA filings, and in designing and implementing human clinical trials
and acting as the Company's liaison with the FDA. The Company intends to
structure its research and development and collaborative arrangements to make
the fullest possible use of personnel and facilities provided by the parties
with whom the Company may contract.
The Company raised $7,000,000 in a private placement that was completed
on March 13, 1998. For these reasons, the Company believes it has enough cash
resources for its currently anticipated needs during the next twelve months.
However, as the Company progresses toward human clinical trials, its use of
capital will increase and will continue to do so at an accelerating pace. The
Company will need additional capital in the future to finance and complete its
clinical trial programs, design, acquire and/or manufacture equipment and drug
agents and for general operating purposes. Greater capital resources would
enable the Company to quicken and expand its research and development activities
over the next 12- to 18-month period; and failure to raise additional capital
will (absent a suitable collaborative agreement providing for a third party to
take over these functions) significantly impair the Company's ability to conduct
further research and development activities beyond those currently contracted
for, as well as its ability to seek regulatory approval for any possible product
resulting from that research. See "Liquidity; Capital Resources," above. In any
event, complete development and commercialization of the Company's technology
will require substantial additional funds. Accordingly, the Company is
continuously evaluating capital formation activities and opportunities, either
as part of its collaborative arrangements with third parties or through
offerings of equity or debt. See "Risk Factors," above.
YEAR 2000 ISSUES. The "Year 2000 issue" is the problem resulting from
the use of a two-digit date to identify the year in computer software.
Consequently, computer programs may not accurately reflect the appropriate date,
confusing "00" as the year 1900 rather than the year 2000. Year 2000 is a
pervasive problem affecting many information technology systems and embedded
technologies (operating and control systems that rely on embedded chip systems
such as microprocessors in communication systems) in all companies and in all
industries.
31
<PAGE>
The Company has completed assessment of the impact of Year 2000 on its
operations and important systems. The Company has also inquired about the Year
2000 readiness of its material vendors, research institutions under contract
with the Company, and other material third parties on which it relies.
With respect to the Company's information technology systems, the
Company believes that upgrades to its existing computer software, all of
which should be readily available in the market, the Year 2000 issue will not
have a material adverse affect on the Company's financial position or results
of operations. The Company expects to have these upgrades completed by the
end of 1999 and does not expect the cost of the upgrades to be material (less
than $5,000). With respect to the Company's embedded technologies, the
Company believes they are either Year 2000 compliant or will not be
materially effected by the Year 2000 problem because they do not
significantly rely upon date sensitive software.
To date, the Company does not believe most third parties' Year 2000
issues will have a material adverse impact on the Company's operations.
However, the Company has not been able to verify that the Massachusetts Eye
and Ear Infirmary ("MEEI"), with which the Company has two research
agreements, will have addressed its own Year 2000 issues. If the Year 2000
issue causes an interruption in the research MEEI is performing for the
Company, the Company may (depending on the circumstances) agree to delay some
or all of the research or transfer the research to another institution. This
could delay the progress of research on those projects for as much as six to
nine months and would correspondingly delay the commencement of human
clinical trials and any resulting product. However, much of MEEI's research
may be completed before the end of 1999 and would not be affected by the Year
2000 issue.
The Company believes that a "worst case" scenario would result where
the systems of third parties are not timely converted and a third party fails to
remediate its own Year 2000 issues. In a worst case scenario, the Company could
incur an adverse affect on its systems or results of operations. However, the
Company currently believes that any adverse effect would involve primarily
disruption to the Company's research operations which the Company believes could
be transferred to alternative third parties who were Year 2000 compliant. Any
such transfer could result in a delay of research operations. The Company at
present cannot estimate the likelihood or potential cost of such third party
failures.
32
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Photogen Technologies, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheets of Photogen
Technologies, Inc., a development stage company, as of December 31, 1997 and
1998, and the related consolidated statements of operations, shareholders'
equity and cash flows for the period from November 3, 1996 (inception) to
December 31, 1998 and the years ended December 31, 1997 and 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Photogen
Technologies, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for the period from November 3, 1996 (inception)
to December 31, 1998 and the years ended December 31, 1997 and 1998, in
conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
Chicago, Illinois
February 4, 1999
33
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 82,631 $ 652,226
Interest receivable 21,402 121,471
Prepaid expenses 8,164 435,395
Marketable securities 409,238 0
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 521,435 1,209,092
UNITED STATES TREASURY NOTES, total face value $1,538,000
and $5,660,000 1,531,413 5,682,105
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less accumulated
depreciation of $17,454 and $129,004 194,252 1,169,388
PATENT COSTS 37,273 0
- -------------------------------------------------------------------------------------------------------------------
$ 2,284,373 $ 8,060,585
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
34
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1998
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 118,233 $ 804,248
Current portion of obligations under capital leases (Note 3) 18,626 111,769
- ---------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 136,859 916,017
- ---------------------------------------------------------------------------------------------------------------------
OBLIGATIONS UNDER CAPITAL LEASES (Note 3) 60,469 35,990
- ---------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 4)
SHAREHOLDERS' EQUITY (Notes 2 and 5)
Preferred stock; par value $.01 per share; 5,000,000 shares
authorized; none issued - -
Common stock; par value $.001 per share; 150,000,000 shares
authorized; 36,000,000 and 36,875,020 shares issued
and outstanding 36,000 36,875
Additional paid-in capital 2,607,526 9,602,097
Deficit accumulated during the development stage (556,481) (2,530,394)
- ---------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 2,087,045 7,108,578
- ---------------------------------------------------------------------------------------------------------------------
$ 2,284,373 $ 8,060,585
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
35
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR YEAR AMOUNTS
ENDED ENDED FROM
DECEMBER 31, DECEMBER 31, NOVEMBER 3,
1997 1998 1996
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Investment income $ 107,133 $ 392,599 $ 499,732
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Operating (Note 6) 661,835 2,366,512 3,030,126
- ---------------------------------------------------------------------------------------------------------------------
NET LOSS $ (554,702) $ (1,973,913) $ (2,530,394)
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
BASIC LOSS PER COMMON SHARE $ (.02) $ (.05)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
DILUTED LOSS PER COMMON SHARE $ (.02) $ (.05)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - BASIC 33,665,117 36,692,708
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - DILUTED 33,665,117 36,696,789
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional
----------------- Members' Paid-in
Shares Amount Capital Capital
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Contribution of capital - $ - $ 7,268 $ -
Net loss for the period ended December 31, 1996 - - (1,779) -
- ------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 - - 5,489 -
Net loss and capital contributions for the period
January 1, 1997 to May 15, 1997 - - 3,511 -
- ------------------------------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 - - 9,000 -
Issuance of common stock 6,312,833 6,313 - 1,797,137
Effect of recapitalization and merger 29,687,167 29,687 (9,000) 1,181,500
Cost associated with recapitalization and merger - - - (371,111)
Net loss for the period May 16, 1997 to
December 31, 1997 - - - -
- ------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 36,000,000 36,000 - 2,607,526
Issuance of common stock 875,020 875 - 6,999,125
Cost associated with common stock issuance - - - (50,000)
Options issued to consultants - - - 45,446
Net loss for the year ended December 31, 1998 - - - -
- ------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 36,875,020 $ 36,875 $ - $ 9,602,097
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Contribution of capital $ - $ 7,268
Net loss for the period ended December 31, 1996 - (1,779)
- -----------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 - 5,489
Net loss and capital contributions for the period
January 1, 1997 to May 15, 1997 (3,511) -
- -----------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 (3,511) 5,489
Issuance of common stock - 1,803,450
Effect of recapitalization and merger 1,732 1,203,919
Cost associated with recapitalization and merger - (371,111)
Net loss for the period May 16, 1997 to
December 31, 1997 (554,702) (554,702)
- -----------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 (556,481) 2,087,045
Issuance of common stock - 7,000,000
Cost associated with common stock issuance - (50,000)
Options issued to consultants - 45,446
Net loss for the year ended December 31, 1998 (1,973,913) (1,973,913)
- -----------------------------------------------------------------------------------------
BALANCE, at December 31, 1998 $ (2,530,394) $ 7,108,578
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
37
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR YEAR AMOUNTS
ENDED ENDED FROM
DECEMBER 31, DECEMBER 31, NOVEMBER 3,
1997 1998 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (554,702) $ (1,973,913) $ (2,530,394)
Depreciation and amortization 17,454 148,761 166,277
Loss (gain) on sale of marketable securities (29,737) 9,238 (20,499)
United States Treasury Notes amortization 9,265 22,364 31,629
Stock option compensation - 45,446 45,446
Changes in operating assets and liabilities
Prepaid expenses (8,164) (58,586) (66,750)
Interest receivable (21,402) (468,714) (490,116)
Accounts payable 118,233 686,015 804,248
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (469,053) (1,589,389) (2,060,159)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities 1,764,464 400,000 2,164,464
Purchase of marketable securities (2,182,967) - (2,182,967)
Purchase of United States Treasury Notes (2,044,876) (14,516,754) (16,561,630)
Sale of United States Treasury Notes 1,639,850 10,343,698 11,983,548
Purchase of equipment and leaseholds (129,167) (877,459) (1,006,626)
Patent costs (31,784) - (37,335)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (984,480) (4,650,515) (5,640,546)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations (3,444) (140,501) (143,945)
Net proceeds from issuance of common stock 6,313 6,950,000 6,956,313
Proceeds from capital contributions by shareholders
(Note 2) 1,904,406 - 1,911,674
Cost of recapitalization (371,111) - (371,111)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,536,164 6,809,499 8,352,931
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE
YEAR YEAR AMOUNTS
ENDED ENDED FROM
DECEMBER 31, DECEMBER 31, NOVEMBER 3,
1997 1998 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 82,631 $ 569,595 $ 652,226
CASH AND CASH EQUIVALENTS, at beginning of period - 82,631 -
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end of period $ 82,631 $ 652,226 $ 652,226
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
1998
Equipment purchased under capital lease
amounted to $209,165.
1997
U.S. Treasuries in the amount of $1,096,650
were received in recapitalization.
Equipment purchased under capital lease amounted to $82,539.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
39
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS
Photogen Technologies, Inc. (the "Company"), through its subsidiary Photogen,
Inc., successor to Photogen, L.L.C., is a development stage company that is
attempting to develop proprietary laser and other light-based technologies
and compounds to enhance the safety and efficacy of photodynamic therapy. The
Company's technologies involve methods, materials and devices that combine
light and photoactive agents that are intended to destroy diseased cells,
remove tissue or identify and diagnose disease.
PRINCIPLES OF CONSOLIDATION
Intercompany balances and transactions have been eliminated in consolidation.
ESTIMATES
The financial statements include estimated amounts and disclosures based on
management's assumptions about future events. Actual results may differ from
those estimates.
CASH EQUIVALENTS
Highly liquid investments with a maturity of three months or less when purchased
are classified as cash equivalents.
MARKETABLE SECURITIES
Marketable securities consisting of marketable debt securities are classified as
available-for-sale securities. Fair value approximates cost at December 31,
1997.
INVESTMENT IN UNITED STATES TREASURY NOTES
The Company considers its investment in United States Treasury Notes to be
held-to-maturity securities and all investments mature within one year.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Depreciation and
amortization are being provided, on accelerated and straight-line methods, over
the estimated useful lives of the assets. Leasehold improvements are being
amortized on a straight-line basis over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
The Company reviews the carrying values of its other long-lived assets for
possible impairment whenever an event or change in circumstances indicates that
the carrying amount of the assets may not be recoverable. Any long-lived assets
held for disposal are reported at the lower of their carrying amounts or fair
value less cost to sell.
40
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PATENT COSTS
Patent costs are expensed in the period incurred.
INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the tax basis and
financial reporting basis of certain assets and liabilities based upon currently
enacted tax rates expected to be in effect when such amounts are realized or
settled.
The Company has not recorded an income tax benefit for losses incurred of
approximately $3,443,000 which expire in 2018. Approximately $2,400,000 of the
loss carryforward expires in 2012 and 2018. The Company is in the development
stage and realization of the losses is not likely. An income tax valuation
allowance has been provided for the losses realized to date.
BASIC AND DILUTED LOSS PER COMMON SHARE
Basic and diluted loss per common share is computed based on the weighted
average number of common shares outstanding.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative instruments
and hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The Company, to date, has not engaged in
derivative and hedging activities.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5, "Reporting on the Costs of Start-Up Activities", which requires
costs of start-up activities and organizations costs to be expensed as incurred.
The Company expenses the costs of start-up activities.
2. RECAPITALIZATION AND MERGER
On May 16, 1997, MT Financial Group, Inc. (an inactive public company), through
its wholly owned subsidiary, effected a reverse merger with Photogen, Inc.,
successor to Photogen, L.L.C. ("Photogen"). Legally, Photogen is a wholly owned
subsidiary of Photogen Technologies, Inc. (formerly known as MT Financial Group,
Inc.).
For financial reporting purposes, Photogen was deemed to be the acquiring
entity. The transaction has been reflected in the accompanying financial
statements as (1) a recapitalization of Photogen (consisting of a 48,000-for-one
stock split and change in par value) and (2) an issuance of shares by Photogen
in exchange for all of the outstanding shares of MT Financial Group, Inc.
41
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As part of the recapitalization, the Company sold 6,312,833 shares of common
stock for a total purchase price of approximately $1,814,000. Further, as
consideration for the acquisition of Photogen, Inc., 24,000,000 shares of common
stock were issued.
Legal and brokerage fees of approximately $371,000 were charged to additional
paid-in capital as costs of the recapitalization and merger. Included in the
paid-in capital is the net cash of approximately $109,000 by MT Financial Group,
Inc.
On March 13, 1998, the company completed a private placement of 875,000 shares
of common stock for $8.00 a share to a number of accredited investors. The
Company received $7,000,000 in gross proceeds from this offering.
3. OBLIGATIONS UNDER CAPITAL LEASES
The following is a schedule of future minimum payments under the capital leases
as of December 31, 1998, together with the present value of net minimum lease
payments:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, Amount
- -----------------------------------------------------------------------------
<S> <C>
1999 $ 118,113
2000 25,406
2001 13,497
- -----------------------------------------------------------------------------
Net minimum lease payments 157,016
Less amount representing interest 9,257
- -----------------------------------------------------------------------------
Present value of net minimum lease payments $ 147,759
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
The equipment which is leased under the capitalized lease agreements and
classified as equipment has cost and accumulated amortization as follows. Lease
amortization is included in depreciation and amortization.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
Cost $ 82,539 $ 316,561
Accumulated amortization 4,200 40,599
- -----------------------------------------------------------------------------
$ 78,339 $ 275,962
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
42
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. COMMITMENTS
The Company is leasing offices and a laboratory. The leases expire in 1999
and 2000 and include two options for renewal for additional terms of three
years each. Total rental expense charged to operations for the years ended
December 31, 1997 and 1998 aggregated approximately $32,000 and $28,000,
respectively. Future minimum lease payments under operating leases with
initial or remaining terms of one year or more are approximately $26,000 for
1999; and $11,000 for 2000.
The Company has entered into employment agreements with certain officers and
employees for an initial term of five years expiring in 2002. Under the terms of
these agreements, the officers and employees are each entitled to an initial
annual salary of $85,000 plus fringe benefits (subject to adjustment).
5. STOCK INCENTIVE PLANS
In May, 1998, the stockholders approved the 1998 Long Term
Incentive Compensation Plan (the "Plan"), which provides for the granting of up
to 2,000,000 stock options to key employees, directors and consultants. Options
granted may be either "incentive stock options," within the meaning of Section
422A of the Internal Revenue Code, or non-qualified options.
The stock options are exercisable over a period determined by the Board of
Directors (through its Compensation Committee), but generally no longer than 10
years after the date they are granted.
Information with respect to the Plan follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1998
- ---------------------------------------------------------------------------
<S> <C> <C>
Options outstanding at beginning of year - -
Options granted - 92,500
Options canceled - -
- ---------------------------------------------------------------------------
Options outstanding at end of year - 92,500
- ---------------------------------------------------------------------------
Options prices per share granted - 11.25-13.00
- ---------------------------------------------------------------------------
Weighted Average Exercise Price
- ---------------------------------------------------------------------------
Options Granted - 12.24
Options Canceled - -
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
43
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company applies APB Opinion 25 and related interpretations in accounting for
stock options granted to employees and directors. Accordingly, no compensation
cost has been recognized for its Plan. The Company applies the recognition
provisions of Statement of Financial Accounting Standards ("SFAS") No. 123
"Accounting for Stock-Based Compensation" (SFAS 123) in accounting for stock
options issued to non-employees. Accordingly, shares of stock issued to
non-employees or liabilities incurred by the Company to non-employees based on
the price of its stock are recorded at fair value. The compensation cost that
has been charged against operations for the Plan was $45,446 in 1998.
The weighted-average, grant date fair value of stock options granted to
employees and directors during the year, and the weighted-average significant
assumptions used to determine those fair values, using a modified Black-Scholes
option pricing model, and the pro forma effect on earnings of the fair value
accounting for stock options under Statement of Financial Accounting Standards
No. 123, are as follows:
<TABLE>
<CAPTION>
1997 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
Weighted average fair value per
options granted $ - $ 7.89
Significant assumptions (weighted average)
Risk-free interest rate at grant date - 5.1%
Expected stock price volatility - 60.0%
Expected dividend payout - -
Expected option life (years) - 7
Net Income (loss)
As reported $ (554,702) $ (1,929,186)
Pro forma $ (554,702) $ (1,997,511)
Net earnings (loss) per share
As reported $ (.02) $ (.05)
Pro forma $ (.02) $ (.05)
- ---------------------------------------------------------------------------------
</TABLE>
6. GRANT
Operating expenses for 1998 have been reduced by a grant in the amount of
$99,927 received from the National Institute of Health National Cancer
Institute.
44
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT.
The information required by Item 9 is incorporated by reference to the
information under the caption "Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a) of the Exchange Act" in the
Company's definitive proxy statement for the 1999 annual meeting of
stockholders.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated by reference to the
information under the caption "Executive Compensation" in the Company's
definitive proxy statement for the 1999 annual meeting of stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by Item 11 is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Company's definitive proxy statement for the 1999 annual
meeting of stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for the 1998 annual meeting of
stockholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following is a list of exhibits filed as part of this
Form 10-KSB. Exhibits that were previously filed are incorporated by reference.
For exhibits incorporated by reference, the location of the exhibit in the
previous filings is indicated in parenthesis.
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Photogen Technologies,
Inc. (Filed as exhibit 3.1 to the Company's Current Report on
Form 8-K dated June 17, 1998.)
45
<PAGE>
EXHIBIT NO. DESCRIPTION
3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
3.4 Amended and Restated Bylaws of Photogen, Inc.
9.1 Amended and Restated Voting Agreement dated as of June 17,
1998 entered into by Eric A. Wachter, Ph.D., Craig Dees,
Ph.D., Walter G. Fisher, Ph.D., Tim Scott, Ph.D., John Smolik,
and Robert J. Weinstein, M.D., and joined into by the Company.
10.1 Consent and Assignment to Lease entered into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November
13, 1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
10.2 Lease Agreement entered into by the Company, P.C. Powell and
Wilma Powell dated June 1, 1997. (Filed as exhibit 10.2 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
10.3 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form
10-SB dated December 24, 1997.)
10.4 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801)
dated February 4, 1997. (Filed as exhibit 10.5 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
10.5 Form of Employment Agreements entered into by the Company and
each of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher,
Ph.D., and Craig Dees, Ph.D. dated May 16, 1997 (Filed as
exhibit 10.6 to the Company's Registration Statement on Form
10-SB dated December 24, 1997.)
10.6 Form of Non-competition/Non-disclosure Agreements entered into
by the Company and each of John Smolik, Eric A. Wachter,
Ph.D., Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy
C. Scott dated May 16, 1997. (Filed as exhibit 10.7 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
46
<PAGE>
EXHIBIT NO. DESCRIPTION
10.7 Form of Non-Qualified Stock Option Award Agreement entered
into by the Company and each of Lester McKeever, Jr., Daniel
Tosteson, M.D., Mark Peterson and Harry Morrison, Ph.D.
10.8 Form of Incentive Stock Option Award Agreement entered into
by the Company and each of Jay Harkins and Dan Hamilton.
10.9 Research Agreement dated as of October 1, 1998 by and between
Photogen, Inc. and Massachusetts General Hospital (relating to
the Center for Imaging and Pharmaceutical Research). (Filed as
exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1998.)
10.10 Research Agreement dated as of October 1, 1998 by and between
Photogen, Inc. and The Massachusetts Eye and Ear Infirmary
(relating to age-related macular degeneration research).
(Filed as exhibit 10.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998.)
10.11 Research Agreement dated as of November 6, 1998 by and between
Photogen, Inc. and the Massachusetts Eye and Ear Infirmary
(relating to ocular melanoma research).
10.12 Form of Consulting Agreement entered into by the Company and
each of Daniel Tosteson, M.D. and Harry Morrison, Ph.D.
21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
27 Financial Data Schedule.
REPORTS ON FORM 8-K. During the quarter ended December 31, 1998, the
Company filed reports on Form 8-K regarding the following:
1. The Company's press release stating that Daniel Tosteson, M.D.,
Ph.D., joined the Photogen Scientific Advisory Council (filed December 9, 1998).
2, The Company's press release stating that it had signed two
research agreements with Harvard Medical School Affiliates (one with the Center
for Imaging and Pharmaceutical Research covering treatments for lung and
prostate cancer, and the second with the Massachusetts Eye and Ear Infirmary
covering treatment of age related macular degeneration) (filed October 15,
1998).
3. The Company's press release stating that it had signed a
research agreement with Massachusetts Eye and Ear Infirmary, a teaching
affiliate of Harvard Medical School, to evaluate the Company's multiphoton
excitation technology for the treatment of ocular melanoma (filed December 4,
1998).
47
<PAGE>
4. The Company's press release stating that it had been awarded two
patents by the United States Patent and Trademark Office covering methods in
photo-activation of molecular agents and improved selectivity in
photo-activation and detection of molecular diagnostic agents (filed December 9,
1998).
48
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 1999 Photogen Technologies, Inc.
By: /s/ John Smolik
----------------------------
John Smolik, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Smolik Chairman of the Board, President, March 29, 1999
- ------------------------------------ Chief Executive Officer, Treasurer
John Smolik and Chief Financial Officer (Principal
executive and financial and
accounting officer)
/s/ Eric A. Wachter, Director and Secretary March 29, 1999
- ------------------------------------
Eric A. Wachter, Ph.D.
/s/ Craig Dees Director March 29, 1999
- ------------------------------------
Craig Dees, Ph.D.
/s/ Walter G. Fisher Director March 29, 1999
- ------------------------------------
Walter G. Fisher, Ph.D.
/s/ Robert J. Weinstein Director March 29, 1999
- ------------------------------------
Robert J. Weinstein, M.D.
/s/ Lester H. McKeever, Jr. Director March 29, 1999
- ------------------------------------
Lester H. McKeever, Jr.
</TABLE>
49
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
+3.1 Restated Articles of Incorporation of Photogen Technologies,
Inc. (Filed as exhibit 3.1 to the Company's Current Report on
Form 8-K Dated June 17, 1998.)
+3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 To
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the
Company's Registration Statement on Form 10-SB Dated December
24, 1997.)
*3.4 Amended and Restated Bylaws of Photogen, Inc.
*9.1 Amended and Restated Voting Agreement dated as of June 17,
1998 entered into by Eric A. Wachter, Ph.d., Craig Dees,
Ph.D., Walter G. Fisher, Ph.D., Tim Scott, Ph.D., John Smolik,
and Robert J. Weinstein, M.D., and joined into by the Company.
+10.1 Consent and Assignment to Lease Entered Into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November
13, 1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
+10.2 Lease Agreement entered Into by the Company, P.C. Powell and
Wilma Powell dated June 1, 1997. (Filed as exhibit 10.2 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
+10.3 Confirmatory License in favor of the U.s. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form
10-SB Dated December 24, 1997.)
+10.4 Confirmatory License in favor of the U.s. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801)
dated February 4, 1997. (Filed as exhibit 10.5 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
50
<PAGE>
EXHIBIT NO. DESCRIPTION
+10.5 Form of Employment Agreements Entered into by the Company and
each of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher,
Ph.D., and Craig Dees, Ph.D. dated May 16, 1997. (Filed as
exhibit 10.6 to the Company's Registration Statement on Form
10-SB dated December 24, 1997.)
+10.6 Form of Non-competition/Non-disclosure Agreements entered into
by the Company and each of John Smolik, Eric A. Wachter,
Ph.D., Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy
C. Scott Dated May 16, 1997. (Filed as exhibit 10.7 to the
Company's Registration Statement on Form 10- SB dated December
24, 1997.
*10.7 Form of Non-qualified Stock Option Award Agreement entered
into by the Company and each of Lester Mckeever, Jr., Daniel
Tosteson, M.D., Mark Peterson and Harry Morrison, Ph.D.
*10.8 Form of Incentive Stock Option Award Agreement entered into
by the Company and each of Jay Harkins and Dan Hamilton.
+10.9 Research Agreement dated as of October 1, 1998 by and between
Photogen, Inc. and Massachusetts General Hospital (relating to
the Center for Imaging and Pharmaceutical Research). (Filed as
exhibit 10.1 to the Company's Quarterly Report on Form 10-QSB
for the quarter ended September 30, 1998.)
+10.10 Research Agreement dated as of October 1, 1998 by and between
Photogen, Inc. and the Massachusetts Eye and Ear Infirmary
(relating to age-related macular degeneration research).
(Filed as exhibit 10.2 to the Company's Quarterly Report on
Form 10-QSB for the quarter ended September 30, 1998.)
*10.11 Research Agreement dated as of November 6, 1998 by and between
Photogen, Inc. and the Massachusetts Eye and Ear Infirmary
(relating to ocular melanoma research).
*10.12 Form of Consulting Agreement entered into by the Company and
each of Daniel Tosteson, M.D. and Harry Morrison, Ph.D.
+21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December
24, 1997.)
*27 Financial Data Schedule.
+ Incorporated by reference from the filing indicated.
* Filed herewith.
51
<PAGE>
EXHIBIT 3.4
<PAGE>
BYLAWS
OF
PHOTOGEN, INC.
(AMENDED AND RESTATED AS OF JUNE 17, 1998)
ARTICLE I
OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of
the corporation may be located within or without the State of Tennessee. The
Board of Directors (herein called the "Board") is hereby granted full power and
authority to change the principal executive office or the location of any other
corporate office from one location to another.
Section 2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board at any place or places.
ARTICLE II
STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held either
at the principal executive office of the corporation or at any other place
within or without the State of Tennessee which may be designated either by the
Board or by the written consent of all persons entitled to vote thereat, given
either before or after the meeting and filed with the Secretary.
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be
held on the last Tuesday of each April, at 10:00 o'clock a.m., local time, or
such other date or such other time as may be fixed by the Board. At such
meetings, directors shall be elected and any other proper business may be
transacted.
Section 3. SPECIAL MEETINGS. Special meetings of the stockholders may be
called at any time by the Board, the Chairman of the Board, the President, or by
the holders of shares entitled to cast not less than 10 percent of the votes at
such meeting. Upon request in writing to the Chairman of the Board, the
President, any Vice President or the Secretary by any person (other than the
Board) entitled to call a special meeting of stockholders, the officer forthwith
shall cause notice to be given in writing to the stockholders entitled to vote
that a meeting will be held at a time requested by the person or persons calling
the meeting, not less than 10 nor more than 60 days after the receipt of the
request.
Section 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice of each
annual or special meeting of stockholders shall be given not less than ten nor
more than sixty
<PAGE>
days before the date of the meeting to each stockholder entitled to vote
thereat. Such notice shall state the place, date, and hour of the meeting and
(a) in the case of a special meeting, the general nature of the business to be
transacted, and no other business may be transacted, or (b) in the case of the
annual meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the stockholders, but, subject to the
provisions of applicable law, any proper matter may be presented at the meeting
for such action. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.
Notice of a stockholders' meeting shall be given either by mail or by other
means of written communication, addressed to the stockholder at the address of
such stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice, or, if no such address
appears or is given, at the place where the principal executive office of the
corporation is located or by publication at least once in a newspaper of general
circulation in the county in which the principal executive office is located.
Notice by mail shall be deemed to have been given at the time a written notice
is deposited in the United States mails, postage prepaid. Any other written
notice shall be deemed to have been given at the time it is personally delivered
to the recipient or is delivered to a common carrier for transmission, or
actually transmitted by the person giving the notice by electronic means, to the
recipient.
Section 5. QUORUM. A majority of the shares entitled to vote, represented
in person or by proxy, shall constitute a quorum at any meeting of stockholders.
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and voting at the meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the stockholders, unless the vote of a greater number or voting by
classes is required by law, by the Charter or the Bylaws and except as provided
in the following sentence. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any stockholders'
meeting, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares, represented either in person or by
proxy, but in the absence of a quorum (except as provided in Section 5 of this
Article) no other business may be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of the
adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any stockholders' meeting is adjourned for more than 45 days, or
if after adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given as in the case of an original
meeting.
2
<PAGE>
Section 7. VOTING. The stockholders entitled to notice of any meeting or to
vote at any such meeting shall be only persons in whose name shares stand on the
stock records of the corporation on the record date determined in accordance
with Section 8 of this Article.
Voting shall in all cases be subject to the provisions of Title 48,
Chapters 11-27 of the Tennessee Business Corporation Act and to the following
provisions:
(a) Shares held by an administrator, executor, guardian, conservator or
custodian may be voted by such holder either in person or by proxy, without a
transfer of such shares into the holder's name; and shares standing in the name
of a trustee may be voted by the trustee, either in person or by proxy, but no
trustee shall be entitled to vote shares held by such trustee without a transfer
of such shares into the trustee's name.
(b) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into the receiver's name if authority
to do so is contained in an order of the court by which such receiver was
appointed.
(c) Subject to the provisions of Title 48, Chapters 11-27 of the Tennessee
Business Corporation Act, and except where otherwise agreed in writing between
the parties, a stockholder whose shares are pledged shall be entitled to vote
such shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and the corporation
may treat all rights incident thereto as exercisable by the minor, in person or
by proxy, whether or not the corporation has notice, actual or constructive, of
the minority, unless a guardian of the minor's property has been appointed and
written notice of such appointment given to the Secretary of the corporation.
(e) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder as the bylaws of
such other corporation may prescribe or, in the absence of such provision, as
the Board of Directors of such other corporation may determine or, in the
absence of such determination, by the chairman of the board, president or any
vice president of such other corporation. Shares which are purported to be voted
or any proxy purported to be executed in the name of a corporation (whether or
not any title of the person signing is indicated) shall be presumed to be voted
or the proxy executed in accordance with the provisions of this clause, unless
the contrary is shown.
(f) If shares stand of record in the names of two or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, husband
and wife as community property, tenants by the entirety, voting trustees,
persons entitled to vote under a stockholder voting agreement or otherwise, or
if two or more persons (including proxyholders) have the same fiduciary
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relationship respecting the same shares, unless the Secretary of the corporation
is given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so voting
binds all; and
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this section shall be a majority or even split in interest.
(g) No stockholder shall be entitled to cumulate votes at any election of
directors. Elections need not be by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by the Chairman of
the Board or by a majority of the outstanding shares entitled to vote therefor
at the meeting and before the voting begins.
Section 8. RECORD DATE. The Board may fix, in advance, a record date for
the determination of the stockholders entitled to notice of any meeting or to
vote, or entitled to receive payment of any dividend or other distribution, or
any allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 days prior to the
date of the meeting nor more than 60 days prior to any other action. When a
record date is so fixed, only stockholders of record on that date are entitled
to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to exercise of the rights, as the case
may be, notwithstanding any transfer of shares on the books of the corporation
after the record date. 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 unless the Board fixed a new record date for the adjourned
meeting. The Board shall fix a new record date if the meeting is adjourned for
more than 45 days.
If no record date is fixed by the Board, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held. The record
date for determining stockholders for any purpose other than as set forth in
this Section 8 or Section 10 of this Article shall be at the close of business
on the day on which the Board the adopts the resolution relating thereto, or the
sixtieth day prior to the date of such other action, whichever is
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later.
Section 9. CONSENT OF ABSENTEES. The transactions of any meeting of
stockholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers, consents, or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Attendance of a person shall constitute a waiver of
notice of and presence at such meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters required by
Title 48, Chapters 11-27 of the Tennessee Business Corporation Act to be
included in the notice but not so included, if such objection is expressly made
at the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders need be specified in any written
waiver of notice, consent to the holding of the meeting or approval of the
minutes thereof, except as provided in Title 48, Chapters 11-27 of the Tennessee
Business Corporation Act.
Section 10. ACTION WITHOUT MEETING. Any action which under any provision of
Title 48, Chapters 11-27 of the Tennessee Business Corporation Act may be taken
at any annual or special meeting of stockholders, may be taken without a meeting
and without prior notice if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding shares 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 thereon were present
and voted. Unless a record date for voting purposes be fixed as provided in
Section 8 of this Article, the record date for determining stockholders entitled
to give consent to pursuant to this Section 10, when no prior action by the
Board has been taken, shall be the day on which the first written consent is
given.
Section 11. PROXIES. Every person entitled to vote shares has the right to
do so either in person or by one or more persons authorized by a written proxy
executed by such stockholder and filed with the Secretary. Any proxy duly
executed is not revoked and continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto by a writing
delivered to the Secretary of the corporation stating that the proxy is revoked
or by a subsequent proxy executed by the person executing the prior proxy and
presented to the meeting, or by attendance at the meeting and voting in person
by the person executing the proxy.
Section 12. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board may appoint inspectors of election to act at such
meeting and any adjournment thereof. If inspectors of election be not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
chairman of any such meeting may, and on the request of any stockholder or
stockholder's proxy shall, make such appointment at the meeting. The number of
inspectors shall be either one or three. If appointed at a meeting on the
request of one or more
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stockholders or proxies, the majority of shares present shall determine whether
one or three inspectors are to be appointed.
The duties of such inspectors shall be as prescribed by Title 48, Chapters
11-27 of the Tennessee Business Corporation Act and shall include: determining
the number of shares outstanding and the voting power of each; determining the
shares represented at the meeting; determining the existence of a quorum;
determining the authenticity, validity, and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the right to vote; counting and tabulating
all votes or consents, determining when the polls shall close; determining the
result; and doing such acts as may be proper to conduct the election or vote
with fairness to all stockholders. If there are three inspectors of election,
the decision, act, or certificate of a majority is effective in all respects as
the decision, act, or certificate of all.
Section 13. CONDUCT OF MEETING. The Chairman of the Board shall preside as
Chairman at all meetings of the stockholders. The Chairman shall conduct each
such meeting in a businesslike and fair manner, but shall not be obligated to
follow any technical, formal or parliamentary rules or principles of procedure.
The Chairman's rulings on procedural matters shall be conclusive and binding on
all stockholders, unless at the time of a ruling a request for a vote is made to
the stockholders entitled to vote and represented in person or by proxy at the
meeting, in which case the decision of a majority of such shares shall be
conclusive and binding on all stockholders. Without limiting the generality of
the foregoing, the Chairman shall have all of the powers usually vested in the
chairman of a meeting of stockholders.
Section 14. PARTICIPATION IN MEETING BY CONFERENCE TELEPHONE. Stockholders
may participate in a meeting of the stockholders by means of conference
telephone or similar method of communication by which all persons participating
in the meeting can hear one another.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to limitations of the Charter, these Bylaws, and
Title 48, Chapters 11-27 of the Tennessee Business Corporation Act relating to
action required to be approved by the stockholders or by the outstanding shares,
the business and affairs of the corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board. The Board may
delegate the management of the day-to-day operation of the business of the
corporation to its officers, provided that the business and affairs of the
corporation shall be managed and all corporate powers shall be exercised under
the ultimate direction of the Board. Without prejudice to such general powers,
but subject to the same limitations, it is hereby expressly declared that the
Board shall have the following powers in addition to the other powers enumerated
in these Bylaws:
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(a) To select and remove all the officers, agents, and employees of the
corporation, prescribe the powers and duties for them as may not be inconsistent
with law, the Charter or these Bylaws, fix their compensation, and require from
them security for faithful service.
(b) To conduct, manage, and control the affairs and business of the
corporation and to make such rules and regulations therefor not inconsistent
with law, the Charter or these Bylaws.
(c) To adopt, make, and use a corporate seal, and to prescribe the forms of
certification of stock, and to alter the form of such seal and of such
certificates from time to time.
(d) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidence of debt and securities therefor.
Section 2. VACANCIES. (a) Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, or the Secretary,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
(b) Vacancies in the Board shall be filled by the stockholders, and each
director so elected shall hold office until the next annual meeting and until
such director's successor has been elected and qualified.
(c) A vacancy or vacancies in the Board shall be deemed to exist in case of
the death, resignation, or removal of any director, or if the authorized number
of directors is increased.
(d) The Board may declare vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a felony.
(e) No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of the director's term
of office.
Section 3. PLACE OF MEETING. Regular or special meetings of the Board shall
be held at any place within or without the State of Tennessee which has been
designated from time to time by the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation.
Section 4. REGULAR MEETINGS. Immediately following each annual meeting
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of stockholders the Board shall hold a regular meeting for the purpose of
organization, election of officers, and the transaction of other business.
Section 5. SPECIAL MEETINGS. (a) Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary, or by any two directors.
(b) Special meetings of the Board shall be held upon two days' written
notice or 24 hours' notice given personally or by telephone, telegraph, telex,
or other similar means of communication. Any such written notice shall be
addressed or delivered to each director at such director's address as it is
shown upon the records of the corporation or as may have been given to the
corporation by the director for purposes of notice or, if such address is not
shown on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held.
(c) Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means, to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated, in person or by telephone, to the recipient.
Section 6. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except (a)
where the Charter or Bylaws require action by all directors, in which case a
quorum shall consist of all of the authorized number of directors, and (b) to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, except (x) where the Charter
or Bylaws require action by all directors, in which case such act or decision
shall be done or made by unanimous approval or consent of the authorized number
of directors and (y) where a greater number is required by law, the Charter or
elsewhere in these Bylaws.
Section 7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members of
the Board may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 8. WAIVER OF NOTICE. Notice of a meeting need not be given to any
director who signs a waiver of notice or a consent to holding the meeting or an
approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 9. ADJOURNMENT. A majority of the directors present, whether or not
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a quorum is present, may adjourn any directors' meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place be fixed at the meeting
adjourned, except as provided in the next sentence. If the meeting is adjourned
for more than 24 hours, notice of any adjournment to another time or place shall
be given prior to the time of the adjourned meeting to the directors who were
not present at the time of the adjournment.
Section 10. FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by the Board.
Section 11. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
consent or consents shall have the same effect as a unanimous vote of the Board
and shall be filed with the minutes of the proceedings of the Board.
Section 12. RIGHTS OF INSPECTION. Every director shall have the absolute
right at any reasonable time to inspect and copy all books, records, and
documents of every kind and to inspect the physical properties of the
corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts of documents.
Section 13. COMMITTEES.
(a) By unanimous vote or consent of all of the authorized number of
directors, the Board may designate one or more committees, each consisting of
one or more directors, and delegate to such committees any of the authority of
the Board except with respect to:
(i) The approval of any action for which Title 48, Chapters 11-27
of the Tennessee Business Corporation Act also requires stockholders'
approval or approval of the outstanding shares;
(ii) The filling of vacancies on the Board or in any committee;
(iii) The fixing of compensation of the directors for serving on
the Board or on any committee;
(iv) The amendment or repeal of the Bylaws or the adoption of new
bylaws;
(v) The amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
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(vi) A distribution to the stockholders of the corporation except
at a rate or in a periodic amount or within a price range determined
by the Board; or
(vii) The appointment of other committees of the Board or the
members thereof.
Any such committee must be designated, and the members or alternate members
thereof appointed, by resolution adopted by all of the authorized number of
directors, and any such committee may be designated by such name as the Board
shall specify. The Board, acting through all of the authorized number of
directors, shall have the power to prescribe the manner in which proceeding of
any such committee shall be conducted. Unless the Board, acting through all of
the authorized number of directors, shall otherwise provide, the regular and
special meetings and other actions of any such committee shall be governed by
the provisions of this Article applicable to meetings and actions of the Board.
Minutes shall be kept of each meeting of each committee.
(b) There shall be an Executive Committee consisting of three (3) directors
who may exercise the authority of the Board to the extent permitted by law and
these Bylaws, and all actions of such Executive Committee shall be made only by
unanimous approval or consent of the members of such Committee.
Section 14. NUMBER. The authorized number of directors of the corporation
shall be six (6).
ARTICLE IV
ACTIONS REQUIRING UNANIMOUS APPROVAL
OR CONSENT OF BOARD OF DIRECTORS
The following actions of the corporation shall require the unanimous
approval or consent of all of the authorized number of directors:
(a) Amending, altering, modifying or repealing the corporation's Charter or
Bylaws.
(b) Increasing the annual compensation, bonus or benefits of the
corporation's officers, directors or key employees under written employment
contracts or amending such employment contracts.
(c) Changing the corporation's purpose or line of business activity.
(d) Adopting or changing the corporation's annual operating and capital
budget.
(e) Granting any license or disposing of any right or interest in any of
the
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corporation's intellectual property or amending or making any material filings
with the U.S. Patent and Trademark Office regarding any intellectual property
now or hereafter owned by the corporation.
(f) Merging, consolidating, reorganizing, recapitalizing, restructuring,
acquiring or selling (including a lease, mortgage or other disposition) any
assets of the corporation (other than non-intellectual property assets in the
ordinary course of business), dissolving, liquidating or engaging in any similar
transaction.
(g) Issuing or selling any of the corporation's securities, granting any
options, rights or warrants to acquire any of the corporation's securities or
instruments convertible into the corporation's securities, or making any filings
with federal or state securities regulators.
(h) Declaring or paying any dividend, distribution (by way of redemption or
otherwise), stock split, reverse stock split, repurchase of any of the
corporation's securities or similar transaction.
(i) Changing the corporation's banking, public accounting, or principal
outside legal counsel relationships, or the terms or insurer of its directors'
or officers' insurance, as currently in effect for the corporation and its
subsidiaries.
(j) Incurring any debt or effecting any borrowing, other than accruals,
accounts payable to vendors and leasing office equipment, in the normal course
of business.
(k) Entering into any transaction or commitment obligating the corporation
for more than $50,000 or to perform for a period longer than 12 months,
excluding confidentiality agreements.
(l) Otherwise engaging in any material transaction outside of the ordinary
course of business or day-to-day operations of the corporation.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a President,
a Secretary, and a Treasurer. The corporation may also have, at the discretion
of the Board, a Chairman of the Board, one or more Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
as may be elected or appointed in accordance with the provisions of Section 3 of
this Article.
Section 2. ELECTION. The officers of the corporation, appointed in
accordance with the provisions of Section 3 or Section 5 of this Article, shall
be chosen annually by, and shall serve at the pleasure of, the Board, and shall
hold their respective offices until their resignation, removal, or other
disqualification from service, or until their respective successors shall be
elected.
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Section 3. SUBORDINATE OFFICERS. The Board may elect, and may appoint, such
other officers as the business of the corporation may require, each of whom
shall hold office for such period, have such authority, and perform such duties
as are provided in these Bylaws or as the Board may from time to time determine.
Section 4. REMOVAL AND RESIGNATION. Any officer may be removed, either with
or without cause, by the Board at any time or, except in the case of an officer
chosen by the Board, by any officer upon whom such power of removal may be
conferred by the Board. Any such removal shall be without prejudice to the
rights, if any, of the officer under any contract of employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, but without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification, or any other cause shall be filled in
the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall
be such an officer, shall, if present, preside at all meetings of the Board and
stockholders and exercise and perform such other powers and duties as may be
from time to time assigned by the Board.
Section 7. PRESIDENT. Subject to such powers, if any, as may be given by
the Board to the Chairman of the Board, if there be such an officer, the
President is the chief executive officer of the corporation and has, subject to
the control of the Board, general supervision, direction, and control of the
business and affairs of the corporation. In the absence of the Chairman of the
Board, the President shall preside at all meetings of the stockholders and at
all meetings of the Board. The President has the general powers and duties of
management usually vested in the office of president of a corporation and such
other powers and duties as may be prescribed by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board or, if not
ranked, the Vice President designated by the Board, shall perform all the duties
of the President, and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the President. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board.
Section 9. SECRETARY. The Secretary shall keep or cause to be kept, at the
principal executive office and such other place as the Board may order, a book
of minutes of all
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meetings of stockholders, the Board, and its committees, with the time and place
of holding, whether regular or special and, if special, how authorized, the
notice thereof given, the names of those present at Board and committee
meetings, the number of shares present or represented at stockholders' meetings,
and the proceedings thereof. The Secretary shall keep, or cause to be kept, a
copy of the Bylaws of the corporation at the principal executive office or
business in accordance with Title 48, Chapters 11-27 of the Tennessee Business
Corporation Act.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, if one
be appointed, a share register, or a duplicate share register, showing the names
of the stockholders and their addresses, the number and classes of shares held
by each, the number and date of cancellation of every certificate surrendered
for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board and of any committees thereof required by
these Bylaws or by law to be given, shall keep the seal of the corporation in
safe custody, and shall have such other powers and perform such other duties as
may be prescribed by the Board.
Section 10. TREASURER. Unless the Board has elected or appointed another
person to be the corporation's chief financial officer, the Treasurer shall be
the chief financial officer of the corporation and shall keep and maintain, or
cause to be kept and maintained, adequate and correct accounts of the properties
and business transactions of the corporation, and shall send or cause to be sent
to the stockholders of the corporation such financial statements and reports as
are by law or these Bylaws required to be sent to them. The books of account
shall at all times be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be designated by
the Board. The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board, shall render to the President and directors, whenever they
request it, an account of all transactions as Treasurer and of the financial
condition of the corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE VI
INDEMNIFICATION
Section 1. INDEMNIFICATION IN ACTIONS BY THIRD PARTIES. The corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he or she is or was
a director or officer, of the corporation, or is or was serving at the request
of the corporation as a director, officer, partner, employee or agent of another
corporation,
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partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with the action,
suit or proceeding if he or she acted in good faith and in a manner which he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
or she reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he or
she had reasonable cause to believe that his or her conduct was unlawful.
Section 2. INDEMNIFICATION IN ACTIONS BY OR IN THE RIGHT OF THE
CORPORATION. The corporation shall indemnity any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and reasonably
incurred by him or her in connection with the defense or settlement of the
action or suit if he or she acted in good faith and in manner which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or
for amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that, in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 3. INDEMNIFICATION AGAINST EXPENSES. To the extent that a director,
officer, employee or agent of the corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in
Sections 1 or 2 of this Article, or in defense of any claim, issue or matter
therein, he or she must be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection with the defense.
Section 4. REQUIRED DETERMINATIONS. Any indemnification under Sections 1
and 2 of this Article, unless ordered by a court or advanced pursuant to Section
5 of this Article, must be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances. The determination must be made:
(a) By the stockholders;
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(b) By the Board of Directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal counsel
in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
Section 5. ADVANCE OF EXPENSES. Expenses of officers and directors incurred
in defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding, upon receipt of an undertaking by or on behalf of
the director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he or she is not entitled to be indemnified
by the corporation. The provisions of this Section 5 do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
Section 6. NONEXCLUSIVITY; CONTINUATION. The indemnification and
advancement of expenses authorized in or ordered by a court pursuant to this
Article VI:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the Charter or
any agreement, vote of stockholders or disinterested directors or otherwise, for
either an action in his or her official capacity or an action in another
capacity while holding his or her office, except that indemnification, unless
ordered by a court pursuant to Section 2 of this Article or for the advancement
of expenses made pursuant to Section 5 of the Article, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
or her acts or omissions involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director or officer and
inures to the benefit of the heirs, executors and administrators of such a
person.
Section 7. INSURANCE.
(a) The corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who 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, partner, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him or her and liability and expenses incurred by
him or her in his or her capacity as a director, officer, employee or agent, or
arising out of his or her status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses.
15
<PAGE>
(b) The other financial arrangements made by the corporation pursuant to
subsection (a) of this Section 7 may include the following:
(i) The creation of a trust fund.
(ii) The establishment of a program of self-insurance.
(iii) The securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the
corporation.
(iv) The establishment of a letter of credit, guaranty or surety.
No financial arrangement made pursuant to this subsection (b) of this
Section 7 may provide protection for any person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable for
intentional misconduct, fraud or a knowing violation of law, except with respect
to the advancement of expenses or indemnification ordered by a court.
(c) Any insurance or other financial arrangement made on behalf of a person
pursuant to this Section 7 may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation.
ARTICLE VII
MISCELLANEOUS
Section 1. INSPECTION OF BYLAWS. The corporation shall keep in its
principal executive office the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by stockholders at all reasonable times
during customary office hours. If the principal executive office of the
corporation is outside the State of Nevada and the corporation has no principal
business office in such state, it shall upon the written request of any
stockholder furnish to such stockholder a copy of these Bylaws as amended to
date.
Section 2. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the provisions
of applicable law, any note, mortgage, evidence of indebtedness, contract, share
certificate, conveyance, or other instrument in writing and any assignment or
endorsements thereof executed or entered into between the corporation and any
other person, when signed by the Chairman of the Board, the President or any
Vice President, and the Secretary, any Assistant Secretary, the Treasurer or any
Assistant Treasurer of the corporation shall be valid and binding on the
corporation in the absence of actual knowledge on the part of the other person
that the signing officers had no authority to execute the same. Any such
instruments may be signed by any other person or persons and in such manner as
from time to time shall be determined by the Board and, unless so authorized
16
<PAGE>
by the Board, no officer, agent, or employee shall have any power or authority
to bind the corporation by any contract or engagement or to pledge its credit or
to render it liable for any purpose or amount.
Section 3. CERTIFICATES OF STOCK. Every holder of shares of the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the Chairman of the Board, the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares and the class or series of shares owned by the
stockholder. Any or all of the signatures on the certificate may be facsimile.
If any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were an
officer, transfer agent, or registrar at the date of issue.
Except as provided in this Section, no new certificate for shares shall be
issued in lieu of an old one unless the latter is surrendered and cancelled at
the same time. The Board may, however, if any certificate for shares is alleged
to have been lost, stolen, or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft, or destruction of such
certificate or the issuance of such new certificate.
Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President or
any other officer or officers authorized by the Board or the President are each
authorized to vote, represent, and exercise on behalf of the corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person authorized
so to do by proxy or power of attorney duly executed by said officer.
Section 5. STOCK PURCHASE PLANS. The corporation may adopt and carry out a
stock purchase plan or agreement or stock option plan or agreement providing for
the issue and sale for such consideration as may be fixed of its unissued
shares, or of issued shares acquired or to be acquired, to one or more of the
employees or directors of the corporation or of a subsidiary or to a trustee on
their behalf and for the payment for such shares in installments or at one time,
and may provide for aiding any such persons in paying for such shares by
compensation for services rendered, promissory notes, or otherwise.
Any such stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, reservation of title until full payment therefor, the effect
of the termination of employment, an option or obligation on the part of the
corporation to repurchase the shares upon termination of employment,
restrictions upon transfer of the shares, the
17
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time limits of and termination of the plan, and any other matters, not in
violation of applicable law, as may be included in the plan as approved or
authorized by the Board or any committee of the Board.
Section 6. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction, and definitions
contained in the general provisions of Title 48, Chapters 11-27 of the Tennessee
Business Corporation Act shall govern the construction of these Bylaws.
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<PAGE>
EXHIBIT 9.1
<PAGE>
AMENDED AND RESTATED VOTING AGREEMENT
This Amended and Restated Voting Agreement ("Agreement") is entered into
as of the 17th day of June, 1998, by and among Eric A. Wachter, Ph.D.
("Wachter"), Craig Dees, Ph.D. ("Dees"), Walter G. Fisher, Ph.D. ("Fisher"),
Tim Scott, Ph.D. (individually and as General Partner of Scott Family
Investment Limited Partnership, a Delaware limited partnership, "Scott"),
John Smolik ("Smolik"), and Robert J. Weinstein, M.D. (individually, and as a
General Partner of W.F. Investments Enterprises, Limited Partnership, a
Georgia Limited partnership, "Weinstein") (individually, each a "Stockholder"
and collectively the "Stockholders"), and joined into by Photogen
Technologies, Inc. for purposes of Sections 1(c) and 1(d) herein. Wachter,
Dees, Fisher, Scott and Smolik are sometimes collectively referred to herein
as the "Tennessee Stockholders;" Weinstein is sometimes referred to herein as
the "Chicago Stockholder;" and the Chicago Stockholder or Tennessee
Stockholders are each sometimes referred to herein as a "Stockholder."
RECITALS
The Stockholders collectively own as of the date of this Agreement
approximately 75% of the issued and outstanding shares of common stock, $.001
par value per share (the "Common Stock"), of Photogen Technologies, Inc., a
Nevada corporation (the "Company"). The Company owns all of the issued and
outstanding shares of Photogen, Inc., a Tennessee corporation ("Subsidiary").
The shares of Common Stock together with all other capital stock or
securities of the Company, whether authorized or outstanding as of the date
hereof or at any time hereafter, are collectively referred to as the "Shares."
The Stockholders and Theodore Tannebaum ("Tannebaum"), Stuart P. Levine
("Levine") and Thomas B. Rosenberg ("Rosenberg") were parties to that certain
Voting Agreement dated May 16, 1997 (the "Original Agreement"). The parties
desire to amend the Original Agreement to reflect an increase in the number of
directors of the Company, to release the Shares of Tannebaum, Levine and
Rosenberg from the provisions of this Agreement, and to restate the Original
Agreement as set forth herein.
AGREEMENT
Now, therefore, in consideration of the mutual promises herein and other
consideration, the receipt and adequacy of which is acknowledged, the parties
hereby agree as follows:
<PAGE>
1. VOTING AGREEMENT
(a) The agreement in Section 1(b) shall be deemed to constitute a voting
agreement among the Stockholders pursuant to Section 78.365(3) of the Nevada
General Corporation Law. The agreement in Section 1(c) shall be deemed to
constitute an agreement among the parties hereto pursuant to Section
48-17-302 of the Tennessee Business Corporation Act. As used in this
Agreement, the definition and determination of a "Beneficial Owner" or
"Beneficial Ownership" shall be governed by Regulation 13d-3 under the
Securities Exchange Act of 1934, as amended. All percentages of stock
ownership in this Agreement shall be calculated on a fully-diluted basis.
(b) At each annual meeting of the stockholders of the Company, or at each
special meeting of the stockholders of the Company, and at any other time at
which stockholders of the Company will have the right to or will vote for or
render consent in writing, then and in each event, each Stockholder hereby
agrees to vote or cause to be voted all Shares of which he is the Beneficial
Owner in favor of the following actions to the extent any such actions are
subject to such vote or consent:
(i) To amend, alter, modify or repeal the Articles of Incorporation or
the By-Laws of the Company only in accordance with the unanimous
recommendation of all of the Directors of the Company (whether or not any
Board action is required by law);
(ii) To fix and maintain the number of directors of the Company at six
(6);
(iii) To cause and maintain the election to the Board of Directors of
the Company of the following: (A) four (4) persons nominated by the holders
of 80% of the aggregate Shares Beneficially Owned by the Tennessee
Stockholders; and (B) one (1) person nominated by the holder(s) of 80% of
the aggregate Shares Beneficially Owned by the Chicago Stockholder;
(iv) To remove from the Board of Directors of the Company any director
nominated by the Tennessee or Chicago Stockholder, as applicable pursuant
to paragraph 1(b)(iii) at the request of the Stockholder(s) nominating such
director; and
(v) To fix and maintain the Executive Committee of the Board of
Directors of the Company to consist of three (3) directors, two (2) of whom
shall be selected by the directors nominated by the Tennessee Stockholders
and one (1) of whom shall be selected by the director nominated by the
Chicago Stockholder.
(c) Company is agreeing for the benefit of the other parties hereto to act
in its capacity as stockholder of Subsidiary to the actions set forth in this
paragraph (c). At each annual meeting of the stockholder of the Subsidiary, or
at each special meeting of the stockholder of the Subsidiary, and at any other
time at which stockholder of the Subsidiary will have the right to or will vote
for or render consent in writing, then and in each event, the Company (as the
sole stockholder
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<PAGE>
of the Subsidiary) hereby agrees to vote or cause to be voted all voting
securities of the Subsidiary of which it is the Beneficial Owner in favor of the
following actions to the extent any such actions are subject to such vote or
consent:
(i) To amend, alter, modify or repeal the Articles of Incorporation or
the By- Laws of the Subsidiary only in accordance with the unanimous
recommendation of all of the Directors of the Subsidiary (whether or not
any Board action is required by law);
(ii) To fix and maintain the number of directors of the Subsidiary at
six (6);
(iii) To cause and maintain the election to the Board of Directors of
the Subsidiary of the following: (A) four (4) persons nominated by the
directors of the Company who were selected by the Tennessee Stockholders;
and (B) one (1) person nominated by the director of the Company who was
selected by the Chicago Stockholder;
(iv) To remove from the Board of Directors of the Subsidiary any
director nominated by the Tennessee or Chicago Stockholder, as applicable,
pursuant to paragraph 1(c)(iii) at the request of the Company directors or
director, as applicable, nominating such Subsidiary director; and
(v) To fix and maintain the Executive Committee of the Board of
Directors of the Subsidiary to consist of three (3) directors, two (2) of
whom shall be selected by the directors nominated by the Tennessee
Stockholders and one (1) of whom shall be selected by the director
nominated by the director of the Company who was selected by the Chicago
Stockholder.
(d) The Company or Subsidiary, as applicable, shall provide the
Stockholders entitled to nominate directors hereunder prior notice of any
intended mailing of notice to Stockholders for a meeting at which any of the
actions subject to paragraphs 1(b) or 1(c) are to be acted upon. Thereafter,
Stockholders (or Company directors with respect to nominations of Subsidiary
directors) entitled to nominate directors hereunder shall notify the Company or
the Subsidiary (as applicable) in writing, prior to such mailing, of the person
nominated by him or it to be a director; provided, that if such Stockholder (or
Company directors) fails to give notice to the Company or Subsidiary (as
applicable), it shall be deemed that the nominee of such party for such meeting
is the person then serving as director pursuant to such Stockholders' (or
Company directors') previous nomination.
2. NECESSARY ACTS; ADDITIONAL PARTIES. Each of the parties hereto agrees
that he or it will do (or cause to be done) any act or thing and will execute
(or cause to be executed) any and all instruments necessary and/or proper to
make effective the provisions of this Agreement. Each Stockholder represents and
warrants to, and agrees with, each other party hereto that (a) any transferee
holding Shares over which such Stockholder remains the Beneficial Owner shall
execute
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<PAGE>
and deliver a counterpart of this Agreement and shall be bound by the provisions
hereof as if such transferee was an original party hereto; and (b) such
Stockholder shall provide each other party hereto true and complete information
concerning the Beneficial Ownership of Shares in the hands of transferees.
3. LEGEND ON STOCK CERTIFICATE. Each certificate representing Shares
covered by this Agreement is subject to and shall bear the restrictive legend
set forth below:
The voting of shares of stock evidenced by this certificate is subject to a
Voting Agreement dated as of May 16, 1997, as amended from time to time.
Copies of the Agreement may be obtained from the Secretary of the Company
at no cost by written request of the holder of record of this certificate.
4. GENERAL PROVISIONS.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their legal representatives, heirs and legatees.
(b) The section headings in this Agreement are inserted for convenience of
reference only, and shall not affect the construction or interpretation of this
Agreement.
(c) The failure at any time to enforce any of the provisions of this
Agreement shall not be construed as a waiver of such provisions and shall not
affect the right of any party thereafter to enforce each and every provision of
this Agreement in accordance with its terms.
(d) This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois without giving effect to conflict of laws
principles thereof, except to the extent the Nevada General Corporation Law and
the Tennessee Business Corporation Law govern portions hereof.
(e) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original and shall be enforceable against the
party executing the same, and all of which together shall constitute a single
Agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one such counterpart.
(f) Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be held to be invalid by a court of
competent jurisdiction, the remaining provisions shall remain in full force and
effect and the provision held invalid shall be modified to the extent necessary
to be valid and shall be enforced as modified.
(g) Any notice to be served under this Agreement shall be in writing and
shall be deemed to be delivered or given upon receipt if delivered personally,
by overnight courier or by
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<PAGE>
telecopier, or two days after mailing by registered mail, return receipt
requested, addressed as follows:
IF TO THE COMPANY:
Photogen Technologies, Inc.
To its then current address
Attention: John Smolik
IF TO ANY STOCKHOLDER:
To such Stockholder's address on file in the
stock records of the Company
or to such other place as a party may specify in writing, delivered in
accordance with the provisions of this subsection.
(h) This Agreement constitutes the full and entire understanding and
agreement of the parties with regard to the subject hereof, and supersedes any
prior agreement or understanding, written or oral, with respect to such subject
matter. No party shall be liable or bound by any representations, warranties or
agreements, or any other information or materials previously delivered, whether
written or oral, regarding such subject matter.
5. AMENDMENT; TERMINATION. This Agreement may be modified or amended in any
respect upon the written approval of the holders of 90% of the Shares, and as so
modified or amended, this shall continue to bind all Stockholders regardless of
whether they consented to such modification or amendment. This Agreement shall
terminate upon the earliest to occur of the following: (i) the written approval
of the termination executed by holders of 90% or more of the Shares; (ii) the
Stockholders collectively cease to own an aggregate of 20% of the issued and
outstanding voting securities of the Company; (iii) the merger of the Company
with another company in which the Company is not the survivor or the sale of all
or substantially all of the Company's assets; or (vii) the 15th anniversary of
the date of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
/s/ Eric A. Wachter
-----------------------------------------
Eric A. Wachter, Ph.D.
/s/ Craig Dees
-----------------------------------------
Craig Dees, Ph.D.
/s/ Walter G. Fisher
-----------------------------------------
Walter G. Fisher, Ph.D.
/s/ Tim Scott
-----------------------------------------
Tim Scott, Ph.D., individually and as
General Partner of the Scott Family
Investment Limited Partnership, a
Delaware limited partnership
/s/ John Smolik
-----------------------------------------
John Smolik
/s/ Robert J. Weinstein
-----------------------------------------
Robert J. Weinstein, M.D., individually
and as a General Partner of W.F.
Investments Enterprises, Limited
Partnership
Joined into by for purposes of Sections 1(c) and 1(d) herein.
Photogen Technologies, Inc.
By: /s/ John Smolik
-------------------------------------
Its: President
-------------------------------------
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<PAGE>
EXHIBIT 10.7
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
NON-QUALIFIED STOCK OPTION AWARD AGREEMENT
THIS AWARD AGREEMENT is made as of the [ ] day of [ ], [ ],
by and between Photogen Technologies, Inc., a Nevada corporation (the
"Company"), and [ ] (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company, through its Compensation Committee (the
"Committee"), desires to grant to the Optionee a non-qualified stock option
pursuant to its 1998 Long Term Incentive Compensation Plan (the "Plan") to
purchase shares of the Company's common stock, par value $.001 per share (the
"Common Stock"), in connection with the appointment of the Optionee as a
member of the [Board of Directors] [Scientific Advisory Council] of the
Company (the ["Board of Directors"] ["Scientific Advisory Council"]).
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. GRANT OF OPTION AND TAX CONSEQUENCES. Subject to the terms and
conditions of this Agreement and the Plan, a copy of which has been delivered to
the Optionee, the Company hereby grants to the Optionee the right and option to
purchase from the Company all or part of an aggregate of [ ] shares of
Common Stock. This option is not intended to qualify as an incentive stock
option within the meaning of Section 422A of the Internal Revenue Code of 1986,
as amended, but rather as a Non-Qualified Stock Option pursuant to Section 6.3
of the Plan. Upon exercise, the difference between the fair market value of the
Common Stock on the date of exercise and the option price may subject the
Optionee to Federal and State income tax liability. Optionee should seek advice
form his or her tax advisor.
2. OPTION PRICE AND TIME OF EXERCISE. The per share exercise price at which
the shares subject to option may be purchased by Optionee shall be $[ ],
which price equals the closing sale price on [ ] of the Common Stock
as reported by the National Association of Securities Dealers in the
over-the-counter "bulletin board", the date of grant of this option. The
Optionee's right to exercise this option shall be as follows:
20% of the total number of shares covered by the option beginning on
[first anniversary of grant];
40% of the total number of shares covered by the option beginning on
[second anniversary of grant];
60% of the total number of shares covered by the option beginning
[third anniversary of grant];
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<PAGE>
80% of the total number of shares covered by the option beginning on
[fourth anniversary of grant];
100% of the total number of shares covered by the option beginning on
[fifth anniversary of grant]
The right to exercise this option shall in all events expire, except as provided
in paragraph 5 below, at the close of business on [tenth anniversary of grant].
The Optionee's right to exercise this option shall be accelerated as provided in
paragraph 9 below and as may be provided by action of the Committee.
3. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This option shall be
exercised by written notice directed to the Company at its principal office,
specifying the number of shares to be acquired upon such exercise and indicating
that the exercise is being paid for (i) in cash or (ii) if applicable, by a
commitment by a broker-dealer to pay to the Company that portion of any sale
proceeds receivable by the Optionee upon the exercise of the option and sale of
underlying shares.
4. NON TRANSFERABILITY. This option is not transferable by the Optionee
except as otherwise provided in Paragraph 5 below, and during the Optionee's
lifetime is exercisable only by the Optionee.
5. EXERCISE AFTER TERMINATION OF MEMBERSHIP ON THE [BOARD OF DIRECTORS]
[Scientific Advisory Council]. In the event of termination of the Optionee's
membership on the [Board of Directors] [Scientific Advisory Council] other
than by reason of the death of the Optionee, this option shall expire ninety
(90) days after such termination, but in no event after the expiration date
of the option. In the event of the termination of the Optionee's membership
on the [Board of Directors] [Scientific Advisory Council] by reason of the
death of the Optionee, this option shall be exercisable by the Optionee's
legal representative at any time within one year after death, but in no event
after the expiration date of the option.
6. ADJUSTMENT. If there shall be any change in the corporate capitalization
of the Company as contemplated in Section 4.2 of the Plan, appropriate and
equitable adjustments shall be made in the aggregate number and kind of shares
or other securities subject to this option and in the purchase price of this
option to reflect such change.
7. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This option and all rights
hereunder shall be non-assignable and non-transferable other than by will or the
laws of descent and distribution and shall be exercisable during the Optionee's
lifetime only by the Optionee or the Optionee's guardian or legal
representative.
8. LIMITATION OF RIGHTS.
(a) No Right to Continue as a [Director] [Member]. This option
shall not constitute or be evidence of any agreement or understanding,
express or implied, that the Optionee has a right to continue as a member of
the Company's [Board of Directors] [Scientific Advisory Council] for any
period of time.
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<PAGE>
(b) No Stockholder's Rights for Options. The Optionee shall have no
rights as a stockholder with respect to the shares covered by this option until
the date of the issuance of a stock certificate therefor, and no adjustment will
be made for any dividends or other rights for which the record date is prior to
the date such certificate is issued.
9. CHANGE OF CONTROL. Upon the occurrence of a Change of Control as defined
in the Plan, all of the Options hereunder shall become immediately exercisable
as provided in Section 10.1 of the Plan.
10. STOCK LEGEND. The Optionee hereby represents and warrants to the
Company that upon exercise of any portion of the Option hereunder that the
Optionee will be acquiring such shares for his or her own account, for
investment and not with a view to, or for the sale in connection with, the
distribution of any such shares. The Optionee hereby agrees that the following
legend shall be endorsed upon the certificates evidencing the Optionee's shares
issued pursuant to the exercise of this Option:
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under state securities laws to the extent applicable. The
shares may not be sold, offered for sale, or otherwise
transferred in the absence of an effective registration
statement under said Act (and any registration or
qualification as may be required under such state laws) or an
opinion of counsel satisfactory to the Company and its counsel
that such registration or qualification is not required.
11. RECEIPT OF PLAN. The Optionee acknowledges that he or she has received
and reviewed a copy of the Company's Plan and acknowledges that this Award
Agreement is subject to all the terms and provisions of the Plan which are
applicable to Non-Qualified Stock Options.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its President, and the Optionee has affixed his or her signature hereto on the
date set forth above.
-----------------------------------
[ ], Optionee
Photogen Technologies, Inc.
By:
--------------------------------
John T. Smolik, President
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<PAGE>
EXHIBIT 10.8
<PAGE>
PHOTOGEN TECHNOLOGIES, INC.
INCENTIVE STOCK OPTION AWARD AGREEMENT
THIS AWARD AGREEMENT ("Agreement") is made effective as of [ ],
[ ], by and between Photogen Technologies, Inc., a Nevada corporation (the
"Company"), and [ ] (the "Optionee").
W I T N E S E T H:
WHEREAS, the Company, through its Compensation Committee (the "Committee"),
desires to grant to the Optionee an incentive stock option pursuant to its 1998
Long Term Incentive Compensation Plan (the "Plan") to purchase shares of the
Company's common stock, par value $.001 per share (the "Common Stock").
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
1. GRANT OF OPTION AND TAX CONSEQUENCES. Subject to the terms and
conditions of this Agreement and the Plan, a copy of which has been delivered to
the Optionee, the Company hereby grants to the Optionee the right and option to
purchase from the Company all or part of an aggregate of [ ] shares of
Common Stock (the "Option"). The per share exercise price at which the shares
subject to Option may be purchased by Optionee shall be [$ ], which price
equals the closing sale price of the Common Stock as reported by the National
Association of Securities Dealers in the over-the-counter "bulletin board" the
date of grant of this Option. This Option is intended to qualify as an Incentive
Stock Option within the meaning of Section 422A of the Internal Revenue Code of
1986, as amended (the "Code"). Optionee should seek advice from his or her tax
advisor concerning the Federal and State income tax consequences of the Options
and disposition of the Common Stock following exercise.
2. TIME OF EXERCISE. The Optionee's right to exercise this Option shall be
as follows:
20% of the total number of shares covered by the Option
beginning on the first anniversary date of this Agreement;
40% of the total number of shares covered by the Option
beginning on the second anniversary date of this Agreement;
60% of the total number of shares covered by the Option
beginning on the third anniversary date of this Agreement;
80% of the total number of shares covered by the Option
beginning on the fourth anniversary date of this Agreement;
100% of the total number of shares covered by the Option
beginning on the fifth anniversary date of this Agreement.
<PAGE>
The right to exercise this Option shall in all events expire at the close of
business on [ ], unless such right expires and terminates sooner in
accordance with this Agreement and the Plan. The Optionee's right to exercise
this Option shall be accelerated as provided in paragraph 9 below and as may be
provided by action of the Committee.
3. ISO PROVISIONS.
(a) Optionee represents and warrants to the Company that Optionee does
not own, directly or by reason of the applicable attribution rules in Code
Section 424(d) and related Treasury Regulations, more than 10% of the total
combined voting power of all classes of share capital of the Company or an
Affiliate.
(b) Notwithstanding anything in this Agreement or otherwise to the
contrary, the amount of Options which may be exercisable in any calendar year
(under this or any other Incentive Stock Option plan of the Company or an
Affiliate) shall be limited so that the aggregate Fair Market Value (determined
at the time each Incentive Stock Option is granted) of the stock with respect to
which Incentive Stock Options are exercisable for the first time by the Optionee
in any calendar year does not exceed $100,000.
(c) Optionee agrees to notify the Company in writing immediately after
Optionee makes a Disqualifying Disposition of any shares acquired pursuant to
the exercise of the Option. A "Disqualifying Disposition" is any disposition
(including any sale) of such shares before the later of (i) two years after the
date the Optionee was granted the Option hereunder, or (ii) one year after the
date the Optionee acquired shares by exercising any part of the Option. If the
Participant has died before such stock is sold, these holding period
requirements do not apply and no Disqualifying Disposition can occur thereafter.
4. METHOD OF EXERCISE AND PAYMENT FOR SHARES. This Option shall be
exercised by written notice directed to the Company at its principal office,
specifying the number of shares to be acquired upon such exercise and indicating
that the exercise is being paid for (i) in cash or (ii) if applicable, by a
commitment by a broker-dealer to pay to the Company that portion of any sale
proceeds receivable by the Optionee upon the exercise of the Option and sale of
underlying shares. Full payment for the shares to be purchased on exercise shall
accompany the notice.
5. TERMINATION OF OPTION. The Option, to the extent it has not been
previously exercised, shall terminate upon the earliest to occur of: (a) the
expiration of the Option period set forth in Section 2, above; (b) the
expiration of three months following the Optionee's Retirement; (c) the
expiration of 12 months following the Optionee's death or Disability; (d)
immediately upon termination of Optionee's employment for Cause; or (e) the
expiration of 90 days following the termination of Optionee's employment for
any reason other than Cause, Change in Control, death, Disability, or
Retirement. Upon a termination of employment related to a Change in Control,
Options shall be treated in the manner set forth in Section 10 of the Plan.
-2-
<PAGE>
6. ADJUSTMENT. The Committee shall make adjustments to the aggregate number
and kind of shares or other securities subject to this Option and in the
purchase price of this Option to reflect any change in the capitalization of the
Company as contemplated in Section 4.2 of the Plan.
7. OPTION NON-ASSIGNABLE AND NON-TRANSFERABLE. This Option and all rights
hereunder shall be non-assignable and non-transferable other than by will or the
laws of descent and distribution and shall be exercisable during the Optionee's
lifetime only by the Optionee or the Optionee's guardian or legal
representative.
8. LIMITATION OF RIGHTS.
(a) No Rights as an Employee. Nothing in this Agreement or the Plan
shall be deemed to: create or affect any contract of employment between the
Optionee and Company or an Affiliate; prevent the Company or an Affiliate from
terminating Optionee's employment; give Optionee a right to be retained in
employment by the Company or any Affiliate for any period of time; confer on any
person any right to be selected as a Participant under the Plan or the right to
any other compensation, remuneration or benefits (except to the extent expressly
set forth in this Agreement).
(b) No Rights as a Stockholder. The Optionee shall have no rights as a
stockholder with respect to the shares covered by this Option until the date the
Optionee tenders full payment of the exercise price for the portion of the
Option being exercised and the issuance of a stock certificate therefor, and no
adjustment will be made for any dividends or other rights for which the record
date is prior to the date such certificate is issued.
9. CHANGE OF CONTROL. Upon the occurrence of a Change of Control as defined
in the Plan, all of the Options shall become immediately exercisable as provided
in Section 10.1 of the Plan.
10. STOCK LEGEND. The Optionee hereby represents and warrants to the
Company that upon exercise of any portion of the Option hereunder that the
Optionee will be acquiring such shares for his or her own account, for
investment and not with a view to, or for the sale in connection with, the
distribution of any such shares. The Optionee hereby agrees that the following
legend shall be endorsed upon the certificates evidencing the Optionee's shares
issued pursuant to the exercise of this Option:
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under state securities laws to the extent applicable. The
shares may not be sold, offered for sale, or otherwise
transferred in the absence of an effective registration
statement under said Act (and any registration or
qualification as may be required under such state laws) or an
opinion of counsel satisfactory to the Company and its counsel
that such registration or qualification is not required.
-3-
<PAGE>
11. PLAN GOVERNS. The Optionee acknowledges that he or she has received and
reviewed a copy of the Company's Plan and acknowledges that the Award and this
Agreement are subject to all the terms and provisions of the Plan which are
applicable to Incentive Stock Options. All capitalized terms not otherwise
defined in this Agreement shall have the meanings given to them in the Plan. In
the event of any inconsistency between the term of this Agreement and the Plan,
the terms of the Plan (all of which are incorporated in this Agreement by
reference) shall prevail.
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed by
its President, and the Optionee has affixed his or her signature hereto on the
date set forth above.
----------------------------------
[ ], Optionee
Photogen Technologies, Inc.
By:
-------------------------------
John T. Smolik, President
-4-
<PAGE>
EXHIBIT 10.11
<PAGE>
RESEARCH AGREEMENT
THIS RESEARCH AGREEMENT ("Agreement") is made effective as of November 6,
1998 by and between Photogen, Inc., a Tennessee corporation with offices in
Knoxville, Tennessee (hereinafter referred to as "Sponsor"), and The
Massachusetts Eye and Ear Infirmary, with offices at 243 Charles St. in Boston,
Massachusetts 02114 (hereinafter referred to as "MEEI"). Sponsor and MEEI are
collectively referred to as the "Parties."
WITNESSETH:
WHEREAS, the research project contemplated by this Agreement is of mutual
interest and benefit to the Sponsor and MEEI, and will further the
instructional, medical, and research objectives of MEEI and the research and
development objectives of the Sponsor.
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
1. THE PROJECT. MEEI agrees to use its best efforts to perform in a timely and
expeditious manner the research project entitled "Evaluation of
multi-photon excitation (MPE) of Endogenous chemical compounds for the
treatment of ocular melanoma" (the "Project"). The Project will be
conducted under the direction of Lucy H. Young, M.D., Ph.D. ("Principal
Investigator") pursuant to the terms of the protocol dated November 6, 1998
between the Sponsor and MEEI which has been separately delivered and
acknowledged by the Parties (the "Protocol"). MEEI shall provide personnel
(who, together with the Principal Investigator, are referred to as the
"Investigators"), facilities, and resources as required to accomplish the
work necessary to complete the Project in accordance with the Protocol. The
Project shall be limited to the scope described in the Protocol.
2. TERM. The term of this Agreement and the Project shall be for nine months,
from November 6, 1998 through August 6, 1999, or, as extended by mutual
written agreement, unless sooner terminated in accordance with the terms
hereof.
3. PAYMENT. The total cost to the Sponsor for the Project will not exceed
$145,000 for the work described in the Protocol. The cost for subsequent
work pursuant to other protocols or consulting, including but not limited
to, the design of clinical trials and work with regulatory agencies will be
agreed upon by the Parties and covered by a separate agreement. Delays
caused by third party actions
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<PAGE>
may alter the following payment schedule as mutually agreed upon in writing
by the Parties. Payments during the Project shall be made to MEEI by the
Sponsor according to the following schedule:
<TABLE>
<CAPTION>
AMOUNT DATE
<S> <C>
$40,000 November 6, 1998
$40,000 February 6, 1998
$40,000 May 6, 1998
$25,000 August 6, 1998
</TABLE>
Checks shall be made payable to:
Massachusetts Eye and Ear Infirmary
and shall be mailed to the following address:
Director, Research Administration
Massachusetts Eye and Ear Infirmary
243 Charles Street
Boston, MA 02114
All funds provided by Sponsor under this Agreement may be used at the
discretion of MEEI in support of the work for the Project. Any changes to
the above payment schedule must be agreed to in writing by the Parties.
4. TERMINATION. This Agreement and the Project may be terminated as set forth
below, in which case Sponsor's payment obligations will be adjusted through
the date of termination:
a. In the event that either Party defaults in the due performance of its
respective obligations under this Agreement, or in the event that any
representation or warranty by either Party in this Agreement or in the
documentation or data produced through the Project proves to be
materially false or misleading, and such default or breach is not
cured within thirty (30) days after written notice by the other Party,
then the non-defaulting Party may elect to terminate the Project and
this Agreement by
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<PAGE>
giving written notice to the defaulting Party, and this Agreement
shall terminate upon the defaulting Party's receipt of said notice.
b. MEEI shall promptly advise Sponsor if for any reason Dr. Young cannot
be available as the Principal Investigator. If the Parties cannot
agree on a qualified scientist as a replacement, Sponsor may terminate
the Project and this Agreement on the 30th (thirtieth) day after
delivery of written notice to MEEI.
c. Notwithstanding anything in this Agreement to the contrary, either
Party may terminate this Agreement, with or without cause and without
liability, on 90 (ninety) days' prior written notice to the other
Party; in which event this Agreement and the Project shall terminate
on the 90th (ninetieth) day after delivery of such notice. The payment
schedule shall be adjusted to reflect work completed up to the
termination date.
d. The Parties recognize that the results of any particular research
project cannot be guaranteed even through the use of MEEI's best
efforts. Further, MEEI shall not be held responsible for delays due to
third party suppliers. Therefore, it is specifically agreed that the
failure of MEEI to achieve specific research results shall not
constitute a default or breach of this Agreement. Further, the Parties
agree that obligations under Sections 5, 6, 7, 9, 10, 12, 13, 14 and
19 survive any termination of this Agreement or the Project.
5. EQUIPMENT. Title to any equipment purchased or manufactured by MEEI in the
course of the research conducted under this Agreement or with the use of
funds provided by Sponsor shall vest in MEEI.
6. PROPRIETARY INFORMATION OF THE PARTIES.
a. MEEI and Sponsor recognize that the conduct of the Project may require
the exchange of proprietary information, identified as such in
writing, including Inventions (as defined in Section 13.a below) and
other confidential business, technical and scientific information,
between the Parties. Accordingly, it is agreed that each receiving
Party shall retain in confidence all proprietary information of the
other Party and shall not disclose such information to any other
person or entity, nor use such information without written permission
of the Party owning such information, except in accordance with the
terms of this Agreement.
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<PAGE>
b. The term "proprietary information" as used herein shall not include
any information which the recipient clearly shows by appropriate
documentation:
(1) Was at the time of receipt both lawfully and independently known
to the receiving Party, its agents, or employees;
(2) Without breach of this Agreement by the receiving Party has been
published or is otherwise within the public knowledge or is
generally known to the public at the time of disclosure;
(3) Becomes known or available to the receiving Party without
restriction from a source other than the disclosing Party,
provided that such source has an unqualified right to disclose
such information without restriction;
(4) Becomes a part of the public domain after disclosure without
breach of this Agreement by the receiving Party; or
(5) Is required by law to be disclosed, in which case the receiving
Party will give the disclosing Party prompt written notice of the
required disclosure. The disclosing Party may, in good faith and
at its own expense, contest disclosure or seek confidential
treatment and the receiving Party shall cooperate with the
disclosing Party in all reasonable respects.
7. PUBLICATION.
a. The Project studies may be worthy of written or oral publication in
scholarly journals or at meetings. Such presentation or publication
shall be jointly authored by the Principal Investigator and Sponsor's
scientists in accordance with their respective scientific
contributions to the Project, if applicable (otherwise, by the
originating person). Prior to publication, each Party will give the
other the opportunity to review and comment on any intended public
disclosure covering the Project, but in no event shall such
publication be permitted without the express written approval of the
Party from which the results originated.
4
<PAGE>
b. In order to give Sponsor an opportunity to protect against loss of
confidentiality or patent rights as a result of publication, the
Principal Investigator and/or MEEI shall submit copies of drafts of
any article, or presentation on the research written by any
Investigator resulting from work on this Project to Sponsor for review
and comment at least thirty (30) days and in the case of abstracts
seven (7) business days prior to the anticipated date of submission
for publication or presentation. If Sponsor, in its reasonable
judgment, determines that it needs additional time to seek patent
protection for the information, then MEEI and the Investigators, as
the case may be, agree to defer the submission for publication for an
additional period as determined by written advice of Sponsor's patent
counsel; provided that MEEI's patent counsel agrees, which agreement
shall not be unreasonably withheld. The person seeking to publish the
material shall make appropriate changes in such material to reflect
the Parties' reasonable comments concerning patent protection and
non-disclosure of Trade Secrets (defined below).
8. INDEPENDENT CONTRACTOR. The Parties' relationship to one another in the
performance of this Agreement is that of independent contractors. The
Parties are not employees or agents of one another. Neither Party shall
have the authority to bind or incur liability for the other except as may
be expressly authorized in writing.
9. INDEMNIFICATION.
a. Sponsor will defend, indemnify, and hold harmless MEEI and its
trustees, employees and staff against any and all actions, suits,
claims, demands or prosecutions that may be brought or instituted
against MEEI and/or its trustees, employees and staff based on or
arising out of the manufacture, use, sale or other distribution of any
product of Sponsor (or its affiliates or licensees) resulting from the
Project, except to the extent any such action, suit, claim, demand or
prosecution is based on the negligence or willful misconduct of MEEI
and/or its trustees, employees or staff.
b. MEEI will defend, indemnify and hold harmless Sponsor and its
directors, employees and representatives from and against all actions,
suits, claims, demands or prosecutions that may be brought or
instituted against any of them based on the negligence or willful
misconduct of MEEI and/or its trustees, employees or staff.
5
<PAGE>
10 NEGATION OF WARRANTIES BY MEEI. Although MEEI will use its best efforts in
connection with the Project as set forth in Section 1 of this Agreement,
MEEI makes no warranties, either expressed or implied, as to the result of
such research or the merchantability or fitness for a particular purpose of
the research or any product arising out of the Project. MEEI shall not be
liable for any direct, consequential, or other damages suffered by the
Sponsor or others which may result from the use of any product arising out
of the Project (except to the extent set forth in Section 9, above).
11. KEY PERSONNEL. Lucy H. Young, M.D., Ph.D., Principal Investigator, is
considered to be essential to the Project. Substitutions for or substantial
changes in her level effort or participation will not be made without the
prior written approval of Sponsor. Each Party will obtain agreements from
its employees, independent contractors, consultants and similar persons
causing such third parties to be bound by the provisions of Sections 6, 7,
12 and 13 hereof.
12. INTELLECTUAL PROPERTY RIGHTS OF THE PARTIES. Neither Party shall have any
claim by virtue of this Agreement or the Project to any right, title or
interest in any Invention, Trade Secret or Patent Rights (defined below) or
any other intellectual property rights issued to, owned or controlled by
the other Party (a) prior to the date hereof, or (b) after the date hereof
except a New Invention, Trade Secrets or Patent Rights arising out of the
Project and as specifically set forth in Section 13 below.
13. INVENTIONS AND PATENT RIGHTS.
a. The term "Invention" means a patentable discovery or invention,
including processes, methods, formulas and technologies. The term
"Trade Secret" means non-patented trade secrets, know-how,
compositions, protocols, processes and techniques, discoveries,
machines, ideas, computer programs (including software and data used
in all such programs), drawings, specifications and technical
information. The term "Patent Rights" means patent applications and
patent disclosures related to an Invention, together with all letters
patent, reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof.
b. Inventions, related Patent Rights and Trade Secrets arising directly
from work on this Project during the term of this Agreement and for a
period of 12 months thereafter shall be owned as follows:
6
<PAGE>
(1) MEEI will own all such Inventions or Trade Secrets it, the
Principal Investigator or any other Investigator independently
conceives (a "MEEI Invention") and all related Patent Rights,
subject to the license if Sponsor exercises its option described
in paragraph 13.f below;
(2) MEEI and Sponsor will jointly own all such Inventions jointly
conceived by MEEI, or the Principal Investigator or any other
Investigator together with Sponsor (a "Joint Invention") and all
related Patent Rights, subject to the license if Sponsor
exercises its option described in paragraph 13.f below; and
(3) Sponsor will own (A) all Inventions and Trade Secrets Sponsor
independently conceives and all related Patent Rights, and (B)
all MEEI or Joint Inventions and related Patent Rights, described
in the foregoing clauses (1) or (2), as to which MEEI declines to
prosecute a patent application in accordance with paragraph (d),
below (collectively, a "Sponsor Invention").
(4) All Trade Secrets, arising from work on this Project, related to
a MEEI Invention or a Joint Invention shall be subject to the
license if Sponsor exercises its option described in paragraph
13.f below.
c. With respect to MEEI Inventions and related Trade Secrets, MEEI will
cause all Investigators to report such Invention and related Trade
Secrets and assign all of their right, title and interest therein to
MEEI; with respect to Joint Inventions and related Trade Secrets, the
Sponsor will cause its personnel and MEEI will cause each Investigator
to report such Invention and related Trade Secrets and assign all of
their right, title and interest therein to Sponsor and MEEI jointly;
and with respect to Sponsor Inventions and related Trade Secrets, all
Investigators shall report such Invention and related Trade Secrets
and assign all of their right, title and interest therein (if any) to
Sponsor. Sponsor and MEEI shall promptly advise the other in writing
of each MEEI Invention or Joint Invention and related Trade Secrets
and shall cause their Investigators and personnel, as applicable, to
maintain current and reasonably detailed records as to possible MEEI
and Joint Inventions and Trade Secrets, which shall be open to
inspection by the other Party. The Parties shall discuss for up to 90
days whether patent applications pertaining to such MEEI or Joint
Invention should be filed and in which countries. All of the foregoing
shall constitute proprietary information subject to Section 6, above.
7
<PAGE>
d. If either Party determines that patent applications should be filed,
patent applications relating to MEEI Inventions shall be filed by MEEI
and patent applications relating to Joint Inventions shall be filed as
agreed upon by the Parties. If within 90 days after the date on which
such an Invention was disclosed by one Party to the other Party, one
Party states in writing that it is not interested in filing patent
applications on either an MEEI Invention or a Joint Invention or fails
to state in writing that it desires to file patent applications (a
"declining Party") and the other Party (a "prosecuting Party") is
interested in filing such applications, the declining Party, if the
Sponsor, shall assign all of its Patent Rights in such Invention to
the prosecuting Party and the prosecuting Party shall be free to file
and prosecute, all Patent Rights in the Invention in the name of the
appropriate inventor, for its own account (including the right to
license the same to any third party) and at its own expense. If the
declining Party is MEEI, then MEEI agrees to file and prosecute at
Sponsor expense, all patent rights in the Invention in the name of the
appropriate Inventor for its own account, subject, however, to
providing Sponsor with the option to obtain a license as contemplated
in Section 13.f below. All prosecution costs pertaining to patent
applications covering an MEEI or Joint Invention that are filed by
mutual agreement of the Parties or by MEEI when it is the declining
Party (including preparation, filing, prosecution, issuance and
maintenance costs) shall be borne by Sponsor, and Sponsor shall have
the right to select patent counsel.
e. The Parties agree to cooperate and work together in good faith to
effect the provisions of this Section 13. Each Party agrees to take
such actions as may be necessary to effect the provisions of this
Section 13.
f. As to all Patent Rights relating to a MEEI Invention or a Joint
Invention, MEEI hereby grants Sponsor for the twelve (12) months next
following the first filing of patent applications in any jurisdiction
relating to such Invention the irrevocable first option to obtain a
license. Upon exercise of this option, the parties shall negotiate in
good faith a license agreement containing terms that are commercially
reasonable, such license to include, but not be limited to the
following:
(1) Sponsor shall have a world-wide, exclusive (subject only to
paragraph (h) below), royalty-bearing license granting Sponsor
the right to use the Invention, to design, make, have made,
market lease, offer for sale, sell and/or distribute products
embodying or
8
<PAGE>
produced through the use of the Invention, itself or through
third parties by way of sublicense, and in all other respects to
use, sublicense, and commercialize the Invention and any such
product under all Patent Rights. Pursuant to such license,
Sponsor shall use reasonable efforts to commercialize such
products and will be free to design the products, and select
pricing and marketing methods in its discretion; but Sponsor
makes no representation, warranty or covenant as to whether any
such product can be developed, manufactured or sold, or as to the
revenues, if any, resulting from sales.
(2) Sponsor shall pay MEEI a reasonable licensing fee, and a
reasonable royalty of an amount not less than $10,000 per year.
(3) Sponsor will defend all challenges to Patent Rights and MEEI will
cooperate with Sponsor in that regard.
(4) Sponsor may abandon the license at any time by express written
notice to MEEI, in which case all rights will revert back to MEEI
and all license and royalty obligations on Sponsor shall
terminate.
(5) Product liability indemnification and insurance requirements
which are reasonably acceptable to MEEI's liability insurance
carrier.
(6) In addition to the foregoing, any other commercially reasonable
terms standard for agreements between universities and industry
not inconsistent with the foregoing.
Sponsor may exercise this option by giving written notice of exercise
to MEEI during said twelve-month period. Thereafter, MEEI and Sponsor
each agree to negotiate in good faith and to enter into a license
agreement incorporating the foregoing terms within six (6) months
after notice of exercise. If Sponsor elects not to give written notice
of exercise during such 12-month period (but not otherwise), MEEI may
grant a license to such Invention and Patent Rights to any other
person or entity.
g. MEEI represents and warrants that MEEI is not now and will not in the
future be prohibited or prevented from granting such a license to
Sponsor pursuant to the terms of Section 13.f above.
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<PAGE>
h. It is understood that MEEI will reserve the right beyond rights
described above in Sections 13.a to and including 13.g to use any
MEEI Invention or Joint Invention only for research, clinical and
educational purposes, and that if federal funding supports the
Invention, Sponsor's license will be subject to the rights, conditions
and limitations imposed by U.S. law including without limitation the
royalty-free non-exclusive license granted to the U.S. government (see
35 USC sec. 202 et. seq. and regulations pertaining thereto). MEEI
represents, warrants and agrees with Sponsor that no federal funds
will be used to support the Project without providing Sponsor with one
hundred twenty (120) days prior written notice.
14. DATA. The original data generated as a result of the Project shall be
retained or under the control of MEEI; however, copies shall be provided to
Sponsor promptly, and Sponsor may use such data as it deems advisable,
including for purposes of publication, presentation to the scientific
community, seeking regulatory approvals or for any other purposes. However,
this provision shall not be interpreted to restrict MEEI's publication
rights under Section 7 of this Agreement. The Principal Investigator shall
report to the Sponsor every 90 days on the status and results of the
Project. The Principal Investigator shall keep reasonable and customary
records of the Project and related data sufficient for Sponsor's regulatory
approval activities and shall make such records available to Sponsor on
reasonable request.
15. PUBLICITY. Neither Party shall use the name of the other Party or of any
Investigator in any advertising or promotional material without the prior
written approval of the other Party. The foregoing notwithstanding, (a)
MEEI and the Principal Investigator shall acknowledge Sponsor's support of
the Project in their respective reports and publications, (b) Sponsor may
disclose the existence and describe the terms of, and may file a copy of
this Agreement (redacted to the extent Sponsor deems appropriate to ensure
confidentiality) as an exhibit to its press releases, reports and
governmental filings, including reports and filings with the U.S.
Securities and Exchange Commission and relevant foreign government
authorities; and (c) Sponsor may make reference to technical publications
by the Principal Investigator or his co-authors. Any publicity or
governmental filings of this Agreement pursuant to this Section 15 shall
describe the relationship of the Parties accurately and appropriately,
including the fact that MEEI is affiliated with Harvard Medical School.
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<PAGE>
16. APPROVALS. MEEI represents and warrants to Sponsor that this Agreement and
the Project have been approved by the proper governing authorities of MEEI.
Sponsor represents and warrants to MEEI that this Agreement and the Project
have been approved by its Board of Directors.
17. MODIFICATION. This Agreement and the Protocol constitute the sole, full,
and complete agreement by and between the Parties concerning the subject
matter hereof and supersedes and replaces all prior agreements, discussions
and representations between the Parties. No amendments of any provision of
this Agreement shall be valid unless reduced in writing and signed by the
Parties and all waivers must be in writing and signed by the Party against
which the waiver is to be enforced.
18. NOTICES AND OTHER COMMUNICATIONS. With the exception of Sponsor's payments
under Section 3, all notices and other communications between the Parties
in connection with this Agreement shall be in writing and deemed
sufficiently given when delivered by messenger or overnight courier
providing for receipted delivery, transmitted by fax with confirmation of
transmission or sent by prepaid United States mail or other recognized
carrier, addressed as follows:
a. If to Sponsor:
John Smolik
President, CEO
PHOTOGEN, Inc.
7327 Oak Ridge highway
Knoxville, TN 37931
Fax number: (423) 769-4013
b. If to MEEI:
F. Curtis Smith, President
The Massachusetts Eye and Ear Infirmary
243 Charles Street
Boston, MA 02114
Fax number: 617-573-3091
Either Party may change its address by written notice given to the other
Party. It is specifically provided that this notice provision shall not be
construed in such a
11
<PAGE>
manner as to abrogate the provisions of Section 16 regarding modification
of this Agreement.
19. GOVERNING LAW; CHOICE OF FORUM. This Agreement is made and entered into the
State of Tennessee and its validity and interpretation and the legal
relations of the Parties shall be governed by the internal laws of the
State of Tennessee without regard to its provisions on conflict of laws.
Each Party submits to the exclusive jurisdiction of any state or federal
court sitting in Chicago, Illinois in any action or proceeding relating to
this Agreement and each Party agrees that all claims in respect of the
action or proceeding may be heard and determined only in any such court.
Each of such Parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond,
surety, or other security that might be required of any other Party with
respect thereto.
THIS AGREEMENT shall not be considered accepted, approved, or otherwise
effective until the signature of each Party is affixed in the space provided
below.
IN WITNESS WHEREOF, signifying their acceptance of and agreement to be bound by
the terms and conditions of this Agreement, the signatures of the Parties are
affixed hereto:
PHOTOGEN, INC. MASSACHUSETTS EYE
AND EAR INFIRMARY
By: /s/ John Smolik By: /s/ F. Curtis Smith
------------------------ ----------------------------
John Smolik F. Curtis Smith
President, CEO President
Date: 11-12-98 Date: 11-5-98
----------------------- --------------------------
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[Letter Head]
[Date]
[Name]
[Address]
Re: CONSULTING AGREEMENT
Dear _________:
This letter agreement ("Agreement") sets forth the agreement
with respect to your consulting services for Photogen Technologies, Inc. (the
"Company") as a member of the Company's Scientific Advisory Council (the
"Council").
1. ENGAGEMENT. Subject to the provisions of this Agreement,
the Company engages you to serve as a consultant and you agree to serve in that
capacity. Your duties will be to participate as a member of the Council and
provide the Company's Board of Directors and management with scientific advice
and counsel regarding the Company's technologies in areas of your professional
expertise. The Council's purposes and structure are described in the attached
resolutions of the Company's Board of Directors. Neither you nor the Council
will take part in formulating and deciding policy issues and you will have
limited access to material non-public information about the Company in order to
avoid becoming an "affiliate" of the Company for purposes of the federal
securities laws.
2. COMPENSATION. The Company will reimburse you for travel
expenses you incur to attend meetings of the Council and for all reasonable
out-of-pocket expenses you incur for activities authorized and directed by the
Company. You will also be eligible to receive awards of non-qualified options to
acquire shares of the Company's common stock or shares of restricted Company
stock, in accordance with the Photogen Technologies, Inc. 1998 Long Term
Incentive Compensation Plan as administered by the Compensation Committee of the
Company's Board of Directors.
3. CONFIDENTIAL INFORMATION. (a) Although you and the Company
will use their best efforts to minimize your access and exposure to Confidential
Information (defined below), if as a result of your engagement under this
Agreement you have access to Confidential Information you agree that during your
engagement hereunder and at all times thereafter, you will hold in trust, keep
confidential and not disclose, directly or indirectly, to any third parties or
make any use of the Company's Confidential Information for any purpose except
for the benefit of the Company in the performance of your duties under this
Agreement. Confidential Information which, without your fault, becomes generally
known to the public or in the industry, or in which the Company ceases to have a
legally protectable interest, will cease to be subject to these restrictions.
Upon termination of this Agreement (regardless of the reason for termination),
you will immediately return to the Company all tangible Confidential Information
and any other material, including information stored in electronic format and
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handwritten notes, made or derived from Confidential Information, which is in
your possession or which you delivered to others.
(b) "Confidential Information" means any and all information
that has or could have value or utility to the Company, whether or not reduced
to written or other tangible form and all copies thereof, relating to the
Company's private or proprietary matters, confidential matters or trade secrets
(including all such matters relating to the Company's subsidiary, Photogen,
Inc.). Confidential Information includes, but is not limited to the following:
(i) technical information (whether or not subject to patent
registration or protection), such as research and development, methods,
trade secrets, know-how, formulas, compositions, protocols, processes
and techniques, discoveries, machines, inventions, ideas, computer
programs (including software and data used in all such programs),
drawings, specifications;
(ii) except to the extent publicly disclosed by the Company
without any fault by you, information relating to the Company's
patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions,
extensions, and reexaminations thereof, and all improvements and
inventions related thereto;
(iii) business information, such as information concerning any
products, customer and supplier lists, production, developments, costs,
purchasing, pricing, profits, markets, sales, accounts, customers,
financing, acquisitions, strategic alliances or collaborations,
expansions; and
(iv) other information relating to the Company's or any of its
affiliates' business practices, strategies or policies.
4. TERM; TERMINATION. The term of this Agreement will commence
on the date you countersign a copy of this Agreement below, and may be
terminated by you or the Company at any time, with or without cause, by written
notice to the other. Your obligations under Paragraph 3 survive termination.
5. SEVERABILITY; CHOICE OF LAW; INJUNCTION. If any provision
of this Agreement is deemed by a court of competent jurisdiction to be
unenforceable or invalid, the enforceability and validity of all other
provisions hereof shall not be affected thereby and such court shall modify the
unenforceable or invalid provision to the extent necessary to render it
enforceable and valid and such provision shall be enforced as modified. You
agree that the time period and scope of the covenants in Paragraph 3 are
reasonable and appropriate under the circumstances of the Company's business and
your unique skills. This Agreement shall be governed and interpreted in
accordance with the laws of the State of Tennessee without regard to its
provisions on conflicts of law. Without limiting any other available remedies at
law or in equity, the Company will be entitled to injunctive relief restraining
any individual
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or entity from participating in any breach or threatened breach of this
Agreement without having to post a bond or security.
6. INDEPENDENT CONTRACTOR. The parties' relationship to one
another under this Agreement of that of independent contractors. You are not an
employee or agent of the Company and you have no authority to bind or incur
liability for the Company except as may be expressly authorized in writing. You
agree that the Company may disclose the existence of the Council and your
membership on the Council in its filings with the Securities and Exchange
Commission and other governmental entities. You will provide the Company with an
up-to-date curriculum vitae describing your expertise and other professional
associations and affiliations.
7. MISCELLANEOUS. This Agreement may not be amended or
modified except by a written instrument signed by both parties after the date of
this Agreement. This Agreement may be assigned by the Company and shall inure to
the benefit of the Company, its successors and assigns, but may not be assigned
or delegated by you. This Agreement supersedes all prior agreements,
negotiations and representations, written or oral, between the parties with
respect to the subject matter contained herein. Any waiver of any breach of, or
failure to enforce, any of the provisions of this Agreement shall not operate as
a waiver of any other breach or waiver of performance of such provisions or any
other provisions.
Please indicate your agreement to the foregoing by signing a
copy of this letter below and returning it to me. I look forward to working with
your in this exciting endeavor.
Very truly yours,
John T. Smolik, President
Accepted and Agreed to
as of ________________.
By:_____________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-KSB
FOR THE YEAR END DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 652,226
<SECURITIES> 5,682,105
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,209,092
<PP&E> 1,298,392
<DEPRECIATION> 129,004
<TOTAL-ASSETS> 8,060,585
<CURRENT-LIABILITIES> 916,017
<BONDS> 35,990
0
0
<COMMON> 36,875
<OTHER-SE> 7,071,703
<TOTAL-LIABILITY-AND-EQUITY> 8,060,585
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,973,913)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,973,913)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,973,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,973,913)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
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