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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the quarterly period ended March 31, 1999
Commission File Number 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices)(Zip Code)
(423) 769-4012
(Registrant's telephone number including area code)
Check whether the issuer (1) has filed all reports required to be filed by
section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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: / /
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 36,875,020 SHARES OF COMMON
STOCK, $.001 PAR VALUE PER SHARE, ISSUED AND OUTSTANDING AS OF MAY 13, 1999.
NO SHARES OF PREFERRED STOCK, $.01 PAR VALUE PER SHARE, WERE ISSUED OR
OUTSTANDING AS OF THAT DATE.
Transitional Small Business Disclosure Format:
YES: / / NO: /x/
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INDEX
<TABLE>
PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED). . . . . . . . . . . . . . . . . . . . 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION . . . . . . . . . . . . . . 6
PART II - OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 5. OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
-------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 670,068 $ 652,226
Interest receivable 64,225 121,471
Prepaid expenses 317,598 435,395
----------- -----------
1,051,891 1,209,092
TOTAL CURRENT ASSETS
UNITED STATES TREASURY NOTES, TOTAL
FACE VALUE $4,710,000 and $5,660,000 4,732,549 5,682,105
EQUIPMENT AND LEASEHOLD IMPROVEMENTS 1,157,836 1,169,388
----------- -----------
TOTAL ASSETS $ 6,942,276 $ 8,060,585
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 575,238 $ 804,248
Current portion of obligations under
capital leases 55,173 111,769
----------- -----------
TOTAL CURRENT LIABILITIES 630,411 916,017
----------- -----------
OBLIGATION UNDER CAPITAL LEASES -- 35,990
----------- -----------
----------- -----------
SHAREHOLDERS' EQUITY
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; 36,875,020 shares issued and
outstanding
36,875 36,875
Additional paid-in capital
9,634,134 9,602,097
Deficit accumulated during
development stage after
recapitalization
(3,359,144) (2,530,394)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY
6,311,865 7,108,578
----------- -----------
$ 6,942,276 $ 8,060,585
----------- -----------
----------- -----------
</TABLE>
1
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Cumulative Amounts From
March 31, 1999 March 31, 1998 November 3, 1996
(Unaudited) (Unaudited) (Unaudited)
------------------ ------------------ -----------------------
<S> <C> <C> <C>
REVENUES
Investment Income $ 72,020 $ 55,571 $ 571,752
EXPENSES
General and administrative 900,770 424,433 3,930,896
------------- ------------- ------------
NET LOSS $ (828,750) $ (368,862) $(3,359,144)
------------- ------------- ------------
------------- ------------- ------------
BASIC AND DILUTED NET
LOSS PER COMMON SHARE $ ( .02) $ ( .01)
------------- -------------
------------- -------------
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 36,875,020 36,184,722
------------- -------------
------------- -------------
</TABLE>
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Three Months Cumulative
Ended Ended Amounts From
March 31, 1999 March 31, 1998 November 3, 1996
(Unaudited) (Unaudited) (Unaudited)
--------------- -------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (828,750) (368,862) $ (3,359,144)
Depreciation 27,431 7,425 193,708
United States Treasury Notes
Amortization 2,986 - 34,615
Loss on Securities - 3,826 (20,499)
Stock Option Compensation 32,037 - 77,483
Changes in operating assets and liabilities:
Prepaid expense 117,797 4,082 51,047
Interest receivable 57,246 (135,569) (432,870)
Accounts payable (229,010) 52,231 575,238
------------- -------------- --------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (820,263) (436,867) (2,880,422)
------------- -------------- --------------
INVESTING ACTIVITIES
Sale of marketable securities - 200,000 2,164,464
Purchase of marketable securities - - (2,182,967)
Purchase of United States Treasury Notes (555,478) (7,076,213) (17,117,108)
Sale of United States Treasury Notes 1,502,048 619,580 13,485,596
Purchase of capital assets (15,879) (56,882) (1,022,505)
Patent cost - ( 17,562) (37,335)
------------- -------------- --------------
NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 930,691 (6,331,077) (4,709,855)
------------- -------------- --------------
FINANCING ACTIVITIES
Proceeds from issuance of common stock - 7,000,000 6,956,313
Proceeds from capital contributions by
stockholders - - 1,911,674
Cost of recapitalization - - (371,111)
Principal payments on capital lease
obligations (92,586) (5,362) (236,531)
------------- -------------- --------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES (92,586) 6,994,638 8,260,345
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 17,842 226,694 670,068
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 652,226 82,631 -
------------- -------------- --------------
CASH AND CASH
EQUIVALENTS AT END OF PERIOD $ 670,068 $ 309,325 $ 670,068
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
3
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During The
--------------------------- Members Paid-In Development
Shares Amount Capital Capital Stage Total
----------- --------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CONTRIBUTION OF CAPITAL $ 7,268 $ 7,268
NET LOSS FOR THE PERIOD -- -- (1,779) -- -- (1,779)
----------- --------- ---------- ---------- ------------ -----------
BALANCE AT
DECEMBER 31, 1996 -- -- 5,489 -- -- 5,489
NET LOSS AND CAPITAL
CONTRIBUTIONS FOR THE
PERIOD JANUARY 1, 1997
TO MAY 15, 1997 -- -- 3,511 -- (3,511) --
----------- --------- ---------- ---------- ------------ -----------
BALANCE AT MAY 15, 1997 -- $ -- 9,000 $ -- ($ 3,511) $ 5,489
ISSUANCE OF STOCK FOR
CASH 6,312,833 6,313 -- 1,797,137 -- 1,803,450
EFFECT OF
RECAPITALIZATION
AND MERGER 29,687,167 29,687 (9,000) 1,181,500 1,732 1,203,919
COST ASSOCIATED WITH
RECAPITALIZATION
AND MERGER -- -- -- (371,111) -- (371,111)
NET LOSS FOR THE
PERIOD MAY 16, 1997
TO DECEMBER 31, 1997 -- -- -- -- ($ 554,702) (554,702)
----------- --------- ---------- ---------- ------------ -----------
BALANCE AT
DECEMBER 31, 1997 36,000,000 36,000 -- 2,607,526 (556,481) 2,087,045
ISSUANCE OF COMMON
STOCK 875,020 875 -- 6,999,125 -- 7,000,000
COST ASSOCIATED WITH
COMMON STOCK ISSUANCE -- -- -- (50,000) -- (50,000)
OPTIONS ISSUED TO
CONSULTANTS -- -- -- 45,446 -- 45,446
NET LOSS FOR THE YEAR
ENDED DECEMBER 31, 1998 -- -- -- -- (1,973,913) (1,973,913)
----------- --------- ---------- ---------- ------------ -----------
BALANCE AT DECEMBER 31,
1998 36,875,020 36,875 -- 9,602,097 (2,530,394) 7,108,578
OPTIONS ISSUED TO
CONSULTANTS -- -- -- 32,037 -- 32,037
NET LOSS FOR THREE
MONTHS ENDED
MARCH 31, 1999 -- -- -- -- (828,750) (828,750)
----------- --------- ---------- ---------- ------------ -----------
BALANCE AT
MARCH 31, 1999 36,875,020 $ 36,875 $ -- $9,634,134 ($3,359,144) $ 6,311,865
----------- --------- ---------- ---------- ------------ -----------
----------- --------- ---------- ---------- ------------ -----------
</TABLE>
4
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PHOTOGEN TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1999
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information pursuant to Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1999.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OR PLAN OF OPERATION
UNCERTAINTIES RELATING TO PHOTOGEN. Photogen Technologies, Inc. and its
wholly-owned subsidiary Photogen, Inc. are collectively referred to as
"Photogen," the "Company," "we," or "us." Portions of the discussion in this
Item 2 contain forward-looking statements and are subject to the Risk Factors
described in Item 5 below.
RESULTS OF OPERATIONS. We are a development stage company engaged in the
development of advanced photodynamic therapies using drugs and medical devices.
We have not completed development of any product or process at this time and
have no revenues from operations. We have not generated revenues from the sale
of any proposed products or other operations, and we continue to experience
losses. Our net loss for the three month period ended March 31, 1999 was
$828,750, compared to a loss of $368,862 for the three month period ended
March 31, 1998. The increase in losses is attributable primarily to expenses
related to designing and acquiring equipment, conducting studies pursuant to
pre-clinical research agreements and other research, and other general and
administrative costs.
We expect to continue to incur increasing losses for at least the next
several years as we intensify research and development, clinical testing,
regulatory approval activities and engage in the manufacture and/or sale of any
products that we may develop. In particular, we are presently a party to four
research contracts with various third parties that will require an expenditure
of a total of $233,000 over the remaining terms of those contracts for the
protocols currently under investigation. See "Plan of Operation," below.
Our revenue for the three month period ended March 31, 1999 was $72,020,
compared to $55,571 of revenue for the three month period ended March 31, 1998.
The revenue resulted primarily from investment income on the proceeds from the
sale of common stock in our 1998 private placement and 1997 restructuring. The
proceeds of the sales of our common stock are invested primarily in United
States Government obligations. Because we have no revenues from operations at
this time, investment of such funds in that manner is necessary to avoid
becoming subject to the Investment Company Act of 1940.
LIQUIDITY; CAPITAL RESOURCES. We have used, and expect over the next 12
months to use, the gross proceeds from the March 13, 1998 private placement and
from the sale of stock in our 1997 restructuring for corporate overhead and
operating expenses, animal trials, the purchase or lease of scientific and
laboratory equipment and related facilities, legal and regulatory consulting
fees and for other working capital purposes, assuming we have no revenues during
that period. Our use of cash and capital resources is presently about $330,000
per month. At that rate, we will exhaust our current funds by approximately May
2000.
PATENT, RESEARCH AND OPERATIONAL MATTERS. We are continuing to pursue
patent protection for our proprietary technologies with the U.S. Patent and
Trademark Office, and in various foreign jurisdictions. We recently filed
patent applications covering inventions in the following areas:
- Radiocontrast (x-ray contrast) agents and methods for
treating tissue using those agents
6
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- Radiosensitizer, agents and methods for treating tissue
using a radiosensitizer
- Multiphoton activation technology
- Methods and apparatus for imaging and treating tissue
using photodynamic therapies
- Additional photodynamic therapy methods and apparatus for
topical treatment of disease
- Methods and appartus for treatment of tissue containing
an endogenous pigment (for example, melanoma destruction)
We continue to pursue development of proprietary technologies as a result
of our research in chemistry, photochemistry, and biochemistry. We are currently
working on the following research projects:
1. MACULAR DEGENERATION OF THE EYE. In October 1998, we 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 lose the ability to see 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 cause 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 our research with MEEI aims to address. Subject to the terms of the
agreement, MEEI has the right to patent any new inventions arising out of the
agreement, and we have the right to obtain an exclusive license concerning
any such invention.
2. OCULAR MELANOMA. In December 1998, we executed a second research
agreement with MEEI. This agreement covers preclinical research to evaluate
our 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 our
technology as a basis for an alternative treatment that we believe could
offer advantages over current radiotherapy or surgical treatment options. We
intend to use the data gained through this evaluation to determine whether
our 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 us. Subject
to the terms of the agreement, MEEI has the right to patent any new
inventions arising out of this agreement, and we have the right to obtain an
exclusive license concerning any invention.
3. PROSTATE AND LUNG CANCER. In October 1998, we 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 our
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.
7
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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 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 as 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 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. Subject to the terms of the agreement,
Massachusetts General Hospital has the right to patent any new inventions
arising out of the research agreement and we have the right to obtain an
exclusive license concerning any such invention.
4. CUTANEOUS MELANOMA. In our laboratory, we performed research assessing
the use of ultra-short pulsed light to directly activate melanin and its
precursors to kill melanoma cells. We announced preliminary results of that
research 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 millimeters (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. We are completing work to
identify the optimum wavelength for use in treating melanoma. We have conducted
experiments at 730 nanometers (nm), 800 nm and 1047 nm. To date, results at
1047 nm appear superior to 800 nm and 730 nm. We will be comparing performance
at 1047 nm to 800 nm during our pre-clinical ocular-melanoma study at MEEI.
5. TREATMENT SYSTEMS. We have 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, we have
developed laser control software. Our scientists are working on a third
prototype system to be used for surface treatments such as hair removal.
6. NATIONAL INSTITUTES OF HEALTH STUDY. We have been working on
research pursuant to a Phase I Small Business Innovation Research ("SBIR")
Project grant of $99,927 from the National Institutes of Health National
Cancer Institute. We announced the results of this research project in March
1998. During the course of the SBIR project, we demonstrated successful
multiphoton activation of an FDA approved photoactive drug in a living
organism. That study also indicated that our 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 our laboratory, with some additional
assistance through a research contract with the University of Tennessee
School of Veterinary Medicine. We have prepared and submitted our application
for a $900,000
8
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Phase II SBIR grant from the National Institutes of Health National Cancer
Institute to conduct additional studies regarding the efficacy of our
technologies.
7. BARRETTS ESOPHAGUS. Barretts esophagus is a precancerous condition of
the esophagus created by chronic 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 included burning of the esophageal wall caused by
the laser light, and deep tissue damage creating post treatment strictures.
In our laboratory, we 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. In
June 1999, we plan to begin preclinical trials in canines for treatment of
Barretts esophagus through our research agreement with the University of
Tennessee School of Veterinary Medicine.
8. RADIOSENSITIZER STUDY. We recently 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. We believe 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. In our laboratory, we are investigating the use of
ultra-short pulsed laser light to remove hair. We believe the mechanism is the
same as that for treating melanoma: the melanin in the hair follicle and
melanocytes become photoactivated and destroy the hair follicle. We are
utilizing a mouse model to show technical feasibility and may work toward
commencing further preclinical and human clinical trials.
10. DIAGNOSTIC EXPERIMENTS. In our laboratory, we are experimenting with
the diagnostic capabilities of simultaneous two-photon excitation. We conducted
initial experiments on a chicken breast (used to simulate tissue). We
demonstrated the capability to retrieve signals through 5 mm of chicken breast
using the common dye fluorescein. We are attempting to improve the
signal-to-noise ratio, through the use of our proprietary modulation
technologies. If successful, this improvement could result in faster imaging,
better resolution and increased depth at which diagnosis could be conducted.
We cannot guarantee that our research will lead to the development of
new patentable technology, or that commercial products will be developed from
our technologies and successfully sold. We plan to continue to pursue
preclinical and clinical testing of proposed products in the areas of
chemistry, photochemistry and biochemistry. However, we cannot assure
investors that we will receive any grant monies, will be able to successfully
develop and obtain proprietary protection for new
9
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technologies, or that we can develop products from these technologies that can
be commercialized. We have not entered into any collaborative agreements for the
development of any specific product and we do not expect to do so until further
research and clinical trials are concluded.
We are occupying approximately 4,000 square feet of office and
laboratory space in Knoxville, Tennessee. We pay a monthly rental of $4,680
for the facility (including certain equipment) plus charges for utilities and
similar items. We are proceeding to equip our laser research and development
laboratory with certain laser equipment systems made available by a large
laser manufacturer. We have received, installed and started-up three
ultra-short pulsed laser systems required for conduct of animal studies for
use in the photodynamic treatment of melanoma and age-related macular
degeneration. We anticipate taking delivery of another laser system for use
in hair removal in mid-1999. We have completed development of a software
package for use in the control and operation of these laser systems.
PLAN OF OPERATION. During the next twelve months, we will continue with
animal studies and evaluation of proprietary photoactive agent candidates,
pursuing patent protection and seeking potential research and development and
collaboration candidates. During the three months ended March 31, 1999, we
spent approximately $191,234 to acquire equipment necessary to support animal
clinical trials, and on development of our proprietary photoactive agent and
targeting systems. During the first quarter of 1999, we purchased
approximately $87,582 of laboratory equipment. We anticipate increased
spending during the second quarter for clinical equipment and clinical work
provided by third-party researchers. During the next twelve months we expect
to spend approximately $685,000 to acquire new equipment. The four research
contracts to which we are currently a party in the aggregate will require us
to spend $233,000 during the next twelve months for the projects presently
contemplated under those agreements. Additional projects may be undertaken
with those institutions for compensation to be agreed upon at that time.
We are evaluating our future needs for laboratory and office space and for
scientific, managerial and support personnel. See "Risk Factors" in Item 5,
below. We may exercise our renewal option under our lease, which will involve an
increase in rent of about $.50 per square foot; and we intend to link expansion
of facilities and staff to completion of technical and financial milestones. We
presently anticipate slowly adding additional personnel to support our 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. However, we will consider faster growth if that would present
opportunities to increase our product pipeline, or opportunities for more rapid
FDA approval or to attain licensing revenues. We intend to structure our
research and development and collaborative arrangements to make the fullest
possible use of personnel and facilities provided by the parties with whom we
may contract.
For the reasons stated above, we believe we have enough cash resources for
our current commitments during the next 12 months and will not be required to
raise additional funds. However, as we progress toward human clinical trials,
our use of capital will increase and will continue to do so at an accelerating
pace. Greater capital resources would enable us to quicken and expand our
research and development activities over that 12-month period; and our failure
to raise additional capital will (absent a suitable collaborative agreement
providing for a third party to take over these functions) significantly impair
our ability to conduct further research and
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development activities beyond those currently contracted for and our ability
to seek regulatory approval for any possible product resulting from that
research. Under the present circumstances, we expect to exhaust our current
capital by approximately May 2000. In any event, complete development and
commercialization of our technology will require substantial additional
funds. Accordingly, we are continuously evaluating capital formation
activities and opportunities, either as part of collaborative arrangements
with third parties or through offerings of equity or debt unrelated to
collaborations. See "Risk Factors" in Item 5, below.
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.
We have completed assessment of the impact of Year 2000 on our operations
and important systems. We also inquired about the Year 2000 readiness of our
material vendors, research institutions under contract with us, and other
material third parties on which we rely.
With respect to our information technology systems, we believe that with
upgrades to our 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 our financial position or results of operations. We expect to have
these upgrades completed by the end of 1999 and do not expect the cost of the
upgrades to be material (less than $5,000). With respect to embedded
technologies, we believe 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, we do not believe most third parties' Year 2000 issues will have
a material adverse impact on our operations. However, we have not been able to
verify that the Massachusetts Eye and Ear Infirmary ("MEEI"), with which we have
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
us, we 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.
We believe 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, we could incur an adverse affect
due to interruption of third party systems. However, we currently believe that
any adverse effect would involve primarily disruption to sponsored research
operations which we believe could be transferred to alternative third parties
who were Year 2000 compliant. Any such transfer could result in a delay of
research operations. At present we cannot estimate the likelihood or potential
cost of such third party failures.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
RISK FACTORS
Photogen and its business involve a high degree of risk. You should
carefully consider the risks listed below and all of the information contained
in this From 10-QSB and our other filings with the Securities and Exchange
Commission. The risks listed below are not all of the risks facing Photogen.
There may be additional risks and uncertainties that we currently are not aware
of or have deemed not material, all of which could have a negative impact on our
business, financial condition and results of operations. "We" and "our" refer to
Photogen Technologies, Inc. and its wholly owned subsidiary Photogen, Inc.
This Form 10-QSB and other filings, announcements and documents of
Photogen and oral statements of our representatives contain "forward-looking
statements," within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements involve risks, uncertainties and other
factors that may cause our actual results or performance to differ materially
from any results or performance expressed or implied by those statements.
Examples of forward-looking statements include predictive statements, statements
that depend on or refer to future events or conditions, which include words such
as "expects," "anticipates," "intends," "plans," "believes," "estimates,"
"should," "may" or similar expressions, or statements that involve hypothetical
events.
Forward-looking statements discuss future events or circumstances,
including future revenues, earnings or growth rates, ongoing business strategies
or prospects, and our possible future actions. These statements are based on
current expectations and projections about future events and are subject to
risks, uncertainties, and assumptions about Photogen, economic and market
factors and the industries in which we do business, and other factors.
Forward-looking statements are not guaranties of future performance and actual
events and results may differ materially from those expressed or forecasted in
forward-looking statements. We have no specific intention to update these
statements.
The following are some of the key risk factors that may affect Photogen's
future results:
WE ARE A DEVELOPMENT STAGE COMPANY AND DO NOT HAVE ANY PRODUCTS OR REVENUES FROM
SALES.
Our company and our technology are in an early stage of
development. We have not generated revenues from sales or operations, and
we do not expect to generate any revenues for at least several years. The
products we currently contemplate developing will require significant
additional research and development, preclinical and clinical testing and
regulatory approval before they can be manufactured and sold. As a result
of changing economic considerations, market, clinical or regulatory
conditions, or clinical trial results, we may shift our focus or determine
not to continue one or more of the projects we are currently pursuing.
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WE HAVE A HISTORY OF LOSSES AND MAY NOT ACHIEVE OR MAINTAIN FUTURE PROFITS OR
PAYMENT OF DIVIDENDS.
We have incurred losses since the beginning of our operations.
As of March 31, 1999, we have incurred total losses of $3,359,144. We
expect our losses to increase in the future as our financial resources are
used for research and development, preclinical and clinical testing,
regulatory activities, manufacturing, marketing and other related
expenses. We may not be able to achieve or maintain profitability in the
future. We have never declared or paid any cash dividends to stockholders,
and do not expect to do so in the foreseeable future.
WE MUST OBTAIN SIGNIFICANT ADDITIONAL FINANCING.
Under the present circumstances, we will exhaust our available
capital by approximately May 2000. We will need substantial additional
financing for our research, clinical testing, product development and
marketing programs. We cannot accurately estimate the amount of additional
financing required; however, the amount could be at least an additional
$50 million. Depending on market conditions, we 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 terms, if at all, and existing stockholders may be
diluted as a result of those offerings.
WE ARE HIGHLY DEPENDENT UPON A SMALL NUMBER OF EMPLOYEES AND CONSULTANTS WHO
PROVIDE SCIENTIFIC AND MANAGEMENT EXPERTISE.
These individuals have entered into employment or consulting
agreements, confidentiality and/or non-competition agreements. We could
suffer competitive disadvantage, loss of intellectual property rights or
other material adverse effects on our business and results of operations
if any employee or consultant violates or terminates these agreements or
terminates their association with us.
OUR PROPOSED PRODUCTS ARE SUBJECT TO EXTENSIVE TESTING AND GOVERNMENT REGULATION
AND APPROVAL, INCLUDING BY THE FOOD AND DRUG ADMINISTRATION.
Our proposed drug and device products have not begun or
completed the FDA's extensive approval process which must be completed
before proposed products can be manufactured or sold. This process
includes preclinical and clinical testing for effective use and safety in
animals and humans. The time frame necessary to perform these tasks for
any individual product is long and uncertain, and we may encounter
problems or delays which we cannot predict at this time. Even if clinical
trials are successful, our proposed products may not demonstrate
sufficient effectiveness or safety to warrant approval by the FDA or other
domestic or foreign regulatory authorities. Any regulatory approval may
not cover the clinical symptoms or circumstances that we may seek.
BECAUSE WE DO NOT HAVE, AND DO NOT INTEND TO DEVELOP, INTERNAL RESEARCH,
MANUFACTURING OR CLINICAL TESTING FACILITIES OR MARKETING RESOURCES FOR OUR
PROPOSED PRODUCTS, WE WILL HAVE TO RELY ON THIRD PARTIES AND COLLABORATIVE
RELATIONSHIPS.
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We must enter into collaborative relationships with third
parties for research and development, preclinical and clinical testing,
manufacturing, marketing and distribution of our proposed products. We
will also be dependent on third parties for the supply of laser products
and for supplies of photodynamic drugs. We have several research
agreements with third parties. However, we may not be able to negotiate
other acceptable collaborative and supply arrangements in the future.
Collaborative relationships may limit or restrict our
operations or may not result in an adequate supply of necessary resources.
Our collaborative partners could also pursue alternative technologies as a
means of developing or marketing products for the diseases targeted by our
collaborative programs. Failure of a collaborative partner to perform
under its agreement or its failure to meet regulatory standards could
delay or prematurely terminate clinical testing of our proposed products.
LOSS OF PATENT AND OTHER INTELLECTUAL PROPERTY PROTECTION WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
Our success will depend, in part, on our ability to obtain,
assert and defend our patents, protect trade secrets and operate without
infringing upon the intellectual property of others. Our patent
applications may not result in issued patents. Moreover, any issued
patents may not provide us with adequate protection of our intellectual
property or competitive advantages. Patented inventions may be "reverse
engineered" by our competitors, and third parties may challenge our
existing patents and seek to hold them invalid or unenforceable. Existing
or future patents or patent applications of our competitors may
interfere, invalidate, conflict or infringe with our patents or patent
applications. Similarly, our use of the methods or technologies
contained in our patents and other intellectual property may conflict or
infringe the rights of others.
Litigation over patents and other intellectual property rights
occurs frequently in our industry, and there is a risk that we may not
prevail in that litigation. Those disputes can be expensive and time
consuming, even if we win. Intellectual property disputes are often
settled through licensing arrangements that could be costly to us. In any
intellectual property litigation, it is possible that licenses necessary
to settle the dispute would not be available, or that we would not be able
to redesign our technologies to avoid any claimed infringement.
Confidentiality agreements covering our intellectual property
may be violated and we may not have adequate remedies for any violation.
Also, our intellectual property may in other ways become known or be
independently discovered by competitors.
OUR POTENTIAL MARKETS ARE EXTREMELY COMPETITIVE.
We face substantial competition from competitors with greater
financial, technical and human resources and with greater experience in
developing products, conducting preclinical or clinical testing, obtaining
regulatory approvals, manufacturing and marketing. Our competitors include
firms in the field of photodynamic therapy as well as other fields
generally relating to the diagnosis and treatment of disease using
different technologies or scientific and medical approaches. Examples of
those technologies are novel drugs, hyperthermic and ultrasound
procedures. Some of these firms have drugs or devices that have completed
or are in advanced stages of clinical trials and regulatory approvals.
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Our competitors may develop technologies and obtain patent
protection that could render our technologies or products obsolete or less
competitive or our patents unenforceable. Due to the inherent risk of
failure associated with the testing, development and production of new and
innovative technologies, our technologies and products may be found to be
ineffective, have unanticipated limitations or otherwise be unsuccessful
in the marketplace.
A SMALL GROUP OF STOCKHOLDERS CONTROLS PHOTOGEN.
A small group of our officers, directors and others control
approximately 85% of our outstanding common stock. Several of our
principal stockholders are also parties to a Voting Agreement concerning
the election of certain designees to the Board of Directors of Photogen
Technologies, Inc. and Photogen, Inc. This group of stockholders can
significantly influence Photogen and the direction of our business and
affairs. This concentration of ownership may delay or prevent a change in
control of Photogen, and may also result in a small supply of shares
available for purchase in the public securities markets. These factors may
affect the market and the market price for our common stock in ways that
do not reflect the intrinsic value of the stock.
OUR STOCK PRICE IS VOLATILE.
Our stock price and trading volume has fluctuated and is
likely to continue to fluctuate significantly for reasons that may not
have any relationship to our operating performance or other factors that
traditionally determine a company's value. The following factors may have
an impact on the price of our stock:
- announcements by us or others regarding scientific
discoveries, technological innovations, commercial
products, patents or proprietary rights;
- the progress of preclinical or clinical trials;
- changes in government regulation;
- public concern about the safety of devices or drugs;
and
- changes in our financial performance from period to
period; securities analysts' reports; and general
market conditions.
Our stock trades in the over-the-counter bulletin board market
but is not listed or traded on any stock exchange at this time. State
securities laws may also limit the extent to which brokers in a number
of states may solicit transactions in our stock.
COMPUTER PROBLEMS RESULTING FROM THE YEAR 2000 ISSUE PRESENT POTENTIAL
UNCERTAINTIES.
We may incur delays in research and other material problems if
the computer systems and other information technology systems that we use
or that are used by certain third parties upon whom we rely for services
do not accurately and adequately address the
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Year 2000 issue. We many not be able to identify and address all Year 2000
issues, including those of third parties. Failure to identify and correct
unknown Year 2000 issues by us or important third parties on whom we rely
could have a material adverse effect on our business, results of
operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition or Plan of Operation -- Year 2000 Issues,"
above.
WE CANNOT PREDICT THE EFFECT OF CHANGES IN HEALTH CARE REIMBURSEMENT AND
LEGISLATIVE REFORM ON OUR BUSINESS.
Our success will depend, in part, on the extent to which
health insurers, managed care entities and similar organizations, provide
coverage or reimbursement for the medical procedures and devices we plan
to develop. These third party payors are increasingly challenging the
price of medical procedures and services and establishing guidelines that
may limit physicians' selections of innovative products and procedures. We
also cannot predict the effect of any current or future legislation or
regulations relating to third party coverage or reimbursement on our
business. We may not be able to achieve market acceptance of our proposed
products or maintain price levels sufficient to achieve or maintain any
profits on our proposed products if adequate reimbursement coverage is not
available.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following is a list of exhibits filed as part of this Form
10-QSB. Exhibits that were previously filed are incorporated by reference. For
exhibits incorporated by reference, the location of the exhibit in the previous
filing is indicated in parenthesis.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
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 and incorporated herein by
reference.)
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 and incorporated herein by reference.)
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 and incorporated herein by reference.)
3.4 Amended and Restated Bylaws of Photogen, Inc. (Filed as
exhibit 3.4 to the Company's Form 10-KSB dated March 30, 1999
and incorporated herein by reference.)
10.1 Photogen Technologies, Inc. 1998 Long Term Incentive
Compensation Plan
10.2 Form of Non-Qualified Stock Option Award Agreement entered
into by the Company and each of Lester McKeever, Jr., Daniel
Tosteson, Ph.D., M.D., Mark Peterson, Harry Morrison, Ph.D.
and Merrill Biel, Ph.D., M.D. (Filed as exhibit 10.7 to the
Company's Form 10-KSB dated March 30, 1999 and incorporated
herein by reference.)
10.3 Form of Consulting Agreement entered into by the Company and
each of Daniel Tosteson, Ph.D., M.D., Harry Morrison, Ph.D.
and Merrill Biel, Ph.D., M.D. (Filed as exhibit 10.12 to the
Company's Form 10-KSB dated March 30, 1999 and incorporated
herein by reference.)
27 Financial Data Schedule of Photogen Technologies, Inc.
</TABLE>
16
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(b) Reports on Form 8-K.
The following reports on Form 8-K were filed in the three month period
ended March 31, 1999:
1. Report on Form 8-K dated March 23, 1999, disclosing the announcement
of Photogen's initiation of pre-clinical testing for two complex eye
disorders.
17
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Photogen Technologies, Inc.
/s/ John T. Smolik
---------------------------
Date: May 14, 1999 John T. Smolik, President
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
EXHIBIT NO. DESCRIPTION
---------- -----------
<S> <C>
+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 and incorporated herein by
reference.)
+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 and incorporated herein by reference.)
+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 and incorporated herein by reference.)
+3.4 Amended and Restated Bylaws of Photogen, Inc. (Filed as
exhibit 3.4 to the Company's Form 10-KSB date March 30, 1999
and incorporated herein by reference.)
*10.1 Photogen Technologies, Inc. 1998 Long Term Incentive
Compensation Plan
+10.2 Form of Non-Qualified Stock Option Award Agreement entered
into by the Company and each of Lester McKeever, Jr., Daniel
Tosteson, Ph.D., M.D., Mark Peterson, Harry Morrison, Ph.D.
and Merrill Biel, Ph.D., M.D. (Filed as exhibit 10.7 to the
Company's Form 10-KSB dated March 30, 1999 and incorporated
herein by reference.)
+10.3 Form of Consulting Agreement entered into by the Company and
each of Daniel Tosteson, Ph.D., M.D., Harry Morrison, Ph.D.
and Merrill Biel, Ph.D., M.D. (Filed as exhibit 10.12 to the
Company's Form 10-KSB dated March 30, 1999 and incorporated
herein by reference.)
*27 Financial Data Schedule of Photogen Technologies, Inc.
</TABLE>
+ Incorporated by reference from the filing indicated.
* Filed herewith.
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Exhibit 10.1
PHOTOGEN TECHNOLOGIES, INC.
1998 LONG TERM INCENTIVE COMPENSATION PLAN
1. ESTABLISHMENT, OBJECTIVES AND DURATION.
1.1 ESTABLISHMENT OF THE PLAN. Photogen Technologies, Inc. hereby
establishes an incentive compensation plan to be known as the "Photogen
Technologies, Inc. 1998 Long Term Incentive Compensation Plan" (the "Plan"), as
set forth in this document. The Plan permits the grant of Incentive Stock
Options, Nonqualified Stock Options and Restricted Stock.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through the use of incentives which are
consistent with the Company's objectives and which link the interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of Participants who make significant contributions to the Company's
success and to allow Participants to share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall become effective as of the date it
is approved by the stockholders of Photogen Technologies, Inc. (the "Effective
Date"). The Plan shall remain in effect, subject to the right of the Board of
Directors or the Committee to amend or terminate the Plan at any time pursuant
to Section 11 hereof, until all Shares subject to it shall have been purchased
or acquired according to the Plan's provisions. However, in no event may an
Incentive Stock Option be granted under the Plan on or after May 27, 2008.
2. DEFINITIONS.
Whenever used in the Plan, the following terms shall have the meanings set forth
below:
2.1 "AFFILIATE" means a "parent corporation" or "subsidiary corporation" as
defined in Section 424 of the Code.
2.2 "AWARD" means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options or Restricted Stock.
2.3 "AWARD AGREEMENT" means an agreement entered into by the Company and each
Participant setting forth the terms and provisions applicable to Awards granted
under this Plan.
<PAGE>
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.6 "CAUSE" shall be determined by the Committee, exercising good faith and
reasonable judgment, and shall mean the occurrence of any one or more of the
following:
(a) The willful and continued failure by the Participant to
substantially perform his duties (other than any such failure resulting from the
Participant's Disability) after a written demand for substantial performance is
delivered by the Committee to the Participant that identifies in reasonable
detail the manner in which the Committee believes that the Participant has not
substantially performed his duties, and the Participant has failed to remedy the
situation within 30 calendar days of receiving such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft or another act constituting a felony; or
(c) Any breach by a Participant of any written agreement with the
Company, including any agreement concerning a Participant's employment,
non-competition or confidentiality of Company proprietary information; or
(d) The willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company, as determined by the
Committee.
2.7 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred as of
the first day that any one or more of the following conditions shall have been
satisfied:
(a) The acquisition by any Person of Beneficial Ownership of 50% or
more of either (i) the then outstanding shares of Common Stock of the Company,
or (ii) the combined voting power of the outstanding voting securities of the
Company entitled to vote generally in the election of Directors; provided,
however, that for purposes of this subsection, the following transactions shall
not constitute a Change of Control: (A) any acquisition directly from the
Company through a public offering of shares of Common Stock of the Company, (B)
any acquisition by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of subsection (C)
below;
(b) The cessation, for any reason, of the individuals who constitute
the Company's Board of Directors as of the date hereof ("Incumbent Board") to
constitute at least a majority of the Company's Board of Directors; provided,
however, that any individual becoming a Director following the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the Directors then comprising the Incumbent
Board
2
<PAGE>
shall be considered as though such individual was a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs because of an actual or threatened election
contest with respect to the election or removal of Directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Company's Board of Directors;
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Business Combination") unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
Beneficial Owners, respectively, of the outstanding shares of Common Stock of
the Company and the outstanding voting securities of the Company immediately
before such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of Directors, as the case may be, of the Company
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately before such Business Combination of the outstanding shares of Common
Stock and the outstanding voting securities of the Company, as the case may be;
(ii) no party (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 50%; or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
before the Business Combination; and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Company's Board of Directors at the time of the
execution of the initial agreement, or of the action of the Company's Board of
Directors, providing for such Business Combination; or
(d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.9 "COMMITTEE" means the Compensation Committee of the Board, as specified
in Section 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
3
<PAGE>
2.10 "COMPANY" means Photogen Technologies, Inc., a Nevada corporation, and
also means any corporation of which a majority of the voting capital stock is
owned directly or indirectly by Photogen Technologies Inc. or by any of its
Subsidiaries, and any other corporation designated by the Committee as being a
Company hereunder (but only during the period of such ownership or designation).
2.11 "DIRECTOR" means any individual who is a member of the Board of Directors
of the Company.
2.12 "DISABILITY", as applied to a Participant, means that the Participant (a)
has established to the satisfaction of the Committee that the Participant is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to last for a
continuous period of not less than 12 months (all within the meaning of Section
22(e)(3) of the Code), and (b) has satisfied any requirement imposed by the
Committee in regard to evidence of such disability.
2.13 "ELIGIBLE PERSON" shall mean all Employees, Directors or consultants of
the Company or any Affiliate; provided, however, that no Award may be granted to
anyone who is not an "employee" as that term is defined in General Instruction
A.(1)(a) of Form S-8, as such definition may be amended from time to time,
without first receiving advice and guidance from the Company's outside counsel
as to the effect of such grant.
2.14 "EMPLOYEE" means any officer or employee of the Company.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.
2.16 "FAIR MARKET VALUE" Except as otherwise determined by the Committee, the
"Fair Market Value" of a share of Common Stock as of any date shall be equal to
the closing sale price of a share of Common Stock as reported on The National
Association of Securities Dealers' New York Stock Exchange Composite Reporting
Tape (or if the Common Stock is not traded on The New York Stock Exchange, the
closing sale price on the exchange on which it is traded or as reported by an
applicable automated quotation system, including the over-the-counter bulletin
board) (the "Composite Tape"), on the applicable date or, if no sales of Common
Stock are reported on such date, the closing sale price of a share of Common
Stock on the date the Common Stock was last reported on the Composite Tape (or
such other exchange or automated quotation system, if applicable) as of the date
of the meeting of the Committee at which the award was granted.
4
<PAGE>
2.17 "IMMEDIATE FAMILY MEMBERS" means the spouse, children and grandchildren
of a Participant.
2.18 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Section 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.19 "INSIDER" shall mean an individual who is, on the relevant date, a
Director, a 10% Beneficial Owner of any class of the Company's equity securities
that is registered pursuant to Section 12 of the Exchange Act or an officer of
the Company, as defined under Section 16 of the Exchange Act and as determined
by the Board of Directors from time to time.
2.20 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the Board
of Directors of the Company but who is not an Employee of the Company.
2.21 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares
granted under Section 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.22 "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Section 6 herein.
2.23 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24 "PARTICIPANT" means an Eligible Person who has outstanding an Award
granted under the Plan.
2.25 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance objectives, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares of
Restricted Stock are subject to a substantial risk of forfeiture, as provided in
Section 7 herein.
2.26 "PERSON" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) thereof.
2.27 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Section 7 herein.
5
<PAGE>
2.28 "RETIREMENT" as applied to a Participant, means the Participant's
termination of employment in a manner which qualifies the Participant to receive
immediately payable retirement benefits under any applicable retirement plan
maintained by the Company (the "Retirement Plan"), under the successor or
replacement of such Retirement Plan if it is then no longer in effect, or under
any other retirement plan maintained or adopted by the Company which is
determined by the Committee to be the functional equivalent of such Retirement
Plan; or, with respect to a Participant who may not or has not participated in a
retirement plan or if there is no such retirement plan maintained by the Company
or an Affiliate, "Retirement" shall have the meaning determined by the Committee
from time to time.
2.29 "SHARES" means Common Stock of Photogen Technologies, Inc., par value
$.001 per share.
2.30 "SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which the Company has a majority voting interest.
3. ADMINISTRATION.
3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by
any other committee appointed by the Board, which Committee shall consist solely
of two or more "Nonemployee Directors" within the meaning of Rule 16b-3 under
the Exchange Act, or any successor provision. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law and subject to the
provisions herein, the Committee shall have full power in its discretion to
select Eligible Persons who shall participate in the Plan; determine the sizes
and types of Awards; determine the terms and conditions of Awards (including
vesting periods and restrictions); prescribe the form of, construe and interpret
any agreement or instrument entered into under the Plan as they apply to
Participants; construe and interpret the terms and conditions of this Plan;
establish, amend, or waive rules and regulations for the Plan's administration
as they apply to Participants; alter, amend, suspend or terminate the Plan in
whole or in part; and (subject to the provisions of Section 11 herein) amend the
terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
6
<PAGE>
3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and
administration of the Plan shall be borne by the Company.
3.5 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, to the fullest extent
permitted by the Nevada General Corporation Law. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Sections of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless. In addition, a member of the
Committee, in the performance of any act (or in refraining from taking any
action) in connection with the Plan, shall not be liable to the Company, its
stockholders, Employees, Participants or any person when relying in good faith
upon the records of the Company or upon such information or statements presented
to the Company by any of its officers, employees or other persons as to matters
the member reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Company.
4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS.
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as provided
in Section 4.2 herein, the number of Shares hereby reserved for issuance to
Participants under the Plan shall be 2,000,000. Shares issued upon exercise of
Options or Awards of Restricted Stock under the Plan may be either authorized
but unissued Shares or Shares re-acquired by the Company. If, on or prior to
the termination of the Plan, an Award granted thereunder expires or is
terminated for any reason without having been exercised or vested in full, the
unpurchased or unvested Shares covered thereby will again become available for
the grant of Awards under the Plan. Shares of Common Stock covered by Options
surrendered in connection with the exercise of other Options shall not be deemed
to have been exercised and shall again become available for the grant of awards
under the Plan.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
Section 4.1, as may be determined to be appropriate and equitable by the
7
<PAGE>
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the number of Shares subject to any Award shall always
be a whole number.
5. ELIGIBILITY AND PARTICIPATION.
5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this
Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time in its discretion select Eligible Persons to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
5.3 PERFORMANCE-BASED AWARDS. The Committee may, in its discretion, grant
Awards that are wholly contingent on the attainment of performance goals
established by the Committee from time to time. The performance goals may
relate to one or more of the following performance measures, as determined by
the Committee for each applicable performance period: (i) return to
stockholders, (ii) cash flow, (iii) return on equity, (iv) Company created
income (for example, income due to Company initiated cost reductions or
productivity improvements), (v) sales growth, (vi) earnings and earnings growth,
(vii) return on assets, (viii) stock price, (ix) earnings per share, (x) market
share, (xi) customer satisfaction, and (xii) attaining regulatory approvals or
other regulatory benchmarks. Any such performance goals and the applicable
performance measures will be determined by the Committee at the time of grant
and reflected in an Award Agreement. The number or value of performance-based
stock Awards that will be paid out to any Participant at the end of the
applicable performance period, which may be one year or longer as determined by
the Committee, will depend on the extent to which the Company attains the
established performance goals. Awards intended to be performance-based stock
Awards shall be subject to such restrictions and conditions as may be required
under Section 162(m) to be performance-based compensation thereunder.
6. STOCK OPTIONS.
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine, which need not be uniform for all Participants. The
Award Agreement also shall specify whether the Option is intended to be an ISO
within the meaning of Code Section 422, or an NQSO whose grant is intended not
to fall under the provisions of Code Section 422.
8
<PAGE>
6.3 PROVISIONS FOR NQSOs. Each Stock Option intended to be a Non-Qualified
Stock Option shall be subject to the terms and conditions which the Committee
determines to be appropriate, subject to the following minimum standards for any
such Non-Qualified Stock Option:
(a) The option price (per share) of the Shares covered by each
Non-Qualified Stock Option shall be determined by the Committee but shall not
be less than the par value per share of Common Stock.
(b) Each Award Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be exercised, and
may provide that the Stock Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of certain
conditions or the attainment of stated goals or events; and
(c) Exercise of any Stock Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form satisfactory to
the Committee providing, among other things, that:
(1) The Participant's or the Participant's estate, heirs and
representatives right to sell the Shares may be restricted;
and
(2) The Participant or the Participant's estate, heirs and
representatives may be required to execute letters of
investment intent and must also acknowledge that the Shares
will bear legends noting any applicable restrictions.
6.4 PROVISIONS FOR ISOs. Each Stock Option intended to be an Incentive Stock
Option shall be issued only to an Employee and be subject to at least the
following terms and conditions, with such additional restrictions or changes as
the Committee determines are appropriate but not in conflict with Code Section
422 and relevant regulations and rulings of the Internal Revenue Service:
(a) The Incentive Stock Option shall meet the minimum standards
required of Non-Qualified Stock Options, as described in Section 6.3 except
clause (a) thereunder.
(b) Immediately before the Incentive Stock Option is granted, if the
Participant owns, directly or by reason of the applicable attribution rules in
Code Section 424(d):
(1) Ten percent (10%) or less of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the option price per share of the Shares covered
by each Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value per share
of the Shares on the date of the grant of the Incentive
Stock Option.
(2) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the option price per
9
<PAGE>
share of the Shares covered by each Incentive Stock Option
shall not be less than one hundred ten percent (110%) of
the said Fair Market Value on the date of grant.
(c) For Participants who own:
(1) Ten percent (10%) or less of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Incentive Stock Option shall terminate not
more than ten (10) years from the date of the grant or at
such earlier time as the Award Agreement may provide;
(2) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Incentive Stock Option shall terminate not
more than five (5) years from the date of the grant or at
such earlier time as the Award Agreement may provide.
(d) The Award Agreements shall restrict 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) 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 Participant in any calendar year does not exceed one hundred
thousand dollars ($100,000), provided that this subparagraph shall have no force
or effect if its inclusion in the Plan is not necessary for Options issued as
Incentive Stock Options to qualify as Incentive Stock Options pursuant to
Section 422(d) of the Code.
(e) No Incentive Stock Options shall be granted after the date which
is the earlier of ten (10) years from the date of the adoption of the Plan by
the Company and the date of the approval of this Plan by the shareholders of the
Company.
(f) Each Participant who receives an Incentive Stock Option must agree
to notify the Company in writing immediately after the Participant makes a
Disqualifying Disposition of any shares acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such shares before the later of (i) two years after the
date the Participant was granted the Incentive Stock Option, or (ii) one year
after the date the Participant acquired shares by exercising the Incentive Stock
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.
10
<PAGE>
6.5 PAYMENT. Options granted under this Section 6 shall be exercised in
accordance with the applicable Award Agreement by the delivery of a proper
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised. No shares of Common Stock shall
be issued on the exercise of an Option unless the Option Price is paid for in
full at the time of exercise. Payment shall be made in cash, which may be paid
by check or other instrument acceptable to the Committee. In addition, subject
to compliance with applicable laws and regulations and such conditions as the
Committee may impose, the Option holder may deliver with his exercise notice
irrevocable instructions to a broker to promptly deliver to the Company an
amount of sale or loan proceeds sufficient to pay the exercise price. As soon
as practicable after receipt of proper notification of exercise and full
payment, the Company shall deliver to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
6.6 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Section 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any state securities laws applicable to such
Shares.
6.7 TERMINATION OF EMPLOYMENT. Each 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 the Award Agreement; (b) for ISOs,
the expiration of three months following the Participant's Retirement (following
the Participant's Retirement, NQSOs shall terminate upon the expiration of the
Option period set forth in the Option Award Agreement); (c) the expiration of 12
months following the Participant's death or Disability; (d) immediately upon
termination for Cause; or (e) the expiration of 90 days following the
Participant's termination of 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.
6.8 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. The Committee may, in its discretion,
authorize all or a portion of NQSOs granted to a Participant to be on terms
which permit transfer by such Participant to (i) Immediate Family Members, (ii)
a trust or trusts for the exclusive benefit of such Immediate Family Members, or
(iii) a partnership in which such Immediate Family Members are the only
partners, provided that (A) there may be no consideration for any such transfer,
(B) the Award Agreement pursuant to which such Options are granted must be
approved by the Committee,
11
<PAGE>
and must expressly provide for transferability in a manner consistent with
this Section, and (C) subsequent transfers of transferred Options shall be
prohibited except those by will or the laws of descent and distribution.
Following transfer, any such Options shall continue to be subject to the same
terms and conditions as were applicable immediately prior to transfer,
provided that for purposes of this Plan, the term "Participant" shall be
deemed to refer to the transferee. The events of termination of employment
shall continue to be applied with respect to the original Participant,
following which the Options shall be exercisable by the transferee only to
the extent, and for the periods specified in this Section 6.8.
Notwithstanding the foregoing, should the Committee provide that Options
granted be transferable, the Company by such action incurs no obligation to
notify or otherwise provide notice to a transferee of early termination of
the Option. In the event of a transfer, as set forth above, the original
Participant is and will remain subject to and responsible for any applicable
withholding taxes upon the exercise of such Options.
7. RESTRICTED STOCK.
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine. Without limiting the generality of the foregoing, Restricted Shares
may be granted in connection with payouts under other compensation programs of
the Company.
7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.
7.3 TRANSFERABILITY. Except as provided in this Section 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
7.4 OTHER RESTRICTIONS. Subject to the Plan, the Committee shall impose such
other conditions and/or restrictions on any Shares of Restricted Stock granted
pursuant to the Plan as it may deem advisable including, without limitation, a
requirement that Participants pay a stipulated purchase price for each Share of
Restricted Stock, restrictions based upon the achievement of specific
performance objectives, time-based restrictions on vesting following the
attainment of the performance objectives, and/or restrictions under applicable
federal or state securities laws. At the discretion of the Committee, the
Company may retain the certificates representing Shares of Restricted Stock in
the Company's possession until such time as all conditions and/or restrictions
applicable to such Shares have been satisfied. Except as otherwise provided in
this Section 7, Shares
12
<PAGE>
of Restricted Stock covered by each Restricted Stock grant made under the
Plan shall become freely transferable by the Participant after the last day
of the applicable Period of Restriction, subject to applicable securities
laws.
7.5 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. Such dividends may be paid currently, accrued as
contingent cash obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes. The Committee may apply
any restrictions to the dividends that the Committee deems appropriate. In the
event that any dividend constitutes a "derivative security" or an "equity
security" pursuant to Rule 16(a) under the Exchange Act, such dividend shall be
subject to a vesting period equal to the remaining vesting period of the Shares
of Restricted Stock with respect to which the dividend is paid.
7.7 TERMINATION OF EMPLOYMENT. Upon a Participant's death, Disability, or
Retirement, all Restricted Shares shall vest immediately. Each Restricted Stock
Award Agreement shall set forth the extent to which the Participant shall have
the right to retain unvested Restricted Shares following termination of the
Participant's employment with the Company in all other circumstances. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with each Participant, need not be
uniform among all Shares of Restricted Stock issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of employment.
8. BENEFICIARY DESIGNATION.
A Participant under the Plan may make written designation of a
beneficiary on forms prescribed by and filed with the Secretary of the Company.
Such beneficiary, or if no such designation of any beneficiary has been made,
the legal representative of such Participant or such other person entitled
thereto as determined by a court of competent jurisdiction, may exercise, in
accordance with and subject to the provisions of Section 6, any unterminated and
unexpired Option granted to such Participant to the same extent that the
Participant himself could have exercised such Option were he alive or able;
provided, however, that no Option granted under the Plan shall be exercisable
for more Shares than the Participant could have purchased thereunder on the date
his employment by, or other relationship with, the Company and its Subsidiaries
was terminated.
13
<PAGE>
9. RIGHTS OF ELIGIBLE PERSONS AND PARTICIPANTS.
Nothing in this Plan or any Award Agreement shall be deemed to: prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant; prevent a Participant from terminating his or
her own employment, consultancy or director status; give any Participant a right
to be retained in employment or other service by the Company or any Affiliate
for any period of time; confer on any person any right to be selected as a
Participant.
10. CHANGE IN CONTROL.
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire term; and
(b) Any restriction periods and restrictions imposed on Shares of
Restricted Stock shall lapse; provided, however, that the degree of vesting
associated with Restricted Stock which has been conditioned upon the achievement
of performance conditions pursuant to Section 5.3 herein shall be determined in
the manner set forth in Section 7.4 herein.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Section 10 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards.
11. AMENDMENT, MODIFICATION, AND TERMINATION.
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 10.2
herein, the Board or the Committee may at any time and from time to time, alter,
amend, suspend or terminate the Plan in whole or in part, except that, without
approval of the stockholders of the Company, no such revision or amendment shall
increase the number of shares available for grants of ISOs under the Plan or
alter the class of participants in the Plan. Notwithstanding the foregoing,
neither the Company nor the Board or Committee on its behalf may cancel
outstanding Awards and issue substitute Awards in replacement thereof or reduce
the exercise price of any outstanding Options without stockholder approval.
14
<PAGE>
11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
11.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of
the Plan shall adversely affect in any material way any Award previously granted
under the Plan, without the written consent of the Participant holding such
Award.
12. WITHHOLDING.
12.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
12.2 SHARE WITHHOLDING. To the extent provided by the Committee, a
Participant may elect to have any distribution to be made under this Plan to be
withheld or to surrender to the Company shares of Common Stock already owned by
the Participant to fulfill any tax withholding obligation.
13. SUCCESSORS.
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.
14. LEGAL CONSTRUCTION.
14.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular; and, the singular shall include the plural.
15
<PAGE>
14.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the illegal or invalid provision shall be
modified to the extent necessary to be legal and valid and shall be enforced as
modified.
14.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
14.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the Exchange Act. To the extent any provision of the Plan
or action by the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
14.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan, and
all agreements hereunder, shall be construed in accordance with and governed by
the laws of the state of Nevada.
15. RIGHTS AS A SHAREHOLDER.
No Participant to whom an Award has been granted shall have rights as a
shareholder with respect to any Shares covered by such Award, except after due
exercise of the Award and tender of the full purchase price for any Shares being
purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
16. PURCHASE FOR INVESTMENT.
16.1 Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Option shall have been effectively registered under
the Securities Act of 1933 (the "1933 Act"), the Company shall be under no
obligation to issue the Shares covered by such exercise unless and until the
person(s) who exercise such Option shall represent and warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring such
Shares for their own respective accounts, for investment, and not with a view
to, or for sale in connection with, the distribution of any such Shares. The
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s) evidencing
their Shares issued pursuant to such exercise or such grant:
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,
16
<PAGE>
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.
16.2 The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE FIRST QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 670,068
<SECURITIES> 4,732,549
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,051,891
<PP&E> 1,314,271
<DEPRECIATION> (156,435)
<TOTAL-ASSETS> 6,942,276
<CURRENT-LIABILITIES> 630,411
<BONDS> 0
0
0
<COMMON> 36,875
<OTHER-SE> 6,274,990
<TOTAL-LIABILITY-AND-EQUITY> 6,942,276
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 828,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (828,750)
<INCOME-TAX> 0
<INCOME-CONTINUING> (828,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (828,750)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
