----------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
_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
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-15271
---------------------------
CISTRON BIOTECHNOLOGY, INC.
(Exact Name of Registrant as Specified in its Charter)
---------------------------
Delaware 22-2487972
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10 Bloomfield Avenue, Pine Brook, New Jersey 07058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(973) 575-1700
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 and 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months and (2) has been
subject to such filing requirements for the past 90 days.
Yes _X_ No ___
The aggregate number of Registrant's outstanding shares on May 10, 1999 was
24,317,020 shares of Common Stock, .01 par value.
Page 1 of 16 pages
<PAGE> 2
CISTRON BIOTECHNOLOGY, INC.
---------------------------
(A DEVELOPMENT STAGE COMPANY)
---------------------------
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance sheets as of March 31, 1999 and June 30, 1998......... 3
Statements of operations for the three months and nine months
ended March 31, 1999 and 1998................................. 4
Statements of cash flows for the nine months ended
March 31, 1999 and 1998....................................... 6
Notes to financial statements................................. 7
Item 2. Management's discussion and analysis of results of
operations and financial condition............................ 9
PART II - OTHER INFORMATION............................................. 13
Item 1. Legal Proceedings..................................... 13
Item 2. Changes in Securities................................. 13
Item 3. Defaults upon Senior Securities....................... 13
Item 4. Submission of Matters to a Vote of Security Holders... 13
Item 5. Other Information..................................... 14
Item 6. Exhibits and Report on Form 8-K....................... 15
Signatures.................................................... 16
-2-
<PAGE>3
[CAPTION]
<TABLE>
CISTRON BIOTECHNOLOGY,INC.
--------------------------
BALANCE SHEETS
--------------
June 30, March 31,
ASSETS 1998 1999
- ------ ------------ ------------
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents $ 5,832,031 $ 9,006,038
Accounts receivable-trade 101,859 66,972
Accounts receivable-other 2,940,673 2,903,931
Inventories 3,635 1,399
Taxes receivable 329,024 329,024
Notes receivable $230,000; reserve $230,000 - -
---------- ----------
TOTAL CURRENT ASSETS 9,207,222 12,307,364
ACCOUNTS RECEIVABLE - OTHER - Long Term 3,670,221 918,975
---------- ----------
PROPERTY AND EQUIPMENT:
Machinery and equipment 502,908 505,054
Furniture and fixtures 147,113 147,113
Leasehold improvements 77,674 77,674
---------- ----------
727,695 729,841
Less: Accumulated depreciation 701,477 705,363
---------- ----------
26,218 24,478
---------- ----------
SECURITY DEPOSITS 23,938 23,938
---------- ----------
PATENTS, Net of accumulated amortization
of $14,536 and $16,523, respectively 22,569 20,582
---------- ----------
DEFERRED TAXES 49,313 49,313
---------- ----------
TOTAL ASSETS $ 12,999,481 $ 13,344,650
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accrued expenses and accounts payable $ 114,894 $ 85,373
Taxes payable 348,898 354,520
Other current liabilities 691,058 714,292
---------- ----------
TOTAL CURRENT LIABILITIES 1,154,850 1,154,185
---------- ----------
Other non-current liabilities 902,174 262,307
---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000
shares authorized; issued and outstanding
26,930,187 shares and 28,263,520,
respectively 269,302 282,635
Additional paid-in capital 8,683,680 9,600,347
Earnings accumulated during the
development stage 2,384,125 2,439,826
Treasury stock 3,946,500 shares at cost (394,650) (394,650)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 10,942,457 11,928,158
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 12,999,481 $ 13,344,650
========== ==========
See accompanying notes to financial statements.
-3-
</TABLE>
<PAGE>4
<TABLE>
<CAPTION>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Three Months ended March 31, operations) to
1998 1999 March 31, 1999
------------ ------------ ----------------
<S> <C> <C> <C>
Sales....................................... $ 160,175 $ 86,857 $ 9,706,622
Cost of sales............................... 86,484 38,395 4,311,242
---------- ---------- ----------
Gross profit.............................. 73,691 48,462 5,395,380
---------- ---------- ----------
Other income:
Litigation settlements.................... - - 14,684,206
License fees and funded research.......... 5,000 783,000 4,963,899
---------- ---------- ----------
Expenses:
Research and development.................. 92,863 119,495 8,818,483
Administrative and marketing.............. 237,229 255,071 11,936,464
Occupancy................................. 52,787 47,913 2,617,673
---------- ---------- ----------
Total expenses.............................. 382,879 422,479 23,372,620
---------- ---------- ----------
Operating income/(loss)................... (304,188) 408,983 1,670,865
Interest income/(expense) - net............. 149,177 88,310 1,171,178
Other expense............................... - - 59,895
Amortization of deferred financing costs.... - - 173,079
Acquisition expense......................... - - 429,620
---------- ---------- ----------
Income/(loss) before income taxes
and extraordinary credit.................. (155,011) 497,293 2,179,449
Income tax provision (benefit).............. (82,973) 188,970 1,501,938
---------- ---------- ----------
Income/(loss) before extraordinary credit... (72,038) 308,323 677,511
Extraordinary credit - benefit of tax loss
carryforward.............................. - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ (72,038) $ 308,323 $ 940,349
========== ========== ==========
Net income/(loss) per share................. $ - $ 0.01
========== ==========
Weighted average shares outstanding......... 22,983,687 24,317,020
========== ==========
Net income/(loss) per share -
assuming dilution......................... $ - $ 0.01
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 22,983,687 25,859,394
========== ==========
See accompanying notes to financial statements
-4-
</TABLE>
<PAGE>5
<TABLE>
<CAPTION>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF OPERATIONS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Nine Months ended March 31, operations) to
1998 1999 March 31, 1999
------------ ------------- ----------------
<S> <C> <C> <C>
Sales....................................... $ 426,010 $ 291,637 $ 9,706,622
Cost of sales............................... 234,244 193,913 4,311,242
---------- ---------- ----------
Gross profit.............................. 191,766 97,724 5,395,380
---------- ---------- ----------
Other revenues:
Litigation settlement, net................ - - 14,684,206
License fee and funded research........... 205,000 852,750 4,963,899
---------- ---------- ----------
Expenses:
Research and development.................. 462,770 275,137 8,818,483
Administrative and marketing.............. 839,946 729,402 11,936,464
Occupancy................................. 146,665 146,708 2,617,673
---------- ---------- ---------
Total expenses.............................. 1,449,381 1,151,247 23,372,620
---------- ---------- ----------
Operating income (loss)................... (1,052,615) (200,773) 1,670,865
Interest income/(expense) - net............. 434,360 290,614 1,171,178
Other expense............................... - - 59,895
Amortization of deferred financing costs.... - - 173,079
Acquisition expense......................... - - 429,620
---------- ---------- ----------
Income (loss) before income taxes
and extraordinary credit................... (618,255) 89,841 2,179,449
Income tax provision (benefit).............. (234,937) 34,139 1,501,938
---------- ---------- ----------
Income/(loss) before extraordinary credit... (383,318) 55,702 677,511
---------- ---------- ----------
Extraordinary credit - benefit of tax loss
carryforward............................. - - 262,838
---------- ---------- ----------
Net income/(loss)......................... $ (383,318) $ 55,702 $ 940,349
========== ========== ==========
Net income/(loss) per share................. $ (0.01) $ -
========== ==========
Weighted average shares outstanding......... 25,609,643 23,728,212
========== ==========
Net income/(loss) per share -
assuming dilution.......................... $ (0.01) $ -
========== ==========
Weighted average shares outstanding -
assuming dilution......................... 25,609,643 26,647,226
========== ==========
See accompanying notes to financial statements
-5-
</TABLE>
<PAGE>6
<TABLE>
<CAPTION>
CISTRON BIOTECHNOLOGY, INC.
---------------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
---------
February 2, 1982
(commencement of
Nine Months ended March 31, operations) to
1998 1999 March 31, 1999
------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 394,462 $ 333,425 $ 11,588,119
Cash paid to suppliers and employees (3,754,082) (2,206,669) (33,325,439)
Interest received 228,479 226,114 832,171
Acquisition expenses paid - - (429,620)
Royalties, research funding, license fees received 205,000 889,605 3,567,592
Other receipts 3,002,207 3,003,678 18,141,226
--------- --------- ----------
Net cash provided by operating activities 76,066 2,246,153 374,049
--------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Collection of note receivable - - 15,097
Issuance of note receivable - - (230,000)
Purchase of property and equipment (3,926) (2,146) (764,618)
--------- --------- ----------
Net cash used in investing activities (3,926) (2,146) (979,521)
--------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock and
additional contributions 2,879 930,000 10,876,398
Principal payments on notes payable - - (870,238)
Purchase of treasury stock (394,650) - (394,650)
--------- --------- ----------
Net cash provided by financing activities (391,771) 930,000 9,611,510
--------- --------- ----------
Net change in cash and cash equivalents (319,631) 3,174,007 9,006,038
CASH AND CASH EQUIVALENTS, beginning of period 6,368,228 5,832,031 -
--------- --------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 6,048,597 $ 9,006,038 $ 9,006,038
--------- --------- ----------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss) $ (383,318) $ 55,702 $ 940,349
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 5,233 5,872 748,737
Issue of warrants 65,000 - 65,000
Deferred income taxes (885,090) - (49,313)
Loss on disposal of property and equipment 4,552 - 8,531
Increase in reserve for note receivable - - 230,000
Amortization of deferred financing costs - - 195,179
Decrease (increase) in assets:
Accounts receivable (40,680) 34,887 (66,972)
Inventory 534 2,236 (1,399)
Taxes receivable (8,525) - (329,024)
Notes and other receivables 2,728,680 2,787,988 (3,838,606)
Security deposit - - (23,938)
Intangible assets - - (37,105)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (798,412) (23,899) 1,556,011
Other current and non-current liabilities (611,908) (616,633) 976,599
--------- --------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 76,066 $ 2,246,153 $ 374,049
========= ========= ==========
See accompanying notes to financial statements
-6-
</TABLE>
<PAGE>7
CISTRON BIOTECHNOLOGY, INC.
---------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
---------
A. BASIS OF PRESENTATION
---------------------
The financial statements for the three and nine month periods ended
March 31, 1999 and 1998 have been prepared without audit and, in the
opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to fairly present the Company's
financial position, results of operations, and cash flows at March 31,
1999 and 1998 and for the periods then ended have been made.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted. These financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 1998. The results of operations for
the periods ended March 31, 1999 and 1998 are not necessarily
indicative of the operating results for the full year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
B. OTHER INCOME
------------
During the nine-month period ended March 31, 1998, the Company received
non-refundable research and development funding of $200,000,
representing the last two of 10 consecutive quarterly research and
development payments of $100,000 which another company had agreed to
make to Cistron.
During the three and nine-month periods ended March 31, 1999, the
Company received $75,000 and $150,000, respectively, ($139,500 net of
amounts due BlueStone Capital Partners, LP ("BlueStone") of funded
research under an agreement with Pasteur Merieux Connaught ("PMC")).
Also during the three and nine-month periods ended March 31, 1999, the
Company received $750,000 ($713,250 net of fees due Genome Securities,
Inc.) from R&D Systems ("RDS") for the sale of the Company's IL-1
research product line.
C. INCOME TAXES
------------
Taxes of $188,970 and $34,139 were recorded in the three and nine-month
periods ended March 31, 1999, respectively.
-7-
<PAGE>8
Tax benefits of $82,973 and $234,937 were recorded in the three and
nine-month periods ended March 31, 1998, respectively.
D. ACCOUNTS RECEIVABLE
-------------------
Accounts receivable - other consists of amounts due in November 1999
(current) and amounts due in November 2000 (long term) pursuant to a
litigation settlement agreement entered into in 1996. Long-term
amounts have been discounted to reflect their present value.
E. CHANGES IN SHAREHOLDERS' EQUITY
-------------------------------
During the nine-month period ended March 31, 1998, shareholders' equity
decreased $710,089 due to net losses of $383,318, and due to the
repurchase of approximately 4 million shares of the Company's common
stock that has been recorded as treasury stock. During the nine-month
period ended March 31, 1999, shareholders' equity increased $985,701
due to the sale of 1,333,333 shares of common stock to Pasteur Merieux
Serums & Vaccins, S.A. ("PMS&V") for $1 million less $70,000 due to
BlueStone on the transaction and by net income of $55,702.
F. EARNINGS PER SHARE CALCULATIONS
-------------------------------
The following is a reconciliation of the numerators and denominators
used to calculate Earnings per Share:
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1999 1998 1999
-------------------------------------------------------
Earnings per common share:
-------------------------
Net income (loss)(numerator) $ (72,038) $ 308,323 $ (383,318) $ 55,702
Weighted average shares
(denominator) 22,983,687 24,317,020 25,609,643 23,728,212
Income (loss) per share $ - $ 0.01 $ (0.01) $ -
========== ========== ========== ==========
Earnings per common share -
assuming dilution:
------------------
Net income (loss)(numerator) $ (72,038) $ 308,323 $ (383,318) $ 55,702
Weighted average shares 22,983,687 24,317,020 25,609,643 23,728,212
Effect of dilutive options - 1,542,374 - 2,919,014
========== ========== ========== ==========
Weighted average shares -
assuming dilution (denominator) 22,983,687 25,859,394 25,609,643 26,647,226
Income (loss) per share $ - $ 0.01 $ (0.01) $ -
========== ========== ========== ==========
</TABLE>
-8-
<PAGE>9
G. NEW ACCOUNTING PRONOUNCEMENT
----------------------------
In June 1998, The Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, thus it becomes effective for the
Company during the fiscal year ending June 30, 2000 and is applicable
to interim periods during that fiscal year. The implementation of
this standard will have no impact on the Company's financial
statements.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
--------------------------------------------------
The following discussion should be read in conjunction with and is qualified
in its entirety by the accompanying financial information and notes thereto,
and management's discussion and analysis of results of operations and
financial condition contained in the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998.
Certain statements in this discussion and analysis constitute forward-looking
statements, are not historical facts, and involve risks and uncertainties
that could cause actual results to differ from those expected and projected.
Such risks and uncertainties include but are not limited to: (i) general
economic conditions; (ii) conditions specific to the biotechnology industry;
(iii) the Company's ability to develop or acquire new technology or products
through licensing, merger or acquisition and to obtain regulatory approval to
commercialize diagnostic or therapeutic products; (iv) the effectiveness and
ultimate market acceptance of any such products; (v) limitations on third
party reimbursements with respect to any such products; and (vi) competition.
The Company does not undertake to update or revise any forward-looking
statements contained herein whether as a result of new information, future
events or otherwise.
Results of Operations
- ---------------------
The Company sells its products to the research market and has not generated
significant revenues therefrom. The Company entered into an agreement with
RDS under which the Company granted RDS an exclusive license to produce and
sell IL-1 antibodies and assays and a non-exclusive sublicense to
manufacture and sell IL-1 protein to the research market. The agreement was
reached in February 1999 and March was the last month in which the Company
sold IL-1 research market products. The Company has retained all rights to
therapeutic and diagnostic applications and will devote its efforts towards
research and development in these areas. None of its products have been
submitted to or received approval from the Food and Drug Administration for
the sale of such products to the diagnostic or therapeutic markets.
The Company believes it is a development stage enterprise because planned
principal operations have not yet commenced. The Company's planned
principal operations include the development of clinical and therapeutic
products for distribution through pharmaceutical and diagnostic companies.
This requires the approval of the Company's products by the Food and Drug
Administration ("FDA"). At March 31, 1999, none of the Company's products
had received such approval. In addition, the Company continues to devote
most of its efforts to activities such as research and development,
financial planning and developing markets which are typical activities for
a development stage enterprise. Specifically, the Company has expended
funds relating to the antibody technology, wound healing and vaccine
-9-
<PAGE>10
adjuvant programs. With respect to financial planning, from September 1997
to September 1998, the Company engaged the services of BlueStone to act as
Cistron's financial advisor as to corporate strategic and financial
initiatives. In October 1998, the Company engaged Genome Securities, Inc.
("Genome"), to act in this capacity. In March 1999, the Company extended its
engagement of Genome, under the same terms and conditions, through September
1999. Accordingly, as the Company has not yet commenced principal operations
and is devoting most of its efforts to activities typical of a development
stage enterprise as outlined in Statement of Financial Accounting Standards
No.7, the Company believes that it continues to be in the development stage.
Three Months Ended March 31, 1999 and Three Months Ended March 31, 1998
- -----------------------------------------------------------------------
Sales decreased $73,318 (45.8%) in the quarter ended March 31, 1999 versus
the same period of the prior year due to decreased sales of bulk cytokine
assay kit components offset, in part, by increased sales of bulk cytokine
proteins and cytokine assay kits. In February 1999, the Company reached
agreement with RDS under which the Company granted RDS an exclusive license
to produce and sell IL-1 antibodies and assays and a non-exclusive license
to manufacture and sell IL-1 protein to the research market. March 1999 was
the last month in which the Company sold IL-1 research market products. The
Company has retained all rights to therapeutic and diagnostic applications
and will devote its efforts towards research and development in these areas.
Cost of sales decreased $48,089 (55.6%) from the prior year's quarter due
to the lower sales volume and reclassification of some manufacturing
personnel to the research department.
During the quarter ended March 31, 1999, the Company recorded $69,750 of
nonrefundable research funding under the collaboration agreement with PMC
($75,000 net of fees due BlueStone Capital Partners) and $713,250 of
license fees from the agreement with RDS ($750,000 net of fees due Genome).
These amounts were recorded as other income in the quarter.
Operating expenses increased $39,600 (10.3%) in the quarter ended March 31,
1999 versus the same quarter of the prior year. Research expenditures
increased $26,632 (28.7%) due to higher research salary expenditures as the
result of reclassifying some manufacturing personnel to research and due to
increased external research funding in the quarter versus last year's
quarter.
Administrative and marketing expenses increased $17,842 (7.5%) due to
increased travel, audit and meeting expenses offset, in part, by lower
salary expense. Occupancy expenses decreased $4,874 (9.2%) due to lower
utility expenses.
Interest income of $86,810 was earned on the investment of higher cash
balances. In addition, net interest income of $1,500 was recognized on
accounts receivable - other and other non-current liabilities to reflect
the increase in their present value.
The Company had operating income of $408,983 in the quarter largely as the
result of an agreement with RDS and there can be no assurance that its
operations will maintain profitability.
-10-
<PAGE>11
Nine Months Ended March 31, 1999 and Nine Months Ended March 31, 1998
- ---------------------------------------------------------------------
Sales decreased $134,373 (31.5%) in the nine-month period ended March 31,
1999 versus the same period of the prior year due to decreased sales of
bulk cytokine assay kit components offset, in part, by increased sales of
bulk cytokine proteins. In February 1999, the Company reached agreement
with RDS under which the Company granted RDS an exclusive license to produce
and sell IL-1 antibodies and assays and a non-exclusive license to
manufacture and sell IL-1 protein to the research market. March 1999 was the
last month in which the Company sold IL-1 research market products. The
Company has retained all rights to therapeutic and diagnostic applications
and will devote its efforts towards research and development in these areas.
Cost of sales decreased $40,331 (17.2%) from the prior year's nine-month
period due to the lower sales volume and reclassification of some
manufacturing personnel to the research department.
During the nine months ended March 31, 1998, the Company received
nonrefundable research and development of $200,000, representing the last
two of 10 consecutive quarterly payments of $100,000 which another company
had agreed to make to Cistron. In the nine months ended March 31, 1999,
the Company received $139,500 of non-refundable research payments ($150,000
before fees due BlueStone Capital under the PMC agreement and $713,250 of
license fees ($750,000 before fees due Genome) under the agreement with RDS.
These amounts were recorded as other income in the nine-month period.
Operating expenses decreased $298,134 (20.6%) in the nine months ended
March 31, 1999 versus the same period of the prior year. Research expenses
decreased $187,633 (40.5%) due to lower research material and consulting
expenses and due to lower external research funding. The lower external
research and consulting expenses are primarily due to spending in the prior
year associated with preclinical periodontal disease studies.
Administrative and marketing expenses decreased $110,544 (13.2%) due to
lower salary, consulting, legal, and advertising and printing expenses
offset, in part, by higher audit expenses. Occupancy expenses were
unchanged.
Interest income of $226,114 was earned on the investment of higher cash
balances. In addition, $64,500 was recognized on accounts receivable -
other and other non-current liabilities to reflect the increase in their
present value.
The Company had an operating loss of $200,773 in the nine-month period ended
March 31, 1999 and there can be no assurance that its operations will reach
profitability.
-11-
<PAGE>12
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had current assets of $12,307,364 including
cash and cash equivalents of $9,006,038 and had current liabilities of
$1,154,185. Cash used in the nine-month period ended March 31, 1999 was
largely for operating expenses and payment of fees due the Institutions and
attorneys on the receipt of funds by Cistron under a litigation settlement
agreement and fees due BlueStone and Genome as the result of the equity
investment and research payments made by PMC to Cistron and the agreement
with RDS, respectively.
In September 1997, the Company engaged the services of BlueStone to act as
Cistron's financial advisor as to corporate strategic and financial
initiatives. The Company's agreement with BlueStone was not renewed at its
expiration in September 1998. In October 1998, Cistron engaged
Genome whose Chairman and CEO, Robert Naismith, Ph.D.
is also a member of the Company's Board of Directors, to perform these
services. In March 1999, the Company extended its engagement of Genome,
under the same terms and conditions, through September 1999. In this regard,
the Company has held exploratory discussions with several biotechnology and
pharmaceutical companies regarding possible strategic alliances including
joint ventures, mergers or the sale of the Company. There can be no
assurance that any of these discussions will result in any agreements with
the Company.
Management believes that it will have sufficient assets to fund the
Company's current programs and plans through fiscal 1999 and beyond.
Year 2000 Impact
- ----------------
The Company's computers are stand-alone PC's running Microsoft Windows 95
programs. Microsoft believes these programs to be Year 2000 (Y2K)
compatible. The volume of transactions processed via these programs can be
handled manually, if need be, to prevent any interruptions in order
processing. None of the manufacturing operations are dependent upon
computer systems. Additionally, the Company has requested and will receive
Y2K compliance statements from its major customers and suppliers. Those
that have responded thus far have not indicated a Y2K problem. Currently,
management does not foresee any negative impact from the Y2K event upon
Cistron's business operations.
-12-
<PAGE>13
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
Not applicable.
Item 2. Changes in Securities
---------------------
a. Not applicable
b. Not applicable
c. Not applicable
Item 3. Defaults upon Senior Securities
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) On Tuesday, February 23, 1999, the shareholders of the
Company held their annual meeting in New York, NY. The holders of
20,956,689 shares of Common Stock were present in person or represented by
proxy and, accordingly, a quorum was present.
(b) Not Applicable
(c)
(i) The following persons were elected directors of the Company:
FOR WITHHELD
--- --------
Frank Iris 19,109,105 1,847,584
Thomas P. Carney, Ph.D. 19,109,305 1,847,384
Frank G. Stout 19,114,005 1,842,684
Bruce C. Galton 19,106,705 1,849,984
Robert Naismith, Ph.D. 19,108,705 1,847,984
===========================================================
-13-
<PAGE>14
(ii) The ratification of the appointment of Deloitte & Touche LLP
as independent auditors of the Company for the year ending June 30, 1999 was
approved. The proposal received 20,522,585 votes in favor, 255,735 against,
65,919 abstained, and 0 broker non-votes.
(d) Not Applicable
Item 5. Other Information
-----------------
In March 1999, the Company extended its engagement of Genome
Securities, Inc. under the same terms and conditions, through September 1999.
On May 5, 1999, the Company announced that Bruce C. Galton and
Thomas P. Carney, Ph.D., had resigned as directors of the Company, that two
new directors, Isidore S. Edelman, M.D., the Company's co-founder, a former
board member, and a principal shareholder of the Company, and Jonathan
Rothschild, another shareholder of the Company, had been appointed to the
Board and that Franklin J. Iris, a director of the Company, had been
appointed Chairman of the Board of the Company and Chief Executive Officer-
designate. Mr. Galton resigned as Chairman and a director but has agreed
to remain as Chief Executive Officer until May 31, 1999. At that time, Mr.
Iris will become the Company's Chief Executive Officer.
Under Mr. Galton's Employment Agreement which had a term that
expired April 30, 1999, in the event the Company refused to renew his
Employment Agreement, then upon Mr. Galton's written request, the Company
had agreed to (i) pay Mr. Galton an amount equal to six months of his
current salary in equal monthly installments, commencing the month in which
the termination occurs, (ii) enter into a consulting contract with Mr.
Galton at full pay and benefits for a minimum of three months, and (iii)
lend Mr. Galton such amount as may be required to exercise any stock
options then exercisable by Mr. Galton to purchase shares of the Company's
Common Stock.
Mr. Galton and the Company entered into a Separation From Employment
Agreement under which the Employment Agreement was amended to increase the
severance payment to an amount equal to nine months base salary ($157,500),
payable in nine consecutive monthly installments commencing June 15, 1999,
and to eliminate any consulting agreement following the non-renewal of
employment. These payments are subject to acceleration to one lump sum
payment upon the first to occur of a sale or merger of the Company or its
liquidation or dissolution. The Employment Agreement was also modified to
modify the payment terms of the nonrecourse loan to require payment of the
note to be paid upon on the earliest of three (3) years following the date
of the loan, receipt of the proceeds of sale of shares securing the loan,
upon the merger or sale of the Company or the liquidation or dissolution of
the Company.
The Company also agreed to pay Mr. Galton additional severance
equal to three months base salary ($52,500), payable in three consecutive
monthly installments commencing June 15, 1999, in consideration for his
agreement to continue as Chief Executive Officer and Chief Financial
Officer during May 1999 and for his release of claims against the Company.
These payments are subject to acceleration to one lump sum payment upon the
first to occur of a sale or merger of the Company or its liquidation or
dissolution.
-14-
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibit.
10.20 License Agreement, dated February 16, 1999, between
Registrant and R&D Systems, Inc.
10.21 Separation from Employment Agreement, dated May 5, 1999,
between Registrant and Bruce C. Galton, including
Exhibit A thereto.
27. Financial Data Schedule
b. Reports on Form 8-K. Not applicable.
-15-
<PAGE>16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 10, 1999 CISTRON BIOTECHNOLOGY, INC.
(Registrant)
/s/BRUCE C. GALTON
------------------
Bruce C. Galton
CEO and CFO
-16-
<PAGE>1
License Agreement
-----------------
This agreement is entered into and effective as of the 16th day of
February, 1999 by and between R&D Systems, Inc., a Minnesota
corporation with principal offices at 614 McKinley Place N.E.,
Minneapolis, MN 55413 [RDS], and Cistron Biotechnology Inc., a New
Jersey Corporation with principal offices at 10 Bloomfield Avenue,
Pine Brook, NJ 07058 [CBI].
1. Recitals
1.1. Whereas CBI has an exclusive, worldwide license from the
New England Medical Center Hospitals, Inc., Tufts
University, Massachusetts Institute of Technology, and
Wellesley College [the INSTITUTIONS] to make, use, sell,
and to sublicense to others, products utilizing human
interleukin 1 beta [IL-1B], which is the subject of
patents owned by the INSTITUTIONS, as set forth in
Schedule A.
1.2. Whereas CBI has patents which describe the production and
use of antibodies to IL-1B and immunoassays selective
for IL-1B,as set forth in Schedule A.
1.3. Whereas CBI has been granted license from Merck, & Co.
Inc. for the research use of Interleukin 1 beta
converting enzyme [ICE],
1.4. Whereas RDS wishes to obtain assignment of the ICE
LICENSE defined herein,
1.5. Whereas RDS wishes to obtain an exclusive sub-license to
the INTELLECTUAL PROPERTY defined herein for the purpose
of commercializing products for the research market
worldwide, and CBI is willing to grant RDS such license
under the terms defined herein, and
1.6. In consideration of the mutual promises and undertakings
of the parties as herein set forth, it is hereby agreed
as follows:
2. Definitions
2.1. INTELLECTUAL PROPERTY means the licenses, United States
and foreign patents and patent applications and any
divisions, continuations, continuations in part,
reissues, reexaminations, renewals, and extensions
thereof, and all pending applications therefor (a) are
described in paragraphs 1.1, and 1.2 and (b) are set
forth in Schedule A.
2.2. ICE LICENSE means the license granted to CBI by Merck &
Co. Inc.
2.3. LICENSED PRODUCT(S) means any product(s) that contain(s)
or is made employing the INTELLECTUAL PROPERTY. LICENSED
PRODUCTS shall include:
2.3.1. REAGENT(S) means any stand-alone product(s),
e.g., proteins or antibodies, that contain(s) or is
made employing the INTELLECTUAL PROPERTY.
<PAGE>2
2.3.2. COMBINATION PRODUCT(S) means any product(s)
that contain(s) more than a single reagent, e.g.,
immunoassays or matched reagents for immunoassays,
where at least one of the components of this
product contain(s) or is a REAGENT or is made
employing the INTELLECTUAL PROPERTY.
2.4. NET SALES means the invoiced amount of sales of the
LICENSED PRODUCT(S) by RDS to third parties less the
following items: (a) Customary trade, quantity and cash
discounts, sales rebates allowed and taken; (b) Credits
actually given for rejected or returned products; (c)
Freight and insurance if separately itemized on the
invoice and paid by the customer; and (d) Value-added,
sales, use or turnover taxes, excise taxes and customs
duties included in the invoice amount.
2.5. AFFILIATES means any organization controlling,
controlled by, or under the common control with RDS. For
this purpose the term control means ownership, directly
or indirectly, of at least fifty percent (50%) of the
equity capital or a right to at least fifty- percent
(50%) of the profits.
2.6. FIELD means the research market.
2.7. TERRITORY means countries where patent protection exists.
3. Grant and Assignment
3.1. CBI grants to RDS, including its AFFILIATES, and RDS
accepts an exclusive, sub-license to make, have made,
use, sell, and sub-license the INTELLECTUAL PROPERTY in
the FIELD in the TERRITORY.
3.1.1. RDS shall use reasonable efforts to market
LICENSED PRODUCTS in the FIELD and will manufacture
its LICENSED PRODUCTS within the United States
3.2. CBI will seek assignment of the ICE LICENSE to RDS.
3.3. CBI will provide to RDS its customer list and sales
history for the past two (2) fiscal years.
3.4. CBI will cease its business as a provider of research
products relating to the INTELLECTUAL PROPERTY and ICE
LICENSE as defined herein.
3.5. CBI may continue to produce REAGENTS and COMBINATiON
PRODUCTS, using the INTELLECTUAL PROPERTY, for its own
research use and may also provide REAGENTS and/or
COMBINATION PRODUCTS to their collaborators, at no
charge, for use in CBI-sponsored research directed
toward the development of applications of the
INTELLECTUAL PROPERTY outside of the FIELD.
3.6. Should CBI dissolve, file for bankruptcy, has filed
against it an involuntary petition of bankruptcy which
is not dismissed within thirty (30) days after the date
of filing, or otherwise cease to actively conduct its
business, all rights to the INTELLECTUAL PROPERTY for
use in the FIELD in the TERRITORY shall be assigned to RDS.
<PAGE>3
4. Payments, Reports, and Accounting
4.1. RDS agrees to pay CBI a one-time license initiation fee
of seven hundred fifty thousand dollars (US $750,000)
for the INTELLECTUAL PROPERTY within thirty (30) days of
the full execution of this Agreement.
4.2. RDS agrees to pay CBI a royalty equal to four percent
(4%) of NET SALES of REAGENT(S) and eight percent (8%)
of NET SALES of COMBINATION PRODUCT(S) in the TERRITORY.
4.3. RDS agrees to share equally any fees or royalties with
CBI derived from RDS sub-licensing activities of the
INTELLECTUAL PROPERTY.
4.4. CBI agrees to share equally any fees or royalties, net
of contractually defined payments made to the
INSTITUTIONS, with RDS derived from CBI's license
agreement with Peprotech Inc. (located at 5 Crescent
Avenue, Rocky Hill, New Jersey 08553).
4.5. RDS shall submit semi-annual written reports and royalty
payments, due within sixty (60) days following December
31 and June 30 of each year. This report shall include
the number, description, and aggregate NET SALES of
LICENSED PRODUCT(S) made during the reporting period,
and the resulting calculation of the royalty due.
Concurrent with the report, RDS shall include the
payment due to CBI of royalties for the period covered
by the report. All royalty payments shall be paid in US
Dollars.
4.6. RDS agrees to keep records for a period of three (3)
years showing the manufacture, sales, use, and other
disposition of the LICENSED PRODUCT(S) under the license
granted herein in sufficient detail to enable royalties
payable hereunder by RDS to be determined.
4.7. RDS further agrees to permit its books and records to be
examined by CBI to the extent necessary to verify
reports provided for in paragraph 4.5. Such examination
is to be made by CBI, at CBI's expense, and shall be on
a confidential basis no more frequently than once yearly.
5. Representations
5.1. Each party represents to the other party that to the
best of its knowledge it has full right and authority to
enter into this Agreement without the consent or
approval of any third party.
5.2. CBI represents and warrants that it is the owner of the
INTELLECTUAL PROPERTY and is unaware of any liens,
encumbrances, restrictions or other legal claims, to the
best of its knowledge and belief without having done any
due diligence.
5.3. CBI makes no representations and extends no warranties
of any kind, either express or implied. There are no
express or implied warranties of merchantability or
fitness for a particular purpose, or that the use of the
INTELLECTUAL PROPERTY will or does not infringe any
patent, trademark, or copyright of third parties.
<PAGE>4
6. Patent Maintenance, Infringement and Enforcement
6.1. CBI will maintain any and all patents included hereinand
set forth in Schedule A, including but not exclusive of
maintenance fees and filings.
6.2. RDS shall have the right, at its discretion and its
expense, to enforce its patent rights granted herein.
6.2.1. Recoveries, damage awards or settlements, net
of reimbursement of all expenses incurred by RDS to
enforce the patent rights, shall be considered NET
SALES when received by RDS and such net amounts
shall be included in the determination of royalties
due CBI.
6.3. CBI shall make available, at RDS' expense, any records
or documents that may be needed for any legal proceedings.
7. Indemnification
7.1. RDS will indemnify, defend, and hold harmless CBl from
any and all damages, costs, expenses, suits, claims and
judgments (including reasonable attorney's fees and
cost) arising from the conduct of RDS or its officers or
employees or arising from the production or use of the
INTELLECTUAL PROPERTY or the production, use or sale of
LICENSED PRODUCT(S) by RDS, except for any claims,
liability, damage, loss, cost, or expense caused by
CBI's negligence or willful misconduct in connection
with its supply of the INTELLECTUAL PROPERTY to RDS.
8. Amendments
8.1. The Agreement constitutes the entire understanding
between the parties with respect to the subject matter
herein, and no modification or amendment shall be valid
or binding upon the parties unless made in writing and
duly executed on behalf of each party.
9. Confidentiality
9.1. All information submitted by one party to the other
concerning the INTELLECTUAL PROPERTY and designated in
writing, shall be considered as confidential information
and shall be utilized only pursuant to the license
granted hereunder. During the term of this Agreement and
a period of five (5) years thereafter, neither party
shall disclose to any third party any information
received from the other party without the specific
written consent of that party. The foregoing shall not
apply where such information (a) was or becomes public
through no fault of the receiving party, (b) was at the
time of receipt, already in the possession of the
receiving party as evidenced by its written records, or
(c) was obtained from a third party legally entitled to
use and disclose the same.
10. Term and termination
10.1. Unless earlier terminated pursuant to paragraph 10.2 the
provisions of this Agreement will expire upon
the expiration of the last of the INTELLECTUAL PROPERTY.
<PAGE>5
10.2. CBI may terminate this Agreement if RDS is in
default in payment of royalty or providing reports
provided that RDS fails to remedy any such default,
breach or false report within thirty (30) days of
written notice thereof by CBI.
10.3. Surviving any termination are (a) the obligation of
RDS to pay royalties accrued or accruable, (b) any cause
of action or claim of RDS or CBI, accrued or to accrue,
because of any breach or default by the other party, and
(c) the provisions of paragraphs 4, 7, and 9.
10.4. Upon termination by either party, RDS shall have
the right for one (1) year to dispose of all LICENSED
PRODUCT(S) then on hand or in process of manufacture,
and to complete all orders for such LICENSED PRODUCT(S)
then on hand or in process of manufacture, and royalties
shall be paid to CBI with respect to such LICENSED
PRODUCT(S) as though this Agreement had not terminated.
10.5. Upon termination by either party, any Agreement by
RDS granting sub-licensee rights shall be assigned to
CBI for the term of those agreements.
11. Miscellaneous Provisions
11.1. Any notice or other communication required or
permitted under this Agreement shall be in writing and
shall be deemed to have been given, when received, if
personally delivered or delivered by telegram, telex, or
facsimile, or when deposited, if placed in the US Mails
for delivery by registered or certified mail, return
receipt requested, postage prepaid and addressed to the
appropriate party at the address set forth below:
To RDS: President
R&D Systems, Inc.
614 McKinley Place, N.E.
Minneapolis, MN 55413
To CBI: President
Cistron Biotechnology Inc.
P.O. Box 2004
10 Bloomfield Avenue
Pine Brook, NJ 07058
11.2. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter described
in this Agreement and shall supersede all previous
negotiations, commitments, writings, or agreements with
respect to such subject matter, including the License
and Supply Agreement between the parties effective as of
March 21, 1995 and the Research and Development
Agreement between the parties effect as of April 10, 1995.
11.3. This Agreement may not be released, discharged,
abandoned, changed, or modified in any manner, except by
an instrument in writing signed on behalf of both
parties to this Agreement by their duly authorized
representatives. The failure of either party to enforce
at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such
provision, nor in any way to effect the validity of this
Agreement or any part of it or the right of either party
after any such failure to enforce each and every such
provision. No waiver of any breach of this Agreement
shall be held to be a waiver of any other or subsequent
breach.
<PAGE>6
11.4. This agreement shall be governed by, and construed
in accordance with the law of the State of Minnesota
(other than its law with respect to conflicts of laws),
including all matters of construction, validity, and
performance.
11.5. This Agreement shall be binding upon and inure to
the benefit of the parties to this Agreement and their
successors or assigns, provided that, except as
otherwise noted, the rights and obligations of either
party under this Agreement may not be assigned without
the written consent of the other party. Such consent
will not be unreasonable withheld.
11.6. The validity of any portion of this Agreement shall
not affect the validity, force or effect of the
remaining portions of this Agreement.
<PAGE>7
In witness whereof, the parties have caused this Agreement to be executed in
the manner appropriate for each.
Research and Diagnostic Systems Inc.
By /s/ THOMAS E. OLAND
--------------------
Thomas E. Oland, President
Date Feb. 18, 1999
-------------
Cistron Biotechnology, Inc
By /s/ BRUCE C. GALTON
-------------------
Bruce C. Galton, President
Date 2-17-99
-------
<PAGE>8
SCHEDULE A
----------
IL-1B PATENTS
<PAGE>1
CISTRON BIOTECHNOLOGY, INC.
10 Bloomfield Avenue
Pine Brook, New Jersey 07058
(973) 575-1700
May 5, 1999
Mr. Bruce C. Galton
8 Holden Lane
Madison, New Jersey 07940
Re: Separation from Employment
--------------------------
Dear Bruce:
This letter ("Agreement") sets forth the agreement reached concerning
your decision to terminate your employment with Cistron Biotechnology, Inc.
(the "Company").
1. Your resignation as a Director and Chairman of the Company is
hereby accepted effective April 30, 1999.
2. We hereby agree that the Employment Agreement dated April 30, 1994
(the "Employment Agreement") between you and the Company, is hereby terminated
except that Paragraphs 5, 6, 7, 8, 9.7 and 10 of the Employment Agreement
shall continue in full force and effect in accordance with their respective
terms, except to the extent Paragraph 9.7 is modified by this Agreement.
3. Paragraph 9.7 (i)(a) of the Employment Agreement is hereby amended
to change the word "six" to "nine" and to provide that the payments thereunder
shall commence June 15, 1999 and shall be payable in nine (9) consecutive
equal monthly installments less applicable deductions (including, but not
limited to, social security payments, income tax withholding, and any other
deduction required by law). In addition, upon the first to occur of a sale or
merger of the Company or its liquidation or dissolution, the Company shall
pay you a lump sum payment (again less applicable deductions) in an amount
equal to the balance of the installments payable under Paragraph 9.7(i)(a)
as hereby amended. Paragraph 9.7(ii) is hereby
<PAGE>2
amended as provided in Paragraph 4 of this Agreement. Paragraph 9.7(iii) is
deleted in its entirety.
4. On the eighth (8th) day after the date of this Agreement, the
Company shall lend you, on a non-recourse basis secured by the shares of stock
purchased, such amount as may be required to exercise any stock options then
exercisable by you to purchase shares of the Company's common stock, which
loan may be utilized by you for no other purpose than exercise of such stock
options and shall be payable on the earliest of three (3) years following the
loan, receipt of the proceeds of sale of shares securing the loan, upon the
merger or sale of the Company or the liquidation or dissolution of the
Company. You agree to provide the Company with a notice of exercise of such
options no later than the fifteenth (15th) day after the date of this letter.
The Company agrees to use its best efforts to cause certificates evidencing
the shares to be issued upon exercise of options to be issued to you as soon
as practicable after its receipt of your notice of exercise of the options.
You understand and acknowledge that the certificates so issued shall bear a
legend that they are subject to the foregoing provisions relating to the
repayment of the loan. The Company agrees that you shall be entitled to any
and all cash dividends, stock dividends, stock splits or stockholder
distributions declared on or after April 30, 1999 on a per share basis of all
shares owned by you including those to be issued as a result of the exercise
of all options owned by you.
5. Commencing on May 1, 1999 and ending May 31, 1999, the Company
shall employ you as its Chief Executive Officer and Chief Financial Officer
and as such shall be responsible for the overall operations of the Company
as well as the management of the financial and administrative affairs of the
Company including such as may be assigned to you from time to time by the
Board of Directors of the Company (the "Board"). You shall report directly
to the Board. Your compensation for the month of May 1999 shall be
SEVENTEEN THOUSAND FIVE HUNDRED ($17,500.00) DOLLARS, less applicable
deductions (including, but not limited to, social security payments,
income tax withholding, and any other deduction required by law). During
this period, you shall be entitled to participate on the same basis and at
the same level as other employees, in any group insurance, hospitalization,
medical health and accident, disability, similar plans or programs of the
Company now existing or hereinafter established to the extent that you are
eligible under the general provisions thereof. The Company may terminate
your employment at any time prior to May 31, 1999 for any reason or no
reason; provided, however, you shall be entitled to the balance of the
payments described in this paragraph notwithstanding such termination
unless the termination is for "cause." "Cause" shall be limited to any
illegal conduct, act of fraud, theft or knowing violation of any material
regulation or law, committed by you in connection with your employment with
the Company. If your employment is terminated for "Cause," you shall be
entitled only to compensation through the effective date of termination.
<PAGE>3
6. On or before June 7, 1999, you shall execute a release in
substantially the form annexed hereto as Exhibit A (the "Bring-Down Release"),
releasing the Company from any claims you may against it relating to your
employment as provided in paragraph 5.
7. In consideration for signing this Agreement and in exchange for
the promises, covenants and waivers set forth herein, provided you have not
revoked this Agreement as set forth below and subject to your compliance with
its terms including but not limited to execution and delivery of the Bring-
Down Release by June 7, 1999 and your not revoking the Bring Down Release as
provided therein, and provided that your employment has not been terminated
for Cause as set forth in Paragraph 5 above, the Company shall pay you a
total of FIFTY TWO THOUSAND FIVE HUNDRED ($52,500.00) DOLLARS in three equal
consecutive monthly installments, less applicable deductions (including, but
not limited to, social security payments, income tax withholding, and any
other deduction required by law), commencing June 15, 1999. Upon the first to
occur of a sale or merger of the Company or its liquidation or dissolution,
the Company shall pay you a lump sum payment in an amount equal to the balance
of the installments payable under this paragraph.
8. In consideration of (A) the amendments to Paragraph 9.7 of the
Employment Agreement and the payments described in paragraph 7 of this
Agreement, and for other good and valuable consideration, you hereby release
and forever discharge, and by this instrument release and forever discharge,
the Company and its successors, assigns, representatives, agents, attorneys,
shareholders, officers, directors and employees, and (B) for the release and
agreements contained herein by you, the Company and its successors, assigns,
representatives, agents, attorneys, shareholders, officers, directors and
employees, hereby release and forever discharge, and by this instrument
release and forever discharge, you, from all debts, obligations, promises,
covenants, agreements, contracts, endorsements, bonds, controversies, suits,
actions, causes of action, judgments, damages, expenses, claims or demands,
in law or in equity, which the releasing party or parties, as the case may
be, ever had, now has, or which may arise in the future, regarding any matter
arising on or before the date of execution of this Agreement, including but
not limited to all claims (whether known or unknown) regarding your employment
at or termination of employment from the Company, any contract (express or
implied), any claim for equitable relief or recovery of punitive, compensatory,
or other damages or monies, attorneys' fees, any tort, and all claims for
alleged discrimination based upon age, race, color, sex, sexual orientation,
marital status, religion, national origin, handicap, disability, or
retaliation, including any claim, asserted or unasserted, which could arise
under Title VII of the Civil Rights Act of 1964; the Equal Pay Act of 1963;
the Age Discrimination in Employment Act of 1967; the Older Workers Benefit
Protection Act of 1990; the Americans With Disabilities Act of 1990; the
Civil Rights Act of 1866, 42 U.S.C., 1981; the Employee Retirement Income
Security Act of 1974; the Family and Medical Leave Act of 1993; the Civil
Rights Act of 1991; the Worker Adjustment and Retraining Notification Act of
1988; the New Jersey Conscientious Employee Protection Act; the New Jersey
Law Against Discrimination; and any other federal, state or local laws, rules
or regulations, whether equal employment opportunity laws, rules or
<PAGE>4
regulations or otherwise, or any right under any of the Company's pension,
welfare, or stock plans. The foregoing release by you does not apply to any
of your rights under this Agreement or the provisions of the Employment
Agreement which survive termination as provided in paragraph 2 of this
Agreement as modified hereby. The foregoing release by the Company shall not
apply to any other liabilities, claims and demands which directly or
indirectly result from any illegal conduct, act of fraud, theft or knowing
violation of any material regulation or law, committed by you in connection
with your employment with the Company. This Agreement may not be cited
as, and does not constitute any admission by you of, any violation of any
such law or legal obligation with respect to any aspect of your employment or
termination therefrom.
9. Each party represents and agrees that he or it has not filed any
lawsuits against the other party, or filed or caused to be filed any charges
or complaints against the other party with any municipal, state or federal
agency charged with the enforcement of any law. Each party also agrees, to
the extent consistent with applicable law, not to initiate any legal action,
complaint, statement of claim or demand for arbitration against the other
party in any forum whatsoever, in connection with the claims released hereby.
In addition, to the extent any such action may be brought, each party
expressly waives any claim to any form of monetary or other damages, or any
other form of recovery or relief in connection with any such action, or in
connection with any action brought by a third party. If a party violates
this Agreement by filing or bringing any claims or actions contrary to this
paragraph, such breaching party will immediately forfeit all right to any and
all future payments or services, as the case may be, if any, under paragraph
7 of this Agreement. The breaching party also agrees to pay all costs and
expenses of the non-breaching party in defending against such claims or
actions brought by such breaching party, including reasonable attorneys' fees.
10. The Company represents, warrants and acknowledges that it owes you
no wages, commissions, bonuses, sick pay, personal leave pay, severance pay,
vacation pay or other compensation or payments or form of remuneration of any
kind or nature, other than that specifically provided for in this Agreement
and paragraph 9.7 of the Employment Agreement as hereby amended.
11. Each party agrees that it shall not disparage or criticize the
other party, or issue any communication, written or otherwise, that reflects
adversely on or encourages any adverse action against the other party, except
if testifying truthfully under oath pursuant to any lawful court order or
subpoena or otherwise responding to or providing disclosures required by law.
12. You hereby confirm that you have delivered to the Company and
retained no copies of any written materials, records and documents made by you
or coming into your possession during the course of your employment with the
Company which contains or refers to any proprietary or confidential
information as those terms are used in paragraph 6 of the Employment
Agreement. You further confirm that you have delivered to the Company any and
all property and equipment of the Company.
<PAGE>5
13. Upon service on you or a representative of the Company of any
subpoena, order, directive or other legal process requiring you or the Company
to engage in conduct encompassed within Paragraphs 9 and 11 of this Agreement,
you or the Company, as the case may be, shall immediately notify the other
party of such service and of the content of any testimony or information to be
provided pursuant to such subpoena, order directive or other legal process and
within two (2) business days send to the other party, via overnight delivery,
a copy of said document served upon you or a representative of the Company.
14. You agree that you will assist and cooperate with the Company in
connection with the defense or prosecution of any claim that may be made
against or by the Company, or in connection with any ongoing or future
investigation or dispute or claim of any kind involving the Company, including
any proceeding before any arbitral, administrative, judicial, legislative, or
other body or agency, including testifying in any proceeding to the extent
such claims, investigations or proceedings relate to services performed or
required to be performed by you, pertinent knowledge possessed by you, or any
act or omission by you. You further agree to perform all acts and execute and
deliver any documents that may be reasonably necessary to carry out the
provisions of this paragraph. The Company agrees to pay you a per diem, as
reasonably requested by you, and to reimburse all expenses incurred pursuant
to this paragraph.
15. This Agreement together with the Bring-Down Release constitutes
the entire agreement between the Company and you, and supersedes and cancels
all prior written and oral agreements, if any, between the Company and you,
except that Paragraphs 5, 6, 7, 8, 9.7 and 10 of the Employment Agreement
shall continue in full force and effect in accordance with their respective
terms except as modified by this Agreement, and any outstanding option
agreements between you and the Company shall remain in effect, subject to the
provisions of Paragraph 4 of this Agreement. You and the Company acknowledge
that, in entering into this Agreement, you are not relying upon any oral or
written promise or statement made by anyone at any time.
16. This Agreement is binding upon you and the Company and his or its
successors, assigns, heirs, executors, administrators and legal
representatives, as the case may be.
17. If any of the provisions, terms or clauses of this Agreement are
declared illegal, unenforceable or ineffective in a legal forum, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Agreement shall remain valid and binding
upon both parties. However, the illegality or unenforceability of any such
provision shall have no effect upon, and shall not impair the enforceability
of the release language set forth in Paragraph 6 provided that, upon a finding
by a court of competent jurisdiction that the release language found in
Paragraph 6 is unenforceable, the parties shall rewrite Paragraph 6 to cure
the defect and you and a representative of the Company shall reexecute the
release and neither party shall be entitled to any additional monies, benefits
and/or compensation therefor.
<PAGE>6
18. Without detracting in any respect from any other provision of this
Agreement:
a. You, in consideration of the amendments to Paragraph 9.7 of the
Employment Agreement and the payments described in paragraph 7 of this
Agreement, and for other good and valuable consideration, agree and
acknowledge that this Agreement constitutes a knowing and voluntary waiver of
all rights or claims you have or may have against the Company and its
successors, assigns, representatives, agents, attorneys, shareholders,
officers, directors and employees as set forth herein, including, but not
limited to, all rights or claims arising under the Age Discrimination in
Employment Act of 1967, as amended ("ADEA"), including, but not limited to,
all claims of age discrimination in employment and all claims of retaliation
in violation of the ADEA; and you have no physical or mental impairment of
any kind that has interfered with your ability to read and understand the
meaning of this Agreement or its terms, and that you are not acting under the
influence of any medication or mind-altering chemical of any type in entering
into this Agreement.
b. You understand that, by entering into this Agreement, you do
not waive rights or claims that may arise after the date of your execution of
this Agreement, including without limitation any rights or claims that you may
have to secure enforcement of the terms and conditions of this Agreement.
c. You agree and acknowledge that the consideration provided to
you under this Agreement for the releases and waivers contained herein is in
addition to anything of value to which you are already entitled.
d. The Company hereby advises you to consult with an attorney
prior to executing this Agreement.
e. You acknowledge that you were informed that you had at least
twenty-one (21) days in which to review and consider this Agreement, and to
consult with an attorney regarding the terms and effect of this Agreement.
19. The Company agrees that you may revoke this Agreement within
seven (7) days from the date you sign this Agreement, in which case this
Agreement shall be null and void and of no force or effect on either the
Company or you. Any revocation must be in writing and received by the
Company by 5:00 p.m. on or before the seventh day after this Agreement is
executed by you. Such revocation must be sent to:
Cistron Biotechnology, Inc.
10 Bloomfield Avenue
Pine Brook, New Jersey 07058
<PAGE>7
20. This Agreement may not be changed or altered, except by a writing
signed by the Company and you. This Agreement is entered into in the State
of New Jersey, and the laws of the State of New Jersey will apply to any
dispute concerning it, excluding the conflict-of-law principles thereof.
21. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which, when taken together, shall
constitute one and same instrument
YOU EXPRESSLY ACKNOWLEDGE, REPRESENT, AND WARRANT THAT YOU HAVE READ
THIS AGREEMENT CAREFULLY; THAT YOU FULLY UNDERSTAND THE TERMS, CONDITIONS,
AND SIGNIFICANCE OF THIS AGREEMENT; THAT THE COMPANY HAS ADVISED YOU TO
CONSULT WITH AN ATTORNEY CONCERNING THIS AGREEMENT; THAT YOU HAVE HAD A FULL
OPPORTUNITY TO REVIEW THIS AGREEMENT WITH AN ATTORNEY; THAT YOU UNDERSTAND
THAT THIS AGREEMENT HAS BINDING LEGAL EFFECT; AND THAT YOU HAVE EXECUTED THIS
AGREEMENT FREELY, KNOWINGLY AND VOLUNTARILY.
<PAGE>8
PLEASE READ CAREFULLY. THIS AGREEMENT HAS IMPORTANT
LEGAL CONSEQUENCES.
Date: May 5, 1999
-----------
CISTRON BIOTECHNOLOGY, INC.
By: /s/FRANK G. STOUT
---------------------
Name: FRANK G. STOUT
Title: DIRECTOR
On this ____ day of May 1999, before me personally came
_________________, to me known to be the individual described in the
foregoing instrument, who executed the foregoing instrument in my presence,
and who duly acknowledged to me that he/she executed the same.
_______________________________
Notary Public
/s/BRUCE C. GALTON
------------------
BRUCE C. GALTON
On this ____ day of May 1999, before me personally came
_________________, to me known to be the individual described in the
foregoing instrument, who executed the foregoing instrument in my presence,
and who duly acknowledged to me that he/she executed the same.
_______________________________
Notary Public
_______________________________
You must sign and return this Agreement to the Company no later
than 5:00 p.m. on the 21st day following receipt of this document
or irrevocably lose the opportunity to receive the consideration
detailed herein. You received this Agreement on May 5, 1999.
EXHIBIT A
---------
CISTRON BIOTECHNOLOGY, INC.
10 Bloomfield Avenue
Pine Brook , New Jersey 07058
(973) 575-1700
June__, 1999
Mr. Bruce C. Galton
8 Holden Lane
Madison, New Jersey 07940
Re: Release
-------
Dear Bruce:
This release ("Release") is being entered into pursuant to the terms
of Paragraph 3 of the termination agreement ("Agreement") dated May 5, 1999,
between you and Cistron Biotechnology, Inc., (the "Company").
1. In consideration of (A) the amendment to Paragraph 9.7 of the
Employment Agreement set forth in the Agreement and the payments described in
paragraph 7 of the Agreement, and for other good and valuable consideration,
you hereby release and forever discharge, and by this instrument release and
forever discharge, the Company and its successors, assigns, representatives,
agents, attorneys, shareholders, officers, directors and employees, and
(B) for the release and agreements contained herein by you, the Company and
its successors, assigns, representatives, agents, attorneys, shareholders,
officers, directors and employees, hereby release and forever discharge, and
by this instrument release and forever discharge, you, from all debts,
obligations, promises, covenants, agreements, contracts, endorsements, bonds,
controversies, suits, actions, causes of action, judgments, damages, expenses,
claims or demands, in law or in equity, which the releasing party or parties,
as the case may be, ever had, now has, or which may arise in the future,
regarding any matter arising on or before the date of execution of this
Release, including but not limited to all claims (whether known or unknown)
regarding your employment at or termination of employment from the Company,
any contract (express or implied), any claim for equitable relief or recovery
of punitive, compensatory, or other damages or monies, attorneys' fees, any
tort, and all claims for alleged discrimination based upon age, race, color,
sex, sexual orientation, marital status, religion, national origin, handicap,
<PAGE>2
disability, or retaliation, including any claim, asserted or unasserted, which
could arise under Title VII of the Civil Rights Act of 1964; the Equal Pay Act
of 1963; the Age Discrimination in Employment Act of 1967; the Older Workers
Benefit Protection Act of 1990; the Americans With Disabilities Act of 1990;
the Civil Rights Act of 1866, 42 U.S.C., 1981; the Employee Retirement Income
Security Act of 1974; the Family and Medical Leave Act of 1993; the Civil
Rights Act of 1991; the Worker Adjustment and Retraining Notification Act of
1988; the New Jersey Conscientious Employee Protection Act; the New Jersey Law
Against Discrimination; and any other federal, state or local laws, rules or
regulations, whether equal employment opportunity laws, rules or regulations
or otherwise, or any right under any of the Company's pension, welfare, or
stock plans. The foregoing release by you does not apply to any of your rights
under the Agreement, the Bring-Down Release or the provisions of the
Employment Agreement which survive termination as provided in paragraph 2 of
the Agreement as modified hereby. The foregoing release by the Company shall
not apply to any other liabilities, claims and demands which directly or
indirectly result from any illegal conduct, act of fraud, theft or knowing
violation of any material regulation or law, committed by you in connection
with your employment with the Company. This Release may not be cited as, and
does not constitute any admission by you or the Company of, any violation
of any such law or legal obligation with respect to any aspect of your
employment or termination therefrom.
2. Each party represents and agrees that he or it has not filed
any lawsuits against the other party, or filed or caused to be filed any
charges or complaints against the other party with any municipal, state or
federal agency charged with the enforcement of any law. Each party also
agrees, to the extent consistent with applicable law, not to initiate any
legal action, complaint, statement of claim or demand for arbitration against
the other party in any forum whatsoever, in connection with the claims
released hereby. In addition, to the extent any such action may be brought,
each party expressly waives any claim to any form of monetary or other
damages, or any other form of recovery or relief in connection with any such
action, or in connection with any action brought by a third party. If a
party violates this Release by filing or bringing any claims or actions
contrary to this paragraph, such breaching party will immediately forfeit
all right to any and all future payments or services, as the case may be,
if any, under this Release. The breaching party also agrees to pay all costs
and expenses of the non-breaching party in defending against such claims or
actions brought by such breaching party, including reasonable attorneys'
fees.
3. You acknowledge that the Company owes you no wages,
commissions, bonuses, sick pay, personal leave pay, severance pay, vacation
pay or other compensation or payments or form of remuneration of any kind or
nature, other than that specifically provided for in this Release.
4. You hereby confirm that you have delivered to the Company and
retained no copies of any written materials, records and documents made by you
or coming into your possession during the course of your employment with the
Company which contains or refers to
-2-
<PAGE>3
any proprietary or confidential information as those terms are used in
paragraph 6 of the Employment Agreement. You further confirm that you have
delivered to the Company any and all property and equipment of the Company.
5. This Release and the Agreement constitute the entire agreement
between the Company and you, and supersede and cancel all other prior written
and oral agreements, if any, between the Company and you, except that
Paragraphs 5, 6, 7, 8, 9.7 and 10 of the Employment Agreement shall continue
in full force and effect in accordance with their respective terms except as
modified by the Agreement, and any outstanding option agreements between you
and the Company shall remain in effect, subject to the provisions of
Paragraph 4 of the Agreement. You and the Company acknowledge that, in
entering into this Release, you are not relying upon any oral or written
promise or statement made by anyone at any time.
6. This Release is binding upon you and the Company and his or
its successors, assigns, heirs, executors, administrators and legal
representatives, as the case may be.
7. If any of the provisions, terms or clauses of this Release
are declared illegal, unenforceable or ineffective in a legal forum, those
provisions, terms and clauses shall be deemed severable, such that all other
provisions, terms and clauses of this Release shall remain valid and binding
upon both parties. However, the illegality or unenforceability of any such
provision shall have no effect upon, and shall not impair the enforceability
of the release language set forth in Paragraph 1 provided that, upon a
finding by a court of competent jurisdiction that the release language found
in Paragraph 1 is unenforceable, the parties shall rewrite Paragraph 1 to
cure the defect and you and a representative of the Company shall reexecute
the release and neither party shall be entitled to any additional monies,
benefits and/or compensation therefor.
8. Without detracting in any respect from any other provision
of this Release:
a. You, in consideration of the payments described in
Paragraphs 3 and 7 of the Agreement, and for other good and valuable
consideration, agree and acknowledge that this Release constitutes a knowing
and voluntary waiver of all rights or claims you have or may have against the
Company and its successors, assigns, representatives, agents, attorneys,
shareholders, officers, directors and employees as set forth herein,
including, but not limited to, all rights or claims arising under the Age
Discrimination in Employment Act of 1967, as amended ("ADEA"), including,
but not limited to, all claims of age discrimination in employment and all
claims of retaliation in violation of the ADEA; and you have no physical or
mental impairment of any kind that has interfered with your ability to read
and understand the meaning of this Release or its terms, and that you are not
acting under the influence of any medication or mind-altering chemical of any
type in entering into this Release.
b. You understand that, by entering into this Release,
you do not waive rights or claims that may arise after the date of your
execution of this Release, including
-3-
<PAGE>4
without limitation any rights or claims that you may have to secure
enforcement of the terms and conditions of this Release.
c. You agree and acknowledge that the consideration
provided to you under the Agreement and this Release as it relates to your
releases and waivers is in addition to anything of value to which you are
already entitled.
d. The Company hereby advises you to consult with an
attorney prior to executing this Release.
e. You acknowledge that you were informed that you had
at least twenty-one (21) days in which to review and consider this Release,
and to consult with an attorney regarding the terms and effect of this
Release.
9. The Company agrees that you may revoke this Release within
seven (7) days from the date you sign this Release, in which case this
Release shall be null and void and of no force or effect on either the
Company or you. Any revocation must be in writing and received by the
Company by 5:00 p.m. on or before the seventh day after this Release is
executed by you. Such revocation must be sent to:
Cistron Biotechnology, Inc.
10 Bloomfield Avenue
Pine Brook, New Jersey 07058
10. This Release may not be changed or altered, except by a
writing signed by the Company and you. This Release is entered into in the
State of New Jersey, and the laws of the State of New Jersey will apply to
any dispute concerning it, excluding the conflict-of-law principles thereof.
11. This Release may be executed in counterparts, each of which
shall be deemed an original, but all of which, when taken together, shall
constitute one and same instrument
YOU EXPRESSLY ACKNOWLEDGE, REPRESENT, AND WARRANT THAT YOU HAVE READ
THIS RELEASE CAREFULLY; THAT YOU FULLY UNDERSTAND THE TERMS, CONDITIONS, AND
SIGNIFICANCE OF THIS RELEASE; THAT THE COMPANY HAS ADVISED YOU TO CONSULT
WITH AN ATTORNEY CONCERNING THIS RELEASE; THAT YOU HAVE HAD A FULL OPPORTUNITY
TO REVIEW THIS RELEASE WITH AN ATTORNEY; THAT YOU UNDERSTAND THAT THIS RELEASE
HAS BINDING LEGAL EFFECT; AND THAT YOU HAVE EXECUTED THIS RELEASE FREELY,
KNOWINGLY AND VOLUNTARILY.
-4-
<PAGE>5
PLEASE READ CAREFULLY. THIS RELEASE HAS IMPORTANT
LEGAL CONSEQUENCES.
Date:___________
CISTRON BIOTECHNOLOGY, INC.
By: ________________________
Name:
Title:
On this ____ day of ________ 1999, before me personally came
_________________, to me known to be the individual described in the foregoing
instrument, who executed the foregoing instrument in my presence, and who duly
acknowledged to me that he/she executed the same.
____________________________
Notary Public
____________________________
Bruce C. Galton
On this ____ day of ________ 1999, before me personally came
_________________, to me known to be the individual described in the foregoing
instrument, who executed the foregoing instrument in my presence, and who duly
acknowledged to me that he/she executed the same.
____________________________
Notary Public
____________________________
You must sign and return this Release to the Company no later than 5:00 p.m.
on the 21st day following receipt of this document or irrevocably lose the
opportunity to receive the consideration detailed herein. You received this
Release on May 5, 1999.
-5-
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information taken from the balance
sheet as of March 31, 1999 (unaudited) and the statement of operations for
the nine-month period ended March 31, 1999 (unaudited) and is qualified in
its entirety by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended June 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,006,038
<SECURITIES> 0
<RECEIVABLES> 3,200,903
<ALLOWANCES> 230,000
<INVENTORY> 1,399
<CURRENT-ASSETS> 12,307,364
<PP&E> 729,841
<DEPRECIATION> 705,363
<TOTAL-ASSETS> 13,344,650
<CURRENT-LIABILITIES> 1,154,185
<BONDS> 0
0
0
<COMMON> 282,635
<OTHER-SE> 11,645,523
<TOTAL-LIABILITY-AND-EQUITY> 13,344,650
<SALES> 291,637
<TOTAL-REVENUES> 1,435,001
<CGS> 193,913
<TOTAL-COSTS> 193,913
<OTHER-EXPENSES> 1,151,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 89,841
<INCOME-TAX> 34,139
<INCOME-CONTINUING> 55,702
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,702
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
