Registration No. 333--
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CELGENE CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 8731 22-2711928
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification No.)
Code Number)
7 Powder Horn Drive, Warren, New Jersey 07059
(732) 271-1001
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
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JOHN W. JACKSON
Chairman of the Board and Chief Executive Officer
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
(732) 271-1001
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies of Communications to:
<TABLE>
<S> <C>
Robert A. Cantone, Esq. Richard R. Plumridge, Esq.
Proskauer Rose LLP Brobeck, Phleger & Harrison LLP
1585 Broadway 1633 Broadway
New York, New York 10036-8299 New York, New York 10019
(212) 969-3000 (212) 581-1600
Fax (212) 969-2900 Fax (212) 586-7878
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered pursuant
to dividend or interest investment plans, please check the following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed Maximum Proposed Maximum Amount of
Title of each class of Amount to be Offering Price Aggregate Registration
Securities To Be Registered Registered(1) Per Share(2) Offering Price Fee
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Common Stock,
par value $.01 per share 2,990,000 shares $10.06 $30,086,875 $9,117.24
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(1) Includes 390,000 shares of Common Stock, par value $.01 per share (the
"Common Stock") which the Underwriters have an option to purchase to cover
over-allotments, if any.
(2) Based on the average high and low trading price on the Nasdaq National
Market on October 27, 1997. Estimated pursuant to Rule 457(c) under the
Securities Act of 1933, as amended, solely for the purpose of calculating
the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
PROSPECTUS Subject to Completion, Dated October 27, 1997
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2,600,000
[Celgene Logo] Celgene Corporation
Common Stock
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All of the 2,600,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Celgene
Corporation ("Celgene" or the "Company").
The Common Stock is quoted on the Nasdaq National Market under the symbol
"CELG." On October 24, 1997, the last reported sale price of the Common Stock
on the Nasdaq National Market was $10-15/16 per share. See "Price Range of
Common Stock."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6-10.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Company(2)
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<S> <C> <C> <C>
Per Common Share $ $ $
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Total(3) $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $600,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
390,000 additional shares of Common Stock on the same terms per share
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public will be $ , total Underwriting Discounts
and Commissions will be $ and the Proceeds to the Company will be $ .
See "Underwriting."
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of SBC Warburg Dillon Read Inc., New York,
New York, on or about , 1997. The Underwriters include:
SBC Warburg Dillon Read Inc.
Prudential Securities Incorporated
Loewenbaum & Company
Incorporated
<PAGE>
[CELGENE LOGO] IMMUNOTHERAPEUTIC PLATFORM
[Photo of Thalomid THALOMID, Celgene's formulation of thalidomide,
blister pack and is an effective inhibitor of excess production of
STEPS educational TNF[alpha].
literature]
An approvable letter from the FDA has been received for
THALOMID in the treatment of inflammatory complications of
leprosy. In addition, Celgene expects to file an NDA in
early 1998 for the treatment of AIDS cachexia (wasting).
------------------------------------------------------------
[PHOTO OF "Celgene SelCID Molecule"]
SelCIDs[TM], (Selective Cytokine
Inhibitory Drugs) a new family of
proprietary compounds, have been shown
to be highly specific for the
suppression of TNF[alpha] in in vitro
studies. The Company is currently
conducting a Phase I trial.
Diseases Involving
I Excess TNF[alpha]
N --------------------------
-------------- H ----- Diabetes (Non-Insulin Dependent)
I - Alzheimer's
[PHOTO of TNF[alpha] B - Rheumatoid Arthritis
TNF[alpha] I - Inflammatory Bowel Disease
molecule] -------------- T ----- Cancer Cachexia
O Parkinson's Disease
R Multiple Sclerosis
Lupus
TNF[alpha], a protein essential
to the mounting of a normal It is widely believed that
immune response, can be selective inhibition of TNF[alpha]
overproduced leading to represents a promising new
chronic inflammatory strategy for treating chronic
diseases and other disorders. inflammatory diseases and
other disorders caused by
excess production of TNF[alpha].
All of the products under development by the Company and the products under
development by other companies in which the Company's chirally pure
intermediates are being used will require further development, testing, and/or
regulatory approval. There can be no assurance that commercially viable products
will result from these efforts or that resulting products that receive
regulatory approval will achieve market acceptance.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING."
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, DURING AND AFTER THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Celgro[TM], SelCIDs[TM] and THALOMID[TM] are trademarks of the Company.
Ritalin[RegTM] is a registered trademark of Novartis AG. All other trademarks,
service marks, and tradenames referred to in this Prospectus are the property
of their owners.
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2
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PROSPECTUS SUMMARY
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The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus or incorporated herein by reference, including the
information under "Risk Factors." Unless otherwise indicated, all information
in this Prospectus assumes that the Underwriters' over-allotment option is not
exercised.
THE COMPANY
Celgene Corporation ("Celgene" or the "Company") is engaged in the development
and commercialization of human pharmaceuticals and agrochemicals, and is
employing two broad technology platforms: (i) small molecule immunotherapeutic
compound development and (ii) biocatalytic chiral chemistry synthesis. The
initial therapeutic focus of the immunology program is the development of small
molecule pharmaceuticals that have the potential to selectively regulate Tumor
Necrosis Factor[alpha] ("TNF[alpha]"), a protein whose overproduction has been
linked to many chronic inflammatory and immunological diseases. The Company's
lead compound in immunology is THALOMID[TM], its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha]. On September 19, 1997, the
Company received an approvable letter from the U.S. Food and Drug
Administration ("FDA") for THALOMID for the treatment of erythema nodosum
leprosum ("ENL"), an inflammatory complication of leprosy. The Company expects
to submit an additional New Drug Application ("NDA") in early 1998 for THALOMID
in the treatment of cachexia (wasting) in patients with Acquired Immune
Deficiency Syndrome ("AIDS"). Celgene has further applied its expertise in
small molecule chemistry to develop a class of novel and proprietary
thalidomide analogues, as well as a class of proprietary immunotherapeutic
pharmaceutical compounds called SelCIDs[TM] ("Selective Cytokine Inhibitory
Drugs"). These two classes of compounds are orally administered small molecules
that are highly specific for the suppression of TNF[alpha] and are intended to
treat chronic inflammatory diseases and other disorders.
The initial therapeutic focus of the biocatalytic chiral chemistry synthesis
program is the development of chirally pure pharmaceuticals designed to have
greater efficacy and fewer side effects than existing racemic versions. The
Company's lead compound in this area is chirally pure dl-methylphenidate
(currently marketed under the trade name Ritalin[RegTM]). The Company recently
completed a Phase I/II trial and announced that its chirally pure version
demonstrated statistically significant efficacy versus a placebo and
preliminary indications of longer duration of action relative to the racemic
version. The Company is also employing its biocatalytic chiral chemistry
synthesis technology to develop chirally pure agrochemicals with superior
attributes and/or lower manufacturing costs than the conventional, non-chirally
pure equivalent, as well as to support its established business of supplying
chirally pure intermediates to other pharmaceutical companies for drug
development.
The Company is currently developing THALOMID for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company recently received an approvable letter from the FDA for THALOMID to
treat ENL. In April 1997, the Company announced that data from its Phase II/III
trial of thalidomide for the treatment of cachexia in patients with AIDS showed
a statistically significant positive result in the primary endpoint, weight
gain. The Company expects to submit an NDA for this indication by early 1998.
Celgene is also studying thalidomide in clinical trials for the treatment of
three other disease states:
[bullet] AIDS--Recurrent Aphthous Stomatitis ("RAS"): Phase II/III Trial
[bullet] AIDS--Chronic Diarrhea: Phase II Trial
[bullet] Behcet's disease/Complex Aphthosis: Phase II/III Trial.
In addition, the Company expects to commence clinical trials in 1998 to study
thalidomide for the treatment of graft versus host disease and various
oncological applications. Working with the FDA, Celgene has proposed a
comprehensive education program and distribution system designed to support the
safe and appropriate use of thalidomide due to the drug's history of
teratogenicity (capacity to cause birth defects).
Celgene is employing its small molecule immunotherapeutics platform to develop
compounds with the objective of producing an array of novel, highly potent,
selective, safe, orally administered drugs to combat chronic inflammatory and
immunological diseases. Chronic inflammatory diseases collectively afflict
millions of patients, and are inadequately addressed with existing therapies.
The Company has developed two classes of compounds, thalidomide analogues and
SelCIDS, which have been demonstrated in in vitro tests using human cells to be
significantly more capable than thalidomide at suppressing TNF[alpha]
production and, in preclinical tests, have not demonstrated teratogenicity. The
initial therapeutic indications targeted for the thalidomide analogues are
rheumatoid arthritis and
3
<PAGE>
oncological applications, and for the SelCIDs, inflammatory bowel disease and
oncological applications. The Company recently commenced a Phase I clinical
trial in the United Kingdom to test the safety in humans of its first SelCID
compound. The United States Patent and Trademark Office ("U.S. PTO") has issued
composition of matter patents to the Company relating to certain of its novel
thalidomide analogues and SelCIDs.
Celgene's core chiral technology involves a biocatalytic process. Biocatalysis
involves the identification and manipulation of enzymes to perform specialized
chemical reactions to produce chirally pure compounds. Chirality refers to the
property of many chemical compounds to exist in two or more different
conformations that are mirror images of each other. While one conformation may
have beneficial effects, the other or others may be inactive or produce
undesirable effects. Chirally pure compounds contain only one of these
conformations, and thus may have attributes superior to those of the racemic
mixture.
Since 1991, Celgene has manufactured and sold chirally pure intermediates to
major pharmaceutical companies for use in the development of chirally pure
pharmaceuticals, and a number of these companies are conducting advanced
clinical trials of pharmaceuticals that incorporate the Company's chirally pure
intermediates.
The Company is employing its biocatalytic chiral chemistry synthesis technology
to develop its own chirally pure versions of existing pharmaceutical products
that may demonstrate greater efficacy and/or fewer side effects than existing
racemic products. The Company filed Investigational New Drug applications
("INDs") in the United States and Canada for a chirally pure version of
dl-methylphenidate, which has been used for decades in formulations such as
Ritalin[RegTM], for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD") in children. The Company recently completed its Phase I/II clinical
trial of the drug and announced that its chirally pure version demonstrated
statistically significant efficacy versus a placebo and preliminary indications
of longer duration of action relative to the racemic version. The Company is
also developing a chirally pure formulation of mexiletine for the treatment of
neuropathic pain, a chronic pain state frequently associated with trauma,
spinal cord injury, and complications of diabetes. Celgene recently reported
that its chirally pure formulation of mexiletine substantially reduced severe
neuropathic pain in established animal models.
Celgene, through its Celgro[TM] subsidiary, is also applying its chiral
technology to the production of chirally pure agrochemicals, in which the
Company's biocatalytic process can add significant value by substantially
lowering manufacturing costs and reducing environmental impact. Since 1994, the
Company has been developing a process to manufacture a chirally pure version of
a currently marketed crop protection agent under a research and development
agreement, initially with Sandoz and subsequently with BASF AG ("BASF"), which
acquired Sandoz' agrochemical business. The Company has successfully scaled up
its process technology to demonstrate ability to produce commercial quantities
of the BASF product, and a commercial agreement is being negotiated.
Celgene has established a small sales and marketing organization to market
THALOMID, subject to regulatory approval of the product. The Company intends to
develop and market on its own pharmaceuticals for indications with smaller
patient populations. For drugs with indications with larger patient
populations, the Company anticipates partnering with pharmaceutical companies.
The Company also anticipates partnering with companies for the development and
commercialization of the Company's chirally pure pharmaceutical and
agrochemical products. Celgene expects that these arrangements typically will
include milestone payments, reimbursement of research and development expenses
and royalty arrangements.
---------------
The Company was incorporated in Delaware in 1986. The Company's principal
executive offices are located at 7 Powder Horn Drive, Warren, New Jersey 07059.
Its telephone number is (732) 271-1001 and its fax number is (732) 271-4184.
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. See "Risk Factors," beginning on page 6.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock Offered ............................ 2,600,000 shares
Common Stock Outstanding after the Offering ..... 15,768,390 shares (1)
Use of Proceeds ................................. Development and commercialization of the Company's
immunotherapeutic products and chiral products, the
introduction of THALOMID, and for other working capital and
general corporate purposes.
Nasdaq National Market Symbol ................... CELG
</TABLE>
Summary Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
- ----------------------------- ----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues .................................................. $ 722 $ 1,807 $ 2,256 $ 1,173 $ 2,502
Total expenses .................................................. 7,548 9,615 10,720 11,833 21,305
------- -------- -------- -------- --------
Loss from operations ............................................ (6,826) (7,808) (8,464) (10,660) (18,803)
Other income, net ............................................... 1,597 800 587 143 984
------- -------- -------- -------- --------
Loss from continuing operations ................................. (5,229) (7,008) (7,877) (10,517) (17,819)
Loss from discontinued operations ............................... (1,918) (3,318) (2,336) -- --
------- -------- -------- -------- --------
Net loss ........................................................ (7,147) (10,326) (10,213) (10,517) (17,819)
Accretion of premium payable on preferred stock and warrants .... -- -- -- -- 1,013
Deemed dividend for preferred stock conversion discount ......... -- -- -- -- 2,778
------- -------- -------- -------- --------
Net loss applicable to common stockholders ...................... $(7,147) $(10,326) $(10,213) $(10,517) $(21,610)
======= ======== ======== ======== ========
Per share net loss applicable to common stockholders ............ $ (0.92) $ (1.32) $ (1.30) $ (1.30) $ (2.29)
======= ======== ======== ======== ========
Weighted average number of shares of common stock outstanding ... 7,789 7,841 7,853 8,073 9,450
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------------
(Unaudited)
-----------
Statement of Operations Data: 1996 1997
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Total revenues .................................................. $ 1,808 $ 1,816
Total expenses .................................................. 14,403 19,708
-------- --------
Loss from operations ............................................ (12,595) (17,892)
Other income, net ............................................... 734 337
-------- --------
Loss from continuing operations ................................. (11,861) (17,555)
Loss from discontinued operations ............................... -- --
-------- --------
Net loss ........................................................ (11,861) (17,555)
Accretion of premium payable on preferred stock and warrants .... 764 475
Deemed dividend for preferred stock conversion discount ......... 2,778 953
-------- --------
Net loss applicable to common stockholders ...................... $(15,403) $(18,983)
======== ========
Per share net loss applicable to common stockholders ............ $ (1.67) $ (1.63)
======== ========
Weighted average number of shares of common stock outstanding ... 9,227 11,647
</TABLE>
September 30, 1997
---------------------------
Balance Sheet Data: Actual As Adjusted(2)
- ------------------- ----------- --------------
Cash, cash equivalents, and marketable securities .. $ 5,003 30,992
Total assets ....................................... 8,410 34,399
Accumulated deficit ................................ (111,582) (111,582)
Total stockholders' equity ......................... 5,103 31,092
(1) Excludes as of September 30, 1997: an aggregate of 488,926 shares of
Common Stock issuable upon conversion of the Company's Series A
Convertible Preferred Stock; 903,286 shares of Common Stock issuable upon
exercise of warrants, and 2,332,747 shares of Common Stock issuable upon
exercise of currently outstanding stock options granted under the
Company's 1986 Stock Option Plan, 1992 Long-Term Incentive Plan, 1992
Non-Employee Directors' Stock Option Plan, and 1995 Non-Employee
Directors' Incentive Plan (collectively, the "Stock Plans"). See
"Description of Capital Stock" and Notes 6 and 7 to the Financial
Statements.
(2) Adjusted to give effect to the receipt of the net proceeds from the sale
of 2,600,000 shares of Common Stock offered by the Company hereby (at an
assumed offering price of $10-15/16 per share, after deduction of
underwriting discounts and commissions and estimated expenses payable by
the Company in connection with the Offering).
5
<PAGE>
RISK FACTORS
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Prospective investors in the shares of Common Stock offered hereby should
carefully consider the following risk factors, as well as the other information
contained in the Prospectus, or incorporated by reference herein before
purchasing any of the Common Stock offered hereby.
Uncertainty of Product Development. Many of the Company's products and
processes are in the early or mid-stages of development and will require the
commitment of substantial resources, extensive research, development,
preclinical testing, clinical trials, manufacturing scale-up, and regulatory
approval prior to commercialization. To date, the Company has produced and sold
only small quantities of chirally pure intermediates and has not yet
commercialized any immunotherapeutic pharmaceuticals, chirally pure
pharmaceuticals, or chirally pure agrochemicals. All of the products under
development by the Company, and the products under development by other
companies in which the Company's chirally pure intermediates are being used,
will require further development, clinical testing, and regulatory approvals,
and there can be no assurance that commercially viable products will result
from these efforts. See "Business."
Uncertainty Associated with Clinical Trials; Extensive Government
Regulation. The preclinical development, clinical trials, manufacturing,
marketing, and labeling of pharmaceuticals are all subject to extensive
regulation by numerous governmental authorities and agencies in the United
States and other countries. There can be no assurance that the Company will be
able to obtain the necessary approvals required to market its products in any
of these markets. Substantially all of the Company's current chirally pure
intermediates may be components of pharmaceutical and agrochemical products
developed and marketed by others. The testing, marketing, and manufacturing of
such pharmaceutical and agrochemical products, as well as of the Company's
proprietary products, will require regulatory approval, including approval from
the FDA, and, in certain cases, from the U.S. Environmental Protection Agency
(the "EPA"), or governmental authorities outside of the United States that
perform roles similar to those of the FDA and EPA. It is not possible to
predict how long the approval processes for any of the Company's products will
take or whether any such approvals ultimately will be granted. Positive results
in preclinical testing and/or early phases of clinical studies are no assurance
of success in later phases of the approval process. In general, preclinical
tests and clinical trials can take many years, and require the expenditure of
substantial resources, and the data obtained from such tests and trials can be
susceptible to varying interpretation that could delay, limit, or prevent
regulatory approval. Also, delays or rejections may be encountered during any
stage of the regulatory approval process based upon the failure of the clinical
or other data to demonstrate compliance with, or upon the failure of the
product to meet, the regulatory agency's requirements for safety, efficacy, and
quality or, in the case of a product seeking an orphan drug indication, because
another designee received approval first; and those requirements may become
more stringent due to changes in regulatory agency policy, or the adoption of
new regulations. Clinical trials may also be delayed due to unanticipated side
effects, the inability to locate, recruit and qualify sufficient numbers of
patients, lack of funding, the inability to locate or recruit scientists, the
redesign of clinical trial programs, the inability to manufacture or acquire
sufficient quantities of the particular product candidate or any other
components required for clinical trials, changes in focus of the Company's or
its collaborative partner's development focus, and the disclosure of trial
results by competitors. Even if regulatory approval is obtained for any of the
Company's pharmaceutical products or products manufactured with the Company's
chirally pure intermediates or using the Company's biocatalytic chiral
processes, the scope of the approval may significantly limit the indicated uses
for which such products may be marketed. Further, in connection with its NDA
application for THALOMID, the Company is conducting a Phase IV trial. Approved
drugs and agrochemicals, as well as their manufacturers, are subject to
on-going review, and discovery of previously unknown problems with such
products may result in restrictions on their manufacture, sale or use or in
their withdrawal from the market. Delays in obtaining, or the failure to obtain
and maintain, necessary approvals from the FDA, EPA, or other regulatory
agencies for the Company's proprietary products, or the products in which the
Company's products are to be included, would have a material adverse effect on
the Company's business, financial condition, and results of operations. See
"Business--Governmental Regulation."
No Assurance of Market Acceptance. There can be no assurance that those of the
Company's products which receive regulatory approval, or for which no
regulatory approval is required, will achieve market acceptance. A number of
factors render the degree of market acceptance of the Company's products
uncertain, including the extent to which the Company can demonstrate such
products' efficacy, safety, and advantages over competing products, as well as
the reimbursement policies of third party payors, such as government and
private insurance plans. In addition, there can be no assurance that the
Company's Celgro subsidiary will be able to negotiate a licensing agreement
with BASF or any other agrochemical manufacturer on terms acceptable to the
Company, or at all. Failure of the Company's products to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition, and results of operations. See "Business--Competition."
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6
<PAGE>
Risks of Product Liability and Availability of Insurance. The Company may be
subject to product liability or other claims based on allegations that the use
of its technology or products has resulted in adverse effects, whether by
participants in the Company's clinical trials or by patients (if and when such
products are approved). Thalidomide, when used by pregnant women, has resulted
in serious birth defects. Therefore, necessary and strict precautions must be
taken by physicians prescribing the drug to women with childbearing potential,
and there can be no assurance that such precautions will be observed in all
cases or, if observed, will be effective. Use of thalidomide has also been
associated, in a limited number of cases, with other side effects, including
nerve damage. Although the Company has product liability insurance in force
that it believes to be appropriate, there can be no assurance that it will be
able to obtain additional coverage as required, or that such coverage will be
adequate to protect the Company in the event claims are asserted against it.
The obligation to defend against or pay any product liability claim may have a
material adverse effect on the Company's business, financial condition, and
results of operations. See "Business."
Dependence on Patent and Proprietary Rights. The Company's success will depend,
in part, on its ability to obtain and enforce patents, protect trade secrets,
obtain licenses to technology owned by third parties when necessary, and
conduct its business without infringing the proprietary rights of others. The
patent positions of pharmaceutical and biotechnology firms, including the
Company, can be uncertain and involve complex legal and factual questions. In
addition, the coverage sought in a patent application can be significantly
reduced before the patent is issued. Consequently, the Company does not know
whether any of its pending applications will result in the issuance of patents
or, if any patents are issued, whether they will provide significant
proprietary protection or commercial advantage, or will be circumvented by
others. Since patent applications in the United States are maintained in
secrecy until patents issue, and since publication of discoveries in the
scientific or patent literature often lag behind actual discoveries, the
Company cannot be certain that it was the first to make the inventions covered
by each of its pending patent applications, or that it was the first to file
patent applications for such inventions. In the event a third party has also
filed a patent for any of its inventions, the Company may have to participate
in interference proceedings declared by the U.S. Patent and Trademark Office to
determine priority of invention, which could result in the loss of any
opportunity to secure patent protection for the invention and the loss of any
right to use the invention, and even if the eventual outcome is favorable to
the Company, such interference proceedings could result in substantial cost to
the Company. Protection of patent applications and litigation to establish the
validity and scope of patents, to assert patent infringement claims against
others and to defend against patent infringement claims by others can be
expensive and time-consuming. There can be no assurance that in the event that
any claims with respect to any of the Company's patents, if issued, are
challenged by one or more third parties, that any court or patent authority
ruling on such challenge will determine that such patent claims are valid and
enforceable. An adverse outcome in such litigation could cause the Company to
lose exclusivity relating to such patent claims. If a third party is found to
have rights covering products or processes used by the Company, then the
Company could be forced to cease using the technologies covered by the disputed
rights, could be subject to significant liabilities to such third party, and
could be required to license technologies from such third party. Also,
different countries have different procedures for obtaining patents, and
patents issued by different countries provide different degrees of protection
against the use of a patented invention by others. There can be no assurance,
therefore, that the issuance to the Company in one country of a patent covering
an invention will be followed by the issuance in other countries of patents
covering the same invention, or that any judicial interpretation of the
validity, enforceability, or scope of the claims in a patent issued in one
country will be similar to the judicial interpretation given to a corresponding
patent issued in another country. Furthermore, even if the Company's patents
are determined to be valid, enforceable, and broad in scope, there can be no
assurance that competitors will not be able to design around such patents and
compete with the Company using the resulting alternative technology. The
Company does not currently have, nor does it intend to seek, patent protection
relating to the use of THALOMID to treat erythema nodosum leprosum, an
inflammatory complication of leprosy, which is the only indication with respect
to which the Company has received an approvable letter from the U.S. Food and
Drug Administration. The Company also relies upon unpatented proprietary and
trade secret technology that it seeks to protect, in part, by confidentiality
agreements with its collaborative partners, employees, consultants, outside
scientific collaborators, sponsored researchers, and other advisors. There can
be no assurance that these agreements provide meaningful protection or that
they will not be breached, that the Company would have adequate remedies for
any such breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company,
others have not and will not obtain access to the Company's proprietary
technology. See "Business--Patents and Proprietary Technology."
History of Operating Losses; Capital Requirements; Uncertainty of Additional
Funding. The Company has sustained losses in each year since its incorporation
in 1986. The Company sustained a net loss of approximately $17.6 million for
the nine months ended September 30, 1997 and $17.8 million for the year ended
December 31, 1996, and had an accumulated deficit of approximately $111.6
million at September 30, 1997. The Company expects to make substantial
expenditures to further
- --------------------------------------------------------------------------------
7
<PAGE>
develop its immunotherapeutic and chiral products, and, based on these
expenditures, it is probable that losses will continue for at least the next 18
to 24 months. The Company expects that its rate of spending generally will
remain high as the result of increased clinical trial costs and expenses
associated with the regulatory approval process and commercialization of
products now in development. In order to assure funding for the Company's future
operations the Company needs to seek additional capital resources. If the
Company is unable to raise additional funds the Company believes that its
current financial resources could fund operations based on reduced levels of
research and development and administrative activities through the end of 1997.
The Company's actual cash requirements may vary materially from those now
planned and will depend upon numerous factors, including the results of the
Company's development and commercialization programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development of
manufacturing, marketing, and sales capabilities, the ability of the Company to
license its biocatalytic chiral process technology to agrochemical companies,
the technological advances and activities of competitors, and other factors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Intense Competition and Rapid Technological Change. The pharmaceutical and
agrochemical businesses in which the Company operates are highly competitive
and subject to rapid and profound technological change. The Company's present
and potential competitors include major chemical and pharmaceutical companies,
as well as specialized biotechnology firms in the United States and in other
countries. Most of these companies have considerably greater financial,
technical, and marketing resources than the Company. The Company also
experiences competition in the development of its products and processes from
universities and other research institutions and, in some instances, competes
with others in acquiring technology from such sources. The pharmaceutical and
agrochemical industries have undergone, and are expected to continue to
undergo, rapid and significant technological change, and the Company expects
competition to intensify as technical advances in each field are made and
become more widely known. There can be no assurance that others will not
develop products or processes with significant advantages over the products and
processes that the Company is seeking to develop. Any such development could
have a material adverse effect on the Company's business, financial condition,
and results of operations. See "Business--Competition."
Dependence on Sole Supplier of Raw Material and Sole Encapsulator for
THALOMID. The Company obtains all of its bulk drug material for THALOMID from a
single source. In addition, the Company currently relies on a single
manufacturer to encapsulate THALOMID. Because the FDA requires that all
suppliers of pharmaceutical bulk material and all manufacturers of
pharmaceuticals for sale in the United States achieve and maintain compliance
with current Good Manufacturing Practice regulations and guidelines ("GMP"), if
the operations of the sole supplier or the sole encapsulator were to become
unavailable for any reason, the required FDA review of the operations of a new
supplier or new encapsulator could cause a delay in the manufacture of
THALOMID. Such a delay could have a material adverse effect on the Company's
business, financial condition, and results of operations. See
"Business--Government Regulation" and "Business--Manufacturing."
Dependence on Collaborative Partners and Other Third Parties. The Company's
ability to fully commercialize its proprietary products, if developed, may
depend to some extent upon the Company's ability to enter into joint ventures
or other arrangements with established pharmaceutical companies with the
requisite experience and financial and other resources to obtain regulatory
approval, and to manufacture and market such products. Accordingly, the
Company's success will depend, in part, upon the subsequent success of such
third parties in performing preclinical testing and clinical trials, obtaining
the requisite regulatory approvals, scaling up manufacturing, successfully
commercializing the licensed product candidates and otherwise performing their
obligations. There can be no assurance that the Company will be able to enter
into acceptable collaborative and licensing arrangements on acceptable terms,
if at all, that such arrangements will be successful, that the parties with
which the Company may establish arrangements will perform their obligations, or
that potential collaborators will not compete with the Company by seeking
alternative means of developing therapeutics for the diseases targeted by the
Company. There can be no assurance that the Company's existing or future
arrangements will lead to the development of product candidates or compounds
with commercial potential, that the Company will be able to obtain or maintain
proprietary rights or licenses for the proprietary rights with respect to any
technology or product candidates or compounds developed in connection with
these arrangements, or that the Company will be able to ensure the
confidentiality of any proprietary rights and information developed in such
arrangements or prevent the public disclosure thereof.
Under an agreement with The Rockefeller University ("Rockefeller"), the Company
has obtained certain exclusive rights and licenses to manufacture, use, and sell
products that are based on compounds identified in research carried out by
Rockefeller and the Company that can be used for treating toxicity associated
with high concentrations of TNF[alpha] (the "Rockefeller License"). The
Rockefeller License is terminable by Rockefeller in the event of a material
breach of the agreement's terms by Celgene, which breach shall fail to be
remedied for more than sixty days after notice thereof. In addition, the
Company's chirally pure intermediates are components of pharmaceutical or
agrochemical products that are developed and marketed by others,
- --------------------------------------------------------------------------------
8
<PAGE>
and therefore the success of the Company's chirally pure intermediates is
dependent upon the efforts of third parties over which the Company has no
control. Such third parties may fail to pursue or fund those products that
include the Company's chirally pure intermediates. See "Business--Patents and
Proprietary Technology."
Lack of Manufacturing Capabilities. The manufacture of large quantities of
pharmaceuticals is a complex process, and all pharmaceutical manufacturing
facilities must comply with applicable regulations of the FDA. While the
Company has developed expertise in the production of certain of its chirally
pure intermediates in developmental quantities, the Company currently has no
experience in, or its own facilities for, manufacturing any products on a
commercial scale. The Company currently utilizes an outside manufacturer for
the production of THALOMID, and currently intends to utilize outside
manufacturers if and when needed to produce the Company's other products on a
commercial scale. There can be no assurance that such manufacturers will meet
the Company's requirements for quality, quantity, or timeliness, or that these
manufacturers will achieve and maintain compliance with all applicable
regulations.
Limited Marketing Capabilities. The Company has established a sales and
marketing organization to commercialize THALOMID (subject to regulatory
approval of the product), and with respect to certain other products, it may
seek a corporate partner to provide such services. Any delay in developing
these resources for THALOMID may have an adverse impact on potential sales of
THALOMID. The Company has contracted with a specialty distributor to distribute
THALOMID if and when approved. Failure of such specialty distributor to
properly and continuously perform its obligations under such agreement could
have a material adverse effect on the Company. In addition, the Company has a
direct sales force, comprised of three sales persons, which markets its
chirally pure intermediates. See "Business--Sales and Marketing."
Dependence on Reimbursement; Uncertainty of Product Pricing. Sales of the
Company's pharmaceutical products, and sales of pharmaceutical products of
other companies of which the Company's chirally pure intermediates may be a
component, will depend, in part, on the extent to which the costs of such
products will be paid by health maintenance, managed care, pharmacy benefit and
similar health care management organizations, or reimbursed by government
health administration authorities, private health coverage insurers, and other
third party payors. These health care management organizations and third party
payors are increasingly challenging the prices charged for medical products and
services. Additionally, the containment of health care costs has become a
priority, and the prices of pharmaceutical and biotechnology drugs have been
targeted in this effort. If the Company succeeds in bringing any pharmaceutical
products to market, there can be no assurance that such products will be
considered cost effective by payors, that reimbursement will be available or,
if available, that the level of reimbursement will be sufficient to allow the
Company to sell its products on a profitable basis.
Dependence on Key Personnel. The success of the Company will depend, in large
part, on its ability to continue to attract and retain highly skilled
scientific and management personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to attract and
retain such persons. The loss of the Company's executive officers or scientific
personnel, or the failure of the Company to attract and retain other highly
skilled personnel would have a material adverse effect on the Company's
business, financial condition, and results of operations. The Company does not
maintain key man life insurance coverage on the lives of any of its officers or
key employees. See "Management."
Environmental/Safety Hazards. The Company uses certain hazardous materials in
its research and development activities. While the Company believes it is
currently in substantial compliance with the federal, state, and local laws and
regulations governing such use, there can be no assurance that accidental
injury or contamination will not occur. Any such accident or contamination
could result in substantial liabilities, which could exceed the Company's
resources. Additionally, there can be no assurance that the cost of compliance
with environmental and safety laws and regulations will not be greater than
currently expected.
Shares Eligible for Future Sale. Future sales of substantial amounts of Common
Stock could adversely affect the prevailing market price of the Company's
Common Stock. If all of the shares of the Series A Convertible Preferred Stock
outstanding on September 30, 1997 (including shares issuable in payment of
accretion through that date) had been converted on that date at conversion
prices based on the closing price of the Common Stock for the seven trading
days preceding September 30, 1997, approximately 488,926 shares of Common Stock
would have been issued. Furthermore, should the trading price of the Common
Stock decline prior to the conversion of all shares of the Preferred Stock, the
number of shares of Common Stock issuable upon conversion thereof may increase
proportionately. In addition, as of September 30, 1997, there were outstanding
stock options for approximately 2,332,747 shares of Common Stock, of which
approximately 1,436,019 were currently exercisable, and warrants either
outstanding or issuable upon demand that are exercisable for 903,286 shares of
Common
- --------------------------------------------------------------------------------
9
<PAGE>
Stock. All shares of Common Stock referred to in this paragraph would be freely
tradeable upon issuance. See "Description of Capital Stock."
Potential Fluctuations in Quarterly Operating Results. The Company has
historically experienced, and expects to continue for the foreseeable future to
experience, significant fluctuations in its quarterly operating results. This
fluctuation is due to a number of factors, many of which are outside the
Company's control, including the timing of orders for chirally pure
intermediates and the timing of receipt of certain research and development
payments. Such quarterly fluctuations in operating results may result in
increased volatility of the Company's stock price. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Quarterly
Results."
Volatility of Stock Price. There has been significant volatility in the market
prices for publicly traded shares of specialty pharmaceuticals companies,
including those of the Company. There can be no assurance that the price of the
Common Stock will remain at or exceed current levels. Factors such as
announcements of technical or product developments by the Company or its
competitors, market conditions for specialty pharmaceuticals stocks in general,
governmental regulation, healthcare legislation, public announcements regarding
medical advances in the treatment of the disease states that the Company is
targeting, or patent or proprietary rights developments may have a significant
impact on the market price of the Common Stock. See "Price Range of Common
Stock."
Anti-Takeover Effects of Shareholder Rights Plan; Certain Charter and By-law
Provisions; Delaware Law. The Board of Directors has adopted a shareholder
rights plan (the "Rights Plan"), the purpose of which is to protect
stockholders against unsolicited attempts to acquire control of the Company
that do not offer a fair price to all stockholders. The Plan is not intended to
prevent, and should not prevent, an offer to acquire the Company at a price and
on terms that are in the best interests of all stockholders, or a negotiated
transaction to sell the Company for a purchase price determined by the Board to
be in the Company's and its stockholders' best interests, nor should it have a
material adverse affect on the ability of a person or group to obtain
representation on or control of the Board through a proxy contest. Nonetheless,
the Rights Plan may have the effect of dissuading a potential acquiror from
making an offer for all the outstanding shares of Common Stock at a price that
represents a premium to the then current trading price.
Moreover, the Board of Directors has the authority to issue, at any time,
without further stockholder approval, up to 5,000,000 shares of preferred
stock, and to determine the price, rights, privileges, and preferences of those
shares. Such issuance could adversely affect the holders of Common Stock, and
could discourage a third party from acquiring a majority of the Company's
outstanding voting stock.
Additionally, the Board of Directors of the Company has adopted certain
amendments to the Company's By-laws intended to strengthen the Board's position
in the event of a hostile takeover attempt. The By-law provisions have the
following effects: (1) they provide that only persons who are nominated in
accordance with the procedures set forth in the By-laws shall be eligible for
election as directors of the Corporation, except as may be otherwise provided
in the By-laws; (2) they provide that only business brought before the annual
meeting by the Board of Directors or by a stockholder who complies with the
procedures set forth in the By-laws may be transacted at an annual meeting of
stockholders; (3) they provide that only members of the Board of Directors may
call special meetings of the stockholders of the Company; (4) they establish a
procedure for the Board of Directors to fix the record date whenever
stockholder action by written consent is undertaken, and (5) they require a
vote of holders of two-thirds of the outstanding shares of Common Stock to
amend certain By-law provisions.
Furthermore, Section 203 of the Delaware General Corporation Law prohibits a
purchaser who acquires more than 15% of a target corporation's stock without
the approval of the corporation's board of directors from completing a business
combination with the target for three years unless the purchaser (i) increases
its stake from less than 15% to at least 85% of the corporation's outstanding
stock in a single transaction, such as a tender offer, (ii) obtains the
approval of both the target corporation's board of directors and the holders of
two-thirds of the outstanding shares it does not already own, or (iii) benefits
from certain other exceptions. See "Description of Capital Stock."
Dilution. The offering price of the securities issued in this offering is
substantially higher than the book value per share of Common Stock. Investors
purchasing securities in this offering therefore will incur immediate,
substantial dilution. See "Dilution."
Absence of Cash Dividends on Common Stock. The Company has never declared or
paid cash dividends on its Common Stock, and does not anticipate doing so in
the foreseeable future. See "Dividend Policy."
- --------------------------------------------------------------------------------
10
<PAGE>
Forward-Looking Statements
This Prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). All statements, other than statements of historical facts,
included or incorporated by reference in this Prospectus which address
activities, events or developments which the Company expects or anticipates
will or may occur in the future, including such things as the attainment of
pharmaceutical development milestones or the receipt of regulatory approval or
the entering into of licensing or partnership arrangements and other similar
matters, are forward-looking statements. These statements are based on certain
assumptions and analyses made by the Company in light of its experience and its
perception of historical trends, current conditions and expected future
developments as well as other factors it believes are appropriate in the
circumstances. However, whether actual results and developments will conform
with the Company's expectations and predictions is subject to a number of risks
and uncertainties which could cause actual results to differ materially from
the Company's expectations, including the risk factors discussed in this
Prospectus and other factors, many of which are beyond the control of the
Company. Consequently, all of the forward-looking statements made in this
Prospectus are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effects on the Company or its business or
operations. The Company assumes no obligation to update publicly any such
forward-looking statements, whether as a result of new information, future
events or otherwise.
- --------------------------------------------------------------------------------
11
<PAGE>
USE OF PROCEEDS
- --------------------------------------------------------------------------------
The net proceeds to the Company from the sale of shares of Common Stock offered
by the Company hereby are estimated to be approximately $25,989,000
($29,977,000 if the Underwriters' over-allotment option is exercised in full),
based on the assumed public offering price of $10-15/16 per share, and after
deduction of the underwriting discounts and commissions and estimated offering
expenses payable by the Company.
The Company intends to use the net proceeds for the further development and
commercialization of the Company's immunotherapeutic products, including
THALOMID, and the Company's chiral products and for other working capital and
general corporate purposes, including administrative and overhead expenses. The
Company may also use a portion of the net proceeds to acquire or license
products or technologies complementary to the Company's business, although the
Company has no agreements or commitments for any such acquisition or license.
Pending such use, the Company expects to invest the net proceeds in short-term,
interest-bearing, investment grade securities.
The Company anticipates that its current resources, together with the proceeds
of the Offering, continued revenue from sales of chirally pure intermediates at
present levels and revenues under existing research contracts, will be
sufficient to meet the Company's operating and capital requirements for
approximately 12 months. However, there can be no assurance that the Company
will not need to obtain additional financing prior to such time, or that such
financing will be available on terms acceptable to the Company, or at all. The
Company's actual cash requirements may vary materially from those now planned,
and will depend upon numerous factors, including the results of the Company's
development and commercialization programs, the timing and results of
preclinical and clinical trials, the timing and costs of obtaining regulatory
approvals, the level of resources that the Company commits to the development
of manufacturing, marketing, and sales capabilities, the ability of the Company
to license its biocatalytic chiral process technology to agrochemical
companies, the technological advances and activities of competitors, and other
factors. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Risk Factors --
History of Operating Losses; Capital Requirements; Uncertainty of Additional
Funding."
PRICE RANGE OF COMMON STOCK
- --------------------------------------------------------------------------------
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CELG." The following table sets forth, for the periods, indicated the
intra-day high and low sale prices per share of Common Stock on the Nasdaq
National Market:
<TABLE>
<CAPTION>
High Low
-------- -------
<S> <C> <C>
1997
Fourth Quarter (through October 24, 1997) ...... $13-3/8 $10-7/8
Third Quarter ................................. 12-1/2 6-3/4
Second Quarter ................................. 7-7/8 4-7/8
First Quarter ................................. 12-3/8 7
1996
Fourth Quarter ................................. 12-1/4 7-7/8
Third Quarter .................................... 11-7/8 6
Second Quarter ................................. 18-1/8 11-1/8
First Quarter ................................. 19 11-1/8
1995
Fourth Quarter ................................. 13-1/2 8-1/4
Third Quarter .................................... 11-1/4 7-1/4
Second Quarter ................................. 11-1/2 4-7/8
First Quarter ................................. 6-1/4 4-3/8
</TABLE>
The last reported sales price per share for the Common Stock on the Nasdaq
National Market on October 24, 1997 was $10-15/16. As of October 24, 1997, there
were approximately 467 holders of record of the Company's Common Stock.
DIVIDEND POLICY
- --------------------------------------------------------------------------------
The Company has never declared or paid any cash dividends on its Common Stock.
The Company currently intends to retain any future earnings for funding growth
and therefore, does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future.
- --------------------------------------------------------------------------------
12
<PAGE>
CAPITALIZATION
- --------------------------------------------------------------------------------
The following table sets forth at September 30, 1997 (i) the actual
capitalization of the Company, and (ii) the capitalization as adjusted to
reflect the receipt of the estimated net proceeds, based on an assumed public
offering price of $10-15/16 per share, from the sale of 2,600,000 shares of
Common Stock being offered by the Company hereby after deduction of the
underwriting discounts and commissions and estimated offering expenses payable
by the Company. This table should be read in conjunction with the Financial
Statements of the Company and Notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
------------------------------------
Actual As Adjusted
----------------- ----------------
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.01 par value per share; authorized 5,000,000 shares:
Series A convertible, redeemable 4.9% cumulative preferred; authorized
520 shares; issued and outstanding 80 shares; includes $306,633 accretion
premium. ............................................................... 4,306,633 4,306,633
Series B convertible redeemable 9% cumulative preferred; authorized
20,000 shares; issued and outstanding, 0 shares. ........................ -- --
Common stock, $.01 par value per share; authorized 20,000,000 shares;
13,191,278 shares issued and outstanding; 15,791,278 shares issued and
outstanding as adjusted (1) ............................................. 131,913 157,913
Additional paid-in capital ............................................. 112,322,889 138,285,889
Common stock in treasury, at cost; 22,888 shares ........................ (76,534) (76,534)
Accumulated deficit ...................................................... (111,581,674) (111,581,674)
Net unrealized gain (loss) on marketable securities available for sale.... 128 128
-------------- --------------
Total stockholders' equity ............................................. 5,103,355 31,092,355
-------------- --------------
Total capitalization ................................................ $ 5,103,355 $ 31,092,355
============== ==============
</TABLE>
- -----------
(1) Excludes shares of Common Stock reserved for issuance upon conversion of
the Company's Series A Convertible Preferred Stock, upon exercise of
warrants, and upon exercise of stock options granted under the Stock
Plans. See "Description of Capital Stock" and Notes 6 and 7 to the
Financial Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
DILUTION
- --------------------------------------------------------------------------------
As of September 30, 1997, the Company had a net tangible book value of $5.1
million, or $0.39 per share of Common Stock. Net tangible book value per share
is determined by dividing the net tangible book value (tangible assets less
liabilities) of the Company by the 13,168,390 shares of Common Stock
outstanding at such date. Net tangible book value dilution per share represents
the difference between the amount per share paid by purchasers of Common Stock
in this Offering, and the net tangible book value per share of Common Stock
immediately after the completion of this Offering. Without taking into account
any changes in net tangible book value after September 30, 1997 other than to
give effect to the sale by the Company of the 2,600,000 shares of Common Stock
offered hereby (based upon an assumed offering price of $10-15/16 per share),
and the receipt by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of September 30, 1997 would
have been $1.97 per share. This represents an immediate increase in the pro
forma net tangible book value of $1.58 per share to existing investors, and an
immediate dilution in net tangible book value of $8.97 per share to new
investors purchasing shares of Common Stock in this Offering.
The following table presents this per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share ........................... $ 10.94
Net tangible book value per share as of September 30, 1997 ...... $ 0.39
Increase per share attributable to this Offering .................. 1.58
-------
Pro forma net tangible book value per share after this Offering ... 1.97
--------
Dilution per share to new investors ................................. $ 8.97
========
</TABLE>
The preceding table excludes shares of Common Stock reserved for issuance upon
conversion of the Company's Series A Convertible Preferred Stock, upon exercise
of warrants, and upon exercise of stock options granted under the Stock Plans.
To the extent that the conversion price or exercise price of the Preferred
Stock, warrants or stock options is less than the offering price for the shares
of Common Stock offered hereby, furth dilution will result. See "Description of
Capital Stock" and Notes 6 and 7 to the Financial Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
The following Selected Financial Data should be read in conjunction with the
Company's Financial Statements and the Notes thereto, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and other
financial information included elsewhere in this Prospectus. The data set forth
below with respect to the Company's Statement of Operations for the years ended
December 31, 1994, 1995 and 1996, are derived from the Company's financial
statements which have been audited by KPMG Peat Marwick LLP, independent
accountants, and which are included elsewhere in this Prospectus and are
qualified by reference to such Financial Statements and Notes thereto. Other
information has been derived from other audited financial statements. The data
set forth below with respect to the Company's Statement of Operations for the
nine months ended September 30, 1996 and 1997, and the balance sheet data as of
September 30, 1997 have been derived from the Company's unaudited financial
statements which are included elsewhere in this Prospectus and are qualified by
reference to such Financial Statements and Notes thereto. The historical
results are not necessarily indicative of future results of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
- ----------------------------- ----------- ----------- ----------- ------------ ------------
(in thousands, except per share amounts)
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Chirally pure intermediates .................. $ 272 $ 1,652 $ 1,998 $ 658 $ 1,466
Research contracts ........................... 450 155 258 515 1,036
-------- --------- --------- --------- ---------
Total Revenues .............................. 722 1,807 2,256 1,173 2,502
Expenses:
Cost of goods sold ........................... 304 1,445 1,097 792 981
Research and development ..................... 3,876 4,762 6,492 8,183 16,323
Selling, general and administrative ......... 3,368 3,408 3,131 2,858 4,001
-------- --------- --------- --------- ---------
Total Expenses .............................. 7,548 9,615 10,720 11,833 21,305
-------- --------- --------- --------- ---------
Loss from operations ........................ (6,826) (7,808) (8,464) (10,660) (18,803)
Other Income and Expense:
Interest income .............................. 1,597 993 587 568 1,308
Interest expense .............................. -- 193 -- 425 324
-------- --------- --------- --------- ---------
Loss from continuing operations ............... (5,229) (7,008) (7,877) (10,517) (17,819)
Loss from discontinued operations ............... (1,918) (3,318) (2,336) -- --
-------- --------- --------- --------- ---------
Net loss ....................................... (7,147) (10,326) (10,213) (10,517) (17,819)
Accretion of premium payable on preferred
stock and warrants ........................... -- -- -- -- 1,013
Deemed dividend for preferred stock
conversion discount ........................... -- -- -- -- 2,778
-------- --------- --------- --------- ---------
Net loss applicable to common stockholders ...... $ (7,147) $(10,326) $(10,213) $ (10,517) $ (21,610)
======== ========= ========= ========= =========
Per share of Common Stock:
Loss from continuing operations ............... (0.67) (0.89) (1.00) (1.30) (1.89)
Loss from discontinued operations ............ (0.25) (0.43) (0.30) -- --
Net loss applicable to
common stockholders ........................ $ (0.92) $ (1.32) $ (1.30) $ (1.30) $ (2.29)
======== ========= ========= ========= =========
Weighted average number of shares of
common stock outstanding ..................... 7,789 7,841 7,853 8,073 9,450
<CAPTION>
Nine Months Ended
September 30,
-------------------------
Statement of Operations Data: 1996 1997
- ----------------------------- ------------ ------------
(Unaudited)
-------------------------
<S> <C> <C>
Revenues:
Chirally pure intermediates .................. $ 1,096 $ 897
Research contracts ........................... 712 919
--------- ---------
Total Revenues .............................. 1,808 1,816
Expenses:
Cost of goods sold ........................... 683 642
Research and development ..................... 10,982 13,285
Selling, general and administrative ......... 2,738 5,781
--------- ---------
Total Expenses .............................. 14,403 19,708
--------- ---------
Loss from operations ........................ (12,595) (17,892)
Other Income and Expense:
Interest income .............................. 990 442
Interest expense .............................. 256 105
--------- ---------
Loss from continuing operations ............... (11,861) (17,555)
Loss from discontinued operations ............... -- --
--------- ---------
Net loss ....................................... (11,861) (17,555)
Accretion of premium payable on preferred
stock and warrants ........................... 764 475
Deemed dividend for preferred stock
conversion discount ........................... 2,778 953
--------- ---------
Net loss applicable to common stockholders ...... $ (15,403) $ (18,983)
========= =========
Per share of Common Stock:
Loss from continuing operations ............... (1.29) (1.51)
Loss from discontinued operations ............ -- --
Net loss applicable to
common stockholders ........................ (1.67) (1.63)
========= =========
Weighted average number of shares of
common stock outstanding ..................... 9,227 11,647
</TABLE>
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
Balance Sheet Data: 1992 1993 1994 1995 1996
- ------------------ ----------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents, and marketable
securities ........................... $ 28,266 $ 17,900 $ 8,500 $ 11,713 $ 17,815
Total assets ........................... 31,751 21,822 11,548 14,211 20,938
Convertible debentures .................. -- -- -- 4,592 2,026
Accumulated deficit ..................... (39,934) (50,260) (60,473) (70,989) (92,599)
Stockholders' equity .................. 30,375 20,296 10,004 7,143 16,065
<CAPTION>
September 30, 1997
-----------------------------
Balance Sheet Data: Actual As Adjusted(1)
- ------------------- ------------- ---------------
<S> <C> <C>
Cash and cash equivalents, and marketable
securities ........................... $ 5,003 $ 30,992
Total assets ........................... 8,410 34,399
Convertible debentures .................. -- --
Accumulated deficit ..................... (111,582) (111,582)
Stockholders' equity .................. 5,103 31,092
</TABLE>
- -----------
(1) Adjusted to give effect to the receipt of the net proceeds from the sale of
2,600,000 shares of Common Stock offered by the Company hereby (at an
assumed offering price of $10-15/16 per share, after deduction of
underwriting discounts and commissions and estimated expenses payable by
the Company in connection with the Offering).
- --------------------------------------------------------------------------------
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following discussion of the financial condition and results of operations
of Celgene should be read in conjunction with the Consolidated Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
OVERVIEW
Celgene was organized in 1980 as a unit of Celanese, a major chemical company.
Celgene's initial mandate was to apply biotechnology to the production of fine
and specialty chemicals. Following the 1986 merger of Celanese Corporation with
Hoechst AG, Celgene was spun out as a separate company. In 1987, Celgene
completed an initial public offering of its common stock, and commenced the
development of biotreatment processes for the chemical industry. Celgene
discontinued these operations in 1994 to focus on its targeted small molecule
immunotherapeutic compound development and biocatalytic chiral chemistry
synthesis platforms.
Since 1990, the Company's revenues have been generated primarily through the
research and development relating to, and supply of, chirally pure
intermediates to pharmaceutical companies for use in new drug development and,
to a lesser degree, from an agrochemical research and development contract. The
Company believes that sales of chirally pure intermediates will account for a
less significant portion of the Company's overall revenues as the Company
continues to develop, and, subject to receipt of required regulatory approvals,
begins to generate revenues from THALOMID[TM] and from its chirally pure
pharmaceutical and agrochemical products.
The Company has sustained losses in each year since its incorporation in 1986.
The Company had a net loss of $17,600,000 for the nine months ended September
30, 1997, and an accumulated deficit of $111,600,000 at September 30, 1997. The
Company expects to make substantial expenditures to further its
immunotherapeutic program, to commercialize THALOMID and to expand its chiral
business, and, based on these expenditures, it is likely that losses will
continue for at least the next 18 to 24 months.
Subject to the risks described elsewhere in this Prospectus, the Company
believes that there are significant market opportunities for the products and
processes under development by the Company. To address these opportunities in a
timely and effective manner, the Company intends to rely on collaborations and
licensing arrangements with third parties. To date, the Company has entered
into agreements covering the manufacture for the Company of certain compounds,
such as THALOMID, and research and development by the Company covering chirally
pure intermediates for use in new drug development and processes for producing
chirally pure crop protection agents for license to agrochemical manufacturers.
The Company intends to develop its own marketing and sales resources for
commercializing its pharmaceutical products under development that address
limited or geographically concentrated patient populations, and intends to
enter into collaborative and licensing arrangements for commercializing those
products that address large and geographically dispersed patient populations.
The Company is currently developing a small marketing and sales organization
for THALOMID.
Future operating results will depend on many factors, including demand for the
Company's products, regulatory approvals, the timing of the introduction and
market acceptance of new products by the Company or competing companies, the
Company's ability to control costs, and its ability to attract and retain highly
qualified scientific and management personnel.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1997 vs. Nine Month Period Ended September 30,
1996
Total Revenues; Revenue Backlog. Revenues for the nine months ended September
30, 1997 were $1,816,000, which was an increase of $8,000, or less than 1%, as
compared to the same period in 1996. The Company's order backlog for chirally
pure intermediates and research contracts at September 30, 1997 was
approximately $797,000.
Sales of Chirally Pure Intermediates. Sales of chirally pure intermediates for
the nine months ended September 30, 1997 were $897,000, which was a decrease of
$200,000, or 18%, as compared to the same period in 1996. The decrease in
revenues for chirally pure intermediates was due primarily to the variant
nature of orders resulting from the cyclicality of customer research programs.
- --------------------------------------------------------------------------------
16
<PAGE>
Research Contracts. Chiral research contract revenues for the nine months ended
September 30, 1997 were $919,000, which was an increase of $207,000, or 29%, as
compared to the same period in 1996. The increase in research contract revenues
was due to the Company entering into research contracts to expand development
of existing compounds. During the 1997 period, the Company received increased
research and development support payments from BASF, a major multinational
agrochemical customer.
Cost of Goods Sold. Costs of goods sold (which includes certain fixed
manufacturing costs) for the nine months ended September 30, 1997 were
$642,000, which was a decrease of $41,000, or 6%, as compared to the same
period in 1996, due to decreased sales of chirally pure intermediates.
Research and Development Expenses. Research and development expenses for the
nine months ended September 30, 1997 were $13,300,000, which was an increase of
$2,300,000 or 21%, as compared to the same period in 1996. This increase was
due to an increase in expense of $787,000 associated with the Company's
immunotherapeutic and THALOMID programs, $1,100,000 of expenses associated with
the new Celgro subsidiary and $687,000 of expenses associated with the chiral
pharmaceutical development program. The increased cost of the Company's
immunotherapeutic and THALOMID programs included increases in manufacturing
costs for developmental quantities of THALOMID of $990,000 and personnel
related expenses of $625,000. These expenses were partially offset by the
absence of expenses associated with preparing the NDA filed in 1996 and by
lower preclinical and clinical trial expenses ($828,000). Major components
contributing to the increased costs of the new Celgro[TM] subsidiary are
personnel related expenses of $464,000; facilities-related spending of
$303,000; and other ongoing research expenses of $333,000. The higher costs
associated with the Company's chiral pharmaceutical program are due primarily
to higher preclinical and clinical trial expenses of $282,000; personnel
related costs of $148,000 and other ongoing research expenses of $257,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1997 were
$5,800,000, which was an increase of $3,100,000, or 115%, as compared to the
same period in 1996, due to the formation of a small sales and marketing group
and associated expenses for market research and the development of a launch
program and materials, all in anticipation of approval of thalidomide by the
FDA, of approximately $1,600,000; development of a Medical Affairs Department
costing $230,000 (in anticipation of the THALOMID launch upon approval by the
FDA); higher legal fees of $269,000; costs associated with the formation of the
Celgro subsidiary of approximately $374,000; and higher personnel related
expenses of $676,000.
Interest Income and Interest Expense. Interest income for the nine months ended
September 30, 1997 was $441,000, which was a decrease of $549,000, or 55%, as
compared to the same period in 1996. This decrease was attributable to lower
average cash balances in 1997. Interest expense for the nine months ended
September 30, 1997 was $105,000, which was a decrease of $151,000, or 59%, as
compared to the same period in 1996. This decrease was due to the conversion to
equity of the remaining 8% Convertible Debentures.
Net Loss. The net loss for the nine months ended September 30, 1997 was
$17,600,000, which was an increase of $5,700,000, or 48%, as compared to the
same period in 1996. This increase was due primarily to higher spending on
THALOMID and the immunotherapeutics program, the creation of the Celgro
subsidiary, and the continued development of the chiral pharmaceutical
programs.
Years Ended December 31, 1996, 1995 and 1994
Total Revenues; Revenue Backlog. Revenues for the year ended December 31, 1996
were $2,502,000, which was an increase of $1,329,000, or 113%, as compared to
the same period in 1995. Revenues for the year ended December 31, 1995 were
$1,173,000, which was a decrease of $1,083,000, or 48%, as compared to the same
period in 1994. Revenue backlog for chirally pure intermediates and research
contracts amounted to $742,000, $777,000, and $0 at December 31, 1996, 1995 and
1994, respectively.
Sales of Chirally Pure Intermediates. Sales of chirally pure intermediates for
the year ended December 31, 1996 were $1,466,000, which was an increase of
$808,000, or 123%, as compared to the same period in 1995. The increase in sales
of chirally pure intermediates was due primarily to the addition of new
customers and the increased volume of orders from existing customers for their
ongoing clinical trials. Sales of chirally pure intermediates for the year ended
December 31, 1995 were $658,000, which was a decrease of $1,340,000 or 67%, as
- --------------------------------------------------------------------------------
17
<PAGE>
compared to the same period in 1994. The decrease in sales was due primarily to
the halting of clinical trials of a major pharmaceutical product that
incorporated the Company's chirally pure intermediates.
Research Contracts. Chiral research contract revenues for the year ended
December 31, 1996 were $1,037,000, which was an increase of $522,000, or 101%,
as compared to the same period in 1995. The increase in research contract
revenues was due to the Company entering into research contracts to expand
development of existing compounds. Chiral research contract revenues for the
year ended December 31, 1995 were $515,000, which was an increase of $257,000,
or 100%, as compared to the same period in 1994. This increase in research
contract revenues was also due to the Company entering into research contracts
for new compounds and for expanding development of existing compounds.
Cost of Goods Sold. Costs of goods sold (which includes certain fixed
manufacturing costs) for the year ended December 31, 1996 were $981,000, an
increase of $189,000, or 24%, as compared to the same period in 1995, due to
increased sales of chirally pure intermediates. Costs of goods sold for the
year ended December 31, 1995 were $792,000, a decrease of $304,000, or 28%, as
compared to the same period in 1994, due to reduced sales of chirally pure
intermediates.
Research and Development Expenses. Research and development expenses for the
year ended December 31, 1996 were $16,323,000, which was an increase of
$8,140,000, or 99%, as compared to the same period in 1995. This increase was
due to an increase of approximately $6,500,000 in expenses associated with
THALOMID and the immunotherapeutics program and $1,700,000 of expenses
associated with the Company's chiral pharmaceutical development initiative. The
increased costs in THALOMID and the immunotherapeutics program was attributable
to preclinical and clinical trial expenses, which increased by approximately
$2,900,000; regulatory and compliance expenses, which rose by approximately
$1,300,000; manufacturing costs for developmental quantities of THALOMID, which
increased $925,000; and other ongoing research expenses, which increased by
$1,400,000. Research and development expenses for the year ended December 31,
1995 were $8,183,000, which was an increase of $1,691,000, or 26%, as compared
to the same period in 1994. This increase was due to an increase of
approximately $2.3 million in expenses associated with THALOMID and the
immunotherapeutics program, partially offset by a decrease of $600,000 in
personnel and related expenses for the chiral research group. The increase in
expenses associated with THALOMID and the immunotherapeutics program was
attributable to preclinical and clinical trial expenses, which increased by
approximately $1 million; regulatory and compliance expenses, which rose by
approximately $600,000; other ongoing research expenses, which increased by
$450,000, and expenses associated with The Rockefeller University program and
other university immunotherapeutic research programs, which increased by
approximately $250,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the year ended December 31, 1996 were $4,001,000,
which was an increase of $1,144,000, or 40%, as compared to the same period in
1995, due to the formation of a small sales and marketing group in anticipation
of the THALOMID product launch, the addition of product liability insurance,
recruiting expenses and higher consulting and legal expenses associated with
the shareholder rights agreement. Selling, general and administrative expenses
for the year ended December 31, 1995 were $2,858,000, which was a decrease of
$273,000, or 9%, as compared to the same period in 1994 due to generally lower
spending across most expense categories, partially offset by amortization of
debt offering costs.
Interest Income and Interest Expense. Interest income for the year ended
December 31, 1996 was $1,308,000, which was an increase of $740,000, or 130%,
as compared to the same period in 1995, due to the increase of funds available
from the proceeds of the Series A Preferred Stock offering in March 1996.
Interest expense for the year ended December 31, 1996 was $324,000, which was a
decrease of $101,000, or 24%, as compared to the same period in 1995 due to
fewer convertible debentures outstanding. Interest income for the year ended
December 31, 1995 was $569,000, which was a decrease of $18,000, or 3%, as
compared to the same period in 1994 due to the decrease in funds available for
investment during the first half of 1995. Interest expense for the year ended
December 31, 1995 was $425,000, due to the issuance of convertible debentures
in July 1995. There was no interest expense in 1994.
Net Loss. The net loss for the year ended December 31, 1996 was $17,819,000, an
increase of $7,302,000 or 69%, over the year ended December 31, 1995. The
increased net loss was due primarily to higher spending on THALOMID and the
immunotherapeutics program. The net loss for the year ended December 31, 1995
was $10,517,000, an increase of $303,000, or 3%, over the year ended December
31, 1994. Net loss for the year ended December 31, 1994 included the operating
loss
- --------------------------------------------------------------------------------
18
<PAGE>
of the Company's discontinued biotreatment operations of $2,336,000. Loss from
continuing operations during 1995 increased $2,639,000 due primarily to lower
sales of chirally pure intermediates and higher spending on THALOMID.
Quarterly Results
The following table presents selected unaudited quarterly statement of
operations data for each of the seven quarters in the period ended September
30, 1997. In the opinion of management, this information has been prepared on
the same basis as the audited consolidated financial statements appearing
elsewhere in the Prospectus, and all necessary adjustments (consisting only of
normal recurring adjustments) have been included to present fairly the
unaudited quarterly results. The results for any quarter are not necessarily
indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------------
1996
-----------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
---------- ------------ ---------- ------------
(in thousands)
(Unaudited)
Revenues:
<S> <C> <C> <C> <C>
Chirally pure intermediates ............... $ 517 $ 502 $ 78 $ 369
Research contracts ........................ 150 185 376 325
-------- -------- -------- --------
Total revenues ........................... 667 687 454 694
Expenses:
Cost of goods sold ........................ 270 179 234 298
Research and development .................. 2,738 3,582 4,662 5,341
Selling, general and administrative ...... 659 805 1,274 1,263
-------- -------- -------- --------
Total expenses ........................... 3,667 4,566 6,170 6,902
-------- -------- -------- --------
Loss from operations ..................... (3,000) (3,879) (5,716) (6,208)
Other Income and Expense:
Interest Income ........................... 152 478 359 319
Interest expense ........................ 110 77 68 69
-------- -------- -------- --------
Net loss ................................. (2,958) (3,478) (5,425) (5,958)
Accretion of premium payable on preferred
stock and warrants ........................ 76 306 382 249
Deemed dividend for preferred stock
conversion discount ..................... -- -- 2,778 --
-------- -------- -------- --------
Net loss applicable to common stockholders $(3,034) $ (3,784) $(8,585) $ (6,207)
======== ======== ======== ========
<CAPTION>
Quarter Ended
------------------------------------
1997
------------------------------------
March 31 June 30 Sept. 30
---------- ------------ ------------
(in thousands)
(Unaudited)
Revenues:
<S> <C> <C> <C>
Chirally pure intermediates ............... $ 505 $ 255 $ 137
Research contracts ........................ 250 385 284
-------- -------- --------
Total revenues ........................... 755 640 421
Expenses:
Cost of goods sold ........................ 211 251 180
Research and development .................. 4,273 4,837 4,175
Selling, general and administrative ...... 1,366 2,161 2,254
-------- -------- --------
Total expenses ........................... 5,850 7,249 6,609
-------- -------- --------
Loss from operations ..................... (5,095) (6,609) (6,188)
Other Income and Expense:
Interest Income ........................... 208 135 99
Interest expense ........................ 68 26 10
-------- -------- --------
Net loss ................................. (4,955) (6,501) (6,099)
Accretion of premium payable on preferred
stock and warrants ........................ 137 179 159
Deemed dividend for preferred stock
conversion discount ..................... -- 60 893
-------- -------- --------
Net loss applicable to common stockholders $(5,092) $ (6,739) $ (7,151)
======== ======== ========
</TABLE>
The Company's quarterly results have fluctuated significantly due to the
sporadic nature of orders for chiral intermediates, which historically have been
the Company's principal source of revenues, as well as due to extraordinary
expenses associated with the development of pharmaceuticals. Future operating
results will depend on many factors, including demand for the Company's
products, regulatory approvals, the timing of the introduction and market
acceptance of new products by the Company or competing companies, the Company's
ability to control costs and its ability to attract and retain highly qualified
scientific and management personnel.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its working capital requirements
primarily through private and public sales of its debt and equity securities,
income earned on the investment of the proceeds from the sale of such
securities, and revenues from product sales. The Company has raised
approximately $81,000,000 through the net proceeds of two public and three
private offerings, including its initial public offering in July 1987.
In July 1995, the Company issued and sold in a private placement offering
$12,000,000 aggregate principal amount of 8% Convertible Debentures due July
31, 1997 for total net proceeds, after offering costs, of approximately
$11,000,000. As of September 30, 1997, the entire $12,000,000 principal amount
of the 8% Convertible Debentures had been converted into Common Stock.
In March 1996, the Company issued and sold in a private placement offering 503
shares of Series A Convertible Preferred Stock at $50,000 per share, for total
gross proceeds of $25,200,000. The Company received net proceeds, after
offering costs, of approximately $23,800,000. (See Footnote 6 to the Financial
Statements).
- --------------------------------------------------------------------------------
19
<PAGE>
In June 1997, the Company issued and sold in a private placement offering 5,000
shares of Series B Convertible Preferred Stock at $1,000 per share, for total
gross proceeds of $5,000,000 and net proceeds, after offering costs, of
approximately $4.8 million. See Note 6 to the Financial Statements.
On September 30, 1997, the Company had available cash, cash equivalents and
marketable securities of approximately $5,000,000. In the nine months ended
September 30, 1997, working capital decreased approximately $13,500,000, or
82%, from December 31, 1996, which was attributable to the cash used in
operations which more than offset receipt of funds from the sale of Series B
Convertible Preferred Stock.
During the nine months ended September 30, 1997, capital expenditures totaled
approximately $1,200,000, primarily for equipment and leasehold improvements to
expand its research development and manufacturing capabilities.
In September 1997, the Company received from the FDA an approvable letter for
its NDA for THALOMID for the treatment of ENL, a disease state associated with
leprosy. At present, the Company cannot estimate the impact of potential sales
of THALOMID on future revenues.
The Company expects to make substantial expenditures to further its
immunotherapeutic program, to commercialize THALOMID and to expand its chiral
business and, based on these expenditures, it is likely that losses will
continue for at least the next 18 to 24 months.
The Company is currently utilizing its cash resources at a rate of approximately
$2,000,000 per month. In order to assure funding for the Company's future
operations the Company is seeking additional capital resources. These may
include the sale of additional securities under appropriate market conditions,
alliances or other partnership agreements with entities interested in and
possessing resources to support the Company's immunotherapeutic or chiral
programs, or other business transactions which would generate sufficient
resources to assure continuation of the Company's operations and research
programs in the long-term. In particular, each of the persons who purchased
Series B Preferred also agreed to purchase, at the option of the Company and
subject to the satisfaction of certain conditions, an aggregate of up to 15,000
additional shares of Series B Preferred Stock for an aggregate purchase price of
$15 million at subsequent closings. However, no assurances can be given that the
Company will be successful in raising such additional capital or entering into a
business alliance. Further, there can be no assurance, assuming the Company
successfully raises additional funds or enters into a business alliance, that
the Company will achieve profitability or positive cash flow.
If the Company is unable to raise additional funds, the Company believes that
its current financial resources, including its option to issue and sell
$5,000,000 of Series B preferred stock at a second closing (which is subject to
the satisfaction of certain customary conditions), could fund operations through
early 1998.
As of September 30, 1997, the Company had for Federal income tax purposes a net
operating loss carryforward of approximately $104,000,000. If not utilized to
offset future taxable income, such loss carryforward will expire between 2001
and 2012. Certain events, including any sales by the Company of shares of its
stock, including pursuant to this Offering, and/or transfers of a substantial
number of shares of Common Stock by the current stockholders, may partially
restrict the ability of the Company to utilize its net operating loss
carryforward.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings Per Share ("EPS"), which is
effective as of December 31, 1997. This standard changes the way companies
compute EPS to require all companies to show "basic" and "dilutive" EPS and is
to be retroactively applied, including each 1997 interim quarter. The statement
is not expected to have a material effect on the Company's calculation of EPS.
- --------------------------------------------------------------------------------
20
<PAGE>
BUSINESS
- --------------------------------------------------------------------------------
OVERVIEW
Celgene Corporation ("Celgene" or the "Company") is engaged in the development
and commercialization of human pharmaceuticals and agrochemicals, and is
employing two broad technology platforms: (i) small molecule immunotherapeutic
compound development and (ii) biocatalytic chiral chemistry synthesis. The
initial therapeutic focus of the immunology program is the development of small
molecule pharmaceuticals that have the potential to selectively regulate Tumor
Necrosis Factor[alpha] ("TNF[alpha]"), a protein whose overproduction has been
linked to many chronic inflammatory and immunological diseases. The Company's
lead compound in immunology is THALOMID[TM], its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha]. On September 19, 1997, the
Company received an approvable letter from the U.S. Food and Drug
Administration ("FDA") for THALOMID for the treatment of erythema nodosum
leprosum ("ENL"), an inflammatory complication of leprosy. The Company expects
to submit an additional New Drug Application ("NDA") in early 1998 for THALOMID
in the treatment of cachexia (wasting) in patients with Acquired Immune
Deficiency Syndrome ("AIDS"). Celgene has further applied its expertise in
small molecule chemistry to develop novel and proprietary thalidomide
analogues, as well as a class of proprietary immunotherapeutic pharmaceutical
compounds called SelCIDs[TM] ("Selective Cytokine Inhibitory Drugs"). These two
classes of compounds are orally administered small molecules that are highly
specific for the suppression of TNF[alpha] and are intended to treat chronic
inflammatory diseases and other disorders.
The initial therapeutic focus of the biocatalytic chiral chemistry synthesis
program is the development of chirally pure pharmaceuticals designed to have
greater efficacy and fewer side effects than existing racemic versions. The
Company's lead compound in this area is chirally pure dl-methylphenidate
(currently marketed under the trade name Ritalin[RegTM]). The Company recently
completed a Phase I/II trial and announced that its chirally pure version
demonstrated statistically significant efficacy versus a placebo and
preliminary indications of longer duration of action relative to the racemic
version. The Company is also employing its biocatalytic chiral chemistry
synthesis technology to develop chirally pure agrochemicals with superior
attributes and/or lower manufacturing costs than the conventional, non-chirally
pure equivalent, as well as to support its established business of supplying
chirally pure intermediates to other pharmaceutical companies for drug
development.
The Company is currently developing THALOMID for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company recently received an approvable letter from the FDA for THALOMID to
treat ENL. In April 1997, the Company announced that data from its Phase II/III
trial of thalidomide for the treatment of cachexia (wasting) in patients with
AIDS showed a statistically significant positive result in the primary
endpoint, weight gain. The Company expects to submit an NDA for this indication
by early 1998. Celgene is also studying thalidomide in clinical trials for the
treatment of three other disease states:
[bullet] AIDS--Recurrent Aphthous Stomatitis ("RAS"): Phase II/III Trial
[bullet] AIDS--Chronic Diarrhea: Phase II Trial
[bullet] Behcet's disease/Complex Aphthosis: Phase II/III Trial.
In addition, the Company expects to commence clinical trials in 1998 to study
thalidomide for the treatment of graft versus host disease and various
oncological applications. Working with the FDA, Celgene has proposed a
comprehensive education program and distribution system designed to support the
safe and appropriate use of thalidomide due to the drug's history of
teratogenicity (capacity to cause birth defects).
Celgene is employing its small molecule immunotherapeutics platform to develop
compounds with the objective of producing an array of novel, highly potent,
selective, safe, orally administered drugs to combat chronic inflammatory
diseases. Chronic inflammatory and immunological diseases collectively afflict
millions of patients, and are inadequately addressed with existing therapies.
The Company has developed two classes of compounds, thalidomide analogues and
SelCIDS, which have been demonstrated in in vitro tests using human cells to be
significantly more capable than thalidomide at suppressing TNF[alpha]
production and, in preclinical tests, have not demonstrated teratogenicity. The
initial therapeutic indications targeted for the thalidomide analogues are
rheumatoid arthritis and oncological applications, and for the SelCIDs,
inflammatory bowel disease and oncological applications. The Company recently
commenced a Phase I clinical trial in the United Kingdom to test the safety in
humans of its first SelCID compound.The United States Patent and Trademark
Office ("U.S. PTO") has issued composition of matter patents to the Company
relating to certain of its novel thalidomide analogues and SelCIDs.
Celgene's core chiral technology involves a patented biocatalytic process.
Biocatalysis involves the identification and manipulation of enzymes to perform
specialized chemical reactions to produce chirally pure compounds. Chirality
refers to the property of many chemical compounds to exist in two or more
different conformations that are mirror images of each
- --------------------------------------------------------------------------------
21
<PAGE>
other. While one conformation may have beneficial effects, the other or others
may be inactive or produce undesirable effects. Chirally pure compounds contain
only one of these conformations, and thus may have attributes superior to those
of the racemic mixture.
Since 1991, Celgene has manufactured and sold chirally pure intermediates to
several major pharmaceutical companies for use in the development of chirally
pure pharmaceuticals, and a number of these companies are conducting advanced
clinical trials of pharmaceuticals that incorporate the Company's chirally pure
intermediates.
The Company is employing its biocatalytic chiral chemistry synthesis technology
to develop its own chirally pure versions of existing pharmaceutical products
that may demonstrate greater efficacy and/or fewer side effects than existing
racemic products. The Company filed Investigational New Drug applications
("INDs") in the United States and Canada for a chirally pure version of
dl-methylphenidate, which has been used for decades in formulations such as
Ritalin[RegTM], for the treatment of Attention Deficit Hyperactivity Disorder
("ADHD") in children. The Company recently completed its Phase I/II clinical
trial of the drug and announced that its chirally pure version demonstrated
statistically significant efficacy versus a placebo and preliminary indications
of longer duration of action relative to the racemic version. The Company is
also developing a chirally pure formulation of mexiletine for the treatment of
neuropathic pain, a chronic pain state frequently associated with trauma,
spinal cord injury, and complications of diabetes. Celgene recently reported
that its chirally pure formulation of mexiletine substantially reduced severe
neuropathic pain in established animal models.
Celgene, through its Celgro[TM] subsidiary, is also applying its chiral
technology to the production of chirally pure agrochemicals, in which the
Company's biocatalytic process can add significant value by substantially
lowering manufacturing costs and reducing environmental impact. Since 1994, the
Company has been developing a process to manufacture a chirally pure version of
a currently marketed crop protection agent under a research and development
agreement, initially with Sandoz and subsequently with BASF, which acquired
Sandoz' agrochemical business. The Company has successfully scaled up its
process technology to demonstrate ability to produce commercial quantities of
the BASF product, and a commercial agreement is being negotiated.
Celgene has established a sales and marketing organization to commercialize
THALOMID, subject to regulatory approval of the product. The Company intends to
develop and market on its own pharmaceuticals for indications with smaller
patient populations. For drugs with indications with larger patient populations,
the Company anticipates partnering with pharmaceutical companies. The Company
also anticipates partnering with companies for the development and
commercialization of the Company's chirally pure pharmaceutical and agrochemical
products. Celgene expects that these arrangements typically will include
milestone payments, reimbursement of research and development expenses and
royalty arrangements.
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<PAGE>
Products
The Company has exploited its expertise in both small molecule
immunotherapeutic and biocatalytic chiral chemistry to develop a series of
products that the Company believes are approaching commercialization either by
the Company or through partnering arrangements. Celgene's portfolio of products
and product candidates currently under development is set forth in the
following table and further described below:
<TABLE>
<CAPTION>
Product Indication/ Intended Use Status(1)
- ------------------------------------- --------------------------------------------------- ----------------------------------
<S> <C> <C>
IMMUNOTHERAPEUTIC PLATFORM
THALOMID[TM] Erythema Nodosum Leprosum ("ENL") in leprosy Approvable Letter received
AIDS--Cachexia Phase II/III Trial completed
AIDS--Recurrent Aphthous Stomatitis ("RAS") Phase II/III Trial
AIDS--Chronic diarrhea Phase II Trial
Behcet's disease/Complex aphthosis Phase II/III Trial
Graft versus host disease Protocol in development
Various oncological applications Protocols in development
Novel Thalidomide Analogues Rheumatoid arthritis and oncological applications Preclinical development
SelCIDs[TM] (Selective Cytokine Inflammatory bowel disease and oncological Phase I Trial
Inhibitory Drugs) applications
CHIRAL CHEMISTRY PLATFORM
Chirally Pure Intermediates Building blocks for active ingredients for drugs Sales to pharmaceutical companies
under development by pharmaceutical companies
Chirally Pure Pharmaceuticals
d-MPH (Chirally pure version of Attention Deficit Hyperactivity Disorder ("ADHD") Phase I/II Trial completed
dl-methylphenidate)(2)
Chirally pure version of mexiletine Neuropathic pain Preclinical Testing
Chirally Pure Agrochemicals
Chiral biocatalytic synthesis Reduced manufacturing costs and reduced First application in advanced
technology environmental impact stage of evaluation by BASF
</TABLE>
- -----------
(1) See--"Government Regulation" for a description of the meaning of terms used
to describe the status of the Company's product development activities.
(2) One commercial formulation of dl-methylphenidate is Ritalin[RegTM].
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<PAGE>
IMMUNOLOGY
General
Celgene is applying its small molecule immunotherapeutic expertise to the
development of a family of orally available, small molecule pharmaceuticals
that have the potential to regulate the overproduction of TNF[alpha]. The
Company believes that it is close to commercialization of THALOMID, its first
pharmaceutical product, for the treatment of ENL, and has made significant
progress in the clinical trial study of thalidomide for several other
indications. The Company is also developing two new classes (novel thalidomide
analogues and SelCIDs) of orally available small molecules that are intended to
treat chronic inflammatory diseases and other disorders through the suppression
of TNF[alpha].
TNF[alpha], produced primarily by certain white blood cells, is one of a number
of proteins called cytokines, which act as chemical messengers throughout the
body to regulate many aspects of the immune system. TNF[alpha] is essential to
the mounting of an inflammatory response, which is the normal immune system
reaction to infection or injury, and rids the body of foreign agents and
promotes tissue repair. However, chronic or excessive production of TNF[alpha]
has been implicated in the pathophysiology of a number of acute and chronic
inflammatory diseases including inflammatory bowel disease, rheumatoid
arthritis, non-insulin dependent diabetes, asthma, lupus, and multiple
sclerosis. Collectively, these disease states afflict millions of patients, and
are inadequately treated with existing therapies.
The following table sets forth the estimated U.S. patient populations for
several common inflammatory diseases and other disorders whose
pathophysiologies are believed to be associated with excess levels of
TNF[alpha]:
<TABLE>
<CAPTION>
Estimated U.S.
Disease Patient Population
<S> <C>
Diabetes (non-insulin dependent) ...... 13,500,000
Alzheimer's Disease .................. 2,500,000
Inflammatory Bowel Disease ............ 2,000,000
Rheumatoid Arthritis .................. 2,000,000
Cancer Cachexia ........................ 500,000
Parkinson's Disease .................. 500,000
Multiple Sclerosis ..................... 300,000
Lupus ................................. 250,000
</TABLE>
Traditional therapies for these disease states include anti-inflammatory drugs
and immunosuppressive agents. These therapies, however, often fail to achieve
significant clinical benefits and can cause serious side effects such as severe
drops in certain blood counts, liver toxicity, osteoporosis, teratogenicity,
and various endocrine abnormalities. Newer therapies, which include monoclonal
antibodies and receptor-based therapies, also have not adequately addressed
these diseases. It is widely believed that selective inhibition of TNF[alpha]
represents a promising new strategy for treating chronic inflammatory diseases.
In pursuit of this strategy, two broad classes of compounds have been
investigated: proteins and small synthetic molecules.
Investigational anti-TNF[alpha] proteins, including anti-TNF[alpha] antibodies
and TNF[alpha] receptors, have demonstrated efficacy in such chronic
inflammatory diseases as rheumatoid arthritis, inflammatory bowel disease,
Crohns' disease (a severe manifestation of inflammatory bowel disease), and
graft versus host disease. While initial doses of these anti-TNF[alpha]
proteins have been well tolerated and reduced disease activity has been
observed in clinical studies, they do exhibit certain shortcomings linked to
their nature as proteins. First, they are relatively larger molecules that must
be injected. Second, the period of efficacy of a given dosage of a
protein-based drug often declines with repeated administration, rendering
protein-based drugs more suitable for treatment of acute pathological
conditions rather than chronic disease states. This limitation is due in part
to increasing production by the patient's immune system of antibodies that
neutralize administered proteins. Varying degrees of this immunogenic response
have been observed in clinical trials of anti-TNF[alpha] antibodies for the
treatment of rheumatoid arthritis and Crohn's disease.
There are a number of large protein based therapeutic products under
development for TNF[alpha] modulation. Several pharmaceutical and biotechnology
companies have either antibody or receptor-based products under development for
rheumatoid arthritis, Crohn's disease, asthma, and non-insulin dependent
diabetes mellitus. However, small molecule drugs exhibit important advantages
in the treatment of chronic inflammatory diseases, including oral dosing versus
injection, avoiding the undesirable immune response leading to side effects and
reduced efficacy, and lower cost of therapy. The Company believes its small
molecule immunotherapeutic compounds have the potential to selectively modulate
TNF[alpha] while affording these benefits.
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24
<PAGE>
In addition, preliminary research has indicated that Celgene's small molecule
immunotherapeutic compounds may be anti-angiogenic. Angiogenesis is the
fundamental biological process by which new blood vessels are formed. Cancer
cells require oxygen and nutrients which they receive from the body's blood
supply. Cancer cells initiate a biochemical mechanism that stimulates
angiogenesis, which in turn provides the cancerous cells with the blood supply
that they need. Celgene's small molecule immunotherapeutic compounds appear to
have the potential to inhibit such angiogenesis.
Thalidomide
The Company is currently developing THALOMID, its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha], for the treatment of a variety of
serious disease states for which there are currently no adequate therapies. The
Company's work with thalidomide is based on a scientific collaboration with The
Rockefeller University's Laboratory of Cellular Physiology and Immunology
("Rockefeller"). In the early 1990s, researchers at Rockefeller discovered that
thalidomide is a selective modulator of TNF[alpha], and therefore could be of
potential benefit in many serious immune related disease states, including
AIDS-related conditions. The Company believes that, in serious and debilitating
disease states, the risk of thalidomide's teratogenicity is outweighed by the
gravity of the disease and the drug's potential clinical benefits. Rockefeller
has granted Celgene the exclusive license of its U.S. patent to manufacture,
use and sell thalidomide for treating the toxicity associated with high
concentrations of TNF[alpha] in HIV infection, cachexia and septic shock.
Thalidomide was developed initially as a sedative, and was also widely
prescribed by doctors in Europe in the late 1950s and early 1960s to pregnant
women for relief of morning sickness. After severe birth defects were later
observed with use of the drug, it was virtually removed from the world market.
Thalidomide was later discovered to have therapeutic effects in the treatment
of ENL in leprosy, a disease that is rare in the United States but common in
many parts of the developing world. Although the FDA has never approved the
marketing of thalidomide, the U.S. Public Health Service has been dispensing
the drug for the treatment of ENL for the past 25 years.
STEPS Program
In conjunction with the FDA and other governmental agencies as well as certain
advocacy groups, the Company has taken measures to institute a program, known
as System for Thalidomide Education and Prescription Safety ("STEPS") for the
safe and effective dispensing of thalidomide. This program will include
comprehensive physician, pharmacist, and patient education. No patient will be
prescribed the drug unless the patient is fully participating in the system,
which includes pregnancy testing and contraception for women, as well as
informed consent and participation in a mandatory and confidential outcomes
registry managed by an academic epidemiology research group. No physician will
be able to prescribe thalidomide unless he or she has agreed to comply with the
educational, contraception counseling, informed consent, and pregnancy testing
requirements. No pharmacy will be able to purchase the drug unless the pharmacy
has agreed to confirm that the physician is a registered participant in the
program, and that the patient has signed an informed consent form. The program
does not allow for automatic refills, and no prescription will be filled for
more than four weeks dosing. Every prescription will be recorded to promote
complete compliance.
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25
<PAGE>
Target Disease States for Thalidomide
The primary indications for which the Company is currently testing or about to
commence testing THALOMID are set forth in the following table. The table
summarizes the completed, ongoing and planned clinical trials for THALOMID.
There can be no assurance that the Company will eventually commercialize or
pursue regulatory approval for THALOMID for any of these indications.
<TABLE>
<CAPTION>
Indication Status Trial Endpoint
- ------------------------------ -------------------------------------------- -------------------------------------
<S> <C> <C>
AIDS-related
Cachexia Phase II/III trial completed; NDA Increase in body weight at 8 weeks
expected to file early 1998
Recurrent aphthous Phase II/III trial commenced Complete healing of all ulcers
stomatitis ("RAS") first half 1997
Chronic diarrhea Phase II/III trial commenced 1996 Reduction in frequency of bowel
movements (>50%)
Non AIDS-related
Erythema nodosum Approvable Letter received
leprosum in leprosy ("ENL") September 1997
Behcet's disease/ Phase II/III expected to commence 1998 Reduction in existing ulcers;
complex aphthosis inhibition of new ulcerations
Cancer cachexia Protocols in design Increase in body weight and
improve quality of life
Graft versus host Phase II/III trial protocol in development Under discussion with FDA
disease
Various oncological Protocols in design
applications
</TABLE>
AIDS-Related Conditions
The Company is studying thalidomide in the treatment of several AIDS-related
conditions, including cachexia, RAS and chronic diarrhea. Competing therapies
have demonstrated beneficial effects in some of these conditions, but only
thalidomide has shown indications of efficacy in each of these indications. The
Company believes that thalidomide's broad applicability may result in patients
taking fewer pharmaceuticals each day, thus reducing side effects and potential
drug interaction problems.
Cachexia. Cachexia is clinically defined as the involuntary loss of more than
10% of baseline body weight in the previous six months. Based on available
information, the Company believes that an estimated 50% of AIDS patients (or
approximately 50,000 to 100,000 persons in the United States) suffer from
cachexia at some point in the progression of AIDS. The condition can result
from HIV infection itself, or as a consequence of AIDS-related illnesses.
Cachexia markedly diminishes a patient's quality of life, may contribute
directly to disease progression, the continuing loss of immune function, and to
the development of opportunistic infections and even death.
The Company announced in April 1997 that data from its Phase II/III trial of
THALOMID in HIV-associated weight loss showed "a statistically significant
positive result" in reaching the trial's primary endpoint, i.e. increase in
body weight after eight weeks of therapy. The double-blind placebo-controlled
trial evaluated 102 AIDS patients who had lost an average of more than 10
percent of their body weight. The Company is in advanced discussions with the
FDA regarding the submission of an NDA for this indication which is expected in
early 1998. In December 1995, the FDA permitted the Company to commence an
expanded-access program to dispense thalidomide for the treatment of cachexia.
This program is still ongoing and permits persons with AIDS cachexia access to
the drug.
Recurrent Aphthous Stomatitis. RAS, which is characterized by lesions of the
oral cavity, esophagus, and gastrointestinal tract, which the Company believes
afflicts an estimated 10,000 AIDS patients and may interfere with normal
eating. Positive results have been reported in a study conducted by the AIDS
Clinical Trials Group of the National Institutes of Health using a formulation
of thalidomide manufactured by a third party. In mid-1997, the Company began a
pivotal clinical trial involving 84 patients for the evaluation of thalidomide
in the treatment of RAS, using the same principal investigator as the AIDS
Clinical Trials Group study.
- --------------------------------------------------------------------------------
26
<PAGE>
Chronic Diarrhea. Frequent intractable diarrhea is a clinically important
condition in AIDS patients. There currently is no effective treatment for this
condition, which results in restricted lifestyle and significant morbidity,
such as weight loss, and which the Company believes may afflict as many as
50,000 patients in the United States. The Company is currently sponsoring a
double-blind, placebo controlled Phase II/III clinical trial involving 120 AIDS
patients at three centers in London, the U.S. and Mexico, for 28 days of
therapy, to determine the safety and efficacy of a single dose of 100 mg of
thalidomide in the symptomatic treatment of AIDS patients with severe diarrhea
in the presence of two common bowel pathogens.
Effect of Protease Inhibitors and Triple Combination Therapy on Need for
THALOMID. Triple combination therapy, which involves the use of a protease
inhibitor in conjunction with two reverse transcriptase inhibitors, has proven
effective at reducing the HIV viral load in HIV+ or AIDS patients and may also
reduce the number of complications per patient. However, the Company believes
there will be continuing need for THALOMID among AIDS patients because: (i)
triple combination therapy does not lead to a short-term restoration of the
immune system, and thus many patients receiving triple combination therapy,
especially those who have suffered from AIDS for an extended period of time,
continue to be prone to opportunistic infections, and (ii) there is growing
evidence that mutations of the AIDS virus may render protease inhibitors less
effective. This is supported by empirical evidence recently presented at
scientific conferences which suggest that protease inhibitors may become less
effective over an extended period of time.
Non AIDS-Related Conditions
Erythema Nodosum Leprosum. ENL, a complication of leprosy, is a chronic
bacterial disease. Leprosy afflicts millions worldwide, although the disease is
relatively rare in the United States. Celgene does not plan to market THALOMID
outside the United States and Canada in the near term. ENL occurs in about 30%
of leprosy patients, and is characterized by cutaneous lesions, acute
inflammation, fever, and anorexia. On September 19, 1997, the Company received
an "approvable" letter from the FDA with respect to the Company's NDA for
THALOMID in the treatment of ENL, setting forth certain prerequisites, upon the
satisfaction of which the FDA will approve the NDA.
Behcet's Disease and Complex Aphthosis. In September 1997, the Company filed an
IND with the FDA for the study of thalidomide for potential use in the treatment
of Behcet's disease and complex aphthosis, which are chronic autoimmune
disorders that together affect approximately 15,000 people in the United States,
and are characterized by eye inflammation, oral and genital ulcers and other
skin lesions. The disease can also damage joints, blood vessels, the central
nervous system and the gastrointestinal tract. Investigators at the Bowman Gray
School of Medicine and the Mayo Clinic will conduct the two-phase, double-blind
study, to determine whether there is a statistically significant reduction in
existing ulcers and whether the drug inhibits the formation of new ulcerations.
Thalidomide is generally regarded as the treatment of choice for severe Behcet's
disease and complex aphthosis.
Graft Versus Host Disease. Graft versus host disease is a disorder of the
immune system that is the most common complication and cause of death following
bone marrow transplants. There have been individual cases in which
comprehensive and intensive thalidomide therapy at high doses has successfully
reversed this disease. The Company is developing a protocol for a study of
thalidomide in the treatment of graft versus host disease.
Various Oncological Applications. Wasting is a prevalent complication of late
stage cancer and is often associated with the after-effects of chemotherapy.
The Company is currently evaluating a number of protocols for studying the
effects of thalidomide on wasting associated with several cancer conditions.
Celgene's small molecule immunotherapeutic compounds also appear to have the
potential to inhibit angiogenesis. The Company is currently evaluating a number
of protocols for studying the anti-angiogenic effects of thalidomide in the
treatment of various cancers.
Compassionate Use Programs. Since 1995, the Company has been providing
thalidomide under physician-directed emergency INDs. The Company has fulfilled
over 600 separate requests (each of which may represent a multiple number of
patients being treated) for supplies of thalidomide to treat more than 30
different indications.
Novel Thalidomide Analogues
Celgene has designed and synthesized a number of novel structural analogues of
thalidomide which have demonstrated in in vitro tests to be substantially more
potent than thalidomide, including some with equivalent ability to inhibit
TNF[alpha] overproduction but in a dose as low as 1/100,000 of the dose of
thalidomide. There can be no assurance, however, that the same effect can be
duplicated in in vivo tests. Research on these compounds is now focused on
increasing the immunological and anti-angiogenic activity and the potential
elimination of thalidomide's side effects including teratogenicity. Certain
- --------------------------------------------------------------------------------
27
<PAGE>
analogues are now being evaluated in preclinical toxicology. The Company
anticipates filing IND applications for novel thalidomide analogues to treat
selected inflammatory and oncological disease states in 1998.
SelCIDs
The Company has designed, synthesized and tested several hundred SelCIDs
("Selective Cytokine Inhibitory Drugs"). These compounds have demonstrated the
ability to be highly specific suppressors of TNF[alpha] in in vitro bioassays
of human cells. In April 1997, the Company announced that its SelCIDs appear to
have a highly specific inhibitory effect on the phosphodiesterase type 4 enzyme
(PDE-4), which is linked to the overproduction of TNF[alpha]. Studies have
determined that many of the SelCIDs decrease synthesis of TNF[alpha] through
selective inhibition of PDE-4. The Company believes that control of TNF[alpha]
at its source, versus simple removal of circulating levels of the cytokine, may
facilitate more effective therapy without immune suppression. There can be no
assurance, however, that the same effect can be duplicated in in vivo tests.
The Company's first SelCID entered safety testing in humans in the United
Kingdom in 1997. The Company aims to file an IND for inflammatory bowel disease
in the United States in 1998. The SelCIDs have not shown any evidence of emesis
(nausea and vomiting) in animal tests. If confirmed in humans, this would
indicate that they are a unique class of PDE-4 inhibitors. Ths U.S. PTO has
issued composition of matter patents to the Company relating to certain of its
novel thalidomide analogues and SelCIDs.
CHIRAL CHEMISTRY
Celgene is applying its patented, cost effective biocatalytic chiral chemistry
synthesis technology and seven years of experience in developing chirally pure
intermediates towards the development of substantial business opportunities in
human pharmaceuticals and agrochemicals. The Company believes it has made
significant progress over the past two years towards the development of three
principal opportunities: (i) the supply of custom chirally pure intermediates
to other pharmaceutical companies for use in new drug development; (ii) the
development of chirally pure versions of existing racemic drugs (drugs
containing equal quantities of the mirror image conformations of an active
ingredient that exhibits chirality) whose performance and/or safety profiles
may be enhanced by eliminating chiral impurities; and (iii) the development and
production of chirally pure agrochemicals.
Chirality
Many human pharmaceuticals and agrochemicals exist in two or more different
three dimensional configurations that are identical in chemical structure but
are mirror images of each other. These conformations, known as stereoisomers,
generally interact differently with biological targets. In clinical
applications, one stereoisomer may result in the desired therapeutic effect by
stimulating or inhibiting a targeted biological function, while the other
stereoisomer may be inactive or cause undesirable side effects. In contrast to
racemic pharmaceuticals, the use of chirally pure pharmaceuticals may result in
significant clinical benefits such as reduced toxicity and increased efficacy.
In agrochemical applications, the use of chirally pure chemicals can result in
a substantially reduced volume of product required, thereby lowering
manufacturing costs and reducing the environmental burden as compared with
racemic chemicals.
The worldwide market value of drugs marketed in their chirally pure form
increased from approximately $7 billion in 1985 to approximately $50 billion in
1995. This increase was driven, in large part, by the FDA's movement towards
requiring applicants, in connection with the submission of NDAs for racemic
compounds, to evaluate the racemic mixture as well as each stereoisomer. In
addition, in February 1997 the FDA requested public comment on whether and how
it should create incentives, including periods of market exclusivity, for the
development of chirally pure drugs. Similarly, agrochemicals are subject to
complex and evolving environmental regulation in the United States and abroad,
including regulations establishing usage levels. The Company believes that such
regulatory constraints increase the commercial opportunity for chirally pure
agrochemicals which cause less environmental impact, in terms of both their
manufacture and use.
Celgene's Core Chiral Technology: Biocatalysis
Celgene's patented biocatalytic process enables the efficient production of
chirally pure compounds. The Company's biocatalytic process is based primarily
on the use of enzymes called aminotransaminases, which are optimized by the
Company through genetic engineering techniques. These enzymes catalyze the
production of only the desired stereoisomer of a chiral compound, and can be
used in conventional chemical synthesis reactors at room temperature.
The Company's biocatalytic process for producing chirally pure compounds
differs from the more common approach of producing racemic mixtures followed by
separation of the desired stereoisomer through resolution techniques such as
crystallization or chromatography. These traditional approaches to producing
chirally pure compounds can be cumbersome,
- --------------------------------------------------------------------------------
28
<PAGE>
result in low yields, use more raw materials, and are generally less economical
than the Company's process. The Company believes that its biocatalytic process
can be applied to the manufacture of a wide variety of organic chemicals, and
provides the Company with three business opportunities.
Chirally Pure Intermediates
Since 1990, the Company has applied its chiral technology to the development
and supply of chirally pure intermediates as building blocks to make active
ingredients for use in new drug development. The Company focuses on chemical
compounds known as amines, including amino acids and ethanolamines, which are
typically critical components of a broad spectrum of pharmaceuticals, including
therapeutics for cardiovascular, respiratory, anti-infective, endocrine,
cancer, and central nervous system applications. Celgene has developed a
substantial knowledge base relating to transaminases. These two factors
facilitate the rapid production of a wide variety of chirally pure compounds to
meet individual customer requirements. In addition, the Company's biocatalytic
process technology can be implemented on a commercial scale using equipment
common to the chemical processing industry with limited additional capital
expenditures.
Celgene's principal customers in 1997 for chirally pure intermediates included
Sanofi SA, Novartis AG, Johnson and Johnson, Sepracor, Inc. and Smith-Kline
Beecham Pharmaceuticals plc. Several of these companies are conducting advanced
clinical trials of chirally pure pharmaceuticals that incorporate chirally pure
intermediates supplied by Celgene.
Chirally Pure Pharmaceuticals
Celgene believes there is a significant opportunity in developing chirally pure
versions of approved drugs sold in racemic form. Compounds that have been
approved and marketed have a significant body of information regarding their
safety and efficacy, and consequently: (i) the cost and duration of clinical
trials may be reduced if reference may be made to data used in the course of
obtaining regulatory approval for the racemic parent compound; (ii) the risk of
not obtaining regulatory approval may be reduced, and (iii) marketing risks may
be reduced due to the established market for the parent compound.
The Company is developing chirally pure versions of currently marketed racemic
drugs as potentially improved pharmaceuticals with reduced side effects, lower
dosage requirements, enhanced specificity, and applications in new indications.
The Company filed IND applications with the FDA and the Health Protection
Branch of Canada and initiated a Phase I/II clinical trial for a chirally pure
version of dl-methylphenidate ("dl-MPH"), which has been used for decades in
formulations such as Ritalin for the treatment of ADHD in children. One million
American children are estimated to be treated with dl-MPH in its racemic form.
Total U.S. sales in 1997 of the racemic version of the drug are projected to be
greater than $400 million. The Company's study was designed to evaluate the
pharmacokinetics and potential benefits of its chirally pure version of dl-MPH.
The Company recently completed this trial of its chirally pure version of
dl-MPH and announced that its chirally pure version demonstrated statistically
significant efficacy versus a placebo and preliminary indications of longer
duration of action relative to the racemic version. In addition, the Company
has commenced development of a controlled release version of its chirally pure
version of dl-MPH, which may substantially improve administration of the drug.
The Company has applied for use and process patents for both its chirally pure
and controlled release versions of dl-MPH.
The Company is also developing a chirally pure formulation of mexiletine for
the treatment of neuropathic pain, a chronic pain state frequently associated
with trauma, spinal cord injury, and complications of diabetes. Neuropathic
pain generally arises from injury to the peripheral or central nervous tissue.
In most cases, chronic neuropathic pain responds poorly to treatment with
opiates or nonsteroidal anti-inflammatory analgesics. High doses of racemic
oral mexiletine are sometimes used by physicians as an adjuvant pain treatment
for the condition, presumably due to its ability to block sodium channels that
communicate pain signals through the nervous system. However, this off-label
use has been limited, due to the racemate's effect on sodium channels in the
heart and the central nervous system that can lead to significant side effects.
Celgene recently reported that its chirally pure formulation of mexiletine
substantially reduced severe neuropathic pain in established animal models. The
study examined the effect of each of the two isomers of mexiletine, racemic
mexiletine, and lidocaine, a prototypical sodium channel blocker, on allodynia
(pain response elicited by light touch stimuli), in two established preclinical
models. Celgene, in collaboration with researchers at the Anesthesiology
Research Laboratory at the University of California in San Diego, determined
that one isomer of mexiletine is active in the reduction of neuropathic pain.
Formulation of a pharmaceutical with this single, selective isomer may help
avoid adverse effects on cardiac and other tissues. A racemic formulation of
mexiletine is marketed by several companies as an orally active anti-arrhythmic
agent. Celgene's preliminary research indicates that the anti-arrhythmic effect
is resident in one stereoisomer and the pain suppression capability in the
other. The Company has filed for appropriate patent coverage for chirally pure
mexiletine for neuropathic pain.
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29
<PAGE>
Chirally Pure Agrochemicals
In June 1996, the Company announced the formation of its Celgro subsidiary,
which is marketing the Company's proprietary biocatalytic synthesis technology
to agrochemical companies. Celgro's approach is to work with agrochemical
companies to adapt the Company's biocatalytic technology to the manufacture of
chirally pure versions of these companies' crop protection agents, and then
license the technology to these companies in exchange for royalties. Celgro
will also seek to develop chirally pure versions of existing agrochemicals on
its own, and then enter into license agreements with third parties, who will
manufacture and sell the agrochemicals and pay the Company royalties. The
Company believes that the agrochemical market presents a substantial
opportunity because many agrochemicals produced in racemic form, with annual
worldwide sales totaling $5 billion, could be manufactured in chirally pure
form.
Since 1994, the Company has been developing a process to manufacture a chirally
pure version of a currently marketed racemic crop protection agent under a
research and development agreement with BASF, and presently is successfully
scaling up the process to produce commercial quantities of the products. The
Company has received milestone research and development payments in excess of
$2 million under this agreement, and a commercial licensing agreement is under
negotiation. The Company is also actively pursuing several similar arrangements
with other major agrochemical companies.
The Company also believes that its chiral technology is enabling in
agrochemical applications because it has the potential to significantly lower
manufacturing costs compared to conventional technologies and other chiral
technologies. Compared to the Company's biocatalytic process, conventional
technologies require more raw materials and greater plant capacity to produce
the same effective quantity of product, while other chiral technologies require
specialized equipment, more expensive chiral agents, more raw material, and
greater capacity for handling hazardous wastes produced in the separation
process. In addition, it is anticipated that the required application amount of
a chirally pure form of an agrochemical is substantially less than the racemic
form, thereby reducing environmental burden. Agrochemicals are highly price
sensitive, and, therefore, a process that produces chirally pure products at
significant cost savings could be in substantial demand.
PATENTS AND PROPRIETARY TECHNOLOGY
Patents and other proprietary rights are important to the Company's business.
It is the Company's policy to seek patent protection for its inventions, and
also to rely upon trade secrets, know-how, continuing technological innovations,
and licensing opportunities to develop and maintain its competitive position.
Under an agreement with The Rockefeller University ("Rockefeller"), the Company
has obtained certain exclusive rights and licenses to manufacture, use, and
sell products that are based on compounds identified in research carried out by
Rockefeller and the Company that can be used for treating toxicity associated
with high concentrations of TNF[alpha] (the "Rockefeller License"). Rockefeller
has identified a method of using thalidomide and certain thalidomide-like
compounds to treat certain symptoms associated with abnormal concentrations of
TNF[alpha], including those manifested in septic shock, cachexia and HIV
infection, and in 1995 was issued U.S. Patent No. 5,385,901 which claims such
methods. This U.S. Patent expires in 2012 and is included in the patent rights
licensed to the Company under the Rockefeller License. However, Rockefeller did
not seek corresponding patents in any other countries in respect of this
invention. Under the Rockefeller License, the Company is obligated to pay
certain specified royalties to Rockefeller on net sales of licensed products.
The Rockefeller License is coterminous with the last to expire of the licensed
patents and is terminable by Rockefeller only in the event of a breach of the
agreement's terms by Celgene which breach shall fail to be remedied for more
than sixty days after notice thereof. Any termination of the Rockefeller
License could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has been issued 26 U.S. patents and has filed 11 U.S. patent
applications. Of the issued U.S. patents, 15 relate to immunotherapeutic and
chiral amine processes, compounds and uses. The Company's U.S. patents expire
between 2001 and 2016. The Company has obtained patents in certain other
countries which correspond to some, but not all, of the Company's U.S. patents.
The Company expects to continue to file patent applications covering the use of
its proprietary inventions.
Prior to the enactment in the United States of new laws adopting certain
changes mandated by the General Agreement on Tariffs and Trade ("GATT"), the
exclusive rights afforded by a U.S. patent were for a period of 17 years
measured from the date of grant. Under these new laws, the term of any U.S.
patent granted on an application filed subsequent to June 8, 1995, will
terminate 20 years from the date on which the patent application was filed in
the United States or the first priority date, whichever occurs first. Future
patents granted on an application filed before June 8, 1995, will have a term
that terminates 20 years from such date, or 17 years from the date of grant,
whichever date is later.
- --------------------------------------------------------------------------------
30
<PAGE>
Under the Drug Price Competition and Patent Term Restoration Act of 1984, a
U.S. product patent or use patent may be extended for up to five years under
certain circumstances to compensate the patent holder for the time required for
FDA regulatory review of the product. The benefits of this act are available
only to the first approved use of the active ingredient in the drug product and
may be applied only to one patent per drug product. There can be no assurance
that the Company will be able to take advantage of this law.
The Company's success will depend, in part, on its ability to obtain and enforce
patents, protect trade secrets, obtain licenses to technology owned by third
parties when necessary, and conduct its business without infringing the
proprietary rights of others. The patent positions of pharmaceutical and
biotechnology firms, including the Company, can be uncertain and involve complex
legal and factual questions. In addition, the coverage sought in a patent
application can be significantly reduced before the patent is issued.
Consequently, the Company does not know whether any of its pending applications
will result in the issuance of patents or, if any patents are issued, whether
they will provide significant proprietary protection or commercial advantage, or
will be circumvented by others. Since patent applications in the United States
are maintained in secrecy until patents issue, and since publication of
discoveries in the scientific or patent literature often lag behind actual
discoveries, the Company cannot be certain that it was the first to make the
inventions covered by each of its pending patent applications, or that it was
the first to file patent applications for such inventions. In the event a third
party has also filed a patent for any of its inventions, the Company may have to
participate in interference proceedings declared by the U.S. PTO to determine
priority of invention, which could result in the loss of any opportunity to
secure patent protection for the invention and the loss of any right to use the
invention, and even if the eventual outcome is favorable to the Company, such
interference proceedings could result in substantial cost to the Company.
Protection of patent applications and litigation to establish the validity and
scope of patents, to assert patent infringement claims against others and to
defend against patent infringement claims by others can be expensive and
time-consuming. There can be no assurance that in the event that any claims with
respect to any of the Company's patents, if issued, are challenged by one or
more third parties, that any court or patent authority ruling on such challenge
will determine that such patent claims are valid and enforceable. An adverse
outcome in such litigation could cause the Company to lose exclusivity relating
to such patent claims. If a third party is found to have rights covering
products or processes used by the Company, then the Company could be forced to
cease using the technologies covered by the disputed rights, could be subject to
significant liabilities to such third party, and could be required to license
technologies from such third party. Also, different countries have different
procedures for obtaining patents, and patents issued by different countries
provide different degrees of protection against the use of a patented invention
by others. There can be no assurance, therefore, that the issuance to the
Company in one country of a patent covering an invention will be followed by the
issuance in other countries of patents covering the same invention, or that any
judicial interpretation of the validity, enforceability, or scope of the claims
in a patent issued in one country will be similar to the judicial interpretation
given to a corresponding patent issued in another country. Furthermore, even if
the Company's patents are determined to be valid, enforceable, and broad in
scope, there can be no assurance that competitors will not be able to design
around such patents and compete with the Company using the resulting alternative
technology. The Company does not currently have, nor does it intend to seek,
patent protection relating to the use of THALOMID to treat erythema nodosum
leprosum, an inflammatory complication of leprosy, which is the only indication
with respect to which the Company has received an approvable letter from the
U.S. Food and Drug Administration.
The Company also relies upon unpatented proprietary and trade secret technology
that it seeks to protect, in part, by confidentiality agreements with its
collaborative partners, employees, consultants, outside scientific
collaborators, sponsored researchers, and other advisors. There can be no
assurance that these agreements provide meaningful protection or that they will
not be breached, that the Company would have adequate remedies for any such
breach, or that the Company's trade secrets, proprietary know-how, and
technological advances will not otherwise become known to others. In addition,
there can be no assurance that, despite precautions taken by the Company,
others have not and will not obtain access to the Company's proprietary
technology.
GOVERNMENTAL REGULATION
Regulation by governmental authorities in the United States and non-U.S.
countries is a significant factor in the manufacture and marketing of
pharmaceuticals and in the Company's ongoing research and development
activities. All of the Company's therapeutic products will require regulatory
approval by governmental agencies prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical testing and
clinical trials and other pre-market approval requirements by the FDA and
regulatory authorities in other countries. In the United States, various
federal, and in some cases state, statutes and regulations also govern or
impact upon the manufacturing, safety, labeling, storage, record keeping, and
marketing of such products. The lengthy process of seeking required approvals,
and the continuing need for compliance with applicable statutes and regulations
require the expenditure of substantial resources. Even if regulatory approval
is obtained for any of the pharmaceutical products manufactured by or for the
Company, or with the Company's chirally pure
- --------------------------------------------------------------------------------
31
<PAGE>
intermediates, or using the Company's biocatalytic chiral processes, the scope
of the approval may significantly limit the indicated uses for which such
products may be marketed. Further, approved drugs, as well as their
manufacturers, are subject to ongoing review, and discovery of previously
unknown problems with such products may result in restrictions on their
manufacture, sale or use or in their withdrawal from the market. Any failure by
the Company or its collaborators or licensees to obtain or maintain, or any
delay in obtaining regulatory approvals could adversely affect the marketing of
any products developed by the Company, and its ability to receive product
revenue, royalty revenue, or profit sharing payments.
The activities required before a pharmaceutical may be marketed in the United
States begin with preclinical testing not involving human subjects. Preclinical
tests include laboratory evaluation of product chemistry and animal studies to
assess the potential safety and efficacy of product and its formulations. The
results of these studies must be submitted to the FDA as part of an
Investigational New Drug Application ("IND"), which must be reviewed by the FDA
primarily for safety considerations before proposed clinical trials in humans
can begin. Typically, clinical trials involve a three-phase process.
In Phase I, clinical trials are conducted with a small number of individuals to
determine the early safety and tolerability profile and the pattern of drug
distribution and metabolism within the body. In Phase II, clinical trials are
conducted with groups of patients in order to determine preliminary efficacy,
dosing regimes, and expanded evidence of safety. In Phase III, large-scale,
multi-center, adequate and well-controlled, comparative clinical trials are
conducted with patients in order to provide enough data for the statistical
proof of efficacy and safety required by the FDA and others, however in some
limited circumstances Phase III trials may be modified to allow evaluation of
safety and efficacy in a less regimented manner, which may allow the Company to
rely on historical data relating to the previous use of certain
pharmaceuticals. In Phase IV, confirmatory trials are conducted after the FDA's
approval of an NDA or issuance of an approvable letter in order to resolve any
open issues. Monitoring of all aspects of the study to minimize risks is a
continuing process. Reports of all adverse events must be made to the FDA.
The results of the preclinical testing and clinical trials are then submitted
to the FDA in the form of an NDA for approval to commence commercial sales. In
responding to an NDA, the FDA may grant marketing approval, request additional
information, or deny the application if it determines that the application does
not satisfy its regulatory approval criteria. If an NDA is approved, the
Company will have to establish a system for obtaining reports of experience and
side effects that are associated with the drug and make appropriate submissions
to the FDA.
Pursuant to the Orphan Drug Act, a sponsor may request the FDA to designate a
drug intended to treat a "rare disease or condition" as an "orphan drug." A
"rare disease or condition" is defined as one which affects less than 200,000
people in the United States, or which affects more than 200,000 people, but for
which the cost of development and making available the drug is not expected to
be recovered from sales of the drug in the United States. Upon the approval of
the first NDA for a drug designated as an orphan drug for a specified
indication, the sponsor of the NDA is entitled to exclusive marketing rights in
the United States for such drug for that indication for seven years. Orphan
drugs may also be eligible for federal income tax credits for costs associated
with the drug's development. Possible amendment of the Orphan Drug Act by the
United States Congress and possible reinterpretation by the FDA are the subject
of frequent discussion. FDA regulations reflecting certain definitions,
limitations and procedures went into effect in January 1993. Therefore, there
is no assurance as to the precise scope of protection that may be afforded by
orphan drug status in the future, or that the current level of exclusivity and
tax credits will remain in effect. The Company has received from the FDA orphan
drug designation for thalidomide for the treatment of ENL, AIDS cachexia,
mycobacterial infections and RAS. However, there can be no assurance that
another company also holding orphan drug designation will not receive approval
prior to Celgene for the use of thalidomide for the treatment of one or more of
these indications. If such were to happen, Celgene's applications for that
indication could not be approved until the competing company's seven year
period of exclusivity expired.
Among the conditions for NDA approval is the requirement that the prospective
manufacturer's quality control and manufacturing procedures continually conform
with the FDA's current Good Manufacturing Practice regulations and guidelines
("GMP"). In complying with GMP, manufacturers must devote extensive time,
money, and effort in the area of production and quality control and quality
assurance to maintain full technical compliance. Manufacturing facilities and
company records are subject to periodic inspections by the FDA to ensure
compliance.
Steps similar to those in the United States must be undertaken in virtually
every other country comprising the market for the Company's products before any
such product can be commercialized in those countries. The approval procedure
and the time required for approval varies from country to country and may
involve additional testing. There can be no assurance that approvals will be
granted on a timely basis, or at all. In addition, regulatory approval of
prices is required in most countries other than the United States. There can be
no assurance that the resulting prices would be sufficient to generate an
acceptable return to the Company.
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32
<PAGE>
COMPETITION
The pharmaceutical and agrochemical businesses in which the Company competes
are each highly competitive. The Company's competitors include major
pharmaceutical and chemical companies, many of which have considerably greater
financial, technical, and marketing resources than the Company. The Company
also experiences competition in the development of its products and processes
from universities and other research institutions and, in some instances,
competes with others in acquiring technology from such sources.
Competition in the pharmaceutical industry, and specifically in the
immunotherapeutic areas being addressed by the Company, is particularly
intense. Numerous companies, including Immunex Corp., and Centocor Corp., are
pursuing techniques to modulate TNF[alpha] production through various
combinations of monoclonal antibodies, TNF[alpha] receptors, and small molecule
approaches. In addition, a number of other companies are attempting to address,
with other technologies and products, the disease states currently being
targeted by the Company. Other companies are attempting to develop thalidomide
for AIDS-related and non AIDS-related indications. EntreMed, Inc. is
researching the effectiveness of thalidomide and its own proprietary
thalidomide analogues as anti-angiogenic agents in the treatment of retinal
disease and cancer. Andrulis Pharmaceuticals Corp., a small privately held
company, is attempting to develop thalidomide for the treatment of AIDS-related
complications.
Several companies have established chiral products and chiral technologies.
Companies that develop and manufacture chirally pure intermediates include:
Chiroscience Group Plc ("Chiroscience"); DSM Andeno B.V.; Lonza Ltd.;
Kanegafuchi Chemical Industry Co., Ltd.; Cambrex Corporation, and ChiRex Inc.
Several of these companies have established commercial scale manufacturing
facilities that are believed to be in compliance with GMP, which provides these
companies with a competitive advantage. In addition, Sepracor and Chiroscience
are actively developing chirally pure versions of pharmaceuticals currently
marketed in racemic form. Chiroscience has completed Phase I trials in the
United Kingdom for a chirally pure version of dl-MPH and is working with Medeva
Plc, the lead supplier of dl-MPH in the United States, towards full clinical
development. Chiroscience has also taken certain steps to assert patent and
proprietary rights with respect to its formulation of a chirally pure version
of dl-MPH. The agrochemical market is large and, within this market, efforts
are underway by the in-house development staffs of agrochemical companies to
produce chirally pure versions of their existing racemic crop protection
agents.
The pharmaceutical and agrochemical industries have undergone, and are expected
to continue to undergo, rapid and significant technological change, and
competition is expected to intensify as technical advances in each field are
made and become more widely known. In order to compete effectively, the Company
will be required to continually upgrade its scientific expertise and
technology, identify and retain capable management, and pursue scientifically
feasible and commercially viable opportunities.
The Company's competition will be determined in part by the indications for
which the Company's products are developed and ultimately approved by
regulatory authorities. An important factor in competition will be the timing
of market introduction of the Company's or competitors' products. Accordingly,
the relative speed with which the Company can develop products, complete
clinical trials and approval processes, and supply commercial quantities of
products to the market will be expected to be important competitive factors.
Competition among products approved for sale will be based, among other things,
on product efficacy, safety, convenience, reliability, availability, price, and
patent position.
MANUFACTURING
THALOMID is encapsulated for the Company by Penn Pharmaceuticals Ltd. of Great
Britain ("Penn") in a special facility devoted exclusively to the production of
THALOMID capsules. Both the bulk manufacturing facility that produces the drug
substance for THALOMID and the Penn facility have been certified as GMP
compliant. The Company currently produces chirally pure intermediates in its
own facilities, which are adequate to produce the developmental quantities of
product currently used by the Company and its current customers. However, the
Company's existing facilities will not be adequate for the manufacture of large
scale developmental and commercial quantities of the Company's chiral products.
In order to obtain such larger quantities, the Company expects to engage third
parties through licensing agreements with customers, or by entering into an
alliance, joint venture, or other arrangement with one or more contract
manufacturers. In certain instances, the Company may be required to make
substantial capital expenditures to access additional manufacturing capacity.
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33
<PAGE>
SALES AND MARKETING
Celgene has established a sales and marketing organization to commercialize
THALOMID (subject to regulatory approval of the product), and intends to employ
approximately 25 persons in this capacity. The Company believes that a direct
sales force for THALOMID can be effective because of the relatively small,
concentrated patient population, of which 70% resides in 20 major metropolitan
areas. Celgene has engaged a specialty contract distributor to distribute
THALOMID in strict accordance with the Company's program to promote the safe
and effective dispensing and use of the product. This program will include
comprehensive physician, pharmacist and patient education, informed consent
procedures, appropriate labeling, and frequent pregnancy testing. The Company
also employs a three person direct sales staff to market and provide technical
support to customers for its chirally pure intermediates.
EMPLOYEES
At October 24, 1997, the Company had 115 full time employees, 73 of whom were
engaged primarily in research and development activities, 23 of whom were
engaged in sales and marketing activities, and the remainder of whom were
engaged in executive and administrative activities. Of the Company's employees,
58 have advanced degrees, including 28 who have Ph.D. degrees. The Company also
maintains consulting arrangements with a number of scientists at various
universities and other research institutions in Europe and the United States.
PROPERTIES
The Company leases a 44,500 square foot laboratory and office facility in
Warren, New Jersey under a lease with an unaffiliated party which has a term
ending in May 2002 with one five-year renewal option. The Company also
sub-leases 17,500 square feet in a facility located in Annandale, New Jersey
that houses the Company's Celgro unit. The facility consists of office and
laboratory space and is leased under a sub-lease which expires in February
1999. The Company believes that its laboratory facilities are adequate for its
research and development activities for at least the next 12 months.
LEGAL PROCEEDINGS
The Company is not engaged in any legal proceedings. The Company believes it is
currently in substantial compliance with all federal, state and local
environmental laws.
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<PAGE>
MANAGEMENT
- --------------------------------------------------------------------------------
Directors, Officers, and Key Employees
<TABLE>
<CAPTION>
Name Age Position
- ------------------------------- ----- --------------------------------------------------
<S> <C> <C>
John W. Jackson 53 Chairman of the Board and Chief Executive Officer
Sol J. Barer, Ph.D. 50 President, Chief Operating Officer, Director
Robert C. Butler 67 Senior Vice President and Chief Financial Officer
David I. Stirling, Ph.D. 44 Executive Vice President -- Pharmaceutical R&D
Maghsoud M. Dariani 44 Vice President -- Chiral Pharmaceuticals
Steven D. Thomas, Ph.D. 36 Vice President -- Pharmaceutical Development
Bruce A. Williams 43 Vice President -- Marketing & Sales
Jerome B. Zeldis, M.D., Ph.D. 47 Vice President -- Director of Medical Affairs
R. N. "Sam" Dryden 47 Chairman of the Board of Celgro Corporation
Steven Hayford 43 President of Celgro Corporation
George W.J. Matcham, Ph.D. 45 Vice President -- R&D of Celgro Corporation
Frank T. Cary 76 Director
Arthur Hull Hayes, Jr., M.D. 64 Director
Richard C.E. Morgan 52 Director
Walter L. Robb, Ph.D. 69 Director
Lee J. Schroeder 68 Director
</TABLE>
- -----------
John W. Jackson has been Chairman of the Board and Chief Executive Officer of
the Company since January 1996. Mr. Jackson was founder and President of Gemini
Medical, a consulting firm which specialized in services and investment advice
to start-up medical device and biotechnology companies, from February 1991 to
January 1996. Previously, Mr. Jackson had been President of the worldwide
Medical Device Division of American Cyanamid Company, a major pharmaceutical
company, from February 1986 to January 1991, and served in various
international positions, including Vice President -- International for American
Cyanamid from 1978 to 1986. Previously, Mr. Jackson served in several human
health marketing positions at Merck & Company, a major pharmaceutical company,
from 1971 to 1978.
Sol J. Barer has been President of the Company since October 1993 and Chief
Operating Officer of the Company since March 1994. Dr. Barer was Senior Vice
President -- Science and Technology and Vice President/General Manager --
Chiral Products of the Company from October 1990 to October 1993, and Vice
President -- Technology of the Company from September 1987 to October 1990. Dr.
Barer received a Ph.D. in organic and physical chemistry from Rutgers
University.
Robert C. Butler has been Chief Financial Officer of the Company since July
1996. From 1988 to 1995, Mr. Butler served as Senior Vice President and Chief
Financial Officer of International Paper Co., a manufacturer of paper, wood,
and allied products. From 1979 to 1987, Mr. Butler served as Group Executive
Vice President of the National Broadcasting Company. Mr. Butler is also a
member of the Board of Directors of Carter Holt Harvey Ltd., a major New
Zealand forest products company.
David I. Stirling has been Executive Vice President--Pharmaceutical R&D of
Celgene since 1996. Dr. Stirling has served Celgene as Senior Vice President --
Biological and Pharmaceutical R&D from 1993 to 1996, as Vice President -- New
Technology Chiral Products from 1991 to 1993, and in a variety of other
research positions from 1986 to 1991. Previously, Dr. Stirling was employed by
Celanese Research Company, a major chemical company, from 1980 to 1986. Dr.
Stirling received a Ph.D. in biochemistry from the University of Warwick.
Maghsoud M. Dariani has been Vice President -- Chiral Pharmaceuticals of
Celgene since 1996. From 1986 to 1996 Mr. Dariani served Celgene as a Director
- -- Manufacturing & Engineering/Chiral Products. Previously, Mr. Dariani was a
Senior Development Engineer at Celanese Corporation, a major chemical company.
Mr. Dariani received an M.S. in Chemistry from the University of Massachusetts.
Steven D. Thomas has been Vice President -- Pharmaceutical Development of the
Company since 1992. Previously, Dr. Thomas was a Business Unit Manager for
Enzymatix Ltd. (Chiroscience PLC), a pharmaceutical and fine chemicals company,
from 1987 to 1992. Dr. Thomas received a Ph.D. in molecular enzymology from
Southampton University.
Bruce A. Williams has been Vice President -- Marketing and Sales of Celgene
since 1996. Previously, Mr. Williams was employed by Ortho Biotech Inc., a
subsidiary of Johnson & Johnson, a major pharmaceutical and consumer products
company,
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35
<PAGE>
where he held various positions from 1989 to 1996 including Executive Director
- -- Marketing. From 1984 to 1989, Mr. Williams held several posts at American
Cyanamid Company.
Jerome B. Zeldis has been Vice President--Medical Affairs of Celgene since
February 1997. Since 1996, Dr. Zeldis has also been Associate Attending
Physician at New York Hospital. Since 1995, Dr. Zeldis has also been a Clinical
Associate Professor of Medicine, Cornell University Medical School. From 1990
to 1994, Dr. Zeldis was Clinical Research Physician, Sacramento Medical
Foundation, Center for Blood Research and Associate Professor of Medicine at
the University of California at Davis. From 1988 to 1990, Dr. Zeldis was
Assistant Professor of Medicine at the University of California at Davis. From
1986 to 1988, Dr. Zeldis was Assistant Professor of Medicine, Harvard Medical
School. Dr. Zeldis was a director of Sandoz Research Foundation and Janssen
Research Foundation. Dr. Zeldis received a Ph.D. in Molecular Biophysics and
Biochemistry from Yale University. Dr. Zeldis also received an M.D. degree from
Yale Medical School.
R. N. "Sam" Dryden has been Chairman of the Board of Celgro Corporation, a
subsidiary of Celgene, since December 1996. He is also currently President of
Big Stone Inc., a private venture investment and development firm, and Managing
Partner of Big Stone Partners, a management advisory firm. Previously, Mr.
Dryden was a founder as well as a President and CEO of Agrigenetics
Corporation, a biotechnology company focusing on seeds, plants, and biocontrol.
He has also served in management positions with Union Carbide Corporation, a
diversified manufacturer of chemicals and plastics.
Steven Hayford has been President of Celgro Corporation since June 1997.
Previously, Mr. Hayford held several key management positions during a 17 year
career with Monsanto Corporation, a major chemical manufacturer, including
Senior Managing Director in Japan for Monsanto Crop Protection. Mr. Hayford
received both an M.B.A. and an M.S.B.A. from the University of Southern
California.
George W.J. Matcham has been Vice President -- R&D for the Celgro subsidiary
since 1996. Dr. Matcham joined Celgene in 1988, and became Vice President of
Chiral Amine Technology in 1991 and Vice President and General Manager of
Chiral Products in 1993. Previously, Dr. Matcham was a Senior Scientist and
Project Leader for Shell Research Ltd., UK, the physical and biological
research subsidiary of Royal Dutch/Shell, from 1981 to 1988. Dr. Matcham
received a Ph.D. in microbial enzymology from the University of Wales, and was
Director of Studies in Chemistry, and a fellow of Emmanuel College of the
University of Cambridge from 1979 to 1980.
Frank T. Cary has been Chairman of the Executive Committee of the Board of
Directors of the Company since July 1990. From 1973 to 1981, Mr. Cary was
Chairman of the Board and Chief Executive Officer of International Business
Machines Corporation, a computer and business equipment manufacturer. Mr. Cary
is also a director of: Cygnus Therapeutic Systems Inc., a manufacturer of
diagnostic and drug delivery systems; ICOS Corporation, a biotechnology
company; Lincare Inc., a provider of oxygen and other respiratory services; SPS
Transaction Services, Inc., a provider of technology outsourcing services;
Lexmark International Inc., a manufacturer of computer printers; SEER
Technologies, Inc., a software and computer services consulting company; Vion
Pharmaceuticals Inc., a biopharmaceutical company developing oncology and
antiviral products, and Teltrend, Inc., a manufacturer of telecommunications
equipment.
Arthur Hull Hayes, Jr. has been President and Chief Operating Officer of
MediScience Associates, Inc., a consulting organization that works with
pharmaceutical firms, biomedical companies, and foreign governments, since July
1991. Dr. Hayes has also been a partner in IssueSphere, a public affairs firm
that focuses on health science issues, since November 1995, as well as a
professor in medicine, pharmacology, and family and community medicine at New
York Medical College, and clinical professor of medicine and pharmacology at
the Pennsylvania State University College of Medicine. From 1986 to 1990, Dr.
Hayes was President and Chief Executive Officer of E.M. Pharmaceuticals, a
developer of pharmaceuticals and medical devices and a unit of E. Merck AG, and
from 1981 to 1983 was Commissioner of the U.S. Food and Drug Administration.
Dr. Hayes also is a director of: Myriad Genetics, Inc., a gene discovery and
genetic testing company; NaPro BioTherapeutics, Inc., a natural product
pharmaceutical company, and Premier Research Worldwide, a clinical research
organization.
Richard C.E. Morgan is a founding member of Jackson Hole Management Company,
Inc., and has been the Managing General Partner of Wolfensohn Partners, L.P., a
venture capital partnership, since 1986. Mr. Morgan also is Chairman of the
Board of Directors and Chief Executive Officer of Lasertechnics, Inc., a
director of: SEQUUS Pharmaceuticals, Inc., a pharmaceutical development
company; Chairman of the Board of Directors of Quidel Corp., a manufacturer of
rapid immuno-diagnostic products, and a director of Indigo, N.V.
Walter L. Robb has been a private consultant and President of Vantage
Management Inc., a consulting and investor services company, since January
1993. Mr. Robb was Senior Vice President for Corporate Research and Development
of General
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<PAGE>
Electric Company, a consumer and industrial products company and broadcaster,
and a member of its Corporate Executive Council from 1986 to December 1992. Mr.
Robb also is Chairman of the Board of Directors of Neopath, Inc., and a
director of Marquette Medical Systems, Inc., an electronic medical equipment
company, Cree Research Inc.,a developer of silicon carbide-based
semiconductors, and Mechanical Technology, Inc., a manufacturer of test
equipment.
Lee J. Schroeder has been President of Lee Schroeder & Associates, Inc., a
pharmaceutical business consulting company, since 1985. Mr. Schroeder was
President of Fox Meyer Lincoln, from 1983 to 1985. Mr. Schroeder was Executive
Vice President of Sandoz, Inc., a major pharmaceutical company, from 1981 to
1983. Mr. Schroeder is also a director of: Bryan Memorial Hospital; MGI
Pharmaceutical, Inc., a pharmaceutical company; Ascent Pediatrics, Inc., a
developer of pediatric pharmaceutical products, and Interneuron
Pharmaceuticals, Inc., a diversified biopharmaceutical company.
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37
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
The table below sets forth the beneficial ownership of the Common Stock as of
September 30, 1997 (i) by each director, (ii) by each of the executive officers
of the Company, (iii) by all directors and executive officers of the Company as
a group, and (iv) by the persons known by the Board of Directors to be
beneficial owners of more than five percent of the outstanding shares of Common
Stock.
<TABLE>
<CAPTION>
Percent of
Class(1)
----------------------
Amount and Nature of Before After
Name Position Beneficial Ownership Offering Offering
- ------------------------------------- ---------------------------- ---------------------- ---------- ---------
<S> <C> <C> <C> <C>
John W. Jackson Chairman of the Board and 189,066(2)(3) 1.4% 1.2%
Chief Executive Officer
Sol J. Barer, Ph.D President, Chief Operating 199,501(2)(3) 1.5% 1.2%
Officer, Director
Robert C. Butler Senior Vice President and 17,500(2) * *
Chief Financial Officer
Frank T. Cary Director 91,000(2) * *
Arthur Hull Hayes, Jr., M.D. Director 20,000(2) * *
Richard C.E. Morgan Director 315,055(2)(4) 2.4% 2.0%
Walter L. Robb, Ph.D. Director 77,000(2) * *
Lee J. Schroeder Director 26,000(2) * *
Donald P. Moriarty
c/o McGrath, Doyle & Phair
150 Broadway, #1703
New York, New York 10038 1,199,000(5) 9.1% 7.6%
All directors and current executive
officers of the Company as a
group (eight persons) 935,122(6) 6.8% 5.7%
</TABLE>
- -----------
* Less than one percent (1%).
(1) Based on 13,168,390 shares outstanding as of September 30, 1997.
(2) Includes shares of Common Stock which the directors and executive officers
have the right to acquire through the exercise of options within 60 days
of September 30, 1997, as follows: John W. Jackson -- 166,666; Sol J.
Barer -- 199,486; Robert C. Butler -- 12,500; Frank T. Cary -- 61,000;
Arthur Hull Hayes, Jr. -- 20,000; Richard C.E. Morgan -- 56,000 shares;
Walter L. Robb -- 34,000, and Lee J. Schroeder -- 26,000. Does not include
shares of Common Stock which the directors and executive officers have the
right to acquire through the exercise of options not exercisable within 60
days of September 30, 1997, as follows: John W. Jackson -- 83,334; Sol J.
Barer -- 48,334; Robert C. Butler -- 37,500; Frank T. Cary -- 20,000;
Arthur Hull Hayes, Jr. -- 20,000; Richard C.E. Morgan -- 20,000; Walter L.
Robb -- 20,000, and Lee J. Schroeder -- 20,000.
(3) Includes with respect to Mr. Jackson 400 shares owned by the son of Mr.
Jackson, as to which shares Mr. Jackson disclaims beneficial ownership;
includes with respect to Dr. Barer 15 shares owned by the daughter of Dr.
Barer, as to which shares Dr. Barer disclaims beneficial ownership.
(4) Includes 252,055 shares of Common Stock owned by Wolfensohn Associates
L.P., of which Wolfensohn Partners L.P. is the general partner. Mr. Morgan
is a general partner of Wolfensohn Partners L.P. Mr. Morgan's indirect
pecuniary interest in these shares of Common Stock, within the meaning of
Rule 16a-1(a)(2)(ii)(B) under the Securities Exchange Act of 1934, is
significantly less than the amount disclosed. Mr. Morgan otherwise
disclaims beneficial ownership of such shares of Common Stock owned by
Wolfensohn Associates L.P.
(5) Information regarding Donald P. Moriarty was obtained from a Schedule 13D,
as amended, filed by him with the Securities and Exchange Commission. Such
Schedule 13D states that Mr. Moriarty is deemed to be the beneficial owner
of and to have sole dispositive power over all such shares of Common
Stock, and that such shares are held by Mr. Moriarty, his family members,
and Twin Oaks Partners, a partnership in which he is a general partner.
(6) Includes or excludes, as the case may be, shares of Common Stock as
indicated in the preceding footnotes.
- --------------------------------------------------------------------------------
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
- --------------------------------------------------------------------------------
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.01, and 5,000,000 shares of Preferred Stock, par
value $.01, of which 520 shares have been designated Series A Convertible
Preferred Stock and 20,000 shares have been designated as Series B Convertible
Preferred Stock. At the close of business on September 30, 1997, there were
13,168,390 shares of Common Stock outstanding, 80 shares Series A Convertible
Preferred Stock outstanding and no shares of Series B Convertible Preferred
Stock outstanding.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock, par value
$.01 per share (the "Common Stock"). Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of
stockholders, and do not have cumulative voting rights. Holders of Common Stock
are entitled to receive ratably such dividends, if any, as may be declared by
the Board of Directors out of funds legally available therefor, and subject to
any preferential dividend rights of any then outstanding preferred stock. Upon
liquidation, dissolution, or winding up of the Company, the holders of Common
Stock are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to any
liquidation preference of any then outstanding Preferred Stock. Holders of
Common Stock have no preemptive, subscription, or conversion rights. There are
no redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the shares offered by the Company
in this Offering will be, when issued and paid for, fully paid, and
non-assessable.
PREFERRED STOCK
General. The Company is authorized to issue 5,000,000 shares of preferred
stock, par value $.01 per share. The Board of Directors of the Company has the
authority, subject to certain restrictions, without further stockholder
approval, to issue, at any time and from time to time, shares of preferred
stock in one or more series. Each such series shall have such number of shares,
designations, preferences, voting powers, qualifications, and special or
relative rights or privileges as shall be determined by the Board of Directors,
which may include, among others, dividend rights, voting rights, redemption and
sinking fund provisions, liquidation preferences, conversion rights, and
preemptive rights, to the full extent now or hereafter permitted by the laws of
the State of Delaware.
The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the rights of holders of any preferred stock that may be
issued in the future. Such rights may include voting and conversion rights
which could adversely affect the holders of the Common Stock. Satisfaction of
any dividend preferences of outstanding preferred stock would reduce the amount
of funds available, if any, for the payment of dividends on Common Stock.
Holders of preferred stock would typically be entitled to receive a preference
payment.
Series A Convertible Preferred Stock. On March 13, 1996, in a private
placement, the Company issued and sold 503 shares of Series A Convertible
Preferred Stock, par value $.01 per share (the "Series A Preferred"), at an
issue price of $50,000 per share. The Series A Preferred, plus accretion at a
rate of 4.9% per year, is convertible into Common Stock of the Company at the
option of the holders thereof at a conversion price per share of Common Stock
equal, generally, to the lesser of (i) $18.81 or (ii) 90% of the average
closing price per share of the Common Stock for the seven trading days
immediately prior to the date of conversion. The Company may redeem the shares
in increments of no less than $1.5 million on thirty business days' written
notice to preferred stockholders, at a price that equals a specified premium,
ranging from 120% to 130%, of the purchase price plus accretion. Under certain
conditions, upon receipt of a conversion notice from a holder, the Company has
the right (i) to redeem shares presented for conversion, or (ii) to defer
conversion once, for 90 days (a "lock-up"), in which case the Company must
issue two-year warrants, exercisable at $11.50, to any holder of Preferred
Stock affected by the deferral of the conversion. As of September 30, 1997,
there were 80 shares of Series A Preferred outstanding. A holder of 58 shares
were locked-up for a period ending on December 1, 1997, pursuant to an
agreement with the Company whereby the maximum conversion price for shares held
by such holders was permanently reduced to $8.50; a holder of 1 share was
potentially subject to lock-up pursuant to the above provision upon
presentation of a notice of conversion, and holders of the remaining 21 shares
are no longer subject to involuntary lock-up. Upon the liquidation,
dissolution, or winding up of the affairs of the Company, holders of the Series
A Preferred would be entitled to receive the sum of $50,000 per share of
Preferred plus unpaid accretion at the rate of 4.9% per annum. Any shares of
Series A Preferred outstanding on March 13, 1998 shall be converted
automatically into Common Stock on such date at the conversion price then in
effect. The holders of Series A Preferred have no voting rights. The Company
granted registration rights to the subscribers of Series A Preferred. A shelf
registration statement with respect to holders' resales of Common Stock upon
conversion of the Series A Preferred was filed and declared effective on June
10, 1996 and a second shelf registration statement with respect to additional
shares was filed and declared effective on August 6, 1997.
- --------------------------------------------------------------------------------
39
<PAGE>
Series B Convertible Preferred Stock. On June 9, 1997, in a private placement,
the Company completed the sale of 5,000 shares of Series B Convertible
Preferred Stock (the "Series B Preferred"), par value $.01 per share, at an
issue price of $1,000 per share. A shelf registration statement with respect to
holders' resales of Common Stock issuable upon conversion of Series B Preferred
was filed and declared effective on August 6, 1997. As of September 30, 1997,
all shares of Series B Preferred had been converted into Common Stock. Each of
the persons who purchased Series B Preferred also agreed to purchase, at the
option of the Company and subject to the satisfaction of certain conditions, an
aggregate of up to 15,000 additional shares of Series B Preferred Stock for an
aggregate purchase price of $15 million at subsequent closings.
OTHER SECURITIES OF THE COMPANY
Warrants. As of September 30, 1997, the Company had outstanding warrants to
purchase an aggregate of 384,056 shares of the Company's Common Stock. Warrants
for 50,000 shares are exercisable at a price of $6.50 per share of Common Stock
until September 1, 1999; warrants for 105,000 shares are exercisable at a price
of $9.60 per share of Common Stock until July 31, 2000; warrants for 66,853
shares are exercisable at a price of $20.52 per share of Common Stock until
March 11, 2001; and warrants for 162,203 shares are exercisable at a price of
$11.50 per share of Common Stock until various expiration dates between July
1998 and May 1999. The exercise price of all of these warrants is subject to
proportional adjustment in the event that the Company undertakes a stock split,
stock dividend, or recapitalization.
In addition, upon request of the purchasers of the Series B Preferred (but no
later than June 1, 1998) (in either case, the "Issuance Date"), the Company
will issue warrants to acquire a number of shares of Common Stock equal to (i)
1,500,000 divided by the Conversion Price (or determined in accordance with the
Certificate of Designations of Series B Preferred) in effect on the Issuance
Date (230,769 warrants as of September 30, 1997 based on a Conversion Price of
$6.50) plus (ii) 37.5% of the Conversion Shares issuable on such Issuance Date
upon conversion of all shares of Series B Preferred issued through the Issuance
Date (288,461 warrants as of September 30, 1997 based on a Conversion Price of
$6.50). All such warrants will have a term of four years from the Issuance Date
and an exercise price equal to 115% of the Conversion Price in effect on the
Issuance Date. Each purchaser of Series B Preferred has agreed to enter into
lock-up agreements in connection with this Offering with respect to all shares
issuable upon the exercise of these warrants. The Company granted certain
registration rights to the purchasers of Series B Preferred with respect to
these warrants upon issuance.
Stock Options. The Company has issued options to purchase shares of Common
Stock, restricted stock, and/or other stock-based performance awards under the
1995 Non-Employee Directors' Incentive Plan, the 1992 Long-Term Incentive Plan,
the 1992 Non-Employee Directors' Stock Option Plan, and the 1986 Stock Option
Plan (collectively, the "Stock Plans"). At September 30, 1997, options to
purchase an aggregate of 2,332,747 shares of Common Stock were outstanding
under the Stock Plans (or pursuant to grants outside the Stock Plans) with
exercise prices between $5.44 and $17.75 per share; of such options, 1,436,019
were exercisable within 60 days of September 30, 1997.
Shareholder Rights Plan. The Board of Directors has adopted a shareholder
rights plan (the "Plan"). The Plan was adopted to give the Board increased
power to negotiate in the best interests of the Company, and to discourage
appropriation of control of the Company at a price that is unfair to the
stockholders. It is not intended to prevent fair offers for acquisition of
control determined by the Board to be in the best interests of the Company and
its stockholders, nor is it intended to prevent a person or group from
obtaining representation on or control of the Board through a proxy contest, or
to relieve the Board of its fiduciary duty to consider any proposal for
acquisition of the Company in good faith.
The Plan involved the distribution of one "Right" as a dividend on each
outstanding share of the Company's Common Stock to all holders of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth
of a share of Common Stock. The Rights trade in tandem with the Common Stock
until, and become exercisable upon, the occurrence of certain triggering
events, and the exercise price is based on the estimated long-term value of the
Company's Common Stock. The exercise of these rights becomes economically
attractive upon the triggering of certain "Flip-In" or "Flip-Over" Rights which
work in conjunction with the Plan's basic provisions. The Flip-In Rights will
permit their holders to purchase shares of Common Stock at a discounted rate,
resulting in substantial dilution of an acquiror's voting and economic
interests in the Company. The Flip-Over element of the Plan involves certain
mergers or significant asset purchases, which trigger certain rights to
purchase shares of the acquiring or surviving company at a discount. The Plan
contains a "Permitted Offer" exception to allow offers determined by the Board
to be in the best interests of the Company and its stockholders to take place
free of the diluting effects of the Plan's mechanisms.
The Board of Directors retains the right (at all times prior to acquisition of
15% of the voting common stock of the Company by an acquiror) to discontinue
the Plan through redemption of all Rights, or to amend the Plan in any respect.
- --------------------------------------------------------------------------------
40
<PAGE>
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date of
the transaction in which the person became an interested stockholder, unless
the business combination is approved in a prescribed manner. For purposes of
Section 203, a "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to the interested stockholder, and
an "interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior, did own) 15% or more of the
corporation's voting stock.
The Company's Certificate of Incorporation and By-Laws provide that any action
required or permitted to be taken by stockholders of the Company must be
effected at a duly called annual or special meeting of stockholders, and that
special meetings may be called only by the Chairman of the Board of Directors,
if any, the Chief Executive Officer, the President, the Secretary, or a
majority of the Board of Directors of the Company. These provisions could have
the effect of delaying until the next annual stockholders' meeting stockholder
actions that are favored by the holders of a majority of the outstanding voting
securities of the Company, including actions to remove directors. These
provisions may also discourage another person or entity from making a tender
offer for the Company's Common Stock, because such person or entity, even if it
acquired all or a majority of the outstanding voting securities of the Company,
would be able to take action as a stockholder (such as electing new directors
or approving a merger) only at a duly called stockholders meeting, and not by
written consent.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company. It is located at 40 Wall St., 46th Floor, New York,
NY, 10005, and its telephone number is (718) 921-8200.
SHARES ELIGIBLE FOR FUTURE SALE
- --------------------------------------------------------------------------------
Future sales of substantial amounts of Common Stock could adversely affect the
prevailing market price of the Company's Common Stock. If all of the shares of
the Series A Convertible Preferred Stock outstanding on September 30, 1997
(including shares issuable in payment of accretion through that date) had been
converted on that date at conversion prices based on the closing price of the
Common Stock for the seven trading days preceding September 30, 1997,
approximately 488,926 shares of Common Stock would have been issued.
Furthermore, should the trading price of the Common Stock decline prior to the
conversion of all shares of the Preferred Stock, the number of shares of Common
Stock issuable upon conversion thereof may increase proportionately. In
addition, as of September 30, 1997, there were outstanding stock options for
approximately 2,332,747 shares of Common Stock, of which approximately
1,436,019 were currently exercisable, and warrants either outstanding or
issuable upon demand that are exercisable for 903,286 shares of Common Stock.
All shares of Common Stock referred to in this paragraph would be freely
tradeable upon issuance. See "Description of Capital Stock."
- --------------------------------------------------------------------------------
41
<PAGE>
UNDERWRITING
- --------------------------------------------------------------------------------
The names of the Underwriters of the shares of Common Stock offered hereby and
the aggregate number of shares of Common Stock which each has severally agreed
to purchase from the Company, subject to the terms and conditions specified in
the Underwriting Agreement, are as follows:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------------------------------------- ----------
<S> <C>
SBC Warburg Dillon Read Inc. ............
Prudential Securities Incorporated ......
Loewenbaum & Company Incorporated ......
---------
Total ................................. 2,600,000
=========
</TABLE>
The Managing Underwriters are SBC Warburg Dillon Read Inc., Prudential
Securities Incorporated and Loewenbaum & Company Incorporated.
If any shares of Common Stock offered hereby are purchased by the Underwriters,
all such shares will be so purchased. The Underwriting Agreement contains
certain provisions whereby if any Underwriter defaults in its obligation to
purchase such shares and if the aggregate obligations of the Underwriters so
defaulting do not exceed ten percent of the shares offered hereby, the
remaining Underwriters, or some of them, must assume such obligations.
The Underwriters propose to offer the shares of Common Stock to the public
initially at the offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may re-allow, a
concession not to exceed $ per share on sales to certain other dealers. The
offering of the shares of Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the shares. After the
shares are released for sale to the public, the public offering price, the
concession and the reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option for 30 days from the date
of the Underwriting Agreement to purchase up to an additional 390,000 shares of
Common Stock from them at the offering price less the underwriting discount set
forth on the cover page of this Prospectus. The Underwriters may exercise such
option only to cover over-allotments made of the shares in connection with this
Offering. To the extent the Underwriters exercise this option, each of the
Underwriters will be obligated, subject to certain conditions, to purchase the
number of additional shares proportionate to such Underwriter's initial
commitment.
The Company, each of its directors and officers and certain of its stockholders
have agreed that they will not sell, contract to sell, grant any option to sell
or otherwise dispose of, directly or indirectly, any shares of the Common Stock
or any securities convertible into or exchangeable for Common Stock or warrants
or other rights to purchase Common Stock, for a period of at least 90 days
after the date of this Prospectus, without the prior written consent of SBC
Warburg Dillon Read Inc., except for (i) the issuance of shares of Common Stock
by the Company upon the purchase of outstanding warrants or the exercise of
outstanding options, provided that the Company shall have obtained an agreement
substantially to the effect set forth in this paragraph from each such person
to whom such shares of Common Stock are issued and (iii) the grant of options
and other rights by the Company to purchase up to an aggregate of 476,037
shares of Common Stock to the Company's employees, officers and directors
pursuant to the Stock Plans.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including any liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
In connection with this Offering, the Managing Underwriters, on behalf of the
Underwriters, may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Managing Underwriters
may overallot
- --------------------------------------------------------------------------------
42
<PAGE>
the Offering, creating a syndicate short position. In addition, the Managing
Underwriters may bid for and purchase shares of Common Stock in the open market
to cover syndicate short positions or to stabilize the price of the Common
Stock. Finally, the Managing Underwriters may reclaim selling concessions from
syndicate members in the Offering if the syndicate repurchases previously
distributed Common Stock in syndicate covering transactions, in stabilizing
transactions or otherwise. Any of these activities may stabilize or maintain
the market price of the Common Stock above independent market levels. The
Managing Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
In connection with this Offering, the Managing Underwriters, on behalf of the
Underwriters, may engage in passive market making on Nasdaq in accordance with
Rule 103 of Regulation M under the Exchange Act during the one day period
before the commencement of the offers or sales of the Common Stock. The passive
market making transactions must comply with applicable volume and price limits
and be identified as such. In general, a passive market maker must display its
bid at a price not in excess of the highest independent bid for such security;
if all independent bids are lowered before the passive market maker's bid,
however, such bid must then be lowered when certain purchase limits are
exceeded. Passive market making may stabilize the market price of the Common
Stock above independent market levels and, if commenced, may be discontinued at
any time.
- --------------------------------------------------------------------------------
43
<PAGE>
LEGAL MATTERS
- --------------------------------------------------------------------------------
The validity of the Common Stock offered hereby is being passed upon for the
Company by Proskauer Rose LLP, New York. Certain legal matters in connection
with the Offering are being passed upon for the Underwriters by Brobeck,
Phleger & Harrison LLP, New York.
EXPERTS
- --------------------------------------------------------------------------------
The financial statements of Celgene Corporation as of December 31, 1996 and
1995, and for each of the years in the three year period ended December 31,
1996, have been included herein and in the Registration Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The statements in this Prospectus under the captions "Risk Factors --
Dependence on Patent and Proprietary Rights" and "Business -- Patents and
Proprietary Technology" have been reviewed and approved by Mathews, Collins,
Shepherd and Gould, P.A., as experts in such matters, and are included herein
in reliance upon such review and approval.
The statements in this Prospectus under the captions "Risk Factors --
Uncertainty Associated with Clinical Trials; Extensive Governmental Regulation"
and "Business -- Government Regulation" have been reviewed and approved by
Kleinfeld, Kaplan & Becker, as experts in such matters, and are included herein
in reliance upon such review and approval.
- --------------------------------------------------------------------------------
44
<PAGE>
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
The Company has filed with the Commission, through the Electronic Data
Gathering, Analysis and Retrieval System ("EDGAR"), a Registration Statement on
Form S-3 under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus, filed as part of the Registration Statement, does not
contain all of the information included in the Registration Statement and the
exhibits and schedules thereto, certain portions of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is hereby made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus by reference
as to the contents of any contract, agreement, or other document referred to
are not necessarily complete and in each such instance, reference is made to
the copy of such contract, agreement, or other document filed as an exhibit to
the Registration Statement for a more complete description of the matters
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected without charge and copied at the offices of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained at the prescribed rates from the Commission's Public
Reference Section at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Electronic registration statements filed through EDGAR
may also be accessed electronically through the Commission's home page on the
World Wide Web at http://www.sec.gov.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and in accordance therewith, it files reports, proxy statements, and other
information required thereby to the Commission via EDGAR. Copies of such
material may be inspected and copied at the offices of the Commission and
accessed electronically through the Commission's home page on the World Wide
Web. Reports, proxy statements, other required information statements, and
other information concerning the Company may also be inspected at the Nasdaq
Stock Market, 1735 K. St., Washington, D.C. 20006-1500.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
- --------------------------------------------------------------------------------
The Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended by Form 10-K/A, its Definitive Proxy Statement dated May 30, 1997,
filed in connection with the Company's 1997 Annual Meeting of Stockholders, its
Current Reports on Form 8-K dated June 10, 1997, September 19, 1997 and
September 23, 1997, its Quarterly Reports on Form 10-Q for the periods ending
March 31, 1997 and June 30, 1997, and the description of the Company's Common
Stock contained in its registration statement on Form 8-A, File No. 0-16132,
including any amendment or report filed for the purpose of updating such
description, are hereby incorporated by reference in this Prospectus, except as
superseded or modified herein. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
All documents filed by the Company with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act after the date hereof and prior to the
termination of the offering of the Common Stock offered hereby shall be deemed
to be incorporated herein by reference and to be a part hereof from the date of
filing of such documents.
The Company will provide, upon written or oral request, without charge to each
person to whom a copy of this Prospectus has been delivered, including any
beneficial owner, a copy of any or all of the documents which have been or may
be incorporated in this Prospectus by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests for such copies should be directed to: Secretary,
Celgene Corporation, 7 Powder Horn Drive, Warren, New Jersey 07059, (732)
271-1001.
- --------------------------------------------------------------------------------
45
<PAGE>
CELGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ............................................. F-2
Balance Sheets as of December 31, 1996 and 1995 and
September 30, 1997 (Unaudited) .......................................... F-3
Statements of Operations--Years Ended December 31, 1996, 1995 and 1994
and Nine Months Ended September 30, 1996 and 1997 (Unaudited) ........... F-4
Statements of Stockholders' Equity--Years Ended
December 31, 1996, 1995 and 1994 ........................................ F-5
Statements of Stockholders' Equity--Nine Months Ended
September 30, 1997 (Unaudited) .......................................... F-6
Statements of Cash Flows--Years Ended December 31, 1996, 1995 and 1994
and Nine Months Ended September 30, 1996 and 1997 (Unaudited) ........... F-7
Notes to Financial Statements ............................................ F-9
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
CELGENE CORPORATION:
We have audited the accompanying balance sheets of Celgene Corporation as of
December 31, 1995 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celgene Corporation as of
December 31, 1995 and 1996, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
Short Hills, New Jersey
February 27, 1997
F-2
<PAGE>
CELGENE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
----------------------------------- -----------------
1995 1996 1997
---------------- ---------------- -----------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 337,165 $ 922,961 $ 475,638
Marketable securities available for sale ................. 11,375,740 16,892,023 4,527,139
Accounts receivable ...................................... 397,241 378,595 168,426
Other current assets ..................................... 404,011 635,841 638,017
------------- ------------- --------------
Total current assets ................................... 12,514,157 18,829,420 5,809,220
Plant and equipment, net ................................... 1,207,805 1,940,615 2,521,901
Other assets ............................................... 41,250 41,250 79,167
Deferred debt costs ........................................ 448,006 126,577 --
------------- ------------- --------------
Total assets ............................................... $ 14,211,218 $ 20,937,862 $ 8,410,288
============= ============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 607,206 $ 1,552,674 $ 1,308,110
Accrued expenses ......................................... 1,610,846 881,604 1,367,327
Capitalized lease obligation ............................. -- -- 210,499
------------- ------------- --------------
Total current liabilities .............................. 2,218,052 2,434,278 2,885,936
Capitalized lease obligation--net of current portion ....... -- -- 420,997
Convertible debentures ..................................... 4,592,366 2,026,043 --
Convertible debentures-accrued interest .................... 258,299 412,532 --
------------- ------------- --------------
Total liabilities .......................................... 7,068,717 4,872,853 3,306,933
------------- ------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value per share; 5,000,000 shares
authorized, Series A convertible, redeemable 4.9%
cumulative preferred; 267 shares issued and outstanding
at December 31, 1996; includes $533,416 accretion
premium. 80 shares issued and outstanding at September
30, 1997, includes 306,633 accretion ..................... -- 13,883,416 4,306,633
Series B Convertible, redeemable, 9% cumulative preferred,
par value $.01 per share. Authorized 20,000 shares; issued
5,000 shares; outstanding at September 30, 1997-0 ........ -- -- --
Common stock, $.01 par value per share;
20,000,000 shares authorized; 8,807,863 and 10,611,422
shares issued and outstanding at December 31, 1995 and
1996, respectively. 13,191,278 issued and outstanding at
September 30, 1997 ....................................... 88,079 106,114 131,913
Common stock in treasury, at cost -- 24,271 and 29,985
shares at December 31, 1995 and December 31, 1996,
respectively. 22,888 shares at September 30, 1997 ........ (243) (100,239) (76,534)
Additional paid-in capital ................................ 78,064,288 94,770,176 112,322,889
Unamortized deferred compensation-restricted stock ........ (7,085) (1,133) --
Accumulated deficit ....................................... (70,989,400) (92,599,039) (111,581,674)
Net unrealized gain (loss) on marketable securities
available for sale ....................................... (13,138) 5,714 128
------------- ------------- --------------
Total stockholders' equity ............................... 7,142,501 16,065,009 5,103,355
------------- ------------- --------------
Total liabilities and stockholders' equity ................. $ 14,211,218 $ 20,937,862 $ 8,410,288
============= ============= ==============
</TABLE>
See Accompanying Notes to Financial Statements.
F-3
<PAGE>
CELGENE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
For Nine Months Ended
For Years Ended December 31, September 30,
------------------------------------------------- ---------------------------------
1994 1995 1996 1996 1997
--------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Chirally pure intermediates ........... $ 1,997,636 $ 657,753 $ 1,465,715 $ 1,096,605 $ 896,870
Research contracts .................... 258,000 515,000 1,036,665 711,666 919,068
------------- ------------- ------------- ------------- -------------
Total revenues ........................ 2,255,636 1,172,753 2,502,380 1,808,271 1,815,938
Expenses:
Cost of goods sold .................... 1,096,687 792,251 981,448 683,005 641,862
Research and development .............. 6,492,468 8,183,045 16,322,825 10,981,813 13,285,060
Selling, general and
administrative ...................... 3,130,551 2,857,758 4,001,419 2,738,528 5,780,827
------------- ------------- ------------- ------------- -------------
Total expenses ........................ 10,719,706 11,833,054 21,305,692 14,403,346 19,707,749
------------- ------------- ------------- ------------- -------------
Loss from operations ................... (8,464,070) (10,660,301) (18,803,312) (12,595,075) (17,891,811)
Other Income and Expense:
Interest income ....................... 586,931 568,516 1,308,244 989,751 441,436
Interest expense ...................... -- 424,738 323,913 255,535 104,866
------------- ------------- ------------- ------------- -------------
Loss from continuing operations ........ (7,877,139) (10,516,523) (17,818,981) (11,860,859) (17,555,241)
Discontinued operations (note 9):
Loss from operations .................. (1,497,088) -- -- -- --
Loss on disposal ...................... (839,000) -- -- -- --
------------- ------------- ------------- ------------- -------------
Loss from
discontinued operations ............... (2,336,088) -- -- -- --
------------- ------------- ------------- ------------- -------------
Net loss .............................. (10,213,227) (10,516,523) (17,818,981) (11,860,859) (17,555,241)
Accretion of premium payable on
preferred stock and warrants
(note 6) .............................. -- -- 1,012,881 764,138 474,317
Deemed dividend for preferred
stock conversion discount Series
A&B (note 6) .......................... -- -- 2,777,777 2,777,777 953,077
------------- ------------- ------------- ------------- -------------
Net loss applicable to
common stockholders ................... $(10,213,227) $ (10,516,523) $ (21,609,639) $ (15,402,774) $ (18,982,635)
============= ============= ============= ============= =============
Per share of Common Stock
(note 2):
Loss from continuing operation ........ $ (1.00) $ (1.30) $ (1.89) $ (1.29) (1.51)
Loss from discontinued operation (.30) -- -- -- --
Net loss applicable to
common stockholders ................. $ (1.30) $ (1.30) $ (2.29) (1.67) (1.63)
============= ============= ============= ============= =============
Weighted average number of shares
of common stock outstanding ........... 7,853,000 8,073,000 9,450,000 9,227,000 11,647,000
</TABLE>
See Accompanying Notes to Financial Statements.
F-4
<PAGE>
CELGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1994, 1995 and 1996
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
----------------------- ------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ ---------- -------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ........... 7,864,538 $78,646 -- $-- (21,604) $(217)
Repurchase of shares .................... (2,667) (26)
Restricted stock forfeited .............. (4,000) (40)
Exercised stock options ................. 26,422 264
Amortization of deferred
compensation ...........................
Change in net unrealized gain (loss)
on marketable securities ...............
Net loss ................................
---------- -------- --- ------------- ------- ---------
Balances at December 31, 1994 ........... 7,886,960 78,870 -- -- (24,271) (243)
Exercised stock options ................. 24,987 250
Amortization of deferred
compensation ...........................
Discount for convertible debentures to
adjust to market yield .................
Conversion of convertible debentures ... 895,916 8,959
Cost associated with conversion of
convertible debentures, net ............
Change in net unrealized gain (loss)
on marketable securities ...............
Net loss ................................
---------- -------- --- ------------- ------- ---------
Balances at December 31, 1995 ........... 8,807,863 88,079 -- -- (24,271) (243)
Exercised stock options ................. 42,069 420
Repurchase of shares .................... (5,714) (99,996)
Amortization of deferred
compensation ...........................
Conversion of convertible debentures ... 372,681 3,727
Issuance of preferred stock, net ........ 503 25,150,000
Conversion of preferred stock ........... 1,388,809 13,888 (236) (12,141,309)
Preferred stock lock-up warrants ........
Accretion of premium on preferred
stock .................................. 874,725
Deemed dividend for preferred stock
conversion discount ....................
Change in net unrealized gain (loss)
on marketable securities ...............
Net loss ................................
---------- -------- --- ------------- ------- ---------
Balances at December 31, 1996 ........... 10,611,422 $106,114 267 $ 13,883,416 (29,985) $(100,239)
========== ======== ====== ============== ======== ==========
<CAPTION>
Net Unrealized
Gain (Loss) on
Marketable
Securities
Additional Unamortized Available
Paid-in Deferred Accumulated For
Capital Compensation Deficit Sale Total
--------------- -------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1993 ........... $70,554,294 $(77,459) $(50,259,650) $-- $20,295,614
Repurchase of shares .................... (134) (160)
Restricted stock forfeited .............. (44,960) 15,627 (29,373)
Exercised stock options ................. 175,568 175,832
Amortization of deferred
compensation ........................... 42,658 42,658
Change in net unrealized gain (loss)
on marketable securities ............... (267,278) (267,278)
Net loss ................................ (10,213,227) (10,213,227)
------------ ---------- ------------ ------------- -------------
Balances at December 31, 1994 ........... 70,684,768 (19,174) (60,472,877) (267,278) 10,004,066
Exercised stock options ................. 170,638 170,888
Amortization of deferred
compensation ........................... 12,089 12,089
Discount for convertible debentures to
adjust to market yield ................. 1,194,434 1,194,434
Conversion of convertible debentures ... 6,370,680 6,379,639
Cost associated with conversion of
convertible debentures, net ............ (356,232) (356,232)
Change in net unrealized gain (loss)
on marketable securities ............... 254,140 254,140
Net loss ................................ (10,516,523) (10,516,523)
------------ ---------- ------------ ------------- -------------
Balances at December 31, 1995 ........... 78,064,288 (7,085) (70,989,400) (13,138) 7,142,501
Exercised stock options ................. 337,521 337,941
Repurchase of shares .................... (99,996)
Amortization of deferred
compensation ........................... 5,952 5,952
Conversion of convertible debentures ... 2,645,388 2,649,115
Issuance of preferred stock, net ........ (1,320,375) 23,829,625
Conversion of preferred stock ........... 12,127,421 --
Preferred stock lock-up warrants ........ 138,156 (138,156) --
Accretion of premium on preferred
stock .................................. (874,725) --
Deemed dividend for preferred stock
conversion discount .................... 2,777,777 (2,777,777) --
Change in net unrealized gain (loss)
on marketable securities ............... 18,852 18,852
Net loss ................................ (17,818,981) (17,818,981)
------------ ---------- ------------ ------------- -------------
Balances at December 31, 1996 ........... $ 94,770,176 $ (1,133) $(92,599,039) $ 5,714 $ 16,065,009
============= ========== ============= ============== ==============
</TABLE>
See Accompanying Notes to Financial Statements.
F-5
<PAGE>
CELGENE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Treasury Stock
----------------------- ---------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
------------ ---------- ----------- ---------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 10,611,422 $106,114 267 $ 13,883,416 (29,985) $(100,239)
Exercised stock options .................. 2,033 20
Issuance of stock award .................. 5,000 50
Amortization of Deferred
Compensation ............................
Conversion of Convertible
debentures .............................. 441,248 4,413
Issuance of Preferred Stock (Series B)
net ..................................... 5,000 4,046,923
Conversion of Preferred Stock ............ 2,131,575 21,316 (5,174) (14,329,813)
Accretion of premium or preferred
stock, net .............................. 474,317
Redemption of Preferred Shares ........... (13) (721,287)
Deemed dividend on Series B
Preferred and fair value of warrants ..... 953,077
Change in net unrealized gain (loss)
on marketable securities ................
Accumulated Deficit ......................
Issuance of Stock for employee
benefits ................................ 7,097 23,705
---------- -------- ------- ------------- ------- ---------
Balances at September 30, 1997 ........... 13,191,278 $131,913 80 $ 4,306,633 (22,888) $ (76,535)
========== ======== ======= ============= ======= =========
<CAPTION>
Net Unrealized
Gain (Loss) on
Marketable
Securities
Additional Unamortized Available
Paid-in Deferred Accumulated For
Capital Compensation Deficit Sale Total
-------------- -------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $94,770,176 $(1,133) $(92,599,039) $5,714 $16,065,009
Exercised stock options .................. 12,675 12,695
Issuance of stock award .................. 55,575 55,625
Amortization of Deferred
Compensation ............................ 1,133 1,133
Conversion of Convertible
debentures .............................. 2,326,891 2,331,304
Issuance of Preferred Stock (Series B)
net ..................................... 793,825 4,840,748
Conversion of Preferred Stock ............ 14,308,497 --
Accretion of premium or preferred
stock, net .............................. (474,317) --
Redemption of Preferred Shares ........... (721,287)
Deemed dividend on Series B
Preferred and fair value of warrants ..... (953,077) --
Change in net unrealized gain (loss)
on marketable securities ................ (5,586) (5,586)
Accumulated Deficit ...................... (17,555,241) (17,555,241)
Issuance of Stock for employee
benefits ................................ 55,250 78,955
------------ ------- -------------- --------- -------------
Balances at September 30, 1997 ........... $112,322,889 $ -0- $ (111,581,674) $ 128 $ 5,103,355
============ ======= ============== ========= =============
</TABLE>
See Accompanying Notes to Financial Statements.
F-6
<PAGE>
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1994 1995 1996
---------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss from Continuing Operations ........ $ (7,877,139) $ (10,516,523) $ (17,818,981)
Adjustments to reconcile loss from
continuing operations to net cash
used in operating activities:
Depreciation ......................... 675,352 776,741 685,351
Amortization of convertible debt
costs ............................... -- 173,192 234,540
Amortization of deferred
compensation ........................ 58,285 12,089 5,952
Interest on convertible
debentures .......................... -- 424,738 323,914
Issuance of stock for employee
benefits .............................. -- -- --
Issuance of stock Award ................ -- -- --
Change in current assets and liabilities:
Increase in accounts payable and
accrued expenses .................... 17,253 674,188 216,226
(Increase) decrease in accounts
receivable .......................... (262,368) 225,843 18,646
(Increase) decrease in other
assets .............................. 60,381 24,833 (231,830)
-------------- ------------- ---------------
Net cash used in continuing
operations ........................... (7,328,236) (8,204,899) (16,566,182)
Net cash used in discontinued
operation ............................ (1,736,054) -- --
-------------- ------------- ---------------
Net cash used in operating
activities ........................... (9,064,290) (8,204,899) (16,566,182)
-------------- ------------- ---------------
Cash flows from investing activities:
Capital expenditures ................... (198,964) (29,880) (1,418,161)
Proceeds from sales and maturities
of marketable securities available
for sale ............................. 19,314,158 22,185,466 137,051,037
Purchases of marketable securities
available for sale ................... (10,678,498) (25,099,905) (142,548,468)
-------------- ------------- ---------------
Net cash provided by (used in)
investing activities ................. 8,436,696 (2,944,319) (6,915,592)
Cash flows from financing activities:
Net proceeds from exercise of
common stock options ................. 130,672 170,888 237,945
Capital lease funding .................. -- -- --
Net proceeds from issuance of
convertible debentures ............... -- 11,022,570 --
Redemption of Preferred Shares &
cumulative dividend ...................
Net proceeds from issuance of
preferred stock ...................... -- -- 23,829,625
-------------- ------------- ---------------
Net cash provided by financing
activities ........................... 130,672 11,193,458 24,067,570
-------------- ------------- ---------------
Net increase (decrease) in cash and
cash equivalents ..................... (496,922) 44,240 585,796
Cash and cash equivalents at
beginning of period .................. 789,847 292,925 337,165
-------------- ------------- ---------------
Cash and cash equivalents at end
of period ............................ $ 292,925 $ 337,165 $ 922,961
============== ============= ===============
<CAPTION>
(Unaudited)
Nine Months Ended
September 30, 1997
-----------------------------------
1996 1997
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Loss from Continuing Operations ........ $ (11,860,859) $ (17,555,241)
Adjustments to reconcile loss from
continuing operations to net cash
used in operating activities:
Depreciation ......................... 684,983 747,096
Amortization of convertible debt
costs ............................... -- --
Amortization of deferred
compensation ........................ 4,818 1,133
Interest on convertible
debentures .......................... 255,535 68,736
Issuance of stock for employee
benefits .............................. -- 78,955
Issuance of stock Award ................ -- 55,625
Change in current assets and liabilities:
Increase in accounts payable and
accrued expenses .................... 187,199 65,152
(Increase) decrease in accounts
receivable .......................... 146,969 210,169
(Increase) decrease in other
assets .............................. (317,570) (40,093)
--------------- -------------
Net cash used in continuing
operations ........................... (10,898,925) (16,368,468)
Net cash used in discontinued
operation ............................ -- --
--------------- -------------
Net cash used in operating
activities ........................... (10,898,925) (16,368,468)
--------------- -------------
Cash flows from investing activities:
Capital expenditures ................... (1,186,284) (1,201,805)
Proceeds from sales and maturities
of marketable securities available
for sale ............................. 117,485,212 41,750,254
Purchases of marketable securities
available for sale ................... (126,698,269) (29,390,956)
--------------- -------------
Net cash provided by (used in)
investing activities ................. (10,399,341) 11,157,493
Cash flows from financing activities:
Net proceeds from exercise of
common stock options ................. 237,946 12,695
Capital lease funding .................. -- 631,496
Net proceeds from issuance of
convertible debentures ............... -- --
Redemption of Preferred Shares &
cumulative dividend ................... (721,287)
Net proceeds from issuance of
preferred stock ...................... 23,829,625 4,840,748
--------------- -------------
Net cash provided by financing
activities ........................... 24,067,571 4,763,652
--------------- -------------
Net increase (decrease) in cash and
cash equivalents ..................... 2,769,305 (447,323)
Cash and cash equivalents at
beginning of period .................. 337,165 922,961
--------------- -------------
Cash and cash equivalents at end
of period ............................ $ 3,106,470 $ 475,638
=============== =============
</TABLE>
(continued)
See Accompanying Notes to Financial Statements.
F-7
<PAGE>
CELGENE CORPORATION
STATEMENTS OF CASH FLOWS--(Continued)
<TABLE>
<CAPTION>
(Unaudited)
Nine Months Ended
Years Ended December 31, September 30, 1997
--------------------------------------------- ----------------------------
1994 1995 1996 1996 1997
-------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-cash investing activity:
Change in net unrealizable gain
(loss) on marketable securities
available for sale .................. $ (267,278) $ 254,140 $ 18,852 $ 13,791 $ (5,586)
========== =========== ============ =========== ===========
Non-cash financing activities:
Issuance of common stock upon
the conversion of convertible
debentures and accrued interest
thereon, net ........................ -- $5,928,907 $ 2,649,115 $2,649,115 $ 2,331,304
========== =========== ============ =========== ===========
Accretion of premium payable on
preferred stock and warrants ........ -- -- $ 1,012,881 $ 989,751 $ 474,317
========== =========== ============ =========== ===========
Deemed dividend for preferred
stock conversion discount ........... -- -- $ 2,777,777 $2,777,777 $ 953,077
========== =========== ============ =========== ===========
Issuance of warrants for services
rendered in connection
with the issuance of convertible
debentures .......................... -- $ 94,500 -- -- --
========== =========== ============ =========== ===========
Issuance of common stock upon
the conversion of convertible
preferred stock and accrued
accretion thereon, net .............. -- -- $12,141,309 $3,818,627 $14,329,813
========== =========== ============ =========== ===========
Issuance of common stock upon
exercise of options
through the return of common
stock previously outstanding ........ $ -- $ -- $ 99,996 $ 99,996 $ --
========== =========== ============ =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-8
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(1) NATURE OF BUSINESS AND LIQUIDITY
Celgene Corporation ("Celgene" or the "Company") is engaged in the development
and commercialization of human pharmaceuticals and agrochemicals, and is
employing two broad technology platforms: (i) small molecule immunotherapeutic
compound development and (ii) biocatalytic chiral chemistry synthesis. The
initial therapeutic focus of the immunology program is the development of small
molecule pharmaceuticals that have the potential to selectively regulate Tumor
Necrosis Factor[alpha] ("TNF[alpha]"), a protein whose overproduction has been
linked to many chronic inflammatory and immunological diseases. The Company's
lead compound in immunology is THALOMID[TM], its formulation of thalidomide, a
potent yet selective inhibitor of TNF[alpha]. On September 19, 1997, the
Company received an approvable letter from the U.S. Food and Drug
Administration ("FDA") for THALOMID for the treatment of erythema nodosum
leprosum ("ENL"), an inflammatory complication of leprosy. The Company expects
to submit an additional New Drug Application ("NDA") in early 1998 for THALOMID
in the treatment of cacexia (wasting) in patients with Acquired Immune
Deficiency Syndrome ("AIDS"). Celgene has further applied its expertise in
small molecule chemistry to develop novel and proprietary thalidomide
analogues, as well as a class of proprietary immunotherapeutic pharmaceutical
compounds called SelCIDs[TM] ("Selective Cytokine Inhibitory Drugs"). These two
classes of compounds are orally administered small molecules that are highly
specific for the suppression of TNF[alpha] and are intended to treat chronic
inflammatory diseases and other disorders. The initial therapeutic focus of the
biocatalytic chiral chemistry synthesis program is the development of chirally
pure pharmaceuticals designed to have greater efficacy and fewer side effects
than existing racemic versions. The Company's lead compound in this area is
chirally pure dl-methylphenidate (currently marketed under the trade name
Ritalin[RegTM]). The Company recently completed a Phase I/II trial and
announced that its chirally pure version demonstrated statistically significant
efficacy versus a placebo and preliminary indications of longer duration of
action relative to the racemic version. The Company is also employing its
biocatalytic chiral chemistry synthesis technology to develop chirally pure
agrochemicals with superior attributes and/or lower manufacturing costs than
the conventional, non-chirally pure equivalent, as well as to support its
established business of supplying chirally pure intermediates to other
pharmaceutical companies for drug development.
The Company expects that its rate of spending will increase as the result of
increased clinical trial costs and expenses associated with the regulatory
approval process and commercialization of products now in development. In order
to assure funding for the Company's future operations, the Company needs to seek
additional capital resources. However, no assurances can be given that the
Company will be successful in raising additional capital. If the Company is
unable to raise additional funds through these means, the Company believes that
its current financial resources including its option to issue and sell
$5,000,000 of Series B preferred stock at a second closing, which is subject to
certain customary conditions, could fund operations through early 1998.
The preparation of the financial statements requires management to make
estimates and assumptions that affect reported amounts and disclosures in these
financial statements. Actual results could differ from those estimates. The
Company is subject to certain risks and uncertainties such as uncertainty of
product development, uncertainties regarding regulatory approval, no assurance
of market acceptance of products, risk of product liability, uncertain scope of
patent and proprietary rights, intense competition, and rapid technological
change.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash Equivalents
At December 31, 1995 and 1996 and September 30, 1997, cash equivalents
consisted principally of funds invested in overnight repurchase agreements,
money market funds, and United States government securities such as treasury
bills and notes.
(b) Marketable Securities
The Company has classified all of its marketable securities as securities
available for sale. Such securities are to be held for an indefinite period of
time and are intended to be used to meet the ongoing liquidity needs of the
F-9
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Company. Realized gains and losses are included in operations and are measured
using the specific cost identification method.
(c) Plant and Equipment
Plant and equipment are stated at cost. Depreciation of plant and equipment is
provided using the straight-line method. The estimated useful lives of fixed
assets are as follows:
<TABLE>
<S> <C>
Laboratory equipment and machinery ........ 5-10 years
Furniture and fixtures .................... 5-10 years
</TABLE>
Amortization of leasehold improvements is calculated using the straight-line
method over the term of the lease or the life of the asset, whichever is
shorter. Maintenance and repairs are charged to operations as incurred, while
renewals and improvements are capitalized.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. In accordance
with SFAS No. 121, the Company reviews long-lived assets for impairment
whenever events or changes in business circumstances occur that indicate that
the carrying amount of the assets may not be recoverable. The Company assesses
the recoverability of long-lived assets held and to be used based on
undiscounted cash flows and measures the impairment, if any, using discounted
cash flows. Adoption of SFAS No. 121 did not have a material impact on the
Company's financial position, operating results or cash flows.
(d) Research and Development Costs
All research and development costs are expensed as incurred.
(e) Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement carrying amounts and
tax bases of assets and liabilities using enacted tax rates in effect for all
years in which the temporary differences are expected to reverse.
Research and development tax credits will be recognized as a reduction of the
provision for income taxes when realized.
(f) Revenue Recognition
Revenue from the sale of chemical intermediates is recognized upon product
shipment. Revenue under research contracts is recorded as earned under the
contracts, generally as services are provided. Revenue is recognized
immediately for nonrefundable license fees when agreement terms require no
additional performance on the part of the Company.
(g) Stock Options
The Company generally does not record compensation cost for the issuance of
employee stock options since the options are generally issued with an exercise
price equal to the market price at the date of grant. For the fair value of the
employee stock options issued in 1995 and 1996, see note 7.
(h) Share Information
Net loss per share of common stock is based upon the weighted average number of
shares of common stock outstanding. The assumed exercise of stock options,
conversion of convertible debentures and convertible preferred stock are not
considered, as the effect would be anti-dilutive.
F-10
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Presentation
Certain prior year amounts have been reclassified to conform with the current
year presentation. In connection with the discontinuation of the Company's
biotreatment operation (see note 9), the 1994 financial results applicable to
continuing operations exclude amounts from the discontinued operation.
(j) Deferred Debt Costs
Deferred debt costs are amortized over the life of the debt.
(k) Fair Value of Financial Instruments
The fair value, which is the carrying value, of marketable securities available
for sale is based on quoted market prices. The convertible debentures
approximate fair value due to interest rates approximating market rates. For
all other financial instruments their carrying value approximates fair value
due to the short maturity of these instruments.
(3) PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
----------------------------- --------------
1995 1996 1997
------------- ------------- --------------
<S> <C> <C> <C>
Leasehold improvements .................... $ 3,113,212 $ 3,731,518 $ 3,867,709
Laboratory equipment and machinery ........ 4,946,764 5,746,619 6,147,041
Furniture and fixtures .................... 391,370 391,370 425,066
Leased Equipment .......................... 631,496
----------- ----------- -----------
8,451,346 9,869,507 11,071,312
Less: accumulated depreciation ............ 7,243,541 7,928,892 8,549,411
----------- ----------- -----------
$ 1,207,805 $ 1,940,615 $ 2,521,901
=========== =========== ===========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses consists of the following:
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
------------------------- --------------
1995 1996 1997
------------ ---------- --------------
<S> <C> <C> <C>
Professional and consulting fees ........ $ 912,400 $357,859 $ 725,396
Accrued compensation .................... 610,111 457,849 409,554
Other ................................... 88,335 65,896 232,377
----------- --------- -----------
$1,610,846 $881,604 $1,367,327
=========== ========= ===========
</TABLE>
(5) CONVERTIBLE DEBENTURES
During 1995, the Company issued and sold in an offering pursuant to Regulation
S, 8% Convertible Debentures due July 31, 1997 in the aggregate principal
amount of $12,000,000, and received net proceeds, after offering costs, of
$11,022,570. The recorded value of the debenture at the date of issuance was
discounted to produce a market interest rate of approximately 13.5%. Such
debentures are convertible into Common Stock at the option of either the
holders thereof or the Company. The holders of the convertible debentures may
convert the debentures into Common Stock of the Company at a conversion price
that varies and is based upon the market price (as defined) of Common Stock for
the five trading days preceding the date of conversion.
F-11
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(5) CONVERTIBLE DEBENTURES (Continued)
The Company may require the conversion of the convertible debentures commencing
October 15, 1995 through July 30, 1997 at a conversion price which varies and
is based upon the market price of the Common Stock on the date of conversion.
The Company also has the right to redeem any convertible debenture upon which
it has received notice of intent to convert. The redemption price is the
greater of 115% of the principal and the accrued interest on the redeemed
debenture or an amount which is based on the appreciation of the Common Stock
from the date of issuance of the debentures. The Company has classified the
debentures at December 31, 1996 as a long term liability since it has the
ability and intent to convert them into Common Stock.
As of December 31, 1996, convertible debentures in the aggregate principal
amount of $9,750,000 plus accrued interest, had been converted into a total of
1,268,597 shares of Common Stock. No interest as paid in cash.
As of September 30, 1997, all convertible debentures in the aggregate principal
amount of $12,000,000, plus accrued interest, had been converted into a total
of 1,709,845 shares of common stock. No interest was paid in cash.
(6) SERIES A CONVERTIBLE PREFERRED STOCK
Series A
On March 13, 1996, in a private placement, the company completed the sale of
503 shares of Series A Convertible Preferred Stock, par value $.01 per share
(the "Preferred Stock"), at an issue price of $50,000 per share. The Company
received net proceeds, after offering costs, of $23,829,625. The Preferred
Stock, plus accretion at a rate of 4.9% per year, is convertible into common
stock of the Company at the option of the holders thereof at a conversion price
per share of common stock equal, generally, to the lesser of (i) $18.81 or (ii)
90% of the average closing price per share of the common stock for the seven
trading days immediately prior to the date of conversion. The Preferred Stock
primarily became convertible during the third quarter of 1996. As a result of
recent guidance related to the issuance of securities with variable conversion
features the Company recognized the value of the discount to market conversion
feature as a deemed dividend. Had this been recorded in the third quarter the
net loss applicable to common stockholders would have been $(8,584,611) and the
related per share amount would have been $(.90). The average closing price per
share of common stock for the seven trading days immediately prior to December
31, 1996 was $11.25.
The Company may redeem the shares in increments of not less than $1.5 million
plus accretion commencing December 13, 1996, on thirty business days written
notice to the preferred stockholders, at a price that equals a specified
premium, ranging from 120% to 130%, of the purchase price plus accretion
premium. Under certain conditions, upon receipt of a conversion notice from the
holder, the Company has the right (i) to redeem shares presented for
conversion, or (ii) to defer conversion for 90 days in exchange for warrants to
purchase additional shares of common stock as specified in the Certificate of
Designation of Series A Convertible Preferred Stock. Any shares of Series A
Convertible Preferred Stock outstanding on March 13, 1998 shall be converted
automatically into common stock on such date at the conversion price then in
effect. The holders of Preferred Stock have no voting rights.
The Company granted registration rights to the subscribers in the Preferred
Stock private placement. A registration statement with respect to investor
resales of common shares underlying the Preferred Stock was filed and declared
effective on June 10, 1996. In connection with the private placement, the
Company also granted to certain executives and affiliates of the placement
agent warrants, valued at $60,168, to purchase an aggregate of 66,853 shares of
common Stock at an exercise price of $20.52, subject to proportional adjustment
in the event that the Company undertakes a stock split, stock dividend,
recapitalization or similar event. These warrants are exercisable for a period
of five years from the date of issuance.
F-12
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(6) SERIES A CONVERTIBLE PREFERRED STOCK (Continued)
As of December 31, 1996, 236 shares (as of January 31, 1997, 276 shares) of the
Series A Preferred Stock, with their respective accrued accretion, had been
converted into 1,388,809 (1,590,745 at January 31, 1997) shares of common
stock. Through December 31, 1996 the Company had accrued $874,725 representing
accretion of the premium on the Preferred Stock of which $533,416 relates to
preferred shares not yet tendered for conversion. As of December 31, 1996 the
Company had also issued warrants valued at $138,156, that entitle certain
stockholders of the Series A Preferred Stock to purchase 153,507 shares of
common stock at an exercise price of $11.50. The warrants were issued in
exchange for the deferral of conversion for 90 days. These warrants are
exercisable for a period of two years from the date of issuance.
As of September 30, 1997, 423 shares of the Series A Preferred Stock, with
their respective accrued accretion, had been converted or redeemed into
2,731,915 shares of common stock. Through September 30, 1997 the Company had
accrued $1,349,042 representing accretion of the premium on the Preferred Stock
of which $306,633 relates to preferred shares not yet tendered for conversion.
The company agreed to reduce the maximum conversion price of 58 shares to $8.50
per share of common stock from $18.81 for holders who agreed to a lock-up
through December 1, 1997. The previously noted warrants are still outstanding
at September 30, 1997.
Series B (Unaudited). On June 9, 1997, in a private placement, the Company
completed the sale of 5,000 shares of Series B Convertible Preferred Stock (the
"Series B Preferred"), par value $.01 per share, at an issue price of $1,000
per share. A shelf registration statement with respect to holders' resales of
Common Stock issuable upon conversion of Series B Preferred was filed and
declared effective on August 6, 1997. The Company received net proceeds, after
offering costs of $4,840,748. Subject to the satisfaction of certain
conditions, the Company may, at its option, during specified periods ending
June 9, 1998, issue and sell to such purchasers up to an additional 15,000
shares of Series B Prefered Stock, at an aggregate purchase price of $15
million, in increments of $5 million (5,000 shares). With respect to the third
and fourth increments ($10 million) certain FDA approvals are necessary before
Chancellor is obligated to buy the additional Series B Preferred Stock. As of
September 30, 1997, all shares of Series B Preferred had been converted into
Common Stock.
Upon request of the purchasers of the Series B Preferred (but no later than
June 1, 1998) (in either case, the "Issuance Date"), the Company will issue
warrants to acquire a number of shares of Common Stock equal to (i) 1,500,000
dividend by the Conversion Price in effect on the Issuance Date (230,769
warrans as of September 30, 1997) plus (ii) 37.5% of the Conversion Shares
issuable on such Issuance Date upon conversion of all shares of Series B
Preferred Stock issued through the Issuance Date (288,461 warrants as of
September 30, 1997). All such warrans will have a term of four years from the
Issuance Date and an exercise price equal to 115% of the Conversion Price in
effect on the Issuance Date. The fair value of warrants at the issuance date
was $1.28 per warrant.
Through September 30, 1997, the Company had recorded $953,077 representing
accretion of the deemed dividend on the Series B Preferred Stock. The deemed
dividend represents the difference between the Series B Preferred Stock
conversion price and the Company's Common Stock fair market value at the date
of issuance. The deemed dividend and the fair value of the warrants was
accreted over the lock-up period subject to acceleration contingencies. Such
contingencies were met and the full deemed dividend was recognized at that
time.
(7) STOCK BASED COMPENSATION
(a) Stock Options
On June 16, 1995, the stockholders of the Company approved the 1995
Non-Employee Directors' Incentive Plan, which provides for the granting of
non-qualified stock options to purchase an aggregate of not more than 250,000
shares of common stock (subject to adjustment under certain circumstances) to
directors of the Company who are not officers or employees of the Company
("Non-Employee Directors"). Non-employee Directors are no longer
F-13
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
eligible to participate in the 1992 Non-Employee Directors' Stock Option Plan.
Each new Non-Employee Director, upon the date of his election or appointment,
receives an option to purchase 20,000 shares of common stock. Additionally,
upon the date of each annual meeting of stockholders, each continuing
Non-Employee Director receives an option to purchase 10,000 shares of common
stock (or a pro rata portion thereof if he has served less than one year),
except that at the 1995 annual meeting of stockholders the Non-Employee
Directors received an option to purchase 6,000 shares of common stock. On April
5, 1995, each Non-Employee Director received an initial grant of a
non-qualified option to purchase 20,000 shares of common stock, upon
shareholder approval of this plan, which was received June 16, 1995. The shares
subject to each non-employee director's option grant of 20,000 shares vest in
four equal annual installments commencing on the first anniversary of the date
of grant. The shares subject to an annual meeting option grant vest in full on
the date of the first annual meeting of stockholders held following the date of
grant. All options are granted at an exercise price that equates to the fair
market value of the Company's common stock at the grant date and expire 10
years after the date of grant. This plan terminates in 2005.
On May 27, 1992, the stockholders of the Company approved two new stock option
plans: the 1992 Long-Term Incentive Plan (the "1992 Incentive Plan") and the
1992 Non-Employee Directors' Stock Option Plan (the "1992 Directors' Plan").
The 1992 Incentive Plan provides for the granting of options, restricted stock
awards, stock appreciation rights, performance awards and other stock-based
awards to employees and officers of the Company to purchase not more than an
aggregate of 1,000,000 shares of common stock, subject to adjustment under
certain circumstances. The Management Compensation and Development Committee of
the Board of Directors (the "Committee") determines the type, amount and terms,
including vesting, of any awards made under the Incentive Plan. This plan
terminates in 2002.
With respect to options granted under the 1992 Incentive Plan, the 1992
Directors' Plan, and the 1986 Stock Option Plan that terminated in June 1996
(collectively, the "Plans"), the exercise price may not be less than the fair
market value of the common stock on the date of grant. In general, each option
granted under the Plans vests evenly over a three or four year period and
expires 10 years from the date of grant, subject to earlier expiration in case
of termination of employment. The vesting period for options and restricted
stock awards granted under the Plans is subject to certain acceleration
provisions if a change in control, as defined in the Plans, occurs.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations in accounting for its
Plans. Accordingly, no compensation expense has been recognized for its stock
based compensation plans other than for restricted stock awards. Had
compensation expense for the Company's stock option plans been determined based
upon the fair value at the grant date for awards under these plans consistent
with the methodology prescribed under Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the Company's net
loss and loss per share would have been increased by approximately $198,000, or
$0.02 per share in 1995 to $(10,714,694), or $(1.32) per share and
approximately $1,905,000, or $0.20 per share in 1996 to $(23,514,639), or
$(2.49) per share. The weighted average fair value of the options granted
during 1995 is estimated as $2.88 on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: dividend yield of zero,
weighted average volatility of 47%, weighted average risk free interest rate of
6.49% and an expected term of 2.91 years. The weighted average fair value of
the options granted during 1996 is estimated as $5.01 on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
dividend yield of zero, weighted average volatility of 43% weighted average
risk free interest rate ranging of 6.49%, and a weighted average expected term
of 2.22 years.
The pro forma effects on net loss and loss per share for 1995 and 1996 may not
be representative of the pro forma effects in future years since compensation
cost is allocated on a straight-line basis over the vesting periods of the
grants, which extends beyond the reported years.
F-14
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
The following table summarizes the stock option activity for the Plans:
<TABLE>
<CAPTION>
Options
------------------------------------------
Shares Available Weighted Average Exercise
for Grant Shares Price per Share
------------------ ------------- --------------------------
<S> <C> <C> <C>
Balance January 1, 1994 ......... 1,268,794 1,145,969 $ 8.60
Granted ....................... (418,994) 418,994 7.20
Exercised ..................... -- (26,422) 6.65
Cancelled ..................... 233,742 (233,742) 9.46
--------- --------- -------
Balance December 31, 1994 ....... 1,083,542 1,304,799 8.03
Authorized .................... 250,000 -- --
Granted ....................... (209,368) 209,368 6.49
Exercised ..................... -- (24,987) 6.84
Cancelled ..................... 78,712 (78,712) 9.24
--------- --------- -------
Balance December 31, 1995 ....... 1,202,886 1,410,468 7.75
Expired Plan .................. (139,999) -- --
Granted ....................... (678,589) 678,589 13.25
Exercised ..................... -- (42,069 8.03
Cancelled ..................... 46,095 (46,095) 6.40
--------- --------- -------
Balance December 31, 1996 ....... 430,393 2,000,893 $ 9.64
========= ========= =======
</TABLE>
The following table summarizes information concerning options outstanding under
the Plans at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------ ----------------------------------------
Range of Number Outstanding Weighted Average Number Exercisable Weighted Average
Exercise Price at 12/31/96 Remaining Term (Life) Exercise Price at 12/31/96 Exercise Price
- ---------------- -------------------- ----------------------- ---------------- -------------------- -----------------
<S> <C> <C> <C> <C> <C>
5.00-9.00 871,658 6.2 $ 6.52 675,658 $ 6.59
9.01-13.00 601,266 5.4 9.93 424,181 9.78
13.01-18.00 527,969 8.9 14.42 110,004 14.03
---------- --- ------- ---------- -------
2,000,893 6.7 $ 9.64 1,209,843 $ 8.39
========== === ======= ========== =======
</TABLE>
On February 14, 1997 the Company granted 50,000 options to a Vice President
exercisable at $10.69 (market price at the date of grant). These options vest
evenly over four years and have a ten year term.
(b) Restricted Stock Awards
Restricted stock awards granted pursuant to the Plans generally require no
payments by the grantee. All of the shares of stock subject to such restricted
stock awards are subject to forfeiture if the employee's employment, or Non-
Employee Director's association with the Company, is terminated or ended
(except under certain circumstances) prior to a vesting period of generally
three to five years from the restricted stock award grant date. The market
price of the shares on the date of the grant is recorded as a deduction from
stockholders' equity (unamortized deferred compensation--restricted stock)
which is amortized to compensation expense over the applicable vesting period.
There have been no grants of restricted stock in 1994, 1995, or 1996.
On January 1, 1997, the Company awarded 5,000 shares to the Company's Chairman
and CEO, which were immediately vested.
(c) Warrants
In connection with the retention of a financial advisor, the Company in
February 1991 granted to such financial advisor a warrant to purchase, until
January 15, 1996, 50,000 shares of common stock at a price of $6.50 per share.
This warrant expired on January 15, 1996.
F-15
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 Data (Unaudited)
(7) STOCK BASED COMPENSATION (Continued)
In connection with the retention of an investor relations firm, the Company in
November 1994 granted to such firm a warrant to purchase until September 1,
1999, 50,000 shares of common stock at a price of $6.50 per share. This warrant
was outstanding as of December 31, 1996.
In connection with the retention of an investment firm to assist in the sale
and issuance of 8% Convertible Debentures, the Company in August, 1995 granted
to such firm warrants to purchase until July 31, 2000, 105,000 shares of common
stock at a price of $9.60 per share. These warrants were outstanding as of
December 31, 1996.
In connection with the retention of an investment firm to assist in the sale
and issuance of the Preferred Stock, the Company, in March, 1996 granted to
such firm warrants to purchase until March 10, 2001, 66,853 shares of common
stock at a price of $20.52. These warrants were outstanding as of December 31,
1996.
During 1996, the Company also issued warrants that entitled certain
stockholders of the Series A Convertible Preferred Stock Warrants valued at
$138,156, to purchase 153,507 shares of common stock at an exercise price of
$11.50. The warrants were issued in exchange for the deferral of conversion for
90 days. These warrants are exercisable for a period of two years from the date
of issuance. These warrants were outstanding as of December 31, 1996.
(d) Rights Plan
During 1996, the Company adopted a shareholder rights plan ("Rights Plan"). The
Rights Plan involves the distribution of one "Right" as a dividend on each
outstanding share of the Company's common stock to all holders of record on
September 26, 1996. Each Right shall entitle the holder to purchase one-tenth
of a share of common stock. The Rights trade in tandem with the common stock
until, and exercisable upon, certain triggering events, and the exercise price
is based on the estimated long term value of the Company's common stock.
(8) INCOME TAXES
At December 31, 1995 and 1996, the tax effects of temporary differences that
give rise to deferred tax assets are as follows:
<TABLE>
<CAPTION>
1995 1996
--------------- ----------------
<S> <C> <C>
Deferred Assets:
Federal and state net operating loss carryforwards ................ $ 26,510,000 $ 33,998,000
Research and experimentation tax credit carryforwards ............. 1,851,000 2,050,000
Plant and equipment, principally due to differences in depreciation 1,226,000 1,301,000
Patents, principally due to differences in amortization ........... 90,000 75,000
Accrued expenses, principally due to accrual for financial
reporting purposes ............................................... 297,000 165,000
------------- -------------
Total deferred tax assets ........................................... 29,974,000 37,589,000
Valuation allowance ................................................. (29,974,000) (37,589,000)
------------- -------------
Net deferred tax assets ............................................. $ -- $ --
============= =============
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized.
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $85,000,000 that will expire in the years 2001 to 2011. The
Company also has research and experimentation credit carryforwards of
approximately $ 2,050,000 that expire in the years 2001 to 2011. Ultimate
utilization/availability of such net operating losses and credits may be
curtailed if a significant change in ownership occurs.
F-16
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(9) DISCONTINUED OPERATION
On June 16, 1994, the Company entered into an agreement with Sybron Chemicals,
Inc. ("Sybron Chemicals") pursuant to which the Company has exclusively
licensed its biotreatment technology and sold its biotreatment laboratory and
field demonstration equipment to Sybron Chemicals. Under the terms of the
agreement, Sybron Chemicals has the exclusive right to commercialize the
Company's biocatalysis technology for the removal of hazardous wastes from
manufacturing and process waste streams. During the next ten years, under the
terms of the agreement, the Company will receive royalty payments based on a
percentage of commercial net sales of biotreatment systems made by Sybron
Chemicals. The Company has not recorded any royalty revenues in 1994, 1995 and
1996.
During the second quarter of 1994, the Company recognized a charge to
discontinued operations of $839,000, or $.11 per share, for disposal of its
biotreatment business, of which $536,000 represents a non-cash loss on the sale
of capital equipment dedicated to the Company's biotreatment operations and
$303,000 relates to severance arrangements with biotreatment personnel.
For the year ended December 31, 1994, revenues relative to the biotreatment
operations were approximately $38,000. Direct expenses related to the
biotreatment operations, primarily for personnel, research and development and
depreciation, amounted to $1,535,000 for the year ended December 31, 1994.
(10) MARKETABLE SECURITIES AVAILABLE FOR SALE
Marketable securities available for sale at September 30, 1997 include debt
securities with maturities ranging from October 1997 to April 1998. A summary
of marketable securities at September 30, 1997 is as follows:
A summary of marketable securities at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
US Government and agency
obligations ................... $ 8,892,723 $ -- $ (13,301) $ 8,879,422
Certificates of deposit ........ 1,000,017 -- (22) 999,995
Asset backed security .......... 500,665 -- (509) 500,156
Commercial Paper ............... 995,473 694 -- 996,167
------------ ---------- ---------- ------------
$11,388,878 $ 694 $ (13,832) $11,375,740
============ ========== ========== ============
</TABLE>
The net change in the unrealized gain (loss) for the year ended December 31,
1995 amounted to approximately $254,000. The proceeds from sales and maturities
of marketable securities available for sale included gross realized gains and
losses of approximately $34,000 and $148,000 respectively, for the year ended
December 31, 1995.
F-17
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(10) MARKETABLE SECURITIES AVAILABLE FOR SALE (Continued)
Marketable securities available for sale at December 31, 1996 include debt
securities with maturities ranging from January, 1997 to October, 1997. A
summary of marketable securities at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Commercial Paper ............... $ 8,369,006 $ -- $ (170) $ 8,368,836
Corporate Bonds ................ 4,015,052 6,773 -- 4,021,825
Certificates of deposit ........ 3,000,034 -- (424) 2,999,610
US Government and agency
obligations ................... $ 1,502,217 -- (465) $ 1,501,752
------------ ----------- ---------- ------------
$16,886,309 $ 6,773 $ (1,059) $16,892,023
============ =========== ========== ============
</TABLE>
The net change in the unrealized gain (loss) for the year ended December 31,
1996 amounted to approximately $19,000. The proceeds from sales and maturities
of marketable securities available for sale included gross realized gains and
losses of approximately $359,000 and $32,000 respectively, for the year ended
December 31, 1996.
Marketable securities available for sale at September 30, 1997 include debt
securities with maturities ranging from October 1997 to April 1998. A summary
of market securities at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gain Loss Value
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Commercial Paper ............... $ 733,793 $ -- $ -- $ 733,793
Corporate Bonds ................ 999,790 210 -- 1,000,000
Certificates of Deposit ........ -- -- -- --
US Government and agency
obligations ................... 2,793,428 -- (82) 2,793,346
---------- ---- ----- ----------
$4,527,011 $210 $ (82) $4,527,139
========== ==== ===== ==========
</TABLE>
(11) COMMITMENTS AND CONTINGENCIES
(a) Lease
Celgene leases its main laboratory and office facilities in Warren Township,
New Jersey. The current lease term for the main laboratory and office space
expires in 1997 and has two five-year renewal options. The Company has notified
the landlord of its intent to renew the lease for a five-year term into the
year 2002. Annual payments are $330,000. The lease provides that at the end of
each five-year term, the rent will be increased based upon the change in the
consumer price index, but in no case shall the increase be greater than 20%.
Celgene is also required to pay additional amounts for real estate taxes,
utilities, and maintenance. Total rental expense amounted to $474,000, $448,000
and $453,000 in 1994, 1995 and 1996, respectively.
In January, 1997 the Company entered into a sub-lease agreement to lease an
additional 18,000 square feet of laboratory and office space in Annandale, New
Jersey. The sub-lease agreement is for a two year term, expiring in February,
1999. Annual payments are $227,500.
In July, 1997, the Company entered into an equipment leasing agreement; under
the agreement, the Company can lease up to $1,000,000 of equipment for a three
year term after which the Company can purchase the equipment for a nominal
value. Through September 30, 1997, the Company has leased $631,000 of
laboratory equipment under this agreement. Under this capital lease, the
Company is committed to 36 monthly payments of approximately $19,000.
F-18
<PAGE>
CELGENE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
December 31, 1994, 1995 and 1996 and September 30, 1997 (Unaudited)
(11) COMMITMENTS AND CONTINGENCIES (Continued)
(b) Employment Agreements
Celgene has employment agreements with certain officers and employees. The
related outstanding commitments at December 31, 1996 total approximately
$692,000 for 1997. As of September 30, 1997 the Company has outstanding
commitments over the next four years of approximately $2,500,000. Employment
contracts provide for an increase in compensation reflecting annual reviews and
related salary adjustments.
(c) Contracts
The Company enters into sponsored research contracts from which certain
revenues are derived. Aggregate research and development costs incurred in
connection with such contracts totaled $247,000, $403,000, and $910,000, in
1994, 1995. For 1997 such costs are estimated to be approximately $606,000.
In August 1992, the Company entered into a two-year research and development
agreement with The Rockefeller University. Under the terms of the agreement,
the Company has the world-wide exclusive license to manufacture and market any
drugs, including Thalomid, which may result from the research performed at The
Rockefeller University. Rockefeller is entitled to receive royalties based on
commercial sales of any such drugs. In July 1994 this agreement was extended
for an additional two years and again in 1996 for an additional two years.
Under terms of the extension, the Company is committed to pay the Rockefeller
University $504,000 annually.
In December, 1995 the Company entered into an agreement with Penn
Pharmaceutical, Ltd. of Great Britain ("Penn") to build a special facility
devoted exclusively to the production of Thalomid. Under the terms of the
agreement, based on certain milestones with respect to commencing production
and U.S. Food & Drug Administration inspection, the Company is responsible for
$320,000 of start-up and validation costs. In addition, the Company will lease
the dedicated facility for a three year period. Annual facility payments are
$268,000, which began in December, 1996. Penn will manufacture Thalomid and
sell it exclusively to the Company.
(d) Contingencies
The Company believes it maintains insurance coverage adequate for its current
needs.
The Company's operations are subject to environmental laws and regulations
which impose limitations on the discharge of pollutants into the air and water
and establish standards for the treatment, storage and disposal of solid and
hazardous wastes. The Company reviews the effects of such laws and regulations
on its operation and modifies its operations as appropriate. The Company
believes that it is in substantial compliance with all applicable environmental
laws and regulations.
(e) Concentration of Market Risk
During 1994, three customers accounted for approximately 83% (57%, 14% and 12%
individually) of the total revenues. During 1995, one customer accounted for
approximately 40% of the total revenues. During 1996, four customers accounted
for approximately 73% (35%, 15%, 12% and 11% individually) of the total
revenues.
Through September 30, 1997, three customers accounted for approximately 84%
(44%, 34% and 6% individually) of the total revenues.
F-19
<PAGE>
[CELGENE LOGO] CHIRAL CHEMISTRY PLATFORM
[Drawing of Celgene C Molecule]
Many compounds exist in mirror
image conformations of each other.
One conformation may fit perfectly
into a receptor site and have desired
beneficial effects while the other may
be inactive or produce undesirable
effects. Chirally pure versions have
only the desired conformation.
Celgene's chiral chemistry platform,
based on the Company's patented
biocatalytic technology, supports
three commercial opportunities.
[Photo of
various pills] [Photo of Cornfield]
Chirally Pure Chirally Pure
Pharmaceuticals Agrochemicals
Celgene recently Celgene is applying its
completed a Phase I/II chiral technology to the
clinical trial for production of chirally pure
d-methylphenidate, a crop protection agents.
chirally pure version of Benefits could include a
Ritalin which has been significant reduction in
used for decades in the manufacturing costs and
treatment of Attention environmental burden.
Deficit Hyperactivity The first application of
Disorder ("ADHD"). The Celgene's technology is
next compound being the subject of an R&D
developed by Celgene is a agreement with a major
chirally pure version of agrochemical company.
mexiletine, and is
targeted at treatment of
neuropathic pain.
[Photo of
Chiral intermediate
manufacturing process]
Chirally Pure
Intermediates
Celgene supplies chirally
pure intermediates as
building blocks to make
active ingredients for use
in new drug development.
Several large
pharmaceutical companies
are currently conducting
advanced clinical trials
for chirally pure
pharmaceuticals that
incorporate Celgene's
intermediates.
<PAGE>
No dealer, salesperson or other person has PROSPECTUS October 27, 1997
been authorized to give any information or to
make any representation other than those
contained in this Prospectus in connection
with the offer contained herein, and, if
given or made, such information or
representation must not be relied upon as
having been authorized by the Company or any
Underwriter. This Prospectus does not
constitute an offer to sell, or a
solicitation of an offer to buy, shares of
tion to any person to whom it is not lawful
to make such offer or solicitation in such
jurisdiction or in which the person making
such offer or solicitation is not qualified
to do so. Neither the delivery of this
Prospectus nor any sale made hereunder shall,
under any circumstances, create an
implication that there has been no change in
the affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time subsequent
to the date of this Prospectus.
TABLE OF CONTENTS
- -------------------------------------------
Prospectus Summary ..................... 3
Risk Factors ........................... 6 2,600,000
Use of Proceeds ........................ 12
Celgene Corporation Celgene Corporation
Price Range of Common Stock ............ 12
Dividend Policy ........................ 12 Common Stock
Capitalization ......................... 13
Dilution ............................... 14
Selected Financial Data ................ 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations ....................... 16
Business ............................... 21
Management ............................. 35
Security Ownership of Certain
Beneficial Owners and Management .... 38
Description of Capital Stock ........... 39
Shares Eligible for Future Sale ........ 41
Underwriting ........................... 42
Legal Matters .......................... 44
Experts ................................ 44 SBC Warburg Dillon Read Inc.
Additional Information ................. 45
Incorporation of Certain Documents Prudential Securities Incorporated
by Reference ........................ 45
Index to Financial Statements .......... F-1 Loewenbaum & Company Incorporated
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant.
SEC registration fee ..................... $ 9,117
NASD fee ................................. 3,864
Nasdaq additional listing ................ 17,500
Legal fees and expenses .................. 150,000
Printing and engraving expenses .......... 200,000
Accounting fees and expenses ............. 50,000
Transfer agent and registrar fees ........ 5,000
Miscellaneous ............................ 164,519
---------
Total .................................. $601,557
=========
Item 15. Indemnification of Directors and Officers.
The General Corporation Law of the State of Delaware ("DGCL") permits the
Company and its stockholders to limit directors' exposure to liability for
certain breaches of the directors' fiduciary duty, either in a suit on behalf
of the Company or in an action by stockholders of the Company.
The Certificate of Incorporation of the Company (the "Charter") eliminates the
liability of directors to stockholders or the Company for monetary damages
arising out of the directors' breach of their fiduciary duty of care. The
Charter also authorizes the Company to indemnify its directors, officers,
incorporators, employees, and agents with respect to certain costs, expenses,
and amounts incurred in connection with an action, suit, or proceeding by
reason of the fact that such person was serving as a director, officer,
incorporator, employee, or agent of the Company. In addition, the Charter
permits the Company to provide additional indemnification rights to its
officers and directors, and to indemnify them to the greatest extent possible
under the DGCL. The Company has entered into indemnification agreements with
each of its officers and directors and intends to enter into indemnification
agreements with each of its future officers and directors. Pursuant to such
indemnification agreements, the Company has agreed to indemnify its officers
and directors against certain liabilities, including liabilities arising out of
the offering made by this Registration Statement.
The Company maintains a standard form of officers' and directors' liability
insurance policy which provides coverage to the officers and directors of the
Company for certain liabilities, including certain liabilities which may arise
out of this Registration Statement.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for reciprocal
indemnification between the Company and its controlling persons, on the one
hand, and the Underwriters and their controlling persons, on the other hand,
against certain liabilities in connection with this offering, including
liabilities under the Securities Act.
Item 16. Exhibits and Financial Statement Schedules
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1, dated July 24, 1987).
3.2 By-laws of the Company (Incorporated by reference to the Company's
Current Report on Form 8-K, dated September 16, 1996).
4.1 Form of Certificate of Designation of Series A Convertible Preferred
Stock, par value $.01 per share (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated March 13, 1996).
II-1
<PAGE>
4.2 Form of Certificate of Designation of Series B Convertible Preferred
Stock, par value $.01 per share (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated June 10, 1997).
5.1* Opinion of Proskauer Rose LLP.
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder
Horn Associates (Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.2 1992 Long-Term Incentive Plan (Incorporated by reference to Exhibit A to
the Company's Proxy Statement, dated May 30, 1997).
10.3 1995 Non-Employee Directors' Incentive Plan (Incorporated by reference
to Exhibit B to the Company's Proxy Statement, dated May 30, 1997).
10.4 Agent's Warrant issued in connection with the placement of 8%
Convertible Debentures (Incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.5 Form of Registration Rights Agreement in connection with Series A
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, dated March 13, 1996).
10.6 Agent's Warrant issued in connection with the placement of Series A
Convertible Preferred Stock (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.7* Form of Lock-Up Warrant issued to certain holders of Series A
Convertible Preferred Stock.
10.8 Form of Registration Rights Agreement in connection with the Series B
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, dated June 10, 1997).
10.9 Form of Warrant to be issued in connection with the issuance of Series B
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K dated June 10, 1997).
10.10 Rights Agreement, dated as of September 16, 1996, between Celgene
Corporation and American Stock Transfer & Trust Company (Incorporated by
reference to the Company's Registration Statement on Form 8-A, filed on
September 16, 1996).
10.11 Form of indemnification agreement between the Company and each officer
and director of the Company (Incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.12* Form of Employment Agreement dated September 30, 1997 between the
Company and John W. Jackson.
10.13* Form of Employment Agreement dated September 30, 1997 between the
Company and Sol J. Barer.
10.14* Manufacturing Agreement between Penn Pharmaceuticals Limited and the
Company.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Proskauer Rose LLP (included in Exhibit 5.1).
23.3* Consent of Mathews, Collins, Shepherd and Gould, P.A.
23.4* Consent of Kleinfeld, Kaplan & Becker.
24.1* Powers of Attorney (included with signature page).
* Filed herewith.
II-2
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the Registrant's
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of a
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES AND POWER OF ATTORNEY
- --------------------------------------------------------------------------------
KNOW ALL MEN BY THESE PRESENTS, that each person or entity whose signature
appears below constitutes and appoints John W. Jackson and Sol J. Barer, and
each of them, its true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution, for it and in its name, place and stead, in
any and all capacities, to sign any and all amendments, including any
post-effective amendments, to this Registration Statement on Form S-3, or any
registration statement relating to this offering to be effective upon filing
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in- fact
and agents, and each of them, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as it might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes may lawfully do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of Warren, State of New Jersey on October 27, 1997.
CELGENE CORPORATION
By: /s/ John W. Jackson
-------------------
John W. Jackson
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed below on October 27, 1997 by the persons whose signatures
appear below, which persons have signed such Registration Statement in the
capacities indicated:
Signature Title
- ---------------------------- --------------------------
/s/ John W. Jackson Chairman of the Board and
- ------------------------- Chief Executive Officer
John W. Jackson
/s/ Sol J. Barer Director
- -------------------------
Sol J. Barer
/s/ Frank T. Cary Director
- -------------------------
Frank T. Cary
/s/ Arthur Hull Hayes, Jr. Director
- -------------------------
Arthur Hull Hayes, Jr.
/s/ Richard C. E. Morgan Director
- -------------------------
Richard C. E. Morgan
/s/ Walter L. Robb Director
- -------------------------
Walter L. Robb
II-4
<PAGE>
/s/ Lee J. Schroeder Director
- ------------------------- Chief Financial Officer
Lee J. Schroeder
/s/ Robert C. Butler (Principal Financial Officer)
- -------------------------
Robert C. Butler
/s/ James R. Swenson Controller (Principal
- ------------------------- Accounting Officer)
James R. Swenson
II-5
<PAGE>
EXHIBIT INDEX
- --------------------------------------------------------------------------------
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company, as amended (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement on Form
S-1, dated July 24, 1987).
3.2 By-laws of the Company (Incorporated by reference to the Company's
Current Report on Form 8-K, dated September 16, 1996).
4.1 Form of Certificate of Designation of Series A Convertible Preferred
Stock, par value $.01 per share (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated March 13, 1996).
4.2 Form of Certificate of Designation of Series B Convertible Preferred
Stock, par value $.01 per share (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K, dated June 10, 1997).
5.1* Opinion of Proskauer Rose LLP.
10.1 Lease Agreement, dated January 16, 1987, between the Company and Powder
Horn Associates (Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, dated July 24, 1987).
10.2 1992 Non-Employee Directors' Incentive Plan (Incorporated by reference
to Exhibit B to the Company's Proxy Statement, dated April 17, 1992).
10.3 1995 Non-Employee Directors' Incentive Plan (Incorporated by reference
to Exhibit B to the Company's Proxy Statement, dated May 30, 1997).
10.4 Agent's Warrant issued in connection with the placement of 8%
Convertible Debentures (Incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
1995).
10.5 Form of Registration Rights Agreement in connection with Series A
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, dated March 13, 1996).
10.6 Agent's Warrant issued in connection with the placement of Series A
Convertible Preferred Stock (Incorporated by reference to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995).
10.7* Form of Lock-Up Warrant issued to certain holders of Series A
Convertible Preferred Stock.
10.8 Form of Registration Rights Agreement in connection with the Series B
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, dated June 10, 1997).
10.9 Form of Warrant to be issued in connection with the issuance of Series B
Convertible Preferred Stock (Incorporated by reference to Exhibit 10.2
to the Company's Current Report on Form 8-K dated June 10, 1997).
10.10 Rights Agreement, dated as of September 16, 1996, between Celgene
Corporation and American Stock Transfer & Trust Company (Incorporated by
reference to the Company's Registration Statement on Form 8-A, filed on
September 16, 1996).
10.11 Form of indemnification agreement between the Company and each officer
and director of the Company (Incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for the year ended December
31, 1996).
10.12* Form of Employment Agreement dated September 30, 1997 between the
Company and John W. Jackson.
10.13* Form of Employment Agreement dated September 30, 1997 between the
Company and Sol J. Barer.
10.14* Penn Pharmaceutical Manufacturing Agreement.
23.1* Consent of KPMG Peat Marwick LLP.
23.2* Consent of Proskauer Rose LLP (included in Exhibit 5.1).
23.3* Consent of Mathews, Collins, Shepherd and Gould, P.A.
23.4* Consent of Kleinfeld, Kaplan & Becker.
24.1* Powers of Attorney (included with signature page).
* Filed herewith.
II-6
CELGENE CORPORATION
2,600,000 Shares
Common Stock
$.01 Par Value
UNDERWRITING AGREEMENT
, 1997
<PAGE>
UNDERWRITING AGREEMENT
, 1997
SBC WARBURG DILLON READ INC.
PRUDENTIAL SECURITIES INCORPORATED
LOEWENBAUM & COMPANY INCORPORATED
as Managing Underwriters
535 Madison Avenue
New York, New York 10022
Dear Sirs:
Celgene Corporation (the "Company") proposes to issue and sell to
the underwriters named in Schedule A annexed hereto (the "Underwriters") an
aggregate of 2,600,000 shares (the "Firm Shares") of Common Stock, $.01 par
value (the "Common Stock"), of the Company. In addition, solely for the purpose
of covering over-allotments, the Company proposes to grant to the Underwriters
the option to purchase from the Company up to an additional ________ shares of
Common Stock (the "Additional Shares"). The Firm Shares and the Additional
Shares are hereinafter collectively sometimes referred to as the Shares. The
Shares are described in the Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3, including a prospectus,
relating to the Shares, which incorporates by reference documents which the
Company has filed in accordance with the provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder (collectively
called the "Exchange Act"). The Company has furnished to you, for use by the
Underwriters and by dealers, copies of one or more preliminary prospectuses and
the documents incorporated by reference therein (each thereof, including the
documents incorporated therein by reference, being herein called a "Preliminary
Prospectus") relating to the Shares. Except where the context otherwise
requires, the registration statement, as amended when it becomes effective,
including all documents filed as a part thereof or incorporated by reference
therein, and including any information contained in a prospectus subsequently
filed with the Commission pursuant to Rule 424(b) under the Act and deemed to be
part of the registration statement at the time of effectiveness pursuant to Rule
430(A) under the Act, is herein called the Registration Statement, and the
prospectus, including all documents incorporated therein by reference, in the
form filed by the Company with the Commission pursuant to Rule 424(b) under the
Act or, if no such filing is required, the form of final prospectus included in
the Registration Statement at the time it became effective, is herein called the
"Prospectus."
The Company and the Underwriters agree as follows:
1. Sale and Purchase. Upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the Company
agrees to sell to the respective Underwriters and each of the Underwriters,
severally and not jointly, agrees to purchase from the Company the aggregate
number of Firm Shares set forth opposite the name of such Underwriter in
Schedule A attached hereto in each case at a purchase price of $ per Share.
The Company is advised by you that the
2
<PAGE>
Underwriters intend (i) to make a public offering of their respective portions
of the Firm Shares as soon after the effective date of the Registration
Statement as in your judgment is advisable and (ii) initially to offer the Firm
Shares upon the terms set forth in the Prospectus. You may from time to time
increase or decrease the public offering price after the initial public offering
to such extent as you may determine.
In addition, the Company hereby grants to the several Underwriters
the option to purchase, and upon the basis of the warranties and representations
and the other terms and conditions herein set forth, the Underwriters shall have
the right to purchase, severally and not jointly, from the Company, ratably in
accordance with the number of Firm Shares to be purchased by each of them, all
or a portion of the Additional Shares as may be necessary to cover
over-allotments made in connection with the offering of the Firm Shares, at the
same purchase price per share to be paid by the Underwriters to the Company for
the Firm Shares. This option may be exercised at any time (but not more than
once) on or before the thirtieth day following the date hereof, by written
notice to the Company. Such notice shall set forth the aggregate number of
Additional Shares as to which the option is being exercised, and the date and
time when the Additional Shares are to be delivered (such date and time being
herein referred to as the additional time of purchase); provided, however, that
the additional time of purchase shall not be earlier than the time of purchase
(as defined below) nor earlier than the second business day(1) after the date on
which the option shall have been exercised nor later than the tenth business day
after the date on which the option shall have been exercised. The number of
Additional Shares to be sold to each Underwriter shall be the number which bears
the same proportion to the aggregate number of Additional Shares being purchased
as the number of Firm Shares set forth opposite the name of such Underwriter on
Schedule A hereto bears to the total number of Firm Shares (subject, in each
case, to such adjustment as you may determine to eliminate fractional shares).
2. Payment and Delivery. Payment of the purchase price for the Firm
Shares shall be made to the Company by wire transfer of Federal funds, at the
office of SBC Warburg Dillon Read Inc. in New York City, against delivery of the
certificates for the Firm Shares to you for the respective accounts of the
Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York
City time, on [______________], 1997 (unless another time shall be agreed to by
you and the Company or unless postponed in accordance with the provisions of
Section 8 hereof). The time at which such payment and delivery are actually made
is hereinafter sometimes called the time of purchase. Certificates for the Firm
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify at least one full business day preceding the
time of purchase.
Payment of the purchase price for the Additional Shares shall be
made at the additional time of purchase in the same manner and at the same
office as the payment for the Firm Shares. Certificates for the Additional
Shares shall be delivered to you in definitive form in such names and in such
denominations as you shall specify at least one full business day preceding the
additional time of purchase.
3. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
- ----------
(1) As used herein "business day" shall mean a day on which the New York Stock
Exchange is open for trading.
3
<PAGE>
(a) when the Registration Statement becomes effective, the
Registration Statement and the Prospectus will comply in all material respects
with the provisions of the Act, and the Registration Statement will not contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and the Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; provided, however, that the Company makes no
representation or warranty with respect to any statement contained in the
Registration Statement or the Prospectus in reliance upon and in conformity with
information concerning the Underwriters and furnished in writing by or on behalf
of any Underwriter through you to the Company expressly for use in the
Registration Statement or the Prospectus; the documents incorporated by
reference in the Prospectus, at the time they were filed with the Commission,
complied in all material respects with the requirements of the Exchange Act, and
do not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(b) as of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled "Actual" in
the section of the Registration Statement and the Prospectus entitled
"Capitalization" and, as of the time of purchase and the additional time of
purchase, as the case may be, the Company shall have an authorized
capitalization as set forth under the heading entitled "As Adjusted" in the
section of the Registration Statement and the Prospectus entitled
"Capitalization"; all of the issued and outstanding shares of capital stock
including Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and non-assessable; the Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with full power and authority to own its
properties and conduct its business as described in the Registration Statement
and the Prospectus, to execute and deliver this Agreement and to issue and sell
the Shares as herein contemplated;
(c) the Company and each of its subsidiaries (the
"Subsidiaries") are duly qualified or licensed by and are in good standing in
each jurisdiction in which they conduct their respective businesses and in which
the failure, individually or in the aggregate, to be so licensed or qualified
would have, or would be reasonably likely to have, a material adverse effect on
the operations, business, condition (financial or otherwise), properties or
assets of the Company and its Subsidiaries, taken as a whole (a "Material
Adverse Effect"); and the Company and each of its Subsidiaries are in compliance
in all material respects with the laws, orders, rules, regulations and
directives issued or administered by such jurisdictions except where the failure
to be in such compliance would not have, or be reasonably likely to have, a
Material Adverse Effect;
(d) neither the Company nor any of its Subsidiaries is in
breach of, or in default under (nor has any event occurred which with notice,
lapse of time, or both would constitute a breach of, or default under), its
respective charter or by-laws or in the performance or observance of any
obligation, agreement, covenant or condition contained in any indenture,
mortgage, deed of trust, bank loan or credit agreement or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them is bound, which breach or default would have, or would be
reasonably likely to have, a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will not conflict with, or result in any breach
of or constitute a default under (nor constitute any event which with notice,
lapse
4
<PAGE>
of time, or both would constitute a breach of, or default under), any provisions
of the charter or by-laws, of the Company or any of its Subsidiaries or under
any provision of any license, indenture, mortgage, deed of trust, bank loan or
credit agreement or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or their respective
properties may be bound or affected, or under any federal, state, local or
foreign law, regulation or rule or any decree, judgment or order applicable to
the Company or any of its Subsidiaries, which breach or default would have, or
would be reasonably likely to have, a Material Adverse Effect;
(e) this Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement of the
Company enforceable in accordance with its terms;
(f) the capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained in the
Registration Statement and Prospectus and the certificates for the Shares are in
due and proper form and the holders of the Shares will not be subject to
personal liability by reason of being such holders;
(g) no approval, authorization, consent or order of or filing
with any federal, state or local governmental or regulatory commission, board,
body, authority or agency is required in connection with the issuance and sale
of the Shares as contemplated hereby other than registration of the Shares under
the Act and any necessary qualification under the securities or blue sky laws of
the various jurisdictions in which the Shares are being offered by the
Underwriters;
(h) no person has the right, contractual or otherwise, to
cause the Company to issue to it, or register pursuant to the Act, any shares of
capital stock of the Company upon the issue and sale of the Shares to the
Underwriters hereunder, nor does any person have preemptive rights, rights of
first refusal or other rights to purchase any of the Shares;
(i) KPMG Peat Marwick LLP, whose reports on the consolidated
financial statements of the Company and its Subsidiaries are filed with the
Commission as part of the Registration Statement and Prospectus, are independent
public accountants as required by the Act and the applicable published rules and
regulations thereunder;
(j) each of the Company and its Subsidiaries has all necessary
licenses, authorizations, consents and approvals and has made all necessary
filings required under any federal, state, local or foreign law, regulation or
rule, and has obtained all necessary authorizations, consents and approvals from
other persons, in order to conduct its respective business other than licenses,
authorizations, consents and approvals which, if the Company or any of its
Subsidiaries did not have or failed to obtain, would have, or would be
reasonably likely to have, a Material Adverse Effect on the Company and its
Subsidiaries taken as a whole; neither the Company nor any of its Subsidiaries
is in violation of, or in default under, any such license, authorization,
consent or approval or any federal, state, local or foreign law, regulation or
rule or any decree, order or judgment applicable to the Company or any of its
Subsidiaries the effect of which would have, or would be reasonably likely to
have, a Material Adverse Effect;
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(k) all legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as an exhibit to the Registration Statement
have been so described or filed as required;
(l) there are no actions, suits or proceedings pending or
threatened against the Company or any of its Subsidiaries or any of their
respective properties, at law or in equity, or before or by any federal, state,
local or foreign governmental or regulatory commission, board, body, authority
or agency which could result in a judgment, decree or order which would have, or
would be reasonably likely to have, a Material Adverse Effect;
(m) the audited and unaudited financial statements included in
the Registration Statement and the Prospectus present fairly, in all material
respects, the consolidated financial position of the Company and its
Subsidiaries as of the dates indicated and the consolidated results of
operations and changes in financial position of the Company and its Subsidiaries
for the periods specified; such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a consistent
basis during the periods involved;
(n) subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may be
otherwise stated in the Registration Statement or Prospectus, there has not been
(A) any material and unfavorable change, financial or otherwise, in the
business, properties, prospects, regulatory environment, results of operations
or condition (financial or otherwise), present or prospective, of the Company
and its Subsidiaries taken as a whole, (B) any transaction, which is material to
the Company and its Subsidiaries taken as a whole, contemplated or entered into
by the Company or any of its Subsidiaries or (C) any obligation, contingent or
otherwise, directly or indirectly incurred by the Company or any of its
Subsidiaries which is material to the Company and its Subsidiaries taken as a
whole;
(o) the Company has obtained the agreement of each of its
directors and officers and certain of its stockholders designated by you not to
sell, contract to sell, grant any option to sell or otherwise dispose of,
directly or indirectly, any shares of Common Stock or securities convertible
into or exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 90 days after the date of the Prospectus;
(p) the business, operations and facilities of the Company
have been and are being conducted in compliance with all applicable laws,
ordinances, rules, regulations, licenses, permits, approvals, plans,
authorizations or requirements relating to occupational safety and health,
pollution, protection of health or the environment, or reclamation (including,
without limitation, those relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants or hazardous or toxic
substances, materials or wastes into ambient air, surface water, groundwater or
land, or relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, gaseous or liquid in nature) or otherwise relating to remediating real
property in which the Company has any interest, whether owned or leased, of any
governmental department, commission, board, bureau, agency or instrumentality of
the United States, any state or political subdivision thereof or any foreign
jurisdiction and all applicable judicial or administrative agency or regulatory
decrees, awards, judgments and orders relating thereto (collectively
"Environmental Regulations") except such failures to comply as would not in the
aggregate have, or be reasonably likely to have, a Material Adverse Effect; and
the
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Company has not received any notice from a governmental instrumentality or any
third party alleging any violation of any Environmental Regulation or liability
thereunder (including, without limitation, liability for costs of investigating
or remediating sites containing hazardous substances or damages to natural
resources) except in such instances in which the alleged violation cited in any
such notices has been remedied or would not have a Material Adverse Effect;
(q) the Company is not and, upon the sale of the Shares to be
issued and sold in accordance herewith and the investment of the net proceeds of
such sale as set forth under the caption "Use of Proceeds" in the Registration
Statement and the Prospectus, will not be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and is not, and will not upon such sale be, subject to regulation
under the Investment Company Act;
(r) except as described in the Registration Statement and
Prospectus, the Company owns, or has obtained valid and enforceable licenses
for, or other rights to use, the inventions, patent applications, patents,
trademarks (both registered and unregistered), tradenames, copyrights and trade
secrets described in the Registration Statement and Prospectus as being owned or
licensed by it, which the Company reasonably believes are necessary for the
conduct of its business (collectively, "Intellectual Property") and which the
failure to own, license or have such rights would have, or would be reasonably
likely to have, a Material Adverse Effect. Except as described in the
Registration Statement and Prospectus, the Company (i) believes that there are
no third parties who have or will be able to establish their rights to any
Intellectual Property, except for the ownership rights of the owners of the
Intellectual Property which is licensed to the Company; (ii) to the Company's
knowledge, there is no infringement by third parties of any Intellectual
Property; (iii) there is no pending or, to the Company's knowledge, threatened
action, suit, proceeding or claim by others challenging the Company's rights in
or to any Intellectual Property, other than claims which the Company believes to
be without merit or which, even if meritorious, would not have a Material
Adverse Effect ("Non-Material Claims"), and the Company is unaware of any facts
which would form a reasonable basis for any such claim; (iv) there is no pending
or, to the Company's knowledge, threatened action, suit, proceeding or claim by
others challenging the validity or scope of any Intellectual Property, other
than Non-Material Claims, and the Company is unaware of any facts which would
form a reasonable basis for any such claim; (v) there is no pending or, to the
Company's knowledge, threatened action, suit, proceeding or claim by others that
the Company infringes or otherwise violates any patent, trademark, copyright,
trade secret or other proprietary rights of others, other than Non-Material
Claims, and the Company is unaware of any facts which would form a reasonable
basis for any such claim; (vi) to the Company's knowledge, there is no patent or
patent application which contains claims that interfere with the issued or
pending claims of any of the Intellectual Property which could have a Material
Adverse Effect; and (vii) there is no prior art of which the Company is aware
that may render any patent application owned by the Company of the Intellectual
Property unpatentable which has not been disclosed to the U.S. Patent and
Trademark Office which would have, or would be reasonably likely to have, a
Material Adverse Effect.
(s) the Company has filed with the U.S. Food and Drug
Administration (the "FDA"), and all applicable state and local regulatory bodies
for and received approval of all registrations, applications, licenses, requests
for exemptions, permits and other regulatory authorizations necessary to conduct
the Company's business as it is described in the Registration Statement and
Prospectus; the Company is in compliance in all material respects with all such
registrations, applications, licenses, requests for exemptions, permits and
other regulatory authorizations, and all applicable FDA, state and
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local rules, regulations, guidelines and policies, including, but not limited
to, applicable FDA, state and local rules, regulations and policies relating to
good manufacturing practice ("GMP") and good laboratory practice ("GLP"); the
Company has no reason to believe that any party granting any such registration,
application, license, request for exemption, permit or other authorization is
considering limiting, suspending or revoking the same and knows of no basis for
any such limitation, suspension or revocation; and
(t) the human clinical trials, animal studies and other
preclinical tests conducted by the Company or in which the Company has
participated that are described in the Registration Statement and Prospectus or
the results of which are referred to in the Registration Statement or
Prospectus, and such studies and tests conducted on behalf of the Company, were
conducted, and, if still pending, are being conducted, in all material respects
in accordance with experimental protocols, procedures and controls generally
used by qualified experts in the preclinical or clinical study of new drugs or
diagnostics as applied to comparable products to those being developed by the
Company; the descriptions of the results of such studies, test and trials
contained in the Registration Statement and Prospectus are accurate and complete
in all material respects, and except as set forth in the Registration Statement
and Prospectus, the Company has no knowledge of any other trials, studies or
tests, the results of which the Company believes reasonably call into question
the clinical trial results described or referred to in the Registration
Statement and Prospectus when viewed in the context in which such results are
described and the clinical state of development; and the Company has not
received any notices or correspondence from the FDA or any other governmental
agency requiring the termination, suspension or modification (other than such
modifications as are normal in the regulations, any such modifications which are
material have been disclosed to you) of any animal studies, preclinical tests or
clinical trials conducted by or on behalf of the Company or in which the Company
has participated that are described in the Registration Statement or Prospectus
or the results of which are referred to in the Registration Statement or
Prospectus.
4. Certain Covenants of the Company. The Company hereby agrees:
(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale under the
securities or blue sky laws of such states as you may designate and to maintain
such qualifications in effect so long as required for the distribution of the
Shares, provided that the Company shall not be required to qualify as a foreign
corporation or to consent to the service of process under the laws of any such
state (except service of process with respect to the offering and sale of the
Shares); and to promptly advise you of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose;
(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective, and thereafter
from time to time to furnish to the Underwriters, as many copies of the
Prospectus (or of the Prospectus as amended or supplemented if the Company shall
have made any amendments or supplements thereto after the effective date of the
Registration Statement) as the Underwriters may request for the purposes
contemplated by the Act;
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(c) to advise you promptly and (if requested by you) to
confirm such advice in writing, (i) when the Registration Statement has become
effective and when any post-effective amendment thereto becomes effective and
(ii) if Rule 430A under the Act is used, when the Prospectus is filed with the
Commission pursuant to Rule 424(b) under the Act (which the Company agrees to
file in a timely manner under such Rules);
(d) to advise you promptly, confirming such advice in writing,
of any request by the Commission for amendments or supplements to the
Registration Statement or Prospectus or for additional information with respect
thereto, or of notice of institution of proceedings for, or the entry of a stop
order suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of the
Registration Statement, to make every reasonable effort to obtain the lifting or
removal of such order as soon as possible; to advise you promptly of any
proposal to amend or supplement the Registration Statement or Prospectus,
including by filing any documents that would be incorporated therein by
reference, and to file no such amendment or supplement to which you shall object
in writing;
(e) to furnish to you and, upon request, to each of the other
Underwriters for a period of five years from the date of this Agreement (i)
copies of any reports or other communications which the Company shall send to
its stockholders or shall from time to time publish or publicly disseminate,
(ii) copies of all annual, quarterly and current reports filed with the
Commission on Forms 10-K, 10-Q and 8-K, or such other similar form as may be
designated by the Commission, and (iii) such other information as you may
reasonably request regarding the Company or its Subsidiaries;
(f) to advise the Underwriters promptly of the happening of
any event known to the Company within the time during which a prospectus
relating to the Shares is required to be delivered under the Act which, in the
judgment of the Company, would require the making of any change in the
Prospectus then being used, or in the information incorporated therein by
reference, so that the Prospectus would not include an untrue statement of
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, and, during such time, to prepare and furnish, at the Company's
expense, to the Underwriters promptly such amendments or supplements to such
Prospectus as may be necessary to reflect any such change and to furnish you a
copy of such proposed amendment or supplement before filing any such amendment
or supplement with the Commission;
(g) to make generally available to its security holders, and
to deliver to you, as soon as practicable, but not later than 45 days after the
end of the 12-month period beginning at the end of the fiscal quarter of the
Company during which the effective date of the Registration Statement occurs (or
90 days if such 12-month period coincides with the Company's fiscal year), an
earnings statement (which need not be audited) of the Company, covering such
12-month period which shall satisfy the provisions of Section 11(a) or Rule 158
under the Act;
(h) to furnish to you four (4) signed copies of the
Registration Statement, as initially filed with the Commission, and of all
amendments thereto (including all exhibits thereto and documents incorporated by
reference therein) and sufficient conformed copies of the foregoing (other than
exhibits) for distribution of a copy to each of the other Underwriters;
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(i) to furnish to you as early as practicable prior to the
time of purchase and the additional time of purchase, as the case may be, but
not later than two business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements, if any, of the Company and
its Subsidiaries which have been read by the Company's independent certified
public accountants, as stated in their letter to be furnished pursuant to
Section 6(b) of this Agreement;
(j) to apply the net proceeds from the sale of the Shares in
all material respects in the manner set forth under the caption "Use of
Proceeds" in the Prospectus;
(k) to pay all expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the Underwriters except
as set forth under Section 5 hereof and (iii) and (iv) below) in connection with
(i) the preparation and filing of the Registration Statement, each Preliminary
Prospectus, the Prospectus, and any amendments or supplements thereto, and the
printing and furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (ii) the issue, sale and
delivery of the Shares, (iii) the word processing and/or printing of this
Agreement, any Agreement Among Underwriters, any dealer agreements, any
Statements of Information and Powers of Attorney and the reproduction and/or
printing and furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (iv) the qualification of the
Shares for offering and sale under state laws and the determination of their
eligibility for investment under state law as aforesaid (including the
reasonable legal fees and filing fees and other disbursements of counsel for the
Underwriters related thereto) and the printing and furnishing of copies of any
blue sky surveys or legal investment surveys to the Underwriters and to dealers,
(v) the filing for review of the public offering of the Shares by the National
Association of Securities Dealers, Inc. and (vi) the performance of the
Company's other obligations hereunder;
(l) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and during the
period referred to in paragraph (f) above, a copy of any document proposed to be
filed pursuant to Sections 13, 14 or 15(d) of the Exchange Act; and
(m) not to sell, contract to sell, grant any option to sell or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock or permit the registration under the Act
of any shares of Common Stock, except for the registration of the Shares and the
sales to the Underwriters pursuant to this Agreement and except for issuances of
Common Stock upon the exercise of outstanding options, warrants and debentures,
for a period of 90 days after the date hereof, without the prior written consent
of the Managing Underwriters.
5. Reimbursement of Underwriters' Expenses. If the Shares are not
delivered for any reason other than the termination of this Agreement pursuant
to the first two paragraphs of Section 8 hereof or the default by one or more of
the Underwriters in its or their respective obligations hereunder, the Company
shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of their counsel.
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6. Conditions of Underwriters' Obligations. The several obligations
of the Underwriters hereunder are subject to the accuracy of the representations
and warranties on the part of the Company on the date hereof and at the time of
purchase (and the several obligations of the Underwriters at the additional time
of purchase are subject to the accuracy of the representations and warranties on
the part of the Company on the date hereof and at the time of purchase (unless
previously waived) and at the additional time of purchase, as the case may be),
the performance by the Company of its obligations hereunder and to the following
conditions:
(a) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion of
Proskauer Rose LLP, counsel for the Company, addressed to the Underwriters, and
dated the time of purchase or the additional time of purchase, as the case may
be, with reproduced copies for each of the other Underwriters and in form
satisfactory to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
stating that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of the
State of Delaware, with full corporate power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus, to execute and deliver this Agreement and to
issue, sell and deliver the Shares as herein contemplated;
(ii) each of the Subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws
of its respective jurisdiction of incorporation with full corporate power
and authority to own its respective properties and to conduct its
respective business;
(iii) the Company and its Subsidiaries are duly
qualified or licensed by each jurisdiction in which they conduct their
respective businesses and in which the failure, individually or in the
aggregate, to be so licensed or qualified would have, or would be
reasonably likely to have, a Material Adverse Effect, and the Company and
its Subsidiaries are duly qualified, and are in good standing, in each
jurisdiction in which they own or lease real property or maintain an
office and in which such qualification is necessary;
(iv) this Agreement has been duly authorized, executed
and delivered by the Company;
(v) the Shares, when issued and delivered to and paid
for by the Underwriters, will be duly and validly authorized and issued
and will be fully paid and non-assessable;
(vi) the Company has an authorized capitalization as set
forth in the Registration Statement and the Prospectus; the outstanding
shares of capital stock of the Company have been duly and validly
authorized and issued and are fully paid, nonassessable and free of
statutory and contractual preemptive rights; the Shares when issued will
be free of statutory and contractual preemptive rights; the certificates
for the Shares are in due and proper form and the holders of the Shares
will not be subject to personal liability by reason of being such holders;
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(vii) the capital stock of the Company, including the
Shares, conforms in all material respects to the description thereof
contained in the Registration Statement and Prospectus;
(viii) the Registration Statement and the Prospectus
(except as to the financial statements and schedules and other financial
and statistical data contained or incorporated by reference therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act;
(ix) the Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no stop order
proceedings with respect thereto are pending or threatened under the Act;
(x) no approval, authorization, consent or order of or
filing with any federal, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares as contemplated hereby other than
registration of the Shares under the Act (except such counsel need express
no opinion as to any necessary qualification under the state securities or
blue sky laws of the various jurisdictions in which the Shares are being
offered by the Underwriters);
(xi) the execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby do not and will not conflict with, or
result in any breach of, or constitute a default under (nor constitute any
event which with notice, lapse of time, or both, would constitute a breach
of or default under), any provisions of the charter or by-laws of the
Company or any of its Subsidiaries or under any provision of any license,
indenture, mortgage, deed of trust, bank loan, credit agreement or other
agreement or instrument to which the Company or any of its Subsidiaries is
a party or by which any of them or their respective properties may be
bound or affected, or under any law, regulation or rule or any decree,
judgment or order applicable to the Company or any of its Subsidiaries
which conflict, breach or default would have, or would be reasonably
likely to have, a Material Adverse Effect;
(xii) to the best of such counsel's knowledge, neither
the Company nor any of its Subsidiaries is in breach of, or in default
under (nor has any event occurred which with notice, lapse of time, or
both would constitute a breach of, or default under), any license,
indenture, mortgage, deed of trust, bank loan or any other agreement or
instrument to which the Company or any of its Subsidiaries is a party or
by which any of them or their respective properties may be bound or
affected or under any law, regulation or rule or any decree, judgment or
order applicable to the Company or any of its Subsidiaries which breach or
default would have, or would be reasonably likely to have, a Material
Adverse Effect;
(xiii) to the best of such counsel's knowledge, there
are no contracts, licenses, agreements, leases or documents of a character
which are required to be filed as exhibits to the Registration Statement
or to be summarized or described in the Prospectus which have not been so
filed, summarized or described;
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(xiv) to the best of such counsel's knowledge, there are
no actions, suits or proceedings pending or threatened against the Company
or any of its Subsidiaries or any of their respective properties, at law
or in equity or before or by any commission, board, body, authority or
agency which are required to be described in the Prospectus but are not so
described;
(xv) the documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed (or, if an
amendment with respect to any such document was filed when such amendment
was filed), complied as to form in all material respects with the Exchange
Act (except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by reference
therein as to which such counsel need express no opinion); and
(xvi) such counsel have participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants of the Company and representatives of the
Underwriters at which the contents of the Registration Statement and
Prospectus were discussed and, although such counsel is not passing upon
and does not assume responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement or
Prospectus, on the basis of the foregoing nothing has come to the
attention of such counsel that causes them to believe that the
Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus or any supplement thereto at the date
of such Prospectus or such supplement, and at all times up to and
including the time of purchase or additional time of purchase, as the case
may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and schedules
and other financial and statistical data included in the Registration
Statement or Prospectus).
(b) You shall have received from KPMG Peat Marwick LLP,
letters dated, respectively, the date of this Agreement and the time of purchase
and additional time of purchase, as the case may be, and addressed to the
Underwriters (with reproduced copies for each of the Underwriters) in the forms
heretofore approved by the Managing Underwriters.
(c) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion of patent
counsel for the Company, addressed to the Underwriters, and dated the time of
purchase or the additional time of purchase, as the case may be, (it being
agreed by the Company and such counsel that you may reproduce copies for each of
the other Underwriters which opinion shall state that each Underwriter may rely
upon a reproduced copy of such opinion) and in a form reasonably satisfactory to
Brobeck, Phleger & Harrison LLP, counsel for the Underwriters, substantially in
the form and substance of the draft opinions discussed with the Managing
Underwriters and their counsel.
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(d) The Company shall furnish to you at the time of purchase
and at the additional time of purchase, as the case may be, an opinion of
special FDA counsel for the Company, addressed to the Underwriters, and dated
the time of purchase or the additional time of purchase, as the case may be, (it
being agreed by the Company and such counsel that you may reproduce copies for
each of the other Underwriters which opinion shall state that each Underwriter
may rely upon a reproduced copy of such opinion) and in a form reasonably
satisfactory to Brobeck, Phleger & Harrison LLP, counsel for the Underwriters,
substantially in the form and substance of the draft opinions discussed with the
Managing Underwriters and their counsel.
(e) You shall have received on the Closing Date and on any
later date on which Option Shares are to be purchased, as the case may be, an
opinion of Brobeck, Phleger & Harrison LLP, in form and substance satisfactory
to you, with respect to the sufficiency of all such corporate proceedings and
other legal matters relating to this Agreement and the transactions contemplated
hereby as you may reasonably require, and the Company shall have furnished to
such counsel such documents as they may have requested for the purpose of
enabling them to pass upon such matters.
(f) No amendment or supplement to the Registration Statement
or Prospectus, including documents deemed to be incorporated by reference
therein, shall be filed prior to the time the Registration Statement becomes
effective to which you object in writing.
(g) The Registration Statement shall become effective, or if
Rule 430A under the Act is used, the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) under the Act, at or before 5:00 P.M., New
York City time, on the date of this Agreement, unless a later time (but not
later than 5:00 P.M., New York City time, on the second full business day after
the date of this Agreement) shall be agreed to by the Company and you in writing
or by telephone, confirmed in writing; provided, however, that the Company and
you and any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at least 50% of the Firm Shares may from time to time
agree on a later date.
(h) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued under the Act
or proceedings initiated under Section 8(d) or 8(e) of the Act; (ii) the
Registration Statement and all amendments thereto, or modifications thereof, if
any, shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and (iii) the Prospectus and all amendments or
supplements thereto, or modifications thereof, if any, shall not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they are made, not misleading.
(i) Between the time of execution of this Agreement and the
time of purchase or the additional time of purchase, as the case may be, (i) no
material and unfavorable change, financial or otherwise (other than as referred
to in the Registration Statement and Prospectus), in the business, condition or
prospects of the Company and its Subsidiaries taken as a whole shall occur or
become known and (ii) no transaction which is material and unfavorable to the
Company shall have been entered into by the Company or any of its Subsidiaries.
14
<PAGE>
(j) The Company will, at the time of purchase or additional
time of purchase, as the case may be, deliver to you a certificate of two of its
executive officers to the effect that the representations and warranties of the
Company as set forth in this Agreement and the conditions set forth in
paragraphs (h) and paragraph (i) have been met and that they are true and
correct as of each such date.
(k) You shall have received signed letters, dated the date of
this Agreement, from each of the directors and officers of the Company and
certain stockholders of the Company designated by you to the effect that such
persons shall not sell, contract to sell, grant any option to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock of the Company or
securities convertible into or exchangeable for Common Stock or warrants or
other rights to purchase Common Stock for a period of 90 days after the date of
the Prospectus without the prior written consent of the Managing Underwriters.
(l) The Company shall have furnished to you such other
documents and certificates as to the accuracy and completeness of any statement
in the Registration Statement and the Prospectus as of the time of purchase and
the additional time of purchase, as the case may be, as you may reasonably
request.
(m) The Company shall perform such of its obligations under
this Agreement as are to be performed by the terms hereof at or before the time
of purchase and at or before the additional time of purchase, as the case may
be.
7. Effective Date of Agreement; Termination. This Agreement shall
become effective (i) if Rule 430A under the Act is not used, when you shall have
received notification of the effectiveness of the Registration Statement, or
(ii) if Rule 430A under the Act is used, when the parties hereto have executed
and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, if, since the time of execution of
this Agreement or the respective dates as of which information is given in the
Registration Statement and Prospectus, there has been any material adverse and
unfavorable change, financial or otherwise (other than as referred to in the
Registration Statement and Prospectus), in the business, condition or prospects
of the Company and its Subsidiaries taken as a whole, which would, in your
judgment or in the judgment of such group of Underwriters, make it impracticable
to market the Shares, or, if, at any time prior to the time of purchase or, with
respect to the purchase of any Additional Shares, the additional time of
purchase, as the case may be, trading in securities on the New York Stock
Exchange shall have been suspended or minimum prices shall have been established
on the New York Stock Exchange or if a banking moratorium shall have been
declared either by the United States or New York State authorities, or if the
United States shall have declared war in accordance with its constitutional
processes or there shall have occurred any material outbreak or escalation of
hostilities or other national or international calamity or crisis of such
magnitude in its effect on the financial markets of the United States as, in
your judgment or in the judgment of such group of Underwriters, to make it
impracticable to market the Shares.
If you or any group of Underwriters elects to terminate this
agreement as provided in this Section 7, the Company and each other Underwriter
shall be notified promptly by letter or telegram.
15
<PAGE>
If the sale to the Underwriters of the Shares, as contemplated by
this Agreement, is not carried out by the Underwriters for any reason permitted
under this Agreement or if such sale is not carried out because the Company
shall be unable to comply with any of the terms of this Agreement, the Company
shall not be under any obligation or liability under this Agreement (except to
the extent provided in Sections 4(k), 5 and 9 hereof), and the Underwriters
shall be under no obligation or liability to the Company under this Agreement
(except to the extent provided in Section 9 hereof) or to one another hereunder.
8. Increase in Underwriters' Commitments. If any Underwriter shall
default in its obligation to take up and pay for the Firm Shares to be purchased
by it hereunder and if the number of Firm Shares which all Underwriters so
defaulting shall have agreed but failed to take up and pay for does not exceed
10% of the total number of Firm Shares, the non-defaulting Underwriters shall
take up and pay for (in addition to the aggregate principal amount of Firm
Shares they are obligated to purchase pursuant to Section 1 hereof) the number
of Firm Shares agreed to be purchased by all such defaulting Underwriters, as
hereinafter provided. Such Shares shall be taken up and paid for by such
non-defaulting Underwriter or Underwriters in such amount or amounts as you may
designate with the consent of each Underwriter so designated or, in the event no
such designation is made, such Shares shall be taken up and paid for by all
non-defaulting Underwriters pro rata in proportion to the aggregate number of
Firm Shares set opposite the names of such non-defaulting Underwriters in
Schedule A.
Without relieving any defaulting Underwriter from its obligations
hereunder, the Company agrees with the non-defaulting Underwriters that it will
not sell any Firm Shares hereunder unless all of the Firm Shares are purchased
by the Underwriters (or by substituted Underwriters selected by you with the
approval of the Company or selected by the Company with your approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the right
to postpone the time of purchase for a period not exceeding five business days
in order that any necessary changes in the Registration Statement and Prospectus
and other documents may be effected.
The term Underwriter as used in this agreement shall refer to and
include any Underwriter substituted under this Section 8 with like effect as if
such substituted Underwriter had originally been named in Schedule A.
9. Indemnity by the Company and the Underwriters.
(a) The Company agrees to indemnify, defend and hold harmless
each Underwriter, its directors and officers, and any person who controls any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any loss, expense, liability or claim (including
the reasonable cost of investigation) which, jointly or severally, any such
Underwriter or any such person may incur under the Act, the Exchange Act or
otherwise insofar as such loss, expense, liability or claim arises out of or is
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or in a
Prospectus (the term Prospectus for the purpose of this Section 9 being deemed
to include any Preliminary Prospectus, the Prospectus and the Prospectus as
amended or supplemented by the Company), or arises out of or is based upon any
16
<PAGE>
omission or alleged omission to state a material fact required to be stated in
either such Registration Statement or Prospectus or necessary to make the
statements made therein not misleading, except insofar as any such loss,
expense, liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in conformity
with information furnished in writing by any Underwriter through you to the
Company expressly for use with reference to such Underwriter in such
Registration Statement or such Prospectus or arises out of or is based upon any
omission or alleged omission to state a material fact in connection with such
information required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading, provided,
however, that the indemnity agreement contained in this subsection (a) with
respect to any Preliminary Prospectus or amended Preliminary Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting any such loss,
expense, liability or claim purchased the Shares which is the subject thereof if
the Prospectus corrected any such alleged untrue statement or omission and if
such Underwriter failed to send or give a copy of the Prospectus to such person
at or prior to the written confirmation of the sale of such Shares to such
person.
If any action is brought against an Underwriter or any such
person in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such Underwriter or such person shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment of counsel
reasonably satisfactory to such indemnified party and payment of all fees and
expenses, provided, however, that the omission to so notify the Company shall
not relieve the Company from any liability which they may have to any
Underwriter or any such person or otherwise. Such Underwriter or such person
shall have the right to employ its or their own counsel in any such case, but
the fees and expenses of such counsel shall be at the expense of such
Underwriter or of such person unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have employed counsel to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to the Company (in which
case the Company shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties), in any of which events such fees
and expenses shall be borne by the Company and paid as incurred (it being
understood, however, that the Company shall not be liable for the expenses of
more than one separate counsel in any one action or series of related actions in
the same jurisdiction representing the indemnified parties who are parties to
such action). The Company shall not be liable for any settlement of any such
claim or action effected without its written consent but if settled with the
written consent of the Company, the Company agrees to indemnify and hold
harmless any Underwriter and any such person from and against any loss or
liability by reason of such settlement. Notwithstanding the foregoing sentence,
if at any time an indemnified party shall have requested an indemnifying party
to reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second sentence of this paragraph, then the indemnifying
party agrees that it shall be liable for any settlement of any proceeding
effected without its written consent if (i) such settlement is entered into more
than 60 business days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall not have reimbursed the indemnified
party in accordance with such request prior to the date of such settlement and
(iii) such indemnified party shall have given the indemnifying party at least 30
days' prior notice of its intention to settle. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought
17
<PAGE>
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(b) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act from and against any loss, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company or any such person may incur under the Act or otherwise, insofar as
such loss, expense, liability or claim arises out of or is based upon any untrue
statement or alleged untrue statement of a material fact contained in and in
conformity with information furnished in writing by or on behalf of such
Underwriter through you to the Company expressly for use with reference to such
Underwriter in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or in a
Prospectus, or arises out of or is based upon any omission or alleged omission
to state a material fact in connection with such information required to be
stated either in such Registration Statement or Prospectus or necessary to make
such information not misleading.
If any action is brought against the Company or any such
person in respect of which indemnity may be sought against any Underwriter
pursuant to the foregoing paragraph, the Company or such person shall promptly
notify such Underwriter in writing of the institution of such action and such
Underwriter shall assume the defense of such action, including the employment of
counsel reasonably satisfactory to such indemnified party and payment of all
fees and expenses, provided, however, that the omission to so notify such
Underwriter shall not relieve such Underwriter, from any liability which they
may have to the Company or any such person or otherwise. The Company or such
person shall have the right to employ its own counsel in any such case, but the
fees and expenses of such counsel shall be at the expense of the Company or such
person unless the employment of such counsel shall have been authorized in
writing by such Underwriter in connection with the defense of such action or
such Underwriter shall not have employed counsel to have charge of the defense
of such action or such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to such Underwriter (in which case such
Underwriter shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties, but such Underwriter may employ
counsel and participate in the defense thereof but the fees and expenses of such
counsel shall be at the expense of such Underwriter), in any of which events
such fees and expenses shall be borne by such Underwriter and paid as incurred
(it being understood, however, that such Underwriter shall not be liable for the
expenses of more than one separate counsel in any one action or series of
related actions in the same jurisdiction representing the indemnified parties
who are parties to such action). No Underwriter shall be liable for any
settlement of any such claim or action effected without the written consent of
such Underwriter but if settled with the written consent of such Underwriter,
such Underwriter agrees to indemnify and hold harmless the Company and any such
person from and against any loss or liability by reason of such settlement.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second sentence of this
paragraph, then the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 60 business days after receipt by such
indemnifying party of the aforesaid request, (ii) such indemnifying party shall
not have reimbursed the indemnified party in accordance with such request prior
to the date of such settlement and (iii) such indemnified party shall have given
the indemnifying party at least 30 days' prior notice of its intention to
settle. No indemnifying party shall, without the prior written consent of the
indemnified
18
<PAGE>
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(c) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, expenses, liabilities or claims referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, expenses, liabilities or claims
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other hand
from the offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and of the Underwriters
on the other in connection with the statements or omissions which resulted in
such losses, expenses, liabilities or claims, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the Company
bear to the total underwriting discounts and commissions received by the
Underwriters. The relative fault of the Company on the one hand and of the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue statement or alleged untrue statement of a material
fact or omission or alleged omission relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
expenses, liabilities and claims referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any claim or action.
(d) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in subsection (c) above.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriter's obligations to contribute
pursuant to this Section 9 are several in proportion to their respective
underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in
this Section 9 and the covenants, warranties and representations of the Company
contained in this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any Underwriter, its directors or
officers or any person who controls any Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, or by or on behalf of
the Company, its directors and officers or any person who controls the Company
within the meaning of Section 15 of the Act or
19
<PAGE>
Section 20 of the Exchange Act, and shall survive any termination of this
Agreement or the issuance and delivery of the Shares. The Company and each
Underwriter agree promptly to notify the others of the commencement of any
litigation or proceeding against it and, in the case of the Company, against any
of the Company's officers and directors in connection with the issuance and sale
of the Shares, or in connection with the Registration Statement or Prospectus.
10. Notices. Except as otherwise herein provided, all statements,
requests, notices and agreements shall be in writing or by telegram and, if to
the Underwriters, shall be sufficient in all respects if delivered or sent to
SBC Warburg Dillon Read Inc., 535 Madison Avenue, New York, N.Y. 10022,
Attention: Syndicate Department and, if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the Company
at Celgene Corporation, 7 Powder Horn Drive, Warren, New Jersey 07059,
Attention: __________________________________.
11. Construction. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York. The Section headings in
this Agreement have been inserted as a matter of convenience of reference and
are not a part of this Agreement.
12. Parties at Interest. The Agreement herein set forth has been and
is made solely for the benefit of the Underwriters and the Company and the
controlling persons, directors and officers referred to in Section 9 hereof, and
their respective successors, assigns, executors and administrators. No other
person, partnership, association or corporation (including a purchaser, as such
purchaser, from any of the Underwriters) shall acquire or have any right under
or by virtue of this Agreement.
13. Counterparts. This agreement may be signed by the parties
in counterparts which together shall constitute one and the same agreement
among the parties.
14. Miscellaneous. SBC Warburg Dillon Read Inc., an indirect, wholly
owned subsidiary of Swiss Bank Corporation, is not a bank and is separate from
any affiliated bank, including any U.S. branch or agency of Swiss Bank
Corporation. Because SBC Warburg Dillon Read Inc. is a separately incorporated
entity, it is solely responsible for its own contractual obligations and
commitments, including obligations with respect to sales and purchases of
securities. Securities sold, offered or recommended by SBC Warburg Dillon Read
Inc. are not deposits, are not insured by the Federal Deposit Insurance
Corporation, are not guaranteed by a branch or agency, and are not otherwise an
obligation or responsibility of a branch or agency.
A lending affiliate of SBC Warburg Dillon Read Inc. may have lending
relationships with issuers of securities underwritten or privately placed by SBC
Warburg Dillon Read Inc. To the extent required under the securities laws,
prospectuses and other disclosure documents for securities underwritten or
privately placed by SBC Warburg Dillon Read Inc. will disclose the existence of
any such lending relationships and whether the proceeds of the issue will be
used to repay debts owed to affiliates of SBC Warburg Dillon Read Inc.
Without your prior written approval, the U.S. branches and
agencies of Swiss Bank Corporation will not share with SBC Warburg Dillon
Read Inc. any non-public information concerning you, and SBC Warburg Dillon
Read Inc. will not share any non-public information received from you with
any of such U.S. branches and agencies of Swiss Bank Corporation.
20
<PAGE>
If the foregoing correctly sets forth the understanding among the
Company and the Underwriters, please so indicate in the space provided below for
the purpose, whereupon this letter and your acceptance shall constitute a
binding agreement among the Company and the Underwriters, severally.
Very truly yours,
[ ]
By
--------------------------------
Title:
Accepted and agreed to as of the
date first above written, on
behalf of themselves and the
other several Underwriters named
in Schedule A
SBC WARBURG DILLON READ INC.
PRUDENTIAL SECURITIES INCORPORATED
LOEWENBAUM & COMPANY INCORPORATED
By: SBC WARBURG DILLON READ INC.
By:
------------------------------
Title:
By:
------------------------------
Title
21
<PAGE>
SCHEDULE A
Number of
Underwriter Firm Shares
- ----------- -----------
SBC Warburg Dillon Read Inc.
Prudential Securities Incorporated
Loewenbaum & Company Incorporated
-----------
Total 2,600,000
22
EXHIBIT 5.1
[LETTERHEAD
OF
PROSKAUER ROSE LLP]
October 27, 1997
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
Ladies and Gentlemen:
You have requested our opinion in connection with the filing by Celgene
Corporation, a Delaware corporation (the "Company"), with the Securities and
Exchange Commission of a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933 (the "Securities Act") with respect
to 2,900,000 shares of common stock, $.01 par value, of the Company ("Common
Stock"). The Registration Statement relates to the proposed issuance and sale of
2,600,000 shares of Common Stock by the Company (the "Firm Shares"), and the
proposed sale of up to an additional 390,000 shares of Common Stock by the
Company (the "Option Shares") pursuant to an over-allotment option.
We have examined such records, documents and other instruments as we have
deemed relevant and necessary as a basis for the opinions hereinafter set forth.
We have also assumed without investigation the authenticity of any document
submitted to us as an original, the conformity to originals of any document
submitted to us as a copy, the authenticity of the originals of such latter
documents, the genuineness of all signatures and the legal capacity of natural
persons signing such documents. We have also relied on certain matters contained
in certificates of public officials and officers of the Company.
Based upon the foregoing, we are of the opinion that the Firm Shares and
the Option Shares (to the extent issued and sold by the Company) have been duly
authorized and, when issued, delivered and paid for in accordance with the
underwriting agreement as described in the Registration Statement, will be
validly issued, fully paid and non-assessable.
<PAGE>
Celgene Corporation
October 27, 1997
Page 2
The foregoing opinion relates only to matters of the internal law of the
State of New York and to the General Corporation Law of the State of Delaware
and to matters of federal law and does not purport to express any opinion on the
laws of any other jurisdiction.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the references to our firm under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement. In so
doing, we do no admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act or the rules and regulations of
the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ Proskauer Rose LLP
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
____ shares
Warrant to Purchase Common Stock
of
CELGENE CORPORATION
THIS CERTIFIES that ________________________________ or any subsequent
("Holder") hereof, has the right to purchase from CELGENE CORPORATION, a
Delaware corporation (the "Company"), not more than ____ fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
("Common Stock"), at a price of $ 11.50 per share, subject to adjustment as
provided below (the "Exercise Price"), at any time on or before 5:00 p.m.,
Atlanta, Georgia time, on [two year from date of issuance.]
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
This Warrant shall be deemed to be issued on __________________.
2. Exercise.
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto duly executed, together
with the full Exercise Price (as defined in Section 3) for each share of Common
Stock as to which this Warrant is exercised, at the office of the Company,
Celgene Corporation, 7 Powder Horn Drive, Warren, New Jersey 07059, Attention:
Secretary, Telephone (908) 271-1001, or at such other office or agency as the
Company may designate in writing, by overnight mail, with an advance copy of the
Exercise Form attached as Exhibit A ("Exercise Form") by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise of
this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant and Exercise Form
are received by the Company within five (5) business days
<PAGE>
thereafter. The original Warrant and Exercise Form must be received within 5
business days of the Date of Exercise, or the Exercise Form may, at the
Company's option, be considered void. Alternatively, the date of Exercise shall
be defined as the date the original Exercise Form is received by the Company, if
Holder has not sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock for the number of shares
purchased upon such Exercise, and if this Warrant is not exercised in full, the
Holder shall be entitled to receive a new Warrant or Warrants (containing terms
identical to this Warrant) representing any unexercised portion of this Warrant
in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such Warrant. Nothing in this Warrant
shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company.
3. Payment of Warrant Exercise Price.
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: surrender of this Warrant at the principal office
of the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant
is being exercised.
A = the Market Price of one share of Common Stock (for purposes of this
Section 3(ii), the "Market Price" shall be defined as the average closing
price of the Common Stock for the five trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as reported by the
National Association of Securities Dealers Automated Quotation System
("NASDAQ"), or if the Common Stock is not traded on NASDAQ, the price in the
over-the-counter market; provided, however, that if the Common Stock is
listed on a stock exchange, the Market Price shall be the average Closing on
such exchange. If the Common Stock is/was not traded during the five trading
days prior to the Date of Exercise, then the closing price for the last
publicly traded day shall be deemed to be the closing price for any and all
(if applicable) days during such five trading day period.
B = the Exercise Price.
It is intended that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued, for
<PAGE>
purposes of Rule 144(d)(3)(ii).
4. Transfer and Registration.
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, wholly or
in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about March 1, 1996 between the Company and certain
investors and, accordingly, has the benefit of the registration rights pursuant
to that agreement.
5. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date (taking into account any proportionate adjustment to the Exercise
Price).
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be adjusted, in
direct proportion to the adjustment in the number of shares of Common Stock by
reason of such recapitalization, reclassification or similar transaction, and
the Exercise Price shall be proportionately adjusted.
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
<PAGE>
(d) Notice of Consolidation or Merger. If the Company shall at any time
consolidate or merge with any other corporation or transfer all or substantially
all of its assets, then the Company shall deliver written notice to the Holder
of such merger, consolidation or sale of assets at least ten (10) days prior to
the closing of such merger, consolidation or sale of assets and this Warrant
shall terminate and expire immediately prior to the closing of such merger,
consolidation or sale of assets.
(e) Exercise Price Defined. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in this Warrant until
the occurrence of an event stated in subsection (a) or (b) of this Section 5 and
thereafter shall mean said price as adjusted from time to time in accordance
with the provisions of said subsection. No such adjustment shall be made unless
such adjustment would change the Exercise Price at the time by $.01 or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the Exercise Price at the time by $.01
or more. No adjustment made pursuant to any provision of this Section 5 shall
have the effect of increasing the total consideration payable upon Exercise of
this Warrant in respect of all the Common Stock as to which this Warrant may be
exercised.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5, the
Holder of this Warrant shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, the Holder hereof would be entitled a fractional share
of Common Stock or a right to acquire a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares.
7. Reservation of Shares.
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise and
payment of the Exercise Price of this Warrant. The Company covenants and agrees
that upon Exercise of this Warrant, all shares of Common Stock issuable upon
such Exercise shall be duly and validly issued, fully paid, nonassessable and
not subject to preemptive rights, rights of first refusal or similar rights of
any person or entity.
8. Restrictions on Transfer.
(a) Registration or Exemption Required. This Warrant and the Common Stock
issuable on Exercise hereof have not been registered under the Securities Act of
1933, as amended, and may not be sold, transferred, pledged, hypothecated or
otherwise disposed of in the absence of registration or the availability of an
exemption from registration under said Act. All shares of Common Stock
<PAGE>
issued upon Exercise of this Warrant shall bear an appropriate legend to such
effect, if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
days, and shall deliver to the assignee(s) designated by Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of shares.
(c) The Warrant and Common Stock issuable upon conversion are intended to
be held for investment purposes and not with an intent to distribution, as
defined in the Act.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any person other
than the Company and the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Company and the Holder of this Warrant.
10. Applicable Law.
This Warrant is issued under and shall for all purposes be governed by and
construed in accordance with the laws of the state of Delaware, without giving
effect to conflict of law provisions thereof.
11. Loss of Warrant.
Upon receipt by the Company of evidence of the loss, theft, destruction or
mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company, and upon surrender
and cancellation of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
12. Notice or Demands.
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, or by nationally recognized courier, and addressed, until another
address is designated in writing by the Company, to:
Celgene Corporation
7 Powder Horn Drive
Warren, New Jersey 07059
Attention: Secretary
Notices or demands pursuant to this Warrant to be given or made by the Company
to or on the Holder of this Warrant shall be sufficiently given or made if sent
by certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Holder:
<PAGE>
IN WITNESS WHEREOF, this Warrant is hereby executed and effective as of
the date set forth below.
Dated as of ___________________ CELGENE CORPORATION
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: CELGENE CORPORATION
The undersigned hereby irrevocably exercises the right to purchase
________ of the shares of Common Stock, par value $.01 per share (the "Common
Stock"), of CELGENE CORPORATION, evidenced by the attached warrant (the
"Warrant"), and herewith makes payment of the Exercise Price with respect to
such shares in full, all in accordance with the conditions and provisions of the
Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose
of any shares of Common Stock, except in accordance with the provisions of
Section 8 of the Warrant and in compliance with all applicable securities laws,
and consents that the following legend may be affixed to the certificates
representing shares of Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, or applicable state securities laws, nor the
securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement under
those securities laws or an opinion of counsel, satisfactory to the
Company, that the sale or transfer is pursuant to an exemption to the
registration requirements of those securities laws."
The undersigned requests that such shares of Common Stock be issued, and a
replacement warrant representing any unexercised portion of the Warrant be
issued, pursuant to the Warrant in the name of the Registered Holder and
delivered to the undersigned at the address set forth below:
------------------- ------------------------------------------------
Date Signature of Warrant Holder
(must correspond exactly to the name as written
upon the face of the Warrant)
-------------------------------------------
Name of Warrant Holder (Print)
-------------------------------------------
Street Address
-------------------------------------------
City State Zip Country
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of CELGENE CORPORATION evidenced by
the attached Warrant and does hereby irrevocably constitute and appoint
_______________________ attorney to transfer the said Warrant on the books of
the Company, with full power of substitution in the premises.
---------------- ------------------------------------------------
Date Signature of Warrant Holder
(must correspond exactly to the name as written
upon the face of the Warrant)
Fill in for new Registration of Warrant:
-----------------------------------
Name
-----------------------------------
Street Address
-----------------------------------
City, State, Zip Country
EMPLOYMENT CONTRACT (this "Agreement"), dated as of September 30,
1997, between Celgene Corporation, a Delaware corporation with offices at 7
Powder Horn Drive, Warren, New Jersey 07059 (the "Company"), and John W.
Jackson, residing at 32 Gregory Lane, Warren, NJ 07059 ("Employee"). The Company
and Employee agree as follows:
1. Term. The Company agrees to employ Employee, and Employee agrees
to serve, on the terms and conditions of this Agreement for a period commencing
on the date hereof and ending three years from the date hereof, or such other
period as may be provided for in Section 10 or 11. The period during which
Employee is employed hereunder is hereinafter referred to as the "Employment
Period." The Employment Period shall be automatically renewed for successive
one-year terms unless either party gives written notice to the other at least
one year prior to the expiration of the then Employment Period, of such party's
intention to terminate Executive's employment hereunder at the end of the then
current Employment Period.
2. Duties and Services. During the Employment Period, Employee shall
be employed in the business of the Company as Chief Executive Officer of the
Company. In addition, Employee shall serve as Chairman of the Board of Directors
of the Company. Employee shall perform such duties and services, within his
expertise and experience, as may be assigned to him by, and subject to the
direction of, the Board of Directors of the Company. Employee agrees to his
employment as described in this Section 2 and agrees to devote all of his
working time and efforts to the performance of his duties under this Agreement,
excepting disabilities, illness and vacation time as provided by Section 3(e).
In performing his duties hereunder, Employee shall be available for reasonable
travel as the needs of the business require.
3. Compensation and Other Benefits.
(a) As compensation for his services hereunder, the Company shall
pay Employee, during the Employment Period, a salary payable in equal
semi-monthly installments at an annual rate of $270,000, provided that such
salary shall be reviewed annually by the Company's Board of Directors, or a
committee thereof, which may, in its sole discretion, increase (but not
decrease) such salary.
(b) The Company shall also pay Employee, during the Employment
Period, an annual bonus, payable in January of each year for the preceding year,
in such amount as may be determined by the Company's Board of Directors, or a
committee thereof, in its sole discretion.
(c) Employee shall be entitled to participate in all group health
and insurance programs and all other fringe benefit or retirement plans which
the Company may, in its sole and absolute discretion, elect to make available to
its employees generally, provided Employee meets the qualifications therefor.
1
<PAGE>
(d) Employee shall be eligible to participate in the Company's 1992
Long-Term Incentive Plan and any other incentive plans of the Company.
(e) Employee shall be entitled to four weeks of paid vacation per
year during the Employment Period.
4. Expenses. Employee shall be entitled to reimbursement for all
reasonable travel and other out-of-pocket expenses necessarily incurred in the
performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the then regular procedures of the
Company.
5. Representations and Warranties of Employee. Employee represents
and warrants to the Company that Employee is under no contractual or other
restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.
6. Non-Competition. In view of the unique and valuable services it
is expected Employee will render to the Company, Employee's knowledge of the
customers, trade secrets and other proprietary information relating to the
business of the Company and its customers and suppliers and similar knowledge
regarding the Company which it is expected that Employee will obtain, and in
consideration of the compensation to be received hereunder, Employee agrees
that, (a) during the period he is employed by the Company under this Agreement
or otherwise, he will not Participate In (as hereinafter defined in this Section
6) any other business or organization, whether or not such business or
organization now is or shall then be competing with or of a nature similar to
the business of the Company, without obtaining the prior written consent of the
Executive Committee of the Board of Directors of the Company, and (b) until the
first anniversary of the date of the termination of Employee's employment under
this Agreement or otherwise, he will not Participate In any business which is
engaged, directly or indirectly, in the same business as the Company with
respect to any specific product or specific service sold or activity in which
the Company engages up to the time of termination of employment in any
geographical area in which at the time of termination such product or service is
sold or activity is engaged in by the Company; provided, however, that Employee
may serve as a member of the Board of Directors of Elite Laboratories, Inc., for
so long as Elite Laboratories, Inc. is not engaged in the same business as, or
in competition with, the Company with respect to any specific product sold or
specific activity engaged in by the Company. For purposes of this Section 6 the
term "Participate In" shall mean: "directly or indirectly, for his own benefit
or for, with or through any other person, firm or corporation, own, manage,
operate, control, loan money to or participate in the ownership, management,
operation or control of, or be connected as a director, officer, employee,
partner, consultant, agent, independent contractor or otherwise with, or
acquiesce in the use of his name in." Employee further agrees that, during the
period he is employed by the Company under this Agreement or otherwise and until
the first anniversary of the date of the termination of Employee's employment
under this Agreement or otherwise, he will not directly or indirectly reveal the
name of, solicit or interfere with, or endeavor to entice away from the Company,
any of its suppliers, customers or employees.
2
<PAGE>
7. Patents, etc. Any interest in patents, patent applications,
inventions, technological innovations, copyrights, copyrightable works,
developments, discoveries, designs and processes ("Inventions") which Employee
during the period he is employed by the Company under this Agreement or
otherwise, and for six months thereafter, may conceive of or develop and either
relating to the specific fields in which the Company may then be engaged or
conceived of or developed utilizing the time, material, facilities or
information of the Company shall belong to the Company; as soon as Employee
conceives of or develops any Invention, he agrees immediately to communicate
such fact in writing to the Secretary of the Company, and without further
compensation, but at the Company's expense (except as noted in clause (a) of
this Section 7), forthwith upon request of the Company, Employee shall execute
all such assignments and other documents (including applications for patents,
copyrights, trademarks and assignments thereof) and take all such other action
as the Company may reasonably request in order (a) to vest in the Company all
Employee's right, title and interest in and to the Inventions, free and clear of
liens, mortgages, security interests, pledges, charges and encumbrances arising
from the acts of Employee ("Liens") (Employee to take such action, at his
expense, as is necessary to remove all such Liens) and (b) if patentable or
copyrightable, to obtain patents or copyrights (including extensions and
renewals) therefor in any and all countries in such name as the Company shall
determine.
8. Confidential Information. All confidential information which
Employee may now possess, may obtain during or after the Employment Period, or
may create prior to the end of the period he is employed by the Company under
this Agreement or otherwise relating to the business of the Company or of any
customer or supplier of the Company shall not be published, disclosed or made
accessible by him to any other person, firm or corporation either during or
after the termination of his employment or used by him except during the
Employment Period in the business and for the benefit of the Company, in each
case without the prior written permission of the Company. Employee shall return
all tangible evidence of such confidential information to the Company prior to
or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that information
which is or comes into the public domain through no fault of Employee or which
Employee obtains after the termination of his employment by the Company under
this Agreement or otherwise from a third party who has the right to disclose
such information.
9. Life Insurance. If requested by the Company, Employee shall
submit to such physical examinations and otherwise take such actions and execute
and deliver such documents as may be reasonably necessary to enable the Company,
at its expense and for its own benefit, to obtain life insurance on the life of
Employee. Subject to its ability to do so under the terms of such policy, if
any, insuring the life of Employee, upon the termination of Employee's
employment hereunder, the Company will assign to Employee its rights under such
insurance policy, provided that, concurrently with such assignment, Employee
shall reimburse the Company for any premium payments made by the Company in
respect of time periods subsequent to such date of termination. Nothing herein
contained shall obligate the Company to obtain such insurance.
3
<PAGE>
10. Termination.
(a) If on or after the date hereof and prior to the end of the
Employment Period,
(i) either (A) Employee shall be convicted of a crime of moral
turpitude or a felony, (B) Employee shall commit any act or omit to take
any action in bad faith and to the detriment of the Company or (C)
Employee shall breach any material term of this Agreement and fail to
correct such breach within 10 days after notice by the Company to Employee
of his commission of the same then, and in each such case, the Company
shall have the right to give notice of termination of Employee's services
hereunder as of a date (not earlier than 10 days from such notice) to be
specified in such notice and this Agreement shall terminate on the date so
specified, or
(ii) Employee shall die, then this Agreement shall terminate
on the date of Employee's death, whereupon Employee or his estate, as the
case may be, shall be entitled to receive only his salary at the rate then
provided pursuant to Section 3(a) to the date on which termination shall
take effect; provided, however, that if this Agreement is terminated
pursuant to this Section 10(a)(ii), Employee's estate shall be entitled to
receive a lump-sum payment in the amount of three months' compensation at
the rate then provided in Section 3(a).
(iii) Nothing contained in this Section 10(a) shall be deemed
to limit any other right the Company may have to terminate Employee's
employment hereunder upon any ground permitted by law.
(iv) If Employee's employment is terminated by the Company as
a result of the disability or incapacitation of Employee or for any reason
other than pursuant to the provisions of paragraphs (i) or (ii) of this
Section 10(a) or the provisions of Section 11, upon termination by the
Company of Employee's employment, whether during the Employment Period or
thereafter, Employee shall be entitled to receive a lump-sum severance
payment in an amount equal to the greater of (A) twelve (12) months'
salary at the prevailing rate provided for by Section 3(a) on the date of
such termination, or (B) salary at such rate for the unexpired portion of
the Employment Period, if any.
(b) Notwithstanding Section 11, after a Change in Control (as
hereinafter defined) has occurred, Employee may terminate his employment within
30 calendar days after he has obtained actual knowledge of the occurrence of any
of the following events (unless Employee consents in writing to such
occurrence):
(i) failure to elect or appoint, or reelect or reappoint,
Employee to, or removal of Employee from, his position with the Company as
Chief Executive Officer, except in connection with the termination of
Employee's employment pursuant to Section 10(a);
4
<PAGE>
(ii) a significant change in the nature or scope of the
authorities, powers, functions or duties normally attached to Employee's
position as Chief Executive Officer of the Company;
(iii) a determination by Employee made in good faith that, as
a result of a Change in Control, he is unable effectively to carry out the
authorities, powers, functions or duties attached to his position as Chief
Executive Officer of the Company and the situation is not remedied within
30 calendar days after receipt by the Company of written notice from
Employee of such determination; or
(iv) a breach by the Company of any material provision of this
Agreement not covered by clause (i), (ii) or (iii) of this Section 10(b),
which is not remedied within 30 calendar days after receipt by the Company
of written notice from Employee of such breach.
An election by Employee to terminate his employment under the
provisions of this Section 10(b) shall not constitute a breach by Employee of
this Agreement and shall not be deemed a voluntary termination of employment by
Employee for the purpose of interpreting the provisions of any of the Company's
employee benefit plans, programs or policies.
(c) After a Change in Control has occurred, if Employee terminates
his employment with the Company pursuant to Section 10(b) or if Employee's
employment is terminated by the Company as a result of the disability or
incapacitation of Employee or for any reason other than pursuant to the
provisions of paragraphs (i) or (ii) of Section 10(a), Employee (i) shall be
entitled to his normal salary, bonuses, awards, perquisites and benefits,
through the termination date of his employment and, in addition thereto, (ii)
shall be paid in a lump-sum, on such date of termination, an amount of cash, to
be computed at the expense of the Company by its independent certified public
accountants (whose computation shall be conclusive and binding upon Employee and
the Company), equal to 2.99 times Employee's "base amount," as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986.
(d) For purposes hereof, a Change in Control shall be deemed to have
occurred (i) if a person within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, other than the Company or any of its
subsidiaries, has become the beneficial owner within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, directly or indirectly, of securities
of the Company representing more than 50% of the Company's then outstanding
securities having the right to vote on the election of directors, (ii) when
individuals who are members of the Company's Board of Directors at any one time
shall immediately thereafter cease to constitute a majority of the Board of
Directors, (iii) when a majority of the directors elected at any special or
annual meeting of stockholders are not individuals nominated by the Company's
incumbent Board of Directors, or (iv) the merger or other business combination
of the Company, sale of all or substantially all of the Company's assets or
combination of the foregoing transactions (a "Transaction"), other than a
Transaction immediately following which the shareholders of the Company
immediately prior to the Transaction continue to have a majority of the voting
power in the resulting entity.
5
<PAGE>
11. Merger, etc. Subject to Section 10(b), in the event of a future
disposition of the properties and business of the Company substantially as an
entirety by merger, consolidation, sale of assets or otherwise, then the Company
may elect:
(a) to assign this Agreement and all of its rights and obligations
hereunder to the acquiring or surviving entity; provided that such entity shall
assume in writing all of the obligations of the Company hereunder; and provided,
further, that the Company (in the event and so long as it remains in existence)
shall remain liable for the performance of its obligations hereunder in the
event of a breach by the acquiring entity of this Agreement; or
(b) in addition to its other rights of termination, to terminate
this Agreement upon at least 90 days' written notice and by paying Employee in a
lump-sum on such date of termination, an amount of cash determined in accordance
with Section 10(c).
12. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
13. Entire Agreement; Modification. This Agreement sets forth the
entire understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter
and may be modified only by a written instrument duly executed by each party.
14. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be mailed by certified mail,
return receipt requested, or delivered against receipt to the party to whom it
is to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this Section 14). Notice to the estate of
Employee shall be sufficient if addressed to Employee as provided in this
Section 14. Any notice or other communication given by certified mail shall be
deemed given three days after the time of certification thereof, except for a
notice changing a party's address which shall be deemed given at the time of
receipt thereof.
15. Waiver. Any waiver by either party of a breach of any provision
of this Agreement shall not operate as or be construed to be a waiver of any
other breach of such provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
16. Binding Effect. Employee's rights and obligations under this
Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance or the claims of Employee's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of
6
<PAGE>
Employee and his heirs and personal representatives, and shall be binding upon
and inure to the benefit of the Company and its successors and its assigns under
Section 11.
17. No Third Party Beneficiaries. This Agreement does not create,
and shall not be construed as creating, any rights enforceable by any person not
a party to this Agreement (except as provided in Sections 11 and 16).
18. Counterparts; Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of New
Jersey, without giving effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
CELGENE CORPORATION
By:
--------------------------
Sol J. Barer
President
John W. Jackson
7
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT (this "Agreement"), dated as of September
30, 1997, between Celgene Corporation, a Delaware corporation with offices at 7
Powder Horn Drive, Warren, New Jersey 07059 (the "Company"), and Sol J. Barer,
residing at 625 Westfield Avenue, Westfield, NJ 07090 ("Employee"). The Company
and Employee agree as follows:
1. Term. The Company agrees to employ Employee, and Employee
agrees to serve, on the terms and conditions of this Agreement for a period
commencing on the date hereof and ending three years from the date hereof, or
such other period as may be provided for in Section 10 or 11. The period during
which Employee is employed hereunder is hereinafter referred to as the
"Employment Period." The Employment Period shall be automatically renewed for
successive one-year terms unless either party gives written notice to the other
at least one year prior to the expiration of the then Employment Period, of such
party's intention to terminate Executive's employment hereunder at the end of
the then current Employment Period.
2. Duties and Services. During the Employment Period, Employee
shall be employed in the business of the Company as President and Chief
Operating Officer of the Company. In addition, Employee shall serve as a member
of the Board of Directors of the Company. Employee shall perform such duties and
services, within his expertise and experience, as may be assigned to him by, and
subject to the direction of, the Chief Executive Officer and the Board of
Directors of the Company. Employee agrees to his employment as described in this
Section 2 and agrees to devote all of his working time and efforts to the
performance of his duties under this Agreement, excepting disabilities, illness
and vacation time as provided by Section 3(e). In performing his duties
hereunder, Employee shall be available for reasonable travel as the needs of the
business require.
3. Compensation and Other Benefits.
(a) As compensation for his services hereunder, the Company
shall pay Employee, during the Employment Period, a salary payable in equal
semi-monthly installments at an annual rate of $235,000, provided that such
salary shall be reviewed annually by the Company's Board of Directors, or a
committee thereof, which may, in its sole discretion, increase (but not
decrease) such salary.
(b) The Company shall also pay Employee, during the Employment
Period, an annual bonus, payable in January of each year for the preceding year,
in such amount as may be determined by the Company's Board of Directors, or a
committee thereof, in its sole discretion.
(c) Employee shall be entitled to participate in all group
health and insurance programs and all other fringe benefit or retirement plans
which the Company may, in its sole and absolute discretion, elect to make
available to its employees generally, provided Employee meets the qualifications
therefor.
1
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(d) Employee shall be eligible to participate in the Company's
1992 Long-Term Incentive Plan and any other incentive plans of the Company.
(e) Employee shall be entitled to four weeks of paid vacation
per year during the Employment Period.
4. Expenses. Employee shall be entitled to reimbursement for
all reasonable travel and other out-of-pocket expenses necessarily incurred in
the performance of his duties hereunder, upon submission and approval of written
statements and bills in accordance with the then regular procedures of the
Company.
5. Representations and Warranties of Employee. Employee
represents and warrants to the Company that Employee is under no contractual or
other restriction or obligation which is inconsistent with the execution of this
Agreement, the performance of his duties hereunder or the other rights of the
Company hereunder.
6. Non-Competition. In view of the unique and valuable
services it is expected Employee will render to the Company, Employee's
knowledge of the customers, trade secrets and other proprietary information
relating to the business of the Company and its customers and suppliers and
similar knowledge regarding the Company which it is expected that Employee will
obtain, and in consideration of the compensation to be received hereunder,
Employee agrees that, (a) during the period he is employed by the Company under
this Agreement or otherwise, he will not Participate In (as hereinafter defined
in this Section 6) any other business or organization, whether or not such
business or organization now is or shall then be competing with or of a nature
similar to the business of the Company, without obtaining the prior written
consent of the Chief Executive Officer, and (b) until the first anniversary of
the date of the termination of Employee's employment under this Agreement or
otherwise, he will not Participate In any business which is engaged, directly or
indirectly, in the same business as the Company with respect to any specific
product or specific service sold or activity in which the Company engages up to
the time of termination of employment in any geographical area in which at the
time of termination such product or service is sold or activity is engaged in by
the Company. For purposes of this Section 6 the term "Participate In" shall
mean: "directly or indirectly, for his own benefit or for, with or through any
other person, firm or corporation, own, manage, operate, control, loan money to
or participate in the ownership, management, operation or control of, or be
connected as a director, officer, employee, partner, consultant, agent,
independent contractor or otherwise with, or acquiesce in the use of his name
in." Employee further agrees that, during the period he is employed by the
Company under this Agreement or otherwise and until the first anniversary of the
date of the termination of Employee's employment under this Agreement or
otherwise, he will not directly or indirectly reveal the name of, solicit or
interfere with, or endeavor to entice away from the Company, any of its
suppliers, customers or employees.
7. Patents, etc. Any interest in patents, patent applications,
inventions, technological innovations, copyrights, copyrightable works,
developments, discoveries, designs and processes ("Inventions") which Employee
during the period he is employed by the Company
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under this Agreement or otherwise, and for six months thereafter, may conceive
of or develop and either relating to the specific fields in which the Company
may then be engaged or conceived of or developed utilizing the time, material,
facilities or information of the Company shall belong to the Company; as soon as
Employee conceives of or develops any Invention, he agrees immediately to
communicate such fact in writing to the Secretary of the Company, and without
further compensation, but at the Company's expense (except as noted in clause
(a) of this Section 7), forthwith upon request of the Company, Employee shall
execute all such assignments and other documents (including applications for
patents, copyrights, trademarks and assignments thereof) and take all such other
action as the Company may reasonably request in order (a) to vest in the Company
all Employee's right, title and interest in and to the Inventions, free and
clear of liens, mortgages, security interests, pledges, charges and encumbrances
arising from the acts of Employee ("Liens") (Employee to take such action, at
his expense, as is necessary to remove all such Liens) and (b) if patentable or
copyrightable, to obtain patents or copyrights (including extensions and
renewals) therefor in any and all countries in such name as the Company shall
determine.
8. Confidential Information. All confidential information
which Employee may now possess, may obtain during or after the Employment
Period, or may create prior to the end of the period he is employed by the
Company under this Agreement or otherwise relating to the business of the
Company or of any customer or supplier of the Company shall not be published,
disclosed or made accessible by him to any other person, firm or corporation
either during or after the termination of his employment or used by him except
during the Employment Period in the business and for the benefit of the Company,
in each case without the prior written permission of the Company. Employee shall
return all tangible evidence of such confidential information to the Company
prior to or at the termination of his employment. As used in this Section 8,
"confidential information" shall mean any information except that information
which is or comes into the public domain through no fault of Employee or which
Employee obtains after the termination of his employment by the Company under
this Agreement or otherwise from a third party who has the right to disclose
such information.
9. Life Insurance. If requested by the Company, Employee shall
submit to such physical examinations and otherwise take such actions and execute
and deliver such documents as may be reasonably necessary to enable the Company,
at its expense and for its own benefit, to obtain life insurance on the life of
Employee. Subject to its ability to do so under the terms of such policy, if
any, insuring the life of Employee, upon the termination of Employee's
employment hereunder, the Company will assign to Employee its rights under such
insurance policy, provided that, concurrently with such assignment, Employee
shall reimburse the Company for any premium payments made by the Company in
respect of time periods subsequent to such date of termination. Nothing herein
contained shall obligate the Company to obtain such insurance.
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10. Termination.
(a) If on or after the date hereof and prior to the end of the
Employment Period,
(i) either (A) Employee shall be convicted of a crime
of moral turpitude or a felony, (B) Employee shall commit any act or
omit to take any action in bad faith and to the detriment of the
Company or (C) Employee shall breach any material term of this
Agreement and fail to correct such breach within 10 days after notice
by the Company to Employee of his commission of the same then, and in
each such case, the Company shall have the right to give notice of
termination of Employee's services hereunder as of a date (not earlier
than 10 days from such notice) to be specified in such notice and this
Agreement shall terminate on the date so specified, or
(ii) Employee shall die, then this Agreement shall
terminate on the date of Employee's death, whereupon Employee or his
estate, as the case may be, shall be entitled to receive only his
salary at the rate then provided pursuant to Section 3(a) to the date
on which termination shall take effect; provided, however, that if this
Agreement is terminated pursuant to this Section 10(a)(ii), Employee's
estate shall be entitled to receive a lump-sum payment in the amount of
three months' compensation at the rate then provided in Section 3(a).
(iii) Nothing contained in this Section 10(a) shall
be deemed to limit any other right the Company may have to terminate
Employee's employment hereunder upon any ground permitted by law.
(iv) If Employee's employment is terminated by the
Company as a result of the disability or incapacitation of Employee or
for any reason other than pursuant to the provisions of paragraphs (i)
or (ii) of this Section 10(a) or the provisions of Section 11, upon
termination by the Company of Employee's employment, whether during the
Employment Period or thereafter, Employee shall be entitled to receive
a lump-sum severance payment in an amount equal to the greater of (A)
twelve (12) months' salary at the prevailing rate provided for by
Section 3(a) on the date of such termination, or (B) salary at such
rate for the unexpired portion of the Employment Period, if any.
(b) Notwithstanding Section 11, after a Change in Control (as
hereinafter defined) has occurred, Employee may terminate his employment within
30 calendar days after he has obtained actual knowledge of the occurrence of any
of the following events (unless Employee consents in writing to such
occurrence):
(i) failure to elect or appoint, or reelect or
reappoint, Employee to, or removal of Employee from, his position with
the Company as President and Chief Operating Officer except in
connection with the termination of Employee's employment pursuant to
Section 10(a);
4
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(ii) a significant change in the nature or scope of
the authorities, powers, functions or duties normally attached to
Employee's position as President and Chief Operating Officer of the
Company;
(iii) a determination by Employee made in good faith
that, as a result of a Change in Control, he is unable effectively to
carry out the authorities, powers, functions or duties attached to his
position as President and Chief Operating Officer of the Company and
the situation is not remedied within 30 calendar days after receipt by
the Company of written notice from Employee of such determination; or
(iv) a breach by the Company of any material
provision of this Agreement not covered by clause (i), (ii) or (iii) of
this Section 10(b), which is not remedied within 30 calendar days after
receipt by the Company of written notice from Employee of such breach.
An election by Employee to terminate his employment under the
provisions of this Section 10(b) shall not constitute a breach by Employee of
this Agreement and shall not be deemed a voluntary termination of employment by
Employee for the purpose of interpreting the provisions of any of the Company's
employee benefit plans, programs or policies.
(c) After a Change in Control has occurred, if Employee
terminates his employment with the Company pursuant to Section 10(b) or if
Employee's employment is terminated by the Company as a result of the disability
or incapacitation of Employee or for any reason other than pursuant to the
provisions of paragraphs (i) or (ii) of Section 10(a), Employee (i) shall be
entitled to his normal salary, bonuses, awards, perquisites and benefits,
through the termination date of his employment and, in addition thereto, (ii)
shall be paid in a lump-sum, on such date of termination, an amount of cash, to
be computed at the expense of the Company by its independent certified public
accountants (whose computation shall be conclusive and binding upon Employee and
the Company), equal to 2.99 times Employee's "base amount," as defined in
Section 280G(b)(3) of the Internal Revenue Code of 1986.
(d) For purposes hereof, a Change in Control shall be deemed
to have occurred (i) if a person within the meaning of Section 13(d) or 14(d) of
the Securities Exchange Act of 1934, other than the Company or any of its
subsidiaries, has become the beneficial owner within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934, directly or indirectly, of securities
of the Company representing more than 50% of the Company's then outstanding
securities having the right to vote on the election of directors, (ii) when
individuals who are members of the Company's Board of Directors at any one time
shall immediately thereafter cease to constitute a majority of the Board of
Directors, (iii) when a majority of the directors elected at any special or
annual meeting of stockholders are not individuals nominated by the Company's
incumbent Board of Directors, or (iv) the merger or other business combination
of the Company, sale of all or substantially all of the Company's assets or
combination of the foregoing transactions (a "Transaction"), other than a
Transaction immediately following which the shareholders of the
5
<PAGE>
Company immediately prior to the Transaction continue to have a majority of the
voting power in the resulting entity.
11. Merger, etc. Subject to Section 10(b), in the event of a
future disposition of the properties and business of the Company substantially
as an entirety by merger, consolidation, sale of assets or otherwise, then the
Company may elect:
(a) to assign this Agreement and all of its rights and
obligations hereunder to the acquiring or surviving entity; provided that such
entity shall assume in writing all of the obligations of the Company hereunder;
and provided, further, that the Company (in the event and so long as it remains
in existence) shall remain liable for the performance of its obligations
hereunder in the event of a breach by the acquiring entity of this Agreement; or
(b) in addition to its other rights of termination, to
terminate this Agreement upon at least 90 days' written notice and by paying
Employee in a lump-sum on such date of termination, an amount of cash determined
in accordance with Section 10(c).
12. Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment.
13. Entire Agreement; Modification. This Agreement sets forth
the entire understanding of the parties with respect to the subject matter
hereof, supersedes all existing agreements between them concerning such subject
matter and may be modified only by a written instrument duly executed by each
party.
14. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth in the
preamble to this Agreement (or to such other address as the party shall have
furnished in writing in accordance with the provisions of this Section 14).
Notice to the estate of Employee shall be sufficient if addressed to Employee as
provided in this Section 14. Any notice or other communication given by
certified mail shall be deemed given three days after the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof.
15. Waiver. Any waiver by either party of a breach of any
provision of this Agreement shall not operate as or be construed to be a waiver
of any other breach of such provision or of any breach of any other provision of
this Agreement. The failure of a party to insist upon strict adherence to any
term of this Agreement on one or more occasions shall not be considered a waiver
or deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing,
signed by the party giving such waiver.
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16. Binding Effect. Employee's rights and obligations under
this Agreement shall not be transferable by assignment or otherwise, such rights
shall not be subject to commutation, encumbrance or the claims of Employee's
creditors, and any attempt to do any of the foregoing shall be void. The
provisions of this Agreement shall be binding upon and inure to the benefit of
Employee and his heirs and personal representatives, and shall be binding upon
and inure to the benefit of the Company and its successors and its assigns under
Section 11.
17. No Third Party Beneficiaries. This Agreement does not
create, and shall not be construed as creating, any rights enforceable by any
person not a party to this Agreement (except as provided in Sections 11 and 16).
18. Counterparts; Governing Law. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. It shall be governed by and construed in accordance with the laws of
the State of New Jersey, without giving effect to the conflict of laws.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
CELGENE CORPORATION
By
John W. Jackson
Chairman of the Board of Directors and
Chief Executive Officer
Sol J. Barer
7
PENN PHARMACEUTICALS LIMITED
and
CELGENE CORPORATION
------------------------------
MANUFACTURING AGREEMENT
------------------------------
Rubin Lewis O'Brien
14 The Strand
Cwmbran
Gwent
United Kingdom
NP44 1PA
Tel: (44 1633) 869191
Fax: (44 1633) 485612
<PAGE>
INDEX
CLAUSE
1 Interpretation
2 Establishment by Penn of Facility for manufacture of the Products
3 Manufacture and supply of the Products
4 Conditions of sale
5 Specification of the Products
6 Manufacture, packaging and delivery of the Products
7 Price of the Products
8 Force Majeure
9 Duration and termination
10 Option
11 Assistance by Penn to Celgene
12 Confidentiality
13 Notices and service
14 Miscellaneous
15 Performance
16 Information
17 Disputes
18 Governing Law
SCHEDULE 1 The Products
SCHEDULE 2 Specification of the Products
i
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SCHEDULE 3 Criteria for the establishment of the Facility
SCHEDULE 4 Start up and other fixed costs payable by Celgene
SCHEDULE 5 Plan of the Facility
SCHEDULE 6 Minimum Order Volume (By Quarter)
ii
<PAGE>
MANUFACTURING AGREEMENT
THIS AGREEMENT is made the 1995
BETWEEN:
1 PENN PHARMACEUTICALS LIMITED a company validly existing and incorporated
in England and Wales under number 1331447, whose registered office is at
Units 23/24 Tafarnaubach Industrial Estate Tredegar Gwent NP2 3AA ("Penn")
2 CELGENE CORPORATION a corporation validly existing and organised under the
laws of the state of Delaware USA whose registered office is at 7 Powder
Horn Drive PO Box 4914 Warren, New Jersey 07059 USA ("Celgene")
RECITALS
(A) Penn carries on the business of manufacturing and selling certain
pharmaceutical products and services.
(B) Celgene wishes Penn to manufacture and supply to Celgene the Products (as
hereinafter defined) and Penn is willing to manufacture and supply the
same on the terms and subject to the conditions of this Agreement.
OPERATIVE PROVISIONS
IT IS HEREBY AGREED as follows:
1 Interpretation
1.1 In this Agreement, unless the context otherwise requires:
"the Facility" means the external stand alone facility established
by Penn at the Premises for the purpose of the
manufacture of the Products
"Force Majeure" means in relation to either party, any
circumstances beyond the reasonable control of
that party
"Information" means all written and verbal information relating
to the Products and Specifications, including but
not
<PAGE>
limited to know-how, technical and non-technical
materials, processes, developmental data,
validation data and batch records
"the Premises" means Penn's premises at Units 23/24 Tafarnaubach
Industrial Estate Tredegar Gwent or such other
premises as the parties may from time to time agree
in writing
"Products" means the finished thalidomide capsules set out in
Schedule 1 which conform to the Specification and
any other products which the parties hereto may
from time to time agree in writing that Penn will
manufacture and supply to Celgene on the terms and
conditions of this Agreement
"Specification" means the technical specifications of the Products
set out in Schedule 2 and those notified by Celgene
to Penn for the purposes of FDA approval of the
Products or any other specification of the Products
agreed in writing between Penn and Celgene from
time to time
1.2 Any reference in this Agreement to 'writing', or cognate
expressions, includes a reference to any communication effected by
facsimile transmission or any comparable means subject to the
provisions of clause 13.3
1.3 Any reference in this Agreement to a clause or Schedule is to a
clause of or Schedule to this Agreement and any reference to a
paragraph is to a paragraph of the Schedule in which such reference
appears
1.4 The headings in this Agreement are for convenience only and shall
not affect its interpretation
2 Establishment by Penn of Facility for manufacture of the Products
2.1 Penn shall establish and maintain a manufacturing facility at the
Premises for the manufacture of the Products (the Facility) in
accordance with both the external manufacturing unit plan shown in
Schedule 5 approved by Celgene prior to the execution of this
Agreement, and the provisions of Schedule 3 with a view to Penn
being able to supply Celgene with Products within 6 months of the
date of execution of this document
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2.2 In consideration of the acceptance by Penn of the obligations set
out in clause 2.1, Celgene agrees to pay to Penn the amounts (and
the details of which are) set out in Schedule 4 on the dates or at
the times stated therein and otherwise in accordance with the
provisions thereof
3 Manufacture and supply of the Products
3.1 During the continuance of this Agreement Penn shall manufacture and
sell to Celgene, and Celgene shall purchase from Penn such
quantities of the Products as may be ordered by Celgene from time to
time under clause 3.2, subject to the terms and conditions of this
Agreement
3.2 Any order for products shall be received by Penn at least 60 days
before the required date for despatch of such Products and shall be
for the minimum quantities of the Products set out in Schedule 1
3.3 Orders for the Products shall be given by Celgene to Penn in writing
or, if given orally, shall be confirmed by Celgene in writing not
more than 3 days thereafter
3.4 Celgene shall give reasonable notice to Penn in writing of:
3.4.1 its estimated orders of the Products for each quarter during
the continuance of this Agreement; and
3.4.2 any revisions to those estimates, forthwith after they are
made.
3.5 Provided that Celgene shall order not less than the minimum order
volume of the Products set out in Schedule 6 in each year of this
Agreement, the Facility shall be used by Penn exclusively for the
manufacture and supply of the Products to Celgene.
3.6 In the event that Celgene does not order the quantity of Products
referred to in clause 3.5, Penn shall be entitled to use Facility
for other purposes including (for the avoidance of doubt) the
manufacture and sale of any pharmaceutical product (other than
thalidomide and its derivatives and analogues) for any customer of
Penn, provided always that:
3.6.1 such manufacture does not in any way compromise or prejudice
any regulatory approval necessary for the manufacture and
supply of the Products to Celgene or conformity with any
protocols relative thereto or the integrity of any of the
Products;
3.6.2 Penn shall at all times give priority to the supply of the
Products to Celgene;
3.6.3 any such use shall be subject to the prior written approval of
Celgene;
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3.6.4 Celgene shall not be liable for the lease/rental costs
referred to in paragraph 2 of Schedule 4 during such time as
the Facility is not being used exclusively for the manufacture
of the Products for the supply to Celgene in the event and
only to the extent that Penn is able to recover such costs
from a third party;
3.6.5 Penn shall be obligated to use its reasonable endeavours to
receive and recover the maximum possible mount from any third
party under any such arrangement;
3.6.6 if Penn (or any of its affiliates) itself uses the Facility
for such other purposes, Celgene shall not be liable for the
lease/rental costs referred to in paragraph 2 of Schedule 4
during such time as the Facility is not being used exclusively
for the manufacture of the Products for supply to Celgene to
the extent of expenses which shall be allocated hereunder to
Penn for such use of the Facility at the same rate as Penn
charges to Celgene hereunder, pro rated as appropriate to
reflect the extent of the use of the Facility by Penn or its
affiliate;
3.6.7 if the Facility or any part thereof is altered or reconfigured
in any way in order to facilitate the use of the Facility for
such purposes, (a) Celgene shall not be liable for any cost of
expense incurred in connection with any such alteration or
reconfiguration, (b) Penn (or the applicable third party)
shall bear any such cost and expense as well as any cost or
expense which may be required thereafter in order to return
the Facility or such part thereof to its prior state for the
manufacture of the Products for supply to Celgene, and (c)
neither such alteration or reconfiguration nor any action
which may be required to return the Facility or such part
thereof to its prior state shall delay the delivery of
Products for supply to Celgene as contemplated by this
Agreement; and
3.6.8 Penn shall bear any costs associated with any equipment,
Facility or personnel validation or re-validation required to
enable Penn to recommence the manufacture of Products for
supply to Celgene in compliance with the United States Food
and Drug Administration ("FDA") current Good Manufacturing
Practices (cGMPs) following the use of the Facility by Penn
for such other purposes.
3.7 Penn warrants to Celgene that Penn is duly authorised and holds the
necessary manufacturing, product and other licenses to manufacture
the Products and supply the same to Celgene and is otherwise able to
perform the obligations on its part contained in this Agreement
3.8 Penn warrants to Celgene that the Products will be manufactured,
stored and shipped in compliance with all requirements of the FDA,
including, without limitation, the
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cGMP regulations and shall be manufactured, stored and shipped in
compliance with all applicable US laws and requirements
4 Conditions of sale
4.1 All sales of the Products pursuant to this Agreement shall be
subject to the standard terms and conditions of sale of Penn (a copy
of Penn's existing terms and conditions having been supplied by Penn
to Celgene prior to the execution of this Agreement), except to the
extent that:
4.1.1 any provision of such terms and conditions is inconsistent
with any provision of this Agreement, in which event the
latter shall prevail; or
4.1.2 Penn and Celgene agree in writing to vary those terms and
conditions of sale
4.2 In order to protect Penn's existing market for the sale of the
Products or similar products to its other customers, Celgene shall
not knowingly resell or knowingly permit the resale of any of the
products supplied by Penn under this Agreement within the United
Kingdom
5 Specification of the Products
5.1 All Products sold by Penn to Celgene pursuant to this Agreement
shall conform in all respects to the Specification and, subject to
the provisions of clauses 6.6 and 6.7, Celgene shall be entitled to
reject any of the Products which are not in accordance with the
Specification
5.2 Penn shall consult with Celgene from time to time during the
continuance of this Agreement in order to ensure that the
Specification of the Products to be sold by Penn to Celgene is
acceptable to both parties, but Penn shall not be obliged to agree
to any change to the Specification requested by Celgene except where
such a change is required by a legally authorised regulatory body
for the purposes of filing and/or maintaining a regulatory
submission or product licence
6 Manufacture, packaging and delivery of the Products
6.1 Celgene shall in a timely fashion supply or procure the supply of
all active material on a free-issue basis to enable Penn to perform
its obligations under this Agreement and Penn shall have no
liability to Celgene for any delay or failure in the manufacture by
Penn of the Products resulting directly from Celgene's failure so to
do
5
<PAGE>
6.2 Without prejudice to the provisions of clause 6.1, Penn shall use
its best endeavors to manufacture (exclusively for Celgene) and
maintain (exclusively for Celgene) sufficient stocks of the Products
to fulfil its obligations under this Agreement
6.3 Penn shall, at the request and cost of Celgene, pack the Products in
such manner as Celgene requires for delivery and transportation of
the Products to Celgene
6.4 Penn shall use its best endeavours to deliver each of Celgene's
orders for the Products on the date specified in the order, provided
that if, despite those endeavours, Penn is unable for any reason to
fulfil any delivery of the Products on the specified date, Penn
shall not be deemed to be in breach of this Agreement or have any
liability to Celgene unless and until Celgene has given written
notice to Penn requiring the delivery to be made within a specified
time period and Penn has not fulfilled the delivery within that
period
6.5 Delivery of the Products shall take place at the Premises but Penn
shall at Celgene's request arrange for suitable transport to
Celgene's premises or such other premises as Celgene may notify to
Penn from time to time and arrange insurance therefor, in which case
the costs of such transport and insurance shall be borne by Celgene
6.6 Celgene shall, within 45 days of Celgene's receipt of each shipment
of the Products, notify Penn in writing of any defect by reason of
which Celgene alleges that the Products delivered are not in
accordance with the Specification and which should be apparent on
reasonable inspection
6.7 If Celgene fails to give such a notice under clause 6.6 then, except
in respect of any defect which is not apparent on reasonable
inspection, the Products shall be conclusively presumed to be in all
respects in accordance with the Specification, and accordingly
Celgene shall be deemed to have accepted the delivery of the
Products in question and Penn shall have no liability to Celgene
with respect to that delivery, except in respect of any defect which
was not apparent on reasonable inspection
6.8 If Celgene rejects any delivery of the Products which are not in
accordance with the Specification, it shall be entitled to elect, at
its sole discretion, either that Penn supply replacement Products
which conform to the Specification (in which case Celgene shall be
obligated to provide Penn with sufficient active material to enable
Penn to manufacture such replacement Products and Penn shall be
obligated to supply Celgene with such replacement Products which so
conform within 21 days of Penn's receipt of such active material) or
that Penn credit Celgene accordingly with the amount charged to
Celgene for such Products hereunder and in either case (subject to
compliance by Penn with all of its obligations under this Agreement)
Penn shall have no further liability to Celgene in respect thereof
6
<PAGE>
6.9 Risk in and responsibility for each shipment of the Products shall
pass to Celgene once they are loaded onto transport at the Premises
and signed for by the authorised carrier
6.10 Celgene hereby agrees to indemnify and keep indemnified Penn from
and against all claims, demands, costs, losses, expenses or
liabilities whatsoever suffered or incurred by Penn arising from or
in relation to the manufacture by Penn of the Products or the use or
consumption of any of the Products by any person or otherwise in
relation to the Products or the stability data or protocols relative
thereto or arising out of the performance by Penn of this Agreement
in whole or in part save to the extent that the same is caused by or
otherwise due to the failure of Penn to ensure that the Products
meet with the Specification, or the failure of Penn to ensure that
the manufacture of the Products was in compliance with the
regulations and requirements of FDA or cGMPs, or the fraud, wilful
misconduct or negligence of Penn in the manufacture of the Products
for Celgene
6.11 For the purposes of clause 6.10, Penn shall promptly notify Celgene
in writing of any claim or matter arising in respect of which Penn
shall or may seek indemnification from Celgene and shall co-operate
fully with Celgene in respect thereof and shall not agree or
compromise liability without Celgene's prior consent which shall not
be unreasonably withheld or refused. Notwithstanding the foregoing,
Celgene shall not be liable for fees or any amounts payable upon
settlement of any claim or action effected without such prior
written consent from Celgene (not to be unreasonably withheld or
refused)
7 Price of the Products
7.1 Subject to the following provisions of this clause and assuming the
free issue by Celgene to Penn of all active material in the
manufacture of the Products, the price for each of the Products
shall be US $96.00 per 1,000 capsules of the Product payable in
pounds sterling at the current exchange rate prevailing on the date
hereof; provided that if such exchange rate changes (upwards or
downwards) by more than 5% from the rate prevailing at any time,
such price shall be accordingly adjusted (upwards or downwards) on a
pro rata basis on each such occasion
7.2 If, as a result of either a lack of instructions from Celgene or a
late change of instructions by Celgene, Penn reasonably believes
that it would be required to incur additional costs or expenses in
order for it to comply with the terms of this Agreement, it promptly
shall notify Celgene of its need for such instruction, if
applicable, and its good faith estimate of the amount of such
additional cost or expense. Upon receipt of such notice, Celgene
promptly shall notify Penn that Celgene elects, at its sole
discretion, to accept such cost or expense or, alternatively, to
provide the requisite instructions or rescind its late change in
instructions, as the case may be. Celgene shall not be liable for
any additional cost or expense which it
7
<PAGE>
has not approved in advance. Penn shall not be liable for any cost
or expense it incurs as a result of Celgene not having provided it
with proper instructions hereunder, provided that Penn shall have
properly notified Celgene of its need for such instructions and
provided Celgene with a reasonable estimate of such cost and expense
pursuant to the terms hereof
7.3 The price for the Products shall be exclusive of:
7.3.1 any costs of packaging, carriage and insurance of the
Products; and
7.3.2 any value added tax or other applicable sales tax or duty for
which Celgene shall be liable to pay to Penn or for which
Celgene shall be liable to re-imburse Penn within 30 days from
the date of notification by Penn to Celgene of the extent of
the charges
7.4 Penn shall invoice Celgene monthly in respect of all deliveries of
the Products made under this Agreement during the previous month,
and Celgene shall pay the sums shown to be due in cleared funds to
the bank nominated by Penn within 30 days from the date on which
each invoice is submitted by Penn
7.5 If either party fails to pay on the due date any amount which is due
to the other under this Agreement then, without prejudice to its
other rights hereunder:
7.5.1 amounts due by Celgene to Penn shall bear interest from such
due date until payment is made in full, both before and after
any judgment, at the lesser of (a) three percent (3%) per
annum over Lloyds Bank plc lending rate from time to time and
(b) the rate then being charged to Penn under its primary
credit facility (with evidence of such rate satisfactory to
Celgene to be delivered by Penn);
7.5.2 amounts due by Penn to Celgene shall bear interest from such
due date until payment is made in full, both before and after
any judgment, at the lesser of (a) three percent (3%) per
annum over Lloyds Bank plc lending rate from time to time and
(b) the rate then being charged to Celgene under its primary
credit facility (with evidence of such rate satisfactory to
Penn to be delivered by Celgene);
7.5.3 notwithstanding the provisions of clauses 7.5.1 and 7.5.2, if
any amount which is due to the other under this Agreement is
disputed by a party, it shall promptly notify the other of the
amount and basis of the dispute and the obligation of the
disputing party to pay interest pursuant to clause 7.5.1 or
7.5.2, as the case may be, shall be suspended until such
dispute is resolved; provided that in the event the disputing
party prevails in such dispute it shall not have any
obligation to pay any interest under clause 7.5.1 or 7.5.2, as
the
8
<PAGE>
case may be; and provided further that, in the event the
non-disputing party prevails in such dispute, the obligations
of the disputing party to pay interest under clause 7.5.1 or
7.5.2, as the case may be, shall be reinstated and such
interest payment shall include all interest which would have
accrued during the period when such obligation had been
suspended pursuant to this clause 7.5.3; and
7.5.4 in the event Celgene fails to pay on the due date an amount in
excess of $10,000 which is due to Penn under this Agreement
and Celgene does not notify Penn that such amount is being
disputed pursuant to clause 7.5.3, then Penn shall be entitled
to suspend deliveries of the Products until such outstanding
amount has been delivered by Celgene to Penn
8 Force Majeure
8.1 If either party is affected by Force Majeure, it shall promptly
notify the other party of the nature and extent of the circumstances
in question
8.2 Notwithstanding any other provision of this Agreement, neither party
shall be deemed to be in breach of this Agreement, or otherwise be
liable to the other, for any delay in performance or the
non-performance of any of its obligations under this Agreement, to
the extent that the delay or non-performance is due to any Force
Majeure of which it has notified the other party, and the time for
performance of that obligation shall be extended accordingly. Any
delay or non-performance shall, however, be corrected as soon as
reasonably practicable
9 Duration and termination
9.1 This Agreement shall come into force on the date stated at the
beginning of this Agreement and, subject to the following provisions
of this clause, shall continue in force for a period of three (3)
years and thereafter unless or until terminated by either party
giving to the other party at any time not less than six (6) months'
written notice to expire on or at any time after the end of the
initial three year period
9.2 Either party shall be entitled forthwith to terminate this Agreement
by written notice to the other if:
9.2.1 that other party commits any continuing or material breach of
any of the provisions of this Agreement including, without
limitation, the failure by Penn promptly to correct its
non-performance as described in clauses 15.1 to 15.4
(inclusive) and, in the case of such a breach which is capable
of remedy, fails to remedy the same within 30 days after
receipt of a written notice giving full particulars of the
breach and requiring it to be remedied;
9
<PAGE>
9.2.2 an encumbrancer takes possession of or a receiver is appointed
over any of the property or assets of that other party;
9.2.3 that other party makes any voluntary arrangement with its
creditors or becomes subject to an administration order;
9.2.4 that other party goes into liquidation (except for the
purposes of an amalgamation, reconstruction or other
reorganisation and in such manner that the company resulting
from the reorganisation effectively agrees to be bound by or
to assume the obligations imposed on that other party under
this Agreement); or
9.2.5 that other party ceases, or threatens to cease, to carry on
business
9.3 Prior to the termination of the initial three-year term, Celgene
shall be entitled to terminate this Agreement at any time by
providing Penn with no less than three months' notice in the event
Celgene shall determine to eliminate, curtail or otherwise suspend
its immunotherapeutics development programme; provided that Celgene
shall be obligated to make any payments to Penn pursuant to this
Agreement through the date specified by Celgene in such notice and
to bear any out-of-pocket costs and expenses actually incurred by
Penn hereunder prior to the date of such notice to the extent such
costs made to purchase the equipment listed on Schedule 4 or related
to the installation of such equipment or the preparation of the
Premises for the fulfillment of Penn's obligations hereunder are
proved by Penn through the submission of properly dated invoices and
agreements and to the further extent such costs and expenses cannot
be avoided by Penn through the cancellation of orders, the
termination of agreements or any similar means
9.4 For the purpose of clause 9.2.1, a breach shall be considered
capable of remedy if the party in breach can comply with the
provision in question in all respects other than as to the time of
performance (provided that the time of performance is not of the
essence)
9.5 Any waiver by either party of a breach of any provision of this
Agreement shall not be considered as a waiver of any subsequent
breach of the same or any other provision
9.6 The rights to terminate this Agreement given by this clause shall
not prejudice any other right or remedy of either party in respect
of the breach concerned (if any) or any other breach
9.7 Upon the termination of this Agreement for any reason, subject as
otherwise provided in this Agreement and to any rights or
obligations which have accrued prior
10
<PAGE>
to termination, neither party shall have any further obligation to
the other under this Agreement, save that clauses 6.10, 6.11, 10,
12, 13 and 16 shall survive termination
10 Option
10.1 In consideration of the acceptance by Celgene of its obligations
under this Agreement, in the event of termination of this Agreement
pursuant to clauses 9.1 or 9.3 Penn hereby grants to Celgene an
option ("the Option") to purchase from Penn the machinery and
equipment used by Penn exclusively in the performance of its
obligations under this Agreement ("the Equipment") which shall
include (for the avoidance of doubt) the Alexanderwerke Roller
Compactor, the TK Fielder Blender and the Zanasi Capsule Filler)
together with the manufacturing technology, knowhow, validations
records and other documentation relating exclusively to the
manufacture of the Products on the terms set out in the following
provisions of this clause 10
10.2 The price to be paid for the Equipment shall be the cost to Penn of
acquisition of the same less depreciation at the rate of ten percent
(10%) per annum (on a straight line basis) for each completed year
of the life of this Agreement and the sum of (pound)1 for the other
assets referred to in clause 10.1
10.3 The Option shall be exercisable at any time within three months of
such termination of this Agreement by written notice to Penn
10.4 Completion of the purchase of the Equipment pursuant to the exercise
by Celgene of the Option shall take place at the Premises (by mutual
arrangement and on reasonable notice) within 30 days of the date on
which the notice of exercise is served whereupon:
10.4.1 Celgene shall at its own expense arrange for the removal of
the Equipment from the Property without causing damage to
the Property;
10.4.2 Celgene shall pay to Penn in cleared funds to the Bank
nominated by Penn the price referred to in clause 10.2
against Penn's invoice for the same;
10.4.3 Penn shall deliver to Celgene all books, records, manuals
and knowhow relative to the manufacture by Penn of the
Products for Celgene as shall be in written form and, in
the case of information and data relative thereto as is
stored electronically, on 'floppy' disk
10.4.4 Penn shall allow Celgene reasonable access to its staff to
enable Celgene or its duly authorised representatives or
agents to re-install and re-commission the equipment
described in 10.1 at an alternative manufacturing site.
Penn
11
<PAGE>
will invoice Celgene according to its prevailing billing
practices for any employee time utilised by Celgene
11 Assistance by Penn to Celgene
During the continuation of this Agreement, Penn hereby agrees to offer
reasonable assistance to Celgene upon request in connection with the
establishment by Celgene of a facility or facilities similar to the
Facility outside the United Kingdom and Europe for the purposes of the
manufacture of the Products and in such event shall make available to
Celgene the manufacturing technology known to Penn which might reasonably
be required by Celgene in connection with the same
12 Confidentiality
The terms of and all matters contemplated by this Agreement, all
Information (as defined in clause 1), and all information disclosed by
each party to the other in the performance of this Agreement and
designated by a party to the other as confidential (including, without
limitation, all information disclosed by each party to the other as
"CONFIDENTIAL" pursuant to the terms of the Confidential Disclosure
Agreement, dated as of 10 August 1993) are confidential as between the
parties hereto and neither party, shall (save as may be required by law or
pursuant to legal or judicial process) make or permit the making of any
announcement or disclosure of or in relation to the same; provided that
nothing in this clause shall prohibit or restrict the exercise of any
rights of either party hereunder or the right of Celgene to disclose to
the FDA or in its regulatory filings of the identity of Penn and the
existence of this Agreement; and provided further that it is understood
that the foregoing confidentiality obligation shall not apply to
information disclosed by either party to the other when:
(a) use, publication, or disclosure of the information is
permitted under terms of a written contract (following the
date hereof) between the parties;
(b) the information was known or used by the receiving party prior
to the disclosure by the other party, as evidenced by written
or printed documents;
(c) the information was known to the public or generally available
to the public prior to the date it was received by the
receiving party;
(d) the information became known to the public or generally
available to the public subsequent to the date it was received
without the receiving party being responsible for such public
availability; or
(e) the information is lawfully disclosed to the receiving party
by a third party not deriving the same from the disclosing
party
12
<PAGE>
Exceptions (d) and (e) above shall apply only from and after the date such
information shall become known or generally available to the public or
shall be received from said party, respectively
13 Notices and service
13.1 Any notice or other communication required or authorised by this
Agreement to be given by either party to the other may be given by
hand or sent (by overnight courier or facsimile transmission or
comparable means of transmission) to the other party at the address
referred to in clause 13.4
13.2 Any notice or other communication given by overnight courier under
clause 13.1 which is not returned to the sender as undelivered shall
be deemed to have been given on the second day after the notice or
other communication was delivered
13.3 Any notice or other communication sent by facsimile transmission or
comparable means of transmission shall be deemed to have been duly
given on the date of transmission, provided that a confirming hard
copy thereof is sent by DHL or Federal Express or equivalent courier
to the other party at the address referred to in clause 13.4 within
24 hours after transmission or (if later) by the end of the
following business day
13.4 Service of any legal proceedings concerning or arising out of this
Agreement shall be effected by causing the same to be delivered to
the company secretary of the party to be served at its registered
office, or to such other address as may be notified by the party
concerned in writing from time to time
14 Miscellaneous
14.1 Penn shall be entitled to perform any of the obligations undertaken
by it and to exercise any of the rights granted to it under this
Agreement through any other company which at the relevant time is
its holding company or subsidiary (as defined by section 736 of the
Companies Act 1983) or the subsidiary of any such company shall for
the purposes of this Agreement be deemed to be the act or omission
of Penn
14.2 Celgene shall be entitled to perform any of the obligations
undertaken by it and to exercise any of the rights granted to it
under this Agreement through any other company which at the relevant
time is its holding company or subsidiary or the subsidiary of any
such holding company, and any act or omission of any such company
shall for the purposes of this Agreement be deemed to be the act or
omission of Celgene
14.3 Penn shall be entitled to assign the benefit of (subject to the
assumption of all its obligations under) this Agreement to any other
company which is under the control
13
<PAGE>
(directly or indirectly) of the persons who at the date of this
Agreement have control of Penn
14.4 Without the consent of Penn, Celgene shall be entitled to assign the
benefit of (subject to the assumption of all its obligations under)
this Agreement to any other company which succeeds to the business
of Celgene's immunotherapeutics programme whether through merger,
consolidation or acquisition
14.5 Subject to the provisions of clauses 14.1 to 14.4 (inclusive) this
Agreement is personal to the parties, and neither of them may,
without the written consent of the other, assign, mortgage, charge
(otherwise than by floating charge) or dispose of any of its rights
hereunder, or sub-contract or otherwise delegate any of its
obligations under this Agreement
14.6 Nothing in this Agreement shall create, or be deemed to create, a
partnership between the parties
14.7 This Agreement, which supersedes the confidentiality agreement
signed between Penn and Celgene dated 10 August 1993, contains the
entire agreement between the parties with respect to its subject
matter, supersedes all previous agreements and understandings
between the parties, and may not be modified except by an instrument
in writing signed by the duly authorised representatives of the
parties
14.8 Each of the parties hereto warrants to the other that it is duly
authorised to enter into this Agreement, that this Agreement
constitutes legally binding obligations enforceable upon it and that
it is not subject to any restriction which may prohibit or restrict
the due performance of the obligations accepted by it hereunder
14.9 If any provision of this Agreement is held to be invalid, illegal or
unenforceable, the balance of this Agreement nevertheless shall
remain in effect, and if any provision is held to be inapplicable to
any person or circumstance, it nevertheless shall remain applicable
to all other persons and circumstances
15 Performance
15.1 Should Penn fail to pass an FDA Pre-Approval Inspection due to
Penn's negligence, incompetence, fraud or wilful misconduct, and,
should such failure materially affect the approval of an NDA
submission made by Celgene, Penn will reimburse to Celgene the
payments made to Penn pursuant to clause 2.2 and Schedule 4
15.2 Should Penn fail to pass a subsequent FDA Inspection due to Penn's
negligence, incompetence, fraud or wilful misconduct, and, should
such failure lead to Product seizure or recall or material loss to
Celgene, Penn will reimburse to Celgene all
14
<PAGE>
payments made to Penn in respect of the Products recalled or seized
and will reimburse Celgene for any further costs incurred by it
15.3 Should the Facility be unavailable for manufacture of the Products
in compliance with FDA cGMPs, otherwise than by reason of any act
matter or thing beyond Penn's control, Celgene will not be required
to make the lease payments referred to in Schedule 4 of the Facility
for any such period of unavailability
15.4 Penn covenants to Celgene that, throughout the term of this
Agreement, it shall remain duly authorised and hold the necessary
manufacturing, product and other licences to manufacture the
Products and supply the same to Celgene and it will be otherwise
able to perform the obligations on its part contained in this
Agreement throughout the terms of this agreement
16 Information
16.1 Information gained by Penn and Celgene:
(i) in the development of Products,
(ii) the development, scale-up and commission of processes for
manufacture of Products, and
(iii) associated regulatory documents necessary for establishing the
compliance with FDA cGMPs in the manufacture of Products,
shall be the exclusive property of Celgene
16.2 Information gained by Penn or Celgene through or by reason of the
implementation of this Agreement not specifically relating to:
(i) the development of the Products,
(ii) the development, scale-up and commission of processes for
manufacture of the Products, and
(iii) associated regulatory documents necessary for establishing the
compliance with FDA cGMPs in the manufacture of the Products,
shall be owned jointly by Penn and Celgene. Any jointly owned
Information may be used by Celgene in the execution of its chiral
and immunotherapeutics business without payment of a royalty to
Penn. Any jointly owned Information may be used by Penn in the
execution of its drug product manufacturing business, except for the
manufacture of thalidomide and its derivatives and analogues,
without payment of
15
<PAGE>
a royalty to Celgene. For the avoidance of doubt, the ownership of
any information relating to the business of Penn and the manufacture
and sale in the United Kingdom by Penn of thalidomide and its
derivatives and analogues which Penn possesses as of the date hereof
and which was not gained by Penn by reason of this Agreement, Penn's
relationship with Celgene, or the contemplated relationship of the
parties shall be retained by Penn and may be used by Penn without
payment of a royalty to Celgene
16.3 Penn acknowledges Celgene's exclusive, right, title and interest in
and to any and all patents which at any time may have been issued to
Celgene in or relating to Products, or in any other products, and
agrees that it shall not do, or cause to be done, any acts
contesting, impairing, or tending to impair any position of such
right, title and interest. Penn further acknowledges that nothing in
this Agreement shall be construed as granting a proprietary interest
to Penn in any of Celgene's patents, and that it will not in any
manner represent that it possesses any ownership interest in same,
or take any action which might create such interest
17 Disputes
Any dispute, controversy or claim arising out of or relating to this
Agreement or the breach, termination or validity hereof, shall be settled
by arbitration in accordance with the UNCITRAL Arbitration Rules as at
present in force. The place of arbitration shall be determined by Celgene
in its sole discretion
18 Governing Law
This Agreement shall be governed by and construed in all respects in
accordance with the laws of England and Wales
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
16
<PAGE>
SCHEDULE 1
The Products
------------
Name of Product Strength/Dosage Minimum Order Quantity
- --------------- --------------- ----------------------
Thalidomide Capsule 50 mg 5 million capsules per annum
SCHEDULE 2
Specification of the Products
-----------------------------
17
<PAGE>
SCHEDULE 3
Criteria for the establishment of the Facility
----------------------------------------------
1 The Facility
------------
Dedicated work area with controlled access agreed between Penn and Celgene
to meet with the requirements of the FDA MCA and the Health & Safety at
Work Executive ("HSWE").
2 Staff
-----
2.1 Only females who provide a notarised waiver (in a form satisfactory
to Penn) confirming their sterility will be permitted to work in or
have access to the facility
2.2 The following staff to be available as necessary at the Facility:
2 x Quality Assurance
2 x Technical Engineering
3 x Production
1 x Quality Control
1 x Administration
1 x Microbiology
------------------
Total: 10 staff
2.3 Penn to provide such additional human resources as is necessary for
the smooth functioning of the Facility and to meet all FDA, MCA and
HSWE regulations.
3 Equipment
---------
Such dedicated equipment as is necessary but to include:
- Alexanderwerke Roller Compactor
- TK Fielder Blender
- Zanasi Capsule Filler
19
<PAGE>
Start Up and other fixed costs payable by Celgene
-------------------------------------------------
1 Start-up/validation costs Amount
------------------------- ------
(a) Facilities Planning )
- 'Pace Consultancy' )
)
(b) Commissioning Equipment )
)
(c) Process Development )
(on full Scale Equipment) )
)
(d) Facilities Commissioning )
(Interim and Final Production Units) )
)
(e) Process Validation )
)
(f) Document Control System Installation )
------------------
Total US$320,000*
------------------
* The sum of US$320,000 is payable as follows:
(i) US$80,000 on the first release of Products from final
production unit that satisfies the Specification
criteria
(ii) US$80,000 on successful review of final process and
documentation of or concerning the Facility
(iii) US$80,000 on successful completion of a mock FDA
Pre-Approval Inspection
(iv) US$80,000 on successful completion of an FDA
Pre-Approval Inspection
<TABLE>
<CAPTION>
2 Lease/Rental Costs of dedicated Facility Amount
---------------------------------------- ------
<S> <C> <C>
(a) Facilities: lighting, heating, air coditioning, )
maintenance, etc )
)
(b) Equipment: depreciation, maintenance, etc )
)
(c) Staffing costs )
--------------------------
Total US$22,400 per month
--------------------------
</TABLE>
## Monthly payments of US$22,400 to commence in the month during which the
first payment of US$80,000 is payable pursuant to paragraph 1(i) above.
All payments to be made in UK pounds sterling at the prevailing currency
exchange rate.
20
<PAGE>
SCHEDULE 5
----------
Plan of the Facility
--------------------
As per LUWA Drawing Number CRT206B/501 A dated 25.10.95 subject to final
approval by Celgene.
21
<PAGE>
SCHEDULE 6
----------
Minimum Order Volume (By Quarter)
---------------------------------
To be agreed within 3 months of execution of document.
22
<PAGE>
SIGNED by ) Mrs. A. M. Paul
- ------ ) The BRADUS
duly authorised to sign ) GWEHELOE
for and on behalf of ) USK
PENN PHARMACEUTICALS LIMITED ) 6 WENT NSP. R.E.
- ---------------------------- )
in the presence of: )
)
)
)
)
)
SIGNED by ) /s/ Richard G. Wright
- ------ ) ------------------------------------
duly authorised to sign ) Richard G. Wright, Chairman & CEO
for and on behalf of )
CELGENE PHARMACEUTICALS LIMITED ) /s/ Sol J. Barer
- ------------------------------- ) ------------------------------------
in the presence of: ) Sol J. Barer, President & COO
23
CELGENE CORPORATION
- --------------------------------------------------------------------------------
Exhibit 23.1
Accountants' Consent
The Board of Directors
Celgene Corporation
We consent to the use of our report included herein and to the references to our
firm under the headings "Selected Financial Data" and "Experts" in the
prospectus.
KPMG Peat Marwick LLP
(signed)
Short Hills, NJ
October 27, 1997
Patent Attorneys' Consent
The Board of Directors
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
We hereby consent to being named as "Experts" in the registration statement on
Form S-3 being filed contemporaneously herewith.
Mathews, Collins, Shepherd & Gould, P.A.
October 27, 1997
Food and Drug Regulatory Counsels' Consent
The Board of Directors
Celgene Corporation
7 Powder Horn Drive
Warren, NJ 07059
We hereby consent to being named as "Experts" in the registration statement on
Form S-3 being filed contemporaneously herewith.
Kleinfeld, Kaplan & Becker
October 27, 1997
