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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1999, or
[ ] Transition Period Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From _________ to
_________.
Commission file number 0-19591
EPIMMUNE INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0245076
-------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
5820 Nancy Ridge Drive
San Diego, California 92121
---------------------------
(Address of principal executive offices)
(858) 860-2500
--------------
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock: $.01 par value 6,026,655 shares outstanding as of July 1, 1999.
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EPIMMUNE INC.
QUARTERLY REPORT
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
COVER PAGE..................................................................................... 1
TABLE OF CONTENTS.............................................................................. 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998................................................ 3
Condensed Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 1999 and 1998................. 4
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998........................... 5
Notes to Condensed Consolidated Financial Statements...................... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............... *
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................ *
ITEM 2. Changes in Securities and Use of Proceeds................................ *
ITEM 3. Defaults upon Senior Securities.......................................... *
ITEM 4. Submission of Matters to a Vote of Security Holders...................... *
ITEM 5. Other Information........................................................ *
ITEM 6. Exhibits and Reports on Form 8-K......................................... 22
SIGNATURE ......................................................................... 23
</TABLE>
* NO INFORMATION PROVIDED DUE TO INAPPLICABILITY OF ITEM.
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
EPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ---------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,777 $ 2,594
Short-term investments 7,915 9,217
Prepaids and other current assets 1,114 1,657
--------- ---------
Total current assets 10,806 13,468
Restricted short-term investment 472 472
Property and equipment, net 944 2,879
Patents and other assets 2,101 4,211
--------- ---------
Total assets $ 14,323 $ 21,030
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 1,508 $ 2,289
Deferred contract revenues -- 515
Accrued restructuring cost 2,150 --
Accrued payroll and related expenses 289 416
Current portion of obligations under equipment
loans and notes payable 182 493
--------- ---------
Total current liabilities 4,129 3,713
Equipment loans and notes payable 478 1,606
Commitments
Minority interest in consolidated subsidiary 1,388 1,735
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, 659,898 shares issued and outstanding
at June 30, 1999 and December 31, 1998, respectively 7 7
Common stock, $.01 par value, 75,000,000 shares
authorized at 4,998,873 shares and 4,987,453 shares
issued and outstanding at June 30, 1999 and
December 31, 1998, respectively
50 50
Additional paid-in capital 142,664 142,642
Accumulated deficit (134,345) (128,723)
Unrealized (loss) on available-for-sale securities (48) --
--------- ---------
Total stockholders' equity 8,328 13,976
--------- ---------
$ 14,323 $ 21,030
========= =========
</TABLE>
See accompanying notes
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EPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Research and development revenues $ 474 $ 507 $ 1,403 $ 977
----------- ----------- ----------- -----------
474 507 1,403 977
COSTS AND EXPENSES:
Research and development 2,035 4,616 6,314 8,402
General and administrative 351 1,508 1,589 2,612
Restructuring costs -- -- 3,700 --
----------- ----------- ----------- -----------
Total costs and expenses 2,386 6,124 11,603 11,014
Loss from operations (1,912) (5,617) (10,200) (10,037)
Minority interest in net loss of
consolidated subsidiary 382 120 523 145
Interest income, net 91 263 194 539
Other income 550 -- 550 --
Gain on disposal of assets 15 -- 3,311 --
----------- ----------- ----------- -----------
Net loss $ (874) $ (5,234) $ (5,622) $ (9,353)
=========== =========== =========== ===========
Net loss per share - basic and diluted $ (0.17) $ (1.11) $ (1.13) $ (2.00)
=========== =========== =========== ===========
Shares used in computing net
loss per share - basic and diluted 4,997,422 4,695,486 4,994,493 4,675,943
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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EPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,622) $ (9,353)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 338 361
Deferred rent -- (150)
Deferred revenue (515) 33
Gain on disposal of assets (3,311) (9)
Minority interest in consolidated subsidiary (523) (145)
Restructuring operating expenses (1,153) --
Receivable from fixed assets held for sale 459 --
Accrued restructuring costs 3,700 --
Net change in operating assets and liabilities; net of divestitures:
Other current assets (51) (342)
Accounts payable and accrued liabilities (915) 782
Accrued payroll and related expenses (127) 18
-------- --------
Net cash used in operating activities (7,720) (8,805)
INVESTING ACTIVITIES
Purchases of available-for-sale securities (1,566) (12,903)
Sales of available-for-sale securities 2,820 15,938
Proceeds from the sale of property and equipment 3,210 9
Proceeds from the sale of patents (net of fees) 2,909 --
Purchase of property and equipment (280) (1,400)
Deposits and other assets 10 (267)
Repayment of note 519 --
-------- --------
Net cash provided by (used in) investing activities 7,622 1,377
FINANCING ACTIVITIES
Principal payments under equipment notes payable
and note payable to bank (917) (227)
Restricted cash released as note payable collateral -- 137
Net proceeds from issuance of preferred stock -- 9,700
Net proceeds from issuance of common stock 198 49
-------- --------
Net cash provided by financing activities (719) 9,659
Increase in cash and cash equivalents (817) 2,231
Cash and cash equivalents at beginning of year 2,594 6,187
-------- --------
Cash and cash equivalents at end of period $ 1,777 $ 8,418
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 82 $ 40
======== ========
DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Unrealized losses on available-for-sale securities $ 48 $ 7
======== ========
Issued common stock for non-exclusive license
agreement for patent rights $ -- $ 900
======== ========
Asset write down in accrued restructuring charge $ 587 $ --
======== ========
Assumption of debt $ 868 $ --
======== ========
Additions to obligations under capital leases $ 420 $ --
======== ========
</TABLE>
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EPIMMUNE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1999
1. BASIS OF PRESENTATION
The interim unaudited condensed consolidated financial statements
contained herein have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In management's
opinion, the unaudited information includes all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Interim results are not necessarily indicative of results to be expected for the
full year. The financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes thereto included in the
Company's Form 10-K for the year ended December 31, 1998.
Unless otherwise indicated, all references to "Cytel" are to Cytel
Corporation, all references to "Epimmune" are to Epimmune Inc., Cytel's
majority-owned subsidiary, and all references to the "Company" are to the
combined entity of Cytel and Epimmune.
On July 1, 1999, in a series of related transactions, Cytel acquired
100% ownership of, and merged with, its subsidiary, Epimmune Inc., with Cytel
remaining as the surviving entity (the "Merger"). In connection with the Merger,
Cytel changed its name from Cytel Corporation to Epimmune Inc.
The condensed consolidated financial statements include the accounts of
Cytel and its majority-owned subsidiary Epimmune. All significant intercompany
accounts and transactions have been eliminated. The minority interest
calculation is based on third parties' ownership percentage in Epimmune of 25.4%
during the second quarter of 1999. The calculation does not include the
potential additional ownership interest that would result from the conversion of
the Cytel preferred stock held by G.D. Searle & Co. ("Searle"), a wholly-owned
subsidiary of Monsanto Co., which is convertible into Epimmune common stock. As
of June 30, 1999, Cytel owned 74.6%, Epimmune employees owned 13.8%, and Searle
owned 11.6% of the outstanding capital stock of Epimmune.
A one-for-seven reverse split of Cytel's common stock was effected on
November 13, 1998. The reverse split was approved by Cytel's Board of Directors
on November 2, 1998 pursuant to authority granted to the Board of Directors by
Cytel's stockholders at a special meeting held on October 30, 1998. All common
share balances and net loss per share amounts presented in these financial
statements have been retroactively adjusted to reflect the reverse stock split.
Basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding during the period. All potential
common shares have been excluded from the diluted net loss per share
calculations as they are antidilutive.
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2. RESULTS OF CYLEXIN CLINICAL TRIAL
On March 29, 1999, Cytel announced the results from the Cylexin Phase
II/III clinical trials. The results of these trials indicated that Cylexin,
Cytel's lead therapeutic compound, showed no benefit over placebo in the
clinical trial. Accordingly, Cytel terminated its therapeutic anti-inflammatory
business and recorded a charge of $3.4 million as of December 31, 1998,
representing the book value of its cell adhesion patent portfolio. This charge
was recorded in accordance with SFAS 121 after Cytel determined that its
intangible assets were permanently impaired.
Based on the determination to terminate Cytel's businesses and focus
future operations on Epimmune, Cytel recorded a restructuring charge of $3.7
million in the first quarter 1999. The accrued restructuring charge includes the
following (in thousands):
<TABLE>
<CAPTION>
June 30, March 31,
1999 1999
-------- ---------
<S> <C> <C>
Minimum commitments for lease facilities $1,042 $1,200
Employee severance 463 827
Exit costs of operations 178 628
Write-down to fair value for certain assets held for sale -- 575
Other loss contingencies 467 470
------ ------
Accrued restructuring costs $2,150 $3,700
====== ======
</TABLE>
3. SALE OF THE GLYTEC CARBOHYDRATE SYNTHESIS AND MANUFACTURING BUSINESS
In the first quarter of 1999, Cytel completed the sales of its Glytec
carbohydrate synthesis and manufacturing business, including the sale of fixed
assets and intellectual property, and assignment of certain liabilities and
transfer of certain personnel relating to the business. The sales of the fixed
and intangible assets of this business raised approximately $6.2 million, net of
fees, the proceeds of which are being used to fund the restructuring efforts of
the Company. Cytel recorded a gain of approximately $3.3 million in connection
with the two transactions, as discussed further below.
On February 28, 1999, Cytel licensed its proprietary carbohydrate
synthesis and manufacturing intellectual property assets to Baxter Healthcare
Corporation's Nextran unit ("Nextran") for exclusive use in xenotransplantation.
Cytel received total consideration of $4.0 million, of which $3.2 million was
cash and $0.8 million assignment of certain liabilities to Nextran.
Additionally, Nextran assumed the facility lease and certain personnel and fixed
assets related to this manufacturing operation.
On March 26, 1999, Cytel sold the remainder of its Glytec carbohydrate
synthesis and manufacturing intellectual property assets to Neose Technologies,
Inc. ("Neose"). Neose paid Cytel $3.5 million cash and paid an additional $1.5
million into escrow, the release of which is conditioned on the Company's
satisfaction of certain matters relating to the patents and licenses acquired by
Neose. Neose may pay the Company up to an additional $1.6 million contingent on
potential payments and revenues realized by Neose in connection with certain
future corporate collaborations. The Company has recorded the gain relating to
the initial cash consideration and will record subsequent gains as they are
realized, if at all.
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4. MANAGEMENT'S PLAN FOR FUTURE OPERATIONS
Following the termination in the first quarter of 1999 of Cytel's
anti-inflammatory therapeutic business and the sale of its Glytec business,
Cytel terminated its employees, sold its fixed assets and intellectual property,
and focused all subsequent development efforts on Epimmune's technology.
On July 1, 1999, in a series of related transactions, Cytel acquired
100% ownership of, and merged with, its subsidiary, Epimmune, with Cytel
remaining as the surviving entity (the "Merger"). In connection with the Merger,
Cytel changed its name from Cytel Corporation to Epimmune Inc.
The Company plans to use the proceeds from the disposition of the Glytec
carbohydrate synthesis and manufacturing business, together with proceeds of
certain asset sales and existing cash resources, to meet its financial
obligations, including restructuring and termination costs of its non-Epimmune
operations.
5. ADDITIONAL INFORMATION
As a result of the events described above, the Company is presenting
additional information related to the operation and financial position of
Epimmune and Cytel. Epimmune was formed in October 1997 as a wholly-owned
subsidiary with separate management and financing. As of June 30, 1999, Cytel
owned approximately 75% of the outstanding stock of Epimmune.
EPIMMUNE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cytel Epimmune Consolidating
Corporation Inc. Entries Total
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
REVENUES
Research and development revenues $ 525 $ 878 $ -- $ 1,403
-------- -------- -------- --------
525 878 -- 1,403
COSTS AND EXPENSES:
Research and development 3,042 3,272 -- 6,314
General and administrative 870 719 -- 1,589
Restructuring costs 3,700 -- -- 3,700
-------- -------- -------- --------
Total costs and expenses 7,612 3,991 -- 11,603
Loss from operations (7,087) (3,113) (10,200)
Minority interest in net loss of
consolidated subsidiary -- -- 523 523
Interest income, net (44) 238 -- 194
Other income 550 -- 550
Gain on disposal of assets 3,296 15 -- 3,311
-------- -------- -------- --------
Net loss $ (3,285) $ (2,860) $ 523 $ (5,622)
======== ======== ======== ========
</TABLE>
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EPIMMUNE INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
Cytel Epimmune Consolidating
Corporation Inc. Entries Total
----------- -------- ------------- --------
<S> <C> <C> <C> <C>
Assets
Cash, cash equivalents and short-
term investments $ 1,517 $ 8,175 $ -- $ 9,692
Other current assets 567 565 (18) 1,114
-------- -------- -------- --------
Total current assets 2,084 8,740 10,806
Restricted cash -- 472 -- 472
Property and equipment, net -- 944 -- 944
Investment in consolidated
subsidiary 11,742 -- (11,742) --
Patents and other non-current assets -- 2,101 -- 2,101
-------- -------- -------- --------
Total assets $ 13,826 $ 12,257 $(11,760) $ 14,323
======== ======== ======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities $ 562 $ 1,253 $ (18) 1,797
Accrued restructuring costs 2,150 -- -- 2,150
Current portion of obligations under
equipment loans and notes payable -- 182 -- 182
-------- -------- -------- --------
Total current liabilities 2,712 1,435 (18) 4,129
Long-term obligations under
equipment loans and notes payable -- 478 -- 478
Minority interest in consolidated subsidiary -- -- 1,388 1,388
Stockholders' equity 11,114 10,344 (13,130) 8,328
-------- -------- -------- --------
Total liabilities and stockholders' Equity $ 13,826 $ 12,257 $(11,760) $ 14,323
======== ======== ======== ========
</TABLE>
6. SUBSEQUENT EVENTS
On July 1, 1999, the Company completed a series of transactions (the
"Exchange Transactions") in which it (i) transferred all of the outstanding
shares of Epimmune's Series B-1 Preferred Stock then held by Cytel to Searle in
exchange for all of the outstanding shares of Cytel's Series B Preferred Stock,
(ii) issued 859,622 shares of Cytel's Series S Preferred Stock and 549,622
shares of Cytel's Series S-1 Preferred Stock to Searle in exchange for all
outstanding shares of Epimmune's Series B Preferred Stock and Series B-1
Preferred Stock and (iii) issued a total of 1,027,782 shares of Cytel's Common
Stock to the holders of Common Stock of Epimmune in exchange for all outstanding
shares of Epimmune's Common Stock. Following the Exchange Transactions, Searle
held approximately 23% of all of the outstanding capital stock of the Cytel.
Following the Exchange Transactions, Cytel held all of the outstanding shares of
Common Stock and Preferred Stock of Epimmune and completed the Merger, in which
Epimmune merged into Cytel, with Cytel remaining as the surviving entity. In
connection with
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the Merger, Cytel assumed the outstanding options to purchase approximately
423,000 shares of the Common Stock of Epimmune and Cytel changed its name from
Cytel Corporation to Epimmune Inc.
THIS PORTION OF THE PAGE LEFT INTENTIONALLY BLANK.
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EPIMMUNE INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, without limitation, those discussed below under "Risks and
Uncertainties" and those discussed in the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1998. The Company undertakes no
obligation to release publicly the results of any revisions to these forward
looking statements to reflect events or circumstances arising after the date
hereof.
Unless otherwise indicated, all references to "Cytel" are to Cytel
Corporation, all references to "Epimmune" are to Epimmune Inc., a majority-owned
subsidiary of Cytel, and all references to the "Company" are to the combined
entity of Cytel and Epimmune.
On July 1, 1999, in a series of related transactions, Cytel acquired
100% ownership of, and merged with, its subsidiary, Epimmune, with Cytel
remaining as the surviving entity (the "Merger"). In connection with the Merger,
Cytel changed its name from Cytel Corporation to Epimmune Inc.
Since its inception in July 1987, the Company has devoted substantially
all of its resources to the discovery and development of its potential
therapeutic products. To date, the Company has not received any revenues from
the sale of products. The Company has funded its research and development
primarily from equity-derived working capital and through strategic alliances
with other companies. The Company has been unprofitable since its inception and
expects to incur substantial operating losses for the next several years. As of
June 30, 1999, the Company's accumulated deficit was approximately $134.3
million.
In the first quarter of 1999, Cytel completed the sales of its Glytec
carbohydrate synthesis and manufacturing business resulting in net proceeds of
approximately $6.2 million (see Note 3 in financial statements). Additionally,
Cytel announced the results from the Cylexin Phase II/III clinical trial. The
results of this trial indicated that Cylexin, Cytel's lead therapeutic compound,
showed no benefit over placebo. Accordingly, Cytel terminated its therapeutic
anti-inflammatory business and, as a result, Cytel recorded a restructuring
charge of $3.7 million in the first quarter 1999 (see Note 2 in financial
statements). During the second quarter of 1999, Cytel raised approximately $1.0
million from the disposal of certain fixed assets and intellectual property.
The Company plans to use the proceeds from the disposition of the Glytec
carbohydrate synthesis and manufacturing business, together with the proceeds of
certain asset sales and existing cash resources, to meet its financial
obligations, including restructuring and termination costs of its non-Epimmune
operations.
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LIQUIDITY AND CAPITAL RESOURCES
The following discussion reflects financial information for Cytel and
Epimmune on a consolidated basis.
The Company has financed operations since inception primarily through
private placements of its equity securities, two public common stock offerings,
revenues under collaborative research and development agreements, grant
revenues, certain asset divestitures and interest income. Through June 1999, the
Company has raised approximately $145.1 million from the sale of equity
securities. The Company has financed its laboratory equipment and research and
office facilities primarily through capital and operating lease arrangements.
The Company had net working capital of $6.7 million as of June 30, 1999
compared to $9.8 million as of December 31, 1998. The decrease was primarily due
to recording of the accrued restructuring liability, partially offset by a
decrease in cash to fund ongoing Epimmune operations and payment of liabilities
due to the wind-down of Cytel. As of June 30, 1999, the Company's cash, cash
equivalents, restricted cash and short-term investments decreased to $10.1
million from $12.3 million at December 31, 1998. The decrease was due to cash
used for Epimmune operations and cash used in the payment of liabilities
associated with wind-down of Cytel operations partially offset by proceeds from
the sale of assets discussed above. Excluding Epimmune, as of June 30, 1999,
Cytel had $1.5 million of cash available to fund its operations, which are
planned to be used to meet its financial obligations, including corporate
restructuring and termination costs of all its non-Epimmune operations. The sale
of Cytel's remaining fixed assets was completed in June 1999. The proceeds of
$0.5 million were received in July 1999.
Capital expenditures totaled $0.7 million in 1999, primarily for
laboratory equipment, compared to $1.4 million in second quarter 1998, primarily
for manufacturing and laboratory equipment additions for Cytel's Glytec
carbohydrate manufacturing facility. The Company has sold its Glytec
carbohydrate synthesis and manufacturing business and has terminated its
anti-inflammatory therapeutic business and sold all remaining Cytel fixed assets
in June 1999. Future capital expenditures will be in support of Epimmune's
vaccine business.
The Company's cash, cash equivalents and short-term investments are
expected to decline primarily due to Epimmune's ongoing vaccine research
programs and the payments associated with the termination of Cytel's therapeutic
anti-inflammatory business. Cytel raised approximately $6.2 million in the first
quarter of 1999 through the sale of its Glytec carbohydrate synthesis and
manufacturing business and raised approximately $1.0 million in the second
quarter of 1999 from the disposal of certain fixed assets and intellectual
property, the proceeds of which will be used to fund the restructuring efforts
of Cytel.
In August 1998, Epimmune entered into a $0.7 million term credit
facility with Silicon Valley Bank to provide secured financing for future
laboratory, office and tenant improvement additions. As of June 30, 1999,
Epimmune had $.09 million available to finance future capital equipment and
tenant improvements by August 1999. In addition, Epimmune leases its laboratory
and office facilities under operating leases. In November 1998, Epimmune entered
into a 10-year lease related to the construction of a new laboratory and office
facility, which was completed and occupied in April 1999.
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The Company believes that its available cash, cash equivalents,
marketable securities and existing sources of funding will be adequate to
satisfy its anticipated capital requirements through December 31, 2000. The
estimate for the period for which the Company expects its available cash
balances and existing sources of funding to be sufficient to meet its capital
requirements is a forward-looking statement that involves risks and
uncertainties as set forth herein and in the Company's Form 10-K for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
Three months ended June 30, 1999 ("1999"), as compared with three months
ended June 30, 1998 ("1998").
The Company had total revenues of $474,000 for 1999, compared to
$507,000 in 1998. Total revenues decreased slightly in 1999 from 1998.
In 1999, research and development expenses decreased to $2.0 million
from $4.6 million in 1998. The decrease was due to the wind-down of Cytel
operations partially offset by increased research expenditures at Epimmune.
General and administrative expenses decreased to $0.4 million in 1999 from $1.5
million in 1998. The decrease is due to the wind-down of Cytel operations
partially offset by increased general and administrative personnel at Epimmune.
Net interest income was $91,000 in 1999 compared to $263,000 in 1998.
The decrease is due to a lower average cash balance.
Other income includes $500,000 from Elan International Services, Ltd.
("Elan") in consideration for the buyout of certain future milestone obligations
by Elan, and $50,000 for sale of certain patents and related technology rights
to Abaron Biosciences, Inc. ("Abaron").
Six months ended June 30, 1999 ("1999"), as compared with six months
ended June 30, 1998 ("1998").
The Company had total revenues of $1.4 million for 1999, compared to
$1.0 million in 1998. Total revenues increased $0.4 million in 1999 from 1998
primarily due to revenue recognized in connection with the sale of Cytel's
Glytec carbohydrate synthesis and manufacturing business.
In 1999, research and development expenses decreased to $6.3 million
from $8.4 million in 1998. The decrease was due to the wind-down of Cytel
operations partially offset by increased research expenditures at Epimmune.
General and administrative expenses decreased to $1.6 million in 1999 from $2.6
million in 1998, due to termination of Cytel operations partially offset by
increases in general and administrative personnel at Epimmune.
The restructuring charge of $3.7 million recorded in 1999 relates to the
termination of the Company's non-Epimmune operations. The Company also recorded
a gain of $3.3 million on disposal of assets related to the sale of Cytel's
Glytec carbohydrate synthesis and manufacturing business, as discussed above.
Net interest income was $194,000 in 1999 compared to $539,000 in 1998.
The decrease is due to a lower average cash balance, and the termination of the
Cytel anti-inflammatory therapeutic business.
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Other income includes $0.5 million from Elan in consideration for the
buyout of certain future milestone obligations by Elan, and $.05 million for
sale of certain patents and related technology rights to Abaron.
Future Capital Needs
The Company expects to incur operating losses over the next several
years due to continuing expenses associated with its research and development
programs, including preclinical testing and clinical trials. Operating losses
may fluctuate from quarter to quarter as a result of differences in the timing
of revenues received and expenses incurred, and such fluctuations may be
substantial.
The Company expects to incur substantial additional research and
development expenditures, including costs related to preclinical testing,
clinical trials and manufacturing, as well as marketing and distribution
expenses. It is the Company's intention to seek additional collaborative
research and development relationships with suitable corporate partners. There
can be no assurance that any agreements that may result from these discussions
will successfully reduce the Company's funding requirements. Additional equity
or debt financing will be required, and there can be no assurance that these
funds will be available on favorable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale back or eliminate one or
more of its drug discovery or development programs or obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates or
products that the Company would not otherwise relinquish.
The Company's future capital requirements depend on many factors,
including continued scientific progress in its drug discovery programs, the
magnitude of these programs, progress with preclinical testing and clinical
trials, the time and costs involved in obtaining regulatory approvals, the costs
involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, changes in the existing collaborative
research relationships, the ability of the Company to establish and maintain
development arrangements, the cost of manufacturing scale-up and effective
commercialization activities and arrangements.
As is typical in the biotechnology industry, the commercial success of
the Company will depend in part on the Company neither infringing patents issued
to competitors nor breaching the technology licenses upon which the Company's
products might be based. The Company's business is also subject to other
significant risks, including the uncertainties associated with the lengthy
regulatory approval process and with potential competition from other products.
Even if the Company's products appear promising at an early stage of
development, they may not reach the market for a number of reasons. Such reasons
include, but are not limited to the Company's inability to fund clinical
development of such products, or the possibilities that the potential products
will be found ineffective during clinical trials, fail to receive necessary
regulatory approvals, be difficult to manufacture on a large scale, or be
uneconomical to market.
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<PAGE> 15
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
from 20th century dates. As a result, many companies' software and computer
systems may need to be upgraded or replaced in order to comply with year 2000
requirements. The impact of the year 2000 issue may affect other systems that
utilize imbedded computer chip technology, including building controls, security
systems or laboratory equipment. It may also impact the ability to obtain
products or services if the provider encounters and fails to resolve year 2000
related problems.
In 1999, the Company established an active program to identify and
resolve year 2000 related issues. This program includes the review and
assessment of the Company's information technology and non-information
technology systems, as well as third parties with whom the Company has material
relationships. This program consists of four phases: inventory, risk assessment,
problem validation and problem resolution. The inventory phase identified
potential risks we face. They include among others computer software, computer
hardware, telecommunications systems, laboratory equipment, facilities systems
(security, environment control, alarm), service providers, and other third
parties. The risk assessment phase categorizes and prioritizes each risk by its
potential impact. The problem validation phase tests each potential risk,
according to priority, to determine if an action risk exists. In the case of
critical third parties, this step will include a review of their year 2000 plans
and activities. The problem resolution phases will, for each validated risk,
determine the method/strategy for alleviating the risk. It may include anything
from replacement of hardware or software to process modification to selection of
alternative vendors. This step also includes the development of contingency
plans.
The inventory and risk assessment phases were completed in second
calendar quarter 1999. The problem validation phase will be completed in third
calendar quarter 1999 for all areas, except for evaluating specific pieces of
research equipment and the assessment of some protocol third parties. The
Company expects that it will complete the last portion of the problem validation
and resolution phase by the end of the third calendar quarter of 1999.
Contingency plans are being developed. The Company expects to have those plans
completed by the end of the third quarter 1999.
The Company is actively correcting problems as they are identified.
These corrections include the replacement of hardware and software systems, the
identification of alternative service providers and the creation of contingency
plans. The Company currently estimates that the cost of identified problems will
be approximately $130,000 for hardware and software upgrades or modifications.
In addition, the Company will incur approximately $10,000 of internal personnel
costs to complete the remaining phases of the project. The Company does not
believe that the costs of these actions will have a material adverse effect on
its business. The Company expects to be able to resolve any problems identified
of the project as part of normal operating expenses.
Any failure to be year 2000 compliant within the Company's internal
computer systems or of third party equipment or software it uses, or of systems
maintained by its suppliers, may adversely affect the Company's business.
15
<PAGE> 16
RISKS AND UNCERTAINTIES
The Company wishes to caution readers that the following important
factors, among others, in some cases have affected the Company's results and in
the future could cause actual results and needs of the Company to vary
materially from forward-looking statements made from time to time by the Company
on the basis of management's then-current expectations. The business in which
the Company is engaged is in rapidly changing and competitive markets and
involves a high degree of risk, and accuracy with respect to forward-looking
projections is difficult.
Disappointing results of the Phase II/III clinical trial of Cylexin,
Cytel's lead cell adhesion inhibitor compound, has led to the termination of the
therapeutic anti-inflammatory business. Accordingly, Cytel has terminated its
employees, sold its fixed assets and intellectual property, and focused all
subsequent development efforts on Epimmune's vaccine technology. During the
first quarter of 1999, Cytel sold its Glytec carbohydrate synthesis and
manufacturing business and plans to use the proceeds from such sale, together
with existing cash resources, to meet its financial obligations, including
corporate restructuring and termination costs of all of its non-Epimmune
operations.
Future Capital Needs; Uncertainty of Additional Funding. As of June 30,
1999, the Company had $10.1 million in cash, cash equivalents, restricted cash
and short-term investments. The Company's future capital requirements will
depend on many factors, including: the ability of the Company to establish and
maintain collaborative arrangements; progress with preclinical testing and
clinical trials; the time and costs involved in obtaining regulatory approvals;
the costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; changes in its existing research
relationships; continued scientific progress in its drug discovery programs; the
magnitude of these programs; the cost of manufacturing scale-up; and effective
commercialization activities and arrangements. The Company intends to seek
additional funding through collaborative arrangements or equity or debt
financings. If additional financing is not available, the Company anticipates
its existing available cash, cash equivalents, restricted cash and short-term
investments will be adequate to fund its operations through December 31, 2000.
The estimate for the period for which the Company expects its available cash
balances, investment income and estimated cash flow from collaborative
agreements and research grants to be sufficient to meet its capital requirements
is a forward-looking statement that involves risks and uncertainties as set
forth herein and in Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this Report on Form 10-Q.
There can be no assurance that any financing or transaction through which the
Company seeks to obtain additional funding will be available on favorable terms,
if at all, or that any collaboration agreements to which the Company is or may
become a party will successfully reduce the Company's funding requirements. The
suspension or termination of the Company's collaboration with its existing
corporate partner or the inability to enter into new collaborations, the failure
of any such collaborations to be successful or the delay in their development or
commercialization of products could have a material adverse effect on the
Company's business, financial condition and results of operations. If additional
funds are raised by issuing securities, further dilution to existing
stockholders may result. If adequate funds are not available, the Company will
be required to delay, scale back or eliminate one or more of its drug discovery
or development programs; obtain funds through arrangements with collaborative
partners or others that may require the Company to relinquish rights to or sell
certain of its technologies, product candidates or products that the Company
would not otherwise relinquish or sell; sell itself or certain of its
technologies or other assets to a third party; cease operations; or declare
bankruptcy.
16
<PAGE> 17
Early Stage of Development; Absence of Products. The Company is a
research and development focused company. In collaboration with its corporate
partner, Searle, the Company expects that Searle will initiate Phase I/II human
clinical trials within the coming year. It has not completed the development of
any product and, accordingly, has not begun to market or generate revenues from
the commercialization of products. The Company does not expect to market any
therapeutic or prophylactic products for a number of years. The Company's
products under development will require significant time-consuming and costly
research, development, preclinical studies, clinical testing, regulatory
approval and significant additional investment prior to their commercialization,
which may never occur. There can be no assurance that the Company's research and
development programs will be successful. In particular, Cytel completed its
Phase II/III clinical trial of Cylexin, its lead cell adhesion inhibitor
compound, in March 1999. Based on disappointing results from this Phase II/III
clinical trial, Cytel announced that it halted clinical trials of Cylexin and
discontinued its therapeutic anti-inflammatory business. Further, there can be
no assurance that the Company will be able to manufacture any products in
commercial quantities in compliance with regulatory requirements at an
acceptable cost, that any of its products under development will be successfully
commercialized or will prove to be safe and efficacious in clinical trials or
that the Company or its collaborators will be successful in obtaining market
acceptance of any of its products. The Company or its collaborators may
encounter problems and delays relating to research and development, regulatory
approval, manufacturing and marketing. The failure by the Company to address
such problems and delays successfully would have a material adverse effect on
the Company's business, financial condition and results of operations.
Reliance on Collaborative Partners. The Company expects to rely on
collaborative arrangements both to develop and commercialize pharmaceutical
products. The Company has relied on certain established pharmaceutical companies
interested in its technology to fund a portion of its research and development
expenses for pharmaceutical product candidates. There can be no assurance that
the Company will be able to enter into collaborative arrangements in the future,
that any such collaborative arrangements or its existing collaborative
arrangements will continue or be successful or that the Company will receive
royalty revenues, license fees or milestone payments from any of such
collaborative arrangements. In addition, collaborative partners may pursue
alternative technologies or develop alternative compounds either on their own or
in collaboration with others, including the Company's competitors, as a means of
developing treatments for the disease targeted by any collaborative program of
the Company.
The Company has a research and development collaboration with Searle
with respect to the production, use and sale of pharmaceutical products derived
from the Company's cancer epitopes and the use thereof in therapeutic vaccines.
Such collaboration is currently the Company's only significant collaboration,
and the Company is substantially dependent upon it. The success of the
collaboration will depend, in significant part, on Searle's development,
competitive marketing and strategic considerations, including the relative
advantages of alternative products being developed or marketed by competitors.
The Company expects that substantially all of its revenues for the foreseeable
future will result from payments under its existing, and any future,
collaborations, including royalties on product sales and interest income. There
can be no assurance that Searle will perform its obligations as expected or that
any future milestone payments or other amounts will be received by the Company.
The suspension or termination of the Company's collaboration with Searle, the
failure of such collaboration to be successful or the delay in the development
or commercialization of pharmaceutical products pursuant to such collaboration
could have a material adverse effect on the Company's business, financial
condition and results of operations.
17
<PAGE> 18
In addition, the Company may be required to enter into licenses or other
collaborative agreements with third parties in order to access technologies that
may be necessary to successfully develop certain of its products. There can be
no assurance that the Company will be able to successfully negotiate acceptable
licenses or other collaborative arrangements that allow it to access such
technology. In addition, there can be no assurance that any technology accessed
through such licenses or other collaborations will successfully meet the
Company's requirements.
Continuing Operating Losses; Accumulated Deficit. The Company has
experienced significant operating losses since its inception in 1987. As of June
30, 1999, the Company had an accumulated deficit of approximately $134.3
million. The Company expects to incur substantial additional operating losses as
the Company's research and development and clinical trial efforts continue. All
of the Company's revenues to date have consisted of contract research and
development revenues, license and milestone payments, research grants, certain
asset divestitures and interest income. To achieve profitable operations, the
Company, alone or with others, must identify, develop, register, manufacture and
market proprietary products. There can be no assurance that the Company will be
successful in its efforts to achieve profitable operations.
Manufacturing Limitations. To be successful, the Company's products and
products of its partners must be manufactured in commercial quantities in
compliance with regulatory requirements and at an acceptable cost. The Company
has not commercialized any products, nor has it demonstrated its ability to
manufacture commercial quantities of its or its partners' product candidates in
accordance with regulatory requirements. If the Company is unable to develop
itself or contract with a third-party manufacturing capabilities to produce
suitable quantities of its or its partners' products in accordance with
regulatory standards, the ability of the Company or its partners to conduct
clinical trials, obtain regulatory approvals and market such products may be
adversely affected, which could adversely affect the Company's competitive
position and its chances of achieving profitability. There can be no assurance
that such products can be manufactured by the Company or any other party at a
cost or in quantities which are commercially viable.
Government Regulation; Uncertainty Associated with Clinical Trials. The
production and marketing of the Company's products and its ongoing research and
development activities are subject to regulation by numerous governmental
authorities in the United States, Canada and other countries. Before any drug
developed by the Company can be marketed, it will undergo rigorous preclinical
and clinical testing and an extensive regulatory approval process mandated by
the Food and Drug Administration ("FDA") and equivalent foreign authorities,
including the Canadian Health Protection Branch ("HPB"). These processes can
take a number of years and require the expenditure of substantial resources. The
time required for completing such testing and obtaining such approvals is
uncertain and approval itself may not be obtained. The FDA, the HPB or the
Company and its collaborators may decide to discontinue or suspend clinical
trials at any time if the subjects or patients who are participating in such
trials are being exposed to unacceptable health risks or if the results show no
or limited benefit in patients treated with the drug compared to patients in the
control group. In particular, Cytel completed its Phase II/III clinical trial of
Cylexin, its lead cell adhesion inhibitor compound, in March 1999. Cytel
announced that it halted clinical trials of Cylexin based on disappointing
results that indicated that Cylexin showed no benefit over placebo for the
treatment of reperfusion injury in infants undergoing cardiopulmonary bypass
("CPB") to facilitate the surgical repair of heart defects.
18
<PAGE> 19
Testing of the Company's other product candidates in research and
development may reveal undesirable and unintended side effects or other
characteristics that may prevent or limit their commercial use. There can be no
assurance that the Company will not encounter problems in clinical trials of
other product candidates that will cause the FDA, or the Company to delay or
suspend clinical trials. Furthermore, there can be no assurance that any of the
Company's products will be approved by the FDA or foreign regulatory agency for
any indication. Products, if any, resulting from the Company's research and
development programs are not expected to be commercially available for a number
of years. Even if regulatory approval of a drug is granted, such approval may
entail limitations on the indicated uses for which the drug may be marketed. In
addition, a marketed drug, its manufacturer and the facilities in which the drug
is manufactured are subject to continual review and periodic inspections. Later
discovery of previously unknown problems with a product, manufacturer or
facility may result in restrictions on such product or manufacturer, including
withdrawal of the product from the market.
Technological Change and Competition. The Company is engaged in a highly
competitive industry. The Company competes with many public and private
companies, including pharmaceutical companies, chemical companies, specialized
biotechnology companies and academic institutions. Many of the Company's
competitors have substantially greater financial, scientific and technical
resources, and manufacturing and marketing experience and capabilities than the
Company. In addition, many of the Company's competitors have significantly
greater experience conducting preclinical studies and clinical trials of new
pharmaceutical products, and in obtaining regulatory approvals for
pharmaceutical products. Competitors of the Company and its collaborators may
develop and commercialize such products more rapidly than the Company and its
collaborators. There can be no assurance that the Company's competitors will not
succeed in developing technologies and products that are more effective than any
being developed by the Company, or that would render the Company's technology
and products obsolete or noncompetitive. The Company is aware of companies that
are pursuing the development of novel pharmaceuticals which target the same
diseases that the Company is targeting. There can be no assurance that these and
other efforts by potential competitors will not be successful, or that other
technologies will not be developed to compete with the Company's technologies.
The Company's products under development address a range of markets. The
Company's competition will be determined in part by the potential indications
for which the Company's compounds are developed and ultimately approved by
regulatory authorities. For certain of the Company's potential products, an
important factor in competition may be the timing of market introduction of its
or competitive products. Accordingly, the relative speed with which the Company
can develop products, complete the clinical trials and approval processes and
supply commercial quantities of the products to the market are expected to be
important competitive factors. The Company expects that competition among
products approved for sale will be based, among other things, on product
effectiveness, safety, reliability, availability, price and patent position.
Patents and Proprietary Rights. The Company's success will depend in
part on its ability to obtain patent protection for its products and processes,
both in the United States and other countries. The patent position of
biotechnology and pharmaceutical companies is highly uncertain and involves
complex legal and factual questions. There is no consistent policy regarding the
breadth of claims allowed in biotechnology patents. The Company intends to file
applications and pursue patent prosecution as appropriate for patents covering
both its products and processes. There can be no assurance that patents will
issue from any of the patent applications owned or licensed by the Company or
that, if patents do issue, that claims allowed will be sufficiently broad to
protect the Company's products and processes. In addition, there can be no
assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented, or that the rights granted thereunder will provide
proprietary protection to the Company.
19
<PAGE> 20
As is typical in the biotechnology industry, the commercial success of
the Company will depend in part on the Company neither infringing patents issued
to competitors nor breaching the technology licenses upon which the Company's
products might be based. Failure by the Company to obtain a license to any
technology that it requires to commercialize its products, or to develop an
alternative compound and obtain FDA approval within an acceptable period of time
if required to do so, would have a material adverse effect on the Company.
Litigation, which could result in substantial costs to the Company, may also be
necessary to enforce any patents issued to the Company or to determine the scope
and validity of others' proprietary rights. In addition, the Company may have to
participate in interference proceedings declared by the United States Patent and
Trademark Office which could result in substantial costs to the Company to
determine the priority of inventions.
The Company also protects its proprietary technology and processes in
part by confidentiality agreements with its collaborative partners, employees
and consultants. There can be no assurance that these agreements will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or be independently
discovered by competitors.
Absence of Sales and Marketing Experience. The Company has no experience
in sales, marketing or distribution. Before it can market any of its products
directly, the Company must develop a substantial marketing and sales force with
technical expertise and supporting distribution capability. Alternatively, the
Company may obtain the assistance of a pharmaceutical company with a large
distribution system and a large direct sales force. Other than its agreements
with Searle and Takara, the Company does not have any existing distribution
arrangements with any pharmaceutical company for its products under development.
There can be no assurance that the Company will be able to establish sales and
distribution capabilities or be successful in gaining market acceptance for its
products.
Dependence on Reimbursement. The Company's ability to commercialize its
products successfully may depend in part on the extent to which reimbursement
for the cost of such products and related treatment will be available from
government health administration authorities, private health insurers and other
organizations. Third-party payors are increasingly challenging the price of
medical products and services. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and there can be no
assurance that adequate third-party coverage will be available to enable the
Company to maintain price levels sufficient to realize an appropriate return on
its investment in product development.
Dependence on Key Personnel. The Company is highly dependent on the
principal members of its scientific and management staff. The Company does not
maintain key person life insurance on the life of any employee. The Company's
future success also will depend in part on the continued service of its key
scientific personnel and its ability to identify, hire and retain additional
qualified personnel.
There is intense competition for qualified personnel in the areas of the
Company's activities, and there can be no assurance that the Company will be
able to continue to attract and retain such personnel necessary for the
development of the Company's business. Because of the intense competition, there
can be no assurance that the Company will be successful in adding technical
personnel as needed to meet the staffing requirements of additional
collaborative relationships. Failure to attract and retain key personnel could
have a material adverse effect on the Company.
20
<PAGE> 21
Product Liability and Insurance. The Company's business exposes it to
potential product liability risks which are inherent in the testing,
manufacturing and marketing of human therapeutic products. While the Company
currently has product liability insurance, there can be no assurance that it
will be able to maintain such insurance on acceptable terms or that insurance
will provide adequate coverage against potential liabilities.
Use of Hazardous Materials. The Company's research and development
involves the controlled use of hazardous materials, chemicals and radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of such materials comply with the standards prescribed by state
and federal regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for any damage that results, which
liability could exceed the resources of the Company. The Company may incur
substantial cost to comply with environmental regulations if the Company
develops commercial manufacturing capacity.
Although the Company believes that it is in compliance in all material
respects with applicable environmental laws and regulations and currently does
not expect to make material capital expenditures for environmental control
facilities in the near term, there can be no assurance that it will not be
required to incur significant costs to comply with environmental laws and
regulations in the future, or that the operations, business or assets of the
Company will not be materially, adversely affected by current or future
environmental laws or regulations.
Volatility of Common Stock Price.The market price for securities of
biotechnology companies, including the Company, have historically been highly
volatile, and the market from time to time has experienced significant price and
volume fluctuations that are unrelated to the operating performance of such
companies. Factors such as announcements of technological innovations or new
commercial therapeutic products by the Company or others, governmental
regulation, developments in patent or other proprietary rights, developments in
the Company's relationships with its collaborative partners, public concern as
to the clinical results and/or, the safety of drugs developed by the Company or
others and general market conditions may have a significant effect on the market
price of the Company's common stock. Fluctuations in financial performance from
period to period also may have a significant impact on the market price of the
common stock.
Absence of Dividends. The Company has never paid any cash dividends and
does not anticipate paying cash dividends in the foreseeable future.
21
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6.A Exhibits
Exhibit 10.63 Letter agreement between Epimmune and Dr. Robert W. Chesnut
regarding severance benefits dated February 5, 1998.
Exhibit 10.64 Letter agreement between Epimmune and Dr. Alessandro Sette
regarding severance benefits dated February 5, 1998.
Exhibit 10.65 Amendment to Severance Benefits Agreement between the Company and
Dr. Robert L. Roe dated June 2, 1999.
Exhibit 10.66 Amendment to Severance Benefits Agreement between the Company and
Virgil Thompson dated June 2, 1999.
Exhibit 27.1 Financial Data Schedule
ITEM 6.B REPORTS ON FORM 8-K
The Company filed a Report on Form 8-K on April 9, 1999 and a Report of
Form 8-K/A on June 8, 1999 relating to the sale of the Company's
carbohydrate manufacturing and synthesis intellectual property assets
to Neose Technologies, Inc.
22
<PAGE> 23
EPIMMUNE INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EPIMMUNE INC.
Date: August 16, 1999 By: /s/ DEBORAH A. SCHUEREN
-------------------------------------
Deborah A. Schueren
President, Chief Executive Officer
and Chief Financial Officer
23
<PAGE> 1
EXHIBIT 10.63
February 5, 1998
Robert W. Chesnut, Ph.D.
1473 Kings Cross Drive
Cardiff, California 92007
Re: Severance Benefits Agreement
Dear Bob,
This letter will memorialize our agreement as to benefits to which you will be
entitled upon termination of your employment by Epimmune Inc. (the "Company")
under the circumstances described in this Agreement.
We agree that you are employed by the Company as an "at-will" employee and that
either you or the Company has the right at any time to terminate your employment
with the Company, with or without cause or advance notice, for any reason or for
no reason.
For purposes of this Agreement, the following terms will have the meanings set
forth below:
"BASE SALARY" means your salary (excluding bonus, any other incentive or
other payments and stock option exercises) paid by the Company in
consideration for your service during the 12 months prior to the
termination of your employment which is includable in your gross income
for federal income tax purposes or which would have been includable in
gross income except for an election either under Section 125 or
402(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
or under the terms of a nonqualified deferred compensation arrangement
sponsored by the Company.
"BENEFIT" means any payment received or to be received by you pursuant
to this Agreement.
"CAUSE" means (i) your material breach of any provision of this
Agreement; or (ii) your engaging or in any manner participating in any
activity which is directly competitive with or intentionally injurious
to the Company or which violates any provision of any confidential
information agreement or nonsolicitation agreement between you and the
Company; or (iii) your commission any fraud against the Company; or (iv)
your intentional improper use or appropriation for your personal use or
benefit of any funds or properties of the Company not authorized by the
Board of Directors of the Company or an authorized committee of such
Board of Directors to be so used or appropriated; or (v) your conviction
of any crime involving dishonesty or moral turpitude.
"CHANGE IN CONTROL" of the Company will be deemed to have occurred if
and when (i) any person or entity (other than the Company) or group of
persons and/or entities acting in concert acquires, directly or
indirectly, beneficial ownership of more than 50% of the outstanding
shares of voting stock of the Company; or (ii) the Company is a
participant in a merger or consolidation in which it does not survive as
an independent company; or (iii) the business or businesses of the
Company for which your services are principally performed are disposed
of by the Company pursuant to a partial or complete liquidation of the
Company.
<PAGE> 2
Robert W. Chesnut, Ph.D.
February 5, 1998
Page 2
"COMPANY" for the purposes of this Agreement shall include the Company's
successor if a Change in Control occurs.
"EXCISE TAX" means the excise tax imposed by Section 4999 of the Code.
"GOOD REASON" means (i) reduction of your rate of compensation as in
effect immediately prior to the effective date of this Agreement; or
(ii) the Company's failure to provide to you a package of welfare
benefit plans which, taken as a whole, provide substantially similar
benefits to those in which you are entitled to participate immediately
prior to the occurrence of the termination of your employment (except
that employee contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the Company which
would adversely affect your participation or reduce your benefits under
any of such plans; or (iii) a change in your responsibilities,
authority, title or office resulting in diminution of your position,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith which is remedied by the Company promptly
after written notice thereof is given by you; or (iv) a request that you
relocate to a worksite that is more than 35 miles from your prior
worksite, unless you accept such relocation opportunity; or (v) a
material reduction in your duties; or (vi) a failure or refusal of a
successor to the Company to assume the Company's obligations under this
Agreement; or (vii) a material breach by the Company or any successor to
the Company of any of the material provisions of this Agreement.
If your employment is involuntarily terminated without Cause by the Company or
you voluntarily terminate your employment for Good Reason, then upon your
furnishing to the Company an executed waiver and release of claims (a form of
which is attached hereto as Exhibit A), you will be entitled to the following
Benefits:
If your employment is involuntarily terminated without Cause any time
other than described below, then (1) within 30 days of such termination
you will receive a lump-sum payment equal to six months of Base Salary
subject to any applicable withholding of federal, state or local taxes
and (2) the vesting of any stock option for Company stock and the time
during which such option may be exercised immediately will be
accelerated by six months.
If, within 365 days following the occurrence of a Change in Control,
your employment is involuntarily terminated without Cause or you
voluntarily terminate your employment for Good Reason, then (1) within
30 days of such termination you will receive a lump-sum payment equal to
six months of base salary subject to any applicable withholding of
federal, state or local taxes and (2) the vesting of any stock option
for Company stock and the time during which such option may be exercised
immediately will be accelerated as to 50% of the then unvested shares.
If any Benefit received or to be received by you pursuant to this Agreement
would constitute a "parachute payment" within the meaning of Section 280G of the
Code and but for this paragraph be subject to the Excise Tax, then such Benefit
shall be reduced to the extent necessary so that no portion of the Benefit would
be subject to the Excise Tax, as determined in good faith by the Company;
provided, however, that if, in the absence of any such reduction (or after such
reduction), you believe that the Benefit or any portion thereof (as reduced, if
applicable) would be subject to the Excise Tax, the Benefit shall be reduced (or
further reduced) to the extent determined by you in your discretion so that the
Excise Tax would not apply. If, notwithstanding any such
<PAGE> 3
Robert W. Chesnut, Ph.D.
February 5, 1998
Page 3
reduction (or in the absence of such reduction), the Internal Revenue Service
determines that you are liable for the Excise Tax as a result of the Benefit,
then you shall be obligated to return to the Company, within 30 days of such
determination by the Internal Revenue Service, a portion of the Benefit
sufficient such that none of the Benefit retained by you constitutes a
"parachute payment" within the meaning of Code Section 280G that is subject to
the Excise Tax.
This Agreement may be changed or terminated only upon the mutual written consent
of the Company and you. Nothing in this Agreement will prevent or limit your
continuing or future participation in any benefit, bonus, incentive or other
plans, programs, policies or practices provided by the Company and for which you
may otherwise qualify, nor will anything herein limit or otherwise affect such
rights as you may have under any stock option or other agreements with the
Company.
If either party hereto brings any action to enforce such party's rights
hereunder, the prevailing party in any such action will be entitled to recover
such party's reasonable attorneys' fees and costs incurred in connection with
such action.
This Agreement constitutes the entire agreement between you and the Company. It
is entered into without reliance on any promise or representation other than
those expressly contained herein. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California.
Very truly yours,
Epimmune Inc.
/s/ Deborah A. Schueren
Deborah A. Schueren
President
DAS/dw
Agreed and Accepted:
/s/ Robert W. Chestnut
- ------------------------------_
Robert W. Chesnut, Ph.D.
Dated: 2/9, 1998
<PAGE> 4
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In exchange for consideration provided to me in the Agreement to which
this form is attached, I hereby furnish Epimmune Inc. (the "Company") with the
following release and waiver.
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys fees, damages, indemnities and obligations of every kind and
nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including my employment termination date with respect to any claims relating to
my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment,
including, but not limited to, discrimination claims, claims under the
California Fair Employment and Housing Act, and the Federal Age Discrimination
in Employment Act of 1967, as amended (ADEA), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort claims,
and wage or benefit claims, including but not limited to, claims for salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
severance pay or any form of compensation (other than the obligations under the
Agreement.)
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement in which to consider
this agreement (although I may choose voluntarily to execute this agreement
earlier); (d) I have seven (7) days following the execution of this agreement to
revoke my consent to the agreement; and (e) this agreement shall not be
effective until the seven (7) day revocation period has expired.
Dated: _____________________ By: ___________________________________
<PAGE> 1
EXHIBIT 10.64
February 5, 1998
Alessandro Sette, Ph.D.
5551 Linda Rosa Avenue
La Jolla, California 92037
Re: Severance Benefits Agreement
Dear Alex,
This letter will memorialize our agreement as to benefits to which you will be
entitled upon termination of your employment by Epimmune Inc. (the "Company")
under the circumstances described in this Agreement.
We agree that you are employed by the Company as an "at-will" employee and that
either you or the Company has the right at any time to terminate your employment
with the Company, with or without cause or advance notice, for any reason or for
no reason.
For purposes of this Agreement, the following terms will have the meanings set
forth below:
"BASE SALARY" means your salary (excluding bonus, any other incentive or
other payments and stock option exercises) paid by the Company in
consideration for your service during the 12 months prior to the
termination of your employment which is includable in your gross income
for federal income tax purposes or which would have been includable in
gross income except for an election either under Section 125 or
402(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
or under the terms of a nonqualified deferred compensation arrangement
sponsored by the Company.
"BENEFIT" means any payment received or to be received by you pursuant
to this Agreement.
"CAUSE" means (i) your material breach of any provision of this
Agreement; or (ii) your engaging or in any manner participating in any
activity which is directly competitive with or intentionally injurious
to the Company or which violates any provision of any confidential
information agreement or nonsolicitation agreement between you and the
Company; or (iii) your commission any fraud against the Company; or (iv)
your intentional improper use or appropriation for your personal use or
benefit of any funds or properties of the Company not authorized by the
Board of Directors of the Company or an authorized committee of such
Board of Directors to be so used or appropriated; or (v) your conviction
of any crime involving dishonesty or moral turpitude.
"CHANGE IN CONTROL" of the Company will be deemed to have occurred if
and when (i) any person or entity (other than the Company) or group of
persons and/or entities acting in concert acquires, directly or
indirectly, beneficial ownership of more than 50% of the outstanding
shares of voting stock of the Company; or (ii) the Company is a
participant in a merger or consolidation in which it does not survive as
an independent company; or (iii) the business or businesses of the
Company for which your services are principally performed are disposed
of by the Company pursuant to a partial or complete liquidation of the
Company.
<PAGE> 2
Alessandro Sette, Ph.D.
February 5, 1998
Page 2
"COMPANY" for the purposes of this Agreement shall include the Company's
successor if a Change in Control occurs.
"EXCISE TAX" means the excise tax imposed by Section 4999 of the Code.
"GOOD REASON" means (i) reduction of your rate of compensation as in
effect immediately prior to the effective date of this Agreement; or
(ii) the Company's failure to provide to you a package of welfare
benefit plans which, taken as a whole, provide substantially similar
benefits to those in which you are entitled to participate immediately
prior to the occurrence of the termination of your employment (except
that employee contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the Company which
would adversely affect your participation or reduce your benefits under
any of such plans; or (iii) a change in your responsibilities,
authority, title or office resulting in diminution of your position,
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith which is remedied by the Company promptly
after written notice thereof is given by you; or (iv) a request that you
relocate to a worksite that is more than 35 miles from your prior
worksite, unless you accept such relocation opportunity; or (v) a
material reduction in your duties; or (vi) a failure or refusal of a
successor to the Company to assume the Company's obligations under this
Agreement; or (vii) a material breach by the Company or any successor to
the Company of any of the material provisions of this Agreement.
If your employment is involuntarily terminated without Cause by the Company or
you voluntarily terminate your employment for Good Reason, then upon your
furnishing to the Company an executed waiver and release of claims (a form of
which is attached hereto as Exhibit A), you will be entitled to the following
Benefits:
If your employment is involuntarily terminated without Cause any time
other than described below, then (1) within 30 days of such termination
you will receive a lump-sum payment equal to six months of Base Salary
subject to any applicable withholding of federal, state or local taxes
and (2) the vesting of any stock option for Company stock and the time
during which such option may be exercised immediately will be
accelerated by six months.
If, within 365 days following the occurrence of a Change in Control,
your employment is involuntarily terminated without Cause or you
voluntarily terminate your employment for Good Reason, then (1) within
30 days of such termination you will receive a lump-sum payment equal to
six months of base salary subject to any applicable withholding of
federal, state or local taxes and (2) the vesting of any stock option
for Company stock and the time during which such option may be exercised
immediately will be accelerated as to 50% of the then unvested shares.
If any Benefit received or to be received by you pursuant to this Agreement
would constitute a "parachute payment" within the meaning of Section 280G of the
Code and but for this paragraph be subject to the Excise Tax, then such Benefit
shall be reduced to the extent necessary so that no portion of the Benefit would
be subject to the Excise Tax, as determined in good faith by the Company;
provided, however, that if, in the absence of any such reduction (or after such
reduction), you believe that the Benefit or any portion thereof (as reduced, if
applicable) would be subject to the Excise Tax, the Benefit shall be reduced (or
further reduced) to the extent determined by you in your discretion so that the
Excise Tax would not apply. If, notwithstanding any such
<PAGE> 3
Alessandro Sette, Ph.D.
February 5, 1998
Page 3
reduction (or in the absence of such reduction), the Internal Revenue Service
determines that you are liable for the Excise Tax as a result of the Benefit,
then you shall be obligated to return to the Company, within 30 days of such
determination by the Internal Revenue Service, a portion of the Benefit
sufficient such that none of the Benefit retained by you constitutes a
"parachute payment" within the meaning of Code Section 280G that is subject to
the Excise Tax.
This Agreement may be changed or terminated only upon the mutual written consent
of the Company and you. Nothing in this Agreement will prevent or limit your
continuing or future participation in any benefit, bonus, incentive or other
plans, programs, policies or practices provided by the Company and for which you
may otherwise qualify, nor will anything herein limit or otherwise affect such
rights as you may have under any stock option or other agreements with the
Company.
If either party hereto brings any action to enforce such party's rights
hereunder, the prevailing party in any such action will be entitled to recover
such party's reasonable attorneys' fees and costs incurred in connection with
such action.
This Agreement constitutes the entire agreement between you and the Company. It
is entered into without reliance on any promise or representation other than
those expressly contained herein. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of the
State of California.
Very truly yours,
Epimmune Inc.
/s/ Deborah A. Schueren
Deborah A. Schueren
President
DAS/dw
Agreed and Accepted:
/s/ Alessandro Sette
- -------------------------------
Alessandro Sette, Ph.D.
Dated: 2/12, 1998
<PAGE> 4
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In exchange for consideration provided to me in the Agreement to which
this form is attached, I hereby furnish Epimmune Inc. (the "Company") with the
following release and waiver.
I hereby release, and forever discharge the Company, its officers,
directors, agents, employees, stockholders, successors, assigns and affiliates,
of and from any and all claims, liabilities, demands, causes of action, costs,
expenses, attorneys fees, damages, indemnities and obligations of every kind and
nature, in law, equity, or otherwise, known and unknown, suspected and
unsuspected, disclosed and undisclosed, arising at any time prior to and
including my employment termination date with respect to any claims relating to
my employment and the termination of my employment, including but not limited
to, claims pursuant to any federal, state or local law relating to employment,
including, but not limited to, discrimination claims, claims under the
California Fair Employment and Housing Act, and the Federal Age Discrimination
in Employment Act of 1967, as amended (ADEA), or claims for wrongful
termination, breach of the covenant of good faith, contract claims, tort claims,
and wage or benefit claims, including but not limited to, claims for salary,
bonuses, commissions, stock, stock options, vacation pay, fringe benefits,
severance pay or any form of compensation (other than the obligations under the
Agreement.)
I also acknowledge that I have read and understand Section 1542 of the
California Civil Code which reads as follows: "A general release does not extend
to claims which the creditor does not know or suspect to exist in his favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor." I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this waiver and release is knowing and
voluntary, and that the consideration given for this waiver and release is in
addition to anything of value to which I was already entitled as an employee of
the Company. I further acknowledge that I have been advised, as required by the
Older Workers Benefit Protection Act, that: (a) the waiver and release granted
herein does not relate to claims which may arise after this agreement is
executed; (b) I have the right to consult with an attorney prior to executing
this agreement (although I may choose voluntarily not to do so); (c) I have
twenty-one (21) days from the date I receive this agreement in which to consider
this agreement (although I may choose voluntarily to execute this agreement
earlier); (d) I have seven (7) days following the execution of this agreement to
revoke my consent to the agreement; and (e) this agreement shall not be
effective until the seven (7) day revocation period has expired.
Dated: _____________________ By:________________________________
<PAGE> 1
EXHIBIT 10.65
AMENDMENT TO SEVERANCE BENEFITS AGREEMENT
This AMENDMENT (the "Amendment") to the Severance Benefits Agreement
(the "Agreement") dated February 6, 1998 by and between CYTEL CORPORATION (the
"Company"), and DR. ROBERT L. ROE ("Employee") and attached hereto as Exhibit A,
is entered into as of June 2, 1999 (the "Amendment Date").
RECITALS
WHEREAS, the parties hereto desire to amend the Agreement in the manner
set forth in this Amendment in order to provide severance benefits to the
Employee as reflected in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the benefits described below and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. Capitalized terms used but not otherwise defined in this Amendment shall
have the meanings given such terms in the Agreement.
2. The two indented paragraphs on the top of page 3 of the Agreement (as
noted on page 3 of Exhibit A) are hereby amended and restated in their
entirety as follows:
(1) SEVERANCE BENEFIT: On June 3, 1999 ("Severance Date"),
you will be entitled to a severance benefit to be paid in the
form and manner set forth in this Section (1) equivalent to six
(6) months Base Salary ("Severance Benefit"). On the Severance
Date, you will be issued a warrant in the form attached hereto
as Exhibit B, to purchase a number of shares of Common Stock in
the Company with a value equivalent to the value of your
Severance Benefit plus forty percent (40%) ($220,500). The value
of the Common Stock and the exercise price of the warrant shall
be equal to the closing price of the Company's Common Stock on
the Nasdaq National Market on the Severance Date.
The exercise date of the warrant issued pursuant to this Section
(1) will be four (4) years from the date it is issued. The
warrant shall be fully vested and will include a net exercise
provision.
(2) SUCCESS BONUS: You will be eligible to receive a success
bonus ("Success Bonus") on the closing date of the merger
("Closing Date") and on December 31, 1999 under the
circumstances provided in this Section (2).
You will be entitled to a Success Bonus on the Closing Date if
the Company's cash or similar assets exceed liabilities on the
Closing Date by more than $315,000 ("Excess Cash Value") as
reflected in the Company's financial statements. If Excess Cash
Value exists, you will receive a Success Bonus of five (5)% of
the Excess Cash Value.
1.
<PAGE> 2
You will be entitled to an additional Success Bonus if the
Company's proceeds (net of any out-of-pocket expenses incurred
in order to realize those proceeds) from the sale of
non-Epimmune assets prior to December 31, 1999, aggregated with
the Company's other assets as reflected on the Company's
financial statements on the Closing Date, exceed the Company's
liabilities by more than $315,000 as of the Closing Date (Year
End Excess Cash Value). If Year End Excess Cash Value exists,
you will be entitled to a Success Bonus equivalent to 5% of the
amount by which the Year End Excess Cash Value exceeds the
Excess Cash Value.
The Company agrees to prepare and provide to you a statement
reflecting whether there is any Excess Cash Value and/or Year
End Excess Cash Value and the amount of your Success Bonus, if
any, within fifteen (15) days of the Closing Date and by January
15, 1999. Within 15 days of notice from the Company that you are
entitled to a Success Bonus, you agree to notify Company in
writing of the format in which you elect to receive the Success
Bonus. You may elect to receive the cash value of the Success
Bonus or to accept the Success Bonus in the form of a warrant to
purchase a number of shares of Common Stock in the Company with
a value equivalent to the cash value to which you are entitled.
The value of the Common Stock and the exercise price of the
warrant will be equal to the closing price of the Company's
Common Stock on the Nasdaq National Market on the Separation
Date.
If you elect to receive a Success Bonus, if any, issued in the
form of a warrant, you will have 4 years from the date the
warrant is issued to exercise the warrant. The warrant shall be
fully vested and shall include a net exercise provision ; and
(3) CURRENT STOCK OPTIONS: Each of the stock options you
currently hold to purchase Common Stock of the Company
("Options") shall: (i) be accelerated such that the number of
vested shares under the Options shall equal 44,363 shares, and
(ii) be exercisable up to and including four (4) years from the
Severance Date.
3. Except as specifically amended by this Amendment and the Attachments
hereto, the terms and conditions of the Agreement shall remain in full
force and effect.
4. This Amendment and the Attachments hereto, shall be governed by and
construed in accordance with the laws of the State of California,
without regard to its choice of law provisions.
5. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6. This Amendment and the Attachments hereto, constitute the entire
agreement between Employee and the Company. It is entered into without
reliance on any promise or representation other than those expressly
contained in this Amendment and the Attachments hereto.
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment on the day
and year first written above.
CYTEL CORPORATION
By: /s/ Howard E. Greene /s/ Robert L. Roe
-------------------------------- ----------------------------------------
HOWARD E. GREENE, JR. DR. ROBERT L. ROE
CHAIRMAN OF THE BOARD
3.
<PAGE> 4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
CYTEL CORPORATION
(VOID AFTER JUNE 2, 2003)
This certifies that ROBERT L. ROE, M.D. or assigns (the "Holder"), for
value received, is entitled to purchase from CYTEL CORPORATION, a Delaware
corporation (the "Company"), having a place of business at 9393 Towne Centre
Drive, San Diego, California 92121, a maximum of [117,600] fully paid and
nonassessable shares of the Company's Common Stock ("Common Stock") for cash at
a price of $1.875 per share (the "Stock Purchase Price") at any time or from
time to time up to and including 5:00 p.m. (Pacific time) on June 2, 2003 (the
"Expiration Date"), upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and, if applicable, upon payment in cash or by check of the
aggregate Stock Purchase Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof. The
Stock Purchase Price and the number of shares purchasable hereunder are subject
to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of
the holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not for a
fraction of a share) which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Common
1.
<PAGE> 5
Stock as may be requested by the Holder hereof and shall be registered in the
name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of the Company's
Common Stock is greater than the Stock Purchase Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Form of Subscription and notice of such election in which event the
Company shall issue to the 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
the Holder
Y = the number of shares of Common Stock purchasable under
the Warrant or, if only a portion of the Warrant is
being exercised, the portion of the Warrant being
canceled (at the date of such calculation)
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, if the Company's Common Stock is then
traded on a securities exchange or through the Nasdaq National Market, the fair
market value of one share of Common Stock shall be deemed to be the average of
the closing sales prices for one share of Common Stock on such exchange for the
ten (10) trading days immediately preceding the date of exercise, and otherwise
the fair market value of one share of Common Stock shall be determined by the
Company's Board of Directors in good faith.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such
2.
<PAGE> 6
action as may be necessary to assure that such shares of Common Stock may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of any domestic securities exchange upon which the Common
Stock may be listed; provided, however, that the Company shall not be required
to effect a registration under Federal or State securities laws with respect to
such exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) if the
total number of shares of Common Stock issuable after such action upon exercise
of all outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then outstanding,
would exceed the total number of shares of Common Stock then authorized by the
Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
Reclassification. If at any time or from time to time the Holder of Common Stock
(or any shares of stock or other securities at the time receivable upon the
exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(b) any cash paid or payable otherwise than as a
cash dividend, or
(c) Common Stock or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split or adjustments in
respect of which shall be covered by the terms of Section 3.1 above), then and
in
3.
<PAGE> 7
each such case, the Holder shall, upon the exercise of this Warrant, be entitled
to receive, in addition to the number of shares of Common Stock receivable
thereupon, and without payment of any additional consideration therefor, the
amount of stock and other securities and property (including cash in the cases
referred to in clause (b) above and this clause (c)) which the Holder would hold
on the date of such exercise had he been the holder of record of such Common
Stock as of the date on which the holder of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets or
other transaction shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holder substantially similar to the
Warrant to purchase Common Stock, executed and mailed or delivered to the
registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strict application would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company
4.
<PAGE> 8
shall make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or
class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the
Holder at least 10 business days prior to the date on which the Company closes
its books or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to
the Holder at least 30 business days prior to the date on which an Organic
Change shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly
5.
<PAGE> 9
endorsed. Each taker and holder of this Warrant, by taking or holding the same,
consents and agrees that this Warrant, when endorsed in blank, shall be deemed
negotiable, and that the holder hereof, when this Warrant shall have been so
endorsed, may be treated by the Company, at the Company's option, and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented by this Warrant,
or to the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the holder of this Warrant and of the holder
of shares of Common Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
9. INVESTMENT REPRESENTATIONS.
9.1 PURCHASE FOR OWN ACCOUNT. Holder represents that it is
acquiring this Warrant and the Common Stock issuable upon exercise of this
Warrant (collectively, the "Securities") solely for its own account and
beneficial interest for investment and not for sale or with a view to
distribution of the Securities or any part thereof, has no present intention of
selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the same, and does not presently
have reason to anticipate a change in such intention.
9.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that
it has received all the information it has requested from the Company and
considers necessary or appropriate for deciding whether to acquire this Warrant.
Holder represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
this Warrant and to obtain any additional information necessary to verify the
accuracy of the information given the Holder. Holder further represents that it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.
9.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that
investment in this Warrant involves a high degree of risk, and represents that
it is able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.
9.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Holder further agrees not to make
any disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act"), covering such
proposed disposition and such disposition is made in accordance with such
Registration Statement; or
(b) (i) Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances
6.
<PAGE> 10
surrounding the proposed disposition, and (ii) if reasonably requested by the
Company, Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not require
registration under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by Holder to a stockholder or partner (or retired partner) of such
Holder, or transfers by gift, will or intestate succession to any spouse or
lineal descendants or ancestors, if all transferees agree in writing to be
subject to the terms hereof to the same extent as if they were a Holder
hereunder.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7.
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 3rd day of June, 1999.
CYTEL CORPORATION
By:
-------------------------------------
Title:
----------------------------------
ATTEST:
- -------------------------------------
Secretary
<PAGE> 12
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Attn: Secretary
Ladies and Gentlemen:
[x] The undersigned hereby elects to exercise the warrant issued to it by
Cytel Corporation (the "Company") and dated June __, 1999 (the
"Warrant") and to purchase thereunder __________________________________
shares of the Common Stock of the Company (the "Shares") at a purchase
price of ___________________________________________ Dollars
($__________) per Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
[x] The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of
Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
----------------------------------------
Signature
----------------------------------------
Printed Name
<PAGE> 1
EXHIBIT 10.66
AMENDMENT TO SEVERANCE BENEFITS AGREEMENT
This AMENDMENT (the "Amendment") to the Severance Benefits Agreement
(the "Agreement") dated February 6, 1998 by and between CYTEL CORPORATION (the
"Company"), and VIRGIL THOMPSON ("Employee") and attached hereto as Exhibit A,
is entered into as of June 2, 1999 (the "Amendment Date").
RECITALS
WHEREAS, the parties hereto desire to amend the Agreement in the manner
set forth in this Amendment in order to provide severance benefits to the
Employee as reflected in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the benefits described below and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. Capitalized terms used but not otherwise defined in this Amendment shall
have the meanings given such terms in the Agreement.
2. The two indented paragraphs on the top of page 3 of the Agreement (as
noted on page 3 of Exhibit A) are hereby amended and restated in their
entirety as follows:
(1) SEVERANCE BENEFIT: On June 3, 1999 ("Severance Date"),
you will be entitled to a severance benefit to be paid in the
form and manner set forth in this Section (1) equivalent to six
(6) months Base Salary ("Severance Benefit"). On the Severance
Date, you will be issued a warrant in the form attached hereto
as Exhibit B, to purchase a number of shares of Common Stock in
the Company with a value equivalent to the value of your
Severance Benefit plus forty percent (40%) ($220,500). The value
of the Common Stock and the exercise price of the warrant shall
be equal to the closing price of the Company's Common Stock on
the Nasdaq National Market on the Severance Date.
The exercise date of the warrant issued pursuant to this Section
(1) will be four (4) years from the date it is issued. The
warrant shall be fully vested and will include a net exercise
provision.
(2) SUCCESS BONUS: You will be eligible to receive a success
bonus ("Success Bonus") on the closing date of the merger
("Closing Date") and on December 31, 1999 under the
circumstances provided in this Section (2).
You will be entitled to a Success Bonus on the Closing Date if
the Company's cash or similar assets exceed liabilities on the
Closing Date by more than $315,000 ("Excess Cash Value") as
reflected in the Company's financial statements. If Excess Cash
Value exists, you will receive a Success Bonus of five (5)% of
the Excess Cash Value.
1.
<PAGE> 2
You will be entitled to an additional Success Bonus if the
Company's proceeds (net of any out-of-pocket expenses incurred
in order to realize those proceeds) from the sale of
non-Epimmune assets prior to December 31, 1999, aggregated with
the Company's other assets as reflected on the Company's
financial statements on the Closing Date, exceed the Company's
liabilities by more than $315,000 as of the Closing Date (Year
End Excess Cash Value). If Year End Excess Cash Value exists,
you will be entitled to a Success Bonus equivalent to 5% of the
amount by which the Year End Excess Cash Value exceeds the
Excess Cash Value.
The Company agrees to prepare and provide to you a statement
reflecting whether there is any Excess Cash Value and/or Year
End Excess Cash Value and the amount of your Success Bonus, if
any, within fifteen (15) days of the Closing Date and by January
15, 1999. Within 15 days of notice from the Company that you are
entitled to a Success Bonus, you agree to notify Company in
writing of the format in which you elect to receive the Success
Bonus. You may elect to receive the cash value of the Success
Bonus or to accept the Success Bonus in the form of a warrant to
purchase a number of shares of Common Stock in the Company with
a value equivalent to the cash value to which you are entitled.
The value of the Common Stock and the exercise price of the
warrant will be equal to the closing price of the Company's
Common Stock on the Nasdaq National Market on the Separation
Date.
If you elect to receive a Success Bonus, if any, issued in the
form of a warrant, you will have 4 years from the date the
warrant is issued to exercise the warrant. The warrant shall be
fully vested and shall include a net exercise provision; and
(3) CURRENT STOCK OPTIONS: Each of the stock options you
currently hold to purchase Common Stock of the Company
("Options") shall: (i) be accelerated such that the number of
vested shares under the Options shall equal 56,408 shares, and
(ii) be exercisable up to and including four (4) years from the
Severance Date.
3. Except as specifically amended by this Amendment and the Attachments
hereto, the terms and conditions of the Agreement shall remain in full
force and effect.
4. This Amendment and the Attachments hereto, shall be governed by and
construed in accordance with the laws of the State of California,
without regard to its choice of law provisions.
5. This Amendment may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
6. This Amendment and the Attachments hereto, constitute the entire
agreement between Employee and the Company. It is entered into without
reliance on any promise or representation other than those expressly
contained in this Amendment and the Attachments hereto.
2.
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this Amendment on the day
and year first written above.
CYTEL CORPORATION
By: /s/ Howard E. Greene /s/ Virgil Thompson
---------------------------------- ----------------------------------------
HOWARD E. GREENE, JR. VIRGIL THOMPSON
CHAIRMAN OF THE BOARD
3.
<PAGE> 4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAWS.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
CYTEL CORPORATION
(VOID AFTER JUNE 2, 2003)
This certifies that VIRGIL THOMPSON or assigns (the "Holder"), for value
received, is entitled to purchase from CYTEL CORPORATION, a Delaware corporation
(the "Company"), having a place of business at 9393 Towne Centre Drive, San
Diego, California 92121, a maximum of [117,600] fully paid and nonassessable
shares of the Company's Common Stock ("Common Stock") for cash at a price of
$1.875 per share (the "Stock Purchase Price") at any time or from time to time
up to and including 5:00 p.m. (Pacific time) on June 2, 2003 (the "Expiration
Date"), upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and, if applicable, upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1.
<PAGE> 5
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of
the holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Common Stock (but not for a
fraction of a share) which may be purchased hereunder. The Company agrees that
the shares of Common Stock purchased under this Warrant shall be and are deemed
to be issued to the Holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Common Stock so
purchased, together with any other securities or property to which the Holder
hereof is entitled upon such exercise, shall be delivered to the Holder hereof
by the Company at the Company's expense within a reasonable time after the
rights represented by this Warrant have been so exercised. In case of a purchase
of less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a reasonable
time. Each stock certificate so delivered shall be in such denominations of
Common Stock as may be requested by the Holder hereof and shall be registered in
the name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of the Company's
Common Stock is greater than the Stock Purchase Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Form of Subscription and notice of such election in which event the
Company shall issue to the 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
the Holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the fair market value of one share of the Company's
Common Stock (at the date of such calculation)
B = Stock Purchase Price (as adjusted to the date of such
calculation)
2.
<PAGE> 6
For purposes of the above calculation, if the Company's Common Stock is then
traded on a securities exchange or through the Nasdaq National Market, the fair
market value of one share of Common Stock shall be deemed to be the average of
the closing sales prices for one share of Common Stock on such exchange for the
ten (10) trading days immediately preceding the date of exercise, and otherwise
the fair market value of one share of Common Stock shall be determined by the
Company's Board of Directors in good faith.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under Federal or State
securities laws with respect to such exercise. The Company will not take any
action which would result in any adjustment of the Stock Purchase Price (as set
forth in Section 3 hereof) if the total number of shares of Common Stock
issuable after such action upon exercise of all outstanding warrants, together
with all shares of Common Stock then outstanding and all shares of Common Stock
then issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of shares
of Common Stock then authorized by the Company's Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each adjustment
of the Stock Purchase Price, the Holder of this Warrant shall thereafter be
entitled to purchase, at the Stock Purchase Price resulting from such
adjustment, the number of shares obtained by multiplying the Stock Purchase
Price in effect immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.
<PAGE> 7
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holder of Common Stock
(or any shares of stock or other securities at the time receivable upon the
exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution,
(b) any cash paid or payable otherwise than as a
cash dividend, or
(c) Common Stock or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Common Stock issued as a stock split or adjustments in
respect of which shall be covered by the terms of Section 3.1 above), then and
in each such case, the Holder shall, upon the exercise of this Warrant, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clause (b) above and this clause (c)) which the
Holder would hold on the date of such exercise had he been the holder of record
of such Common Stock as of the date on which the holder of Common Stock received
or became entitled to receive such shares or all other additional stock and
other securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets or
other transaction shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of
4.
<PAGE> 8
this Warrant) shall thereafter be applicable, in relation to any shares of
stock, securities or assets thereafter deliverable upon the exercise hereof. The
Company will not effect any such consolidation, merger or sale unless, prior to
the consummation thereof, the successor corporation (if other than the Company)
resulting from such consolidation or the corporation purchasing such assets
shall assume by written instrument reasonably satisfactory in form and substance
to the Holder substantially similar to the Warrant to purchase Common Stock,
executed and mailed or delivered to the registered Holder hereof at the last
address of such Holder appearing on the books of the Company, the obligation to
deliver to such Holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such Holder may be entitled to
purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strict application would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment. 3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or
class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the
Holder at least 10 business days prior to the date on which the Company closes
its books or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to
the Holder at least 30 business days prior to the date on which an Organic
Change shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Common
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
5.
<PAGE> 9
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the holder of this Warrant and of the holder
of shares of Common Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
9. INVESTMENT REPRESENTATIONS.
9.1 PURCHASE FOR OWN ACCOUNT. Holder represents that it is
acquiring this Warrant and the Common Stock issuable upon exercise of this
Warrant (collectively, the "Securities") solely for its own account and
beneficial interest for investment and not for sale or with a view to
distribution of the Securities or any part thereof, has no present intention of
selling (in connection with a distribution or otherwise), granting any
participation in, or otherwise distributing the same, and does not presently
have reason to anticipate a change in such intention.
9.2 INFORMATION AND SOPHISTICATION. Holder acknowledges that
it has received all the information it has requested from the Company and
considers necessary or appropriate for deciding whether to acquire this Warrant.
Holder represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the offering of
this Warrant and to obtain any additional information necessary to verify the
accuracy of the information given the Holder. Holder further represents that it
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risk of this investment.
6.
<PAGE> 10
9.3 ABILITY TO BEAR ECONOMIC RISK. Holder acknowledges that
investment in this Warrant involves a high degree of risk, and represents that
it is able, without materially impairing its financial condition, to hold the
Securities for an indefinite period of time and to suffer a complete loss of its
investment.
9.4 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, Holder further agrees not to make
any disposition of all or any portion of the Securities unless and until:
(a) There is then in effect a Registration Statement
under the Securities Act of 1933, as amended (the "1933 Act"), covering such
proposed disposition and such disposition is made in accordance with such
Registration Statement; or
(b) (i) Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
reasonably requested by the Company, Holder shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above,
no such registration statement or opinion of counsel shall be necessary for a
transfer by Holder to a stockholder or partner (or retired partner) of such
Holder, or transfers by gift, will or intestate succession to any spouse or
lineal descendants or ancestors, if all transferees agree in writing to be
subject to the terms hereof to the same extent as if they were a Holder
hereunder.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
7.
<PAGE> 11
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THIS SPACE INTENTIONALLY LEFT BLANK]
8.
<PAGE> 12
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 3rd day of June, 1999.
CYTEL CORPORATION
By:
-------------------------------------
Title:
----------------------------------
ATTEST:
- -------------------------------------
Secretary
<PAGE> 13
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________
Cytel Corporation
9393 Towne Centre Drive
San Diego, CA 92121
Attn: Secretary
Ladies and Gentlemen:
[ ] The undersigned hereby elects to exercise the warrant issued to it by
Cytel Corporation (the "Company") and dated June __, 1999 (the
"Warrant") and to purchase thereunder __________________________________
shares of the Common Stock of the Company (the "Shares") at a purchase
price of ___________________________________________ Dollars
($__________) per Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
[ ] The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of
Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
----------------------------------------
Signature
----------------------------------------
Printed Name
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q for the six months ended June 30, 1999 and is qualified in its entirety by
reference to such financial statements. (in thousands except earnings per share)
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 1,777
<SECURITIES> 8,387
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,114
<PP&E> 1,119
<DEPRECIATION> 174
<TOTAL-ASSETS> 14,323
<CURRENT-LIABILITIES> 4,129
<BONDS> 478
0
7
<COMMON> 50
<OTHER-SE> 8,494
<TOTAL-LIABILITY-AND-EQUITY> 14,323
<SALES> 0
<TOTAL-REVENUES> 1,403
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,314
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (5,622)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,622)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,622)
<EPS-BASIC> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
