UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1997 Commission file number 0-19855
SERAGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2662345
________ __________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
97 South Street, Hopkinton, MA 01748
______________________________ _____
(Address of principal executive offices) (Zip Code)
(508) 435-2331
_____________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1)hasfiled all reports
required 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
___ __
20,905,710 shares of Common Stock, par value $.01, were outstanding on
November 11, 1997.
<PAGE>
SERAGEN, INC.
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheets
December 31, 1996 (As restated) and September 30,1997 . . . . . 3
Statements of Operations
Three and Nine Months Ended September 30, 1996
(As restated) and 1997 . .. . . . . . . . . . . . . . . . . . . 4
Statements of Cash Flows
Nine Months Ended September 30, 1996
(As restated) and 1997 . . . . .. . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . . . 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . 12
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings (None)
Item 2 - Changes in Securities and Use of Proceeds . . . . . . . . . . . 21
Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 21
Item 4 - Submission of Matters to a Vote of Security Holders (None)
Item 5 - Other Information (None)
Item 6 - Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
<PAGE> 2
<TABLE>
<CAPTION>
SERAGEN, INC.
BALANCE SHEETS
Assets December 31,
1996 September 30,1997
(As restated) (Unaudited)
_____________ _________________
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $1,548,392 $5,727,809
Restricted cash . . . . . . . . . . . . . . . . . . 610,318 559,344
Contract receivable . . . . . . . . . . . . . . . . 485,261 183,427
Unbilled contract receivable. . . . . . . . . . . . 833,983 1,179,029
Prepaid expenses and other current assets . . . . . 285,356 170,656
--------- ---------
Total current assets . . . . . . . 3,763,310 7,820,265
Property and equipment, net. . . . . . . . . . . . . . . 4,604,115 3,986,257
Deferred commission. . . . . . . . . . . . . . . . . . . 2,060,000 2,060,000
Other assets . . . . . . . . . . . . . . . . . . . . . . 77,183 37,267
---------- ----------
Total assets . . . . . . . . . . . 10,504,608 13,903,789
========== ===========
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . 1,111,477 599,404
Current maturities of long-term debt. . . . . . . . . 37,418 -
Deposits received from Boston University. . . . . . . - 10,401,230
Accrued expenses. . . . . . . . . . . . . . . . . . . 3,177,467 4,862,315
Preferred stock redemption liability . . . . . . . . 1,236,753 1,388,774
Canadian affiliate put option liability.. . . . . . . 2,400,000 2,400,000
Short-term obligation.. . . . . . . . . . . . . . . . 4,128,097 800,000
--------- ----------
Total current liabilities. . . . . . . . . 12,091,212 20,451,723
---------- ----------
Non-current liabilities:
Deferred revenue. . . . . . . . . . . . . . . . . . . 5,000,000 10,000,000
Long-term obligation. . . . . . . . . . . . . . . . . - 1,450,000
--------- ----------
Total non-current liabilities. . . . . . . 5,000,000 11,450,000
---------- ----------
Commitments and contingencies
Stockholders' (deficit);
Preferred stock, $.01 par value;5,000,000 shares
authorized Convertible preferred stock, Series A,
$.01 par value; issued and outstanding 3,105 and
1,135 shares at December 31,1996 and September
30, 1997, respectively, at liquidation preference . 2,015,522 16,437
Convertible preferred stock, Series B,$.01 par
value; issued and outstanding 23,800 at December
31, 1996, and September 30,1997, respectively, at
liquidation preference . . . . . . . . . . . . . . . 23,800,000 23,800,000
Convertible preferred stock, Series C,$.01 par
value; issued and outstanding 5,000 at December
31, 1996, and September 30,1997, respectively, at
liquidation preference . . . . . . . . . . . . . . . 5,100,000 5,400,000
Common stock, $.01 par value; 70,000,000 shares
authorized; issued 17,199,458 and 20,789,582
shares at December 31,1996 and September 30,
1997, respectively. . . . . . . . . . . . . . . . . 171,994 207,896
Additional paid in capital . . . . . . . . . . . . . . 151,323,022 154,793,356
Accumulated deficit. . . . . . . . . . . . . . . . . . (188,994,811) (202,213,292)
----------- -----------
(6,584,273) (17,995,603)
Less-treasury stock (777 shares at cost at
December 31,1996 and September 30, 1997,
respectively) . . . . . . . . . . . . . . . . . . . (2,331) (2,331)
----------- ------------
Total stockholders' (deficit) . . . (6,586,604) (17,997,934)
----------- ------------
Total liabilities and stockholders' (deficit). $10,504,608 $13,903,789
============= ============
<PAGE> 3
The accompanying notes are an integral part of the financial statements.
</TABLE>
<TABLE>
<CAPTION>
SERAGEN,INC.
STATEMENT OF OPERATIONS
(Unaudited)
For the three months For the nine months
ended September 30, ended September 30,
____________________ ___________________
1996 1997 1996 1997
(As restated) (As restated)
_____________ __________ ____________ __________
<S> <C> <C> <C> <C>
Revenue:
Contract revenue and license fees . . . . . $1,613,833 $1,382,261 $4,360,075 $3,541,708
---------- ---------- ---------- ----------
Operating expenses:
Cost of contract revenue . . . . . . . . . 693,762 1,205,291 3,322,003 3,335,147
Research and development . . . . . . . . . 3,477,591 2,452,091 10,352,922 8,252,260
General and administrative . . . . . . . . 941,812 1,841,991 3,417,209 4,442,569
---------- --------- --------- ----------
5,113,165 5,499,373 17,092,134 16,029,976
--------- --------- ---------- ----------
Loss from operations . . . . . . (3,499,332) (4,117,112) (12,732,059) (12,488,268)
---------- --------- ---------- ----------
Loss incurred in connection with Canadian
affiliate . . . . . . . . . . . . . . . . . 210,299 - 1,852,268 -
Interest income. . . . . . . . . . . . . . . 25,665 38,321 66,774 67,785
Interest expense . . . . . . . . . . . . . . 3,666,103 - 5,278,522 172,366
---------- ---------- ---------- ----------
Net loss before extraordinary item (7,350,069) (4,078,791) (19,796,075) (12,592,849)
---------- ----------- ------------ ------------
Extraordinary income.. . . . . . . . . . . . - - - 2,050,000
---------- ----------- ----------- -----------
Net loss . . . . . . . . . . . . . (7,350,069) (4,078,791) (19,796,075) (10,542,849)
---------- ----------- ----------- -----------
Preferred stock dividends and accretion. . . 9,636,209 873,835 9,662,876 2,675,632
---------- ---------- ----------- -----------
Net loss applicable to common
stockholders . . . . . . . . . . . . . . . . ($16,986,278) ($4,952,626) ($29,458,951) ($13,218,481)
============= ============ ============= =============
Net loss per common share. . . . . . . . . . $ (1.02) $ (0.24) $ (1.77) $ (0.69)
============= ============ ============= =============
Weighted average common shares
used in computing net loss per share . . . . 16,691,874 20,360,224 16,619,514 19,273,724
============= ============ ============= =============
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
SERAGEN,INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the nine months
ended September 30,
___________________
1996 1997
(As restated)
____________ __________
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . ($19,796,075) (10,542,849)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 700,409 702,420
Compensation associated with stock issuance . . . . . . . . 20,501 -
Equity in loss of affiliate . . . . . . . . . . . . . . . . 1,852,268 -
Loss on disposal of property and equipment. . . . . . . . . 519 4,593
Amortization of discount on long-term debt. . . . . . . . . 515,711 171,903
Extraordinary income. . . . . . . . . . . . . . . . . . . . - (2,050,000)
Amortization of prepaid interest. . . . . . . . . . . . . . 3,528,677 -
Amortization of debt issuance costs . . . . . . . . . . . . 442,077 -
Non-cash charge for issuance of common shares. . . . . . . . - 800,000
Compensation expense. . . . . . . . . . . . . . . . . . . . - 245,054
Changes in operating assets and liabilities:
Contract receivable . . . . . . . . . . . . . . . . . . . . . 281,259 301,834
Unbilled contract receivable. . . . . . . . . . . . . . . . . (99,484) (345,046)
Prepaid expenses and other current assets . . . . . . . . . . 128,025 114,701
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . 273,579 (543,573)
Accrued commission payable. . . . . . . . . . . . . . . . . . (300,000) -
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . (597,780) (76,743)
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . - 5,000,000
---------- ----------
Net cash (used in) provided by operating activities . . . . . . (13,050,314) (6,217,706)
----------- ----------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . . (362,868) (89,152)
Decrease in other assets. . . . . . . . . . . . . . . . . . . 1,915 39,916
---------- ---------
Net cash (used in) provided by investing activities . . . . . . . (360,953) (49,236)
----------- ---------
Cash flows from financing activities:
Proceeds from preferred stock issuances. . . . . . . . . . . . 9,000,000 -
Net proceeds from common stock issuances . . . . . . . . . . . 194,604 75
Purchases of treasury stock. . . . . . . . . . . . . . . . . . (89,625) -
Proceeds from issuance of long-term debt . . . . . . . . . . . 11,300,000 -
Proceeds from restricted cash. . . . . . . . . . . . . . . . . - 50,973
Repayments of long-term debt . . . . . . . . . . . . . . . . . (168,255) (5,918)
Debt and preferred stock issuance costs. . . . . . . . . . . . (356,062) -
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (583,295) -
Deposits received from Boston University . . . . . . . . . . . - 10,401,230
---------- ----------
Net cash (used in) provided by financing activities . . . . . . . 19,297,367 10,446,360
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . 5,886,100 4,179,418
Cash and cash equivalents, beginning of period . . . . . . . . . 435,460 1,548,392
---------- ----------
Cash and cash equivalents, end of period . . . . . . . . . . . . $6,321,560 $5,727,810
========== ===========
Supplemental disclosures of cash flows information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . $758,771 $463
========== ===========
Supplemental non cash activities:
Conversion of Series A preferred stock to common stock . . . . $919,413 $2,461,106
Preferred stock dividends. . . . . . . . . . . . . . . . . . . $271,688 $914,041
Issuance of common stock to Lilly. . . . . . . . . . . . . . . - $800,000
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE> 5
SERAGEN, INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying financial statements are unaudited and have been prepared
by the Company in accordance with generally accepted accounting principles.
Certain information and footnote disclosure normally included in the
Company's audited annual financial statements has been condensed or omitted in
the Company's interim financial statements. In the opinion of management, the
interim financial statements reflect all adjustments (consisting of normal
recurring accruals)necessary for a fair representation of the results for the
interim periods presented.
The results of operations for the interim periods may not necessarily be
indicative of the results of operations expected for the full year, although
the Company expects to incur a significant loss for the year ending December
31, 1997. These interim financial statements should be read in conjunction
with the audited financial statements for the year ended December 31, 1996,
which are contained in the Company's most recent Annual Report on Form 10-K.
In March 1997, the Company restated its September 30, 1996 financial
statements to reflect the Series A, B and C Preferred Stock at their
liquidation value. Such restatement resulted in an increase in net loss
attributable to common stockholders of $9.6 million for the three and nine
month periods ended September 30, 1996, which includes an $8.6 million
dividend representing the value ascribed to the warrants issued in connection
with the Series B Preferred Stock. (See Notes 4, 5 and 6).
In September 1997, the Company restated its 1996 financial statements
to reflect a change in the accounting treatment for the Company's Amended
Sales and Distribution Agreement with Eli Lilly and Company on May 28, 1996.
(See Note 8)
2. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date(s) of the
financial statements and the reported amounts of revenues and expenses during
the reporting period(s). Actual results could differ from those estimates.
3. Loss Per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share ("SFAS
No. 128"). SFAS No. 128 establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This statement is effective for fiscal years ending
after December 15, 1997, and early adoption is not permitted. When adopted,
the statement will not require restatement of prior years' earnings per
share. The Company will adopt this statement for its fiscal year ending
December 31, 1997.
<PAGE> 6
4. Amendment to Lilly Agreements
On April 7, 1997, the Company entered into an amendment (the
"Amendment") to its Sales and Distribution Agreement and Development Agreement
with Eli Lilly and Company ("Lilly") pursuant to which Lilly had originally
obtained the development and marketing rights to the Company's lead molecule
DAB389IL-2 ("IL-2 Fusion Protein") for all cancer and certain non-cancer
indications. Under the terms of the Amendment, subject to certain
limitations, Lilly relinquished all other development and marketing rights to
IL-2 Fusion Protein for non-cancer indications, as well as rights to other
molecules. In addition, Lilly agreed to pay to Ajinomoto Co., Inc.
("Ajinomoto") on behalf of the Company $4.3 million: Lilly paid $2.15 million
to Ajinomoto for a license granted by Ajinomoto directly to Lilly; and Lilly
has agreed to pay, subject to certain conditions, up to $2.15 million of the
Company's $2.25 million obligation to Ajinomoto under the Company's restructed
agreement with Ajinomoto (See Note 5). Pursuant to the Amendment, Lilly is
permitted to credit $1.5 million of the amount paid by Lilly to Ajinomoto on
behalf of the Company against the next $1.5 million milestone payment that
falls due from Lilly to the Company under the Sales and Distribution Agreement
between the Company and Lilly on the submission by the Company of a
U.S. Biologics License Application ("BLA") for cutaneous T-cell lymphoma
("CTCL") to the Food and Drug Administration ("FDA"). Lilly is not obligated
to make any further payments in respect of the Company's obligations
to Ajinomoto if Lilly terminates the Sales and Distribution Agreement between
it and the Company as a result of a failure by the Company to meet specified
clinical, regulatory and financial milestones and other requirements.
Among the relevant milestones and requirements referenced in the preceding
sentence are the Company's obtaining commitments for $5.0 million of new
investment capital by July 1, 1997, and closing on the same by August 1, 1997,
the Company obtaining $15.0 million of new investment capital by October 1,
1997, and the Company closing on the sale of the Operating Division to Boston
University by October 31, 1997.
In exchange, the Company issued to Lilly in a private placement 1.0 million
shares of its Common Stock. The shares of common stock issued to Lilly are
valued at the closing price of the Company's Common Stock as reported
on Nasdaq on the date of issuance of the shares to Lilly, less a discount of
20% to reflect a discount from the Nasdaq closing price because the shares are
not registered under the Securities Act of 1933. In the quarter ended June
30, 1997, the Company valued the 1.0 million shares of common stock issued to
Lilly at $800,000 based on the April 7, 1997 Nasdaq closing price of $1.00,
less 20%, and has recorded it as research and development expense.
On July 31, 1997, the Company reported that it had obtained $5.0 million
through an agreement with U.S. Surgical Corporation (See Note 7). The Company
did not, however, obtain $15.0 million of new investment capital by October 1,
1997, and did not close the sale of the Operating Division by October 31,
1997. As a result, Lilly has the right currently, with 30 days' notice, to
terminate its agreements with the Company. The Company has received no
indication from Lilly that Lilly intends to exercise that right. If Lilly
were to terminate its agreements with the Company, the Company would be
obligated to pay the $2.15 million payment to Ajinomoto that Lilly has agreed
to make on the Company's behalf, and Lilly's obligations under the agreements
to provide financial support to the Company's clinical trial efforts would
cease.
<PAGE> 7
5. Amendment to Ajinomoto License Agreement
On June 1, 1997, the Company restructured (the "Restructuring") its
license agreement with Ajinomoto pursuant to which Ajinomoto had granted the
Company worldwide rights to certain (IL-2) gene patents owned by the Japanese
Foundation for Cancer Research and Ajinomoto for potential use in the
development of the Company's lead product, IL-2 Fusion Protein. Prior to the
Restructuring, the Company was obligated to pay Ajinomoto a license fee of
$4.3 million payable upon the occurrence of certain specified events, but no
later than March 31, 1997 (previously extended by agreement of Ajinomoto to
May 31, 1997), and royalties ranging from 2% to 4% on sales of the licensed
product by the Company or its sublicensees, but with minimum royalties of
$100,000 for the third year of the agreement, $200,000 for the fourth year of
the agreement, and $300,000 for the fifth and following years of the
agreement. In addition, prior to the Restructuring, the rights granted by
Ajinomoto to the Company pursuant to the License Agreement were exclusive.
Under the terms of the Restructuring, the future license fees payable by the
Company to Ajinomoto were reduced to the following amounts: a $2.25 million
fee payable in the amount of $800,000 by June 30, 1998, or approval by the FDA
of a BLA filed by the Company for the licensed product, whichever comes first,
in the amount of $800,000 by June 30, 1999, and in the amount of $650,000 by
March 31, 2000; and a reduced royalty of 1% on end-user net sales of the
licensed product by the Company or its sublicensee. The Company amended its
agreements with Lilly whereby Lilly will pay license fees to Ajinomoto on
behalf of the Company, subject to certain limitations (See Note 4). The
Restructuring provides that the license granted by Ajinomoto to the Company
will be non-exclusive. Accordingly, in the quarter ended June 30, 1997, the
Company reduced its obligation to Ajinomoto from $4.3 million to $2.25 million
and recorded extraordinary income of $2.05 million for the reduction of
this liability.
6. Sale of Manufacturing and Clinical Operations to Boston University
As of February 14, 1997, the Company entered into an asset purchase
agreement (the "Asset Purchase Agreement") to sell its manufacturing and
clinical operations facilities to Boston University or a designated affiliate
for $5.0 million. The closing of the transaction is subject to, among other
things, approval by the Company's stockholders. Boston University has paid the
Company $4.5 million as a deposit and, from the time of execution of the
agreement, has assumed responsibility for the division operations, including
responsibility for operating costs. The Company is permitted to use the
purchase price and operating cost deposits to fund its current operations,
although as of September 30, 1997, such deposit was recorded as a liability.
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into a service agreement ("the Service Agreement") with Boston
University providing for the purchase by the Company of certain services
related to product research, development, manufacturing, clinical trials,
quality control, and quality assurance. The Service Agreement expires in
January 1999, and is subject to certain early termination provisions,
including the option of Boston University to terminate the agreement if losses
during a contract year exceed $9.0 million and the Company does not reimburse
Boston University for the losses in excess of $9.0 million. The Service
Agreement may be renewed for two successive one-year terms at the option of
the Company. The Company has the option to repurchase the assets comprising
the manufacturing and clinical operations facilities. The Company has
agreed to pay Boston University fees of approximately $5.5 million and $6.6
million in years 1 and 2 of the Service Agreement, respectively. The fees can
be increased or decreased by agreement of the parties, but may not be
reduced to less than $4.3 million per contract year. The Service Agreement is
expected to reduce substantially the Company's operating costs in research and
development, as the Company will be contracting solely for the services
that the Company requires for clinical and manufacturing purposes. The
Company will give effect to this transaction in its financial statements after
closing. (See Note 9)
<PAGE> 8
At the closing, most of the Company's employees involved in the
manufacturing and clinical operations will become employees of Boston
University. Both the purchase price and operating cost deposits are subject
to refund to Boston University in the event that conditions for closing are
not met. Upon the closing of this transaction, the Company will account for
the gain and the sale of the operating division and the excess of the
reimbursed operating costs over the amount due to Boston University, pursuant
to the Service Agreement for the period from February 14, 1997, until the
closing of the transaction, as a contribution of capital. As of September 30,
1997, the net amount due to Boston University from the Company in respect of
the operating facility's operating expenses for the period from February 14,
1997 to September 30,1997, was approximately $2,612,077.
7. License and Option Agreement with United States Surgical Corporation
On July 31, 1997, the Company entered into an evaluation license and
option agreement (the "USSC License Agreement") with United States Surgical
Corporation ("USSC") granting USSC an option on worldwide rights to the
Company's DAB389EGF molecule (the "EGF Fusion Protein") for restenosis in
cardiovascular applications. Leon C. Hirsch is the Chairman of USSC and
beneficially owns 7.8% of the common stock of USSC. Turi Josefsen is a
director of USSC and beneficially owns 1.8% of the common stock of USSC.
John R. Silber is a director of USSC and benefically owns .02% of the common
stock of USSC. Pursuant to the USSC License Agreement, USSC made an initial
payment to the Company of $5.0 million on July 31, 1997. Under the USSC
License Agreement, USSC is entitled to acquire an exclusive license to the EGF
Fusion Protein technology, at any time during a 15-month evaluation period,
upon the payment to the Company of an additional $5.0 million. In addition,
the Company issued to USSC a warrant for the purchase of 500,000 shares of the
Company's Common Stock at a purchase price of $.5625 per share, the closing
sale price for shares of the Company's Common Stock on the date prior to the
date the warrant was issued. The Company charged $175,000 for such warrant to
general and administrative expense in the quarter ending September 30, 1997.
USSC has agreed to fund trials associated with the development of EGF Fusion
Protein for restenosis. If USSC's option to obtain any exclusive license of
the EGF Fusion Protein technology is exercised, milestone payments will be
payable by USSC to the Company up to a maximum amount of $22.5 million. In
addition, USSC will be obligated to pay the Company royalties on commercial
sales of the licensed product. In the event USSC chooses not to exercise the
option, the USSC License Agreement will terminate, and, in exchange, USSC will
receive $5.0 million worth of the Company's Common Stock valued at the average
of the closing prices of the Company's Common Stock (i) for the ten trading
days preceding the date of the USSC License Agreement or (ii) for the ten
trading days preceding the date on which USSC chooses not to exercise the
option, whichever is lower. The Company will record the $5.0 million initial
payment from USSC as a liability. In the event that USSC exercises its
optionto license the EGF Fusion Protein, the $5.0 million will be recorded as
revenue at that time. In the event that USSC chooses not to exercise the
option, the $5.0 million will be recorded as stockholders' equity.
<PAGE> 9
8. Restatement of 1996 Financial Statements
In March 1997, the Company restated its September 30, 1996 financial
statements to reflect the Series A, B and C Preferred Stock at their
liquidation value. Such restatement resulted in an increase in net loss
attributable to common stockholders of $9.6 million for the three and nine
month periods ended September 30, 1996, which includes an $8.6 million
dividend representing the value ascribed to the warrants issued in connection
with the Series B Preferred Stock. (See Notes 4, 5 and 6).
In September of 1997, the Company restated its 1996 financial statements
to reflect a change in the accounting treatment for the Company's amended
Sales and Distribution Agreement with Lilly on May 28, 1996. The
restatement consists of (1) recording the $5.0 million payment by Lilly in
1994 as an advance against future purchases of bulk product by Lilly (the
Company had previously recorded such amount as revenue in the quarter ended
June 30, 1996), (2) capitalizing as a deferred expense $2,060,000 of
commissions paid by the Company in connection with the $5.0 million payment
from Lilly in 1994, and (3) reversing a $1.2 million expense accrual
associated with providing the bulk material to Lilly (previously recorded by
the Company in the fourth quarter of 1996). The following table presents the
net loss, net loss applicable to common stockholders, and net loss per share
as originally reported, and as restated.
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
As reported As originally As restated As reported As originally As restated
restated restated
<S> <C> <C> <C> <C> <C> <C>
Net Loss (7,350,069) (7,350,069) (7,350,069) (16,856,075) (16,856,075) (19,796,075)
Net loss applicable to
common stockholders (8,012,216) (16,986,278) (16,986,278) (17,544,889) (26,518,951) (29,458,951)
Net loss per share (0.48) (1.02) (1.02) (1.06) (1.60) (1.77)
</TABLE>
9. Unaudited Pro Forma Information
The following unaudited pro forma financial information reflects the
Company's balance sheet as of September 30, 1997, assuming the transaction
with Boston University described in Note 6 was consummated on February
14, 1997. If the transaction had been consummated on February 14, 1997, the
Company's operating loss for the nine months ended September 30, 1997, would
have been reduced by approximately $3,289,153. (See Note (d) to the pro
forma Balance Sheet.) The unaudited pro forma Balance Sheet does not purport
to be indicative of the results which would actually have been reported if the
transactions had been effected on February 14, 1997, or which may be
reported in the future.
<TABLE>
<CAPTION>
SERAGEN, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
Assets September 30, 1997 Adjustments Pro Forma
__________________ ___________ __________
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 5,727,809 $ (2,112,077) (a) $ 3,615,732
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . . 559,344 - 559,344
Contract receivable. . . . . . . . . . . . . . . . . . . . . . 183,427 - 183,427
Unbilled contract receivable . . . . . . . . . . . . . . . . . 1,179,029 - 1,179,029
Prepaid expenses and other current assets . . . . . . . . . . 170,656 - 170,656
---------- ---------- ----------
Total current assets . . . . . . . . . . . 7,820,265 (2,112,077) 5,708,188
Property and equipment, net . . . . . . . . . . . . . . . . . . 3,986,257 (3,969,436) (b) 16,821
Deferred Commission . . . . . . . . . . . . . . . . . . . . . . 2,060,000 - 2,060,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 37,267 - 37,267
---------- ----------- ----------
Total assets . . . . . . . . . . . . . . . $ 13,903,789 $ (6,081,513) $ 7,822,276
============ =========== ==========
Liabilities and Stockholders' (Deficit)
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 599,404 - 599,404
Deposit received from Boston University . . . . . . . . 10,401,230 (10,401,230) (c) -
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . 4,862,315 - 4,862,315
Preferred stock redemption liability . . . . . . . . . . . . 1,388,774 - 1,388,774
Canadian affiliate put option liability. . . . . . . . . . . . 2,400,000 - 2,400,000
Short-term obligation . . . . . . . . . . . . . . . . . . . . . 800,000 - 800,000
----------- ------------ ----------
Total current liabilities . . . . . . . . . 20,451,723 (10,401,230) 10,050,493
Non-current liabilities:
Deferred Revenue . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 - 10,000,000
Long-term obligation. . . . . . . . . . . . . . . . . . . . . . . 1,450,000 - 1,450,000
---------- ------------ ----------
Total non-current liabilities. . . . . . . 11,450,000 - 11,450,000
Commitments and contingencies
Stockholders' (deficit);
Preferred stock, $.01 par value; 5,000,000 shares
authorized Convertible preferred stock, Series A,
$.01 par value; issued and outstanding 1,135 shares
at September 30, 1997, at liquidation preference . . . . . 16,437 - 16,437
Convertible preferred stock, Series B, $.01 par value;
issued and outstanding 23,800 shares at
September 30, 1997, at liquidation preference . . . . . . . 23,800,000 - 23,800,000
Convertible preferred stock, Series C, $.01 par value;
issued and outstanding 5,000 shares at
September 30, 1997, at liquidation preference . . . . . . . 5,400,000 - 5,400,000
Common stock, $.01 par value; 70,000,000 shares authorized;
issued 20,789,582 shares at September 30, 1997. . . . . . 207,896 - 207,896
Additional paid in capital . . . . . . . . . . . . . . . . . . . . . 154,793,356 4,319,717 (d) 159,113,073
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (202,213,292) - (202,213,292)
----------- --------- -----------
(17,995,603) 4,319,717 (13,675,886)
Less-treasury stock (777 shares at cost at
September 30, 1997). . . . . . . . . . . . . . . . . . . . . . . . . ( 2,331) - (2,331)
----------- --------- -----------
Total stockholders' (deficit). . . . . . . . (17,997,934) 4,319,717 (13,678,217)
---------- --------- ----------
Total liabilities and stockholders' (deficit). $ 13,903,789 $ (6,081,513) $ 7,822,276
============ ============= =============
</TABLE>
<PAGE> 11
SERAGEN, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1997
The following pro forma adjustments are required to reflect the sale of
the majority of the Company's property and equipment, the assignment of
certain capital and operating leases to Boston University and the Company's
Service Agreement with Boston University as discussed in Note 6. The net book
value and estimated disposition costs are based on the estimated fair value,
as determined by the management of the Company. Such allocation will be
revised to reflect changes in assets through the date of closing and the
determination of actual disposition costs.
Notes to pro forma Balance Sheet
(a) Reflects (i) $500,000 due to the Company from Boston
University for the remaining purchase price and (ii) the
net amount due to Boston University of $2,612,077. 2,112,077
(b) Reflects a reduction in property and equipment for
the net book value of assets sold. $3,969,436
(c) Reflects the Boston University deposits of $4.5
million for the purchase price and the $5,901,230 for
the operating costs as non-refundable payments
upon closing. $10,401,230
(d) Reflects (i) the excess of the purchase price over
the net book value of the assets sold of $1,030,564 and
(ii) the difference between the amount reimbursable from
Boston University and the amounts due to Boston University
under the Service Agreement of $3,289,153. $4,319,717
<PAGE>
SERAGEN, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FIANACIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company is engaged in the discovery, research and development of
pharmaceutical products for human therapeutic applications. Since 1985, the
Company has focused substantially all of its efforts and resources on research
and development of its fusion protein technology. The Company's fusion
proteins were developed using proprietary technology and have potential
applications in a wide range of human diseases. To date, the Company has
not generated any revenues from the sale of fusion protein products, and the
Company does not expect to receive any such revenues for several years. The
Company has generated no profit since its inception and expects to incur
additional operating losses over the next several years.
In February 1997, the Company entered into an Asset Purchase Agreement to
sell its manufacturing and clinical operations facilities to Boston University
or a designated affiliate for $5.0 million and in connection therewith entered
into a Service Agreement with Boston University pursuant to which Boston
University will provide the Company with certain services related to product
research, development, manufacturing, clinical trials, quality control and
quality assurance. The terms of this transaction are discussed more fully
below under "Liquidity and Capital Resources."
On April 7, 1997, the Company entered into the Amendment to its Sales and
Distribution Agreement and Development Agreement with Lilly pursuant to which
Lilly had the development and marketing rights to the Company's lead molecule
IL-2 Fusion Protein for all cancer and certain non-cancer indications. The
terms of this transaction are discussed more fully below under "Liquidity and
Capital Resources."
On June 1, 1997, the Company entered into an amendment to its License
Agreement with Ajinomoto pursuant to which Ajinomoto granted the Company
worldwide rights to certain IL-2 gene patents owned by the Japanese Foundation
for Cancer Research and Ajinomoto for potential use in the development of the
Company's lead product, IL-2 Fusion Protein. The terms of this transaction
are discussed more fully below under "Liquidity and Capital Resources."
On July 31, 1997, the Company entered into an evaluation license and
option agreement with USSC granting USSC an option on worldwide rights to the
Company's EGF Fusion Protein for restenosis in cardiovascular applications.
USSC has acquired the option in exchange for an initial payment to the Company
of $5.0 million. The terms of this transaction are discussed more fully below
under "Liquidity and Capital Resources."
<PAGE> 12
Restatement of 1996 Financial Statements
In March 1997, the Company restated its September 30, 1996 financial
statements to reflect the Series A, B and C Preferred Stock at their
liquidation value. Such restatement resulted in an increase in net loss
attributable to common stockholders of $9.6 million for the three and nine
month periods ended September 30, 1996, which includes an $8.6 million
dividend representing the value ascribed to the warrants issued in connection
with the Series B Preferred Stock. (See Notes 4, 5 and 6).
In September of 1997, the Company restated its 1996 financial statements
to reflect a change in the accounting treatment for the Company's amended
Sales and Distribution Agreement with Lilly on May 28, 1996. The restatement
consists of (1) recording the $5.0 million payment by Lilly in 1994 as an
advance against future purchases of bulk product by Lilly (the Company had
previously recorded such amount as revenue in the quarter ended June 30,
1996), (2) capitalizing as a deferred expense $2,060,000 of commissions paid
by the Company in connection with the $5.0 million payment from Lilly in 1994,
and (3) reversing a $1.2 million expense accrual associated with providing the
bulk material to Lilly (previously recorded by the Company in the fourth
quarter of 1996). (See Note 8)
Results of Operations
Three Months Ended September 30, 1997 and 1996. The Company's net loss
for the three month period ended September 30, 1997 was $4.9 million compared
to $16.9 million for the corresponding period ended September 30, 1996. The
decrease in the net loss during the three month period ended September 30,
1997 was primarily due to the following expenses in 1996: $8.6 million
dividend representing the value ascribed to the warrants issued in connection
with the Series B preferred stock and $3.0 million of prepaid interest
associated with the restructuring of the loan guarantee.
The Company's revenues for the three months ended September 30, 1997
decreased by $0.3 million in comparison to the corresponding period ended
September 30, 1996. Contract revenue from Lilly for the three months ended
September 30, 1997 increased by $1.1 million over the same period in 1996.
This increase is due to the restructuring of the terms of a third party
clinical trial management contract that is primarily funded by Lilly. License
fee revenue decreased by $1.4 million in the three months ended September 30,
1997, from license fee revenue for the corresponding period in 1996, a result
of a one-time fee relating to the exercise by a third party of an option to
license certain patents in the field of transplantation in the three months
ended September 30, 1996.
Total operating expenses for the three months ended September 30, 1997
increased by $0.3 million as compared to the same period in 1996. The cost of
contract revenue increased for the three-month period ended September 30, 1997
by $0.5 million in comparison with the same period in 1996. Expenses to
contract revenue had a one-time drop in the three month period ended September
30, 1996 as a result of restructuring the terms of a third party clinical
trial management contract. Included in the three months ended September 30,
1996 period was a one-time payment to a licensor relating to the exercise by a
third party of an option to license certain patents. Research and development
expenses decreased by $1.0 million in the three months ended September 30,
1997 in comparison to the three months ended September 30, 1996, due to a
substantial reduction in the workforce and a higher allocation of R&D expenses
to contract revenue.
General and administrative expenses were $1.8 million for the three month
period ended September 30, 1997, a $0.8 million increase over the same period
in 1996. This increase was due to an increase in legal fees associated with
the Company's proxy filing and patent counsel, a fairness opinion for USSC,
the value of options and warrants issued to USSC, and fees and expense of
certain consultants.
The loss incurred in connection with the Company's Canadian affiliate was
$210,000 in the three months ended September 30, 1996. The Company believes
the current maximum obligation to the Canadian affiliate is $2.4 million,
which was accrued as of December 31, 1996, and thus no additional expense
was incurred in the three month period ending September 30, 1997.
Interest expense was $3.7 million in the third quarter of 1996 resulting
from the elimination of the lines of credit in exchange for Series B Preferred
Stock which occurred in July 1996.
Preferred stock dividends and accretion decreased by $8.7 million in the
three months ended September 30, 1997 as compared to the three months ended
September 30, 1996. The warrants issued to the Series B shareholders
in the three months ended September 30, 1996 were ascribed a value of $8.6
million.
<PAGE> 13
Nine Months Ended September 30, 1997 and 1996. The Company's net loss for
the nine-month period ended September 30, 1997 was $13.2 million compared to
$29.5 million for the period ended September 30, 1996. The decrease in the
net loss was primarily due to (i) a decrease in warrant valuation expense of
$8.6 million in the quarter ending September 30, 1996, (ii) a reduction in
operating expenses of $1.1 million, (iii) a reduction in the loss incurred in
connection with the Company's Canadian affiliate of $1.9 million, (iv) a
decrease of $5.1 million in interest expense and (v) an extraordinary gain of
$2.1 million in the September 1997 period reflecting the restructuring of the
Ajinomoto license agreement. These decreases were partially offset by a
decrease in revenue of $0.8 million.
The Company's revenues for the nine months ended September 30, 1997 and
1996 were $3.5 million and $4.3 million, respectively. Contract revenue from
Lilly increased in the nine months ended September 30, 1997 as compared to
1996 by $0.7 million, however this gain was more than offset by a decrease in
revenue from license fees of $1.5 million, a result of a one-time fee relating
to the exercise by a third party of an option to license certain patents
in the field of transplantation in the nine months ended September 30, 1996.
Total operating expenses for the nine months ended September 30, 1997
decreased by $1.1 million to $16.0 million in 1997 from $17.1 million in 1996.
The cost of contract revenue remained substantially the same during this
period as compared with the prior years nine months. Although contract revenue
from Lilly increased by $0.7 million, this was partially offset by the
one-time payment relating to the exercise by a third party of an option to
license certain patents in the field of transplantation that occured in the
third quarter of 1996. Research and development expenses decreased by $2.1
million to $8.3 million in the nine months ended September 30, 1997 from $10.4
million for the nine months ended September 30, 1996. This decrease was
primarily the result of a reduction in workforce and related expenses of
approximately $1.9 million.
General and administrative expenses increased by $1.0 million to $4.4
million in the nine months ended September 30, 1997 due to the increase in
legal expenses associated with the Company's proxy filing and patent counsel,
a fairness opinion of USSC, the value of options and warrants issued to USSC,
and fees and expense of certain consultants.
The loss incurred in connection with the Company's Canadian affiliate was
$1.9 million in the nine months ended September 30, 1996. The Company
believes the current maximum obligation to the Canadian affiliate is $2.4
million, which was accrued as of December 31, 1996 and thus no additional
expenses were incurred for the nine months ended September 30, 1997.
Interest income was substantially unchanged in the nine months ended
September 30, 1997 as compared to the nine months ended September 30, 1996.
Interest expense decreased by $5.1 million to $172,000 in the nine months
ended September 30, 1997 from $5.3 million in the nine months ended September
30, 1996 due to the elimination of the lines of credit in exchange for Series
B preferred stock which occurred in July 1996.
The extraordinary gain of $2.1 million in 1997 reflects the gain recorded
in connection with the reduction in the amount payable to Ajinomoto as a
result of the restructuring of the Ajinomoto license agreement. Preferred
stock dividends and accretion decreased by $7.0 million in the nine months
ended September 30, 1997 as compared to the nine months ended September 30,
1996. The warrants issued to the Series B shareholders in the three months
ended September 30, 1996 were ascribed a value of $8.6 million. This decrease
was offset by the accrual of dividends on the issuances of Series A, B and
C Preferred Stock in May 1996, July 1996 and September 1996, respectively.
<PAGE> 14
Restatement of 1996 Financial Statements
In March 1997, the Company restated its September 30, 1996 financial
statements to reflect the Series A, B and C Preferred Stock at their
liquidation value. Such restatement resulted in an increase in net loss
attributable to common stockholders of $9.6 million for the three and nine
month periods ended September 30, 1996, which includes an $8.6 million
dividend representing the value ascribed to the warrants issued in connection
with the Series B Preferred Stock. (See Notes 4, 5 and 6).
In September 1997, the Company restated its 1996 financial statements to
reflect a change in the accounting treatment for the Company's amended Sales
and Distribution Agreement with Lilly on May 28, 1996. The restatement
consists of (1) recording the $5.0 million payment by Lilly in 1994 as an
advance against future purchases of bulk product by Lilly (the Company had
previously recorded such amount as revenue in the quarter ended September 30,
1996), (2) capitalizing as a deferred expense $2,060,000 of commissions
paid by the Company in connection with the $5.0 million payment from Lilly in
1994, and (3) reversing a $1.2 million expense accrual associated with
providing the bulk material to Lilly (previously recorded by the Company in
the fourth quarter of 1996). The following table presents the net loss, net
loss applicable to common stockholders, and net loss per share as originally
reported, and as restated. (See Note 8)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
As reported As originally As restated As reported As originally As restated
restated restated
<S> <C> <C> <C> <C> <C> <C>
Net Loss (7,350,069) (7,350,069) (7,350,069) (16,856,075) (16,856,075) (19,796,075)
Net loss applicable to
common stockholders (8,012,216) (16,986,278) (16,986,278) (17,544,889) (26,518,951) (29,458,951)
Net loss per share (0.48) (1.02) (1.02) (1.06) (1.60) (1.77)
</TABLE>
Liquidity and Capital Resources
As of September 30, 1997, the Company had approximately $5.7 million in cash
and cash equivalents, which was comprised of (i) $5.0 million from USSC
pursuant to the License Agreement (ii) the remainder of the deposit to date of
$4.5 million made by Boston University with respect to the operating facility
in connection with the sale of the Company's manufacturing and clinical
operations to Boston University and (iii) advances from Boston University
under the Service Agreement.
The Company expects to incur substantial additional research and development
expenses as it continues development of its fusion proteins. The Company also
expects to incur substantial administrative and commercialization expenses in
the future. The Company's continuing operating losses and requirements for
working capital will depend on many factors, including progress in and costs
associated with its research, pre-clinical and clinical development efforts
and the level of resources which the Company must devote to obtaining
regulatory approvals to manufacture and sell its products.
<PAGE> 15
The Company began assembling the components of the Company's operating
division, which includes substantially all of the Company's personnel and
tangible assets and related contract rights other than (i) certain management
personnel, and (ii) assets utilized by retained management personnel in the
performance of their duties (collectively, the "Operating Division"), over
five years ago. The Company developed the Operating Division in a manner that
provided excess capacity in order to meet anticipated commercial demand for
the Company's products. Historically, the Operating Division has never
operated at full capacity because the Company has not yet begun manufacturing
product for commercial purposes and due to the limited financial resources
that the Company has available to develop other products. The Company,
however, maintained a relatively high level of staffing in order to comply
with regulatory requirements. The Company maintained the Operating Division,
despite its high costs, because of the delays and disruptions in the Company's
product development and clinical trial efforts that the Board of directors and
management believed would have resulted had the Company discontinued the
operations of the Operating Division and sought to obtain the services
provided by the Operating Division from third parties. The Company does not
now have adequate financial resources to maintain the Operating Division in
accordance with its initial plans or to develop additional products utilizing
the Operating Division. The Company did not provide services to third parties
using the services of the Operating Division due to regulatory guidelines that
prevented it from doing so. In recent years, the FDA has relaxed these
guidelines. However, the Company has chosen not to contract out excess
capacity because this would not have led to a substantial and rapid reduction
in expenditures and because of the potential resulting distraction to key
management.
As of February 14, 1997, the Company entered into the Asset Purchase
Agreement to sell the Operating Division to Boston University or a designated
affiliate for $5.0 million. The closing of the transaction is subject to,
among other things, approval and ratification by the Company's stockholders.
Boston University has paid the Company $4.5 million as a deposit and, from the
time of execution of the agreement, has assumed responsibility for the
operations of the Operating Division, including responsibility for operating
costs. The Company is permitted to use the purchase price and operating costs
deposits to fund its current operations although, as of September 30, 1997,
such deposit was recorded as a liability. The net book value of the assets to
be sold to Boston University was aproximately $4.0 million as of September 30,
1997.
The Company expects that the transactions with Boston University discussed
above will effectively outsource the Company's research and development
activities and reduce the Company's cash needs, both for capital expenditures
and operating expenses. The Company is subject to certain additional risks
and expenditures, including termination of its contract service agreement if
the Company does not reimburse Boston University for the losses in excess of
$9.0 million in a contract year, provided that, after notice, the Company does
not pay Boston University the difference between its actual losses for that
year and $9.0 million. If the Company is unable to or chooses not to make the
additional payments, it will be forced to change to a new service provider.
This could adversely affect the Company's research and development efforts.
<PAGE> 16
Simultaneously with the execution of the Asset Purchase Agreement, the
Company entered into the Service Agreement with Boston University providing
for the purchase by the Company of certain services related to product
research, development, manufacturing, clinical trials, quality control, and
quality assurance. The Service Agreement expires in January 1999 and is
subject to certain early termination provisions, including the option of
Boston University to terminate the agreement if losses during a contract year
exceed $9.0 million and the Company does not reimburse Boston University for
the losses in excess of $9.0 million. The Service Agreement may be renewed
for two successive one-year terms at the option of the Company. The Company
has the option to repurchase the assets comprising the Operating Division.
The Company has agreed to pay Boston University fees of approximately $5.5
million and $6.6 million in years 1 and 2 of the Service Agreement,
respectively. The fees can be increased or decreased by agreement of the
parties, but may not be reduced to less than $4.3 million per contract year.
The Service Agreement is expected to substantially reduce operating costs in
research and development, as the Company will be contracting solely for the
services that the Company requires for clinical and manufacturing purposes.
The Company will give effect to this transaction in its financial statements
after closing.
At the closing, most of the Company's employees involved in the manufacturing
and clinical operations will become employees of Boston University. Both the
purchase price and the operating costs deposits are subject to refund to
Boston University in the event that conditions for closing are not met. Upon
the closing of this transaction, the Company will account for the gain and the
sale of the operating facility and the excess of the reimbursed operating
costs over the amount due to Boston University, pursuant to the Service
Agreement for the period from February 14, 1997 until the closing of the
transaction, as a contribution of capital. As of September 30, 1997, the net
amount due to Boston University from the Company in respect of the operating
facility's operating expenses for the period from February 14, 1997 to
September 30, 1997 was approximately $2.6 million. (See Note 9)
On April 7, 1997, the Company entered into the Amendment to its Sales and
Distribution Agreement and Development Agreement with Lilly pursuant to which
Lilly had originally obtained the development and marketing rights to the
Company's lead molecule IL-2 Fusion Protein for all cancer and certain
non-cancer indications. Under the terms of the Amendment, subject to certain
limitations, Lilly relinquished all other development and marketing rights to
IL-2 Fusion Protein for non-cancer indications, as well as rights to other
molecules. In addition, Lilly agreed to pay to Ajinomoto on behalf of the
Company $4.3 million: Lilly paid $2.15 million to Ajinomoto for a license
granted by Ajinomoto directly to Lilly; and Lilly has agreed to pay, subject
to certain conditions, up to $2.15 million of the Company's $2.25 million
obligation to Ajinomoto under the Company's restructured agreement with
Ajinomoto. Pursuant to the Amendment, Lilly is permitted to credit $1.5
million of the amount paid by Lilly to Ajinomoto on behalf of the Company
against the next $1.5 million milestone payment that falls due from Lilly to
the Company under the Sales and Distribution Agreement between the Company and
Lilly upon the submission by the Company of a BLA for CTCL to the FDA. Lilly
is not obligated to make any further payments in respect of the Company's
obligations to Ajinomoto if Lilly terminates the Sales and Distribution
Agreement and Development Agreement between it and the Company as a result of
a failure by the Company to meet specified clinical, regulatory and financial
milestones and other requirements. Among the relevant milestones and
requirements referenced in the preceding sentence are the Company's obtaining
commitments for $5.0 million of new investment capital by July 1, 1997, and
closing on the same by August 1, 1997, the Company obtaining $15.0 million of
new investment capital by October 1, 1997, and the Company closing the sale of
the Operating Division to Boston University by October 31,1997.
<PAGE> 17
In exchange, the Company issued to Lilly in a private placement 1.0 million
shares of its common stock. The shares of common stock issued to Lilly are
valued at the closing price of the Company's Common Stock as reported
on Nasdaq on the date of issuance of the shares to Lilly, less a discount of
20% to reflect a discount from the Nasdaq closing price because the shares are
not registered under the Securities Act of 1933. In the quarter ended June
30, 1997, the Company valued the 1.0 million shares of common stock issued to
Lilly at $800,000 based on the April 7, 1997 Nasdaq closing price of $1.00,
less 20%, and has recorded it as research and development expense.
On July 31, 1997, the Company reported that it had obtained $5.0 million
through an agreement with U.S. Surgical Corporation (See Note 7). The Company
did not, however, obtain $15.0 million of new investment capital by October 1,
1997, and did not close the sale of the Operating Division by October 31,
1997. As a result, Lilly has the right currently, with 30 days' notice, to
terminate its agreements with the Company. The Company has received no
indication from Lilly that Lilly intends to exercise that right. If Lilly
were to terminate its agreements with the Company, the Company would be
obligated to pay the $2.15 million payment to Ajinomoto that Lilly has agreed
to make on the Company's behalf, and Lilly's obligations under the agreements
to provide financial support to the Company's clinical trial efforts would
cease.
On June 1, 1997, the Company restructured its License Agreement with
Ajinomoto pursuant to which Ajinomoto had granted the Company worldwide rights
to certain IL-2 gene patents owned by the Japanese Foundation for Cancer
Research and Ajinomoto for potential use in the development of the Company's
lead product, IL-2 Fusion Protein. Prior to the restructuring, the Company
was obligated to pay Ajinomoto a license fee of $4.3 million payable upon the
occurrence of certain specified events, but no later than March 31, 1997
(previously extended by agreement of Ajinomoto to May 31, 1997); and royalties
ranging from 2% to 4% on sales of the licensed product by the Company or its
sublicensees, but with minimum royalties of $100,000 for the third year of the
agreement, $200,000 for the fourth year of the agreement, and $300,000 for the
fifth and following years of the agreement. In addition, prior to the
restructuring, the rights granted by Ajinomoto to the Company pursuant to
the License Agreement were exclusive. Under the terms of the restructuring,
the future license fees payable by the Company to Ajinomoto were reduced to
the following amounts: a $2.25 million fee payable in the amount of $800,000
by June 30, 1998, or approval by the FDA of a BLA filed by the Company for the
licensed product, whichever comes first, in the amount of $800,000 by June 30,
1999, and in the amount of $650,000 by March 31, 2000; and a reduced royalty
of 1% on end user net sales of the licensed product by the Company or its
sublicenses. The Company amended its agreements with Lilly whereby Lilly will
pay license fees to Ajinomoto on behalf of the Company, subject to certain
limitations. The restructuring provides that the license granted by Ajinomoto
to the Company will be non-exclusive. Accordingly, in the quarter ended June
30, 1997, the Company reduced its obligation to Ajinomoto from $4.3 million to
$2.25 million and recorded extraordinary income of $2,050,000 for the
reduction of this liability.
<PAGE> 18
On July 31, 1997, the Company entered into the USSC License Agreement with
USSC granting USSC an option on worldwide rights to the EGF Fusion Protein for
restenosis in cardiovascular applications. Leon C. Hirsch, who beneficially
owns more than 5% of the Company's Common Stock, is the Chairman of USSC and
beneficially owns 7.8% of the common stock of USSC. Turi Josefsen, who
beneficially owns more than 5% of the Company's Common Stock, is a director of
USSC and beneficially owns 1.8% of the common stock of USSC. John R. Silber,
a director of the Company, is a director of USSC and beneficially owns .02% of
the common stock of USSC. Pursuant to the USSC License Agreement, USSC made
an initial payment to the Company of $5.0 million on July 31, 1997. Under the
USSC License Agreement, USSC is entitled to acquire an exclusive license to
the EGF Fusion Protein technology, at any time during a 15-month evaluation
period, upon the payment to the Company of an additional $5.0 million. In
addition, the Company issued to USSC a warrant for the purchase of 500,000
shares of the Company's Common Stock at a purchase price of $.5625 per share,
the closing sale price for shares of the Company's Common Stock on the date
prior to the date the warrant was issued. The Company charged $175,000 for
such warrant to general and administrative expense in the quarter ending
September 30, 1997. USSC has agreed to fund trials associated with the
development of EGF Fusion Protein for restenosis. If USSC's option to obtain
any exclusive license of the EGF Fusion Protein technology is exercised,
milestone payments will be payable by USSC to the Company up to a maximum
amount of $22.5 million. In addition, USSC will be obligated to pay the
Company royalties on commercial sales of the licensed product. In the event
USSC chooses not to exercise the option, the USSC License Agreement will
terminate, and, in exchange, USSC will receive $5.0 million worth of the
Company's Common Stock valued at the average of the closing prices of the
Company's Common Stock (i) for the ten trading days preceding the date of the
USSC License Agreement or (ii) for the ten trading days preceding the date on
which USSC chooses not to exercise the option, whichever is lower. The
Company will record the $5.0 million initial payment from USSC as a liability.
In the event that USSC exercises its option to license the EGF Fusion Protein,
the $5.0 million will be recorded as revenue at that time. In the event
that USSC chooses not to exercise the option, the $5.0 million will be
recorded as stockholders' equity.
On August 6, 1997 the Company and Harvard College amended their license
agreement dated November 29, 1983. Pursuant to the amended license agreement,
the royalties payable by the Company on net sales of product covered by such
license agreement were reduced from 5% to 2%. Further, the royalties payable
to Harvard from sub-licenses were reduced from 50% to 10%.
On October 1, 1997, the Company and the Boston Medical Center (formerly
University Hospital) amended their license and royalty agreement dated
November 18, 1991. Pursuant to the amended license and royalty agreement, the
royalties payable by the Company on net sales of product covered by such
license agreement following the expiration of the Harvard license above, were
reduced from 1.5% to 1.0%. Further, the royalties payable to Boston Medical
Center from sub-licenses were reduced from 15% to 2% provided that such
products require other patents or licenses in addition to the license from
Boston Medical Center.
On May 29, 1996, the Company issued 4,000 shares of Series A Preferred stock
("Series A Shares"), to investors outside the United States in reliance on
Regulation S of the Securities Act, for gross proceeds of $4 million
(approximately $3.8 million net of offering fees). Each Series A Share is
convertible into shares of the Company's Common Stock at a conversion price
equal to the lesser of $4.125 or 73 percent of the average closing bid prices
for a five-day period prior to the conversion date, up to a maximum of
3,321,563 shares of Common Stock. Under the original terms of the Series A
Shares, any share the investor is unable to convert due to this limitation may
be exchanged for $1,150 per share in cash. On November 11, 1997, the holder
of the Series A Shares and the Company agreed to eliminate the conversion
limitation and the ability to exchange such shares for cash when subject
to such limitation. The holders of the Series A Shares also are entitled to
receive cumulative dividends at an 8% annual rate upon conversion, payable in
shares of Common Stock. Any Series A Shares remaining outstanding on November
29, 1997, will be automatically converted into shares of Common Stock. As of
November 11, 1997, 2,908 Series A Shares had been converted into 3,273,350
shares of Common Stock.
The Company has not paid the cash dividends due December 31, 1996, March 31,
1997, June 30, 1997, and September 30, 1997, on shares of its Series B
Preferred stock ("Series B Shares"), nor has the Company made the royalty
payments due to its subsidiary, Seragen Technology, Inc. ("STI"), on January
1, 1997, April 1, 1997, July 1, 1997, and October 1, 1997. Correspondingly,
STI has not paid the dividends due January 1, 1997, April 1, 1997, July 1,
1997, and October 1, 1997, on shares of its Class B common stock ("Class B
Shares"). The Company does not expect STI to make the dividend payments due
on the Class B Shares on January 1, 1998. As a result, the holders of the
Class B Shares have the right under an escrow agreement to seek delivery to
them of a collateral assignment of the Company's patents. The holders of
the Class B Shares have, however, agreed to forbear until March 1, 1998 from
exercising their right to foreclose on the patents.
<PAGE> 19
The Company anticipates that existing cash and cash equivalents, the
reimbursement of clinical costs for the development of IL-2 Fusion Protein for
cancer therapy from Lilly, the reimbursement of operating costs by Boston
University and the $5.0 million received by USSC for a license option will be
sufficient to fund the Company's working capital requirements through
approximately December 1997. In addition, the Company must complete the sale
of its manufacturing and clinical operation facilities to Boston University or
the $4.5 million deposit and the $5.9 million advances for operating expenses
that have been paid as of September 30, 1997, on such facility will be subject
to refund to Boston University (See Note 6 in the "Notes to the Financial
Statements" regarding significant future obligations). The Report of
Independent Accountants on the Company's Financial Statements for the fiscal
year ended December 31, 1996 includes an explanatory paragraph concerning
uncertainties surrounding the Company's ability to continue as a going
concern. This may adversely affect the Company's ability to raise additional
capital. See Note A in the Annual Report on Form 10-K (As restated) for the
year ended December 31, 1996 in the "Notes to the Financial Statements." The
Company's ability to finance its operations is dependent upon its ability to
raise additional capital through debt or equity financings, possible
additional payments under the strategic alliance with Lilly, or such other
sources of financing, including strategic partnerships, as may be available.
The Company's Common Stock was delisted from trading on the Nasdaq National
Market on September 9, 1997, due to failure to comply with Nasdaq's minimum
net tangible assets requirement. The delisting of the Common Stock from the
Nasdaq National Market could have a material adverse effect on the Company's
efforts to raise additional equity capital. In addition, as a result of the
delisting of the Common Stock from the Nasdaq National Market, the investors
in Seragen Biopharmaceuticals Ltd. ("SBL"), a company 49% owned by the
Company, may claim that they are entitled to require the Company to purchase
their shares in SBL for cash. The Company believes that it has meritorious
defenses to assert against this potential claim. There is no assurance that
the Company will have sufficient cash to purchase the investors' shares in SBL
for cash. The Company intends to re-apply for listing on the Nasdaq National
Market or the Nasdaq Small-Cap Market as soon as possible after the Company is
able to satisfy applicable listing requirements. There is no assurance that
the Company will be able to satisfy these requirements.
The Company is exploring a possible equity offering, although the terms of
such offering have not been finalized. There can be no assurance that the
Company will be successful in an equity offering or that the amount raised
will be sufficient to fund the Company's operating expenses until other
sources of funds can be secured. Management of the Company believes that to
be able to complete a new equity financing successfully, the holders of the
Company's Series A, Series B and Series C preferred stock will be required to
convert such securities in connection with the offering. Management is in
discussions with such holders, but there is no assurance that such agreements
can be reached on terms satisfactory to the Company. Any such offering
would likely result in a significant dilution to holders of Common Stock.
The Company also continues to seek additional funds through collaborative or
other arrangements with corporate partners and others. There can be no
assurance that the Company will be successful in securing collaborative or
other arrangements with corporate partners or others on acceptable terms, if
at all.
If the Company does not consummate an equity financing or additional
collaborative or other arrangements with corporate partners, then the
Company's current cash position may not be sufficient to meet its financial
obligations or to fund operations at the current level beyond December 1997.
If adequate additional funds are not available, the Company may be required to
delay, scale back or eliminate some or all of its clinical trials,
manufacturing or development activities or certain other aspects of its
business and may be required to cease operations. The Company also is
exploring other alternatives that could result in a merger or sale of the
Company.
Safe Harbor Information
Some of the statements contained in this document are forward-looking,
including statements relating directly or by implication to the Company's
products, operations, strategic partnerships, and ability to fund its
operations. These statements are based on current expectations and involve a
number of uncertainties and risks, including (but not limited to) the
Company's ability to proceed with successful development, testing, and
licensing of its products, to modify certain exsisting arrangements, to enter
into additional strategic partnerships and other collaborative arrangements,
to raise additional capital on satisfactory terms, or to complete a merger or
sale of the Company. For further information, refer to the "Business Outlook"
section in the Company's Form 10-K as filed with the Securities and Exchange
Commission. Actual results may differ materially from such expectations.
<PAGE> 20
SERAGEN, INC.
PART II
OTHER INFORMATION
_______________________
Item 2. Changes in Securities
Previously reported under Part II, Item 2, in the Company's Form 10-Q for the
Quarter ended June 30, 1997.
Item 3. Defaults upon Senior Securities
Under the terms of the Series B Preferred Stock (the "Series B Shares"),
the Company is obligated to pay quarterly dividends to the holders of the
Series B Shares. The Company did not make its dividends payments due December
31, 1996, March 31, 1997, June 30, 1997 and September 30, 1997 and does not
anticipate making the payment due September 30, 1997. As of September 30,
1997, the amount of dividends in arrears was approximately $2.3 million.
In connection with the issuance of the Series B Shares, the Company
transferred all of its existing and future United States patents and patent
applications (the "Patents") to Seragen Technology, Inc. ("STI") in exchange
for 214,200 shares of STI Class A Common Stock and 23,800 shares of STI Class
B Common Stock. STI provided the Company with an irrevocable worldwide
exclusive license (the "Irrevocable License Agreement") with respect to the
Patents. Under the Irrevocable License Agreement, the Company is obligated to
pay quarterly royalties in an amount equal to the amount of any dividend that
the holders of the Series B Shares are entitled to receive but have not
received by the royalty due date (which is one day after each quarterly
dividend payment date for the Series B Shares). The Company delivered the
23,800 shares of STI Class B Common Stock pro rata to the holders of the
Series B Shares. STI's Class B Common Stock provides for cumulative dividends
payable in the same amount as any royalties payable by the Company under the
Irrevocable License Agreement. STI also executed a collateral assignment of
the Patents in favor of the holders of the Series B Shares. Pursuant to an
escrow arrangement, the collateral assignment of the Patents is required to be
delivered to the holders of the Series B Shares in the event that, after
notice, STI fails for 60 days to pay any dividend due in respect of its Class
B Common Stock. The Company did not make its royalty payments due January 1,
1997, April 1, 1997, July 1, 1997 or October 1, 1997, and does not anticipate
making the payments due January 1, 1998. STI did not pay Class B Common Stock
dividends due January 1, 1997, April 1, July 1, 1997 or October 1, 1997, and
does not anticipate making the payments due and January 1, 1998. STI did not
pay Class B Common Stock dividends due January 1, 1997, April 1, 1997, July 1,
1997 or October 1, 1997, and does not anticipate making the payments due
January 1, 1998. To the Company's knowledge, the holders of the Series B
Shares have not provided notice of the STI dividend payment failure to the
escrow agent. The holders have agreed in principle to forebear until March 1,
1998 from exercising their right to foreclose on the Patents. In the event
that STI redeems its Class B Common Stock, the escrow agent is required to
deliver a reassignment of the Patents, executed by the holders of the STI
Class B Common Stock, to the Company.
<PAGE> 21
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit Index
Exhibit 10.87 - Amendment No. 2 to Asset Purchase Agreement
between the Registrant and Trustees of Boston University, dated
August 25, 1997 (filed herewith)
Exhibit 10.88 - Amendment No. 3 to Asset Purchase Agreement
between the Registrant and Trustees of Boston University, dated
October 21, 1997 (filed herewith)
Exhibit 10.89 - Amendment to the License Agreement between the
Registrant and Harvard College dated August 6, 1997 (filed
herewith)
Exhibit 10.90 - Amendment to the License and Royalty Agreement
Agreement between the Registrant and Boston Medical Center, dated
November 18, 1997 (filed herewith)
Exhibit 10.91 - Forbearance Agreement between the Registrant and
Leon C. Hirsch, Turi Josefsen, Gerald S. J. Cassidy, Loretta P.
Cassidy and the Trustees of Boston University dated September
1997 (filed herewith)
Exhibit 10.92 - 1992 Long Term Incentive Plan, as amended through
October 28, 1997 (filed herewith)
Exhibit 10.93 - Amended and Restated Employment Agreement between
the Registrant and Jean Nichols dated September 22, 1997 (filed
herewith)
Exhibit 10.94 - Amendment to the Offshore securities Subscription
Agreement between the Registrant and P.R.I.F., dated November
12, 1997 (filed herewith)
Exhibit 10.95 - Stockholders Waiver Agreement dated October 28,
1997 (filed herewith)
Exhibit 10.96 - Amendment to Employment Agreement between the
Registrant and Elizabeth Chen dated September 3, 1997 (filed
herewith)
Exhibit 10.97 - Amendment No. 1 to Employment Agreement between
the Registrant and Elizabeth Chen dated September 30, 1997
(filed herewith)
Exhibit 10.98 - Amendment No. 3 to Employment Agreement between
the Registrant and Reed R. Prior dated September 30, 1997
(filed herewith)
Exhibit 27 - Selected Financial Data Schedule
(b) Reports on Form 8-K
A Current Report on Form 8-K for July 31, 1997 event, relating to
the Registrant's announcement that it had entered into an
License Option Agreement with United States Surgical Corporation.
A Current Report on Form 8-K/A for July 31, 1997 event, relating
to the Registrant's announcement that it had entered into an
License Option Agreement with United States Surgical Corporation.
A Current Report on Form 8-K/A#2 for July 31, 1997 event, relating
to the Registrant's announcement that it had entered into an
License Option Agreement with United States Surgical Corporation.
A Current Report on Form 8-K/A#3 for July 31, 1997 event, relating
to the Registrant's announcement that it had entered into an
License Option Agreement with United States Surgical Corporation.
A Current report on Form 8-K for September 9, 1997 event, relating
to the Registrant's delisting from the Nasdaq National Market.
<PAGE> 22
SERAGEN, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Seragen, Inc.
Date: November 14 , 1997 By: /s/ Reed R. Prior
---------------------
Reed R. Prior
Chairman of the Board and
Chief Executive Officer
<PAGE> 23
AMENDMENT NO. 2 TO ASSET PURCHASE AGREEMENT
This Amendment No. 2 to Asset Purchase Agreement is made between
Seragen, Inc., a Delaware corporation having a usual place of business at 97
South Street, Hopkinton, Massachusetts (the "Seller"), and Trustees of Boston
University, a Massachusetts not-for-profit corporation having a usual place of
business at 881 Commonwealth Avenue, Boston, Massachusetts (the "Buyer"),
as of August 25, 1997, for the purpose of amending that certain Asset Purchase
Agreement, dated as of February 14, 1997, and amended as of May 16, 1997
(as amended, the "Asset Purchase Agreement"), between the Seller and the
Buyer.
THE PARTIES AGREE AS FOLLOWS:
1. Section 1.05 of the Asset Purchase Agreement is amended by
deleting therefrom the date "August 29, 1997," and replacing it with "November
28, 1997."
2. As between the parties hereto, this amendment shall be deemed
for all purposes to be and have become effective as of February 14, 1997.
3. Except as modified by this Amendment No. 2, the Asset Purchase
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Buyer and Seller have executed this
Amendment No. 2 as of the date first set forth above.
SERAGEN, INC.
By: /s/ Reed R. Prior
----------------------
Reed R. Prior, Chairman,
Chief Executive Officer
and Treasurer
TRUSTEES OF BOSTON UNIVERSITY
By: /s/ Kenneth G. Condon
---------------------------
Kenneth G. Condon, Treasurer
AMENDMENT NO. 3 TO ASSET PURCHASE AGREEMENT
This Amendment No. 3 to Asset Purchase Agreement is made between
Seragen, Inc., a Delaware corporation having a usual place of business at
97 South Street, Hopkinton, Massachusetts (the "Seller"), and Trustees of
Boston University, a Massachusetts not-for-profit corporation having a usual
place of business at 881 Commonwealth Avenue, Boston, Massachusetts (the
"Buyer"), ss of October 21, 1997, for the purpose of amending that certain
Asset Purchase Agreement, dated as of February 14, 1997, and amended as of May
16, 1997, and August 25, 1997 (as amended, the "Asset Purchase Agreement"),
between the Seller and the Buyer.
THE PARTIES AGREE AS FOLLOWS:
1. Section 1.05 of the Asset Purchase Agreement is amended by
deleting therefrom the date "November 28, 1997," and replacing it with
"December 31, 1997."
2. As between the parties hereto, this amendment shall be
deemed for all purposes to be and have become effective as of February 14,
1997.
3. Except as modified by this Amendment No. 3, the Asset
Purchase Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the Buyer and Seller have executed this
Amendment No. 3 as of the date first set forth above.
SERAGEN, INC.
By: \s\ Reed R. Prior
-----------------------
Reed R. Prior, Chairman,
Chief Executive Officer
and Treasurer
TRUSTEES OF BOSTON UNIVERSITY
By: \s\ Kenneth G. Condon
---------------------------
Kenneth G. Condon, Treasurer
Amendment to License Agreement
This Amendment to License Agreement (hereinafter AMENDMENT) is made and
entered into between the President and Fellows of Harvard College (hereinafter
COLLEGE) having offices at the Committee on Patents and Copyrights, 970
Holyoke Center, 1350 Massachusetts Avenue, Cambridge, MA 02138, and Seragen,
Inc. (hereinafter LICENSE), a corporation at 97 South Street, Hopkinton, MA
01748.
WHEREAS, COLLEGE and LICENSEE have previously entered into a License
Agreement on November 29, 1983 with respect to the making, using and selling
the inventions disclosed and claimed in COLLEGE's U.S. Patent Application No.
377,386, filed May 13, 1982, entitled "Hybrid Proteins" (now U.S. Patent No.
4,675,382), and the foreign patent applications corresponding thereto
(hereinafter referred to as the PRIOR LICENSE AGREEMENT); and
WHEREAS, COLLEGE and LICENSEE desire to amend various provisions of the
PRIOR LICENSE AGREEMENT.
NOW, THEREFORE, in consideration of the mutual covenants set forth below
and in the PRIOR LICENSE AGREEMENT,
IT IS MUTUALLY COVENANTED AND AGREED AS FOLLOWS:
1. Section 2.1 - This paragraph is amended to read as follows:
COLLEGE hereby grants to LICENSEE and LICENSEE accepts, subject to
the terms and conditions hereof, a worldwide exclusive commercial
license, under PATENT RIGHTS to make and have made, to use and
have used, to sell and have sold the LICENSED PRODUCTS, and to
practice the LICENSED PROCESSES, for the life of PATENT RIGHTS.
LICENSEE agrees that during the period of exclusivity of this
license in the United States that any products produced through
the use of the LICENSED PROCESSES for sale in the United States
will be manufactured substantially in the United States unless a
waiver is obtained from the Federal government as provided in the
regulations implementing Public Law 96-517.
2. Paragraph 2.2(c) - The following is added to the end of paragraph
2.2(c):
LICENSEE affirms that as of the date of this amendment LICENSEE
has taken such reasonable efforts.
3. Paragraph 2.2(d) -- This paragraph is amended to read as follows:
COLLEGE shall have the right ninety days after the completion of a
fiscal year to terminate the exclusivity of the license granted in
2.1 if LICENSEE within ninety days after written notice from
COLLEGE of such intended termination of exclusivity, fails to
respond in writing by providing a letter indicating either that
(i) LICENSEE and SUB-LICENSEES together have expended at least $2
million over the previous two fiscal years on research,
development, manufacturing, sales or marketing of products which
are currently eligible for royalties under the agreement or may be
subject to royalties upon completion of development and
commercialization or (ii) that sales of products subject to
royalties are in excess of $2,000,000 over the previous two fiscal
years.
4. Paragraph 2.3 - This paragraph is deleted.
5. Paragraph 2.5 - The reference to paragraph 2.3 within this paragraph
shall be deleted.
6. Paragraph 3.3 -- This paragraph is amended to read as follows:
All sublicenses will be granted under the terms that are in
accordance with Public Law 96-517 and that are reasonable and
customary in the trade. Sublicense terms and conditions may
provide that a sublicensee may further sublicense provided that
all sublicensees at any tier shall be required to abide by
LICENSEE'S non-financial obligations to COLLEGE as provided in
section 2.2(f), 5.2, 6.1 and 10.3 of this license agreement. Any
sublicense agreement shall provide for the transfer of all
sublicensee obligations, including the payment of royalties
specified in such sublicenses, to COLLEGE or its designee in the
event that this Agreement is terminated.
7. Paragraph 3.4 -- This paragraph is amended to read as follows:
LICENSEE shall annually submit a written report summarizing the
results of the prior year's licensing program, and modifying and
updating the program's agenda for the year to come. In the event
COLLEGE identifies a potential sublicensee for LICENSED PRODUCTS
not currently under development by LICENSEE or one of its
sublicensees, LICENSEE agrees to enter into good faith negotiation
of a sublicense agreement with such party, however, such provision
shall not apply to restenosis for cardiovascular applications.
8. Paragraph 4.1 - See amendment to Appendix C.
9. Paragraph 4.2 - This paragraph is deleted.
10. Paragraph 4.3 - This paragraph is amended to read as follows:
LICENSEE shall pay COLLEGE, during the term of the license of
paragraph 2.1, a royalty of 2.0 percent of NET SALES of all
LICENSED PRODUCTS sold by LICENSEE and its AFFILIATES. This
royalty shall be reduced to 1.0 percent for any term during which
the license is non-exclusive except as provided in paragraph 4.4
below. On sales between LICENSEE and its AFFILIATES for resale,
the royalty shall be paid on the resale. LICENSEE shall pay
COLLEGE 10.0 percent of royalties collected from sublicensees
hereunder; provided, however, that where LICENSEE sells LICENSED
PRODUCT to a purchaser and also sub-licenses use of the LICENSED
PROCESS for such LICENSED PRODUCT to the same purchaser, LICENSEE
shall only pay the royalty due on LICENSED PRODUCT. Said royalty
rates may vary, as mutually agreed upon by the parties, in cases
where LICENSED PROCESS constitutes only a small percentage of
licensed processes necessary in the manufacture of LICENSED
PRODUCTS.
11. Paragraph 4.4 -The last sentence is amended to read as follows:
. . . LICENSEE shall continue to pay the royalty specified in
paragraph 4.3 until another such license has been granted to a
third party by COLLEGE.
12. Paragraph 4.7 - The reference to paragraph 4.2 and 8.1 is deleted from
the offsets in this paragraph.
13. Paragraph 8.1 - The following language replaces the last two sentences
of the second paragraph and the third paragraph:
Recoveries or reimbursements from such action shall first be
applied to reimburse LICENSEE and COLLEGE for litigation costs not
paid from royalties and then to reimburse COLLEGE for royalties
withheld. Any remaining recoveries or reimbursements shall be
divided between the parties as follows:
(i) If the amount is lost profits, LICENSEE shall receive an
amount equal to the damages the court determines LICENSEE has
suffered as a result of the infringement less the amount of any
royalties that would have been due COLLEGE on the sales of
LICENSED PRODUCTS which would have generated such lost profits and
COLLEGE shall receive the amount equal to such royalties.
(ii) If the amount is other than lost profits, LICENSEE and
COLLEGE shall share in a manner that approximates (i) above. If
LICENSEE and COLLEGE cannot agree, they shall submit the matter to
arbitration as provided in paragraph 10.8.
In the event that LICENSEE and its sublicensee, if any, elect not
to exercise their right to prosecute an infringement of the PATENT
RIGHTS pursuant to the above paragraphs, COLLEGE may do so at its
own expense, controlling such action and paying LICENSEE fifty
percent (50%) of net returns (after reimbursement of all COLLEGE'S
expenses)."
14. Paragraph 9.4 - This paragraph is deleted.
15. Paragraph 9.5 - This paragraph is amended to read as follows:
Sublicenses granted by LICENSEE under this Agreement may provide
for assignment to COLLEGE of LICENSEE's interest therein upon
termination of this Agreement. However, such assignment shall not
bind COLLEGE to any obligations greater than those COLLEGE has to
LICENSEE under this agreement.
16. Paragraph 10.6 - The address and contact of Seragen is updated as:
Seragen, Inc.
95 South Street
Hopkinton, MA 01748
Attn: President
17. Appendix C is amended to read as follows:
LICENSEE shall pay the following amounts as minimum royalty,
within sixty (60) days of the end of each annual accounting period
following the receipt of regulatory approval from the FDA to
commence marketing of a Licensed Product for use by the public:
$10,000 per year until such time as earned royalties for an
annual accounting period exceed $50,000 at which time the
minimum royalty shall increase to $20,000 per year until
such time as earned royalties for an annual accounting
period exceed $100,000 at which time the minimum royalty
shall increase to $40,000 per year.
Royalties earned and paid during the annual accounting period
shall be creditable against the minimum royalty but if earned
royalties paid for the accounting period do not equal or exceed
the minimum royalty, the difference shall be paid within sixty
(60) days of the end of the annual accounting period.
18. All other terms of the PRIOR LICENSE AGREEMENT remain in full-force and
are hereby incorporated herein in this amendment.
IN WITNESS THEREOF, the parties hereto have each caused this AMENDMENT
to be duly executed by their duly authorized representatives.
The effective date of this Amendment is August 6, 1997.
PRESIDENT AND FELLOWS OF HARVARD COLLEGE
/s/ Joyce Brinton
________________________________________________
Attest:
________________________________________________
Seragen, Inc.
/s/ Jean Nichols
_______________________________________
Jean Nichols
President and Chief Technology Officer
Amendment to License and Royalty Agreement
This Amendment to License and Royalty Agreement (hereinafter AMENDMENT)
is made and entered into between Boston Medical Center, as successor to
University Hospital, Inc., with a principal place of business at 88 East
Newton Street, Boston, MA 02218 ("BMC"), and Seragen, Inc. ("SERAGEN"), a
corporation at 97 South Street, Hopkinton, MA 01748.
WHEREAS, BMC and SERAGEN have previously entered into a License and
Royalty Agreement on November 18, 1991 with respect to the making, using and
selling the inventions disclosed and claimed in BMC's U.S. Patent Application
No. 08/231,397, filed April 22, 1994, entitled "Chimeric Toxins" (now U.S.
Patent No. 5,616,482 issued April 1, 1997), U.S. Patent Application No.
08/479,107 filed June 7, 1995, entitled "Chimeric Toxins", U.S. Patent
Application No. 08/477,418 filed June 7, 1995 entitled "DNA Encoding Chimeric
Diptheria Toxins", and U.S. Patent Application No. 08/483,726 filed June 7,
1995, entitled "Improved Chimeric Toxins", and the foreign patent applications
corresponding thereto ("PRIOR LICENSE AGREEMENT"); and
WHEREAS, BMC and SERAGEN desire to amend various provisions of the PRIOR
LICENSE AGREEMENT.
NOW, THEREFORE, in consideration of the mutual covenants set forth below
and in the PRIOR LICENSE AGREEMENT,
IT IS MUTUALLY COVENANTED AND AGREED AS FOLLOWS:
1. Paragraph 3.1(i) - This paragraph is amended to read as follows:
within eight (8) years of the date of this Agreement, to apply for
regulatory approval to market a LICENSED PRODUCT; and
2. Paragraph 3.1(ii) -This paragraph is amended to read as follows:
within twelve (12) months of obtaining regulatory approval to do
so, to commence sale of such LICENSED PRODUCT and thereafter to
make such LICENSED PRODUCT reasonably available to the public in
the commercial marketplace.
3. Paragraph 4.1(d) - This paragraph is amended to read as follows:
In consideration for the license granted under this Agreement,
SERAGEN shall pay BMC a royalty of one-half percent (0.5%) of the
NET SALES of any LICENSED PRODUCT sold to third parties by SERAGEN
or its AFFILIATES until such time as the MASTER PATENT expires, at
which time SERAGEN shall pay BMC a royalty of one percent (1.0%)
of the NET SALES of any LICENSED PRODUCT sold to third parties by
SERAGEN or its AFFILIATES.
4. Paragraph 4.3 - This paragraph is amended to read as follows:
SERAGEN shall pay BMC two percent (2%) of royalties collected
pursuant to sublicenses granted hereunder, provided the subject
matter of such sublicenses involves products or technologies which
are covered by the MASTER PATENT or other patents which Seragen
owns or has licensed. SERAGEN shall pay BMC ten percent (10%) of
royalties collected pursuant to sublicenses granted hereunder,
provided the subject matter of such sublicenses relates only to
patents or patent applications covered by this Agreement.
5. Paragraph 9.4 - This paragraph shall be added and read as follows:
Sublicenses granted by SERAGEN under this Agreement may provide
for assignment to BMC of SERAGEN's interest therein upon
termination of this Agreement. However, such assignment shall not
bind BMC to any obligations greater than those BMC has to SERAGEN
under this agreement.
6. All other terms of the PRIOR LICENSE AGREEMENT remain in full-force and
are hereby incorporated herein in this amendment.
IN WITNESS THEREOF, the parties hereto have each caused this AMENDMENT
to be duly executed by their duly authorized representatives.
The effective date of this Amendment is November 18, 1997.
Boston Medical Center Corporation
/s/ Elaine Ullian
________________________________________________
President
Attest:
________________________________________________
Seragen, Inc.
/s/ Jean Nichols
_______________________________________
Jean Nichols
President and Chief Technology Officer
Attest:
_______________________________________
FORBEARANCE AGREEMENT
This Forbearance Agreement is made as of September 1997, by and
between Seragen, LLC, a Massachusetts limited liability company ("BU"), Leon
C. Hirsch, an individual residing in Norwalk, Connecticut ("Hirsch"), Turi
Josefsen, an individual residing in Norwalk, Connecticut ("Josefsen"), and
Gerald S.J. Cassidy and Loretta P. Cassidy, individuals residing in Great
Falls, Virginia (together, the "Cassidys"; collectively with BU, Hirsch and
Josefsen, the "Holders"), Seragen, Inc., a Delaware corporation ("Seragen"),
and Seragen Technology, Inc., a Delaware corporation ("STI").
WHEREAS, BU is the owner, beneficially and of record, of 11,800
shares (the "BU STI Shares") of STI's Class B Common Stock, par value $.01 per
share (the "Class B Common");
WHEREAS, Hirsch is the owner, beneficially and of record, of 7,000
shares (the "Hirsch STI Shares") of the Class B Common;
WHEREAS, Josefsen is the owner, beneficially and of record, of 3,000
shares (the "Josefsen STI Shares") of the Class B Common;
WHEREAS, the Cassidys are the joint owners, beneficially and of
record, of 2,000 shares (the "Cassidy STI Shares"; collectively with the BU
STI Shares, the Hirsch STI Shares and the Josefsen STI Shares, the
"Outstanding STI Shares") of the Class B Common;
WHEREAS, STI has executed a Collateral Assignment of Patents, dated
July 1, 1996 (the "Collateral Assignment"), in favor of the Holders to secure
certain dividend obligations of STI with respect to the Outstanding STI Shares
and has delivered the Collateral Assignment to Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., as escrow agent (the "Escrow Agent"), pursuant to an
Escrow Agreement, dated July 1, 1996 (the "Escrow Agreement"), among STI, the
Holders and the Escrow Agent;
WHEREAS, the Escrow Agreement provides, in Section 3 thereof, that
the Collateral Assignment is to be delivered by the Escrow Agent to the agent
for the Holders upon the delivery by the agent for the Holders to the Escrow
Agent, with a copy to STI, of a written notice (a "Default Notice") stating
that a dividend payment on the Outstanding STI Shares is in arrears and is due
and payable and the expiration of 60 days following the Escrow Agent's receipt
of such notice without payment of the arrearage;
WHEREAS, STI has failed to pay Class B Common dividends due on
January 1, 1997, April 1, 1997, and July 1, 1997, and has informed the Holders
that it does not anticipate paying Class B Common dividends due on October 1,
1997, and January 1, 1998;
WHEREAS, the Holders, by virtue of STI's failure to pay dividends in
respect of the Outstanding STI Shares as aforesaid, currently have the right
under Section 3 of the Escrow Agreement to cause their agent to deliver a
Default Notice;
WHEREAS, the Holders believe it to be in their interest that Seragen
effect, at the earliest possible time, the issuance of additional shares of
capital stock, authorized or to be authorized, in one or more public or
private offerings (each such offering, or a related series of such offerings,
a "New Offering");
WHEREAS, Seragen has been informed by its financial advisers that
successful completion of a New Offering requires that the Holders agree to
forbear until March 1, 1998, from causing their agent to deliver a Default
Notice or otherwise exercising their rights under Section 3 of the Escrow
Agreement;
WHEREAS, Seragen is therefore unable and unwilling to incur the
substantial costs associated with preparation for a New Offering in the
absence of an agreement by the Holders to so forbear from exercising their
rights under Section 3 of the Escrow Agreement;
WHEREAS, in order to induce Seragen to proceed with preparation for
a New Offering, the Holders are willing to agree to agree to forbear from
exercising their rights under Section 3 of the Escrow Agreement upon the terms
and conditions set forth herein; and
WHEREAS, in consideration of the agreement of the Holders to so
forbear from exercising their rights under Section 3 of the Escrow Agreement,
Seragen is willing to agree, upon the terms and conditions set forth herein,
to proceed with preparations for a New Offering;
NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties hereto, intending to be legally bound, hereby agree as follows:
1. Forbearance
The Holders hereby agree to forbear until March 1, 1998 from causing
or permitting their agent to deliver a Default Notice or otherwise exercising
such rights as they may have pursuant to Section 3 of the Escrow Agreement to
require delivery of the Collateral Assignment to them or their agent.
2. Seragen to Prepare for New Offering.
Seragen shall, from and after the date hereof, proceed in good faith
to prepare for and effect a New Offering that will yield net cash proceeds to
Seragen of at least $15,000,000. Notwithstanding the foregoing, Seragen may
cease further efforts to prepare for and effect a New Offering at such time as
Seragen's management determines in good faith that it will not be possible for
Seragen to effect the contemplated New Offering on commercially reasonable
terms.
3. Representations and Warranties of Seragen and STI.
Seragen and STI hereby represent and warrant to the Holders as
follows:
(a) Organization and Standing. Each of Seragen and STI is a
corporation, duly organized, validly existing and in good standing, under the
laws of the State of Delaware and has the corporate power and authority to
enter into, deliver and perform its obligations and undertakings under this
Agreement.
(b) Validity. The execution, delivery and performance by each
of Seragen and STI of this Agreement have been duly authorized and approved by
all necessary corporate action. This Agreement has been duly executed and
delivered and constitutes the valid and binding obligation of Seragen and STI,
enforceable against each of them in accordance with its terms, subject to laws
of general application affecting creditors' rights and the exercise of
judicial discretion in accordance with general equitable principles.
(c) No Conflicts. The execution, delivery and performance of
this Agreement by Seragen and STI will not (i) conflict with, or result in a
breach of any of the terms of, or constitute a default under, the certificate
of incorporation or by-laws of either Seragen or STI, (ii) to the knowledge of
Seragen or STI, conflict with or result in a material breach of any of the
terms of, or constitute a material default under, any agreement, instrument,
covenant or other restriction to which Seragen or STI is a party or by which
Seragen or STI or any of their properties or assets are bound, or (iii)
conflict with any law, rule, regulation, order or decree or any rule of the
Nasdaq National Market applicable to Seragen and STI or by which Seragen and
STI are bound; except, in each instance, for such conflicts, breaches or
default as would not, individually or in the aggregate, materially and
adversely affect the financial condition, business or assets of Seragen and
STI, taken together, or the ability of Seragen and STI to consummate the
transactions contemplated hereby.
(d) Governmental Consent. No consent, permit, approval or
authorization of any governmental authority is required under existing laws,
rules and regulations in connection with the execution and delivery of this
Agreement by Seragen or STI.
4. Representations and Warranties of the Holders
Each Holder hereby represents and warrants to Seragen and STI as
follows:
(a) Authority of Holder; Validity. The Holder has all requisite
power and authority to enter into this Agreement and perform its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Holder have been duly authorized and approved by all necessary corporate or
other action. This Agreement has been duly executed and delivered and
constitutes a valid and binding obligation of the Holder, enforceable against
the Holder in accordance with its terms, subject to laws of general
application affecting creditors' rights and the exercise of judicial
discretion in accordance with general equitable principles.
(b) No Conflicts. The execution, delivery and performance of
this Agreement by the Holder will not (i) conflict with, or result in a breach
of any of the terms of, or constitute a default under, the organic documents
of the Holder, if any, (ii) to the knowledge of the Holder, conflict with or
result in a material breach of any of the terms of, or constitute a material
default under, any agreement, instrument, covenant or other restriction to
which the Holder is a party or by which the Holder or any of its properties or
assets are bound, or (iii) conflict with any law, rule, regulation, order or
decree applicable to the Holder or by which the Holder is bound; except, in
each instance, for such conflicts, breaches or default as would not,
individually or in the aggregate, materially and adversely affect the
financial condition, business or assets of the Holder or the ability of the
Holder to consummate the transactions contemplated hereby.
(c) Governmental Consent. No consent, approval or authorization
of any governmental authority is required under existing laws, rules and
regulations in connection with the execution and delivery of this Agreement by
the Holder.
5. Miscellaneous.
(a) Notices. All notices, requests, consents and other
communications hereunder shall be in writing, shall be addressed to the
receiving party's address set forth below or to such other address as a party
may designate by notice hereunder, and shall be either (i) delivered by hand,
(ii) made by telex, telecopy or facsimile transmission, (iii) sent by
overnight courier, or (iv) sent by registered mail, return receipt requested,
postage prepaid.
If to the
Investors: at the addresses set forth on
Schedule 1 hereto
If to Seragen: Seragen, Inc.
97 South Street
Hopkinton, Massachusetts 01748
Attn: Chief Executive Officer
Fax: (508) 435-9805
With a copy to: Covington & Burling
1201 Pennsylvania Avenue, N.W.
P.O. Box 7566
Washington, D.C. 20044
Attn: Edward Britton
Fax: (202) 662-6291
All notices, requests, consents and other communications hereunder shall be
deemed to have been given either (i) if by hand, at the time of the delivery
thereof to the receiving party at the address of such party set forth above,
(ii) if made by telex, telecopy or facsimile transmission, at the time that
receipt thereof has been acknowledged by electronic confirmation or otherwise,
(iii) if sent by overnight courier, on the next business day following the day
such notice is delivered to the courier service, or (iv) if sent by registered
mail, on the fifth business day following the day such mailing is made.
(b) Entire Agreement. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior oral or written agreements and
understandings relating to the subject matter hereof. No statement,
representation, warranty, covenant or agreement of any kind not expressly set
forth in this Agreement shall affect, or be used to interpret, change or
restrict, the express terms and provisions of this Agreement.
(c) Amendments. The terms and provisions of the Agreement may
be modified, amended or waived, or consent for the departure therefrom
granted, only by written consent of all of the parties hereto. No such waiver
or consent shall be deemed to be, or shall constitute, a waiver or consent
with respect to any other terms or provisions of this Agreement, whether or
not similar. Each such waiver or consent shall be effective only in the
specific instance and for the purpose for which it was given, and shall not
constitute a continuing waiver or consent.
(d) Assignment. The rights and obligations under this Agreement
may not be assigned by any party hereto without the prior written consent of
the other party.
(e) Benefit. All statements, representations, warranties,
covenants and agreements in this Agreement shall be binding on the parties
hereto and shall inure to the benefit of the respective successors and
permitted assigns of each party hereto. Nothing in this Agreement shall be
construed to create any rights or obligations except among the parties hereto,
and no person or entity shall be regarded as a third-party beneficiary of this
Agreement.
(f) Governing Law. This Agreement and the rights and
obligations of the parties hereunder shall be construed in accordance with and
governed by the law of the Commonwealth of Massachusetts, without giving
effect to the conflict of law principles thereof.
(g) Severability. In the event that any court of competent
jurisdiction shall determine that any provision, or any portion thereof,
contained in this Agreement shall be unenforceable in any respect, then such
provision shall be deemed limited to the extent that such court deems it
enforceable, and as so limited shall remain in full force and effect. In the
event that such court shall deem any such provision, or portion thereof,
wholly unenforceable, the remaining provisions of this Agreement shall
nevertheless remain in full force and effect.
(h) Headings and Captions. The headings and captions of the
various subdivisions of this Agreement are for convenience of reference only
and shall in no way modify, or affect the meaning or construction of, any of
the terms or provisions hereof.
(i) No Waiver of Rights, Powers and Remedies. No failure or
delay by a party hereto in exercising any right, power or remedy under this
Agreement, and no course of dealing between the parties hereto, shall operate
as a waiver of any such right, power or remedy of the party. No single or
partial exercise of any right, power or remedy under this Agreement by a party
hereto, nor any abandonment or discontinuance of steps to enforce any such
right, power or remedy, shall preclude such party from any other or further
exercise thereof or the exercise of any other right, power or remedy
hereunder. The election of any remedy by a party hereto shall not constitute
a waiver of the right of such party to pursue other available remedies. No
notice to or demand on a party not expressly required under this Agreement
shall entitle the party receiving such notice or demand to any other or
further notice or demand in similar other circumstances or constitute a waiver
of the rights of the party giving such notice or demand to any other or
further action in any circumstances without such notice or demand.
(j) Specific Performance. Seragen and STI, on the one hand, and
each Holder, on the other hand, acknowledge that it would be impossible to
determine the amount of damages that would result from any breach by the other
party of any of the provisions of this Agreement and that the remedy at law
for any breach, or threatened breach, of any such provisions would likely be
inadequate and, accordingly, agree that Seragen and STI, on the one hand, and
each Holder, on the other hand, shall, in addition to any other rights or
remedies which it may have, be entitled to seek such equitable and injunctive
relief as may be available from any court of competent jurisdiction to compel
specific performance of, or restrain the other party from violating any of,
such provisions. In connection with any action or proceeding for injunctive
relief, Seragen and STI, on the one hand, and each Holder, on the other hand,
hereby waive the claim or defense that a remedy at law alone is adequate and
agree, to the extent permitted by law, to have each provision of this
Agreement specifically enforced against it.
(m) Counterparts; Facsimiles. This Agreement may be executed in
one or more counterparts, and by different parties hereto on separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page of this Agreement by facsimile
transmission shall be effective as delivery of a manually executed counterpart
of this Agreement.
In WITNESS WHEREOF, each of the undersigned has executed this
Agreement to be effective as of the date first set forth above.
HOLDERS:
SERAGEN LLC
By: /s/ Kenneth G. Condon
_____________________________
Name:
Title
/s/ Leon C. Hirsch
__________________________________
Leon C. Hirsch
/s/ Turi Josefsen
__________________________________
Turi Josefsen
/s/ Gerald S.J. Cassidy
__________________________________
Gerald S.J. Cassidy
/s/ Loretta P. Cassidy
__________________________________
Loretta P. Cassidy
SERAGEN:
SERAGEN, INC.
By: /s/ Reed R. Prior
____________________________
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
STI:
SERAGEN TECHNOLOGY, INC.
By: /s/ Reed R. Prior
___________________________
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
LIST OF EXHIBITS AND SCHEDULES
Schedule 1 List of Holders and Addresses
SCHEDULE 1
List of Holders and Addresses
Name, Address and Fax Number of Investor
Seragen LLC
147 Bay State Road
Boston, MA 02115
Attn: Kenneth G. Condon
Vice President for Financial
Affairs and Treasurer
Fax: (617) 353-5492
Leon C. Hirsch
150 Glover Avenue
Norwalk, CT 06855
Fax: (203) 846-5988
Turi Josefsen
150 Glover Avenue
Norwalk, CT 06856
Fax: (203) 846-5988
Gerald S.J. Cassidy and
Loretta P. Cassidy
c/o Cassidy and Associates, Inc.
700 12th Street, N.W., Suite 400
Washington, D.C. 20005
Fax: (202) 347-2708
1992 LONG TERM INCENTIVE PLAN
TABLE OF CONTENTS
Page
SECTION 1. Purpose 3
SECTION 2. Stock Subject to the Plan 3
SECTION 3. Eligibility 4
SECTION 4. Administration 4
SECTION 5. Stock Options 5
SECTION 6. Stock Appreciation Rights 9
SECTION 7. Restricted Stock 10
SECTION 8. Deferred Stock 11
SECTION 9. Stock Purchase Rights 12
SECTION 10. Other Stock-Based Awards 13
SECTION 11. Change in Control Provisions 14
SECTION 12. Amendment and Termination 15
SECTION 13. Unfunded Status of Plan 16
SECTION 14. General Provisions 16
SECTION 15. Effective Date of Plan 17
SECTION 16. Term of Plan 17
SECTION 17. Definitions 17
<PAGE>
As amended through October 28, 1997
SERAGEN, INC.
1992 LONG TERM INCENTIVE PLAN
SECTION 1. Purpose.
The purpose of the Seragen, Inc. 1992 Long Term Incentive Plan (the
"Plan") is to promote the interests of Seragen, Inc. (the "Company") and its
Subsidiaries, Affiliates and stockholders by enabling the Company to attract,
retain and reward persons who serve as employees of and consultants to the
Company and its Subsidiaries and Affiliates, and strengthening the mutuality
of interests between such employees, consultants and the Company's
shareholders, by offering them performance-based stock incentives and/or other
equity interests or equity-based incentives in the Company, as well as
performance based incentives payable in cash.
Certain terms used herein are defined in Section 17 of the Plan.
SECTION 2. Stock Subject to the Plan.
The maximum aggregate number of shares of Stock reserved and available
for distribution under the Plan shall be sixteen million (16,000,000) shares
of Stock. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
Subject to Section 6(b)(iv) below, if any shares of Stock that have
been optioned under the Plan cease to be subject to a Stock Option, or if any
such shares of Stock that are subject to any Restricted Stock or Deferred
Stock award, Stock Purchase Right or Other Stock-Based Award granted hereunder
are forfeited or any such award otherwise terminates without a payment being
made to the participant in the form of Stock, such shares shall be available
for distribution in connection with future awards under the Plan.
Notwithstanding any other provision of the Plan, shares issued under the Plan
and later repurchased by the Company shall not become available for future
distribution under the Plan.
In the event of any recapitalization, Stock dividend, Stock split,
reclassification or other change in corporate structure affecting the Stock,
the aggregate number of shares reserved for issuance under the Plan, the
number and option price of shares subject to outstanding Options granted under
the Plan, the number and purchase price of shares subject to outstanding Stock
Appreciation Rights under the Plan, and the number of shares subject to other
outstanding awards granted under the Plan shall be appropriately increased or
decreased proportionately, provided that the number of shares subject to any
award shall always be a whole number. In the event of an issuance of Stock,
the Committee in its discretion may make any such adjustments with respect to
outstanding awards as it deems appropriate in order to prevent a dilution of
the rights of recipients of awards. Any such adjusted option price shall also
be used to determine the amount payable by the Company upon the exercise of
any Stock Appreciation Right or Limited Stock Appreciation Right associated
with any Stock Option.
Subject to the provisions of Section 11 hereof, in the event of a
merger or consolidation of the Company with another corporation, all the
outstanding Stock Options issued hereunder shall terminate, unless otherwise
determined by the Committee, and all Deferred Stock and Restricted Stock which
is subject to forfeiture or which has not been received shall be forfeited or
not received, unless otherwise determined by the Committee or unless the Board
arranges to have the merged or consolidated corporation assume such Stock
Options, Deferred Stock or Restricted Stock or issue substitute Stock Options,
Deferred Stock or Restricted Stock therefor; provided, however, that in the
event the merged or consolidated corporation does not assume such Stock
Options, Deferred Stock or Restricted Stock or issue substitute Stock Options,
Deferred Stock or Restricted Stock therefor, (i) each optionee shall have the
right, immediately prior to such merger or consolidation, to exercise his
Stock Option(s) in whole or in part without regard to any installment
restrictions as to time of exercise otherwise imposed under the Plan, and (ii)
each holder of Deferred Stock or Restricted Stock shall have the right,
immediately prior thereto, to receive and own all such Stock without regard to
any restrictions otherwise imposed under the Plan.
SECTION 3. Eligibility
Employees (including employees who serve as officers and
directors) and consultants (including directors who serve as consultants) and
members of the Scientific and Medical Advisory Board (whether or not employees
or serving in other consulting roles) of the Company and its Subsidiaries and
Affiliates and who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company and/or its Subsidiaries
and Affiliates are eligible to be granted awards under the Plan; provided,
however, that only Employees of the Company and its Subsidiaries are eligible
to be granted Incentive Stock Options under the Plan.
SECTION 4. Administration
The Plan shall be administered by a Committee of not less than
two (2) Non-Employee Directors, who shall be appointed by the Board and who
shall serve at the pleasure of the Board. If no Committee has been appointed
to administer the Plan, the functions of the Committee specified in the Plan
shall be administered by the Board.
The Committee shall have full authority to grant, pursuant to
the terms of the Plan, to Employees eligible under Section 3: (i) Stock
Options, (ii) Stock Appreciation Rights, (iii) Limited Stock Appreciation
Rights, (iv) Restricted Stock, (v) Deferred Stock, (vi) Stock Purchase Rights
or (vii) Other Stock-Based Awards.
In particular, the Committee shall have the authority subject to
the terms of the Plan:
(i) to select the persons to whom Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Stock Purchase Rights and/or Other Stock-Based Awards may from
time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive
Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Limited
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights and/or Other Stock-Based Awards, or any combination thereof, are to be
granted hereunder to one or more eligible persons;
(iii) to determine the number of shares to be covered by
each such award granted hereunder;
(iv) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the share price and any restriction or
limitation, or any vesting, acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or Deferred Stock under Sections
5(k) or 5(l), as applicable, instead of Stock);
(v) to determine whether and under what circumstances a
Stock Option may be settled in Stock, Restricted Stock and/or Deferred Stock
under Sections 5(k) or (l), as applicable, instead of cash;
(vi) to determine whether, to what extent and under what
circumstances grants and/or other awards under the Plan and/or other cash
awards made by the Company are to be made, and operate, on a tandem basis
vis-a-vis other awards under the Plan, and/or cash awards made outside of the
Plan, or on an additive basis;
(vii) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award under
this Plan shall be deferred either automatically or at the election of the
participant (including providing for and determining the amount (if any) of
any deemed earnings on any deferred amount during any deferral period); and
(viii) to determine the terms and restrictions applicable
to Stock Purchase Rights and the Stock purchased by exercising such Rights.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of
the Plan and any award issued under the Plan (and any agreements relating
thereto); and to otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions
of the Plan shall be made in the Committee's sole discretion and shall be
final and binding on all persons, including the Company and Plan participants.
The Plan is intended to comply with Rule 16b-3 under the Exchange Act (and
with any amended or successor rule) for those persons who are subject to
Section 16(b) of said Act. If any provision in this Plan with respect to such
persons would be contrary to said Rule, it shall be deemed to be null and void
to the extent permissible by law and deemed appropriate by the Committee.
SECTION 5. Stock Options.
Stock Options may be granted alone, in addition to or in tandem
with other awards granted under the Plan and/or cash awards made outside of
the Plan. Each Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options, and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights or Limited
Stock Appreciation Rights); provided that in no event shall any employee be
granted in any calendar year Stock Options to purchase more than five million
(5,000,000) shares of Stock.
Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable:
a. Option Price. The option price per share of Stock
purchasable under a Stock Option shall be determined by the Committee at the
time of grant and may be equal to, greater than or less than one hundred
percent (100%) of the Fair Market Value of the Stock at the date of grant;
provided, however, that the option price per share of Stock purchasable under
an Incentive Stock Option shall not be less than one hundred percent (100%) of
the Fair Market Value of the Stock at the date of grant; and provided further
however, that in the case of an Incentive Stock Option granted to an Employee
who, at the time of grant, owns Stock possessing more than ten percent (10%)
of the total combined voting power of all classes of Stock of the Company, its
Subsidiaries or Affiliates, the option price per share of Stock shall not be
less than one hundred ten percent (110%) of the Fair Market Value of the Stock
at the date of grant.
b. Option Term. The term of each Stock Option shall be
fixed by the Committee, but no Stock Option shall be exercisable more than ten
(10) years after the date the Option is granted or more than five (5) years
after grant in the case of any employee who owns stock constituting ten
percent (10%) of the total combined voting power of the Company or any parent
or Subsidiary.
c. Exercisability. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as shall be
determined by the Committee at or after grant; provided, however, that, except
as provided in Sections 2, 5(f) and 5(g), unless otherwise determined by the
Committee at or after grant, no Stock Option shall be exercisable in the first
six (6) months following the granting of the option. If the Committee
provides, in its sole discretion, that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time at or after grant in whole or in part, based on such factors as the
Committee shall determine in its sole discretion.
d. Method of Exercise. Subject to whatever installment
exercise provisions apply under Section 5(c), Stock Options may be exercised
in whole or in part at any time during the option period, by giving written
notice of exercise to the Company specifying the number of shares to be
purchased.
Such notice shall be accompanied by payment in full of the
purchase price, either by check, note or such other instrument as the
Committee may accept. As determined by the Committee, in its sole discretion,
at or after grant, (a) payment in full or in part may be made in the form of
unrestricted Stock already owned by the optionee, (b) in the case of the
exercise of a Non-Qualified Stock Option, payment in full or in part may be
made in the form of Restricted Stock or Deferred Stock subject to an award
hereunder (based, in each case, on the Fair Market Value of the Stock on the
date the option is exercised, as determined by the Committee), (c) payment in
full or in part may be made in accordance with a cashless exercise program
established with a securities brokerage firm, and approved by the Committee,
or (d) payment in full or in part may be made by any combination of (a), (b)
or (c) above.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock or Deferred
Stock, such Restricted Stock or Deferred Stock (and any replacement shares
relating thereto) shall remain (or be) restricted or deferred, as the case may
be, in accordance with the original terms of the Restricted Stock award or
Deferred Stock award in question, and any additional Stock received upon the
exercise shall be subject to the same forfeiture restrictions or deferral
limitations, unless otherwise determined by the Committee, in its sole
discretion, at or after grant.
No shares of Stock shall be issued until full payment therefor
has been made. Until the issuance (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company) of the stock certificate evidencing such Stock, and compliance with
the applicable requirements, if any, of Section 13(a), no right to vote or
receive dividends or any other rights as a shareholder shall exist with
respect to such Stock Option.
e. Non-Transferability of Options. No Stock Option shall
be transferable by the optionee other than by will or by the laws of descent
and distribution or as required pursuant to a qualified domestic relations
order as defined by the Code or Title I of The Employee Retirement Income
Security Act or the rules thereunder, or as otherwise deemed appropriate by
the Committee and set forth in the applicable option agreement.
f. Termination by Death. Subject to Section 5(j), if an
optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of death, any Stock Option held by such optionee may
thereafter be exercised, to the extent such option was exercisable at the time
of death or on such accelerated basis as the Committee may determine at or
after grant (or as may be determined in accordance with procedures established
by the Committee), by the legal representative of the estate or by the legatee
of the optionee under the will of the optionee, for a period of one year (or
such other period as the Committee may specify at grant) from the date of such
death or until the expiration of the stated term of such Stock Option,
whichever period is the shorter.
g. Termination by Reason of Disability. Subject to
Section 5(j), if optionee's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Disability, any Stock Option held by such
optionee may thereafter be exercised by the optionee, to the extent it was
exercisable at the time of termination or on such accelerated basis as the
Committee may determine at or after grant (or as may be determined in
accordance with procedures established by the Committee), for a period of
twelve (12) months (or such period as the Committee may specify at grant) from
the date of such termination of employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter; provided,
however, that, if the optionee dies within such twelve (12) month period (or
such shorter period as the Committee shall specify at grant), any unexercised
Stock Option held by such optionee shall thereafter be exercisable to the
extent to which it was exercisable at the time of death for a period of twelve
(12) months from the date of such death or until the expiration of the stated
term of such Stock Option, whichever period is the shorter. In the event of
termination of employment by reason of Disability, if an Incentive Stock
Option is exercisable after the expiration of the exercise periods that apply
for purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
h. Termination by Reason of Retirement. Subject to
Section 5 (j), if an optionee's employment by the Company and any Subsidiary
or Affiliate terminates by reason of Normal Retirement or Early Retirement,
any Stock Option held by such optionee may thereafter be exercised by the
optionee, to the extent it was exercisable at the time of such Retirement or
on such accelerated basis as the Committee may determine at or after grant (or
as may be determined in accordance with procedures established by the
Committee), for a period of ninety (90) days (or such other period as the
Committee may specify at grant) from the date of such termination of
employment or the expiration of the stated term of such Stock Option,
whichever period is the shorter; provided, however, that, if the optionee dies
within such ninety (90) day period (or such other period as the Committee may
specify at grant), any unexercised Stock Option held by such optionee shall
thereafter be exercisable, to the extent to which it was exercisable at the
time of death, for a period of twelve (12) months from the date of such death
or until the expiration of the stated term of such Stock Option, whichever
period is the shorter. In the event of termination of employment by reason of
Retirement, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
i. Other Termination. Subject to Section 5(j), unless
otherwise determined by the Committee (or pursuant to procedures established
by the Committee) at or after grant, if an optionee's employment by the
Company and any Subsidiary or Affiliate terminates for any reason other than
death, Disability or Retirement, any Stock Option shall thereupon terminate,
except that such Stock Option may be exercised, to the extent otherwise then
exercisable, for the lesser of three (3) months or the balance of such Stock
Option's term if the optionee is involuntarily terminated without Cause by the
Company and any Subsidiary or Affiliate; provided, however, that, if the
optionee dies within such three (3) month period (or such other period as the
Committee may specify at grant), any unexercised Stock Option held by such
optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of twelve (12) months from the
date of such death or until the expiration of the stated term of such Stock
Option, whichever period is the shorter. For purposes of the Plan, "Cause"
means a felony conviction of a participant or the failure of a participant to
contest prosecution for a felony, or a participant's willful misconduct or
dishonesty, any of which is directly and materially harmful to the business or
reputation of the Company or any Subsidiary or Affiliate.
j. Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of this Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be so exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the optionee(s)
affected, to disqualify any Incentive Stock Option under such Section 422.
Incentive Stock Options shall not be treated as "incentive stock
options" to the extent that the aggregate Fair Market Value (determined at the
time an Incentive Stock Option is granted) of Stock with respect to which
Incentive Stock Options meeting the requirements of Section 422(b) of the Code
are exercisable for the first time by any participant during any calendar year
(under all plans of the Company and its Subsidiaries) exceeds $100,000, and
such excess shall be treated as a Non-Qualified Stock Option.
To the extent permitted under Section 422 of the Code or the
applicable regulations thereunder or any applicable Internal Revenue Service
pronouncement:
(i) if (x) a participant's employment is terminated by
reason of death, Disability or Retirement, and (y) the portion of any
Incentive Stock Option exercisable during the post-termination period
specified under Sections 5(f), (g) or (h) that is greater than the portion of
such option that is exercisable as an "incentive stock option" during such
post-termination period under Section 422, shall be treated as a Non-Qualified
Stock Option; and
(ii) if the exercise of an Incentive Stock Option is
accelerated by reason of a Change in Control, any portion of such option that
is not exercisable as an Incentive Stock Option by reason of the $100,000
limitation contained in Section 422(d) of the Code shall be treated as a
Non-Qualified Stock Option.
k. Buyout Provisions. The Committee may at any time offer
to purchase an Option previously granted for a payment in cash, Stock,
Deferred Stock or Restricted Stock, based on such terms and conditions as the
Committee shall establish and communicate to the optionee at the time that
such offer is made.
l. Settlement Provisions. If the option agreement so
provides at grant or is amended after grant and prior to exercise to so
provide (with the optionee's consent), the Committee may require that all or
part of the shares to be issued with respect to an exercised option take the
form of Deferred or Restricted Stock, which shall be valued on the date of
exercise on the basis of the Fair Market Value (as determined by the
Committee) of such Deferred Stock or Restricted Stock determined without
regard to the deferral limitations and/or forfeiture restrictions involved.
m. Additional Options. The Committee in its sole
discretion may authorize the grant of Non-Qualified Stock Options which
provide for the subsequent grant of additional Non-Qualified Stock Options
effective upon the occurrence of certain events specified in the applicable
option agreement.
SECTION 6. Stock Appreciation Rights.
a. Grant and Exercise. Stock Appreciation Rights may be
granted in conjunction with all or part of any Stock Option granted under the
Plan. In the case of a Non-Qualified Stock Option, such rights may be granted
either at or after the time of the grant of such Stock Option. In the case of
an Incentive Stock Option, such rights may be granted only at the time of the
grant of such Stock Option.
A Stock Appreciation Right or applicable portion thereof granted
with respect to a given Stock Option shall terminate and no longer be
exercisable upon the termination or exercise of the related Stock Option,
subject to such provisions as the Committee may specify at grant where a Stock
Appreciation Right is granted with respect to less than the full number of
shares covered by a related Stock Option.
A Stock Appreciation Right may be exercised by an optionee,
subject to Section 6(b), in accordance with the procedures established by the
Committee for such purpose. Upon such exercise, the optionee shall be
entitled to receive an amount determined in the manner prescribed in Section
6(b). Stock Options relating to exercised Stock Appreciation Rights shall no
longer be exercisable to the extent that the related Stock Appreciation Rights
have been exercised.
b. Terms and Conditions. Stock Appreciation Rights shall
be subject to such terms and conditions, not inconsistent with the provisions
of the Plan, as shall be determined from time to time by the Committee,
including the following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and this
Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive an amount in cash and/or shares of Stock
equal in value to the excess of the Fair Market Value of one share of Stock
over the option price per share specified in the related Stock Option
multiplied by the number of shares in respect of which the Stock Appreciation
Right shall have been exercised, with the Committee having the right to
determine the form of payment.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be transferable
under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the limitation set
forth in Section 3 of the Plan on the number of shares of Stock to be issued
under the Plan, but only to the extent of the number of shares issued under
the Stock Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
(v) In its sole discretion, the Committee may grant
Limited Stock Appreciation Rights under this Section 6, i.e., Stock
Appreciation Rights that become exercisable only in the event of a Change in
Control or a Potential Change in Control, subject to such terms and conditions
as the Committee may specify or grant. Such Limited Stock Appreciation Rights
shall be settled solely in cash.
(vi) The Committee, in its sole discretion, may also
provide that, in the event of a Change in Control or a Potential Change in
Control, the amount to be paid upon the exercise of a Stock Appreciation Right
or Limited Stock Appreciation Right shall be based on the Change of Control
Price, subject to such terms and conditions as the Committee may specify at
grant.
SECTION 7. Restricted Stock.
a. Administration. Shares of Restricted Stock may be
issued either alone, in addition to or in tandem with other awards granted
under the Plan and/or cash awards made outside the Plan. The Committee shall
determine the eligible persons to whom, and the time or times at which, grants
of Restricted Stock will be made, the number of shares to be awarded, the
price (if any) to be paid by the recipient of Restricted Stock (subject to
Section 7(b)), the time or times within which such awards may be subject to
forfeiture, and all other terms and conditions of the awards. The Committee
may condition the grant of Restricted Stock upon the attainment of specified
performance goals or such other factors as the Committee may determine, in its
sole discretion. The provisions of Restricted Stock awards need not be the
same with respect to each recipient.
b. Awards and Certificates. The prospective recipient of
a Restricted Stock award shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the applicable terms and conditions of such award.
(i) The purchase price for shares of Restricted Stock
shall be equal to, less than or greater than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a
period of sixty (60) days (or such shorter period as the Committee may specify
at grant) after the award date, by executing a Restricted Stock award
agreement and paying whatever price (if any) is required under Section
7(b)(i).
(iii) Each participant receiving a Restricted Stock award
shall be issued a stock certificate in respect of such shares of Restricted
Stock. Such certificate shall be registered in the name of such participant,
and shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such award.
(iv) The Committee shall require that the stock
certificates evidencing such shares be held in custody by the Company until
the restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock power,
endorsed in blank, relating to the Stock covered by such award.
c. Restrictions and Conditions. The shares of Restricted
Stock awarded pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of the Plan and the award,
during a period set by the Committee commencing with the date of such award
(the "Restricted Period"), the participant shall not be permitted to sell,
transfer, pledge or assign shares of Restricted Stock awarded under the Plan.
Within these limits, the Committee, in its sole discretion, may provide for
the lapse of such restrictions in installments and may accelerate or waive
such restriction in whole or in part, based on service, performance and/or
such other factors or criteria as the Committee may determine, in its sole
discretion.
(ii) Except as provided in this paragraph (ii) and Section
7(c)(i), the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the right
to vote the shares, and the right to receive any cash dividends. The
Committee, in its sole discretion, as determined at the time of award, may
permit or require the payment of cash dividends to be deferred and, if the
Committee so determines, reinvested, subject to Section 13(e), in additional
Restricted Stock to the extent shares are available under Section 3, or
otherwise reinvested. Pursuant to Section 3 above, Stock dividends issued
with respect to Restricted Stock shall be treated as additional shares of
Restricted Stock that are subject to the same restrictions and other terms and
conditions that apply to the shares with respect to which such dividends are
issued.
(iii) Subject to the applicable provisions of the award
agreement and this Section 7, upon termination of a participant's employment
with the Company and any Subsidiary or Affiliate for any reason during the
Restricted Period, all shares still subject to restriction will vest, or be
forfeited, in accordance with the terms and conditions established by the
Committee at or after grant.
(iv) If and when the Restricted Period expires without a
prior forfeiture of the Restricted Stock subject to such Restricted Period,
certificates for an appropriate number of unrestricted shares shall be
delivered to the participant promptly.
d. Minimum Value Provision. In order to better ensure
that award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole discretion,
for a tandem performance-based or other award designed to guarantee a minimum
value, payable in cash or Stock to the recipient of a Restricted Stock award,
subject to such performance, future service deferral and other terms and
conditions as may be specified by the Committee.
SECTION 8. Deferred Stock.
a. Administration. Deferred Stock may be awarded either
alone, in addition to or in tandem with other awards granted under the Plan
and/or cash awards made outside the Plan. The Committee shall determine the
eligible persons to whom and the time or times at which Deferred Stock shall
be awarded, the number of shares of Deferred Stock to be awarded to any
person, the price (if any) to be paid by the recipient of Deferred Stock, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Stock will be deferred, and the other
terms and conditions of the award in addition to those set forth in Section
8(b). The Committee may condition the grant of Deferred Stock upon the
attainment of specified performance goals or such other factors or criteria as
the Committee shall determine, in its sole discretion. The provisions of
Deferred Stock awards need not be the same with respect to each recipient.
b. Terms and Conditions. The shares of Deferred Stock
awarded pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of the Plan and the award
agreement referred to in Section 8(b)(vi) below, Deferred Stock awards may not
be sold, assigned, transferred, pledged or otherwise encumbered during the
Deferral Period. At the expiration of the Deferral Period (or the Elective
Deferral Period referred to in Section 8(b)(v), where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred Stock
award.
(ii) Unless otherwise determined by the Committee at
grant, amounts equal to any dividends declared during the Deferral Period with
respect to the number of shares covered by a Deferred Stock award will be paid
to the participant currently, or deferred and deemed to be reinvested in
additional Deferred Stock, or otherwise reinvested, all as determined at or
after the time of the award by the Committee, in its sole discretion.
(iii) Subject to the provision of the award agreement and
this Section 8, upon termination of a participant's employment with the
Company and any Subsidiary or Affiliate for any reason during the Deferral
Period for a given award, the Deferred Stock in question will vest, or be
forfeited, in accordance with the terms and conditions established by the
Committee at or after grant.
(iv) Based on service, performance and/or such other
factors or criteria as the Committee may determine, the Committee may, at or
after grant, accelerate the vesting of all or any part of any Deferred Stock
award and/or waive the deferral limitations for all or any part of such award.
(v) A participant may elect to further defer receipt of an
award (or an installment of an award) for a specified period or until a
specified event (the "Elective Deferral Period"), subject in each case to the
Committee's approval and to such terms as are determined by the Committee, all
in its sole discretion. Subject to any exceptions adopted by the Committee,
such election must generally be made at least twelve (12) months prior to
completion of the Deferral Period for such Deferred Stock award (or such
installment).
(vi) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
c. Minimum Value Provisions. In order to better ensure
that award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole discretion,
for a tandem performance-based or other award designed to guarantee a minimum
value, payable in cash or Stock to the recipient of a Deferred Stock award,
subject to such performance, future service, deferral and other terms and
conditions as may be specified by the Committee.
SECTION 9. Stock Purchase Rights.
a. Awards and Administration. Subject to Section 3 above,
the Committee may grant eligible participants Stock Purchase Rights which
shall enable such participants to purchase Stock (including Deferred Stock and
Restricted Stock):
(i) at its Fair Market Value on the date of grant;
(ii) at fifty percent (50%) of such Fair Market Value on
such date;
(iii) at an amount equal to Book Value on such date; or
(iv) at an amount equal to the par value of such Stock on
such date.
The Committee shall also impose such deferral, forfeiture and/or
other terms and conditions as it shall determine, in its sole discretion, on
such Stock Purchase Rights or the exercise thereof. The terms of Stock
Purchase Rights awards need not be the same with respect to each participant.
Each Stock Purchase Right award shall be confirmed by, and be subject to the
terms of, a Stock Purchase Rights agreement.
b. Exercisability. Stock Purchase Rights shall generally be
exercisable for such period after grant as is determined by the Committee, not
to exceed thirty (30) days.
SECTION 10. Other Stock-Based Awards.
a. Administration. Other awards of Stock and other awards
that are valued in whole or in part by reference to, or are otherwise based
on, Stock ("Other Stock-Based Awards"), including, without limitation,
performance shares, convertible preferred stock, convertible debentures,
exchangeable securities and Stock awards or options valued by reference to
Book Value or Subsidiary performance, may be granted alone, in addition to or
in tandem with Stock Options, Stock Appreciation Rights, Restricted Stock,
Deferred Stock or Stock Purchase Rights granted under the Plan and/or cash
awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the number of shares of Stock to be awarded pursuant to
such awards, and all other conditions of the awards. The Committee shall also
provide for the grant of Stock upon the completion of a specified performance
period.
The provisions of Other Stock-Based Awards need not be the same
with respect to each recipient.
b. Terms and Conditions. Other Stock-Based Awards made
pursuant to this Section 10 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 10(b)(v) below, shares subject to awards made
under this Section 10 may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which the shares are issued, or, if
later, the date on which any applicable restriction, performance or deferral
period lapses.
(ii) Subject to the provisions of this Plan and the award
agreement and unless otherwise determined by the Committee at grant, the
recipient of an award under this Section 10 shall be entitled to receive,
currently or on a deferred basis, interest or dividends, or interest or
dividend equivalents with respect to the number of shares covered by award, as
determined at the time of the award by the Committee, in its sole discretion,
and the Committee may provide that such amounts (if any) shall be deemed to
have been reinvested in additional Stock or otherwise reinvested.
(iii) Any award under Section 10 and any Stock covered by
any such award shall vest or be forfeited to the extent so provided in the
award agreements, as determined by the Committee, in its sole discretion.
(iv) In the event of the participant's Retirement,
Disability or death, or in cases of special circumstances, the Committee may,
in its sole discretion, waive in whole or in part any or all of the remaining
limitations imposed hereunder (if any) with respect to any or all of an award
under this Section 10.
(v) Each award under this Section 10 shall be confirmed
by, and subject to the terms of, an agreement or other instrument by the
Company and by the participant.
(vi) Stock (including securities convertible into Stock)
issued on a bonus basis under this Section 10 may be issued for no cash
consideration. Stock (including securities convertible into Stock) purchased
pursuant to a purchase right awarded under this Section 10 shall be priced at
an amount of not less than fifty percent (50%) of the Fair Market Value of the
Stock on the date of grant.
SECTION 11. Change in Control Provisions.
a. Impact of Event. In the event of:
(1) a Change in Control, or
(2) a Potential Change in Control, but only if and to the
extent so determined by the Committee or the Board at or after grant (subject
to any right of approval expressly reserved by the Committee or the Board at
the time of such determination), the following acceleration and valuation
provisions shall apply:
(i) Any Stock Appreciation Rights (including,
without limitation, any Limited Stock Appreciation Rights) outstanding for at
least six (6) months and any Stock Options awarded under the Plan not
previously exercisable and vested shall become fully exercisable and vested.
(ii) The restrictions and deferral limitations
applicable to any Restricted Stock, Deferred Stock, Stock Purchase Rights and
other Stock Based Awards, in each case to the extent not already reinstated
under the Plan, shall lapse and such shares shall be deemed fully vested.
(iii) The value of all outstanding Stock Options,
Stock Appreciation Rights, Restricted Stock, Deferred Stock, Stock Purchase
Rights and other Stock-Based Awards, in each case to the extent vested, shall,
unless otherwise determined by the Committee in its sole discretion at or
after grant but prior to any Change in Control, be cashed out on the basis of
the Change in Control Price as of the date such Change in Control or such
Potential Change in Control is determined to have occurred or such other date
as the Committee may determine prior to the Change in Control.
(b) Definition of "Change in Control." For purposes of
Section 11(a), a "Change in Control" means the happening of any of the
following:
(i) when any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof, other than
Boston University (collectively, the Group), including a "group" as defined in
Section 13(d) of the Exchange Act but excluding the Company and any Subsidiary
and any employee benefit program sponsored or maintained by the Company or any
Subsidiary (including any trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), of securities of the Company representing twenty percent (20%)
or more of the combined voting power of the Company's then outstanding
securities; or
(ii) when, during any period of twenty-four (24)
consecutive months during the existence of the Plan, the individuals who, at
the beginning of such period, constitute the Board (the "Incumbent Directors")
cease for any reason other than death to constitute at least a majority
thereof, provided, however, that a director who was not a director at the
beginning of such twenty-four (24) month period shall be deemed to have
satisfied such twenty-four (24) month requirement (and be an Incumbent
Director) if such director was elected by, or on the recommendation or with
the approval of, at least two-thirds of the directors who then qualified as
Incumbent Directors either actually (because they were directors at the
beginning of such twenty-four (24) month period) or by prior operation of this
Section 11(b)(ii); or
(iii) the occurrence of a transaction requiring
shareholder approval for the acquisition of the Company by an entity other
than the Company or a Subsidiary through purchase of assets, or by merger, or
otherwise.
(c) Definition of "Potential Change in Control". For
purposes of Section 11(a), a "Potential Change in Control" means the happening
of any one of the following:
(i) the approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in Control of the
Company as defined in Section 11(b); or
(ii) the acquisition of beneficial ownership, directly or
indirectly, by an entity, person or group, other than the Company or a
Subsidiary or any Company employee benefit plan (including any trustee of such
plan acting as such trustee) or Boston University, of securities of the
Company representing five percent (5%) or more of the combined voting power of
the Company's outstanding securities and the adoption by the Board of a
resolution to the effect that a Potential Change in Control of the Company has
occurred for the purposes of the Plan.
d. Change in Control Price. For purposes of this Section
11, "Change in Control Price" means the highest price per share paid in any
transaction reported on the National Association of Securities Dealers
Automated Quotation System, or paid or offered in any bona fide transaction
related to a potential or actual Change in Control of the Company, at any time
during the sixty (60) day period immediately preceding the occurrence of the
Change in Control period (or, where applicable, the occurrence of the
Potential Change in Control event), in each case as determined by the
Committee, except that, in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Stock Options, such price shall be based only
on transactions reported for the date on which the optionee exercises such
Stock Appreciation Rights (or Limited Stock Appreciation Rights) or, where
applicable, the date on which a cashout occurs under Section 11(a)(2)(iii).
SECTION 12. Amendment and Termination.
The Board may amend, alter, or discontinue the Plan, but no
amendment, alteration, or discontinuation shall be made which would impair the
rights of an optionee or participant under a Stock Option, Stock Appreciation
Right, Limited Stock Appreciation Right, Restricted Stock or Deferred Stock
award, Stock Purchase Right or Other Stock-Based Award theretofore granted,
without the optionee or participant's consent, or which, without the approval
of the Company's shareholders, would:
a. except as generally provided in this Plan, increase the
total number of shares reserved for the purpose of the Plan;
b. change the pricing terms of Section 9(a);
c. change the classification of persons eligible to
participate in the Plan; or
d. extend the maximum Option period under Section 5(d) of
the Plan.
The Committee may amend the terms of any Stock Option or other
award theretofore granted, prospectively or retroactively, but, subject to
Section 3 above, no such amendment shall impair the rights of any holder
without the holder's consent. The Committee may also substitute new Stock
Options for previously granted Stock Options (on a one-for-one or other
basis), including previously granted Stock Options having higher option
exercise prices.
Subject to the above provisions, the Board shall have broad
authority to amend the Plan to take into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
However, no amendment shall be effective if shareholder approval is required
under Section 16 of the Exchange Act or Section 422 of the Code unless the
shareholders approve or ratify the amendment within the requisite timeframe
pursuant to such procedures as may be required by the Exchange Act or the
Code, as applicable.
SECTION 13. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet
made to a participant or optionee by the Company, nothing contained herein
shall give any such participant or optionee any rights that are greater than
those of a general creditor of the Company. In its sole discretion, the
Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Stock or payments in lieu of
or with respect to awards hereunder, provided, however, that, unless the Board
determines otherwise with the consent of the affected participant, the
existence of such trusts or other arrangements is consistent with the
"unfunded" status of the Plan.
SECTION 14. General Provisions.
a. The Committee may require each person purchasing shares
of Stock pursuant to a Stock Option or other award under the Plan to represent
to and agree with the Company in writing that the optionee or participant is
acquiring the shares without a view to distribution thereof. The certificates
for such shares may include any legend which the Committee deems appropriate
to reflect any restrictions on transfer.
All certificates for shares of Stock or other securities
delivered under the Plan shall be subject to compliance with such stock
transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Commission, any
stock exchange upon which the Stock is then listed, and any applicable Federal
or state securities law, and shall further be subject to the approval of
counsel for the Company with respect to such compliance. The Committee may
cause a legend or legends to be put on any such certificates to make
appropriate reference to such restrictions.
b. Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases.
c. The adoption of the Plan shall not confer upon any
person any right to continue as an employee or in any other status with the
Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or
Affiliate to terminate the employment or any contractual arrangement of any
person participating hereunder at any time.
d. No later than the date as of which an amount first
becomes includable in the gross income of the participant for Federal income
tax purposes with respect to any award under the Plan, the participant shall
pay to the Company, or make arrangements satisfactory to the Committee
regarding the payment of, any Federal, state, or local taxes of any kind
required by law to be withheld with respect to such amount. Unless otherwise
determined by the Committee, withholding obligations may be settled with
Stock, including Stock that is part of the award that gives rise to the
withholding requirement. The obligations of the Company under the Plan shall
be conditional on such payment or arrangements, and the Company and its
Subsidiaries or Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the participant.
e. The actual or deemed reinvestment of dividends or
dividend equivalents in additional Restricted Stock (or in Deferred Stock or
other types of Plan awards) at the time of any dividend payment shall only be
permissible if sufficient shares of Stock are available under Section 2 for
such reinvestment (taking into account then outstanding Stock Options, Stock
Purchase Rights and other Plan awards).
f. The Plan and all awards made and actions taken
thereunder shall be governed by and construed in accordance with the laws of
the State of Delaware.
g. No security or derivative security hereunder shall be
transferable by a participant other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as referenced
in Rule 16b-3 of the Exchange Act.
SECTION 15. Effective Date of Plan.
The Plan shall be effective as of January 31, 1992, subject to
the approval of the Plan by a majority of the votes cast by the holders of the
Company's Common Stock pursuant to Rule 16b-3(b) of the Exchange Act. Any
grants made under the Plan prior to such approval shall be effective when made
(unless otherwise specified by the Board at the time of grant), but shall be
conditioned on, and subject to, such approval of the Plan by such
shareholders.
SECTION 16. Term of Plan.
No Stock Option, Stock Appreciation Right, Restricted Stock
award, Deferred Stock award, Stock Purchase Right or Other Stock-Based Award
shall be granted pursuant to the Plan on or after the tenth anniversary of the
date of shareholder approval or Board approval, whichever is earlier, but
awards granted prior to such tenth anniversary may extend beyond that date.
SECTION 17. Definitions.
For purposes of the Plan, the following terms shall be defined
as set forth below:
a. "Affiliate" means any entity other than the Company and
its Subsidiaries that is designated by the Board as a participating employer
under the Plan, provided that the Company directly or indirectly owns at least
twenty percent (20%) of the combined voting power of all classes of stock of
such entity or at least twenty percent (20%) of the ownership interests in
such entity.
b. "Board" means the Board of Directors of the Company.
c. "Book Value" means, as of any given date, on a per
share basis, (i), the shareholders' equity in the Company as of the end of the
immediately preceding fiscal year as reflected in the Company's consolidated
balance sheet, subject to such adjustments as the Board shall specify at or
after grant, divided by (ii) the number of then outstanding shares of Stock as
of such year-end date (as adjusted by the Committee for subsequent events).
d. "Cause" has the meaning set forth in Section 5(i)
above.
e. "Change in Control" has the meaning set forth in
Section 11(b) above.
f. "Change in Control Price" has the meaning set forth in
Section 11(d) above.
g. "Code" means the Internal Revenue Code of 1986, as
amended.
h. "Commission" means the Securities and Exchange
Commission.
i. "Committee" means the Committee referred to in Section
4 of the Plan.
j. "Company" has the meaning set forth in Section 1 above.
k. "Deferral Period" has the meaning set forth in Section
8(a) above.
l. "Deferred Stock" means an award made pursuant to
Section 8 above of the right to receive Stock at the end of a specified
deferral period.
m. "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
n. "Early Retirement" means retirement, with the express
consent of the Company at or before the time of such retirement, from active
employment with the Company and any Subsidiary or Affiliate pursuant to the
early retirement provisions of the applicable qualified retirement plan of
such entity.
o. "Elective Deferral Period" has the meaning set forth in
Section 8(b)(v) above.
p. "Employee" means any person, including officers and
directors, employed by the Company or any Affiliate or Subsidiary of the
Company. The payment of a director's fee by the Company shall not be
sufficient to constitute "employment" by the Company.
q. "Exchange Act" means the Securities Exchange Act of
1934, as amended.
r. "Fair Market Value" means, as of any given date, the
last reported sales price of such share on the current day (or most recent
business day for trading if a holiday or weekend) on the New York Stock
Exchange, or, if the Common Stock is not then listed or admitted to trading on
the New York Stock Exchange, on such other principal stock exchange on which
such stock is then listed or admitted to trading, or, if no sale takes place
on such day on any such exchange, the average of the closing bid and asked
prices on such day as officially quoted on any such exchange, or, if the
Common Stock is not then listed or admitted to trading on any stock exchange,
the market price for each such trading day shall be the last sale reported on
the Nasdaq National Market as published in The Wall Street Journal or, if no
such sale is so reported, the average of the reported closing bid and asked
prices on such day in the over-the-counter market, as furnished by the
National Association of Securities Dealers Automated Quotation system, or, if
such price at the time is not available from such system, as furnished by any
similar system then engaged in the business of reporting such prices and
selected by the Board or, if there is no such system, as furnished by any
member of the National Association of Securities Dealers selected by the
Board. If the Common Stock is neither listed on a national securities
exchange nor reported on the Nasdaq National Market nor traded on the
over-the-counter market, fair market value shall be such value as the Board,
in good faith, shall determine. Notwithstanding any provision of the Plan to
the contrary, no determination made with respect to the Fair Market Value of
Common Stock subject to an Option shall be inconsistent with the method
required for incentive stock options under Code Section 422.
s. "Incentive Stock Option" means any Stock Option
intended to qualify as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
t. "Incumbent Directors" has the meaning set forth in
Section 11(b)(ii) above.
u. "Limited Stock Appreciation Right" has the meaning set
forth in Section 6(b)(v) above.
v. "Non-Employee Director" has the meaning set forth in
Rule 16b-3(b)(3) as promulgated by the Commission under the Exchange Act, or
any successor definition adopted by the Commission.
w. "Non-Qualified Stock Option" means any Stock Option
that is not an Incentive Stock Option.
x. "Normal Retirement" means retirement from active
employment with the Company and any Subsidiary or Affiliate on or after age
65.
y. "Other Stock-Based Award" means an award under Section
10 above that is valued in whole or in part by reference to, or is otherwise
based on, Stock.
z. "Plan" has the meaning set forth in Section 1 above.
aa. "Potential Change in Control" has the meaning set
forth in Section 11(c) above.
bb. "Restricted Period" has the meaning set forth in
Section 7(c)(i) above.
cc. "Restricted Stock" means an award of shares of Stock
that is subject to restrictions under Section 7 above.
dd. "Retirement" means Normal Retirement or Early
Retirement.
ee. "Stock" means the common stock, $.01 par value, of the
Company.
ff. "Stock Appreciation Right" means the right pursuant to
an award granted under Section 6 above to surrender to the Company all (or a
portion) of a Stock Option in exchange for an amount equal to the difference
between (i) the Fair Market Value, as of the date such Stock Option (or
portion thereof) is surrendered, of the shares of Stock covered by such Stock
Option (or such portion thereof), subject, where applicable, to the pricing
provisions in Section 6(b)(ii), and (ii) the aggregate exercise price of such
Stock Option (or such portion thereof).
gg. "Stock Option" or "Option" means any option to
purchase shares of Stock (including Restricted Stock and Deferred Stock, if
the Committee so determines) granted pursuant to Section 5 above.
hh. "Stock Purchase Right" means the right to purchase
Stock pursuant to Section 9.
ii. "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") is made
and entered into as of the 22nd day of September 1997, by and between SERAGEN,
Inc., a Delaware corporation with its principal place of business at 97 South
Street, Hopkinton, Massachusetts 01748 (the "Company"), and Jean C. Nichols,
Ph.D., an individual residing at 15 Astra, Wayland, Massachusetts 01778 (the
"Executive").
WHEREAS, the Executive is currently employed by the Company as its
President and Chief Technology Officer pursuant to an Employment Agreement
dated November 6, 1996, as amended by amendments or waivers dated December 18,
1996, January 6, 1997, January 31, 1997, and May 30, 1997 (as so amended, the
"Old Agreement"); and
WHEREAS, the Company desires to continue to employ the Executive, and
the Executive desires to continue to be employed by the Company, on the terms
and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged by the parties hereto, the
parties hereto hereby agree as follows:
1. Term of Agreement. This Agreement shall commence on the date
hereof (the "Effective Date") and shall continue thereafter, unless sooner
terminated pursuant to Section 4, until November 6, 1999 (the "Term").
2. Title; Capacity. The Executive shall serve as President, Chief
Technology Officer and a director of the Company, based at the Company's
headquarters in Hopkinton, Massachusetts, or such place or places in the
continental United States as the Chief Executive Officer shall determine. The
Executive shall be subject to the supervision of the Chief Executive Officer.
The Executive hereby accepts such employment and agrees to undertake the
duties and responsibilities inherent in such position and such other duties
and responsibilities as the Chief Executive Officer shall from time to time
reasonably assign to her consistent with the Executive's position. The
Company shall use its best efforts to solicit and encourage shareholders of
the Company to appoint and elect the Executive to the board of directors of
the Company during the term of her employment, and the Executive agrees to
serve as a director of the Company without additional compensation. The
Executive agrees to devote her entire business time, attention and energies to
the business and interests of the Company during the term.
3. Compensation and Benefits.
3.1 Salary. The Company shall pay the Executive, in accordance
with its normal payroll practices, an annual base salary of $225,000 ("Base
Salary").
3.2 Fringe Benefits. The Executive shall be entitled, at the
Company's expense, to participate in all bonus and benefit programs, if any,
that the Company establishes and makes available to its employees to the
extent that the Executive's position, tenure, salary, age, health and other
qualifications make her eligible to participate. The Executive shall be
entitled to four (4) weeks paid vacation per year in addition to other paid
holidays provided to all other Company executives. The Executive shall also
be entitled to health insurance for herself and her family, life insurance and
appropriate disability insurance coverage for an executive of her position and
salary level. The Company will pay for membership in appropriate professional
organizations as reasonably required.
3.3 Reimbursement of Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses incurred
or paid by the Executive in connection with, or related to, the performance of
her duties, responsibilities, or services under this Agreement, upon
presentation by the Executive of appropriate documentation, expense
statements, vouchers and/or such other supporting information in such form as
the Company may reasonably request.
3.4 Severance. Upon the termination of Executive's employment for
any reason, or within 30 days after Executive's death or disability, as
applicable, the Company shall pay Executive for any unused accrued vacation
time together with all salary and other benefits accrued through the date of
termination. After the Company or Executive has given to the other party a
notice of termination (other than a termination for Just Cause), the Company
may request in writing that Executive vacate her office within 3 business
days; in that event, Executive shall vacate her office within the 3-day period
and shall not be obligated to perform any additional services thereafter,
although in this event, Executive will not be deemed "terminated" until the
expiration of the notice period. If (a) Executive shall voluntarily terminate
her employment for Good Reason or (b) Executive's employment hereunder is
terminated (1) as a result of Executive's death or disability or (2) by the
Company without Just Cause, the Company shall provide Executive with the
following severance benefits:
(i) upon the date of termination, or within 30 days after
Executive's death or disability, as applicable, the Company shall pay
Executive as termination and severance pay in a lump sum an amount equal to
one year's salary based on her then salary rate; and
(ii) the Company will continue to provide Executive and her family
without cost or charge of any nature other than applicable deductibles or co-
payments with the same medical and dental insurance coverage provided to them
prior to Executive's termination, death or disability for the maximum period
provided with respect to group health plan benefits subject to "COBRA"
continuation coverage requirements (provided all applicable deductible and co-
payments amounts shall apply).
3.5 Stock Options. On or before September 30, 1997, the Company
shall grant the Executive stock options under the Seragen, Inc. 1992 Long Term
Incentive Plan (the "Plan") to purchase a number of shares of the Company's
common stock, par value $0.01 per share ("Common Stock"), equal to 2.75% of
the outstanding Common Stock on the date of grant, measured on a fully diluted
basis, taking into account all options, warrants, conversion rights and other
rights issued by the Company to acquire equity securities issued prior to the
actual date of grant and based upon the exercise or conversion price that
would apply if such options, warrants, conversion rights, and other rights
were exercised or converted on the grant date. For purposes of the provisions
of this Section 3.5, stock options granted to the Executive pursuant to
Section 3.6 of the Old Agreement through the date hereof and stock options to
purchase 54,000 shares of Common Stock previously granted by the Company to
the Executive listed on Schedule I hereto shall be deemed to be in partial
fulfillment of, and not in addition to, the Company's obligations hereunder.
To the extent permitted by federal income tax law, options issued under the
Plan to the Executive shall be "incentive stock options." Stock options
issued after the Effective Date pursuant to the provisions of this Section 3.5
("New Stock Options") shall be evidenced by an Incentive Stock Option
Agreement and, if required, a Non-Qualified Stock Option Agreement
substantially in the form of Exhibits A and B to this Agreement (the "Stock
Option Agreements"), except as expressly provided otherwise herein. The
exercise price per share of Common Stock for New Stock Options shall be the
Fair Market Value as defined in the Plan as of the date of grant. Both Stock
Option Agreements shall provide that (i) the options issued thereunder shall
vest, i.e., become exercisable, in monthly installments of 2.7778% commencing
as of November 6, 1996 (the "Old Agreement Effective Date") and on the first
day of each calendar month thereafter so that the Executive shall be fully
(100%) vested on the first day of the month immediately before the third
anniversary of the Old Agreement Effective Date; (ii) upon a Change in
Ownership (as hereinafter defined), in place of the vesting schedule provided
in clause "i" above the options shall vest retroactively 25% as of the Old
Agreement Effective Date and an additional 2.0833% as of the first day of each
calendar month thereafter so that the Executive shall be fully (100%) vested
on the first day of the month in which falls the third anniversary of the Old
Agreement Effective Date; (iii) upon the termination by the Company of the
Executive's employment without Just Cause or the Executive's termination for
Good Reason (as those terms are defined in Section 4), in place of the vesting
schedules provided in clauses "i" and "ii" above, the options shall vest
retroactively 25% as of the Old Agreement Effective Date and at the
accelerated rate of an additional 3.125% on the first day of each calendar
month thereafter so that the Executive shall be fully (100%) vested on the
first day of the month in which falls the second anniversary of the Old
Agreement Effective Date; (iv) options issued shall, to the extent vested, be
fully exercisable until the tenth (10th) anniversary of December 18, 1996 (the
"Effective Option Date"); (v) the options shall be exercisable in accordance
with the terms of the Plan, including the right to pay the option exercise
price in whole or in part by surrendering shares of Common Stock held by the
Executive for at least six months prior to the exercise date with an aggregate
fair market value equal to the option exercise price or in accordance with a
cashless exercise program established with a securities brokerage firm and
approved by the Company, and shall provide that stock certificates shall be
issued outright and free of escrow no later than five (5) business days after
the date of exercise; (vi) stock certificates issued pursuant to the exercise
of an option shall not include any legends or be subject to any transfer
restrictions, except for restrictions required by Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); (vii) the Company shall
not terminate any option issued to the Executive upon a "Change in Control"
(as defined in the Plan) without the Executive's prior written approval;
(viii) in the event that the Company grants options or other equity interests
to management, employees, directors or consultants or the Company sells shares
of its Common Stock or any equity securities or securities convertible or
exchangeable into any equity securities of the Company, as part of a plan or
series of plans of financing, or the number of shares of Common Stock
outstanding on a fully diluted basis increases as a result of a change in the
conversion ratio of any class of securities convertible or exchangeable into
any equity securities of the Company (each, a "Dilution Event"), the Company
shall grant the Executive additional stock options under the Plan covering
that number of shares of Common Stock necessary to cause the Executive's
proportionate holdings of the outstanding Common Stock, on a fully diluted
basis, as of the last day of the calendar quarter in which the Dilution Event
occurs, to equal her proportionate holdings of the outstanding Common Stock,
on a fully diluted basis, immediately prior to the Dilution Event, or 2.75% of
the Common Stock on a fully diluted basis, whichever is higher; provided that
the Executive's right to receive additional stock options under this
subsection 3.5(viii) will terminate with respect to Dilution Events which
occur after the Company has received cumulative proceeds (since the Old
Agreement Effective Date) of at least Twenty Million Dollars ($20,000,000) of
cash proceeds from one or more Target Equity Financings and the Executive has
received all additional stock options with respect to Dilution Events which
occur prior to or in connection with the receipt by the Company of such
cumulative proceeds; (ix) all additional stock options shall be granted on the
last day of each calendar quarter during which such grant or sale of options,
shares or other equity interests is completed, based on the number of shares
of Common Stock outstanding on a fully diluted basis on the last day of such
calendar quarter, except that in the case of any Target Equity Financing from
which the Company receives proceeds of at least Ten Million Dollars
($10,000,000), the additional stock options will be granted immediately upon
the consummation of such Target Equity Financing, and each such additional
stock option shall have an exercise price equal to the Fair Market Value per
share of Common Stock on the date of its grant, and shall otherwise be subject
to the same terms and conditions, and shall vest and remain exercisable on the
same terms as though it were granted on the Effective Option Date; (x) each
option shall include all other rights and benefits under the Plan, including
Section 11 of the Plan (regarding accelerated vesting on Change in Control);
and (xi) the Company shall on or before December 31, 1997, at its own expense
register under the Securities Act of 1933, as amended, all shares issued or to
be issued pursuant to the exercise of the stock options on Form S-8, the
obligation to maintain such registration to continue following the Executive's
termination of employment. The Executive agrees that, if requested by an
underwriter of the Company's securities, the Executive will comply with any
reasonable customary lock-up periods in connection with the Company's offering
of securities provided that all other executive officers and directors of the
Company also must comply with such restrictions and provided that no such
lock-up period shall exceed 180 days. The Plan shall be amended as necessary
to provide or permit the issuance of the options described in this Section
3.5. All additional stock options shall have the same terms and conditions,
and shall vest as though they were granted on the same date, as the options
issued pursuant to this Section. For purposes of determining the outstanding
Common Stock on a fully diluted basis, all shares of Common Stock issuable
upon exercise of options outstanding under the Plan or any other stock option
plan (including the options granted to the Executive pursuant to this
Agreement) and all shares of Common Stock issuable on exercise of all other
outstanding options, warrants, conversion rights or other rights issued by the
Company to acquire equity securities shall be deemed to be outstanding.
The Board shall in good faith take all necessary action to effect the
terms of this Agreement and to register the underlying shares of Common Stock
under applicable securities laws as provided herein.
For purposes of this Agreement, the following terms shall be defined as
set forth below:
A "Change in Control" of the Company shall have the same meaning as
provided by Section 11(b) of the Seragen, Inc. 1992 Long Term Incentive Plan
as amended through the date hereof.
A "Change in Ownership" of the Company shall mean (i) the acquisition by
any "person" or group of "persons" (as defined in Section 13(d)(3) of the
Exchange Act, whether by way of merger, sale of assets, stock purchase, tender
offer or otherwise, of (A) all or substantially all of the equity securities
of the Company or (B) all or substantially all of the operating assets of the
Company, or (ii) the sale or out-licensing of the majority (in value) of the
Company's technology assets. However, the sale of the Company's manufacturing
and clinical operations facilities to Boston University or Boston University's
designated affiliate pursuant to the Asset Purchase Agreement dated as of
February 14, 1997 between the Company and Boston University shall not
constitute a "Change in Ownership."
"Fully Diluted Basis" shall mean that all shares of Common Stock
issuable upon exercise of options outstanding under the Plan or any other
stock option plan (including the Options and Dilution Options granted to
Executive pursuant to this Agreement) and all shares of Common Stock issuable
on exercise of all other outstanding options, warrants, conversion rights or
other rights issued by the Company to acquire equity securities shall be
deemed to be outstanding.
"Target Equity Financing" shall mean the sale or issuance of stock of
the Company or of debt securities of the Company with conversion rights, other
than (i) stock or debt securities sold or issued to a shareholder and/or
affiliated investment entities who as of the Old Agreement Effective Date
collectively owned at least 1% of the Common Stock as measured on a fully
diluted basis; or (ii) stock issued as a result of the exercise of options
presently outstanding or issued pursuant to the Plan.
3.6 Asset Value Realization Fee. The Company and its shareholders
presently intend to develop the business of the Company over the long term
through the efforts of Executive and the other Company employees, which is
intended to result in a substantial increase in the value of the Common Stock
and of the options issued to Executive under Section 3.5 above. If, however,
there is a Change in Ownership of the Company (as defined in Section 3.5),
then the Company shall pay Executive a bonus (the "Asset Value Realization
Bonus") equal to 2.75% of the "Net Proceeds" for any acquisition that is part
of the Change in Ownership "Effected" during Executive's employment or at any
time before the first anniversary of the termination of Executive's
employment, which amount shall be reduced (but not below zero) by the "Option
Stock Gain" recognized by Executive as a result of the sale by her of Common
Stock acquired as a result of exercise of stock options granted to her in
fulfillment of the Company's obligations under Section 3.5 above. Except as
provided by Section 3.7 below, the Company shall pay the Asset Value
Realization Bonus, or any increase in the Asset Value Realization Bonus, on or
before the closing of any acquisition that is part of a Change in Ownership.
If any part of the Net Proceeds is payable after closing (the "Deferred
Payments"), however, then the Company may defer the payment of the part of the
Asset Value Realization Bonus allocable to the Deferred Payments until receipt
of the Deferred Payments, provided the payor of the Deferred Payments has
agreed in writing to pay directly to Executive the Asset Value Realization
Bonus allocable to the Deferred Payments as and when such Deferred Payments
are made to the Company or its shareholders. "Net Proceeds" shall mean the
total cash plus any property received directly or indirectly by the Company or
its shareholders in kind with respect to all acquisitions constituting the
Change in Ownership, reduced by all investment banking fees, brokerage fees,
appraisal fees, and other professional expenses directly attributable to the
acquisitions. A transaction shall be "Effected" by a certain date if it is
consummated by that date or is the subject matter of an agreement or
memorandum of intent executed by that date and subsequently consummated.
"Option Stock Gain" shall mean the difference between the net proceeds from
Executive's sale of Common Stock and the net cost to Executive to exercise the
options for such stock on the assumption that Executive has, in fact,
exercised all vested options and sold all Common Stock received on such
exercise as of the date of the Change in Ownership; Executive shall for this
purpose be deemed to have sold all Common Stock (i) that she owns at the time
of the Change in Ownership or could then own if she exercised all vested
options, (ii) that she is permitted to sell, and (iii) in the event of a
merger or sale of securities, for which she has received an offer to purchase,
and is permitted to sell, on the same terms and conditions as those of the
transactions that constitute the Change in Ownership.
3.7 Continuing Employment With Purchaser. The Company and
Executive recognize that Executive's willingness to work for a potential
purchaser of the Company's business may be an important factor in a sale of
the business. Consequently, to assure a potential purchaser that Executive
will be available to continue employment for up to six months after closing
the sale of the Company's business, Executive agrees that the Company may
defer the payment of 75% of her Asset Value Realization Bonus for up to six
months after such closing on the following terms of this Section 3.7. If a
person or group of persons (individually and collectively, including any
affiliate, the "Purchaser") acquires property that results in a Change in
Ownership, Executive is employed by the Company on the date of closing of the
acquisition resulting in a Change in Ownership (the "Closing"), and on or
before the Closing the Purchaser makes a "Bona Fide Employment Offer" (as
defined below) to Executive, then the Company shall pay to Executive her Asset
Value Realization Bonus (i) 25% on Closing, (ii) 25% two months after Closing,
(iii) 25% four months after Closing, and (iv) 25% six months after Closing.
It shall be a condition to the obligation of the Company to make each of the
aforesaid partial payments of the Asset Value Realization Bonus that on the
date such payment is due Executive has accepted the Bona Fide Employment Offer
and is currently employed by the Company or the Purchaser. The Company shall
immediately pay Executive the balance of her Asset Value Realization Bonus
upon Executive's termination of employment with the Purchaser for Good Reason
or the Purchaser's termination of Executive's employment without Just Cause.
In the event that Executive's Asset Value Realization Bonus is to be paid on
the schedule set forth in the third sentence of this Section 3.7, on or before
Closing, the Company shall open with a national banking association (the
"Escrow Agent"), to be mutually agreed upon by the Company, the Purchaser, and
Executive, an escrow account (the "Escrow Account") into which it shall
deposit 75% of the Asset Value Realization Bonus. With respect to any cash
portion of the Asset Value Realization Bonus, the agreement with the Escrow
Agent (the "Escrow Agreement") shall provide that the Escrow Agent invest that
portion in United States Treasury Bills, other securities issued by the United
States government, or both, as the Escrow Agent may from time to time
determine. With respect to any non-cash portion of the Asset Value
Realization Bonus, the Escrow Agreement shall provide that the Escrow Agent
hold that property and not dispose of that property except through a transfer
to Executive, the Company, or the Purchaser as provided for in this Section
3.7. The Escrow Agreement shall provide that (a) the Escrow Agent shall
release assets held in the Escrow Account to Executive in accordance with the
payment schedule set forth in this Section 3.7 unless prior to any specified
payment date the Escrow Agent has received notice from the Company or the
Purchaser that Executive's employment has been terminated for "Just Cause" or
without "Good Reason;" (b) in the event that Executive provides notice to the
Escrow Agent that Executive's employment has been terminated without "Just
Cause" or for "Good Reason," the Escrow Agent shall, on the tenth day (or, if
such day is not a business day, the next business day) following its receipt
of such notice, if it has not then received notice from the Company or the
Purchaser disputing Executive's notice, pay and deliver to Executive all
assets then remaining in the Escrow Account; and (c) in the event that the
Company or the Purchaser provides notice to the Escrow Agent that Executive's
employment has been terminated for "Just Cause" or without "Good Reason," the
Escrow Agent shall, on the tenth day (or, if such day is not a business day,
the next business day) following its receipt of such notice, if it has not
then received notice from Executive disputing the notice of the Company or the
Purchaser, as the case may be, pay and deliver to the Company all assets then
remaining in the Escrow Account. The Escrow Agreement shall provide that a
copy of any notice to the Escrow Agent given by Executive, on one hand, or the
Company or the Purchaser, on the other, shall be delivered by the Escrow Agent
to the other party promptly upon receipt; the Escrow Agreement shall provide
that the Escrow Agent provide actual notice to Executive of any notice by the
Company or the Purchaser under this Section 3.7. The Escrow Agreement shall
terminate eight months after closing, and, unless assets in the Escrow Account
are then otherwise distributable pursuant to the provisions of this Section
3.7, all assets then remaining in the Escrow Account shall be distributed by
the Escrow Agent to Executive. The parties to this Agreement agree to
negotiate in good faith for the purpose of the finalization, execution, and
delivery of an Escrow Agreement as contemplated in this Section 3.7.
For the purposes of this Section 3.7, "Bona Fide Employment Offer" shall
mean a written offer from the Purchaser to employ Executive (i) on terms at
least as favorable to Executive as provided by this Agreement excluding
consideration of Sections 3.5, 3.6 and this 3.7, (ii) with duties and
responsibilities commensurate with Executive's education, skills and
abilities, and (iii) a commitment to reimburse Executive within 10 days of
receipt of reasonable substantiation all reasonable costs incurred by her for
at least six months following Closing in connection with (a) maintaining a
temporary residence or living facility at any place of business to which the
Purchaser requires Executive to relocate in order to carry out her duties and
responsibilities under this Agreement and (b) weekly travel between such
residence and the location of her family residence located in Wayland,
Massachusetts, plus any federal, state or local income or payroll taxes
incurred by Executive with respect to all such reimbursement payments,
including these tax reimbursement payments, so that Executive shall be made
whole on an after-tax basis. For the purposes of this Section 3.7, the terms
"Just Cause" and "Good Reason" shall have the same meaning as provided in
Sections 4.1 and 4.5, respectively, except that: (i) any references to the
Company shall be deemed to include the Purchaser that makes the Bona Fide
Employment Offer, (ii) a Change in Control or a Change in Ownership does not
constitute Good Reason, and (iii) the termination of Executive's employment as
a result of death or disability, or by agreement between Executive and the
Purchaser, constitutes Good Reason.
In the event that Executive dies, her estate shall be entitled to any
payments to which Executive would be entitled under this Section 3.7.
4. Employment Termination. Section 1 of this Agreement
notwithstanding, the employment of the Executive by the Company pursuant to
this Agreement shall terminate upon the occurrence of any of the following:
4.1 Just Cause. At the election of the Company, for Just Cause,
immediately upon written notice by the Company to the Executive. For the
purposes of this Section 4.1, "Just Cause" shall mean (a) the commission by
the Executive of a willful act of material fraud in the performance of her
duties on behalf of the Company; (b) the conviction of the Executive of, or
the entry of a plea of guilty or nolo contendere by the Executive to, any
crime involving moral turpitude or any felony; or (c) the breach by the
Executive of any material term of this Agreement or the continuing willful
failure of the Executive to perform her material duties to the Company (other
than any such failure resulting from the Executive's incapacity due to
physical or mental illness) after written notice thereof (specifying the
particulars thereof in reasonable detail) and a reasonable opportunity to cure
such breach or failure are given to the Executive by the Board of Directors or
the Chief Executive Officer of the Company, provided that no notice shall be
due for any act described in subparagraphs (a) and (b).
For purposes of this Paragraph 4.1, no act, or failure to act, on
Executive's part shall be considered "willful" unless done, or omitted to be
done, by her not in good faith and without reasonable belief that her action
or omission was in the best interests of the Company.
4.2 Death or Disability. Thirty days after the death or total
disability of the Executive. As used in this Agreement, the term "total
disability" shall mean the inability of the Executive, due to a physical or
mental disability, for a period of 90 consecutive days or 150 days in the
aggregate, during any 360-day period to perform the services contemplated
under this Agreement. A determination of total disability shall be made by a
physician satisfactory to both the Executive and the Company, provided that if
the Executive and the Company do not agree on a physician, the Executive and
the Company shall each select a physician and these two together shall select
a third physician, whose determination as to disability shall be binding on
all parties.
4.3 Without Just Cause. Upon notice of termination given at the
election of the Company without Just Cause, which shall include a Change in
Ownership of the Company or a Change in Control of the Company, provided that
the Executive shall be entitled to the severance payment provided in Section
3.4 in such event.
4.4 Termination by the Executive. The Executive may terminate her
employment hereunder at any time upon not less than thirty (30) days' prior
written notice.
4.5 Good Reason. For purposes of this Agreement, "Good Reason"
shall mean:
(i) the Company shall have materially breached its obligations
under this Agreement, and such breach is not cured within twenty (20) days of
the Executive's sending a written notice of such breach;
(ii) the Company shall have incurred a Change in Ownership;
(iii) the Company shall have incurred a Change in Control;
(iv) the Executive shall at any time during her employment and
more than 30 days after the Effective Date not be a member of the Board of
Directors of the Company or the President of the Company, unless the Executive
shall have resigned from or failed to accept such position(s); or
(v) the Company shall have acted in bad faith to cause the
Executive to resign from the Company.
Good Reason shall not arise in any situation in which the Executive
shall have given prior written consent to the act or failure to act of the
Company.
5. Survival. The provisions of Sections 3.4, 4, 6 and 7 shall survive
the termination of this Agreement.
6. Non-Compete.
6.1 During her employment and for a period of one (1) year after
the termination or expiration thereof, the Executive will not directly or
indirectly;
(i) as an individual proprietor, partner, stockholder, officer,
employee, director, joint venturer, investor, lender, or in any other capacity
whatsoever (other than as the holder of not more than one percent (1%) of the
total outstanding stock of a publicly held company), engage in the business of
developing, producing, marketing or selling products competitive with the
products, and using technologies which are utilized in the products, developed
or being developed, produced, marketed or sold by the Company while the
Executive was employed by the Company;
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their employment with, or
otherwise cease their relationship with, the Company, or
(iii) solicit, divert or take away, or attempt to divert or take
away, the business of any of the clients, customers or accounts, or
prospective clients, customers or accounts, of the Company which were
contacted, solicited or served by the Company during the last 24 months of the
employment of the Executive.
6.2 If any restriction set forth in this Section 6 is found by any
court of competent jurisdiction to be unenforceable because it extends too
long a period of time or over too great a range of activities or in too broad
a geographic area, it shall be interpreted to extend only over the maximum
period of time, range of activities or geographic area as to which it may be
enforceable.
6.3 The restrictions contained in this Section 6 are necessary for
the protection of the business and goodwill of the Company and are considered
by the Executive to be reasonable for such purpose. The Executive agrees that
any breach of this Section 6 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in addition
to such other remedies which may be available, the Company shall have the
right to seek specific performance and injunctive relief.
7. Proprietary Information and Developments.
7.1 Proprietary Information.
(a) The Executive agrees that all information and know-how,
whether or not in writing, of a private, secret or confidential nature
concerning the Company's business or financial affairs (collectively
"Proprietary Information") is and shall be the exclusive property of the
Company. By way of illustration, but not limitation, Proprietary Information
may include inventions, products, processes, methods, techniques, formulas,
compositions, compounds, projects, developments, plans, research data,
clinical data, and financial data of the Company, whether or not generated
during normal working hours or on the premises of the Company. Proprietary
Information shall not include any information that (i) is generally known
within the industry before the date of this Agreement or becomes common
knowledge within the industry thereafter, (ii) is disclosed to the Executive
by a third party which did not obtain the information, directly or indirectly,
under an obligation of confidence to the Company, or (iii) the Executive is
required to disclose by enforceable legal process.
(b) The Executive agrees that all files, letters, memoranda,
reports, records, data, sketches, drawings, laboratory notebooks, program
listings, or other written, photographic, or other tangible material
concerning Proprietary Information, whether created by the Executive or
others, which shall come into her custody or possession, shall be and are the
exclusive property of the Company to be used by the Executive only in the
performance of her duties for the Company.
(c) The Executive agrees that her obligations not to disclose or
use information, know-how and records of the types set forth in paragraphs (a)
and (b) above, also extends to such types of information, know-how, records
and tangible property of customers of the Company or suppliers to the Company
or other third parties who may have disclosed or entrusted the same to the
Company or to the Executive in the course of the Company's business.
7.2 Developments.
(a) The Executive will make full and prompt disclosure to the
Company of all inventions, improvements, discoveries, methods, developments,
software, and works of authorship, whether patentable or not, which are
created, made, conceived or reduced to practice by the Executive or under her
direction or jointly with others during her employment by the Company, whether
or not during normal working hours or on the premises of the Company (all of
which are collectively referred to in this Agreement as "Developments").
(b) The Executive agrees to assign and does hereby assign to the
Company (or any person or entity designated by the Company) all her right,
title and interest in and to all Developments and all related patents, patent
applications, copyrights and copyright applications. However, this Section
7.2(b) shall not apply to Developments which do not relate to the present or
planned business or research and development of the Company and which are made
and conceived by the Executive not during normal working hours, not on the
Company's premises and not using the Company's tools, devices, equipment or
Proprietary Information.
(c) The Executive agrees to cooperate fully with the Company at the
Company's expense, both during and after her employment with the Company, with
respect to the procurement, maintenance and enforcement of copyrights and
patents (both in the United States and foreign countries) relating to
Developments. The Executive shall sign all papers, including, without
limitation, copyright applications, patent applications, declarations, oaths,
formal assignments, assignment of priority rights, and powers of attorney,
which the Company may deem necessary or desirable in order to protect its
rights and interests in any of the Developments.
7.3 Other Agreements. The Executive hereby represents that she is
not bound by the terms of any agreement with any previous employer or other
party to refrain from using or disclosing any trade secret or confidential or
proprietary information in the course of her employment with the Company or to
refrain from competing, directly or indirectly, with the business of such
previous employer or any other party. The Executive further represents that
her performance of all the terms of this Agreement as an employee of the
Company does not and will not breach any agreement with any previous employer
or other party to keep in confidence proprietary information, knowledge or
data acquired by her in confidence or in trust prior to her employment with
the Company.
8. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or
upon deposit in the United States Post Office, by registered or certified
mail, postage prepaid, addressed to the other party at the address shown
above, or at such other address or addresses as either party shall designate
to the other in accordance with this Section 8.
9. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms or nouns and pronouns shall include the plural,
or vice versa.
10. Entire Agreement. This Agreement constitutes the entire agreement
between the parties and supersedes as of the Effective Date all prior
agreements and understandings, whether written or oral and including, without
limitation, the Old Agreement, relating to the subject matter of this
Agreement.
11. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Executive.
12. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the Commonwealth of Massachusetts.
13. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of the Executive are personal and shall not be assigned by
her.
14. Legal Fees. The Company shall pay the Executive's reasonable
legal fees incurred with respect to the negotiation and preparation of this
Agreement.
15. Miscellaneous.
15.1 No Waiver. No delay or omission by the Company in exercising
any right under this Agreement shall operate as a waiver of that or any other
right. A waiver or consent given by the Company on any one occasion shall be
effective only in the instance and shall not be construed as a bar or waiver
of any right on any other occasion.
15.2 Captions. The captions of the sections of this Agreement are
for convenience and reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
15.3 Severance. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Employment Agreement as of the day and year set forth above.
SERAGEN, INC.
By: /s/ Reed R. Prior
---------------------------
Reed R. Prior
Chairman of the Board and
Chief Executive Officer
EXECUTIVE
/s/ Jean C. Nichols
-------------------------------
Jean C. Nichols, Ph.D
AMENDMENT TO OFFSHORE SECURITIES AGREEMENT
November 12, 1997
P.R.I.F. L.P.
c/o Wood Gundy Inc.
200 King Street West
Toronto, Ontario M5H 3Z8
Canada
Gentlemen:
We refer to that certain Offshore Securities Subscription
Agreement, dated May 29, 1996 (the "Agreement"), as amended by that certain
letter agreement, dated June 28, 1996 (the "Amendment"; the Agreement as
amended by the Amendment, the "Amended Agreement"), between you and us.
The Amended Agreement is hereby amended by deleting therefrom the
final paragraph of Section 1.a. thereof. For the avoidance of doubt the
paragraph to which the foregoing sentence refers is the paragraph which was
added to Section 1.a. of the Agreement by the Amendment.
This agreement reflects the present agreement of the parties
hereto with respect to the transactions contemplated hereby and shall be
binding upon and enforceable against the parties hereto. Except as amended
herein, the Amended Agreement shall remain in full force and effect.
P.R.I.F. L.P.
November 12, 1997
Page 2
If the foregoing reflects your understanding of our agreement,
please so indicate by signing below.
Very truly yours,
SERAGEN, INC.
By: /s/ Reed R. Prior
----------------------
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
Agreed and accepted:
P.R.I.F. L.P.
By: H.B. & Co. Inc.
By: /s/ Henry Brachfield
---------------------
Henry Brachfeld
Officer
Date: November 12, 1997
WAIVER AGREEMENT
This Waiver Agreement is made as of October 28, 1997, by and
between Boston University, Leon C. Hirsch, Turi Josefsen, Gerald S.J. Cassidy
and Loretta P. Cassidy (individually, a "Stockholder" and collectively, the
"Stockholders"), Reed R. Prior ("Prior"), and Seragen, Inc. (the "Company").
WHEREAS, the Stockholders, Prior and the Company are the parties
to a certain Stockholders Agreement, dated as of November 6, 1996 (the
"Stockholders Agreement");
WHEREAS, Section 2.1 of the Stockholders Agreement requires the
Stockholders to take or cause to be taken such actions as may be required from
time to time to establish and maintain the number of directors comprising the
whole board of directors of the Company at nine;
WHEREAS, the parties acknowledge that, given the current financial
and business problems faced by the Company, it is difficult to attract the
caliber of directors contemplated by the parties at the time they entered into
the Stockholders Agreement;
WHEREAS, the parties believe that until it is possible to attract
appropriate additional candidates to serve as directors of the Company, it is
in the best interests of the parties and the Company that the size of the
board of directors be set at six directors;
NOW THEREFORE, in consideration of the foregoing premises and
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
Until such time as it is possible to attract as additional
candidates to serve as directors of the Company persons who have sufficient
experience and stature in the pharmaceutical industry to make their election
to the board of directors of the Company desirable, the number of directors
that comprise the whole board of the Company may be set at six. At such time
as, in the reasonable judgment of Prior after consultation with the other
members of the Company's board of directors, additional appropriate candidates
for the Company's board of directors can be identified, the size of the board
of directors of the Company shall be increased, up to a maximum of nine, as
necessary to permit or facilitate such candidates' election.
The provisions of Section 2.1 of the Stockholders Agreement are
hereby amended and waived to the extent necessary to give effect to the
provisions of the preceding paragraph.
IN WITNESS WHEREOF, the parties hereto have executed this Waiver
Agreement to be effective as of the day first set forth above.
BOSTON UNIVERSITY
By: /s/ Kenneth G. Condon
----------------------
Kenneth G. Condon
Vice President for
Financial Affairs
/s/ Leon C. Hirsch
-------------------
Leon C. Hirsch
/s/ Turi Josefsen
------------------
Turi Josefsen
/s/ Gerald S. J. Cassidy
------------------------
Gerald S.J. Cassidy
/s/ Loretta P. Cassidy
-----------------------
Loretta P. Cassidy
/s/ Reed R. Prior
------------------
Reed R. Prior
SERAGEN, INC.
By: /s/ Jean C. Nichols
----------------------
Jean C. Nichols, Ph.D.
President and Chief
Technology Office
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 to Employment Agreement, dated as of
September 30, 1997, is made between Seragen, Inc. (the "Company") and
Elizabeth Chen ("Chen").
WHEREAS, the Company and Chen have entered into an Employment
Agreement, dated as of January 15, 1997, as amended by waivers to the
Employment Agreement dated as of March 28, 1997, and September 3, 1997
(collectively, the "Agreement"); and
WHEREAS, the Company and Chen desire to amend the Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Capitalized terms used in this Amendment and not otherwise
defined in this Amendment have the same meaning as in the Agreement.
2. Section 3(b)(ii)(2) of the Agreement is hereby amended to
read as follows:
"(2) The options shall be exercisable in accordance with
the terms of the Plan, including the right to pay the option
exercise price in whole or in part by surrendering shares of
Common Stock or Restricted Stock (as such term is defined in
the Plan) held by Chen for at least six months prior to the
exercise date with an aggregate Fair Market Value equal to
the option exercise price or in accordance with a cashless
exercise program established with a securities brokerage
firm and approved by the Company, and shall provide that
stock certificates to be issued upon exercise of vested
Options shall be issued outright and free of escrow no later
than five (5) business days after the date of exercise."
3. Except as expressly modified in this Amendment, all other
obligations of the Company and of Chen contained in the Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment
effective as of the day and year first written above.
CHEN:
/s/ Elizabeth Chen
-------------------
Elizabeth Chen
SERAGEN, INC.
By: /s/ Reed R. Prior
--------------------------
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement is made as of September 3,
1997, between Seragen, Inc. (the "Company"), having an office at 97 South
Street, Hopkinton, Massachusetts 01748, and Elizabeth Chen ("Chen"), residing
at 122 West Montgomery Street, Baltimore, Maryland 21230.
WHEREAS, the Company and Chen are parties to that certain
Employment Agreement, dated as of January 15, 1997 (the "Employment
Agreement");
WHEREAS, certain provisions were included in the Employment
Agreement that were not included in employment agreements for the other
members of the senior management of the Company, and the Company and Chen
desire to conform the provisions of the Employment Agreement in this respect
to the employment agreements for the other members of the senior management of
the Company;
WHEREAS, for the aforesaid purposes, the Company and Chen desire
to enter into this Amendment;
NOW THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Amendment of Section 3(h) of the Employment Agreement.
Section 3(h) of the Employment Agreement shall be, and is hereby, amended by
deleting the last sentence thereof.
2. Continuation of Employment Agreement. As amended hereby,
the Employment Agreement shall continue in full force and effect.
3. Effective Date. As between the parties hereto, this
Amendment shall be effective as of and from January 15, 1997.
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first set forth above.
SERAGEN, INC.
By: /s/ Reed R. Prior
--------------------
Reed R. Prior
Chairman, Chief Executive
Officer and Treasurer
/s/ Elizabeth Chen
-------------------
Elizabeth Chen
AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT
This Amendment No. 3 to Employment Agreement, dated as of
September 30, 1997, is made between Seragen, Inc. (the "Company") and Reed R.
Prior (the "Executive").
WHEREAS, the Company and the Executive have entered into an
Employment Agreement dated as of November 6, 1996, as amended by amendments to
the Employment Agreement dated as of December 18, 1996 and April 30, 1997, and
by waivers to the Employment Agreement dated as of January 6, 1997,
January 31, 1997, March 27, 1997, and September 30, 1997 (collectively, the
"Agreement"); and
WHEREAS, the Company and the Executive desire to amend the
Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Capitalized terms used in this Amendment and not otherwise
defined in this Amendment have the same meaning as in the Agreement.
2. Section 3.6(v) of the Agreement is amended to read as
follows:
"(v) the options shall be exercisable in accordance with
the terms of the Plan, including the right to pay the option
exercise price in whole or in part by surrendering shares of
Common Stock held by the Executive for at least six months
prior to the exercise date with an aggregate fair market
value equal to the option exercise price or in accordance
with a cashless exercise program established with a
securities brokerage firm and approved by the Company, and
shall provide that stock certificates shall be issued
outright and free of escrow no later than five (5) business
days after the date of exercise;"
3. Except as expressly modified in this Amendment, all other
obligations of the Company and the Executive contained in the Agreement shall
remain in full force and in effect.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment effective as of the day and year first written above.
EXECUTIVE:
/s/ Reed R. Prior
-----------------
Reed R. Prior
SERAGEN, INC.
By: /s/ Jean C. Nichols
------------------------------
Jean C. Nichols, Ph. D.
President and Chief Technology
Officer
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