<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarter ended March 31, 1999
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission File No. 0-18728
INTERNEURON PHARMACEUTICALS, INC.
(exact name of registrant as specified in its charter)
Delaware 04-3047911
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Ledgemont Center, 99 Hayden Avenue 02421
Lexington, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (781) 861-8444
(Former name, former address and former fiscal year, if changed since last
report): Not Applicable
Indicate by check whether the registrant (1) has filed 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 periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's class of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 1999:
Common Stock $.001 par value 41,916,047 shares
<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and September 30, 1998............................................................................... 3
Consolidated Statements of Operations for the Three and Six Months
ended March 31, 1999 and 1998........................................................................ 4
Consolidated Statements of Cash Flows for the Six Months
ended March 31, 1999 and 1998........................................................................ 5
Notes to Unaudited Consolidated 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............................................................................. 24
Item 4. Submission of Matters to a Vote of Security Holders........................................... 28
Item 6. Exhibits and Reports on Form 8-K.............................................................. 29
SIGNATURES............................................................................................. 30
</TABLE>
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<PAGE>
Item 1. Financial Statements
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 37,292 $ 39,330
Marketable securities 10,154 28,877
Accounts receivable 144 1,273
Prepaids and other current assets 1,919 1,116
---------- ---------
Total current assets 49,509 70,596
Marketable securities -- 3,825
Property and equipment, net 3,399 3,691
Other assets 84 85
---------- ---------
$ 52,992 $ 78,197
========== =========
LIABILITIES
Current liabilities:
Accounts payable $ 1,369 $ 1,334
Accrued expenses 26,135 27,008
Current portion of notes payable and capital lease obligations 686 837
---------- ---------
Total current liabilities 28,190 29,179
Long-term portion of notes payable and capital lease obligations 1,526 1,663
Minority interest 3,163 7,499
STOCKHOLDERS' EQUITY
Preferred stock; $.001 par value, 5,000,000 shares authorized; Series B, 239,425
shares issued and outstanding at March 31, 1999 and September 30, 1998,
respectively (liquidation preference at
March 31, 1999 $3,401) 3,000 3,000
Series C, 5,000 shares issued and outstanding at March 31, 1999 and
September 30, 1998, respectively (liquidation preference at March 31,
1999 $504) 500 500
Common stock; $.001 par value, 80,000,000 shares authorized;
41,904,357 and 41,817,017 shares issued and outstanding at March 31,
1999 and September 30, 1998, respectively 42 42
Additional paid-in capital 270,886 268,278
Accumulated deficit (254,315) (231,996)
Accumulated other comprehensive income -- 32
---------- ---------
Total stockholders' equity 20,113 39,856
---------- ---------
$ 52,992 $ 78,197
========== =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three and six months ended March 31, 1999 and 1998
(Unaudited)
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
---------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Contract and license fee revenues $ 209 $ 673 $ 900 $ 1,327
Costs and expenses:
Research and development 11,046 11,595 22,699 20,006
Selling, general and administrative 3,364 7,278 6,609 14,847
Purchase of in-process research and
development -- -- -- 500
--------- --------- --------- --------
Total costs and expenses 14,410 18,873 29,308 35,353
Net loss from operations (14,201) (18,200) (28,408) (34,026)
Investment income, net 556 1,432 1,333 3,263
Equity in net loss of unconsolidated
subsidiary -- (978) -- (1,871)
Minority interest 2,411 929 4,756 1,524
--------- --------- --------- --------
Net loss from continuing operations (11,234) (16,817) (22,319) (31,110)
Discontinued operations:
Loss from operations of InterNutria -- (6,550) -- (11,391)
--------- ---------- --------- --------
Net loss $ (11,234) $ (23,367) $ (22,319) $(42,501)
========== ========== ========= ========
Net loss per common share - basic and diluted:
Net loss from continuing operations $ (0.27) $ (0.41) $ (0.53) $ (0.75)
Net loss from discontinued operations $ -- $ (0.16) $ -- $ (0.28)
Net loss per common share $ (0.27) $ (0.57) $ (0.53) $ (1.03)
Weighted average common shares
outstanding 41,890 41,282 41,853 41,223
========= ========= ========= ========
</TABLE>
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
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<PAGE>
INTERNEURON PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended March 31, 1999 and 1998
(Unaudited)
(Amounts in thousands)
<TABLE>
<CAPTION>
Six months ended March 31,
--------------------------
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (22,319) $(42,501)
Adjustments to reconcile net loss to net cash
(used) by operating activities:
Depreciation and amortization 571 844
Minority interest in net loss of consolidated subsidiaries (4,756) (1,524)
Equity interest in net loss of unconsolidated subsidiary -- 1,871
Noncash compensation 2,867 8,380
Change in assets and liabilities:
Accounts receivable 1,130 (550)
Prepaid and other assets (804) (13)
Inventory -- (283)
Accounts payable 34 1,913
Deferred revenue -- (314)
Accrued expenses and other liabilities (892) (9,434)
--------- --------
Net cash (used) by operating activities (24,169) (41,611)
--------- --------
Cash flows from investing activities:
Capital expenditures (278) (1,230)
Purchases of marketable securities (2,520) (19,830)
Proceeds from maturities and sales of marketable securities 25,036 34,641
--------- --------
Net cash provided by investing activities 22,238 13,581
--------- --------
Cash flows from financing activities:
Net proceeds from issuance of common and treasury stock 14 222
Net proceeds from issuance of stock by subsidiaries 166 175
Principal payments of capital lease obligations (194) (366)
Principal payments of notes payable (93) (39)
--------- --------
Net cash (used) by financing activities (107) (8)
--------- --------
Net change in cash and cash equivalents (2,038) (28,038)
Cash and cash equivalents at beginning of period 39,330 55,820
--------- --------
Cash and cash equivalents at end of periods $ 37,292 $ 27,782
========= ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
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<PAGE>
INTERNEURON PHARMACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
---------------------
The consolidated financial statements included herein have been prepared by
Interneuron Pharmaceuticals, Inc. ("Interneuron" or the "Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the consolidated
financial position, results of operations and cash flows of the Company. The
unaudited consolidated financial statements included herein should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in the Company's Form 10-K for the fiscal year ended September
30, 1998.
Interneuron is a diversified biopharmaceutical company engaged in the
development and commercialization of a portfolio of products and product
candidates primarily for neurological and behavioral disorders. The Company also
develops products and technologies through Intercardia, Inc. and its
subsidiaries ("Intercardia") , a public company and a consolidated subsidiary,
focused on cardiovascular disease and carbohydrate-based drug discovery. As of
September 30, 1998, InterNutria, Inc. ("InterNutria"), a majority-owned and
consolidated subsidiary, has been classified as a discontinued operation and the
Company's investment in Progenitor, Inc. ("Progenitor") has been reduced to zero
pursuant to Progenitor's December 1998 determination to discontinue operations
(see Note D). All significant intercompany activity has been eliminated.
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<PAGE>
B. Basic and Diluted Earnings Per Share
------------------------------------
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
------------------------------------ ------------------------------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted:
Net loss $(11,234,000) $(23,367,000) $(22,319,000) $ (42,501,000)
============= ============= ============= ==============
Denominator for basic and diluted:
Weighted average shares outstanding 41,890,000 41,282,000 41,853,000 41,223,000
============= ============= ============= ==============
Net loss per common share - basic $ (0.27) $ (0.57) $ (0.53) $ (1.03)
============= ============= ============= ==============
Net loss per common share - diluted $ (0.27) $ (0.57) $ (0.53) $ (1.03)
============= ============= ============= ==============
</TABLE>
During the three month period ended March 31, 1999, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 4,400,773 shares of Common Stock at prices ranging from $4.38 to
$20.13 with expiration dates ranging up to December 18, 2006; (ii) warrants to
purchase 812,500 shares of Common Stock with exercise prices ranging from $5.00
to $12.66 and with expiration dates ranging up to July 17, 2006; and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the three month period ended March 31, 1999, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 2,735,801 shares of Common Stock at prices ranging from
$0.83 to $4.16 with expiration dates ranging up to March 17, 2009; (ii) Series B
and C preferred stock convertible into 622,222 shares of Common Stock; and (iii)
unvested Restricted Stock Awards of 743,310 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.
During the three month period ended March 31, 1998, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 4,878,032 shares of Common Stock at prices ranging from $9.50 to
$32.00 with expiration dates ranging up to January 21, 2008; (ii) warrants to
purchase 667,500 shares of Common Stock with exercise prices ranging from $10.00
to $23.25 and with expiration dates ranging up to July 17, 2006, and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the three month period ended March 31, 1998, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 2,296,017 shares of Common Stock at prices ranging from
$0.83 to $8.75 with expiration dates ranging up to March 3, 2008; (ii) warrants
to purchase 186,157 shares of Common Stock with exercise prices ranging from
$2.75 to $9.00 and with expiration dates ranging up to February 3, 2005; (iii)
Series B and C preferred stock convertible into 622,222 shares of Common Stock;
and (iv) unvested Restricted Stock Awards of 1,328,704 shares of Common Stock
granted pursuant to the Company's 1997 Equity Incentive Plan.
During the six month period ended March 31, 1999, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 6,995,174 shares of Common Stock at prices ranging from $3.75
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<PAGE>
to $20.13 with expiration dates ranging up to March 3, 2008; (ii) warrants to
purchase 812,500 shares of Common Stock with exercise prices ranging from $5.00
to $12.77 and with expiration dates ranging up to July 17, 2006; and (iii)call
options sold by the company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the six month period ended March 31, 1999, securities not
included in the computation of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 141,400 shares of Common Stock at prices ranging from
$0.83 to $3.63 with expiration dates ranging up to March 17, 2009; (ii) Series B
and C preferred stock convertible into 622,222 shares of Common Stock; and (iii)
unvested Restricted Stock Awards of 743,310 shares of Common Stock granted
pursuant to the Company's 1997 Equity Incentive Plan.
During the six month period ended March 31, 1998, securities not included
in the computation of diluted earnings per share, because their exercise price
exceeded the average market price during the period were as follows: (i) options
to purchase 4,211,325 shares of Common Stock at prices ranging from $10.50 to
$32.00 with expiration dates ranging up to January 21, 2008; (ii) warrants to
purchase 167,500 shares of Common Stock with exercise prices ranging from $12.77
to $23.25 and with expiration dates ranging up to July 17, 2006; and (iii) call
options sold by the Company for 2,000,000 shares of Common Stock with an
exercise price of $36.00 and expiration dates ranging up to December 31, 1999.
Additionally, during the six month period ended March 31, 1998, securities not
included in the computaiton of diluted earnings per share, because they would
have an antidilutive effect due to the net loss for the period, were as follows:
(i) options to purchase 2,962,724 shares of Common Stock at prices ranging from
$0.83 to $10.00 with expiration dates ranging up to March 3, 2008; (ii) warrants
to purchase 686,157 shares of Common Stock with exercise prices ranging from
$2.75 to $10.00 and with expiration dates ranging up to February 3, 2005; (iii)
Series B and C preferred stock convertible into 622,222 shares of Common Stock;
and (iv) unvested Restricted Stock Awards of 1,328,704 shares of Common Stock
granted pursuant to the Company's 1997 Equity Incentive Plan.
Certain of the securities listed above contain anti-dilution provisions.
C. Comprehensive Income (Loss)
- --------------------------------
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes standards for reporting and displaying comprehensive income
or loss and its components in a set of financial statements. SFAS 130 requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported on one of the following: a statement of
income and comprehensive income or a statement of stockholders' equity.
Components of comprehensive income or loss are net income or loss and all other
nonowner changes in equity such as the change in the unrealized net gain on
marketable securities. Presentation of comprehensive loss for earlier periods is
provided for comparative purposes. Comprehensive loss for the fiscal reporting
periods ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, Six Months Ended March 31,
-------------------------------- ------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $(11,234,000) $(23,367,000) $(22,319,000) $(42,501,000)
Change in unrealized net
gain on marketable
securities (11,000) (15,000) (32,000) (63,000)
------------- ------------- ------------- -------------
Comprehensive loss $(11,245,000) $(23,382,000) $(22,351,000) $(42,564,000)
============= ============= ============= =============
</TABLE>
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<PAGE>
D. Subsidiaries
------------
Progenitor:
In December 1998, Progenitor announced its intention to implement an
immediate cessation of operations due to insufficient funds to meet its
obligations. Progenitor's market valuation had been substantially reduced and
the Company could not viably sell any of its holdings of Progenitor securities.
As a result, the Company's investment in Progenitor was reduced to zero as of
September 30, 1998.
InterNutria:
In September 1998, the Company adopted a plan to discontinue the operations
of InterNutria. Accordingly, the net losses from InterNutria's operations for
all periods prior to September 30, 1998 have been segregated from continuing
operations and condensed and reported on a separate line in on the statements of
operations. The Company is seeking to sell all or part of InterNutria's assets,
which include primarily a line of sports drink products and PMS Escape. There
can be no assurance the Company will be successful and the Company does not
expect to generate significant proceeds from any InterNutria asset sales.
The Company has reclassified its prior year statements of operations to
reflect the operating results of InterNutria as a discontinued operation.
Operating results of InterNutria, exclusive of interest on intercompany debt
which was eliminated in consolidation, for the three and six month periods ended
March 31, 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, 1998 March 31, 1998
--------------------- -----------------
<S> <C> <C>
Revenues $ 684,000 $ 1,671,000
Operating expenses 7,234,000 13,036,000
-------------- --------------
Net loss from operations (6,550,000) (11,365,000)
Interest expense -- (26,000)
-------------- --------------
Net loss $ (6,550,000) $ (11,391,000)
============== ==============
</TABLE>
E. Withdrawal of Redux(TM), Legal Proceedings, and Related Contingencies
---------------------------------------------------------------------
On September 15, 1997, the Company and Wyeth-Ayerst announced a market
withdrawal of the weight loss medication Redux, which was launched in June 1996.
In connection with the market withdrawal of Redux, the Company recorded as of
September 30, 1997 certain charges aggregating approximately $10,800,000. Total
expenses relating to the market withdrawal of Redux may exceed these amounts,
which are estimates and do not include provisions for liability, if any, arising
out of Redux-related litigation or other related costs.
Interneuron is named, together with other pharmaceutical companies, as a
defendant in approximately 1,049 product liability legal actions, many of which
purport to be class actions, in federal and state courts involving the use of
Redux and other weight loss drugs. On December 10, 1997, the federal Judicial
Panel on Multidistrict Litigation issued an Order allowing for the transfer or
potential transfer of the federal actions to the Eastern District of
Pennsylvania for coordinated pretrial proceedings.
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<PAGE>
On September 25, 1998, the U.S. District Court for the Eastern District of
Pennsylvania (the "Court") preliminarily approved an Agreement of Compromise and
Settlement (the "Settlement Agreement") between the Company and the Plaintiffs'
Management Committee ("PMC") relating to the proposed settlement of all product
liability litigation and claims against the Company relating to Redux. As part
of the Settlement Agreement, the Company and the PMC entered into a royalty
agreement (the "Royalty Agreement") relating to a portion of the payments
proposed to be made to the settlement fund.
On November 3, 1998, the Court issued a stay halting all Redux product
liability litigation against the Company, pending and future, in state courts,
following the issuance of a similar stay halting Redux product liability
litigation against the Company with federal courts on September 3, 1998. These
stays will remain effective until further order of the Court.
The limited fund class action established by the Settlement Agreement
includes all persons in the United States who used Redux, and certain other
persons such as their family members, who would be bound by the terms of the
settlement. Membership in the class is mandatory for all persons included within
the class definition. Under the terms of the proposed settlement, class members
asserting claims against Interneuron will be required to seek compensation only
from the settlement fund, and their lawsuits against Interneuron will be
dismissed. By agreeing to the proposed settlement, Interneuron does not admit
liability to any plaintiffs or claimants.
The Settlement Agreement requires Interneuron to deposit a total of
approximately $15,000,000 in three installments into a settlement fund. The
first installment of $2,000,000 was deposited into the settlement fund in
September 1998. A second installment of $3,000,000 is to be made after the
Settlement Agreement is approved by the Court, which would depend upon the
ruling in the Fairness Hearing, which was conducted between February 25, 1999
and March 31, 1999 (see below). These installments, less certain expenses, will
be returned to Interneuron if the settlement does not become final. A third
installment of $10,000,000, plus interest, is to be made after the settlement
becomes final.
In addition, the Settlement Agreement provides for Interneuron to cause all
remaining and available insurance proceeds related to Redux to be deposited into
the settlement fund. Interneuron also agreed to make certain royalty payments to
the settlement fund pursuant to the Royalty Agreement which is part of the
Settlement Agreement, in the total amount of $55,000,000, over a seven year
period commencing when the settlement becomes final. Royalties will be paid at
the rate of 7% of gross sales of Interneuron products sold by Interneuron, 15%
of cash dividends received by Interneuron from its subsidiaries related to
product sales, and 15% of license revenues (including license fees, royalties or
milestone payments) received by Interneuron from a sublicensee related to
product sales. All Interneuron products will be subject to this royalty during
the applicable term. If, at the end of that seven year period, the amount of
royalty payments made by Interneuron is less than $55,000,000, the settlement
fund will receive shares of Interneuron stock in an amount equal to the unpaid
balance divided by $ 7.49 per share, subject to adjustment under certain
circumstances such as stock dividends or distributions. Interneuron could be
required to issue up to 7,343,124 shares of Common Stock if it makes no royalty
payments.
The Settlement Agreement will not become final until approved by the Court
and the time for filing appeals of the Court's judgment approving the Settlement
Agreement has elapsed without any appeals being filed or all appeals from the
Court's judgment approving the Settlement Agreement have been exhausted and no
further appeal may be taken. In this case, in order to approve the settlement,
the Court must make a determination that the proposed settlement is fair and
reasonable and meets each of the prerequisites for a class action generally, and
for a "limited fund" class action in particular, all as required by the Federal
Rules of Civil Procedure. Pursuant to these rules, notice of the proposed
settlement was
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<PAGE>
provided to potential class members in November 1998. Between February 25, 1999
and March 5, 1999, the Court conducted a Fairness Hearing to determine whether
the case is properly certifiable as a limited fund class action and, if so,
whether the terms of the Settlement Agreement are fair and reasonable. At the
Fairness Hearing, the Court heard testimony from various witnesses, received
documentary evidence, and heard oral arguments from the proponents and opponents
of the settlement. The Court has not yet rendered a decision.
The Company may withdraw from the Settlement Agreement, or the Settlement
Agreement may otherwise terminate, under any of the following conditions: (i)
final approval of the Settlement Agreement is not entered by the Court; (ii)
class certification and/or approval of the Settlement Agreement is overturned on
appeal for any reason; (iii) pending and future litigation against the Company
or any other party released by the Settlement Agreement ("Released Parties") is
not permanently enjoined on the final approval date; (iv) the class action and
all pending multi-district lawsuits against the Released Parties are not
dismissed with prejudice on the final approval date; (v) an order is not entered
by the Court permanently barring contribution and indemnity claims by other
defendants in the diet drug litigation; or (vi) Interneuron is unable to compel
tender of its insurance proceeds.
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed actions against Les Laboratoires Servier
("Servier") and the Company in the Court, pursuant to the federal interpleader
statute. The insurers allege that both Servier and the Company have asserted
claims against commercial excess insurance policies issued by the insurers to
Interneuron with limits of $20,000,000, $5,000,000 in excess of $20,000,000, and
$15,000,000 in excess of $25,000,000, respectively, a portion of which has been
used in the Company's defense of the litigation. The insurers have deposited the
available proceeds up to the limits of their policies into the registry of the
Court.
There can be no assurance that the Court will approve the settlement. Even
if the settlement is approved by the Court, opponents of the settlement may
appeal the Court's opinion to the United States Court of Appeals for the Third
Circuit. In addition, there is a case pending before the United States Supreme
Court (Ortiz v. Fibreboard Corporation et al) ("Ortiz"), that may influence the
-------------------------------------
Court's decision or the outcome of any appeal that might be taken. Oral argument
in the Ortiz case was heard on December 8, 1998 and the Supreme Court is likely
to render its opinion by June 1999, which is the end of the current Supreme
Court term. Although factually distinguishable in many respects from the
Company's proposed settlement, Ortiz involves an appeal from a mandatory,
putative "limited fund" class action settlement. There can be no assurance that
the Supreme Court's rulings in Ortiz will not significantly influence the
approval process for, or potentially result in the overturning of, the
Settlement Agreement.
The Company will record initial charges to operations for the estimated
fair value of the Company's obligations under the Settlement Agreement,
exclusive of insurance proceeds, at such time as the Company can determine that
it is probable that the conditions to final settlement have been or will be met.
This is expected to be subsequent to the Court's decision regarding approval of
the Settlement Agreement and the Supreme Court ruling in Ortiz. The amount of
the liability to be recognized in connection with these charges is likely to be
significant and to materially adversely affect the Company's net worth.
Additionally, if the Company records such charges prior to the final settlement
date, then, on the date the Settlement Agreement becomes final, the Company will
determine if there was any increase in the fair value of the equity conversion
feature of the Royalty Agreement and record any such increase as an additional
charge to operations. From the date the Company records the initial charge and
related liability for the settlement and through the term of the Royalty
Agreement, the Company may record additional charges to accrete the liability
attributable to the royalty feature of the Royalty Agreement up to the amount of
royalties the Company expects to pay pursuant to the Royalty Agreement over the
time the Company expects to make such royalty payments.
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<PAGE>
Payments to be made by the Company pursuant to the Settlement Agreement could
have a material adverse effect on the results of operations and financial
condition of the Company.
If the Settlement Agreement is overturned or not made final, the ongoing
Redux-related litigation would then proceed against the Company. In this event,
existence of such litigation, including the time and expenses associated with
the litigation, may materially adversely affect the Company's business,
including its ability to obtain sufficient financing to fund operations.
Although the Company is unable to predict the outcome of any such litigation,
such outcome may materially adversely affect the Company's future business,
results of operations and financial condition.
The Company has also been named as a defendant in several lawsuits filed by
alleged purchasers of the Company's Common Stock, purporting to be class
actions, claiming violation of the federal securities laws. It is not possible
for the Company to determine its costs related to its defense in these or
potential future legal actions, monetary or other damages which may result from
such legal actions, or the effect on the future operations of the Company.
Item 2. Management's Discussion and Analysis of Financial Conditions and
----------------------------------------------------------------
Results of Operations:
---------------------
Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives include, without
limitation, statements regarding the Redux-related litigation, including the
proposed settlement of the Redux-related product liability litigation; the
Company's ability to successfully develop, obtain regulatory approval for and
commercialize any products, to enter into corporate collaborations or obtain
sufficient additional capital to fund operations, and are based on a number of
assumptions. The words "believe," "expect," "anticipate," "intend," "estimate"
or other expressions which are predictions of or indicate future events and
trends and which do not relate to historical matters identify forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-
looking statements as they involve risks and uncertainties, and actual results
could differ materially from those currently anticipated due to a number of
factors, including those set forth under "Risk Factors" and elsewhere in, or
incorporated by reference into, the Company's Form 10-K for its fiscal year
ended September 30, 1998. These factors include, but are not limited to, risks
relating to the Redux-related litigation, including the risk that the proposed
settlement of the product liability litigation will not be finally approved;
uncertainties relating to clinical trials, regulatory approval and
commercialization of citicoline; need for additional funds and corporate
partners; uncertainties relating to clinical trials, regulatory approval and
commercialization of other products; substantial losses from operations and
expected future losses; minimal revenues; product liability; dependence on third
parties for manufacturing and marketing; competition; government regulation;
contractual arrangements; patents and proprietary rights; dependence on key
personnel; uncertainty regarding pharmaceutical pricing and reimbursement and
other risks. The forward-looking statements represent the Company's judgment and
expectations as of the date of this Report. The Company assumes no obligation to
update any such forward-looking statements.
The following discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and notes thereto appearing
elsewhere in this report and audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998. Unless the context indicates otherwise, all references
to the Company include Interneuron and its subsidiaries.
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General
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Redux
Proposed Settlement of Product Liability Litigation:
Subsequent to the September 15, 1997 market withdrawal of the weight loss
medication Redux, Interneuron has been named, together with other pharmaceutical
companies, as a defendant in approximately 1,049 legal actions, many of which
purport to be class actions, in federal and state courts involving the use of
Redux and other weight loss drugs. On December 10, 1997, the federal Judicial
Panel on Multidistrict Litigation issued an Order allowing for the transfer or
potential transfer of the federal actions to the Eastern District of
Pennsylvania for coordinated pretrial proceedings.
On September 25, 1998, the U.S. District Court for the Eastern District of
Pennsylvania (the "Court") preliminarily approved an Agreement of Compromise and
Settlement (the "Settlement Agreement") between the Company and the Plaintiffs'
Management Committee ("PMC") relating to the proposed settlement of all product
liability litigation and claims against the Company relating to Redux. As part
of the Settlement Agreement, the Company and the PMC entered into a royalty
agreement (the "Royalty Agreement") relating to a portion of the payments
proposed to be made to the settlement fund.
On November 3, 1998, the Court issued a stay halting all Redux product
liability litigation against the Company, pending and future, in state courts,
following the issuance of a similar stay halting Redux product liability
litigation against the Company in federal courts on September 3, 1998. These
stays will remain effective until further order of the Court.
Summary of Proposed Settlement: The limited fund class action established by
the Settlement Agreement includes all persons in the United States who used
Redux, and certain other persons such as their family members, who would be
bound by the terms of the settlement. Membership in the class is mandatory for
all persons included within the class definition. Under the terms of the
proposed settlement, class members asserting claims against Interneuron will be
required to seek compensation only from the settlement fund, and their lawsuits
against Interneuron will be dismissed. By agreeing to the proposed settlement,
Interneuron does not admit liability to any plaintiffs or claimants.
The Settlement Agreement requires Interneuron to deposit a total of
approximately $15,000,000 in three installments into a settlement fund. The
first installment of $2,000,000 was deposited into the settlement fund in
September 1998. A second installment of $3,000,000 is to be made after the
Settlement Agreement is approved by the Court, which would depend upon the
ruling in the Fairness Hearing, which was conducted between February 25, 1999
and March 31, 1999 (see below). These installments, less certain expenses, will
be returned to Interneuron if the settlement does not become final. A third
installment of $10,000,000, plus interest, is to be made after the settlement
becomes final.
The Settlement Agreement provides for Interneuron to cause all remaining and
available insurance proceeds related to Redux to be deposited into the
settlement fund. Interneuron also agreed to make royalty payments to the
settlement fund in the total amount of $55,000,000, over a seven year period
commencing when the settlement becomes final. Royalties will be paid at the rate
of 7% of gross sales of Interneuron products sold by Interneuron, 15% of cash
dividends received by Interneuron from its subsidiaries related to product
sales, and 15% of license revenues (including license fees, royalties or
milestone payments) received by Interneuron from a sublicensee related to
product sales. All Interneuron products will be subject to this royalty during
the applicable term. If, at the end of that seven year period, the amount of
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royalty payments made by Interneuron is less than $55,000,000, the settlement
fund will receive shares of Interneuron stock in an amount equal to the unpaid
balance divided by $7.49 per share, subject to adjustment under certain
circumstances such as stock dividends or distributions.
Conditions to Final Settlement: The settlement will not become final until
approved by the Court and the time for appeal of the Court's judgment approving
the Settlement Agreement has elapsed without any appeals being filed or all
appeals from the Court's judgment approving the Settlement Agreement have been
exhausted and no further appeal may be taken. In this case, in order to approve
the settlement, the Court must make a determination that the proposed settlement
is fair and reasonable and meets each of the prerequisites for a class action
generally, and for a "limited fund" class action in particular, all as required
by the Federal Rules of Civil Procedure. Pursuant to these rules, notice of the
proposed settlement was provided to potential class members in November 1998.
Between February 25, 1999 and March 5, 1999, the Court conducted a Fairness
Hearing to determine whether the case is properly certifiable as a limited fund
class action and, if so, whether the terms of the Settlement Agreement are fair
and reasonable. At the hearing, the Court heard testimony from various
witnesses, received documentary evidence, and heard oral arguments from the
proponents and opponents of the settlement. The Court has not yet rendered a
decision.
The Company may withdraw from the Settlement Agreement, or the Settlement
Agreement may otherwise terminate, under any of the following conditions: (i)
final approval of the Settlement Agreement is not entered by the Court; (ii)
class certification and/or approval of the Settlement Agreement is overturned on
appeal for any reason; (iii) pending and future litigation against the Company
or any other party released by the Settlement Agreement ("Released Parties") is
not permanently enjoined on the final approval date; (iv) the class action and
all pending multi-district lawsuits against the Released Parties are not
dismissed with prejudice on the final approval date; (v) an order is not entered
by the Court permanently barring contribution and indemnity claims by other
defendants in the diet drug litigation; or (vi) Interneuron is unable to compel
tender of its insurance proceeds.
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed actions against Les Laboratoires Servier
("Servier") and the Company in the Court, pursuant to the federal interpleader
statute. The insurers allege that both Servier and the Company have asserted
claims against commercial excess insurance policies issued by the insurers to
Interneuron with limits of $20,000,000, $5,000,000 in excess of $20,000,000, and
$15,000,000 in excess of $25,000,000, respectively a portion of which has been
used in the Company's defense of the litigation. The insurers have deposited the
available proceeds up to the limits of their policies into the registry of the
Court.
There can be no assurance that the Court will approve the settlement. Even
if the settlement is approved by the Court, opponents of the settlement may
appeal the Court's opinion to the United States Court of Appeals for the Third
Circuit. In addition, there is a case pending before the United States Supreme
Court (Ortiz v. Fibreboard Corporation et al) ("Ortiz"), that may influence the
-------------------------------------
Court's decision or the outcome of any appeal that might be taken. Oral argument
in the Ortiz case was heard on December 8, 1998 and the Supreme Court is likely
to render its opinion by June 1999, which is the end of the current Supreme
Court term. Although factually distinguishable in many respects from the
Company's proposed settlement, Ortiz involves an appeal from a mandatory,
putative "limited fund" class action settlement. There can be no assurance that
the Supreme Court's rulings in Ortiz will not significantly influence the
approval process for, or potentially result in the overturning of, the
Settlement Agreement.
Future Charges to Operations: The Company will record initial charges to
operations for the estimated fair value of the Company's obligations under the
Settlement Agreement, exclusive of insurance proceeds, at such time as the
Company can determine that it is probable that the conditions to final
settlement have
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been or will be met. This is expected to be subsequent to the Court's decision
regarding approval of the Settlement Agreement and the Supreme Court ruling in
Ortiz. The amount of the liability to be recognized in connection with these
charges is likely to be significant and to materially adversely affect the
Company's net worth. Additionally, if the Company records such charges prior to
the final settlement date, then, on the date the Settlement Agreement becomes
final, the Company will determine if there was any increase in the fair value
of the equity conversion feature of the Royalty Agreement and record any such
increase as an additional charge to operations. From the date the Company
records the initial charge and related liability for the settlement and through
the term of the Royalty Agreement, the Company may record additional charges to
accrete the liability attributable to the royalty feature of the Royalty
Agreement up to the amount of royalties the Company expects to pay pursuant to
the Royalty Agreement over the time the Company expects to make such royalty
payments. Payments to be made by the Company pursuant to the Settlement
Agreement could have a material adverse effect on the results of operations and
financial condition of the Company.
If the Settlement Agreement is overturned or not made final, the ongoing
Redux-related litigation would then proceed against the Company. In this event,
the existence of such litigation, including the time and expenses associated
with the litigation, may materially adversely affect the Company's business,
including its ability to obtain additional financing to fund operations.
Although the Company is unable to predict the outcome of any such litigation,
such outcome may materially adversely affect the Company's future business,
results of operations and financial condition.
Securities Litigation:
The Company has also been named as a defendant in several lawsuits filed by
alleged purchasers of the Company's Common Stock, purporting to be class
actions, claiming violation of the federal securities laws. It is not possible
for the Company to determine its costs related to its defense in these or
potential future legal actions, monetary or other damages which may result from
such legal actions, or the effect on the future operations of the Company. See
"Legal Proceedings".
General:
Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend these and similar actions
vigorously, the Company has been required and may continue to devote significant
management time and resources to these legal actions and, in the event of
successful uninsured or insufficiently insured claims, or in the event a
successful indemnification claim were made against the Company, the Company's
business, financial condition and results of operations could be materially
adversely affected. In addition, the uncertainties and costs associated with
these legal actions have had, and may continue to have, an adverse effect on the
market price of the Company's Common Stock and on the Company's ability to
obtain additional financing to satisfy cash requirements, to retain and attract
qualified personnel, to develop and commercialize products on a timely and
adequate basis, to acquire or obtain rights to additional products, to enter
into certain corporate partnerships, or to obtain product liability insurance
for other products at costs acceptable to the Company, or at all, any or all of
which may adversely affect the Company's business and financial condition.
Product Withdrawal:
Redux received clearance in April 1996 by the U.S. Food and Drug
Administration ("FDA") for marketing as a twice-daily prescription therapy to
treat obesity. Until its withdrawal in September 1997, Redux was marketed in the
U.S. by Wyeth-Ayerst and copromoted by Interneuron. A significant portion
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of Interneuron's revenues through fiscal 1997 had been derived from Redux sales
and, accordingly, the Company did not recognize any revenue related to Redux
thereafter and does not expect to realize any future revenues related to Redux.
Citicoline
The Company is proceeding with the development of citicoline and commenced
in June 1998 an approximately 900-person Phase 3 clinical trial which will
compare the change in neurological function at 12 weeks following ischemic
stroke of citicoline-treated patients with that of patients who received
placebo. Patients are being treated with 2000 milligrams of citicoline or
placebo daily for six weeks with a six week follow-up period. It is anticipated
that this clinical trial will be completed in late 1999. The 2000 milligram dose
level is higher than the dose used in the Company's two most recent citicoline
clinical trials but was used in the Company's first Phase 3 trial in which
patients treated with this dose achieved the primary endpoint of improved
neurological function. Depending upon the evaluation of the results from this
trial, the Company will determine whether to re-submit the New Drug Application
("NDA") for citicoline to the FDA. Even if the Company does re-submit the NDA,
as to which there is no assurance, the Company is unable to predict whether or
when the FDA would grant authorization to market citicoline in the U.S. Upon
resubmission of the NDA, a new FDA review period would commence.
The Company withdrew its NDA for citicoline in April 1998. The Company had
submitted the NDA to the FDA for citicoline in December 1997. The citicoline NDA
had been accepted for filing and assigned priority and fast-track review status.
A priority review status reflects the FDA's commitment to review the NDA within
six months following submission. A fast-track designation indicates that the FDA
has determined a drug is intended to treat a serious or life-threatening
condition with a current unmet medical need and that the FDA can take actions to
expedite the development and review of the drug. While there can be no assurance
that any resubmission of a citicoline NDA would be assigned a priority review
status, the indication of stroke presently warrants such NDA review status.
As of March 31, 1999 the remaining expenditures of all currently planned
clinical trials and related studies and NDA preparation for citicoline are
estimated, based upon current trial protocols, to aggregate approximately
$23,000,000. The Company is unable to predict the costs of any related or
additional clinical studies which will depend upon the results of the on-going
trial and upon FDA requirements. As a result of the Company's withdrawal of its
citicoline NDA, the related additional time and expense for product development,
and the Company's limited cash resources, the Company is evaluating its
commercialization strategy for citicoline. The Company requires additional funds
for manufacturing, distribution, marketing and selling efforts, the amount of
which will depend upon whether the Company markets citicoline itself or enters
into a corporate collaboration and the terms of any such collaboration. The
Company has no commitments or arrangements to obtain additional funds or
collaborations relating to citicoline and there can be no assurance such funds
or collaborations can be obtained on terms favorable to the Company or at all.
The Company licensed in fiscal 1993 from Ferrer Internacional, S.A.
("Ferrer"), a Spanish pharmaceutical company, certain patent and know-how rights
in the United States and Canada relating to the use of citicoline in exchange
for a royalty equal to 6% of the Company's net sales of citicoline. In June
1998, the Company amended its agreement with Ferrer to extend to January 31,
2002 the date upon which Ferrer may terminate the citicoline license agreement
if FDA approval of citicoline is not obtained. The agreement provides for such
date to be extended for up to two years if the Company provides information to
Ferrer which tends to establish that the Company has carried out the steps for
obtaining such approval and if such approval has not been obtained for reasons
beyond the Company's control. In fiscal 1999, the
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Company was issued three new citicoline-related patents for several claims
including reduction of cerebral infarct size, effective dose regimens,
combination therapies with other products and the treatment of head trauma.
The Company will be dependent upon third party suppliers of citicoline bulk
compound, finished product and packaging for manufacturing in accordance with
the Company's requirements and current U.S. Good Manufacturing Practices
("cGMP") regulations as well as third party arrangements for the distribution of
citicoline. Supplies of citicoline finished product used for clinical purposes
have been and are produced on a contract basis by third party manufacturers. The
Company does not have an agreement with a manufacturer for supply of commercial
quantities of finished product and there can be no assurance such agreement can
be obtained on terms favorable to the Company or at all, which could adversely
affect the Company's ability to commercialize citicoline on a timely and cost-
effective basis. The Company's agreement with Ferrer requires the Company to
purchase from Ferrer citicoline bulk compound for commercial purposes at fixed
prices, subject to certain conditions. Any citicoline manufacturing facilities
are subject to FDA inspection both before and after FDA approval to determine
compliance with cGMP requirements. There can be no assurance the Company can or
will establish on a timely basis, or maintain, manufacturing capabilities of
bulk compound or finished product required to obtain regulatory approval or that
any facilities used to produce citicoline will have complied, or will be able to
maintain compliance, with cGMP or that such suppliers will be able to meet
manufacturing requirements on a timely basis or at all.
Pagoclone
The Company is developing pagoclone as a drug to treat panic/anxiety
disorders. Current pharmacological treatments for anxiety and panic disorders
include serotonin agonists such as BuSpar, and benzodiazepines, such as Valium
and Xanax, as well as selective serotonin reuptake inhibitors such as Paxil.
Pre-clinical and early clinical data suggest that pagoclone may offer advantages
over traditional benzodiazepine anti-anxiety agents, including reduced
drowsiness, lower addiction and withdrawal potential and less potential for
alcohol interactions.
In August 1998, the Company announced results of its Phase 2/3 trial
involving 277 patients showing that treatment with pagoclone statistically
significantly reduced the frequency of panic attacks among patients suffering
from panic disorder. In addition, pagoclone was well-tolerated by these
patients, with no evidence of sedation and no apparent withdrawal syndromes in
this study, which included a tapering-off period. The Company designates a trial
as Phase 2/3 if it is a well-controlled trial which the Company may utilize,
depending upon results, as either a pivotal or supporting trial in an NDA
submission. Based on the results of this trial, Interneuron believes it has
identified an optimal dose of pagoclone for Phase 3 clinical testing. The
Company estimates the total costs of currently anticipated clinical development
and NDA preparation relating to pagoclone for panic disorder, including license
fees to Rhone-Poulenc Rorer Pharmaceuticals, Inc. ("RPR"), to be approximately
$43,000,000, which if all of such activities are undertaken, would be incurred
over approximately the next three years. The Company licensed from RPR exclusive
worldwide rights to pagoclone, in exchange for licensing, milestone and royalty
payments to RPR.
The Company does not have sufficient funds to conduct Phase 3 clinical
testing or commercialization of pagoclone and is seeking a corporate
collaboration to proceed with a Phase 3 clinical study. There can be no
assurance the Company will be successful in obtaining a corporate collaboration
or additional financing sufficient to fund development and commercialization of
pagoclone, on terms favorable to the Company or at all. In this event, the
development of pagoclone would be significantly
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delayed or curtailed. Even if a collaboration or other financing is obtained,
the Company is unable to predict with certainty the costs of any additional
studies which may be required by the FDA for approval of pagoclone. There can be
no assurance, assuming such trials are conducted, that any such clinical trials
will be successful or result in FDA approval of the product.
Results of Operations
Revenues, consisting of contract and license fee revenue, decreased
$464,000, or 69%, to $209,000 in the three month period ended March 31, 1999
from $673,000 in the three month period ended March 31, 1998 and decreased
$427,000, or 32%, to $900,000 in the six month period ended March 31, 1999 from
$1,327,000 in the six month period ended March 31, 1998. The decreases in
contract and license fee revenue were primarily the result of the absence in the
fiscal 1999 periods of revenue generated by Interneuron's majority-owned
subsidiary, Intercardia, Inc. ("Intercardia") from Astra Merck, Inc. ("Astra
Merck") due to the termination of the Development and Marketing Collaboration
and License Agreement between Astra Merck, Intercardia and CPEC, Inc. (the
"Astra Merck Collaboration") in September 1998 and decreased revenue from Merck
& Co., Inc. ("Merck") related to product development at Intercardia Research
Laboratories ("IRL"), formerly conducted by Transcell Technologies, Inc.
("Transcell"). In the six month period ended March 31, 1999, the decreases were
partially offset by a milestone payment received by the Company from Eli Lilly
and Company ("Lilly") relating to the development of Lilly's drug, Prozac(R) for
the treatment of premenstrual syndrome.
Research and development expense decreased $549,000, or 5%, to $11,046,000
in the three month period ended March 31, 1999 from $11,595,000 in the three
month period ended March 31, 1998 and increased $2,693,000, or 13%, to
$22,699,000 in the six month period ended March 31, 1999 from $20,006,000 in the
six month period ended March 31, 1998. Research and development expense at
Interneuron decreased in the three and six month periods due to the absence of
expense in fiscal 1999 for a Redux-related echocardiogram study and the Phase
2/3 pagoclone study and reduced noncash compensation expense related to the
Company's 1997 Equity Incentive Plan, partially offset by increased expenses
related to the 900-person Phase 3 citicoline clinical trial which commenced in
June 1998. Intercardia expenses increased in the three and six month periods
ended March 31, 1999 due to continuing U.S. bucindolol development costs
previously assumed by Astra Merck, Intercardia's contractual share of European
bucindolol development costs incurred by BASF Pharma/Knoll AG ("Knoll"),
Intercardia's collaborative partner, and increased expenses associated with the
carbohydrate chemistry program of IRL. In March 1999, Intercardia reduced its
headcount at IRL by approximately 50% as part of an overall assessment of
Intercardia's research and development expenses in view of its limited cash
resources and increased expenses after termination of the Astra Merck
Collaboration, as well as a refocus of IRL's research programs to concentrate on
projects with lead compounds.
Selling, general and administrative expense decreased $3,914,000, or 54%, to
$3,364,000 in the three month period ended March 31, 1999 from $7,278,000 in the
three month period ended March 31, 1998 and decreased $8,238,000, or 55%, to
$6,609,000 in the six month period ended March 31, 1999 from $14,847,000 in the
six month period ended March 31, 1998. This decrease resulted primarily from
reduced noncash compensation expense related to the Company's 1997 Equity
Incentive Plan, the absence of citicoline pre-marketing expenses that were
incurred in fiscal 1998, the absence of costs of the Company's sales force
resulting from its May 1998 dismissal, and Intercardia's elimination of
duplicative Transcell-related administrative expenses subsequent to the May 1998
merger of Transcell with and into Intercardia. The fiscal 1999 periods include
costs for the Company's launch of its AnatoMark(TM) head reference system. The
Company does not expect to generate profits from AnatoMark in the near future.
Investment income, net, decreased $876,000, or 61%, to $556,000 in the three
month period ended March 31, 1999 from $1,432,000 in the three month period
ended March 31, 1998 and decreased $1,930,000, or
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59%, to $1,333,000 in the six month period ended March 31, 1999 from $3,263,000
in the six month period ended March 31, 1998 primarily due to lower balances of
cash and marketable securities resulting from funds used in Company operations
and increased interest expense from additional capital equipment leases entered
into by Intercardia.
There was no provision for equity in net loss of unconsolidated subsidiary,
Progenitor, in the three and six month periods ended March 31, 1999, compared to
provisions of $978,000 and $1,871,000 in the three and six month periods ended
March 31, 1998, respectively, as the Company wrote down to zero its investment
in Progenitor as of September 30, 1998 as a result of Progenitor's December 1998
decision to cease operations. (See Note D of Notes to Unaudited Consolidated
Financial Statements.)
Minority interest increased $1,482,000, or 160%, to $2,411,000 in the three
month period ended March 31, 1999 from $929,000 in the three month period ended
March 31, 1998 and increased $3,232,000, or 212%, to $4,756,000 in the six month
period ended March 31, 1999 from $1,524,000 in the six month period ended March
31, 1998. This increase is due to an increased net loss at Intercardia and
because there is a larger percentage of minority stockholders at Intercardia
than there was at Transcell to whom to allocate the loss generated by IRL.
Due to the Company's September 1998 decision to discontinue the operations
of InterNutria and reflect InterNutria as a discontinued operation in the
Company's statements of operations, no net loss was reflected in the three and
six month periods ended March 31, 1999 relating to InterNutria compared to net
losses of $6,550,000 and $11,391,000 in the three and six month periods ended
March 31, 1998, respectively. InterNutria losses resulted primarily from the
expenses of the national launch of PMS Escape exceeding the revenue from sales
of PMS Escape. Net operating expenses relating to InterNutria expected to be
incurred during the three and six month periods ended March 31, 1999 were
accrued at September 30,1998. (See Note D of Notes to Unaudited Consolidated
Financial Statements.)
For the reasons described above, net loss decreased $12,133,000 or 52%, to
$11,234,000 in the three month period ended March 31, 1999 from $23,367,000 in
the three month period ended March 31, 1998 and decreased $20,182,000, or 47%,
to $22,319,000 in the six month period ended March 31, 1999 from $42,501,000 in
the six month period ended March 31, 1998.
Liquidity and Capital Resources
-------------------------------
Cash, Cash Equivalents and Marketable Securities
At March 31, 1999, the Company had consolidated cash, cash equivalents and
marketable securities aggregating $47,446,000 (of which approximately
$12,749,000 is held by Intercardia and is not generally available to
Interneuron) compared to $72,032,000 at September 30, 1998. This decrease is
primarily due to approximately $24,169,000 used to fund operations in the six
month period ended March 31, 1999 (of which approximately $10,500,000 related to
Intercardia).
While the Company believes it has sufficient cash for currently planned
expenditures through September 1999, based on certain assumptions relating to
operations, the settlement of the Redux product liability litigation and other
factors, it will require additional funds after such time and intends to seek
additional funds or corporate collaborations prior to such time. The Company
requires additional funds for the development and commercialization of
citicoline, pagoclone and its other compounds and technologies, as well as any
new products acquired in the future. The Company has no commitments or
arrangements to obtain such funds. If such funds or corporate collaborations are
not available, the Company will be required
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to delay product development and regulatory efforts. As a result of the
uncertainties and costs associated with the Redux-related litigation, including
the risk that the proposed settlement of the Redux product liability litigation
does not become final, market conditions and other factors generally affecting
the Company's ability to raise capital, there can be no assurance that the
Company will be able to obtain additional financing to satisfy future cash
requirements or that any financing will be available on terms favorable or
acceptable to the Company.
Product Development
The Company expects to continue expending substantial amounts for the
development of citicoline as described above and for its other products. Because
the Company does not have sufficient capital resources to fund significant
further development of any products other than citicoline, it is seeking a
corporate collaboration to provide for future pagoclone development and
marketing costs, including Phase 3 clinical studies. Although the Company is
engaged in discussions with respect to certain corporate collaborations relating
to pagoclone, there can be no assurance any agreement will be obtained. The
failure to obtain additional funds or a corporate collaboration would adversely
affect development of pagoclone. Also, Intercardia, through its 80% owned
subsidiary CPEC, Inc. ("CPEC", of which Interneuron owns 20%), is developing
BEXTRA for congestive heart failure and requires additional funds to develop and
commercialize this product (see "Intercardia"). The Company does not have
sufficient capital to complete development and commercialization of any products
under development and will be required to obtain additional funds or corporate
collaborations to pursue development and commercialization of its products.
During 1997, the Company obtained an exclusive option to license a product
for the treatment and prevention of liver diseases. The option grants
Interneuron the right to license, on specified terms, North American and Asian
marketing rights to an issued U.S. patent and U.S. and international patents
applications, following Interneuron's review of future clinical data. This
orally-administered compound is being studied in a large U.S. government-
sponsored Phase 3 clinical trial. Eight hundred patients have been enrolled in
the study, which is expected to be completed in mid-2000, provided the study's
Data Safety Monitoring Board deems sufficient data has been obtained in the
follow-up period.
The Company is continuing to conduct preliminary evaluations of PACAP, a
compound licensed from Tulane University in April 1998 that, among other
indications, may have potential as a treatment for stroke, and of LidodexNS, a
product for the acute intra-nasal treatment of migraine headaches being
developed pursuant to a collaborative agreement with Algos Pharmaceutical
Corporation.
There can be no assurance that results of any on-going current or future
preclinical or clinical trials will be successful, that additional trials will
not be required, that any drug under development will receive FDA approval in a
timely manner or at all, or that such drug could be successfully manufactured in
accordance with cGMP or marketed in a timely manner or at all, or that the
Company will have sufficient funds to commercialize any of its products, any of
which events could materially adversely affect the Company.
Analysis of Cash Flows
----------------------
Cash used by operating activities during the six months ended March 31, 1999
of $24,169,000 consisted primarily of a net loss of $22,319,000.
Cash provided by investing activities of $22,238,000 during the six months
ended March 31, 1999 consisted of net proceeds from maturities and sales of
marketable securities of $22,516,000 less purchases of property and equipment of
$278,000.
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Other
-----
Year 2000 Issue:
General
The Year 2000 issue is the result of the failure of hardware or software
components to handle properly dates which occur on or after January 1, 2000
including leap years, the failure to handle properly all manipulations of time
related information and the failure to store century information in a non-
ambiguous format (i.e., storing years with 2 digits rather than 4 digits). These
failures could result in system failure or miscalculations causing disruptions
in processing transactions or creating incorrect data used in the operations of
the business.
While Interneuron and each of its subsidiaries use certain similar internal
systems, each operates its systems independently from the other. The Company
does not envision a Year 2000 issue at Progenitor or InterNutria because their
respective businesses have been discontinued. To the extent Intercardia
maintains certain systems that are the same or similar to Interneuron's,
Interneuron and Intercardia are collaborating to ascertain their Year 2000
compliance to the extent each company deems necessary. The Company does not
believe it has a risk of loss of significant revenues due to the Year 2000 issue
because no pharmaceutical products will have attained FDA approval prior to the
year 2000 and because the Company currently anticipates marketing and sales
fulfillment to be conducted by a licensee. A factor in the selection of
potential licensees will be their ability to demonstrate Year 2000 compliance.
Systems Assessment
Interneuron's and Intercardia's internal systems are similar and comprised
primarily of purchased or leased software. Neither company develops or maintains
any significant proprietary software or hardware systems. Interneuron and
Intercardia utilize numerous operationally-related non-IT systems. These include
telephone systems, pagers, and security alarm systems. Intercardia, through IRL,
owns laboratory equipment with embedded microprocessors and software.
Also, Interneuron and Intercardia subcontract a substantial portion of
their research and development activities to external vendors, including
contract research organizations, and rely on the systems of these vendors for
data and information that may be date sensitive. To the extent that the systems
of these subcontractors produce incorrect information or cause incorrect
interpretation of the information that they produce, Interneuron and Intercardia
are at risk for making invalid conclusions about the nature, efficacy, or safety
of their products or technologies which could lead to abandoning potentially
lucrative products or technologies or invalidly continuing development and
pursuing FDA approval of others.
Interneuron and Intercardia are ascertaining Year 2000 compliance of their
primary internal software systems, operationally - related systems, equipment
with embedded microprocessors, and subcontractors through vendor inquiry and
obtaining written assertions of Year 2000 compliance from each. Interneuron has
obtained letters from its primary internal software vendors and certain
subcontractors that purport their current belief of Year 2000 compliance and
generally indicate continued efforts to assess Year 2000 issues. During 1999,
the Company will continue and complete its review of all significant above-noted
vendors and seek to obtain letters of Year 2000 compliance. If such letters
cannot be obtained on a timely basis, Interneuron and Intercardia will assess
the potential risks in each instance and determine the appropriate actions. Such
action may include the replacement of software, equipment, or the subcontractor.
Interneuron
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and Intercardia will continue during 1999 to monitor vendors and subcontractors
who have provided letters of Year 2000 compliance for any notices or information
that contradict earlier assertions of Year 2000 compliance.
Costs and Contingencies
To date, Interneuron and Intercardia have expended only internal costs to
assess the Year 2000 issue. Letters of Year 2000 compliance from internal
software providers tend to indicate Interneuron and Intercardia will not be
exposed to any material amounts for replacements of such systems, however there
can be no assurance of this. Also, it is not yet possible to ascertain if any
expenditure will be required to replace systems, subcontractors or the work
performed by such subcontractor. While vendor assurances and internal testing
are useful in assessing Year 2000 issues, neither can provide absolute assurance
that no Year 2000 problems will or can occur. During 1999, Interneuron and
Intercardia will continue to refine their plans in an attempt to assure the Year
2000 issue will not materially adversely affect their business operations or
financial condition.
Other:
In November 1998, pursuant to an agreement with Les Laboratoires Servier to
resolve a withholding tax issue on Redux-related payments to Servier, the
Company paid to the U.S. Internal Revenue Service approximately $1,700,000 for
withholding tax and interest. Servier agreed to reimburse the Company for a
portion of the withholding taxes upon Servier's receipt of a related tax refund
from the French tax authorities. The Company is unable to predict with certainty
whether or when this reimbursement will be obtained.
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Subsidiaries
Interneuron had funded the operations of InterNutria through September 30,
1998, at which time the Company adopted a plan to discontinue the operations of
InterNutria. Loss from the discontinued operations of InterNutria represented
approximately 28% and 27% of the Company's consolidated net loss in the three
and six month periods ended March 31, 1998, respectively. Interneuron had also
funded Transcell until May 8, 1998, when the merger of Transcell with and into
Intercardia was completed (the "Transcell Acquisition"). Since the Transcell
Acquisition, the operations previously conducted by Transcell have been
conducted as a division of Intercardia known as IRL. Accordingly, such
operations continue to be reflected in the Company's consolidated financial
statements. Expenses of Intercardia, including IRL (and, in the fiscal 1998
periods, Transcell), continue to constitute a significant part of the Company's
consolidated expenses and, in the six month periods ended March 31, 1999 and
1998, represented approximately 44% and 24%, respectively, of consolidated
research and development and selling, general, and administrative expenses.
Intercardia:
As a result of the termination of the Astra Merck Collaboration,
Intercardia has financial responsibility for the remaining estimated
$12,000,000 to $16,000,000 of U.S. BEXTRA development and NDA preparation
costs. Intercardia does not have sufficient resources to complete development
and commercialization of BEXTRA. Intercardia's funding requirements include
payments to its other collaborative partners, including 40% of development and
marketing costs of bucindolol in the Knoll Territory pursuant to the Knoll
Collaboration, the development of a once-a-day bucindolol formulation, the
operations of IRL previously conducted by Transcell, which merged into
Intercardia in May 1998, and other new technology and product development.
Interneuron currently owns 20% of CPEC and may fund certain bucindolol costs in
accordance with its ownership interest in CPEC. As of March 31, 1999,
Interneuron had paid approximately $1,600,000 to CPEC to fund bucindolol
development.
Intercardia will require additional financing to fund its operations after
Fiscal 1999 and intends to seek additional financing and corporate
collaborations during fiscal 1999. There can be no assurance such funds or
corporate collaborations will be available on terms acceptable or favorable to
Intercardia, or at all, and any equity financings by Intercardia would dilute
Interneuron's ownership interest in Intercardia. Interneuron owns approximately
61% of the outstanding Intercardia common stock. Interneuron's voting control
over Intercardia may have the effect of delaying or preventing sales of
additional securities or other financing of Intercardia, a sale of Intercardia
or other dilutive activities of Intercardia.
Intercardia does not have any commitments to obtain any additional funds and
has not established banking arrangements through which it can obtain additional
debt financing. Subsequent to the termination of the Astra Merck collaboration
in September 1998, financial constraints have caused Intercardia to reassess the
allocation of resources among its research and development programs. If
Intercardia is unable to enter into additional collaborations or raise
additional capital to support its current level of operations, Intercardia would
be required to reduce or discontinue one or more of its research and development
programs, or obtain funds through strategic alliances on terms that are not
favorable to Intercardia or its existing stockholders including Interneuron.
Reduction or discontinuation of research and development programs could result
in additional charges to results of operations which would be reflected in the
period of such reduction or discontinuation.
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Progenitor:
In December 1998, Progenitor announced its intention to implement an
immediate cessation of operations. Progenitor did not have sufficient funds to
meet its obligations. Progenitor's market valuation had been substantially
reduced and the Company could not viably sell any of its holdings of Progenitor
securities. As a result, as of September 30, 1998, the Company's investment in
Progenitor was reduced to zero.
General
The Company's business strategy includes evaluation of various technologies,
product or company acquisitions, licensing and/or financing opportunities and
Interneuron and Intercardia engage from time to time in discussions relating to
such opportunities. Each of Interneuron and Intercardia require additional cash
to fund operations after fiscal 1999 and intends to seek additional financings
and corporate collaborations during fiscal 1999. There can be no assurance
either company will obtain sufficient cash to fund future operations. Any such
initiatives may involve the issuance of securities of Interneuron or
Intercardia, which would dilute existing stockholders, and/or financial
commitments for licensing fees and/or to fund product development, or debt
financing, any of which may adversely affect the Company's consolidated
financial condition or results of operations. The Company's in-licensing
agreements generally require the Company to undertake general or specific
development efforts or risk the loss of the license and/or incur penalties.
Although Interneuron may acquire additional equity in Intercardia through
participation in financings, purchases from third parties, including open market
purchases and conversion of intercompany debt, equity financings by Intercardia
will likely reduce Interneuron's percentage ownership of Intercardia and funds
held by Intercardia are not generally available to Interneuron.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Product Liability Litigation
The Company has been named, together with other pharmaceutical companies, as
a defendant in approximately 1,049 legal actions, many of which purport to be
class actions, in federal and state courts relating to the use of Redux. The
actions generally have been brought by individuals in their own right or on
behalf of putative classes of persons who claim to have suffered injury or who
claim that they may suffer injury in the future due to use of one or more weight
loss drugs including Pondimin (fenfluramine), phentermine and Redux. Plaintiff's
allegations of liability are based on various theories of recovery, including,
but not limited to, product liability, strict liability, negligence, various
breaches of warranty, conspiracy, fraud, misrepresentation and deceit. These
lawsuits typically allege that the short or long-term use of Pondimin and/or
Redux, independently or in combination (including the combination of Pondimin
and phentermine popularly known as "fen-phen"), causes, among other things,
primary pulmonary hypertension, valvular heart disease and/or neurological
dysfunction. In addition, some
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lawsuits allege emotional distress caused by the purported increased risk of
injury in the future. Plaintiffs typically seek relief in the form of monetary
damages (including economic losses, medical care and monitoring expenses, loss
of earnings and earnings capacity, other compensatory damages and punitive
damages), generally in unspecified amounts, on behalf of the individual or the
class. In addition, some actions seeking class certification ask for certain
types of purportedly equitable relief, including, but not limited to,
declaratory judgments and the establishment of a research program or medical
surveillance fund. On December 10, 1997, the federal Judicial Panel on
Multidistrict Litigation issued an Order allowing for the transfer or potential
transfer of the federal actions to the Eastern District of Pennsylvania for
coordinated or consolidated pretrial proceedings.
Proposed Settlement of Product Liability Litigation: On September 25, 1998,
the U.S. District Court for the Eastern District of Pennsylvania (the "Court")
preliminarily approved an Agreement of Compromise and Settlement (the
"Settlement Agreement") between Interneuron and the Plaintiffs' Management
Committee, consisting of attorneys designated by the Court to represent
plaintiffs in the multi-district litigation relating to Redux, relating to the
settlement of all product liability litigation and claims against the Company
related to Redux. The Court also conditionally certified a limited fund class
action. The Court order followed a letter of understanding outlining terms of
the settlement announced on September 3, 1998 and execution of the formal
settlement agreement between the Company and the Plaintiffs' Management
Committee.
On November 3, 1998, the Court issued a stay halting all product liability
litigation, pending and future, in state courts against the Company related to
Redux. This followed the issuance of a similar stay halting Redux product
liability litigation in federal courts on September 3, 1998. These stays will
remain effective until further order of the Court.
The limited fund class action established by this settlement includes all
persons in the United States who used Redux, and certain other persons such as
their family members, who would be bound by the terms of the settlement.
Membership in the class is mandatory for all persons included within the class
definition. Under the terms of the proposed settlement, class members asserting
claims against Interneuron will be required to seek compensation only from the
settlement fund and their lawsuits against Interneuron will be dismissed. By
agreeing to the proposed settlement, Interneuron does not admit liability to any
plaintiffs or claimants. Under the Settlement Agreement, the released parties
include, among other parties, Interneuron, Boehringer (except for claims arising
from defects in the manufacture or packaging of Redux) and their respective
affiliates and stockholders (in their capacity as stockholders).
Summary of Settlement Agreement: The settlement agreement requires
Interneuron to deposit a total of approximately $15,000,000 in three
installments into a settlement fund. The first installment of $2,000,000 was
deposited into the settlement fund in September 1998. A second installment of
$3,000,000 is to be made after the settlement agreement is approved by the
Court, which would depend upon the ruling in the Fairness Hearing, which was
conducted between February 25, 1999 and March 31, 1999 (see below). These
installments, less certain expenses, will be returned to Interneuron if the
settlement does not become final. A third installment of $10,000,000, plus
interest, is to be made after the settlement becomes final.
In addition, the Settlement Agreement provides for Interneuron to cause all
remaining and available product liability insurance proceeds related to Redux to
be deposited into the settlement fund. As part of the Settlement Agreement,
Interneuron and the Plaintiffs' Management Committee also entered into a Royalty
Agreement. Under the Royalty Agreement, Interneuron agreed to make royalty
payments to the settlement fund, in the total amount of $55,000,000, over a
seven year period beginning after the
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settlement becomes final. Royalties will be paid at the rate of 7% of gross
sales of Interneuron products sold by Interneuron, 15% of cash dividends
received by Interneuron from its subsidiaries related to product sales, and 15%
of license revenues (including license fees, royalties or milestone payments)
received by Interneuron from a sublicensee related to product sales. All
Interneuron products will be subject to this royalty during the applicable term.
If, at the end of that seven year period, the amount of royalty payments made by
Interneuron is less than $55,000,000, the settlement fund will receive shares of
Interneuron Common Stock ("Royalty Shares") in an amount equal to the unpaid
royalty balance divided by $7.49 per share, subject to adjustment under certain
circumstances such as stock dividends or distributions.
In the event Interneuron merges with or sells all or substantially all of
its assets to another corporation prior to payment of the $55,000,000 of
royalties, the settlement fund shall be entitled to receive the kind and amount
of shares of stock or other securities or property to which a holder of the
number of shares of Common Stock (calculated based on the unpaid royalty balance
at such time) would have been entitled to at the time of the transaction.
Interneuron has the right of first refusal to purchase Royalty Shares in the
event of any proposed transfer by the settlement fund and any transfers by the
settlement fund must be in accordance with the volume restrictions contained in
Rule 144(e) of the Securities Act of 1933, as amended. In addition, the
settlement fund agreed to vote any Royalty Shares held by it in the same manner
and proportion as the other holders of outstanding securities of Interneuron
entitled to vote on any matter.
Conditions to Final Settlement: The settlement will not become final until
approved by the Court and the time for filing appeals has passed or all appeals
have been exhausted. In this case, in order to approve the settlement, the Court
must make a determination that the proposed settlement is fair and reasonable
and meets each of the prerequisites for a class action generally, and for a
"limited fund" class action in particular, all as required by the Federal Rules
of Civil Procedure. Pursuant to these rules, notice of the proposed settlement
was provided to potential class members in November, 1998. Between February 25,
1999 and March 5, 1999, the Court conducted a Fairness Hearing to determine
whether the case is properly certifiable as a limited fund class action and, if
so, whether the terms of the Settlement Agreement are fair and reasonable. At
the hearing, the Court heard testimony from various witnesses, received
documentary evidence, and heard oral arguments from the proponents and opponents
of the settlement. The Court has not yet rendered a decision.
The Company may withdraw from the Settlement Agreement, or the Settlement
Agreement may otherwise terminate, under any of the following conditions: (i)
final approval of the Settlement Agreement is not entered by the Court; (ii)
class certification and/or approval of the Settlement Agreement is overturned on
appeal for any reason; (iii) pending and future litigation against the Company
or any other party released by the Settlement Agreement ("Released Parties") is
not permanently enjoined on the final approval date; (iv) the class action and
all pending multi-district lawsuits against the Released Parties are not
dismissed with prejudice on the final approval date; (v) an order is not entered
by the Court permanently barring contribution and indemnity claims by other
defendants in the diet drug litigation; and (vi) Interneuron is unable to compel
tender of its insurance proceeds.
On November 20, 1998, December 30, 1998 and February 5, 1999, the Company's
three product liability insurers filed actions against Les Laboratoires Servier
("Servier") and the Company in the Court, pursuant to the federal interpleader
statute. The insurers allege that both Servier and the Company have asserted
claims against commercial excess insurance policies issued by the insurers to
Interneuron with limits of $20,000,000, $5,000,000 in excess of $20,000,000, and
$15,000,000 in excess of $25,000,000,
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<PAGE>
respectively, a portion of which has been used in the Company's defense of the
litigation . The insurers have deposited the available proceeds up to limits of
their policies into the registry of the Court.
There can be no assurance that after the Fairness Hearing the Court will
approve the settlement, and even if the settlement is approved by the Court,
opponents of the settlement may appeal the Court's opinion to the United States
Court of Appeals for the Third Circuit. In addition, there is a case pending
before the United States Supreme Court (Ortiz v. Fibreboard Corporation et al.)
--------------------------------------
("Ortiz"), that may influence the Court's decision or the outcome of any appeal
that might be taken. Oral argument in the Ortiz case was heard on December 8,
1998 and the Supreme Court is likely to render its opinion between February and
June 1999, which is the end of the current Supreme Court term . Although
factually distinguishable in many respects from the Company's proposed
settlement, Ortiz involves an appeal from a mandatory, putative "limited fund"
class action settlement. There can be no assurance that the Supreme Court's
rulings in Ortiz will not significantly influence, or potentially result in the
overturning of, the Settlement Agreement.
Future Charges to Operations: The Company will record initial charges to
operations for the estimated fair value of the Company's obligations under the
Settlement Agreement, exclusive of insurance proceeds, at such time as the
Company can determine that it is probable that the conditions to final
settlement have been or will be met, which is expected to be subsequent to the
Court's decision regarding approval of the Settlement Agreement and to the
Supreme Court ruling in Ortiz. The amount of the liability to be recognized by
the Company pursuant to the Settlement Agreement is likely to be significant and
to materially adversely affect the Company's net worth. Additionally, if the
Company records such charges prior to the final settlement date, then on the
date the Settlement Agreement becomes final, the Company will determine if there
was any increase in the fair value of the equity conversion feature of the
Royalty Agreement and record any such increase as an additional charge to
operations. From the date the Company records the charge and related liability
for the settlement and through the term of the Royalty Agreement, the Company
will record charges to accrete the liability attributable to the royalty feature
of the Royalty Agreement up to the amount of royalties the Company expects to
pay pursuant to the Royalty Agreement over the time the Company expects to make
such royalty payments. Payments to be made by the Company pursuant to the
Settlement Agreement could have a material adverse effect on the operations and
financial condition of the Company. See Note E of Notes to Unaudited
Consolidated Financial Statements.
Securities Litigation
The Company and certain present or former directors and/or officers of the
Company have been named as defendants in nine lawsuits filed in the United
States District Court for the District of Massachusetts by alleged purchasers of
the Company's Common Stock, purporting to be class actions. The lawsuits claim
among other things, that the Company violated the federal securities laws by
publicly disseminating materially false and misleading statements concerning the
prospects and safety of Redux, resulting in the artificial inflation of the
Company's Common Stock price during various alleged class periods.
On January 23, 1998, the Court entered an order consolidating all of these
actions for pretrial purposes. The plaintiffs subsequently filed a First Amended
And Consolidated Class Action Complaint [Corrected Version] (the "Complaint")
containing substantially similar substantive allegations against the Company,
one current officer and director and one current director and alleging a class
period of December 16, 1996 through September 15, 1997. The Complaint does not
specify the amount of alleged damages plaintiffs seek to recover. On May 11,
1998, the defendants moved to dismiss the Complaint. On August 14, 1998, the
Company received notice that the defendants' motion to dismiss was denied.
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<PAGE>
The Court has issued procedural orders on that same day establishing
schedules for class certification briefing, fact and expert discovery,
dispositive motions briefing and trial. No class has yet been certified. A case
management conference with the Court is scheduled for late May 1999. Trial is
scheduled for April 2000. The Company is vigorously pursuing its defenses to
these actions.
General
Under certain circumstances, the Company may be required to indemnify
Servier, Boehringer Ingelheim Pharmaceuticals, Inc. and American Home Products
Corp., and the Company may be entitled to indemnification by AHP, against
certain claims, damages or liabilities incurred in connection with Redux. The
cross indemnification between the Company and AHP generally relates to the
activities and responsibilities of each company.
Although the Company maintains certain product liability and director and
officer liability insurance and intends to defend the product liability,
securities and similar actions vigorously, the Company has been required and may
continue to be required to devote significant management time and resources to
these legal actions. Payments under the Settlement Agreement will adversely
affect the Company's financial condition and results of operations. If the
Settlement Agreement is overturned or not made final, the ongoing Redux-related
product liability litigation would then proceed against the Company. In this
event, the existence of such litigation may continue to materially adversely
affect the Company's business, including its ability to obtain sufficient
financing to fund operations. In addition, although the Company is unable to
predict the outcome of any such litigation, in the event the proposed settlement
does not become final and in the event of successful uninsured or insufficiently
insured claims, or in the event a successful indemnification claim was made
against the Company, the Company's business, financial condition and results of
operations could be materially adversely affected. In addition, the costs and
uncertainties associated with these legal actions have had, and may continue to
have, an adverse effect on the market price of the Company's common stock and on
the Company's ability to obtain corporate collaborations or additional financing
to satisfy cash requirements, to retain and attract qualified personnel, to
develop and commercialize products on a timely and adequate basis, to acquire
rights to additional products, and to obtain product liability insurance for
other products at costs acceptable to the Company, or at all, any or all of
which may materially adversely affect the Company's business, financial
condition and results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Company's annual meeting of stockholders was held on March 16, 1999. At
the meeting (i) all ten director nominees were elected; and (ii) the appointment
of PricewaterhouseCoopers LLP as the independent auditors was ratified.
(i) The following Directors were elected for a one-year term by the votes
indicated:
Lindsay A. Rosenwald, M.D., 32,575,236 for, 357,301 against; Glenn L.
Cooper, M.D., 32,577,249 for, 355,288 against; Harry J. Gray, 32,576,749 for,
355,788 against; Alexander M. Haig, Jr., 32,561,874 for, 370,663 against; Peter
Barton Hutt, 32,263,349 for, 669,188 against; Malcolm Morville, Ph.D.,
32,578,249 for, 354,288 against; Robert K. Mueller, 32,576,849 for, 355,688
against; Lee J. Schroeder, 32,577,349 for, 355,688 against; David B. Sharrock,
32,264,349 for, 668,188 against; Richard Wurtman, M.D., 32,264,549 for, 667,988
against.
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(ii) The appointment of PricewaterhouseCoopers LLP was ratified by a vote of
32,816,921 for, 73,921 against, and 41,695 abstaining.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.102 - Employment Agreement between Interneuron Pharmaceuticals,
Inc. and Michael W. Rogers dated and effective as of
February 23, 1999.
10.103 - Employment Agreement between Interneuron Pharmaceuticals,
Inc. and Bobby W. Sandage, Jr. dated and effective as of
March 15, 1999.
10.104 - Employment Agreement between Interneuron Pharmaceuticals,
Inc. and Mark S. Butler dated and effective as of March 15,
1999.
10.105 - Employment Agreement between Interneuron Pharmaceuticals,
Inc. and Glenn L. Cooper, M.D. dated and effective as of
May 1, 1999.
10.106 - Agreement of Sublease between Interneuron Pharmaceuticals,
Inc., Sublandlord and Genta, Inc., Subtenant dated March
31, 1999.
10.107 - Consent to Sublease dated March 31, 1999 by and among
Ledgemont Realty Trust, Interneuron Pharmaceuticals, Inc.,
and Genta, Inc.
27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
three month period ended March 31, 1999.
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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.
INTERNEURON PHARMACEUTICALS, INC.
Date: May 13, 1999 By: /s/ Glenn L. Cooper
----------------------------------------
Glenn L. Cooper, M.D., President
and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1999 By: /s/ Michael W. Rogers
----------------------------------------
Michael W. Rogers, Executive Vice President,
Chief Financial Officer, and Treasurer
(Principal Financial Officer)
Date: May 13, 1999 By: /s/ Dale Ritter
----------------------------------------
Dale Ritter, Senior Vice President, Finance
(Principal Accounting Officer)
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<PAGE>
EMPLOYMENT AGREEMENT
Agreement dated as of February 23, 1999 effective as of February 23,
1999 (the "Effective Date"), by and between Interneuron Pharmaceuticals, Inc., a
Delaware corporation having a place of business at One Ledgemont Center, 99
Hayden Avenue, Suite 200, Lexington, Massachusetts 02421 (the "Corporation"),
and Michael W. Rogers, an individual residing at 716 Spring Avenue, Fort
Washington, Pennsylvania (the "Officer").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Officer as Executive
Vice President and Chief Financial Officer, and the Officer desires to be
employed by the Corporation as Executive Vice President and Chief Financial
Officer, all pursuant to the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
------------------
(a) The Corporation engages and employs the Officer, and the Officer
hereby accepts engagement and employment, as Executive Vice President and Chief
Financial Officer, to direct, supervise and have responsibility for the
financial, accounting and tax operations of the Corporation, including, but not
limited to (i) directing and supervising the financial, accounting and tax
departments of the Corporation, (ii) managing the other financial, accounting
and tax personnel and resources of the Corporation; and (iii) performing such
other services and duties as the Board of Directors of the Corporation shall
determine. In his capacity as Executive Vice President and Chief Financial
Officer of the Corporation, and as an officer of the Corporation, the Officer
shall report directly to the Chief Executive Officer of the Corporation.
(b) The Officer shall perform his duties hereunder from the
Corporation's executive offices in Massachusetts, provided, however, that the
Officer acknowledges and agrees that the performance by the Officer of his
duties hereunder may require domestic and international travel by the Officer.
(c) The Officer shall devote his best efforts and entire working time
and attention to the proper discharge of his duties and responsibilities under
this Agreement.
2. TERM
----
(a) Subject to the completion of the matters set forth in subsections
(b) and (c) hereof and to the provisions of Section 6 hereof, the Officer's
employment hereunder shall be for a term of one (1) year commencing on the
Effective Date and continuing through the first anniversary of such date and
shall automatically renew for
<PAGE>
periods of one (1) year commencing at the second anniversary of the Effective
Date unless either the Officer or the Corporation gives written notice to the
other not less than sixty (60) days prior to the date of any such anniversary of
such party's election not to extend the term of this Agreement.
(b) Prior to the Officer's first day of employment, he will be
required to undergo a pre-employment physical and screening for drugs of abuse
at Mount Auburn Hospital (the results of which shall be kept confidential).
(c) Within three business days of employment, the Officer will be
required to present proof of eligibility to work in the United States in
accordance with U.S. Immigration and Naturalization Service guidelines in a form
acceptable to the Corporation.
3. COMPENSATION
------------
(a) As compensation for the performance of his duties under this
Agreement, the Officer shall be compensated as follows:
(i) The Corporation shall pay the Officer an annual base salary
("Base Salary") of Two Hundred Sixty-Five Thousand Dollars
($265,000), payable in accordance with the usual payroll
period of the Corporation;
(ii) The Officer shall be entitled to participate in the FY 1999
Senior Executive Bonus Plan, subject to the following
condition:
Participation shall be limited to parts 1 through 4 and
part 6 of such Plan and shall not include part 5 of such
Plan, except at the discretion of the Chief Executive
Officer.
(iii) The Officer shall be eligible to receive seven year options
to purchase Four Hundred Fifty Thousand (450,000) shares of
the Corporation's common stock under the Corporation's 1998
Stock Option Plan, at an exercise price equal to the fair
market value as determined on the Date of Grant. Such
options shall vest over three years. Of such options,
150,000 will vest on the first anniversary of the Effective
Date. The remaining options will vest semi-annually at a
rate of 75,000 shares, beginning six months after the first
anniversary of the Effective Date.
(iv) The Officer shall be entitled to a restricted stock award,
under
-2-
<PAGE>
the Company's 1997 Equity Incentive Plan (the "1997 Plan"),
to acquire an aggregate of 100,000 shares (the "Award
Shares") of the Corporation's Common Stock. The Award Shares
shall vest as follows, subject to the terms and conditions
of the 1997 Plan:
<TABLE>
<CAPTION>
No. of Vesting Vesting Category/
Award Shares Cycle Initial Vesting Date
------------ ----- --------------------
<S> <C> <C>
12,500 4 [B] - 5/18/99
12,500 4 [D] - 5/21/99
25,000 5 [K] - 1/13/00
7,500 6 [A] - 5/15/00
17,500 6 [B] - 5/16/00
7,500 6 [C] - 5/18/00
17,500 6 [D] - 5/19/00
</TABLE>
The Corporation shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law and any plans pursuant to which such
compensation is generated or agreed upon by the parties, and as may be allowed,
with respect to the compensation payable to the Officer pursuant to Section 3(a)
hereof.
(b) The Corporation shall reimburse the Officer for all normal, usual
and necessary expenses incurred by the Officer in furtherance of the business
and affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
Officer's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board of
Directors of the Corporation.
(c) Relocation Expenses. The Corporation will pay round trip economy
-------------------
class air travel and hotel expenses for the Officer and his spouse between
Boston and his home in Pennsylvania for two trips in his search for new,
permanent housing in the Lexington area. In addition, the Corporation will pay
reasonable relocation expenses from his home in Pennsylvania to the Lexington
area including:
(i) Temporary living expenses in the Lexington area to cover out
of pocket expenses he would have not incurred had he not
joined the Corporation. This will cover primarily
room, transportation and reasonable meal expenses for not
greater than a twenty (20) week period;
(ii) Transportation of the Officer's family, reasonable household
-3-
<PAGE>
goods and personal effects. The Corporation has an
arrangement with a major moving company which will handle
the Officer's move, which will be coordinated by the
Corporation's Human Resources Department;
-
(iii) Reasonable closing costs, up to $2000, on the purchase of a
home in the Lexington area.
Certain reimbursements MAY BE deemed taxable compensation to the
Officer.
If and to the extent that the above expenses, when reimbursed by the
Corporation, are treated as taxable income for federal and state tax purposes,
payments [under paragraphs (i), (ii) and (iii) hereof] will be "grossed up" such
that Officer will be tax neutral for such reimbursements at an assumed rate of
forty-two (42) percent maximum combined federal and state rates.
(d) The Officer shall be, during the term of this Agreement, entitled
to vacations of not less than four (4) weeks per annum.
(e) The Corporation shall make available to the Officer and his
dependents, such medical, disability, life insurance and such other health
benefits as the Corporation makes available to its senior officers and
directors. The Company shall reimburse the Officer for premiums for $1,000,000
additional term life insurance during the period of the Officer's employment.
4. NON-SOLICITATION
----------------
(a) During the term of this Agreement and for one (1) year
thereafter, the Officer shall not, directly or indirectly, without the prior
written consent of the Corporation, solicit or induce any employee of the
Corporation or any affiliate to leave the employ of the Corporation or any
affiliate or hire for any purpose any employee of the Corporation or any
affiliate or any employee who has left the employment of the Corporation or any
affiliate within six months of the termination of said employee's employment
with the Corporation.
(b) During the term of this Agreement and for one (1) year
thereafter, the Officer shall not, directly or indirectly, without the prior
written consent of the Corporation:
(i) solicit or accept employment or be retained by any party
who, at any time during the term of this Agreement, was a
customer or supplier of the Corporation or any affiliate
where his position will be related to the business of the
Corporation; or
(ii) solicit or accept the business of any customer or supplier
of the Corporation or any affiliate with respect to products
similar to
-4-
<PAGE>
those supplied by the Corporation.
(c) In the event that the Officer breaches any provisions of this
Section 4 or there is a threatened breach, then, in addition to any other rights
which the Corporation may have, the Corporation shall be entitled, without the
posting of an bond or other security, to injunctive relief to enforce the
restrictions contained herein. In the event that an actual proceeding is brought
in equity to enforce the provisions of this Section 4, the Officer shall not
urge as a defense that there is an adequate remedy at law nor shall the
Corporation be prevented from seeking any other remedies which may be available.
5. CONFIDENTIAL INFORMATION
------------------------
(a) The Officer agrees that during the course of his employment or at
any time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets,
litigation information and other confidential and proprietary business
information of the Corporation or any of its clients. The Officer agrees: (i)
not to use any such information for himself or others; and (ii) not to take any
such material or reproductions thereof from the Corporation's facilities at any
time during his employment by the Corporation, except as required in the
Officer's duties to the Corporation. The Officer agrees immediately to return
all such material and reproductions thereof in his possession to the Corporation
upon request and in any event upon termination of employment.
(b) Except with prior written authorization by the Corporation, the
Officer agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation of confidence, at any time
during or after his employment with the Corporation.
(c) The Officer hereby assigns to the Corporation all right, title
and interest he may have or may acquire in all inventions (including patent
rights) developed by the Officer during the term of this Agreement
("Inventions") and agrees that all Inventions shall be the sole property of the
Corporation and its assigns, and the Corporation and its assigns shall be the
sole owner of all patents, copyrights and other rights in connection therewith.
The Officer further agrees to assist the Corporation in every proper way (but at
the Corporation's expense) to obtain and from time to time enforce patents,
copyrights or other rights on said Inventions in any and all countries.
6. TERMINATION
-----------
(a) The term of this Agreement shall continue for the period set
forth in Section 2 hereof unless sooner terminated upon the first to occur of
the following events:
-5-
<PAGE>
(i) The death of the Officer;
(ii) Termination for just cause. Any of the following actions by
the Officer shall constitute just cause:
(A) Material breach by the Officer of Section 4 or Section
5 of this Agreement;
(B) Material breach by the Officer of any provision of this
Agreement other than Section 4 or Section 5 or the
willful or reckless failure by the Officer to perform
his duties hereunder which breach or failure is not
cured by the Officer within fifteen (15) days of notice
thereof from the Corporation; or
(C) The commission by the Officer of any act of fraud or
theft against the Corporation or any of its
subsidiaries, or the conviction of the Officer of any
criminal act.
(iii) Termination by the Officer for just cause. Any of the
following actions or omissions by the Corporation shall
constitute just cause:
(A) Material breach by the Corporation of any provision of
this Agreement which is not cured by the Corporation
within fifteen (15) days of notice thereof from the
Officer;
(B) Any action by the Corporation to intentionally harm the
Officer; or
(C) A Change in Control of the Corporation (as defined
below), unless the Officer is offered and, in his sole
discretion, accepts either (1) a comparable executive
position of the acquiror or of the division of the
acquiror which assumes the business of the corporation
after the Change in Control or (2) compensation
comparable to that provided to the Officer under this
Agreement.
(iv) Termination without just cause.
(b) Upon termination pursuant to subparagraph (ii) of paragraph (a)
above, the Officer (or his estate in the event of termination pursuant to
subparagraph (i), shall be entitled to receive the Base Salary accrued but
unpaid as of the date of termination.
-6-
<PAGE>
(c) Upon termination pursuant to subparagraph (iii) of paragraph (a)
above, the Officer shall be entitled to receive the Base Salary plus average
bonuses paid to Officer since the Effective Date. At the discretion of the
Corporation, such Base Salary may be paid either in one lump sum or in monthly
installments. In addition, the Corporation shall provide continuation of health
benefits for twelve (12) months to the extent authorized by and consistent with
29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"), with the cost of the
regular premium for such benefit shared in the same relative proportion by the
Corporation and the Officer as in effect on the date of the termination.
Notwithstanding the foregoing, nothing in this Section 6(c) shall be construed
to affect the Officer's right to receive COBRA continuation entirely at the
Officer's own cost to the extent that the Officer may continue to be entitled to
COBRA continuation after the Officer's right to cost sharing under this Section
6(c) ceases.
(d) Upon termination pursuant to subparagraph (iv) of paragraph (a)
above, or if the Corporation does not renew this Agreement, the Corporation will
pay to the Officer twelve (12) months of Base Salary plus average bonuses. At
the discretion of the Corporation, such base salary may be paid either in one
lump sum or in monthly installments. This payment, however, shall be reduced by
the salary and bonus compensation from other employment received by the Officer
during the twelve (12) months following termination of this Agreement. In
addition, the Corporation shall provide continuation of health benefits for
twelve (12) months to the extent authorized by and consistent with 29 U.S.C. (S)
1161 et seq. (Commonly known as "COBRA"), with the cost of the regular premium
for such benefit shared in the same relative proportion by the Corporation and
the Officer as in effect on the date of the termination.
(e) For purposes of this Agreement, a "Change in Control of the
Corporation" shall be deemed to have occurred upon any one of the following
events:
(i) The date on which shares of Common Stock are first purchased
pursuant to a tender offer or exchange offer (other than
such an offer by the Corporation, any Subsidiary, any
employee benefit plan of the Corporation or of any
Subsidiary or any entity holding shares or other securities
of the Corporation for or pursuant to the terms of such
plan), whether or not such offer is approved or opposed by
the Corporation and regardless of the number of shares
purchased pursuant to such offer;
(ii) The date the Corporation acquires knowledge that any person
or group deemed a person under Section 13(d)-3 of the
Securities Exchange Act of 1934 ("Exchange Act") (other than
the Corporation, any Subsidiary, any employee benefit plan
of the Corporation or of any Subsidiary or any entity
holding shares of Common Stock or other securities of the
Corporation for or pursuant to the terms of any such plan or
any individual or entity or
-7-
<PAGE>
group or affiliate thereof which acquired its beneficial
ownership interest prior to the date the Plan was adopted
by the Board), in a transaction or series of transactions,
has become the beneficial owner, directly or indirectly
(with beneficial ownership determined as provided in Rule
13d-3, or any successor rule, under the Exchange Act), of
securities of the Corporation entitling the person or group
to 30% or more of all votes (without consideration of the
rights of any class or stock to elect directors by a
separate class vote) to which all stockholders of the
Corporation would be entitled in the election of the Board
of Directors were an election held on such date;
(iii) The date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof, unless
the election, or the nomination for election by the
stockholders of the Corporation, of each new director was
approved by a vote of at least two-thirds of the directors
then still in office who were directors at the beginning of
such period; and
(iv) The date of approval by the stockholders of the Corporation
of an agreement (a "reorganization agreement") providing
for:
(A) The merger or consolidation of the Corporation with
another corporation where the stockholders of the
Corporation, immediately prior to the merger or
consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or
consolidation entitling such stockholders to 65% or
more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate
class vote) to which all stockholders of such
corporation would be entitled in the election of
directors or where the members of the Board of
Directors of the Corporation, immediately prior to the
merger or consolidation, do not, immediately after the
merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or
securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially
all the assets of the Corporation. For purposes of this
Agreement, a "Change in Control of the Corporation"
shall be deemed to have occurred if any "person" (as
-8-
<PAGE>
such term is used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"),
becomes, after the date of this Agreement the
"beneficial owner" (as defined in Rule 13(d)-3 under
the Exchange Act), directly and indirectly, of
securities of the Corporation representing 50% or more
of the combined voting power of the Corporations' then
outstanding securities.
(f) Anything in this Agreement to the contrary notwithstanding, in
-
the event it shall be determined that as a result of any payment or distribution
by the Corporation to or for the benefit of the Officer whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), the Officer would be subject to the excise tax imposed
by Section 49999 of the Internal Revenue Code (the "Code") or any interest or
penalties are incurred by the Officer with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Officer shall be entitled to
promptly receive an additional payment (a "Gross-Up Payment") in an amount such
that, after payment by the Officer of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes and Excise Tax imposed upon the Gross-Up Payment, the Officer
is in the same after-tax position as if no Excise Tax had been imposed upon the
Officer with respect to the Payments. Notwithstanding the foregoing provisions
of this Section, if it shall be determined that the Officer is entitled to a
Gross-Up Payment, but that the Officer, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least
$50,000 (taking into account both income taxes and Excise Tas) as compared to
the net after-tax proceeds to the Officer resulting from the elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an amount
(the "Reduced Amount") such that the receipt of Payments would not give rise to
any Excise Tax, then no Gross-Up Payment shall be made to the Officer and the
Payments, in the aggregate, shall be reduced to the Reduced Amount.
(g) Cooperation: Pending Litigation
-
(A) Upon the request of the Company, in connection with any suit,
action, proceeding, arbitration or litigation involving the
Company (a "Litigation"), which Litigation is directly or
indirectly the result of an event, fact or occurrence existing,
in whole or in part, prior to the Termination Date, Officer
agrees to, at the expense of the Company, in connection with any
such Litigation:
(i) attend depositions, meetings, conferences or other scheduled
proceedings related to the Litigation with a designated
officer of the Company;
(ii) provide a written outline of any actions taken by Officer on
behalf of the
-9-
<PAGE>
Company, or any information known to Officer; and
(iii) otherwise cooperate with the Company, counsel to the
Company and with other parties or entities whom the Company
shall reasonably request.
(B) Unless Officer and the Company agree otherwise, Officer shall not
be required to engage or participate in any of the activities
described in Section 6(g) of this Agreement for more than three
(3) consecutive business days at a time, or more than six (6)
business days per ninety (90) day period.
7. NOTICES
-------
Any notice or other communication under this Agreement shall be in writing
and shall be deemed to have been given: when delivered personally against
receipt therefor; one (1) day after being sent by Federal Express or similar
overnight delivery; or there (3) days after being mailed registered or certified
mail, postage prepaid, return receipt requested, to either party at the address
set forth above, or to such other address as such party shall give by notice
hereunder to the other party.
8. INDEMNIFICATION
---------------
The Company will enter into an indemnification agreement with Officer
substantially identical to that entered into with its other executive officers,
in the form attached as Exhibit A hereto.
9. SEVERABILITY OF PROVISIONS
--------------------------
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT: MODIFICATION
------------------------------
This Agreement contains the entire agreement of the parties relating to
the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
11. BINDING EFFECT
--------------
-10-
<PAGE>
The rights, benefits, duties and obligations under this Agreement shall
inure to, and be binding upon, the Corporation, its successors and assigns, and
upon the Officer and his legal representatives. This Agreement constitutes a
personal service agreement, and the performance of the Officer's obligations
hereunder may not be transferred or assigned by the Officer.
12. NON-WAIVER
----------
The failure of either party to insist upon the strict performance of the
terms, conditions and provisions of this Agreement shall not be construed as a
waiver or relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed
by such party.
13. GOVERNING LAW
-------------
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts without regard to
principles of conflict of laws.
-11-
<PAGE>
14. HEADINGS
--------
The headings of paragraphs are inserted for convenience and shall not
affect the interpretation of this Agreement on the day and year first above
written.
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper
---------------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
/s/ Michael W. Rogers
---------------------------------------
MICHAEL W. ROGERS
-12-
<PAGE>
EMPLOYMENT AGREEMENT
Agreement dated as of March 15, 1999 effective as of March 15, 1999
(the "Effective Date"), by and between Interneuron Pharmaceuticals, Inc., a
Delaware corporation having a place of business at One Ledgemont Center, 99
Hayden Avenue, Suite 200, Lexington, Massachusetts 02421 (the "Corporation"),
and Bobby W. Sandage, Jr., an individual residing at 3 Stoneymeade Way, Acton,
Massachusetts (the "Officer").
WITNESSETH:
WHEREAS, the Corporation desires to continue to employ the Officer as
Executive Vice President , Research and Development and Chief Scientific
Officer, and the Officer desires to be employed by the Corporation as Executive
Vice President, Research and Development and Chief Scientific Officer, all
pursuant to the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
------------------
(a) The Corporation engages and employs the Officer, and the Officer
hereby accepts engagement and employment, as Executive Vice President, Research
and Development and Chief Scientific Officer, to direct, supervise and have
responsibility for the preclinical and clinical research, development and
regulatory affairs operations of the Corporation, including, but not limited to
(i) directing and supervising the preclinical and clinical research development
and regulatory affairs departments of the Corporation, (ii) managing the other
clinical research, regulatory affairs and resources of the Corporation; and
(iii) performing such other services and duties as the Board of Directors of the
Corporation shall determine. In his capacity as Executive Vice President,
Research and Development and Chief Scientific Officer of the Corporation, and as
an officer of the Corporation, the Officer shall report directly to the Chief
Executive Officer of the Corporation.
(b) The Officer shall perform his duties hereunder from the
Corporation's executive offices in Massachusetts, provided, however, that the
Officer acknowledges and agrees that the performance by the Officer of his
duties hereunder may require domestic and international travel by the Officer.
(c) The Officer shall devote his best efforts and attention to the
proper discharge of his duties and responsibilities under this Agreement.
(d) The Officer may consult for third parties in fields unrelated to
the Officer's work at the Company during nonworking hours.
<PAGE>
2. TERM
----
(a) Subject to the completion of the matters set forth in subsections
(b) and (c) hereof and to the provisions of Section 6 hereof, the Officer's
employment hereunder shall be for a term of one (1) year commencing on the
Effective Date and continuing through the first anniversary of such date and
shall automatically renew for periods of one (1) year commencing at the second
anniversary of the Effective Date unless either the Officer or the Corporation
gives written notice to the other not less than sixty (60) days prior to the
date of any such anniversary of such party's election not to extend the term of
this Agreement.
3. COMPENSATION
------------
(a) As compensation for the performance of his duties under this
Agreement, the Officer shall be compensated as follows:
(i) The Corporation shall pay the Officer an annual base salary
("Base Salary") of Two Hundred Sixty-Five Dollars
($265,000), payable in accordance with the usual payroll
period of the Corporation;
(ii) The Officer shall be entitled to participate in the annual
Senior Executive Bonus Plan.
(b) The Corporation shall reimburse the Officer for all normal, usual
and necessary expenses incurred by the Officer in furtherance of the business
and affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
Officer's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board of
Directors of the Corporation.
(c) The Officer shall be, during the term of this Agreement, entitled
to vacations of not less than four (4) weeks per annum.
(d) The Corporation shall make available to the Officer and his
dependents, such medical, disability, life insurance and such other health
benefits as the Corporation makes available to its senior officers and
directors. The Company shall reimburse the Officer for premiums for $1,000,000
additional term life insurance during the period of the Officer's employment.
4. NON-SOLICITATION
----------------
(a) During the term of this Agreement and for one (1) year
thereafter, the
-2-
<PAGE>
Officer shall not, directly or indirectly, without the prior written consent of
the Corporation, solicit or induce any employee of the Corporation or any
affiliate to leave the employ of the Corporation or any affiliate or hire for
any purpose any employee of the Corporation or any affiliate or any employee who
has left the employment of the Corporation or any affiliate within six months of
the termination of said employee's employment with the Corporation.
(b) During the term of this Agreement and for one (1) year
thereafter, the Officer shall not, directly or indirectly, without the prior
written consent of the Corporation:
(i) solicit or accept employment or be retained by any party
who, at any time during the term of this Agreement, was a
customer or supplier of the Corporation or any affiliate
where his position will be related to the business of the
Corporation; or
(ii) solicit or accept the business of any customer or supplier
of the Corporation or any affiliate with respect to products
similar to those supplied by the Corporation.
(c) In the event that the Officer breaches any provisions of this
Section 4 or there is a threatened breach, then, in addition to any other rights
which the Corporation may have, the Corporation shall be entitled, without the
posting of an bond or other security, to injunctive relief to enforce the
restrictions contained herein. In the event that an actual proceeding is brought
in equity to enforce the provisions of this Section 4, the Officer shall not
urge as a defense that there is an adequate remedy at law nor shall the
Corporation be prevented from seeking any other remedies which may be available.
5. CONFIDENTIAL INFORMATION
------------------------
(a) The Officer agrees that during the course of his employment or at
any time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets,
litigation information and other confidential and proprietary business
information of the Corporation or any of its clients. The Officer agrees: (i)
not to use any such information for himself or others; and (ii) not to take any
such material or reproductions thereof from the Corporation's facilities at any
time during his employment by the Corporation, except as required in the
Officer's duties to the Corporation. The Officer agrees immediately to return
all such material and reproductions thereof in his possession to the Corporation
upon request and in any event upon termination of employment.
(b) Except with prior written authorization by the Corporation, the
-3-
<PAGE>
Officer agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation of confidence, at any time
during or after his employment with the Corporation.
(c) The Officer hereby assigns to the Corporation all right, title
and interest he may have or may acquire in all inventions (including patent
rights) developed by the Officer during the term of this Agreement
("Inventions") and agrees that all Inventions shall be the sole property of the
Corporation and its assigns, and the Corporation and its assigns shall be the
sole owner of all patents, copyrights and other rights in connection therewith.
The Officer further agrees to assist the Corporation in every proper way (but at
the Corporation's expense) to obtain and from time to time enforce patents,
copyrights or other rights on said Inventions in any and all countries.
6. TERMINATION
-----------
(a) The term of this Agreement shall continue for the period set
forth in Section 2 hereof unless sooner terminated upon the first to occur of
the following events:
(i) The death of the Officer;
(ii) Termination for just cause. Any of the following actions by
the Officer shall constitute just cause:
(A) Material breach by the Officer of Section 4 or Section
5 of this Agreement;
(B) Material breach by the Officer of any provision of this
Agreement other than Section 4 or Section 5 or the
willful or reckless failure by the Officer to perform
his duties hereunder which breach or failure is not
cured by the Officer within fifteen (15) days of notice
thereof from the Corporation; or
(C) The commission by the Officer of any act of fraud or
theft against the Corporation or any of its
subsidiaries, or the conviction of the Officer of any
criminal act.
-4-
<PAGE>
(iii) Termination by the Officer for just cause. Any of the
following actions or omissions by the Corporation shall
constitute just cause:
(A) Material breach by the Corporation of any provision of
this Agreement which is not cured by the Corporation
within fifteen (15) days of notice thereof from the
Officer;
(B) Any action by the Corporation to intentionally harm the
Officer; or
(C) A Change in Control of the Corporation (as defined
below), unless the Officer is offered and, in his sole
discretion, accepts either (1) a comparable executive
position of the acquiror or of the division of the
acquiror which assumes the business of the corporation
after the Change in Control or (2) compensation
comparable to that provided to the Officer under this
Agreement.
(iv) Termination without just cause.
(v) Upon the election of the Officer made within thirty (30)
days after a Change in Control.
(b) Upon termination pursuant to subparagraph (ii) of paragraph (a)
above, the Officer (or his estate in the event of termination pursuant to
subparagraph (i), shall be entitled to receive the Base Salary accrued but
unpaid as of the date of termination.
(c) Upon termination pursuant to subparagraph (iii) of paragraph (a)
above, the Officer shall be entitled to receive the Base Salary plus average
bonuses paid to Officer since the Effective Date. At the discretion of the
Corporation, such Base Salary and bonus amount may be paid either in one lump
sum or in monthly installments. In addition, the Corporation shall provide
continuation of health benefits for twelve (12) months to the extent authorized
by and consistent with 29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"),
with the cost of the regular premium for such benefit shared in the same
relative proportion by the Corporation and the Officer as in effect on the date
of the termination. Notwithstanding the foregoing, nothing in this Section 6(c)
shall be construed to affect the Officer's right to receive COBRA continuation
entirely at the Officer's own cost to the extent that the Officer may continue
to be entitled to COBRA continuation after the Officer's right to cost sharing
under this Section 6(c) ceases.
(d) Upon termination pursuant to subparagraphs (iii), (iv) or (v) of
paragraph (a) above, or if the Corporation does not renew this Agreement, the
Corporation will pay to the Officer twelve (12) months of Base Salary plus an
amount equal to the average of the executive bonuses received by the Officer in
==
the immediately preceding three (3) year period. At the
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<PAGE>
discretion of the Corporation, such base salary and bonus amount may be paid
either in one lump sum or in monthly installments. This payment, however, shall
be reduced by the salary and bonus compensation from other employment received
by the Officer during the twelve (12) months following termination of this
Agreement. In addition, the Corporation shall provide continuation of health
benefits for twelve (12) months to the extent authorized by and consistent with
29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"), with the cost of the
regular premium for such benefit shared in the same relative proportion by the
Corporation and the Officer as in effect on the date of the termination.
(e) For purposes of this Agreement, a "Change in Control of the
Corporation" shall be deemed to have occurred upon any one of the following
events:
(i) The date on which shares of Common Stock are first
purchased pursuant to a tender offer or exchange offer
(other than such an offer by the Corporation, any
Subsidiary, any employee benefit plan of the Corporation or
of any Subsidiary or any entity holding shares or other
securities of the Corporation for or pursuant to the terms
of such plan), whether or not such offer is approved or
opposed by the Corporation and regardless of the number of
shares purchased pursuant to such offer;
(ii) The date the Corporation acquires knowledge that any person
or group deemed a person under Section 13(d)-3 of the
Securities Exchange Act of 1934 ("Exchange Act") (other
than the Corporation, any Subsidiary, any employee benefit
plan of the Corporation or of any Subsidiary or any entity
holding shares of Common Stock or other securities of the
Corporation for or pursuant to the terms of any such plan
or any individual or entity or group or affiliate thereof
which acquired its beneficial ownership interest prior to
the date the Plan was adopted by the Board), in a
transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any
successor rule, under the Exchange Act), of securities of
the Corporation entitling the person or group to 30% or
more of all votes (without consideration of the rights of
any class or stock to elect directors by a separate class
vote) to which all stockholders of the Corporation would be
entitled in the election of the Board of Directors were an
election held on such date;
(iii) The date, during any period of two consecutive years, when
-6-
<PAGE>
individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the stockholders
of the Corporation, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period;
and
(iv) the date of approval by the stockholders of the Corporation
of an agreement (a "reorganization agreement") providing
for:
(A) The merger or consolidation of the Corporation with
another corporation where the stockholders of the
Corporation, immediately prior to the merger or
consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or
consolidation entitling such stockholders to 65% or
more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate
class vote) to which all stockholders of such
corporation would be entitled in the election of
directors or where the members of the Board of
Directors of the Corporation, immediately prior to the
merger or consolidation, do not, immediately after the
merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or
securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially
all the assets of the Corporation.
(f) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that as a result of any payment or distribution
by the Corporation to or for the benefit of the Officer whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), the Officer would be subject to the excise tax imposed
by Section 49999 of the Internal Revenue Code (the "Code") or any interest or
penalties are incurred by the Officer with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Officer shall be entitled to
promptly receive an additional payment (a "Gross-Up Payment") in an amount such
that, after payment by the Officer of all taxes (including any interest or
penalties imposed with
-7-
<PAGE>
respect to such taxes), including, without limitation, any income taxes and
Excise Tax imposed upon the Gross-Up Payment, the Officer is in the same after-
tax position as if no Excise Tax had been imposed upon the Officer with respect
to the Payments. Notwithstanding the foregoing provisions of this Section, if it
shall be determined that the Officer is entitled to a Gross-Up Payment, but that
the Officer, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $50,000 (taking into
account both income taxes and Excise Tas) as compared to the net after-tax
proceeds to the Officer resulting from the elimination of the Gross-Up Payment
and a reduction of the Payments, in the aggregate, to an amount (the "Reduced
Amount") such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Officer and the Payments, in
the aggregate, shall be reduced to the Reduced Amount.
(g) Cooperation: Pending Litigation
(A) Upon the request of the Company, in connection with any
suit, action, proceeding, arbitration or litigation
involving the Company (a "Litigation"), which Litigation is
directly or indirectly the result of an event, fact or
occurrence existing, in whole or in part, prior to the
Termination Date, Officer agrees to, at the expense of the
Company, in connection with any such Litigation:
(i) attend depositions, meetings, conferences or other
scheduled proceedings related to the Litigation with a
designated officer of the Company;
(ii) provide a written outline of any actions taken by
Officer on behalf of the Company, or any information
known to Officer; and
(iii) otherwise cooperate with the Company, counsel to the
Company and with other parties or entities whom the
Company shall reasonably request.
(B) Unless Officer and the Company agree otherwise, Officer
shall not be required to engage or participate in any of the
activities described in Section 6(g) of this Agreement for
more than three (3) consecutive business days at a time, or
more than six (6) business days per ninety (90) day period.
(h) It is understood and agreed that the payments by the Corporation
to the Officer set forth in paragraphs (b), (c) and (d) of this Section 6 shall
be all of the payments required to be paid by the Corporation to the Officer
upon termination of this Agreement. Specifically, the Corporation shall not be
obligated to make payments to the Officer with respect to the unexpired term of
this Agreement (ie. salary or bonus payments
-8-
<PAGE>
for all or a portion of such period).
7. NOTICES
-------
Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or there (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth above, or to such other address as such party shall give
by notice hereunder to the other party.
8. INDEMNIFICATION
---------------
The Company will enter into an indemnification agreement with Officer
substantially identical to that entered into with its other executive officers,
in the form attached as Exhibit A hereto.
9. SEVERABILITY OF PROVISIONS
--------------------------
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT: MODIFICATION
------------------------------
This Agreement contains the entire agreement of the parties relating
to the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
11. BINDING EFFECT
--------------
The rights, benefits, duties and obligations under this Agreement
shall inure to, and be binding upon, the Corporation, its successors and
assigns, and upon the Officer and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the Officer's
obligations hereunder may not be transferred or assigned by the Officer.
12. NON-WAIVER
----------
The failure of either party to insist upon the strict performance of
the terms,
-9-
<PAGE>
conditions and provisions of this Agreement shall not be construed as a waiver
or relinquishment of future compliance therewith, and said terms, conditions and
provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of either party shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by such
party.
13. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts without regard to
principles of conflict of laws.
14. HEADINGS
--------
The headings of paragraphs are inserted for convenience and shall not
affect the interpretation of this Agreement on the day and year first above
written.
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper
------------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
/s/ Bobby W. Sandage, Jr.
_______________________________________
BOBBY W. SANDAGE, JR.
-10-
<PAGE>
EMPLOYMENT AGREEMENT
Agreement dated as of March 15, 1999 effective as of March 15, 1999
(the "Effective Date"), by and between Interneuron Pharmaceuticals, Inc., a
Delaware corporation having a place of business at One Ledgemont Center, 99
Hayden Avenue, Suite 200, Lexington, Massachusetts 02421 (the "Corporation"),
and Mark S. Butler, an individual residing at 40 Singleton Road, Chestnut Hill,
Massachusetts, (the "Officer").
WITNESSETH:
WHEREAS, the Corporation desires to continue to employ the Officer as
Executive Vice President , General Counsel and Chief Administrative Officer, and
the Officer desires to be employed by the Corporation as Executive Vice
President, Chief Administrative Officer and General Counsel and all pursuant to
the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
------------------
(a) The Corporation engages and employs the Officer, and the Officer
hereby accepts engagement and employment, as Executive Vice President Chief
Administrative Officer and General Counsel, to direct, supervise and have
responsibility for the legal, business development, sales and marketing and
management information systems operations of the Corporation, including, but not
limited to (i) directing and supervising the legal, business development, sales
and marketing and management information systems departments of the Corporation,
(ii) managing the other legal, business development, sales and marketing and
management information systems and resources of the Corporation; and (iii)
performing such other services and duties as the Board of Directors of the
Corporation shall determine. In his capacity as Executive Vice President, Chief
Administrative Officer and General Counsel of the Corporation, and as an officer
of the Corporation, the Officer shall report directly to the Chief Executive
Officer of the Corporation.
(b) The Officer shall perform his duties hereunder from the
Corporation's executive offices in Massachusetts, provided, however, that the
Officer acknowledges and agrees that the performance by the Officer of his
duties hereunder may require domestic and international travel by the Officer.
(c) The Officer shall devote his best efforts and entire working time
and attention to the proper discharge of his duties and responsibilities under
this Agreement.
<PAGE>
2. TERM
----
(a) Subject to the completion of the matters set forth in subsections
(b)and (c) hereof and to the provisions of Section 6 hereof, the Officer's
employment hereunder shall be for a term of one (1) year commencing on the
Effective Date and continuing through the first anniversary of such date and
shall automatically renew for periods of one (1) year commencing at the second
anniversary of the Effective Date unless either the Officer or the Corporation
gives written notice to the other not less than sixty (60) days prior to the
date of any such anniversary of such party's election not to extend the term of
this Agreement.
3. COMPENSATION
------------
(a) As compensation for the performance of his duties under this
Agreement, the Officer shall be compensated as follows:
(i) The Corporation shall pay the Officer an annual base salary
("Base Salary") of Two Hundred Sixty-Five Dollars
($265,000), payable in accordance with the usual payroll
period of the Corporation;
(ii) The Officer shall be entitled to participate in the annual
Senior Executive Bonus Plan.
(b) The Corporation shall reimburse the Officer for all normal, usual
and necessary expenses incurred by the Officer in furtherance of the business
and affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
Officer's expenditures and otherwise in accordance with such Expense
Reimbursement Policy as may from time to time be adopted by the Board of
Directors of the Corporation.
(c) The Officer shall be, during the term of this Agreement, entitled
to vacations of not less than four (4) weeks per annum.
(d) The Corporation shall make available to the Officer and his
dependents, such medical, disability, life insurance and such other health
benefits as the Corporation makes available to its senior officers and
directors. The Company shall reimburse the Officer for premiums for $1,000,000
additional term life insurance during the period of the Officer's employment.
-2-
<PAGE>
4. NON-SOLICITATION
----------------
(a) During the term of this Agreement and for one (1) year
thereafter, the Officer shall not, directly or indirectly, without the prior
written consent of the Corporation, solicit or induce any employee of the
Corporation or any affiliate to leave the employ of the Corporation or any
affiliate or hire for any purpose any employee of the Corporation or any
affiliate or any employee who has left the employment of the Corporation or any
affiliate within six months of the termination of said employee's employment
with the Corporation.
(b) During the term of this Agreement and for one (1) year
thereafter, the Officer shall not, directly or indirectly, without the prior
written consent of the Corporation:
(i) solicit or accept employment or be retained by any party
who, at any time during the term of this Agreement, was a
customer or supplier of the Corporation or any affiliate
where his position will be related to the business of the
Corporation; or
(ii) solicit or accept the business of any customer or supplier
of the Corporation or any affiliate with respect to products
similar to those supplied by the Corporation.
(c) In the event that the Officer breaches any provisions of this
Section 4 or there is a threatened breach, then, in addition to any other rights
which the Corporation may have, the Corporation shall be entitled, without the
posting of an bond or other security, to injunctive relief to enforce the
restrictions contained herein. In the event that an actual proceeding is brought
in equity to enforce the provisions of this Section 4, the Officer shall not
urge as a defense that there is an adequate remedy at law nor shall the
Corporation be prevented from seeking any other remedies which may be available.
5. CONFIDENTIAL INFORMATION
------------------------
(a) The Officer agrees that during the course of his employment or at
any time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets,
litigation information and other confidential and proprietary business
information of the Corporation or any of its clients. The Officer agrees: (i)
not to use any such information for himself or others; and (ii) not to take any
such material or reproductions thereof from the Corporation's facilities at any
time during his employment by the Corporation, except as required in the
Officer's duties to the Corporation. The Officer agrees immediately to return
all such material and reproductions thereof in his possession to the Corporation
upon request and in any event
-3-
<PAGE>
upon termination of employment.
(b) Except with prior written authorization by the Corporation, the
Officer agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, its clients or any other
party to whom the Corporation owes an obligation of confidence, at any time
during or after his employment with the Corporation.
(c) The Officer hereby assigns to the Corporation all right, title
and interest he may have or may acquire in all inventions (including patent
rights) developed by the Officer during the term of this Agreement
("Inventions") and agrees that all Inventions shall be the sole property of the
Corporation and its assigns, and the Corporation and its assigns shall be the
sole owner of all patents, copyrights and other rights in connection therewith.
The Officer further agrees to assist the Corporation in every proper way (but at
the Corporation's expense) to obtain and from time to time enforce patents,
copyrights or other rights on said Inventions in any and all countries.
6. TERMINATION
-----------
(a) The term of this Agreement shall continue for the period set
forth in Section 2 hereof unless sooner terminated upon the first to occur of
the following events:
(i) The death of the Officer;
(ii) Termination for just cause. Any of the following actions by
the Officer shall constitute just cause:
(A) Material breach by the Officer of Section 4 or Section
5 of this Agreement;
(B) Material breach by the Officer of any provision of this
Agreement other than Section 4 or Section 5 or the
willful or reckless failure by the Officer to perform
his duties hereunder which breach or failure is not
cured by the Officer within fifteen (15) days of notice
thereof from the Corporation; or
(C) The commission by the Officer of any act of fraud or
theft against the Corporation or any of its
subsidiaries, or the conviction of the Officer of any
criminal act.
-4-
<PAGE>
(iii) Termination by the Officer for just cause. Any of the
following actions or omissions by the Corporation shall
constitute just cause:
(A) Material breach by the Corporation of any provision of
this Agreement which is not cured by the Corporation
within fifteen (15) days of notice thereof from the
Officer;
(B) Any action by the Corporation to intentionally harm
the Officer; or
(C) A Change in Control of the Corporation (as defined
below), unless the Officer is offered and, in his sole
discretion, accepts either (1) a comparable executive
position of the acquiror or of the division of the
acquiror which assumes the business of the corporation
after the Change in Control or (2) compensation
comparable to that provided to the Officer under this
Agreement.
(iv) Termination without just cause.
(v) Upon the election of the Officer made within thirty (30)
days after a Change in Control.
(b) Upon termination pursuant to subparagraph (ii) of paragraph (a)
above, the Officer (or his estate in the event of termination pursuant to
subparagraph (i), shall be entitled to receive the Base Salary accrued but
unpaid as of the date of termination.
(c) Upon termination pursuant to subparagraph (iii) of paragraph (a)
above, the Officer shall be entitled to receive the Base Salary plus average
bonuses paid to Officer since the Effective Date. At the discretion of the
Corporation, such Base Salary and bonus amount may be paid either in one lump
sum or in monthly installments. In addition, the Corporation shall provide
continuation of health benefits for twelve (12) months to the extent authorized
by and consistent with 29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"),
with the cost of the regular premium for such benefit shared in the same
relative proportion by the Corporation and the Officer as in effect on the date
of the termination. Notwithstanding the foregoing, nothing in this Section 6(c)
shall be construed to affect the Officer's right to receive COBRA continuation
entirely at the Officer's own cost to the extent that the Officer may continue
to be entitled to COBRA continuation after the Officer's right to cost sharing
under this Section 6(c) ceases.
(d) Upon termination pursuant to subparagraphs (iii), (iv) or (v) of
paragraph (a) above, or if the Corporation does not renew this Agreement, the
Corporation will pay to the Officer twelve (12) months of Base Salary plus an
amount equal to the average of the executive bonuses received by the Officer in
==
the immediately preceding three (3) year period. At the
-5-
<PAGE>
discretion of the Corporation, such base salary and bonus amount may be paid
either in one lump sum or in monthly installments. This payment, however, shall
be reduced by the salary and bonus compensation from other employment received
by the Officer during the twelve (12) months following termination of this
Agreement. In addition, the Corporation shall provide continuation of health
benefits for twelve (12) months to the extent authorized by and consistent with
29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"), with the cost of the
regular premium for such benefit shared in the same relative proportion by the
Corporation and the Officer as in effect on the date of the termination.
(e) For purposes of this Agreement, a "Change in Control of the
Corporation" shall be deemed to have occurred upon any one of the following
events:
(i) The date on which shares of Common Stock are first
purchased pursuant to a tender offer or exchange offer
(other than such an offer by the Corporation, any
Subsidiary, any employee benefit plan of the Corporation or
of any Subsidiary or any entity holding shares or other
securities of the Corporation for or pursuant to the terms
of such plan), whether or not such offer is approved or
opposed by the Corporation and regardless of the number of
shares purchased pursuant to such offer;
(ii) The date the Corporation acquires knowledge that any person
or group deemed a person under Section 13(d)-3 of the
Securities Exchange Act of 1934 ("Exchange Act") (other
than the Corporation, any Subsidiary, any employee benefit
plan of the Corporation or of any Subsidiary or any entity
holding shares of Common Stock or other securities of the
Corporation for or pursuant to the terms of any such plan
or any individual or entity or group or affiliate thereof
which acquired its beneficial ownership interest prior to
the date the Plan was adopted by the Board), in a
transaction or series of transactions, has become the
beneficial owner, directly or indirectly (with beneficial
ownership determined as provided in Rule 13d-3, or any
successor rule, under the Exchange Act), of securities of
the Corporation entitling the person or group to 30% or
more of all votes (without consideration of the rights of
any class or stock to elect directors by a separate class
vote) to which all stockholders of the Corporation would be
entitled in the election of the Board of Directors were an
election held on such date;
(iii) The date, during any period of two consecutive years, when
-6-
<PAGE>
individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof, unless the
election, or the nomination for election by the stockholders
of the Corporation, of each new director was approved by a
vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period;
and
(iv) the date of approval by the stockholders of the Corporation
of an agreement (a "reorganization agreement") providing
for:
(A) The merger or consolidation of the Corporation with
another corporation where the stockholders of the
Corporation, immediately prior to the merger or
consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or
consolidation entitling such stockholders to 65% or
more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate
class vote) to which all stockholders of such
corporation would be entitled in the election of
directors or where the members of the Board of
Directors of the Corporation, immediately prior to the
merger or consolidation, do not, immediately after the
merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or
securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially
all the assets of the Corporation.
(f) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that as a result of any payment or distribution
by the Corporation to or for the benefit of the Officer whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), the Officer would be subject to the excise tax imposed
by Section 49999 of the Internal Revenue Code (the "Code") or any interest or
penalties are incurred by the Officer with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), the Officer shall be entitled to
promptly receive an additional payment (a "Gross-Up Payment") in an amount such
that, after payment by the Officer of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes and Excise Tax
-7-
<PAGE>
imposed upon the Gross-Up Payment, the Officer is in the same after-tax position
as if no Excise Tax had been imposed upon the Officer with respect to the
Payments. Notwithstanding the foregoing provisions of this Section, if it shall
be determined that the Officer is entitled to a Gross-Up Payment, but that the
Officer, after taking into account the Payments and the Gross-Up Payment, would
not receive a net after-tax benefit of at least $50,000 (taking into account
both income taxes and Excise Tas) as compared to the net after-tax proceeds to
the Officer resulting from the elimination of the Gross-Up Payment and a
reduction of the Payments, in the aggregate, to an amount (the "Reduced Amount")
such that the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Officer and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(g) Cooperation: Pending Litigation
-
(A) Upon the request of the Company, in connection with any
suit, action, proceeding, arbitration or litigation
involving the Company (a "Litigation"), which Litigation is
directly or indirectly the result of an event, fact or
occurrence existing, in whole or in part, prior to the
Termination Date, Officer agrees to, at the expense of the
Company, in connection with any such Litigation:
(i) attend depositions, meetings, conferences or other
scheduled proceedings related to the Litigation with a
designated officer of the Company;
(ii) provide a written outline of any actions taken by
Officer on behalf of the Company, or any information
known to Officer; and
(iii) otherwise cooperate with the Company, counsel to the
Company and with other parties or entities whom the
Company shall reasonably request.
(B) Unless Officer and the Company agree otherwise, Officer
shall not be required to engage or participate in any of the
activities described in Section 6(g) of this Agreement for
more than three (3) consecutive business days at a time, or
more than six (6) business days per ninety (90) day period.
(h) It is understood and agreed that the payments by the Corporation
to the Officer set forth in paragraphs (b), (c) and (d) of this Section 6 shall
be all of the payments required to be paid by the Corporation to the Officer
upon termination of this Agreement. Specifically, the Corporation shall not be
obligated to make payments to the Officer with respect to the unexpired term of
this Agreement (ie. salary or bonus payments
-8-
<PAGE>
for all or a portion of such period).
7. NOTICES
-------
Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or there (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth above, or to such other address as such party shall give
by notice hereunder to the other party.
8. INDEMNIFICATION
---------------
The Company will enter into an indemnification agreement with Officer
substantially identical to that entered into with its other executive officers,
in the form attached as Exhibit A hereto.
9. SEVERABILITY OF PROVISIONS
--------------------------
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT: MODIFICATION
------------------------------
This Agreement contains the entire agreement of the parties relating
to the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
11. BINDING EFFECT
--------------
The rights, benefits, duties and obligations under this Agreement
shall inure to, and be binding upon, the Corporation, its successors and
assigns, and upon the Officer and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the Officer's
obligations hereunder may not be transferred or assigned by the Officer.
12. NON-WAIVER
----------
The failure of either party to insist upon the strict performance of
the terms,
-9-
<PAGE>
conditions and provisions of this Agreement shall not be construed as a waiver
or relinquishment of future compliance therewith, and said terms, conditions and
provisions shall remain in full force and effect. No waiver of any term or
condition of this Agreement on the part of either party shall be effective for
any purpose whatsoever unless such waiver is in writing and signed by such
party.
13. GOVERNING LAW
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts without regard to
principles of conflict of laws.
14. HEADINGS
--------
The headings of paragraphs are inserted for convenience and shall not
affect the interpretation of this Agreement on the day and year first above
written.
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Glenn L. Cooper
--------------------------------------
Glenn L. Cooper, M.D.
President and Chief Executive Officer
/s/ Mark S. Butler
--------------------------------------
MARK S. BUTLER
-10-
<PAGE>
EMPLOYMENT AGREEMENT
Agreement dated as of May 1, 1999 effective as of May 1, 1999 (the
"Effective Date"), by and between Interneuron Pharmaceuticals, Inc., a Delaware
corporation having a place of business at One Ledgemont Center, 99 Hayden
Avenue, Suite 200, Lexington, Massachusetts 02421 (the "Corporation"), and Glenn
L. Cooper, M.D., an individual residing at 4 Trail Side Circle, Sudbury,
Massachusetts, ("CEO").
WITNESSETH:
WHEREAS, the Corporation desires to continue to employ the CEO as
President , Chief Executive Officer and Director, and the CEO desires to be
employed by the Corporation as President, Chief Executive Officer and Director,
all pursuant to the terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT: DUTIES
------------------
(a) The Corporation engages and employs the CEO, and the CEO hereby
accepts engagement and employment, as Chief Executive Officer and President, to
direct, supervise and have responsibility for the daily operations of the
Corporation, including, but not limited to: (i) directing and supervising the
business and research and development efforts of the Corporation; (ii) managing
the other executives and personnel of the Corporation; (iii) evaluating,
negotiating, structuring and implementing business transactions with the
Corporation's licensees,, customers and suppliers; (iv) attending meetings of
the Board of Directors of the Corporation; and performing such other services
and duties as the Board of Directors of the Corporation shall determine.
(b) The CEO shall perform his duties hereunder from the Corporation's
executive offices in Massachusetts or such other locations as the CEO and
Corporation may agree, provided, however, that the CEO acknowledges and agrees
that the performance by the CEO of his duties hereunder may require significant
domestic and international travel by the CEO.
(c) The CEO shall devote his best efforts and entire working time and
attention to the proper discharge of his duties and responsibilities under this
Agreement.
2. TERM
----
The CEO's employment hereunder shall be for a term of three (3) years
commencing on May 1, 1999 and continuing through the third anniversary of such
date.
<PAGE>
3. COMPENSATION
------------
(a) As compensation for the performance of his duties under this
Agreement, the CEO shall be compensated as follows:
(i) The Corporation shall pay the CEO an annual base salary
("Base Salary") of Three Hundred FiftyThousand Dollars
($350,000), payable in accordance with the usual payroll
period of the Corporation, subject to an annual review;
(ii) The Corporation shall pay the CEO bonuses pursuant to the
Corporation's annual Senior Executive Bonus Plan as
approved by the Board of Directors or the Compensation
Committee of the Board of Directors;
(iii) The CEO shall be eligible to receive options to purchase
shares of the Corporation's common stock, $.001 par value
("Common Stock"), under the Corporation's 1994 Long-term
Incentive Plan, or such other option plans as may be in
effect at any time during the term of this Agreement, as
may be granted from time to time by the Compensation
Committee of the Board of Directors;
The Corporation shall withhold all applicable federal, state and
local taxes, social security and workers' compensation contributions and such
other amounts as may be required by law and any plans pursuant to which such
compensation is generated or as agreed upon by the parties with respect to the
compensation payable to the CEO pursuant to section 3(a) hereof.
(b) The Corporation shall reimburse the CEO for all normal, usual and
necessary expenses incurred by the CEO in furtherance of the business and
affairs of the Corporation, including reasonable travel and entertainment,
against receipt by the Corporation of appropriate vouchers or other proof of the
CEO's expenditures and otherwise in accordance with such Expense Reimbursement
Policy as may from time to time be adopted by the Board of Directors of the
Corporation.
(c) The CEO shall be, during the term of this Agreement, entitled to
vacations of not less than four (4) weeks per annum.
(d) The Corporation shall make available to the CEO and his
dependents, such medical, disability, life insurance and such
other health benefits as the Corporation makes available to its
senior officers and directors. The CEO's life insurance coverage
shall not be less than $1,000,000.
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<PAGE>
4. NON-COMPETITION
---------------
(a) The CEO understands and recognizes that his services to the
Corporation are special and unique and agrees that, during the term of this
Agreement and, unless such termination is by the CEO pursuant to 6(a)(iii) below
and provided the Corporation is not in material default to CEO on any of its
obligations under this Agreement, for a period of one (l) year from the date of
termination of his employment hereunder, he shall not in any manner, directly or
indirectly, on behalf of himself or any person, firm, partnership, joint
venture, corporation or other business entity ("Person"), enter into or engage
in any business engaged in the development or commercialization of products
directly competitive with products of the Corporation, including any subsidiary
of the Corporation (a "Subsidiary"), including products under development by the
Corporation or a Subsidiary within the geographic area of the Corporation's
business.
(b) During the term of this Agreement and for one (1) year
thereafter, CEO shall not, directly or indirectly, without the prior written
consent of the Corporation, solicit or induce any employee of the Corporation or
any affiliate to leave the employ of the Corporation or any affiliate or hire
for any purpose any employee of the Corporation or any affiliate or any employee
who has left the employment of the Corporation or any affiliate within six
months of the termination of said employee's employment with the Corporation.
(c) During the term of this Agreement and for one (1) year
thereafter, the CEO shall not, directly or indirectly, without the prior written
consent of the Corporation:
(i) solicit or accept employment or be retained by any
party who, at any time during the term of this
Agreement, was a customer or supplier of the
Corporation or any affiliate where his position will be
related to the business of the Corporation; or
(ii) solicit or accept the business of any customer or
supplier of the Corporation or any affiliate with
respect to products similar to those supplied by the
Corporation.
(d) In the event that the Officer breaches any provisions of
this Section 4 or there is a threatened breach, then, in addition to any other
rights which the Corporation may have, the Corporation shall be entitled,
without the posting of an bond or other security, to injunctive relief to
enforce the restrictions contained herein. In the event that an actual
proceeding is brought in equity to enforce the provisions of this Section 4, the
Officer shall not urge as a defense that there is an adequate remedy at law nor
shall the Corporation be prevented from seeking any other remedies which may be
available.
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<PAGE>
5. CONFIDENTIAL INFORMATION
------------------------
(a) The CEO agrees that during the course of his employment or at any
time after termination, he will not disclose or make accessible to any other
person, the Corporation's products, services and technology, both current and
under development, promotion and marketing programs, lists, trade secrets,
litigation information and other confidential and proprietary business
information of the Corporation, any Subsidiary or any of its clients. The CEO
agrees: (i) not to use any such information for himself or others; and (ii) not
to take any such material or reproductions thereof from the Corporation's
facilities at any time during his employment by the Corporation, except as
required in the CEO's duties to the Corporation. The CEO agrees immediately to
return all such material and reproductions thereof in his possession to the
Corporation upon request and in any event upon termination of employment.
(b) Except with prior written authorization by the Corporation, the
CEO agrees not to disclose or publish any of the confidential, technical or
business information or material of the Corporation, any Subsidiary, its clients
or any other party to whom the Corporation owes an obligation of confidence, at
any time during or after his employment with the Corporation.
(c) The CEO hereby assigns to the Corporation all right, title and
interest he may have or may acquire in all inventions (including patent rights)
developed by the CEO during the term of this Agreement ("Inventions") and agrees
that all Inventions shall be the sole property of the Corporation and its
assigns, and the Corporation and its assigns shall be the sole owner of all
patents, copyrights and other rights in connection therewith. The CEO further
agrees to assist the Corporation in every proper way (but at the Corporation's
expense) to obtain and from time to time enforce patents, copyrights or other
rights on said Inventions in any and all countries.
6. TERMINATION
-----------
(a) The term of this Agreement shall continue for the period set
forth in Section 2 hereof unless sooner terminated upon the first to occur of
the following events (the "Termination Date"):
(i) The death of the CEO;
(ii) Termination by the Board of Directors of the Corporation for
just cause. Any of the following actions by the CEO shall
constitute just cause:
(A) Material breach by the CEO of Section 4 or Section 5 of
this Agreement;
-4-
<PAGE>
(B) Material breach by the CEO of any provision of this
Agreement other than Section 4 or Section 5 or the
willful or reckless failure by the CEO to perform his
duties hereunder which breach or failure is not cured
by the CEO within fifteen (15) days of notice thereof
from the Corporation; or
(C) The commission by the CEO of any act of fraud or theft
against the Corporation or any Subsidiary, or the
conviction of the CEO of any criminal act.
(iii) Termination by the CEO for just cause. Any of the following
actions or omissions by the Corporation shall constitute
just cause:
(A) Material breach by the Corporation of any provision of
this Agreement which is not cured by the Corporation
within fifteen (15) days of notice thereof from the
CEO;
(B) Any action by the Corporation to intentionally harm the
CEO; or
(C) A Change in Control of the Corporation (as defined
below), unless CEO is offered and, in his sole
discretion, accepts (1) a comparable executive
position of the acquiror or of the division of the
acquiror which assumes the business of the corporation
after the Change in Control and (2) compensation
comparable to that provided to the CEO under this
Agreement.
(iv) Termination by the Board of Directors of the Corporation
without just cause.
(b) Upon termination pursuant to subparagraph (ii) of paragraph (a)
above, the CEO (or his estate in the event of termination pursuant to
subparagraph (i)), shall be entitled to receive the Base Salary and bonuses
accrued but unpaid as of the date of termination.
(c) Upon termination pursuant to subparagraph (iii)(C) or (iv) above,
the CEO shall be entitled to receive the Base Salary plus average bonuses
(three-year average) for a period equal to the longer of (a) the remainder of
the term of this Agreement or (b) twelve (12) months from the Termination Date.
At the discretion of the Corporation, such Base Salary may be paid either in one
lump sum or in monthly installments throughout the remaining term of this
Agreement. In addition, the Corporation shall provide continuation of health
benefits for a period equal to the longer of (a) the remainder of the term of
this Agreement, or (b) twelve (12)
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<PAGE>
months from the Termination Date to the extent authorized by and consistent with
29 U.S.C. (S) 1161 et seq. (Commonly known as "COBRA"), with the cost of the
regular premium for such benefit shared in the same relative proportion by the
Corporation and the CEO as in effect on the Termination Date. Notwithstanding
the foregoing, nothing in this Section 6(c) shall be construed to affect the
CEO's right to receive COBRA continuation entirely at the CEO's own cost to the
extent that the CEO may continue to be entitled to COBRA continuation after the
CEO's right to cost sharing under this Section 6(c) ceases.
(d) For purposes of this Agreement, a "Change in Control of the
Corporation" shall be deemed to have occurred upon any one of the following
events:
(i) The date on which shares of Common Stock are first
purchased pursuant to a tender offer or exchange offer
(other than such an offer by the Corporation, any
Subsidiary, any employee benefit plan of the Corporation or
of any Subsidiary or any entity holding shares or other
securities of the Corporation for or pursuant to the terms
of such plan), whether or not such offer is approved or
opposed by the Corporation and regardless of the number of
shares purchased pursuant to such offer;
(ii) The date the Corporation acquires knowledge that any person
or group deemed a person under Section 13(d)-3 of the
Securities Exchange Act of 1934 ("Exchange Act") (other
than the Corporation, any Subsidiary, any employee benefit
plan of the Corporation or of any Subsidiary or any entity
holding shares of Common Stock or other securities of the
Corporation for or pursuant to the terms of any such plan
or any individual or entity or group or affiliate thereof
which acquired its beneficial ownership interest prior to
the date of this Agreement), in a transaction or series of
transactions, has become the beneficial owner, directly or
indirectly (with beneficial ownership determined as
provided in Rule 13d-3, or any successor rule, under the
Exchange Act), of securities of the Corporation entitling
the person or group to 30% or more of all votes (without
consideration of the rights of any class or stock to elect
directors by a separate class vote) to which all
stockholders of the Corporation would be entitled in the
election of the Board of Directors were an election held on
such date;
(iii) The date, during any period of two consecutive years, when
individuals who at the beginning of such period constitute
the Board of Directors of the Corporation cease for any
reason to constitute at least a majority thereof, unless
the election, or the
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<PAGE>
nomination for election by the stockholders of the
Corporation, of each new director was approved by a vote of
at least two-thirds of the directors then still in office
who were directors at the beginning of such period; and
(iv) the date of approval by the stockholders of the Corporation
of an agreement (a "reorganization agreement") providing
for:
(A) The merger or consolidation of the Corporation with
another corporation where the stockholders of the
Corporation, immediately prior to the merger or
consolidation, do not beneficially own, immediately
after the merger or consolidation, shares of the
corporation issuing cash or securities in the merger or
consolidation entitling such stockholders to 65% or
more of all votes (without consideration of the rights
of any class of stock to elect directors by a separate
class vote) to which all stockholders of such
corporation would be entitled in the election of
directors or where the members of the Board of
Directors of the Corporation, immediately prior to the
merger or consolidation, do not, immediately after the
merger or consolidation, constitute a majority of the
Board of Directors of the corporation issuing cash or
securities in the merger or consolidation; or
(B) The sale or other disposition of all or substantially
all the assets of the Corporation.
(e) Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that as a result of any payment or distribution
by the Corporation to or for the benefit of the CEO whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (a "Payment"), the CEO would be subject to the excise tax imposed by
Section 49999 of the Internal Revenue Code (the "Code") or any interest or
penalties are incurred by the CEO with respect to such excise tax (such excise
tax, together with any such interest and penalties, are hereinafter collectively
referred to as the "Excise Tax"), the CEO shall be entitled to promptly receive
an additional payment (a "Gross-Up Payment") in an amount such that, after
payment by the CEO of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any income taxes and
Excise Tax imposed upon the Gross-Up Payment, the CEO is in the same after-tax
position as if no Excise Tax had been imposed upon the CEO with respect to the
Payments. Notwithstanding the foregoing provisions of this Section, if it shall
be determined that the CEO is entitled to a Gross-Up Payment, but that the CEO,
after taking into account the Payments and the Gross-Up Payment, would not
receive a net after-tax benefit of at least $50,000 (taking into account both
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<PAGE>
income taxes and Excise Tax) as compared to the net after-tax proceeds to the
CEO resulting from the elimination of the Gross-Up Payment and a reduction of
the Payments, in the aggregate, to an amount (the "Reduced Amount") such that
the receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the CEO and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(f) Cooperation: Pending Litigation
(i) Upon the request of the Corporation, in connection with any
suit, action, proceeding, arbitration or litigation
involving the Corporation (a "Litigation"), which Litigation
is directly or indirectly the result of an event, fact or
occurrence existing, in whole or in part, prior to the
Termination Date, CEO agrees to, at the expense of the
Corporation, in connection with any such Litigation:
(A) attend depositions, meetings, conferences or other
scheduled proceedings related to the Litigation with a
designated officer of the Corporation;
(B) provide a written outline of any actions taken by CEO
on behalf of the Corporation, or any information known
to CEO; and
(C) otherwise cooperate with the Corporation, counsel to
the Corporation and with other parties or entities whom
the Corporation shall reasonably request.
(ii) Unless CEO and the Corporation agree otherwise, CEO shall
not be required to engage or participate in any of the
activities described in Section 6(f) of this Agreement for
more than three (3) consecutive business days at a time, or
more than six (6) business days per ninety (90) day period.
7. NOTICES
-------
Any notice or other communication under this Agreement shall be in
writing and shall be deemed to have been given: when delivered personally
against receipt therefor; one (1) day after being sent by Federal Express or
similar overnight delivery; or three (3) days after being mailed registered or
certified mail, postage prepaid, return receipt requested, to either party at
the address set forth above, or to such other address as such party shall give
by notice hereunder to the other party.
8. INDEMNIFICATION
---------------
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<PAGE>
The Corporation will continue in effect an indemnification agreement
with the CEO in a form substantially identical to that previously entered into
between the Corporation and the CEO.
9. SEVERABILITY OF PROVISIONS
--------------------------
If any provision of this Agreement shall be declared by a court of
competent jurisdiction to be invalid, illegal or incapable of being enforced in
whole or in part, such provision shall be interpreted so as to remain
enforceable to the maximum extent permissible consistent with applicable law and
the remaining conditions and provisions or portions thereof shall nevertheless
remain in full force and effect and enforceable to the extent they are valid,
legal and enforceable, and no provision shall be deemed dependent upon any other
covenant or provision unless so expressed herein.
10. ENTIRE AGREEMENT: MODIFICATION
------------------------------
This Agreement contains the entire agreement of the parties relating
to the subject matter hereof, and the parties hereto have made no agreements,
representations or warranties relating to the subject matter of this Agreement
which are not set forth herein. No modification of this Agreement shall be valid
unless made in writing and signed by the parties hereto.
11. BINDING EFFECT
--------------
The rights, benefits, duties and obligations under this Agreement
shall inure to, and be binding upon, the Corporation, its successors and
assigns, and upon the CEO and his legal representatives. This Agreement
constitutes a personal service agreement, and the performance of the CEO's
obligations hereunder may not be transferred or assigned by the CEO.
12. NON-WAIVER
----------
The failure of either party to insist upon the strict performance of
the terms, conditions and provisions of this Agreement shall not be construed as
a waiver or relinquishment of future compliance therewith, and said terms,
conditions and provisions shall remain in full force and effect. No waiver of
any term or condition of this Agreement on the part of either party shall be
effective for any purpose whatsoever unless such waiver is in writing and signed
by such party.
13. GOVERNING LAW
-------------
This Agreement shall be governed by, and construed and interpreted in
accordance with, the laws of the Commonwealth of Massachusetts without regard to
principles of conflict of laws.
14. HEADINGS
--------
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<PAGE>
The headings of paragraphs are inserted for convenience and shall not
affect the interpretation of this Agreement on the day and year first above
written.
INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Lindsay A. Rosenwald
--------------------------------------
Lindsay A. Rosenwald, M.D.
Chairman
/s/ Glenn L. Cooper
--------------------------------------
GLENN L. COOPER, M.D.
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<PAGE>
AGREEMENT OF SUBLEASE
between
INTERNEURON PHARMACEUTICALS, INC., Sublandlord
and
GENTA, INC., Subtenant
Dated: March 31, 1999
PREMISES:
PORTIONS OF 200 LEVEL
LEDGEMONT DEVELOPMENT CENTER
128 SPRING STREET
LEXINGTON, MASSACHUSETTS
<PAGE>
SUBLEASE BETWEEN
INTERNEURON PHARMACEUTICALS, INC., SUBLANDLORD
AND
GENTA, INC., SUBTENANT
SUBLEASE made as of the 31/st/ day of March, 1999 by and between
INTERNEURON PHARMACEUTICALS, INC., a Delaware corporation, having an office at
99 Hayden Avenue, Lexington, Massachusetts 02173 (hereinafter called
"Sublandlord"), and GENTA, INC., a Delaware corporation, having an office at 99
Hayden Avenue, Lexington, Massachusetts 02173 (hereinafter called "Subtenant").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS:
A. By lease dated February 5, 1997, as amended by that certain Side
Agreement regarding indoor air quality dated January 31, 1997 and that certain
First Amendment to Lease dated February 12, 1997 (the "First Amendment") (which
lease, as the same has been and may hereafter be further amended, is hereinafter
referred to as the "Overlease"), Ledgemont Realty Trust u/d/t dated December 12,
1984 (hereinafter called "Overlandlord") leased to Sublandlord certain space
(hereinafter called the "Leased Space") in the building known as Ledgemont
Development Center located at 128 Spring Street, Lexington, Massachusetts
<PAGE>
(hereinafter called the "Building") in accordance with the terms of the
Overlease. A copy of the Overlease is annexed hereto as Exhibit A.
B. Sublandlord and Subtenant desire to consummate a subleasing of a
portion of the Leased Space on terms and conditions contained in this agreement
(hereinafter called the "Sublease").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter contained, it is hereby agreed as follows:
l.
1.1. Sublandlord hereby leases to Subtenant and Subtenant hereby
hires from Sublandlord the portion of the 200 level of the East Wing of the
Building (comprising a portion of the Leased Space) shown hatched on Exhibit B
annexed hereto and made a part hereof (hereinafter referred to as the
"Premises"), for a term (the "Sublease Term") to commence on the date that
Sublandlord delivers possession of the Premises to Subtenant (hereinafter called
the "Sublease Commencement Date"), and to end on March 31, 2001 (hereinafter
called the "Sublease Expiration Date"), or until such term shall sooner cease
and terminate as herein provided.
1.2. The annual fixed rent (hereinafter called "Fixed Rent") payable
by Subtenant hereunder during the Sublease Term shall be paid to Sublandlord at
the rate of FORTY-THREE THOUSAND FOUR HUNDRED FIFTY FOUR AND 26/100 ($43,454.26)
DOLLARS per annum during the period commencing on the Sublease Commencement Date
and ending on the Sublease Expiration Date. The Fixed Rent is to be paid by
Subtenant to Sublandlord at Sublandlord's office (or such other location as
Sublandlord shall designate) by
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<PAGE>
check drawn on a Massachusetts bank in equal monthly installments in advance, on
the first day of each month during the Sublease Term without any set-off, off-
set, abatement or reduction whatsoever. The security deposit payable with
respect to Article 19 hereof shall be paid upon the execution of this Sublease
by Subtenant.
1.3. Simultaneous with the execution of this Sublease, Subtenant is
paying to Sublandlord the sum of $6,174.77 which shall be applied by Sublandlord
to the first (1st) monthly installment of Fixed Rent due hereunder.
1.4. Sublandlord and Subtenant agree to the following with respect to
Subtenant's use of services within and access to the Premises:
(a) Subtenant may use: (i) the kitchen/lounge, (ii) the exercise
facilities, provided and on condition that each of Subtenant's employees
utilizing such exercise facilities furnishes Sublandlord with a written waiver
of liability, satisfactory to Sublandlord, and (iii) either of the front
training rooms (A or B), provided that Subtenant's employees shall not be
entitled to use both front training rooms at the same time and provided further
that any such use shall be subject to unavailability, including, without
limitation, unavailability resulting from Sublandlord's employees' priority
status with respect to access to and use of the same.
(b) Subtenant may utilize the administrative services of Richard
Hector or any employee hereafter substituted by Sublandlord for Richard Hector,
to the extent available and provided that all use of such administrative
services shall first be approved by Sublandlord's office manager. Subtenant
shall be billed from time to time for all such administrative services in excess
of one hour per month at the hourly rate of $40.00, which Subtenant shall pay as
additional rent within ten (10) days after being billed therefor.
3
<PAGE>
2.
2.1. Subtenant shall not (a) assign this Sublease, nor (b) permit
this Sublease to be assigned by operation of law or otherwise, nor (c) underlet
all or any part of the Premises, nor (d) permit the Premises or any desk space
therein to be occupied by any person(s) other than Subtenant, nor (e) pledge or
encumber this Sublease, the term and estate hereby granted or the rentals
hereunder.
3.
3.1. Except as herein otherwise expressly provided and except for the
obligation to pay rent and additional rent under the Overlease, all of the
terms, covenants, conditions and provisions in the Overlease are hereby
incorporated in, and made a part of this Sublease, and such rights and
obligations as are contained in the Overlease are hereby imposed upon the
respective parties hereto; the Sublandlord herein being substituted for the
Landlord in the Overlease, and the Subtenant herein being substituted for the
Tenant named in the Overlease; provided, however, that the Sublandlord herein
shall not be liable for any defaults by Overlandlord. If the Overlease shall be
terminated for any reason during the term hereof, then and in that event this
Sublease shall thereupon automatically terminate and Sublandlord shall have no
liability to Subtenant by reason thereof. Upon the termination of this
Sublease, whether by forfeiture, lapse of time or otherwise, or upon the
termination of Subtenant's right to possession, Subtenant will at once surrender
and deliver up the Premises in good condition and repair, reasonable wear and
tear excepted. Notwithstanding any language to the contrary contained in this
Sublease, Subtenant agrees that Sublandlord may at any time after the date
hereof surrender the Overlease and the premises demised thereunder to
Overlandlord, provided
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<PAGE>
Overlandlord shall deliver a written agreement to Subtenant providing that
notwithstanding such surrender Overlandlord shall not disturb Subtenant's
occupancy of the Premises so long as Subtenant is not in default hereunder if
Subtenant shall at Overlandlord's election either (i) attorn to Overlandlord as
if Overlandlord were the sublandlord hereunder or (ii) enter into a lease with
Overlandlord for the remaining term of the Sublease on the same terms and
conditions contained herein.
3.2. For purposes of this Sublease, the second paragraph of Section
2.1, Sections 2.3, 2.5, 2.6, 2.7, 2.8, 3.1, 4.1.1, 4.1.2, the second sentence of
Section 5.1.9, Sections 5.1.11, 5.2.3, 8.1, 9.1, Appendix A, Appendix E, and
Paragraphs 1 and 2 of the First Amendment, and all references in the Overlease
to the aforesaid Articles, Sections or Appendices of the Overlease between
Overlandlord and Sublandlord shall not be incorporated in or made a part hereof.
In addition, for the purposes of this Sublease, Article 1 of the Overlease is
incorporated only to the extent the definitions contained therein are consistent
with the terms hereof (i.e., references to Premises, Landlord, Tenant, Initial
Term, Commencement Date, Rent Commencement Date, Ending Date, Annual Fixed Rent-
Initial Term, Extension Term, Annual Fixed Rent-Extension Term, Tenant
Improvement Allowance, Parking Spaces, Tenant's Operating Percentage Share,
Tenant's Tax Percentage Share and Broker are not applicable to this Sublease),
and Sections 4.3.1, 4.3.2, 4.4.1, and 4.4.2 of the Overlease are incorporated
herein only for the purposes of Article 11 of this Sublease.
4.
4.1. Subtenant has examined the Premises, is aware of the physical
condition thereof, and agrees to take the same "as is," with the understanding
that there shall be no
5
<PAGE>
obligation on the part of Sublandlord to perform any work, supply any materials
or incur any expense whatsoever in connection with the preparation of the
Premises for Subtenant's occupancy thereof.
4.2. Subtenant shall pay to Sublandlord upon demand therefor as
additional rent all costs incurred by Sublandlord in making the Premises
available to the Subtenant, including, but not limited to costs to move
Sublandlord's furniture, fixtures, computer and communications connections from
the Premises and relocate and reinstall the same elsewhere. Upon termination of
the Sublease, Subtenant shall pay to Sublandlord upon demand therefor all costs
incurred by Sublandlord to restore the Premises to the condition as the same
were prior to Subtenant's occupation thereof pursuant to this Sublease and all
costs incurred by Sublandlord to move its furniture, fixtures, computer and
communications connections back to and reinstall the same in the Premises to the
extent they existed prior to this Sublease.
5.
5.1. Subtenant agrees that the Premises shall be occupied only as
executive, administrative and general offices for Subtenant's business.
6.
6.1. This Sublease is conditioned upon the consent by Overlandlord to
this Sublease which consent shall be evidenced by Overlandlord's signature
appended hereto or a separate consent in the form utilized by Overlandlord for
such purposes.
6.2. Subtenant stipulates that it is familiar with the provisions of
Section 5.1.11 of the Overlease. In the event that Overlandlord shall exercise
any of its options pursuant to Section 5.1.11 of the Overlease with respect to
the Premises upon Sublandlord's request for
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<PAGE>
Overlandlord's consent to this Sublease, Sublandlord will so notify Subtenant
and, upon receipt of such notification by Sublandlord, this Sublease shall be
deemed to be null and void and without force or effect, and Sublandlord and
Subtenant shall have no further obligations or liabilities to the other with
respect to this Sublease.
6.3. In the event Overlandlord shall not exercise any of its options
pursuant to Section 5.1.11 of the Overlease with respect to the Premises,
Sublandlord makes no representation with respect to obtaining Overlandlord's
approval of this Sublease and, in the event that Overlandlord notifies
Sublandlord that Overlandlord will not give such approval, Sublandlord will so
notify Subtenant and, upon receipt of such notification by Sublandlord of the
disapproval by Overlandlord, this Sublease shall be deemed to be null and void
and without force or effect, and Sublandlord and Subtenant shall have no further
obligations or liabilities to the other with respect to this Sublease.
6.4. Except as otherwise specifically provided herein, wherever in
this Sublease Subtenant is required to obtain Sublandlord's consent or approval,
Subtenant understands that Sublandlord may be required to first obtain the
consent or approval of Overlandlord. If Overlandlord should refuse such consent
or approval, Sublandlord shall be released of any obligation to grant its
consent or approval whether or not Overlandlord's refusal, in Subtenant's
opinion, is arbitrary or unreasonable. Subtenant agrees that Sublandlord shall
not be required to dispute any determinations or other assertions or claims of
Overlandlord regarding the obligations of Sublandlord under the Overlease for
which Subtenant is or may be responsible under the terms of this Sublease.
7.
7
<PAGE>
7.1. Subtenant acknowledges that all services, repairs, restorations,
equipment and access to and for the Premises and any insurance coverage of the
Building will in fact be provided by Overlandlord, and Sublandlord shall have no
obligation during the term of this Sublease to provide any such services,
repairs, restorations, equipment, access or insurance. Subtenant agrees to look
solely to Overlandlord for the furnishing of such services, repairs,
restorations, equipment, access and insurance. Sublandlord shall in no event be
liable to Subtenant nor shall the obligations of Subtenant hereunder be impaired
or the performance thereof excused because of any failure or delay on
Overlandlord's part in furnishing such services, repairs, restorations,
equipment, access or insurance. If Overlandlord shall default in any of its
obligations to Sublandlord with respect to the Premises, Subtenant shall be
entitled to participate with Sublandlord in the enforcement of Sublandlord's
rights against Overlandlord, but Sublandlord shall have no obligation to bring
any action or proceeding or to take any steps to enforce Sublandlord's rights
against Overlandlord. If, after written request from Subtenant, Sublandlord
shall fail or refuse to take appropriate action for the enforcement of
Sublandlord's rights against Overlandlord with respect to the Premises within a
reasonable period of time considering the nature of Overlandlord's default,
Subtenant shall have the right to take such action in its own name, and for that
purpose and only to such extent, all of the rights of Sublandlord under the
Overlease hereby are conferred upon and assigned to Subtenant and Subtenant
hereby is subrogated to such rights to the extent that the same shall apply to
the Premises. If any such action against Overlandlord in Subtenant's name shall
be barred by reason of lack of privity, nonassignability or otherwise, Subtenant
may take such action in Sublandlord's
8
<PAGE>
name provided Subtenant has obtained the prior written consent of Sublandlord,
which consent shall not be unreasonably withheld or delayed, provided, and
Subtenant hereby agrees, that Subtenant shall indemnify and hold Sublandlord
harmless from and against all liability, loss, damage or expense, including,
without limitation, reasonable attorney's fees, which Sublandlord shall suffer
or incur by reason of such action.
7.2. Anything contained in any provisions of this Sublease to the
contrary notwithstanding, Subtenant agrees, with respect to the Premises, to
comply with and remedy any default claimed by Overlandlord and caused by
Subtenant, within the period allowed to Sublandlord as tenant under the
Overlease, even if such time period is shorter than the period otherwise allowed
in the Overlease, due to the fact that notice of default from Sublandlord to
Subtenant is given after the corresponding notice of default from Overlandlord.
Sublandlord agrees to forward to Subtenant, upon receipt thereof by Sublandlord,
a copy of each notice of default received by Sublandlord in its capacity as
tenant under the Overlease. Subtenant agrees to forward to Sublandlord, upon
receipt thereof, copies of any notices received by Subtenant with respect to the
Premises from Overlandlord or from any governmental authorities.
8.
8.1. Sublandlord represents (a) that it is the holder of the interest
of the tenant under the Overlease and (b) that the Overlease is in full force
and effect.
9.
9.1. This Sublease is subject to, and Subtenant accepts this Sublease
subject to, any amendments and supplements to the Overlease hereafter made
between Overlandlord and Sublandlord, provided that any such amendment or
supplement to the Overlease will not prevent
9
<PAGE>
or adversely affect the use by Subtenant of the Premises in accordance with the
terms of this Sublease, increase the obligations of Subtenant or decrease its
rights under the Sublease or in any other way materially adversely affect
Subtenant.
9.2. This Sublease is subject and subordinate to the Overlease and to
all ground or underlying leases and to all mortgages which may now or hereafter
affect such leases or the real property of which the Premises are a part and all
renewals, modifications, replacements and extensions of any of the foregoing.
This Section 9.2 shall be self-operative and no further instrument of
subordination shall be required. To confirm such subordination, Subtenant shall
execute promptly any certificate that Sublandlord may request.
10.
10.1. Subtenant covenants, represents and warrants that Subtenant has
had no dealings or communications with any broker or agent in connection with
the consummation of this Sublease, and Subtenant covenants and agrees to pay,
hold harmless and indemnify Sublandlord from and against any and all cost,
expense (including reasonable attorneys' fees) or liability for any
compensation, commissions or charges claimed by any broker or agent with respect
to this Sublease or the negotiation thereof.
11.
11.1. Subtenant stipulates that it is familiar with the provisions of
Sections 4.3.1. and 4.3.2. of the Overlease. In the event of any payment of
additional rent by Sublandlord to Overlandlord during the term of this Sublease
which is attributable to the provisions of Sections 4.3.1. and 4.3.2. of the
Overlease (such additional rent payable by Sublandlord pursuant to Sections
4.3.1. and 4.3.2. of the Overlease being hereinafter called "Section 4.3 Rent"),
then
10
<PAGE>
Subtenant shall pay as additional rent pursuant to this Sublease an amount equal
to 1.248% of the Section 4.3 Rent. For purposes of this Section 11.1 of this
Sublease, the Premises shall be deemed to contain approximately 2,276 rentable
square feet and the Leased Space shall be deemed to contain 182,317 square feet.
At such time as the Section 4.3 Rent payable by Sublandlord is adjusted by
reason of any change in the rentable area of the Leased Space, the percentage
thereof payable by Subtenant to Sublandlord shall be similarly adjusted. At any
time after payment by Sublandlord to Overlandlord of any Section 4.3 Rent,
Sublandlord may deliver to Subtenant a statement with respect to the payment of
the Section 4.3 Rent and, within ten (10) days after delivery of such statement,
Subtenant shall pay to Sublandlord additional rent determined as aforesaid in
this Section 11.1. Additional rent payable pursuant to this Section 11.1 shall
be based solely upon actual payments made by Sublandlord pursuant to the
provisions of Sections 4.3.1. and 4.3.2. of the Overlease. Subtenant shall not
have the right to question the propriety of or the basis for any such payment
and Sublandlord shall be under no obligation to contest any such payment.
Sublandlord shall, however, at the written request of Subtenant, furnish to
Subtenant evidence of such payment.
11.2. Subtenant stipulates that it is familiar with the provisions of
Sections 4.4.1. and 4.4.2. of the Overlease. In the event of any payment of
additional rent by Sublandlord to Overlandlord during the term of this Sublease
which is attributable to the provisions of Sections 4.4.1. and 4.4.2. of the
Overlease (such additional rent payable by Sublandlord pursuant to Sections
4.4.1. and 4.4.2. of the Overlease being hereinafter called "Section 4.4 Rent"),
then Subtenant shall pay as additional rent pursuant to this Sublease an amount
equal to 4.473% of the Section 4.4 Rent. For purposes of this Section 11.2 of
this Sublease, the Premises shall be
11
<PAGE>
deemed to contain approximately 2,276 rentable square feet and the Leased Space
shall be deemed to contain 50,883 square feet. At such time as the Section 4.4
Rent payable by Sublandlord is adjusted by reason of any change in the rentable
area of the Leased Space, the percentage thereof payable by Subtenant to
Sublandlord shall be similarly adjusted. At any time after payment by
Sublandlord to Overlandlord of any Section 4.4 Rent, Sublandlord may deliver to
Subtenant a statement with respect to the payment of the Section 4.4 Rent and,
within ten (10) days after delivery of such statement, Subtenant shall pay to
Sublandlord additional rent determined as aforesaid in this Section 11.2.
Additional rent payable pursuant to this Section 11.2 shall be based solely upon
actual payments made by Sublandlord pursuant to the provisions of Sections
4.4.1. and 4.4.2. of the Overlease. Subtenant shall not have the right to
question the propriety of or the basis for any such payment and Sublandlord
shall be under no obligation to contest any such payment. Sublandlord shall,
however, at the written request of Subtenant, furnish to Subtenant evidence of
such payment.
11.3. Subtenant shall also pay to Sublandlord any "Tenant Surcharges"
(as that term is hereinafter defined). "Tenant Surcharges" shall mean any and
all amounts other than Fixed Rent, Section 4.3 Rent and Section 4.4 Rent which,
by the terms of the Overlease, become due and payable by Sublandlord to
Overlandlord as additional rent or otherwise and which would not have become due
and payable but for the acts, requests for services, and/or failures to act of
Subtenant, its agents, officers, representatives, employees, servants,
contractors, invitees, licensees or visitors under this Sublease, including, but
not limited to: (i) any increases in Overlandlord's fire, rent or other
insurance premiums, as provided in Article 6 of the Overlease, resulting from
any act or omission of Subtenant, (ii) any additional charges to Sublandlord on
12
<PAGE>
account of Subtenant's use of heating, ventilation or air conditioning after
hours, (iii) any charges which may be imposed on Sublandlord pursuant to the
Overlease, to the extent that such charges are attributable to the Premises or
the use thereof or services or utilities provided thereto, and (iv) any
additional charges to Subtenant on account of Subtenant's use of cleaning and
elevator services after hours or in excess of normal usage. Within a reasonable
time after receipt by Sublandlord of any statement or written demand from
Overlandlord, including any Tenant Surcharges, Sublandlord will furnish
Subtenant with a copy of such statement or demand, together with Sublandlord's
statement of the amount of any such Tenant Surcharges, and Subtenant shall pay
to Sublandlord the amount of such Tenant Surcharges within five (5) days after
Subtenant's receipt of such statement or demand; provided, however, that in any
instance in which Subtenant shall receive any such statement or demand directly
from Overlandlord, Subtenant may pay the amount of the same directly to
Overlandlord. Payments shall be made pursuant to this Section 11.3
notwithstanding the fact that the statement to be provided by Sublandlord is
furnished to Subtenant after the expiration of the term of this Sublease and
notwithstanding the fact that by its terms this Sublease shall have expired or
have been cancelled or terminated.
12.
12.1. Any notice, demand or communication which, under the terms of
this Sublease or under any statute or municipal regulation must or may be given
or made by the parties hereto, shall be in writing and given or made by mailing
the same by registered or certified mail, return receipt requested, addressed to
the party for whom intended at its address as aforesaid, except that, after the
Sublease Commencement Date, Subtenant's address shall be
13
<PAGE>
deemed to be the Building unless Subtenant shall give notice to the contrary.
Either party, however, may designate such new or other address to which such
notices, demands or communications thereafter shall be given, made or mailed by
notice given in the manner prescribed herein. Any such notice, demand or
communication shall be deemed given or served, as the case may be, on the date
of the posting thereof.
13.
13.1. Subtenant shall pay to Sublandlord 4.473% of the charges
payable under Section 5.2.2 of the Overlease for electricity.
13.2. Subtenant's use of electric current in the Premises shall not
at any time exceed the capacity of any of the electrical conductors and
equipment in or otherwise serving the Premises.
13.3. Sublandlord shall not be liable in any way to Subtenant for any
failure or defect in the supply or character of electric energy furnished to the
Premises by reason of any requirement, act or omission of the public utility
serving the Building with electricity or for any other reason not attributable
to Sublandlord.
14.
14.1. Subtenant may make no changes, alterations, additions,
improvements or decorations in, to or about the Premises without Overlandlord's
and Sublandlord's prior written consent.
15.
15.1. Subtenant agrees to look solely to Sublandlord's estate and
interest in this Sublease, and the Premises, for the satisfaction of any right
or remedy of Subtenant for the
14
<PAGE>
collection of a judgment (or other judicial process) requiring the payment of
money by Sublandlord, in the event of any liability by Sublandlord, and no other
property or assets of Sublandlord shall be subject to levy, execution,
attachment, or other enforcement procedure for the satisfaction of Subtenant's
remedies under or with respect to this Sublease, the relationship of Sublandlord
and Subtenant hereunder, or Subtenant's use and occupancy of the Premises, or
any other liability of Sublandlord to Subtenant.
16.
16.1. So long as Subtenant pays all of the Fixed Rent and additional
rent due under this Sublease and performs all of Subtenant's other obligations
hereunder, Sublandlord shall not disturb or terminate Subtenant's leasehold
estate hereunder, subject, however, to the terms, provisions and obligations of
this Sublease and the Overlease.
17.
17.1. This Sublease may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
17.2. This Sublease shall not be binding upon Sublandlord unless and
until it is signed by Sublandlord and delivered to Subtenant. This Section 17.2
shall not be deemed to modify the provisions of Article 6 hereof.
17.3. This Sublease constitutes the entire agreement between the
parties and all representations and understandings have been merged herein.
17.4. This Sublease shall inure to the benefit of all of the parties
hereto, their successors and (subject to the provisions hereof) their assigns.
15
<PAGE>
17.5. The term "Sublandlord" as used in this Sublease shall mean only
the Sublandlord named herein, so that in the event of any assignment of the
Sublease, the Sublandlord named herein shall be and hereby is entirely freed and
relieved of all future covenants, obligations and liabilities of Sublandlord
hereunder, and it shall be deemed and construed without further agreement
between the parties or their successors in interest that the assignee of the
Sublease has assumed and agreed to carry out any and all such covenants,
obligations and liabilities of Sublandlord hereunder.
18.
18.1. Subject to the Sublease Expiration Date set forth in Section
1.1 hereof, either Sublandlord or Subtenant may elect, at its option, to
terminate this Sublease and the term and estate hereby granted, by written
notice of such termination (hereinafter called the "Sublease Termination
Notice") to the other party, which Sublease Termination Notice shall contain a
surrender date (such date being hereinafter called the "Sublease Surrender
Date"), which Sublease Surrender Date shall be the last day of the month
designated in the Sublease Termination Notice which shall be not less than six
(6) months following the date on which such Sublease Termination Notice is
given.
18.2. In the event of the giving of such Sublease Termination Notice
by either Sublandlord or Subtenant, this Sublease and the term and estate hereby
granted (unless the same shall have expired sooner pursuant to any of the
conditions of limitation or other provisions of this Sublease or pursuant to
law) shall terminate on the Sublease Surrender Date with the same effect as if
such date were the date hereinbefore specified for the expiration of the term of
this
16
<PAGE>
Sublease, and the Fixed Rent and other charges payable hereunder shall be
apportioned as of the Sublease Surrender Date.
19.
19.1. Subtenant has deposited with Sublandlord on the date hereof an
amount equal to $6,174.77 as security for the faithful performance and
observance by Subtenant of the terms, provisions, covenants and conditions of
this Sublease. It is agreed that in the event Subtenant defaults in respect to
any of the terms, provisions, covenants and conditions of this Sublease,
including, but not limited to, the payment of Fixed Rent and additional rent,
Sublandlord may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any Fixed Rent and
additional rent or any other sum as to which Subtenant is in default or for any
sum which Sublandlord may expend or may be required to expend by reason of
Subtenant's default in respect of any of the terms, provisions, covenants and
conditions of this Sublease, including, but not limited to, any damages or
deficiency accrued before or after summary proceedings or other re-entry by
Sublandlord. In the event that Subtenant shall fully and faithfully comply with
all of the terms, provisions, covenants and conditions of this Sublease, the
security shall be returned to Subtenant after the date fixed as the end of the
Sublease and after delivery of entire possession of the Premises to Sublandlord.
In the event of an assignment of the Sublease, Sublandlord shall have the right
to transfer the security to the assignee and Sublandlord shall ipso facto be
released by Subtenant from all liability for the return of such security; and
Subtenant agrees to look solely to the new sublandlord for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new sublandlord. Subtenant
further covenants that it will
17
<PAGE>
not assign or encumber or attempt to assign or encumber the monies deposited
herein as security and that neither Sublandlord nor its successors or assigns
shall be bound by any such assignment, encumbrance, attempted assignment or
attempted encumbrance. In the event Sublandlord applies or retains any portion
or all of the security deposited, Subtenant shall restore the amount so applied
or retained within 3 days after the application thereof so that at all times the
amount deposited hereunder shall be equal to the amount set forth above.
19.2. Sublandlord shall deposit the security in an interest-bearing
account at Fleet Bank, and the interest earned thereon, less an administrative
fee of one (1%) percent per annum of principal, shall be credited to Subtenant
annually.
20.
20.1. Sublandlord represents that to the best of its knowledge there
are no Hazardous Materials (as hereinafter defined) within the Premises.
Sublandlord agrees to indemnify and hold Subtenant harmless from any expense
paid or incurred in connection with the investigation, removal, containment,
replacement, enclosure, encapsulation, abatement, remediation or other treatment
or repairs or cleaning of areas (herein collectively called "remediation") in
connection with the presence of Hazardous Materials in the Premises to the
extent that such remediation is made necessary by Sublandlord's use or manner of
use of the Premises and required under Legal Requirements existing as of the
date hereof. For purposes hereof, the term "Hazardous Materials" shall mean any
flammable explosives, radioactive materials, hazardous wastes, hazardous and
toxic substances, or related materials, asbestos or any material containing
asbestos, or any other substance or material, as defined by any federal, state
or local environmental law, ordinance, rule or regulation, including, without
limitation, the
18
<PAGE>
Comprehensive Environmental Response Compensation and Liability Act of 1980, as
amended, the Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, and in the regulations adopted and
publications promulgated pursuant to each of the foregoing. Hazardous Materials
shall not include normal cleaning and/or normal office substances or materials.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day and year first above written.
INTERNEURON PHARMACEUTICALS, INC.,
SUBLANDLORD
BY: /s/ G. L. Cooper
----------------------------------
NAME: G. L. Cooper
TITLE: President and CEO
GENTA, INC., SUBTENANT
BY: /s/ G. M. Schimmoeller
----------------------------------
NAME: G. M. Schimmoeller
TITLE: Vice President and
Chief Financial Officer
19
<PAGE>
STATE OF MASSACHUSETTS )
: ss.:
COUNTY OF MIDDLESEX )
On the 9th day of April, 1999, before me personally came G. M.
Schimmoeller, to me known, who, being by me duly sworn, did depose and say that
he resides in No. Andover, MA; that he is the VP amd CFO of GENTA, INC., the
corporation described in and which executed the above instrument; and that he
signed his name thereto by order of the board of directors of said corporation.
/s/ Carolyn A. Grasso
------------------------------------
Notary Public
20
<PAGE>
CONSENT TO SUBLEASE
THIS CONSENT TO SUBLEASE (this "Consent") is dated as of March 31, 1999, is
made with reference to that certain sublease (the "Sublease") dated March 31,
1999, by and between Interneuron Pharmaceuticals, Inc. with an address at 99
Hayden Avenue, Lexington, Massachusetts 02173 ("Tenant") and Genta, Inc., with
an address at 99 Hayden Avenue, Lexington, Massachusetts 02173 ("Sublessee"),
and is entered into by and among Ledgemont Realty Trust, with an address at 177
Milk Street, Boston, Massachusetts 02109 ("Landlord"), Tenant and Sublessee,
with reference to the following facts:
(A) Landlord and Tenant are the parties to that certain Lease dated as of
February 5, 1997, as amended ("Master Lease");
(B) Tenant and Sublessee wish to enter into the Sublease;
(C) The Master Lease provides, inter alia, that Tenant may not enter into
any sublease without Landlord's prior written approval;
(D) Tenant and Sublessee have herewith presented the fully-executed
Sublease (a true copy of which is attached hereto) to Landlord for Landlord's
approval, upon all of the terms and conditions hereinafter appearing.
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
Landlord hereby consents to the Sublease upon the terms and conditions set
forth in the General Conditions of Consent to Sublease attached hereto and made
an integral part hereof.
EXECUTED under seal as of the date first written above.
LANDLORD: TENANT:
LEDGEMONT REALTY TRUST INTERNEURON PHARMACEUTICALS, INC.
By: /s/ Robert L. Beal By:/s/ G. L. Cooper
--------------------- ----------------
Trustee Duly Authorized
SUBLESSEE:
GENTA, INC.
By: /s/ G. M. Schimmoeller
-----------------------
Duly Authorized
-33-
<PAGE>
GENERAL CONDITIONS OF CONSENT TO SUBLEASE
The following terms and conditions are an integral part of the foregoing
Consent to Sublease.
1. Neither the Master Lease, the Sublease nor this Consent shall be
deemed, nor are they intended, to grant to Sublessee any rights whatsoever
against Landlord. Sublessee hereby acknowledges and agrees that its sole remedy
for any alleged or actual breach of its rights in connection with the Sublease
shall be solely against Tenant. Sublessee acknowledges and agrees that it is not
a third party beneficiary under the Master Lease, and is not entitled to assert
any of Tenant's rights thereunder against Landlord, whether in its own right or
on behalf of Tenant.
2. This Consent shall not release Tenant from any existing or future
duty, obligation or liability to Landlord pursuant to the Master Lease, nor
shall this Consent change, modify or amend the Master Lease in any manner,
except insofar as it constitutes Landlord's consent to the sublease.
Notwithstanding the generality of the foregoing, (i) this Consent expressly
shall not absolve Tenant from the requirement set forth in the Master Lease that
Tenant obtain Landlords' prior written approval of any additional subleases,
assignments or other dispositions of its interest in the Master Lease or the
Premises (as defined in the Master Lease) and (ii) this Consent shall not
constitute Landlord's consent to any alteration of the premises leased under the
Master Lease.
3. In the event Tenant is in default under any of the terms and
provisions of the Master Lease, Landlord may elect to receive directly from
Sublessee all sums due or payable to Tenant by Sublessee pursuant to the
Sublease, and upon receipt of Landlord's notice, Sublessee shall thereafter pay
to Landlord any and all sums becoming due or payable under the Sublease and
Tenant shall receive from Landlord a corresponding credit for such sums actually
received by written notice nor the receipt of such direct payments shall cause
Landlord to assume any of Tenant's duties, obligations and/or liabilities under
the Sublease, nor shall such event impose upon Landlord the duty or obligation
to honor the Sublease, nor subsequently to accept any purported attornment by
Sublessee.
4. Sublessee hereby acknowledges that it has read and has knowledge of
all of the terms, provisions, rules and regulations of the Master Lease and
agrees not to do or omit to do anything which would cause Tenant to be in breach
of the Master Lease. Any such act or omission shall also constitute a breach of
the Master Lease and this Consent and shall entitle Landlord to recover any
damage, loss, cost, or expense which it thereby suffers, from Tenant and/or
Sublessee.
5. In the event of any litigation between the parties hereto with respect
to the subject matter hereof, the unsuccessful party agrees to pay to the
successful party all reasonable costs, expenses and attorneys' fees incurred
therein by the successful party, which may be included as a part of a judgment
rendered therein.
6. The parties acknowledge that the Sublease constitutes the entire
agreement between Tenant and Sublessee with respect to the subject matter
thereof insofar as Landlord may be concerned, and that no amendment,
termination, modification or change therein will be binding upon Landlord unless
Landlord shall have given its prior written consent thereto.
-34-
<PAGE>
7. This Consent shall be binding upon and shall inure to the benefit of
the parties' respective successors in interest and assigns, subject at all
times, nevertheless, to all agreements and restrictions contained in the Master
Lease, the Sublease, and herein, with respect to subleasing, assignment, or
other transfer. The agreements contacted herein constitute the entire
understanding between the parties with respect to the subject matter hereof, and
supersede all prior agreements, written or oral, inconsistent herewith. Tenant
and Sublessee warrant and agree that neither Landlord nor any of its agents or
other representatives have made any representations concerning the Premises,
their condition, the Sublease or the Master Lease.
8. Notice required or desired to be given hereunder shall be effective
either upon personal delivery or three (3) days after deposit in the United
States mail, by registered or certified mail, return receipt requested,
addressed to the Landlord at the address set forth in the Master Lease for the
payment of rent, or to Tenant or Sublessee at the address of the Premises or of
the subleased Premises, respectively. Any party may change in address for notice
by giving notice in the manner hereinabove provided.
9. Notwithstanding anything to the contrary set forth herein or
elsewhere, if the Master Lease was guaranteed at the time of execution or at any
time prior hereto by any guarantor, then Tenant shall deliver to Landlord with
this Consent a counterpart of this Consent indicating the approval thereof by
any and all such guarantor(s).
10. Tenant and Sublessee agree to indemnify and hold Landlord harmless
from and against any loss, cost, expense, damage or liability, including
reasonable attorneys' fees, incurred as a result of a claim by any person or
entity (i) that is entitled to a commission, finder's fee or like payment in
connection with the sublease or (ii) relating to or arising out of the Sublease
or any related agreements or dealings.
-35-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 37,292,000
<SECURITIES> 10,154,000
<RECEIVABLES> 144,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 49,509,000
<PP&E> 5,508,000
<DEPRECIATION> (2,109,000)
<TOTAL-ASSETS> 52,992,000
<CURRENT-LIABILITIES> 28,190,000
<BONDS> 1,526,000
0
3,500,000
<COMMON> 42,000
<OTHER-SE> 16,571,000
<TOTAL-LIABILITY-AND-EQUITY> 52,992,000
<SALES> 0
<TOTAL-REVENUES> 900,000
<CGS> 0
<TOTAL-COSTS> 29,308,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 220,000
<INCOME-PRETAX> (22,319,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,319,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,319,000)
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