<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Quarterly Period Ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to _________
Commission File No. 0-20111
ARONEX PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 76-0196535
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
8707 Technology Forest Place, The Woodlands, Texas 77381-1191
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (281) 367-1666
Indicate by check mark 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 period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
CLASS OUTSTANDING AT SEPTEMBER 30, 1999
----------------------------- ---------------------------------
Common Stock, $.001 par value 22,788,071 shares
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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
QUARTERLY PERIOD SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Factors Affecting Forward-Looking Statements................................................... 3
PART I. FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements..................................................... 3
Consolidated Balance Sheets - December 31, 1998 and September 30, 1999 (unaudited).... 4
Consolidated Statements of Operations:
Nine Months Ended September 30, 1998 and September 30, 1999
(unaudited) and three months ended September 30, 1998 and September
30, 1999 (unaudited) and for the Period from Inception
(June 13, 1986) through September 30, 1999 (unaudited).............................. 5
Consolidated Statements of Comprehensive Income:
Nine Months Ended September 30, 1998 and September 30, 1999
(unaudited) and three months ended September 30, 1998 and
September 30, 1999 (unaudited)...................................................... 5
Consolidated Statements of Cash Flows:
Nine Months Ended September 30, 1998 and September 30, 1999
(unaudited) and for the Period from Inception (June 13, 1986)
through September 30, 1999 (unaudited).............................................. 6
Notes to Consolidated Financial Statements -September 30, 1999........................ 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................. 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk............................ 15
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K...................................................... 16
SIGNATURES .................................................................................... 17
</TABLE>
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<PAGE> 3
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The words "anticipate," "believe," "expect," "estimate,"
"project" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, believed, expected, estimated or projected.
For additional discussion of such risks, uncertainties and assumptions, see
"Item 1. Business -- Manufacturing," "-- Sales and Marketing," "-- Patents and
Proprietary Rights," "-- Government Regulation," "-- Competition" and "--
Additional Business Risks" included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998, (the "1998 Form 10-K") and "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "-- Liquidity and Capital Resources" included elsewhere in this
report.
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to those rules and
regulations, although the Company believes that the disclosures made herein are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1998 included in the 1998 Form 10-K.
The information presented in the accompanying financial statements is
unaudited, but in the opinion of management, reflects all adjustments (which
include only normal recurring adjustments) necessary to present fairly such
information.
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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1999
1998 (UNAUDITED)
--------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 11,338 $ 15,884
Short-term investments.................................................... 7,757 7,515
Accounts receivable....................................................... 132 857
Prepaid expenses and other assets......................................... 260 567
--------------- -------------
Total current assets................................................. 19,487 24,823
Long-term investments........................................................ 1,295 927
Furniture, equipment and leasehold improvements, net of accumulated
depreciation of $2,839 and $3,319, respectively.......................... 2,263 2,126
--------------- -------------
Total assets......................................................... $ 23,045 $ 27,876
=============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................................... $ 5,319 $ 3,207
Accrued payroll........................................................... 885 830
Advance from Genzyme...................................................... 2,000 --
Current portion of notes payable and obligations under capital leases..... 219 317
--------------- -------------
Total current liabilities............................................ 8,423 4,354
Long-term liabilities:
Notes payable............................................................. 1,012 3,618
--------------- -------------
Total long-term liabilities.......................................... 1,012 7,972
Commitments and contingencies
Stockholders' equity:
Preferred stock $.001 par value, 5,000,000 shares authorized,
none issued and outstanding.......................................... -- --
Common stock $.001 par value, 40,000,000 shares authorized,
16,379,309 and 22,788,071 shares issued and outstanding,
respectively......................................................... 16 23
Additional paid-in capital................................................ 100,654 112,983
Common stock warrants..................................................... 50 959
Treasury stock............................................................ (11) (11)
Deferred compensation..................................................... (380) (127)
Unrealized gain on investments............................................ 716 817
Deficit accumulated during development stage.............................. (87,435) (94,740)
--------------- -------------
Total stockholders' equity........................................... 13,610 19,904
--------------- -------------
Total liabilities and stockholders' equity........................... $ 23,045 $ 27,876
=============== =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
FROM
INCEPTION
NINE MONTHS ENDED THREE MONTHS ENDED (JUNE 13,
SEPTEMBER 30, SEPTEMBER 30, 1986)
------------------------ ------------------------ THROUGH
SEPT. 30,
1998 1999 1998 1999 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Interest income ................................... $ 1,013 $ 1,030 $ 265 $ 339 $ 7,876
Research and development grants and contracts ..... 329 10,727 136 854 22,514
--------- --------- --------- --------- ---------
Total revenues ........................... 1,342 11,757 401 1,193 30,390
Expenses:
Research and development .......................... 15,399 15,664 5,532 5,035 91,592
Purchase of in-process research and development ... -- -- -- -- 11,625
Selling, general and administrative ............... 2,448 3,141 901 1,414 20,299
Interest expense and other ........................ 41 257 27 143 1,614
--------- --------- --------- --------- ---------
Total expenses ........................... 17,888 19,062 6,460 6,592 125,130
--------- --------- --------- --------- ---------
Net loss ............................................... $ (16,546) $ (7,305) $ (6,059) $ (5,399) $ (94,740)
========= ========= ========= ========= =========
Basic and diluted loss per share ....................... $ (1.07) $ (0.34) $ (0.39) $ (0.24)
========= ========= ========= =========
Weighted average shares used in computing basic and
diluted loss per share ................................. 15,475 21,365 15,497 22,664
</TABLE>
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(ALL AMOUNTS IN THOUSANDS, EXCEPT LOSS PER SHARE DATA)
(UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
Comprehensive income:
Net loss................................................ $ (16,546) $ (7,305) $ (6,059) $ (5,399)
Unrealized gain on securities available for sale.... -- 101 -- --
---------- ---------- --------- ---------
Comprehensive income....................... $ (16,546) $ (7,204) $ (6,059) $ (5,399)
========== ========== ========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(JUNE 13,
NINE MONTHS ENDED 1986)
SEPTEMBER 30, THROUGH
------------------------ SEPTEMBER 30,
1998 1999 1999
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ................................................................ $ (16,546) $ (7,305) $ (94,740)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization ...................................... 521 480 5,327
Loss (gain) disposal of assets ..................................... (2) -- 200
Compensation expense related to stock, stock options and stock
warrants ......................................................... 432 861 4,644
Charge for purchase of in-process research and development ......... -- -- 11,547
Acquisition costs, net of cash received ............................ -- -- (270)
Accrued interest payable converted to stock ........................ -- -- 97
Loss in affiliate .................................................. -- -- 500
Changes in assets and liabilities:
Decrease (increase) in accounts receivable ......................... 100 (725) (857)
Decrease (increase) in prepaid expenses and other assets ........... 90 (307) (382)
Increase (decrease) in accounts payable and accrued expenses ....... 1,361 (2,167) 3,964
Decrease in deferred revenue ....................................... -- -- (353)
--------- --------- ---------
Net cash used in operating activities .................... (14,044) (9,163) (70,323)
Cash flows from investing activities:
Purchases of investments ................................................ (37,518) (11,353) (260,887)
Sales of investments .................................................... 53,240 12,064 258,997
Purchase of furniture, equipment and leasehold improvements ............. (1,545) (343) (6,422)
Proceeds from sale of assets ............................................ 9 -- 63
Deposits ................................................................ 490 -- --
Investment in affiliate ................................................. -- -- (500)
--------- --------- ---------
Net cash provided by (used in) investing activities ...... 14,676 368 (8,749)
Cash flows from financing activities:
Proceeds from and increase in notes payable ............................. 1,369 923 6,964
Repayment of notes payable and principal payments under capital
lease obligations ..................................................... (307) (219) (3,030)
Purchase of treasury stock .............................................. -- -- (11)
Proceeds from issuance of stock ......................................... 68 12,637 91,033
--------- --------- ---------
Net cash provided by financing activities ................ 1,130 13,341 94,956
--------- --------- ---------
Net increase in cash and cash equivalents .................................. 1,762 4,546 15,884
Cash and cash equivalents at beginning of period ........................... 2,029 11,338 --
--------- --------- ---------
Cash and cash equivalents at end of period ................................. $ 3,791 $ 15,884 $ 15,884
========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest ................................ $ 41 $ 222 $ 1,088
Supplemental schedule of noncash financing activities:
Conversion of notes payable and accrued interest to common stock ........ $ -- $ -- $ 3,043
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
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ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. ORGANIZATION
Aronex Pharmaceuticals, Inc. (the "Company" or "Aronex
Pharmaceuticals") is a development-stage company that has devoted substantially
all of its efforts to research and product development and has not yet generated
any significant revenues, nor is there any assurance of future revenues. In
addition, Aronex Pharmaceuticals expects to continue to incur losses for the
foreseeable future, and there can be no assurance that Aronex Pharmaceuticals
will successfully complete the transition from a development-stage company to
successful operations. The Company's research and development activities involve
a high degree of risk and uncertainty. The Company's ability to successfully
develop, manufacture and market its proprietary products is dependent upon many
factors. These factors include, but are not limited to, the need for additional
financing, attracting and retaining key personnel and consultants, and
successfully developing manufacturing, sales and marketing operations. The
Company's ability to develop these operations may be immensely impacted by
uncertainties related to patents and proprietary technologies, technological
change and obsolescence, product development, competition, government
regulations and approvals, health care reform, third-party reimbursement and
product liability exposure. Additionally, the Company is reliant upon
collaborative arrangements for research, contractual agreements with corporate
partners, and its exclusive license agreements with The University of Texas M.D.
Anderson Cancer Center. Further, during the period required to develop these
products, the Company will require additional funds which may not be available
to it. Accordingly, there can be no assurance of its future success. See
"Business -- Additional Business Risks" in the 1998 Form 10-K.
The consolidated balance sheet at September 30, 1999 and the related
consolidated statements of operations and cash flows for the three and nine
month periods ending September 30, 1999 and 1998 and the period from inception
(June 13, 1986) through September 30, 1999 are unaudited. These interim
financial statements should be read in conjunction with the audited financial
statements and related notes included in the 1998 Form 10-K. The unaudited
interim consolidated financial statements reflect all adjustments which are, in
the opinion of management, necessary for a fair statement of results for the
interim periods presented and all such adjustments are of a normal recurring
nature. Interim results are not necessarily indicative of results for a full
year.
2. ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Aronex
Pharmaceuticals and its wholly owned subsidiary, Aronex Europe Limited. All
material intercompany transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Short- and Long-Term Investments
Cash and cash equivalents include money market accounts and investments
with an original maturity of less than three months. At September 30, 1999,
short-term investments include held to maturity securities and available for
sale securities. The held to maturity securities consist of high-grade
commercial paper with a carrying value of $6,698,000 which approximates fair
market value. Available for sale securities consist of Targeted Genetics
Corporation Common Stock with an amortized cost of zero, a fair market value of
$817,000 and an unrealized gain of $817,000. Long-term investments at September
30, 1999 are available for sale securities which are United States
mortgage-backed securities with maturity dates over the next twenty-four years
that have an amortized cost of $927,000, which approximates fair market value.
Aronex Pharmaceuticals currently has no trading securities.
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<PAGE> 8
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
3. STOCKHOLDERS' EQUITY
In February 1999, Aronex Pharmaceuticals raised proceeds net of
offering costs of approximately $11.7 million in a public offering of 6,000,000
shares of Common Stock. In connection with this offering, the Company issued
warrants to purchase 600,000 shares of Common Stock at an exercise price of
$3.28 per share. These warrants are exercisable from February 16, 2000 through
February 16, 2004. The fair value of the warrants, $758,400, was recorded in the
accompanying financial statements when they were issued. This amount has been
estimated on the date of the grant using the Black Scholes options pricing model
with the following weighted-average assumptions: a risk-free interest rate of
5.2% with no expected dividends, an expected life of five years and expected
volatility of 113%.
4. FEDERAL INCOME TAXES
At December 31, 1998, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $102.2 million.
The Tax Reform Act of 1986 provided a limitation on the use of NOL and tax
credit carryforwards following certain ownership changes that could limit the
Company's ability to utilize these NOLs and tax credits. Accordingly, the
Company's ability to utilize the above NOL and tax credit carryforwards to
reduce future taxable income and tax liabilities may be limited. As a result of
the merger with Triplex Pharmaceutical Corporation "Triplex" and API Acquisition
Company, Inc. "API", a change in control as defined by federal income tax law
occurred, causing the use of these carryforwards to be limited and possibly
eliminated. Additionally, because United States tax laws limit the time during
which NOLs and the tax credit carryforwards may be applied against future
taxable income and tax liabilities, the Company may not be able to take full
advantage of its NOLs and tax credit carryforwards for federal income tax
purposes. The carryforwards will begin to expire in 2001 if not otherwise used.
Due to the possibility of not reaching a level of profitability that will allow
for the utilization of the Company's deferred tax assets, a valuation allowance
has been established to offset these tax assets. The Company has not made any
federal income tax payments since inception.
5. LICENSE, RESEARCH AND DEVELOPMENT AGREEMENT
In March 1999, Genzyme Corporation ("Genzyme") notified the Company
that they did not intend to exercise their option to acquire the right to market
and sell ATRAGEN(R) worldwide. As a result of the election, the Company has
regained full marketing rights to ATRAGEN(R) on a worldwide basis and the
Company was obligated to repay Genzyme the $2.0 million advance by May 21, 1999
and pay product royalties, including $500,000 in minimum royalties by April 24,
2000. In May 1999, the $2.0 million advance from Genzyme and the $500,000 in
minimum royalties were converted into a $2.5 million convertible note payable to
Genzyme. This note bears interest at 10% per annum with interest payable
semi-annually, and the principal is due May 21, 2002. This note can be converted
into Common Stock of the Company at $4.35 per share at Genzyme's option. In
connection with this financing, the Company issued Genzyme warrants to purchase
50,000 shares of Common Stock at an exercise price of $4.00 per share. These
warrants are exercisable until May 21, 2004. The fair value of the warrants,
$150,000, was recorded in the accompanying financial statements when they were
issued. This amount has been estimated on the date of grant using the Black
Scholes option pricing model with the following weighted-average assumptions: a
risk free interest rate of 5.2% with an expected life of five years and expected
volatility of 114%.
6. RECENT EVENTS
In July 1999, an officer of the Company left under a severance
agreement and release. Under the agreement, the Company is obligated to pay this
officer a monthly salary of $13,333 plus certain benefits for a period of 12
months after termination and to accelerate the vesting of certain stock options.
In July 1999, the Company recorded a non-cash compensation expense of $177,600
relating to the stock options.
On August 4, 1999, the FDA informed the Company that its invitation to
us to discuss the Company's ATRAGEN(R) NDA filing at the Oncologic Drugs
Advisory Committee, or ODAC, on September 17, 1999 had been
-8-
<PAGE> 9
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
withdrawn. The FDA cited deficiencies in our ATRAGEN(R) filing but did not
specify at the time what those deficiencies are or how we might correct them. On
September 24, 1999, the FDA provided the Company with an action letter citing
the deficiencies in the Company's ATRAGEN(R) submission. While the FDA has cited
such deficiencies, the FDA has not notified us of any safety issues associated
with ATRAGEN(R). While no assurances can be given that the deficiencies can be
resolved, management believes that we can effectively address the FDA issues,
and we have already formally advised them of our intention to amend our filing.
Additionally, we will meet with the FDA to address the issues they have raised
and to ensure that these are effectively addressed in our amendment. Once we
have had this meeting, we believe that we will be able to more clearly assess
our revised timetable.
On October 6, 1999, the Board of Directors of the Company adopted a
shareholder rights plan resulting in the declaration of a dividend distribution
of one preferred stock purchase right for each outstanding share of common stock
of the Company. The shareholder rights plan was designed to deter coercive
takeover tactics and to prevent a change of control from occurring without the
stockholders of the Company receiving fair value.
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<PAGE> 10
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Since our inception in 1986, we have primarily devoted our resources
to fund research, drug identification and development. We have been unprofitable
to date and expect to incur operating losses for the next several years as we
expend resources for product research and development, preclinical and clinical
testing and regulatory compliance. We have sustained net losses of approximately
$94.7 million from inception through September 30, 1999. We have primarily
financed our research and development activities and operations through
offerings of securities and research and development collaborations. Our
operating results have fluctuated significantly during each quarter, and we
anticipate that such fluctuations, largely attributable to varying commitments
and expenditures for clinical trials and research and development, will continue
for the next several years.
Three and Nine Month Periods Ended September 30, 1998 and 1999
Revenues from research and development grants and contracts increased
528% to $854,000 for the three months ended September 30, 1999 from $136,000 for
the three months ended September 30, 1998. Revenues from research and
development grants and contracts increased 3,152% to $10.7 million for the nine
months ended September 30, 1999 from $329,000 for the nine months ended
September 30, 1998. These increases resulted from $843,000 and $10.7 million in
milestone and development revenue under our license agreement for NYOTRAN(R)
with Abbott Laboratories ("Abbott") for the quarter and nine month periods
ending September 30, 1999.
Interest income increased by 28% to $339,000 for the three months
ended September 30, 1999 from $265,000 for the three months ended September 30,
1998. Interest income decreased by 2% to $1,030,000 for the nine months ended
September 30, 1999, from $1,013,000 for the nine months ended September 30,
1998. These changes resulted from an increase in the average amount of funds
available for investment for the three months ended September 30, 1999 and a
decrease in the average amount of funds available for the nine months ended
September 30, 1999.
Research and development expenses decreased by 10% to $5.0 million for
the three months ended September 30, 1999 from $5.5 million for the three months
ended September 30, 1998. The decrease in research and development expenses for
the three months ended September 30, 1999 described above resulted primarily
from a decrease of $1.1 million in clinical trial costs for NYOTRAN(R) as the
trials for this product are in the process of being completed.
The decrease listed above was offset by the following:
o an increase of $184,000 in consulting fees relating to regulatory
matters concerning NYOTRAN(R) and ATRAGEN(R);
o an increase of $100,000 in salaries and payroll costs; and
o an increase of $242,000 in drug materials and manufacturing costs
for ATRAGEN(R).
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<PAGE> 11
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
Research and development expenses increased by 2% to $15.7 million for
the nine-month period ending September 30, 1999 from $15.4 million for the
nine-month period ending September 30, 1998. The increase in research and
development expenses for the nine months ended September 30, 1999 described
above resulted primarily from:
o an increase of $1.1 million in salaries and payroll costs;
o an increase of $432,000 in consulting fees relating to regulatory
matters concerning NYOTRAN(R) and ATRAGEN(R); and
o an increase of $187,000 in outside research consultants and
contracts.
The increases listed above were offset by a decrease of $972,000 in
drug materials and manufacturing costs for NYOTRAN(R) and Annamycin, and a
decrease of $231,000 in outside pharmacology and toxicology studies relating
mainly to NYOTRAN(R).
Selling, general and administrative expenses increased 55% to $1.4
million for the three months ended September 30, 1999 from $901,000 for the
three months ended September 30, 1998. Selling, general and administrative
expenses increased 29% to $3.1 million for the nine months ended September 30,
1999 from $2.4 million for the nine months ended September 30, 1998. This
increase in selling, general and administrative expenses for the three and nine
months ended September 30, 1999 resulted primarily from:
o increases of $351,000 and $448,000, respectively, in marketing
salaries and payroll costs, including deferred compensation. These
increases were due mainly to expenses under a July 1999 severance
and release agreement with an officer of the Company;
o increases of $302,000 and $353,000 respectively in business
consultants; and
o an increase of $215,000 in marketing expenses relating mainly to
ATRAGEN(R) for the nine months ended September 30, 1999.
These increases were partially offset by decreases of $116,000 and
$366,000 in salaries and payroll costs, including deferred stock option
compensation, for general and administrative personnel. Salary and payroll costs
were less in 1999 due mainly to termination and severance payments to the
Company's former president recorded in the first quarter of 1998.
Interest expense and other increased 430% to $143,000 for the three
months ended September 30, 1999 from $27,000 for the three months ended
September 30, 1998. Interest expense and other increased 527% to $257,000 for
the nine months ended September 30, 1999 from $41,000 for the nine months ended
September 30, 1998. The increase in interest expense was primarily due to the
following:
o an increase in the balance of notes payable obtained to finance
furniture and equipment; and
o an increase of $2.5 million in notes payable relating to a
promissory note issued to Genzyme in the second quarter of 1999.
Net loss decreased by $660,000 resulting in a loss of $5.4 million for
the three months ended September 30, 1999. Net loss decreased by $9.2 million to
$7.3 million for the nine months ended September 30, 1999. These decreases were
due mainly to increased revenue of $792,000 and $10.4 million for the three- and
nine- month periods ending September 30, 1999, respectively.
-11-
<PAGE> 12
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
LIQUIDITY AND CAPITAL RESOURCES
Since inception, our primary source of cash has been from financing
activities, which have consisted primarily of sales of equity securities. We
have raised an aggregate of approximately $90 million from the sale of equity
securities from our inception through September 30, 1999. In July 1992, we
raised net proceeds of approximately $10.7 million in our initial public
offering of Common Stock. In September 1993, we entered into a collaborative
agreement with Genzyme relating to the development and commercialization of
ATRAGEN(R), in which we received net proceeds of approximately $4.5 million from
the sale of Common Stock to Genzyme. We received the following net proceeds in
public offerings of our Common Stock on the following dates:
o November 1993 $11.5 million
o May 1996 $32.1 million
o February 1999 $11.7 million
From October 1995 through December 31, 1997, we received aggregate net
proceeds of approximately $6.5 million from the exercise of certain warrants
issued in a 1995 merger. In November 1998, we entered into a license agreement
with Abbott relating to NYOTRAN(R), in which Abbott purchased 837,989 shares of
Common Stock for $3.0 million. Through September 30, 1999, we received an
additional $14.7 million in up-front and milestone payments from Abbott, all of
which are non-refundable.
In September 1996, Genzyme advanced us $2.0 million relating to a $5.0
million equity milestone. Early in 1997, we amended the agreement through which
(1) we released Genzyme from any further obligation to perform development work
for ATRAGEN(R) and (2) the license granted to Genzyme under the agreement was
converted to an option to acquire the right to market and sell ATRAGEN(R)
worldwide. We retained co-promotion rights in the United States. If Genzyme had
exercised its option, Genzyme would have been required to pay us $3.0 million
and product royalties, and we would have been entitled to retain the $2.0
million advance. In March 1999, Genzyme notified us that they did not intend to
exercise their option. As a result of the election, we regained full marketing
rights to ATRAGEN(R) on a worldwide basis and we were obligated to repay Genzyme
the $2.0 million advance by May 21, 1999 and to pay product royalties, including
$500,000 in minimum royalties by April 24, 2000. In May 1999, the $2.0 million
advance and $500,000 in minimum royalties were converted into a $2.5 million
convertible promissory note payable which bears interest at 10% per annum.
The majority of our development activities are committed on a
short-term, as-needed basis through contracts and purchase orders. These
arrangements can be changed based on our needs and development activities. We
have contracted with certain clinical research organizations to conduct our
clinical trials outside of the United States for NYOTRAN(R) in the following
indications: cryptococcal meningitis, presumed fungal infections and Aspergillus
salvage. The remaining amount projected to be expended to complete the clinical
research organizations' activities with respect to those indications is less
than $500,000. The agreements provide that we can terminate them at any time,
should either our financial situation or the results of the studies require it.
Nonetheless, we intend to continue to engage clinical research organizations in
the future to monitor our various clinical trials outside of the United States.
Our primary use of cash to date has been in operating activities to
fund research and development, including preclinical studies and clinical trials
and selling, general and administrative expenses. We used cash of $9.2 million
and $14.0 million in operating activities during the first nine months of 1999
and 1998, respectively. We had cash, cash-equivalents and short-term and
long-term investments of $24.3 million as of September 30, 1999, consisting
primarily of cash and money market accounts, and United States government
securities, common stock and investment grade commercial paper.
-12-
<PAGE> 13
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
We have experienced negative cash flows from operations since our
inception and we have funded our activities to date primarily from equity
financing and corporate collaborations. We have expended, and will continue to
require, substantial funds to continue research and development, including
preclinical studies and clinical trials of our products, and to commence sales
and marketing efforts if the U.S. Food and Drug Administration and other
regulatory approvals are obtained.
We expect that our existing financial resources should be sufficient
to fund our capital requirements into the year 2001. During this period, we
anticipate receiving further payments from Abbott under the license agreement
for NYOTRAN(R); however, these payments are dependent upon performance and are
not guaranteed. In the future, we may need to raise substantial additional
capital to fund our operations.
We have experienced significant increases in accounts payable and
accrued payroll since 1996, primarily as a result of the increased development
activities relating to our two late-stage products, NYOTRAN(R) and ATRAGEN(R).
We anticipate that the amounts expended for these items in the future will
continue to correspond with our development activities. If the volume of
development activities decreases, there will be a decrease in outstanding
payables and a decrease in our liquidity position. We expect that our expenses
relating to development activities will fluctuate from quarter to quarter over
the next few years as we have not yet generated revenues from product sales. We
have typically obtained debt financing when necessary for equipment, furniture
and leasehold improvement requirements. We expect that we will continue to incur
additional debt to meet our capital requirements from time to time in the
future, based on our financial resources and needs.
Our capital requirements will depend on many factors, including those
factors more completely described under "Business -- Additional Business Risks"
in our 1998 Form 10K. These factors include:
o problems, delays, expenses and complications frequently
encountered by development-stage companies;
o the progress of our research, development and clinical trial
programs;
o the extent and terms of any future collaborative research,
manufacturing, marketing or other funding arrangements;
o the costs and timing of seeking regulatory approvals of our
products;
o our ability to obtain regulatory approvals;
o the success of our sales and marketing programs;
o the costs of filing, prosecuting and defending and enforcing any
patent claims and other intellectual property rights; and
o changes in economic, regulatory or competitive conditions of our
planned business.
Estimates about the adequacy of funding for our activities are based
on certain assumptions, including the assumption that testing and regulatory
procedures relating to our products can be conducted at projected costs. We
cannot assure that changes in our research and development plans, acquisitions,
or other events will not result in accelerated or unexpected expenditures.
To satisfy our capital requirements, we may seek to raise additional
funds in the public or private capital markets. Our ability to raise additional
funds in the public or private markets on terms favorable to the Company and its
stockholders may have been adversely affected by recent developments regarding
ATRAGEN(R). On August 4, 1999, the FDA informed us that its invitation to us to
discuss our ATRAGEN(R) NDA filing at the Oncologic Drugs Advisory Committee, or
ODAC, on September 17, 1999 had been withdrawn. The FDA cited deficiencies in
our ATRAGEN(R) filing but did not specify at the time what those deficiencies
are or how we might correct them. On September 24, 1999, the FDA provided us
with an action letter citing the deficiencies in our ATRAGEN(R) submission.
While the FDA has cited such deficiencies, the FDA has not notified us of any
safety issues associated with ATRAGEN(R). While no assurances can be given that
the deficiencies can be resolved, management believes that we can effectively
address the FDA issues, and we have already formally advised them of our
intention to amend our filing. Additionally, we will meet with the FDA to
address the issues they have raised and to ensure that these are
-13-
<PAGE> 14
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
effectively addressed in our amendment. Once we have had this meeting, we
believe that we will be able to more clearly assess our revised timetable.
We may seek additional funding through corporate collaborations and
other financing vehicles. We cannot assure that any funding will be available to
us on favorable terms or at all. If adequate funds are not available, we may be
required to curtail significantly one or more of our programs, or we may be
required to obtain funds through arrangements with future collaborative partners
or other parties that may require us to relinquish rights to some or all of our
technologies or products. If we are successful in obtaining additional
financing, the terms of such financing may have the effect of diluting or
adversely affecting the holdings or the rights of the holders of our Common
Stock.
YEAR 2000
Year 2000 issues result from the inability of certain computer
programs or computerized equipment to accurately calculate, store or use a date
subsequent to December 31, 1999, typically occurring because such programs or
equipment erroneously interpret the year 2000 as the year 1900. System failure
or miscalculations could result causing disruptions of operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business.
We are in the process of assessing all of our financial and
operational systems and equipment to ensure year 2000 compliance. We have
completed our initial review of our financial and operational systems and
equipment, with the exception of certain personal computer and network hardware
which we are continuing to assess. Except for the personal computer and network
hardware that remains under assessment, we have either obtained certifications
as to year 2000 compliance from vendors or have tested the year 2000 compliance
of substantially all our systems and equipment, and have taken the steps we
believe will be necessary to remediate year 2000 problems associated with the
systems and equipment that we have determined not to be year 2000 compliant. We
have completed our assessment of our financial and operational systems and
equipment. We believe that the potential impact, if any, of our systems not
being year 2000 compliant could result in the loss of data, which is available
in hard-copy, that would have to be re-entered. We believe that any loss of
computer data will not materially affect our ability to continue our research
and development activities or have a material adverse effect on our business,
results of operations or financial condition. However, this potential loss of
data could result in a material delay in completing clinical studies of our
products which could have a material adverse effect on our business, results of
operations and financial condition.
We are in the process of contacting our consultants and other
suppliers of goods and services, as well as our corporate partners, to assess
the possible impact of year 2000 compliance of their systems and equipment on
us. We plan to complete our assessment of these matters by November 30, 1999. We
believe that the potential impact, if any, of the systems of our consultants
(including clinical research organizations and hospitals), suppliers and
corporate partners not being year 2000 compliant could result in the loss of
data, which is available in hard-copy, that would have to be re-entered. Any
loss of computer data will not materially affect our ability to continue our
research and development activities. However, this potential loss of data could
result in a material delay in completing clinical studies of our products which
could have a material adverse effect on our business, results of operations and
financial condition.
Based on our assessments and remediation efforts to date, we do not
anticipate incurring any significant costs relating to the assessment and
remediation of year 2000 issues. To date, we estimate that we have spent less
than $25,000 in reviewing and remediating year 2000 issues and that total
expenditures incurred in completing our review and remediation efforts will not
exceed $100,000. However, we cannot assure that planned expenditures for these
efforts will not exceed such amount should unforeseen complications arise during
such review and assessment or as a result of our remediation efforts or those of
our vendors, consultants or corporate partners. Such expenditures are budgeted
as part of our operating expenses. Also, there can be no assurance that we or
our consultants, suppliers and corporate partners will successfully be able to
identify and remedy all potential year 2000 problems or that a system failure
resulting from a failure to identify any problems would not have a material
adverse effect on us.
-14-
<PAGE> 15
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
We have developed and are implementing a contingency plan of
maintaining in hard copy form all data that is generated or collected by us or
our collaborators, including clinical research organizations, hospitals,
physicians, consultants and others. Any loss of data due to year 2000 problems
could be re-entered manually. We also maintain all of our accounting records in
hard copy so that we can continue to manually pay vendors, employees,
consultants and collaborators in the event that our accounting software or other
computer programs or systems malfunction due to the year 2000 issue. We also
have keys to the doors of our facilities to enable us to gain access to our
laboratory and offices in the event that the building's security systems
malfunction. We are continuing to review these and related operational
requirements in order to complete our contingency plan for our non-critical
business functions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
-15-
<PAGE> 16
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Severance Agreement and Release dated July 30, 1999 between the
Company and Janet Walter.
10.2 Consulting Agreement dated October 1, 1999 between the Company and
James R. Butler.
10.3 Consulting Agreement dated October 1, 1999 between the Company and
David J. McLachlan.
11.1 Statement Regarding Computation of Share Earnings.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
None
-16-
<PAGE> 17
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ARONEX PHARMACEUTICALS, INC.
Dated: November 5, 1999 By: /s/ GEOFFREY F. COX
-----------------------------------
Geoffrey F. Cox, Ph.D.
Chief Executive Officer
Dated: November 5, 1999 By: /s/ TERANCE A. MURNANE
-----------------------------------
Terance A. Murnane
Controller
(Principal Financial and Accounting Officer)
-17-
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.1 Severance Agreement and Release dated July 30, 1999 between the
Company and Janet Walter.
10.2 Consulting Agreement dated October 1, 1999 between the Company and
James R. Butler.
10.3 Consulting Agreement dated October 1, 1999 between the Company and
David J. McLachlan.
11.1 Statement Regarding Computation of Share Earnings.
27.1 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release ("Agreement") is being entered
into as of July 30, 1999, by and between Janet M. Walter ("Employee") and Aronex
Pharmaceuticals, Inc. ("Aronex") in order to further the mutually desired terms
and conditions set forth herein:
WHEREAS, Employee has notified Aronex of her desire to voluntarily
resign as an employee and officer of Aronex and Aronex desires to accept such
resignation; and
WHEREAS, the parties desire to execute and deliver this Agreement to
evidence the terms of the parties' agreement concerning the Employee's
resignation.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the receipt and sufficiency are hereby acknowledged,
the parties do hereby agree as follows:
1. RESIGNATION. Employee hereby voluntarily resigns as an
employee and officer of Aronex effective as of July 13, 1999 (the "Effective
Date of Resignation").
2. SEVERANCE.
(a) For and in consideration of the execution of this
Agreement, Aronex will, subject to the terms set forth
herein, pay to Employee a total payment of $160,000.00
("Severance Payment"), less standard deductions. The
Severance Payment shall be paid in twenty-four (24)
semimonthly payments of $6,666.66, subject to standard
deductions, for the period beginning as of July 16,
1999 and continuing through July 15, 2000, payable as
and when Employee would have otherwise received her
salary. The obligation of Aronex to pay, and the
Employee's right to receive, the Severance Payment
herein provided shall not terminate upon the
Employee's commencement of employment with another
employer.
(b) In addition to the foregoing, and in further
consideration of the execution of this Agreement,
Aronex does hereby agree to amend the terms of those
three (3) certain stock options previously granted by
Aronex to Employee as follows:
(i) That certain Non-Qualified Stock Option
Agreement dated August 18, 1997, for 13,610
shares of the Company's common stock, par
value $.001 per share (the "Common Stock")
and that certain Incentive Stock Option
Agreement dated August 18, 1997, for 86,390
shares of Common Stock are each hereby
amended to allow, under Section 4 of each
such agreement, the exercise of the vested
portions of the options evidenced thereby for
a period of up to ninety (90) days following
the Effective Date of Resignation.
1 of 7 pages
<PAGE> 2
(ii) That certain Non-Qualified Stock Option
Agreement dated December 10, 1998 for 50,000
shares of the Company's Common Stock (the
"'98 Option Agreement") is hereby amended as
follows:
(A) The option evidenced by the '98 Option
Agreement shall, subject to the terms of this
Agreement, be fully vested and exercisable as
of the Effective Date of Resignation.
(B) The '98 Option Agreement is amended to
allow, under Section 4 thereof, the exercise
of the option evidenced thereby for a period
of up to ninety (90) days following the
Effective Date of Resignation.
In all other respects, the terms and provisions of the
above described Stock Option Agreements shall remain
in full force and effect as originally written.
(c) The Employee and Aronex hereby stipulate and agree
that as of the effective date of this Agreement and
after giving effect to the amendments in Paragraph
1(a) above, the number of shares of Common Stock
vested, and which may be acquired upon the exercise of
such options, shall be as follows:
(i) Non-Qualified Stock Option Agreement dated
August 18, 1997 -- 13,610 shares;
(ii) Incentive Stock Option Agreement dated August
18, 1997 -- 49,077 shares; and
(iii) Non-Qualified Stock Option Agreement dated
December 10, 1998 -- 50,000 shares.
(d) Except as provided in Paragraph 3 below, the Severance
Payment and the amendments of the above described
Stock Option Agreements represent the exclusive
consideration given by Aronex in connection with or
arising out of the termination of Employee's
employment with Aronex, and no further amounts or
other consideration shall be required for any items,
including, but not limited to, attorneys' fees.
3. RELEASE.
(a) Employee, on behalf of herself, her heirs,
beneficiaries and personal representatives hereby
releases, acquits and forever discharges Aronex, its
officers, employees, former employees, shareholders,
directors, partners, agents and assigns, and all other
persons, firms, partnerships, or corporations in
control of, under the direction of, or in any way
presently or formerly associated with Aronex, of and
from all claims, charges, complaints, liabilities,
obligations, promises, agreements, contracts, damages,
actions,
2 of 7 pages
<PAGE> 3
causes of action, suits, accrued benefits or other
liabilities of any kind or character, whether known or
hereafter discovered, arising from or in any way
connected or related with employment with Aronex, her
resignation and termination of employment with Aronex,
including, but not limited to, allegations of wrongful
termination, breach of contract (other than in
connection with this Agreement), intentional
infliction of emotional distress, negligent infliction
of emotional distress, defamation, invasion of
privacy, any action in tort or contract, any violation
of any federal, state, or local law, (including, but
not limited to, and violation of Title VII of the
Civil Rights Act of 1964, as amended, 42 U.S.C.
Section 2000e et seq., the Civil Rights Act of 1866,
42 U.S.C. Section 1981 et seq., the Equal Pay Act, 29
U.S.C. Section 206; the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") 29 U.S.C.
Section 1001 et seq., the Americans with Disabilities
Act, 42 U.S.C. Section 12101 et seq., the Age
Discrimination Employment Act of 1967, as amended
("ADEA"), 29 U.S.C. Section 621 et seq., the Fair
Labor Standards Act, as amended, 29 U.S.C. Section 201
et seq., the National Labor Relations Act, 29 U.S.C.
Sections 151 et seq., the Family and Medical Leave Act
of 1993, 29 U.S.A. Section 2601 et seq., the Worker
Adjustment and Retraining Notification Act (WARN), 29
U.S.C., Section 2101 et seq., the Texas Commission on
Human Rights Act, Texas Labor Code Section 21.001 et
seq., the Texas Payday Act, Texas Labor Code, Section
61.01 et seq., the Texas Workers' Compensation
Statute, Texas Labor Code Section 451.0001 et seq.,
and any other employment or civil rights act and,
except as provided below, any and all claims for
severance pay or benefits under any compensation or
employee benefit plan, program, policy, contract,
agreement or other arrangement of Aronex.
Notwithstanding the foregoing, for so long as Employee
shall continue to be eligible to receive benefits
under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA"), the Employee shall be entitled
to receive benefits under the then existing medical,
dental and vision employee benefit plans maintained by
Aronex. Aronex shall pay all premiums for such
medical, dental and vision benefit plans while
Employee is entitled to receive such benefits under
COBRA. Employee acknowledges and agrees that Employee
shall not be permitted to participate in, and Aronex
shall have no obligation to provide, any coverage
under any disability or life insurance plans
maintained by Aronex for the benefits of its
employees.
(b) Employee agrees not to commence any legal proceeding
or lawsuit against Aronex arising out of or based upon
employment with Aronex or the termination of
employment with Aronex.
(c) The consideration cited above and the promises
contained herein are made for the purpose of
purchasing the peace of Aronex and Employee and are
not to be construed as an admission of liability or as
evidence or unlawful conduct by Aronex or any of its
affiliates, all liability being expressly denied.
(d) Employee voluntarily accepts the consideration cited
herein as sufficient payment for the full, final and
complete release stated herein and agrees that
3 of 7 pages
<PAGE> 4
no other promises or representations have been made by
Aronex or any other person purporting to act on behalf
of Aronex, except as expressly stated herein.
(e) Employee understands that this is a full, complete,
and final release of Aronex. As evidenced by the
signature below, Employee expressly promises and
represents to Aronex that she has completely read this
Agreement and understand its terms, contents,
conditions, and effects.
(f) Employee hereby waives all rights to recall,
reinstatement, reemployment and past or future wages
from Aronex and any affiliate thereof and further
acknowledges that Employee is not entitled to any
continued participation in, or benefits under, any
employee benefit plan or compensation program of
Aronex or any of affiliate thereof, including without
limitation, any profits, bonus or commission
arrangement, and any other employment agreement
(whether written or oral) with Aronex, except as may
otherwise may be required by ERISA, COBRA or otherwise
expressly set forth in Paragraph 3(a) above.
4. CONFIDENTIALITY.
(a) For a period of three (3) years from the date of this
Agreement, Employee hereby agrees to hold and maintain
confidential and private in trust for the benefit of
Aronex and its affiliates all secret, confidential or
proprietary information of Aronex and/or its
affiliates including, without limitation, all
information pertaining to the research, design,
development, manufacture and sales of Aronex's
products including, without limitation, the findings,
reports, inventions, discoveries, developments,
improvements and confidential sales information,
pricing, terms and related data disclosed to Employee
by Aronex or any affiliate thereof or written,
invented or made or conceived by Employee in
connection with her employment by Aronex. Confidential
information shall not include any information which
(i) is, or lawfully becomes, generally available to
the public without fault of Employee, or (ii) is
independently developed, as shown by clear, convincing
written evidence, by Employee prior to the receipt of
any confidential information, (iii) is lawfully
obtained or acquired by Employee in good faith from a
third party other than a party furnishing the
information to Aronex, who has such information in
good faith and not under any confidentiality agreement
with any other party with respect to such information,
(iv) is in Employee's possession at the time of
disclosure other than as a result of Employee's breach
of any legal obligation, or (v) is required to be
disclosed by Employee to comply with the applicable
laws or governmental requirements, provided that
Employee provides prior written notice of such
disclosure to Aronex.
(b) Employee agrees to hold and maintain confidential and
not disclose to any third party the terms and
conditions of this Agreement including, without
4 of 7 pages
<PAGE> 5
limitation, the Severance Payment and other
consideration provided for by this Agreement;
provided, however, that the foregoing shall not apply
to any disclosure that may be required to the extent
compelled by legal process or necessary to enforce the
Employee's rights hereunder.
5. NON-DISPARAGEMENT. Employee agrees not to communicate or
disseminate to others, whether verbally, in writing or in any
other form, any derogatory, negative or intentionally damaging
statements regarding Aronex, its affiliates, its officers,
directors, employees, policies or practices. Aronex agrees not
to communicate or disseminate to others, whether verbally, in
writing or in any other form, any derogatory, negative or
intentionally damaging statements regarding Employee.
6. NO ASSIGNMENT OF CLAIMS. Employee hereby warrants that she has
not assigned, transferred or conveyed at any time to any
individual or entity any alleged right, claim or cause of
action against Aronex or any Aronex affiliate. Employee agrees
to and does hereby indemnify and hold Aronex and the Aronex
affiliates harmless from any claims, liabilities, damages,
demands, losses, costs, debts and causes of action whatsoever,
including without limitation attorney's fees, whether known or
unknown, which may be asserted by parties for breach of the
foregoing warranty.
7. REPRESENTATIONS AND WARRANTIES CONCERNING RELEASE. Employee
hereby warrants to Aronex that she has completely read this
Agreement prior to executing it, and has had a reasonable
period of time within which to consider this Agreement and to
understand its terms, contents, conditions and effects and has
entered into this Agreement knowingly and voluntarily.
Employee understands that she has the right to consult an
attorney of her choice and represents that she has consulted
with an attorney or she has knowingly decided not to do so.
Employee states that she is not presently affected by any
disability which would prevent him from knowingly and
voluntarily executing this Agreement, and further states that
the promises made herein are not made under duress, coercion
or undue influence.
8. DEFAULT. In the event of a breach by the Employee of the
provisions of Paragraphs 4 and 5 of this Agreement, Aronex
shall be entitled to an injunction restraining the Employee
from using or disclosing, for her benefit or for the benefit
of others, in whole or in part, any confidential information
or otherwise making any derogatory, negative or damaging
statements regarding Aronex or its affiliates. In addition,
upon any such breach of Paragraphs 4 or 5 of this Agreement,
(i) Aronex's obligations to make any Severance Payment as
called for by this Agreement shall cease and Aronex shall have
no further liability or obligation to make any Severance
Payment to Employee as otherwise required under the terms of
Paragraph 1 of this Agreement, and (ii) the accelerated
vesting of the options evidenced by the '98 Option Agreement
shall no longer be effective and the Employee shall only be
permitted to exercise such '98 Option Agreement to the extent
vested as of the Effective Date of Resignation. In addition to
the foregoing, upon any such breach Aronex shall be permitted
to pursue any and all other remedies otherwise available to
Aronex for such breach including, without limitation, the
recovery of damages from the Employee.
5 of 7 pages
<PAGE> 6
9. AMENDMENT. This Agreement may not be amended or modified in
any respect except by an agreement in writing executed by the
parties in the same manner as this Agreement.
10. SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by each of the
parties and their respective successors and assigns.
11. INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under present or
future law effective during the term hereof, such provision
shall be fully severable. This Agreement shall be construed
and enforced as if such illegal, invalid or unenforceable
provision had never comprised a part hereof and the remaining
portions hereof shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom. Furthermore, in lieu
of such illegal, invalid or unenforceable provision, there
shall be added automatically, as part of this Agreement, a
provision similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid
and enforceable.
12. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections of this Agreement are inserted for convenience only
and shall not control or affect the meaning or construction of
any of the provisions hereof.
13. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the
State of Texas.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the
subject matter of this Agreement and supersedes and is in full
substitution for any and all prior agreements and
understandings whether written or oral between said parties
relating to the subject matter of this Agreement.
15. MULTIPLE COUNTERPARTS. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an
original and, when taken together, shall constitute one
agreement which shall be binding upon and effective as to all
parties.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement effective as of the date first above written.
EMPLOYEE:
/s/ Janet M. Walter
-----------------------------------------
Janet M. Walter
6 of 7 pages
<PAGE> 7
ARONEX PHARMACEUTICALS, INC.
By: /s/ Geoffrey F. Cox
--------------------------------------
Name: Geoffrey F. Cox
------------------------------------
Title: Chairman and CEO
-----------------------------------
7 of 7 pages
<PAGE> 1
EXHIBIT 10.2
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement") is entered into as of the
effective date specified below by and between ARONEX PHARMACEUTICALS, INC., a
Delaware corporation (the "Company"), and the undersigned consultant whose name
and address appear below ("Consultant"). The Company and Consultant hereby
agree as follows:
1. CONSULTING SERVICES. Consultant is hereby engaged by the Company as
an independent contractor, and not as an employee, to carry out the project
specified in the Description of Work attached hereto as Exhibit A, on the terms
and conditions set forth in such Description of Work.
2. TERM. This Agreement shall commence on October 1, 1999 and shall
automatically renew for successive one year periods. This Agreement may be
terminated by Consultant or Company, with or without "cause" (as defined below),
by giving 30 days' advance written notice thereof to the other party hereto. In
addition, this Agreement may be terminated by the Company immediately for
"cause". For purposes of this Agreement, "cause" shall be deemed to exist for
termination of this Agreement by the Company in the event (i) Consultant is not
performing in compliance with the Description of Work, (ii) Consultant has
engaged in personal conduct which (in the good faith determination of the
Company) would materially injure the goodwill or reputation of the Company or
otherwise materially adversely affect the interests of the Company or (iii) of
any breach by Consultant of the obligations contained in this Agreement or any
other agreement between the Company and Consultant.
In the event of any termination of this Agreement prior to completion
of the term of this Agreement pursuant to the above provisions (whether with or
without "cause"), the Company's sole liability thereupon will be to pay
Consultant any unpaid balance due for work performed up to and including the
date of termination, if applicable.
3. INDEPENDENT CONTRACTOR. It is agreed that Consultant's services are
made available to the Company on the basis that Consultant will retain
Consultant's individual professional status and that Consultant's relationship
with the Company is that of an independent contractor and not that of an
employee. Consultant will not be eligible for any employee benefits, nor will
the Company make deductions from its fees to Consultant for taxes, insurance,
bonds or any other subscription of any kind. Consultant will use Consultant's
own discretion in performing the tasks assigned, within the scope of work
specified by the Company. Consultant agrees to indemnify and hold the Company
harmless from and against any claim made by any third party against the Company
based in whole or in part upon any action by Consultant or any of Consultant's
employees, associates, consultants, agents, representatives, assignees or
successors in interest (collectively, "Consultant's Associates"), which occurs
pursuant to or in connection with this Agreement or the relationship or
relationships contemplated by this Agreement.
4. CONFIDENTIAL INFORMATION. Consultant agrees that Consultant, and all
of Consultant's Associates, shall keep in strictest confidence all information
relating to the products, materials, programs, algorithms, designs, trade
secrets, secret processes, customers and markets of the Company and all other
confidential knowledge, data and information related to the business or affairs
of the Company (collectively, "Confidential Information") that may be acquired
pursuant to or in connection with this Agreement or the relationship or
relationships contemplated by this Agreement. During and after the term of this
Agreement, neither Consultant nor any of Consultant's Associates will, without
the prior written consent of an officer of the Company, publish, communicate,
disclose or use for any purpose any of such Confidential
1
<PAGE> 2
Information. Upon termination of this Agreement, Consultant will return to the
Company all records, data, notes, reports, printouts, sketches, material,
equipment and other documents or property, and all reproductions of any of the
foregoing, furnished by the Company or developed or prepared pursuant to the
relationship hereunder.
Notwithstanding the foregoing, it is agreed that Confidential
Information shall not include any (i) information which is or becomes through no
fault of Consultant or any of Consultant's Associates generally known to the
public, and (ii) Consultant's and Consultant's Associates' skill, knowledge,
know-how and experience.
5. ASSIGNMENT OF INTELLECTUAL PROPERTY. Consultant agrees to transfer
and assign and hereby does transfer and assign to the Company the entire right,
title and interest for the entire world in and to all data, materials, software,
designs, models, algorithms, writings, drawings, notebooks, documents,
photographs, inventions and discoveries (collectively, "Inventions") made or
conceived or reduced to practice by Consultant or any of Consultant's Associates
(i) in the course of accomplishing the work described on the Description of Work
attached as Exhibit A hereto, (ii) in the course of accomplishing other work
performed pursuant to the relationship established by this Agreement, or (iii)
with the use of materials or facilities of the Company.
Consultant agrees that Consultant and each of Consultant's Associates
will sign, execute and acknowledge, or cause to be signed, executed and
acknowledged, at the expense of the Company, any and all documents, and will
perform any and all acts, as may be necessary, useful or convenient for the
purpose of securing to the Company or its nominee patent, trademark or copyright
protection throughout the world upon all such Inventions. At the request of the
Company, Consultant will have each of Consultant's Associates with access to
Confidential Information of the Company or who performs work pursuant to this
Agreement to sign an agreement in form substantially identical to this
Agreement.
6. LICENSE RIGHTS. In the event that Consultant recommends to the
Company that the Company make use of devices and/or processes covered by patents
and/or patent applications which Consultant may own or control, Consultant will
then so inform the Company, and in the event that the Company shall follow
Consultant's recommendation and Consultant has the right to grant a license
under such patents and/or patent applications, then Consultant will grant to the
Company a license on reasonable terms which are no less favorable than those
granted by Consultant to any other licensee.
7. REPRESENTATIONS OF CONSULTANT AND THE COMPANY.
1. Consultant represents and warrants to the Company that (i)
this Agreement is a valid and binding obligation of Consultant, enforceable
against Consultant in accordance with its terms, and (ii) his execution and
delivery of, and performance of his services and other obligations under, this
Agreement will not result in the breach or violation of applicable law or any
agreement to which he is a party.
2. The Company represents and warrants to Consultant that (i)
this Agreement has been duly and validly authorized by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, and (ii) its execution and delivery of, and
performance of its obligations under, this Agreement will not result in the
breach or violation of applicable law or any agreement to which it is a party.
2
<PAGE> 3
1. MISCELLANEOUS.
1. Effective Date. This Agreement shall be effective as of the
effective date specified below, and it is expressly agreed to by Consultant and
the Company that all the provisions hereof shall apply as if this Agreement had
been entered into on such date.
2. Survival of Terms. The provisions of paragraphs 4, 5 and 6
hereof shall survive termination of this Agreement.
3. Successors and Assigns. This Agreement may not be assigned
by Consultant without the written consent of the Company. This Agreement shall
be binding on all of Consultant's Associates, all of Consultant's heirs,
executors, administrators and legal representatives, and all of Consultant's
successors in interest and assigns, and shall be for the benefit of the Company,
its successors and its assigns.
4. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas as they
apply to contracts entered into and wholly to be performed in Texas.
5. Severability. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
6. Amendment. Neither this Agreement nor the Description of
Work may be amended except by a written agreement modifying the appropriate
document duly executed by Consultant and an officer of the Company.
7. Entire Agreement. This Agreement, together with the
Description of Work attached hereto and any other confidentiality agreement
previously or subsequently entered into by the Company and Consultant,
constitutes the sole and complete agreement of the parties with respect to the
matters included herein, and supersedes any previous oral or written agreement,
if any, relating to the subject matters included herein.
8. No Conflict. Consultant represents and warrants that this
Agreement does not conflict with any other agreement or term of employment
applicable to or binding upon the Consultant as of the date hereof and that
Consultant will promptly notify the Company in the event that any such conflict
does arise during the term hereof.
9. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been executed on the date set
forth below, and shall be effective as of the date specified.
CONSULTANT: COMPANY:
JAMES R. BUTLER ARONEX PHARMACEUTICALS, INC.
By: /s/ JAMES R. BUTLER By: /s/ GEOFFREY F. COX, PH.D.
--------------------------- --------------------------------
Name: James R. Butler Name: Geoffrey F. Cox, Ph.D.
--------------------------- --------------------------------
Title: CEO
-------------------------------
Date: SEPTEMBER 23, 1999 Date: SEPTEMBER 21, 1999
--------------------------- --------------------------------
Effective Date: October 1, 1999
4
<PAGE> 5
EXHIBIT A
ARONEX PHARMACEUTICALS, INC.
DESCRIPTION OF WORK
(CONSULTING AGREEMENT DATED OCTOBER 1, 1999)
1. DETAILED DESCRIPTION OF WORK:
Consultant will perform work under this Agreement regarding sales and
marketing assistance, as may be mutually agreed, from time to time, between the
Company and Consultant. Consultant will provide at least 20 days of sales
consulting services per year. The specific terms of such projects, including the
detailed description of the work to be performed and the completion date of any
project, if any, shall be required to be set forth in writing, in which case
such terms shall constitute an addendum to this Agreement.
2. START DATE: October 1, 1999
COMPLETION DATE: Automatically renew upon anniversary date for
successive one year terms unless 30 days' advance written notice is given.
3. PERSON(S) WHO ARE TO PERFORM THE WORK:
James R. Butler
4. AUTHORIZED REPRESENTATIVE OF THE COMPANY:
The character of Consultant's services shall be subject to the
assignment and direction of Geoffrey Cox, Ph.D., who will be designated as the
"Director." Further, the character and scope of Consultant's services may be
revised by mutual agreement between Consultant and the Company and such revision
will be evidenced by a formal bilateral modification to the Consulting Agreement
or this Description of Work signed between Consultant and an authorized officer
of the Company. The Director and the Chief Executive Officer of the Company
shall be the only individuals authorized to designate any project to be covered
by this Agreement, sign any modification or addendum to this Agreement or the
Description of Work, and direct the activities of Consultant under this
Agreement.
5. SCHEDULE PERFORMANCE:
If at any time during the performance of this contract any phase of the
required tasks appear to be impossible of execution or if any phase cannot be
completed on schedule, it is agreed that Consultant will notify the Company
within one (1) day of such determination. At the time of such notification
Consultant shall explain to the Company why a particular task is impossible to
complete and propose alternative procedures for achieving the desired result.
6. REPORT SCHEDULE:
Reports, if any, to be as specified in an addendum to this Agreement.
7. PAYMENT:
5
<PAGE> 6
As consideration for all services to be rendered and performed under
this Agreement and for assigning the rights to inventions, designs, patents,
trademarks, and copyrights as provided in the Consulting Agreement, Consultant
will be paid a consulting fee of $2,500.00 per month, 50% payable in Aronex
Pharmaceuticals, Inc. common stock and 50% in cash. The cash will be paid on a
monthly basis and the stock will be issued quarterly. The number of shares of
Common Stock to be granted shall be determined by reference to the fair market
value of the Common Stock as of the first day of each month.
8. EXPENSES:
The Company agrees to reimburse Consultant for the following expenses
incurred in connection with the performance of Consultant?s services under this
Agreement:
<TABLE>
<CAPTION>
Yes No
--- --
<S> <C> <C> <C>
- Routine out-of-pocket expense X
- Local travel X
- Long distance travel at the direction X
of the Director or President
- Other - as approved in advance X
</TABLE>
CONSULTANT: COMPANY:
JAMES R. BUTLER ARONEX PHARMACEUTICALS, INC.
By: /s/ JAMES R. BUTLER By: /s/ GEOFFREY F. COX
------------------------- ------------------------------
Name: James R. Butler Name: Geoffrey F. Cox, Ph.D.
----------------------- ----------------------------
Title: CEO
---------------------------
Date: September 23, 1999 Date: September 21, 1999
----------------------- ----------------------------
6
<PAGE> 1
EXHIBIT 10.3
CONSULTING AGREEMENT
This CONSULTING AGREEMENT (this "Agreement") is entered into as of the
effective date specified below by and between ARONEX PHARMACEUTICALS, INC., a
Delaware corporation (the "Company"), and the undersigned consultant whose name
and address appear below ("Consultant"). The Company and Consultant hereby agree
as follows:
1. CONSULTING SERVICES. Consultant is hereby engaged by the Company as
an independent contractor, and not as an employee, to carry out the project
specified in the Description of Work attached hereto as Exhibit A, on the terms
and conditions set forth in such Description of Work.
2. TERM. This Agreement shall commence on October 1, 1999 and shall
automatically renew for successive one year periods. This Agreement may be
terminated by Consultant or Company, with or without "cause" (as defined below),
by giving 30 days' advance written notice thereof to the other party hereto. In
addition, this Agreement may be terminated by the Company immediately for
"cause." For purposes of this Agreement, "cause" shall be deemed to exist for
termination of this Agreement by the Company in the event (i) Consultant is not
performing in compliance with the Description of Work, (ii) Consultant has
engaged in personal conduct which (in the good faith determination of the
Company) would materially injure the goodwill or reputation of the Company or
otherwise materially adversely affect the interests of the Company or (iii) of
any breach by Consultant of the obligations contained in this Agreement or any
other agreement between the Company and Consultant.
In the event of any termination of this Agreement prior to completion
of the term of this Agreement pursuant to the above provisions (whether with or
without "cause"), the Company's sole liability thereupon will be to pay
Consultant any unpaid balance due for work performed up to and including the
date of termination, if applicable.
3. INDEPENDENT CONTRACTOR. It is agreed that Consultant's services are
made available to the Company on the basis that Consultant will retain
Consultant's individual professional status and that Consultant's relationship
with the Company is that of an independent contractor and not that of an
employee. Consultant will not be eligible for any employee benefits, nor will
the Company make deductions from its fees to Consultant for taxes, insurance,
bonds or any other subscription of any kind. Consultant will use Consultant's
own discretion in performing the tasks assigned, within the scope of work
specified by the Company. Consultant agrees to indemnify and hold the Company
harmless from and against any claim made by any third party against the Company
based in whole or in part upon any action by Consultant or any of Consultant's
employees, associates, consultants, agents, representatives, assignees or
successors in interest (collectively, "Consultant's Associates"), which occurs
pursuant to or in connection with this Agreement or the relationship or
relationships contemplated by this Agreement.
4. CONFIDENTIAL INFORMATION. Consultant agrees that Consultant, and all
of Consultant's Associates, shall keep in strictest confidence all information
relating to the products, materials, programs, algorithms, designs, trade
secrets, secret processes, customers and markets of the Company and all other
confidential knowledge, data and information related to the business or affairs
of the Company (collectively, "Confidential Information") that may be acquired
pursuant to or in connection with this Agreement or the relationship or
relationships contemplated by this Agreement. During and after the term of this
Agreement, neither Consultant nor any of Consultant's Associates will, without
the prior written consent of an officer of the Company, publish, communicate,
disclose or use for any purpose any of such Confidential Information. Upon
termination of this Agreement, Consultant will return to the Company all
records, data, notes, reports, printouts, sketches, material, equipment and
other documents or property, and all
1
<PAGE> 2
reproductions of any of the foregoing, furnished by the Company or developed or
prepared pursuant to the relationship hereunder.
Notwithstanding the foregoing, it is agreed that Confidential
Information shall not include any (i) information which is or becomes through no
fault of Consultant or any of Consultant's Associates generally known to the
public, and (ii) Consultant's and Consultant's Associates' skill, knowledge,
know-how and experience.
5. ASSIGNMENT OF INTELLECTUAL PROPERTY. Consultant agrees to transfer
and assign and hereby does transfer and assign to the Company the entire right,
title and interest for the entire world in and to all data, materials, software,
designs, models, algorithms, writings, drawings, notebooks, documents,
photographs, inventions and discoveries (collectively, "Inventions") made or
conceived or reduced to practice by Consultant or any of Consultant's Associates
(i) in the course of accomplishing the work described on the Description of Work
attached as Exhibit A hereto, (ii) in the course of accomplishing other work
performed pursuant to the relationship established by this Agreement, or (iii)
with the use of materials or facilities of the Company.
Consultant agrees that Consultant and each of Consultant's Associates
will sign, execute and acknowledge, or cause to be signed, executed and
acknowledged, at the expense of the Company, any and all documents, and will
perform any and all acts, as may be necessary, useful or convenient for the
purpose of securing to the Company or its nominee patent, trademark or copyright
protection throughout the world upon all such Inventions. At the request of the
Company, Consultant will have each of Consultant's Associates with access to
Confidential Information of the Company or who performs work pursuant to this
Agreement to sign an agreement in form substantially identical to this
Agreement.
6. LICENSE RIGHTS. In the event that Consultant recommends to the
Company that the Company make use of devices and/or processes covered by patents
and/or patent applications which Consultant may own or control, Consultant will
then so inform the Company, and in the event that the Company shall follow
Consultant's recommendation and Consultant has the right to grant a license
under such patents and/or patent applications, then Consultant will grant to the
Company a license on reasonable terms which are no less favorable than those
granted by Consultant to any other licensee.
7. REPRESENTATIONS OF CONSULTANT AND THE COMPANY.
1. Consultant represents and warrants to the Company that (i)
this Agreement is a valid and binding obligation of Consultant, enforceable
against Consultant in accordance with its terms, and (ii) his execution and
delivery of, and performance of his services and other obligations under, this
Agreement will not result in the breach or violation of applicable law or any
agreement to which he is a party.
2. The Company represents and warrants to Consultant that (i)
this Agreement has been duly and validly authorized by the Company and is a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms, and (ii) its execution and delivery of, and
performance of its obligations under, this Agreement will not result in the
breach or violation of applicable law or any agreement to which it is a party.
2
<PAGE> 3
8. MISCELLANEOUS.
1. Effective Date. This Agreement shall be effective as of the
effective date specified below, and it is expressly agreed to by Consultant and
the Company that all the provisions hereof shall apply as if this Agreement had
been entered into on such date.
2. Survival of Terms. The provisions of paragraphs 4, 5 and 6
hereof shall survive termination of this Agreement.
3. Successors and Assigns. This Agreement may not be assigned
by Consultant without the written consent of the Company. This Agreement shall
be binding on all of Consultant's Associates, all of Consultant's heirs,
executors, administrators and legal representatives, and all of Consultant's
successors in interest and assigns, and shall be for the benefit of the Company,
its successors and its assigns.
4. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Texas as they
apply to contracts entered into and wholly to be performed in Texas.
5. Severability. If one or more of the provisions in this
Agreement are deemed void by law, then the remaining provisions will continue in
full force and effect.
6. Amendment. Neither this Agreement nor the Description of
Work may be amended except by a written agreement modifying the appropriate
document duly executed by Consultant and an officer of the Company.
7. Entire Agreement. This Agreement, together with the
Description of Work attached hereto and any other confidentiality agreement
previously or subsequently entered into by the Company and Consultant,
constitutes the sole and complete agreement of the parties with respect to the
matters included herein, and supersedes any previous oral or written agreement,
if any, relating to the subject matters included herein.
8. No Conflict. Consultant represents and warrants that this
Agreement does not conflict with any other agreement or term of employment
applicable to or binding upon the Consultant as of the date hereof and that
Consultant will promptly notify the Company in the event that any such conflict
does arise during the term hereof.
9. Construction. Each party to this Agreement has had the
opportunity to review this Agreement with legal counsel. This Agreement shall
not be construed or interpreted against any party on the basis that such party
drafted or authored a particular provision, parts of or the entirety of this
Agreement.
3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been executed on the date set
forth below, and shall be effective as of the date specified.
CONSULTANT: COMPANY:
DAVID J. MCLACHLAN ARONEX PHARMACEUTICALS, INC.
By: /s/ DAVID J. MCLACHLAN By: /s/ GEOFFREY F. COX, PH.D.
--------------------------------- --------------------------------
Name: David J. McLachlan Name: Geoffrey F. Cox, Ph.D.
------------------------------- ------------------------------
Title: CEO
-----------------------------
Date: September 30, 1999 Date: September 28, 1999
------------------------------- ------------------------------
Effective Date: October 1, 1999
4
<PAGE> 5
EXHIBIT A
ARONEX PHARMACEUTICALS, INC.
DESCRIPTION OF WORK
(CONSULTING AGREEMENT DATED OCTOBER 1, 1999)
1. DETAILED DESCRIPTION OF WORK:
Consultant will perform work under this Agreement regarding accounting
and financial matters, as may be mutually agreed, from time to time, between the
Company and Consultant. Consultant will provide at least 20 days of consulting
services per year. The specific terms of such projects, including the detailed
description of the work to be performed and the completion date of any project,
if any, shall be required to be set forth in writing, in which case such terms
shall constitute an addendum to this Agreement.
2. START DATE: October 1, 1999
COMPLETION DATE: Automatically renew upon anniversary date for
successive one year terms unless 30 days' advance written notice is given.
3. PERSON(S) WHO ARE TO PERFORM THE WORK:
David J. McLachlan
4. AUTHORIZED REPRESENTATIVE OF THE COMPANY:
The character of Consultant's services shall be subject to the
assignment and direction of Geoffrey Cox, Ph.D., who will be designated as the
"Director." Further, the character and scope of Consultant's services may be
revised by mutual agreement between Consultant and the Company and such revision
will be evidenced by a formal bilateral modification to the Consulting Agreement
or this Description of Work signed between Consultant and an authorized officer
of the Company. The Director and the Chief Executive Officer of the Company
shall be the only individuals authorized to designate any project to be covered
by this Agreement, sign any modification or addendum to this Agreement or the
Description of Work, and direct the activities of Consultant under this
Agreement.
5. SCHEDULE PERFORMANCE:
If at any time during the performance of this contract any phase of the
required tasks appear to be impossible of execution or if any phase cannot be
completed on schedule, it is agreed that Consultant will notify the Company
within one (1) day of such determination. At the time of such notification
Consultant shall explain to the Company why a particular task is impossible to
complete and propose alternative procedures for achieving the desired result.
6. REPORT SCHEDULE:
Reports, if any, to be as specified in an addendum to this Agreement.
7. PAYMENT:
5
<PAGE> 6
As consideration for all services to be rendered and performed under
this Agreement and for assigning the rights to inventions, designs, patents,
trademarks, and copyrights as provided in the Consulting Agreement, Consultant
will be paid a consulting fee of $2,500.00 per month, 50% payable in Aronex
Pharmaceuticals, Inc. common stock and 50% in cash. The cash will be paid on a
monthly basis and the stock will be issued quarterly. The number of shares of
Common Stock to be granted shall be determined by reference to the fair market
value of the Common Stock as of the first day of each month.
8. EXPENSES:
The Company agrees to reimburse Consultant for the following expenses
incurred in connection with the performance of Consultant's services under this
Agreement:
<TABLE>
<CAPTION>
Yes No
--- --
<S> <C> <C> <C>
- Routine out-of-pocket expense X
- Local travel X
- Long distance travel at the direction X
of the Director or President
- Other - as approved in advance X
</TABLE>
CONSULTANT: COMPANY:
DAVID J. MCLACHLAN ARONEX PHARMACEUTICALS, INC.
By: /s/ David J. McLachlan By: /s/ Geoffrey F. Cox
------------------------- ------------------------------
Name: David J. McLachlan Name: Geoffrey F. Cox, Ph.D.
----------------------- ----------------------------
Title: CEO
---------------------------
Date: September 30, 1999 Date: September 28, 1999
----------------------- ----------------------------
6
<PAGE> 1
EXHIBIT 11.1
ARONEX PHARMACEUTICALS, INC. AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
The following reflects the information used in calculating the number of shares
in the computation of net loss per share for each of the periods set forth in
the Statements of Operations.
<TABLE>
<CAPTION>
INCOME
AVERAGE (LOSS)
DAYS SHARES INCOME PER
SHARES OUTSTANDING SHARES X DAYS OUTSTANDING (LOSS) SHARE
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1998:
15,459,166 11 170,050,826
15,460,684 71 1,097,708,564
15,465,729 1 15,465,729
15,467,281 98 1,515,793,538
15,497,443 92 1,425,764,756
15,503,745 1 15,503,745
274 4,240,287,158 /274 15,475,501 (16,546,000) (1.07)
NINE MONTHS ENDED SEPTEMBER 30, 1999: 16,379,309 3 49,137,927
16,415,664 50 820,783,200
22,415,664 14 313,819,296
22,463,211 21 471,727,431
22,474,987 1 22,474,987
22,494,671 1 22,494,671
22,495,050 64 1,439,683,200
22,496,505 26 584,909,130
22,555,435 1 22,555,435
22,555,977 8 180,447,816
22,560,179 27 609,124,833
22,697,866 20 453,957,320
22,719,999 6 136,319,994
22,723,765 3 68,171,295
22,723,927 13 294,411,051
22,773,927 5 113,869,635
22,775,753 9 204,981,777
22,788,071 1 22,788,071
273 5,832,657,069 /273 21,365,044 (7,305,000) (0.34)
QUARTER ENDED SEPTEMBER 30, 1998:
15,497,443 91 1,410,267,313
15,503,745 1 15,503,745
92 1,425,771,058 /92 15,497,512 (6,059,000) (0.39)
QUARTER ENDED SEPTEMBER 30, 1999: 22,555,977 8 180,447,816
22,560,179 27 609,124,833
22,697,866 20 453,957,320
22,719,999 6 136,319,994
22,723,765 3 68,171,295
22,723,927 13 295,411,051
22,723,927 5 113,869,635
22,775,753 9 204,981,777
22,788,071 1 22,788,071
92 2,085,071,792 /92 22,663,824 (5,399,000) (0.24)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF ARONEX PHARMACEUTICALS, INC. SET FORTH IN THE COMPANY'S
FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1999
<CASH> 15,884,000
<SECURITIES> 8,442,000
<RECEIVABLES> 857,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 24,823,000
<PP&E> 5,445,000
<DEPRECIATION> 3,319,000
<TOTAL-ASSETS> 27,876,000
<CURRENT-LIABILITIES> 4,354,000
<BONDS> 0
0
0
<COMMON> 23,000
<OTHER-SE> 19,881,000
<TOTAL-LIABILITY-AND-EQUITY> 27,876,000
<SALES> 0
<TOTAL-REVENUES> 11,757,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 18,805,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,000
<INCOME-PRETAX> (7,305,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,305,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,305,000)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
