<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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
For the transition period from _________ to __________
Commission File No. 0-19153
________________________
NEXELL THERAPEUTICS INC.
(Exact name of Registrant as specified in its Charter)
________________________
Delaware 06-1192468
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification No.)
9 Parker, Irvine, CA 92618
(Address of principal executive offices)
Registrant's telephone number, including area code: (949) 470-9011
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 [_]
The aggregate number of Registrant's shares outstanding on November 12, 1999
was 72,714,901 shares of Common Stock, $.001 par value.
________________________
<PAGE>
NEXELL THERAPEUTICS INC.
INDEX
-----
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited) as of
September 30, 1999 and December 31, 1998.................... 3
Condensed Consolidated Statements of Operations (unaudited)
for the three and nine months ended September 30, 1999
and 1998.................................................... 4
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1999 and 1998....... 5
Notes to Condensed Consolidated Financial
Statements (unaudited)...................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................... 16
Item 2. Changes in Securities and Use of Proceeds....................... 16
Item 3. Defaults upon Senior Securities................................. 16
Item 4. Submission of Matters to a Vote of Security Holders............. 16
Item 5. Other Information............................................... 16
Item 6. Exhibits and Reports on Form 8-K................................ 16
SIGNATURES...................................................................... 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 18,162,000 $ 33,091,000
Trade receivables 1,826,000 --
Receivables from related party 293,000 2,450,000
Inventory - finished goods 4,764,000 2,389,000
Other current assets 1,527,000 842,000
---------------- ---------------
Total current assets 26,572,000 38,772,000
Fixed assets, net 11,116,000 10,942,000
Intangible assets, net 44,106,000 37,635,000
Other assets 1,059,000 252,000
---------------- ---------------
Total assets $ 82,853,000 $ 87,601,000
================ ===============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 5,388,000 $ 4,508,000
Accounts payable to related party 12,158,000 1,979,000
Long-term debt, current portion -- 96,000
Capital leases current portion 116,000 172,000
---------------- ---------------
Total current liabilities 17,662,000 6,755,000
Long-term debt due to related party 33,583,000 32,031,000
---------------- ---------------
Total liabilities 51,245,000 38,786,000
---------------- ---------------
Commitments and contingencies -- --
SHAREHOLDERS' EQUITY
Class A Convertible Preferred Stock; $.001 par value
1,150,000 authorized shares; 70,282 issued and outstanding at
September 30, 1999 and at December 31, 1998 (liquidation value 100 100
$73,598,000 and $70,458,000).
Common Stock; $.001 par value, 160,000,000 shares authorized,
72,715,000 and 67,830,000 shares issued and outstanding
at September 30, 1999 and December 31, 1998, respectively. 73,000 68,000
Additional paid-in capital 192,319,900 182,537,900
Unearned compensation (216,000) (278,000)
Accumulated other comprehensive income (loss) (4,000) 20,000
Accumulated deficit (160,565,000) (133,533,000)
---------------- ---------------
Total shareholders' equity 31,608,000 48,815,000
---------------- ---------------
Total liabilities and shareholders' equity $ 82,853,000 $ 87,601,000
================ ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 2,243,000 $ 3,039,000 $ 9,320,000 $ 9,125,000
Cost of goods sold 1,920,000 1,841,000 6,657,000 5,998,000
------------ ------------ ------------ ------------
Gross profit 323,000 1,198,000 2,663,000 3,127,000
------------ ------------ ------------ ------------
Operating expenses:
Research and development 5,382,000 5,668,000 13,623,000 20,640,000
General and administrative 3,147,000 2,536,000 7,657,000 8,383,000
Goodwill amortization 1,017,000 883,000 2,764,000 2,644,000
Selling and marketing 3,023,000 1,305,000 5,146,000 3,161,000
Restructuring costs -- 1,930,000 504,000 1,930,000
------------ ------------ ------------ ------------
Total operating expenses 12,569,000 12,322,000 29,694,000 36,758,000
Operating (loss) (12,246,000) (11,124,000) (27,031,000) (33,631,000)
------------ ------------ ------------ ------------
Other (income) expenses:
Royalty, licensing and other related
income (622,000) (52,000) (924,000) (472,000)
Royalty expense 30,000 -- 70,000 100,000
Minority interest in net loss of
consolidated subsidiaries -- (925,000) -- (3,842,000)
Contract settlement -- 900,000 -- 900,000
Interest income (255,000) (674,000) (844,000) (2,156,000)
Interest expense 523,000 498,000 1,553,000 1,544,000
Other, net -- (219,000) 146,000 22,000
------------ ------------ ------------ ------------
Total other (income) expenses, net (324,000) (472,000) 1,000 (3,904,000)
Net (loss) (11,922,000) (10,652,000) (27,032,000) (29,727,000)
Preferred stock dividends (1,051,000) (986,000) (3,142,000) (2,962,000)
------------ ------------ ------------ ------------
Net (loss) applicable to common stock $(12,973,000) (11,638,000) (30,174,000) (32,689,000)
============ ============ ============ ============
Basic and diluted loss per share $ (0.18) $ (0.17) $ (0.43) $ (0.49)
------------ ------------ ------------ ------------
Weighted average number of shares of
common stock outstanding-basic and diluted 72,672,000 67,494,000 70,997,000 67,099,000
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
NEXELL THERAPEUTICS INC. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................................. $(27,032,000) $(29,727,000)
Adjustments to reconcile net (loss) to net cash (used in) operating
Activities:
Depreciation and amortization..................................... 5,126,000 5,459,000
Noncash compensation.............................................. 143,000 128,000
Closure of facilities and related costs........................... 112,000 1,930,000
Minority interest in net loss..................................... -- (3,842,000)
Changes in operating assets and liabilities:
Increase in trade receivables.................................... (1,826,000) --
Increase in other current assets and other assets................ (3,842,000) (269,000)
Decrease in receivable from related party........................ 2,157,000 3,575,000
Increase in accounts payable and accrued expenses................ 880,000 4,751,000
Increase in accounts payable to related party.................... 10,179,000 1,272,000
------------ ------------
Net cash (used in) operating activities................................ (14,103,000) (16,723,000)
------------ ------------
Cash flows from investing activities:
Unrealized gain on securities........................................ -- 570,000
Purchases of equipment............................................... (2,675,000) (1,337,000)
Proceeds from sale of equipment...................................... 150,000 --
------------ ------------
Net cash (used in) investing activities................................ (2,525,000) (767,000)
Cash flows from financing activities:
Proceeds from issuance of common stock in connection with the
exercise of underwriter options................................... 921,000 --
Repurchase/retirement of common stock................................ (627,000) --
Increase in long term debt due to related party...................... 1,552,000 1,469,000
Repayment of long term debt.......................................... (96,000) --
Repayment of capital leases.......................................... (56,000) (253,000)
------------ ------------
Net cash provided by financing activities......................... 1,694,000 1,216,000
------------ ------------
Effect of exchange rate changes on cash................................ 5,000 11,000
------------ ------------
Net decrease in cash and cash equivalents.............................. (14,929,000) (16,263,000)
Cash and cash equivalents at beginning of period....................... 33,091,000 57,830,000
------------ ------------
Cash and cash equivalents at end of period............................. $ 18,162,000 $ 41,567,000
============ ============
Supplemental disclosure of cash flow information:
. Cash paid during the period for:
--- Interest 1,000 60,000
--- Income Taxes -- --
Non-cash investing and financing activities:
. In January 1999, the Company issued 1,882,215 shares of common stock valued at $3,000,000 in exchange
for certain intangible assets.
. In May 1999, the Company issued 3,000,000 shares of common stock valued at $6,282,000 to Baxter
Healthcare Corporation in exchange for its minority interest in Nexell of California, Inc.
. In June 1999, the Company issued 70,000 shares of common stock valued at $153,000 to certain Innovir
shareholders in exchange for their outstanding Innovir preferred stock.
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
NEXELL THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(unaudited)
(1) Financial Statement Presentation
The unaudited condensed consolidated financial statements and notes thereto
of Nexell Therapeutics Inc. ("Nexell") and subsidiaries (collectively, the
"Company") herein have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"), and in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the results of operations for the
interim periods presented. Certain information and footnote disclosures
normally included in financial statements, prepared in accordance with
generally accepted accounting principles, have been condensed or omitted
pursuant to such rules and regulations. However, management believes that
the disclosures are adequate to make the information presented not
misleading. These condensed consolidated unaudited financial statements and
notes thereto have been prepared in conformity with the accounting
principles applied in our 1998 Annual Report on Form 10-K for the year ended
December 31, 1998 and should be read in conjunction with such Report. The
results for the interim periods are not necessarily indicative of the
results for the full fiscal year.
(2) Principles of Consolidation
These condensed consolidated financial statements include the accounts of
Nexell, Nexell of California, Inc. ("NCI") and its subsidiary, VIMRX
Genomics, Inc. ("VGI"), Innovir Laboratories, Inc. ("Innovir") and its
subsidiaries. All significant intercompany balances and transactions have
been eliminated.
(3) Comprehensive Loss
The Company's total comprehensive loss is summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss $(11,922,000) $ 10,652,000 $(27,032,000) $(29,727,000)
Foreign currency translation (9,000) (83,000) (24,000) 76,000
adjustment
Unrealized gain on investments -- 444,000 -- 570,000
--------------------------------------------------------------
Total comprehensive loss $(11,913,000) $(10,291,000) $(27,056,000) $(29,081,000)
==============================================================
</TABLE>
6
<PAGE>
(4) Per Share Information
Stock options and warrants outstanding were excluded from the computation of
diluted loss per share as the impact would be antidilutive. As of September
30, 1999, the Company had 8,669,000 stock options, 7,643,000 warrants
outstanding, and Series A preferred stock which is convertible into
25,557,090 shares of Nexell's common stock, $.001 par value (the "Common
Stock").
(5) Restructuring Costs
In 1998, the Company discontinued funding its 85% owned subsidiary, Innovir,
and in order to reduce operating expenses, Innovir closed all operations and
discontinued research and development activities. Innovir continues to seek
partners, licensees or purchasers of its technology.
The three Innovir operating locations, Cambridge, England; Gottingen,
Germany; and New York, New York, were closed in 1998. The total number of
employees terminated as a result of the restructuring was 44, all of which
were terminated by December 31, 1998. Termination payments, however,
continued into 1999.
Fixed assets of the closed facilities, consisting mainly of laboratory
equipment, were sold or are held for sale. Costs of $2,625,000 related to
the restructuring were expensed in 1998. During the first nine months of
1999, the Company made restructuring related cash payments of $243,000. The
balance of the remaining restructuring related accrual was $123,000 at
September 30, 1999, and cash payments will be made throughout the remainder
of 1999.
In January 1999, the Company announced that it intended to acquire 100% of
its 80.5% held subsidiary, NCI, and to restructure the Company by changing
its name from VIMRX Pharmaceuticals Inc. to Nexell Therapeutics Inc. and
relocating its corporate headquarters to NCI's offices in Irvine,
California. This transaction was completed during May 1999. A total of eight
employees were terminated as a result of the restructuring. Related expenses
consist of the following:
<TABLE>
<CAPTION>
Restructuring Payments Balance
Provision Made/Applied September 30, 1999
---------------------------------------------------
<S> <C> <C> <C>
Severance related $392,000 $351,000 $41,000
Fixed asset impairment 112,000 112,000 --
---------------------------------------------------
Total $504,000 $463,000 $41,000
===================================================
</TABLE>
7
<PAGE>
(6) Restructuring of Sales, Marketing and Distribution Arrangement with Baxter
Effective June 30, 1999, Nexell signed final agreements with Baxter Healthcare
Corporation ("Baxter") for the transfer of sales, marketing and distribution
responsibilities for the Company's Isolex(R) systems and other cell therapy
products from Baxter to Nexell, giving Nexell direct control of sales and
distribution of such products. Baxter will receive royalties on Nexell's sales
of Isolex(R) and related products. As part of this process, Nexell repurchased
inventory previously sold to Baxter. The agreements are being handled
separately for the U.S. and the non-U.S. closings. The cost of repurchasing the
U.S. inventory is reflected as a reduction in Nexell's reported second quarter
sales, and the European inventory repurchase is reflected as a reduction in
third quarter sales. Nexell recorded related charges associated with the U.S.
transfer of approximately $500,000 at June 30, 1999 and approximately $400,000
at September 30, 1999. Baxter will continue to manufacture and provide
equipment service support for the Isolex(R) systems and also agreed to provide a
$20,000,000 line of credit. The full integration of U.S. sales and distribution
operations by Nexell called for in the agreement, including the transfer of
certain Baxter personnel to Nexell's new 20-person U.S. field sales group, has
been completed. An interim arrangement is in place in Europe until the
completion of the European transition, currently expected to be finalized by the
end of the fourth quarter of 1999. European operations will be based in
Nexell's new European headquarters in Belgium.
Under the Credit Agreement with Baxter effective June 30, 1999, the Company may
borrow up to $20,000,000 in no more than three advances until the Termination
Date, with no more than one advance in any calendar quarter. The Company
currently has no outstanding borrowing under this line of credit. Interest on
each advance accrues at the rate of 6.5% per annum until December 31, 2001, and
thereafter becomes payable quarterly with the final installment due on October
1, 2006. The Termination Date is the earlier of September 30, 2000, the maturity
date or a Financing Event, defined in the Agreement as a financing where the net
cash proceeds to the Company equal or exceed $50,000,000.
(7) Acquisition of CellPro Assets
On January 29, 1999, NCI consummated an agreement with CellPro Incorporated
("CellPro"), formerly one of NCI's principal competitors, to purchase
substantially all the intellectual property assets of CellPro, together with
certain related tangible and intangible assets in exchange for 1,882,215 shares
of Common Stock, valued by the parties at $3,000,000.
In March 1999, the Company repurchased from CellPro 627,405 shares of Common
Stock at $1.00 per share.
(8) Acquisition of Minority Interest in NCI
In May 1999, Nexell changed its name from VIMRX Pharmaceuticals Inc. to Nexell
Therapeutics Inc. and acquired the minority interest of Baxter in the Company's
principal business unit and then 80.5% subsidiary, Nexell of California, Inc.
(formerly Nexell Therapeutics Inc.). NCI is now a wholly-owned subsidiary of
Nexell. Baxter retained its right to certain milestone payments in NCI.
8
<PAGE>
Baxter's 19.5% interest in NCI (consisting of common stock, warrants and
convertible subordinated debentures), was exchanged for:
. 3,000,000 shares of Common Stock;
. an adjustment of the conversion price of the 70,282 outstanding shares of the
Company's Series A Preferred Stock owned by Baxter from $5.50 per share to
$2.75 per share, which Series A Preferred Stock is convertible after June 17,
1999 into approximately 25,577,000 shares of Common Stock, subject to
adjustment for stock splits and combinations, certain dividends and
distributions and reclassification, exchange or substitution;
. a warrant expiring May 27, 2006 to purchase 5,200,000 shares of Common Stock
at a price of $1.15 per share, subject to adjustment from time to time in the
event of cash dividends, stock dividends, stock subdivisions, stock splits,
stock combinations or reverse stock splits; and
. $32,884,537.50 principal amount of 6 1/2% Convertible Subordinated Debentures
("Debentures") (replacing the $30,000,000 principal amount of Nexell's 6 1/2%
convertible subordinated debentures plus accrued interest through the closing
date of the acquisition) convertible, commencing November 30, 2002, into
Common Stock at a conversion price equal to 95% of the average of the closing
prices of the Common Stock on the NASDAQ Stock Market for the 30 consecutive
trading days preceding the date of conversion. The Debentures bear interest at
6 1/2% per annum and are due November 30, 2004. Interest accrues until
November 30, 2002, and, together with one-third of the outstanding principal,
is payable annually commencing November 30, 2002. Approximately $22,000,000 in
principal amount of Debentures is convertible into Common Stock commencing
November 30, 2002 at the discretion of Baxter, and approximately $11,000,000
in principal amount of Debentures is convertible only with the permission of
Nexell.
As a result of this transaction, the Company recorded approximately $6,282,000
in goodwill which is equal to the fair value of the Common Stock issued. Such
goodwill is being amortized over twelve years.
(9) Sale of Innovir Assets
On August 13, 1999 Innovir closed the sale of a family of patents and patent
applications to Ribozyme Pharmaceuticals, Inc. ("RPI"), a Boulder, Colorado-
based company engaged in the research and development of ribozyme technology.
The patent and patent applications sold are related to certain proprietary
chemically modified ribozymes. In the sale, Innovir received $25,000 cash,
134,000 shares of RPI common stock and seven-year warrants to purchase 350,000
additional shares of RPI common stock at $12.00 per share.
Additionally, on May 6, 1999, Innovir agreed to license to Amgen, Inc. certain
rights under two patents in consideration of $300,000. Innovir is continuing
its efforts to license or sell its technology to other parties.
9
<PAGE>
(10) Equity
In January 1999, DH Blair exercised 481,140 underwriter options to purchase
Common Stock at an exercise price of $1.91.
In May 1999, the Company issued 3,000,000 shares of Common Stock valued at
$6,282,000 to Baxter in exchange for Baxter's minority interest in NCI. Baxter
retains the rights to certain milestone payments.
In June 1999, the Company issued 70,000 shares of Common Stock valued at
$153,000 to certain Innovir shareholders in exchange for their outstanding
Innovir preferred stock.
10
<PAGE>
NEXELL THERAPEUTICS INC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q and with the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
Three Months Ended September 30, 1999 and 1998
For the quarter ended September 30, 1999, total revenues were $2,243,000, a
decrease of $796,000 compared to the quarter ended September 30, 1998. The 1998
revenues reflect product sales by NCI to its former distributor Baxter while the
1999 revenues reflect sales to the end-user customer. The decrease primarily
reflects the effect of the repurchase of $3,380,000 of non-U.S. inventory
previously sold to Baxter under the sales, marketing and distribution
arrangement with Baxter (the "Baxter Distribution Arrangement") which was
restructured on June 30, 1999, partially offset by increased sales to end-users.
The decrease in gross profit was the result of spreading substantially constant
costs over a smaller sales base, and the charges related to the European Baxter
Distribution Arrangement restructuring recorded in 1999.
Total operating expenses increased by $247,000 or 2% due to increases in selling
and marketing expenses of $1,718,000 or 132%, general and administrative
expenses of $611,000 or 24%, and goodwill amortization of $134,000 or 15%,
partially offset by decreases in research and development expenses of $286,000
or 5%, and restructuring costs of $1,930,000 or 100%.
The increase in selling and marketing expenses relates to the ramp up of NCI's
sales and marketing efforts for the U.S. launch of the Isolexa300 and
Isolexa300i, which received final approval from the U.S. Food and Drug
Administration ("FDA") on July 2, 1999 and costs related to the assumption of
direct sales and distribution responsibilities in Europe from Baxter in the
third quarter of 1999.
General and administrative expenses increased primarily due to costs related to
the Company's European operations and costs related to the assumption of direct
sales and distribution responsibilities in Europe from Baxter.
Goodwill amortization increased due to the amortization of CellPro intangible
assets acquired in the first quarter of 1999 and the additional amortization of
goodwill recorded in the second quarter of 1999 related to the acquisition of
Baxter's interest in NCI.
The decrease in research and development expenses results primarily from
discontinuing all Innovir operations and related research and development
activities and scaling back research programs within the Company for development
projects other than Hypericin, the Company's chemically synthesized hypericin
product, and the Company's wound healing agent, VM301.
11
<PAGE>
Restructuring expenses for a one-time charge for the closure of Innovir
facilities and related costs was recorded in the third quarter of 1998, while no
such costs were recorded during the same quarter of 1999.
Royalty, licensing and other related income increased $620,000. A $25,000 cash
payment, 134,000 shares of RPI common stock and seven-year warrants were
received from RPI in exchange for certain Innovir assets.
The minority interest in the net loss of consolidated subsidiaries was fully
recognized in 1998.
The decrease in interest income of $419,000 or 62% is due to the decrease in the
cash and cash equivalents average balance in 1999 as compared to the average
balance in the same period in 1998.
A contract settlement expense was recorded in the third quarter of 1998 related
to the termination of a research agreement with Columbia University, while no
such expense was recorded in the same period in 1999.
Nine Months Ended September 30, 1999 and 1998
For the nine months ended September 30, 1999, total revenues were $9,320,000, an
increase of $195,000 compared to the nine months ended September 30, 1998. The
increase primarily reflects the launch of the Isolex(R) 300i in the U.S.
following FDA approval on July 2, 1999, offset by the second quarter charge for
the U.S. inventory repurchase and the third quarter charge for the non-U.S.
inventory repurchase from Baxter, for a total of $4,767,000. Gross profit on
sales of $2,663,000 in the first nine months of 1999 represents a $464,000
decrease from the same period in 1998, primarily due to the charges related to
the Baxter Distribution Arrangement restructuring. The nine-month gross profit
percentage in 1999 at 29% is five percentage points below the same period in
1998, due primarily to the impact of the inventory repurchase and the charges
related to the Baxter Distribution Arrangement restructuring.
Total operating expenses decreased by $7,064,000 or 19% due to decreases in
research and development expenses of $7,017,000 or 34%, general and
administrative expenses of $726,000 or 9%, and restructuring costs of $1,426,000
or 74%, partially offset by an increase in sales and marketing expenses of
$1,985,000 or 63%.
The decrease in research and development expenses results primarily from
discontinuing all Innovir operations and related research and development
activities and scaling back research programs within the Company for development
projects other than Hypericin and VM301.
General and administrative expenses decreased primarily due to the closing of
Innovir operations and the relocation of the Company's headquarters to Irvine,
California, offset partially by the creation of a European operation
headquarters.
The increase in sales and marketing expenses relates to the ramp up of NCI's
marketing efforts for the U.S. launch of the Isolexa300 and Isolexa300i, which
received final approval from the FDA on July 2, 1999, and the assumption of the
direct sales and distribution responsibilities from Baxter.
12
<PAGE>
Costs related to the restructuring and relocation of the corporate headquarters
were expensed during the first quarter of 1999, and costs related to the closure
of Innovir facilities were recorded in the third quarter of 1998.
Royalty, licensing and other related income increased $452,000 due to
consideration received from RPI in exchange for certain Innovir assets.
The minority interest in the net loss of consolidated subsidiaries was fully
recognized in 1998.
The decrease in interest income of $1,312,000 or 61% is due to the decrease in
the cash and cash equivalents average balance in 1999, as compared to the
average balance in the same period in 1998, and a realized loss on investments,
which are classified as trading securities, for the first nine months of 1999 of
$330,000.
A contract settlement expense was recorded in the third quarter of 1998 related
to the termination of a research agreement with Columbia University, while no
such expense was recorded in the same period in 1999.
13
<PAGE>
Liquidity and Capital Resources
The Company had $18,162,000 in cash and cash equivalents as of September 30,
1999 as compared to $33,091,000 as of December 31, 1998, and working capital of
$8,910,000 at September 30, 1999 as compared to $32,017,000 at December 31,
1998. Most of the decrease in cash and cash equivalents resulted from cash used
in the operations of the Company of $14,103,000 and purchases of equipment for
$2,675,000. The decrease in working capital resulted from the decrease in cash
and the increase of approximately $6,700,000 in liabilities related to the
Baxter Distribution Arrangement restructuring.
Net cash used in operating activities decreased $2,620,000 or 16% from the nine
months ended September 30, 1998 due principally to discontinuing all Innovir
operations, scaling back research programs within the Company for development
projects other than Hypericin, VM301, and spending reductions related to the
relocation of the Company's headquarters to Irvine, California.
Effective June 30, 1999, Nexell signed a Credit Agreement with Baxter under
which the Company may borrow up to $20,000,000. The Company currently has no
outstanding borrowing under this line of credit. See Note (6) to the Condensed
Consolidated Financial Statements.
The Company expects to incur substantial expenditures in the foreseeable future
for the research and development and commercialization of its proposed products
as well as the step-up of sales and marketing activities at NCI. Based on
current projections, which are subject to change, the Company's management
believes that the current balance of cash and cash equivalents, together with a
$20 million line of credit available from Baxter, is sufficient to fund its
operations for approximately the next 24 months. Thereafter, the Company will
require additional funds, which it may seek to raise through public or private
equity or debt financings, collaborative or other arrangements with corporate
sources, or through other sources of financing. There can be no guarantee that
the Company's present cash and cash equivalents balance and the Baxter line of
credit will be sufficient to fund operations for the period expected, or that
additional funds will be available to the Company at the expiration of such
period on terms favorable to the Company, or at all.
Year 2000 Issues
The Company is aware of and has addressed many of the "Year 2000" issues
associated with both information technology ("IT") and non-IT systems which
could cause problems and network failures should the systems fail to recognize
year designations after 1999.
The Company has reviewed its own computer, communication, software and operating
systems and is satisfied they are Year 2000 compliant. Furthermore, the Company
has taken proactive measures to ensure the system servers and workstations have
been reprogrammed and are Year 2000 compliant.
The Company has upgraded all productivity, communication and accounting software
to meet Year 2000 compliance. The Company has tested the accounting systems
with the Year 2000 date and management is confident that they are compliant.
14
<PAGE>
The Company has completed most of the identification and testing in the third
quarter of 1999. The Company will complete its system-wide testing in the
fourth quarter of 1999 and intends to correct any system failures by the end of
the fourth quarter of 1999. The Company feels its Year 2000 risks are minimal.
The Company spent approximately $750,000 in 1998 to upgrade its systems which
brought it into Year 2000 readiness. Management does not expect any
significant additional upgrade costs.
The Company will continue to contact critical suppliers, collaborators, partners
and vendors to determine if their operations, as they relate to the Company, are
Year 2000 compliant. During the fourth quarter of 1999, the Company will
complete and implement certain contingency plans if any such critical third
parties are determined to be Year 2000 non-compliant.
Although the Company will take all practical measures to prevent problems
related with the Year 2000 issue, such problems and failures may occur which
could seriously affect the Company's operations. Because of the unprecedented
nature of such problems, the extent of the effect on the Company's operations
cannot be certain.
The Company's product lines all operate independently of the date or time of
day. Thus, the transition to the year 2000 is not expected to affect their
operation.
Disclosure Regarding Forward Looking Statements
This Report on Form 10-Q contains certain statements that are "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.
Those statements include, among other things, the discussions of the Company's
expectations contained in "Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations." Although the Company believes
that the expectations reflected in Forward Looking Statements are reasonable,
management can give no assurance that such expectations will prove to have been
correct. Generally, these statements relate to business plans or strategies,
projected or anticipated benefits or other consequences of such plans or
strategies, or projections involving anticipated revenues, expenses, earnings,
levels of capital expenditures, liquidity or indebtedness or other aspects of
operating results of financial position. All phases of the operations of the
Company are subject to a number of uncertainties, risks and other influences
(including the timely commencement and success of the Company's clinical trials
and other research endeavors, delays in receiving FDA or other regulatory
approvals, the development of competing therapies and/or technologies, the terms
of any future strategic alliances, and the possible need for additional
capital), many of which are outside the control of the Company and any one of
which, or a combination of which, could materially affect the results of the
Company's operations and whether the Forward Looking Statements made by the
Company ultimately prove to be accurate.
15
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company maintains excess cash in a mutual fund, the "BlackRock Low Duration
Bond Portfolio" (the "Fund"), which invests in asset backed securities, bonds
and various other commercial obligations.
Two of the main risks disclosed by the Fund are interest rate risk and credit
risk. Typically, when interest rates rise, there is a corresponding decline in
the market value of bonds such as those held by the Fund. Credit risk refers to
the possibility that the issuer of the bond will not be able to make principal
and interest payments.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
---------
10.43 Letter Agreement dated as of April 15, 1999 between Filed herewith
Nexell and Richard L. Dunning. electronically
10.44 Letter Agreement dated as of August 20, 1999 between Filed herewith
Nexell and L. William McIntosh. electronically
10.45 Letter Agreement dated as of April 15, 1999 between Filed herewith
Nexell and David A. Jackson, Ph.D. electronically
27 Financial Data Schedule
16
<PAGE>
(b) Reports on Form 8-K:
-------------------
The Company filed a Current Report on Form 8-K filed July 9, 1999, under
Item 5, announcing the FDA approval to market the Isolex(R) magnetic cell
selection system, including the Isolex(R) 300 and the Isolex(R) 300i, in
the United States. FDA approval was effective July 2, 1999.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999
NEXELL THERAPEUTICS INC.
a Delaware Corporation
(Registrant)
By: /s/ Richard L. Dunning
----------------------------
Richard L. Dunning
Chairman of the Board and
Chief Executive Officer
By: /s/ William A. Albright
---------------------------------------
William A. Albright
Chief Financial Officer
18
<PAGE>
Exhibit 10.43
As of April 15, 1999
Mr. Richard L. Dunning
c/o VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, DE 19808
Dear Dick:
This letter agreement amends, modifies, clarifies and restates in all
respects the agreements dated March 27, 1996 and October 30, 1996 between you
and VIMRx Pharmaceuticals Inc. (the "Company") as to the terms and conditions of
your employment by the Company.
1. Effective on the consummation of the acquisition of the interest
of Baxter Healthcare Corporation in the Company's principal operating
subsidiary, Nexell Therapeutics Inc., you will act as Chairman and Chief
Executive Officer of the Company, and you will resign from the title of
President of the Company. In your capacity as Chairman and Chief Executive
Officer of the Company, you will report to the Company's Board of Directors. The
Company has caused you to be elected to its Board of Directors, as well as to
the Board of Directors of one or more subsidiaries of the Company, and, at the
option of the Board of Directors of the Company, you agree to serve, for no
additional compensation, as a Director of the Company and as a Director and/or
officer of any or all of its subsidiaries throughout the term of your
employment.
2. The term of your employment commenced on March 27, 1996, and shall
continue until terminated under the provisions of Paragraph 6 below. You are a
full-time employee of the Company and agree to devote your business and
professional time, energy and skills to the affairs of the Company and its
subsidiaries and to serve the Company faithfully and to the best of your
ability.
3. (a) As compensation for the services to be rendered by you
hereunder, the Company will pay you (i) a base salary of $200,000 per annum
(effective July 1, 1999), payable in installments in accordance with the
Company's regular payroll practices, and (ii) an annual cash bonus to be
determined in accordance with the provisions of subparagraph 3(d).
(b) You agree that effective April 15, 1999:
(i) the Incentive Stock Option Agreement to purchase
156,064 shares of the Company's Common Stock and that portion of the Non-
Incentive Stock Option Agreement to purchase 43,936 shares of the Company's
Common Stock, each between
<PAGE>
you and the Company and dated March 28, 1996 are hereby terminated in
consideration of the (x) grant to you under the 1990 Incentive and Non-Incentive
Stock Option Plan of an incentive stock option to purchase 200,000 shares of the
Company's Common Stock at $1.50 per share exercisable 33 1/3 % on October 15,
1999, 33 1/3 % on June 30, 2000 and 33 1/3 % on January 31, 2001 pursuant to the
terms of the Incentive Stock Option Agreement attached hereto, and (y) the
amendment of the Non-Incentive Stock Option Agreement between you and the
Company dated March 28, 1996 to change the exercise price thereunder with
respect to 600,000 shares from $2.5625 per share to $1.50 per share, pursuant to
the terms of the Amendment to March 28, 1996 Non-Incentive Stock Option
Agreement attached hereto.
(ii) All shares subject to the options will be registered on
Form S-8 as soon as practicable after the Board of Directors approves such
registration.
(c) You will be eligible to participate in the Company's
medical, dental, life and long-term disability insurance and other benefit
programs, including any 401(k) or other retirement plans, from time to time in
effect for the Company's senior executives, your participation in any such plans
to be in accordance with their respective terms and conditions. In lieu of
participation in the Company's medical and dental plans (if any) you may elect
to receive a $500 monthly allowance therefor.
(d) Your performance will be reviewed annually by the Company's
Board of Directors, in connection with which your annual cash bonus and possible
increases in your base compensation for the future will be discussed, it being
understood that any such decisions shall be within the discretion of the
Company's Board of Directors and/or its Compensation Committee (or other similar
committee duly appointed by the Company's Board of Directors). However, it is
further understood that the annual cash bonus is initially targeted at at least
33% of base compensation, assuming satisfactory performance. Notwithstanding the
foregoing, no bonus will be paid in 1999 in respect of calendar year 1998.
4. You will be entitled to take up to an aggregate of four weeks of
vacation each calendar year as business conditions permit, it being understood
that no more than one week of unused vacation per year of service with the
Company may be carried over to the succeeding year. The Company shall not be
required to provide any additional compensation to you for vacation time not
utilized by you.
5. (a) The Company will reimburse you for all reasonable and
documented business expenses incurred by you on behalf of the Company during the
term of your employment hereunder (including travel from Wilmington, Delaware to
Irvine, California) consistent with the Company's expense reporting policy (as
the same may be modified from time to time). Notwithstanding anything herein to
the contrary, the provisions of this Paragraph 5(a) shall survive the effective
date of termination of this Agreement for a period of six months.
(b) The Company will pay the cost of renting an apartment for
your use in the Irvine, California area, and will pay or reimburse you for your
living expenses in the Irvine, California area. In addition, the Company will
pay or reimburse you for the expenses
2
<PAGE>
of one trip per calendar quarter from Wilmington, Delaware to Irvine, California
and return for your spouse.
6. (a) Your employment hereunder may be terminated at any time by
the Company for Cause (as such term is hereinafter defined) or, upon at least 60
days' prior written notice by you or by the Company, without cause.
(b) In the event your employment is terminated by the Company
without Cause, this Agreement shall terminate immediately on the effective date
of termination of your employment; provided, however, that:
(i) you will be paid six months' base salary as severance
in monthly installments (in arrears) beginning the first full month following
the cessation of your employment with the Company; and
(ii) you will be entitled to receive any accrued but unpaid
salary earned by you through the effective date of such termination.
(c) No severance shall be paid or payable to you in the event
your employment is terminated for Cause, or you voluntarily resign from your
employment with the Company, in which events this Agreement shall terminate
immediately upon the effective date of termination of your employment or upon
the effective date of your resignation, respectively; provided, however, that
the Company shall nonetheless be obligated to pay you any accrued but unpaid
salary earned by you through the date of such termination.
(d) For purposes of this Agreement, termination for "Cause"
shall mean termination due to any or more of the following: (i) if you are
indicted for committing a felony or a decision or determination is rendered by
any court or governmental authority that you have committed any act involving
fraud, willful misconduct, dishonesty, breach of trust or moral turpitude; (ii)
if you willfully breach your duty of loyalty to, or commit an act of fraud or
dishonesty upon, the Company; (iii) if you demonstrate gross negligence or
willful misconduct in connection with your employment; (iv) if, in the
reasonable, good faith opinion of a majority of the Company's whole Board of
Directors (excluding yourself, if you shall then be a director of the Company),
you engage in personal misconduct of such a material nature as to render your
presence as Chairman and Chief Executive Officer detrimental to the Company or
its reputation and you fail to cure the same within five days after notice
thereof from the Company; or (v) if you commit a material breach of or a default
under any of the terms or conditions of this Agreement and you fail to cure such
breach or default within ten days after prior written notice thereof from the
Company.
(e) Your employment hereunder shall terminate immediately upon
your death or "permanent disability" (as such term is hereinafter defined). In
either such event, this Agreement shall terminate immediately upon the cessation
of your employment; provided, however, you (or your legal representative, as the
case may be) will be entitled to receive any accrued but unpaid salary earned by
you through the date of such termination, plus
3
<PAGE>
severance in monthly installments (in arrears), beginning the first full month
following the date of such termination, in an aggregate amount equal to the
positive difference, if any, between (x) the base salary you would have received
hereunder for the six months immediately following such termination date had
your employment continued for such six month period, and (y) the total monies
paid or payable to you with respect to such six month period under the long-term
disability insurance policy or policies maintained by the Company for your
benefit, if any. For purposes of this Agreement, the term "permanent disability"
shall have the meaning set forth in the long-term disability insurance policy or
policies then maintained by the Company for the benefit of its employees, or if
no such policy shall then be in effect, or if more than one such policy shall
then be in effect in which the term "permanent disability" shall be assigned
different definitions, then the term "permanent disability" shall be defined for
purposes hereof to mean any physical or mental disability or incapacity which
renders you incapable of fully performing the services required of you in
accordance with your obligations hereunder for a period aggregating 120 days
during any twelve month period.
(f) In the event of occurrence of any of the following events,
you shall have the right to terminate your employment with the Company on at
least 60 days' notice. Subject to the foregoing provisions of this Paragraph 6,
in the event such notice is given by you within 30 days of any one or more of
such events, such termination of employment shall be deemed termination of your
employment by the Company without "cause" within the meaning of this Paragraph
6:
(i) a material breach of or default under this Agreement by
the Company which is not cured by the Company within ten (10) days after its
receipt of written notice thereof from you; or
(ii) a material reduction in your duties or a material
interference with the exercise of your authority by the Company's Board of
Directors (not arising from any physical or mental disability you may sustain)
which would be inconsistent with the position of Chairman and Chief Executive
Officer of the Company and the same shall not have been alleviated by the
Company's Board of Directors within ten (10) days after its receipt of written
notice thereof from you.
(g) Notwithstanding anything in Paragraphs 6(b) or 6(c) above to
the contrary:
(i) you shall not have any obligation to the Company to
mitigate any termination of your employment whereby you would be required by the
Company promptly to seek, procure or commence substitute employment; and
(ii) in the event you do seek, procure or commence such
substitute employment, none of the income derived or to be derived by you
therefrom shall be setoff by the Company against the balance of any severance
payments, if any, owing to you by the Company under this Agreement.
4
<PAGE>
7. You hereby agree that you shall not, directly or indirectly,
during the term of your employment hereunder and until the expiration of one
year after you cease to be so employed by the Company, own, manage, operate,
join, control or become employed by, or render any services of any advisory
nature or otherwise, or participate in the ownership, management, operation or
control of, or otherwise be connected in any manner with, any business
competitive with the business of the Company without the Company's prior written
consent.
8. (a) You further hereby covenant and agree that you will not at
any time during, or (a) for a period of three (3) years following the
termination of, your employment with the Company, reveal, divulge or make known
to any person or entity any secrets or confidential information (whether oral,
written, or electronically encoded) whatsoever, of or concerning the Company or
its business or anything connected therewith, all of which is and shall remain
the property of the Company and shall be returned by you to the Company
(including all copies) immediately upon any termination of your employment (or
earlier, if requested by the Company), or (b) for a period of three (3) years
following the termination of your employment with the Company, directly or
indirectly entice away from the Company's employment, retain or otherwise
engage, any employee of the Company.
(b) For purposes hereof, confidential information shall not
include any information which: (i) is or becomes generally available to the
public other than as a result of a wrongful disclosure by you or your
representatives; (ii) was known by you on a non-confidential basis prior to its
disclosure to you by the Company or its representatives; (iii) becomes available
to you from a source other than the Company or its representatives, provided
that such source is not bound by a confidentiality agreement with the Company or
its representatives and otherwise has a right to disclose the same; or (iv) is
required to be disclosed by any governmental or judicial authority, provided, in
such case, that you shall use your best efforts to notify the Company
immediately of any such requirement so that the Company shall have an
opportunity to contest it.
9. In the event of any breach or threatened breach by you of any one
or more of the provisions of Paragraphs 7 (relating to non-competition) or 8
(relating to non-disclosure and non-enticement of employees) above, the Company
will be entitled, in addition to any remedy hereunder or under any applicable
law or in equity, to an injunction restraining the breach of such provisions
hereof.
10. You agree that the Company may, in its discretion, apply for and
take out in its name and at its own expense, and solely for its benefit, key man
life insurance on you in any amount deemed advisable by the Company to protect
its interests, and you agree that you shall have no right, title or interest
therein and further agree to submit to any medical or other examination and to
execute and deliver any application or other instruments in writing reasonably
necessary to effectuate such insurance.
11. You represent and warrant that you are not under any obligation,
restriction or limitation, contractual or otherwise, to any other individual or
entity which would
5
<PAGE>
prohibit or impede you from performing your duties and responsibilities
hereunder, and that you are free to enter into and perform the terms and
provisions of this Agreement.
12. Notwithstanding anything herein to the contrary, the provisions
of Paragraphs 7, 8, 9 and 11 hereof shall expressly survive the expiration or
termination of this Agreement regardless of the reason for, or cause of, any
such termination.
13. All notices, requests, demands, and other communications provided
for by this Agreement shall be in writing and shall be either personally
delivered (including by couriers such as FedEx) or sent by pre-paid certified
mail, return receipt requested, addressed to the address stated below of the
party to which notice is given, or to such changed address as such party may
have fixed by notice given in accordance with the terms hereof:
TO THE COMPANY:
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, DE 19808
Attn: President
TO RICHARD L. DUNNING:
Richard L. Dunning *
_______________________
Wilmington, DE 19807
Any notice, sent as provided above, shall be deemed given upon receipt at the
address provided for above (or, in the event delivery is refused, the first date
on which delivery was tendered).
14. This Agreement contains the entire agreement and understanding
between the parties relating to the subject matter hereof and supersedes any and
all prior understandings, agreements and representations, written or oral,
expressed or implied, with respect thereto.
15. This Agreement may not be amended, modified, altered or
terminated (other than pursuant to its terms) except by an instrument in writing
signed by the parties.
16. This Agreement shall be binding upon the parties hereto and their
heirs, distributees, successors and assigns.
_______________________
* to be provided separately to the Company.
6
<PAGE>
17. In case any one or more of the provisions of this Agreement shall
be invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected thereby.
18. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely therein (without giving effect to the conflict of
law rules thereof).
19. Kindly indicate your agreement with the foregoing by
countersigning the enclosed duplicate copy of this letter agreement and
returning it to me on behalf of the Company.
On behalf of the Company, we look forward to a long and mutually rewarding
relationship.
Sincerely,
VIMRx Pharmaceuticals Inc.
By: ______________________________
ACCEPTED AND AGREED TO AS OF THIS
15th day of April, 1999
___________________________________
Richard L. Dunning
7
<PAGE>
VIMRx PHARMACEUTICALS INC.
INCENTIVE STOCK OPTION AGREEMENT
----------------------
To: Richard L. Dunning
We are pleased to notify you that by the determination of the Stock Option
Plan Committee (hereinafter the "Committee") an incentive stock option to
purchase 200,000 shares of the Common Stock of VIMRx Pharmaceuticals Inc.
(herein called the "Company") at a price of $1.50 per share has as of this 15th
day of April, 1999 been granted to you under the Company's 1990 Incentive and
Non-Incentive Stock Option Plan (herein called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this incentive stock option has been
granted is to further the growth and development of the Company and its
subsidiaries by encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are expected to
contribute materially to the Company's success to obtain a proprietary interest
in the Company through the ownership of stock, thereby providing such persons
with an added incentive to promote the best interests of the Company, and
affording the Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this incentive stock option agreement will indicate your
acceptance of and your willingness to be bound by its terms; it imposes no
obligation upon you to purchase any of the shares subject to this option. Your
obligation to purchase shares can arise only upon your exercise of the option in
the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
(a) The option granted you hereunder may not be exercised for a
period of six months from the date of its grant by the Committee as set forth
above. Thereafter, this option shall be exercisable as follows:
(i) at October 15, 1999, up to 33 1/3 % of the total shares
subject to the option;
(ii) at June 30, 2000, up to 66 2/3 % of the total shares
subject to the option;
(iii) at January 31, 2001, up to 100% of the total shares
subject to the option.
<PAGE>
This option may not be exercised for less than ten shares at any one time (or
the remaining shares then purchasable if less than ten) and expires at the end
of 10 years from the date of grant whether or not it has been duly exercised
(hereinafter, the "Option Expiration Date"), unless sooner terminated as
provided in paragraphs 5, 6 or 7 hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you and delivered
to the Company at its executive offices, signifying your election to exercise
the option. The notice must state the number of shares of Common Stock as to
which your option is being exercised, must contain a statement by you (in a form
acceptable to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be accompanied by
cash or a check to the order of the Company for the full purchase price of the
shares being purchased unless exercised pursuant to the following "cashless
exercise" provision.
In lieu of paying for the shares purchasable under this option by cash or
check, you may (i) deliver previously owned shares of Common Stock with a fair
market value equal to the full purchase price of the shares being purchased
under this option, or (ii) request that the Company withhold shares of Common
Stock issuable upon exercise of this option with a fair market value equal to
the full purchase price of the shares being purchased under this option (thereby
reducing the number of shares issuable upon exercise of this option). For
purposes of this option, unless the Committee determines otherwise, the "fair
market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.
If notice of the exercise of this option is given by a person or persons
other than you, the Company may require, as a condition to the exercise of this
option, the submission to the Company of appropriate proof of the right of such
person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will be issued as
soon as practicable. The Company, however, shall not be required to issue or
deliver a certificate for any shares until it has complied with all requirements
of the Securities Act of 1933, the Securities Exchange Act of 1934, any stock
exchange on which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of such shares or
the listing of such shares on said exchange. Until the issuance of the
certification for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other person as
may be permitted to exercise this option, to remit to the Company an amount
sufficient to satisfy federal,
2
<PAGE>
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for shares of Common Stock issuable upon exercise of
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof) is terminated
for any reason other than for Cause (as defined in any applicable employment
agreement between you and the Company) after October 15, 1999 the options shall
become immediately fully exercisable. If your employment with the Company or a
subsidiary thereof is terminated for any reason other than by death or
disability, you may exercise, within three months from the date of such
termination, that portion of the option which was exercisable by you at the date
of such termination, provided, however, that such exercise occurs no later than
the Option Expiration Date, and provided further that any portion of the option
not exercised by three months following termination shall be deemed a non-
incentive option and may be exercised until the Option Expiration Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof) is terminated
by reason of your disability, you may exercise, within twelve months from the
date of such termination, that portion of this option which was exercisable by
you at the date of such termination, provided, however, that such exercise
occurs no later than the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary thereof) or
within six months after termination of your employment due to disability, that
portion of this option which was exercisable by you at the date of your death
may be exercised by your legatee or legatees under your Will, or by your
personal representatives or distributees, within twelve months from the date of
your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the laws of descent
and distribution, and may be exercised during your lifetime only by you.
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the Company shall,
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation, or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by this option and the price of each
such share shall be proportionately adjusted for any such change by the
Committee, whose determination shall be conclusive.
3
<PAGE>
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company (as defined
below), this option shall become immediately fully exercisable. For purposes of
this option, a "change in control" of the Company shall mean (i) the acquisition
at any time by a "person" or "group" (as such terms are used Sections 13(d) and
14(d)(2) of the Exchange Act of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities representing 50%
or more of the combined voting power in the election of directors of the then
outstanding securities of the Company or any successor or the Company; (ii) the
termination of service of directors, for any reason other than death, disability
or retirement from the Board of Directors, during any period of two consecutive
years or less, of individuals who at the beginning of such period constituted a
majority of the Board of Directors, unless the election of or nomination for
election of each new director during such period was approved by a vote of at
least two-thirds of the directors still in office who were directors at the
beginning of the period; (iii) approval by the stockholders of the Company of
any merger, consolidation, or statutory share exchange as a result of which the
Common Stock shall be changed, converted or exchanged (other than a merger,
consolidation or share exchange with a wholly-owned Subsidiary) or liquidation
of the Company or any sale or disposition of 80% or more of the assets or
earning power or the Company; or (iv) approval by the stockholders of the
Company of any merger, consolidation, or statutory share exchange to which the
Company is a party as a result of which the persons who were stockholders
immediately prior to the effective date of the merger, consolidation or share
exchange shall have beneficial ownership of less than 50% of the combined voting
power in the election of directors of the surviving corporation; provided,
however, that no change in control shall be deemed to have occurred if, prior to
such time as a change in control would otherwise be deemed to have occurred, the
Company's Board of Directors deems otherwise.
11. Subject to Terms of the Plan.
This incentive stock option agreement shall be subject in all respects to
the terms and conditions of the Plan and in the event of any question or
controversy relating to the terms of the Plan, the decision of the Committee
shall be conclusive.
4
<PAGE>
12. Cancellation of Prior Options.
You acknowledge that the incentive stock option previously granted to you
by the Company to purchase 156,064 shares and the non-incentive stock option
previously granted to you by the Company to purchase 43,936 shares, each dated
as of March 28, 1996, are hereby terminated and canceled and are of no further
force and effect.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:__________________________
Name:
Title:
Agreed to and accepted as of this
15th day of April, 1999.
_____________________________________
Signature of Optionee
5
<PAGE>
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, Delaware 19808
As of April 15, 1999
Mr. Richard L. Dunning
2751 Centerville Road, Suite 210
Wilmington, DE 19808
Re: Amendment to March 28, 1996 Non-Incentive Stock Option Agreement
----------------------------------------------------------------
Dear Dick:
This letter constitutes an amendment to the Non-Incentive Stock Option
Agreement dated as of March 28, 1996, as amended to date, (the "Option
Agreement") between you and VIMRx Pharmaceuticals Inc. (the "Company") as
follows:
In consideration of your willingness to enter into a new employment
agreement with the Company, the parties hereto acknowledge and agree that (i)
the exercise price of the option with respect to 600,000 shares is changed from
$2.5625 per share to $1.50 per share; (ii) options with respect to 43,936 shares
are hereby terminated and canceled and are of no further force and effect, and
(iii) the reference in paragraphs 5 and 11(a) of the Option Agreement providing
the option must be exercised within three months following termination of
employment is deleted, so that such exercise must occur prior to the expiration
date of the option.
Except as expressly set forth herein, the Option Agreement shall remain in
full force and effect.
Please sign below in the space provided to signify your consent to the
foregoing amendment.
Very truly yours,
VIMRX PHARMACEUTICALS INC.
By:________________________________
I hereby acknowledge and agree to the foregoing amendment.
______________________________
Richard L. Dunning
<PAGE>
Exhibit 10.44
NEXELL OF CALIFORNIA, INC.
9 Parker
Irvine, California 92618
August 20, 1999
Mr. L. William McIntosh
c/o Nexell of California, Inc.
9 Parker
Irvine, California 92618
Re: AMENDMENT TO EMPLOYMENT AGREEMENT
Dear Bill:
This letter will confirm our amendment to the Employment Agreement between
us dated May 28, 1998 to provide that the reference in paragraph 5(b)(iii) to
"30 months" is hereby changed to "48 months." Furthermore, upon approval of the
"Committee" (as defined in paragraph 3(a) of the 1998 Non-Incentive Stock Option
Plan for Directors, Employees and Consultants of Nexell of California, Inc.
(f/k/a Nexell Therapeutics Inc.)) your non-incentive options to purchase 125,000
shares of Nexell of California, Inc. common stock at an exercise price of $5.00
per share (which have converted to options to purchase 375,000 shares of Nexell
Therapeutics Inc. common stock at an exercise price of $1.6666 per share) and
your non-incentive options to purchase 60,000 shares of Nexell Therapeutics Inc.
common stock at an exercise price of $.001 per share shall be amended or
documented to provide that (i) in the event your employment is terminated for
any reason other than for "cause" (as defined in the Employment Agreement) all
your options thereunder shall immediately vest, and (ii) notwithstanding the
reference in paragraph 9(a) of such plan providing that options must be
exercised within three months following termination of employment, such options
may be exercised until their expiration date.
NEXELL OF CALIFORNIA, INC.
By:_______________________________
ACCEPTED AND AGREED TO:
________________________________________
L. William McIntosh
<PAGE>
NEXELL THERAPEUTICS Inc.
9 Parker
Irvine, California 92618
August 20, 1999
Mr. L. William McIntosh
c/o Nexell of California, Inc.
9 Parker
Irvine, California 92618
Re: Amendment to May 19, 1997 Non-Incentive Stock Option Agreement for 6,900
Shares (the "Option Agreement") Under 1990 Incentive and Non-Incentive
Stock Option Plan of Nexell Therapeutics Inc. (f/k/a VIMRx Pharmaceuticals
--------------------------------------------------------
Inc.) (the "Plan")
------------------
Dear Bill:
Upon approval of the "Committee" (as defined in the Plan), this letter
shall constitute an amendment to the Option Agreement as follows:
The parties hereto acknowledge and agree that Paragraph 5 of the Option
Agreement is hereby amended in its entirety to read as follows:
"5. Termination of Employment.
-------------------------
If your employment with the Company (or a subsidiary thereof,
including Nexell of California, Inc. (f/k/a Nexell Therapeutics Inc.)) is
terminated for any reason other than for Cause (as defined in any
applicable employment agreement between you and the Company, or any
subsidiary thereof) the option shall become immediately fully exercisable.
If your employment with the Company or a subsidiary thereof is terminated
for any reason other than by death or disability, you may exercise, until
the Option Expiration Date, that portion of the option which was
exercisable by you at the date of such termination."
The parties acknowledge that, notwithstanding certain references in
the Option Agreement to the option being an incentive stock option, it is a non-
incentive stock option.
Except as expressly set forth herein, the Option Agreement shall remain in
full force and effect.
<PAGE>
Please sign below in the space provided to signify your consent to the
foregoing amendment.
Very truly yours,
NEXELL THERAPEUTICS INC.
By:_____________________________________
I hereby acknowledge and agree to the foregoing amendment.
________________________________________
L. William McIntosh
<PAGE>
NEXELL THERAPEUTICS Inc.
9 Parker
Irvine, California 92618
August 20, 1999
Mr. L. William McIntosh
c/o Nexell of California, Inc.
9 Parker
Irvine, California 92618
Re: Amendment to May 19, 1997 Non-Incentive Stock Option Agreement for 203,100
Shares (the "Option Agreement") Under 1997 Incentive and Non-Incentive
Stock Option Plan of Nexell Therapeutics Inc. (f/k/a VIMRx Pharmaceuticals
-----------------------------------------------------
Inc.) (the "Plan")
------------------
Dear Bill:
Upon approval of the "Committee" (as defined in the Plan), this letter
shall constitute an amendment to the Option Agreement as follows:
The parties hereto acknowledge and agree that Paragraph 5 of the Option
Agreement is hereby amended in its entirety to read as follows:
"5. Termination of Employment.
-------------------------
If your employment with the Company (or a subsidiary thereof,
including Nexell of California, Inc. (f/k/a Nexell Therapeutics Inc.)) is
terminated for any reason other than for Cause (as defined in any
applicable employment agreement between you and the Company, or any
subsidiary thereof) the option shall become immediately fully exercisable.
If your employment with the Company or a subsidiary thereof is terminated
for any reason other than by death or disability, you may exercise, until
the Option Expiration Date, that portion of the option which was
exercisable by you at the date of such termination."
The parties acknowledge that, notwithstanding certain references in
the Option Agreement to the option being an incentive stock option, it is a
non-incentive stock option.
Except as expressly set forth herein, the Option Agreement shall remain in
full force and effect.
<PAGE>
Please sign below in the space provided to signify your consent to the
foregoing amendment.
Very truly yours,
NEXELL THERAPEUTICS INC.
By:____________________________________
I hereby acknowledge and agree to the foregoing amendment.
________________________________________
L. William McIntosh
<PAGE>
NEXELL THERAPEUTICS Inc.
9 Parker
Irvine, California 92618
August 20, 1999
Mr. L. William McIntosh
c/o Nexell of California, Inc.
9 Parker
Irvine, California 92618
Re: Amendment to January 15, 1998 Non-Incentive Stock Option Agreement for
90,000 Shares (the "Option Agreement") Under 1997 Incentive and Non-
Incentive Stock Option Plan of Nexell Therapeutics Inc. (f/k/a VIMRx
---------------------------------------------
Pharmaceuticals Inc.) (the "Plan")
----------------------------------
Dear Bill:
Upon approval of the "Committee" (as defined in the Plan), this letter
shall constitute an amendment to the Option Agreement as follows:
The parties hereto acknowledge and agree that Paragraph 5 of the Option
Agreement is hereby amended in its entirety to read as follows:
"5. Termination of Employment or Engagement.
---------------------------------------
If your employment with the Company (or a subsidiary thereof,
including Nexell of California, Inc. (f/k/a Nexell Therapeutics Inc.)) is
terminated for any reason other than for Cause (as defined in any
applicable employment agreement between you and the Company, or any
subsidiary thereof) the option shall become immediately fully exercisable.
If your employment with the Company or a subsidiary thereof is terminated
for any reason other than by death or disability, or if you are not an
employee of the Company (or a subsidiary) and your engagement by the
Company (or a subsidiary) is terminated for any reason, you may exercise,
until the Option Expiration Date, that portion of the option which was
exercisable by you at the date of such termination."
Except as expressly set forth herein, the Option Agreement shall remain in
full force and effect.
<PAGE>
Please sign below in the space provided to signify your consent to the
foregoing amendment.
Very truly yours,
NEXELL THERAPEUTICS INC.
By:____________________________________
I hereby acknowledge and agree to the foregoing amendment.
________________________________________
L. William McIntosh
<PAGE>
As of April 15, 1999 Exhibit 10.45
David A. Jackson, Ph.D.
c/o VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Wilmington, DE 19808
Dear David:
This letter agreement amends, modifies, clarifies and restates in all
respects the agreement dated August 26, 1996 between you and VIMRX
Pharmaceuticals Inc. (the "Company") as to terms and conditions of your
employment by the Company.
1. You are being employed as the Executive Vice President - Research and
Development of the Company. In such capacity, you will have general charge of
and administration over the Company's activities relating to Innovir
Laboratories, Inc., VM301 and hypericin, you will be the Company's principal
scientific spokesman to investor and related audiences, and you will perform
such other executive level duties as may be assigned by the Chairman and Chief
Executive Officer of the Company or by the President of Nexell Therapeutics
Inc., the Company's principal operating subsidiary, from time to time. You will
report to the Chairman and Chief Executive Officer and to the President of the
Company. If requested, you agree to serve, for no additional compensation, in
like capacities for any of the Company's subsidiaries throughout the term of
your employment. You will be based in the Company's Wilmington, Delaware office
but you will be required to travel from time to time to the Company's Irvine,
California office.
2. The term of your employment commenced on August 26, 1996 and shall
continue until terminated under the provisions of Paragraph 6 below. You will
be an employee of the Company and agree to devote your business and professional
time and energy and skills to the affairs of the Company and its subsidiaries
and to serve the Company faithfully and to the best of your ability.
Notwithstanding the foregoing, in the event you are notified that your
employment will be terminated without Cause (as hereinafter defined), (i) you
will be afforded a reasonable opportunity to seek other employment and (ii) you
may accept a full-time position with another employer (provided that acceptance
of such position does not breach your non-competition obligations under this
Agreement) at any time after receipt of notice of termination and prior to the
termination of this Agreement, without prejudice to your right to receive
severance pay.
3. (a) As compensation for the services to be rendered by you hereunder,
the Company will pay you a base salary of not less than $200,000 per annum,
payable in installments in accordance with the Company's regular payroll
practices. You will also be entitled to a discretionary cash bonus determined
as of the end of each calendar year during the
<PAGE>
term hereof (based on performance criteria to be agreed upon between the Company
and you and such additional discretionary factors as the Chairman and Chief
Executive Officer and the Board of Directors of the Company (the "Board") may
apply from time to time). The minimum target bonus amount each year, assuming
satisfactory performance by you, will be one-third (1/3) of your base
compensation.
(b) You agree that effective April 15, 1999:
(i) the Incentive Stock Option Agreement to purchase 120,752
shares of the Company's Common Stock and that portion of the Non-Incentive Stock
Option Agreement to purchase 12,581 shares of the Company's Common Stock, each
between you and the Company and dated August 26, 1996, are hereby terminated in
consideration of (x) the grant to you under the 1990 Incentive and Non-Incentive
Stock Option Plan of an incentive stock option to purchase 133,333 shares of the
Company's Common Stock at $1.50 per share exercisable 50% on October 15, 1999
and 50% on April 15, 2000 pursuant to the terms of the Incentive Stock Option
Agreement attached hereto, and (y) the amendment of the Non-Incentive Stock
Option Agreement between you and the Company dated August 26, 1996 to change the
exercise price thereunder with respect to 366,667 shares from $3.3125 to $1.50
per share, pursuant to the terms of the Amendment to August 26, 1996 Non-
Incentive Stock Option Agreement attached hereto.
(ii) All shares subject to the options will be registered on Form
S-8 as soon as practicable after the Board approves such registration.
(c) You will be eligible to participate in the Company's medical,
dental, life and long-term disability insurance and other benefit programs,
including any 401(k) or other retirement or welfare plans, from time to time in
effect for the Company's senior executives, your participation in any such plans
to be in accordance with their respective terms and conditions. In lieu of
participation in the Company's medical and dental plans (if any), you may elect
to receive a $500 (after tax) monthly allowance therefor.
(d) Your performance will be reviewed annually by the Chairman and
Chief Executive Officer and the Board (or its compensation or like committee),
in connection with which they will consider an increase in your base
compensation, it being understood that any such increase will be discretionary.
4. You will be entitled to take up to an aggregate of four weeks vacation
each calendar year as business conditions permit, it being understood that no
more than one week of unused vacation per year of service with the Company may
be carried over to the succeeding year. The Company will not be required to
provide any additional compensation to you for vacation time not utilized by
you. The Company will pay you for any unused accrued vacation time earned as
of your termination date with the Company.
2
<PAGE>
5. The Company will reimburse you for all reasonable and documented
business expenses, including but not limited to, reasonable expenses of travel
between Wilmington, Delaware and Irvine, California, and of lodging in the
Irvine, California area, incurred by you on behalf of the Company during the
term of your employment hereunder, consistent with the Company's expense
reporting policy (as the same may be modified from time to time).
Notwithstanding anything herein to the contrary, the provisions of this
Paragraph 5 shall survive the effective date of termination of this Agreement
for a period of six months.
6. (a) Your employment hereunder may be terminated at any time by the
Company for Cause or upon at least 90 days' prior written notice by the Company,
without Cause. Your employment hereunder may be terminated at any time by you
(i) upon at least 90 days' prior written notice by you prior to January 1, 2000,
or (ii) at any time on or after January 1, 2000.
(b) In the event your employment is terminated by the Company without
Cause (including a constructive termination under Paragraph 6(f)), this
Agreement shall terminate immediately on the effective date of termination of
your employment; provided, however, that: you will be paid three months' base
salary as severance in monthly installments (in arrears) beginning the first
full month following the cessation of your employment with the Company (during
which time you will be entitled to continue to participate in the Company's
benefit plans to the extent permitted by such plans); and you will be entitled
to receive any accrued but unpaid salary earned by you through the effective
date of such termination.
(c) No severance shall be paid or payable to you in the event your
employment is terminated for Cause, or you voluntarily resign from your
employment with the Company (excluding a constructive termination under
Paragraph 6(f)), in which event this Agreement shall terminate immediately upon
the effective date of termination of your employment or upon the effective date
of your resignation, respectively; provided, however, that the Company shall
nonetheless be obligated to pay you any accrued but unpaid salary earned by you
through the date of such termination.
(d) For purposes of this Agreement, termination for "Cause" shall mean
termination due to any one or more of the following: (i) if you are indicted for
committing a felony or a decision or determination is rendered by any court or
governmental authority that you have committed any act involving fraud, willful
misconduct, dishonesty, breach of trust or moral turpitude; (ii) if you
willfully breach your duty of loyalty to, or commit an act of fraud or
dishonesty upon the Company; (iii) if you demonstrate gross negligence or
willful misconduct in connection with your employment; (iv) if, in the
reasonable, good faith opinion of a majority of the Company's whole Board
(excluding yourself, if you shall then be a director of the Company), you engage
in personal misconduct of such a material nature as to render your presence as a
senior executive officer detrimental to the Company or its reputation and you
fail to cure the same within five days after written notice thereof from the
Company; or (v) if you commit a material breach of or default under any of the
terms or conditions of this Agreement and you fail to cure such breach or
default within ten days after written notice thereof from the Company.
3
<PAGE>
(e) Your employment hereunder shall terminate immediately upon your
death or Permanent Disability. In either such event, this Agreement shall
terminate immediately upon the cessation of your employment; provided, however,
you (or your legal representative, as the case may be) will be entitled to
receive any accrued but unpaid salary earned by you through the date of such
termination, plus severance in monthly installments (in arrears), beginning the
first full month following the date of such termination in an aggregate amount
equal to the positive difference if any, between (x) the base salary you would
have received hereunder for the twelve months immediately following such
termination date had your employment continued for such twelve-month period, and
(y) the total monies paid or payable to you with respect to such twelve-month
period under the long-term disability insurance policy or policies maintained by
the Company for your benefit, if any. For purposes of this Agreement, the term
"Permanent Disability" shall have the meaning set forth in the long-term
disability insurance policy or policies then maintained by the Company for the
benefit of its employees, or if no such policy shall then be in effect, or if
more than one such policy shall then be in effect and the term Permanent
Disability shall be assigned different definitions in such policies, then the
term Permanent Disability shall be defined for purposes hereof to mean any
physical or mental disability or incapacity which renders you incapable of fully
performing the services required of you in accordance with your obligations
hereunder for a period aggregating 120 days during any twelve-month period.
(f) Upon the occurrence of any of the following events, you shall
have the right to terminate your employment with the Company on at least 60
days' notice. In the event such notice is given by you within 270 days of any
one or more of such events, such termination of employment shall be deemed, for
all purposes of this Agreement, as a termination of your employment by the
Company without Cause:
(i) a material breach of or default under this Agreement by the
Company which is not cured by the Company within ten (10) days after its receipt
of written notice thereof from you;
(ii) a material reduction in your duties or a material
interference with the exercise of your authority (not arising from any physical
or mental disability you may sustain) which would be inconsistent with your
position and authority as referenced in Paragraph 1 hereof and the same shall
not have been alleviated by the Chairman and Chief Executive Officer or the
Board within ten (10) days after its receipt of written notice thereof from you;
or
(iii) your failure to relocate to the Irvine, California vicinity
within 90 days of the Company's written request that you do so; provided that
such request may not be made at any time prior to January 1, 2000.
(g) Notwithstanding anything in Paragraphs 6(b) or 6(c) above to the
contrary:
4
<PAGE>
(i) you shall not have any obligation to the Company to
mitigate any termination of your employment whereby you would be required by the
Company promptly to seek, procure or commence substitute employment; and
(ii) in the event you do seek, procure or commence such
substitute full time employment, none of the income derived or to be derived by
you therefrom shall be setoff by the Company against the balance of any
severance payments, if any, owing to you by the Company under this Agreement.
7. You hereby agree that you shall not, directly or indirectly, during the
term of your employment hereunder, own, manage, operate, join, control or become
employed by, or render any services of an advisory nature or otherwise, or
participate in the ownership (other than shares held for investment in publicly
traded companies), management, operation or control of, or otherwise be
connected in any manner with, any business that sells products or services that
are competitive in a material respect with the products or services sold by the
Company, without the Company's prior written consent. The restriction on
competitive activities set forth in the prior sentence shall continue to apply
for a period of one year following the effective date of termination of your
employment hereunder in the event you voluntarily terminate your employment
(excluding a constructive termination under Paragraph 6(f)) prior to the date
that is two years from the date of this letter agreement or your employment is
terminated by the Company for Cause. In the event the restriction on
competition remains in effect for the 12-month period following your termination
pursuant to the prior sentence, you further agree that during such period you
will not directly or indirectly entice away from the Company's employment,
retain or otherwise engage, any employee of the Company.
8. (a) You further hereby covenant and agree that you will not at any
time during, or for a period of three (3) years following the termination of
your employment with the Company, reveal, divulge or make known to any person or
entity any secrets or confidential information (whether oral, written, or
electronically encoded) whatsoever, of or concerning the Company or its business
or anything connected therewith, all of which is and shall remain the property
of the Company and shall be returned by you to the Company (including all
copies) immediately upon any termination of your employment (or earlier, if
requested by the Company).
(b) For purposes hereof, confidential information shall not include any
information which: (i) is or becomes generally available to the public other
than as a result of a wrongful disclosure by you or your representatives, (ii)
was known by you on a non-confidential basis prior to its disclosure to you by
the Company or its representatives; (iii) becomes available to you from a source
other than the Company or its representatives, provided that such source is not
bound by a confidentiality agreement with the Company, or its representatives
and otherwise has a right to disclose the same; or (iv) is required to be
disclosed by any governmental or judicial authority, provided, in such case,
that you shall use your best efforts to notify the Company immediately of any
such requirement so that the Company shall have an opportunity to contest it.
5
<PAGE>
9. In the event of any breach or threatened breach by you of any one or
more of the provisions of Paragraph 7 (relating to non-competition and non-
enticement of employees) or Paragraph 8 (relating to non-disclosure), the
Company will be entitled, in addition to any remedy otherwise available at law,
to an injunction restraining the breach of such provision hereof.
10. You agree that the Company may, in its discretion, apply for and take
out in its name and at its own expense, and solely for its benefit, key man life
insurance on you in any amount deemed advisable by the Company to protect its
interests, and you agree that you shall have no right, title or interest therein
and further agree to submit to any medical or other examination and to execute
and deliver any application or other instruments in writing reasonably necessary
to effectuate such insurance.
11. You represent and warrant that you are not under any obligation,
restriction or limitation, contractual or otherwise, to any other individual or
entity which would prohibit or impede you from performing your duties and
responsibilities hereunder, and that you are free to enter into and perform the
terms and provisions of this Agreement.
12. Notwithstanding anything herein to the contrary, the provisions of
Paragraphs 5, 7, 8, 9 and 11 hereof shall survive the expiration or termination
of this Agreement.
13. All notices, requests, demands and other communications provided for
by this Agreement shall be in writing and shall be either personally delivered
(including by couriers such as FedEx) or sent by pre-paid certified mail, return
receipt requested, addressed to the address stated below of the party to which
notice is given, or to such changed address as such party may have fixed by
notice given in accordance with the terms hereof:
TO THE COMPANY:
VIMRx Pharmaceuticals Inc.
2751 Centerville Road
Suite 210, Little Falls II
Wilmington, Delaware 19808
Attn: Chairman
TO DAVID A. JACKSON:
David A. Jackson, Ph.D.
____________________ *
Wilmington, Delaware 19807-1415
_____________
* to be provided separately to the Company
6
<PAGE>
Any notice sent as provided above, shall be deemed given upon receipt at
the address provided for above (or, in the event delivery is refused, the first
date on which delivery was tendered).
14. This Agreement contains the entire agreement and understanding between
the parties relating to the subject matter hereof and supersedes any and all
prior understandings, agreements and representations, written or oral, expressed
or implied, with respect thereto.
15. This Agreement may not be amended, modified, altered or terminated
(other than pursuant to its terms) except by an instrument in writing signed by
the parties.
16. This Agreement shall be binding upon the parties hereto and their
heirs, distributees, successors and assigns.
17. In case any one or more of the provisions of this Agreement shall be
invalid, illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not in any way
be affected thereby.
18. This Agreement shall be governed by, construed and enforced in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed entirely therein (without giving effect to the conflict of
law rules thereof).
Kindly indicate your agreement with the foregoing by countersigning the
enclosed duplicate copy of this letter agreement and returning it to me on
behalf of the Company.
On behalf of the Company, we look forward to a long and mutually rewarding
relationship.
Sincerely,
VIMRx PHARMACEUTICALS INC.
By:
-------------------------------
ACCEPTED AND AGREED TO AS OF THIS
15th day of April, 1999
- ----------------------------------
David A. Jackson, Ph.D.
7
<PAGE>
VIMRx PHARMACEUTICALS INC.
INCENTIVE STOCK OPTION AGREEMENT
----------------------
To: David A. Jackson
We are pleased to notify you that by the determination of the Stock Option
Plan Committee (hereinafter the "Committee") an incentive stock option to
purchase 133,333 shares of the Common Stock of VIMRx Pharmaceuticals Inc.
(herein called the "Company") at a price of $1.50 per share has as of this 15th
day of April, 1999 been granted to you under the Company's 1990 Incentive and
Non-Incentive Stock Option Plan (herein called the "Plan"). This option may be
exercised only upon the terms and conditions set forth below.
1. Purpose of Option.
The purpose of the Plan under which this incentive stock option has been
granted is to further the growth and development of the Company and its
subsidiaries by encouraging key employees, directors, consultants, agents,
independent contractors and other persons who contribute and are expected to
contribute materially to the Company's success to obtain a proprietary interest
in the Company through the ownership of stock, thereby providing such persons
with an added incentive to promote the best interests of the Company, and
affording the Company a means of attracting to its service persons of
outstanding ability.
2. Acceptance of Option Agreement.
Your execution of this incentive stock option agreement will indicate your
acceptance of and your willingness to be bound by its terms; it imposes no
obligation upon you to purchase any of the shares subject to this option. Your
obligation to purchase shares can arise only upon your exercise of the option in
the manner set forth in paragraph 4 hereof.
3. When Option May Be Exercised.
(a) The option granted you hereunder may not be exercised for a period of
six months from the date of its grant by the Committee as set forth above.
Thereafter, this option shall be exercisable as follows:
(i) at October 15, 1999, up to 50% of the total shares subject to
the option;
(ii) at April 15, 2000, up to 100% of the total shares subject to
the option.
This option may not be exercised for less than ten shares at any one time (or
the remaining shares then purchasable if less than ten) and expires at the end
of 10 years from the date of grant
<PAGE>
whether or not it has been duly exercised (hereinafter, the "Option Expiration
Date"), unless sooner terminated as provided in paragraphs 5, 6 or 7 hereof.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you and delivered
to the Company at its executive offices, signifying your election to exercise
the option. The notice must state the number of shares of Common Stock as to
which your option is being exercised, must contain a statement by you (in a form
acceptable to the Company) that such shares are being acquired by you for
investment and not with a view to their distribution or resale (unless a
Registration Statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be accompanied by
cash or a check to the order of the Company for the full purchase price of the
shares being purchased unless exercised pursuant to the following "cashless
exercise" provision.
In lieu of paying for the shares purchasable under this option by cash or
check, you may (i) deliver previously owned shares of Common Stock with a fair
market value equal to the full purchase price of the shares being purchased
under this option, or (ii) request that the Company withhold shares of Common
Stock issuable upon exercise of this option with a fair market value equal to
the full purchase price of the shares being purchased under this option (thereby
reducing the number of shares issuable upon exercise of this option). For
purposes of this option, unless the Committee determines otherwise, the "fair
market value" of a share of Common Stock as of a certain date shall be the
closing sale price of the Common Stock on The Nasdaq Stock Market or, if the
Common Stock is not then traded on The Nasdaq Stock Market, such national
securities exchange on which the Common Stock is then traded, on the trading
date immediately preceding the date fair market value is being determined. The
Committee may make such other determination of fair market value, based on other
factors, as it shall deem appropriate.
If notice of the exercise of this option is given by a person or persons
other than you, the Company may require, as a condition to the exercise of this
option, the submission to the Company of appropriate proof of the right of such
person or persons to exercise this option.
Certificates for shares of the Common Stock so purchased will be issued as
soon as practicable. The Company, however, shall not be required to issue or
deliver a certificate for any shares until it has complied with all requirements
of the Securities Act of 1933, the Securities Exchange Act of 1934, any stock
exchange on which the Company's Common Stock may then be listed and all
applicable state laws in connection with the issuance or sale of such shares or
the listing of such shares on said exchange. Until the issuance of the
certification for such shares, you or such other person as may be entitled to
exercise this option shall have none of the rights of a stockholder with respect
to shares subject to this option.
The Company shall have the right to require you, or such other person as
may be permitted to exercise this option, to remit to the Company an amount
sufficient to satisfy federal,
2
<PAGE>
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for shares of Common Stock issuable upon exercise of
this option.
5. Termination of Employment.
If your employment with the Company (or a subsidiary thereof) is terminated
for any reason other than for Cause (as defined in any applicable employment
agreement between you and the Company) after October 15, 1999 the options shall
become immediately fully exercisable. If your employment with the Company or a
subsidiary thereof is terminated for any reason other than by death or
disability, you may exercise, within three months from the date of such
termination, that portion of the option which was exercisable by you at the date
of such termination, provided, however, that such exercise occurs no later than
the Option Expiration Date, and provided further that any portion of the option
not exercised by three months following termination shall be deemed a non-
incentive option and may be exercised until the Option Expiration Date.
6. Disability.
If your employment with the Company (or a subsidiary thereof) is terminated
by reason of your disability, you may exercise, within twelve months from the
date of such termination, that portion of this option which was exercisable by
you at the date of such termination, provided, however, that such exercise
occurs no later than the Option Expiration Date.
7. Death.
If you die while employed by the Company (or a subsidiary thereof) or
within six months after termination of your employment due to disability, that
portion of this option which was exercisable by you at the date of your death
may be exercised by your legatee or legatees under your Will, or by your
personal representatives or distributees, within twelve months from the date of
your death, but in no event after the Option Expiration Date.
8. Non-Transferability of Option.
This option shall not be transferable except by Will or the laws of descent
and distribution, and may be exercised during your lifetime only by you.
9. Adjustments upon Changes in Capitalization.
If at any time after the date of grant of this option, the Company shall,
by stock dividend, split-up, combination, reclassification or exchange, or
through merger or consolidation, or otherwise, change its shares of Common Stock
into a different number or kind or class of shares or other securities or
property, then the number of shares covered by this option and the price of each
such share shall be proportionately adjusted for any such change by the
Committee, whose determination shall be conclusive.
3
<PAGE>
10. Acceleration of Exercisability Upon Change in Control.
Upon the occurrence of a "change in control" of the Company (as defined
below), this option shall become immediately fully exercisable. For purposes of
this option, a "change in control" of the Company shall mean (i) the acquisition
at any time by a "person" or "group" (as such terms are used Sections 13(d) and
14(d)(2) of the Exchange Act of beneficial ownership (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities representing 50%
or more of the combined voting power in the election of directors of the then
outstanding securities of the Company or any successor or the Company; (ii) the
termination of service of directors, for any reason other than death, disability
or retirement from the Board of Directors, during any period of two consecutive
years or less, of individuals who at the beginning of such period constituted a
majority of the Board of Directors, unless the election of or nomination for
election of each new director during such period was approved by a vote of at
least two-thirds of the directors still in office who were directors at the
beginning of the period; (iii) approval by the stockholders of the Company of
any merger, consolidation, or statutory share exchange as a result of which the
Common Stock shall be changed, converted or exchanged (other than a merger,
consolidation or share exchange with a wholly-owned Subsidiary) or liquidation
of the Company or any sale or disposition of 80% or more of the assets or
earning power or the Company; or (iv) approval by the stockholders of the
Company of any merger, consolidation, or statutory share exchange to which the
Company is a party as a result of which the persons who were stockholders
immediately prior to the effective date of the merger, consolidation or share
exchange shall have beneficial ownership of less than 50% of the combined voting
power in the election of directors of the surviving corporation; provided,
however, that no change in control shall be deemed to have occurred if, prior to
such time as a change in control would otherwise be deemed to have occurred, the
Company's Board of Directors deems otherwise.
11. Subject to Terms of the Plan.
This incentive stock option agreement shall be subject in all respects to
the terms and conditions of the Plan and in the event of any question or
controversy relating to the terms of the Plan, the decision of the Committee
shall be conclusive.
4
<PAGE>
12. Cancellation of Prior Options.
You acknowledge that the incentive stock option previously granted to you
by the Company to purchase 120,752 shares and the non-incentive stock option
previously granted to you by the Company to purchase 12,581 shares, each dated
as of August 26, 1996, are hereby terminated and canceled and are of no further
force and effect.
Sincerely yours,
VIMRx PHARMACEUTICALS INC.
By:_________________________
Name: Richard L. Dunning
Title: President and CEO
Agreed to and accepted as of this
15th day of April, 1999.
_________________________________
Signature of Optionee
5
<PAGE>
VIMRx Pharmaceuticals Inc.
2751 Centerville Road, Suite 210
Wilmington, Delaware 19808
As of April 15, 1999
Mr. David A. Jackson
2751 Centerville Road, Suite 210
Wilmington, DE 19808
Re: Amendment to August 26, 1996 Non-Incentive Stock Option Agreement
-----------------------------------------------------------------
Dear David:
This letter constitutes an amendment to the Non-Incentive Stock Option
Agreement dated as of August 26, 1996, as amended to date, (the "Option
Agreement") between you and VIMRx Pharmaceuticals Inc. (the "Company") as
follows:
In consideration of your willingness to enter into a new employment
agreement with the Company, the parties hereto acknowledge and agree that (i)
the exercise price of the option with respect to 366,667 shares is changed from
$3.3125 per share to $1.50 per share; (ii) options with respect to 12,581 shares
are hereby terminated and canceled and are of no further force and effect, and
(iii) the reference in paragraphs 5 and 11(a) of the Option Agreement providing
the option must be exercised within three months following termination of
employment is deleted, so that such exercise must occur prior to the expiration
date of the option.
Except as expressly set forth herein, the Option Agreement shall remain in
full force and effect.
Please sign below in the space provided to signify your consent to the
foregoing amendment.
Very truly yours,
VIMRx PHARMACEUTICALS INC.
By:__________________________
Richard L. Dunning
I hereby acknowledge and agree to the foregoing amendment.
____________________
David A. Jackson
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