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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____ to _____
Commission file number 0-19472
CELLPRO, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 94-3087971
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22215 - 26th Avenue S.E.
Bothell, WA 98021
(Address of Principal Executive Offices, including Zip Code)
Registrant's telephone number including area code: (425) 485-7644
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.001 par value
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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [X]
The aggregate market value of voting stock held by nonaffiliates of the
Registrant, as of May 15, 1998, was approximately $38.3 million (based upon the
closing price for shares of the Registrant's Common Stock as reported by the
NASDAQ Stock Market for that date). Shares of Common Stock held by each officer,
director (and affiliate thereof) and holder of 10% or more of the outstanding
Common Stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
On May 15, 1998, approximately 14,614,996 shares of the Registrant's
Common Stock, $.001 par value, were outstanding.
Documents Incorporated by Reference
(1) Portions of the Registrant's 1998 Notice of Annual Meeting of
Stockholders and Proxy Statement for the Registrant's Annual Meeting of
Stockholders to be held on October 7, 1998 are incorporated by reference into
Part III hereof.
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PART I
ITEM 1. BUSINESS
OVERVIEW
CellPro, Incorporated ("CellPro" or "the Company") has developed a
unique monoclonal antibody-based system that can be used to separate specific
cells from complex cell mixtures for use in a wide range of therapeutic,
diagnostic and research applications. The CellPro technology selects cells in a
continuous flow system by using a high affinity avidin-biotin binding process.
As a result, it combines high levels of throughput with a high degree of
selectivity. On December 6, 1996, the U.S. Food and Drug Administration (the
"FDA") approved CellPro's CEPRATE(R) SC Stem Cell Concentration System (the
"CEPRATE(R) SC System") for use in autologous bone marrow transplantation.
Subsequent to the fiscal year ended March 31, 1998, on April 9, 1998, the FDA
notified the Company that its application to expand the use of the CEPRATE(R) SC
System to include autologous transplantation of stem cells derived from
peripheral blood was approvable. The Company is currently developing additional
applications for the CEPRATE(R) SC System, including use as an adjunct to other
cancer treatments, gene therapy and use in support of treatment of debilitating
autoimmune diseases such as multiple sclerosis, lupus, and rheumatoid arthritis.
In addition to stem cell selection, the Company is developing other new cell
therapy applications for this technology, including T-lymphocyte transplantation
and ex vivo T-lymphocyte adoptive immunotherapy for cancer. The Company is
currently selling the CEPRATE(R) SC System in most European countries, Canada
and certain Asia-Pacific and Latin American countries. The CEPRATE(R) SC System
was approved for sale in the 18-nation European Economic Area in July, 1995. Two
second generation products, the CEPRATE(R) TCD T-Cell Depletion System (the
"CEPRATE(R) TCD System") and the CEPRATE(R) CD4 System, have also been approved
for commercial sale in the European Economic Area.
Cell selection plays an increasingly important role in a variety of
medical applications. Cellular therapies, in which purified cell populations
obtained from tissues such as bone marrow or blood are used to treat a variety
of diseases, depend on the collection of specific target cells, or the removal
of particular cellular contaminants, from a mixture of cells. A significant
application of cellular therapy is stem cell transplantation, which is
increasingly being used to treat patients with certain forms of cancer. Stem
cells give rise to most of the other cells in the marrow and ultimately the
blood, and the Company believes that these cells, which represent approximately
one percent of the cells in marrow, are the primary cells required for
successful transplantation. Transplantation of certain other cells along with
stem cells can cause harmful side effects or dilute therapeutic benefits. For
example, the marrow of many cancer patients contains tumor cells which, if
transplanted back into the patient, may contribute to a relapse of the cancer.
Alternatively, donated bone marrow contains cells which may cause a
life-threatening immune reaction in an allogeneic transplant recipient.
CellPro's CEPRATE(R) SC System is designed to provide a supply of purified stem
cells that can be used in cellular therapies while reducing the problems
frequently experienced with current transplantation techniques.
The Company completed its initial Phase III clinical trial in 1993 in
which stem cells purified from bone marrow with the Company's CEPRATE(R) SC
System were transplanted into patients with advanced breast cancer. Data
gathered during the Phase III clinical trial demonstrated successful engraftment
of the transplanted cells. It also indicated significant decreases in the
infusional toxicity normally associated with bone marrow transplantation.
The Company completed a second Phase III clinical trial in 1997 in
which stem cells purified from peripheral blood with the Company's CEPRATE(R) SC
System were transplanted into patients with multiple myeloma to restore their
bone marrow with hematopoietic (blood-forming) stem cells following
myeloablative (marrow-killing) chemotherapy. Data gathered during the Phase III
clinical trial demonstrated a significant depletion of tumor cells in the
autograft and successful engraftment of the transplanted cells. Such data also
formed the basis for the FDA's notification, subsequent to the fiscal year ended
March 31, 1998, on April 9, 1998, that the CEPRATE(R) SC System was approvable
for peripheral blood progenitor cell ("PBPC") transplantation.
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The Company is conducting a Phase I/II clinical trial with the
CEPRATE(R) TCD System. This device is being used with CellPro's current product,
the CEPRATE(R) SC System, to reduce the number of T-lymphocytes in donor-derived
peripheral blood stem cells for allogeneic transplantation. The goal of this
trial is to evaluate the proportion of patients with successful engraftment of
donor stem cells and the proportion of patients who develop graft-versus-host
disease, an often fatal side effect of allogeneic transplants. Additional
investigator-sponsored clinical trials are also being conducted.
The Company is also conducting a Phase I/II clinical trial with its
CEPRATE(R) B-Cell Depletion System. This device is being used with CellPro's
current product, the CEPRATE(R) SC System, to reduce the number of B lymphocytes
in mobilized peripheral blood for autologous transplantation into patients with
relapsed non-Hodgkin's lymphoma. The goal of this trial is to evaluate the
safety and efficacy of B-cell purging combined with a CD34+ cell enrichment of
mobilized peripheral blood.
The administration of purified stem cells, in conjunction with growth
factors, may allow cancer patients to receive intensified doses of chemotherapy.
There is increasing interest in this approach by physicians to treat certain
cancers.
In addition to their present and potential usefulness in cellular
therapy, stem cells are critical to the success of many forms of gene therapy.
The goal of gene therapy is to produce a permanent genetic alteration, which can
only be accomplished if the gene is inserted into self-renewing cells such as
stem cells. CellPro is participating in several clinical trials which
concentrate stem cells for gene therapy in patients with certain cancers,
genetic disorders and AIDS.
CellPro's cellular immunotherapy program exemplifies what the Company
believes will become a trend toward graft engineering. Namely, a bone marrow or
PBSC graft will be fractionated into multiple cellular components that are
administered to the patient at different time points to restore marrow function
(stem and progenitor cells), eradicate residual malignant disease (CD4
lymphocytes, NK cells), and prevent the emergence of viral and fungal diseases
common in the immediate post-transplant setting (CD8 lymphocytes). The Company
believes that its cell selection technology platform is ideally suited to graft
engineering since it allows multiple cell types to be recovered separately in
clinically useful quantities, enabling the clinician to manipulate the
composition of the graft to suit the patient's needs. Ultimately, the Company
envisions that the various cellular components obtained using the CEPRATE(R) SC
System may be activated, expanded in number, or otherwise manipulated ex vivo,
prior to infusion, to render them more effective.
CELL THERAPY IN MEDICINE
OVERVIEW
Cell selection plays an increasingly important role in a variety of
medical applications. Both existing and developing therapeutic and diagnostic
technologies depend on the ready availability of purified cell populations
resulting from the collection of specific target cells, or the removal of
particular cell contaminants, from a mixture of cells. The increasing use of
stem cell transplantation in cancer treatment, as well as the development of new
technologies such as gene therapy and growth factors, has created a need for a
cell selection technology that has a degree of cell selectivity and a scale of
cell recovery not available from traditional cell-selection methods. Monoclonal
antibodies have provided the mechanism that makes it possible to selectively
identify a large number of different types of cells. A practical technology
capable of selecting antibody-labeled cells from complex tissues, such as blood
or bone marrow, could not only improve the efficacy of current therapies, such
as stem cell transplantation, but may also enable more novel therapeutic and
diagnostic approaches that require purified cell populations, such as gene
therapy.
The use of cells as therapeutics represents a fundamental change in the
practice of medicine. Such cell therapy approaches are based upon the ability to
isolate, manipulate and deliver specific cells to the patient. Until recently,
physicians typically relied on small molecule-based drugs in treating patients.
To the extent these drugs are
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poor analogs of natural structures in the body, they are limited in their
therapeutic effect and are often associated with significant toxicity.
Recombinant DNA technology has made it possible to clone genes and thereby
produce significant amounts of naturally occurring therapeutic substances, such
as hormones and growth factors. These substances stimulate the natural functions
of the body and have proven more effective than conventional drugs in the
treatment of many clinical conditions, including anemia, diabetes and cancer.
These substances are not self-regulating, however, and can cause significant
toxicity when other organs in addition to the target tissue are exposed to these
agents. The use of cells for therapy is an effective and safe form of treatment
for many diseases because cells represent self-contained units that perform the
body's natural functions and provide stimulation only when needed. Further,
target cells can be exposed specifically to peptides and growth factors outside
of the body, thereby maximizing therapeutic effects while minimizing toxicity to
other organs of the body. While still in its early developmental phase, cell
therapy has already had a clinical impact by allowing more aggressive treatment
of certain cancers and debilitating autoimmune diseases, and providing more
effective treatment modalities for other diseases, including gene therapy
research.
The tissues used in cellular therapy, such as blood and bone marrow,
consist of many types of cells. Successful cellular therapy requires the
identification and isolation of the beneficial cells in these tissues and the
elimination of cell types with undesirable or harmful side effects. For example,
when bone marrow is utilized for transplantation, the collected aggregate of
several billion cells contains hundreds of different cell types. In conventional
bone marrow transplantation, healthy, blood-generating cells are returned to a
patient whose marrow is either diseased, or has been damaged by radiation or
chemotherapy. Stem cells are the only cells required for regeneration of new
blood and immune cells, but only constitute approximately one percent of the
cells in the marrow. The remainder of the marrow consists of cells that are
either unnecessary or potentially harmful when transplanted. For example, in an
autologous bone marrow transplant, which utilizes the patient's own bone marrow,
that marrow may contain cancer cells that could cause relapse following
transplantation back into the patient. In the case of stem cell transplantation
from other donors, graft-versus-host disease often results because the donor
lymphocytes in the transplanted cells attack the patient's tissues. Thus, it
becomes clinically important either to select the desired cells, or to remove
the offending cells.
Gene therapy depends on inserting genes into specific cells, such as
rare stem cells that are capable of long-term survival in the patient. The
ability to concentrate these rare target stem cells greatly facilitates the
successful application of this technology because the genes can be targeted into
the stem cells themselves instead of treating whole marrow or blood.
In order for a cell-selection technology to be clinically useful, it
must be capable of processing billions of cells (in the case of therapeutic
applications), or several hundred million cells (in the case of most diagnostic
and research applications). It must also have sufficient specificity to achieve
isolation of rare target cells such as tumor cells, or stem cells, that may
represent only a small fraction of the cell population. Finally, it must be able
to accomplish these tasks in a timely and cost-effective fashion. CellPro's
cell-selection technology offers a practical solution to these challenges
because its unique continuous-flow system allows rapid throughput, while
maintaining a high degree of selectivity for the target cells.
CELLPRO TECHNOLOGY
CellPro's avidin-biotin immunoaffinity cell-selection system, which is
embodied in the CEPRATE(R) SC System, takes advantage of monoclonal antibodies
for selectivity and the strong affinity between avidin (a protein) and biotin (a
vitamin) to allow cell selection to be performed in a high-volume,
continuous-flow, closed processing system. In CellPro's CEPRATE(R) SC System,
biotin molecules attached to monoclonal antibodies (which are themselves
selective for the cells of interest) are introduced into a cellular mixture. The
biotin-conjugated antibodies bind selectively to the target cells. The resulting
antibody-cell suspension is then rapidly passed through a column containing
avidin-coated beads. The strong affinity between biotin and avidin causes the
biotin-linked target cells to adhere to the avidin-coated beads. This technique
can be utilized to either positively select cells of interest or negatively
deplete unwanted cells. In a positive selection application, unmarked cells are
washed through the column, then captured cells are removed by gentle agitation
and collected for use. In a negative selection application, the cells which do
not adhere to the column are returned to the patient, and the harmful cells that
have
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been captured by the avidin-coated beads are retained and discarded. The
avidin-biotin binding process makes possible a continuous-flow system that
allows high throughput of cells in a short period of time with limited
opportunity for non-target cells to bind nonspecifically to the beads.
During a bone marrow transplant, one to two liters of bone marrow
containing several billion cells are obtained from the patient or donor. This
material is then typically processed on a centrifuge, reducing the volume of
material to 250 to 500 cc which is called a buffy coat. When stem cells are
obtained from peripheral blood, a white blood cell fraction containing 150 to
300 cc is obtained from the patient in a leukapheresis procedure. Using the
CEPRATE(R) SC System, these mixtures are then processed further to obtain a
highly purified population of stem cells of approximately 4.5ml, sufficient for
transplantation, in less than 90 minutes.
PRODUCT DEVELOPMENT PROGRAMS
The CellPro cell-selection technology can be adapted according to the
number of cells to be processed or the target cells to be selected. All CellPro
systems use a similar avidin-biotin process with the size of the selection
columns varying depending on the specific output required. For example, the
CEPRATE(R) SC System (which can be used to process up to 50 billion cells) has a
selection column containing 120cc of beads, whereas the CEPRATE(R) LC Laboratory
Cell Separation System (the "CEPRATE(R) LC System") (which can be used to
process approximately 100 million to 500 million cells) has a much smaller
column containing only 1.5cc of beads. Target-cell selection is determined by
the choice of monoclonal antibody used.
CellPro's current development programs are focused on adapting its
proprietary cell-selection technology for use in a broad range of clinical cell
therapy indications. Many of these indications have already advanced into human
clinical trials as evidenced by the following program summary:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRODUCT NAME/TYPE APPLICATION DEVELOPMENT STAGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CEPRATE(R) SC System Autologous bone marrow transplantation (BMT), Commercially available
stem cell therapy for cancer treatment
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Autologous PBPC & tumor cell purging for Approvable letter
cancer treatment received from FDA 4/9/98
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Autologous stem cell transplant for Phase I/II - several
autoimmune diseases, including multiple ongoing
Stem Cell Selection sclerosis, systemic lupus erythematosus (SLE)
& rheumatoid arthritis
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Stem cell gene therapy for inherited disorders Phase I/II - several
ongoing
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Stem cell gene therapy for cancer treatment Phase I/II - several
ongoing
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Dose-intensified, multicycle, stem cell Pilot study
therapy with MDR-1 gene therapy for high-risk
Stem Cell Selection breast cancer
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System In utero allogeneic stem cell therapy to Pilot studies - several
treat inherited disorders
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
PRODUCT NAME/TYPE APPLICATION DEVELOPMENT STAGE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CEPRATE(R) SC System Ex vivo generation of autologous dendritic Pilot studies - several
cells for immunization against cancer
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Stem cell gene therapy for treatment of HIV Phase I/II - ongoing
(AIDS)
Stem Cell Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC & CEPRATE(R) To reduce graft vs. host disease after Phase I/II - several
TCD Systems allogeneic PBPC transplantation for patents ongoing
with hematological malignancies
Stem Cell Selection &
T-lymphocyte Depletion
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC & CEPRATE(R) Allogeneic stem cell therapy to reduce Phase I/ll - ongoing
TCD Systems rejection following solid organ
transplantation
Stem Cell Selection &
T-lymphocyte Depletion
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC & CEPRATE(R) Allogeneic stem cell therapy & T-lymphocyte Preclinical - pilot study
TCD Systems depletion to induce tolerance in pancreatic planned for FY 1999
islet cell transplantation to treat diabetes
Stem Cell Selection &
T-lymphocyte Depletion
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) B-Cell Depletion B-cell depletion from CD34 selected PBPC Phase I/ll - ongoing
System transplants to treat B-cell non-Hodgkin's
lymphoma
Stem Cell Selection &
B-lymphocyte Depletion
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) CD4 Lymphocyte T-lymphocyte subset selection to treat Commercially available
Selection Systems malignant & non-malignant diseases in Europe, Phase I/II -
planned for FY 1999
T-lymphocyte Selection
- -------------------------------------------------------------------------------------------------------------------
CEPRATE(R) SC System Autologous dendritic-cell selection from Phase I/II - several
peripheral blood for immunization against planned for FY 1999
cancer
Dendritic Cell Expansion
- -------------------------------------------------------------------------------------------------------------------
TEC(TM) Tumor Enrichment Cancer-specific cell selection for early Preclinical
Column diagnosis or relapse monitoring
Diagnostic
- -------------------------------------------------------------------------------------------------------------------
ImmunoCytoChemistry Staining Detection of immunostained epithelia-derived Commercially available
Kit tumor cells in blood and bone marrow for research use only
Diagnostic
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company spent approximately $13.8 million on research and
development during the fiscal year ended March 31, 1998.
The CEPRATE(R) SC System accounted for 91%, 93% and 88% of the
Company's product sales during the fiscal years ended March 31, 1998, 1997 and
1996, respectively.
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CELL THERAPIES FOR CANCER AND AUTOIMMUNE DISEASE TREATMENT
OVERVIEW
Bone marrow is the principal organ of the blood system, and is
responsible for production of the various cells present in blood. Bone marrow
consists of stem cells, including proliferating and differentiating cells, and
mature blood cells (which include red blood cells, white blood cells and
platelets). Stem cells give rise to all the other cells in the blood. Red blood
cells are responsible for carrying oxygen to body tissues, white blood cells are
responsible for fighting infection and platelets are a critical component of the
blood-clotting process. If bone marrow is damaged, the nature or composition of
cells in the blood will be altered, resulting in many complications including
anemia, infection and bleeding.
Higher doses of chemotherapy are associated generally with a higher
probability of eradicating certain diseases, but are also associated with
increased toxicities that may lead to irreversible damage to the marrow and
other tissues. Most patients must therefore be given relatively low, and
consequently less effective, doses of chemotherapy to prevent the adverse and
potentially lethal consequences of marrow destruction. Stem cell transplantation
allows more aggressive treatments, which have a better chance of eradicating
certain cancers. In this procedure, the patient is first given massive
chemotherapy or radiation treatment, which destroys the bone marrow as well as
the cancer, and is then infused with stem cells harvested prior to the
chemotherapy or radiation treatment, in the case of an autologous transplant, or
from a donor, in the case of an allogeneic transplant.
Patients may now be treated with growth factors to stimulate the
recovery of their blood and immune systems after chemotherapy. The bone marrow,
however, contains significantly reduced quantities of stem cells after
chemotherapy, thereby limiting the effectiveness of such growth factors in
therapy. Consequently, there is growing interest in infusing stem cells
immediately after chemotherapy and then treating patients with growth factors.
This provides a larger pool of stem cells to be stimulated by the growth
factors, potentially enabling a more rapid recovery of the marrow after
chemotherapy. Because this treatment is being performed in an outpatient setting
with minimal complications, it greatly expands the number of patients eligible
for stem cell therapy.
Stem Cell Transplantation
When chemotherapy regimens, with or without the administration of
radiation, are sufficiently intense that they destroy the patient's blood and
immune systems and bone marrow, the patient will die soon after administration
of such treatments without the successful reintroduction of stem cells to
repopulate the marrow. These reintroduced cells localize to the bone marrow,
engraft and start producing new blood cells in the patient in approximately
three-to-four weeks. This infusion of cells is called stem cell transplantation.
Stem cell transplantation was originally used to treat hematological
disorders, such as anemia and leukemia, but is being used increasingly to enable
physicians to administer higher doses of chemotherapy to treat patients with
other forms of cancer and to treat other diseases and disorders. Currently,
there are estimated to be in excess of 40,000 transplants performed annually
around the world utilizing bone marrow and peripheral blood. This number is
increasing steadily, primarily because of the increasing use of transplant
procedures in patients with leukemias, lymphomas and, in particular, breast
cancer.
There are two types of stem cell transplants, autologous and
allogeneic. In autologous transplantation, some of the patient's stem cells are
removed prior to treatment, frozen and stored for later use. The previously
stored stem cells are then infused into the patient after intense therapy with a
variety of protocols that generally involve chemotherapy and radiation.
Allogeneic transplantation, using stem cells from a closely matched donor
(usually a close relative), is primarily used for treatment of patients with
certain forms of anemia, leukemia or lymphoma. This procedure is more frequently
associated with serious complications and is generally more expensive to perform
than autologous transplantation. Further, donors who are matched closely enough
to the patient to be suitable can be found only in a limited number of cases.
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Cell selection plays a key role in the successful application of
transplantation because it is important to separate the cells necessary for
engraftment from other cells, which may have potentially adverse effects when
they are infused into the patient. These undesired cells differ depending on the
type of transplantation. In allogeneic transplantation, certain white blood
cells in the donor graft can attack the patient (host) and cause a potentially
lethal condition known as graft-versus-host disease ("GVHD"). In autologous
transplantation, stem cell harvests taken from the patient may contain cancer
cells. This is not only true of patients whose cancer primarily affects the
marrow, such as leukemia, but also for patients with solid tumors, such as
breast cancer. Therefore, it is believed to be important to deplete cancer cells
from the graft prior to infusion to prevent cancer cells from being given back
to the patient receiving the transplant. Additionally, autologous grafts
typically are frozen with cryoprotectants like dimethlysulfoxide, which can lead
to a variety of toxic side effects upon infusion, including hypertension,
cardiac arrhythmias, nausea, vomiting and occasional respiratory and renal
failure.
Several depletion techniques have been developed to remove the cancer
cells in autologous transplantation, or the specific white blood cells
responsible for GVHD in allogeneic transplantation. Many of these depletion
technologies are associated with the administration of cytotoxic agents, which
can have adverse effects on normal stem cells and can affect engraftment of the
transplanted stem cells.
Positive selection of stem cells provides an alternative to these
depletion techniques. Depletion of tumor cells can be more easily achieved as a
consequence of selecting the stem cells. Second, toxicity to normal marrow
elements does not occur because cytotoxic agents are not required to purge tumor
cells. Third, a concentrated fraction of stem cells can be stored in a
relatively small volume compared to unselected buffy coats, thereby reducing the
amount of cryoprotectants used and the toxic side effects associated therewith.
Stem Cell Therapy as an Adjunct to Multicycle Dose-Intensified Chemotherapy
In standard chemotherapy, the amount and duration of treatment is
carefully regulated to minimize the risk of infection that results from low
counts of neutrophils (neutropenia), a type of white blood cell. Treatments are
usually administered at intervals or in cycles to allow the patient's bone
marrow a chance to recover from the adverse effects of chemotherapy.
Unfortunately, cancer cells also tend to grow between treatment cycles.
Therefore, strategies to reduce the period of neutropenia should both reduce the
risk of infection and allow physicians to treat cancer patients more
aggressively with chemotherapy. A number of hematopoietic growth factors have
been introduced and are being used to stimulate production of white blood cells
after chemotherapy and thereby reduce the period of neutropenia. These growth
factors have been of clinical benefit, but are limited in their overall
effectiveness because they act on marrow that has previously been damaged by
chemotherapy.
To overcome this limitation, there has been a growing interest in
infusing the patient with stem cells along with growth factors immediately
following chemotherapy. The growth factors then have a larger pool of stem cells
to stimulate, which results in more rapid regeneration of the patient's blood
cells. Using this approach, physicians have been able to deliver more frequent
and higher doses of chemotherapy. In contrast to conventional transplantation,
stem cell therapy as an adjunct to multicycle dose intensified chemotherapy
could potentially be given on an outpatient basis with minimal complications and
at a reduced cost.
Gene Therapy
Stem cells are critical to the success of many forms of gene therapy.
The goal of gene therapy is to produce a permanent genetic alteration, which can
only be accomplished if the gene is inserted into self-renewing cells like stem
cells. CellPro is collaborating in various pilot clinical trials to first
determine the safety of gene therapy in patients with breast cancer, ovarian
cancer, leukemia, and other malignant and non-malignant diseases, and secondly
to determine the therapeutic benefit of inserting corrective genes for the
treatment of these diseases. One of these therapeutic genes, a multiple drug
resistance gene, is inserted into the patient's bone marrow stem cells in an
attempt to confer drug resistance to the patient's marrow. The patient may then
be given greater doses of chemotherapy intended to eliminate the cancer without
damaging the patient's genetically resistant bone marrow.
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CellPro is also collaborating with the National Institutes of Health
("NIH") and Childress Hospital Los Angeles in clinical trials to insert the
adenosine deaminase (ADA) gene into stem cells, purified with the Company's
CEPRATE(R) SC System, of children who are missing this gene. The lack of ADA
causes the genetic disorder severe combined immunodeficiency syndrome (SCIDS).
Allogeneic Transplantation with T-Cell Depletion
Patients with certain diseases, such as leukemia, cannot use their own
cells for transplantation because their stem cells may be affected by their
disease. The treatment of choice for many such patients who have failed standard
therapy is an allogeneic (donor cell) transplant. In the allogeneic transplant
setting, tumor contamination of the graft is not a concern, but T cells in the
graft are. A T cell is a type of immune cell that circulates in the blood that
can attack the recipient patient's own normal cells and cause a potentially
fatal condition known as graft-versus-host disease (GVHD). The use of cells from
a closely matched donor reduces, but does not eliminate, the risk of GVHD.
A matched donor, however, may not be easy to find. Fewer than one-third
of the children who might benefit from an allogeneic transplant have a
genetically matched sibling who can serve as a donor. Non-Caucasians and
children of mixed ethnicity are much less likely to find a suitably matched
donor. In addition, even where a matched donor can be found, the process
involved often takes longer than these children can wait.
Positive selection of stem cells using the CEPRATE(R) SC System reduces
the number of T cells in the graft and may thus facilitate allogeneic
transplantation where donors and patients are closely matched. In the mismatched
setting, however, additional T cell depletion is required to prevent GVHD in the
patient. To address this need, CellPro has developed a second generation
product, the CEPRATE(R) TCD System for use in conjunction with the CEPRATE(R) SC
System to further deplete T cells from the graft. This product was approved for
sale in Europe in February, 1997.
CellPro is conducting a Phase I/II clinical trial using the CEPRATE(R)
TCD System to treat approximately 25 patients at 6 centers in the U.S. and
Canada. The trial involves children with hematological malignancies who need a
stem cell transplant, but can find no suitably matched donor. These children
would otherwise have few, if any, viable treatment options for their fatal
disease.
Children enrolled in the trial will receive stem cell transplants from
a family member (usually a parent) who is only partially matched with the child.
Donor cells are processed first using the CEPRATE(R) SC System to concentrate
the stem cells, and then using the CEPRATE(R) TCD System to reduce the number of
T cells in the graft. The clinical trial is designed to evaluate the proportion
of patients who achieve successful engraftment and the proportion who develop
GVHD. If proven to be safe and effective, use of the CEPRATE(R) TCD System could
revolutionize allogeneic transplantation by providing a much larger pool of
potential donors for many patients who might otherwise have little hope to find
a suitably matched donor.
T-Cell Therapy
Disease relapse is the most common cause of treatment failure in cancer
patients, even among those patients who have received myeloablative doses of
chemotherapy or radiotherapy in conjunction with stem cell support. Thus, it is
clear that new approaches are needed to control residual disease if overall
treatment outcomes are to be improved.
A potential new application of cell therapy is the use of donor
lymphocytes to enhance the ability of a patient's immune system to seek out and
destroy residual tumor cells following an allogeneic transplant procedure. Donor
lymphocyte immunotherapy has been reported by various researchers to cure
post-transplant relapse in chronic myelogenous leukemia patients. However, the
application of donor lymphocytes is dose-limited due to the risk of inducing
GVHD in the patient. CellPro believes that the use of selected CD4 T cells
rather than unfractionated donor lymphocytes (buffy coats) will afford the
desired anti-tumor response with less risk of inducing GVHD. Initial clinical
studies will focus on using selected, donor CD4 T cells to treat relapse of
disease.
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This treatment, however, could potentially be used prophylactically
post-allogeneic transplant to prevent relapse in a wide range of hematologic
cancer patients.
Donor lymphocyte immunotherapy has also been reported to be effective
in treating opportunistic viral infections due to occurrence of Epstein-Barr
Virus (EBV) and Cytomegalovirus (CMV) following allogeneic transplant
procedures. EBV is a significant problem since it can cause a rapidly
progressive and uniformly fatal lymphoproliferative disease if left unchecked.
EBV lymphoproliferative disease occurs in both bone marrow and solid organ
transplant settings, where up to 40% of all cardiac transplant recipients
experience this condition. Once a patient develops significant
lymphoproliferative disease, this condition is not treatable with current drugs.
However, leading investigators have reported eradication of EBV disease using
donor lymphocytes. CellPro believes that the use of selected CD8 T cells rather
than unfractionated donor lymphocytes (buffy coats) will afford the same
anti-viral response with less incidence of GVHD noted in these early studies.
CellPro's cellular immunotherapy program exemplifies what the Company
believes will become a trend toward graft engineering. Namely, a bone marrow or
PBSC graft will be fractionated into multiple cellular components that are
administered to the patient at different time points to restore marrow function
(stem and progenitor cells), eradicate residual malignant disease (CD4
lymphocytes, NK cells), and prevent the emergence of viral and fungal diseases
common in the immediate post-transplant setting (CD8 lymphocytes). CellPro
believes that its cell selection technology platform is ideally suited to graft
engineering since it allows multiple cell types to be recovered separately in
clinically useful quantities, enabling the clinician to manipulate the
composition of the graft to suit the patient's needs. Ultimately, the Company
envisions that the various cellular components obtained using the CEPRATE(R) SC
System may be activated, expanded in number, or otherwise manipulated ex vivo,
prior to infusion, to render them even more effective.
Adoptive Immunotherapy
In the autologous transplant setting, new cellular vaccine techniques
are under development to enhance the ability of the patient's immune system to
mount a response against the residual tumor cells which contribute to relapse.
Historically, the use of vaccines has been extremely effective at inducing
immunity against many viral and bacterial pathogens, however, they have
demonstrated only limited benefit against cancer.
CellPro has developed techniques for isolating dendritic cells from the
patient's blood, using monoclonal antibodies specific to dendritic cells or
their precursors. These specialized cells are capable of processing and
presenting tumor antigens to naive, unstimulated T cells. Following selection,
dendritic cells are presented with a specific tumor antigen ex vivo, then
infused into the patient as a cellular vaccine to induce a T-cell response in
vivo. The initial clinical target for dendritic cell vaccines are likely to be
multiple myeloma or melanoma patients.
Adoptive immunotherapy, utilizing autologous, antigen-specific,
effector lymphocytes may prove a safe, effective, and non-cross resistant means
of eradicating minimal residual disease in cancer patients who have undergone
prior surgical removal of tumor or myeloablative chemotherapy treatment.
Tumor Cell Purging
While stem cell selection alone is effective in significantly reducing
the number of tumor cells present in the cell infusion received by a transplant
patient, it frequently does not totally eliminate the presence of tumor cells.
The Company is currently developing new next-generation products for use with
its CEPRATE(R) SC System to enhance the degree to which tumor cells are purged
from autologous stem cell grafts. Using antibodies specific to certain tumor
cells, a cell selection step is performed in addition to the stem cell
concentration to negatively deplete tumor cells. The Company has begun clinical
trials with its new product, the CEPRATE(R) B-Cell Depletion System. This device
will be used with CellPro's current product, the CEPRATE(R) SC System, to reduce
the number of B cells in mobilized peripheral blood used for autologous
hematopoietic transplantation in patients with relapsed non-Hodgkin's lymphoma.
The trial will evaluate the safety and efficacy of B-cell purging combined with
a CD34+ cell enrichment of mobilized peripheral blood.
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Unprocessed autologous stem cell grafts may contain tumor cells that
are returned to the patient during the transplant procedure. The CEPRATE(R)
B-Cell Depletion System is intended to purge lymphoma tumor cells from the
peripheral blood stem cell graft in an attempt to prevent tumor cells from being
returned to the patient, and possibly causing a relapse of the patient's
disease.
The clinical process will involve mobilization of stem cells in
peripheral blood using hematopoietic growth factors and chemotherapy. CellPro
technology will be used to first deplete B cells from the apheresis product,
then the B-cell depleted product will be further processed using CellPro's
CEPRATE(R) SC System to enrich and concentrate the stem cells.
Autoimmune Diseases
Autoimmune diseases such as multiple sclerosis (MS), lupus and
rheumatoid arthritis are caused by the patient's own immune cells attacking
their normal tissues. A number of cancer patients with co-existing autoimmune
diseases have experienced some improvement of their autoimmune condition
following stem cell transplantation to treat their cancer. This has led to a
strong interest in using high-dose chemotherapy and autologous stem cell
transplantation as therapy for this serious and debilitating group of diseases.
The bone marrow or blood products of autoimmune patients will, however, contain
certain immune cells which could reinitiate the disease. The CEPRATE(R) SC
System is thus being used in these clinical trials to enrich for the stem cells
necessary for rebuilding the blood and immune systems while at the same time
depleting the immune cells that cause disease.
Several Phase I/II clinical trials are in process using autologous bone
marrow transplantation to treat rapidly progressing MS. MS is caused by an
immunological attack on the myelin sheath that covers many of the nerve fibers
in the central nervous system. This attack is thought to be caused by T-cell
mediated immune destruction of the myelin sheath surrounding nerves. The
CEPRATE(R) SC System is being used in these clinical trials to purify the stem
cells and reduce the number of T cells returned to the patient in the transplant
procedure. Similar clinical trials are also being conducted to treat lupus and
rheumatoid arthritis.
AIDS
The CEPRATE(R) SC System is being used in several clinical trials to
provide a purified stem cell population for gene therapy to treat AIDS.
OTHER APPLICATIONS
To date, CellPro has focused its development efforts on the products
described above. The Company has also conducted feasibility studies of the
application of its cell-selection technology in the area of cancer diagnostics
and is expanding the application of its technology to the isolation of stem
cells for use in support of solid organ transplantation.
CellPro's cell-separation technology may have application in assisting
physicians in the diagnosis of cancer. By concentrating rare tumor cells that
are present in the early stages of cancer from tissues such as marrow or blood,
CellPro technology could improve the diagnostic accuracy of current tests for
cancer.
Exploratory trials have begun using donor selected stem cells to reduce
the incidence of solid organ rejection in a transplant setting. The use of donor
stem cells conditions the host patient to also express certain characteristics
of the donor's immune system, thus reducing the risk of the patient's own immune
system mounting a defensive attack against the new organ which can lead to
rejection.
Stem cells may also be used to induce tolerance in the setting of
pancreatic islet cell transplantation (ICT). Treatment of diabetes with ICT has
the potential to prevent the development of serious end-stage complications of
the disease, such as renal failure and blindness. If successful, this approach
could significantly improve the quality of life for people with diabetes and
minimize the enormous expense associated with treating patients who are
seriously affected by the disease. Utilizing donor bone marrow infusions in
connection with ICT, researchers at the
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Diabetes Research Institute in Miami, Florida have obtained improved survival of
transplanted islets in experimental models. The CEPRATE(R) SC System is now
being used to determine if enriched donor stem cells can enhance islet survival
in pre-clinical models.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's policy is to protect its technology by, among other
things, filing patent applications for technology that it considers important to
the development of its business. The Company has nine issued patents in the U.S.
and five foreign patents concerning cell selection and related technology
developed or licensed by the Company. Additional U.S. and foreign patent
applications are pending. The Company intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific procedures that it develops.
See also, "Investment Considerations - Patents and Proprietary
Technology," below.
UNITED STATES GOVERNMENT REGULATION
OVERVIEW
Regulation by governmental authorities is a significant factor in the
manufacture and marketing of the Company's products and in its ongoing research
and product development activities. All of the Company's existing and proposed
products, except the CEPRATE(R) LC System, which is intended for nonclinical
purposes only and is therefore exempt from premarket clearance requirements,
will require regulatory approval prior to commercialization. In particular,
human therapeutic products are subject to rigorous preclinical and clinical
testing as a condition of approval by the FDA and by similar authorities in
foreign countries. The lengthy process of seeking these approvals, and the
ongoing process of compliance with applicable federal statutes and regulations,
require the expenditure of substantial resources. Any failure by the Company or
its collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of the Company's products.
The Company and all of its suppliers are subject to various federal,
state and local laws, regulations and recommendations relating to such matters
as safe working conditions, laboratory and manufacturing practices, the
experimental use of animals and the use and disposal of hazardous or potentially
hazardous substances, including radioactive compounds and biological materials,
used in connection with the Company's research and development work. The Company
does not expect environmental compliance to materially effect its earnings,
capital expenditures or competitive position.
For a discussion of the regulatory process see "Investment
Considerations - Government Regulation," below.
COLLABORATIVE, LICENSE AND TECHNOLOGY-RELATED AGREEMENTS
The Company seeks to obtain licenses to technologies that complement
and expand its existing technology base. Where consistent with its business
strategy, the Company intends to enter into collaborations or to license product
and marketing rights to selected strategic partners to capitalize on the
production, development, regulatory and marketing capabilities of these
entities. A description of certain of the Company's collaborative, license and
technology-related agreements are set forth below.
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FRED HUTCHINSON CANCER RESEARCH CENTER
In March 1989, the Company entered into two license agreements with the
Fred Hutchinson Cancer Research Center (the Hutchinson Center). Under one
agreement, the Company was granted an exclusive, worldwide license (with the
right to sublicense) (subject to the rights of certain U.S. governmental
agencies and a grant-back to the Hutchinson Center for non-commercial research
purposes) to certain patent rights relating to avidin-biotin immunoaffinity
chromatography, which constitutes CellPro's core technology for cell separation.
The Company paid an up-front license fee upon execution of this license
agreement and has paid additional amounts upon achieving certain milestones. In
addition, the Company is obligated to pay royalties, subject to a minimum
royalty for a period of ten years ending December 31, 2006 and royalties on
actual product sales during the remainder of the term of a licensed patent.
CellPro also has the option of converting its license into a non-exclusive
license upon two years' notice, which would then relieve it of certain of its
royalty payment obligations.
Under the second agreement, CellPro obtained an exclusive, worldwide
license (with the right to sublicense) for ex vivo therapeutic applications and
a non-exclusive license for all other applications under the Hutchinson Center's
rights to a certain hybridoma cell line that produces antibodies selective for
an antigen expressed on human stem cells. The Company paid an up-front license
fee and is obligated to pay royalties until March 1999. In addition, the Company
also paid certain amounts to the Hutchinson Center to fund research.
AMERICAN FLUOROSEAL CORPORATION
In May, 1998, CellPro Europe N.V./S.A., a wholly owned subsidiary of
the Company, and American Fluoroseal Corporation (AFC) entered into a
distribution agreement which granted to CellPro Europe certain exclusive
distribution rights in Europe for AFC's Teflon(TM) and Kapton(TM) bags and other
products. AFC products include patented laser sealed bags which are
biologically, chemically, electrically and immunologically inert and are used
for, among other things, cell storage and growth.
CORIXA CORPORATION
Subsequent to the fiscal year ended March 31, 1998, on April 24, 1998,
the Company and Corixa Corporation agreed to terminate a multi-year research
collaboration and licensing agreement executed by them in December 1995.
The Company elected to terminate the collaboration in order to conserve
capital. The only remaining financial obligation of the Company is payment of a
$335,000 note issued in connection with such termination and due in April 2000.
OTHER AGREEMENTS
The Company has entered into license agreements with other companies
and academic and research institutions pursuant to which the Company receives
access to certain antibodies and cell lines for use in its product development
programs.
COMPETITION
The market for cell separation systems is competitive. Many of the
Company's existing or potential competitors have substantially greater
financial, technical and human resources than the Company and may be better
equipped to develop, manufacture and market such systems. In addition, many of
these companies have extensive experience in preclinical testing and human
clinical trials. Certain of these companies may develop and introduce products
and processes competitive with or superior to those of the Company. The Company
faces competition, particularly in the cell-separation field, from several
biotechnology and pharmaceutical companies,
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including Nexell Therapeutics, Inc. (jointly owned by Baxter Healthcare
Corporation and VIMRX Pharmaceuticals, Inc.), Miltenyi Biotec GmbH,
Novartis/SyStemix and Aastrom Biosciences Inc. in collaboration with Cobe BCT,
Inc.
The Company's competitive position will be determined in part by which
cell selection products are ultimately approved for sale by regulatory
authorities and by the outcome of certain legal proceedings pending against the
Company. For a discussion of these legal proceedings, see "Investment
Considerations - Legal Proceedings," below. The relative speed with which the
Company develops its products, completes the approval processes and is able to
manufacture and market commercial quantities thereof will be an important
competitive factor. Currently, the Company's CEPRATE(R) SC System, the
CEPRATE(R) TCD System and the CEPRATE(R) CD4 System are approved for commercial
sale in the European Economic Area, and the CEPRATE(R) SC System is approved for
commercial sale in Canada. Also, the CEPRATE(R) SC System is the only cell
processing system approved for commercial sale in the U.S. The Company expects
that competition among cell selection products approved for sale will be based,
among other factors, on product efficacy, safety, reliability, availability and
price.
EMPLOYEES
The Company currently has approximately 137 full-time employees, of
whom 81 are dedicated to research, development, manufacturing, quality assurance
and quality control, regulatory affairs or preclinical and clinical testing.
Fifteen of the Company's employees have a Ph.D. or M.D. degree.
MANUFACTURING AND SUPPLY
The Company's manufacturing operations are located in approximately
23,000 square feet in a leased facility in Bothell, Washington. Manufacturing
activities are fully integrated, including antibody production and purification,
avidin affinity matrix, assembly and fill, and distribution operations. The
Company is required to operate its manufacturing facility in compliance with the
FDA's Quality System Regulations, which have replaced the Good Manufacturing
Practices requirements, and within the requirements of other regulatory
authorities such as ISO 9001 standards for the European Economic Area.
Regulatory compliance requires extensive efforts by the Company, and there can
be no assurance that such requirements will be satisfied in a timely manner. It
is estimated that the Company's manufacturing facility will have the capacity to
satisfy product usage requirements for current and planned clinical trials, and
to meet expected supply requirements for early commercial sales of the Company's
products.
The Company has a wholly-owned subsidiary, CellPro Europe N.V./S.A.,
with principal executive offices located in Brussels, Belgium. The purpose of
CellPro Europe N.V./S.A. is to coordinate sales and marketing activities for the
Company throughout Europe. The Company has also established subsidiaries in
France, Germany, Italy and Spain. In addition, the Company has agreements with
companies in South America and the Asia-Pacific region for the distribution of
CellPro's products.
The Company purchases antibodies, components and supplies for its
products. Certain of the antibodies, components and supplies are obtained from
single source suppliers.
INVESTMENT CONSIDERATIONS
The Company desires to take advantage of certain provisions of the
Private Securities Litigation Reform Act of 1995, enacted in December 1995 (the
"Reform Act") that provided a "safe harbor" for forward-looking statements made
by or on behalf of the Company. The Company hereby cautions stockholders,
prospective investors in the Company and other readers that the following
important factors, among others, in some cases have affected, and in the future
could affect, the Company's stock price or cause the Company's actual results
for the fiscal year ending March 31, 1999, for the fiscal quarter ending June
30, 1998, and for future fiscal years and
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quarters to differ materially from those expressed in any forward-looking
statements, oral or written, made by or on behalf of the Company. All
forward-looking statements included herein are made as of the date hereof, and
the Company assumes no obligation to update any such forward-looking statements
or comment on the reasons why actual results may differ therefrom.
LEGAL PROCEEDINGS
The Company is engaged in litigation with The Johns Hopkins University
("Hopkins"), Becton Dickinson & Company ("BD") and Baxter Healthcare Corporation
("Baxter") concerning certain U.S. patents. There have been two jury trials in
the case. Following the first trial in the Summer of 1995, a unanimous
seven-member jury in the U.S. District Court for the District of Delaware (the
"District Court"), on August 4, 1995, rendered a verdict wholly favorable to the
Company relating to the four U.S. patents then in suit, i.e., Patent Nos.
4,714,680, 4,965,204, 5,035,994 and 5,130,144 (hereinafter the '680, '204, '994
and '144 patents), which had been assigned to Hopkins, licensed to BD and
sublicensed to Baxter. The '680 patent purports to cover certain suspensions of
stem cells in isolation from a mixed cell population; the '204 patent purports
to cover hybridomas that produce monoclonal antibodies having certain
characteristics relating to stem cells, and to cover such antibodies themselves;
the '994 patent purports to cover a method of stem cell isolation using such
antibodies; and the '144 patent purports to cover a method of transplanting stem
cells in a human patient.
The jury in the first trial determined that the Company did not
literally infringe any of these four patents; that all claims of all four
patents were invalid for obviousness under 35 U.S.C. Section 103; and that, with
the exception of two claims of the '204 patent, all claims of all four patents
were invalid on the additional ground of failure to enable under 35 U.S.C.
Section 112. The two claims of the '204 patent as to which the jury did not
render a verdict of "nonenablement" invalidity under 35 U.S.C. Section 112 are
limited in their literal scope to the My-10 antibody and its accompanying
hybridoma, an antibody and hybridoma which are not employed by the Company.
Following the first jury verdict, plaintiffs filed post-trial motions
and, on July 1, 1996, the District Court, per Judge Roderick R. McKelvie,
partially granted plaintiffs' motion for judgment as a matter of law as to the
issues of infringement, inducement of infringement and enablement with respect
to the '680 patent, as well as the issue of induced infringement with respect to
the '144 patent. The District Court ordered a new trial on remaining liability
and infringement issues.
In a series of decisions subsequent to the July 1, 1996 order, the
District Court granted summary judgment motions by the plaintiffs to dismiss the
Company's remaining liability and infringement defenses with respect to two of
the patents at issue. Plaintiffs moved to withdraw the other two patents (the
'994 and '144 patents) from suit, which motion was granted upon plaintiffs'
undertaking that they would not accuse any present product of CellPro of
infringing those patents.
A second jury trial was held in March, 1997, at which the jury was
instructed to the effect that the Court had already determined that CellPro
infringed the two patents remaining in the suit, that its defenses had been
dismissed, and that the jury was bound by those determinations. Hence, the jury
at the second trial heard evidence and arguments only as to the amount of
damages to be awarded, and as to whether CellPro's conduct had been willful. On
March 11, 1997, the jury reached a verdict finding willfulness and awarding some
$2.3 million in damages to plaintiffs.
After the second jury's verdict the following motions were filed and
resolved:
(1) Plaintiffs' motion for enhanced damages, whereby they
asked the Court to treble the jury's damage award, was granted, and on
July 24, 1997, final judgment was entered against the Company for
$6,961,479.
(2) Plaintiffs' motion for attorney fees, whereby they seek a
determination that the Company is liable to reimburse them for some $7
million in attorney fees and related litigation costs, has been held in
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abeyance by the District Court, which may, but is not required to,
reserve decision on it until after the case is decided on appeal.
(3) Plaintiffs' motion for a permanent injunction, which was
granted on July 24, 1997, and which grants relief to plaintiffs
(subject to a partial stay), as further described below.
The District Court also dismissed the Company's defense that the
patents are unenforceable for misuse by reason of an attempt by the plaintiffs
to extend the reach of the patents beyond the territory of the U.S.
On July 24, 1997, a permanent injunction was entered by the District
Court. The injunction is complex in form, but it generally prohibits the Company
(subject to a stay hereinafter described) from making, using and selling
products in the U.S. which utilize the anti-stem-cell monoclonal antibody that
is essential to the Company's principal products as they are presently
constituted, and from conducting certain research activities in the U.S. during
the term of the patents. In the U.S., the injunction is subject to a partial
stay which by its terms permits the Company to continue selling its principal
product (CEPRATE(R) SC disposable kits) until such time as another stem cell
immunoseparation product manufactured and sold under a license to the patents in
dispute gains approval from the FDA, an event which plaintiffs had contended
would probably occur before the end of 1997 but which has not yet occurred and
may take significantly longer. Thereafter, if the injunction remains in effect
in its current form, the Company would have to phase out sales of the CEPRATE(R)
SC System over a three-month period, except that the Company would be permitted
to continue supplying product to support certain U.S. clinical trials commenced
before the time an alternative device wins FDA approval. Outside the U.S., the
partial stay allowed by the District Court required the Company to phase out
over a one-year period its exports of disposable kits containing U.S. sourced
antibody found to infringe plaintiffs' patents and to prohibit sales of such
kits to new customers. The Company filed a motion for stay of the permanent
injunction with the U.S. Court of Appeals for the Federal Circuit (the "Appeals
Court") seeking, among other things, to eliminate certain restrictions on sales
outside the U.S. On January 30, 1998, the Appeals Court granted a stay of the
international phase-out pending review of the case on appeal. Under the partial
stay as modified by order of the District Court dated February 27, 1998,
commercial sales and cost recovery sales of disposable kits sold under the
partial stay are subject to a requirement that the Company pay plaintiffs $1,075
and $750 per kit, respectively, and $5,000 per CEPRATE(R) SC Instrument System
sold or installed at a new commercial site after March 11, 1997. Subsequent to
January 30, 1998, the further stay issued by the Appeals Court requires that net
revenues from international sales be deposited into an escrow account pending
further action by the Appeals Court. The injunction has forced the Company to
terminate substantially all sales of the CEPRATE(R) LC34 Laboratory Cell
Selection System.
On July 25, 1997, the Company filed a notice of appeal of the permanent
injunction order entered by the Court. The Company also filed a motion for
judgment as a matter of law as to the treble damages award and sought
certification of the damages judgment to permit an immediate appeal. On
September 23, 1997, the Court denied the Company's motion, and on September 26,
1997, the Court entered an amended final judgment, adding interest to the jury's
verdict for a total award of $7,239,833, and certified the judgment so it could
be appealed. The Company thereafter filed a second notice of appeal from the
amended final judgment. The Company's two appeals were consolidated by the
Appeals Court and the case has been fully briefed and, subsequent to the fiscal
year ended March 31, 1998, on May 5, 1998 oral arguments were heard by the
Appeals Court. The Company has urged in its briefs that reversible errors were
made by the District Court in granting judgment as a matter of law and summary
judgment on infringement and patent validity issues, that the second jury's
willfulness verdict was the result of erroneous instructions and evidentiary
rulings, and that the first jury's verdict should be reinstated and judgment
entered thereon. There is no way to know when the Appeals Court will issue its
decision in the case.
On June 16, 1998, plaintiffs filed a motion in the District Court which
seeks to require the Company to escrow or otherwise restrict additional cash to
secure a possible award of attorneys fees currently estimated at $8.0 million.
The Company intends to vigorously oppose the motion, but there is no way to
predict how the District Court will proceed in respect thereof. As discussed
above, plaintiffs' earlier filed motion seeking an award of attorneys fees has
been held in abeyance by the District Court which may, but is not required to,
reserve decision on it until after the case is decided on appeal.
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Certain antitrust and unfair competition claims filed by the Company
against the plaintiffs have been stayed pending completion of the patent
litigation.
The course of litigation is inherently uncertain and there can be no
assurance of a favorable outcome. The Company expects to continue to make
substantial expenditures in connection with this litigation for the foreseeable
future. Future expenses in connection with this litigation could have a material
adverse effect on the Company's results of operations and financial position in
future periods.
If plaintiffs should succeed both in defending their position on the
amended final judgment in the Appeals Court and in their application for an
award of attorney fees, then the Company would be required to pay a judgment for
damages and fees of approximately $15 million, which would have a substantial
adverse impact on the Company's business, prospects, financial condition and
results of operations. As discussed previously, the Company has an accrual of
$13.7 million as of March 31, 1998 related to potential losses from and future
expenses for pursuing the litigation.
If the plaintiffs should succeed in defending the permanent injunction
in the form in which it has been entered, then the Company will ultimately be
prohibited from selling its principal products as presently constituted, and
from conducting certain related research activities, in the U.S. during the term
of the patents, and will need to arrange for manufacture of modified products
outside the U.S. to the extent it wishes to sell them in markets outside the
U.S. This would greatly disrupt the Company's operations and would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Absent a reasonable license or suitable
stay of injunction, and in the absence of other alternatives which may or may
not be available, the Company would likely find it necessary to file for
protection under the United States Bankruptcy laws.
As a possible alternative to a litigated result on appeal, the Company
could pursue further attempts to obtain commercially reasonable licenses under
the Hopkins' patents at issue through various means, including through
negotiations with plaintiffs. Attempts to negotiate licenses with the plaintiffs
have not been successful to date, however, and no assurance can be given that
plaintiffs would license the patents to the Company at all or on terms that
would permit commercialization of the Company's stem cell separation technology.
CLASS ACTION LAWSUIT
On March 16, 1998, a lawsuit was filed in the United States District
Court for the Western District of Washington against the Company, certain of the
Company's officers and directors, and a law firm that issued certain legal
opinions in respect of the patents which are the subject of the legal
proceedings described above (together "defendants"). The lawsuit, which purports
to be brought on behalf of persons who purchased CellPro stock between March 10,
1995 and July 28, 1997, alleges the defendants violated Sections 10(b)
(including Rule 10b-5) and 20(a) of the Securities Exchange Act as well as
certain provisions of Washington state and common law. On March 27, 1998,
plaintiffs filed a virtually identical complain in the same district. On May 12,
1998, the court granted a motion consolidating the two cases before the same
judge. The consolidated case is captioned In re: CellPro, Inc. Securities
Litigation. Master File No. C98-298Z.
On May 8, 1998, a group of plaintiffs moved to be appointed lead
plaintiffs and are awaiting the court's decision on that motion. Plaintiffs and
defendants have stipulated to a schedule for filing and responding to a
consolidated amended complaint and for filing a motion for class certification.
Defendants believe these cases are without merit and intend to defend
these actions vigorously.
PATENTS AND PROPRIETARY TECHNOLOGY.
The Company's ability to compete effectively will depend substantially
on its ability to develop and maintain proprietary aspects of the technology. To
date, the Company has submitted numerous U.S. patent applications and foreign
counterparts relating to cell selection technology developed by the Company, of
which nine
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patents have issued in the U.S. and five foreign patents have issued.
The Company also has licensed the rights to certain patents related as
continuations to an application originally filed by the Hutchinson Center in
January 1986; these patents issued in 1993 (U.S. 5,215,927, 6/2/93; U.S.
5,225,353, 7/6/93; U.S. 5,262,334, 11/16/93) and will expire in 2010. The
European counterpart of these cases was granted in 1992 (EP B 0260 280) and
subsequently upheld on opposition. The Company intends to file additional patent
applications, when appropriate, relating to improvements in its technology and
other specific products that it develops. Although the Company has been granted
or has exclusive rights to various patents, the Company's success will depend in
large part on its ability to obtain U.S. and foreign patent protection for its
products, preserve its trade secrets and operate without infringing on the
proprietary rights of third parties. There can be no assurance that the
Company's issued patents, any future patents that may be issued as a result of
the Company's U.S. or international patent applications, or the patents under
which the Company has license rights, will offer any degree of protection to the
Company's products against competitive products. There can also be no assurance
that any additional patents will issue from any of the patent applications owned
by or licensed to the Company, or that any patents that currently are or may be
issued or licensed to the Company or any of the Company's patent applications
will not be challenged, invalidated or circumvented in the future, or that any
patents issued to or licensed by the Company will not be infringed upon or
designed around by others. In addition, there can be no assurance that
competitors, many of whom have substantial resources and have made substantial
investments in competing technologies, will not seek to apply for and obtain
patents that will prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the U.S. or in international markets.
Moreover, patent law relating to the Company's principal business, particularly
as to the scope of claims in issued patents, is still developing and it is
unclear how these patent law developments will affect the Company's patent
rights.
The medical device industry has been characterized by extensive
litigation regarding patents and other intellectual property rights, and
companies in the industry have employed intellectual property litigation to gain
a competitive advantage. There can be no assurance that the Company will not in
the future become subject to additional patent infringement claims and
litigation or interference proceedings declared by the U.S. Patent and Trademark
Office ("USPTO") to determine the priority of inventions. The defense and
prosecution of intellectual property suits, USPTO interference proceedings and
related legal and administrative proceedings are both costly and time consuming.
Litigation may be necessary to enforce patents issued to or licensed to the
Company, to protect the Company's trade secrets or know-how or to determine the
enforceability, scope and validity of the proprietary rights of others.
A judgment was filed against the Company on July 24, 1997, in a patent
infringement case involving an antibody used by the Company in its CEPRATE(R) SC
System. At the same time a permanent injunction was entered against the
Company's principal products subject to a partial stay. See "Investment
Considerations - Legal Proceedings," above. There can be no assurance that
additional infringement claims by third parties or claims for indemnification
resulting from infringement claims will not be asserted against the Company in
the future or that such assertions, if proven true, would not have a material
adverse effect on the Company's business, prospects, financial condition and
results of operations. Any additional litigation or interference proceedings
involving the Company would likely result in substantial expense to the Company
and significant diversion of effort by the Company's technical and management
personnel. An adverse determination in litigation or interference proceedings to
which the Company is or may become a party could subject the Company to
significant liabilities to third parties or require the Company to seek licenses
from third parties. Although patent and intellectual property disputes in the
medical device area have often been settled through licensing or similar
arrangements, costs associated with such arrangements may be substantial and
could include ongoing royalties. Furthermore, there can be no assurance that
necessary licenses would be available to the Company on satisfactory terms or at
all.
In addition to patents, the Company relies on trade secrets and
proprietary know-how, which it seeks to protect, in part, through appropriate
confidentiality and proprietary information agreements. These agreements
generally provide that all confidential information developed or made known to
the individual by the Company during the course of the individual's relationship
with the Company is to be kept confidential and not disclosed to third parties,
except in specific circumstances. The agreements also generally provide that all
inventions conceived by the individual in the course of rendering services to
the Company shall be the exclusive property of the Company. There can be no
assurance that proprietary information or confidentiality agreements with
employees,
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consultants and others will not be breached, that the Company will have adequate
remedies for any breach, or that the Company's trade secrets will not otherwise
become known to or independently developed by competitors.
DEPENDENCE ON CEPRATE(R) SC SYSTEM
The CEPRATE(R) SC System is the primary product being marketed by the
Company and will remain so for the near term. The Company has received approval
from the FDA for use of the CEPRATE(R) SC System for autologous transplantation
of stem cells obtained from bone marrow. The Company has also been notified by
the FDA that the CEPRATE(R) SC System is approvable for autologous
transplantation of stem cells obtained from peripheral blood, subject to
submission of final labeling and certain post-approval follow-up. In order to
market the CEPRATE(R) SC System in the U.S. for additional indications, the
Company will be required to obtain additional regulatory approvals. There can be
no assurance that the FDA will approve the product for additional indications.
There can be no assurance that the CEPRATE(R) SC System will achieve
market acceptance and be commercially successful. Because the CEPRATE(R) SC
System represents the Company's principal near-term focus, and because many of
the Company's future products under development are designed to be used in
conjunction with the CEPRATE(R) SC System, failure of the CEPRATE(R) SC System
to gain market acceptance would have a material adverse effect of the Company's
business, prospects, financial condition and results of operations.
Additionally, if the permanent injunction currently in force against the sale of
the CEPRATE(R) SC System in the U.S. is upheld by the Appeals Court, then the
Company will ultimately be prohibited from selling the CEPRATE(R) SC System as
presently constituted. See "Investment Considerations - Legal Proceedings,"
above.
UNCERTAINTY OF PRODUCT ACCEPTANCE
Sales of the Company's products have generated growing but modest
revenues to date. The CEPRATE(R) SC System has been approved for marketing and
sale in the U.S., in the European Economic Area (the "EEA") and in Canada. The
CEPRATE(R) TCD System and the CEPRATE(R) CD4 System have also been approved for
use in the EEA. These are the only Company products that have received such
approvals. The CEPRATE(R) SC System is approved for use in the U.S. for
autologous bone marrow transplantation of stem cells obtained from bone marrow.
The Company has been notified by the FDA that the CEPRATE(R) SC System is
approvable for autologous transplantation of stem cells obtained from peripheral
blood, subject to submission of final labeling and certain past approval
follow-up. Commercial sales of the product for other uses will require specific
FDA approval, as will the CEPRATE(R) TCD System and the CEPRATE(R) B-Cell
Depletion System. There can be no assurance that the CEPRATE(R) SC System or any
of the Company's future products will gain any significant degree of market
acceptance in the U.S. or internationally among physicians, hospital personnel,
other health care providers and third-party payors, even if reimbursement and
necessary regulatory approvals are obtained. The Company believes that the
commercial success of its products will depend on such acceptance. Acceptance
will also depend upon the Company's ability to train physicians, hospital
personnel and other health care providers to use the CEPRATE(R) SC System and
the Company's other products, and the willingness of such individuals to learn
to use these products. Failure of the Company's products to achieve significant
market acceptance would have a material adverse effect on the Company's
business, prospects, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
The securities markets have, from time to time, experienced significant
price and volume fluctuations that may be unrelated to the operating performance
of particular companies. These fluctuations often substantially affect the
market price of a company's common stock. In particular, the market prices for
securities of medical device companies and biotechnology companies have in the
past been, and can in the future be expected to be, especially volatile. The
market price of the Company's Common Stock has in the past and in the future may
be subject to volatility in general and from quarter to quarter depending upon
announcements regarding developments concerning proprietary rights or litigation
or disputes related thereto, the results of regulatory approval filings,
clinical studies or other testing, technological innovations or new commercial
products by the Company or its competitors, government regulations, changes in
reimbursement levels, public concern as to the safety of products
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developed by the Company or others, changes in health care policy in the U.S.
and internationally, the issuance of new or changed stock market analyst reports
and recommendations, and economic and other external factors, as well as
continued operating losses by the Company and fluctuations in the Company's
financial results. These factors could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations and
may not be indicative of the prices that may prevail in the public market.
LIMITED SALES, MARKETING AND DISTRIBUTION EXPERIENCE.
The Company has limited experience in sales, marketing and distribution
of its products, particularly outside of the U.S. and EEA. The Company has
established a direct sales force in the U.S. and in Europe to sell its products,
and is selling the product through distributors in Latin America and the
Asia-Pacific region. There can be no assurance that the Company will be able to
attract and retain qualified sales and marketing personnel and distributors, or
that the Company's sales and marketing efforts will be successful. Failure to
develop an effective sales and marketing organization or establish effective
distribution relationships with respect to the Company's products could have a
material adverse effect on the Company's business, financial condition and
results of operations.
UNCERTAINTY RELATING TO THIRD-PARTY REIMBURSEMENT
In the U.S., physicians, hospitals and other health care providers that
perform medical services generally rely on third-party payors, such as private
health insurance plans, to reimburse all or part of the cost associated with the
treatment of patients. There can be no assurance that third party reimbursement
at acceptable levels will be available for such procedures. At present,
third-party payors are inconsistent in their approach to reimbursement for stem
cell transplantation. There can be no assurance that even if reimbursement is
provided for such transplantation procedures, the cost of the CEPRATE(R) SC
System or the Company's future products would be covered.
Reimbursement and health care payment systems in international markets vary
significantly by country, and can include both government sponsored and private
health care insurance. Failure by physicians, hospitals and other health care
providers, both in the U.S. and internationally, to obtain sufficient
reimbursement from third-party payors for use of the Company's products, or
adverse changes in government and private third-party payors' policies toward
reimbursement for such procedures, could have a material adverse effect on the
Company's business, financial condition and results of operations.
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's ability to successfully develop any additional products is
uncertain. The Company's research and development programs with respect to
certain of its potential products are at an early stage. The Company's goal is
to develop, manufacture and market products for use in cell therapy and
diagnostics based upon the Company's proprietary cell selection technology.
Potential new products will require significant additional research,
development, preclinical and clinical testing, regulatory approval and
additional investment prior to their commercialization, which may not be
successful. Development of new products may also require access to technologies
which are owned or controlled by third parties and which may not be available to
the Company at a cost-effective price or commercially-acceptable terms, if at
all. There can be no assurance that the Company's approach will result in the
development of commercially successful products on a timely basis, or at all.
COMPETITION AND TECHNOLOGICAL CHANGE
Biotechnology in general and cell therapy in particular are rapidly
evolving fields in which developments are likely to continue at a rapid pace.
Technological competition from existing biotechnology companies and others
diversifying into cell therapy is intense and expected to increase. Currently,
the CEPRATE(R) SC System is the only stem cell selection system approved for
commercial sale in the U.S. Although this potentially gives the Company a lead
over its competitors in the U.S. marketplace, there can be no assurance that
other, more effective cell selection systems which compete with the CEPRATE(R)
SC System will not receive FDA approval in the near future. Other companies and
institutions with substantially greater financial, manufacturing, marketing,
distribution and technical
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resources than the Company are engaged in the research and development of
products similar to those currently being developed or commercialized by the
Company, and others may choose to enter this market at a later date. The Company
is aware of at least one other company, Nexell Therapeutics, Inc., which has
filed a PMA requesting approval for a competing product from the FDA. The
Company is aware of two companies, Nexell Therapeutics, Inc. and Miltenyi Biotec
GmbH, which have approvals to market competing products in the EEA. The Company
currently faces competition from several companies in the development and
utilization of cell selection devices, as discussed under the section titled
"Competition," above. There can be no assurance that these or other companies or
institutions will not succeed in developing products or procedures that are more
effective than the Company's or that would render the Company's technology or
products obsolete or uncompetitive. The Company believes that important
competitive factors with respect to the development and commercialization of its
products include the relative speed with which it can develop products,
establish clinical utility, complete the clinical testing and regulatory
approval process, obtain reimbursement and supply commercial quantities of the
product to the market. The Company's inability to compete favorably with respect
to any of these factors could have a material adverse effect on its business,
financial condition and results of operations. The Company also competes with
other companies for clinical sites to conduct trials. There can be no assurance
that the Company will be able to compete successfully or that competition will
not have a material adverse effect on the Company's business, prospects,
financial condition and results of operations.
DEPENDENCE ON CONTRACT MANUFACTURERS AND SUPPLIERS; MANAGEMENT OF EXPANDED
OPERATIONS; QSR
The Company currently purchases antibodies and many components used in
its products from third party sources. In addition, the Company currently
subcontracts parts of its manufacturing process for certain products and their
components and expects to continue to do so. Certain antibodies and components
are obtained from single source suppliers. There can be no assurance that the
supply of such antibodies, components or supplies will not become limited or be
interrupted or that the Company's manufacturing process will not be interrupted
in the future. There also can be no assurance that the Company will be able to
continue its present arrangements with its suppliers, supplement existing
relationships, find alternative suppliers or that the Company will be able to
identify or obtain the antibodies or other components necessary to develop
products in the future.
There can be no assurance that the Company will be able to develop the
necessary manufacturing capability, build and train the necessary manufacturing,
quality control and assurance teams, attract, retain and integrate the required
key personnel, or implement the financial and management systems necessary to
meet any increased demand for its products. Failure of the Company to
successfully expand its operations in response to any increased demand for its
current and future products, if any, could have a material adverse effect on the
Company's business, prospects, financial condition and results of operations.
To be successful, the Company's products must be manufactured in
compliance with regulatory requirements and at acceptable costs. The Company's
manufacturing facilities are subject to quality system regulations,
international quality standards and other regulatory requirements. Failure by
the Company to maintain its facilities in accordance with applicable U.S. and
international quality standards or other regulatory requirements may entail a
delay or termination of production, which could have a material adverse effect
on the Company's business, prospects, financial condition and results of
operations.
GOVERNMENT REGULATION
FDA AUTHORITY. The testing, manufacture and sale of the Company's
products are subject to regulation by numerous governmental authorities,
principally the FDA and corresponding state and foreign regulatory agencies. The
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution, and promotion of medical devices. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the FDA to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.
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DEVICE CLASSIFICATION. In the U.S., medical devices are classified into
one of three classes (i.e., Class I, II, or III) on the basis of the controls
deemed necessary by the FDA to reasonably ensure their safety and efficacy.
Class I devices are subject to general controls (e.g., labeling, premarket
notification and adherence to QSRs) and Class II devices are subject to general
and special controls (e.g., performance standards, postmarket surveillance,
patient registries, and FDA guidelines). Generally, Class III devices (e.g.,
life-sustaining, life-supporting and implantable devices, or new devices which
have been found not to be substantially equivalent to legally marketed devices)
are those which must receive premarket approval by the FDA to ensure their
safety and efficacy
Before a new device can be introduced in the market, the manufacturer
must generally obtain FDA clearance or approval through either clearance of a
510(k) notification or approval of a PMA.
510(K) CLEARANCE. A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed Class I or Class II medical device or a Class III medical
device for which the FDA has not called for PMAs. The FDA recently has been
requiring more rigorous demonstration of substantial equivalence than in the
past, including in some cases requiring submission of clinical data. The FDA may
determine that the proposed device is not substantially equivalent to a
predicate device, or that additional information is needed before a substantial
equivalence determination can be made. It generally takes from four to 12 months
from submission to obtain 510(k) premarket clearance, but may take longer. A
"not substantially equivalent" determination, or a request for additional
information, could prevent or delay the market introduction of new products that
fall into this category. For any devices that are cleared through the 510(k)
process, modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.
PMA APPROVAL. A PMA application must be filed if a proposed device is
not substantially equivalent to a legally marketed Class I or Class II device,
or if it is a Class III device for which the FDA has called for PMAs. A PMA
application must be supported by valid scientific evidence to demonstrate the
safety and efficacy of the device, typically including the results of clinical
trials, bench tests, laboratory and animal studies. The PMA must also contain a
complete description of the device and its components, and a detailed
description of the methods, facilities and controls used to manufacture the
device. In addition, the submission must include the proposed labeling,
advertising literature and any training materials. The PMA process can be
expensive, uncertain and lengthy, and a number of devices for which FDA approval
has been sought by other companies have never been approved for marketing.
Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is sufficiently complete to permit a
substantive review. If the FDA determines that the PMA application is
sufficiently complete to permit a substantive review, the FDA will accept the
application and begin an in-depth review of the PMA. The FDA review of a PMA
application generally takes one to three years from the date the PMA is accepted
for filing, but may take significantly longer. The review time is often
significantly extended by the FDA asking for more information or clarification
of information already provided in the submission. During the review period, an
advisory committee, typically a panel of clinicians, will likely be convened to
review and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendation of the advisory panel.
Toward the end of the PMA review process, the FDA generally will
conduct an inspection of the manufacturer's facilities to ensure that the
facilities are in compliance with applicable QSR requirements. If FDA
evaluations of both the PMA application and the manufacturing facilities are
favorable, the FDA may issue either an approval letter or an approvable letter,
which usually contains a number of conditions that must be met in order to
secure final approval of the PMA. When and if those conditions have been
fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval
letter, authorizing commercial marketing of the device for certain indications.
If the FDA's evaluation of the PMA application or manufacturing facilities is
not favorable, the FDA will deny approval of the PMA application or issue a
"non-approvable" letter. The FDA may determine that additional clinical trials
are necessary, in which case the PMA may be delayed for one or more years while
additional clinical trials are conducted and submitted in an amendment to the
PMA. Modifications to a device that is the subject of an approved
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PMA, its labeling, or manufacturing process may require approval by the FDA of
PMA supplements or new PMAs. Supplements to a PMA often require the submission
of the same type of information required for an initial PMA, except that the
supplement is generally limited to that information needed to support the
proposed change from the product covered by the original PMA.
PMA SUBMITTED. The CEPRATE(R) SC System is being regulated as a Class
III device requiring submission of a PMA. The Company has filed two PMAs for use
of the CEPRATE(R) SC System. Its initial PMA for use in autologous stem cell
transplantation using bone marrow was approved on December 6, 1996. In
additional, the Company has received notice from the FDA that its second PMA, to
expand the use of the CEPRATE(R) SC System to include autologous transplantation
of stem cells derived from peripheral blood, is approvable. The Company
anticipates that a number of its future products currently under development
will also be classified as Class III devices requiring a PMA.
CLINICAL TRIALS. If human clinical trials of a device are required,
whether for a 510(k) or a PMA, and the device presents a "significant risk," the
sponsor of the trial (usually the manufacturer or the distributor of the device)
will have to file an investigational device exemption ("IDE") application prior
to commencing human clinical trials. The IDE application must be supported by
data, typically including the results of animal and laboratory testing. If the
IDE application is approved by the FDA and one or more appropriate Institutional
Review Boards ("IRBs"), human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that FDA will approve the IDE and, if it is approved,
there can be no assurance that FDA will determine that the data derived from
these studies support the safety and efficacy of the device or warrant the
continuation of clinical studies. Clinical trials using the CEPRATE(R) SC System
are "significant risk" trials which require IDEs. The Company is currently
conducting several clinical trials under its own IDEs and is involved in an
extensive investigator sponsored IDE program where the investigator holds the
IDE and is responsible for conducting the clinical trial. The Company intends to
use data from certain of these trials to support FDA approval of additional
indications for the CEPRATE(R) SC System. There is no assurance that any of
these trials will be successful or that the FDA will accept data from the trials
as adequate for approval of the CEPRATE(R) SC System for additional indications.
Manufacturers are permitted to sell investigational devices distributed in the
course of clinical studies provided such compensation does not exceed recovery
of the costs of manufacture, research, development and handling. The Company has
instituted a cost recovery program for certain of the investigator sponsored
clinical trials which use the CEPRATE(R) SC System, and the CEPRATE(R) TCD
System and the CEPRATE(R) B-Cell Depletion System.
NO ASSURANCE OF APPROVALS OR CLEARANCES. There can be no assurance that
the Company will be able to obtain necessary regulatory approvals or clearances
on a timely basis or at all, and delays in receipt of or failure to receive such
approvals or clearances, the loss of previously received approvals or
clearances, limitations on intended use imposed as a condition of such approvals
or clearances, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
prospects, financial condition and results of operations.
PERVASIVE REGULATION. Any devices manufactured or distributed by the
Company pursuant to FDA clearance or approvals are subject to pervasive and
continuing regulation by FDA and certain state agencies. Manufacturers of
medical devices for marketing in the U.S. are required to adhere to applicable
regulations governing methods used in, and the facilities and controls used for,
designing, manufacturing, packaging, labeling, storing, installing and servicing
of medical devices intended for human use which are described in QSR
requirements, which include testing, control and documentation requirements.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product may
have caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to cause
or contribute to a death or serious injury. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Although current FDA enforcement policy prohibits the
marketing of approved medical devices for unapproved uses, physicians are not
prohibited by the FDA from using products for indications other than those
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approved by the FDA. There can be no assurance that the CEPRATE(R) SC System or
the Company's future products, if any, will not be used by physicians for
indications other than those approved by the FDA and that the Company will not
be subject to FDA action resulting from such use.
The Company is subject to routine inspection by FDA and certain state
agencies for compliance with QSR requirements, MDR requirements, and other
applicable regulations. The FDA has recently changed its regulations which will
likely increase the cost of compliance. Future changes in existing requirements
or adoption of new requirements could have a material adverse effect on the
Company's business, prospects, financial condition, and results of operation.
There can be no assurance that the Company will not incur significant costs to
comply with laws and regulations in the future or that laws and regulations will
not have a material adverse effect upon the Company's business, prospects,
financial condition or results of operation.
INTERNATIONAL CONSIDERATIONS. Sales of medical devices outside of the
U.S. are subject to international regulatory requirements that vary widely from
country to country. The time required to obtain approval for sale
internationally may be longer or shorter than that required for FDA approval,
and the requirements may differ. The Company has obtained the certifications
necessary to enable the CE mark, an international symbol of adherence to quality
assurance standards and compliance with applicable European Union Medical Device
Directives, to be affixed to the CEPRATE(R) SC System, the CEPRATE(R) TCD System
and the CEPRATE(R) CD4 System. The CE mark designates full marketing approval
throughout the 18-nation European Economic Area. In order to maintain this
certification, the Company will be subject to periodic inspections. The
CEPRATE(R) SC System has also been approved for commercial sale in Canada. The
Company has contracted with distributors for sale of the CEPRATE(R) SC System in
certain countries in Latin America and the Asia-Pacific region pursuant to
distribution agreements which obligate the distributor to obtain regulatory
approval for sale of the product in those counties which require them. Many
countries in which the Company currently operates or intends to operate either
do not currently regulate medical devices or have minimal registration
requirements; however, these countries may develop more extensive regulations in
the future that could adversely affect the Company's ability to market its
products in such countries. In addition, significant costs and requests by
regulators for additional information may be encountered by the Company in its
efforts to obtain regulatory approvals. Any of such events could substantially
delay or preclude the Company from marketing its products in the U.S. or
internationally. Failure to comply with applicable regulatory requirements can
result in loss of previously received approvals and other sanctions and could
have a material adverse effect on the Company's business, prospects, financial
condition and results of operations.
ADDITIONAL REGULATION. The Company also is subject to numerous federal,
state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and
disposal of hazardous or potentially hazardous substances. There can be no
assurance that the Company will not be required to incur significant costs to
comply with such laws and regulations in the future or that such laws or
regulations will not have a material adverse effect upon the Company's ability
to do business.
DEPENDENCE ON LICENSES; POTENTIAL NEED FOR STRATEGIC PARTNERS
The Company has obtained, and may need to obtain in the future,
licensed rights to certain proprietary technologies from other entities,
individuals and research institutions to which it is, or will be, obligated to
pay royalties and milestone payments if it develops products based upon the
licensed technology. The Company has a worldwide, sublicensable, exclusive
license from the Hutchinson Center to certain patent rights related to its cell
selection technology, which constitutes the Company's core technology for its
current products and certain future products currently under development. There
can be no assurance that the Company will be able to enter into additional
collaborative, license or other arrangements that the Company deems necessary or
appropriate to develop, commercialize and market its products, or that any or
all of the contemplated benefits from such collaborative, license or other
arrangements will be realized. Certain of the collaborative, license or other
arrangements that the Company may enter into in the future may place
responsibility on the Company's partners or collaborators for preclinical
testing and human clinical trials and for the preparation and submission of
applications for regulatory approval for potential diagnostic or therapeutic
products. Should any strategic partner fail to develop, commercialize or market
successfully any product to which it has rights, the Company's business,
prospects, financial condition and results of operations could be materially
adversely effected. There can be no assurance that partners or
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collaborators will timely perform their obligations under any such arrangements
or will not pursue alternative technologies or products either on their own or
in collaboration with others, including the Company's competitors, as a means
for developing products that compete with the Company's products.
OPERATING LOSSES
The Company has generated modest revenues from product sales, but
these revenues have not been sufficient to cover its operating expenses. The
Company is substantially dependent upon external financing and interest income
to pursue its present and intended business activities. The Company has not been
profitable since inception and has incurred a cumulative net loss of
approximately $139.1 million through March 31, 1998. Losses have resulted
principally from costs incurred in research and development activities, clinical
trials, marketing and product introduction expenses and from general and
administrative costs, including expenses associated with the litigation
described under "Investment Considerations - Legal Proceedings," above. The
Company expects to continue to incur substantial expenses in the future to
support its operations. The Company's results of operations may vary
significantly from quarter to quarter during this period of development and the
Company expects to continue to incur net operating losses during this period.
The Company's ability to achieve profitability is dependent on its
ability to successfully market and sell its products, to develop and obtain
patent protection and regulatory approval for its products and to manufacture
its products in a cost-effective manner. There can be no assurance that the
Company will successfully develop, commercialize, patent, manufacture or market
its products, obtain required regulatory approvals, or achieve profitability.
FUTURE CAPITAL NEEDS; POTENTIAL INABILITY TO ACCESS CAPITAL MARKETS; POSSIBLE
INSOLVENCY
The Company requires substantial working capital to fund its business and
operating losses. The Company has experienced negative cash flow from
operations since inception and expects to continue to experience negative cash
flow from operations for the near-term future. As noted below in "Management's
Discussion and Analysis of Financial Condition and Results of Operation -
Liquidity and Capital Resources," the Company's current capital resources are
not sufficient to fund the Company's operations, as currently conducted,
through March 31, 1999. If the plaintiffs in the patent litigation described
above under "Investment Considerations - Legal Proceedings" prevail on their
motion filed June 16, 1998, to require the Company to escrow or otherwise
restrict additional cash to secure a possible award of attorneys fees currently
estimated at $8.0 million, the Company's current capital resources would not be
sufficient to fund the Company's operations, as currently conducted, through
September 30, 1998. The Company intends to vigorously oppose the motion, but
there is no way to predict how the District Court will proceed in respect
thereof. As discussed under "Investment Considerations - Legal Proceedings,"
plaintiffs' earlier filed motion seeking an award of attorneys fees has been
held in abeyance by the District Court which may, but is not required to,
reserve decision on it until after the case is decided on appeal. There can be
no assurance that additional financing will be available to the Company on
acceptable terms, or at all, particularly in light of the pending patent
litigation and the permanent injunction discussed above under "Investment
Considerations - Legal Proceedings." In the event that financing is secured, it
may be senior to the Company's Common Stock and may result in further
significant dilution to existing stockholders. If the Company's appeal is not
successful or if the Company does not receive a timely decision of the appeal,
then absent a reasonable license from the plaintiffs, or another alternative
which may or may not be available, the Company would likely find it necessary
to file for protection under the United States Bankruptcy laws.
RELIANCE ON KEY PERSONNEL
The Company is highly dependent upon the efforts of its senior
management and scientific team. The loss of the services of one or more of these
individuals could impede the achievement of its business and development
objectives. Because of the specialized scientific nature of the Company's
business, the Company is also highly dependent upon its ability to continue to
attract and retain qualified scientific and technical personnel. There is
intense competition for qualified personnel in the areas of the Company's
activities, and there can be no assurance that the Company will be able to
continue to attract and retain the qualified personnel necessary for the
development
26
<PAGE> 27
of its business. Loss of the services of, or failure to recruit, key management,
scientific and technical personnel could adversely affect the Company's
business.
RISKS ASSOCIATED WITH INTERNATIONAL SALES
Due to regulatory constraints in the U.S., the Company's sales efforts
for the CEPRATE(R) SC System were limited to international markets prior to
December 6, 1996. The Company anticipates that, even though it obtained FDA
approval to sell the CEPRATE(R) SC System in the U.S. in December 1996,
international sales will continue to constitute a significant part of its
business. A number of risks are inherent in international operations and
transactions. International sales and operations may be limited or disrupted by
the imposition of government controls, export license requirements, political
instability, trade restrictions, changes in tariffs and difficulties in
staffing, coordinating and managing international operations. Additionally, the
Company's business, financial condition and results of operations may be
adversely affected by fluctuations in international currency exchange rates as
well as constraints on the Company's ability to maintain or increase prices. The
international nature of the Company's business subjects it and its
representatives, agents and distributors to laws and regulations of the foreign
jurisdictions in which they operate or the Company's products are sold. The
regulation of medical devices in a number of such jurisdictions, particularly in
the European Economic Area, continues to develop and there can be no assurance
that new laws or regulations, or new interpretations of existing laws and
regulations, will not have a material adverse effect on the Company's business,
prospects, financial condition and results of operations. In addition, the laws
of certain foreign countries do not protect the Company's intellectual property
rights to the same extent as do the laws of the U.S. There can be no assurance
that the Company will be able to successfully further commercialize its current
products or successfully commercialize any future products in any international
market.
RISK OF LIABILITY; ADEQUACY OF INSURANCE COVERAGE
Inherent in the manufacturing and distribution of the Company's
products is the risk of financial exposure to product liability claims in the
event that the use of its products results in personal injury. Although the
Company has not experienced any claims to date, there can be no assurance that
the Company will not experience losses due to product liability claims in the
future. Although the Company is presently covered by general liability insurance
(which includes coverage for product and clinical trial liability) in the amount
of $5,000,000 per occurrence and $5,000,000 in the aggregate, there can be no
assurance that such insurance coverage will provide sufficient funds to satisfy
judgments which, in the future, may be entered against the Company or that such
insurance will continue to be available or sufficient in the future. In
addition, there can be no assurance that all of the activities encompassed
within the Company's business are covered under the Company's policies. The
Company may require increased product liability coverage as it increases its
commercial activities in the U.S. and internationally. Furthermore, there can be
no assurance that the Company will have sufficient resources to satisfy any
liability or litigation expenses that may result from any uninsured or
underinsured claims. Any claims or series of claims against the Company,
regardless of their merit or eventual outcome, could have a material adverse
effect on the Company's business, financial condition and results of operations.
ITEM 2. PROPERTIES
The Company currently leases a total of approximately 113,000 square
feet in two facilities in Bothell, Washington. The Company's headquarters are
located in a 90,000 square foot leased facility. This facility houses research
and development, sales and marketing, and administrative activities. The lease
is for a 10-year term and expires in August 2003 with options to renew for up to
three additional consecutive five-year terms. Manufacturing activities are
located in a leased facility featuring a clean room and biologics manufacturing
capabilities. This facility includes approximately 23,000 square feet. The lease
expires October 2002. Also, the Company has leased office space in Brussels,
Belgium for its European headquarters. The lease expires in February 2002, with
an option to terminate in February 1999.
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<PAGE> 28
ITEM 3. LEGAL PROCEEDINGS
(a) PATENT LITIGATION
At March 31, 1997, the Company established a liability of $17 million
(remaining balance at March 31, 1998 of $13,722,089) to cover potential losses
from, and future expenses for pursuing, ongoing patent litigation in which the
Company is accused of infringing two patents owned by The Johns Hopkins
University and licensed to Baxter Healthcare Corporation and Becton Dickinson &
Company (Hopkins, Baxter and Becton hereinafter being collectively referred to
as "plaintiffs"). While management believes its appeal of the rulings entered
against the Company is meritorious, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. The liability
was recorded in recognition of the fact that adverse court rulings on
liability, and an adverse jury verdict, had been rendered at the District Court
(hereinafter defined) level. The U.S. District Court for the District of
Delaware, per judge Roderick R. McKelvie (the "District Court") filed its
judgment against the Company on July 24, 1997. The District Court granted
plaintiffs enhanced damages amounting to approximately $7.2 million and issued
an order for permanent injunction against the Company. On August 1, 1997, the
Company deposited $9.0 million in a collateral account as part of posting an
appeal bond in response to the legal judgment. This amount is included in
restricted cash equivalents. Plaintiffs' motion for attorney fees, whereby they
seek a determination that the Company is liable to reimburse them for some $7
million in attorneys' fees and related litigation costs has been held in
abeyance by the Court which may, but is not required to, reserve its decision
until after the case is decided on appeal. On June 16, 1998 plaintiffs filed a
motion in the District Court which seeks to require the Company to escrow or
otherwise restrict additional cash to secure a possible award of attorneys fees
currently estimated at $8.0 million. The Company intends to vigorously oppose
the motion, but there is no way to predict how the District Court will proceed
in respect thereof. As discussed under "Investment Considerations - Legal
Proceedings," plaintiffs' earlier filed motion seeking an award of attorneys
fees has been held in abeyance by the District Court which may, but is not
required to, reserve decision on it until after the case is decided on appeal.
The ultimate amount of loss, if any, and the ultimate amount of future expenses
incurred in pursuing this litigation, may vary significantly from the amount
accrued.
There have been two jury trials in the case. In the first trial, a jury
on August 4, 1995, found in favor of the Company on all counts. The verdict
stated that the four patents then in suit were not infringed by the Company's
manufacture, use and sale of the CEPRATE(R) SC system or the CEPRATE(R) LC
system. Additionally, the jury found that the claims of the patents asserted
against the Company were invalid.
Post-trial motions were filed and, on July 1, 1996, the District Court
partially granted plaintiffs' motion for judgment as a matter of law as to the
issues of infringement, inducement of infringement and enablement with respect
to U.S. Patent No. 4,965,680, as well as the issue of induced infringement with
respect to U.S. Patent No. 5,130,144. The District Court ordered a new trial on
remaining liability and infringement issues.
In a series of decisions preceding the new trial, the District Court
granted summary judgment motions by the plaintiffs to dismiss the Company's
remaining liability and infringement defenses with respect to two of the patents
at issue. Plaintiffs moved to withdraw the other two patents from suit, which
motion was granted upon plaintiffs' undertaking that they would not accuse any
present product of the Company of infringing those patents.
A second jury trial was held in March, 1997, at which the jury was
instructed to the effect that the District Court had already determined that the
Company infringed the two patents remaining in suit, that its defenses had been
dismissed, and that the jury was bound by those determinations. Hence, the jury
at the second trial heard evidence and arguments only as to the amount of
damages to be awarded and as to whether the Company's conduct had been willful.
On March 11, 1997, the jury rendered a verdict finding willfulness and awarding
some $2.3 million in damages to plaintiffs.
On July 24, 1997, a permanent injunction was entered by the District
Court. The injunction is complex in form, but it generally prohibits the Company
(subject to a stay hereinafter described) from making, using and selling
products in the U.S. which utilize the anti-stem-cell monoclonal antibody that
is essential to the Company's principal products as they are presently
constituted, and from conducting certain research activities in the U.S. during
the term of the patents. In the U.S., the injunction is subject to a partial
stay which by its terms permits the Company to continue selling its principal
product (CEPRATE(R) SC disposable kits) until such time as another stem cell
immunoseparation product manufactured and sold under a license to the patents in
dispute gains approval from
28
<PAGE> 29
the FDA, an event which plaintiffs had contended would probably occur before the
end of 1997 but which has not yet occurred and may take significantly longer.
Thereafter, if the permanent injunction remains in effect in its current form,
the Company would have to phase out sales of the CEPRATE(R) SC System over a
three-month period, except that the Company would be permitted to continue
supplying product to support certain U.S. clinical trials commenced before the
time an alternative device wins FDA approval. Outside the U.S., the partial stay
allowed by the District Court required the Company to phase out over a one-year
period its exports of disposable kits containing U.S. sourced antibody alleged
to infringe plaintiffs' patents and to prohibit sales of such kits to new
customers. The Company filed a motion for stay of the permanent injunction with
the U.S. Court of Appeals for the Federal Circuit (the "Appeals Court") seeking,
among other things, to eliminate certain restrictions on sales outside the U.S.
On January 30, 1998, the Appeals Court granted a stay of the international
phase-out pending review of the case on appeal. Under the partial stay as
modified by order of the District Court dated February 27, 1998, commercial
sales and cost recovery sales of disposable kits sold under the partial stay are
subject to a requirement that the Company pay plaintiffs $1,075 and $750 per
kit, respectively, and $5,000 per CEPRATE(R) SC Instrument System sold or
installed at a new commercial site. Subsequent to January 30, 1998, the further
stay issued by the Appeals Court requires that net revenues from international
sales of the CEPRATE(R) SC System be deposited in an escrow account pending
further action by the Appeals Court. The permanent injunction has forced the
Company to terminate substantially all sales of the CEPRATE(R) LC34 Laboratory
Cell Selection System.
The Company has appealed the District Court judgment and the second
jury's verdict to the Appeals Court. The case has been fully briefed, and on May
5, 1998, oral arguments were heard by the Appeals Court. The Company has urged
in its briefs that reversible errors were made by the District Court in granting
judgment as a matter of law and summary judgment on infringement and patent
validity issues, that the second jury's willfulness verdict was the result of
erroneous instructions and evidentiary rulings, and that the first jury's
verdict should be reinstated and judgment entered thereon. There is no way to
know when the Appeals Court will issue its decision in the case.
The antitrust and unfair competition claims filed by CellPro against
the plaintiffs have been stayed pending completion of the patent litigation.
The Company may incur substantial expenses in excess of the amount
accrued at March 31, 1998 in connection with this litigation. These expenses
could have a material adverse effect on the Company's results of operations and
financial position in future periods.
CLASS ACTION LAWSUIT
On March 16, 1998, a lawsuit was filed in the United States District
Court for the Western District of Washington against the Company, certain of the
Company's officers and directors, and a law firm (together "defendants") that
issued certain legal opinions in respect of the patents which are the subject of
the legal proceedings described under "Investment Considerations - Legal
Proceedings." The lawsuit, which purports to be brought on behalf of persons who
purchased CellPro stock between March 10, 1995 and July 28, 1997, alleges the
defendants violated Sections 10(b) (including Rule 10b-5) and 20(a) of the
Securities Exchange Act as well as certain provisions of Washington state and
common law. On March 27, 1998, plaintiffs filed a virtually identical complain
in the same district. On May 12, 1998, the court granted a motion consolidating
the two cases before the same judge. The consolidated case is captioned In re:
CellPro, Inc. Securities Litigation. Master File No. C98-298Z.
On May 8, 1998, a group of plaintiffs moved to be appointed lead
plaintiffs and are awaiting the court's decision on that motion. Plaintiffs and
defendants have stipulated to a schedule for filing and responding to a
consolidated amended complaint and for filing a motion for class certification.
Defendants believe these cases are without merit and intend to defend
these actions vigorously.
(b) No material legal proceedings were terminated in the fourth quarter of
fiscal 1998.
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<PAGE> 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter ended March 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
CellPro common stock trades on the Nasdaq Stock Market under the symbol
CPRO. As of March 31, 1998, there were approximately 313 holders of record of
the Company's common stock. The Company has never paid any cash dividends and
does not anticipate paying any cash dividends in the foreseeable future. The
Company intends to retain future earnings and capital for use in its business.
The following table sets forth the range of high and low sales prices
of the Common Stock as quoted on the Nasdaq Stock Market for the fiscal years
ended March 31,1998 and 1997.
<TABLE>
<CAPTION>
1998 High Low
<S> <C> <C>
4th Quarter 5.125 2.1875
3rd Quarter 4.750 2.0000
2nd Quarter 6.000 2.3750
1st Quarter 8.250 4.1250
</TABLE>
<TABLE>
<CAPTION>
1997 High Low
<S> <C> <C>
4th Quarter 13.000 6.125
3rd Quarter 15.500 10.000
2nd Quarter 17.250 10.750
1st Quarter 20.000 15.000
</TABLE>
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<PAGE> 31
ITEM 6. SELECTED FINANCIAL DATA
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Product sales $ 10,730,201 $ 9,515,984 $ 6,801,985 $ 4,215,910 $ 1,365,374
Related party revenue -- -- 6,000,000 -- --
Contract revenue 291,059 146,390 41,600 -- 2,933,000
------------ ------------ ------------ ------------ ------------
Total revenues 11,021,260 9,662,374 12,843,585 4,215,910 4,298,374
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Cost of product sales 4,993,462 5,161,389 3,723,421 2,429,573 1,266,840
Other cost of sales 3,059,678 -- -- -- --
Research and development 13,817,562 16,243,501 16,474,133 15,417,405 9,944,617
Selling, general & admin 13,671,379 15,379,650 12,515,870 9,177,505 6,224,706
Litigation provision -- 17,000,000 -- -- 3,926,530
------------ ------------ ------------ ------------ ------------
Total costs and expenses 35,542,081 53,784,540 32,713,424 27,024,483 21,362,693
------------ ------------ ------------ ------------ ------------
Loss from operations (24,520,821) (44,122,166) (19,869,839) (22,808,573) (17,064,319)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income 2,243,567 3,590,157 4,164,218 3,766,173 2,178,817
Interest expense (25,429) (46,053) (86,718) (157,034) (205,838)
Other, net (221,703) (337,322) 139,679 213,479 (30,052)
------------ ------------ ------------ ------------ ------------
Total other income 1,996,435 3,206,782 4,217,179 3,822,618 1,942,927
------------ ------------ ------------ ------------ ------------
Net loss $(22,524,386) $(40,915,384) $(15,652,660) $(18,985,955) $(15,121,392)
============ ============ ============ ============ ============
Net loss per share $ (1.55) $ (2.84) $(1.13) $ (1.45) $ (1.27)
============ ============ ============ ============ ============
Weighted average number of
shares outstanding
during the period 14,531,472 14,421,908 13,847,929 13,059,985 11,936,094
============ ============ ============ ============ ============
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
AS OF MARCH 31,
------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents $ 20,209,344 $ 54,043,175 $ 74,143,851 $ 64,649,630 $ 95,505,030
and marketable
securities
Total assets 49,844,146 76,123,697 97,941,349 89,512,935 110,616,321
Long-term debt, net of
current portion 233,852 152,943 208,001 486,428 754,719
Total stockholders' equity 30,504,996 52,780,648 92,213,233 80,760,680 99,376,207
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for disclosures that report the Company's historical results,
the statements set forth in this section are forward-looking statements. Actual
results may differ materially from those projected in the forward-looking
statements. Additional information concerning factors that may cause actual
results to differ materially from those in the forward-looking statements is
contained herein under the caption "Investment Considerations" for the fiscal
year ended March 31, 1998, and in the Company's other filings with the
Securities and Exchange Commission. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. The Company assumes no obligation to update any such forward-looking
statements or comment on the reasons why actual results may differ therefrom.
Since the commencement of operations in 1989, the Company has primarily
engaged in developing, manufacturing and marketing proprietary continuous-flow,
cell-selection systems. These systems may be used for a variety of therapeutic,
diagnostic and research applications. On December 6, 1996, the U.S. FDA granted
marketing
31
<PAGE> 32
approval for CellPro's CEPRATE(R) SC System for purification of stem
cells for autologous bone marrow transplantation. The FDA has notified the
Company that its application to expand the use of the CEPRATE(R) SC System to
include autologous transplantation of stem cells derived from peripheral blood
is approvable. The CEPRATE(R) SC System, the CEPRATE(R) TCD System and the
CEPRATE(R) CD4 System have received marketing approval throughout the 18-nation
European Economic Area and the CEPRATE(R) SC System is approved in Canada.
The Company's activities have been funded primarily by raising
approximately $153 million through the sale of Common Stock in two public
offerings and two private offerings, and $9.7 million through private sales of
Preferred Stock prior to the Company's initial public offering. The Company has
been unprofitable since inception and expects to incur additional operating
losses for at least the next few years. For the period from inception to March
31, 1998, the Company incurred a cumulative net loss of approximately $139.1
million.
The Company commenced sales of its CEPRATE(R) SC System for certain
therapeutic purposes in Europe in August 1993 and in the U.S. in January 1997.
The CEPRATE(R) SC System is also being sold in Canada, South America and
Asia-Pacific. The Company expects to continue to incur substantial expenses to
support its operations, including the costs of preclinical and clinical studies,
manufacturing scale-up costs and the expansion of its sales and marketing
organization. The Company's results of operations may vary significantly from
quarter to quarter during this period of development and the Company expects to
continue to incur net operating losses during this period.
RESULTS OF OPERATIONS
YEARS ENDED MARCH 31, 1998, 1997, AND 1996
PRODUCT SALES
Product sales increased to $10.7 million in the fiscal year ended March
31, 1998 ("fiscal 1998"), from $9.5 million in the fiscal year ended March 31,
1997 ("fiscal 1997"), and $6.8 million in the fiscal year ended March 31, 1996
("fiscal 1996"). Additional sales of the CEPRATE(R) SC System were primarily
responsible for the increase.
European sales decreased 19%, to $5.5 million, in fiscal 1998, from
$6.8 million in fiscal 1997. CEPRATE(R) SC System unit sales for fiscal 1998
were 10% lower than for fiscal 1997. The dollar denominated decrease exceeds the
decrease in unit sales due to lower European average selling prices. The Company
competes with two other companies who market stem cell selection devices in
Europe. The Company believes that the injunction discussed previously (see
"Investment Considerations - Legal Proceedings," above) has weakened its
competitive position. The fiscal 1997 European sales represented a 26% increase
from fiscal 1996 sales of $5.3 million with a 41% increase in CEPRATE(R) SC
System units sold. These sales are denominated in various European currencies.
As a result, product sales have been and will continue to be affected by
changing currency exchange rates.
During January 1997, the Company commenced commercial shipments of the
CEPRATE(R) SC System in the U.S. Beginning in fiscal 1996, the product had been
offered for sale, on a limited basis, for investigational use in the U.S. under
a cost recovery program. The CEPRATE(R) SC System is also available for sale in
Canada and key Latin American and Asia-Pacific countries. During fiscal 1998,
1997 and 1996, combined U.S. and export sales to Asia-Pacific, Canada and South
America totaled $5.3 million, $2.7 million, and $1.5 million, respectively. The
increase between 1998 and 1997 resulted from increased U.S. commercial sales of
the CEPRATE(R) SC System. The increase between 1997 and 1996 resulted from
increased cost recovery and export sales of CEPRATE(R) SC Systems, and initial
commercial sales in the U.S.
RELATED PARTY REVENUES
Related party revenue for fiscal 1996 consisted of $6 million for
research and development services provided by the Company during the fiscal 1996
and fiscal 1995. The related research costs were expensed as
32
<PAGE> 33
incurred and included in research and development. The payment amount was a
negotiated settlement as part of a modification of business arrangements between
CellPro and Corange International Limited ("Corange") previously established in
December 1993. See also Note 11 to the financial statements entitled
"Collaboration Agreements."
COST OF PRODUCT SALES
Cost of product sales was $5.0 million, $5.2 million, and $3.7 million
for fiscal 1998, 1997, and 1996, respectively. The Company's gross margin
percentage improved from fiscal 1997 to fiscal 1998. The mix of U.S. sales of
the CEPRATE(R) SC Systems increased significantly during fiscal 1998
contributing to the higher gross margin. The gross margin was relatively
consistent from fiscal 1996 to fiscal 1997. The strength in the U.S. dollar
reduced the average European selling price for the Company's products, which was
offset by lower European distribution costs. During the quarter ended December
31, 1996, the Company discontinued a contract distribution arrangement in Europe
and began distributing its products directly.
OTHER COST OF SALES
Other cost of sales in fiscal 1998 represents the amount due to plaintiffs
for the period March 12, 1997 through March 31, 1998, pursuant to the injunction
described under the heading "Investment Considerations - Legal Proceedings."
RESEARCH AND DEVELOPMENT
Research and development expenses totaled $13.8 million in fiscal 1998,
compared to $16.2 million in fiscal 1997 and $16.5 million in fiscal 1996. The
decrease in research and development was due to restrictions on the Company's
research projects as a result of the injunction described above under the
heading "Investment Considerations - Legal Proceedings." In addition, the
Company's second Phase III clinical trial, which was completed in fiscal 1997,
contributed to higher research and development in fiscal 1996 and fiscal 1997.
Additional information on research and development may be found above in the
section entitled "Product Development Programs," above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled $13.7 million,
$15.4 million and $12.5 million in fiscal 1998, 1997 and 1996, respectively. The
decrease from fiscal 1997 to fiscal 1998 resulted from lower administrative
expense attributable to legal fees. Fiscal 1998 legal fees related to on-going
patent litigation have been charged against an accrual established at the end of
fiscal 1997. This was partially offset by higher sales and marketing expenses
which resulted from expansion of the U.S. sales force. European sales and
marketing expenses declined slightly due primarily to restrictions on the
ability to provide free product samples for promotional purposes. These
restrictions resulted from the injunction. The increase from fiscal 1996 to
fiscal 1997 resulted from higher legal fees and increased sales and marketing
expenses. Higher legal fees were incurred to defend the Company in on-going
patent litigation. Increased sales and marketing expenses resulted from expanded
commercialization activities for the CEPRATE(R) SC System in the U.S., Europe,
the Middle East, Canada, Asia/ Pacific and Latin America.
INTEREST INCOME
The Company generated $2.2 million, $3.6 million and $4.2 million of
interest income during the fiscal years ended March 31, 1998, 1997 and 1996,
respectively. The decrease from fiscal 1997 to fiscal 1998 as well as the
decrease from fiscal 1996 to fiscal 1997 was due to lower average cash balances
available for investment.
LITIGATION PROVISION
The $17 million litigation provision in fiscal 1997 represents an
accrual to cover potential losses from, and future expenses for pursuing,
ongoing patent litigation in which the Company is accused of infringing two
patents owned by The Johns Hopkins University and licensed to Baxter Healthcare
Corporation and Becton Dickinson & Company (Hopkins, Baxter and Becton
hereinafter being collectively referred to as "plaintiffs"). While management
33
<PAGE> 34
believes its appeal of the rulings entered against the Company is meritorious,
the course of litigation is inherently uncertain and there can be no assurance
of a favorable outcome. The provision was recorded in recognition of the fact
that adverse court rulings on liability, and an adverse jury verdict, had been
rendered in the District Court. The District Court judgment was entered July 24,
1997. The ultimate amount of loss, if any, and the ultimate amount of future
expenses incurred in pursuing this litigation, may vary significantly from the
amount accrued. For detailed discussion of the litigation see "Investment
Considerations Legal Proceedings," above
The above factors resulted in net operating losses of $22.5 million, $40.9
million and $15.7 million in fiscal 1998, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily
through the sale of Common Stock and Preferred Stock and generation of interest
income. Through March 31, 1998, the Company has raised $73.3 million through two
public offerings, $79.7 million through two private offerings of Common Stock,
and $9.7 million from the sale of Preferred Stock. The Company has also
generated $18.9 million in interest income.
As shown in the Consolidated Statement of Cash Flows, the Company used
$24.2 million of its cash, cash equivalents and securities available for sale in
operations in fiscal 1998, compared to $20.5 million in fiscal 1997. The most
significant factors causing the increase were related to on-going patent
litigation.
During fiscal 1998, an injunction was entered against the Company. As a
result of the injunction, the Company is currently required to pay plaintiffs a
substantial portion of its gross margin from the sale or other placement of the
CEPRATE(R) SC Instrument System and from the sale of disposable kits for use in
the CEPRATE(R) SC System, its principal product, as a condition for a partial
stay of the injunction. These payments to the plaintiffs for disposable kits
manufactured or sold in the U.S. will continue as long as the partial stay of
the injunction remains in force. On January 30, 1998, a further stay was issued
by the Appeals Court of the international phase-out provisions of the
injunction. Pursuant to this further stay, the Company must deposit its net
revenues from CEPRATE(R) SC System disposable kit sales outside the U.S. in an
escrow account pending further action by the Appeals Court.
The Company expects to incur substantial expenses in support of ongoing
research and development activities, including the costs of preclinical and
clinical studies, expansion of manufacturing activities and new product
development. Selling, general and administrative expenses are expected to
increase as the Company expands its sales and marketing organization, continues
to pursue ongoing litigation, and expands administrative activities. In
addition, the Company is obligated to pay royalties to the Hutchinson Center as
discussed above in the section entitled "Collaborative, License and Technology -
Related Agreements - Fred Hutchinson Cancer Research Center." The Company
expects to pay these royalties from its gross profit on product sales.
At March 31, 1998, the Company had $20.2 million in cash, cash
equivalents and securities available for sale with which to fund continuing
operations. The Company has projected that these resources will be insufficient
to continue the Company's operations, as currently conducted, through March 31,
1999 unless one or more events occur as discussed below.
The Company is currently involved in on-going patent litigation as
previously described in "Investment Considerations - Legal Proceedings." The
Company is operating under a partial stay of an injunction issued by the
District Court and modified by the Appeals Court. This litigation and the
injunction have had a material adverse effect on the Company's financial
position, results of operation and cash flows.
During August 1997 the Company placed $9 million in a collateral
account as part of posting an appeals bond. This cash is not currently available
to the Company and is included in restricted cash equivalents at March 31, 1998.
34
<PAGE> 35
In addition, the Company must deposit revenues from international sales
of its principal product in an escrow account, pursuant to a stay of certain
provisions of the injunction granted by the Appeals Court. Approximately $0.2
million is included in restricted cash equivalents at March 31, 1998 pursuant to
this requirement. This cash is not currently available to the Company.
The injunction also requires that the Company pay a substantial portion
of its revenues to plaintiffs. As of March 31, 1998, approximately $3.1 million
had been paid or accrued as a liability as a result of this requirement.
The $9.2 million included in restricted cash equivalents will not be
available to the Company unless the Appeals Court rules in the Company's favor
or, in certain circumstances, remands the case to the District Court for further
proceedings. Additionally, the substantial payments which the Company is
required to make to plaintiffs will continue unless the Appeals Court rules in
the Company's favor or, in certain circumstances, remands the case to the
District Court for further proceedings. In the event of a ruling in favor of the
Company, the $9.2 million in restricted cash would become available to fund
operations, and in the event of an order remanding the case to the District
Court for further proceedings, the Company expects that a minimum of $6.0
million of such $9.2 million would likewise become available to fund operations.
In addition, in either event, the Company would likely begin proceedings to
recover the amounts previously paid to plaintiffs pursuant to the injunction and
to discontinue such payments in the future. In the event all, or such portion as
described above, of the $9.2 million becomes available to fund operations in the
near future, plus such amounts, if any, as the Company may recover from the
plaintiffs, the Company believes it would have sufficient additional resources
to continue operations through March 31, 1999.
There is no way to know when the Appeals Court will issue its decision
in this case. While the Company believes its appeal of the rulings entered
against the Company is meritorious, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome.
The Company is in the process of investigating the feasibility of
raising approximately $10 million in additional capital. However, this process
has been delayed as a result of a motion filed by plaintiffs on June 16, 1998
which seeks to require the Company to escrow or otherwise restrict additional
cash to secure a possible award of attorneys fees currently estimated at $8.0
million. The Company believes that if the motion is denied or held in abeyance
by the District Court, or stayed by the Appeals Court, it should be able to
raise such additional capital.
There is no way to predict the outcome of plaintiffs' June 16 motion.
As discussed under "Investment Considerations - Legal Proceedings," plaintiffs'
earlier filed motion seeking an award of attorneys fees has been held in
abeyance by the District Court which may, but is not required to, reserve
decision on it until after the case is decided on appeal. Additionally, there
can be no assurance that additional capital will be available to the Company on
acceptable terms, or at all, particularly in the event that plaintiffs prevail
in their request that the Company secure a potential award of attorneys' fees.
The preceding forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
those projected. In particular, any requirement to segregate significant
additional amounts in connection with ongoing patent litigation would have a
material impact on this projection. In addition, the amount and timing of
working capital resources consumed will depend on the Company's level of product
sales, the timing and extent of sales and marketing expenditures, including
those incurred in support of product launches, the progress of ongoing research
and development, particularly its efforts to develop an alternative antibody for
use with the CEPRATE(R) SC System, the results of preclinical testing and
clinical trials, the rate at which operating losses are incurred, the execution
of any collaborative research and development agreements, product marketing or
licensing agreements, or other corporate partner arrangements, the FDA
regulatory process, the impact of the injunction on the Company's ability to
sell its products or retain its profits on such product sales, costs incurred in
connection with relocating antibody manufacturing operations for the Company's
products outside the U.S., and ultimately the outcome of continuing patent
litigation, as discussed above, and other factors, many of which are beyond the
Company's control.
35
<PAGE> 36
FORWARD LOOKING INFORMATION
Under the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 (the Reform Act), the Company provides the following
"forward-looking statements," as such term is defined in the Reform Act. Readers
are cautioned that such forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and actual results may differ
from those contained in such forward-looking statements. These forward-looking
statements are subject to the availability of capital resources.
During the year ending March 31, 1999 ("fiscal 1999"), the Company
expects to continue its sales and marketing efforts to launch the CEPRATE(R) SC
System in the U.S. and market additional products in Europe. In addition, the
Company will continue clinical trials of the CEPRATE(R) TCD System in the U.S.
The CEPRATE(R) TCD System is used to deplete additional T cells from transplant
products initially concentrated using the CEPRATE(R) SC System. This additional
T-cell depletion is believed to be important in allogeneic (donor-derived) stem
cell transplants, such as those used in treating leukemia, particularly where
mis-matched donors are used. Also, the Company intends to continue additional
clinical trials, including the Phase I/II clinical trial of the CEPRATE(R)
B-Cell Depletion System in the U.S. and a European Phase III clinical trial
utilizing the CEPRATE(R) SC System for tumor purging and autologous
transplantation of stem cells derived from peripheral blood.
These sales and marketing efforts, together with the anticipated
availability of additional products, may result in double-digit sales growth for
fiscal 1999. However, the Company's ability to sell its principal products, and
conduct clinical trials, may be severely and permanently curtailed due to the
injunction granted against the Company's products pursuant to the on-going
patent litigation as described previously, under the heading "Investment
Considerations - Legal Proceedings."
Research and development directed at discovering and developing new
cellular therapy products is expected to continue in fiscal 1999. These products
include dendritic cell selection for immunization against cancer and a tumor
cell enrichment product for use in detecting minimal residual disease in cancer
patients. Additional information on research and development may be found above
in the section entitled "Product Development Programs." These research and
development initiatives are subject to the availability of funding which could
be negatively impacted by a number of factors, some of which have been discussed
above under "Liquidity and Capital Resources."
YEAR 2000
The Year 2000 issue results from computer programs that do not
differentiate between the year 1900 and the year 2000 because they were written
using two digits rather than four to define the applicable year. Accordingly,
computer systems that have time sensitive calculations may not properly
recognize the year 2000. The company has conducted an initial review of its
computer systems to identify those areas that could be affected by Year 2000
noncompliance. Based on this initial review, the Company presently believes
that, with certain modifications to existing software and selective conversion
to new software, the Year 2000 problem will not significantly disrupt the
Company's operations. The cost of such modifications, in excess of normal
on-going system migration, is not expected to be material. The Company cannot
predict the impact which would result if other entities with whom the Company
does business fail to address and correct their Year 2000 issues.
36
<PAGE> 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS PAGE IN FORM 10-K
<S> <C>
Report of Independent Accountants 38
Consolidated Balance Sheets at March 31, 1998 and 1997 39
Consolidated Statements of Operations for the years ended March 31, 40
1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended 41
March 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended March 31, 42
1998, 1997 and 1996
Notes to Consolidated Financial Statements 43-56
</TABLE>
All financial statement schedules have been omitted since this
information is not required or because the information required is
included in the financial statements or notes thereto.
37
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of CellPro, Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and of cash flows
present fairly, in all material respects, the consolidated financial position of
CellPro, Incorporated at March 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 17, the
Company has had recurring negative cash flow from operating activities and is
involved in significant ongoing litigation which has negatively impacted
available cash. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are described in Note 17. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Seattle, Washington
May 21, 1998, except for Note 17 as to which
the date is July 10, 1998
38
<PAGE> 39
40
CELLPRO, INCORPORATED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,463,465 $ 15,052,804
Securities available for sale 7,745,879 38,990,371
Trade receivables 2,711,342 3,158,729
Inventories 6,663,345 5,078,257
Other current assets 554,720 548,558
------------- -------------
Total current assets 30,138,751 62,828,719
Property and equipment, net 10,346,372 13,183,854
Restricted cash equivalents 9,220,296 --
Other assets 138,727 111,124
------------- -------------
Total assets $ 49,844,146 $ 76,123,697
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 78,714 $ 149,750
Accounts payable 744,565 991,297
Accrued liabilities 3,030,415 3,852,349
Accrual for litigation claim and costs 13,722,089 17,000,000
Other current liabilities 119,671 --
------------- -------------
Total current liabilities 17,695,454 21,993,396
Long-term debt, net of current portion 233,852 152,943
Other liabilities 1,409,844 1,196,710
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value; 25,000,000 shares authorized;
14,601,643 shares and 14,487,313 shares issued and outstanding at
March 31, 1998 and 1997, respectively 14,602 14,487
Additional paid-in capital 169,813,574 169,556,157
Foreign currency translation (258,308) (173,315)
Net unrealized loss on securities available for sale (4,136) (80,331)
Accumulated deficit (139,060,736) (116,536,350)
------------- -------------
Total stockholders' equity 30,504,996 52,780,648
------------- -------------
Total liabilities and stockholders' equity $ 49,844,146 $ 76,123,697
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
39
<PAGE> 40
CELLPRO, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Product sales $ 10,730,201 $ 9,515,984 $ 6,801,985
Related party revenue -- -- 6,000,000
Contract revenue 291,059 146,390 41,600
------------ ------------ ------------
Total revenues 11,021,260 9,662,374 12,843,585
Costs and expenses:
Cost of product sales 4,993,462 5,161,389 3,723,421
Other cost of sales 3,059,678 -- --
Research and development 13,817,562 16,243,501 16,474,133
Selling, general and administrative 13,671,379 15,379,650 12,515,870
Litigation provision -- 17,000,000 --
------------ ------------ ------------
Total costs and expenses 35,542,081 53,784,540 32,713,424
------------ ------------ ------------
Loss from operations (24,520,821) (44,122,166) (19,869,839)
------------ ------------ ------------
Other income (expense):
Interest income 2,243,567 3,590,157 4,164,218
Interest expense (25,429) (46,053) (86,718)
Other, net (221,703) (337,322) 139,679
------------ ------------ ------------
Total other income 1,996,435 3,206,782 4,217,179
------------ ------------ ------------
Net loss $(22,524,386) $(40,915,384) $(15,652,660)
============ ============ ============
Net loss per share - basic and diluted $ (1.55) $ (2.84) $ (1.13)
============ ============ ============
Weighted average number of shares outstanding
during the period 14,531,472 14,421,908 13,847,929
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
40
<PAGE> 41
CELLPRO, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Net
Unrealized
Common Stock Loss on
------------------------ Additional Foreign Securities
Par Paid-in Currency Available
Shares Value Capital Translation for Sale
<S> <C> <C> <C> <C> <C>
Balance at April 1, 1995 13,084,652 $13,085 $140,990,564 $ 8,760 $(283,423)
Sale of common stock for cash, net 1,000,000 1,000 24,551,861 -- --
Amortization of stock option expense -- -- 37,500 -- --
Exercise of stock options 243,185 243 2,201,590 -- --
Foreign currency translation -- -- -- (58,774) --
Employee stock purchase plan 21,096 21 190,476 -- --
Net unrealized gain on securities available
for sale -- -- -- -- 181,296
Net loss -- -- -- -- --
---------- ------- ------------ --------- ---------
Balance at March 31, 1996 14,348,933 14,349 167,971,991 (50,014) (102,127)
Compensation related to options granted -- -- 253,332 -- --
Exercise of stock options 124,125 124 1,169,482 -- --
Foreign currency translation -- -- -- (123,301) --
Employee stock purchase plan 14,255 14 161,352 -- --
Net unrealized gain on securities available
for sale -- -- -- -- 21,796
Net loss -- -- -- -- --
---------- ------- ------------ --------- ---------
Balance at March 31, 1997 14,487,313 14,487 169,556,157 (173,315) (80,331)
Contribution to 401(k) plan 39,163 39 142,953 -- --
Exercise of stock options 50,525 51 5,107 -- --
Foreign currency translation -- -- -- (84,993) --
Employee stock purchase plan 24,642 25 109,357 -- --
Net unrealized gain on securities available
for sale -- -- -- -- 76,195
Net loss -- -- -- -- --
---------- ------- ------------ --------- ---------
Balance at March 31, 1998 14,601,643 $14,602 $169,813,574 $(258,308) $ (4,136)
========== ======= ============ ========= =========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Deficit Total
<S> <C> <C>
Balance at April 1, 1995 $ (59,968,306) $ 80,760,680
Sale of common stock for cash, net -- 24,552,861
Amortization of stock option expense -- 37,500
Exercise of stock options -- 2,201,833
Foreign currency translation -- (58,774)
Employee stock purchase plan -- 190,497
Net unrealized gain on securities available
for sale -- 181,296
Net loss (15,652,660) (15,652,660)
------------- ------------
Balance at March 31, 1996 (75,620,966) 92,213,233
Compensation related to options granted -- 253,332
Exercise of stock options -- 1,169,606
Foreign currency translation -- (123,301)
Employee stock purchase plan -- 161,366
Net unrealized gain on securities available
for sale -- 21,796
Net loss (40,915,384) (40,915,384)
------------- ------------
Balance at March 31, 1997 (116,536,350) 52,780,648
Contribution to 401(k) plan -- 142,992
Exercise of stock options -- 5,158
Foreign currency translation -- (84,993)
Employee stock purchase plan -- 109,382
Net unrealized gain on securities available
for sale -- 76,195
Net loss (22,524,386) (22,524,386)
------------- ------------
Balance at March 31, 1998 $(139,060,736) $ 30,504,996
============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
41
<PAGE> 42
CELLPRO, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net loss $(22,524,386) $(40,915,384) $(15,652,660)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,386,082 3,976,696 3,897,400
Compensation related to stock options granted -- 253,332 37,500
Stock contribution to 401(k) plan 142,992 -- --
Changes in:
Trade receivables 447,387 (875,105) (1,149,451)
Inventories (1,585,088) (693,805) (1,196,516)
Other current assets (6,162) 7,346 (596)
Accounts payable (246,732) (113,170) (1,646,414)
Accrued liabilities and other (489,129) 902,686 847,064
Accrual for litigation claim and costs (3,277,911) 17,000,000 (1,875,322)
------------ ------------ ------------
Net cash used in operating activities (24,152,947) (20,457,404) (16,738,995)
------------ ------------ ------------
Investing activities:
Purchase of property and equipment (548,600) (656,245) (742,480)
Proceeds from sales and maturities of
securities available for sale 39,796,642 26,574,876 39,954,694
Purchase of securities available for sale (8,475,955) (8,475,698) (49,375,547)
Purchase of restricted cash equivalents (9,220,296) -- --
Change in other assets (27,603) (41,911) 257,450
------------ ------------ ------------
Net cash provided by (used in) investing
activities 21,524,188 17,401,022 (9,905,883)
------------ ------------ ------------
Financing activities:
Proceeds from long-term debt 131,400 104,490 69,700
Principal payments on long-term debt (121,527) (279,073) (419,167)
Net proceeds from issuance of common stock 114,540 1,330,972 26,945,191
Other (84,993) (123,301) (58,774)
------------ ------------ ------------
Net cash provided by financing activities 39,420 1,033,088 26,536,950
------------ ------------ ------------
Net decrease in cash and cash equivalents (2,589,339) (2,023,294) (107,928)
Cash and cash equivalents:
Beginning of period 15,052,804 17,076,098 17,184,026
------------ ------------ ------------
End of period $ 12,463,465 $ 15,052,804 $ 17,076,098
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
42
<PAGE> 43
CELLPRO, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FORMATION AND BUSINESS OF THE COMPANY:
CellPro, Incorporated and Subsidiaries (the "Company" or "CellPro"),
whose operations began in April 1989, is a biotechnology company, specializing
in developing, manufacturing, and marketing proprietary continuous-flow,
cell-selection systems for use in a variety of therapeutic, diagnostic, and
research applications. The Company has formed several subsidiaries to coordinate
international marketing and clinical trials. On December 6, 1996, the United
States Food and Drug Administration ("FDA") granted marketing approval for the
Company's principal product, the CEPRATE(R) SC Stem Cell Concentration System.
This product is also approved for use in Canada and has been granted use of the
CE (Communaute' Europe'enne) marking, designating full marketing approval
throughout the 18-nation European Economic Area.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. Intercompany transactions and
balances have been eliminated in consolidation. Foreign subsidiaries are
consolidated on a one-month delay.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash equivalents represent highly liquid short-term investments. The
Company considers all short-term investments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are recorded at
market value. The Company maintains a portion of its cash in bank deposit
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts. The Company believes it is not
exposed to any significant credit risk on cash and cash equivalents.
SECURITIES AVAILABLE FOR SALE
The Company's investment securities are classified as available for
sale and carried at fair value. Unrealized gains and losses are excluded from
the statement of operations and reported as a separate component of
stockholders' equity. Gross realized gains and losses on the sales of investment
securities are determined on the specific identification method and are included
in interest income. The Company's policy limits the amount of credit exposure to
any one issuer.
RESTRICTED CASH EQUIVALENTS
Restricted cash equivalents consists of a deposit in a collateral
account as part of posting an appeal bond in response to a legal judgment and an
escrow account related to a partial stay of the international provisions of an
injunction. See Litigation Provision in Footnote 9.
43
<PAGE> 44
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined in a manner which approximates the first-in, first-out (FIFO) method.
The inventories are shown net of applicable valuation allowances.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided
by the straight-line method over the estimated useful lives of the assets (two
to five years). Leasehold improvements are amortized on a straight-line basis
over the remaining term of the related lease (primarily nine years).
Expenditures for maintenance and repairs are charged to expense as incurred.
FOREIGN CURRENCY
Revenues, costs and expenses of the Company's international operations
denominated in foreign currencies are translated to U.S. dollars at average
rates of exchange prevailing during the year. Assets and liabilities are
translated at the exchange rate on the balance sheet date. Translation
adjustments resulting from this process are accumulated and reported in
stockholders' equity.
The Company does not currently utilize hedging transactions related to
foreign currency risk since repatriation of earnings, or the Company's
investment in its European operations is not anticipated in the near future.
Realized gains and losses on foreign currency transactions have not been
material.
CREDIT RISK
The Company extends trade credit terms to their customers based upon a
credit analysis. Collateral is not required on accounts receivable. The amounts
receivable are shown net of any applicable valuation allowance.
RESEARCH AND DEVELOPMENT EXPENDITURES
Research and development expenditures are charged to operations as
incurred.
NET LOSS PER SHARE
During the year ended March 31, 1998, the Company adopted the recently
issued SFAS No. 128, "Earnings per Share", which established new standards for
the computation, presentation, and disclosure of earnings per share ("EPS") for
all periods shown. Under this new standard, primary and fully diluted earnings
per share were replaced with "Basic" and "Diluted" earnings per share. Basic EPS
is based on the weighted average number of common shares outstanding during the
period. Diluted EPS is based on the potential dilution that would occur on
exercise or conversion of securities into common stock using the treasury stock
method. However, common shares that are considered anti-dilutive are excluded
from the computation of diluted EPS. Since the Company has a loss from
continuing operations, inclusion of potential common shares would be
anti-dilutive. Accordingly, such potential common shares have been excluded from
the computation of diluted EPS, resulting in the same amount for both basic and
diluted EPS.
OTHER COST OF SALES
Other cost of sales represents the amount due to plaintiffs for the
period March 12, 1997 through March 31, 1998, pursuant to a partial stay of an
injunction. See Litigation Provision in Footnote 9.
44
<PAGE> 45
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' consolidated
financial statements to conform to the 1998 presentation.
3. SECURITIES AVAILABLE FOR SALE:
The following table summarizes the Company's securities available for
sale at March 31:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gains Losses Cost
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 511,825 $ -- $(1,700) $ 513,525
Corporate debt securities 7,234,054 -- (2,436) 7,236,490
---------- ---------- ------- ----------
Total $7,745,879 $ -- $(4,136) $7,750,015
========== ========== ======= ==========
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------------------------
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gains Losses Cost
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $21,078,265 $ 4,665 $(38,973) $21,112,573
Corporate debt securities 14,419,537 6,375 (38,340) 14,451,502
Certificate of deposit 3,492,569 -- (14,058) 3,506,627
---------- ---------- -------- ----------
Total $38,990,371 $ 11,040 $(91,371) $39,070,702
=========== ========== ======== ===========
</TABLE>
Amortized cost and market value of debt securities at March 31, 1998, by
contractual maturity, are shown below:
<TABLE>
<CAPTION>
Market Amortized
Value Cost
<S> <C> <C>
Contractual Maturity
Due within 1 year $7,234,054 $7,236,490
Due after 1 year but within 5 years 511,825 513,525
---------- ----------
$7,745,879 $7,750,015
========== ==========
</TABLE>
There were no material gross realized gains or losses for the years
ended March 31, 1998, 1997 and 1996.
45
<PAGE> 46
4. INVENTORIES:
Inventories consisted of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Raw materials $2,040,210 $1,520,000
Work-in-process 719,894 918,632
Finished goods 3,903,241 2,639,625
---------- ----------
$6,663,345 $5,078,257
========== ==========
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Laboratory and manufacturing equipment $ 1,756,511 $ 2,935,605
Computers 1,426,468 1,400,577
Office equipment 1,209,409 1,099,020
Furniture 1,249,540 1,413,115
Leasehold improvements 18,204,928 18,198,380
------------ ------------
23,846,856 25,046,697
Less accumulated depreciation (13,500,484) (11,862,843)
------------ ------------
$ 10,346,372 $ 13,183,854
============ ============
</TABLE>
6. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following at March 31:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Litigation costs $ 250,000 $ 1,200,000
Accrued royalties 723,177 114,205
Accrued clinical trials costs 609,896 972,000
Accrued employee compensation and benefits 681,521 567,000
Other 765,821 999,144
------------ ------------
$ 3,030,415 $ 3,852,349
============ ============
</TABLE>
7. LONG-TERM DEBT:
Long-term debt consisted primarily of capital leases with imputed
interest rates of 8% to 16%.
At March 31, 1998, aggregate required principal payments for all
long-term debt, including capital lease obligations, for the fiscal years ending
March 31 are as follows:
<TABLE>
<S> <C>
1999 $ 78,714
2000 181,597
2001 49,097
2002 3,158
----------
$ 312,566
==========
</TABLE>
46
<PAGE> 47
Property and equipment includes $647,000 and $570,000, at March 31,
1998 and 1997, respectively, of equipment held under capital leases.
Cash paid for interest for the years ended March 31, 1998, 1997, and
1996 was approximately $25,000, $46,000 and $87,000, respectively.
8. OTHER LIABILITIES:
Other liabilities consist of deferred state sales tax and a note due in
April 2000 relating to a collaboration and licensing agreement. The sales tax
will be paid in five annual installments beginning December 31, 1998.
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases a manufacturing facility under a 60-month
noncancelable lease which expires in October 2002. The Company also leases a
research and office facility under a 120-month noncancelable lease which expires
August 2003. The manufacturing facility lease provides for annual rent increases
based upon changes in the Consumer Price Index.
Under the terms of the leases, the Company is responsible for its share
of taxes, insurance and common area charges. The research and office facility
lease includes an option to renew with lease payments escalating based on
changes in the Consumer Price Index.
Total rental expense was approximately $1,030,000, $1,100,000 and
$1,530,000 for the years ended March 31, 1998, 1997 and 1996, respectively, net
of sublease income of $290,000, $418,000 and $303,000 for the years ended March
31, 1998, 1997 and 1996, respectively.
Future minimum payments on operating leases are summarized as follows:
<TABLE>
<CAPTION>
Years Ending March 31,
<S> <C>
1999 $ 808,352
2000 780,173
2001 758,440
2002 756,144
2003 656,784
Thereafter 172,560
-----------
$ 3,932,453
===========
</TABLE>
LITIGATION PROVISION
At March 31, 1997, the Company established a liability of $17 million
(remaining balance at March 31, 1998 of $13,722,089) to cover potential losses
from, and future expenses for pursuing, ongoing patent litigation in which the
Company is accused of infringing two patents owned by The Johns Hopkins
University and licensed to Baxter Healthcare Corporation and Becton Dickinson &
Company (Hopkins, Baxter and Becton hereinafter being collectively referred to
as "plaintiffs"). While management believes its appeal of the rulings entered
against the Company is meritorious, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome. The liability
was recorded in recognition of the fact that adverse court rulings on liability,
and an adverse jury verdict, had been rendered at the District Court
(hereinafter defined) level. The U.S. District Court for the District of
Delaware, per judge Roderick R. McKelvie (the "District Court") filed its
judgment against the Company on July 24, 1997. The District Court granted
plaintiffs enhanced damages amounting to approximately $7.2 million and issued
an order for permanent injunction against the Company. On August 1, 1997, the
Company deposited $9.0 million in a collateral account as part of posting an
appeal bond in response to the legal judgment. This amount
47
<PAGE> 48
is included in restricted cash equivalents. Plaintiffs' motion for attorney
fees, whereby they seek a determination that the Company is liable to reimburse
them for some $7 million in attorneys' fees and related litigation cost has been
held in abeyance by the Court which may, but is not required to, reserve its
decision until after the case is decided on appeal. On June 16, 1998 plaintiffs
filed a motion in the District Court which seeks to require the Company to
escrow or otherwise restrict additional cash to secure a possible award of
attorneys fees currently estimated at $8.0 million. The Company intends to
vigorously oppose the motion, but there is no way to predict how the District
Court will proceed in respect thereof. As discussed under "Investment
Considerations - Legal Proceedings," plaintiffs' earlier filed motion seeking an
award of attorneys fees has been held in abeyance by the District Court which
may, but is not required to, reserve decision on it until after the case is
decided on appeal. The ultimate amount of loss, if any, and the ultimate amount
of future expenses incurred in pursuing this litigation, may vary significantly
from the amount accrued.
There have been two jury trials in the case. In the first trial, a jury
on August 4, 1995, found in favor of the Company on all counts. The verdict
stated that the four patents then in suit were not infringed by the Company's
manufacture, use and sale of the CEPRATE(R) SC system or the CEPRATE(R) LC
system. Additionally, the jury found that the claims of the patents asserted
against the Company were invalid.
Post-trial motions were filed and, on July 1, 1996, the District Court
partially granted plaintiffs' motion for judgment as a matter of law as to the
issues of infringement, inducement of infringement and enablement with respect
to U.S. Patent No. 4,965,680, as well as the issue of induced infringement with
respect to U.S. Patent No. 5,130,144. The District Court ordered a new trial on
remaining liability and infringement issues.
In a series of decisions preceding the new trial, the District Court
granted summary judgment motions by the plaintiffs to dismiss the Company's
remaining liability and infringement defenses with respect to two of the patents
at issue. Plaintiffs moved to withdraw the other two patents from suit, which
motion was granted upon plaintiffs' undertaking that they would not accuse any
present product of the Company of infringing those patents.
A second jury trial was held in March, 1997, at which the jury was
instructed to the effect that the District Court had already determined that the
Company infringed the two patents remaining in suit, that its defenses had been
dismissed, and that the jury was bound by those determinations. Hence, the jury
at the second trial heard evidence and arguments only as to the amount of
damages to be awarded and as to whether the Company's conduct had been willful.
On March 11, 1997, the jury rendered a verdict finding willfulness and awarding
some $2.3 million in damages to plaintiffs.
On July 24, 1997, a permanent injunction was entered by the District
Court. The injunction is complex in form, but it generally prohibits the Company
(subject to a stay hereinafter described) from making, using and selling
products in the U.S. which utilize the anti-stem-cell monoclonal antibody that
is essential to the Company's principal products as they are presently
constituted, and from conducting certain research activities in the U.S. during
the term of the patents. In the U.S., the injunction is subject to a partial
stay which by its terms permits the Company to continue selling its principal
product (CEPRATE(R) SC disposable kits) until such time as another stem cell
immunoseparation product manufactured and sold under a license to the patents in
dispute gains approval from the FDA, an event which plaintiffs had contended
would probably occur before the end of 1997 but which has not yet occurred and
may take significantly longer. Thereafter, if the permanent injunction remains
in effect in its current form, the Company would have to phase out sales of the
CEPRATE(R) SC System over a three-month period, except that the Company would be
permitted to continue supplying product to support certain U.S. clinical trials
commenced before the time an alternative device wins FDA approval. Outside the
U.S., the partial stay allowed by the Delaware District Court required the
Company to phase out over a one-year period its exports of disposable kits
containing U.S. sourced antibody alleged to infringe plaintiffs' patents and to
prohibit sales of such kits to new customers. The Company filed a motion for
stay of the permanent injunction with the U.S. Court of Appeals for the Federal
Circuit (the "Appeals Court") seeking, among other things, to eliminate certain
restrictions on sales outside the U.S. On January 30, 1998, the Appeals Court
granted a stay of the international phase-out pending review of the case on
appeal. Under the partial stay as modified by order of the District Court dated
February 27, 1998, commercial sales and cost recovery sales of disposable kits
sold under the partial stay are subject to a requirement that the Company pay
plaintiffs $1,075 and $750 per kit, respectively, and $5,000 per CEPRATE(R) SC
Instrument
48
<PAGE> 49
System sold or installed at a new commercial site after March 11, 1997.
Subsequent to January 30, 1998, the further stay issued by the Appeals Court
requires that net revenues from international sales be deposited in an escrow
account pending further action by the Appeals Court. The permanent injunction
has forced the Company to terminate substantially all sales of the CEPRATE(R)
LC34 Laboratory Cell Selection System.
The Company has appealed the District Court judgment and the second
jury's verdict to the Appeals Court. The case has been fully briefed, and on May
5, 1998, oral arguments were heard by the Appeals Court. The Company has urged
in its briefs that reversible errors were made by the District Court in granting
judgment as a matter of law and summary judgment on infringement and patent
validity issues, that the second jury's willfulness verdict was the result of
erroneous instructions and evidentiary rulings, and that the first jury's
verdict should be reinstated and judgment entered thereon. There is no way to
know when the Appeals Court will issue its decision in the case.
The antitrust and unfair competition claims filed by CellPro against
the plaintiffs have been stayed pending completion of the patent litigation.
The course of litigation is inherently uncertain and there can be no
assurance of a favorable outcome. The Company expects to continue to make
substantial expenditures in connection with this litigation for the foreseeable
future which may exceed the amount accrued at March 31, 1998 in connection with
this litigation. These expenses could have a material adverse effect on the
Company's results of operations, financial position and cash flows in future
periods.
If plaintiffs should succeed both in defending their position on the
amended final judgment in the Appeals Court and in their application for an
award of attorney fees, then the Company would be required to pay a judgment for
damages and fees of approximately $15 million, which would have a substantial
adverse impact on the Company's business, prospects, financial condition and
results of operations. As discussed previously, the Company has an accrual of
$13.7 million as of March 31, 1998 related to potential losses from, and future
expenses for pursuing, the litigation.
If the plaintiffs should succeed in defending the permanent injunction
in the form in which it has been entered, then the Company will ultimately be
prohibited from selling its principal products as presently constituted, and
from conducting certain related research activities, in the U.S. during the term
of the patents, and will need to arrange for manufacture of modified products
outside the U.S. to the extent it wishes to sell them in markets outside the
U.S. This would greatly disrupt the Company's operations and would have a
material adverse effect on the Company's business, prospects, financial
condition and results of operations. Absent a reasonable license or suitable
stay of injunction, and in the absence of other alternatives which may or may
not be available, the Company would likely find it necessary to file for
protection under United States Bankruptcy laws.
As a possible alternative to a litigated result on appeal, the Company
could pursue further attempts to obtain commercially reasonable licenses under
the Hopkins' patents at issue through various means, including through
negotiations with plaintiffs. Attempts to negotiate licenses with the plaintiffs
have not been successful to date, however, and no assurance can be given that
plaintiffs would license the patents to the Company at all or on terms that
would permit commercialization of the Company's stem cell separation technology.
Selling, general and administrative expense includes $3.9 million and
$2.3 million related to this litigation for the years ended March 31, 1997 and
1996, respectively.
CLASS ACTION LAWSUIT
On March 16, 1998, a lawsuit was filed in the United States District
Court for the Western District of Washington against the Company, certain of the
Company's officers and directors, and a law firm (together "defendants") that
issued certain legal opinions in respect of the patents which are the subject of
the legal proceedings described above and under the caption "Investment
Considerations - Legal Proceedings." The lawsuit, which purports to be brought
on behalf of persons who purchased CellPro stock between March 10, 1995 and July
49
<PAGE> 50
28, 1997, alleges the defendants violated Sections 10(b) (including Rule 10b-5)
and 20(a) of the Securities Exchange Act as well as certain provisions of
Washington state and common law. On March 27, 1998, plaintiffs filed a virtually
identical complain in the same district. On May 12, 1998, the court granted a
motion consolidating the two cases before the same judge. The consolidated case
is captioned In re: CellPro, Inc. Securities Litigation. Master File No.
C98-298Z.
On May 8, 1998, a group of plaintiffs moved to be appointed lead
plaintiffs and are awaiting the court's decision on that motion. Plaintiffs and
defendants have stipulated to a schedule for filing and responding to a
consolidated amended complaint and for filing a motion for class certification.
Defendants believe these cases are without merit and intend to defend
these actions vigorously.
The Company has insurance which would cover losses or expenses related
to the lawsuit, subject to policy limits.
10. CAPITAL STOCK:
STOCK OPTION PLAN
In 1989, the Company adopted a stock option plan (the "Option Plan")
administered by a Plan Administrator designated by the Board of Directors. A
total of 4,155,000 shares are available for issuance under the Plan. Options
issued under the Option Plan are designated as either incentive stock options
("ISOs") or nonqualified stock options. ISOs must be granted to employees at
minimum exercise prices equal to the fair market value of common shares at the
date of grant. Nonqualified options must be granted at minimum exercise prices
at least equal to 50% of fair market value of common shares at the date of
grant. Options generally vest over periods ranging from 1 to 4 years and have a
term of ten years from the date of grant.
Stock option information with respect to all of the Company's stock
option plans follows:
<TABLE>
<CAPTION>
Exercise Price
--------------------------------------
Shares Low High Weighted-Average
<S> <C> <C> <C> <C>
Balance April 1, 1995, unexercised 1,602,350 $ 0.10 $ 33.75 $ 13.53
Granted 989,733 10.00 18.00 11.50
Exercised (243,185) 0.10 13.50 9.08
Forfeited (774,495) 8.00 33.75 17.99
---------- ---------
Balance March 31, 1996, unexercised 1,574,403 10.78
Granted 513,750 6.48 18.75 12.08
Exercised (124,125) 0.30 15.75 9.37
Forfeited (274,132) 6.81 33.00 13.32
---------- ---------
Balance March 31, 1997, unexercised 1,689,896 10.86
Granted 2,601,183 2.00 8.25 4.97
Exercised (50,525) 0.10 0.30 0.10
Forfeited (1,622,812) 2.00 29.75 10.57
---------- ---------
Balance March 31, 1998, unexercised 2,617,742 $ 5.40
========== =========
</TABLE>
Pursuant to APB Opinion No. 25, the Company records for financial
statement reporting purposes only, compensation expense equal to the difference,
on the date of grant, between the grant price and the quoted market price of the
Common Stock underlying options granted. Such compensation is amortized to
expense over the vesting period of the related options.
50
<PAGE> 51
At March 31, 1998, 1997 and 1996, options for a total of 1,464,000,
991,000 and 736,000 shares were exercisable at weighted average prices of $5.97,
$9.88 and $9.64, respectively.
FAIR VALUE DISCLOSURES
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," requires the use of option valuation models to
provide supplemental information regarding options granted after March 31, 1995.
Pro forma information regarding net loss and net loss per share shown below was
determined as if the Company had accounted for its employee stock options and
shares sold under its stock purchase plan under the fair value method of that
statement.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options. The Company's employee stock
options have characteristics significantly different from those of traded
options such as vesting restrictions and extremely limited transferability. In
addition, the assumptions used in option valuation models (see below) are highly
subjective, particularly the expected stock price volatility of the underlying
stock. Because changes in these subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models may
not provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting periods. The pro forma effect on
net loss for 1998, 1997 and 1996 is not representative of the pro forma effect
on operations in future years because it does not take into consideration pro
forma compensation expense related to grants made prior to April 1, 1995. Pro
forma information in subsequent years will reflect the amortization of a larger
number of stock options granted in several succeeding years. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
Years Ended March 31, 1998 1997 1996
<S> <C> <C> <C>
Net loss (in millions)
As reported $ (22.5) $ (40.9) $ (15.7)
Pro forma (27.1) (42.8) (17.4)
Net loss per share
As reported $ (1.55) $ (2.84) $ (1.13)
Pro forma (1.87) (2.97) (1.25)
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: expected volatility of 111% in 1998, and 63.3% in 1997 and 1996; an
expected life of 1.57 years in 1998 and 4.33 years in 1997 and 1996; risk-free
interest rate of 5.80% in 1998, 6.31% in 1997 and 5.96% in 1996; and no expected
dividends.
These assumptions resulted in weighted-average fair values of $3.16,
$6.34 and $5.62 per share for stock options granted in 1998, 1997 and 1996,
respectively.
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<PAGE> 52
The following table summarizes information about options outstanding at
March 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -------------------------------
Weighted -
Weighted - Average Weighted -
Average Remaining Average
Exercise Contractual Exercise
Price Range Shares Price Life Shares Price
<S> <C> <C> <C> <C> <C>
$0.10 - $5.00 446,837 $2.71 7.96 119,581 $3.34
$5.31 - $5.31 2,007,686 $5.31 8.04 1,211,262 $5.31
$5.75 - $20.13 153,219 $13.29 7.01 122,894 $13.70
$22.25 - $22.25 10,000 $22.25 6.33 10,000 $22.25
--------- ------ ---- --------- ------
$0.10 - $22.25 2,617,742 $5.40 7.96 1,463,737 $5.97
</TABLE>
STOCK PURCHASE PLAN
The Company established a stock purchase plan (the "Purchase Plan")
whereby employees, other than officers, may purchase shares of the Company's
Common Stock. The purchase price per share is 85% of the lower of the market
value per share of Common Stock determined as of the beginning or end of the
six-month purchase period specified in the Purchase Plan. The initial purchase
period began April 16, 1992. Through April 15, 1998, the end of the 12th
purchase period, a total of 100,339 shares have been acquired by employees
through the Purchase Plan. At April 16, 1998, the Company had 49,661 shares
available for future issuance under the Purchase Plan.
PREFERRED STOCK
The Company has 1,000,000 shares of authorized preferred stock. None of
the preferred stock has been issued. As discussed below, 200,000 shares are
reserved for use in the Company's shareholder rights plan.
SHAREHOLDER RIGHTS PLAN
In April 1995, the Board of Directors adopted a shareholder rights plan
pursuant to which holders of Common Stock outstanding on May 8, 1995 have been
granted one Preferred Share Purchase Right (a "Right") on each outstanding share
of Common Stock. Each Right entitles the registered holder to purchase one
one-hundredth of a share of a new series of Junior Participating Preferred Stock
(200,000 shares authorized) at an exercise price of $70.00, subject to certain
adjustments, upon the occurrence of certain events. The Rights will be
exercisable only if a person, or group, acquires 15%, or more, of the Common
Stock, or announces a tender offer for the Company, the consummation of which
would result in ownership by a person, or group, of 15%, or more, of the
Company's Common Stock. The Rights may be redeemed, at a redemption price of one
cent per right, by the Board of Directors of the Company at any time within ten
days after a person, or group, has acquired beneficial ownership of 15%, or
more, of the Company's Common Stock. The Rights will expire on May 7, 2005.
If, after the rights become exercisable, the Company is acquired in a
merger, or other such transaction, or sells 50% or more of its assets or
earnings power, each right will entitle its holder to purchase the acquiring
company's common shares having a value of twice the Right's exercise price. In
addition, if a person, or group, acquires 15%, or more, of the Company's
outstanding Common Stock, each Right will entitle its holder (other than the
acquirer) to purchase a number of the Company's common shares having a value of
twice the Right's exercise price.
52
<PAGE> 53
11. COLLABORATION AGREEMENTS:
CORIXA
Subsequent to the fiscal year ended March 31, 1998, on April 24, 1998,
the Company and Corixa Corporation agreed to terminate a multi-year research
collaboration and licensing agreement executed by them in December 1995.
The Company elected to terminate the collaboration in order to conserve
capital. The only remaining financial obligation of the Company is payment of a
$335,000 note issued in connection with such termination and due in April 2000.
CORANGE
On July 31, 1995, CellPro and its former corporate partner, Corange,
reached a definitive agreement to conclude their collaboration entered into
during December 1993. Under the new agreement, Corange paid CellPro $24 million
in exchange for one million newly issued shares of CellPro Common Stock and $6
million for prior research and development services. In addition, CellPro agreed
to supply Corange, on a non-exclusive basis, with cell separation systems for
use in the field of gene medicine. All rights to CellPro's technology previously
licensed to Corange have been returned to CellPro, the agreements have been
terminated, and the two companies have exchanged releases in settlement of all
claims relating to the 1993 agreements. Product sales to Corange approximated
$22,000, $100,000 and $85,000 in 1998, 1997, and 1996, respectively.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of cash and cash equivalents at March 31, 1998 and
1997 approximates fair value.
The Company's securities available for sale are carried at fair market
value based on quoted market prices.
The carrying value of the Company's debt approximates fair value at
March 31, 1998 and 1997.
The fair value of the other liabilities has been estimated at
$1,287,600 at March 31, 1998 and $940,000 at March 31, 1997, compared to its
balance sheet carrying value of $1,529,515 and $1,196,710 at March 31, 1998 and
1997, respectively.
13. FEDERAL INCOME TAXES:
At March 31, 1998, the Company had accumulated net operating loss
carryforwards of approximately $121.7 million which expire through 2013. The
Company also has cumulative research and development tax credit carryforwards of
approximately $4.6 million which expire through 2013. Differences between the
tax bases of assets and liabilities and their financial statement amounts are
reflected as deferred income taxes based on enacted tax rates. The principal
differences in bases result from differing depreciation methods and the changes
in various accrued liabilities. The accumulated net operating loss, research and
development credit carryforwards and the differences between tax and financial
reporting bases of property and equipment and litigation accruals result in net
deferred income tax assets of approximately $54.8 million which have been
reduced by a valuation allowance of an equal amount.
The Company's ability to use its net operating losses to offset future
taxable income is subject to restrictions enacted in the United States Internal
Revenue Code of 1986 as amended (the "Code"). These restrictions could limit the
Company's future use of its net operating losses if certain stock ownership
changes described in the Code occur.
53
<PAGE> 54
14. TECHNOLOGY AGREEMENTS:
The Company has entered into several licensing agreements granting it
rights to utilize core technology for cell separation and certain antibodies.
These agreements require payments of up-front fees upon execution and royalty
payments in varying amounts for sales of licensed products for periods of up to
17 years. Payments relating to technology agreements are expensed as incurred.
15. EMPLOYEE RETIREMENT PLAN:
The Company sponsors an Employee Retirement Plan in accordance with
Section 401(k) of the Internal Revenue Code. Under this Plan, at the discretion
of the Board of Directors, the Company may match a portion of the employees'
contributions. The Company contributed 39,163 shares of its common stock to the
Plan during the year ended March 31, 1998.
16. GEOGRAPHIC SEGMENT INFORMATION:
The Company markets its products internationally through wholly-owned
subsidiaries located in Europe and through independent distributors in other
export markets. U.S. revenues in the following table include U.S. export sales
to customers in foreign countries of $749,000 in 1998 and $864,000 in 1997. A
summary of the Company's operations by geographic area follows:
<TABLE>
<CAPTION>
Years Ended March 31
----------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Product sales revenue:
U.S $ 5,279,328 $ 2,758,487 $ 1,457,534
Transfers between geographic areas 5,577,246 7,126,090 4,284,645
Contract revenue 291,059 146,390 41,600
Related party revenue -- -- 6,000,000
------------ ------------ ------------
Total U.S. 11,147,633 10,030,967 11,783,779
Europe 5,450,873 6,757,497 5,344,451
Eliminations (5,577,246) (7,126,090) (4,284,645)
------------ ------------ ------------
Consolidated revenues $ 11,021,260 $ 9,662,374 $ 12,843,585
============ ============ ============
Loss from Operations:
U.S $ 19,247,165 $ 38,911,228 $ 15,193,455
Europe 5,088,952 4,816,326 4,827,805
Eliminations 184,704 394,612 (151,421)
------------ ------------ ------------
Total loss from operations $ 24,520,821 $ 44,122,166 $ 19,869,839
============ ============ ============
</TABLE>
Included in loss from operations for the United States for the year ended March
31, 1997 is an accrual of $17 million related to on-going patent litigation.
54
<PAGE> 55
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Geographic Assets:
U.S. $ 17,339,113 $18,352,150 $ 20,188,482
Europe 3,397,764 3,430,520 3,620,535
Eliminations (322,371) 297,852 (11,518)
------------ ----------- ------------
20,414,506 22,080,522 23,797,499
General corporate assets (principally cash and
investments) 29,429,640 54,043,175 74,143,850
------------ ----------- ------------
Consolidated assets $ 49,844,146 $76,123,697 $ 97,941,349
============ =========== ============
</TABLE>
17. LIQUIDITY AND CAPITAL RESOURCES
The Company had negative cash flow from operating activities of $24.2
million, $20.5 million and $16.7 million for the fiscal years ended March 31,
1998, 1997 and 1996, respectively. At March 31, 1998, the Company had $20.2
million in cash, cash equivalents and securities available for sale with which
to fund continuing operations. The Company has projected that these resources
will be insufficient to continue the Company's operations, as currently
conducted, through March 31, 1999 unless one or more events occur as discussed
below.
The Company is currently involved in on-going patent litigation as
previously described in note 9 "Litigation Provision." The Company is operating
under a partial stay of an injunction issued by the District Court and modified
by the Appeals Court. This litigation and the injunction have had a material
adverse effect on the Company's financial position, results of operation and
cash flows.
During August 1997 the Company placed $9 million in a collateral
account as part of posting an appeals bond. This cash is not currently available
to the Company and is included in restricted cash equivalents at March 31, 1998.
In addition, the Company must deposit revenues from international sales
of its principal product in an escrow account, pursuant to a stay of certain
provisions of the injunction granted by the Appeals Court. Approximately $0.2
million is included in restricted cash equivalents at March 31, 1998 pursuant to
this requirement. This cash is not currently available to the Company.
The injunction also requires that the Company pay a substantial portion
of its revenues to plaintiffs. As of March 31, 1998, approximately $3.1 million
had been paid or accrued as a liability as a result of this requirement.
The $9.2 million included in restricted cash equivalents will not be
available to the Company unless the Appeals Court rules in the Company's favor
or, in certain circumstances, remands the case to the District Court for further
proceedings. Additionally, the substantial payments which the Company is
required to make to plaintiffs will continue unless the Appeals Court rules in
the Company's favor or, in certain circumstances, remands the case to the
District Court for further proceedings. In the event of a ruling in favor of the
Company, the $9.2 million in restricted cash would become available to fund
operations, and in the event of an order remanding the case to the District
Court for further proceedings, the Company expects that a minimum of $6.0
million of such $9.2 million would likewise become available to fund operations.
In addition, in either event, the Company would likely begin proceedings to
recover the amounts previously paid to plaintiffs pursuant to the injunction and
to discontinue such payments in the future. In the event all or such portion as
described above of the $9.2 million becomes available to fund operations in the
near future, plus such amounts, if any, as the Company may recover from the
plaintiffs, the Company believes it would have sufficient additional resources
to continue operations through March 31, 1999.
55
<PAGE> 56
There is no way to know when the Appeals Court will issue its decision
in this case. While the Company believes its appeal of the rulings entered
against the Company is meritorious, the course of litigation is inherently
uncertain and there can be no assurance of a favorable outcome.
The Company is in the process of investigating the feasibility of
raising approximately $10 million in additional capital. However, this process
has been delayed as a result of a motion filed by plaintiffs on June 16, 1998
which seeks to require the Company to escrow or otherwise restrict additional
cash to secure a possible award of attorneys fees currently estimated at $8.0
million. The Company believes that if the motion is denied or held in abeyance
by the District Court, or stayed by the Appeals Court, it should be able to
raise such additional capital.
There is no way to predict the outcome of Plaintiffs' June 16 motion.
As discussed under "Investment Considerations - Legal Proceedings," plaintiffs'
earlier filed motion seeking an award of attorneys fees has been held in
abeyance by the District Court which may, but is not required to, reserve
decision on it until after the case is decided on appeal. Additionally, there
can be no assurance that additional capital will be available to the Company on
acceptable terms, or at all, particularly in the event that plaintiffs prevail
in their request that the Company secure a potential award of attorneys' fees.
Because of the matters discussed above, there is substantial doubt as
to the ability of the Company to continue as a going concern. Management plans
to pursue the appeals process related to the litigation as well as investigate
the feasibility of raising additional equity funds. There can be no assurance
that the Company will be successful with the appeal or raising additional
equity.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item concerning the Company's
directors and executive officers is included under the caption "Proposal One -
Election of Directors-Nominees" of the Company's 1998 Notice of Annual Meeting
of Stockholders and Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is included under the caption
"Proposal One - Election of Directors - Executive Compensation and Other
Information" of the Company's 1998 Notice of Annual Meeting of Stockholders and
Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption
"Record Date, Voting and Share Ownership" of the Company's 1998 Notice of Annual
Meeting of Stockholders and Proxy Statement and is incorporated herein by
reference.
56
<PAGE> 57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption
"Proposal One - Election of Directors - Executive Compensation and Other
Information" of the Company's 1998 Notice of Annual Meeting of Stockholders and
Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Index to Consolidated Financial Statements under
Item 8 of this Form 10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES
Not applicable.
(b) REPORTS ON FORM 8-K
Not applicable.
(c) EXHIBITS
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
3.1(3) Restated Certificate of Incorporation.
3.2(3) Bylaws, as amended.
3.3(10) Certificate of Designations of Series A Junior Participating
Preferred Stock of the Company filed with the Secretary of
State of Delaware on May 4, 1995.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3(9) Conformed copy of Rights Agreement dated as of April 21, 1995
between the Company and American Stock Transfer Company.
10.4(1)** 1989 Stock Option Plan and forms of agreements thereunder.
10.5(1)** 1991 Employee Stock Purchase Plan and form of agreement
thereunder.
10.9(4)(5) Exclusive License Agreement dated as of May 11, 1990, by and
between the Company and the University of Washington.
10.10(4)(5) Amended and Restated Antibody License Agreement dated as of
August 16, 1991, by and between the Company and the Fred
Hutchinson Cancer Research Center including First Amendment
to Restated Antibody License Agreement entered into as of
April 7, 1993.
10.11(1)(4) Technology License Agreement dated as of March 23, 1989, by
and between the Company and the Fred Hutchinson Cancer
Research Center including First Amendment to Technology
License Agreement entered into as of April 7, 1993.
10.12(1) Form of Indemnification Agreement.
10.13(2) Lease dated November 7, 1991, by and between the Company and
Canyon Park Joint Venture I.
10.15(6) Lease, dated February 24, 1993, by and between the Company and
Canyon Park Joint Venture II.
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
10.16(6) Lease, dated February 24, 1993, by and between the Company
and Canyon Park Joint Venture II and WRC Properties, Inc.
10.17(4)(7) Stock Purchase Agreement dated December 3, 1993 between
CellPro, Incorporated and Corange International Limited.
10.18(4)(7) Registration Rights Agreement dated December 3, 1993 between
CellPro and Corange.
10.19(4)(7) Standstill Agreement dated December 3, 1993 between CellPro
and Corange.
10.20(8) Equipment lease dated March 15, 1994 between the Company and
Lease Partners Corporation and related Equipment Schedule.
10.22(4)(10) Agreement between the Company and Corange International
Limited dated April 29, 1995.
10.23(4)(11) Amendment to Registration Rights Agreement dated July 31,
1995 between CellPro and Corange.
10.24(11) Amendments to Standstill Agreement dated July 31, 1995
between CellPro and Corange.
10.25(11) Limited Release by CellPro dated July 31, 1995.
10.26(4)(11) Amended and Restated Stock Purchase Agreement dated July 31,
1995 between CellPro and Corange.
10.27(11) Termination Agreement dated July 31, 1995 between CellPro and
Corange.
10.28(4)(11) Supply Agreement dated July 31, 1995 between CellPro and
Corange.
10.29(11) Limited Release by Corange dated July 31, 1995.
10.30* Agreement dated September 5, 1997, between CellPro and
Richard Murdock.
10.31* Agreement dated September 5, 1997, between CellPro and
Larry Culver.
10.32* Agreement dated September 5, 1997, between CellPro and
Joe Tarnowski.
10.33* Agreement dated September 5, 1997, between CellPro and
Cindy Jacobs.
21(12) Subsidiaries of the Company.
23 Consent of Independent Accountants. The consent set forth on
page 62 is incorporated herein by reference.
24.1 Power of Attorney. The Power of Attorney set forth on page 61
is incorporated herein by reference.
27* Financial Data Schedule.
</TABLE>
58
<PAGE> 59
- ----------
(1) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-4212) declared effective by the
Securities and Exchange Commission (the "SEC") on September 24, 1991.
(2) Incorporated herein by reference from an exhibit to the Company's Annual
Report on Form 10-K (File No. 0-19472) filed with the SEC on June 26, 1992.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-3 (File No. 33-56960) declared effective by the
SEC on February 12, 1993.
(4) Certain portions of this Exhibit were granted confidential treatment
pursuant to an order from the SEC.
(5) Certain portions of this exhibit are incorporated by reference from an
exhibit filed with the Company's Registration Statement on Form S-1 (File No.
33-4212) declared effective by the SEC on September 24, 1991.
(6) Incorporated herein by reference from an exhibit to the Company's annual
report on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1993.
(7) Incorporated by reference from an exhibit to Form 8-K filed with the SEC
on March 17, 1994.
(8) Incorporated herein by reference from an exhibit to the Company's annual
report on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1994.
(9) Incorporated by reference from an exhibit to Form 8-A filed with the SEC
on May 4, 1995.
(10) Incorporated by reference from an exhibit to the Company's annual report
on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1995.
(11) Incorporated by reference from an exhibit to the Company's quarterly
report on Form 10Q (File No. 0-19472) for the quarter ended December 31, 1995
filed with the SEC on February 13, 1996.
(12) Incorporated by reference from an exhibit to the Company's annual report
on Form 10-K (File No. 0-19472) filed with the SEC on June 26, 1997.
* Filed herewith.
** This item is a compensatory plan required to be listed as an exhibit to this
form pursuant to Item 601(a)(10)(iii) of Regulation S-K.
NOTE: THE GRAPHIC PORTION OF THE CELLPRO LOGO, THE CELLPRO NAME AND THE WORD
CEPRATE ARE ALL REGISTERED TRADEMARKS OF CELLPRO.
59
<PAGE> 60
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BOTHELL, WASHINGTON ON
THIS 14TH DAY OF JULY, 1998.
CELLPRO, INCORPORATED
BY: /s/ Richard D. Murdock
-------------------------------------
RICHARD D. MURDOCK
PRESIDENT, CHIEF EXECUTIVE OFFICER
AND DIRECTOR
60
<PAGE> 61
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Richard D. Murdock and David M.
Bishop and each of them, as his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report on Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF
1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND
ON THE DATES INDICATED:
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Richard D. Murdock President, Chief Executive Officer and Director July 14, 1998
- --------------------------------- (Principal Executive Officer)
(Richard D. Murdock)
/s/ David M. Bishop Vice President of Finance (Principal Financial July 14, 1998
- --------------------------------- and Accounting Officer)
(David M. Bishop)
/s/ Joseph S. Lacob Chairman of the Board July 14, 1998
- ---------------------------------
(Joseph S. Lacob)
/s/ Kenneth W. Anstey Director July 14, 1998
- ---------------------------------
(Kenneth W. Anstey)
/s/ Larry G. Culver Director July 14, 1998
- ---------------------------------
(Larry G. Culver)
/s/ Joshua L. Green Director July 14,1998
- ---------------------------------
(Joshua L. Green)
/s/ Charles P. Waite, Jr. Director July 14,1998
- ---------------------------------
(Charles P. Waite, Jr.)
</TABLE>
61
<PAGE> 62
CONSENT OF INDEPENDENT ACCOUNTANTS
Report of Independent Accountants
To the Board of Directors and Stockholders of CellPro, Incorporated
We consent to the incorporation by reference in the Registration Statement of
CellPro, Incorporated on Form S-8 (file No. 33-71478) of our report dated May
21, 1998, except for Note 17, as to which the date is July 10, 1998, on our
audits of the consolidated financial statements of CellPro, Incorporated as of
March 31, 1998 and 1997 for each of the three years in the period ended March
31, 1998, which report is included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Seattle, Washington
July 10, 1998
62
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
3.1(3) Restated Certificate of Incorporation.
3.2(3) Bylaws, as amended.
3.3(10) Certificate of Designations of Series A Junior Participating
Preferred Stock of the Company filed with the Secretary of
State of Delaware on May 4, 1995.
4.1 Reference is made to Exhibit 3.1.
4.2 Reference is made to Exhibit 3.2.
4.3(9) Conformed copy of Rights Agreement dated as of April 21, 1995
between the Company and American Stock Transfer Company.
10.4(1)** 1989 Stock Option Plan and forms of agreements thereunder.
10.5(1)** 1991 Employee Stock Purchase Plan and form of agreement
thereunder.
10.9(4)(5) Exclusive License Agreement dated as of May 11, 1990, by and
between the Company and the University of Washington.
10.10(4)(5) Amended and Restated Antibody License Agreement dated as of
August 16, 1991, by and between the Company and the Fred
Hutchinson Cancer Research Center including First Amendment
to Restated Antibody License Agreement entered into as of
April 7, 1993.
10.11(1)(4) Technology License Agreement dated as of March 23, 1989, by
and between the Company and the Fred Hutchinson Cancer
Research Center including First Amendment to Technology
License Agreement entered into as of April 7, 1993.
10.12(1) Form of Indemnification Agreement.
10.13(2) Lease dated November 7, 1991, by and between the Company and
Canyon Park Joint Venture I.
10.15(6) Lease, dated February 24, 1993, by and between the Company and
Canyon Park Joint Venture II.
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
Number Exhibit
- ------ -------
<S> <C>
10.16(6) Lease, dated February 24, 1993, by and between the Company
and Canyon Park Joint Venture II and WRC Properties, Inc.
10.17(4)(7) Stock Purchase Agreement dated December 3, 1993 between
CellPro, Incorporated and Corange International Limited.
10.18(4)(7) Registration Rights Agreement dated December 3, 1993 between
CellPro and Corange.
10.19(4)(7) Standstill Agreement dated December 3, 1993 between CellPro
and Corange.
10.20(8) Equipment lease dated March 15, 1994 between the Company and
Lease Partners Corporation and related Equipment Schedule.
10.22(4)(10) Agreement between the Company and Corange International
Limited dated April 29, 1995.
10.23(4)(11) Amendment to Registration Rights Agreement dated July 31,
1995 between CellPro and Corange.
10.24(11) Amendments to Standstill Agreement dated July 31, 1995
between CellPro and Corange.
10.25(11) Limited Release by CellPro dated July 31, 1995.
10.26(4)(11) Amended and Restated Stock Purchase Agreement dated July 31,
1995 between CellPro and Corange.
10.27(11) Termination Agreement dated July 31, 1995 between CellPro and
Corange.
10.28(4)(11) Supply Agreement dated July 31, 1995 between CellPro and
Corange.
10.29(11) Limited Release by Corange dated July 31, 1995.
10.30* Agreement dated September 5, 1997, between CellPro and
Richard Murdock.
10.31* Agreement dated September 5, 1997, between CellPro and
Larry Culver.
10.32* Agreement dated September 5, 1997, between CellPro and
Joe Tarnowski.
10.33* Agreement dated September 5, 1997, between CellPro and
Cindy Jacobs.
21(12) Subsidiaries of the Company.
23 Consent of Independent Accountants. The consent set forth on
page 62 is incorporated herein by reference.
24.1 Power of Attorney. The Power of Attorney set forth on page 61
is incorporated herein by reference.
27* Financial Data Schedule.
</TABLE>
<PAGE> 65
- ----------
(1) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-1 (File No. 33-4212) declared effective by the
Securities and Exchange Commission (the "SEC") on September 24, 1991.
(2) Incorporated herein by reference from an exhibit to the Company's Annual
Report on Form 10-K (File No. 0-19472) filed with the SEC on June 26, 1992.
(3) Incorporated by reference from an exhibit filed with the Company's
Registration Statement on Form S-3 (File No. 33-56960) declared effective by the
SEC on February 12, 1993.
(4) Certain portions of this Exhibit were granted confidential treatment
pursuant to an order from the SEC.
(5) Certain portions of this exhibit are incorporated by reference from an
exhibit filed with the Company's Registration Statement on Form S-1 (File No.
33-4212) declared effective by the SEC on September 24, 1991.
(6) Incorporated herein by reference from an exhibit to the Company's annual
report on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1993.
(7) Incorporated by reference from an exhibit to Form 8-K filed with the SEC
on March 17, 1994.
(8) Incorporated herein by reference from an exhibit to the Company's annual
report on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1994.
(9) Incorporated by reference from an exhibit to Form 8-A filed with the SEC
on May 4, 1995.
(10) Incorporated by reference from an exhibit to the Company's annual report
on Form 10-K (File No. 0-19472) filed with the SEC on June 28, 1995.
(11) Incorporated by reference from an exhibit to the Company's quarterly
report on Form 10Q (File No. 0-19472) for the quarter ended December 31, 1995
filed with the SEC on February 13, 1996.
(12) Incorporated by reference from an exhibit to the Company's annual report
on Form 10-K (File No. 0-19472) filed with the SEC on June 26, 1997.
* Filed herewith.
** This item is a compensatory plan required to be listed as an exhibit to this
form pursuant to Item 601(a)(10)(iii) of Regulation S-K.
NOTE: THE GRAPHIC PORTION OF THE CELLPRO LOGO, THE CELLPRO NAME AND THE WORD
CEPRATE ARE ALL REGISTERED TRADEMARKS OF CELLPRO.
<PAGE> 1
AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of September 5, 1997, by and between Richard Murdock (the "Employee") and
CellPro, Incorporated, a Delaware corporation (the "Company").
R E C I T A L S
A. The future and viability of the Company is uncertain and
substantially dependent upon Employee and other key employees continuing
employment with the Company and successfully completing one or more transactions
that give the Company a viable business in the future. The Board recognizes that
such instability may cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication of the Employee, notwithstanding the possibility or occurrence of
adverse events to the Company.
B. The Board believes that it is imperative to provide the Employee with
certain incentives to remain with the Company and to pursue one or more
transactions that will result in increased stability and business opportunity
for the Company.
C. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
D. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (a) immediately following termination of
Employee's employment with the Company, or (b) September 30, 2000. A termination
of the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement
including, but not limited to severance benefits payable pursuant to Section 5.
2. Stock Options. In the event of a Significant Corporate Event and
regardless of whether the Employee's employment with the Company is terminated
in connection with the
-1-
<PAGE> 2
Significant Corporate Event, each stock option exercisable for the Company's
Common Stock held by Employee that is subject to the terms of an Option
Agreement that has a vesting provision granted to Employee (the "Stock Options")
shall become immediately vested immediately prior to the effectiveness of the
Significant Corporate Event, and shall be exercisable in full in accordance with
the provisions of the Option Agreement and Plan pursuant to which such option
was granted.
3. Compensation. Upon the effective date of a Significant Corporate
Event, Employee shall be paid cash compensation equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Significant Corporate Event. "Significant Corporate
Event" shall mean the occurrence of any of the following events:
(i) Sale/Issuance of Securities. Any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) acquires, directly or indirectly, securities of the Company
representing twenty percent (20%) or more of the total equity interests of the
Company.
(ii) Merger. A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) Sale of Assets. The closing of the sale or
disposition of assets of the Company approved by the Board of Directors, based
on the Board of Director's determination that such sale or disposition is in the
best interests of the Company and its stockholders, representing (A) at least
twenty percent (20%) of the Company's total assets, (B) a value of at least
$20,000,000 or (C) all or substantially all of the tangible assets directly
related to the manufacture or sale of the Company's CEPRATE(R) Products.
5. Severance. If Employee's employment is terminated by Employee or the
Company for any reason or no reason after December 31, 1997, Employee will be
entitled to receive on the effective date of termination of Employee's
employment (the "Termination Date"), cash compensation equal to six (6) months
of Employee's base salary (the "Initial Severance Payment"). In addition to the
Initial Severance Payment, on the Termination Date, the Company will deposit an
amount equal to six (6) months of Employee's base salary in escrow (the "Escrow
Deposit") with a financial institution pursuant to an escrow agreement in form
reasonably acceptable to Employee and the Company. If Employee has not obtained
new employment within the six (6) month period immediately following the
Termination Date, then
-2-
<PAGE> 3
the Escrow Agent will distribute to Employee monthly, commencing on the seventh
(7th) month anniversary of the Termination Date and ending on the twelfth (12th)
month anniversary of the Termination Date (the "Subsequent Payment Period") an
amount equal to one-sixth (1/6th) of the Escrow Deposit (the "Subsequent
Severance Payments"); provided, that the Subsequent Severance Payments shall be
reduced, on a dollar for dollar basis, to the extent Employee receives
compensation for services rendered to another person or entity during the
Subsequent Payment Period (the "Offset Amounts"). The Offset Amounts, if any,
shall be distributed by the Escrow Agent to the Company. Notwithstanding the
foregoing, in the event that the severance and other benefits provided for in
this Agreement to Employee constitute "parachute payments" within the meaning of
Section 280G of the Code and, but for this Section 5, would be subject to the
excise tax imposed by Section 4999 of the Code, the aggregate amount of such
payments and benefits payable pursuant to this Section 5 shall be reduced such
that the present value thereof (as determined under the Code and the applicable
regulations) is equal to 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Code.
If Employee's employment is terminated by Employee or the Company
for any reason or no reason prior to December 31, 1997, Employee will not be
entitled to receive any severance payments pursuant to this Section 5.
6. Business Combinations. In the event it is determined by the Board,
upon consultation with Company management and the Company's independent
auditors, that the enforcement of any Section of this Agreement, including, but
not limited to, Section 2 hereof, which allows for the acceleration of vesting
of stock options granted for the Company's securities upon the effective date of
a Significant Corporate Event would preclude accounting for any proposed
business combination of the Company involving a Significant Corporate Event as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
Section of this Agreement shall be modified to permit such accounting treatment.
For purposes of this Section 6, the Board's determination shall require the
unanimous approval of the non-employee Board members.
7. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee most recently
communicated to the Company in writing. In the case of the
-3-
<PAGE> 4
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
9. Miscellaneous Provisions
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject matter
dated prior to the date of this Agreement, and by execution of this Agreement
both parties agree that any such predecessor agreement shall be deemed null and
void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Washington without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
-4-
<PAGE> 5
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
CELLPRO, INCORPORATED RICHARD MURDOCK
By: /s/ Joshua L. Green By: /s/ Richard Murdock
-------------------- -------------------
Title: Secretary
-5-
<PAGE> 1
AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of September 5, 1997, by and between Larry Culver (the "Employee") and CellPro,
Incorporated, a Delaware corporation (the "Company").
R E C I T A L S
A. The future and viability of the Company is uncertain and
substantially dependent upon Employee and other key employees continuing
employment with the Company and successfully completing one or more transactions
that give the Company a viable business in the future. The Board recognizes that
such instability may cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication of the Employee, notwithstanding the possibility or occurrence of
adverse events to the Company.
B. The Board believes that it is imperative to provide the Employee with
certain incentives to remain with the Company and to pursue one or more
transactions that will result in increased stability and business opportunity
for the Company.
C. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
D. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (a) immediately following termination of
Employee's employment with the Company, or (b) September 30, 2000. A termination
of the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement
including, but not limited to severance benefits payable pursuant to Section 5.
2. Stock Options. In the event of a Significant Corporate Event and
regardless of whether the Employee's employment with the Company is terminated
in connection with the
-1-
<PAGE> 2
Significant Corporate Event, each stock option exercisable for the Company's
Common Stock held by Employee that is subject to the terms of an Option
Agreement that has a vesting provision granted to Employee (the "Stock Options")
shall become immediately vested immediately prior to the effectiveness of the
Significant Corporate Event, and shall be exercisable in full in accordance with
the provisions of the Option Agreement and Plan pursuant to which such option
was granted.
3. Compensation. Upon the effective date of a Significant Corporate
Event, Employee shall be paid cash compensation equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Significant Corporate Event. "Significant Corporate
Event" shall mean the occurrence of any of the following events:
(i) Sale/Issuance of Securities. Any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended) acquires, directly or indirectly, securities of the Company
representing twenty percent (20%) or more of the total equity interests of the
Company.
(ii) Merger. A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) Sale of Assets. The closing of the sale or
disposition of assets of the Company approved by the Board of Directors, based
on the Board of Director's determination that such sale or disposition is in the
best interests of the Company and its stockholders, representing (A) at least
twenty percent (20%) of the Company's total assets, (B) a value of at least
$20,000,000 or (C) all or substantially all of the tangible assets directly
related to the manufacture or sale of the Company's CEPRATE(R) Products.
5. Severance. If Employee's employment is terminated by Employee or the
Company for any reason or no reason after December 31, 1997, Employee will be
entitled to receive on the effective date of termination of Employee's
employment (the "Termination Date"), cash compensation equal to six (6) months
of Employee's base salary (the "Initial Severance Payment"). In addition to the
Initial Severance Payment, on the Termination Date, the Company will deposit an
amount equal to six (6) months of Employee's base salary in escrow (the "Escrow
Deposit") with a financial institution pursuant to an escrow agreement in form
reasonably acceptable to Employee and the Company. If Employee has not obtained
new employment within the six (6) month period immediately following the
Termination Date, then
-2-
<PAGE> 3
the Escrow Agent will distribute to Employee monthly, commencing on the seventh
(7th) month anniversary of the Termination Date and ending on the twelfth (12th)
month anniversary of the Termination Date (the "Subsequent Payment Period") an
amount equal to one-sixth (1/6th) of the Escrow Deposit (the "Subsequent
Severance Payments"); provided, that the Subsequent Severance Payments shall be
reduced, on a dollar for dollar basis, to the extent Employee receives
compensation for services rendered to another person or entity during the
Subsequent Payment Period (the "Offset Amounts"). The Offset Amounts, if any,
shall be distributed by the Escrow Agent to the Company. Notwithstanding the
foregoing, in the event that the severance and other benefits provided for in
this Agreement to Employee constitute "parachute payments" within the meaning of
Section 280G of the Code and, but for this Section 5, would be subject to the
excise tax imposed by Section 4999 of the Code, the aggregate amount of such
payments and benefits payable pursuant to this Section 5 shall be reduced such
that the present value thereof (as determined under the Code and the applicable
regulations) is equal to 2.99 times the Employee's "base amount" as defined in
Section 280G(b)(3) of the Code.
If Employee's employment is terminated by Employee or the Company
for any reason or no reason prior to December 31, 1997, Employee will not be
entitled to receive any severance payments pursuant to this Section 5.
6. Business Combinations. In the event it is determined by the Board,
upon consultation with Company management and the Company's independent
auditors, that the enforcement of any Section of this Agreement, including, but
not limited to, Section 2 hereof, which allows for the acceleration of vesting
of stock options granted for the Company's securities upon the effective date of
a Significant Corporate Event would preclude accounting for any proposed
business combination of the Company involving a Significant Corporate Event as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
Section of this Agreement shall be modified to permit such accounting treatment.
For purposes of this Section 6, the Board's determination shall require the
unanimous approval of the non-employee Board members.
7. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
8. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee most recently
communicated to the Company in writing. In the case of the
-3-
<PAGE> 4
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
9. Miscellaneous Provisions
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject matter
dated prior to the date of this Agreement, and by execution of this Agreement
both parties agree that any such predecessor agreement shall be deemed null and
void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Washington without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
-4-
<PAGE> 5
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
CELLPRO, INCORPORATED LARRY CULVER
By: /s/ Joshua L. Green By: /s/ Larry Culver
--------------------- -------------------
Title: Secretary
-5-
<PAGE> 1
AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of September 5, 1997, by and between Joe Tarnowski (the "Employee") and CellPro,
Incorporated, a Delaware corporation (the "Company").
R E C I T A L S
A. The future and viability of the Company is uncertain and
substantially dependent upon Employee and other key employees continuing
employment with the Company and successfully completing one or more transactions
that give the Company a viable business in the future. The Board recognizes that
such instability may cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication of the Employee, notwithstanding the possibility or occurrence of
adverse events to the Company.
B. The Board believes that it is imperative to provide the Employee with
certain incentives to remain with the Company and to pursue one or more
transactions that will result in increased stability and business opportunity
for the Company.
C. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
D. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (a) immediately following termination of
Employee's employment with the Company, or (b) September 30, 2000. A termination
of the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
2. Stock Options. In the event of a Significant Corporate Event and
regardless of whether the Employee's employment with the Company is terminated
in connection with the Significant Corporate Event, each stock option
exercisable for the Company's Common Stock held by Employee that is subject to
the terms of an Option Agreement that has a vesting
1
<PAGE> 2
provision granted to Employee (the "Stock Options") shall become immediately
vested immediately prior to the effectiveness of the Significant Corporate
Event, and shall be exercisable in full in accordance with the provisions of the
Option Agreement and Plan pursuant to which such option was granted.
3. Compensation. Upon the effective date of a Significant Corporate
Event, Employee shall be paid cash compensation equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Significant Corporate Event. "Significant Corporate
Event" shall mean the occurrence of any of the following events:
(i) Sale/Issuance of Securities. Any "person"
(as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended) acquires, directly or indirectly, securities of the Company
representing twenty percent (20%) or more of the total equity interests of the
Company.
(ii) Merger. A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) Sale of Assets. The closing of the sale or
disposition of assets of the Company approved by the Board of Directors, based
on the Board of Director's determination that such sale or disposition is in the
best interests of the Company and its stockholders, representing (A) at least
twenty percent (20%) of the Company's total assets, (B) a value of at least
$20,000,000 or (C) all or substantially all of the tangible assets directly
related to the manufacture or sale of the Company's CEPRATE(R) Products.
5. Business Combinations. In the event it is determined by the Board,
upon consultation with Company management and the Company's independent
auditors, that the enforcement of any Section of this Agreement, including, but
not limited to, Section 2 hereof, which allows for the acceleration of vesting
of stock options granted for the Company's securities upon the effective date of
a Significant Corporate Event would preclude accounting for any proposed
business combination of the Company involving a Significant Corporate Event as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
Section of this Agreement shall be modified to permit such accounting treatment.
For purposes of this Section 5, the Board's determination shall require the
unanimous approval of the non-employee Board members.
2
<PAGE> 3
6. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
8. Miscellaneous Provisions
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject matter
dated prior to the date of this Agreement, and by execution of this Agreement
both parties agree that any such predecessor agreement shall be deemed null and
void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Washington without reference to conflict of laws provisions.
(e) Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to
3
<PAGE> 4
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
CELLPRO, INCORPORATED JOE TARNOWSKI
By: /s/ Joshua L. Green By: /s/ Joe Tarnowski
---------------------------------- -------------------------------
Title: Secretary
4
<PAGE> 1
AGREEMENT
This Agreement (the "Agreement") is made and entered into effective as
of September 5, 1997, by and between Cindy Jacobs (the "Employee") and CellPro,
Incorporated, a Delaware corporation (the "Company").
R E C I T A L S
A. The future and viability of the Company is uncertain and
substantially dependent upon Employee and other key employees continuing
employment with the Company and successfully completing one or more transactions
that give the Company a viable business in the future. The Board recognizes that
such instability may cause the Employee to consider alternative employment
opportunities. The Board has determined that it is in the best interests of the
Company and its stockholders to assure that the Company will have the continued
dedication of the Employee, notwithstanding the possibility or occurrence of
adverse events to the Company.
B. The Board believes that it is imperative to provide the Employee with
certain incentives to remain with the Company and to pursue one or more
transactions that will result in increased stability and business opportunity
for the Company.
C. To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.
D. Certain capitalized terms used in the Agreement are defined in
Section 4 below.
In consideration of the mutual covenants herein contained, and in
consideration of the continuing employment of Employee by the Company, the
parties agree as follows:
1. At-Will Employment. The Company and the Employee acknowledge that the
Employee's employment is and shall continue to be at-will, as defined under
applicable law. If the Employee's employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans and
written policies at the time of termination. The terms of this Agreement shall
terminate upon the earlier of (a) immediately following termination of
Employee's employment with the Company, or (b) September 30, 2000. A termination
of the terms of this Agreement pursuant to the preceding sentence shall be
effective for all purposes, except that such termination shall not affect the
payment or provision of compensation or benefits on account of a termination of
employment occurring prior to the termination of the terms of this Agreement.
2. Stock Options. In the event of a Significant Corporate Event and
regardless of whether the Employee's employment with the Company is terminated
in connection with the Significant Corporate Event, each stock option
exercisable for the Company's Common Stock
-1-
<PAGE> 2
held by Employee that is subject to the terms of an Option Agreement that has a
vesting provision granted to Employee (the "Stock Options") shall become
immediately vested immediately prior to the effectiveness of the Significant
Corporate Event, and shall be exercisable in full in accordance with the
provisions of the Option Agreement and Plan pursuant to which such option was
granted.
3. Compensation. Upon the effective date of a Significant Corporate
Event, Employee shall be paid cash compensation equal to 2.99 times the
Employee's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code").
4. Definition of Terms. The following terms referred to in this
Agreement shall have the following meanings:
(a) Significant Corporate Event. "Significant Corporate
Event" shall mean the occurrence of any of the following events:
(i) Sale/Issuance of Securities. Any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended) acquires, directly or indirectly, securities of the Company
representing twenty percent (20%) or more of the total equity interests of the
Company.
(ii) Merger. A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation; or
(iii) Sale of Assets. The closing of the sale or
disposition of assets of the Company approved by the Board of Directors, based
on the Board of Director's determination that such sale or disposition is in the
best interests of the Company and its stockholders, representing (A) at least
twenty percent (20%) of the Company's total assets, (B) a value of at least
$20,000,000 or (C) all or substantially all of the tangible assets directly
related to the manufacture or sale of the Company's CEPRATE(R) Products.
5. Business Combinations. In the event it is determined by the Board,
upon consultation with Company management and the Company's independent
auditors, that the enforcement of any Section of this Agreement, including, but
not limited to, Section 2 hereof, which allows for the acceleration of vesting
of stock options granted for the Company's securities upon the effective date of
a Significant Corporate Event would preclude accounting for any proposed
business combination of the Company involving a Significant Corporate Event as a
pooling of interests, and the Board otherwise desires to approve such a proposed
business transaction which requires as a condition to the closing of such
transaction that it be accounted for as a pooling of interests, then any such
Section of this Agreement shall be modified to permit
-2-
<PAGE> 3
such accounting treatment. For purposes of this Section 5, the Board's
determination shall require the unanimous approval of the non-employee Board
members.
6. Successors. Any successor to the Company (whether direct or indirect
and whether by purchase, lease, merger, consolidation, liquidation or otherwise)
to all or substantially all of the Company's business and/or assets shall assume
the obligations under this Agreement and agree expressly to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of the Employee's rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
7. Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. Mailed notices to the Employee shall be
addressed to the Employee at the home address which the Employee most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
8. Miscellaneous Provisions
(a) No Duty to Mitigate. The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified,
waived or discharged unless the modification, waiver or discharge is agreed to
in writing and signed by the Employee and by an authorized officer of the
Company (other than the Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(c) Whole Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement
supersedes any agreement of the same title and concerning similar subject matter
dated prior to the date of this Agreement, and by execution of this Agreement
both parties agree that any such predecessor agreement shall be deemed null and
void.
(d) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Washington without reference to conflict of laws provisions.
-3-
<PAGE> 4
(e) Severability. If any term or provision of this Agreement or
the application thereof to any circumstance shall, in any jurisdiction and to
any extent, be invalid or unenforceable, such term or provision shall be
ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
terms and provisions of this Agreement or the application of such terms and
provisions to circumstances other than those as to which it is held invalid or
unenforceable, and a suitable and equitable term or provision shall be
substituted therefor to carry out, insofar as may be valid and enforceable, the
intent and purpose of the invalid or unenforceable term or provision.
(f) No Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor's process, and any action in violation of this subsection (f) shall be
void.
(g) Employment Taxes. All payments made pursuant to this
Agreement will be subject to withholding of applicable income and employment
taxes.
(h) Assignment by Company. The Company may assign its rights
under this Agreement to an affiliate, and an affiliate may assign its rights
under this Agreement to another affiliate of the Company or to the Company;
provided, however, that no assignment shall be made if the net worth of the
assignee is less than the net worth of the Company at the time of assignment. In
the case of any such assignment, the term "Company" when used in a section of
this Agreement shall mean the corporation that actually employs the Employee.
(i) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in
the case of the Company by its duly authorized officer, as of the day and year
first above written.
CELLPRO, INCORPORATED CINDY JACOBS
By: /s/ Joshua L. Green By: /s/ Cindy Jacobs
-------------------------- ---------------------------
Title: Secretary
-4-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 12,463
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0
0
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</TABLE>
