<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19529
ALTEON INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3304550
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
170 WILLIAMS DRIVE, RAMSEY, NEW JERSEY 07446
(Address of principal executive offices)
(Zip Code)
(201) 934-5000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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 [ ]
On April 28, 2000, 19,342,973 shares of Registrant's Common Stock were
outstanding.
Page 1 of 16 pages
The Exhibit Index is on page 16
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALTEON INC.
BALANCE SHEET
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................. $ 10,040,411 $ 5,335,529
Short-term investments .................................................... -- 7,034,258
Other current assets ...................................................... 281,674 248,983
------------- -------------
Total current assets .................................................... 10,322,085 12,618,770
Property and equipment, net ............................................... 2,254,017 2,399,305
Deposits and other assets ................................................. 2,815 2,815
------------- -------------
Total assets ............................................................ $ 12,578,917 $ 15,020,890
============= =============
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts payable .......................................................... $ 218,591 $ 431,000
Accrued expenses .......................................................... 1,869,634 1,763,202
------------- -------------
Total current liabilities ............................................... 2,088,225 2,194,202
------------- -------------
Stockholders' Equity:
Preferred Stock, $0.01 par value,
1,993,329 shares authorized, and 857 and 839
of Series G and 2,572 and 2,518 of Series H shares
issued and outstanding, as of March 31, 2000 and
December 31, 1999, respectively ......................................... 34 34
Common Stock, $0.01 par value,
40,000,000 shares authorized, and 19,323,831 and
19,189,701 shares issued and outstanding, as of
March 31, 2000 and December 31, 1999, respectively ...................... 193,238 191,897
Additional paid-in capital ................................................ 135,099,221 134,129,513
Accumulated deficit ....................................................... (124,801,486) (121,496,049)
Unrealized other comprehensive (loss)/income .............................. (315) 1,293
------------- -------------
Total stockholders' equity .............................................. 10,490,692 12,826,688
------------- -------------
Total liabilities and stockholders' equity ................................... $ 12,578,917 $ 15,020,890
============= =============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 3
ALTEON INC.
STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Investment income ....................................... $ 166,136 $ 278,310
Expenses:
Research and development ............................. 1,667,489 4,529,692
General and administrative ........................... 1,094,679 1,093,435
------------ ------------
Total expenses .................................... 2,762,168 5,623,127
------------ ------------
Net loss ................................................ $ (2,596,032) $ (5,344,817)
------------ ------------
Preferred stock dividends and discount amortization .. 709,405 646,778
------------ ------------
Net loss applicable to common stockholders .............. $ (3,305,437) $ (5,991,595)
============ ============
Basic loss per share to common stockholders ............. $ (0.17) $ (0.32)
============ ============
Diluted loss per share to common stockholders ........... $ (0.17) $ (0.32)
============ ============
Weighted average common shares used in computing
basic and diluted loss per share ..................... 19,231,129 18,868,948
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 4
ALTEON INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
2000 1999
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss ........................................................... $ (2,596,032) $ (5,344,817)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization ...................................... 205,808 173,362
Amortization of deferred compensation .............................. 129,228 75,664
Changes in operating assets and liabilities:
Other current assets ............................................... (32,692) (32,867)
Other assets ....................................................... -- (4,948)
Accounts payable and accrued expenses .............................. (105,978) 302,177
------------ ------------
Net cash used in operating activities ............................ (2,399,666) (4,831,429)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures ............................................... (60,519) (17,124)
Purchases of marketable securities ................................. (2,850,608) (20,989,829)
Sales and maturities of marketable securities ...................... 9,883,257 22,304,603
------------ ------------
Net cash provided by investing activities ........................ 6,972,130 1,297,650
------------ ------------
Net Cash Flows From Financing Activities:
Proceeds from issuance of common stock ............................. 132,418 22,176
------------ ------------
Net increase/(decrease) in cash and cash equivalents .................. 4,704,881 (3,511,603)
Cash and cash equivalents, beginning of period ........................ 5,335,529 10,839,586
------------ ------------
Cash and cash equivalents, end of period .............................. $ 10,040,411 $ 7,327,983
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
4
<PAGE> 5
ALTEON INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 31, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
NOTE 2 - CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash and cash equivalents include highly liquid investments which have
a maturity of less than three months at the time of purchase. Short-term
investments are recorded at fair market value.
NOTE 3 - NET LOSS PER SHARE
Basic loss per share is based on the average numbers of shares
outstanding during the year. Diluted loss per share is the same as basic loss
per share, as the inclusion of common stock equivalents would be antidilutive.
NOTE 4 - COMPREHENSIVE INCOME
The following sets forth comprehensive income as required by SFAS 130
for the periods ended March 31, 2000 and 1999 (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Net Loss...................................... $(2,596) $(5,345)
Net Unrealized Loss on Marketable Securities.. -- (4)
------- -------
Comprehensive Loss............................ $(2,596) $(5,349)
======= =======
</TABLE>
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Since its inception in October 1986, Alteon has devoted substantially
all of its resources to its research, drug discovery and development programs.
To date, Alteon has not generated any revenues from the sale of products and
does not expect to generate any such revenues for several years, if at all.
Alteon has incurred an accumulated deficit of $124,801,486 as of March 31, 2000,
and expects to incur operating losses, potentially greater than losses in prior
years, for a number of years.
Alteon has financed its operations through proceeds from an initial
public offering of Common Stock in 1991, a follow-on offering of Common Stock
completed in 1995, private placements of common and preferred equity securities,
revenue from present and former collaborative relationships, reimbursement of
certain of Alteon's research and development expenses by its collaborative
partners, investment income earned on cash balances and short-term investments
and the sale of its New Jersey State Net Operating Losses ("NOLs")
carryforwards.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-Formation Inhibitors. Pursuant to the stock purchase agreement, Genentech
purchased Common Stock, Series G Preferred Stock and Series H Preferred Stock
for an aggregate purchase price of $37,544,000. Genentech's obligations to
purchase shares of Alteon's stock terminated December 31, 1998. Pursuant to a
letter agreement dated February 11, 1999, between Alteon and Genentech, the
development collaboration and license agreement terminated effective June 30,
1999.
In December 1999, Alteon sold $27.7 million of its gross state net
operating loss carryforwards and $645,000 of its state research and development
tax credit carryforwards under the State of New Jersey's Technology Business Tax
Certificate Transfer Program (the "Program"). The Program allowed qualified
technology and biotechnology business in New Jersey to sell unused amounts of
net operating loss carryforwards and defined research and development tax
credits for cash. The total tax value sold was $3,137,000, and the total
proceeds received by the Company were $2,588,210, which was recorded as a tax
benefit in the statement of operations.
The Company's business is subject to significant risks including, but
not limited to, (i) its ability to obtain funding, (ii) the risks inherent in
its research and development efforts, including clinical trials, (iii)
uncertainties associated both with obtaining and enforcing its patents and with
the patent rights of others, (iv) the lengthy, expensive and uncertain process
of seeking regulatory approvals, (v) uncertainties regarding government reforms
and product pricing and reimbursement levels, (vi) technological change and
competition, (vii) manufacturing uncertainties, and (viii) dependence on
collaborative partners and other third parties. Even if the Company's product
candidates appear promising at an early stage of development, they may not reach
the market for numerous reasons. Such reasons include the possibilities that the
products will prove ineffective or unsafe during clinical trials, will fail to
receive necessary regulatory approvals, will be difficult to manufacture on a
large scale, will be uneconomical to market or will be precluded from
commercialization by proprietary rights of third parties.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Total revenues for the three months ended March 31, 2000, and the three
months ended March 31, 1999, were $166,000 and $278,000, respectively. Revenues
were derived from interest earned on cash and cash equivalents and short-term
investments. The 40.3% decrease in investment income was attributable to the
decrease in cash, cash equivalents and short-term investment balances.
The Company's total expenses decreased to $2,762,000 for the three
months ended March 31, 2000, from $5,623,000 for the three months ended March
31, 1999, and consisted primarily of research and development expenses. Research
and development expenses were $1,667,000 for the three months ended March 31,
2000, and $4,530,000 for the three months ended March 31, 1999, a 63.2%
decrease. This decrease was primarily due to decreased expenses related to the
clinical trial costs.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
General and administrative expenses remained constant for the three
months ended March 31, 2000 in comparison to the same period in 1999.
The Company's net loss applicable to common stockholders decreased to
$3,305,000 for the three months ended March 31, 2000, from $5,992,000 in the
same period in 1999, a decrease of 44.8%. This was primarily a result of
decreased research and development expenses offset by decreased investment
income and increased preferred stock dividends. Included in the net loss
applicable to common stockholders are preferred stock dividends of approximately
$709,000 and $647,000 for the 3 months ended March 31, 2000 and 1999,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
Alteon had cash, cash equivalents and short-term investments at March
31, 2000, of $10,040,000 compared to $12,370,000 at December 31, 1999. This is a
decrease in cash, cash equivalents and short-term investments for the three
months ended March 31, 2000, of $2,330,000. This consisted of $2,400,000 of cash
used in operations consisting primarily of research and development expenses,
personnel and related costs and facility expenses and $61,000 of capital
expenditures. This was offset by $132,000 of financing activities related to
proceeds from stock option exercises. As of March 31, 2000, Alteon had invested
$7,578,000 in capital equipment and leasehold improvements.
In December 1999, Alteon sold $3,137,000 of its NOLs under the State of
New Jersey's Technology Business Tax Certificate Transfer Program (the
"Program"), and the total proceeds received by the Company were $2,588,210. The
Program allows qualified technology and biotechnology businesses in New Jersey
to sell unused amounts of NOLs and defined research and development tax credits
for cash.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2001.
In December 1997, Alteon and Genentech entered into a stock purchase
agreement and a development collaboration and license agreement providing for
the development and marketing of pimagedine and second-generation
A.G.E.-Formation Inhibitors. Pursuant to the stock purchase agreement, Genentech
purchased Common Stock, Series G Preferred Stock and Series H Preferred Stock
for an aggregate purchase price of $37,544,000. Genentech's obligations to
purchase shares of Alteon's stock terminated December 31, 1998. Pursuant to a
letter agreement dated February 11, 1999, between Alteon and Genentech, the
development collaboration and license agreement terminated effective June 30,
1999.
The amount of the Company's future capital requirements will depend on
numerous factors, including the progress of the Company's research and
development programs, the conduct of pre-clinical tests and clinical trials, the
development of regulatory submissions, the costs associated with protecting
patents and other proprietary rights, the development of marketing and sales
capabilities and the availability of third-party funding.
Because of the Company's long-term capital requirements, it may seek
access to the public or private equity markets whenever conditions are
favorable. The Company may also seek additional funding through corporate
collaborations and other financing vehicles, potentially including off-balance
sheet financing through limited partnerships or corporations. There can be no
assurance that such funding will be available at all or on terms acceptable to
the Company. If adequate funds are not available, the Company may be required to
curtail significantly one or more of its research or development programs. If
the Company obtains funds through arrangements with collaborative partners or
others, it may be required to relinquish rights to certain of its technologies
or product candidates.
The Company's current priorities are the evaluation and possible
continued development of ALT-711, its lead A.G.E. Crosslink Breaker candidate,
and the continued development of pimagedine. The Company is focusing its
resources on the development of ALT-711 and is actively seeking one or more
corporate partners to help fund further development. After consultation with the
FDA, the Company has also decided to continue the development of pimagedine and
is actively seeking one or more corporate partners to provide necessary funding.
The Company believes that additional development of this compound and other
product candidates will require the Company to find sources of funding.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Effective with the close of business on December 10, 1999, the
Company's Common Stock was delisted from the NASDAQ Stock Market because it did
not satisfy the $1.00 per share minimum bid price required for listing on the
NASDAQ Stock Market. Effective December 13, 1999, the Common Stock has been
traded on the Over-the-Counter-Bulletin-Board ("OTCBB"). The delisting from the
NASDAQ Stock Market could have a material adverse effect on the Company's
ability to raise capital on favorable terms.
The Company initiated a program to assess the risks of year 2000
compliance, remediate all non-compliant systems and to assess the readiness of
key third parties. The critical aspects of the year 2000 readiness program were
completed in the third quarter of 1999. The Company has not experienced any
significant business disruptions related to the transition to the year 2000.
Total costs to address the year 2000 issue were not material to the Company's
financial position, results of operations or cash flows.
In January 2000 and March 2000, the Company completed a downsizing of
its associates. The Company undertook the downsizing to reduce operating
expenses in order to preserve its existing capital resources for research and
development programs.
Statements in this Form 10-Q that are not statements or descriptions of
historical facts are "forward-looking" statements under Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995 and are subject to numerous risks and
uncertainties. These forward-looking statements and other forward-looking
statements made by the Company or its representatives are based on a number of
assumptions. The words "believes," "expects," "anticipates," "intends,"
"estimates" or other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements as they involve risks and uncertainties, and
actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth in this section and elsewhere in,
or incorporated by reference into, this Form 10-Q. These factors include, but
are not limited to, the risks set forth below. The forward-looking statements
represent the Company's judgment and expectations as of the date of this Report.
The Company assumes no obligation to update any such forward-looking statements.
Alteon may not be able to obtain sufficient additional funding to meet its
needs or to allow it to continue the research, product development, pre-clinical
testing and clinical trials of its product candidates.
Alteon anticipates that its existing available cash and cash
equivalents and short-term investments will be adequate to satisfy its working
capital requirements for its current and planned operations into 2001. Alteon
will require substantial new funding in order to continue the research, product
development, pre-clinical testing and clinical trials of its product candidates,
including ALT-711 and pimagedine. The Company will also require additional
funding for operating expenses, the pursuit of regulatory approvals for its
product candidates and the establishment of marketing and sales capabilities.
The Company's future capital requirements will depend on many factors, including
continued scientific progress in its research and development programs, the size
and complexity of these programs, progress with pre-clinical testing and
clinical trials, the time and costs involved in obtaining regulatory approvals,
the costs involved in filing, prosecuting and enforcing patent claims, competing
technological and market developments, the establishment of additional
collaborative arrangements, the cost of manufacturing arrangements,
commercialization activities, and the cost of product in-licensing and strategic
acquisitions, if any. There can be no assurance that the Company's cash reserves
and other liquid assets, including funding that may be received from the
Company's corporate partners and equity sales and interest income earned
thereon, will be adequate to satisfy its capital and operating requirements.
Alteon intends to seek funding initially through arrangements with
corporate collaborators. It may in the future seek funding through public or
private sales of the Company's securities, including equity securities, when and
if conditions permit. In addition, the Company may pursue opportunities to
obtain debt financing, including capital leases, in the future. There can be no
assurance, however, that additional funding will be available on reasonable
terms, if at all. Any additional equity financing would be dilutive to the
Company's stockholders. If adequate funds are not available, Alteon may be
required to curtail significantly or eliminate one or more of its research and
development programs. If Alteon obtains funds through arrangements with
collaborative partners or others, it may be required to relinquish rights to
certain of its technologies or product candidates.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon may not successfully develop or derive revenues from any products.
All of the Company's product candidates are in the research or
development stage, and all revenues to date have been generated from
collaborative research agreements and financing activities, or interest income
earned on these funds. No revenues have been generated from product sales. There
can be no assurance that product revenues can be realized on a timely basis, if
at all.
Alteon has not yet requested or received regulatory approval for any
product from the FDA or any other regulatory body. Before obtaining regulatory
approvals for the commercial sale of any of its products under development, the
Company must demonstrate through pre-clinical studies and clinical trials that
the product is safe and effective for use in each target indication. The results
from pre-clinical studies and early clinical trials may not be predictive of
results that will be obtained in large-scale testing, and there can be no
assurance that any clinical trials undertaken by the Company will demonstrate
sufficient safety and efficacy to obtain the requisite regulatory approvals or
will result in marketable products.
There can be no assurance that Alteon will succeed in the development
and marketing of any therapeutic or diagnostic product. To achieve profitable
operations, the Company must, alone or with others, successfully identify,
develop, introduce and market proprietary products. Such products will require
significant additional investment, development and pre-clinical and clinical
testing prior to potential regulatory approval and commercialization.
The development of new pharmaceutical products is highly uncertain and
subject to a number of significant risks. Potential products that appear to be
promising at early stages of development may not reach the market for a number
of reasons. Potential products may be found ineffective or cause harmful side
effects during pre-clinical testing or clinical trials, fail to receive
necessary regulatory approvals, be difficult to manufacture on a large scale, be
uneconomical, fail to achieve market acceptance or be precluded from
commercialization by proprietary rights of third parties. There can be no
assurance that the Company will undertake additional clinical trials or that the
Company's product development efforts will be successfully completed, that
required regulatory approvals can be obtained or that any products, if
introduced, will be successfully marketed or achieve customer acceptance.
Commercial availability of any Alteon products, including ALT-711 and
pimagedine, is not expected for a number of years, if at all.
Alteon may never generate profits.
At March 31, 2000, the Company had an accumulated deficit of
$124,801,486. The Company anticipates that it will incur substantial,
potentially greater losses in the future. There can be no assurance that the
Company's products under development will be successfully developed or that its
products, if successfully developed, will generate revenues sufficient to enable
the Company to earn a profit. Alteon expects to incur substantial additional
operating expenses over the next several years as its research, development and
clinical trial activity increases. Alteon does not expect to generate revenues
from the sale of products, if any, for a number of years. The Company's ability
to achieve profitability depends in part on its ability to enter into agreements
for product development, obtain regulatory approval for its products and develop
the capacity, or enter into agreements, for the manufacture, marketing and sale
of any products. There can be no assurance that Alteon will obtain required
regulatory approvals, or successfully develop, manufacture, commercialize and
market product candidates or that the Company will ever achieve product revenues
or profitability.
The Company may not be able to form and maintain collaborative
relationships, which its business strategy requires.
The Company's strategy for development and commercialization of
certain of its products is dependent upon entering into various arrangements
with research collaborators, corporate partners and others and upon the
subsequent success of these third parties in performing their obligations.
Alteon has established collaborative arrangements with Yamanouchi,
Roche, IDEXX and Gamida with respect to the development of drug therapies and
diagnostics utilizing the Company's scientific platforms. Alteon is seeking to
establish new collaborative relationships to provide the funding necessary for
continuation of its product development but there can be no assurance that such
effort will be successful. The Company will be, in some cases,
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
dependent upon these outside partners to conduct pre-clinical testing and
clinical trials and to provide adequate funding for the Company's development
programs. Under certain of these arrangements, the Company's corporate partners
may have all or a significant portion of the development and regulatory approval
responsibilities. Failure of the corporate partners to develop marketable
products or to gain the appropriate regulatory approvals on a timely basis, if
at all, would have a material adverse effect on the Company's business,
financial condition and results of operations.
In most cases, the Company cannot control the amount and timing of
resources that its corporate partners devote to the Company's programs or
potential products. If any of the Company's corporate partners breach or
terminate their agreements with the Company or otherwise fail to conduct their
collaborative activities in a timely manner, the pre-clinical or clinical
development or commercialization of product candidates or research programs will
be delayed, and the Company will be required to devote additional resources to
product development and commercialization or terminate certain development
programs. The termination of collaborative arrangements would have a material
adverse effect on the Company's business, financial condition and results of
operations. There can be no assurance that disputes will not arise in the future
with respect to the ownership of rights to any technology developed with
third-parties. These and other possible disagreements between collaborators and
the Company could lead to delays in the collaborative research, development or
commercialization of certain product candidates or could require or result in
litigation or arbitration, which would be time-consuming and expensive and would
have a material adverse effect on the Company's business, financial condition
and results of operations.
Alteon's corporate partners may develop, either alone or with others,
products that compete with the development and marketing of the Company's
products. Competing products, either developed by the corporate partners or to
which the corporate partners have rights, may result in their withdrawal of
support with respect to all or a portion of the Company's technology, which
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company may not be able to protect the proprietary rights that are
critical to its success.
The Company's success will depend on its ability to obtain patent
protection for its products, preserve its trade secrets, prevent third parties
from infringing upon its proprietary rights and operate without infringing upon
the proprietary rights of others, both in the United States and abroad.
The degree of patent protection afforded to pharmaceutical inventions
is uncertain and the Company's potential products are subject to this
uncertainty. Pimagedine is not a novel compound and is not covered by a
composition-of-matter patent. The patents covering pimagedine are use patents
containing claims covering therapeutic indications and the use of specific
compounds and classes of compounds to inhibit A.G.E. formation. Use patents may
afford a lesser degree of protection in certain foreign countries due to their
patent laws. Competitors may develop and commercialize pimagedine or
pimagedine-like products for indications outside of the protection provided by
the claims of the Company's use patents. Physicians, pharmacies and wholesalers
could then substitute for the Company's pimagedine products. Substitution for
the Company's pimagedine products would have a material adverse effect on the
Company's business, financial condition and results of operations.
ALT-711 is a novel compound protected by a composition-of-matter
patent, and the Company has several patent applications pending to protect
proprietary technology and potential products. There can be no assurance,
however, that these patents will provide any significant protection of the
Company's technology or products, or that the Company will enjoy any patent
protection beyond the expiration dates of its currently issued patents.
There can be no assurance that competitors will not develop
competitive products to pimagedine and/or ALT-711 outside the protection that
may be afforded by the claims of the Company's patents. The Company is aware
that other parties have been issued patents and have filed patent applications
in the United States and foreign countries with respect to other agents, which
impact A.G.E. or A.G.E. crosslink formation.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The Company also relies upon unpatented trade secrets and
improvements, unpatented know-how and continuing technological innovation to
maintain, develop and expand its competitive position, which it seeks to
protect, in part, by confidentiality agreements with its corporate partners,
collaborators, employees and consultants. The Company also has invention or
patent assignment agreements with its employees and certain, but not all,
corporate partners and consultants. There can be no assurance that relevant
inventions will not be developed by a person not bound by an invention
assignment agreement. There can be no assurance that binding agreements will not
be breached, that the Company would have adequate remedies for such breach, or
that the Company's trade secrets will not otherwise become known to or be
independently discovered by competitors.
The Company cannot be certain that regulatory approvals will be obtained
for its products.
Alteon's research, pre-clinical testing and clinical trials of its
product candidates are, and the manufacturing and marketing of its products will
be, subject to extensive and rigorous regulation by numerous governmental
authorities in the United States and in other countries where the Company
intends to test and market its product candidates.
Prior to marketing, any product developed by the Company must undergo
an extensive regulatory approval process. This regulatory process, which
includes pre-clinical testing and clinical trials, and may include
post-marketing surveillance, of each compound to establish its safety and
efficacy, can take many years and can require the expenditure of substantial
resources. Data obtained from pre-clinical and clinical activities are
susceptible to varying interpretations, which could delay, limit or prevent
regulatory approval. In addition, delays or rejections may be encountered based
upon changes in FDA policy for drug approval during the period of product
development and FDA regulatory review of each submitted NDA. Similar delays may
also be encountered in foreign countries.
There can be no assurance that regulatory approval will be obtained
for any drugs developed by the Company. Moreover, regulatory approval may entail
limitations on the indicated uses of the drug. Further, even if regulatory
approval is obtained, a marketed drug and its manufacturer are subject to
continuing review and discovery of previously unknown problems with a product or
manufacturer which may have adverse effects on the Company's business, financial
condition and results of operations, including withdrawal of the product from
the market. Violations of regulatory requirements at any stage, including
pre-clinical testing and clinical trials, the approval process or post-approval,
may result in various adverse consequences including the FDA's delay in
approving, or its refusal to approve, a product withdrawal of an approved
product from the market and the imposition of criminal penalties against the
manufacturer and NDA holder. None of the Company's products has been approved
for commercialization in the United States or elsewhere. No assurance can be
given that the Company will be able to obtain FDA approval for any products.
Failure to obtain requisite governmental approvals or failure to obtain
approvals of the scope requested will delay or preclude the Company or its
licensees or marketing partners from marketing the Company's products or limit
the commercial use of such products and will have a material adverse effect on
the Company's business, financial condition and results of operations.
There is intense competition for cures and therapies for diabetes,
cardiovascular diseases and the other conditions for which the Company seeks to
develop products.
The Company is engaged in pharmaceutical fields characterized by
extensive research efforts and rapid technological progress. Many established
pharmaceutical and biotechnology companies with resources greater than those of
the Company are attempting to develop products that would be competitive with
the Company's products. Other companies may succeed in developing products that
are safer, more efficacious or less costly than any that may be developed by
Alteon and may be more successful than Alteon in production and marketing. Rapid
technological development by others may result in the Company's products
becoming obsolete before the Company recovers a significant portion of the
research, development or commercialization expenses incurred with respect to
those products.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Certain technologies under development by other pharmaceutical
companies could result in a cure for diabetes or the reduction of the incidence
of diabetes and its complications. For example, a number of companies are
investigating islet cell transplantation as a possible cure for Type I diabetes.
Results of a study conducted by the National Institutes of Health, known as the
DCCT, published in 1993, showed that tight glucose control reduced the incidence
of diabetic complications. Numerous companies are pursuing methods to control
glucose levels. In addition, several large companies have initiated or expanded
research, development and licensing efforts to build a diabetic pharmaceutical
franchise focusing on diabetic nephropathy, neuropathy, retinopathy and related
conditions. An example of this is research seeking anti-angiogenesis drugs for
the potential treatment of diabetic retinopathy. Furthermore, the Company is
aware of several pharmaceutical companies that are developing and marketing
thiazolidinedione derivatives ("glitazones") for the treatment of Type II
diabetes. It is possible that one or more of these initiatives may reduce or
eliminate the market for some of the Company's products.
In addition, a broad range of cardiovascular drugs is under
development by many pharmaceutical and biotechnology companies. It is possible
that one or more of these initiatives may reduce or eliminate the market for
some of the Company's products.
Efforts to reduce healthcare costs may affect our operations.
The Company's business, financial condition and results of operations
may be materially adversely affected by the continuing efforts of government and
third-party payers to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing and/or profitability of
prescription pharmaceuticals are subject to government control. In the United
States, the Company expects that there will continue to be federal and state
initiatives to control and/or reduce pharmaceutical expenditures. In addition,
increasing emphasis on managed care in the United States will continue to put
pressure on pharmaceutical pricing. Cost control initiatives could decrease the
price that the Company receives for any products it may develop and sell in the
future and have a material adverse effect on the Company's business, financial
condition and results of operations. Further, to the extent that cost control
initiatives have a material adverse effect on the Company's corporate partners,
the Company's ability to commercialize its products may be adversely affected.
The Company's ability to commercialize pharmaceutical products may
depend in part on the extent to which reimbursement for the products will be
available from government health administration authorities, private health
insurers and other third-party payers. Significant uncertainty exists as to the
reimbursement status of newly approved health care products, and third-party
payers, including Medicare, are increasingly challenging the prices charged for
medical products and services. There can be no assurance that any third-party
insurance coverage will be available to patients for any products developed by
the Company. Government and other third-party payers are increasingly attempting
to contain health care costs by limiting both coverage and the level of
reimbursement for new therapeutic products and by refusing in some cases to
provide coverage for uses of approved products for disease indications for which
the FDA has not granted labeling approval. If adequate coverage and
reimbursement levels were not provided by government and other third-party
payers for the Company's products, the market acceptance of these products would
be adversely affected.
Alteon has no experience in marketing or sales and may have to rely on
others to market and sell any products the Company may development.
For certain of its products, the Company has licensed exclusive
marketing rights to its corporate partners or formed collaborative marketing
arrangements within specified territories in return for royalties to be received
on sales, a share of profits or beneficial transfer pricing. These agreements
are terminable at the discretion of the Company's partners upon as little as 90
days' prior written notice. If the licensee or marketing partner terminates an
agreement or fails to market a product successfully, the Company's business,
financial condition and results of operations may be adversely affected.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon currently has no experience in marketing or selling
pharmaceutical products. In order to achieve commercial success for any approved
product, Alteon must either develop a marketing and sales force or, where
appropriate or permissible, enter into arrangements with third parties to market
and sell its products. There can be no assurance that Alteon will develop
successfully marketing and sales experience or that it will be able to enter
into marketing and sales agreements with others on acceptable terms, if at all,
or that any such arrangements, if entered into, will not be terminated. If the
Company develops its own marketing and sales capability, it will compete with
other companies that currently have experienced, well funded and larger
marketing and sales operations. To the extent that the Company enters into
co-promotion or other sales and marketing arrangements with other companies, any
revenues to be received by Alteon will be dependent on the efforts of others,
and there can be no assurance that their efforts will be successful.
Alteon has no experience in manufacturing products and may have to rely on
others to manufacture any products the Company may develop.
The Company has no experience in manufacturing products for commercial
purposes and does not have manufacturing facilities. Consequently, the Company
is dependent on contract manufacturers for the production of products for
development and commercial purposes. The manufacture of the Company's products
for clinical trials and commercial purposes is subject to cGMP regulations
promulgated by the FDA. The Company has contracted or will be contracting with
third parties for the manufacture and distribution of ALT-711 and pimagedine.
However, in the event that the Company is unable to obtain or retain third-party
manufacturing for its products, it will not be able to proceed with clinical
trials or commercialize such products as planned. There can be no assurance that
the Company will be able to enter into agreements for the manufacture of future
products with manufacturers whose facilities and procedures comply with cGMP and
other regulatory requirements. The Company's current dependence upon others for
the manufacture of its products may adversely affect its profit margin, if any,
on the sale of future products and the Company's ability to develop and deliver
such products on a timely and competitive basis.
Use of any products the Company develops may result in liability claims.
The use of any of the Company's potential products in clinical trials
and the sale of any approved products, including the testing and
commercialization of ALT-711 or pimagedine, may expose the Company to liability
claims resulting from the use of products or product candidates. These claims
might be made directly by consumers, pharmaceutical companies or others. The
Company maintains product liability insurance coverage for claims arising from
the use of its products in clinical trials. However no assurance can be given
that the Company will be able to maintain insurance or, if maintained, that
insurance can be acquired at a reasonable cost or in sufficient amounts to
protect the Company against losses due to liability that could have a material
adverse effect on the Company's business, financial conditions and results of
operations. There can be no assurance that the Company will be able to obtain
commercially reasonable product liability insurance for any product approved for
marketing in the future or that insurance coverage and the resources of the
Company would be sufficient to satisfy any liability resulting from product
liability claims. A successful product liability claim or series of claims
brought against the Company could have a material adverse effect on its
business, financial condition and results of operations.
Alteon may be unable to attract and retain the key personnel on whom its
success depends.
The Company is highly dependent on the principal members of its
management and scientific staff. The loss of services of any of these personnel
could impede the achievement of the Company's development objectives.
Furthermore, recruiting and retaining qualified scientific personnel to perform
research and development work in the future will also be critical to the
Company's success. There can be no assurance that the Company will be able to
attract and retain personnel on acceptable terms given the competition between
pharmaceutical and health care companies, universities and non-profit research
institutions for experienced scientists. In addition, the Company relies on
consultants to assist the Company in formulating its research and development
strategy. All of Alteon's consultants are employed outside the Company and may
have commitments to or consulting or advisory contracts with other entities that
may limit their availability to the Company.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Alteon's operations involve a risk of injury or damage from hazardous
materials.
The Company's research and development activities involve the
controlled use of hazardous materials, chemicals and various radioactive
compounds. Although the Company believes that its safety procedures for handling
and disposing of hazardous materials comply with the standards prescribed by
state and federal regulations, the risk of accidental contamination or injury
from these materials cannot be completely eliminated. In the event of an
accident, the Company could be held liable for any damages or fines that result.
Such liability could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's investment in marketable securities. The
Company does not use derivative financial instruments in its investments. The
Company's investments consist primarily of debt instruments of the U.S.
government, government agencies, financial institutions and corporations with
strong credit ratings. The Company prepared a detailed market risk disclosure of
these investments in the Company's 1999 annual report on Form 10-K. There have
been no material changes in the Company's market risk position since December
31, 1999.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q filed on November 10, 1999.)
3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F
Preferred Stock of the Company. (Incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K filed
on August 4, 1995.)
3.3 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.4 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Report on Form 10-Q
filed on August 14, 1998.)
3.5 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.6 Amended Certificate of Designations of Series H Preferred Stock
of Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the
Company's Report on Form 10-Q filed on August 14, 1998.)
3.7 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999.)
4.1 Stockholders' Rights Agreement dated as of July 27, 1995
between Alteon Inc. and Registrar and Transfer Company, as
Rights Agent. (Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on August 4, 1995.)
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
4.2 Amendment to Stockholders' Rights Agreement dated as of April
24, 1997, between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed on May 9,
1997.)
4.3 Amendment to Stockholders' Rights Agreement dated as of
December 1, 1997 between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K filed on
December 10, 1997.)
10.1 Employment Agreement dated as of March 14, 2000, between the
Company and Robert deGroof, Ph.D.
27 Financial Data Schedule.
</TABLE>
b) The following reports on Form 8-K were filed during the quarter ended March
31, 2000:
On January 7, 2000, the Company filed a Current Report on Form
8-K, dated December 13, 1999, which reported that the Company's common
stock would trade on the OTCBB and that it was unable to sustain minimum
bid requirements to maintain the NASDAQ listing.
On January 7, 2000, the Company filed a Current Report on Form
8-K, dated January 5, 2000, which announced the Company's sale of more than
$2.5 million of net operating loss carryforwards under a New Jersey
program.
On March 17, 2000, the Company filed a Current Report on Form 8-K,
dated March 15, 2000, which reported that the Company's crosslink breaker
ALT-711 showed ability to reverse age-related cardiac stiffening in a
pre-clinical study.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 12, 2000
ALTEON INC.
By:/s/ Kenneth I. Moch
-----------------------------------
Kenneth I. Moch
President and Chief Executive Officer
(principal executive officer)
By:/s/ Elizabeth A. O'Dell
-----------------------------------
Elizabeth A. O'Dell
Vice President Finance and Administration,
Secretary and Treasurer
(principal finance and accounting officer)
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended.
(Incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q filed on November 10, 1999.)
3.2 Certificate of the Voting Powers, Designations, Preference and
Relative Participating, Optional and Other Special Rights and
Qualifications, Limitations or Restrictions of Series F
Preferred Stock of the Company. (Incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K filed
on August 4, 1995.)
3.3 Certificate of Designations of Series G Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.4 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.4 Certificate of Amendment of Certificate of Designations of
Series G Preferred Stock of Alteon Inc. (Incorporated by
reference to Exhibit 3.4 to the Company's Report on Form 10-Q
filed on August 14, 1998.)
3.5 Certificate of Designations of Series H Preferred Stock of
Alteon Inc. (Incorporated by reference to Exhibit 3.5 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1997.)
3.6 Amended Certificate of Designations of Series H Preferred Stock
of Alteon Inc. (Incorporated by reference to Exhibit 3.6 to the
Company's Report on Form 10-Q filed on August 14, 1998.)
3.7 By-laws, as amended. (Incorporated by reference to Exhibit 3.7
to the Company's Report on Form 10-Q filed on May 12, 1999.)
4.1 Stockholders' Rights Agreement dated as of July 27, 1995
between Alteon Inc. and Registrar and Transfer Company, as
Rights Agent. (Incorporated by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed on August 4, 1995.)
4.2 Amendment to Stockholders' Rights Agreement dated as of April
24, 1997, between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference to Exhibit
4.4 to the Company's Current Report on Form 8-K filed on May 9,
1997.)
4.3 Amendment to Stockholders' Rights Agreement dated as of
December 1, 1997 between Alteon Inc. and Registrar and Transfer
Company, as Rights Agent. (Incorporated by reference to Exhibit
4.1 to the Company's Current Report on Form 8-K filed on
December 10, 1997.)
10.1 Employment Agreement dated as of March 14, 2000, between the
Company and Robert deGroof, Ph.D.
27 Financial Data Schedule.
</TABLE>
16
<PAGE> 1
Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of March 14, 2000,
by and between Alteon Inc., a Delaware corporation (the "Company"), and Robert
deGroof, Ph.D. (the "Employee").
WHEREAS, the Company wishes to employ the Employee as Senior Vice
President for Scientific Affairs; and
WHEREAS, the Employee wishes to enter into the employ of the Company as
its Senior Vice President for Scientific Affairs;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereby agree as follows;
1. Term of Employment. Subject to the terms and conditions hereof,
the Company will employ the Employee, and the Employee will serve
the Company, as Senior Vice President for Scientific Affairs for a
period beginning on the date hereof and terminating three (3)
years from such date, subject to extension by mutual agreement of
the Company and the Employee (such term, as it may be extended, is
hereinafter referred to as the "Term of Employment").
2. Duties. During the Term of Employment, the Employee will serve as
Senior Vice President for Scientific Affairs, subject to the terms
of this Agreement and the direction and control of the Board of
Directors and/or the Chief Executive Officer of the Company. The
Employee will, during the Term of Employment, serve the Company
faithfully, diligently and competently and to the best of his
ability, and will, consistent with the dignity of Senior Vice
President for Scientific Affairs of the Company, hold, in addition
to the offices of Senior Vice President of Scientific Affairs of
the Company, such other offices in the Company to which he may be
appointed or assigned from time to time by the Board of Directors
and/or the Chief Executive Officer of the Company and will
discharge such duties in connection therewith. The Employee shall
devote all of his business time to the performance of his duties
hereunder.
3. Compensation. The Company will, during the Term of Employment, pay
to the Employee as compensation for the performance of his duties
and obligations hereunder an initial base salary at the rate of
$200,000 per annum ("Salary"), payable in equal semi-monthly
installments. Such Salary shall be reviewed annually by the Board
of Directors of the Company in
<PAGE> 2
Employment Agreement Page 2
accordance with the Company's compensation program. In each of the
Company's fiscal years during the Term of Employment, the Employee
shall be eligible to receive a bonus, to be awarded at the sole
discretion of the Board of Directors of the Company, in an amount
of up to $25,000 per year for the term of the employment
agreement. The Board shall use as a basis for determining the
extent of such bonus awards the attainment of stated goals and
objectives for the Employee to be set by the Compensation
Committee of the Board after consultation with the Chief Executive
Officer.
4. Other Benefits. During the Term of Employment:
A. The Company shall grant to the Employee an incentive stock
option, pursuant to the Company's 1995 Stock Option Plan,
to purchase 250,000 shares of Common Stock of the Company
("Common Stock") with an exercise price equal to the
closing price of the Company's Common Stock on March 14,
2000. Such option shall be in the form of and on such terms
and conditions as provided in, the Company's standard form
of Stock Option Grant Agreement in effect as of the date of
this Agreement. Such option grant shall provide, on
condition that the Employee is employed by the Company on
the relevant vesting dates, that such options shall vest as
follows:
(1) 10,000 shares shall vest on hire; and
(2) 25,000 shares shall vest on the first anniversary of
the date of this Agreement and 75,000 shares shall
vest over a thirty-six month period at the rate of
2,083 shares on the first day of each calendar month
commencing on March 14; and
(3) 140,000 shares shall vest upon the accomplishment by
the Employee of specified milestones, as determined
by the Compensation Committee of the Board after
consultation with the Chief Executive Officer; and
B. The Employee shall be entitled during the Term of
Employment to participate in employee benefit plans and
programs of the Company to the extent that his position,
tenure, salary, age, health and other qualifications make
him eligible to participate. The Company does not guarantee
the adoption or continuance of any particular employee
benefit plan or program during the Term of Employment, and
the Employee's participation in any such plan or program
shall be subject to the provisions, rules, regulations and
laws applicable thereto; provided, however, that during the
Term of Employment the Employee shall be entitled to health
and hospital insurance benefits consistent with the past
<PAGE> 3
Employment Agreement Page 3
practices of the Company in effect with respect to Company
personnel generally; and, further provided, the Employee is
eligible for protection under the Alteon Inc. Change in
Control Severance Benefits Plan, as in effect from time to
time.
C. The Employee shall be entitled to three (3) weeks' vacation
per year while employed hereunder. Such vacation may be
taken by the Employee at such times as do not unreasonably
interfere with the business of the Company. The
accumulation of annual vacation time earned but not taken
will be in accordance with the Company policy guidelines.
Additional vacation will be earned in accordance with
Company policy.
5. Expenses. During the Term of Employment, the Company will
reimburse the Employee for commuting and housing expenses in an
amount of $2,500 per month up to a maximum of $30,000 per year. In
addition, during the Term of Employment, all travel and other
reasonable business expenses incident to the rendering of services
by the Employee under this Agreement will be paid or reimbursed by
the Company subject to the submission of appropriate vouchers and
receipts in accordance with the Company's policy from time to time
in effect.
6. Death or Disability.
A. This Agreement shall be terminated by the death of the
Employee. In addition, this Agreement may be terminated by
the Board of Directors of the Company if the Employee shall
be rendered incapable by illness or any other disability
from complying with the terms, conditions and provisions on
his part to be kept, observed and performed for a period in
excess of 180 days (whether or not consecutive) or 90 days
consecutively, as the case may be, during a 12-month period
during the Term of Employment ("Disability"). If this
Agreement is terminated by reason of Disability of the
Employee, the Company shall give written notice to that
effect to the Employee in the manner provided herein. In
the event that the Employee receives disability insurance
benefits paid for by the Company during any period prior to
termination of this Agreement pursuant to this Section
6(a), the Employee's Salary shall be reduced by an amount
equal to such disability insurance benefits during such
period.
B. In addition to and not in substitution for any other
benefits which may be payable by the Company in respect of
the death or Disability of the Employee, in the event of
such death or Disability, the Salary payable hereunder
shall continue to be paid at the then current rate for
three (3) months after the termination of employment, and
any bonus to which the Employee would have been entitled
for the year in which his death occurs
<PAGE> 4
Employment Agreement Page 4
shall be pro rated to the date of his death and paid not
later than three (3) months after the termination of
employment. In the event of the death of the Employee
during the Term of this Agreement, the sums payable
hereunder shall be paid to his personal representative.
7. Disclosure of Information, Inventions and Discoveries. The
Employee shall promptly disclose to the Company all processes,
trademarks, inventions, improvements discoveries and other
information related to the business of the Company (collectively,
"Developments") conceived, developed or acquired by him alone or
with others during the Term of Employment or during any earlier
period of employment by the Company or any predecessor of the
Company, whether or not during regular working hours or through
the use of materials or facilities of the Company. All such
Developments shall be the sole and exclusive property of the
Company, and, upon request, the Employee shall promptly deliver to
the Company all drawings, sketches, models and other data and
records relating to such Developments. In the event any such
Development shall be deemed by the Company to be patentable, the
Employee shall, at the expense of the Company, assist the Company
in obtaining a patent or patents thereon and execute all documents
and do all such other acts and things necessary or proper to
obtain letters of patents and to invest in the Company full right,
title and interest in and to such Developments.
8. Non-Disclosure. The Employee shall not, at any time during or
after the Term of Employment, divulge, furnish or make accessible
to anyone (otherwise than in the regular course of business of the
Company) or use for his own account or for the account of any
person any knowledge or information with respect to confidential
or secret processes, inventions, discoveries, improvements,
formulae, plans, materials, devices or ideas or other know-how,
whether patentable or not, with respect to any confidential or
secret development or research work or with respect to any other
confidential or secret aspects of the Company's business
(including, without limitation, customer lists, supplier lists and
pricing arrangements with customers or suppliers).
9. Non-Competition. The Company and the Employee agree that the
services rendered by the Employee hereunder are unique and
irreplaceable. The Employee hereby agrees that, during the Term of
Employment and for a period of one (1) year thereafter, the
Employee shall not (i) in any geographical area in the United
States or in those foreign countries where the Company, during the
Term of Employment, conducts or proposes to conduct business or
initiates activities, engage or participate in, directly or
indirectly (whether as an officer, director, employee, partner,
consultant, holder of an equity or debt investment, lender or in
any other manner or capacity), or lend
<PAGE> 5
Employment Agreement Page 5
his name (or any part or variant thereof) to any business which
is, or as a result of the Employee's engagement or participation
would become, competitive with any aspect of the business of the
Company, such business being the commercialization of the
measurement, prevention therapy or reversal of glucose-mediated
non-enzymatic cross-linking of macro-molecules, and such other
specific technologies in which the Company has, during the Term of
Employment, initiated significant plans to develop products, (ii)
deal, directly or indirectly, in a competitive manner with any
customers doing business with the Company during the Term of
Employment (except in connection with the performance of the
duties and obligations of the Employee during the Term of
Employment), (iii) solicit any officer, director, employee,
consultant or agent of the Company to become an officer, director,
employee, consultant or agent of the Employee, his respective
affiliates or anyone else, and (iv) engage in or participate in,
directly or indirectly, any business conducted under any name that
shall be the same as or similar to the name of the Company or any
trade name used by it. Ownership, in the aggregate, of less than
1% of the outstanding shares of capital stock of any corporation
with one or more classes of its capital stock listed on a national
securities exchange or publicly traded in the over-the-counter
market shall not constitute a violation of the foregoing
provision.
10. Remedies. The Employee acknowledges that irreparable damage would
result to the Company if the provisions of Section 7, 8, 9 or 14
were not specifically enforced, and agrees that the Company shall
be entitled to any appropriate legal, equitable or other remedy,
including injunctive relief, in respect to any failure to comply
with the provisions of Section 7, 8, 9 or 14.
11. Termination for Cause. In addition to any other remedy available
to the Company, either at law or in equity, the Employee's
employment with the Company may be terminated by the Board of
Directors for cause, which shall include (i) the Employee's
conviction for, or plea of nolo contendere to, a felony or a crime
involving moral turpitude, (ii) the Employee's commission of an
act of personal dishonesty or a breach of fiduciary duty involving
personal profit in connection with the Employee's employment by
the Company, (iii) the Employee's commission of an act which the
Board of Directors shall reasonably have found to have involved
willful misconduct or gross negligence on the part of the
Employee, in the conduct of his duties under this Agreement, (iv)
habitual absenteeism, (v) the Employee's material breach of any
material provision of this Agreement, or (vii) the willful and
continued failure by the Employee to perform substantially his
duties with the Company (other than any such failure resulting
from his incapacity due to physical or mental illness). In the
event of termination under this Section 11, the Company's
obligations under this Agreement shall cease and the Employee
shall forfeit all rights to receive any future compensation under
this
<PAGE> 6
Employment Agreement Page 6
Agreement. Notwithstanding any termination of this Agreement
pursuant to this Section 11, the Employee, in consideration of his
employment hereunder to the date of such termination, shall remain
bound by the provisions of Section 7, 8, 9 and 14 hereof.
12. Termination Without Cause. Each of the Company and Employee may
terminate this Agreement at any time for any reasons whatsoever,
without any further liability or obligation of the Company to the
Employee or of the Employee to the Company from and after the date
of such termination (other than liabilities or obligations accrued
but unsatisfied on, or surviving, the date of such termination),
by sending thirty (30) days prior written notice to the other
party. In the event (a) the Company elects to terminate this
Agreement prior to the end of the Term of Employment or (b) the
Company gives Employee notice of its election not to extend the
Term of Employment beyond the expiration of the then current Term
of Employment, or (c) by the date which is four (4) months prior
to the end of the then current Term of Employment, the Company has
not offered to extend the then current Term of Employment, the
Company shall continue to pay the Employee the full Salary
(exclusive of bonuses, if any) as such Salary would have otherwise
accrued for a period of three (3) months if the effective date of
such termination occurs prior to the first anniversary of this
Agreement and for a period of six (6) months if the effective date
of such termination occurs thereafter. In the event the Employee
elects to terminate prior to the end of the Term of Employment,
the Company's obligation to pay Salary shall cease as of the
effective date of termination. Notwithstanding any termination of
this Agreement pursuant to this Section 12, the Employee, in
consideration of his employment hereunder to the date of such
termination, shall remain bound by the provisions of Section 7, 8,
9 and 14 hereof. Any termination of this Agreement by the Company
as provided in this Section 12 shall be in addition to, and not in
substitution for, any rights with respect to termination of the
Employee which the Company may have pursuant to Section 11.
13. Resignation. In the event that the Employee's services under this
Agreement are terminated under any of the provisions of this
Agreement (except by death), the Employee agrees that he will
deliver his written resignation from all positions held with the
Company to the Board of Directors, such resignation to become
effective immediately; provided, however, that nothing herein
shall be deemed to affect the provisions of Section 7, 8, 9 and 14
hereof relating to the survival thereof following termination of
the Employee's services hereunder, and provided, further, that
except as expressly provided in this Agreement, the Employee shall
be entitled to no further compensation hereunder.
<PAGE> 7
Employment Agreement Page 7
14. Data. Upon termination of the Term of Employment or termination
pursuant to Sections 6, 11 or 12 hereof, the Employee or his
personal representative shall promptly deliver to the Company all
books, memoranda, plans, records and written data of every kind
relating to the business and affairs of the Company which are then
in his possession.
15. Insurance. The Company shall have the right, at its own cost and
expense to apply for and to secure in its own name, or otherwise,
life, health or accident insurance or any or all of them covering
the Employee, and the Employee agrees to submit to usual and
customary medical examinations and otherwise to cooperate with the
Company in connection with the procurement of any such insurance,
and any claims thereunder.
16. Waiver of Breach. Any waiver of any breach of this Agreement shall
not be construed to be a continuing waiver or consent to any
subsequent breach on the part either of the Employee or of the
Company.
17. Assignment. This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of the Company upon any
sale of all or substantially all of the Company's assets, or upon
any merger or consolidation of the Company with or into any other
entity, all as though such successors and assigns of the Company
and their respective successors and assigns were the Company.
Insofar as the Employee is concerned, this Agreement, being
personal, may not be assigned.
18. Severability. To the extent any provision of this Agreement shall
be invalid or unenforceable, it shall be considered deleted
therefrom and the remainder of such provision and of this
Agreement shall be unaffected and shall continue in full force and
effect. In furtherance and not in limitation of the foregoing,
should the duration or geographical extent of, or business
activities covered by, any provision of this Agreement be in
excess of that which is valid and enforceable under applicable
law, then such provision shall be construed to cover only that
duration, extent or activities which may be validly and
enforceable covered.
19. Notices. All notices, requests and other communications pursuant
to this Agreement shall be in writing and shall be deemed to have
been duly given, if delivered in person or by courier,
telegraphed, telexed or by facsimile transmission or five business
days after being sent by registered or certified mail, return
receipt requested, postage paid, addressed as follows:
<PAGE> 8
Employment Agreement Page 8
If to the Employee
Robert deGroof, Ph.D.
145 Water Crest Drive
Doylestown, Pennsylvania 18901
If to the Company:
Alteon Inc.
170 Williams Drive
Ramsey, NJ 07446
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Any party may, by written notice to the other in accordance with
this Section 19, change the address to which notices to such party
are to be delivered or mailed.
20. General. Except as otherwise provided herein, the terms and
provisions of this Agreement and the Stock Option Grant Agreement
to be entered into between the Employee and the Company shall
constitute the entire agreement by the Company and the Employee
with respect to the subject matter hereof, and shall supersede any
and all prior agreements or understandings between the Employee
and the Company, whether written or oral. This Agreement may be
amended or modified only by a written instrument executed by the
Employee and the Company. This Agreement may be executed in any
number of counterparts, all of which, when executed, shall be
deemed to be an original, and all of which together shall
constitute one and the same instrument.
<PAGE> 9
Employment Agreement Page 9
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the day and year first above written.
ALTEON INC.
By: /s/ Kenneth I. Moch
------------------------------
Kenneth I. Moch
Chief Executive Officer
/s/ Robert deGroof, Ph.D.
------------------------------
Robert deGroof, Ph.D.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOW, FILED AS PART OF
ALTEON'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<CIK> 0000878903
<NAME> ALTEON INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-01-2000
<EXCHANGE-RATE> 1
<CASH> 10,040,411
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,322,085
<PP&E> 2,254,017
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,578,917
<CURRENT-LIABILITIES> 2,088,225
<BONDS> 0
0
34
<COMMON> 193,238
<OTHER-SE> 10,297,420
<TOTAL-LIABILITY-AND-EQUITY> 12,578,917
<SALES> 0
<TOTAL-REVENUES> 166,136
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,762,168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,305,437)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,305,437)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,305,437)
<EPS-BASIC> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
