<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For Fiscal Year Ended: December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ____________ to __________________
Commission file number 1-11055
Epigen, Inc.
(Name of Small Business Issuer in its Charter)
Delaware 04-31230172
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Tower Lodge, North Tower Hill Road, Box L, Millbrook, NY 12545
(Address of Principal Executive Offices) (Zip Code)
(914) 677-5317
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class on Which Registered
<S> <C>
Units, each consisting of two shares of
Common Stock, two Class A Warrants and
one Class B Warrant....................... None
Common Stock, par value $.001 per share... None
Class A Warrants.......................... None
Class B Warrants.......................... None
</TABLE>
Securities registered under Section 12(g) of the Exchange Act:
Not Applicable
Check whether the issuer: (1) filed all reports required to by filed by
Section 13 or 15(d) of the Exchange Act during the past 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 [ ]
<PAGE> 2
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $0
On September 28, 1994, the last day the issuer's Common Stock was
traded, the aggregate market value (based upon the American Stock Exchange -
Emerging Company Marketplace last trade price before trading was halted) held by
non-affiliates was approximately $2,782,910.
The number of shares of Common Stock, $.001 par value per share,
outstanding as of June 9, 1998 was 3,536,937.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual report on Form 10-KSB for the fiscal year ended December 31,
1995 - Part II.
2. Annual report on Form 10-KSB for the fiscal year ended December 31,
1996 - Parts II and III.
3. Information Statement on Schedule 14C dated August 9, 1997
<PAGE> 3
PART I
ITEM 1. BUSINESS
Introduction
Epigen, Inc, (the "Company") was incorporated in Delaware on April 24,
1991 to become the successor to COD Associates, L.P. ("COD"), a Delaware limited
partnership. Effective May 1, 1991, in accordance with an assignment and
assumption agreement, all interests and rights of COD were assigned to, and
certain obligations and liabilities of COD were assumed by, the Company in
exchange for the issuance of shares of the Company's Common Stock to the
partners of COD.
The Company is developing products to monitor, diagnose and treat
cancer in a more effective, less expensive and less invasive manner than other
products currently available. If approved for sale by the appropriate regulatory
authorities, these products will utilize the Company's proprietary Human
Carcinoma Antigen ("HCA") and its proprietary monoclonal antibody ("mAb")
technology to detect, monitor and treat carcinomas. The Company's products are
all based on proprietary technology developed first at Massachusetts General
Hospital ("MGH") and then further developed at Boston Biomedical Research
Institute ("BBRI") by Dr. John Codington.
The COD Test
The Company has completed the basic development of an in vitro (outside
the body) diagnostic blood test for cancer (the "COD Test") that uses the
Company's technology. The COD Test is designed to monitor HCA levels in a
patient's blood stream. HCA is found in large quantities on the cell membrane
surface of nearly all carcinomas, but is generally absent in healthy cells.
Because HCA is a tumor associated antigen, there is a direct relationship
between the size of a tumor and the quantity of HCA found in the blood. The COD
Test can be used to monitor a cancer patient's response to therapy and to detect
residual or recurring cancer.
Retrospective clinical trials (using banked serum samples of cancer
patients) have been completed at two sites in the United States. Prospective
clinical trials in the United States on breast cancer patients in which patients
are enrolled and followed for an extended period of time, are almost complete.
This should generate the data necessary for diagnostic companies to evaluate the
Company's technology prior to licensing.
The Company's strategic partners, once such a relationship has been
established, will be required to assume the responsibility for regulatory
prerequisites in the United States,
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Europe and Japan, and will conduct necessary clinical trials in order to seek
approval for use of the COD Test as a monitoring aid for breast, colon and lung
cancer as well as a confirmatory test for most carcinomas.
In order for the COD Test to be commercially acceptable to potential
users such as hospitals and clinical laboratories, at a minimum it must be
functionally comparable to antigen-based blood tests currently used to monitor
at least one major category of carcinoma. Company data indicate that with
advanced breast cancer patients, the COD Test picks up abnormals (cancers)
better than the bio-markers used to monitor breast cancer patients. Company data
further indicate that the COD Test has lead time, i.e., it can predict a
recurrence in some cases up to eight months before the physician can clinically
make that determination. The Company believes that the COD Test may be superior
to other antigen-based blood tests for breast, prostate and colon cancer. The
Company also expects the COD Test to be relatively inexpensive, and to reduce
the need for subsequent imaging and biopsy procedures. At this time, any
conclusion as to whether the COD Test is superior or comparable to other tests
is dependent upon the results of prospective clinical trials.
The Company does not presently have the resources to complete the
development, conduct prospective clinical trials, manufacture and market the COD
Test. The Company continues to seek funding for future development and clinical
trials of its products and certain potential strategic partners and other
sources for such funding are currently reviewing the efficacy of such products.
In Vivo Imaging Agent
The Company also has a program to develop an in vivo (inside the body)
imaging agent designed to assist in the diagnosis and staging (i.e., determining
whether cancer has spread to other organs) of carcinoma patients. The in vivo
imaging agent consists of one of the Company's proprietary mAb's linked with a
radioactive label on the site of any epithelial tumor. Through the use of a
scintillation camera, the radioactive label should then be detectable and
displayable on a computer screen or hard copy similar to an X-ray. The resulting
images are expected to confirm the diagnosis of a carcinoma, to indicate whether
a tumor has metastasized, to locate the metastases and to be a post-operative
check to determine whether all cancer has been removed.
The FDA regulates in vivo imaging agents as biologicals which require
full clinical testing. An Investigational New Drug ("IND") application is
required before clinical trials can begin. Several of the components of this
lengthy document have been completed. This includes a cGMP manufacturing run
with full documentation and quality control viral testing for the mAb which
2
<PAGE> 5
will be injected into the patients. Animal toxicology testing has demonstrated
that this is a safe product.
To help expedite the clinical trials of the in vivo imaging agent, the
Company will combine the first two phases (safety and dosimetry). The Company
expects that the Phase I/II human clinical trials will be conducted at the
Columbia Presbyterian Medical Center under the direction of a team including Dr.
Philip Alderson, Chairman of the Department of Radiology, Dr. Martin Oster,
Associate Professor of Clinical Medicine and a Specialist in Oncology, Dr.
Rashid Fawwaz, Professor of Radiology, and Dr. Ronald VanHeertum, Professor of
Clinical Radiology. All are members of the Company's Scientific Advisory Board.
The Company does not have the resources to complete the IND, test,
manufacture and market the in vivo imaging agent, and will seek to raise equity
capital and to enter into arrangements with third parties to fund the extensive
clinical trials required by the regulatory process in return for marketing
rights to the product.
Therapeutic Vaccine
The Company has developed a series of anti-idiotypic monoclonal
antibodies for use as a therapeutic vaccine to treat a broad range of human
carcinomas, including breast, lung, colon and prostate cancers. The objective of
this vaccine is to stimulate the body's immune system to attack carcinomas. If
successful, the vaccine would create an immune response through the creation of
antibodies that recognize HCA. It would be necessary for the Company initially
to rely on a contract manufacturer for the production of this vaccine and to
seek out strategic partners to fund the clinical trials and other aspects of the
regulatory process in return for the marketing rights to the vaccine. Components
of this program are being used to enhance the performance of the COD Test.
Preliminary tests on mice have shown that when vaccinated with the
Company's anti-idiotypic monoclonal antibody and subsequently challenged with
malignant tumors, the mice lived a normal life. Mice which had not been
vaccinated and so challenged, die within two weeks.
The Company recently entered into a contract with Dr. Carl Olsson,
Professor and Chairman of the Department of Urology of Columbia Presbyterian
Hospital, to develop the therapeutic vaccine using his department's financial
resources.
Impact of Regulation
Marketing the Company's products will be subject to prior regulatory
clearance for approval by the FDA and comparable
3
<PAGE> 6
agencies or other informal processes of foreign countries, none of which has
been obtained. The regulatory process in the United States and abroad, including
the required pre-clinical testing for the in vivo imaging agent and therapeutic
vaccine, differs for each product but is generally lengthy and expensive. The
strategic partner will be required to demonstrate that it can manufacture these
products in a reproducible manner, that the products are safe in animal models
and that there is a basis for believing that they may be effective in humans
prior to the start of clinical trials. For products which require full clinical
testing, trials are arranged to evaluate the product's pharmacological actions
and possible side effects (Phase I). If acceptable product safety is
demonstrated, the product is then tested for effectiveness in a well-controlled
study using a relatively small number of patients (Phase II). If Phase II is
successfully completed, the product is then subject to expanded, controlled and
uncontrolled, trials intended to gather additional information regarding the
product's safety and effectiveness. Only after the clinical trials are
successfully completed may the Company apply to the FDA for approval to market a
product.
While it is impossible at this time to predict the effect of the
various health care containment initiatives currently under consideration by the
United States government and various participants in the private sector, it is
virtually certain that the Company and its products will be affected in some
fashion.
Competition
The pharmaceutical industry (including biopharmaceutical and
diagnostics companies) is characterized by rapidly evolving technology and by
intensive competition and research efforts. Many companies, research
biotechnology institutes and universities are working in biotechnology
disciplines similar to the Company's fields of endeavor and many of these
entities have greater sources of funding available to them. In addition, many
companies and universities are engaged in the development of, and may offer,
products which may be or are competitive with the Company's proposed products.
There are numerous competitors in this field, with no one company, research
institute or university being dominant. The principal method of competition for
the Company is expected to be product performance.
Employees and Consultants
As of March 31, 1998, the Company had two full-time and one part-time
employees, two of whom have agreed to have part of their respective salaries
accrue while the Company seeks to raise additional equity capital and one of
whom has agreed to accept stock in lieu of salary.
The Company relies on a Scientific Advisory Board, currently
4
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consisting of eleven individuals having extensive collective experience in the
fields of organic chemistry, radiology, pathology, molecular genetics, oncology,
nuclear medicine, microbiology, immunology and biostatistics to review and
evaluate the Company's research programs, advise the Company with respect to
evolving technology and recommend personnel to the Company. The Company also
retains consultants to supervise and implement its scientific programs.
Research and Development
The total dollar amount spent during 1996 and 1997 on research
sponsored by the Company was $261,665 and $542,992 respectively.
Customers
The Company is still in the development stage, will not have customers
until a license agreement is obtained with a strategic partner, and no material
part of the business of the Company is dependent upon a single customer or a
very few customers.
Raw Materials
The raw materials for the Company's proposed products consist of
standard chemicals, specially created murine mAb's and specifically created
epiglycanin (a murine antigen).
Intellectual Property Rights
The Company owns the worldwide rights to all of the mAb and HCA
technology developed at BBRI, in return for the payment to BBRI of a 5% royalty
on net sales, pursuant to an agreement with BBRI (the "BBRI Agreement"). These
royalties extend for the life of any patent which issues or 10 years after the
first commercial introduction in a country of a product covered by the
agreement, whichever is later. If a patent issues as a result of the research
being done at the University of Oslo, the Company is obligated to pay a l%
royalty to the University of Oslo on net sales for therapeutic products covered
by the patent. If this occurs, the royalty obligation to BBRI for the same
covered product is reduced to 4.5%. The Company will own the rights to all
patents resulting from Company-sponsored research conducted at the University of
Oslo and at BBRI.
Effective June 1, 1993, the company entered into an agreement with MGH
to reacquire exclusive United States rights (subject to the achievement of
certain objectives) to certain hybridoma cell lines and mAb's that may be used
in connection with the COD Test, in vivo imaging agent or therapeutic vaccine.
The agreement provides for royalty payments to MGH or 5% for sales of products
using such monoclonal antibodies in the United
5
<PAGE> 8
States during the life of the patent and 2% outside the United States (where
there is no patent protection) for eight ears following the first commercial
sale. Pursuant to the BBRI Agreement, in the event royalties are payable to MGH,
the royalty payable to BBRI will be reduced so that the total royalties payable
to BBRI and MGH do not exceed 6%. On June 12, 1995, MGH agreed to reduce royalty
payments due pursuant to the June 1, 1993 agreement by 50%.
In February 1994, a continuation-in-part was filed in the United
States, and corresponding patent applications were also filed in certain
important foreign countries, covering HCA, HCA antigens, HCA immunoassay and
methods of imaging and therapy. The COD Test, in vivo imaging agent and
therapeutic vaccine are all covered under these patent filings. The patent
application process can be expected to take several years and may entail
considerable expense, without any assurance that a significant patent or any
patent will issue. On October 20, 1995 a Notice of Allowance was received for a
patent covering the COD Test, specifically an assay to determine the presence of
human carcinoma antigen (HCA) in a biological sample.
Environmental Compliance
The effective environmental compliance on the Company's operations is
not significant.
ITEM 2. PROPERTIES
The Company occupies an aggregate of approximately 2,000 square feet of
rental space in Millbrook, New York.
The Company leased office space of approximately 2,000 square feet in
Millbrook, New York from Donald C. Fresne, the Company's Chairman of the Board
of Directors. The Company leased this space on a month-to-month basis prior to
May 1, 1991, and, effective on that date, entered into a three-year lease
agreement paying rent equal to the real estate taxes, insurance and utilities
allocable thereto. The Company believes that the terms of the lease are at least
as favorable as could have been obtained from a non-affiliated lessor. The
Company paid $23,453 in rent under the lease in 1994 and $15,820 in rent in
1995. On April 14, 1994, Donald C. Fresne agreed effective immediately to
terminate the lease. Further, Donald C. Fresne agreed to waive all sums accrued
and unpaid by the Company under this lease from and after October 1, 1994
through April 14, 1995. On June 1, 1995, the Company agreed to reinstitute this
lease under the same terms and conditions as the previous lease, and the Company
paid $27,120 and $33,000 in rent under the lease in each of 1996 and 1997,
respectively.
The Company leased office space of approximately 1,108
6
<PAGE> 9
square feet in Wellesley, Massachusetts during 1994 at a monthly rent of $1,273.
The monthly rent under the lease was $1,250 during 1992 and 1993. The lease
expired on January 14, 1995, and the Company vacated the premises on January 31,
1995.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings, nor is any
of the Company's property subject to any such pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, Units, Class A Warrants and Class B
Warrants were traded on the American Stock Exchange Emerging Company Marketplace
(AMEX/ECM) under the symbols EPN.EC, EPN.EEC, EPN.WS.A.EC and EPN.WS.B.EC,
respectively through September 28, 1994 when trading was halted. In January
1995, the Company consented to being delisted for failing to meet the minimum
capital requirements for continued listing. As of March 31, 1998, there were 211
holders of record of the Company's Common Stock. The Company's Class A Warrants
and Class B Warrants expired unexercised on December 10, 1996 . Since the
Company's Stock has not traded on any organized market system during the last
two fiscal years, reported prices for any trades are not available.
For information regarding the sale of unregistered securities by the
Company during the past three fiscal years, see "Certain Relationships and
Transactions" herein and the Company's reports on Form 10-KSB for the fiscal
years ended December 31, 1995 and 1996. The Company relied upon the exemption
from registration contained in Section 4(2) of the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder in connection with
such sales.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company presently is insolvent and unable to pay its debts as they
become due. The officers have agreed temporarily to allow part of their salaries
to accrue. Currently,
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<PAGE> 10
liabilities exceed assets. Should a sufficient number of the Company's creditors
pursue the obligations owed them, the Company might be forced into a voluntary
or involuntary bankruptcy.
The Company does not presently have the resources to complete the
development, conduct prospective clinical trials, manufacture and market the COD
Test. The Company continues to seek funding for future development and clinical
trials of its products and certain potential strategic partners and other
sources for such funding are currently reviewing the efficacy of such products.
The Company continues to pursue its business plan to the extent
resources permit. The Company has entered into arrangements with (i) a group of
physicians from several leading hospitals to obtain prostate serum samples in
order to conduct both retrospective and prospective clinical trails on the
Company's in vitro blood test for prostate cancer patents, and (ii) is in
discussions with major biopharmaceutical firms to participate in these
retrospective and prospective clinical trials for prostate cancer patients. The
Company has also entered into a collaboration to gather additional data to
demonstrate the efficacy of the Company's in vitro blood test for breast cancer
patients with a physician from a leading hospital. If such tests yield
sufficiently positive results, the Company believes that it will be able to
enter into a strategic alliance. There can be no assurance that such test
results will yield sufficiently positive results. The results of such tests and
collaborations will determine to a significant extent the Company's ability to
structure potential strategic alliances.
In the event positive results are achieved in either the prostate or
breast clinical trials, the Company will attempt to form a strategic alliance to
begin marketing the in vitro blood test in Europe where the regulatory
environment is less formal than in the United States. There can be no assurance,
however, that the Company will be successful in such endeavors.
The Company does not anticipate using any significant funds for work on
its other products over the next 12 months. Research continues on its
therapeutic vaccine at Columbia Presbyterian Hospital under the auspices of Dr.
Carl Olsson. Work on the Company's in vivo imaging agent is being delayed until
sufficient funds are available to continue such work.
ITEM 7. FINANCIAL STATEMENTS
The information required by Item 7 is shown in the Financial Statements
and Notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with accountants on
accounting and financial disclosure.
8
<PAGE> 11
PAUL C. ROBERTS
Certified Public Accountant
600 BEDFORD ROAD, BHA
PLEASANTVILLE, N.Y. 10570
--------
(914) 741-1508
INDEPENDENT AUDITOR'S REPORT
To Epigen, Inc.:
I have audited the accompanying balance sheets of Epigen, Inc. (a Delaware
corporation in the development stage, formed on April 24, 1991, which became the
successor entity to COD Associates, L.P., a Delaware limited partnership in the
development stage, on May 1, 1991) as of December 31, 1997 and 1996, and the
related statements of operations, partners' deficit and stockholders' equity and
cash flows for each of the two years in the period ended December 31, 1997 and
for the period from inception (January 28, 1987) to December 31, 1997. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audits. I did not audit the financial statements of COD Associates, L.P. for
the period from inception to December 31, 1989 and the Company's financial
statements for the years ended December 31, 1990, 1991 and 1992. Such statements
are included in the cumulative from inception to December 31, 1997. The total
net loss from inception to December 31, 1992 reflects 39% of the cumulative
total. Those statements were audited by other auditors whose reports expressed
unqualified opinions on those statements, and my opinion, insofar as it relates
to amounts for the period from inception to December 31, 1992, included in the
cumulative totals, is based solely on the reports of the other auditors.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits and the reports of the other auditors provide a
reasonable basis for my opinion.
In my opinion, based on my audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Epigen, Inc. as of December 31, 1997 and 1996, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1997 and from the period to inception (January 28,
1987) to December 31, 1997, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations,
which the Company expects to continue for the foreseeable future, that raise
substantial doubt about its ability to continue as a going concern. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Paul C. Roberts
PAUL C. ROBERTS
Certified Public Accountant
Pleasantville, New York
May 17, 1998
<PAGE> 12
EPIGEN, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------ ------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 64,809 $ 64,537
------------ ------------
Total current assets 64,809 64,537
OFFICE EQUIPMENT, NET OF ACCUMULATED
DEPRECIATION OF $35,727 IN 1997 AND
$35,527 IN 1996 4,203 3,494
NOTE RECEIVABLE FROM AN OFFICER/STOCKHOLDER 53,931 85,728
OTHER RECEIVABLE -- 100,000
------------ ------------
$ 122,943 $ 253,759
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable-demand $ 145,805 $ 145,805
Notes payable-25% interest 225,000 --
Notes payable-prime plus 5% 100,000 --
Accrued interest-note payable, demand 39,367 26,245
Accrued direct research and development costs 405,781 428,104
Accrued professional fees 259,582 212,644
Accrued payroll 1,145,336 1,104,645
Other accrued expenses 267,866 165,332
------------ ------------
Total current liabilities 2,588,737 2,082,775
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.001 par value-
Issued and outstanding-0 and 200,000 at
December 31, 1997 and 1996, respectively -- 200
Series B Preferred stock, $.001 par value-
Issued and outstanding-0 and 450,000 at
December 31, 1997 and 1996, respectively -- 450
Common stock, $.001 par value-
Issued and outstanding-2,768,836 and
466,181 shares at December 31, 1997
and 1996, respectively 2,769 10,256
Additional paid-in capital 14,610,377 13,833,995
Deficit accumulated during the development stage (17,078,593) (15,673,570)
Less-5 shares of common stock held in
treasury, at cost 347 347
------------ ------------
Total stockholders' equity (2,465,794) (1,829,016)
------------ ------------
$ 122,943 $ 253,759
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE> 13
EPIGEN, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
from
Inception to
Years Ended December 31, December 31,
1995 1996 1997 1997
<S> <C> <C> <C> <C>
OPERATING COSTS AND EXPENSES:
Direct research and development costs $ 630,979 $ 261,665 $ 542,992 $ 7,248,467
General and administrative expenses 438,161 1,242,116 760,855 8,563,358
Fees to General Partner of the Predecessor
and affiliates (Note 4) -- -- -- 1,188,893
Interest expense -- 92,227 104,889 297,586
Interest income (7,182) (7,384) (3,713) (219,711)
------------ ------------ ------------ ------------
Net loss $ (1,061,958) $ (1,588,624) $ (1,405,023) $(17,078,593)
============ ============ ============ ============
NET LOSS PER SHARE (Note 1) $ (2.99) $ (3.59) $ (.92)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING 355,521 442,431 1,504,432
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 14
EPIGEN, INC.
(A Development Stage Company)
STATEMENTS OF PARTNERS' DEFICIT AND STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 28, 1987) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Preferred Preferred Common Common Additional
Number of Stock Number of Stock Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
CONTRIBUTIONS IN CASH - $ - - $ - $ -
NET LOSS - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1987 - - - - -
Contributions in cash - - - - -
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1988 - - - - -
Contributions in cash, net of distribution (Note 4) - - - - -
Contributions of services - - - - -
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1989 - - - - -
Contributions of services - - - - -
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1990 - - - - -
Conversion from partnership to corporation - - 2,500,000 2,500 2,299,194
Conversion of accrued liabilities to equity (Note 5) - - - - 1,790,024
Contributions of services (Note 5) - - - - 317,917
Issuance of common stock - - 2,169,668 2,170 5,230,435
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1991 - - 4,669,668 4,670 9,637,570
Purchase of treasury stock - - - - -
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1992 - - 4,669,668 4,670 9,637,570
Issuance of common stock, net of issuance costs - - 458,667 458 362,812
of $66,730
Issuance of common stock in exchange for services - - 10,134 10 76,159
Compensation associated with the grant of stock - - - - 159,039
options
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 - - 5,138,469 5,138 10,235,580
Issuance of common stock, net of issuance costs
of $180,670 - - 2,031,666 2,032 1,248,798
Issuance of common stock in exchange for services - - 741,083 741 429,486
Compensation associated with the grant of stock
options - - - - 268,925
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 - - 7,911,218 7,911 12,182,789
Issuance of preferred stock 200,000 200 - - 99,800
Issuance common stock - - 1,222,000 1,222 303,778
Issuance common stock for services - - 812,021 812 403,389
Escrow shares retired - - (1,389,259) (1,389) 1,389
Net loss - - - - -
----------- ----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 200,000 200 8,555,980 8,556 12,991,145
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Development Treasury Partner (Deficit)
Stage Stock Contributions Equity
<S> <C> <C> <C> <C>
CONTRIBUTIONS IN CASH $ - $ - $ 803,250 $ 803,250
NET LOSS (825,763) - - (825,763)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1987 (825,763) - 803,250 (22,513)
Contributions in cash - - 487,350 487,350
Net loss (1,043,528) - - (1,043,528)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1988 (1,869,291) - 1,290,600 (578,691)
Contributions in cash, net of distribution (Note 4) - - 851,000 851,000
Contributions of services - - 73,194 73,194
Net loss (986,582) - - (986,582)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1989 (2,855,873) - 2,214,794 (641,079)
Contributions of services - - 86,900 86,900
Net loss (973,657) - - (973,657)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1990 (3,829,530) - 2,301,694 (1,527,836)
Conversion from partnership to corporation - - (2,301,694) -
Conversion of accrued liabilities to equity (Note 5) - - - 1,790,024
Contributions of services (Note 5) - - - 317,917
Issuance of common stock - - - 5,232,605
Net loss (1,365,962) - - (1,365,962)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1991 (5,195,492) - - 4,446,748
Purchase of treasury stock - (347) - (347)
Net loss (1,486,513) - - (1,486,513)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1992 (6,682,005) (347) - 2,959,888
Issuance of common stock, net of issuance costs - - - 363,270
of $66,730
Issuance of common stock in exchange for services - - - 76,169
Compensation associated with the grant of stock - - - 159,039
options
Net loss (3,130,425) - - (3,130,425)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 (9,812,430) (347) - 427,941
Issuance of common stock, net of issuance costs
of $180,670 - - - 1,250,830
Issuance of common stock in exchange for services - - - 430,227
Compensation associated with the grant of stock
options - - - 268,925
Net loss (3,210,558) - - (3,210,558)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1994 (13,022,988) (347) - (832,635)
Issuance of preferred stock - - - 100,000
Issuance common stock - - - 305,000
Issuance common stock for services - - - 404,201
Escrow shares retired - - - -
Net loss (1,061,958) - - (1,061,958)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1995 (14,084,946) (347) - (1,085,392)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 15
EPIGEN, INC.
(A Development Stage Company)
STATEMENTS OF PARTNERS' DEFICIT AND STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JANUARY 28, 1987) TO DECEMBER 31, 1997
(CONTINUED)
<TABLE>
<CAPTION>
Preferred Preferred Common Common Additional
Number of Stock Number of Stock Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Issuance of preferred stock 450,000 450 - - 214,550
Issuance common stock - - 880,000 880 219,120
Issuance common stock for services - - 820,000 820 409,180
Net loss - - - - -
------------ ------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 650,000 650 10,255,980 10,256 13,833,995
Issuance of preferred stock 400,000 400 - - 179,600
Issuance of common stock - 1,000,000 1,000 124,000
Conversion of preferred stock
to common stock (850,000) (850) 3,400,000 3,400 (2,550)
Cancellation of subscription
receivable (200,000) (200) - - (99,800)
Common shares issued in private
placement protection - - 400,000 400 (400)
Issuance common stock for services - - 375,000 375 36,188
Debt converted to common shares - - 1,067,105 1,067 340,524
Stock bonuses - - 19,078,000 19,078 -
One-for-twenty two reverse
stock split - - (33,958,990) (33,959) 33,959
Common shares issued in private
placement protection - - 13,181 13 (13)
Stock bonuses - - 900,000 900 -
Debt converted to common shares - - 126,060 126 164,874
Common shares issued with
notes payable - - 112,500 113 -
Net loss - - - - -
------------ ------------ ------------ ------------ ------------
- $ - 2,768,836 $ 2,769 $ 14,610,377
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated
During Total
Development Treasury Partner (Deficit)
Stage Stock Contributions Equity
<S> <C> <C> <C> <C>
Issuance of preferred stock - - - 215,000
Issuance common stock - - - 220,000
Issuance common stock for services - - - 410,000
Net loss (1,588,624) - - (1,588,624)
------------ ------------ ------------ ------------
BALANCE, DECEMBER 31, 1996 (15,673,570) (347) - (1,829,016)
Issuance of preferred stock - - - 180,000
Issuance of common stock - - - 125,000
Conversion of preferred stock
to common stock - - - -
Cancellation of subscription
receivable - - - (100,000)
Common shares issued in private
placement protection - - - -
Issuance common stock for services - - - 36,563
Debt converted to common shares - - - 341,591
Stock bonuses - - - 19,078
One-for-twenty two reverse
stock split - - - -
Common shares issued in private
placement protection - - - -
Stock bonuses - - - 900
Debt converted to common shares - - - 165,000
Common shares issued with
notes payable - - - 113
Net loss (1,405,023) - - (1,405,023)
------------ ------------ ------------ ------------
$(17,078,593) $ (347)$ - $ (2,465,794)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 16
EPIGEN, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
from
Inception to
Years Ended December 31, December 31,
1995 1996 1997 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,061,958) $ (1,588,624) $ (1,405,023) $(17,078,593)
Adjustments to reconcile net loss to net
cash used in operating activities-
Depreciation and amortization expense 8,099 7,114 4,195 96,673
Noncash expenses paid in equity interests - 410,000 55,641 2,809,845
Noncash compensation expense associated
with the grant of stock options - - - 427,964
Debt converted to equity - - 507,604 507,604
(Increase) decrease in prepaid expenses 11,196 863 - -
Increase (decrease) in accrued direct
research and development costs 54,140 (64,702) (22,323) 405,781
Increase (decrease) in accrued
professional fees 17,860 78,734 46,938 259,582
Increase (decrease) in accrued payroll 315,129 690,837 40,691 1,145,336
Increase (decrease) in accrued expenses to
affiliates, accrued printing charges,
interest and other accrued expenses (38,804) 89,660 115,656 307,233
------------ ------------ ------------ ------------
Net cash used in operating activities (694,338) (376,118) (656,621) (11,118,575)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment - - (4,904) (43,925)
Sale (purchase) of short-term investments - - - -
Purchase of treasury stock - - - (347)
Decrease (increase) in note receivable from
an officer/shareholder (7,181) (7,384) 31,797 (53,931)
Increase (decrease) in other assets - - - (3,025)
Increase in organizational costs - - - (53,925)
------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (7,181) (7,384) 26,893 (155,153)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 709,200 220,000 125,000 8,331,132
Decrease (increase) in subscription receivable (100,000) - 100,000 -
Capital contributions - - - 2,141,600
Proceeds from issuance of preferred stock 100,000 215,000 80,000 395,000
Increase in note payable-demand - - - 145,805
Increase in note payable-other - - 325,000 325,000
------------ ------------ ------------ ------------
Net cash provided by financing activities 709,200 435,000 530,000 11,338,537
------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 7,681 51,498 272 64,809
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 5,358 13,039 64,537 -
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 13,039 $ 64,537 $ 64,809 $ 64,809
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid during the period $ - $ - $ - $ 59,337
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 17
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Epigen, Inc. (the Successor) was formed on April 24, 1991 as the successor
entity to COD Associates, L.P. (the Predecessor) (collectively the Company).
Effective May 1, 1991, in accordance with the terms of an Assignment and
Assumption Agreement, all interest and rights were assigned to, and certain
obligations and liabilities of the Predecessor were assumed by, the Successor in
exchange for 340,909 shares of common stock which subsequently was reduced to
113,636 shares pursuant to a reverse stock split. Of the 113,636 shares
outstanding prior to the initial public offering of Epigen securities, 63,148
shares are held in escrow (see Note 4). The Successor was organized to serve as
the vehicle for an initial public offering of common stock and warrants to raise
additional capital to complete and commercialize the research and development
work of the Predecessor and related activities.
On December 10, 1991, the Company completed its initial public offering.
Proceeds from this offering were $5,232,605 after deducting $1,276,399 of costs.
The initial public offering was for 1,084,834 units, including 141,500 units
issued pursuant to an overallotment agreement with the underwriters. Each unit
consisted of two common shares, two redeemable Class A warrants and one
redeemable Class B warrant which were immediately and separately transferable.
Each redeemable Class A warrant entitles the holder to purchase one common share
and one redeemable Class B warrant at a price of $4.50, subject to adjustment.
Each redeemable Class B warrant entitles the holder to purchase one common share
at a price of $6.75, subject to adjustment.
Commencing one year after the effective date of the initial public offering
(December 10, 1991), if the average of the closing prices of the common shares
of the Company exceeds $6.30 for any period of 30 consecutive business days,
management may redeem all (but not less than all) of the redeemable Class A
warrants at a price of $.05 per warrant by providing 30 days' written notice.
The redeemable Class B warrants are subject to similar provisions if the average
of the closing price of the common stock of the Company exceeds $9.75. All of
these Class A and Class B warrants expired in 1996.
The Company is authorized to issue up to 50,000,000 common shares at $.001 par
value and 15,000,000 preferred shares at $.001 par value.
F-7
<PAGE> 18
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Organization (Continued)
The Company is engaged in developing products that are designed to be useful as
a monitoring device for tumors, and a diagnostic aid and screen in the diagnosis
of cancer. The Company's products will incorporate measurements of a substance
found in significant quantities in the cell membranes of cancerous tumors. The
first product under development is an in vitro diagnostic test, intended for use
in monitoring carcinoma patients and as a confirmatory test for breast cancer
and prostate cancer. The Company is in the early stages of developing a vaccine
to be used as a therapeutic in patients who have had malignant tumors removed.
The Company is a development stage enterprise that has not generated operating
revenues to date. Expenses incurred have primarily been research, development
and administrative costs. The developmental nature of the activities is such
that inherent risks exist in the Company's operations. Successful future
operations are subject to several risks, including the ability of the Company to
successfully market its products and to generate significant revenues from
sales, regulation by the United States Food and Drug Administration, the
development of enhancements to allow entry into new markets and the Company's
ability to raise funds to further finance development of its products. After the
product has been successfully introduced into the market, additional time may be
necessary before significant revenues are realized. The Company will require
additional financing in order to commercialize the in vitro diagnostic test,
complete the in vivo imaging procedure and complete the development and
commercialization of the therapeutic vaccine.
The Company has incurred losses of $17,078,593 from inception through December
31, 1997 and has funded those losses through the sale of common and preferred
stock shares and capital contributions. The Company is currently experiencing
severe cash flow problems and in the event the Company is unable to raise
additional funding through the sale of equity securities, various debt
instruments or from other sources, there is substantial doubt concerning its
ability to continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of that
uncertainty.
Cash and Cash Equivalents
Cash and cash equivalents include all funds held in checking and money market
bank accounts.
F-8
<PAGE> 19
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Research and Development
Direct research and development is performed under arrangements with various
individuals and institutions. The terms of these arrangements generally call for
payment of salaries, overhead and expenses.
Research and development costs are expensed in the period in which they are
incurred.
Organizational Costs
Organizational costs were being amortized on a straight line basis over five
years.
Income Taxes
During 1992, the Company adopted SFAS No. 109, Accounting for Income Taxes.
Adoption of this method of accounting did not have an effect on the Company's
financial position or results from operations.
At December 31, 1997, the principal temporary difference is a net operating loss
carryforward for federal income tax purposes of approximately $11,792,000. The
Company has provided a full valuation reserve against the benefit of this net
operating loss carryforward due to uncertainty regarding its realization.
Office Equipment
Office equipment is recorded at cost. Additions and improvements are
capitalized, and ordinary repairs and maintenance are expensed as incurred.
Depreciation and amortization are computed primarily using the straight-line
method over three to five years.
F-9
<PAGE> 20
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Loss Per Share
Net loss per share for 1995, 1996 and 1997 include the weighted common average
shares outstanding net of shares of treasury stock. The cumulative net loss per
common share for the period from inception to December 31, 1997 has not been
presented, as such information is not considered to be relevant or meaningful.
All warrants, options and convertible preferred stock outstanding as of December
31, 1997 have been excluded as they are antidilutive.
(2) NOTE PAYABLE
Demand:
The Company has entered into an agreement whereby it promises to pay to the
order of the payee $145,805, payable together with interest at the rate of 9%
per annum on demand. This note was executed in connection with fees owed the
payee for professional services.
Other:
During 1997, the Company borrowed $225,000 by issuing notes, which bear interest
at 25% per annum and are due September 8, 1998 through October 17, 1998. In
connection with these notes the Company issued 112,500 shares of its common
stock.
In December 1997, the Company borrowed $100,000 by issuing a note, which bears
interest at prime plus 5% and is due on December 23, 1998. This loan may be
converted at any time before the loan is paid in full at the rate of $2.66 per
common share.
(3) LICENSING AGREEMENTS
The Company's technology is used under an exclusive license from Boston
Biomedical Research Institute (BBRI). Pursuant to the terms of this license
agreement, the Company has been granted an exclusive, worldwide license to
manufacture, use, lease, sell or otherwise transfer (a) any products utilizing
any patent obtained by BBRI, (b) any products resulting from the Company-
sponsored research at BBRI or (c) compositions containing such products. The
agreement calls for royalty payments to BBRI equal to 5% of the net selling
price not to exceed $10,000,000 per year. The agreement expires on the later of
10 years from the first commercial sale of the in vitro blood test or expiration
of any patents thereon.
During 1992, the Company entered into a contract with the University of Oslo
(the University) in close collaboration with BBRI for the development of
antigen-specific characterizations. The agreement calls for payments to the
University of 1% of net sales for any human therapeutic product utilizing these
patent or biological material rights sold to third parties.
If royalties are to be paid both to BBRI and the University, the agreement with
BBRI provides that the total royalty paid to BBRI and the University shall not
exceed 5.5% of the net selling price of any licensed product or process.
F-10
<PAGE> 21
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(3) LICENSING AGREEMENTS (Continued)
During 1993, the Company entered into an agreement with Massachusetts General
Hospital to license certain antibodies for use in developing the in vitro
diagnostic test, the in vivo imaging agent and the therapeutic vaccine. Under
this agreement, the Company is required to pay royalties ranging from 2% to 5%
of the net sales price, as defined, depending on the country in which the
product is sold. The term of the agreement expires, on a country-by-country
basis, eight years after the first commercial sale or for the life of a valid
patent in a country, whichever occurs first. Subsequent to the signing of the
agreement Massachusetts General Hospital agreed to reduce the royalty
percentages to one-half the original amounts.
If royalties are to be paid to both BBRI and Massachusetts General Hospital, the
agreement with BBRI provides that the total royalty paid to BBRI and
Massachusetts General Hospital shall not exceed 6% of the net selling price of
any licensed product or process.
(4) RELATED PARTY TRANSACTIONS
The Company incurred expenses payable to affiliates of the General Partner of
the Predecessor for rental of office space and reimbursement of administrative
salaries. The total of such expenses was $32,600 in 1991.
Beginning in 1989, the General Partner of the Predecessor was entitled to
receive a management fee of $250,000 per year, of which $37,500 was paid.
In 1991, the General Partner of the Predecessor and its Chairmen agreed to
forgive all amounts owed for management fees and salary at the date of the
Prospectus for the Company's initial public offering. These amounts ($1,083,036)
have been reflected as a capital contribution in the accompanying financial
statements.
In 1989, David H. Smith, a stockholder of the Company, contributed $840,000 to
the Predecessor to purchase a limited partnership interest. The Predecessor, in
turn, purchased an annuity, owned by Mr. Smith, for $450,000, which has been
accounted for as a distribution of partners' capital. Mr. Smith borrowed
$280,000 against the annuity and contributed that amount to the Predecessor for
a total net contribution of $670,000. Prior to the initial public offering, the
Predecessor reimbursed Mr. Smith for his interest expense on the $280,000 loan.
This arrangement was terminated prior to the effective date of the initial
public offering. Effective May 1, 1991, Mr. Smith and the Company entered into a
consulting agreement that provided for payment of a consulting fee to Mr. Smith
of $2,200 per month for one year. As partial consideration for entering into
such agreements, Mr. Smith converted amounts due him at July 31, 1991, to common
shares of the Company. The conversion to equity did not involve the issuance of
additional shares by the Company, but solely the transfer of previously
outstanding shares by existing stockholders.
F-11
<PAGE> 22
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(4) RELATED PARTY TRANSACTIONS (Continued)
Note Receivable from an Officer/Stockholder
During August 1992, the Company entered into a loan agreement with a stockholder
for $200,000 plus $15,310 of associated legal costs. This note is collateralized
by 49,534 shares of the Company's common stock held by the stockholder. The
outstanding balance, $85,728 at December 31, 1996, accrues interest at a rate of
prime plus 1%. The principal and all accrued interest were payable in full on
May 8, 1996. The Company had extended the maturity date to May 9, 1999.
Amounts receivable (including accrued interest) from the officer/stockholder
were as follows for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Beginning Ending
balance Additions Deductions Balance
<S> <C> <C> <C> <C>
1995 71,163 7,181 - 78,344
1996 78,344 7,384 - 85,728
1997 85,728 - 85,728 -
</TABLE>
The Company leases office space from a company wholly owned by the Chairman of
the Board of Directors. This lease was terminated in 1995, by mutual consent,
retroactive to October 1994. The Company paid $23,453 in rent under the lease in
1994. This lease was reinstated effective June 1, 1995. The lease ends on May
31, 1998 and requires annual rental payments of approximately $30,000. Rental
payments under this lease were $36,000 in 1997, $27,120 in 1996 and $15,820 in
1995 .In 1998, this lease was renewed at a rate of $3,000 per month for a term
of three years, expiring May 2001.
Accrued Salary - Chairman:
As of December 31, 1997 the Company owed accrued salaries of $1,127,336, plus
accrued interest of $170,738, to the Chairman of the Board of Directors.
(5) EQUITY TRANSACTIONS (Also See Note 1)
In August 1997, the Company's shareholders approved a one-for-twenty two reverse
stock split. Accordingly, , all share data has been restated for periods prior
to the reverse stock split.
The Predecessor had two offerings of limited partnership interests. The initial
offering, pursuant to a Private Placement Memorandum dated January 28, 1987,
provided for the sale of five units, each representing a 14% interest at a cost
of $420,000 per unit. Proceeds of $831,600, net of placement fees paid to the
General Partner of $92,400, were received under this offering during 1987 and
1988, representing 2.2 units.
A second Private Placement Memorandum dated February 29, 1988, provided for 10
Class A units, each representing a 2% interest at a cost of $150,000 per unit.
Class A Limited Partners were entitled to a preferred return equal to .5% of
gross income until such returns equaled 500% of the initial contribution.
Proceeds of $1,310,000, net of placement fees paid to the General Partner of
$145,000, were received under this offering during 1988 and 1989, representing
9.7 units.
F-12
<PAGE> 23
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(5) EQUITY TRANSACTIONS (Also See Note 1) (Continued)
Some of the direct research and development expenses incurred by the Company
were payable in cash and some were payable in equity interests. During the year
ended December 1990, $86,900 was credited to equity in accordance with this
arrangement.
During 1991, the Chairman of the General Partner (who continues as Chairman of
the Successor) and the General Partner of the Predecessor transferred to certain
directors and advisers of the General Partner, limited partnership interests in
the Predecessor as consideration for services rendered to the General Partner.
The Company has recognized expense of $317,917 related to these transactions in
1991.
In conjunction with the initial public offering, various creditors, including
the General Partner and affiliates, agreed to accept 13,103 shares of common
stock in satisfaction of $792,819 of indebtedness. The conversion to equity did
not involve the issuance of additional shares by the Company, but solely the
transfer of previously outstanding shares by existing stockholders.
The stockholders of the Company, except those who received common shares in
satisfaction of indebtedness, have placed in escrow on a pro rata basis, an
aggregate of 63,148 of the 113,636 common shares outstanding prior to the
initial public offering (the Escrow Shares). These stockholders will continue to
vote the Escrow Shares, which shall not be assignable or transferable.
The Escrow Shares will be released only if either of the following conditions
are met: (i) beginning on December 10, 1991 and ending 18 months thereafter, the
price for the Company's common stock as reported by NASDAQ or the sales price on
any national market system or stock exchange (the Sales Price) averages in
excess of $8.25 per share (subject to adjustments) for 30 consecutive business
days; or (ii) beginning 19 months from December 10, 1991 and ending 36 months
from such date, the Sales Price for the Company's common stock averages in
excess of $11.25 per share (subject to adjustments), for 30 business days. If
neither of the foregoing conditions has been met on the first day of the 37th
month after December 10,1991, all Escrow Shares will be forfeited and
contributed to the capital of the Company. As of December 10, 1994, neither of
the conditions had been met and therefore all Escrow Shares were contributed to
capital on January 1, 1995.
During 1992, the Company purchased 5 shares of treasury stock at a cost of $347.
The Company has recognized a reduction to stockholders' equity for this amount.
F-13
<PAGE> 24
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(5) EQUITY TRANSACTIONS (Also See Note 1) (Continued)
During March 1992, the Company exchanged the nonexclusive right to manufacture
and market its in vitro diagnostic test in exchange for 3,273 shares of the
Company's common stock that had been previously issued in exchange for services
rendered. As the value of these potential future rights is indeterminable, these
shares have been accounted for herein as a no-cost purchase of treasury stock.
During February 1993, the Company issued 1,515 of those shares as compensation
for consulting services through July 1994.
During December 1993, the Company issued 20,849 shares of restricted common
stock to qualified foreign investors under Regulation S of the Securities Act of
1933 at a price of $.9375 per share. Proceeds from the issuance were $363,270
after deducting $66,730 of costs. In addition, the Company issued 461 shares of
common stock.
During February 1994, the Company issued 30,455 shares of restricted common
stock to qualified foreign investors under Regulation S of the Securities Act of
1933 at a price of $.95 per share. Proceeds from the issuance were $570,350
after deducting $66,150 of costs. In addition, the Company issued 1,523 warrants
to the placement agent. The warrants expired in February 1998.
During March 1994, the Company issued 51,894 shares of restricted common stock
to qualified foreign investors under Regulation S of the Securities Act of 1933
at a price of $.60 per share. Proceeds from the issuance were $658,302 after
deducting $26,698 of costs. In addition, the Company issued 5,189 warrants to
the placement agent. The warrants expired in March 1998.
During April 1994, the Company issued 10,000 shares of restricted common stock
to qualified foreign investors under Regulation S of the Securities Act of 1933
at a price of $.50 per share. Proceeds from the issuance were $98,000 after
deducting $12,000 of costs. In addition, the Company issued 1,000 warrants to
the placement agent. The warrants expired in April 1998.
During 1995, the Company offered pursuant to a private placement pursuant to
Rule 505 of Regulation D of the Securities Act of 1933, up to 363,636 shares of
its common stock at a price of $.25 per share, together with warrants for an
additional 363,636 shares of common stock at prices ranging from $2.00 per share
for five years following issuance. As of December 31, 1997, the Company has
issued 95,545 common shares and 95,545 warrants to purchase common shares of the
Company for proceeds of $525,000.
F-14
<PAGE> 25
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(5) EQUITY TRANSACTIONS (Also See Note 1) (Continued)
During 1997, the Company offered pursuant to a private placement pursuant to
Rule 505 of Regulation D of the Securities Act of 1933, the Company issued
45,455 shares of its common stock for net proceeds of $125,000, together with
warrants for an additional 27,727 shares of common stock at a price of $2.00 per
share. These warrants expire December 31, 2001.
During the five years ended December 31, 1997 the Company has issued 483,330
shares of common stock for services totalling $1,357,160.
During the year ended December 31, 1997, the Company issued 31,363 shares of
common stock pursuant to price protection provisions in connection with earlier
purchases of common stock.
During the year ended December 31, 1997, the Chairman of the Company was issued
1,627,727 shares of common stock of the Company.
During the year ended December 31, 1997, the Company issued to the Directors of
the Company and others 139,455 shares of common stock for services.
During the year ended December 31, 1997, accounts payable and accrued expenses
of the Company were converted into 174,565 shares of common stock of the
Company.
During the year ended December 31, 1997, the Company issued 112,500 shares of
common stock in connection with debt securities whereby the Company raised
$225,000 (see Note 2).
F-15
<PAGE> 26
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(6) PREFERRED STOCK
(a) Series A Preferred:
In 1995, the Company's Board of Directors authorized for issuance shares of
Class A preferred stock pursuant to the terms of the Company's certificate of
incorporation. Each such share is convertible into two shares of common stock of
the Company. Each Class A share shall be entitled to 30 votes per share on all
matters that may come before the stockholders for a vote. Such shares shall be
entitled to a preference in dividends and a preference in any distribution in
liquidation or otherwise and dividends are cumulative. Preferred stock must be
redeemed no later than December 31, 1999 at a redemption price of $.50 per share
plus accrued but unpaid dividends.
The preferred stock is convertible into common stock at the rate of two shares
of common stock for each share of preferred stock.
In connection with this authorization the Chairman of the Board of Directors has
invested $100,000 for 200,000 shares of the Class A Convertible Preferred Stock
at a price per share of $.50. The holder has the right to return the stock at
any time two years after issuance at $.50 per share, plus unpaid accrued
dividends. This subscription was cancelled in 1997.
(a) Series B Preferred:
In 1996, the Company's Board of Directors authorized for issuance shares of
Class B preferred stock pursuant to the terms of the Company's certificate of
incorporation. Each Class B share shall be entitled to one vote per share on all
matters that may come before the stockholders for a vote. An annual dividend
equal to the Company's net profit before income taxes for each of the Company's
fiscal years beginning July 1, 1996 as to such time as the holders receive an
aggregate amount equal to $.70 per share shall be paid, thereafter pari passu as
the common stockholders. There is no mandatory redemption and the stock has
standard antidilution rights and ranks pari passu with the Series A Preferred
stock on liquidation rights.
In 1996 and 1997 there were 450,000 and 400,000 shares issued for net proceeds
of $215,000 and $180,000, respectively. During 1997, all 850,000 preferred
shares were converted into 154,545 shares of common stock.
In connection with the issuance the 1996 Series B Preferred Stock, holders also
received one Class C and one Class D warrant to purchase one common share for
each share of Series B preferred stock purchased, at $2.00 per share,
respectively, for a period of five years from the date of purchase.
In connection with the issuance of the 1997 Series B Preferred Stock, the
holders also received Class C and Class D warrants to purchase common stock
totalling 800,000 shares at $2.00 per share.
F-16
<PAGE> 27
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(7) COMMITMENTS AND CONTINGENCIES
Pursuant to the licensing agreement discussed in Note 2, the Company had agreed
to reimburse BBRI for certain costs for research and development pursuant to
budgets prepared by BBRI. This obligation expired in 1994.
The licensing agreements also provides for the indemnification of BBRI by the
Company against product liability claims incurred.
The Company was obligated under a lease for the rental of office space at
December 31, 1994 at a monthly rate of approximately $1,250. The lease expired
in January 1995 and the Company vacated the premises at such time.
(8) COMPENSATION ARRANGEMENTS
The Company has entered into employment agreements (individually the Agreement
and collectively the Agreements) with individuals to serve as the Chairman and
the Vice Chairman of the Board of Directors. The Vice Chairman's Agreement is in
effect for a period of three years commencing June 1, 1994. Subsequent to the
initial, three-year term, the Vice Chairman's Agreement allows for automatic
extension for an additional year unless the Vice Chairman or the Company party
notifies the other party of their intent not to extend within 90 days of June 1
of each renewal year, in writing. The Vice Chairman's Agreement allowed for
compensation of $18,000 per year plus stock options as follows:
1. 2,136 Shares available for $2.00 per share upon execution and delivery
of the Agreement and 1,682 Shares available for $2.00 per share on
June 1 of each year in which the Agreement remains in effect. There
were 7,182 options outstanding as of December 31, 1997.
In 1997, the Vice Chairman's accrued salary of $46,500 was converted into 21,679
shares of common stock of the Company.
In 1998, the agreement was amended to increase the rate of salary to $36,000 per
year.
The Chairman's Agreement is in effect for for a period of 60 consecutive months
commencing April 20, 1994. On April 20 of each year, beginning April 20, 1995,
such term of the Agreement shall be automatically extended for an additional
year unless prior to such date the employee or the Company have notified the
other in writing of its intention not to extend.
F-17
<PAGE> 28
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(8) COMPENSATION ARRANGEMENTS (Continued)
Chairman's agreement (continued):
The Chairman's Agreement allows for compensation of $189,000 per annum with a
$50,000 per annum increase on April 20 of each year during the term of the
Agreement. The Agreement also allows for the payment of certain benefits and the
following:
1. Stock options to purchase 400,000 shares of common stock at $.66 per
share as long as the Agreement remains in effect.
2. Stock options to purchase shares of common stock of the Company at
$.66 per share upon the formation and closing of a strategic alliance
or joint venture with a well established company which first assumes
responsibility for marketing the Company's COD test in (A) the United
States, 200,000 shares of common stock, (B) Europe, 200,000 shares of
common stock and (C) Japan, 200,000 shares of common stock.
3. Stock options to purchase 500,000 shares of common stock of the
Company at $.66 per share upon the approval of the Food and Drug
Administration of the Company's COD test.
4. Stock options to purchase 600,000 shares of common stock of the
Company at $.50 per share upon the closing by the Company of a
Financing (the receipt by the Company of cash, cash equivalent or any
other benefit or consideration having a value of at least $1,000,000.
In August 1995, the exercise price of these options were reduced to
$.25 for the first 300,000 shares and $.50 for the remaining 300,000
shares.
All of the above options outstanding and rights to options were relinquished by
the Chairman in 1997.
Stock Option Plan:
The Company has established a 1991 Stock Option Plan (the Plan) which provides
for the granting of options to key employees and consultants to purchase up to
an aggregate of 6,818 shares of the Company's common stock, from either
authorized but unissued or reacquired shares. Options to purchase 2,545 shares
have been granted under the plan. In 1997, all options under the plan were
cancelled.
F-18
<PAGE> 29
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(8) COMPENSATION ARRANGEMENTS (Continued)
Stock Option Plan (continued):
Options granted under the Plan may be either incentive or nonqualified options.
The exercise price of both the incentive and nonqualified options granted must
be at least equal to the fair market value of the common stock at the date of
grant. Options may be granted for terms of up to 10 years. Certain other
limitations have been placed on incentive options granted to persons possessing
10% or more of the total combined voting power of the Company on the date of
grant related to exercise price and aggregate options available to be exercised
in any calendar year.
Other Stock Options:
During 1992 and 1993, the Company granted options to selected employees and
members of the Company's Board of Directors to purchase an aggregate of 12,614
shares of the Company's common stock at an option price of $3.60 per share,
which was not less than the fair market value of the stock at the date of grant.
During May 1992, 1,705 of these options were canceled. During 1997, these
options were repriced and reissued at $2.00 per share. The options vest ratably
over a five-to ten-year period and expire in five to ten years. Of the total
options granted during 1992 and 1993, 7,727 were outstanding and exercisable at
December 31, 1997.
On February 2, 1993, April 15, 1993 and April 20, 1994, the exercise price of
certain options was reduced to the fair market value of the Company's stock at
that date. These options were treated as canceled and reissued.
During April 1993, the Company granted 19,545 seven-year options at $1.25 per
share to selected members of the Company's Board of Directors, with exercise
contingent upon exercise of the Class A warrants of the Company, and 29,091
seven-year options at $1.25 per share, with exercises contingent upon exercise
of the Class B warrants of the Company. (See Note 1 for descriptions of
warrants). The Company will incur compensation expense, if any, at the time such
options become exercisable. On April 20, 1994, the exercise price of certain of
these options was reduced to the fair market value of the Company's stock on
that date. During 1996, all of these options were cancelled.
During December 1993, the Company granted 35,284 seven-year options at $.9375
and 134,358 at $.75 in connection with the Regulation S offerings (See Note 5).
As these options were issued below fair market value, the Company recognized a
compensation charge of $159,039 during 1993.
During February 1994, as part of a development agreement, the Company granted
100,000 options at $1.88 per share, which was not less than the fair market
value of the stock at the date of grant.
In connection with the Regulation S offerings in 1994 (See Note 5), the Chairman
of the Board of Directors was granted options to purchase 436,529 of the
Company's common stock at exercise prices ranging from $.50 per share to $.75
per share.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123 "Accounting and Disclosure of Stock Based Compensation" (Statement 123).
Statement 123 is effective for fiscal years beginning after December 15, 1995,
and allows for the option of continuing to follow Accounting Principles Board
Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees" and the
related interpretations or selecting the fair value method of expense
recognition as described in Statement 123. The Company has elected to follow APB
25 in accounting for its employee stock options. Under APB 25, because the
exercise price of the Company's employee stock options are equal to or less than
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma net income had Statement 123 been applied would not change. There is
no market for the Company's stock at this time and therefore the Company
believes the fair value of all outstanding options to be zero.
F-19
<PAGE> 30
EPIGEN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(Continued)
(9) SUBSEQUENT EVENTS
(a) In 1998, the Company issued 50,000 shares of common stock for services.
(b) In 1998, the Company issued 350,000 shares of common stock as a bonus to the
Chairman of the Board of Directors.
(c) In 1998, the Company issued 25,000 shares of common stock to each of two
members of the Board of Directors of the Company.
(d) In 1998, the Company entered into a follow-on maintenance agreement with
Biotag, Inc., for the purpose of funding research by "NKI" toward cloning of
epiglycanin and the generation of monoclonal antibodies and any resultant hybrid
cell lines, with the Company assuming payment obligations of Biotag to "NKI" and
to pay to Biotag a royalty equal to 5% over the aggregate royalties required to
be paid to Biotag to "NKI" or any other party which would have a right to
receive royalty payments for the use of epiglycanin.
(e) In 1998, the Board of Directors approved the issuance of 25,000 shares of
common stock to each of two doctors upon completion of an IRB on the use of the
COD test on lung cancer. To date this work has not been completed.
(f) The Company issued notes to two investors for $125,000. In connection with
these notes the Company issued 46,994 shares of its common stock.
(g) The Company issued 271,107 shares of its common stock in a private placement
for net proceeds of $225,000.
(10) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement No.
129, Disclosure of Information about Capital Structure (SFAS No. 129). In June
1997, the Financial Accounting Standards Board issued Statement No. 130,
Reporting Comprehensive Income (SFAS No. 130), and Statement No. 131, Disclosure
about Segments of an Enterprise and Related Information (SFAS No. 131). The
Company is required to adopt these statements in 1998. SFAS No. 129 consolidates
the existing guidance from several other pronouncements relating to an entity's
capital structure. SFAS No. 130 establishes new standards for reporting and
displaying comprehensive income and its components. SFAS No. 131 requires
disclosure of certain information regarding operating segments, products and
services, geographic areas of operation and major customers. Adoption of these
statements is expected to have no impact on the Company's financial position,
results of operations or cash flows.
F-20
<PAGE> 31
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The following table sets forth as to the directors and each executive officer:
(1) his name; (2) his age; and (3) his present position with the Company.
NAME AGE TITLE
Donald C. Fresne 70 Chairman of the Board of
Directors, Director, President
and Chief Executive Officer
L. Courtney Schroder 60 Treasurer and Director
Richard E. Kent 69 Vice Chairman of the Board of
Directors and Secretary
DONALD C. FRESNE has been the Chairman of the Board of Directors and a Director
of the Company since 1991, the Chief Executive Officer of the Company since
March 24, 1994 and President since August 29, 1997. Mr. Fresne, the founder of
COD Associates, has served as Chairman of the Board of Directors of Biotag,
Inc., the general partner of COD Associates, since 1986. Mr. Fresne was Chairman
and a principal stockholder of RMC Environmental Services, Inc., an
environmental consulting company, from 1989 to 1994.
L. COURTNEY SCHRODER has been Treasurer and a Director of the Company since
1991. Mr. Schroder served as a director of Biotag, Inc. from 1987 to 1991. He
served as Vice President of Chase Manhattan Bank from 1981 until July 1991, and
is currently Vice President of UBS Asset Management (New York) Inc.
RICHARD E. KENT has been a Director of the Company since 1991 and Vice Chairman
of the Board of Directors of the Company since January 28, 1994 and the
Company's Secretary since June, 1994. Mr. Kent served as a director of Biotag,
Inc. from 1987 to 1991. Mr. Kent was Vice President, Secretary and General
Counsel of Grossman's Inc., a retailer of building materials, from 1986 until
his retirement in December 1997. In April 1997, Grossman's Inc. filed for
protection under Chapter 11 of the United States Bankruptcy Code. Mr. Kent
presently is self-employed as a consultant.
COMPLIANCE WITH SECTION 16(a) OF SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and officers and persons who own beneficially more than ten
percent of the Common Stock of the Company to file with the Securities and
Exchange Commission
9
<PAGE> 32
initial reports of beneficial ownership and reports of changes in beneficial
ownership of the Common Stock. Directors, officers and persons owning more than
ten percent of the Common Stock are required to furnish the Company with copies
of all such reports. To the Company's knowledge, based on a review of copies of
such reports furnished to the Company during its fiscal year ended December 31,
1997, James F. Mongiardo, the Company's former President and former director,
and Marshall Sterman, a former director, failed to file final Form 4's upon
their resignations as an officer and directors of the Company.
ITEM 10. EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation of the
Company's Chief Executive Officer and other most highly compensated executive
officer (collectively, the "Named Executive Officers") for services as executive
officers of the Company for the last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- ------------
Securities
Name and Other Annual Underlying All Other
Principal Positions Year Salary ($) Bonus ($) Compensation ($) Options (#) Compensation ($)
- ------------------- ---- ---------- --------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Donald C. Fresne(1).... 1997 123,504 --- 17,721(2) --- 16,900(3)
Chairman, President 1996 34,149 --- 19,500(2) 4,650(3)
and Chief Executive 1995 --- --- 21,871(2) 2,525,537 4,650(3)
Officer
Richard E. Kent(1)..... 1997 --- --- ---(4) 1,681 750(5)
Vice Chairman of the 1996 --- --- --- 1,681 ---
Board and Secretary 1995 --- --- --- 1,681 ---
L. Courtney Schroder... 1997 --- --- ---(4) --- 750(5)
Treasurer and 1996 --- --- --- --- ---
Director 1995 --- --- --- --- ---
</TABLE>
- ---------------------------------
(1) Mr. Fresne became Chief Executive Officer of the Company on March 24, 1994
and President on August 29, 1997. Mr. Kent became Vice Chairman of the Board of
Directors and Secretary of the Company in June 1994. The payment of salaries and
benefits to Mr. Fresne and Mr. Kent were curtailed beginning in October 1994
because of the Company's lack of cash flow. Portions of the unpaid amounts of
such salaries have been accrued. In the case of Mr. Fresne, he received salary
payments in 1997 of $123,504 and the amount of such accrual for 1997 is
$202,996. In the case of Mr. Kent, he received no salary payments in 1997 and
the
10
<PAGE> 33
amount of such accrual for 1997 is $18,000. Mr. Kent's annual salary was $18,000
through March 31, 1998. On April 1, 1998, Mr. Kent's annual salary was increased
to $36,000. On July 14, 1997, Mr. Kent converted all his accrued salary through
December 31, 1996 into 21,679 shares of the Company's Common Stock at the rate
of $2.04 per share.
(2) Represents car allowances of $5,410 and club membership fees of $12,935 for
1997, car allowances of $12,779.26 and club membership fees of $9,092.24 for
1996 and car allowances of $16,913.92 and club membership fees of $9,359.96 for
1995.
(3) Represents annual insurance premium paid by the Company for a $500,000 term
life insurance policy and stock bonuses aggregating 1,257,273 shares valued at
$.013 per share.
(4) Represents amounts which do not meet reporting thresholds.
(5) Represents 34,090 share common stock bonus recorded by the Company at $.022
per share.
OPTION GRANTS TABLE
The following table sets forth information with respect to the Named
Executive Officers concerning the grant of stock options for Common Stock of the
Company during the fiscal year ended December 31, 1997. The Company did not have
during such fiscal year, and currently does not have, any plans providing for
the grant of stock appreciation rights ("SARs").
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS EXERCISE
UNDERLYING GRANTED TO OR BASE MARKET
OPTIONS/SARS EMPLOYEES IN PRICE PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR ($/SH) ($/SH)(1) DATE
<S> <C> <C> <C> <C> <C>
Richard E. Kent ........... 1,681(1) 100% 2.00 N/A 9/13/04
</TABLE>
- -------------------------
(1) Represents non-qualified stock options for shares of Common Stock granted on
September 13, 1994 pursuant to Mr. Kent's Employment Agreement dated September
13, 1994. Mr. Kent will receive options to purchase an additional 1,681 shares
of Common Stock on each June 1st on which such Employment Agreement is still in
effect.
No stock options for Common Stock were exercised during the fiscal year
ended December 31, 1997 by the Named Executive Officers. The following table
provides information related to the number and value of stock options for Common
Stock held at the end of such fiscal year by the Named Executive Officers. The
11
<PAGE> 34
Company does not have any plans providing for SARs.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-
NUMBER OF UNEXERCISED THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 1997(#) DECEMBER 31, 1997($)
ACQUIRED ON VALUE ------------------------------- -------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ ------------------------------- -------------------------
<S> <C> <C> <C> <C>
Donald C. Fresne......... --- --- ---/--- ---/---
Richard E. Kent ......... --- --- 9,515/--- ---/---
L. Courtney Schroder..... --- --- 2,106/--- ---/---
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of March 31, 1998 with respect to
the beneficial ownership of the Common Stock of the Company by (i) each person
known to the Company who beneficially owns more than 5% of any class of voting
securities of the Company, (ii) each director and nominee of the Company, (iii)
the executive officers of the Company and (iv) all directors and executive
officers of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL BENEFICIAL PERCENT
OWNER OWNERSHIP(1) OF CLASS
- ------------------------------- ------------ --------
<S> <C> <C>
Donald C. Fresne(2) 2,059,873 58.2%
Box L
North Tower Hill Road
Millbrook, NY 12545
L. Courtney Schroder(3) 70,396 1.9%
25 Blackburn Lane
Manhasset, NY 11030
Richard E. Kent(4) 112,365 3.1
49 Bourne Point Rd.
Wareham, MA 02571
Leo W. Long(5) 368,560 10.4%
c/o Long Motor Corporation
14600 West 107 Street
Lenexa, KS 66215
</TABLE>
12
<PAGE> 35
<TABLE>
<S> <C> <C>
All directors and executive 2,611,194 63.2
officers of the Company as
a group (3 persons)
</TABLE>
- ---------------------------
(1) A person is deemed to be the beneficial owner of securities that
such person can acquire as of and within the 60 days following the date of this
table upon the exercise of options and warrants. Each beneficial owner's
percentage of ownership is determined by assuming that options and warrants that
are held by such person (but not those held by any other person) and which are
exercisable as of and within 60 days following the date of this table have been
exercised. For purposes of the footnotes that follow, "currently exercisable"
means options and/or warrants that are exercisable as of and within 60 days
following the date of this table. Except as indicated in the footnotes that
follow, shares listed in the table are held with sole voting and investment
power. All shares holdings set forth herein reflect the effect of a 22 for 1
reverse split of the Company's Common Stock effective September 3, 1997.
(2) Included in the shares reported by Mr. Fresne are 20,822 shares
owned by Biotag, Inc. ("Biotag"), the former general partner of the COD
Associates, L.P., the predecessor to the Company, which is wholly-owned by Mr.
Fresne and warrants to purchase 27,702 shares of the Company's Common Stock at
$.83 per share at any time prior to April 15, 2003 and the right to convert an
aggregate of $20,500 principal amount of demand convertible promissory notes
into 27,702 shares of the Company's Common Stock at any time during the period
such notes are outstanding.
(3) Included in the shares reported by Mr. Schroder are shares issuable
upon exercise of currently exercisable options to purchase 2,106 shares of
Common Stock.
(4) Included in the shares reported by Mr. Kent are shares issuable
upon the exercise of currently exercisable options to purchase 9,515 shares of
Common Stock.
(5) Included in the shares held by Mr. Long are shares issuable upon
the exercise of currently exercisable warrants to purchase 166,097 shares of
Common Stock and 37,594 shares of Common Stock issuable upon conversion of a
certain promissory note of the Company to Mr. Long.
MEETINGS OF THE BOARD AND COMMITTEES OF THE BOARD
The Board of Directors held five (5) meetings during the year ended
December 31, 1997 and acted once by unanimous written
13
<PAGE> 36
consent. Mr. Fresne and Mr. Kent each attended all of the meetings. Mr. Schroder
attended two meetings. The Board of Directors has one standing committee -- the
Executive Committee composed of Mr. Fresne and Mr. Kent. The Executive Committee
did not meet in 1997. The Board of Directors does not have a standing nominating
committee, audit committee or compensation committee, such functions being
reserved to the full Board of Directors.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Donald C.
Fresne, Chairman of the Board of Directors and Chief Executive Officer of the
Company, for an initial five-year term commencing on April 20, 1994 and ending
on April 20, 1999. Such agreement was amended on September 13, 1994. On April 20
of each year, beginning on April 20, 1995, the term of the employment agreement
will be automatically extended for an additional year unless prior to such date
Mr. Fresne or the Company notifies the other of its intention not to extend the
term.
Under the agreement, as amended, Mr. Fresne is to be paid a salary of
$189,000 per year with annual increases of $50,000 per year, and, in the
discretion of the Board, may given merit increases and bonuses. Further, upon
the exercise of 65% of the Company's presently outstanding Class A Warrants, Mr.
Fresne will be paid a cash bonus of $250,000, and upon the exercise of 65% of
the Company's presently outstanding Class B Warrants, Mr. Fresne will be paid a
cash bonus of $200,000. Such warrants expired unexercised on December 10, 1996.
As such, Mr. Fresne will not be entitled to any such bonus. In addition, Mr.
Fresne was granted seven-year options under the agreement to purchase 400,000
shares of Common Stock at $0.66 per share and to purchase the following
additional number of shares of Common Stock at $0.66 per share upon the
occurrence of the following events: (1) upon the formation and closing of a
strategic alliance or joint venture with a well-established company which first
assumes responsibility for marketing the Company's in vitro diagnostic blood
test in (a) the United States, 200,000 shares of Common Stock, (b) Europe,
200,000 shares of Common Stock and (c) Japan, 200,000 shares of Common Stock and
(ii) 500,000 shares of Common Stock upon the approval by the Food and Drug
Administration of the diagnostic blood test. Further, Mr. Fresne has been
granted seven-year options under the agreement to purchase the following shares
of Common Stock at $0.50 per share upon the occurrence of the following events:
(i) 600,000 shares upon the closing of a financing pursuant to which the Company
receives consideration of at least $1,000,000; (ii) up to 216,967 shares when
and as the Company's Class A Warrants are exercised, on the basis of one option
share for each ten Class A Warrants exercised; and (iii) up to 325,450 shares
when and as the Company's Class B Warrants are exercised, on the basis of one
option share for each ten
14
<PAGE> 37
Class B Warrants exercised. Such warrants expired unexercised on December 10,
1996. As such, the options associated with the Class A and Class B warrants
expired. In September 1997, Mr. Fresne voluntarily surrendered all other options
granted to him under such Agreement.
The Company also will provide Mr. Fresne with a company car, reimburse
him for membership dues and expenses used for the Company's benefit and
reimburse him for the premiums paid for (i) a $750,000 whole life insurance
policy; (ii) long-term disability insurance and (iii) health insurance benefits.
Following Mr. Fresne's termination of employment with the Company (other than
for cause) he will continue to be reimbursed for the premiums paid on the life
insurance policy and on all individual health insurance policy for him and his
spouse and will be provided with an office and secretary. The Company also will
be responsible for reimbursing Mr. Fresne for all federal and state income taxes
attributable to the aforementioned benefits.
On August 29, 1997 the Company and Mr. Fresne executed an amendment to
Mr. Fresne's employment agreement, effective as of July 14, 1997, to provide
that he would receive a yearly salary from the Company equal to $339,000,
payable monthly, plus an annual increase of $50,000 on April 20 of each year in
which this Employment Contract is in effect; provided however, that effective on
the closing of a private placement of the Company's securities his salary would
be $250,000 per year and remain at that level until such time as the Company
successfully completes a sale of its securities in either a private or public
sale or receive license or royalty payments for its products in the aggregate
amount of $1,000,000 in a single fiscal year. From and after the closing of such
sale of securities, or receipt of license or royalty payments for its products
aggregating $1,000,000 in a single fiscal year, his salary shall be increased to
the level he would have been entitled to receive in the event his salary had not
been reduced as herein provided. Furthermore, subject to completion of a public
or private sale of securities of the Company aggregating at least $1,000,000
prior to December 31, 1997, all but $300,000 of salary owed by the Company to
Mr. Fresne which is accrued but unpaid as of June 30, 1997 shall be capitalized
and Mr. Fresne shall forego receipt of same. Such amendment also provided that
upon closing of a private sale of the Company's securities yielding gross
proceeds of at least $1,000,000, Mr. Fresne would surrender all unexercised
stock options in his name, including the an option which permitted him to
receive a number of securities equal to 15% of the securities sold in any such
offering. The Company also was to reimburse Mr. Fresne for the amount of
expenses incurred by him for health care and not reimbursed by the health
insurance and Medicare. The obligation of the Company to pay the premium on Mr.
Fresne's whole life insurance policy shall be suspended for a period beginning
August 1, 1997 and ending July
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<PAGE> 38
31, 1998, during which period Mr. Fresne may pay such premium. Thereafter, the
Company shall pay such premium to the extent provided in such agreement. Such
amendment was intended to go into effect upon the closing of a proposed sale of
the Company's securities pursuant to a private placement agented by Whale
Securities Co., L.P. Such private placement was abandoned by Whale Securities
Co., L.P. in October 1997 because of then adverse market conditions. On January
22, 1998, the Company's board of directors rescinded such amendment and
confirmed that the Amended and Restated Employment Contract remained in effect.
Mr. Fresne's employment agreement also provides that following the
termination of his employment with the Company (other than for cause) he will be
entitled to a continuation of his salary for a number of years equal to the
number of years that he was employed by the Company prior to his termination of
employment. Moreover, upon a change in control of the Company (as defined in the
employment agreement) and the termination of Mr. Fresne's employment within a
period commencing six months prior to, and ending one year after, such change in
control, Mr. Fresne will receive a lump sum payment equal to the lesser of
$2,000,000 or 2.999 times his average annual compensation for the five years
before the change in control.
On September 13, 1994, the Company entered into an employment agreement
for a three year term, effective June 1, 1994 and expiring May 31, 1997, with
Richard E. Kent pursuant to which Mr. Kent will serve as Vice Chairman of the
Company. Pursuant to such agreement, Mr. Kent was to receive an annual salary of
$18,000 and, in the discretion of the Board of Directors, may be given merit
raises and bonuses. Such agreement was automatically extended for an additional
year through May 31, 1998. The agreement granted Mr. Kent options to purchase
2,137 shares of the Company's Common Stock at a price of $2.00 per share
effective September 13, 1994. In addition, Mr. Kent receives options to purchase
an additional 1,681 shares of the Company's Common Stock at a purchase price of
$2.00 per share on June 1 of each year in which the agreement remains in effect,
including 1996. The Company has granted to Mr. Kent certain demand registration
rights (exercisable on two occasions) and piggyback registration rights with
respect to the Common Stock underlying options now or hereafter held by Mr. Kent
during the term of the agreement. Mr. Kent has not received any salary payments
pursuant to such agreement and the amount of accrued salary owed him as of the
December 31, 1996 was $46,500. On July 14, 1997, Mr. Kent agreed to convert all
of such accrued salary into 21,678 shares of Common Stock, at the rate of $2.145
per share. Effective April 1, 1998, Mr. Kent's employment contract was amended
by the Company's Board of Directors to increase his annual salary to $36,000.
DIRECTOR COMPENSATION
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<PAGE> 39
In 1997, no compensation was paid to non-employee directors of the
Company, other than reimbursement for travel expenses incurred for attending
meeting of the Board of Directors and its Committees and the stock bonuses
described in the section of this Form 10-KSB entitled "Certain Relationships and
Related Transactions".
STOCK OPTION PLAN
As of June 1, 1991, the Board of Directors of the Company adopted the
1991 Stock Option Plan (the "Plan") which was ratified and approved by the
Company's stockholders on October 1, 1991. The Plan provides for the grant by
the Company of options to purchase up to an aggregate of 150,000 of the
Company's authorized but unissued shares of Common Stock (subject to adjustment
in certain cases including stock splits, recapitalizations and reorganizations)
to key employees of the Company and consultants. It is presently administered by
the Board of Directors as a whole.
Presently, there are no outstanding options held by any officers or
directors of the Company.
REPRICING OF OUTSTANDING OPTIONS AND WARRANTS
On September 22, 1997, the Company's Board of Directors elected to
reprice substantially all of the outstanding options and warrants to purchase
the Company's Common Stock, including options and warrants held by officers and
directors to $2.00 in light of the effect on the prices of such securities
resulting from the effectiveness a 22 for 1 reverse stock split on September 3,
1997. Only those warrants issued in connection with the Company's offering of
securities under Regulation S were not repriced.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
For information regarding certain transactions involving the Company
and its directors and executive officers prior to August 1, 1997, see "Certain
Relationships and Transactions", of the Company's Information Statement on
Schedule 14C, dated August 9, 1997.
At a meeting of its shareholders on August 29, 1997, the Company's
shareholders approved (i) a reverse 22 for 1 split of the Company's Common Stock
and (ii) an amendment to its by-laws changing the size of the Company's board of
directors to between not less than three (3) directors and nine (9) directors.
Also on August 29, 1997, the Company and Mr. Fresne entered into an
Amendment to Mr. Fresne's Amended and Restated Employment Agreement. The terms
of such Amendment are described in Item 10
17
<PAGE> 40
- - Executive Compensation and Other Information - Employment Agreements.
During September 1997, Mr. Fresne surrendered all of the following
securities to the Company in anticipation of certain requirements which would be
imposed upon the Company in any future financing, regardless of the status of
any transaction with Whale Securities Co., L.P.: (1) 18,182 shares underlying
options to purchase such shares at $2.00 per share pursuant to Mr. Fresne's
Amended and Restated Employment Agreement dated September 13, 1994, (ii) 18,182
shares of Common Stock underlying 9,091 shares of Series A Convertible Preferred
Stock and 18,182 shares of Common Stock which could have been obtained by Mr.
Fresne upon conversion of warrants for such shares issued to Mr. Fresne pursuant
to the Preferred Stock and Warrant Purchase and Security Agreement between Mr.
Fresne and the Company dated as June 1, 1995, (iii) 11,454 warrants to purchase
11,454 shares of Common Stock at a price of $2.00 per share issued to Mr. Fresne
by the Company pursuant to its private placement of Units composed of Common
Stock and warrants to purchase Common Stock commenced in June 1995, (iv) options
granted to Mr. Fresne pursuant to which he would have been entitled to purchase
a number of shares of Common Stock equal to fifteen percent (15%) of the number
of shares of Common Stock or securities convertible into shares of Common Stock
upon the offering of the Company's securities to the public, at a price of $2.00
per share and (v) all stock options granted to Mr. Fresne pursuant to his
Amended and Restated Employment Contract.
In the period from September through October 1997, the Company issued
eight promissory notes in the aggregate original principal amount of $225,000 to
fund interim operating expenses pending the closing of the terminated private
placement through Whale Securities Co., L.P. Such amounts were loaned to the
Company by both existing stockholders and unrelated third parties. Included in
such amount was a loan of $25,000 by Richard E. Kent, the Company's Vice
Chairman and Secretary. Such notes require that the principal be repaid on the
earlier of the closing of the terminated private placement by Whale Securities
Co., L.P. or one year from the date of such note, together with interest in the
amount of $12,500 for each $50,000 of principal amount. The lenders also
received 25,000 shares of Common Stock for each $50,000 of principal amount as
additional consideration for such loans.
The Company and Biotag, of which Donald C. Fresne is the sole
shareholder, officer and director, entered into a Research Support Agreement,
dated October 31, 1997 (the "Biotag Agreement"), pursuant to which the Company
agreed to provide all funds and services required to be provided by Biotag
pursuant to a NKI/Biotag Research Agreement dated January 30, 1997 between
Biotag and the Nederlands Kanker Instituut (the "NKI Agreement").
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<PAGE> 41
Pursuant to the NKI Agreement, the Nederlands Kanker Instituut ("NKI") has
agreed to undertake a research program for the purpose of cloning cDNA for
epiglycanin and the generation of monoclonal antibodies directed against
epiglycanin. Biotag has been granted the exclusive right to develop and market
the results of such research in exchange for the payment of a royalty equal to
five percent (5%) of the net selling price of any product resulting from such
research. Such license is an exclusive worldwide license with a duration of the
life of any patents resulting from such research or, if no such patents are
issued, 20 years. The total cost of such research is $113,750, payable in
installments of $32,500 for the first six (6) months of research and five (5)
subsequent quarterly payments of $16,250.
Biotag has the right to sublicense its rights under the NKI Agreement
and has done so to the Company pursuant to the Biotag Agreement. The Biotag
Agreement grants to the Company an exclusive worldwide sublicense to
manufacture, directly or indirectly, use and sell the products resulting from
NKI's research on the same terms and conditions as granted to Biotag pursuant to
the NKI Agreement. The Company shall pay to Biotag a royalty equal to five
percent 5(%) of the net selling price of any product sold utilizing the results
of NKI's research plus the amount of any royalty owed by Biotag or NKI or any
third party on the sale of such products.
In December 1997, the Company issued a promissory note in the principal
amount of $100,000 to an existing stockholder to fund interim operating
expenses. Such note requires that the principal be repaid on the earlier of ten
(10) days following the closing of a sale or sales of the Company's Common Stock
aggregating $1,000,000 or one year from the date of such note, together with
interest at the rate of the then prime rate plus 5%. The lender may also convert
the principal amount of such loan into shares of the Company's Common Stock at
the rate of $2.66 of principal amount per share.
In conjunction with such $100,000 loan, Mr. Fresne granted to such
lender a call option pursuant to which such lender would have a call on 160,000
shares of the Company's Common Stock owned by Mr. Fresne at a price of $2.66 per
share for a period of five (5) years. The shares of Common Stock subject to such
call option are to be placed in escrow for the life of such option.
In January 1998, the Company issued two promissory notes in the
aggregate principal amount of $125,000 to two existing stockholders to fund
interim operating expenses. Such notes require that the principal be repaid on
the earlier of ten (10) days following the closing of a sale or sales of the
Company's Common Stock aggregating $1,000,000 or one year from the date of such
note, together with interest at the rate of the then prime
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<PAGE> 42
rate plus 5%. The lenders may also convert the principal amount of such loan
into shares of the Company's Common Stock at the rate of $2.66 of principal
amount per share. For each $100,000 of principal amount of loans, such lenders
also received (i) 37,596 shares of the Company's Common Stock and (ii) five year
warrants to purchase an additional 75,188 shares of the Company's Common Stock
at an exercise price of $2.66 per share.
In January 1998, the Company's Board of Directors issued to Mr. Fresne,
Mr. Kent and Mr. Schroder bonuses of 350,000, 25,000 and 25,000 shares,
respectively of the Company's Common Stock. Such shares are restricted and
cannot be sold by the holders thereof until the earlier of three years from the
date of issuance or the sale of all or substantially all of the Company's Common
Stock to a third party.
During the period from March 16, 1998 through April 7, 1998, Mr. Fresne
extended an aggregate of $20,500 in loans to the Company. Such loans were
evidenced by four promissory notes in the principal amounts of $3,000, $10,000,
$2,500 and $5,000 dated March 16, 1998, March 24, 1998, March 30, 1998 and April
7, 1998, respectively, and bear interest at the annual rate of the prime rate
plus five percent (5%). Such loans are payable on demand and must be prepaid
within ten (10) days of the sale by the Company of shares of its Common Stock
aggregating at least $1,000,000. Each such loan is convertible into shares of
the Company's Common Stock at the rate of $.83 of principal amount per share.
Such loans also entitled Mr. Fresne to receive warrants to purchase an aggregate
of 27,702 shares of the Company's Common Stock at $.83 per share. Such warrants
expire on April 15, 2003 and may be redeemed by the Company at $.05 per warrant
if the price of the per share of the Company's Common Stock equals or exceeds
three hundred percent (300%) of the exercise price for 20 of 30 consecutive
trading days. The shares of Common Stock underlying such warrants are entitled
to piggyback registration rights.
ITEM 13 EXHIBITS, LIST AND REPORTS ON FORM 8-K
Exhibits EXHIBIT INDEX
Exhibit No. Description
3.1 Certificate of Incorporation of the Company filed
with the Delaware Secretary of State on April 24
1991 (A)
3.2 Certificate of Amendment of the Company's
Certificate of Incorporation of the Company filed
with the Delaware Secretary of State on November
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<PAGE> 43
8, 1991 (B)
3.3 Certificate of Amendment of the Company's
Certificate of Incorporation of the Company filed
with the Delaware Secretary of State on September
3, 1997 (M)
3.4 Certificate of Amendment of the Company's
Certificate of Incorporation filed with the
Delaware Secretary of State on September 3, 1997
(M)
3.5 Certificate of Designation, Preferences and Rights
of Series A Preferred Stock of the Company (K)
3.6 Amended Certificate of Designation, Preferences
and Rights of Series A Preferred Stock of the
Company (L)
3.7 Certificate of Designation, Preferences and Rights
of Series B Preferred Stock of the Company
3.8 By-laws of the Company (A)
3.9 By-laws of the Company (H)
3.10 Amendment to Article III, Section 1 to the
Company's by-laws (M)
3.11 Certificate of Amendment of Certificate of
Incorporation Before Payment of Capital of Company
filed with the Delaware Secretary of State on May
28, 1991 (F)
3.12 Certificate of Correction Filed to Correct a
Certain Error in the Certificate of Incorporation
Filed in the Office of the Secretary of State of
Delaware on May 28, 1991, filed with the Delaware
Secretary of State on November 8, 1991 (F)
4.1 Form of Warrant Agreement by and among, the
Company, American Stock Transfer & Trust Company,
as Warrant Agent, and D.H. Blair & Co., Inc.,
relating to the Company's Class A and Class B
Warrants (B)
4.2 Escrow Agreement, dated December 1991, among
American Stock Transfer & Trust Company, as Escrow
Agent, the Company and certain stockholders of the
Company relating to the deposit in escrow of
certain shares of the Company's Common Stock (C)
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<PAGE> 44
10.1 Agreement dated December 12, 1986 (the "BBRI
Agreement") between Donald C. Fresne and BBRI
relating to mAb and HCA technology (A)
10.2 Assignment and Amendment to BBRI Agreement dated
as of April 30, 1991, among Donald C. Fresne, BBRI
and the Company
10.3 Amendment to BBRI Agreement dated as of April 6,
1993, between BBRI and the Company
10.4 Lease Agreement, dated May 1, 1991, between the
Company and Dutchess Management Company relating
to the Company's offices located in Millbrook, NY
(A)
10.5 Extension of Lease, dated October 22, 1993,
between the Company and L. Grignaffini & Sons,
Inc., relating to the Company's offices located in
Wellesley, MA
10.6 Agreement, dated November 27, 1989 (the "Whittaker
Agreement"), between COD and Whittaker
Bioproducts, Inc., relating to the mAb research
(A)
10.7 Consent to Assignment of Whittaker Agreement,
dated September 11, 1991, between Whittaker, M.A.
Bioproducts, Inc. and the Company
10.8 Agreement between the Company and The University
of Oslo (the "UO Agreement") relating to HCA
research (D)
10.9 Amendment to the UO Agreement, dated November 11,
1993, between the Company and The University of
Oslo
10.10 1991 Stock Option Plan of the Company (A)
10.11 Technical Collaboration and cGMP Manufacturing
Agreement, dated as of November 25, 1992, between
the Company and Verax Corporation (E)
10.12 Agreement, dated as of April 1, 1992, between the
Company and Immunotech Corporation, relating to
development of an in vitro blood serum test kit
(E)
10.13 Agreement, dated as of August 27, 1992, between
the Company and Donald C. Fresne, relating to a
loan of up to $350,000 (E)
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<PAGE> 45
10.14 Employment Contract, dated May 1, 1991, between
the Company and James F. Mongiardo (A)
10.15 Employment Contract, dated May 1, 1991, between
the Company and Donald C. Fresne (A)
10.16 Agreement, dated December 7, 1993, between the
Company and Baytree Associates, Inc., relating to
a Regulation S offering
10.17 Agreement, dated as of November 1, 1993, between
BioMolecular Assays, Inc. and the Company relating
to the development of the COD Test
10.18 Agreement, effective as of June 1, 1993, between
MGH and the Company, relating to a license for an
invention pertaining to certain hybridoma cell
lines
10.19 Lease dated January 15, 1992 (the "Wellesley
Lease"), between the Company and L. Grignaffini &
Sons, Inc., relating to the Company's offices
located in Wellesley, MA
10.20 Extension of Lease dated November 9, 1992 between
the Company and L. Grignaffini & Sons, Inc.,
relating to the Wellesley Lease
10.21 Employment Contract, dated April 20, 1994, between
the Company and Donald C. Fresne (H)
10.22 Agreement, dated February 10, 1994, between the
Company and Baytree Associates to raise equity
capital (H)
10.23 Agreement, dated March 9, 1994, between the
Company and Baytree Associates to raise equity
capital (H)
10.24 Agreement, dated March 9, 1994, between the
Company and Baytree Associates to raise equity
capital (H)
10.25 Agreement, dated April 14, 1994, between the
Company and Baytree Associates to raise equity
capital (H)
10.26 Amended and Restated Employment Contract dated
September 13, 1994, between the Company and Donald
C. Fresne (I)
10.27 Employment Contract dated September 13, 1994,
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<PAGE> 46
between the Company and Richard E. Kent (I)
10.28 Amendment, dated April 19, 1994, to the Restated
Agreement dated February 25, 1992, as amended,
between the Company and BBRI regarding a change in
the payment terms (I)
10.29 Preferred Stock and Warrant Purchase and Security
Agreement between the Company and Donald C. Fresne
dated May 1, 1995 (K)
10.30 Research Support Agreement dated as of October 31,
1997 between the Company and Biotag with attached
copy of NKI/Biotag Research Agreement dated
January 30, 1997
20.1 Form of Warrant to Purchase Common Stock (G)
- ---------------------
Notes to Exhibits:
(A) Incorporated by reference to the Company's Registration Statement
on Form S-1 (Registration No. 33-42868), filed on September 20, 1991.
(B) Incorporated by reference to the Company's Registration Statement
on Form S-1, as amended by Amendment No. 2 (Registration No. 33-42868), filed on
November 27, 1991.
(C) Incorporated by reference to the Company's Registration Statement
on Form S-1, as amended by Amendment No. 3 (Registration No. 33-42868), filed on
December 4, 1991.
(D) Incorporated by reference to the Company's Form 10-K for the fiscal
year ended December 31, 1991.
(E) Incorporated by reference to the Company's Form 10-KSB for the
fiscal year ended December 31, 1992.
(F) Filed together with Exhibit 3.3.
(G) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended March 31, 1994.
(H) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended September 30, 1994.
(I) Incorporated by reference to the Company's Form 10-QSB for the
quarterly period ended September 30, 1994.
(J) Incorporated by reference to the Company's Form 10-KSB for the
fiscal year ended December 31, 1994.
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<PAGE> 47
(K) Incorporated by reference to the Company's Form 8-K filed on June
15, 1995.
(L) Incorporated by reference to the Company's Form 10-KSB for the
fiscal year ended December 31, 1996.
(M) Incorporated by reference to the Company's Information Statement on
Schedule 14(c) dated August 9, 1997.
Reports on Form 8-K
The Company filed one report on Form 8-K for events occurring on August
29, 1997 relating to the approval by the Company's shareholders of (i) a reverse
22 for 1 split of the Company's Common Stock and (ii) an amendment to its
by-laws reducing the size of the Company's board of directors to three (3)
directors.
25
<PAGE> 48
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EPIGEN, INC.
Date: June 9, 1998 By /s/ Donald C. Fresne
--------------------
Donald C. Fresne, Chief Executive
Officer, Chairman of the Board of
Directors and President
In accordance with the Exchange Act, this report has been signed below
by the following persons of behalf of the registrant and in the capacities and
on the dates indicated.
Date: June 9, 1998 By /s/ Donald C. Fresne
--------------------
Donald C. Fresne, Chief Executive
Officer, Chairman of the Board of
Directors and President
Date: June 9, 1998 By /s/ Richard E. Kent
-------------------
Richard E. Kent, Vice Chairman of the
Board of Directors and Secretary
Date: June 9, 1998 By /s/ L. Courtney Schroder
------------------------
L. Courtney Schroder, Treasurer
(Principal Financial and Accounting
Officer) and Director
26
<PAGE> 1
EXHIBIT 3.7
CERTIFICATE OF
DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES B PREFERRED STOCK
OF
EPIGEN, INC.
EPIGEN, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), in accordance with the provisions of
Section 151 of the General Corporation Law of the State of Delaware, does hereby
CERTIFY:
1. The Certificate of Incorporation, as amended, of the Corporation
fixes the total number of shares of all classes of capital stock which the
Corporation shall have authority to issue as Sixty-Five Million (65,000,000)
shares, of which Fifty Million (50,000,000) shares shall be Common Stock, par
value $.001 per share (the "Common Stock"), and Fifteen Million (15,000,000)
shares shall be shares of Preferred Stock, par value $.001 per share (the
"Preferred Stock").
2. The Certificate of Incorporation, as amended, of the Corporation,
expressly grants to the Board of Directors of the Corporation authority to
provide for the issuance of said Preferred Stock in one or more series, with
such voting powers, and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors as
are not stated and expressed in its Certificate of Incorporation, as amended.
3. Pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation, as amended, the Board of Directors, at a meeting
duly held on June 17, 1996, at which a quorum was duly present and acting
throughout, duly authorized and adopted the provisions set forth in the
following resolution providing for an issue of a series of its Preferred Stock
to be designated "Series B Preferred Stock":
RESOLVED, that an issue of a series of the Preferred Stock, par value
$.001 per share, of the Corporation consisting of Four Million (4,000,000)
shares is hereby provided for, and the voting
1
<PAGE> 2
power, designation, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, are
fixed hereby as follows:
1. Designation. The designation of such series shall be
"Series B Preferred Stock" (hereinafter referred to as the "Series B
Preferred Stock") and the number of shares constituting such series is
Four Million (4,000,000). The number of authorized shares of Series B
Preferred stock may be increased or reduced by further resolutions of
the board of Directors of the Corporation or any duly authorized
committee thereof and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware
stating that such increase or reduction has been so authorized, but the
number of shares of Series B Preferred Stock shall not be reduced below
4,000,000 unless there shall be less than 4,000,000 shares of Series B
Preferred Stock outstanding, in which case the number of shares of
Series B Preferred Stock may be reduced to a number of shares equal to
the number of such shares outstanding from time to time. Shares of
Series B Preferred Stock may either be evidenced by certificates or may
be uncertificated in the discretion of the Corporation's Board of
Directors; provided, however, that if any such shares are not evidenced
by certificates, the Board of Directors of the Corporation shall cause
to be made in the Corporation's stockholder ledger an entry listing the
name and address of each holder of such shares, the date of issuance of
such shares to each such holder and the number of such shares so
issued.
2. Dividends. The Series B Preferred Stock shall be entitled
to an annual dividend equal to 25% of the Corporation's net profits
before taxes for each of the Corporation's fiscal years, or portions
thereof, beginning on July 1, 1996 until such time as the holders of
Series B Preferred Stock shall have received an aggregate amount equal
to $.70 per share (the "Minimum Dividend"). From and after the date on
which the holders of Series B Preferred Stock have received the Minimum
Dividend the holders of Series B Preferred Stock shall be entitled to
receive dividends if, as and when declared by the Corporation's Board
of Directors, in the same manner and in the same amounts as the holders
of the Corporation's Common Stock, $.001 per share. The Minimum
Dividend on outstanding shares of Series B Preferred Stock shall accrue
and be cumulative from the date of issuance thereof and shall be
payable, out of funds legally available therefor, if, as and when
declared, by the Board of Directors on March 31 of each year commencing
on March 31, 1997 until the Minimum Dividend shall have been paid in
full. Each payment in respect of the Minimum Dividend shall be payable
to the holders of
2
<PAGE> 3
record of shares of Series B Preferred Stock as they appear on the
stock register of the Corporation on such record date, not exceeding
thirty (30) days preceding the payment date thereof, as shall be fixed
by the Board of Directors of the Corporation. In the event that there
shall be outstanding shares of any other series of Preferred Stock
ranking on a parity as to dividends with the Series B Preferred Stock,
the Corporation, in making any dividend payment on account of the
Series B Preferred Stock or such other series of Preferred Stock shall
make such dividend payments in proportion to the respective amounts of
dividends in arrears for all such outstanding shares of Series B
Preferred Stock and such other series of Preferred Stock in proportion
to the respective amounts of dividends in arrears to the date of such
payment. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments which may be in
arrears. Dividends payable on the Series B Preferred Stock for any
period less than a full fiscal year shall be computed on the basis of a
360 day year consisting of twelve 30 day months.
3. Redemption. The shares of Series B Preferred Stock shall
not be subject to mandatory redemption. Any outstanding shares of
Series B Preferred Stock may be redeemed by the Corporation at the
discretion of the Board of Directors of the Corporation.
4. Shares to be Retired. All shares of Series B Preferred
Stock redeemed or purchased by the Corporation shall be retired and
canceled and shall be restored to the status of authorized but unissued
shares of Preferred Stock, without designation as to series, and may
thereafter be issued, but not as shares of Series B Preferred Stock.
5. Conversion or Exchange. The holders of Series B Preferred
Stock shall have no right to convert all or any portion of such shares
of Series B Preferred Stock into shares of the Corporation's Common
Stock or any other securities of the Corporation.
6. Certain Adjustments.
(a) Stock Dividends, Splits and Combinations. If at any time
or from time to time, the holders of Common Stock become entitled to
receive additional shares or less shares because of a stock dividend,
stock split or combination of shares, the number of outstanding shares
of Series B Preferred Stock shall be proportionately and
correspondingly adjusted.
3
<PAGE> 4
(b) Reclassifications. If at any time or from time to time,
the holders of Common Stock become entitled to receive a different
class of stock (the "Entitlement Event"), any holder of outstanding
shares of Series B Preferred Stock shall be entitled to receive the
same number and kind of shares of stock as a holder of shares of the
Common Stock immediately prior to the Entitlement Event was eligible to
receive with respect to such Common Stock pursuant to the Entitlement
Event. This provision shall include any reclassification in connection
with a merger of another corporation into the Corporation.
(c) Certain Distributions. So long as the Minimum Dividend in
respect of outstanding or redeemed shares of Series B Preferred Stock
remains unpaid, the Corporation may not declare or pay to the holders
of its Common Stock any extraordinary distribution consisting of cash,
debt securities or property including stock of a subsidiary as a
spin-off or split-off. An extraordinary distribution shall mean any
distribution other than periodic payments of cash dividends from
profits intended to be regular and recurring. The value of any
extraordinary distribution shall be conclusively determined in good
faith by an affirmative vote of the Board of Directors of the
Corporation.
(d) Merger into or Sale of Assets to Another Corporation. If
at any time or from time to time, the holders of the Common Stock
become entitled to receive stock, securities, property or cash (or any
combination of them) by reason of a capital reorganization or
dissolution, liquidation or winding-up of the Corporation, a merger
with, a consolidation of the Corporation into, a sale of all or
substantially all of the assets of the Corporation to, another
corporation (the "Reorganization Event"), each holder of shares of
Series B Preferred Stock shall be entitled to receive the same stock,
securities, property or cash (or combination of them) as a holder of
the same number of shares of the Common Stock was eligible to receive
with respect to such Common Stock pursuant to the Reorganization Event.
(e) Preservation of Accrued Dividends. Notwithstanding the
conversion of any shares of Series B Preferred Stock into Common Stock
or other securities of the Corporation or any successor thereof, any
accrued but unpaid dividends (whether or not such dividends have been
declared) existing prior to the date of such conversion shall continue
to be owed to the holders of shares of Series B Preferred Stock who
4
<PAGE> 5
shall have converted their shares of Series b Preferred Stock whether
by force of law or otherwise.
7. Voting Rights. The holders of shares of Series B Preferred
Stock shall be entitled, at all meetings of the Stockholders of the
Corporation and on all occasions where stockholders are entitled to
vote or give their consent, to one (1) vote for each share of Series B
Preferred Stock owned by them. The holders of shares of Series B
Preferred Stock shall vote with the holders of shares of Common Stock
as a single class, except to the extent that holders of Common Stock or
holders of Series B Preferred Stock shall be entitled to vote as a
separate class pursuant to the General Corporation Law of the State of
Delaware.
8. Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Corporation,
the holders of the Series B Preferred Stock shall entitled to receive
out of the assets of the Corporation available for distribution to
stockholders, before any distribution of assets shall be made to the
holders of Common Stock or of any other shares of stock of the
Corporation ranking as to such distribution junior to the Series B
Preferred Stock, an amount equal to the aggregate unpaid Minimum
Dividend prior to the date fixed for payment of such distribution
(whether or not such dividend has been declared). If upon any voluntary
or involuntary liquidation, dissolution or winding up of the
Corporation, the amounts payable with respect to the Series B Preferred
Stock and any other shares of stock of the Corporation ranking as to
any such distribution on a parity with the Series b Preferred Stock are
not paid in full, the holders of the Series B Preferred Stock and of
such other shares shall share ratably in any such distribution of
assets of the Corporation in proportion to the full respective
preferential amounts to which they are entitled. After payment to the
holders of the Series B Preferred Stock of the full preferential
amounts provided for in this Section 7, the holders of the Series B
Preferred Stock shall be entitled to further participation in any
distribution of assets by the Corporation to the same extent as the
holders of the Corporation's Common Stock. The consolidation or merger
of the Corporation with or into any other corporation, or the sale of
substantially all of the assets of the Corporation in consideration for
the issuance of equity securities of another corporation, shall not be
regarded as a liquidation, dissolution or winding up of the Corporation
within the meaning of this Section 7, but only if such consolidation,
merger or sale of assets shall not in any way impair the voting power,
preferences or special rights of the Series B Preferred Stock.
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<PAGE> 6
9. Limitations on Dividends on Junior Ranking Stock. So long
as any Series B Preferred Stock shall be outstanding, the Corporation
shall not declare any dividends on the Common Stock or any other stock
of the Corporation ranking as to dividends or distributions of assets
junior to the Series B Preferred Stock (any such junior ranking stock
being herein referred to as "Junior Stock"), or make any payment on
account of, or set apart money for, a sinking or other analogous fund
for the purchase, redemption or other retirement of any shares of
Junior Stock, or make any distribution in respect thereof, whether in
cash or property or in obligations or stock of the Corporation, other
than Junior Stock (such dividends, payments, setting apart and
distributions being herein called "Junior Stock Payments"), unless all
of the conditions set forth in the following subsections (a) and (b)
shall exist at the date of such declaration in the case of any such
dividend, or the date of such setting apart in the case of any such
fund, or the date of such payment or distribution in the case of any
other Junior Stock Payment:
(a) Full cumulative dividends shall have been paid or declared and set
apart for payment upon all outstanding shares of Preferred Stock other
than Junior Stock; and
(b) The Corporation shall not be in default or in arrears with respect
to any sinking or other analogous fund or any call for tenders
obligation or other agreement for the purchase, redemption or other
retirement of any shares of Preferred Stock other than Junior Stock.
For purposes of this Section 9, the shares of the Corporation's Series
A Preferred Stock outstanding from time to time shall be deemed to rank pari
passu with the outstanding shares of Series B Preferred Stock in respect of the
payment of dividends.
10. Restrictions on Transfer.
(a) Restrictions on Transfer. Neither the Series B Preferred Stock, nor
any interest therein, shall be transferable except upon the conditions
specified in this Section 10, which conditions are intended to ensure
compliance with the Securities Act of 1933, as amended (the "Securities
Act") and all applicable state securities laws in respect of the
transfer of any such securities or any interest therein.
(b) Restrictive Legend. Each certificate, if shares of Series b
Preferred Stock shall issued in certificated form, shall (unless
otherwise permitted by the provisions of this Section 10) include a
legend in a form similar to the following:
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<PAGE> 7
NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THEY ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND NEITHER SUCH SECURITIES NO
ANY INTEREST THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SUCH ACT, APPLICABLE STATE SECURITIES LAWS AND THE RULES AND
REGULATIONS THEREUNDER.
(c) Stop Transfer Legend. If shares of Series B Preferred Stock shall
issued in uncertificated form (unless otherwise permitted by the
provisions of this Section 10), the Corporation shall cause its agent
for transfer of its securities to place a "stop transfer" legend on the
Corporation's stock transfer ledger or other similar records
prohibiting the transfer of the shares of Series B Preferred Stock or
securities into which such shares have been converted unless the holder
thereof shall have complied with the provisions of this Section 10.
(d) Notice of Proposed Transfer. Each holder of shares of Series B
Preferred Stock, by his acceptance of such shares, agrees to comply in
all respects with the provisions of this Section 10. Prior to any
proposed transfer of any shares of Series B Preferred Stock, except in
the case of registration thereof pursuant to the Securities Act of
1933, as amended, the holder thereof shall give written notice to the
Corporation of such holder's intention of effect such transfer. Each
such notice shall describe the manner and circumstances of such
transfer in reasonable detail, and shall be accompanied by (i) a
written opinion of counsel reasonable satisfactory to the Corporation,
addressed to the Corporation, to the effect that the proposed transfer
may be effected without registration of the Series A Preferred Stock,
or (ii) written assurance from the Securities Exchange Commission
("SEC") that the SEC will not recommend any action be taken by it in
the event such transfer is effected without registration under such
Act. Such proposed transfer may be effected only if the Corporation
shall have received such notice and such opinion of counsel or written
assurance, whereupon the holder of such shares of Series B Preferred
Stock shall be entitled to transfer such shares of Series B Preferred
Stock in accordance with the terms of such notice. Each certificate
evidencing shares of Series B Preferred Stock so transferred shall bear
the legend set forth in Section 10(b) hereof, and each uncertificated
share of Series B Preferred Stock so transferred shall have entered
against it in the Corporation's stock transfer ledger or other similar
records a "stop transfer" legend, except that either such legend may be
removed if the opinion of counsel or written assurance is to the
further effect that no such legend nor the restrictions on transfer in
this Section 10 are required in order to ensure compliance with such
Act.
11. Preemptive Rights. The holders of shares of Series B
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<PAGE> 8
Preferred Stock shall not be entitled to any preemptive or preferential
rights for the subscription to any shares of any capital stock of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by James F. Mongiardo, its President, who affirms, under penalties of
perjury, that this Certificate is the act and deed of the Corporation and that
the facts stated herein are true, as of the 17th day of June, 1996.
EPIGEN, INC.
By:/s/ James F. Mongiardo
Name: James F. Mongiardo
Title: President
8
<PAGE> 1
EXHIBIT 10.30
RESEARCH SUPPORT AGREEMENT
This Research Support Agreement is dated as of October 31, 1997 between
Epigen, Inc., a Delaware corporation with an address at North Tower Hill Road,
Box L, Millbrook, New York 12545 ("Epigen"), and Biotag, Inc., a Delaware
corporation with an address at North Tower Hill Road, Box L, Millbrook, New York
12545 ("Biotag").
RECITALS
1. Biotag is a party to a Research Agreement dated as of January 30,
1997 with Het Nederlands Kanker Instituut ("NKI") pursuant to which Biotag is
sponsoring an epiglycanin cancer research program by NKI for the purposes of,
among other things, cloning of the cDNA for epiglycanin and the generation of
monoclonal antibodies (the "NKI Agreement"). A copy of the NKI Agreement is
attached hereto.
2. Epigen desires to acquire the rights to manufacture and market the
Products (as such term is defined in the NKI Agreement) which may result from
such research program, and Biotag is willing to sell such rights.
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Provision of Funding for NKI Research. Epigen hereby agrees to
provide to NKI, either directly or through Biotag, all funds and services
required to be provided by Biotag pursuant to the NKI Agreement, together with
all the funds required by Biotag to effectuate the intent of the NKI Agreement,
including without limitation, patent application fees and related costs and
expenses and administrative costs of Biotag.
2. Grant of License by Biotag to Epigen. Pursuant to Section 2.4 of the
NKI Agreement, Biotag hereby grants to Epigen a perpetual, exclusive, worldwide
sublicense to manufacture, directly or through sublicensees, use and sell the
Products, to the same extent granted to Biotag pursuant to Section 2.3 of the
NKI Agreement. The term of such license shall be the same as the term of the
license granted to Biotag pursuant to the NKI Agreement.
3. Payment of Royalty. In consideration of the foregoing grant of
license, Epigen shall pay to Biotag a royalty equal to five percent (5%) of the
net sale price of each Product sold by or through Epigen, plus the amount of any
royalty owed by Biotag to NKI or any third party on the sale of Products.
4. Maintenance of Quality Standards. Epigen shall cause all Products
manufactured by or through it to be produced in accordance with U.S. Food and
Drug Administration's Good Manufacturing Practices in effect from time to time.
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<PAGE> 2
5. Termination. This Agreement may be terminated by either party hereto
as follows:
(a) In the event of a material default by any party in the performance
of its obligations under this Agreement, the party not in default may give
written notice to the defaulting party specifying the nature of the default. If
within thirty (30) days of receipt of such notice the defaulting party shall not
have remedied the default, the other party shall have the right, in addition to
all other rights and remedies it may have, to immediately terminate this
Agreement at any time thereafter by written notice to the defaulting party.
(b) Immediately and without notice in the event any party, whether
voluntarily or involuntarily, shall enter into a proceeding in bankruptcy,
become insolvent, or shall make an assignment for the benefit of its creditors
or have a receiver appointed for its assets or seek reorganization under any law
designed to afford protection from its creditors.
6. Miscellaneous.
(a) Parties in Interest; Assignment. Subject to the following sentence,
this Agreement shall inure to the benefit of and be binding on the parties and
their respective successors and permitted assigns. Except when expressly
approved by each party, any assignment of this Agreement by any party without
the prior written consent of each other party shall be void. Nothing in this
Agreement is intended to confer any rights or remedies on anyone other than a
party to this Agreement or the holder of a valid assignment of rights under this
Agreement.
(b) Waivers. At its option, any party may waive in writing any or all
of the conditions contained in this Agreement to which its obligations under
this Agreement are subject.
(c) Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
(d) Entire Agreement. This Agreement sets forth the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings among the parties regarding those matters.
(e) Notices.
(1) All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
if either delivered personally or sent by facsimile, telex or telegram, by
Federal Express, Express Mail, other recognized overnight courier service or by
certified or registered mail with postage prepaid, to the parties hereto at
their respective addresses set forth above. Any party may designate in writing
another person or another place to which notices to it shall be sent in
accordance with the provisions of this Section 5(e).
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<PAGE> 3
(f) Remedies Not Exclusive. Except as herein provided, nothing in this
Agreement shall be deemed to limit or restrict in any manner other rights or
remedies that any party may have against any other party at law, in equity or
otherwise.
(g) Counterparts. This Agreement may be executed in two or more
counterparts, each of which is an original and all of which together shall be
deemed to be one and the same instrument.
(h) Headings. The headings used in this Agreement are for convenience
of reference only and shall not be deemed to be of any substance or effect.
(i) Negotiated Transaction. The provisions of this Agreement were
negotiated by the parties hereto and this Agreement shall be deemed to have been
drafted by both parties.
(j) Further Assurances. Biotag agrees to execute and deliver or cause
to be delivered from time to time after the date hereof such instruments,
documents, agreements, consents and assurances and to take such other measures
or actions as Epigen may reasonably require to more effectively convey, transfer
to and vest in Epigen and to put Epigen in possession of the rights assigned to
it hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the date first above
written.
EPIGEN, INC.
By: /s/ Richard E. Kent
Name: Richard E. Kent
Title: Vice Chairman and
Secretary
BIOTAG, INC.
By: /s/ Donald C. Fresne
Name: Donald C. Fresne
Title: President
3
<PAGE> 4
NKI/BIOTAG RESEARCH AGREEMENT
This Agreement, dated as January 30, 1997 (the "Effective Date"), between Biotag
corporation, Millbrook NY 12545, USA ("Biotag") and Het Nederlands Kanker
Instituut, Plesmanlaan 121, NL-1066 CX Amsterdam ("NKI")
W I T N E S S E T H:
WHEREAS, NKI desires to commence an epiglycanin cancer research program which
will include the cloning of the cDNA for epiglycanin and the generation of
monoclonal antibodies; WHEREAS, Biotag has expertise in and wishes to
commercialize various products, which could result from NKI's Research; and
WHEREAS, Biotag wishes to sponsor the Research as set forth herein, provided it
shall obtain exclusive rights on the results obtained by NKI from the Research
without interfering with NKI's fundamental research orientation; and NOW,
THEREFORE, NKI and Biotag wish to confirm the details of their collaboration
regarding the Research by agreeing to the following:
I. DEFINITIONS
1.1 "Principal Investigator" shall mean Dr. John Hilkens of NKI. The
Principal Investigator and his colleagues at NKI involved in the
Research shall be referred to as "Investigators".
1.2 "Products" shall mean the epiglycanin cDNA and hybrid cell lines ("Cell
Lines") arising from the Research and/or developed by the
Investigators, that produce monoclonal antibodies directed against
epiglycanin.
1.3 "Research" shall mean all investigations carried out by the
Investigators concerning epiglycanin as outlined in addendum A.
II. ESTABLISHMENT OF PROPRIETARY POSITION AND OPTION TO BIOTAG
2.1 In exchange for the exclusive rights granted herein to Biotag, Biotag
will provide reasonable technical services, evaluate hybridomas and/or
monoclonal antibodies directed against epiglycanin, and provide grants
of Sixty Five Thousand Dollars ($65,000) per year for a period of one
(1) year and nine (9) months ($113750.- total) subject to Articles 4.1
and 4.2. The first payment being Thirty Two
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<PAGE> 5
Thousand Five Hundred Dollars ($32,500), covering the first six months
of the Agreement and subsequent quarterly payments of Sixteen Thousand
Two Hundred Fifty dollars ($16,250). Payment will be made at the
beginning of each term.
2.2 NKI agrees to conduct Research in accordance with the program attached
as Appendix A to this Agreement and grants to Biotag a worldwide
exclusive license governing all inventions, including without
limitation, patents applied for and/or patents issued and/or
information and/or Cell Lines arising out of the Research and all
continuations, continuations in part, all foreign counterparts of any
such patents and applications (collectively, the "Intellectual
Property").
2.3 A. Biotag shall pay a royalty of 5% of the net selling price of any
product, article or composition utilizing the "products", or a patent
resulting from the research, sold by Biotag or a Biotag Assignee. NKI
shall grant to Biotag Licenses in all parts of the world to make, have
made, use and sell products and to practice methods arising from the
Research under all letters patent applied for and/or patents issued
and/or related information arising from the Research. The period of
said licenses shall be for the period of the term of said issued
patents if a licensed patent or for a period of twenty (20) years if no
patent issues or if the license if based on related information.
B. In the event Biotag or assignee will license the market and/or
manufacturing and marketing rights of the product to a third party,
whichever company receives the income from the strategic partners
(i.e., the sublicensee who will manufacture and market the product)
will pay a 5% royalty to NKI on net income received.
C. In the event Biotag sells the technology utilizing the "products",
patents or knowledge resulting from the "research" the Biotag
(purchaser) will be obligated to pay the NKI 5% of that sale.
D. If the patent on the antigen applied for is dominated by the HCA
patent held by the Boston Biomedical Research
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<PAGE> 6
Institute (BBRI), then the royalty to NKI will be shared. The sharing
will be negotiated in good faith and will depend on the contribution of
each institution in the final product. The royalty to the NKI will be
no less than 2 1/2 (two and a half) percent for the NKI.
2.4 Biotag shall have the right to enter into sublicenses. Biotag shall
inform the NKI in advance of the identity of the sublicense(s) and of
the terms of the sublicense(s) under consideration.
2.5 Patents
2.5.1 Biotag shall have the right to have all of the research
conducted and funded hereunder reviewed by patent counsel of
its choice and shall have the right, with the consent of the
NKI, which shall not be unreasonably withheld and considered
to be given if no response on a request has been received
within two weeks, to apply for patent protection in the name
of both parties throughout the world, at the expense of
Biotag, for any invention derived from the research conceived
by the Investigators. The Investigators shall use their best
efforts to assist Biotag in the prosecution and maintenance of
such application.
2.5.2 Should Biotag intend to cease to prosecute or maintain a
patent or a patent application, Biotag will give the NKI the
opportunity of having the patent or patent application
transferred at its own expense and on maintaining said
patent/patent application itself/themselves on its behalf.
Biotag shall in such case not have any further obligations nor
rights as to these patent rights.
2.6 NKI shall submit quarterly reports to Biotag on the progress of the
Research in writing, or in meetings between the Investigators, as
needed, and NKI and Biotag representatives.
2.7 Any and all information, know-how, data and materials, technical or
nontechnical, which relate to the Research and/or the Products, as well
as the terms of any agreement
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<PAGE> 7
between the parties shall be kept in confidence by both parties. Biotag
will be furnished with a copy of any proposed publication or manuscript
for review and comment prior to submission for publication, at least
thirty (30) days prior to submission, and for abstracts, at least
fourteen (14) days prior to submission. Biotag shall notify NKI within
such thirty (30) day or fourteen (14) day period whether it intends to
file patent applications on any inventions contained in the
publication. Written publication shall be deferred at the request of
Biotag, to permit the filing of such patent applications; provided,
however, that such deferral shall in no event exceed sixty (60) days
from the date of receipt by Biotag.
2.8 Any publications related to the Research shall acknowledge Biotag's
contribution to the Research.
III. EFFECTIVE DATE AND TERM
3.1 Anything to the contrary herein notwithstanding, the provisions of
Sections 2.8 of this Agreement shall survive the termination of this
Agreement. Section 2.7 shall remain in effect for 1 year after
termination of this Agreement.
3.2 The parties hereto agree that in the event NKI shall develop new
products based upon the research performed pursuant to this Agreement
within five years of the end of the full eighteen month term of this
Agreement, such new products shall be deemed to be Products for the
purposes of this Agreement and shall be covered by the terms and
conditions hereof.
IV. TERMS AND TERMINATION
4.1 The term of this Agreement shall be one (1) year and nine (9) months
commencing on date hereof.
4.2 Biotag's obligation to fund in whole or in part the terminated research
shall be limited to so much thereof as shall have been conducted prior
to such termination except for the salary costs, as specified in 2.1,
for the six (6) months following the date of termination.
4.3 Failure by Biotag or NKI to comply with any of the respective
obligations and conditions contained in this Agreement shall entitle
the other party to give to the party
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in default notice requiring it to cure such default. If such default
notice is not made good within ninety (90) days after receipt of such
notice, the notifying party shall be entitled to terminate this
Agreement by giving written notice, such termination to take effect
immediately.
4.4 In the event of liquidation of Biotag, Biotag shall inform the NKI
immediately.
V. ASSIGNMENT
5.1 Biotag shall have the right to assign its rights or delegate its
obligations under licenses resulting from this Agreement.
VI. INTERPRETATION
6.1 This Agreement shall be governed and interpreted in all respects under
the laws of The Netherlands.
VII. ARBITRATION
7.1 Any controversy of claim arising out of or relating to this Agreement,
or the breach thereof, shall be referred to a panel of three
arbitrators, one chosen by each of the parties and the third selected
by the two chosen by the parties and shall be finally adjudicated upon
under the rules of conciliation and arbitration of the International
Chamber of Commerce by such panel. Such arbitration shall take place in
The Hague, The Netherlands.
VIII. NOTICES
8.1 Any notice required to be given by either party under the terms of this
Agreement shall be given in writing addressed to the party for whom it
is intended at the address set forth in the preamble of this Agreement
or such other address as such party shall designate in writing from
time to time in accordance with terms of this section. Such notice
shall be deemed to have been given upon mailing, except as otherwise
specifically provided herein. Such notices shall be sent by fax.
IX. TITLES
9.1 It is agreed that headings appearing at the beginning of the numbered
articles hereof have been inserted for convenience only and do not
constitute any part of this Agreement.
X. ENTIRE AGREEMENT
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10.1 This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, and no variation or
modification of this Agreement or Waiver of any of the terms or
conditions shall be deemed valid unless in writing and signed by both
parties.
IN WITNESS WHEREOF, and intending to be bound hereby, the parties have caused
this Agreement to be signed by their duly authorized representatives
BIOTAG HET NEDERLANDS KANKER INSTITUUT
By: /s/: Donald C. Fresne By: /s/: Prof. Dr. P. Borst
Name: Donald C. Fresne Name: Prof. Dr. P. Borst
Title: Chairman Title: Director of Research
Date: 12/10/96 Date:
APPENDIX A
RESEARCH PROGRAM.
To obtain specific antibodies against human epiglycanin it is necessary to clone
the gene and make a recombinant version of a specific part of that protein. Our
strategy to obtain the human gene is to clone the mouse homologue first, which
subsequently will allow us to clone the human gene fairly rapidly. Mouse
epiglycanin is highly expressed on TA3/Ha mammary carcinoma cells. The most
straightforward approach is to use antibodies to screen an expression library
made in E.coli bacteria for epiglycanin DNA sequences. By this method we also
cloned episialin. To screen the expression library, we need an antibody that is
directed against the protein backbone of epiglycanin because bacteria are unable
to glycosylate the expressed proteins. We know that the cell synthesizes a
precursor protein first, without 0-linked carbohydrates. We obtained an
antiserum that detects the precursor protein of epiglycanin by
immuneprecipitation. It is expected that this antiserum will allows us to detect
epiglycanin produced by bacteria in a cDNA libraries which we are presently
constructing from mouse TA3/Ha cells. If needed we can use subtractive
hybridization methods using TA3/Ha and TA3/St cDNA as an alternative. Once we
have
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cloned the gene coding for mouse epiglycanin, we will immediately start to clone
the human homologue of mouse epiglycanin. After we have obtained the human gene
for epiglycanin, we will investigate in which human cancers thIs gene is
expressed by using mRNA from several tumor cell lines, fresh primary tumors and
metastatic cancer cells. We will construct fusion proteins containing selected
epiglycanin sequences in bacteria, which will subsequently be used for the
generation of a series of monoclonal antibodies. Since it is the experience of
other investigators that mice usually respond with antibodies of the lgM class,
we will perform a class switch to obtain monoclonal antibodies of the lgG class.
It has been shown that epiglycanin is shed from the tumor cells into the
circulation, these antibodies will be tested by Biotag for their usefulness in a
serum assay which will can be further developed and commercialized by Biotag.
Estimated time frame for cloning the mouse and the human gene for epiglycanin
and generation of monoclonal antibodies:
months
<TABLE>
<CAPTION>
1 2 3 4 5 6 7 8 9
- --------------------------------------------------------------------------------
<S> <C>
production of cDNA -----)
library
screening of library --------------)
sequencing ------------------)
cloning of human ----------------)
gene for epiglycanin
- --------------------------------------------------------------------------------
</TABLE>
months
<TABLE>
<CAPTION>
10 11 12 13 14 15 16 17 18
- --------------------------------------------------------------------------------
<S> <C>
characterization ---------------)
of the gene
production of fusion --------------)
proteins
immunize mice with ----------)
fusion proteins
</TABLE>
10
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<TABLE>
<S> <C>
generation of ---------------)
monoclonal antibody
producing hybridomas
- --------------------------------------------------------------------------------
</TABLE>
11
