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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-19635
GENTA INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
Delaware 33-0326866
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3550 General Atomics Court
San Diego, California 92121
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(619) 455-2700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of October 31, 1997, the registrant had 4,458,518 shares of common
stock outstanding.
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<PAGE>
GENTA INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Genta Incorporated
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
-------------------- --------------------
(Unaudited) (Note)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,781,453 $ 532,013
Short term investments 3,936,409 -
Trade accounts receivable 569,702 602,696
Notes receivable from officers and employees - 62,000
Inventories 786,439 992,243
Other current assets 275,201 185,164
-------------------- --------------------
Total current assets 12,349,204 2,374,116
-------------------- --------------------
Property and equipment, net 2,737,593 3,634,281
Intangibles, net 3,550,069 4,022,242
Other assets, net 748,711 1,138,745
-------------------- --------------------
$ 19,385,577 $ 11,169,384
==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,194,178 $ 1,481,521
Other accrued expenses 2,371,111 2,012,125
Deferred revenue 132,271 193,121
Short term notes payable 3,269,227 1,390,462
Current portion of notes payable and
capital lease obligations 6,521 291,842
-------------------- --------------------
Total current liabilities 7,973,308 5,369,071
-------------------- --------------------
Capital lease obligations, less current portion - 30,652
Notes payable, less current portion - 88,926
Deficit in Joint Venture 1,959,559 1,606,503
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized:
Series A convertible preferred stock, $.001 par value;
528,100 shares issued and outstanding at
September 30, 1997 and December 31, 1996,
liquidation value is $31,686,000 at September 30, 1997 528 528
Series C convertible preferred stock, $.001 par value; 1,044 shares
and 1,424 shares issued and outstanding at September 30, 1997 and
December 31, 1996, respectively, liquidation value is
$1,107,841 at September 30, 1997. 1 1
Series D convertible preferred stock, $.001 par value; 174,580
shares and no shares issued and outstanding at September 30, 1997
and December 31, 1996, respectively, liquidation value is
$24,441,200 at September 30, 1997 175 -
Common stock, $.001 par value; 70,000,000 shares authorized;
4,458,518 and 3,999,163 shares issued and outstanding at
September 30, 1997 and December 31, 1996, respectively* 4,459 3,999
Additional paid-in capital 122,130,432 108,823,555
Accumulated deficit (117,977,750) (108,375,407)
Accrued dividends payable 5,344,841 3,671,532
Notes receivable from stockholders (49,976) (49,976)
-------------------- --------------------
Total stockholders' equity 9,452,710 4,074,232
-------------------- --------------------
==================== ====================
$ 19,385,577 $ 11,169,384
==================== ====================
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
* Adjusted to reflect the one-for-ten reverse stock split of the
Company's outstanding common stock which was effected on April 4,
1997.
</TABLE>
See accompanying notes.
3
<PAGE>
Genta Incorporated
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------ -------------------------------------
1997 1996 1997 1996
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 1,206,883 $ 1,011,115 $ 3,458,936 $ 3,622,310
Collaborative research
and development - - 50,000 -
----------------- ----------------- ------------------ -----------------
1,206,883 1,011,115 3,508,936 3,622,310
----------------- ----------------- ------------------ -----------------
Cost and expenses:
Cost of products sold 834,759 483,905 2,339,845 1,747,740
Research and development 2,236,334 1,657,662 4,484,957 4,687,904
Selling, general and
administrative 1,964,330 1,671,624 5,538,919 4,006,997
----------------- ----------------- ------------------ -----------------
5,035,423 3,813,191 12,363,721 10,442,641
----------------- ----------------- ------------------ -----------------
Loss from operations (3,828,540) (2,802,076) (8,854,785) (6,820,331)
Equity in net loss of
joint venture (144,533) (831,689) (925,055) (2,981,312)
Other income (expense):
Interest and other income 223,176 179,175 427,020 353,978
Interest expense (71,607) (42,009) (249,523) (184,824)
----------------- ----------------- ------------------ -----------------
151,569 137,166 177,497 169,154
----------------- ----------------- ------------------ -----------------
Net loss $ (3,821,504) $ (3,496,599) $ (9,602,343) $ (9,632,489)
Dividends on preferred stock (542,183) (595,150) (9,323,701) (1,949,234)
----------------- ----------------- ------------------ -----------------
Net loss applicable to
common shares $ (4,363,687) $ (4,091,749) $ (18,926,044) $ (11,581,723)
================= ================= ================== =================
Net loss per common share* $ (0.98) $ (1.31) $ (4.45) $ (4.21)
================= ================= ================== =================
Shares used in computing net
loss per common share* 4,451,289 3,116,980 4,249,782 2,751,628
================= ================= ================== =================
*Per share data have been adjusted to reflect the one-for-ten reverse stock split of the Company's
outstanding common stock which was effected on April 4, 1997.
</TABLE>
See accompanying notes.
4
<PAGE>
Genta Incorporated
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
---------------------------------------------
1997 1996
<S> <C> <C>
Operating activities
Net loss $ (9,602,343) $ (9,632,489)
Items reflected in net loss not requiring cash:
Depreciation and amortization 708,475 1,191,483
Write-off of intangibles 600,000 -
Equity in net loss of joint venture 925,055 2,981,312
Changes in operating assets and liabilities 1,168,114 (634,978)
--------------------- ---------------------
Net cash used in operating activities (6,200,699) (6,094,672)
Investing activities
Purchase of short-term investments (3,936,409) -
Purchase of property and equipment (34,264) (114,079)
Sale of property and equipment 338,161 -
Investment in and advances to joint venture (571,999) (1,651,876)
Deposits and other 146,523 (407,849)
--------------------- ---------------------
Net cash used in investing activities (4,057,988) (2,173,804)
Financing activities
Issuance of common stock - 5,475,786
Issuance of preferred stock, net 13,972,261 -
Proceeds from notes payable 3,000,000 2,240,000
Proceeds from notes receivable 62,000 2,910,722
Repayments of notes payable and capital lease obligations (526,134) (902,802)
Other - -
--------------------- ---------------------
Net cash provided by financing activities 16,508,127 9,723,706
--------------------- ---------------------
Increase in cash and cash equivalents 6,249,440 1,455,230
Cash and cash equivalents at beginning of period 532,013 271,755
--------------------- ---------------------
Cash and cash equivalents at end of period $ 6,781,453 $ 1,726,985
===================== =====================
Supplemental disclosures of cash flow information:
Interest paid $ 27,456 $ 144,299
Supplemental schedule of noncash investing and
financing activities:
Preferred stock dividends accrued 1,690,501 1,949,234
Common stock issued in payment of dividends on preferred stock 17,192 -
Common stock issued upon conversion of convertible debentures
and accrued interest 358,552 -
Preferred stock issued upon conversion of short term notes payable 650,000 -
</TABLE>
See accompanying notes.
5
<PAGE>
GENTA INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required to be presented for
complete financial statements. The accompanying financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the results for the
interim periods presented.
The condensed consolidated financial statements and related disclosures
have been prepared with the presumption that users of the interim financial
information have read or have access to the audited financial statements for the
preceding fiscal year. Accordingly, these financial statements should be read in
conjunction with the audited consolidated financial statements and the related
notes thereto included in the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
The Company has experienced significant quarterly fluctuations in operating
results and it expects that these fluctuations in revenues, expenses and losses
will continue.
<TABLE>
<CAPTION>
(2) INVENTORIES
<S> <C> <C>
Inventories are comprised of the following:
September 30, December 31,
1997 1996
Raw materials and supplies $ 245,193 $ 342,875
Work-in-process 177,221 272,259
Finished goods 364,025 377,109
------------ -----------
$ 786,439 $ 992,243
============ ===========
</TABLE>
(3) STOCKHOLDERS' EQUITY
In June 1997, the Company raised gross proceeds of $16 million
(approximately $14 million net of placement agent fees and other expenses)
through the private placement of Premium Preferred Units(TM). Each unit sold in
the private placement consists of 1,000 shares of Premium Preferred Stock(TM),
par value $.001 per share, stated value $100 per share (the "Series D Preferred
Stock") and Warrants to purchase 5,000 shares of Genta common stock, par value
$.001 (the "Class D Warrants"), at any time prior to the fifth anniversary of
the final closing. The Series D Preferred Stock is immediately convertible at
the option of the holder into shares of common stock at an initial conversion
price of $.94375 per share (subject to adjustment), which conversion price is
the lesser of (i) $3.00 and (ii) 50% of the average closing bid price of the
common stock for the five consecutive trading days immediately prior to the
final closing date of the Private Placement (i.e. June 30, 1997). In addition,
the holders of the Series D Preferred Stock are entitled to a liquidation
preference aggregating $24,441,200, which represents an immediate increase in
value to the Series D Preferred Stock. Due to the increase in value associated
with the discounted conversion terms and liquidation preference of the Series D
Preferred Stock, the Company has accounted for such increase by charging
$7,633,200 to dividends on preferred stock.
6
<PAGE>
During April 1997, $250,000 of the 4% Convertible Debentures (the
"Convertible Debentures") and the related accrued interest were converted into
153,368 shares of Genta's common stock. During May 1997, $100,000 of the
Convertible Debentures and the related accrued interest were converted into
50,895 shares of Genta's common stock. The conversion prices were based upon 75%
of the average Nasdaq closing bid prices of Genta's common stock for specified
periods. Terms of the 4% Convertible Debentures also provide for interest
payable in shares of the Company's common stock.
Also during May 1997, $650,000 of the Senior Secured Convertible Bridge
Notes (the "Convertible Notes") were converted into 13,000 shares of Series D
Preferred Stock. The Convertible Notes' initial conversion price of $5 per share
of Series D Preferred Stock was proportionally adjusted to $50 per share to
reflect the change in stated value of the Series D Preferred Stock effected by
an Amended Certificate of Designation.
During April 1997, 280.336 shares of the Series C Preferred Stock and
accrued dividends were converted at the option of the holders into 175,221
shares of Genta's common stock. During July 1997, 100 shares of the Series C
Preferred Stock and accrued dividends were converted at the option of the
holders into 72,166 shares of Genta's common stock. The conversion prices were
based upon 75% of the average Nasdaq closing bid prices of Genta's common stock
for specified periods. Terms of the Series C Preferred Stock also provide for
dividends payable in shares of the Company's common stock.
In July 1997, Nasdaq informed Genta that it had met the terms for
continued listing set forth in the April 11, 1997 revised exception of the
Nasdaq Listings Qualifications Panel (the "Panel") and that Genta's common stock
will therefore continue to be listed on the Nasdaq SmallCap Market. In
conjunction with this decision, Genta resumed trading under the symbol "GNTA" as
of July 24, 1997.
In August 1997, 7,500 shares of common stock were issued to a former
Officer of the Company pursuant to the terms of a severance agreement.
(4) NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number
of common shares outstanding during each of the interim periods. Shares issuable
upon the exercise of outstanding stock options and warrants and upon the
conversion of convertible preferred stock are not reflected as their effect is
anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings per Share," which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute net earnings (loss) per share and to restate
all prior periods. Under the new requirements for calculating basic, or primary,
earnings per share, the dilutive effect of stock options will be excluded. The
impact of the new standard will have no effect on the Company's net loss per
share for the quarters ended September 30, 1997 and 1996.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Since its inception in February 1988, Genta Incorporated ("Genta" or
the "Company") has devoted its principal efforts toward drug discovery, research
and development. Genta has been unprofitable to date and, even if it obtains
financing to continue its operations, expects to incur substantial operating
losses for the next several years due to continued requirements for research and
development activities, pre-clinical testing and clinical trials, manufacturing
activities, regulatory activities and establishment of a sales and marketing
organization if so decided. From the period since its inception to September 30,
1997, the Company has incurred a cumulative net loss of $118.0 million. The
Company has experienced significant quarterly fluctuations in operating results
and it expects that these fluctuations in revenues, expenses and losses will
continue. See "Risk Factors".
The statements contained in this Quarterly Report on Form 10-Q that are
not historical are forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act"), and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including statements regarding the expectations, beliefs, intentions or
strategies regarding the future. The Company intends that all forward-looking
statements be subject to the safe-harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements reflect the
Company's views as of the date they are made with respect to future events and
financial performance, but are subject to many risks and uncertainties, which
could cause the actual results of the Company to differ materially from any
future results expressed or implied by such forward-looking statements. Examples
of such risks and uncertainties include, but are not limited to, obtaining
sufficient financing to maintain the Company's planned operations, the timely
development, receipt of necessary regulatory approvals and acceptance of new
products, the successful application of the Company's technology to produce new
products, the obtaining of proprietary protection for any such technology and
products, the impact of competitive products and pricing and reimbursement
policies, changing market conditions and the other risks detailed in the Risk
Factors section of this Quarterly Report on Form 10-Q. The Company does not
undertake to update any forward-looking statements.
RESULTS OF OPERATIONS
Operating revenues totaled $1.2 million in the third quarter of 1997
compared to $1.0 million in the third quarter of 1996, and $3.5 million for the
nine months ended September 30, 1997 compared to $3.6 million in the comparable
period of 1996. During the third quarter of 1997, sales of specialty chemical
and pharmaceutical intermediate products have increased. However, for the nine
months ended September 30, 1997, sales of specialty chemical and pharmaceutical
intermediate products have decreased. All of the Company's product sales are
attributable to its manufacturing subsidiary, JBL Scientific, Inc. ("JBL"). The
Company has historically experienced significant quarterly fluctuations in its
level of product sales, generally reflecting the timing and degree of customer
demand for certain products, and the Company anticipates that these sales
fluctuations will continue in future periods. Quarterly fluctuations in product
revenues are primarily the result of manufacturing schedules of JBL's customers,
such as demand driven by success of clinical trials or funding availability.
While the annual demand for most of JBL's products is relatively stable, there
has been a downtrend for clinical diagnostic raw materials and an uptrend for
research and development and pharmaceutical raw materials. Overall, demand for
the Company's products has been increasing, while competition has caused prices
to decrease. Although there has been increased market penetration with respect
to one of JBL's existing products this has not significantly affected revenues,
because the price of such product has decreased due to competition. New products
introduced during the nine month period ended September 30, 1997 account for an
aggregate of 21.9% of total sales, as compared to new products for the same
period in 1996, which accounted for 5.4% of sales. Collaborative research and
development revenues recorded during the nine months ended September 30, 1997
represented revenues earned pursuant to the Company's agreement with Johnson &
Johnson Consumer Products, Inc. which provided limited funding for preliminary
feasibility studies using Genta's Anticode(TM) compounds.
8
<PAGE>
The products JBL manufactures include: enzyme substrates that are used
as color generating reagents in clinical diagnostic tests, such as pregnancy
tests, developed by JBL's customers; and fine chemical raw materials used in
pharmaceutical research and development and manufacturing, such as those used to
make biological polymers like peptides and oligoneucleotides. JBL manufactures
approximately 110-125 products on a recurring basis. JBL's products are sold to
the academic, commercial and governmental research market both directly and
through distributors, and JBL conducts contract synthesis for pharmaceutical,
diagnostic and industrial companies, as well. Europa BioProducts ("Europa"),
JBL's European distributor, accounted for 23% of product sales for the nine
months ended September 30, 1997. Europa accounted for 27% and 21% of product
sales during the years ended December 31, 1996 and 1995, respectively. Another
customer accounted for 12% of product sales for the nine months ended September
30, 1997. A third customer who accounted for less than 10% of product sales for
the nine months ended September 30, 1997 had accounted for 16% of product sales
in 1995. The Company believes that the loss of any material customer, if not
replaced, could have an adverse effect on the Company.
Costs and expenses increased to $5.0 million in the third quarter of
1997 from $3.8 million in the third quarter of 1996, and to $12.4 million for
the nine months ended September 30, 1997 compared to $10.4 million in the
comparable period of 1996. The cost of products sold increased from $484,000 in
the third quarter of 1996 to $835,000 in the third quarter of 1997 and to $2.3
million for the nine months ended September 30, 1997 compared to $1.7 million
for the nine months ended September 30, 1996. Research and development expenses
increased from $1.7 million in the third quarter of 1996 to $2.2 million in the
third quarter of 1997 and decreased to $4.5 million for the nine months ended
September 30, 1997 compared to $4.7 million in the comparable period of 1996.
Selling and general and administrative expenses increased from $1.7 million in
the third quarter of 1996 to $2.0 million in the third quarter of 1997, and to
$5.5 million for the nine months ended September 30, 1997 compared to $4.0
million in the comparable period of 1996. The increase in the cost of products
sold both for the quarter and the nine month period ending September 30, 1997
compared to comparable periods in 1996 is primarily due to an unfavorable
product mix variance and the redeployment of certain employees in connection
with a reduction in the research and development staff. The decrease in research
and development expenses for the nine months ended September 30, 1997 is
primarily attributable to the Company's restructuring and related workforce
reductions implemented in 1995 and 1996 together with the discontinuation or
non-initiation of several programs and the redeployment previously mentioned.
These decreases in research and development expenses were partially offset by an
aggregate of approximately $600,000 in non-recurring charges recorded in the
third quarter of 1997 related to management's decision to abandon certain
patents that the management determined were no longer germane to the Company's
mainstream business. The increase in selling and general and administrative
expenses is primarily attributable to $300,000 in non-recurring charges recorded
during the second quarter of 1997 related to the Company's restructuring and
workforce reductions, increased legal expenses associated with successfully
defending the litigation brought by certain of the Company's preferred
stockholders challenging a $3.0 million investment made in February 1997 that
was resolved in the Company's favor in April, 1997 and increased accounting and
legal expenses due to the Company's successful efforts to avoid the potential
Nasdaq delisting and associated with the equity offerings consummated in 1997.
The Company's equity in net loss of joint venture (Genta Jago
Technologies B.V. ("Genta Jago"), the Company's joint venture with Jagotec AG
("Jagotec")) decreased to $145,000 in the third quarter of 1997 from $832,000 in
the third quarter of 1996, and to $925,000 for the nine months ended September
30, 1997 compared to $3.0 million in the comparable period of 1996. Such
decrease is attributable to the fact that a greater portion of development
activities were funded pursuant to Genta Jago's collaborative agreements with
third parties.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily from
private and public offerings of its equity securities. Cash provided from these
offerings totaled approximately $112.4 million through September 30, 1997,
including net proceeds of approximately $17.0 million (net of expenses) raised
during the first six months of 1997. At September 30, 1997, the Company had cash
and cash equivalents and short term investments totaling $10.7 million compared
to a total of $532,000 at December 31, 1996. The increase in cash and cash
equivalents during the first nine months of 1997 is largely attributable to
proceeds from the issuance of the Senior Secured Convertible Bridge Notes (the
"Convertible Notes") in February 1997 and the issuance of Premium Preferred
Units(TM) in June 1997 (the "Private Placement") less cash used in the Company's
operations. As a result of the closing of the Private Placement the conversion
prices and exercise prices of certain outstanding securities were adjusted
pursuant to their terms. See "Risk Factors - Subordination of Common Stock to
Senior Secured Convertible Bridge Notes and Series A, Series C and Series D
Preferred Stock; Risk of Dilution; Anti-dilution Adjustments."
The Convertible Notes are due on the earlier of (a) December 31, 1997
and (b) the date of any decision, order or other determination adverse to the
Company or any of its directors by any court or other tribunal in any lawsuit or
other proceeding against the Company and/or any of its directors by any of the
Company's preferred stockholders. The Company believes it has adequate funds to
repay the Convertible Notes if the holder thereof has not converted them before
maturity and requests payment in cash upon maturity.
In connection with the Genta Jago joint venture formed in late 1992 and
expanded in May 1995, the Company entered into a working capital agreement with
Genta Jago that expires on October 20, 1998. Pursuant to this agreement, the
Company is required to make loans to Genta Jago up to a mutually agreed upon
maximum commitment amount, which amount is established by the parties and
modified not less than once each calendar quarter if necessary, based upon the
review and consideration by Genta and Genta Jago of mutually-acceptable budgets,
expense reports, forecasts and workplans for research and development of the
products by Genta Jago. The Company anticipates its working capital contribution
to Genta Jago for 1997 will be $300,000, as compared to $846,784 in 1996 and
$7.7 million in 1995. The reduction in the Company's working capital
contributions to Genta Jago is largely a result of Genta Jago's having entered
into collaborative agreements with third parties. As of September 30, 1997, the
Company had advanced working capital loans of approximately $15.8 million to
Genta Jago, net of principal repayments. Such loans bear interest at the 3 month
LIBOR plus 1% and are payable in full on October 20, 1998, or earlier in the
event certain revenues are received by Genta Jago from third parties. There can
be no assurance, however, that Genta Jago will obtain sufficient financial
resources to repay such loans to Genta. Genta Jago repaid Genta $1 million of
its working capital loans in November 1996 from license fee revenues. The amount
of future loans by Genta to Genta Jago will depend upon several factors
including the amount of funding obtained by Genta Jago through collaborative
arrangements, Genta's ability to provide loans, and the timing and cost of Genta
Jago's pre-clinical studies, clinical trials and regulatory activities.
On May 7, 1997, Jago Pharma AG ("Jago") and Jagotec gave Genta Jago
formal notices of their assertion that Genta Jago is in breach of the Restated
GEOMATRIX(R) Services Agreement dated May 12, 1995, the Restated GEOMATRIX(R)
Research and Development Agreement dated May 12, 1995 and the Restated
GEOMATRIX(R) License Agreement dated May 12, 1995, stating that should the
breach not be cured within the applicable cure period (30 days), Genta Jago
would reserve the right to terminate the agreements in accordance with their
terms. Jago, Jagotec and Jago Holding AG also gave formal notice of default
under the Restated Joint Venture and Shareholders Agreement dated May 12, 1995,
contending that due to Genta's failure to meet its funding obligations to Genta
Jago, Genta Jago was unable to fulfill its obligations to Jago. The amount
claimed by Jago to be in default is approximately $1.2 million, of which
$200,000 relates to 1997 and $1.0 million relates to development costs and
license fees for 1996. After the 30 day cure period expired, Jago did not
terminate the Agreement but did not rescind the notices of default. The Company
recently met with Jago and is attempting to resolve the situation without resort
to litigation. While a termination of these agreements may have a material
adverse effect on the Company, the Company intends vigorously to oppose Jago's
position. Without prejudice to Genta's position, Genta provided approximately
$129,000 for the payment by Genta Jago of all amounts claimed by Jago under the
Restated
10
<PAGE>
GEOMATRIX(R) License Agreement and certain other amounts owed by Genta Jago to
third parties (both included in Jago's notice of default).
The Company is negotiating with biotechnology and pharmaceutical
companies regarding collaborative agreements and other financial arrangements.
There can be no assurance, however, that any such sources of funding or
collaborative agreements will be available on favorable terms, if at all.
Unless the Company and/or Genta Jago successfully secures sufficient
levels of collaborative revenues and other sources of financing, it expects to
incur substantial additional costs, including costs related to research and
development activities, pre-clinical testing and clinical trials, manufacturing
activities, costs associated with the market introduction of potential products,
and expansion of its administrative activities. The Company will need
substantial additional funds before it can expect to realize significant product
revenue. The Company anticipates that significant additional sources of
financing, including equity financings, will be required in order for the
Company to continue its planned principal operations. The Company's working
capital and additional funding requirements will depend upon numerous factors,
including: (i) the availability of funding; (ii) the progress of the Company's
research and development programs; (iii) the timing and results of pre-clinical
testing and clinical trials; (iv) the timing and costs of obtaining regulatory
approvals; (v) the level of resources devoted to Genta Jago; (vi) the level of
resources that the Company devotes to sales and marketing capabilities; (vii)
technological advances; (viii) the activities of competitors; and (ix) the
ability of the Company to establish and maintain collaborative arrangements with
others to fund certain research and development, to conduct clinical trials, to
obtain regulatory approvals and, if such approvals are obtained, to manufacture
and market products.
During 1995, Genta Pharmaceuticals Europe S.A. ("Genta Europe")
received approximately $950,000 of funding in the form of a loan from the French
government agency L'Agence National de Valorisation de la Recherche (ANVAR)
towards research and development activities pursuant to an agreement (the "ANVAR
Agreement") between ANVAR, Genta Europe and Genta. In October, 1996 Genta and
Genta Europe terminated Genta Europe's operations. A meeting with ANVAR was held
in late October 1997 to discuss the consequences of such termination. Although
the loan repayment plan calls for the first payment to be made in 1998, upon a
default ANVAR may declare the loan immediately due and payable. To date, ANVAR
has not demanded repayment of such funds.
On February 14, 1997, the Company received notice from Johns Hopkins
University ("Johns Hopkins") that the Company was in material breach of the
license agreement entered into in 1990 with Johns Hopkins (the "Johns Hopkins
Agreement"). The Johns Hopkins Agreement provides that, if a material payment
default is not cured within 90 days of receipt of notice of such breach, Johns
Hopkins may terminate the Johns Hopkins Agreement. On May 15, 1997, Johns
Hopkins sent a letter to the Company stating that the Johns Hopkins Agreement is
terminated. As of September 30, 1997, the Company owed Johns Hopkins $627,271,
of which $200,000 consisted of royalty payments for 1995 and 1996 and the
balance consisted of the Company's obligations to provide funds to support a
post-doctoral research program of Johns Hopkins. In February 1997, the Company
paid Johns Hopkins $100,000 towards the post-doctoral support program. Based on
management's current strategy, the Company does not believe that the termination
of the Johns Hopkins Agreement will have a material adverse effect on the
Company.
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RISK FACTORS
In addition to the other information contained in this Quarterly Report
on Form 10-Q, the following factors should be considered carefully.
Need for Additional Funds. Genta's operations to date have consumed
substantial amounts of cash. Substantial additional sources of financing will be
required in order for the Company to continue its planned operations. The
Company will need to raise substantial additional funds to conduct the costly
and time-consuming research, pre-clinical development and clinical trials
necessary to bring its products to market and to establish production and
marketing capabilities. The Company intends to seek additional funding through
public or private financings, including equity financings, and through
collaborative arrangements. Adequate funds for these purposes, whether obtained
through financial markets or collaborative or other arrangements with corporate
partners or from other sources, may not be available when needed or on terms
acceptable to the Company. Insufficient funds may require the Company to delay,
scale back or eliminate some or all of its research and product development
programs or to license third parties to commercialize products or technologies
that the Company would otherwise seek to develop itself. The Company's future
cash requirements will be affected by results of research and development,
results of pre-clinical studies and bioequivalence and clinical trials,
relationships with corporate collaborators, changes in the focus and direction
of the Company's research and development programs, competitive and
technological advances, resources devoted to Genta Jago, the United States Food
and Drug Administration ("FDA") and foreign regulatory process, potential
litigation by companies seeking to prevent or delay marketing approval of Genta
Jago's products and other factors.
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities. If the Company's securities were not
listed on a national securities exchange nor listed on a qualified automated
quotation system, they may become subject to Rule 15g-9 under the Exchange Act,
which imposes additional sales practice requirements on broker-dealers that sell
such securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such Rule may
affect the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers to sell any of the Company's securities in the
secondary market.
The Securities and Exchange Commission (the "SEC") has adopted
regulations that define a "penny stock" to be any equity security that has a
market price (as therein defined) of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules require
delivery, prior to any transaction in a penny stock, of a disclosure schedule
prepared by the SEC relating to the penny stock market. Disclosure is also
required to be made about sales commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities.
Finally, monthly statements are required to be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stock.
The foregoing required penny stock restrictions will not apply to the
Company's securities if the Company meets certain minimum net tangible assets or
average revenue criteria. There can be no assurance that the Company's
securities will qualify for exemption from the penny stock restrictions. In any
event, even if the Company's securities were exempt from such restrictions, the
Company would remain subject to Section 15(b)(6) of the Exchange Act, which
gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.
If the Company's securities were subject to the rules on penny stocks,
the market liquidity for the Company's securities could be materially adversely
affected.
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Claims of Genta's Default Under Various Agreements. On May 7, 1997,
Jago and Jagotec gave Genta Jago formal notices of its assertion that Genta Jago
is in breach of certain agreements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources." On May 15, 1997, Johns Hopkins sent Genta a letter stating that the
Johns Hopkins Agreement is terminated. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." In October of 1996, Genta and Genta Europe terminated Genta Europe's
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources." There can be no
assurance that the Company will not incur material costs in relation to these
terminations and/or assertions of default.
Subordination of Common Stock to Senior Secured Convertible Bridge
Notes and Series A, Series C and Series D Preferred Stock; Risk of Dilution;
Anti-dilution Adjustments. In the event of the liquidation, dissolution or
winding up of the Company, the common stock is expressly subordinate to $2.35
million principal amount of Convertible Notes (payable on the earlier of (i)
December 31, 1997 or (ii) the date of any decision, order or other determination
adverse to the Company or any of its directors by any court or other tribunal in
any lawsuit or other proceeding against the Company and/or any of its directors
by any of the Company's preferred Stockholders), the approximately $32 million
preference of the 528,100 outstanding shares of Series A Preferred Stock, the
approximately $1.1 million preference of the 1,044 shares of Series C Preferred
Stock and the approximately $37 million preference of 261,975 shares of Series D
Preferred Stock (assuming full conversion of the Convertible Notes but excluding
any Series D Preferred Stock that may be issued pursuant to conversion of any
interest on the Convertible Notes and including 40,395 shares of Series D
Preferred Stock issuable upon exercise of certain warrants exercisable after
December 31, 1997). Further, the payment of dividends on the common stock is
prohibited by the terms of the Convertible Notes unless approved by the
Convertible Note holders, nor may any dividends be paid on the common stock
unless full cumulative dividends on the Series A, Series C and Series D
Preferred Stock have been paid or funds have been set aside for such preferred
dividends by the Company.
The Convertible Notes are initially convertible into 60,000 shares (and
such additional shares issuable upon conversion of the interest on the
Convertible Notes) of Series D Preferred Stock, which are in turn convertible
into common stock as described below. The conversion rate of the Series A
Preferred Stock and the exercise price of warrants issued in connection with the
Series A Preferred Stock (the "Series A Warrants") are subject to adjustment,
among other things, upon certain issuances of common stock or securities
convertible into common stock at $67.50 per share or less. Each share of Series
A Preferred Stock is presently convertible into 6.65 shares of common stock and
the exercise price of the Series A Warrants is presently $9.32 per share. There
are outstanding Series A Warrants to purchase an aggregate of 60,000 shares of
common stock. Shares of Series C Preferred Stock are convertible into common
stock at a conversion price equal to 75% of a moving average of market-based
prices. The conversion rate of the Series D Preferred Stock and the exercise
prices of the Class D Warrants are subject to adjustment, among other things,
upon certain issuances of common stock or securities convertible into common
stock at prices per share below certain levels. In addition, the conversion
price of the Series D Preferred Stock in effect on June 29, 1998 (the "Reset
Date") will be adjusted and reset effective as of the Reset Date if the average
closing bid price of the common stock for the 20 consecutive trading days
immediately preceding the Reset Date (the "12 Month Trading Price") is less than
140% of the then applicable conversion price (a "Reset Event"). Upon the
occurrence of a Reset Event, the then applicable conversion price will be
reduced to be equal to the greater of (i) the 12 Month Trading Price divided by
1.40, and (ii) 25% of the then applicable conversion price. Each share of Series
D Preferred Stock is presently convertible into 106 shares of common stock and
the exercise price of the Class D Warrants is presently $.94375 per share. There
are 807,900 Class D Warrants outstanding and another 201,975 Class D Warrants
issuable upon the exercise of certain warrants. Finally, the Company has
outstanding warrants to purchase an aggregate of 6,357,616 shares of common
stock at an exercise price of $.471875 per share (the "Paramount Warrants"),
warrants to purchase an aggregate of 50,000 shares of common stock at an
exercise price of $2.50 per share, warrants to purchase an aggregate of 95,769
shares of common stock at various exercise prices between approximately $13 and
$21 per share and outstanding employee stock options.
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Early Stage of Development; Technological Uncertainty. Genta is at an
early stage of development. All of the Company's potential therapeutic products
are in research or development, and no revenues have been generated from
therapeutic product sales. To date, a portion of the Company's resources have
been dedicated to applying molecular biology and medicinal chemistry to the
research and development of potential pharmaceutical products based upon
Anticode technology. While the Company has demonstrated the activity of Anticode
technology in model systems in vitro and the activity of antisense technology in
animals and has identified a number of compounds which the Company believes are
worthy of additional testing, only one of these potential Anticode products has
begun to be tested in humans, with such testing in its early stages. There can
be no assurance that the novel approach of Anticode technology to develop
therapeutic products will result in products which receive necessary regulatory
approvals or that will be successful commercially. Further, results obtained in
pre-clinical studies or pilot bioequivalence trials are not necessarily
indicative of results that will be obtained in human clinical testing or pivotal
bioequivalence trials, respectively. The Company is also developing products for
certain diseases where no animal models exist. There can be no assurance that
any of the Company's or Genta Jago's potential products can be successfully
developed. Furthermore, the Company's products in research or development may
prove to have undesirable and unintended side effects or other characteristics
that may prevent or limit their commercial use. There can be no assurance that
the Company will be permitted to undertake human clinical testing of the
Company's products currently in pre-clinical development, or, if permitted, that
such products will be demonstrated to be safe and efficacious. The Company is
pursuing research and development, through Genta Jago, of a range of oral
controlled-release formulations of currently available pharmaceuticals. Many of
the products to be developed through Genta Jago have not yet been successfully
formulated using GEOMATRIX technology. In addition, none of the products being
developed through Genta Jago has had its manufacturing process successfully
scaled-up for commercial production or has started pivotal bioequivalence
trials. In addition, there can be no assurance that any of the Company's or
Genta Jago's products will obtain FDA or foreign regulatory approval for any
indication or that an approved compound would be capable of being produced in
commercial quantities at reasonable costs and successfully marketed. Products,
if any, resulting from Genta's or Genta Jago's research and development programs
are not expected to be commercially available for a number of years.
Loss History; Uncertainty of Future Profitability. Genta has been
unprofitable to date, incurring substantial operating losses associated with
research and development activities, pre-clinical testing, clinical trials and
manufacturing activities. From the period since its inception to September 30,
1997, the Company has incurred a cumulative net loss of $118.0 million. The
Company has experienced significant quarterly fluctuations in operating results
and expects that these fluctuations in revenues, expenses and losses will
continue. The Company has historically experienced significant quarterly
fluctuations in its level of product sales, generally reflecting the timing and
degree of customer demand for various products. The Company's independent
auditors have included an explanatory paragraph in their report to the Company's
financial statements at December 31, 1996, which paragraph expresses substantial
doubt as to the Company's ability to continue as a going concern. However, in
1997, the Company has raised net proceeds of approximately $17 million (net of
expenses) in various private placements.
Limited Availability of Net Operating Loss Carryforwards. For Federal
income tax purposes, net operating loss and tax credit carryforwards as of
December 31, 1996 are approximately $61,731,000 and $9,585,000, respectively.
These carryforwards will expire beginning in 2003. The Tax Reform Act of 1986
provided for a limitation on the use of net operating loss and tax credit
carryforwards following certain ownership changes. The Company believes that the
Private Placement, together with certain prior issuances of securities, may
restrict the Company's ability to utilize its net operating losses and tax
credits. Additionally, because U.S. tax laws limit the time during which net
operating loss and tax credit carryforwards may be applied against future
taxable income and tax liabilities, respectively, the Company may not be fully
able to use its net operating loss and tax credits for federal income tax
purposes.
Dividends. The Company has never paid cash dividends on its common
stock and does not anticipate paying any such dividends in the foreseeable
future. In addition, the Company is restricted from paying cash dividends on its
common stock until such time as all cumulative dividends have been paid on
outstanding shares of
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its Series A, Series C and Series D Preferred Stock. The Company currently
intends to retain its earnings, if any, after payment of dividends on
outstanding shares of Series A, Series C and Series D Preferred Stock, for the
development of its business.
No Assurance of Regulatory Approval; Government Regulation. The FDA and
comparable agencies in foreign countries impose substantial premarket approval
requirements upon the introduction of pharmaceutical products through lengthy
and detailed pre-clinical and clinical testing procedures and other costly and
time-consuming procedures. Satisfaction of these requirements, which includes
demonstrating to the satisfaction of the FDA and foreign regulatory agencies
that the product is both safe and effective, typically takes several years or
more depending upon the type, complexity and novelty of the product. There can
be no assurance that such testing will show any product to be safe or
efficacious or, in the case of certain of Genta Jago's products, to be
bioequivalent to a currently marketed pharmaceutical. Government regulation also
affects the manufacture and marketing of pharmaceutical products. The effect of
government regulation may be to delay marketing of any new products for a
considerable or indefinite period of time, to impose costly procedures upon the
Company's or Genta Jago's activities and to diminish any competitive advantage
that the Company or Genta Jago may attain. It may take years before marketing
approvals are obtained for the Company's or Genta Jago's products, if at all.
There can be no assurance that FDA or other regulatory approval for any products
developed by the Company or Genta Jago will be granted on a timely basis, if at
all, or, if granted, that such approval will cover all the clinical indications
for which the Company or Genta Jago is seeking approval or will not sustain
significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use. Further, with respect to
the reformulated versions of currently available pharmaceuticals being developed
through Genta Jago, there is a substantial risk that the manufacturers or
marketers of such currently available pharmaceuticals will seek to delay or
block regulatory approval of any reformulated versions of such pharmaceuticals
through litigation or other means. Any significant delay in obtaining, or
failure to obtain, such approvals would materially adversely affect the
Company's and Genta Jago's revenue. Moreover, additional government regulation
from future legislation or administrative action may be established which could
prevent or delay regulatory approval of the Company's or Genta Jago's products
or further regulate the prices at which the Company's or Genta Jago's proposed
products may be sold.
The Company is also subject to various foreign, federal, state and
local laws, regulations and recommendations (collectively "Governmental
Regulations") relating to safe working conditions, laboratory and manufacturing
practices, the experimental use of animals and the use, manufacture, storage,
handling and disposal of hazardous or potentially hazardous substances,
including radioactive compounds and infectious disease agents, used in
connection with the Company's research and development work and manufacturing
processes. Sampling conducted at the JBL facility revealed the presence of
chloroform and perchloroethylenes ("PCEs") in the soil and groundwater at this
site. Six soil borings were drilled and groundwater wells were installed at
several locations around the site. Chloroform was detected below regulatory
action levels, and PCEs were detected slightly above regulatory action levels.
JBL has notified the appropriate regulatory agency of conditions at the site and
with the agency's approval, JBL is monitoring groundwater conditions at the site
on a quarterly basis. While current sampling results indicate that these
contaminants are not migrating off-site, there is the potential that these
contaminants may, in the future, impact off-site wells, one of which is used as
a drinking water source. The Company believes that any costs associated with
further investigating or remediating this contamination will not have a material
adverse effect on the business of the Company, although there can be no
assurance thereof. The Company believes that it is in material compliance with
Governmental Regulations, however there can be no assurance that the Company
will not be required to incur significant capital costs to comply with
Governmental Regulations in the future.
Uncertainty Regarding Patents and Proprietary Technology. The Company's
and Genta Jago's success will depend, in part, on their respective abilities to
obtain patents, maintain trade secrets and operate without infringing the
proprietary rights of others. No assurance can be given that patents issued to
or licensed by the Company or Genta Jago will not be challenged, invalidated or
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company or Genta Jago. There can be no assurance that the
Company's or Genta
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Jago's patent applications will be approved, that the Company or Genta Jago will
develop additional products that are patentable, that any issued patent will
provide the Company or Genta Jago with any competitive advantage or adequate
protection for its inventions or will not be challenged by others, or that the
patents of others will not have an adverse effect on the ability of the Company
or Genta Jago to do business. Competitors may have filed applications, may have
been issued patents or may obtain additional patents and proprietary rights
relating to products or processes competitive with those of the Company or Genta
Jago. Furthermore, there can be no assurance that others will not independently
develop similar products, duplicate any of the Company's or Genta Jago's
products or design around any patented products developed by the Company or
Genta Jago. The Company and Genta Jago rely on secrecy to protect technology in
addition to patent protection, especially where patent protection is not
believed to be appropriate or obtainable. No assurance can be given that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to the Company's or Genta Jago's trade
secrets, or that the Company or Genta Jago can effectively protect its rights to
its unpatented trade secrets.
Genta and Genta Jago have obtained licenses or other rights to patents
and other proprietary rights of third parties, and may be required to obtain
licenses to additional patents or other proprietary rights of third parties. No
assurance can be given that any existing licenses and other rights will remain
in effect or that any licenses required under any such additional patents or
proprietary rights would be made available on terms acceptable to the Company or
Genta Jago, if at all. If Genta's or Genta Jago's licenses and other rights are
terminated or if Genta or Genta Jago cannot obtain such additional licenses,
Genta or Genta Jago could encounter delays in product market introductions while
it attempts to design around such patents or could find that the development,
manufacture or sale of products requiring such licenses could be foreclosed. In
addition, the Company or Genta Jago could incur substantial costs, including
costs caused by delays in obtaining regulatory approval and bringing products to
market, in defending itself in any suits brought against the Company or Genta
Jago claiming infringement of the patent rights of third parties or in asserting
the Company's or Genta Jago's patent rights, including those granted by third
parties, in a suit against another party. The Company or Genta Jago may also
become involved in interference proceedings declared by the United States Patent
and Trademark Office in connection with one or more of its patents or patent
applications, which could result in substantial cost to the Company or Genta
Jago, as well as an adverse decision as to priority of invention of the patent
or patent application involved. There can be no assurance that the Company or
Genta Jago will have sufficient funds to obtain, maintain or enforce patents on
their respective products or technology, to obtain or maintain licenses that may
be required in order to develop and commercialize their respective products, to
contest patents obtained by third parties, or to defend against suits brought by
third parties.
Dependence on Others. The Company's and Genta Jago's strategy for the
research, development and commercialization of their products requires
negotiating, entering into and maintaining various arrangements with corporate
collaborators, licensors, licensees and others, and is dependent upon the
subsequent success of these outside parties in performing their
responsibilities. No assurance can be given that they will obtain such
collaborative arrangements on acceptable terms, if at all, nor can any assurance
be given that any current collaborative arrangements will be maintained.
Technology Licensed From Third Parties. The Company has entered into
certain agreements with, and licensed certain technology and compounds from,
third parties. The Company has relied on scientific, technical, clinical,
commercial and other data supplied and disclosed by others in entering into
these agreements, including the Genta Jago agreements, and will rely on such
data in support of development of certain products. Although the Company has no
reason to believe that this information contains errors of omission or fact,
there can be no assurance that there are no errors of omission or fact that
would materially affect the future approvability or commercial viability of
these products.
Potential Adverse Effect of Technological Change and Competition. The
biotechnology industry is subject to intense competition and rapid and
significant technological change. The Company and Genta Jago have numerous
competitors in the United States and other countries for their respective
technologies and products under development, including among others, major
pharmaceutical and chemical companies, specialized biotechnology
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firms, universities and other research institutions. There can be no assurance
that the Company's or Genta Jago's competitors will not succeed in developing
products or other novel technologies that are more effective than any which have
been or are being developed by the Company or Genta Jago or which would render
the Company's or Genta Jago's technology and products non-competitive. Many of
the Company's and Genta Jago's competitors have substantially greater financial,
technical, marketing and human resources than the Company or Genta Jago. In
addition, many of those competitors have significantly greater experience than
the Company or Genta Jago in undertaking pre-clinical testing and human clinical
trials of new pharmaceutical products and obtaining FDA and other regulatory
approvals of products for use in healthcare. Accordingly, the Company's or Genta
Jago's competitors may succeed in obtaining regulatory approval for products
more rapidly than the Company or Genta Jago and such competitors may succeed in
delaying or blocking regulatory approvals of the Company's or Genta Jago's
products. Furthermore, if the Company or Genta Jago is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities, an area in which it has limited or no experience, and
manufacturing efficiency. There are many public and private companies that are
conducting research and development activities based on drug delivery and
antisense technologies. The Company believes that the industry-wide interest in
such technologies will accelerate and competition will intensify as the
techniques which permit drug design and development based on such technologies
are more widely understood.
Uncertainty of Clinical Trials and Results. The results of clinical
trial and pre-clinical testing are subject to varying interpretations. Even if
the development of the Company's products advances to the clinical stage, there
can be no assurance that they will prove to be safe and effective. The products
that are successfully developed, if any, will be subject to requisite regulatory
approval prior to their commercial sale, and the approval, if obtainable, may
take several years. Generally, only a very small percentage of the number of new
pharmaceutical products initially developed is approved for sale. Even if
products are approved for sale, there can be no assurance that they will be
commercially successful. The Company may encounter unanticipated problems
relating to development, manufacturing, distribution and marketing, some of
which may be beyond the Company's financial and technical capacity to solve. The
failure to address such problems adequately could have a material adverse effect
on the Company's business, financial condition, prospects and results of
operations. No assurance can be given that the Company will succeed in the
development and marketing of any new drug products, or that they will not be
rendered obsolete by products of competitors.
Difficult Manufacturing Process. The manufacture of Anticode
oligonucleotides is a time-consuming and complex process. Management believes
that the Company has the ability to acquire or produce quantities of
oligonucleotides sufficient to support its projected needs for its initial
clinical development programs. However, Genta believes that it will need to
obtain an agreement with a third party supplier (including, potentially,
agreements with competitors of Genta) or make improvements in its manufacturing
capabilities to enable the Company to meet the volume and cost requirements
needed for certain commercial applications of Anticode products. Products based
on chemically modified oligonucleotides have never been manufactured on a
commercial scale. The manufacture of all of the Company's and Genta Jago's
products will be subject to current Good Manufacturing Practices ("GMP")
requirements prescribed by the FDA or other standards prescribed by the
appropriate regulatory agency in the country of use. There can be no assurance
that the Company or Genta Jago will be able to manufacture products, or have
products manufactured for it, in a timely fashion at acceptable quality and
prices, that they or third party manufacturers can comply with GMP or that they
or third party manufacturers will be able to manufacture an adequate supply of
product.
Limited Sales, Marketing and Distribution Experience. The Company and
Genta Jago have very limited experience in pharmaceutical sales, marketing and
distribution. In order to market and sell certain products directly, the Company
or Genta Jago would have to develop or subcontract a sales force and a marketing
group with technical expertise. There can be no assurance that any direct sales
or marketing efforts would be successful.
Uncertainty of Product Pricing, Reimbursement and Related Matters. The
Company's and Genta Jago's business may be materially adversely affected by the
continuing efforts of governmental and third party payers to contain or reduce
the costs of healthcare through various means. For example, in certain foreign
markets the
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pricing or profitability of healthcare products is subject to government
control. In the United States, there have been, and the Company expects that
there will continue to be, a number of federal and state proposals to implement
similar governmental control. While the Company cannot predict whether any such
legislative or regulatory proposals or reforms will be adopted, the adoption of
any such proposal or reform could adversely affect the commercial viability of
the Company's and Genta Jago's potential products. In addition, in both the
United States and elsewhere, sales of healthcare products are dependent in part
on the availability of reimbursement to the consumer from third party payers,
such as government and private insurance plans. Third party payers are
increasingly challenging the prices charged for medical products and services
and therefore, significant uncertainty exists as to the reimbursement of
existing and newly approved healthcare products. If the Company or Genta Jago
succeeds in bringing one or more products to the market, there can be no
assurance that these products will be considered cost effective and that
reimbursement to the consumer will be available or will be sufficient to allow
the Company or Genta Jago to sell its products on a competitive basis.
Dependence on Qualified Personnel. The Company's success is highly
dependent on the hiring and retention of key personnel and scientific staff. The
loss of key personnel or the failure to recruit necessary additional personnel
does and will further impede the achievement of development objectives. There is
intense competition for qualified personnel in the areas of the Company's
activities, and there can be no assurance that Genta will be able to continue to
attract and retain the qualified personnel necessary for the development of its
business
Product Liability Exposure; Limited Insurance Coverage. The Company's,
JBL's and Genta Jago's businesses expose them to potential product liability
risks which are inherent in the testing, manufacturing, marketing and sale of
human therapeutic products. If available, product liability insurance for the
pharmaceutical industry generally is expensive. The Company has obtained a level
of liability insurance coverage which it deems appropriate for its current stage
of development. However, there can be no assurance that the Company's present
insurance coverage is adequate. Such existing coverage may not be adequate as
the Company further develops products, and no assurance can be given that in the
future adequate insurance coverage will be available in sufficient amounts or at
a reasonable cost, or that a product liability claim would not have a material
adverse effect on the business or financial condition of the Company.
Fundamental Change. The Company's Restated Certificate of Incorporation
currently provides that upon the occurrence of a "Fundamental Change," the
holders of Series A Preferred Stock have the option of requiring the Company to
repurchase all of each such holder's shares of Series A Preferred Stock at the
Redemption Price, an event that could result in the Company being required to
pay to the holders of Series A Preferred Stock cash in the aggregate amount of
approximately $32 million. "Fundamental Change" is defined as: (i) a "person" or
"Group" (as defined), together with any affiliates thereof, becoming the
beneficial owner (as defined) of Voting Shares (as defined) of the Company
entitled to exercise more than 60% of the total voting power of all outstanding
Voting Shares of the Company (including any Voting Shares that are not then
outstanding of which such person or Group is deemed the beneficial
owner)(subject to certain exceptions); (ii) any consolidation of the Company
with, or merger of the Company into, any other person, any merger of another
person into the Company, or any sale, lease or transfer of all or substantially
all of the assets of the Company to another person (subject to certain
exceptions); (iii) the sale, transfer or other disposition (or the entry into a
commitment to sell, transfer or otherwise dispose) of all of any portion of the
shares of Genta Jago held at any time by the Company (or the imposition of any
material lien on such shares which lien is not removed within 30 days of
imposition) and the sale (or functional equivalent of a sale) of all or
substantially all of the assets of Genta Jago or (iv) the substantial reduction
or elimination of a public market for the common stock as the result of
repurchases, delisting or deregistration of the common stock or corporate
reorganization or recapitalization undertaken by the Company.
Hazardous Materials; Environmental Matters. The Company's research and
development and manufacturing processes involve the controlled storage, use and
disposal of hazardous materials, biological hazardous materials and radioactive
compounds. The Company is subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
such materials and certain waste products. Although the Company believes that
its safety procedures for handling and disposing of such materials
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comply with the standards prescribed by such laws and regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, the Company may be held liable for
any damages that result, and any such liability could exceed the resources of
the Company. There can be no assurance that the Company will not be required to
incur significant costs to comply with environmental laws and regulations in the
future, nor that the operations, business or assets of the Company will not be
materially adversely affected by current or future environmental laws of
regulations. See "Risk Factors - No Assurance of Regulatory Approval; Government
Regulation" for a discussion of the Spill.
Volatility of Stock Price; Market Overhang from Outstanding Convertible
Securities and Warrants. The market price of the Company's common stock, like
that of the common stock of many other biopharmaceutical companies, has been
highly volatile and may be so in the future. Factors such as, among other
things, the results of pre-clinical studies and clinical trials by Genta, Genta
Jago or their competitors, other evidence of the safety or efficacy of products
of Genta, Genta Jago or their competitors, announcements of technological
innovations or new therapeutic products by the Company, Genta Jago or their
competitors, governmental regulation, developments in patent or other
proprietary rights of the Company or its competitors, including litigation,
fluctuations in the Company's operating results, and market conditions for
biopharmaceutical stocks in general could have a significant impact on the
future price of the common stock. At the Company's Annual Meeting of
Stockholders held on April 4, 1997, the stockholders approved an amendment to
the Company's Restated Certificate of Incorporation effecting a one-for-ten
reverse stock split of its common stock. The stockholders also approved a
reduction of the Company's authorized shares of common stock from 150,000,000 to
70,000,000. The Company commenced trading on a post reverse split basis at the
commencement of trading on April 7, 1997. As of September 30, 1997, the Company
had 4,458,518 shares of common stock outstanding. Future sales of shares of
common stock by existing stockholders and option holders also could adversely
affect the market price of the common stock.
No predictions can be made of the effect that future market sales of
the shares of common stock underlying the convertible securities and warrants
referred to under the caption "Risk Factors - Subordination of Common Stock to
Senior Secured Convertible Bridge Notes and Series A, Series C and Series D
Preferred Stock; Risk of Dilution; Anti-dilution Adjustments," or the
availability of such securities for sale, will have on the market price of the
common stock prevailing from time to time. Sales of substantial amounts of
common stock, or the perception that such sales might occur, could adversely
affect prevailing market prices.
Certain Interlocking Relationships; Potential Conflicts of Interest.
The Aries Trust, a Cayman Islands trust, and the Aries Domestic Fund, L.P., a
Delaware limited partnership (collectively, the "Aries Funds"), have the
contractual right to appoint a majority of the members of the Board of Directors
of the Company. The Aries Funds have nominated Michael S. Weiss, Senior Managing
Director of Paramount Capital Asset Management, Inc., ("PCAM") to the Board of
Directors. David R. Walner, the Secretary of the Company, is an Associate
Director and Secretary of Paramount Capital Asset Management, Inc. PCAM is the
investment manager and general partner of The Aries Trust and the Aries Domestic
Fund, L.P., respectively. The Aries Funds currently do not hold a controlling
block of voting stock, although the Aries Funds have the present right to
appoint a majority of the Board of Directors, and to convert and exercise their
securities into a significant portion of the outstanding common stock. See "Risk
Factors - Concentration of Ownership and Control" below. Dr. Lindsay A.
Rosenwald, the President and sole stockholder of PCAM, is also the President and
sole stockholder of Paramount Capital Investments LLC, a New York-based merchant
banking and venture capital firm specializing in biotechnology companies
("PCI"). In the regular course of its business, PCI identifies, evaluates and
pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither such affiliates nor PCI is
obligated pursuant to any agreement or understanding with the Company to make
any additional products or technologies available to the Company, nor can there
be any assurance, and the Company does not expect and purchasers of the
securities offered hereby should not expect, that any biomedical or
pharmaceutical product or technology identified by such affiliates or PCI in the
future will be made available to the Company. In addition, certain of the
current officers and directors of the
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Company or certain of any officers or directors of the Company hereafter
appointed may from time to time serve as officers or directors of other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not have interests in conflict with those of the
Company.
Concentration of Ownership and Control. The Company's directors,
executive officers and principal stockholders and certain of their affiliates
have the ability to influence the election of the Company's directors and most
other stockholder actions. In particular, the Aries Funds may be deemed
beneficially to own a majority of the outstanding shares of the common stock
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) and have
the contractual right to appoint a majority of the members of the Board of
Directors of the Company, and have nominated Michael S. Weiss, Donald G.
Drapkin, Glenn L. Cooper, M.D., Bobby W. Sandage, Jr., Ph.D., and Andrew J.
Stein to the Board of Directors. See "Risk Factors - Certain Interlocking
Relationships; Potential Conflicts of Interest." Accordingly, the Aries Funds
have the ability to exert significant influence over the election of the
Company's Board of Directors and other matters submitted to the Company's
stockholders for approval. In addition, certain of the Paramount Warrants are
held by affiliates of the Aries Funds. These arrangements may discourage or
prevent any proposed takeover of the Company, including transactions in which
stockholders might otherwise receive a premium for their shares over the then
current market prices. Such stockholders may influence corporate actions,
including influencing elections of directors and significant corporate events.
See also, "Risk Factors -- Effect of Certain Anti-Takeover Provisions" below.
Effect of Certain Anti-Takeover Provisions. The Company's Restated
Certificate of Incorporation and Bylaws include provisions that could discourage
potential takeover attempts and make attempts by stockholders to change
management more difficult. The approval of 66-2/3% of the Company's voting stock
is required to approve certain transactions and to take certain stockholder
actions, including the calling of a special meeting of stockholders and the
amendment of any of the anti-takeover provisions contained in the Company's
Restated Certificate of Incorporation. Additionally, the Company has contractual
obligations to certain of its security holders which may impair potential
takeovers. Further, pursuant to the terms of its stockholder rights plan adopted
in December 1993, the Company has distributed a dividend of one right for each
outstanding share of common stock. These rights will cause a substantial
dilution to a person or group that attempts to acquire the Company on terms not
approved by the Board of Directors and may have the effect of deterring hostile
takeover attempts.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description of Document
3(ii)(1) Bylaws as amended and restated September 23, 1997
27.1(1) Financial Data Schedule
(1) Filed herewith.
(b) Reports on Form 8-K
(i) On July 3, 1997, the Company filed a Report on Form 8-K
dated as of July 3, 1997 reporting under Item 5 that the Company issued a press
release entitled "Genta Incorporated Raises in Excess of $12 million through
Private Placement of Equity Securities."
(ii) On July 7, 1997, the Company filed a Report on Form 8-K
dated as of June 30, 1997 reporting under Item 5 that the Company was making a
filing in accordance with the Nasdaq Listing Qualifications Panel's revised
temporary exception from the bid price and capital and surplus requirements of
the Nasdaq SmallCap Market showing capital and surplus of $13,338,724.
(iii) On July 23, 1997, the Company filed a Report on Form 8-K
dated as of July 23, 1997 reporting under Item 5 that the Company issued a press
release entitled "Nasdaq to Maintain Genta's Listing on SmallCap Market; Resumes
Trading as "GNTA" Effective July 24."
(iv) On August 14, 1997, the Company filed a Report on Form
8-K dated as of August 13, 1997 reporting under Item 5 that the Company issued a
press release entitled "Genta Incorporated Announces Second Quarter 1997
Results."
(v) On September 5, 1997, the Company filed a Report on Form
8-K/A dated as of June 30, 1997 reporting under Item 5 changes in the
Consolidated Balance Sheet.
(vi) On September 16, 1997, the Company filed a Report on Form
8-K dated as of September 10, 1997 reporting under Item 1 the nomination by the
Aries Funds of four additional members to the Board of Directors and under Item
5 that the Company issued press releases entitled "Genta Incorporated Files An
Amended Form 10-Q For the Quarter Ended June 30, 1997 to Conform With
Recently-Adopted SEC Financial Reporting Guidelines" and "Genta Appoints Donald
Drapkin As Director and Chairman; Michael Weiss Is Selected As Vice Chairman;
Three Additional New Directors Are Elected."
(vii) On September 22, 1997, the Company filed a Report on
Form 8-K dated as of September 22, 1997 reporting under Item 5 that the Company
issued a press release entitled "Genta Appoints Kenneth G. Kasses As President
and CEO."
(viii) On September 24, 1997, the Company filed a Report on
Form 8-K dated as of September 24, 1997 reporting under Item 5 that the Company
issued a press release entitled "Genta Appoints Three Additional New Directors."
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENTA INCORPORATED
(Registrant)
By: /s/ Kenneth G. Kasses, Ph.D.
----------------------------
Name: Kenneth G. Kasses, Ph.D.
Title: President and Chief Executive Officer
By: /s/ Robert E. Klem, Ph.D.
-------------------------
Name: Robert E. Klem, Ph.D.
Title: Principal Accounting Officer
Date: November 14, 1997
As Amended and Restated September 23, 1997
BYLAWS
OF
GENTA INCORPORATED
ARTICLE I
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall be
held at such place within or without the state of Delaware as may be fixed from
time to time by the Board of Directors or the chief executive officer, or if not
so designated, at the registered office of the corporation.
Section 2. Annual Meeting. Annual meetings of stockholders shall be
held at such date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of meeting. At the annual meeting the
stockholders shall elect by a plurality vote the number of directors equal to
the number of directors of the class whose term expires at such meetings (or, if
fewer, the number of directors properly nominated and qualified for election) to
hold office until the third succeeding annual meeting of stockholders after
their election.
Section 3. Business Properly Conducted at Annual Meetings. At an annual
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or otherwise properly brought before the meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the corporation, not less
than fifty days nor more than seventy-five days prior to the meeting; provided,
however, that in the event that less than sixty-five days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the 15th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the
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secretary shall set forth as to each matter the stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder and (iv) any material interest
of the stockholder in such business. The chairman of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section, and if the chairman should so determine, the chairman shall so declare
to the meeting and any such business not properly brought before the meeting
shall not be transacted.
Section 4. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, may be called only by the chairman of the board or the
chief executive officer or by the Board of Directors pursuant to a resolution
approved by a majority of the Board of Directors.
Section 5. Notice of Meetings. Except as otherwise provided by law,
written notice of each meeting of stockholders, annual or special, stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten nor more than sixty days before the date of the meeting, to each
stockholder entitled to vote at such meeting.
Section 6. Voting List. The officer who has charge of the stock ledger
of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city or town where
the meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 7. Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business,
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except as otherwise provided by statute, the certificate of incorporation or
these bylaws.
Section 8. Adjournments. Any meeting of stockholders may be adjourned
from time to time to any other time and to any other place at which a meeting of
stockholders may be held under these bylaws, which time and place shall be
announced at the meeting, by a majority of the stockholders present in person or
represented by proxy at the meeting and entitled to vote, though less than a
quorum, or, if no stockholder is present or represented by proxy, by any officer
entitled to preside at or to act as secretary of such meeting, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the original meeting. If the adjournment is for more than thirty days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
Section 9. Action at Meetings. When a quorum is present at any meeting,
the vote of the holders of a majority of the stock present in person or
represented by proxy and entitled to vote on the question shall decide any
question brought before such meeting, unless the question is one upon which by
express provision of law, the certificate of incorporation or these bylaws, a
different vote is required, in which case such express provisions shall govern
and control the decision of such question.
Section 10. Voting and Proxies. Unless otherwise provided in the
certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of capital stock having
voting power held of record by such stockholder. Each stockholder entitled to
vote at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may authorize another person or persons to
act for such stockholder by proxy; provided that the instrument authorizing such
proxy to act shall have been executed in writing (which shall include
telegraphing, cabling or other means of electronically transmitted written copy)
by the stockholder personally or by the stockholder's duly authorized attorney
in fact. No such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
Section 11. Action Without Meeting. No action required or permitted to
be taken at any annual or special meeting of the stockholders of the corporation
may be taken without a meeting
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and the power of the stockholders to consent in writing, without a meeting, to
the taking of any action is specifically denied.
ARTICLE II
DIRECTORS
Section 1. Number, Election, Tenure and Qualification. The number of
directors which shall constitute the whole board shall not be less than three
nor more than twelve. Within such limit, the number of directors shall be
determined by resolution of the Board of Directors or by the stockholders at the
annual meeting or at any special meeting of stockholders. The directors shall be
elected at the annual meeting or at any special meeting of the stockholders,
except as provided in Section 3 of this Article II, and each director elected
shall hold office until such director's successor is elected and qualified,
unless sooner displaced.
Directors need not be stockholders.
Section 2. Enlargement. The number of directors which shall constitute
the whole board may be increased at any time by vote of seventy-five percent
(75%) of the directors then in office.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election at which the term of the class to which they have been
elected expires and until their successors are duly elected and shall qualify,
unless sooner displaced. If there are no directors in office, then an election
of directors may be held in the manner provided by statute. In the event of a
vacancy in the Board of Directors, the remaining directors, except as otherwise
provided by law or these bylaws, may exercise the powers of the full board until
the vacancy is filled.
Section 4. Resignation and Removal. Any director may resign at any time
upon written notice to the corporation at its principal place of business or to
the chief executive officer or the secretary. Such resignation shall be
effective upon receipt of such notice unless the notice specifies such
resignation to be effective at some other time or upon the happening of some
other event. Any director or the entire Board of Directors may be removed, but
only for cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, unless otherwise specified by law or the
certificate of incorporation.
Section 5. General Powers. The business of the corporation shall be
managed by or under the direction of its Board of
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Directors, which may exercise all powers of the corporation and do all such
lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the stockholders.
Section 6. Place of Meetings. The Board of Directors of the corporation
may hold meetings, both regular and special, either within or without the State
of Delaware.
Section 7. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the board; provided that any director who is absent when
such a determination is made shall be given prompt notice of such determination.
A regular meeting of the Board of Directors may be held without notice
immediately after and at the same place as the annual meeting of stockholders.
Section 8. Special Meetings. Special meetings of the board may be
called by the chief executive officer, president, secretary, or on the written
request of two or more directors, or by one director in the event that there is
only one director in office. Four hours' notice to each director, either
personally or by telegram cable, telecopy, commercial delivery service, telex or
similar means sent to such director's business or home address, or two days'
notice by written notice deposited in the mail or delivered by a nationally
recognized courier service, shall be given to each director by the secretary or
by the officer or one of the directors calling the meeting. A notice or waiver
of notice of a meeting of the Board of Directors need not specify the purposes
of the meeting.
Section 9. Quorum, Action at Meeting, Adjournments. At all meetings of
the board a majority of the directors then in office, but in no event less than
one third of the whole board, shall constitute a quorum for the transaction of
business and, except as provided in this Section 9 and in Article VIII of these
bylaws, the act of a majority of the directors present at any meeting at which
there is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by law or by the certificate of incorporation.
For purposes of this section, the term "whole board" shall mean the number of
directors last fixed by the stockholders or directors, as the case may be, in
accordance with law and these bylaws; provided, however, that if less than all
the number so fixed of directors were elected, the "whole board" shall mean the
greatest number of directors so elected to hold office at any one time pursuant
to such authorization. If a quorum shall not be present at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn the
meeting from time to time,
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without notice other than announcement at the meeting, until a quorum shall be
present.
Notwithstanding any other provision of this Section 9, the approval of
at least seventy-five percent (75%) of the directors then in office shall be
required for board action with respect to:
(a) the merger or consolidation of this corporation with or
into another corporation or other entity or person, or any other
corporate reorganization in which this corporation shall not be the
continuing or surviving entity in such merger, consolidation or
reorganization, or the sale of all or substantially all of this
corporation's properties and assets to any other person, or any
transaction or series of related transactions by this corporation in
which in excess of fifty percent (50%) of this corporation's voting
power is transferred;
(b) the offer of any shares of, or securities convertible into
or exercisable for, any class of the corporation's capital stock;
(c) the amendment of Sections 5 or 7 of Article III of these
bylaws, as the case may be, to change the individuals who have been
designated as the chairman of the board and chairman of the scientific
advisory board, respectively.
Section 10. Action by Consent. Unless otherwise restricted by the
certificate of incorporation or these bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee.
Section 11. Telephonic Meetings. Unless otherwise restricted by the
certificate of incorporation or these bylaws, members of the Board of Directors
or of any committee thereof may participate in a meeting of the Board of
Directors or of any committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation in a
meeting shall constitute presence in person at the meeting.
Section 12. Committees. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or
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more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee to the extent permitted by law and
provided in the resolution of the Board of Directors, shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution
designating such committee or the certificate of incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors. Each committee shall keep regular
minutes of its meetings and make such reports to the Board of Directors as the
Board of Directors may request. Except as the Board of Directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the directors or in such rules, its business shall
be conducted as nearly as possible in the same manner as is provided in these
bylaws for the conduct of its business by the Board of Directors.
Section 13. Compensation. Unless otherwise restricted by the
certificate of incorporation or these bylaws, the Board of Directors shall have
the authority to fix from time to time the compensation of directors. The
directors may be paid their expenses, if any, of attendance at each meeting of
the Board of Directors and the performance of their responsibilities as
directors and may be paid a fixed sum for attendance at each meeting of the
Board of Directors and/or a stated salary as director. No such payment shall
preclude any director from serving the corporation or its parent or subsidiary
corporations in any other capacity and receiving compensation therefor. The
Board of Directors may also allow compensation for members of special or
standing committees for service on such committees.
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Section 14. Nominating Procedures. Subject to the rights of holders of
any class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for election to the Board of
Directors of the corporation at a meeting of stockholders may be made on behalf
of the board by the nominating committee appointed by the board, or by any
stockholder of the corporation entitled to vote for the election of directors at
such meeting. Such nominations, other than those made by the nominating
committee on behalf of the board, shall be made by notice in writing delivered
or mailed by first-class United States mail or a nationally recognized courier
service, postage prepaid, to the secretary or assistant secretary of the
corporation, and received by him not less than one hundred twenty (120) days
prior to any meeting of stockholders called for the election of directors;
provided, however, that if less than one hundred (100) days' notice of the
meeting is given to stockholders, such nomination shall have been mailed or
delivered to the secretary or the assistant secretary of the corporation not
later than the close of business on the seventh (7th) day following the day on
which the notice of meeting was mailed. Such notice shall set forth as to each
proposed nominee who is not an incumbent director (i) the name, age, business
address and, if known, residence address of each nominee proposed in such
notice, (ii) the principal occupation or employment of each such nominee, (iii)
the number of shares of stock of the corporation which are beneficially owned by
each such nominee and by the nominating stockholder, and (iv) any other
information concerning the nominee that must be disclosed of nominees in proxy
solicitations regulated by Regulation 14A of the Securities Exchange Act of
1934. The chairman of the meeting may, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, the chairman shall
so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE III
OFFICERS
Section 1. Enumeration. The officers of the corporation shall be chosen
by the Board of Directors and shall be a president and a secretary. The Board of
Directors may elect from among its members a chairman of the board and a vice
chairman of the board. The Board of Directors may also choose such other
officers with such titles, terms of office and duties as the Board of Directors
may from time to time determine, including a chief executive officer, one or
more vice-presidents, a treasurer and one or more assistant secretaries and
assistant treasurers. If authorized by resolution of the Board of Directors, the
chief executive officer may be empowered to appoint from time to time
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assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these bylaws
otherwise provide.
Section 2. Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a president and a secretary.
Other officers may be appointed by the Board of Directors at such meeting, at
any other meeting, or by written consent.
Section 3. Compensation. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
Section 4. Tenure. The officers of the corporation shall hold office
until their successors are chosen and qualify, unless a different term is
specified in the vote choosing or appointing such officer, or until such
officer's earlier death, resignation or removal. Any officer elected or
appointed by the Board of Directors or by the chief executive officer may be
removed at any time by the affirmative vote of a majority of the Board of
Directors or a committee duly authorized to do so, except that any officer
appointed by the chief executive officer may also be removed at any time by the
chief executive officer. Any vacancy occurring in any office of the corporation
may be filled by the Board of Directors, at its discretion. Any officer may
resign by delivering such officer's written resignation to the corporation at
its principal place of business or to the chief executive officer or the
secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
Section 5. Chairman of the Board. If the Board of Directors appoints a
chairman of the board, such chairman shall, when present, preside at all
meetings of the stockholders and the Board of Directors. The chairman shall
perform such duties and possess such powers as are customarily vested in the
office of the chairman of the board or as may be vested in the chairman by the
Board of Directors.
Section 6. Vice Chairman of the Board. If the Board of Directors
appoints a vice chairman of the board, in the absence of the chairman of the
board, such vice chairman shall, when present, preside at all meetings of the
Board of Directors and of the stockholders. The vice chairman shall perform such
duties and possess such powers as may be prescribed by the Board of Directors
and, to the extent not so provided, as are customarily vested in the office of
the vice chairman of the board, subject to the control of the Board of
Directors.
Section 7. Chairman of the Scientific Advisory Board. If the Board of
Directors appoints a chairman of the scientific
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<PAGE>
advisory board, such chairman shall, when present, preside at all meetings of
the scientific advisory board. The chairman of the scientific advisory board
shall perform such duties and possess such powers as may be prescribed by the
Board of Directors and, to the extent not so provided, as are customarily vested
in the office of the chairman of the scientific advisory board, subject to the
control of the Board of Directors.
Section 8. Chief Executive Officer. The chairman of the board shall be
the chief executive officer of the corporation unless the Board of Directors
otherwise provides. The chief executive officer shall have general supervision,
direction and control of the business and officers of the corporation. He or she
shall perform such other duties and possess such other powers as may be
prescribed by the Board of Directors and, to the extent not so provided, as are
customarily vested in the office of the chief executive officer, subject to the
control of the Board of Directors.
Section 9. President. The president shall also be the chief operating
officer of the corporation. In the absence or disability of the chief executive
officer, or if there be none, the president shall perform all of the duties of
the chief executive officer, and when so acting shall have all of the powers of
and be subject to all of the restrictions of the chief executive officer. The
president shall perform such other duties and possess such other powers as from
time to time may be prescribed for the president by the Board of Directors.
Section 10. Vice Presidents. In the absence of the president or in the
event of the president's inability or refusal to act, the vice president, if any
(or in the event there be more than one vice president, the vice presidents in
the order designated by the directors, or in the absence of any designation,
then in the order determined by their tenure in office), shall perform the
duties of the president, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the president. The vice presidents shall
perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 11. Secretary. The secretary shall have such powers and perform
such duties as are customarily incident to the office of secretary. The
secretary shall maintain a stock ledger and prepare lists of stockholders and
their addresses as required and shall be the custodian of corporate records. The
secretary shall attend all meetings of the Board of Directors and all meetings
of the stockholders and record all the proceedings of the meetings of the
corporation and of the Board of Directors in a book to be kept for that purpose
and shall perform like duties for the standing committees when required. The
secretary shall
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<PAGE>
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be from time to time prescribed by the Board of Directors or president,
under whose supervision the secretary shall be. The secretary shall have custody
of the corporate seal of the corporation and the secretary, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by the secretary's signature or by the
signature of such assistant secretary. The Board of Directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by such officer's signature.
Section 12. Assistant Secretaries. The assistant secretary, or if there
be more than one, the assistant secretaries in the order determined by the Board
of Directors, the chief executive officer or the secretary (or if there be no
such determination, then in the order determined by their tenure in office),
shall, in the absence of the secretary or in the event of the secretary's
inability or refusal to act, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
Board of Directors, the chief executive officer or the secretary may from time
to time prescribe. In the absence of the secretary or any assistant secretary at
any meeting of stockholders or directors, the person presiding at the meeting
shall designate a temporary or acting secretary to keep a record of the meeting.
Section 13. Treasurer. The treasurer shall perform such duties and
shall have such powers as may be assigned to him or her by the Board of
Directors or the chief executive officer. In addition, the treasurer shall
perform such duties and have such powers as are customarily incident to the
office of treasurer. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. The treasurer
shall disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the chief executive officer and the Board of Directors, when the chief executive
officer or Board of Directors so requires, an account of all such person's
transactions as treasurer and of the financial condition of the corporation.
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<PAGE>
Section 14. Assistant Treasurers. The assistant treasurer, or if there
shall be more than one, the assistant treasurers in the order determined by the
Board of Directors, the chief executive officer or the treasurer (or if there be
no such determination, then in the order determined by their tenure in office),
shall, in the absence of the treasurer or in the event of the treasurer's
inability or refusal to act, perform the duties and exercise the powers of the
treasurer and shall perform such other duties and have such other powers as the
Board of Directors, the chief executive officer or the treasurer may from time
to time prescribe.
Section 15. Bond. If required by the Board of Directors, any officer
shall give the corporation a bond in such sum and with such surety or sureties
and upon such terms and conditions as shall be satisfactory to the Board of
Directors, including without limitation a bond for the faithful performance of
the duties of such officer's office and for the restoration to the corporation
of all books, papers, vouchers, money and other property of whatever kind in
such officer's possession or under such officer's control and belonging to the
corporation.
Section 16. Delegation of Authority. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
ARTICLE IV
NOTICES
Section 1. Delivery. Whenever, under the provisions of law, or of the
certificate of incorporation or these bylaws, written notice is required to be
given to any director or stockholder, such notice may be given by mail,
addressed to such director or stockholder, at such person's address as it
appears on the records of the corporation, with postage thereon prepaid, and
such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail or delivered to a nationally recognized
courier service or other commercial delivery service. Unless written notice by
mail is required by law, written notice may also be given by telegram, cable,
telecopy, telex or similar means, addressed to such director or stockholder at
such person's address as it appears on the records of the corporation, in which
case such notice shall be deemed to be given when delivered into the control of
the persons charged with effecting such transmission the transmission charge to
be paid by the corporation or the person sending such notice. Oral notice or
other in-hand delivery (in person or by telephone) shall be deemed given at the
time it is actually given.
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<PAGE>
Section 2. Waiver of Notice. Whenever any notice is required to be
given under the provisions of law or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
CAPITAL STOCK
Section 1. Certificates of Stock. Every holder of stock in the
corporation shall be entitled to have a certificate signed by, or in the name of
the corporation by, the chairman or vice chairman of the Board of Directors, or
the president or a vice president and the treasurer or an assistant treasurer,
or the secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such stockholder in the corporation. Certificates may
be issued for partly paid shares and in such case upon the face or back of the
certificates issued to represent any such partly paid shares, the total amount
of the consideration to be paid therefor, and the amount paid thereon shall be
specified. Any or all of the signatures on the certificate may be a facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were
such officer, transfer agent or registrar at the date of issue.
Section 2. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or such owner's legal representative, to
give reasonable evidence of such loss, theft or destruction, to advertise the
same in such manner as it shall require and/or to give the corporation a bond in
such sum as it may direct as indemnity against any claim that may be made
against the corporation with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate.
Section 3. Transfer of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares, duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, and
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<PAGE>
proper evidence of compliance with other conditions to rightful transfer, it
shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 4. Record Date for Action at a Meeting or for Other Purposes.
In order that the corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which shall not be
more than sixty days nor less than ten days before the date of such meeting, nor
more than sixty days prior to any other action to which such record date
relates. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting. If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders for any
other purpose within this Section 4 shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
Section 5. Registered Stockholders. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE VI
CERTAIN TRANSACTIONS
Section 1. Transactions with Interested Parties. No contract or
transaction between the corporation and one or more of its directors or
officers, or between the corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or have a financial interest, shall be void or voidable
solely
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<PAGE>
for this reason, or solely because the director or officer is present at or
participates in the meeting of the board or committee thereof which authorizes
the contract or transaction or solely because the vote or votes of such director
or officer are counted for such purpose, if:
(a) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(b) the material facts as to such person's relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the
stockholders; or
(c) the contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Section 2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by written consent, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 2. Reserves. The directors may set apart out of any funds of
the corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve.
Section 3. Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or
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<PAGE>
officers or such other person or persons as the Board of Directors may from time
to time designate.
Section 4. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
Section 5. Seal. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the word "Delaware." The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise. The
seal may be altered from time to time by the Board of Directors.
ARTICLE VIII
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
these bylaws, provided, however, that any adoption, amendment or repeal of these
bylaws by the Board of Directors shall require the approval of at least
sixty-six and two-thirds percent (66-2/3%) of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the board). The stockholders shall also have power to
adopt, amend or repeal these bylaws, provided, however, that in addition to any
vote of the holders of any class or series of stock of this corporation required
by law or by the certificate of incorporation of this corporation, the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of the stock
of the corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required for such adoption,
amendment or repeal by the stockholders of any provisions of these bylaws.
Notwithstanding anything to the contrary in this Article VIII, the second
paragraph of Section 9 of Article II of these bylaws, shall be amended only by
the act of at least seventy-five percent (75%) of the directors then in office
or by the affirmative vote of the holders of at least seventy-five percent (75%)
of the voting power of all of the then outstanding shares of the stock of the
corporation entitled to vote generally in the election of directors, voting
together as a single class.
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS CONTAINED IN THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE
QUARTER ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 6,781,453
<SECURITIES> 0
<RECEIVABLES> 4,533,111
<ALLOWANCES> 0
<INVENTORY> 786,439
<CURRENT-ASSETS> 12,349,204
<PP&E> 2,737,593
<DEPRECIATION> (2,736,296)
<TOTAL-ASSETS> 19,385,577
<CURRENT-LIABILITIES> 7,973,308
<BONDS> 0
0
704
<COMMON> 4,459
<OTHER-SE> 9,447,547
<TOTAL-LIABILITY-AND-EQUITY> 19,385,577
<SALES> 3,458,936
<TOTAL-REVENUES> 3,508,936
<CGS> 2,339,845
<TOTAL-COSTS> 12,363,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 249,523
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,926,044)
<EPS-PRIMARY> (4.45)
<EPS-DILUTED> 0
</TABLE>
