<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended SEPTEMBER 30, 1996.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Transition Period from ______________________
to ____________________________ .
Commission file number 0-27976.
GalaGen Inc.
(Exact name of registrant as specified in its charter)
Delaware 41-1719104
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Lexington Ave. North
Arden Hills, Minnesota 55126
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(Address of principal executive offices) (Zip Code)
(612) 481-2105
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
-- --
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.Common stock, $.01 par value
7,140,965 shares as of September 30, 1996.
1
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INDEX
GalaGen Inc.
(A Development Stage Company)
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - September 30, 1996, and December 31, 1995...........3
Statements of Operations - Three month periods ended
September 30, 1996, and September 30, 1995, nine month
periods ended September 30, 1996, and September 30, 1995,
and for the period November 17, 1987 (inception) through
September 30, 1996...................................................4
Statements of Cash Flows - Nine months ended
September 30, 1996, and September 30, 1995, and for the
period November 17, 1987 (inception) through
September 30, 1996...................................................5
Notes to Financial Statements........................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.....................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K....................................12
SIGNATURES...................................................................14
2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GalaGen Inc.
(A Development Stage Company)
Balance Sheets
SEPTEMBER 30, 1996 DECEMBER 31, 1995
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,290,390 $ 509,339
Available-for-sale securities 7,236,534 -
Prepaid and deferred expenses 236,635 81,703
--------------- -------------
Total current assets 13,763,559 591,042
Property, plant, & equipment: 1,064,883 230,484
Less accumulated depreciation (180,355) (149,783)
--------------- -------------
Net property, plant, and equipment 884,528 80,701
Deferred financing expenses - 146,487
--------------- -------------
Total assets $ 14,648,087 $ 818,230
--------------- -------------
--------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses $ 1,386,474 $ 1,623,949
--------------- -------------
Total current liabilities 1,386,474 1,623,949
Convertible promissory notes, net of discount - 8,198,900
Other long-term liabilities 45,000 698,404
Shareholders' equity(deficiency):
Series A Preferred Stock, $.01 par value: - 25,000
Authorized shares - 2,500,000
Issued and outstanding shares - 0 -
September 30, 1996
Series B Preferred Stock, $.01 par value: - 12,347
Authorized shares - 1,300,000
Issued and outstanding shares - 0 -
September 30, 1996
Series C Preferred Stock, $.01 par value: - 5,510
Authorized shares - 551,000
Issued and outstanding shares - 0 -
September 30, 1996
Series E Preferred Stock, $.01 par value: - 3,385
Authorized shares - 5,000,000
Issued and outstanding shares - 0 -
September 30, 1996
Series F-1 Preferred Stock, $.01 par value: - 171
Authorized shares - 34,287
Issued and outstanding shares - 0 -
September 30, 1996
Preferred Stock, $.01 par value: - -
Authorized shares - 15,000,000 pro forma
Issued and outstanding shares - none
Common stock, $.01 par value: 71,410 19,521
Authorized shares - 40,000,000
Issued and outstanding shares- 7,140,965-
September 30, 1996
Additional paid-in capital 59,141,489 23,812,106
Accumulated deficit (45,061,452) (32,400,329)
Deferred compensation (925,684) (1,180,734)
Unrealized gain/(loss) on available-for-sale securities (9,150) -
--------------- --------------
Total shareholders' equity (deficiency) 13,216,613 (9,703,023)
--------------- --------------
Total liabilities and shareholders' equity (deficiency) $ 14,648,087 $ 818,230
--------------- --------------
--------------- --------------
SEE ACCOMPANYING NOTES
Note: The balance sheet at December 31, 1995, 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.
</TABLE>
3
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GalaGen Inc.
(A Development Stage Company)
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED NOVEMBER 17, 1987
----------------------------- ----------------------------- (INCEPTION) TO
SEP. 30, 1996 SEP. 30, 1995 SEP. 30, 1996 SEP. 30, 1995 SEP. 30, 1996
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales $ - $ - $ - $ - $ 1,449,593
Product royalties - - - - 62,747
Research and development revenues - - - 100,000 396,350
------------- ------------- ------------- ------------- ---------------
- - - 100,000 1,908,690
Operating costs and expenses:
Cost of goods sold - - - - 3,468,711
Research and development 1,659,079 794,325 3,444,800 3,063,490 21,382,716
General and administrative 493,226 494,449 1,405,896 1,197,474 13,565,132
------------- ------------- ------------- ------------- ---------------
Operating loss (2,152,305) (1,288,774) (4,850,696) (4,160,964) (36,507,869)
Interest income 205,476 20,670 413,421 24,844 565,225
Interest expense (8,902) (130,856) (927,004) (345,291) (2,427,385)
------------- ------------- ------------- ------------- ---------------
Net loss before extraordinary gain (1,955,731) (1,398,960) (5,364,279) (4,481,411) (38,370,029)
Extraordinary gain on extinguishment
of debt - 404,393 - 404,393 605,421
------------- ------------- ------------- ------------- ---------------
Net loss for the period and deficit
accumulated during the development
stage (1,955,731) (994,567) (5,364,279) (4,077,018) (37,764,608)
Less preferred stock dividends - - (7,296,844) - (7,296,844)
------------- ------------- ------------- ------------- ---------------
Net loss applicable to common
shareholders $ (1,955,731) $ (994,567) $(12,661,123) $ (4,077,018) $(45,061,452)
------------- ------------- ------------- ------------- ----------------
------------- ------------- ------------- ------------- ----------------
Net loss per share applicable to
common shareholders:
Primary $ (.27) $ (.49) $ (1.96) $ (2.01) $ (27.97)
Fully diluted $ (.27) $ (.20) $ (1.96) $ (.87) $ (19.66)
Weighted average number of
common shares outstanding:
Primary 7,134,136 2,042,117 6,450,999 2,028,571 1,610,892
Fully diluted 7,134,136 4,872,568 6,450,999 4,702,966 2,292,148
</TABLE>
SEE ACCOMPANYING NOTES
4
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GalaGen Inc.
(A Development Stage Company)
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
PERIOD FROM
FOR THE NINE MONTHS ENDED NOVEMBER 17, 1987
----------------------------------- (INCEPTION) TO
SEP. 30, 1996 SEP. 30, 1995 SEP. 30, 1996
-------------- -------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (12,661,123) $ (4,077,018) $ (45,061,452)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation and amortization 308,718 76,349 1,829,867
Preferred stock dividend 7,296,844 - 7,296,844
Interest expense 768,064 - 768,064
Extraordinary gain - (404,393) (605,421)
Equity issued for services - 311,078 3,115,224
Changes in operating assets and liabilities (943,457) 1,608,558 1,125,803
-------------- -------------- ---------------
Net cash used in operating activities $ (5,230,954) $ (2,485,426) $ (31,531,071)
-------------- -------------- ---------------
INVESTING ACTIVITIES:
Purchase of plant, property and equipment, net (834,490) (37,779) (2,821,020)
Purchase of available-for-sale securities, net (7,230,447) - (7,230,447)
-------------- -------------- ---------------
Net cash used in investing activities $ (8,064,937) $ (37,779) $ (10,051,467)
FINANCING ACTIVITIES:
Proceeds from equity offering 19,083,346 195,000 32,760,912
Proceeds from notes 500,000 2,400,000 15,618,420
Payment of notes, including interest (506,404) - (506,404)
-------------- -------------- --------------
Net cash from financing activities $ 19,076,942 $ 2,595,000 $ 47,872,928
-------------- -------------- --------------
Increase in cash 5,781,051 71,795 6,290,390
Cash and cash equivalents at beginning of period 509,339 430,153 -
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 6,290,390 $ 501,948 $ 6,290,390
-------------- -------------- --------------
-------------- -------------- --------------
SCHEDULE OF NON CASH INVESTING AND FINANCING ACTIVITIES
Deferred compensation for employee options - - 1,657,000
Value of convertible debt warrants - 109,000 114,333
Conversion of convertible promissory notes plus
related accrued interest, net of financing costs 9,469,075 - 9,469,075
</TABLE>
SEE ACCOMPANYING NOTES
5
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GalaGen Inc. (A Development Stage Company)
Notes to Financial Statements (Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered
necessary for fair presentation have been included. Operating results for
the nine month period ended September 30, 1996, are not necessarily
indicative of the results that may be expected for the year ended December
31, 1996. These financial statements should be read in conjunction with
the audited financial statements and accompanying notes for the fiscal
year ended December 31, 1995, contained in the Company's Prospectus dated
March 27, 1996.
2. CASH AND CASH EQUIVALENTS
Cash equivalents include short-term highly liquid investments
purchased at cost, which approximate market, with original maturities of
three months or less.
3. INVESTMENTS
Investments in debt securities with a remaining maturity of more than
three months at the date of purchase are classified as marketable
securities. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Debt securities are classified as available-for-
sale as of September 30, 1996. The Company considers the net unrealized
gain (loss) on these investments to be temporary, and as such has recorded
it through shareholders' equity. The amortized cost and estimated market
value of investments are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES MARKET VALUE
-------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
As of September 30, 1996
Commercial paper $ 981,021 $ 0 $ (141) $ 980,880
U.S. Government agency securities 3,540,014 422 (2,167) 3,538,269
U.S. Treasury securities 2,531,834 5,911 0 2,537,745
Investment grade debt securities 192,815 0 (13,175) 179,640
------------ ------------ ------------ ------------
$7,245,684 $ 6,333 $ (15,483) $7,236,534
The amortized cost and estimated market value of investments by contractual maturity are as follows:
GROSS GROSS ESTIMATED
AMORTIZED COST UNREALIZED GAINS UNREALIZED LOSSES MARKET VALUE
-------------- ---------------- ----------------- ------------
<S> <C> <C> <C> <C>
As of September 30, 1996
Due in one year or less $ 4,020,350 $ 422 $ (1,316) $ 4,019,456
Due after one year through two years 3,225,334 5,911 (14,167) 3,217,078
------------ ------------ ------------ ------------
$ 7,245,684 $ 6,333 $ (15,483) $ 7,236,534
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for on the straight line method. At September 30,
1996, construction in progress consisted of leasehold improvements in connection
with the Company's pilot plant manufacturing facility (see Note 5 of Notes to
Financial Statements below). At September 30, 1996, property and equipment
consisted of the following:
6
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Furniture, fixtures and equipment $ 318,731
Construction in progress 746,152
-----------
1,064,883
Less accumulated depreciation (180,355)
-----------
$ 884,528
5. COMMITMENTS
During June 1996 the Company entered into a series of leasing
agreements with Cargill Leasing Corporation ("Cargill") which includes a
Commitment Letter, Master Equipment Lease and an Agreement for Progress
Payments (the "Agreements"). The Agreements provide that the Company may
purchase up to $1,100,000 of manufacturing equipment for the Company's
pilot plant facility through lease take-downs from Cargill. The lease
take-down at September 30, 1996, was approximately $232,000. The Company
expects that the lease take-downs will end in December 1996 at which time
full lease payments will commence for a period of seven years with the
Company's option to extend for an additional 12 months. Interest upon
commencement of full lease payments will be computed on a weighted average
of LIBOR and the rate on five year U.S. Treasury Notes. Prior to the
commencement of full lease payments, the Company is required to make
interest payments at prime plus 2% on the lease take-down. The lease is
guaranteed by Land O' Lakes, Inc. This lease will be structured as an
operating lease in accordance with FASB 13.
During June 1996, the Company entered into a five year lease agreement
with Land O' Lakes, Inc. for specified space within the Land O' Lakes
facility in connection with the Company's pilot plant manufacturing
facility. The lease calls for annual payments of approximately $86,000 and
can be extended for additional one year periods at the option of the
Company.
6. LINE OF CREDIT
In January 1996, the Company entered into a $2.7 million line of
credit agreement with a commercial bank, which expired with the closing of
the Company's initial public offering (the "Offering") on April 1, 1996.
Loans under this line of credit were to be guaranteed by six parties and
the guarantee was collateralized by letters of credit posted by them in the
aggregate amount of $2.7 million. In consideration for the guarantees and
letters of credit posted by these parties, the Company issued warrants to
purchase an initial aggregate of 162,014 shares of common stock at $7.00
per share.
In connection with this transaction, each of John Pappajohn and Land
O'Lakes, Inc., guaranteed $500,000 of the $2.7 million line of credit, and
in exchange received a warrant to purchase 30,003 shares of common stock at
$7.00 per share. John Pappajohn is a director and shareholder of the
Company. Land O'Lakes, Inc. is a shareholder and has a representative
serving on the board of directors of the Company.
In January 1996, the Company issued two convertible promissory notes
for $375,000 and $125,000 to two investment funds controlled by Investment
Advisers, Inc., which is a shareholder and has a representative serving on
the board of directors of the Company. The notes became due on completion
of the Offering. The notes were convertible into Series E Preferred Stock
at the option of the holder. In connection with these notes, the Company
issued warrants to purchase 30,003 shares which are identical to the line
of credit warrants described above. The notes have been repaid.
7. REVERSE STOCK SPLIT
On January 19, 1996, the Board approved a reverse stock split of
3.6923-for-1 for the Company's outstanding common stock. The Company's
shareholders approved this reverse stock split in March 1996. All
information in the financial statements with respect to the common stock
and to the conversion prices and ratios of all the preferred stock have
been adjusted to reflect this change. The reverse stock split had no
effect on the numbers of shares of preferred stock issued and outstanding
(as opposed to the conversion prices of all the preferred stock and the
numbers of shares of common stock into which the preferred stock will
convert).
7
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8. INITIAL PUBLIC OFFERING
GalaGen Inc. consummated the Offering on April 1, 1996, which
consisted of 2,000,000 shares of common stock at a $10 per share price to
the public. All of the Company's preferred stock mandatorily converted
into common stock immediately prior to the closing of the Offering. Series
A Preferred Stock converted on a 1-for-1 basis, Series B Preferred Stock
converted on a 1.625-for-1 basis, Series C Preferred Stock converted on a
1.667-for-1 basis. The terms of the Series D, Series E and Series F-1
Preferred Stock provided that the conversion prices of such stock be
automatically adjusted to reflect the lower of their effective conversion
price at the time of closing or 70% of the initial public offering price in
the Offering. The $7,296,844 value of the additional shares received due
to such adjustments by the holders of Convertible Promissory Notes (which
converted into Series D Preferred Stock) and the Series E and Series F-1
Preferred stock upon conversion, based on a conversion price of 70% of the
Offering price of $10 per share, was recorded in the second quarter of 1996
as a preferred stock dividend and an increase to the net loss to arrive at
net loss available to holders of common stock in the calculation of net
loss per share.
Additionally, the 192,017 common stock warrants issued for
consideration for the guarantee of the Company's $2,700,000 line of credit
and for the $375,000 and $125,000 promissory notes described above in Note
6 provide that the exercise price be equal to 70% of the Offering price.
The difference between the Offering price and exercise price multiplied by
the number of warrants, plus the intrinsic value of the warrants was
$768,064. Of that amount, $160,000 was recorded in the first quarter of
1996 as interest expense, and $608,064 was recorded as interest expense in
the second quarter of 1996.
9. EMPLOYEE STOCK PURCHASE PLAN
In March 1996, the Company adopted the Employee Stock Purchase Plan
whereby 270,833 shares of common stock have been reserved. All employees
who have met the service eligibility requirements are eligible to
participate and may direct the Company to make payroll deductions of one to
ten percent of their compensation during a purchase period for the purchase
of shares under the plan. Participants may purchase up to 5000 shares of
common stock for a given purchase period provided the fair market value of
the stock is not more than $25,000 (determined at the beginning of each
purchase period). The plan provides a participating employee the right,
subject to certain limitations, to purchase the Company's common stock at a
price equal to the lower of 85% of the fair market value of the Company's
common stock on the first day, or the last day, of the applicable purchase
period. The first purchase commenced on July 1, 1996, and will end on
December 31, 1996. Subsequent purchase periods will run for twelve months.
10. LOSS PER SHARE
The primary loss per share is based on the weighted average common
shares outstanding during the period. The fully diluted loss per share
assumes the conversion of preferred shares outstanding prior to the initial
public offering to common shares as of the beginning of the period. The
loss per share for periods prior to April 1, 1996, the closing date of the
Offering, also gives effect to the requirements of Staff Accounting
Bulletin No. 83 (SAB 83).
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
GalaGen Inc. is developing oral therapeutics that target life-
threatening and infectious diseases such as those caused by
antibiotic-resistant and emerging pathogens. The Company's naturally
derived immunotherapeutics are comprised of concentrated pathogen-
specific polyclonal antibodies which the Company produces in
concentrated form using its proprietary immunization technology. The
Company's products in development address serious gastrointestinal
infections complicating AIDS, cancer and antibiotic therapy, as well
as peptic ulcer disease. GalaGen's lead product in development,
Sporidin-G, is a polyclonal antibody product with specificity for
Cryptosporidium parvum, a parasite which causes chronic, life-
threatening diarrhea in AIDS and other immunocompromised patients.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
GENERAL. The net loss of $1,955,731 for the three months ended
September 30, 1996, increased from the net loss of $994,567 for the
three months ended September 30, 1995, due in part to a $404,393 gain
in the earlier period from debt reduction settlements of the
Company's terminated transgenics program. Historical spending levels
are not indicative of future spending levels because the Company has
entered a period of rapid growth in product development activity,
which will include substantial increases in costs relating to
personnel, research and development activity, small-scale
manufacturing facilities and accelerated clinical trial activity. For
these reasons, the Company believes its expenses and losses have and
will continue to increase dramatically before any material product
revenues are generated.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development increased to $1,659,079 for the three months ended
September 30, 1996, from $794,325 for the three months ended September
30, 1995. Approximately $415,000 of the $864,754 increase was due to
increased spending for the Company's clinical trials, particularly
Sporidin-G. The remaining increase is a result of expanded research
and development program spending, including additional research and
development personnel expense. The Company expects research and
development expenses to continue to increase as the Company's
clinical trial activity accelerates, particularly expenses associated
with the development of Sporidin-G as the Company continues to expand
the number of clinical sites necessary to enroll the number of
patients that will be required to complete its ongoing Phase II/III
nationwide clinical trial.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses of $493,226 for the three months ended September 30, 1996,
were substantially equal to the $494,449 expense for the three months
ended September 30, 1995. Increased non-cash deferred compensation
expense was offset by decreased administrative support.
INTEREST INCOME AND EXPENSE. Interest income increased to
$205,476 for the three months ended September 30, 1996, from $20,670
for the three months ended September 30, 1995. This increase is
attributable to the Company's increased level of investable funds
which resulted from the Offering. Interest expense decreased to
$8,902 for the three months ended September 30, 1996, from $130,856
for the three months ended September 30, 1995. The $121,954 decrease
was due primarily to decreased Convertible Promissory Note interest
expense due to the conversion of such notes into common stock upon the
Offering.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT. The extraordinary
gain on extinguishment of debt of $404,393 for the three months ended
September 30, 1995, related to certain debt reduction settlements
regarding the Company's terminated transgenics program.
NINE MONTHS ENDED SEPTEMBER 30, 1996, AND SEPTEMBER 30, 1995
GENERAL. The net loss before preferred stock dividends of
$5,364,279 for the nine months ended September 30, 1996, increased
from the net loss of $4,077,018 for the three months ended September
30, 1995. Historical spending levels are not indicative of future
spending levels because the Company has entered a period of rapid
9
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growth in product development activity, which will include substantial
increases in costs relating to personnel, research and development
activity, small-scale manufacturing facilities and accelerated
clinical trial activity. For these reasons, the Company believes its
expenses and losses have and will continue to increase dramatically
before any material product revenues are generated.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development increased to $3,444,800 for the nine months ended
September 30, 1996, from $3,063,490 for the nine months ended
September 30, 1995. The increase of $381,310 was due primarily to
increased clinical trial expense and research and development
spending on personnel and programs, which was significantly offset by
a onetime $300,000 license fee paid by the Company in March 1995, and
activity during the nine months ended September 30, 1995, in the
Company's transgenics program, which was terminated in May 1995.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $1,405,896 for the nine months ended September
30, 1996, from $1,197,474 for the nine months ended September 30,
1995. The increase of $208,422 was due to increases during the 1996
period in non-cash deferred compensation expense, and expenses
associated with additional staffing.
INTEREST INCOME AND EXPENSE. Interest income increased to
$413,421 for the nine months ended September 30, 1996, from $24,844
for the nine months ended September 30, 1995. This increase is
attributable to the Company's increased level of investable funds
which resulted from the Offering. Interest expense increased to
$927,004 for the nine months ended September 30, 1996, from $345,291
for the nine months ended September 30, 1995. The $581,713 increase
was due primarily to the value of warrants issued to guarantors of a
line of credit and to the purchasers of additional Convertible
Promissory Notes, offset by decreased Convertible Promissory Note
interest expense due to the conversion of such notes into common stock
upon the Offering.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT. The extraordinary
gain on extinguishment of debt of $404,393 for the nine months ended
September 30, 1995, related to certain debt reduction settlements
regarding the Company's terminated transgenics program.
PREFERRED STOCK DIVIDENDS. The preferred stock dividends of
$7,296,844 for the nine months ended September 30, 1996, are a result
of the onetime valuation of the additional shares issued to holders of
the Series D, Series E and Series F-1 Preferred Stock upon conversion
to common stock (see Note 8 of Notes to Financial Statements) .
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that the proceeds from its second quarter
Offering, and interest thereon, will enable it to fund its operating
expenses and capital requirements as currently planned through
approximately the end of the third quarter of 1997. The immediately
preceding statement is a forward-looking statement that involves risks
and uncertainties, and the Company's actual capital requirements will
depend on many factors, including the commercial success of the
Company's products, the progress of the Company's research and
development, the scope and results of preclinical studies and clinical
trials, the cost of obtaining regulatory approvals, the Company's
success in obtaining the strategic alliances required to fund certain
of its programs, determinations as to the commercial potential of
certain of the Company's products, the status of competitive products
and the establishment of additional manufacturing capacity.
Cash used in operations was $5,230,954 and $2,485,426 for the
nine months ended September 30, 1996, and 1995, respectively. Cash
used in operations went primarily to fund operating losses. The
increase of $2,745,528 was due to the repayment of certain obligations
and to an increased operating loss. The Company invested a net amount
of $7,230,477 in available-for-sale debt securities (see Note 3 of
Notes to Financial Statements) for the nine months ended September
30, 1996, $71,717 in computer equipment used to support Company
operations and $746,152 for leasehold improvements for the Company's
pilot plant manufacturing facility during that same period. Net cash
used in investing activities for the comparable 1995 period resulted
from equipment purchases.
The Company expects to incur substantial additional research and
development and other costs, including costs related to clinical
studies, as well as capital expenditures necessary to establish
commercial scale cGMP manufacturing facilities. The Company will need
to raise substantial additional funds for longer term product
10
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development, manufacturing and marketing activities it plans to
undertake in the future. The Company's ability to continue funding its
planned operations beyond the third quarter of 1997 is dependent upon
its ability to obtain additional funds through equity or debt
financing, strategic alliances, license agreements or from other
financing sources. A lack of adequate funding could eventually result
in the insolvency or bankruptcy of the Company. At a minimum, if
adequate funds are not available, the Company may be required to delay
or to eliminate expenditures for certain of its product development
efforts or to license to third parties the rights to commercialize
products or technologies that the Company would otherwise seek to
develop itself. Because of the Company's significant long-term capital
requirements, it may seek to raise funds when conditions are
favorable, even if it does not have an immediate need for such
additional capital at such time.
Except for the historical information contained herein, matters
discussed in this Management's Discussion and Analysis of Financial
Condition and Results of Operations are forward-looking statements
that involve risks and uncertainties, and actual results may be
materially different. Factors that could cause actual results to
differ include: levels of resources devoted by the Company to the
development of its manufacturing and marketing capabilities, risks
generally associated with construction of manufacturing facilities,
the ability of the Company to make technological advances, the status
of competitive products, the ability of the Company to establish
strategic alliances to provide research and development funding to the
Company and other risk factors listed in the Company's Prospectus
dated March 27, 1996.
11
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C>
3.2 Restated Certificate of Incorporation of the Company.
3.4 Restated Bylaws of the Company(1)
4.1 Specimen Common Stock Certificate.(1)
4.2 Warrant purchase 13,541 shares of Common Stock of the Company
issued to Piper Jaffray Inc., dated January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of Common Stock of the Company
issued to Gus A. Chafoulias, dated October 12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of Common Stock of the Company
issued to John Pappajohn, dated October 12, 1993.(1)
4.5 Warrant to purchase 9,479 shares of Common Stock of the Company
issued to Cato Holding Company, dated June 21, 1994.(1)
4.6 Form of Common Stock Warrant to purchase shares of Common Stock
of the Company, issued in connection with the sale of
Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Convertible
Preferred Stock of the Company issued to Chiron Corporation, dated
March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Convertible
Preferred Stock of the Company issued to Chiron Corporation, dated
March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Convertible
Preferred Stock of the Company issued to Chiron Corporation, dated
March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Convertible
Preferred Stock of the Company issued to Chiron Corporation, dated
March 29, 1995.(1)
4.11 Warrant to purchase 18,750 shares of Common Stock of the Company
issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth
Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Company
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund),
dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the
Company issued to John Pappajohn, dated February 2, 1996.(1)
4.14 Warrant to purchase 25,000 shares of Common Stock of the Company
issued to Edgewater Private Equity Fund, L.P., dated February 2,
1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Company
issued to Joseph Giamenco, dated February 2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of Common Stock of the Company
issued to Gus A. Chafoulias, dated February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of Common Stock of the Company
issued to JIBS Equities, dated February 2, 1996.(1)
4.18 Warrant to purchase 25,000 shares of Common Stock of the Company
issued to Land O Lakes, Inc., dated February 2, 1996.(1)
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C> <C>
4.19 Bridge Note (Promissory Note Convertible into Series E
Convertible Preferred payable to IAI Investment Funds VI, Inc.
(IAI Emerging Growth Fund), in the amount of $375,000 dated
January 30, 1996.(1)
4.20 Bridge Note (Promissory Note Convertible into Series E
Convertible Stock) payable to IAI Investment Funds IV, Inc. (IAI
Regional Fund), in the amount of $125,000 dated January 30,
1996.(1)
10.1 License Agreement between the Company and Land Lakes dated May
7, 1992.(1)
10.2 Royalty Agreement between the Company and Land Lakes dated May
7, 1992.(1)
10.3 Supply Agreement between the Company and Land Lakes dated May 7,
1992.(1)
10.4 Master Services Agreement between the Company and Land
Lakes dated May 7, 1992.(1)
10.5 GalaGen Inc. 1992 Stock Plan.
10.7 Stock and Warrant Purchase Agreement between the Company and
Corporation dated March 20, 1995.(1)
10.8 License and Collaboration Agreement between the Company and
Chiron dated March 20, 1995.(1)
10.9 GalaGen Inc. Employee Stock Plan., as amended. (2)
10.10 Credit Agreement between the Company and Norwest Bank Minnesota, N.A.
dated as of January 24, 1996.(1)
10.11 Commitment between the Company and Cargill Leasing
Corporation, dated June 5, 1996. (2)
10.12 Master Lease between the Company and Cargill Leasing
Corporation, dated June 6, 1996. (2)
10.13 Agreement for Payments between the Company and Cargill
Leasing Corporation, dated June 6, 1996. (2)
10.14 Agreement for between the Company and Land O'Lakes, dated
June 3, 1996 .(2)
10.15 Letter agreement with John G. Watson dated September 14, 1996.
11.1 Statement re: computation of per share earnings (loss).
27 Financial Data Schedule.
</TABLE>
__________________________
(1) Incorporated herein by reference to the same numbered Exhibit to
the Company's Registration Statement on Form S-1 (Registration
No. 333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1996 (File No. 0-27976).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30,
1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GalaGen Inc.
____________
(Registrant)
Date: November 12, 1996 By: /s/ Robert A. Hoerr
_________________________
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 12, 1996 By: /s/ Gregg A. Waldon
_________________________
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
3.2 Restated Certificate of Incorporation of the Company. Electronic
Transmission
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2 Warrant to purchase 13,541 shares of Common Stock of the Incorporated By
Company issued to Piper Jaffray Inc., dated January 26, 1993.(1) Reference
4.3 Warrant to purchase 20,312 shares of Common Stock of the Incorporated By
Company issued to Gus A. Chafoulias, dated October 12, 1993.(1) Reference
4.4 Warrant to purchase 20,312 shares of Common Stock of the Incorporated By
Company issued to John Pappajohn, dated October 12, 1993.(1) Reference
4.5 Warrant to purchase 9,479 shares of Common Stock of the Incorporated By
Company issued to Cato Holding Company, dated June 21, 1994.(1) Reference
4.6 Form of Common Stock Warrant to purchase shares of Common Incorporated By
Stock of the Company, issued in connection with the sale of Reference
Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series F-1 Incorporated By
Convertible Preferred Stock of the Company issued to Chiron Reference
Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Incorporated By
Convertible Preferred Stock of the Company issued to Chiron Reference
Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Chiron Reference
Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Incorporated By
Convertible Preferred Stock of the Company issued to Chiron Reference
Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds VI, Inc. (IAI Emerging Reference
Growth Fund), dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Incorporated By
Company issued to IAI Investment Funds IV, Inc. (IAI Regional Reference
Fund), dated January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.15 Warrant to purchase 10,000 shares of Common Stock of the Incorporated By
Company issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
4.16 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
15
<PAGE>
EXHIBIT DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
Company issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Incorporated By
Company issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 Bridge Note (Promissory Note Convertible into Series E Incorporated By
Convertible Preferred Stock) payable to IAI Investment Funds VI, Reference
Inc. (IAI Emerging Growth Fund), in the amount of $375,000 dated
January 30, 1996.(1)
4.20 Bridge Note (Promissory Note Convertible into Series E Incorporated By
Convertible Preferred Stock) payable to IAI Investment Funds IV, Reference
Inc. (IAI Regional Fund), in the amount of $125,000 dated
January 30, 1996.(1)
10.1 License Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.2 Royalty Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.3 Supply Agreement between the Company and Land O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company and Land Incorporated By
O'Lakes dated May 7, 1992.(1) Reference
10.5 GalaGen Inc. 1992 Stock Plan. Electronic
Transmission
10.7 Stock and Warrant Purchase Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
10.8 License and Collaboration Agreement between the Company Incorporated By
and Chiron Corporation dated March 20, 1995.(1) Reference
10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended. (2) Incorporated By
Reference
10.10 Credit Agreement between the Company and Norwest Bank Incorporated By
Minnesota, N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Leasing Incorporated By
Corporation, dated June 5, 1996. (2) Reference
10.12 Master Equipment Lease between the Company and Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.13 Agreement for Progress Payments between the Company and Incorporated By
Cargill Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land O'Lakes, Incorporated By
dated June 3, 1996. (2) Reference
16
<PAGE>
EXHIBIT DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
10.15 Letter agreement with John G. Watson dated September 14, 1996 Electronic
Transmission
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
27 Financial Data Schedule. Electronic
Transmission
_____________________________________________
(1) Incorporated herein by reference to the same numbered Exhibit to the Company's Registration Statement
on Form S-1 (Registration No. 333-1032).
(2) Incorporated herein by reference to the same numbered Exhibit to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1996 (File No. 0-27976).
</TABLE>
17
<PAGE>
Exhibit 3.2
RESTATED
CERTIFICATE OF INCORPORATION
OF
GALAGEN INC.
GalaGen Inc. (the "Corporation") was incorporated under that name by
the filing of its original Certificate of Incorporation with the Secretary of
State of the State of Delaware on March 17, 1992. This Restated Certificate of
Incorporation of the Corporation, which restates and integrates and does not
further amend the provisions of the Company's Restated Certificate of
Incorporation as heretofore amended and supplemented, there being no discrepancy
between those provisions and the provisions of this Restated Certificate of
Incorporation (provided, however, that this Restated Certificate of
Incorporation omits such provisions contained in amendments to the Certificate
of Incorporation as were necessary to effect a change and cancellation of
stock), be and hereby is approved and adopted in accordance with the provisions
of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
FIRST: The name of the Corporation shall be GalaGen Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, Delaware 19801, located in New Castle County. The registered agent
of the Corporation at that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is 55,000,000 shares,
consisting of 15,000,000 shares of Preferred Stock, par value $.01 per share,
and 40,000,000 shares of Common Stock, par value $.01 per share.
The designations and the voting powers, preferences and relative,
participating, optional or other special rights, and the
<PAGE>
qualifications, limitations or restrictions thereof, of the Preferred Stock and
the Common Stock which are fixed by this Certificate of Incorporation and the
express grant of authority to the Board of Directors to fix by resolution or
resolutions the designations and the voting powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of the Preferred Stock which are not fixed
by this Certificate of Incorporation are as follows and as elsewhere set forth
in Articles Fifth and Sixth:
1. The Preferred Stock may be issued at any time or from time to
time in any amount, provided not more than 5,000,000 shares thereof shall be
outstanding at any one time, as Preferred Stock of one or more series, as
hereinafter provided. Each share of any one series of Preferred Stock shall be
identical in all respects except as to the date from which dividends thereon may
be cumulative, each series of Preferred Stock shall be distinctly designated by
letter or descriptive words, and all series of Preferred Stock shall rank
equally and be identical in all respects except as permitted by the provisions
of Section 2 of this Article Fourth. Shares of Preferred Stock shall be issued
only as fully paid and nonassessable shares.
2. Authority is hereby expressly granted to and vested in the Board
of Directors at any time or from time to time, without action by or approval of
the stockholders, to issue the Preferred Stock as Preferred Stock of one or more
series, to fix by resolution or resolutions providing for the issuance of shares
of any series the designations and the voting powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations or restrictions thereof, of such series so far as not inconsistent
with the provisions of this Article Fourth applicable to all series of Preferred
Stock, and to the full extent now or hereafter permitted by the laws of the
State of Delaware, including the following:
(A) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by action of the
Board of Directors;
2
<PAGE>
(B) the rate or rates of dividends payable on shares of such series,
whether dividends shall be cumulative and, if so, the date or dates from
which dividends shall be cumulative on the shares of such series, the
preferences, restrictions, limitations and conditions upon the payment of
dividends, and the dates on which dividends, if declared, shall be payable;
(C) whether shares of such series shall be redeemable and, if so,
the terms and provisions of such redemption, including the date or
dates upon or after which they shall be redeemable, the amount per
share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates, and the manner
of selecting shares for redemption;
(D) the rights of the shares of such series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, and the relative rights of priority, if
any, of payment of shares of such series;
(E) whether shares of such series shall have a purchase,
retirement or sinking fund for the purchase, retirement or redemption
of shares of such series and, if so, the terms and provisions thereof;
(F) whether shares of such series shall have conversion
privileges and, if so, the terms and provisions thereof, including
provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(G) whether shares of such series shall have voting rights, in
addition to voting rights provided by law, and, if so, the terms and
provisions thereof; and
(H) any other preferences and relative, participating, optional
or other special rights and the qualifications, limitations or
restrictions thereof.
3. The holders of the Preferred Stock of each series shall be
entitled to receive such dividends, when and as declared by the Board of
Directors, out of funds legally available
3
<PAGE>
therefor, as they may be entitled to in accordance with the resolution or
resolutions adopted by the Board of Directors providing for the issuance of such
series, payable on such dates as may be fixed in such resolution or resolutions.
So long as there shall be outstanding any shares of Preferred Stock of any
series entitled to cumulative dividends pursuant to the resolution or
resolutions providing for the issuance of such series, no dividend, whether in
cash or property, shall be paid or declared, nor shall any distribution be made,
on the Common Stock, nor shall any shares of Common Stock be purchased, redeemed
or otherwise acquired for value by the Corporation, if at the time of making
such payment, declaration, distribution, purchase, redemption or acquisition the
Corporation shall be in default with respect to any dividend payable on, or
obligation to maintain a purchase, retirement or sinking fund with respect to or
to redeem, shares of Preferred Stock of any series. Unless otherwise provided
by the Board of Directors pursuant to Section 2 of this Article Fourth, the
foregoing provisions of this Section 3 shall not, however, apply to a dividend
payable in Common Stock or to the acquisition of shares of Common Stock in
exchange for, or through application of the proceeds of the sale of, shares of
Common Stock. Subject to the foregoing and to any further limitations
prescribed in accordance with the provisions of Section 2 of this
Article Fourth, the Board of Directors may declare, out of funds legally
available therefor, dividends upon the then outstanding shares of Common Stock,
and shares of Preferred Stock of any series shall not be entitled to participate
therein.
4. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the Preferred Stock
of each series shall be entitled to receive, out of the assets of the
Corporation available for distribution to its stockholders, before any
distribution of assets shall be made to the holders of the Common Stock, the
amount per share provided by the Board of Directors pursuant to Section 2 of
this Article Fourth, which may include an amount equal to any cumulative
dividends thereon to the date of final distribution to the holders of the
Preferred Stock; and the holders of the Common Stock shall be entitled, to the
exclusion of the holders of the Preferred Stock of all series, to participate
ratably in all the assets of the Corporation then remaining in accordance with
their respective rights and preferences. If upon any liquidation, dissolution
or winding up of the Corporation the assets available for distribution shall be
insufficient to pay the holders of all outstanding shares of Preferred Stock the
full
4
<PAGE>
amounts to which they respectively shall be entitled, unless otherwise provided
by the Board of Directors pursuant to Section 2 of this Article Fourth, the
holders of shares of Preferred Stock of all series shall participate ratably in
any distribution of assets according to the respective amount which would be
payable in respect of the shares of Preferred Stock held by them upon such
distribution if all amounts payable in respect of the Preferred Stock of all
series were paid in full. Unless otherwise provided by the Board of Directors
pursuant to Section 2 of this Article Fourth, neither a statutory merger nor
consolidation of the Corporation into or with any other corporation, nor a
statutory merger or consolidation of any other corporation into or with the
Corporation, nor a sale, transfer, exchange or lease of all or any part of the
assets of the Corporation, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this Section 4.
5. The Corporation, at the option of the Board of Directors, may
redeem the whole or any part of the Preferred Stock of any series at the price
or prices and on the terms and conditions provided in the resolution or
resolutions of the Board of Directors providing for the issuance of such series.
6. Anything herein or in any resolution or resolutions of the Board
of Directors providing for the issuance of any series of Preferred Stock to the
contrary notwithstanding, the rights of holders of all classes and series of
capital stock of the Corporation in respect of dividends and purchase,
retirement or sinking funds, if any, shall at all times be subject to the power
of the Board of Directors from time to time to set aside such reserves and to
make such other provisions, if any, as the Board of Directors shall deem to be
necessary or advisable for working capital, for expansion of the Corporation's
business (including the acquisition of real and personal property for that
purpose) and for any other purpose of the Corporation.
7. Except as otherwise provided by law or by this Certificate of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred Stock, the holders of the
Preferred Stock shall not be entitled to vote and shall not be entitled to
receive notice of any meeting of stockholders at which they are not entitled to
vote. Except as otherwise provided by law or by this Certificate of
Incorporation or by the resolution or resolutions of the Board of Directors
providing for the issuance of any series of Preferred
5
<PAGE>
Stock, the vote of the holders of all or any portion of any class or series of
capital stock, as a class or series, shall not be required for any action to be
taken or authorized by the stockholders of the Corporation, including any
amendment of this Certificate of Incorporation. Except as otherwise provided by
law, each holder of shares of Common Stock shall be entitled to one vote for
each share of Common Stock held by such holder.
8. Except as otherwise provided by law or the resolution or
resolutions of the Board of Directors providing for the issuance of any series
of Preferred Stock or by the instrument governing the security, obligation,
warrant, option or right, no holder of shares of any class or series of capital
stock of the Corporation or of any security or obligation convertible into, or
of any warrant, option or right to subscribe for, purchase or otherwise acquire,
shares of any class or series of capital stock of the Corporation, whether now
or hereafter authorized, shall, as such holder, have any preemptive right to
subscribe for, purchase or otherwise acquire shares of any class or series of
capital stock of the Corporation or any security or obligation convertible into,
or any warrant, option or right to subscribe for, purchase or otherwise acquire,
shares of any class or series of capital stock of the Corporation, whether now
or hereafter authorized.
9. Authority is hereby expressly granted to and vested in the Board
of Directors at any time and from time to time, without action by or approval of
the stockholders, to declare, create and issue, with respect to shares of any
class or series of capital stock of the Corporation, dividends or distributions
in, or options or rights to acquire, shares of any class or series of capital
stock of the Corporation, or other securities, and to fix by resolution or
resolutions providing for the declaration, creation and issuance of any such
dividend, distribution, option or right the terms, provisions, rights,
qualifications, limitations or restrictions thereof so far as not inconsistent
with the provisions of this Article Fourth, and to the full extent now or
hereafter permitted by the laws of the State of Delaware, including
(a) provisions for the adjustment thereof upon an acquisition of shares,
reorganization, merger, consolidation, sale of assets, business combination or
other event, and (b) provisions that prevent the holder of a specified
percentage of outstanding shares of any class or series of capital stock of the
Corporation, including transferees of such holder, from exercising rights
thereunder.
6
<PAGE>
FIFTH: The following provisions shall govern the management of the
business and the conduct of the affairs of the Corporation and shall define,
limit and regulate the rights and powers of the Corporation and the Board of
Directors and stockholders:
1. The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors.
2. The Board of Directors shall consist of the number of directors
provided for in the By-Laws but shall at no time consist of less than three
directors.
3. Whenever the holders of any one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other provisions relating to such directorships
shall be governed by the provisions of this Certificate of Incorporation
applicable thereto, including the resolution or resolutions adopted by the Board
of Directors pursuant to Section 2 of Article Fourth.
4. Elections of directors need not be by written ballot unless the
By-Laws of the Corporation so provide.
5. A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty by the director as a director; provided, however, that this Section 5 shall
not eliminate or limit the liability of a director to the extent provided by
applicable law (a) for any breach of the duty of loyalty of the director to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for any
unlawful action under Section 174 of the General Corporation Law of the State of
Delaware, or (d) for any transaction from which the director derived an improper
personal benefit. No amendment to or repeal of this Section 5 shall apply to or
have any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of the director
occurring prior to such amendment or repeal. If the laws of the State of
Delaware are hereafter changed to permit further elimination or limitation of
the liability of directors, then the
7
<PAGE>
liability of each director of the Corporation shall thereupon be eliminated or
limited to the fullest extent then permitted by law.
6. The Board of Directors shall have concurrent power with the
stockholders to adopt, alter, amend or repeal the By-Laws of the Corporation.
The Board of Directors may so adopt or change the By-Laws upon the affirmative
vote of the number of directors which shall constitute, under the provisions of
the By-Laws, the action of the Board of Directors. The stockholders may not so
adopt or change the By-Laws except upon the affirmative vote of at least 75% of
the votes entitled to be cast by the holders of all outstanding shares of stock
entitled to vote, voting together as a single class.
7. When considering a merger, consolidation, sale of assets,
business combination or other transaction, the Board of Directors and any
committee thereof, the directors and the officers of the Corporation may, in
considering the best interests of the Corporation and its stockholders, consider
the interests of and the effects of such transaction upon the employees,
customers and suppliers of the Corporation and its subsidiaries and upon
communities in which the Corporation and its subsidiaries are located or do
business.
8. The Board of Directors may from time to time determine whether,
to what extent, at what times and places and under what conditions and
regulations the accounts, books and records of the Corporation, or any of them,
shall be open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account, book or document of the Corporation
except as and to the extent expressly provided by law or expressly authorized by
resolution of the Board of Directors.
9. In addition to the powers and authority herein or by law
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the laws of the
State of Delaware, this Certificate of Incorporation and any By-Laws adopted by
the stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
8
<PAGE>
10. Any action to be taken by the stockholders of the Corporation at
any annual or special meeting of the stockholders, or any action which may be
taken at any annual or special meeting of the stockholders, may be taken by the
stockholders without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by all of the stockholders of the Corporation entitled to vote thereon.
The procedures for calling, and persons entitled to call, a special meeting of
the stockholders shall be specified in the By-Laws.
SIXTH: Subject to the provisions of this Certificate of
Incorporation, the Corporation reserves the right to alter, amend or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by law, and all rights of stockholders or others hereunder
are subject to such reservation. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-Laws of the Corporation (and
notwithstanding that a lesser percentage or separate class or series vote may be
specified by law or by this Certificate of Incorporation or by the By-Laws of
the Corporation, or otherwise), the affirmative vote of the holders of at least
75% of the votes entitled to be cast by the holders of all outstanding shares of
capital stock entitled to vote on all matters submitted to stockholders of the
Corporation generally, voting together as a single class, shall be required to
alter, amend or repeal, or adopt any provisions inconsistent with, Sections 5,
6, 7, 8, 9 and 10 of Article Fifth or this Article Sixth.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the
9
<PAGE>
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all creditors or class of creditors, and/or on all the
stockholders or class of stockholders of the Corporation, as the case may be,
and also on the Corporation.
IN WITNESS WHEREOF, GALAGEN INC. has caused this Restated Certificate
of Incorporation to be signed by Robert A. Hoerr, its authorized officer, this
9th day of August, 1996.
GALAGEN INC.
By: /S/ ROBERT A. HOERR
---------------------------------
Robert A. Hoerr, President and
Chief Executive Officer
ATTEST:
By: /S/ GREGG A. WALDON
--------------------------------
Gregg A. Waldon, Secretary
10
<PAGE>
GALAGEN INC. Exhibit 10.5
1992 STOCK PLAN
SECTION 1 GENERAL PURPOSE OF PLAN: DEFINITIONS
The name of this plan is the GALAGEN INC. 1992 Stock Plan (the "Plan").
The purpose of the Plan is to enable GALAGEN INC. (the "Company") and its
Subsidiaries to retain and attract executives, key employees (whether full or
part-time), consultants and non-employee directors who contribute to the
Company's success by their ability; ingenuity and industry, and to enable
such individuals to participate in the long-term success and growth of the
Company by giving them a proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CAUSE" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee referred to in Section 2 of the Plan.
If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan shall be exercised by the
Board.
(e) "COMPANY" means GALAGEN INC., a corporation organized under the laws
of the State of Delaware (or any successor corporation).
(f) "DISABILITY" means permanent and total disability as determined by
the Committee.
(g) "DISINTERESTED PERSON" shall have the meaning set forth in Rule 16b-3
as promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or any successor definition adopted
by the Commission.
(h) "EARLY RETIREMENT" means retirement, with consent of the Committee at
the time of retirement, from active employment with the Company and
any subsidiary or Parent Corporation of the Company.
(i) "FAIR MARKET VALUE" means the value of the Stock on a given date as
determined by the Committee in accordance with the applicable
Treasury Department regulations under Section 422 of the code with
respect to "incentive stock options."
(j) "INCENTIVE STOCK OPTION" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
(k) "NON-QUALIFIED STOCK OPTION" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
(l) "NON-EMPLOYEE DIRECTOR" means any member of the Board who is not an
employee of the Company, any Parent Corporation or Subsidiary.
(m) "NORMAL RETIREMENT" means retirement from active employment with the
Company, any subsidiary or Parent Corporation of the Company on or
after age 65.
(n) "PARENT CORPORATION" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if each
of the corporations (other than the Company) owns stock possessing
50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
(o) "RETIREMENT" means Normal Retirement or Early Retirement.
(p) "STOCK" means the Common Stock, $.01 par value per share, of the
Company.
(q) "STOCK OPTION" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
(r) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last
<PAGE>
corporation in the unbroken chain) owns stock possessing 50% or more
of the total combined voting power of all classes of stock in one of
the other corporations in the chain.
SECTION 2 ADMINISTRATION
The Plan shall be administered by the Board of Directors or by a
Committee of not less than two directors, all of whom are Disinterested
Persons, who shall be appointed by the Board of Directors of the Company and
who shall serve at the pleasure of the Board.
The Committee shall have the power and authority to grant Stock Options
to eligible persons, pursuant to the terms of this Plan. In particular, the
Committee shall have the authority:
(i) to select the officers and other key employees of the Company or its
Subsidiaries, and consultants and other persons having a contractual
relationship with the Company or its Subsidiaries, to whom Stock Options may
from time to time be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock Options or
Non-Qualified Stock Options, or a combination thereof, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but not limited
to, any restriction on any Stock Option and/or the shares of Stock relating
thereto) and to amend such terms and conditions (including, but not limited to,
any amendment which accelerates the vesting of any award); and
(v) to determine whether, to what extent, and under what circumstances,
Stock Options may be exercised following termination of employment.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it
shall, from time to time, deem advisable; to interpret the terms and
provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration
of the Plan. The Committee may delegate its authority to the President
and/or the Chief Executive Officer of the Company for the purpose of
selecting employees who are not officers of the Company for purposes of (i)
above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and
Plan participants.
SECTION 3 STOCK SUBJECT TO PLAN
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 880,210 shares, subject to increase or
decrease in the event of any adjustment required in the paragraph below.
Such shares may consist, in whole or in part, of authorized and unissued
shares. If any shares that have been optioned cease to be subject to
Options, are forfeited or such award otherwise terminates without a payment
being made to the participant, such shares shall again be available for
distribution in connection with future awards under the Plan. If the total
number of shares at the time available for grant under the Plan are not
sufficient for the automatic grants under Section 5(k) to be made at that
particular time to the Non-Employee Directors, then the available shares
shall be allocated proportionately among all the automatic grants to be made
at that time.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split (reverse or other), other
change in corporate structure affecting the Stock, or spin-off or other
distribution of assets to shareholders, such substitution or adjustment shall
be made in the aggregate number of shares reserved for issuance under the
Plan and in the number and option price of shares subject to outstanding
<PAGE>
options granted under the Plan as may be determined to be appropriate by the
Committee, in its sole discretion, provided that the number of shares subject
to any award shall always be a whole number.
SECTION 4 ELIGIBILITY
Officers, other key employees of the Company or its Subsidiaries,
Non-Employee Directors, consultants and other persons having a contractual
relationship with the Company or its Subsidiaries who are responsible for or
contribute to the management, growth and/or profitability of the business of
the Company and its Subsidiaries are eligible to be granted Stock Options
under the Plan. Except for Non-Employee Directors, whose participation in
the Plan shall be limited as provided in paragraph (k) of Section 5, the
optionees under the Plan shall be selected from time to time by the
Committee, in its sole discretion, from among those eligible, and the
Committee shall determine, in its sole discretion, the number of shares
covered by each award.
SECTION 5 STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive
Stock Options shall be granted under the Plan after April 24, 2002.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it
shall constitute a separate Non-Qualified Stock Option.
Anything in the plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether
or not such modification or amendment results in disqualification of such
option as an Incentive Stock Option, provided the optionee consents in
writing to the modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
desirable.
(a) OPTION PRICE. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of
grant and may not, except as provided in this paragraph or in paragraph (k)
below, be less than 85% of the Fair Market Value of the Stock on the date of
the grant of the Option unless the Option itself or such lower option price
per share is approved by the shareholders. In no event shall the option
price per share of Stock purchasable under an Incentive Stock Option be less
than 100% of the Fair Market Value of the Stock on the date of the grant of
the option.
If an employee owns or is deemed to own (by reason of the attribution rules
applicable under Section 425(d) of the Code) more than 10% of the combined
voting power of all classes of stock of the Company or any Parent Corporation
or Subsidiary and an Incentive Stock Option is granted to such employee, the
option price shall be no less than 110% of the Fair Market Value of the Stock
on the date the option is granted.
(b) OPTION TERM. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. Unless otherwise provided in the
Stock Option Agreement, all options granted under this Plan will expire five
years and three months after grant. If an employee owns or is deemed to own
(by reason of the attribution rules of Section 425(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or
any Parent Corporation or Subsidiary and an Incentive Stock Option is granted
to such employee, the term of such option shall be no more than five years
from the date of warrant.
<PAGE>
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times as determined by the Committee, in its discretion, at or after grant.
If the Option is exercisable in installments, the Committee may waive such
installment exercise provisions at any time. Installment exercise
restrictions may be based upon the lapse of time, the attainment of specified
performance goals, or a combination of each. Unless the Stock Option
Agreement provides otherwise, all options granted under this Plan will expire
five years and three months after grant and will vest ratably with respect to
twenty percent (20%) of the shares on and after each twelve-month period
after grant. Notwithstanding the foregoing, unless the Stock Option
Agreement provides otherwise, any Stock Option granted under this Plan shall
be exercisable in full, without regard to any installment exercise
provisions, for a period specified by the Company, but not to exceed sixty
(60) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity or (iii) the
transfer of substantially all of the assets of the Company or 75% or more of
the outstanding Stock of the Company.
(d) METHOD OF EXERCISE. Stock Options may be exercised to the extent
the Options are vested at any time during the option period by giving written
notice of exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price, either by certified or bank check, or by any other form of
legal consideration deemed sufficient by the Committee and consistent with
the Plan's purpose and applicable law, including promissory notes or a
properly executed exercise notice together with irrevocable instructions to a
broker acceptable to the Company to promptly deliver to the Company the
amount of sale or loan proceeds to pay the exercise price. As determined by
the Committee, in its sole discretion, payment in full or in part may so be
made in the form of unrestricted Stock already owned by the optionee (based
on the Fair Market Value of the Stock on the date the option is exercised, as
determined by the Committee); provided, however, that, in the case of an
Incentive Stock Option, the right to make a payment in the form of already
owned shares may be authorized only at the time the option is granted.
If the terms of an option so permit, or the Committee so provides, an
optionee may select to pay all or part of the option exercise price by having
the Company withhold from the shares of Stock that would otherwise be issued
upon exercise that number shares of Stock having a Fair Market Value equal to
the aggregate option exercise price for the shares with respect to which such
election is made. No shares of Stock shall be issued until full payment
therefore has been made. An optionee shall generally have the rights to
dividends and other rights of a shareholder with respect to shares subject to
the option when the optionee has given written notice of exercise, has paid
in full for such shares, and, if requested, has given the representation
described in paragraph (a) of Section 9.
(e) NON-TRANSFERABILITY OF OPTIONS. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) TERMINATION BY DEATH. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at
or after grant), by the legal representative of the estate or by the legatee
of the optionee under the will of the optionee, for a period of two years (or
such shorter period as the Committee shall specify at grant) from the date of
such death or until the expiration of the stated term of the option,
whichever period is shorter.
(g) TERMINATION BY REASON OF DISABILITY. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason
of Disability, any Stock Option held by such optionee may thereafter be
exercised, to the extent it was exercisable at the time of termination due to
Disability (or on such accelerated basis as the Committee shall determine at
or after grant), but may not be exercised after two years (or such shorter
period as the Committee shall specify at grant) from the date of such
termination of employment or the expiration of the stated term of the option,
whichever period is the shorter. In the event of termination of employment
by reason of Disability, if an Incentive Stock Option is exercised after the
expiration
<PAGE>
of the exercise periods that apply for purposes of Section 422 of
the Code, the option will thereafter be treated as a Non-Qualified Stock
Option.
(h) TERMINATION BY REASON OF RETIREMENT. If an optionee's employment
by the Company and any Subsidiary or Parent Corporation terminates by reason
of Retirement, any Stock Option held by such optionee may thereafter be
exercised to the extent it was exercisable at the time of such Retirement,
but may not be exercised after two years (or such shorter period as Committee
shall specify at grant) from the date of such termination of employment or
the expiration of the stated term of the option, whichever period is the
shorter. In the event of termination of employment by reason of Retirement,
if any Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purpose of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee or
as set forth in paragraph (k) below, if an optionee's employment by the
Company, any Subsidiary or Parent Corporation terminates for any reason other
than Death, Disability or Retirement, any Stock Option held by such optionee
may thereafter be exercised to the extent it was exercisable at such
termination, but may not be exercised after two years (or such shorter period
as the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever
period is the shorter; provided, however, that if the optionee's employment
is terminated for Cause, all rights under the Stock Option shall terminate
and expire upon such termination.
(j) ANNUAL LIMITED ON INCENTIVE STOCK OPTIONS. The aggregate Fair
Market Value (determined as of the time the option is granted) of the Common
Stock with respect to which an Incentive Stock Option under this Plan or any
other plan of the Company, any Subsidiary or Parent Corporation is
exercisable for the first time by an optionee during any calendar year shall
not exceed $100,000.
(k) AUTOMATIC GRANT TO NON-EMPLOYEE DIRECTORS. Each individual who is
serving as a Non-Employee Director immediately following the effective time
of the merger of PROCOR Technologies, Inc. with and into the Company (the
"Merger"), other than the Non-Employee Director serving as the Land O'Lakes,
Inc. representative to the Board, shall be automatically awarded, on such
date, a Non-Qualified Option to purchase 13,541 shares of the Company's
Common Stock with the option price equal to 100% of the Fair Market Value of
the Common Stock on such date. Consistent with the foregoing, the exercise
price of the Non-Qualified Options to be granted to the Board of Directors
serving immediately following the Merger shall be $1.231 per share. An
individual who is first elected or appointed as a Non-Employee Director at
any time thereafter shall receive his/her automatic grant for 13,541 shares
at the time of his/her election or appointment to the Board.
(i) NON-QUALIFIED OPTIONS. All Options granted to Non-Employee
Directors hereunder shall be designated as Non-Qualified Options and
shall be subject to the same terms and provisions as are then in effect
with respect to granting of Non-Qualified Options to officers and key
employees of the Company. No other Options shall be granted to
Non-Employee Directors under the Plan or any other Stock Plan of the
Company. All provisions of this Plan not inconsistent with the terms of
this Section 5(k) shall apply to Non-Qualified Options granted to
Non-Employee Directors.
(ii) TERM AND EXERCISABILITY. These Non-Employee Director Options
shall have a term of five years and three months and will be exercisable
as to 2,708 shares on and after 12 months from the date of grant, with
respect to an additional 2,708 shares on and after 24 months from the
date of grant, with respect to an additional 2,708 shares on and after
36 months from the date of grant, with respect to an additional 2,708
shares on and after 48 months from the date of grant, and with respect
to the remaining 2,709 on or after 60 months from the date of grant.
Optionee shall have ninety (90) days after the vesting of the last 2,709
shares to exercise the Option to the extent not previously exercised.
(iii) EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
<PAGE>
a. Should an optionee cease to be a member of the Board for
any reason (other than death) prior to the expiration of his/her
automatic grant under this paragraph (k), then such grant shall
remain exercisable for a twelve (12) month period following the date
of such cessation of Board membership. Each such option shall,
during such twelve (12) month period, be exercisable only to the
extent of the number of shares (if any) for which the option is
exercisable on the date of such cessation of Board membership.
b. Should an optionee cease to be a member of the Board by
reason of optionee's death, then any outstanding automatic grant
held by the optionee at the time of death may be subsequently
exercised, but only to the extent of the number of shares (if any)
for which the option is exercisable on the date of the optionee's
death, by the personal representative of the optionee's estate or by
the person or persons to whom the option is transferred pursuant to
the optionee's will or in accordance with the laws of descent and
distribution. Any such exercise must, however, occur within twelve
(12) months after the date of the optionee's death.
c. In no event shall any automatic option grant remain
exercisable after five years and 90 days from the date of grant.
Upon the expiration of the applicable exercise period specified in
subparagraphs a and b above or (if earlier) upon the expiration of
the option term, the option shall terminate and cease to be
exercisable.
(iv) AMENDMENT. Pursuant to Rule 16b-3(c)(2)(ii)(B), this
subsection (k) shall not be amended more than once every six months,
other than to comport with changes in the Internal Revenue Code, ERISA
or the rules thereunder.
SECTION 6 TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation or
Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for military
service or sickness, or for any other purpose approved by the Company if the
period of such leave does not exceed ninety (90) days (or longer period as
the Committee may approved, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in writing by
the Committee, but only if the employee's right to re-employment is
guaranteed either by a statute or by contract, and provided that, in the case
of any leave of absence, the employee returns to work within 30 days after
the end of such leave.
SECTION 7 AMENDMENTS AND TERMINATION
Subject to Section 5(k)(iv), the Board may amend, alter, or discontinue
the Plan, but no amendment, alteration, or discontinuation shall be made (i)
which would impair the rights of an optionee under a Stock Option award
theretofore granted, without the optionee's consent, or (ii) which without
the approval of the shareholders of the Company would cause the Plan to no
longer comply with rules promulgated by the Securities and Exchange
Commission under authority granted in Section 16 of the Securities Exchange
Act of 1934, as amended, Section 422 of the Code or any other regulatory
requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent.
The Committee may also substitute new Stock Options for previously granted
options, including previously granted options having higher option prices.
SECTION 8 UNFUNDED STATUS OF PLAN
<PAGE>
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give
any such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Stock or payments in lieu of or
with respect to awards hereunder, provided, however, that the existence of
such trusts or other arrangements is consistent with the unfunded status of
the Plan.
SECTION 9 GENERAL PROVISIONS
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to
distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any restrictions on
transfer. All certificates for shares of Stock delivered under the Plan
pursuant to any Option shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities laws, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
shareholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases. The
adoption of the Plan shall not confer upon any employee of the Company or any
Subsidiary any right to continued employment with the Company or a
Subsidiary, as the case may be, nor shall it interfere in any way with the
right of the Company or a Subsidiary to terminate the employment of any of
its employees at any time.
(c) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the
gross income of the participant for Federal income tax purposes, pay to the
Company, or make arrangements satisfactory to the Committee regarding payment
of, any Federal, state, or local taxes of any kind required by law to be
withheld with respect to the award. The obligations of the Company under the
Plan shall be conditional on such payment or arrangements and the Company and
Subsidiaries shall, to the extent permitted by law, have the right to deduct
any such taxes from any payment of any kind otherwise due to the participant.
With respect to any award under the Plan, if the written terms of such award
so permit, a participant may elect by written notice to the Company to
satisfy part or all of the withholding tax requirements associated with the
award by (i) authorizing the Company to retain from the number of shares of
Stock that would otherwise be deliverable to the participant, or (ii)
delivering to the Company from shares of Stock already owned by the
participant, that number of shares having an aggregate Fair Market Value
equal to part or all of the tax payable by the participant under this Section
9(c). Any such election shall be in accordance with, and subject to,
applicable tax and securities laws, regulations and rulings.
(d) At the time of grant, the Committee may provide in connection with
any grant made under this Plan that the shares of Stock received as a result
of such grant shall be subject to a repurchase right in favor of the Company,
pursuant to which the participant shall be required to offer to the Company
upon termination of employment for any reason any shares that the then Fair
Market Value of the Stock or, in the case of a termination for Cause, an
amount equal to the cash consideration paid for the Stock, subject to such
other terms and conditions as the Committee may specify at the time of grant.
The Committee may, at the time of grant of an award under the Plan, provide
the Company with the right to repurchase shares of Stock acquired pursuant to
the Plan by any participant who, at any time within two years after
termination of employment with the Company directly or indirectly competes
with, or is employed by a competitor of, the Company.
SECTION 10 EFFECTIVE DATE OF PLAN
The Plan shall be effective on July 24, 1992 (the date of the Merger),
subject to approval by a vote of the holders of a majority of the Stock
present and entitled to vote at the next Annual or Special Meeting of the
Company's
<PAGE>
shareholders and shall expire (unless terminated earlier) as of
April 24, 2002. Awards may be granted under the Plan prior to shareholder
approval, provided such awards are made subject to shareholder approval.
<PAGE>
Exhibit 10.15
612-481-2187 Robert A. Hoerr, M.D., Ph.D.
612-481-2380 President and Chief Executive Officer
September 12, 1996
John G. Watson
959 North Regal Canyon Drive
Walnut, CA 91789
Dear John:
It gives me great pleasure to offer you the position of Chief Operating Officer
of GalaGen Inc. Your primary responsibilities will include commercial
development, including sales and marketing and the establishment and management
of strategic alliances, as well as oversight of the production and manufacturing
operations of the Company. We will work together to develop and implement
corporate strategy. The start date will be October 1, 1996 or sooner if you
choose. You will report to me in my capacity as President, and you will
supervise such employees as are assigned in these functions.
- - Your salary will be $175,000 annually, payable in twice monthly periods,
which shall be reviewed annually and increased in keeping with the
Company's general compensation practices.
- - You will be entitled to receive up to $75,000 cash bonus per annum (or
approximately 43% of base salary). The size of the bonus received will be
based upon the achievement of personal and corporate objectives, as
approved by the Board of Directors.
- For 1996, you will be eligible to receive a pro rata bonus of up to
$17,875 (3/12 months), assuming your start date is October 1. This
pro rata bonus would be paid in February 1997 and will be based upon
the achievement of board-approved objectives.
- For 1997, you will be eligible to receive a mid-year bonus payment of
up to $25,000 of your 1997 potential bonus of $75,000, based upon
achievement of board-approved objectives. This mid-year bonus payment
would be paid in June 1997 and will be based upon board-approved
objectives. The balance of any bonus due you would be paid on the
standard date in 1998.
- - You will receive an option to purchase 125,000 shares of GalaGen common
stock, exercisable at market value as of your starting date of employment,
and vesting over 5 years. This grant will require the approval of the
Board of Directors, and under certain circumstances, the stockholders, and
will be governed by the provisions of the Company's stock option plan.
<PAGE>
Page Two
John G. Watson
September 12, 1996
- - As an annual incentive, you will be eligible to receive an option to
purchase up to 40,000 shares annually, based upon achievement of board-
approved objectives. Any grant of options again remains subject to and will
require the approval of the Board of Directors, and, under certain
circumstances, the stockholders.
- - Relocation assistance consisting of a $50,000 cash lump sum payment. If
you voluntarily resign before one year's employment, you will be required
to repay a pro-rata portion of this to the Company, based upon the months
of employment. There are tax implications to this relocation assistance
which you should review carefully with your advisors. Additionally, we
will cover temporary living expenses up to a maximum of $4500 to facilitate
your rapid availability to the Company.
- - Participation in GalaGen's employee benefit program, a summary of which is
attached, and which is subject from change from time to time:
- You will be eligible for immediate healthcare, dental, life and
long-term disability insurance coverage under this plan.
- You will also be eligible for immediate participation in the 401(k)
retirement plan, which provides for the tax-free investment of a
portion of your salary for retirement purposes. There is at present
not a corporate matching contribution to this plan.
- You will also be eligible for participation in the employee stock
purchase plan beginning in 1997, which will enable you to use up to
10% of your salary to purchase Company stock at a 15% discount to the
lower of market price at the beginning or end of the plan year.
- - In addition, there are supplemental benefits which will be made available
to you:
- $1,000,000 of term life insurance, with the Company and your
beneficiary sharing the proceeds 75:25.
- Supplemental long-term disability insurance.
- A supplemental 40 hours of personal flex time (PFT) will be placed in
your account at the time of hire.
For both types of insurance coverage, you will need to qualify through a medical
exam. There may be other benefits which may become available from time to time.
<PAGE>
Page Three
John G. Watson
September 12, 1996
You will be required to sign the standard employee Confidentiality Agreement and
Invention and Trade Secrets Agreement, which are routine and in the normal
course of business and to confirm that you will not be encumbered in any way by
non-competitive clauses relative to your recent employment.
Your initial term of employment will be for one year unless termination is for
cause, and thereafter either party may terminate this agreement on 90 days
advance written notice unless termination is for cause.
If you accept this offer, the terms described in this letter shall be the terms
of your employment. Any additions or modifications of these terms must be in
writing and signed by you and the Chairman of the Board or Chief Executive
Officer.
We are delighted to be at this stage of our discussions. We believe that you
will have substantial impact on the success of GalaGen's business and look
forward to the speedy conclusion of our negotiations and your acceptance of our
offer.
With best regards,
Robert A. Hoerr, M.D., Ph.D.
Signed and agreed to:
By: /s/ John G. Watson
_________________________
John G. Watson
Date:
September 14, 1996
_________________________
attachments
<PAGE>
GalaGen Inc. (A Development Stage Company)
EXHIBIT 11.1--STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
---------------------------- ---------------------------
SEP. 30, 1996 SEP. 30, 1995 SEP. 30, 1996 SEP. 30, 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY LOSS PER SHARE:
Average shares outstanding 7,134,136 1,909,075 6,450,999 1,895,529
SAB No. 83 shares - for stock options
granted at exercise prices less
than the initial public offering
price during the 12 months
preceding the initial public offering
using the treasury method - 133,042 - 133,042
------------ ------------ ------------ ------------
Total 7,134,136 2,042,117 6,450,999 2,028,571
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders $ (1,955,731) $ (994,567) $(12,661,123) $ (4,077,018)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share applicable
to common shareholders $ (.27) $ (.49) $ (1.96) $ (2.01)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
FULLY DILUTED LOSS PER SHARE:
Average shares outstanding 7,134,136 1,909,075 6,450,999 1,895,529
SAB No. 83 shares - for stock options
granted at exercise prices less
than the initial public offering
price during the 12 months
preceding the initial public offering
using the treasury method - 133,042 - 133,042
Assumed conversion of all series of
convertible preferred stock - 2,830,451 - 2,674,395
------------ ------------ ------------ ------------
Total 7,134,136 4,872,568 6,450,999 4,702,966
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss applicable to common
shareholders $ (1,955,731) $ (994,567) $(12,661,123) $ (4,077,018)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share applicable to
common shareholders $ (.27) $ (.20) $ (1.96) $ (.87)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000889872
<NAME> GALAGEN INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 6,290,390
<SECURITIES> 7,236,534
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,763,559
<PP&E> 1,064,883
<DEPRECIATION> (180,355)
<TOTAL-ASSETS> 14,648,087
<CURRENT-LIABILITIES> 1,386,474
<BONDS> 0
0
0
<COMMON> 71,410
<OTHER-SE> (934,834)
<TOTAL-LIABILITY-AND-EQUITY> 14,648,087
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,850,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 927,004
<INCOME-PRETAX> (5,364,279)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,364,279)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,661,123)
<EPS-PRIMARY> (1.96)
<EPS-DILUTED> (1.96)
</TABLE>
