<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 March 31, 1997.
--------------
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
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 481-2105
- ------------------------------------------------------------------------------
(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--7,163,769 shares as of April 30, 1997.
1
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INDEX
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1997 and December 31, 1996..............3
Statements of Operations - Three months ended
March 31, 1997 and March 31, 1996 and for the period
November 17, 1987 (inception) through March 31, 1997...............4
Statements of Cash Flows - Three months ended
March 31, 1997 and March 31, 1996 and for the period
November 17, 1987 (inception) through March 31, 1997...............5
Notes to Financial Statements......................................6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations...................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk.........10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................11
SIGNATURES..................................................................14
2
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GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents............... $ 2,554,177 $ 3,869,549
Available-for-sale securities........... 6,367,647 7,498,343
Prepaid expenses........................ 67,054 87,274
-------------- ----------------
Total current assets..................... 8,988,878 11,455,166
Property, plant and equipment............ 1,971,700 1,687,838
Less accumulated depreciation........... (214,427) (195,483)
-------------- ----------------
1,757,273 1,492,355
Deferred financing expenses.............. - 11,944
-------------- ----------------
Total assets............................. 10,746,151 $ 12,959,465
-------------- ----------------
-------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 903,016 $ 1,486,928
Accrued expenses........................ 71,692 192,633
-------------- ----------------
Total current liabilities................ 974,708 1,679,561
Other long-term liabilities.............. 45,000 45,000
Stockholders' equity
Preferred Stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares - none.. - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding
shares - 7,163,769 at March 31, 1997
and December 31, 1996................. 71,638 71,638
Additional paid-in capital.............. 58,926,654 58,926,654
Deficit accumulated during
the development stage................. (48,760,848) (47,183,920)
Deferred compensation................... (511,001) (579,468)
-------------- ----------------
Total stockholders' equity.............. 9,726,443 11,234,904
-------------- ----------------
Total liabilities and stockholders'
equity................................. $ 10,746,151 $ 12,959,465
-------------- ----------------
-------------- ----------------
See accompanying notes.
Note: The balance sheet at December 31, 1996 has been derived from 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.
3
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GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
PERIOD FROM
NOVEMBER 17, 1987
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO
--------------------------- MARCH 31,
1997 1996 1997
----------------------------------------------
Revenues:
Product sales............... $ - $ - $ 1,449,593
Product royalties........... - - 62,747
Research and development
revenues.................. - - 396,350
------------ ------------ -------------
- - 1,908,690
Operating costs and expenses:
Cost of goods sold.......... - - 3,468,711
Research and development.... 1,119,214 696,859 24,314,750
General and administrative.. 573,996 475,250 14,622,591
------------ ------------ -------------
(1,693,210) (1,172,109) (42,406,052)
------------ ------------ -------------
Operating loss............... (1,693,210) (1,172,109) (40,497,362)
Interest income.............. 116,282 5,080 873,634
Interest expense............. - (304,204) (2,445,697)
------------ ------------ -------------
Net loss before extraordinary
gain....................... (1,576,928) (1,471,233) (42,069,425)
Extraordinary gain on
extinguishment of debt..... - - 605,421
------------ ------------ -------------
Net loss for the period and
deficit accumulated during
the development stage....... (1,576,928) (1,471,233) (41,464,004)
Less preferred stock
dividends................ - - (7,296,844)
------------ ------------ -------------
Net loss applicable to common
stockholders.................. $ (1,576,928) $ (1,471,233) $ (48,760,848)
------------ ------------ -------------
------------ ------------ -------------
Net loss per share applicable
to common stockholders
Primary................... $ (0.22) $ (0.75) $ (21.06)
Fully diluted............. $ (0.22) $ (0.29) $ (16.48)
Weighted average number of
common shares outstanding
Primary................... 7,163,769 1,955,569 2,314,916
Fully diluted............. 7,163,769 5,081,728 2,959,347
See accompanying notes.
4
<PAGE>
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
PERIOD FROM
NOVEMBER 17, 1987
THREE MONTHS ENDED MARCH 31 (INCEPTION) TO
--------------------------- MARCH 31,
1997 1996 1997
----------------------------------------------
OPERATING ACTIVITIES:
Net loss...................... $ (1,576,928) $ (1,471,233) $ (48,760,848)
Adjustments to reconcile net
loss to cash (used) in
operating activities:
Depreciation and amortization 87,410 279,714 1,795,900
Preferred stock dividend..... - - 7,296,844
Warrants issued, net......... - - 907,064
Extraordinary gain on
extinguishment of debt...... - - (605,421)
Equity/debt issued for
services................... - - 2,976,224
Changes in operating assets
and liabilities............. (672,688) 66,746 1,792,101
------------- ------------- --------------
Net cash (used) in operating
activities.................. ( 2,162,206) (1,124,773) (34,598,136)
------------- ------------- --------------
INVESTING ACTIVITIES:
Purchase of property, plant
and equipment.............. (283,862) (1,491) (3,727,745)
Change in available-for-sale
securities, net............. 1,130,696 - (6,367,647)
------------- ------------- --------------
Net cash provided (used) by
investing activities........ 846,834 (1,491) (10,095,392)
------------- ------------- --------------
FINANCING ACTIVITIES:
Proceeds from sale of stock,
net of offering costs....... - 462,819 32,129,285
Proceeds/payment from/on note
payable..................... - 500,000 15,118,420
------------- ------------- --------------
Net cash provided by financing
activities.................. - 962,819 47,247,705
------------- ------------- --------------
Increase (decrease) in cash... (1,315,372) (163,445) 2,554,177
Cash and cash equivalents at..
beginning of period......... 3,869,549 509,339 -
------------- ------------- --------------
Cash and cash equivalents at
end of period............... $ 2,554,177 $ 345,894 $ 2,554,177
------------- ------------- --------------
------------- ------------- --------------
SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Value of warrants issued with
convertible debt............ $ - $ 33,333 $ 110,333
Deferred compensation
recognized for employee
options..................... - - 1,657,000
Deferred compensation
adjustment for canceled
options..................... - - 261,200
Conversion of convertible
promissory notes plus related
accrued interest, net of
financing costs............. - - 8,864,825
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 three
months ended March 31, 1997, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1997. These financial
statements should be read in conjunction with the audited financial
statements and accompanying notes contained in the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 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 March 31, 1997. The book value of the investments
approximates their estimated market value. The estimated market value of
investments by security type is as follows:
ESTIMATED MARKET VALUE
AS OF MARCH 31, 1997
----------------------
U.S. Government agency securities $ 3,554,192
U.S. Treasury securities 2,615,767
Investment grade debt securities 197,688
-------------
$ 6,367,647
-------------
-------------
All investments have a contractual maturity of one year or less.
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 March 31,
1997, construction in progress consisted of leasehold improvements and
equipment in connection with the Company's pilot plant manufacturing
facility. At March 31, 1997, property, plant and equipment consisted
of the following:
Furniture, fixtures and equipment $ 479,074
Construction in progress 1,492,626
-------------
1,971,700
Less accumulated depreciation (214,427)
-------------
$ 1,757,273
-------------
-------------
6
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GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
5. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares of common stock outstanding during the periods presented. The fully
diluted loss per share assumes the conversion of preferred shares
outstanding prior to the Company's initial public offering (the "Offering")
to common shares as of the beginning of the period. The loss per share for
periods prior to the closing date of the Offering also gives effect to the
requirements of Staff Accounting Bulletin No. 83 (SAB 83).
7
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PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
GENERAL. The net loss applicable to common stockholders increased by
$105,695, or 7.2%, for the three months ended March 31, 1997, to $1,576,928 from
$1,471,233 for the same period in 1996. The increase was due primarily to
increased spending on research and development of approximately $422,000 offset
by decreased interest expense of approximately $304,000. Historical spending
levels are not indicative of future spending levels because the Company is
entering a period of rapid growth in product development activity, which is
planned to include increases in costs relating to research and development
activity, small-scale manufacturing and accelerated clinical trial activity.
For these reasons, the Company believes its expenses and losses will increase
before any material product revenues are generated. The immediately preceding
statement is a forward-looking statement within the meaning of the safe harbor
provisions of Section 21E of the Securities Exchange Act of 1934, as amended
("forward-looking statement"). This statement is subject to risks and
uncertainties that could cause actual results to differ materially from those
projected, including unfavorable results in clinical trials, failure to identify
and enroll patients meeting clinical criteria, additional testing required by
regulatory authorities, failure to obtain regulatory approvals or development of
alternative therapies by competitors. Because actual results may differ,
readers are cautioned not to place undue reliance on this forward-looking
statement.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and development
increased $422,355, or 60.6%, for the three months ended March 31, 1997 to
$1,119,214 from $696,859 for the three months ended March 31, 1996.
Approximately $130,000 of the increase was from associated personnel expense;
approximately $89,000 of the increase was due to increased expenses associated
with the SPORIDIN-G Phase II/III clinical trial; approximately $76,000 was from
increased development and clinical expenses for DIFFISTAT-G; and approximately
$75,000 was for increased development and clinical expenses for the Company's
other products including CANDISTAT-G and PYLORIMUNE-G and increased pilot plant
operating costs. The Company expects research and development expenses to
increase as the Company's clinical trials activity accelerates. The immediately
preceding statement is a forward-looking statement subject to risks and
uncertainties, including those discussed in the immediately preceding paragraph,
that could cause actual results to differ materially from those projected.
Because actual results may differ, readers are cautioned not to place undue
reliance on this forward-looking statement.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased $98,746, or 20.8%, for the three months ended March 31, 1997 to
$573,996 from $475,250 for the first quarter of 1996. Approximately $79,000 of
the increase was from increased outside service charges, primarily legal counsel
and public relations support.
INTEREST INCOME. Interest income was $116,282 for the three months ended
March 31, 1997 and $5,080 for the same period in 1996. The increase in interest
income was due to the investment of funds received by the Company from the
Offering.
INTEREST EXPENSE. Interest expense was zero for the three months ended
March 31, 1997 and $304,204 for the same period in 1996. Interest expense for
the first quarter of 1996 was due entirely to the valuation of warrants issued
both to guarantors of a line of credit for the Company and to purchasers of
8
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the Company's Promissory Notes prior to the conversion of the Convertible
Promissory Notes into Common Stock upon the closing of the Offering.
LIQUIDITY AND CAPITAL RESOURCES
The Company was incorporated in March 1992. On July 24, 1992, Procor, the
Company's predecessor, was merged with and into the Company (the "Procor-GalaGen
Merger"). At the time of the Procor-GalaGen Merger, Procor was a wholly-owned
subsidiary of Land O'Lakes, Inc. ("Land O'Lakes"). Since the Company's
inception through March 31, 1997, investments in the Company have totaled
approximately $50.6 million, including approximately $7.1 million of
inter-company obligations payable to Land O'Lakes which were forgiven and
recorded as contributed capital at the time of the Procor-GalaGen Merger, $17.9
million from the Offering (after deducting underwriting discounts and offering
expenses) and approximately $25.6 million from private placements of equity and
convertible debt and from conversion of accrued interest on such debt and the
exercise of stock options and warrants. The Company has invested funds received
in the Offering and these private placements in investment-grade,
interest-bearing obligations.
Cash used in operating activities increased by $1,037,433, or 92.2%, for
the three months ended March 31, 1997 to $2,162,206 from $1,124,773 for the same
period in 1996. Cash used in operations for the three month period ended March
31, 1997 went primarily to fund operating losses and for repayment of current
liabilities. For the three month period ended March 31, 1996 cash used in
operations went primarily to fund operating losses.
For the three months ended March 31, 1997 the Company redeemed $1,130,696
of its available-for-sale securities and invested $249,797 in equipment and
tenant improvements related to the Company's pilot plant manufacturing facility.
The Company invested $34,065 for the three months ended March 31, 1997 and
$1,491 for the same period in 1996 in lab equipment, computer equipment and
software and furniture used primarily to support the Company's operations.
The Company anticipates that its existing resources and interest thereon
will be sufficient to satisfy its anticipated cash requirements through
approximately the first quarter of 1998. This statement regarding the
Company's anticipated cash requirements is a forward-looking statement
subject to risks and uncertainties, including those discussed below, that
could cause actual results to differ materially from those projected.
Because actual results may differ, readers are cautioned not to place undue
reliance on this forward-looking statement. The Company's working capital
and capital requirements will depend upon numerous factors, including the
progress of the Company's clinical trials and research and development
programs and the timing of and cost of obtaining regulatory approvals. The
Company's capital requirements also will depend on the levels of resources
devoted to the development of manufacturing and marketing capabilities,
technological advances, the status of competitive products and the ability of
the Company to establish strategic alliances to provide research and
development funding to the Company.
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 obtain licensure of the existing GMP
pilot plant facility and to establish additional commercial scale GMP
manufacturing relationships. The Company will need to raise substantial
additional funds for longer term product development, manufacturing and
marketing activities it plans to undertake in the future. The Company's ability
to continue funding its planned operations beyond the first quarter of 1998 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
9
<PAGE>
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. If the Company has not raised funds prior
to such time as the Company's needs for funding become immediate, the Company
may be forced to raise funds when conditions are unfavorable which could
result in dilution to the Company's current stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) EXHIBITS
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ------------ ----------------
3.2 Restated Certificate of Incorporation of Incorporated By
the Company.(3) Reference
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 Incorporated By
Common Stock of the Company issued Reference
to Piper Jaffray Inc., dated
January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of Incorporated By
Common Stock of the Company issued to Reference
Gus A. Chafoulias, dated
October 12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of Incorporated By
Common Stock of the Company issued to Reference
John Pappajohn, dated
October 12, 1993.(1)
4.5 Warrant to purchase 9,479 shares of Incorporated By
Common Stock of the Company issued to Reference
Cato Holding Company, dated
June 21, 1994.(1)
4.6 Form of Common Stock Warrant to purchase Incorporated By
shares of Common Stock of the Company, Reference
issued in connection with the sale of
Convertible Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Incorporated By
Series F-1 Convertible Preferred Stock Reference
of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Incorporated By
Series F-2 Convertible Preferred Reference
Stock of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Incorporated By
Series F-3 Convertible Preferred Reference
Stock of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Incorporated By
Series F-3 Convertible Preferred Reference
Stock of the Company issued to Chiron
Corporation, dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of Incorporated By
Common Stock of the Company issued to Reference
IAI Investment Funds VI, Inc. (IAI
Emerging Growth Fund), dated
January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Incorporated By
Common Stock of the Company issued Reference
to IAI Investment Funds IV, Inc.
(IAI Regional Fund), dated
January 30, 1996.(1)
11
<PAGE>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ------------ ----------------
4.13 Warrant to purchase 25,000 shares of Incorporated By
Common Stock of the Company Reference
issued to John Pappajohn,
dated February 2, 1996.(1)
4.14 Warrant to purchase 25,000 shares of Incorporated By
Common Stock of the Company issued to Reference
Edgewater Private Equity Fund, L.P.,
dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of Incorporated By
Common Stock of the Company issued to Reference
Joseph Giamenco, dated February 2,
1996.(1)
4.16 Warrant to purchase 25,000 shares of Incorporated By
Common Stock of the Company issued to Reference
Gus A. Chafoulias, dated February 2,
1996.(1)
4.17 Warrant to purchase 25,000 shares of Incorporated By
Common Stock of the Company issued to Reference
JIBS Equities, dated February 2, 1996.(1)
4.18 Warrant to purchase 25,000 shares of Incorporated By
Common Stock of the Company issued to Reference
Land O'Lakes, Inc., dated February 2,
1996.(1)
#10.1 License Agreement between the Company Incorporated By
and Land O'Lakes dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company Incorporated By
and Land O'Lakes dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company Incorporated By
and Land O'Lakes dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Incorporated By
Company and Land O'Lakes dated Reference
May 7, 1992.(1)
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. Electronic
Transmission
10.7 Stock and Warrant Purchase Agreement Incorporated By
between the Company and Chiron Reference
Corporation dated March 20, 1995.(1)
#10.8 License and Collaboration Agreement Incorporated By
between the Company and Chiron Reference
Corporation dated March 20, 1995.(1)
*10.9 GalaGen Inc. Employee Stock Purchase Incorporated By
Plan, as amended. (2) Reference
10.10 Credit Agreement between the Company and Incorporated By
Norwest Bank Minnesota, N.A., dated as Reference
of January 24, 1996.(1)
10.11 Commitment Letter between the Company Incorporated By
and Cargill Leasing Corporation, dated Reference
June 5, 1996. (2)
10.12 Master Equipment Lease between the Incorporated By
Company and Cargill Leasing Corporation, Reference
dated June 6, 1996. (2)
10.13 Agreement for Progress Payments between Incorporated By
the Company and Cargill Leasing Reference
Corporation, dated June 6, 1996. (2)
12
<PAGE>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ------------ ----------------
10.14 Agreement for Lease between the Company Incorporated By
and Land O'Lakes, dated June 3, 1996.(2) Reference
*10.15 Letter agreement with John G. Watson Incorporated By
dated September 14, 1996.(3) Reference
+10.16 Agreement with Colorado Animal Research Incorporated By
Enterprises, Inc. dated November 1, Reference
1996.(4)
*10.17 Letter agreement with Francois Lebel, Incorporated By
M.D., dated December 27, 1996.(4) Reference
*10.18 Consulting agreement with Stanley Falkow, Incorporated By
Ph.D., dated January 15, 1997.(4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Incorporated By
Cash Compensation Plan.(4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Incorporated By
Stock Option Compensation Plan. (4) Reference
11.1 Statement re: computation of per Electronic
share earnings (loss). 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).
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1996 (File No. 0-27976).
* Management contract or compensatory plan or arrangement.
# Contains portions for which confidential treatment has been granted to
the Company.
+ Contains portions for which confidential treatment has been requested
by the Company.
(b.) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GalaGen Inc.
------------
(Registrant)
Date: May 12, 1997 By: /s/ Robert A. Hoerr
--------------------
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 1997 By: /s/ Gregg A. Waldon
--------------------
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
14
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
- ------- ----------- ----------------
<S> <C> <C>
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
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 Company Incorporated By
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 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series F-2 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series F-3 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series F-3 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
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 Company Incorporated By
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund), Reference
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
<PAGE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
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<S> <C> <C>
4.14 Warrant to purchase 25,000 shares of common stock of the Incorporated By
Company issued to Edgewater Private Equity Fund, L.P., dated Reference
February 2, 1996.(1)
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
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
#10.1 License Agreement between the Company and Land O'Lakes dated Incorporated By
May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated Incorporated By
May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated Incorporated By
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, as amended. Electronic
Transmission
10.7 Stock and Warrant Purchase Agreement between the Company and Incorporated By
Chiron Corporation dated March 20, 1995.(1) Reference
#10.8 License and Collaboration Agreement between the Company and Incorporated By
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 Leasing Incorporated By
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
<PAGE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
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<S> <C> <C>
*10.15 Letter agreement with John G. Watson dated September 14, Incorporated By
1996.(3) Reference
+10.16 Agreement with Colorado Animal Research Enterprises, Inc. dated Incorporated By
November 1, 1996.(4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., dated December 27, Incorporated By
1996.(4) Reference
*10.18 Consulting agreement with Stanley Falkow, Ph.D., dated Incorporated By
January 15, 1997.(4) Reference
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Incorporated By
Plan.(4) Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Incorporated By
Compensation Plan.(4) Reference
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
27 Financial Data Schedule. Electronic
Transmission
</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).
(3) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 (File No. 0-27976).
(4) Incorporated herein by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-K for the period ended December 31,
1996 (File No. 0-27976).
* Management contract or compensatory plan or arrangement.
# Contains portions for which confidential treatment has been granted to
the Company.
+ Contains portions for which confidential treatment has been requested by
the Company.
<PAGE>
Exhibit 10.5
GALAGEN INC.
1992 Stock Plan
(as amended and restated effective December 4, 1996)
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
<PAGE>
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 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.
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<PAGE>
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
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<PAGE>
the Plan. If the total number of shares at the time available for grant
under the Plan are not sufficient for the 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 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
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 certain Non-Employee Directors, whose
participation in the Plan may 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
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<PAGE>
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.
(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
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<PAGE>
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) 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; provided, however, that any
optionee may transfer any Non-Qualified Stock Option, whether granted prior
to, on or after December 30, 1996 (including options granted to Non-Employee
Directors and including outstanding Incentive Stock Options which are amended
to allow such options to be transferred as provided in this Section 5(e) and
thereby no longer qualify as Incentive Stock Options), to members of his or
her immediate family (i.e., his or her children, grandchildren and spouse) or
to one or more trusts for the benefit of such family members or partnerships
in which such family members are the only partners, if (i) the agreement with
respect to such Non-Qualified Stock Option expressly so provides either at
the time of initial grant or by amendment to such outstanding Non-Qualified
Stock Option and (ii) the optionee
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<PAGE>
does not receive any consideration for the transfer. Any Non-Qualified Stock
Options held by any such transferee shall continue to be subject to the same
terms and conditions that were applicable to such Non-Qualified Stock Options
immediately prior to their transfer.
(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 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;
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<PAGE>
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 LIMIT 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) 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 a time
thereafter but on or before December 3, 1996, shall receive his/her automatic
grant for 13,541 shares at the time of his/her election or appointment to the
Board. An individual who is first elected or appointed as a Non-Employee
Director on or after December 4, 1996, shall be eligible to receive
Non-Qualified Options as the Committee may grant in its discretion from time
to time.
(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. Options granted to a Non-Employee
Director on or before December 3, 1996, 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. The 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. The term and exercisability of options granted to a
Non-Employee Director by the Committee on
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<PAGE>
or after December 4, 1996, shall be subject to the specific terms of each
certain Stock Option agreement as entered into between the Company and each
Non-Employee Director.
(iii) EFFECT OF TERMINATION OF BOARD MEMBERSHIP.
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 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 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 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;
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<PAGE>
(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
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
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<PAGE>
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.
-11-
<PAGE>
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 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 11.1---STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (UNAUDITED)
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
Period from
November 17,
For the Three Months Ended 1987 (inception) to
-------------------------- March 31,
March 31, 1997 March 31, 1996 1997
-------------- -------------- -------------------
<S> <C> <C> <C>
Primary Loss Per Share:
Average shares outstanding 7,163,769 1,955,569 2,199,853
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 - - 115,063
---------------------------------------------------------
Total 7,163,769 1,955,569 2,314,916
---------------------------------------------------------
---------------------------------------------------------
Net loss $(1,576,928) $(1,471,233) $(48,760,848)
---------------------------------------------------------
---------------------------------------------------------
Net loss per share $(0.22) $(0.75) $(21.06)
---------------------------------------------------------
---------------------------------------------------------
Fully Diluted Loss Per Share:
Average shares outstanding 7,163,769 1,955,569 2,199,853
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 - - 115,063
Assumed conversion of all series of convertible preferred stock - 3,126,159 644,431
---------------------------------------------------------
Total 7,163,769 5,081,728 2,959,347
---------------------------------------------------------
---------------------------------------------------------
Net loss $(1,576,928) $(1,471,233) $(48,760,848)
---------------------------------------------------------
---------------------------------------------------------
Net loss per share $(0.22) $(0.29) $(16.48)
---------------------------------------------------------
---------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PERIOD ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,554,177
<SECURITIES> 6,367,647
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,988,878
<PP&E> 1,971,700
<DEPRECIATION> 214,427
<TOTAL-ASSETS> 10,746,151
<CURRENT-LIABILITIES> 974,708
<BONDS> 0
0
0
<COMMON> 71,638
<OTHER-SE> (511,001)
<TOTAL-LIABILITY-AND-EQUITY> 10,746,151
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (1,693,210)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,576,928)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,576,928)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,576,928)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
