<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 June 30, 1998.
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 Lexington Avenue North
Arden Hills, Minnesota 55126
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(Address of principal executive offices) (Zip Code)
(651) 481-2105
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(Registrant's telephone number, including area code)
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(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--8,266,705 shares as of July 31, 1998.
1
<PAGE>
INDEX
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1998 and December 31, 1997..................3
Statements of Operations - Three and Six months ended
June 30, 1998 and June 30, 1997 and for the period
November 17, 1987 (inception) through June 30, 1998...................4
Statements of Cash Flows - Six months ended
June 30, 1998 and June 30, 1997 and for the period
November 17, 1987 (inception) through June 30, 1998...................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...........12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..................13
Item 6. Exhibits and Reports on Form 8-K.....................................13
SIGNATURES.....................................................................19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 2,653,770 $ 155,908
Available-for-sale securities................................................. 2,850,087 7,511,619
Prepaid expenses.............................................................. 84,156 196,672
------------- ----------------
Total current assets........................................................... 5,588,013 7,864,199
Property, plant and equipment.................................................. 580,483 1,869,974
Less accumulated depreciation................................................. (217,243) (363,355)
------------- ----------------
363,240 1,506,619
Deferred expenses.............................................................. 127,282 158,953
------------- ----------------
Total assets................................................................... $ 6,078,535 $ 9,529,771
------------- ----------------
------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................................. $ 605,787 $ 559,498
Note payable.................................................................. - 238,250
Accrued expenses.............................................................. 20,731 38,129
------------- ----------------
Total current liabilities...................................................... 626,518 835,877
Commitments
Convertible notes, net of discount............................................. 343,329 1,071,818
Note payable, long term portion................................................ - 923,998
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 - 8,243,705 at June 30, 1998; 7,234,974 at
December 31, 1997....................................................... 82,437 72,350
Additional paid-in capital.................................................... 60,800,279 59,669,586
Deficit accumulated during the development stage.............................. (55,641,924) (52,819,054)
Deferred compensation......................................................... (177,104) (269,804)
------------- ----------------
Total stockholders' equity.................................................... 5,063,688 6,653,078
------------- ----------------
Total liabilities and stockholders' equity..................................... $ 6,078,535 $ 9,529,771
------------- ----------------
------------- ----------------
</TABLE>
See accompanying notes.
Note: The balance sheet at December 31, 1997 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.
<PAGE>
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17, 1987
(INCEPTION) TO
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 JUNE 30,
-------------------------- -------------------------- -----------------
1998 1997 1998 1997 1998
------------ ----------- ------------ ----------- -----------------
<S> <C> <C> <C> <C> <C>
Revenues:
Product sales. . . . . . . . . . . . . . . . $ 9,759 $ - $ 12,809 $ - $ 1,462,402
Product royalties. . . . . . . . . . . . . . - - - - 62,747
Research and development revenues. . . . . . - - - - 396,350
----------- ----------- ----------- ----------- ------------
9,759 - 12,809 - 1,921,499
Operating costs and expenses:
Cost of goods sold . . . . . . . . . . . . . 4,880 - 6,405 - 3,475,116
Research and development . . . . . . . . . . 810,141 1,036,352 1,418,509 2,155,566 28,549,862
General and administrative . . . . . . . . . 706,156 535,099 1,221,067 1,109,095 17,235,663
----------- ----------- ----------- ----------- ------------
1,521,177 1,571,451 2,645,981 3,264,661 49,260,641
----------- ----------- ----------- ----------- ------------
Operating loss . . . . . . . . . . . . . . . . (1,511,418) (1,571,451) (2,633,172) (3,264,661) (47,339,142)
Interest income. . . . . . . . . . . . . . . . 67,727 114,885 192,276 231,167 1,397,950
Interest expense . . . . . . . . . . . . . . . (162,084) - (381,974) - (3,009,309)
----------- ----------- ----------- ----------- ------------
Net loss before extraordinary gain . . . . . . (1,605,775) (1,456,566) (2,822,870) (3,033,494) (48,950,501)
Extraordinary gain on extinguishment of debt . - - - - 605,421
----------- ----------- ----------- ----------- ------------
Net loss for the period and deficit
accumulated during the development stage . . (1,605,775) (1,456,566) (2,822,870) (3,033,494) (48,345,080)
Less preferred stock dividends . . . . . . . . - - - - (7,296,844)
----------- ----------- ----------- ----------- ------------
Net loss applicable to common stockholders . . $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss per share applicable to common
stockholders
Basic and Diluted. . . . . . . . . . . . . . $ (0.20) $ (0.20) $ (0.36) $ (0.42) $ (20.74)
Weighted average number of common shares
outstanding
Basic and Diluted. . . . . . . . . . . . . . 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
</TABLE>
See accompanying notes.
4
<PAGE>
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 17, 1987
(INCEPTION) TO
SIX MONTHS ENDED JUNE 30 JUNE 30,
-------------------------------- -----------------
1998 1997 1998
------------ ---------------- -----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,822,870) $(3,033,494) $(55,641,924)
Adjustments to reconcile net loss to cash used in operating
activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 670,599 189,507 3,061,356
Preferred stock dividend. . . . . . . . . . . . . . . . . . . . . - - 7,296,844
Warrants issued, net. . . . . . . . . . . . . . . . . . . . . . . - - 907,064
Extraordinary gain on extinguishment of debt. . . . . . . . . . . - - (605,421)
Equity/debt issued for services . . . . . . . . . . . . . . . . . - - 2,990,615
Changes in operating assets and liabilities . . . . . . . . . . . 101,130 (895,064) 1,452,248
----------- ----------- ------------
Net cash (used in) operating activities . . . . . . . . . . . . . (2,051,141) (3,739,051) (40,539,218)
----------- ----------- ------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment . . . . . . . . . . . . (29,527) (262,982) (3,752,416)
Change in available-for-sale securities, net. . . . . . . . . . . 4,661,532 2,082,688 (2,850,087)
----------- ----------- ------------
Net cash provided by (used in) investing activities. . . . . . . 4,632,005 1,819,706 (6,602,503)
----------- ----------- ------------
FINANCING ACTIVITIES:
Proceeds from sale of stock, net of offering costs. . . . . . . . 56,728 15,473 32,398,831
Proceeds/payment from/on note payable . . . . . . . . . . . . . . (139,730) - 17,396,660
----------- ----------- ------------
Net cash provided by financing activities . . . . . . . . . . . . (83,002) 15,473 49,795,491
----------- ----------- ------------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . 2,497,862 (1,903,872) 2,653,770
Cash and cash equivalents at beginning of period. . . . . . . . . 155,908 3,869,549 -
----------- ----------- ------------
Cash and cash equivalents at end of period. . . . . . . . . . . . $ 2,653,770 $ 1,965,677 $ 2,653,770
----------- ----------- ------------
----------- ----------- ------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Discount valuation for convertible debentures . . . . . . . . . . $ - $ - $ 500,182
Valuation of issued options and warrants. . . . . . . . . . . . . 62,500 33,333 350,083
Deferred compensation recognized for employee options . . . . . . - - 1,657,000
Deferred compensation adjustment for canceled options . . . . . . - - 297,000
Conversion of note to operating lease . . . . . . . . . . . . . . 1,047,904 1,047,904
Conversion of convertible promissory notes plus related
accrued interest, net of financing costs. . . . . . . . . . . . 1,021,552 - 9,886,377
</TABLE>
See accompanying notes.
5
<PAGE>
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 six
months ended June 30, 1998, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1998. These financial
statements should be read in conjunction with the audited financial
statements and accompanying notes contained in the Annual Report of GalaGen
Inc. (the "Company") on Form 10-K for the fiscal year ended December 31,
1997.
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
available-for-sale securities. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date. The book value of the
investments approximates their estimated market value. The estimated
market value of investments by security type is as follows:
<TABLE>
<CAPTION>
ESTIMATED MARKET VALUE
AS OF JUNE 30, 1998
-------------------
<S> <C>
U.S. Government agency securities $ 2,350,533
Corporate debt securities 499,554
-------------
$ 2,850,087
--------------
--------------
</TABLE>
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.
5. NET LOSS PER SHARE
Basic and diluted net loss per share is presented in conformance
with Financial Accounting Standards Board Statement No. 128.
6
<PAGE>
GALAGEN INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
6. COMPREHENSIVE INCOME
As of January 1, 1998 the Company adopted Statement No. 130,
Reporting Comprehensive Income. Statement No. 130 established new rules
for the reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's net
income or shareholder's equity.
7. CONVERTIBLE DEBENTURES
In November 1997, the Company raised $1,500,000 through the
private placement sale of 6% convertible debentures (the "Debentures") to
three institutional investors pursuant to Regulation D under the Securities
Act of 1933. The principal and interest of the Debentures can be converted
into shares of the Company's common stock at 82.5% of the lowest closing
bid price of the Company's common stock three days prior to conversion.
One-third of the Debentures can convert to common stock upon the effective
date of registration, one-third after five months from the closing date and
the remaining one third twelve months after the closing date or nine months
if the closing bid price of the common stock does not average at least
$2.50 per share in the eighth month after closing. An aggregate maximum of
1,400,000 discounted shares of common stock (the "Discounted Shares") can
be issued upon the conversion of the Debentures, with each investor owning
at any given time a maximum of 4.99% of the then issued and outstanding
shares of common stock. If there remains any unconverted principal and
accrued interest due to all the Discounted Shares being issued, the Company
has the obligation to repay the investors, in the aggregate, a maximum
principal of $500,000. The Debentures automatically convert into the
Discounted Shares eighteen months from the closing date. Five-year
warrants were issued to the investors to purchase, in the aggregate,
200,000 shares of common stock at $2.3375 per share which is 110% of the
market value of the common stock on the closing date. The value of the
warrants plus the value of the discount of the Discounted Shares was
$500,182, which the Company is amortizing to interest expense over the term
of the Debentures. A deferred expense was recorded for $144,467, which
represents costs associated with closing the Debentures. These deferred
expenses are being amortized until the Debentures are converted into
Discounted Shares. As of June 30, 1998, $1,000,000 of Debenture
principal plus accrued interest was converted into 977,848 shares of common
stock. The net carrying value of the Debentures approximates fair market
value.
8. NOTE PAYABLE
In June 1997, the Company established a note payable with
Transamerica Business Credit Corporation to purchase certain lab equipment,
computer equipment and tenant improvements. In June 1998, the Company
converted the note payable into an operating lease in accordance with
Financial Accounting Standards Board Statement 13 and as such the
applicable assets and the related note payable have been eliminated. At
the time of the conversion to an operating lease, the net book value of the
associated assets approximated the note payable balance. Payment schedules
and other terms of the operating lease are similar to the terms of the note
payable.
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information presented in this Item contains forward-looking
statements within the meaning of the safe harbor provisions of Section 21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Such statements are subject to risks and uncertainties, including those
discussed under "Risk Factors" 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 these forward-looking
statements. Certain forward-looking statements are indicated below by an
asterisk.
GENERAL
GalaGen is focusing its emphasis on nutritional products and is
utilizing its expertise in its platform antibody technology to develop a
portfolio of proprietary nutritional products, including dietary
supplements, which incorporate its Proventra-TM- Brand Natural Immune
Components ("Proventra-TM-"). These products will target needs of both
consumers and healthcare professionals. These antibodies used in
nutritional products are food proteins that are derived from the milk
collected in the first few milkings of a dairy cow after its calf is born
and their components are commonly found in dairy foods that are already
widely consumed. Using its proprietary procedures, the Company has
produced antibodies that target specific pathogens infecting the human
gastrointestinal tract, including bacteria and their toxins, parasites,
fungi and viruses.
RECENT DEVELOPMENTS
In December 1997, the Company introduced Basics Plus, a dietary
supplement product, in conjunction with its marketing and manufacturing
partner, Lifeway Foods, Inc. Basics Plus is the first product to emerge
from the collaboration with Lifeway Foods, Inc. and contains active
beneficial kefir cultures and Proventra-TM-.
In March 1998, the Company and Land O'Lakes, Inc. ("Land O'Lakes"),
the large food and agricultural cooperative from which GalaGen was spun-out
in 1992, signed an amended and restated license agreement (the "Restated
License") in which the Company has significantly broadened its rights to
develop and market functional foods, which include nutritional products.
Under the Restated License, the Company can use, improve, exploit, license
or share existing Procor Technologies, Inc. (the Company's predecessor,
"Procor") technology, Procor technology improvements and new technologies,
as defined, in all areas of functional foods except under certain "reserved
food product" and "first refusal food product" categories, as defined. If
the Company intends to engage in manufacturing or marketing any "first
refusal food product", the Company must give Land O'Lakes notice of its
intent, in which case Land O'Lakes can negotiate with the Company, in good
faith and within a defined period of time, to undertake any part of the
manufacturing or marketing areas. If the Company intends to engage in
manufacturing or marketing any "reserved food product", the Company must
give Land O'Lakes notice of its intent and must work only with Land O'Lakes
to undertake the manufacturing or marketing of such products.
In May 1998, the Company announced that it has entered into a consumer
product development agreement with Land O'Lakes. Under terms of the
agreement, the two companies will collaborate on the development of yogurt
products containing Proventra-TM-. This collaboration will initially focus
on developing a yogurt product with unique benefits for women. GalaGen
will supply its Proventra-TM-, and possibly other active components, for
this product.* The Company expects to be in regional test markets with
this yogurt in early 1999, with Land O'Lakes providing the product
development, manufacturing, sales, distribution and marketing of the
product.* From this collaboration with Land O'Lakes, the Company expects
to incur increased marketing research expenses and increased marketing
consulting expenses.* The Company also expects to incur further product
development and marketing research expenses and outside legal expenses in
1998 associated with the further development of certain consumer
nutritional and clinical nutritional products.* The Company anticipates
that two products, including its yogurt product in conjunction with Land
8
<PAGE>
O'Lakes, will be introduced in regional test markets in early 1999.*
In August 1997, the Company announced that it was placing its
Sporidin-G pharmaceutical clinical trial on hold due to continuing decline
in the patient population for the product's initial indication,
AIDS-related Cryptosporidium parvum infection. The decline was brought
about by the effectiveness and increased use of new AIDS therapies,
including protease inhibitors and earlier administration of combination
therapy. In May 1998, the Company also announced that it would limit
further spending on development of pharmaceutical products this year,
believing that applying its technology and resources toward nutritional
product development will provide superior shareholder value.* The Phase II
dose ranging study for Diffistat-G, a pharmaceutical treatment for
antibiotic-associated diarrhea, has now provided sufficient data for the
design of future studies necessary for approval by the U.S. Food and Drug
Administration. As previously announced, subsequent studies will only be
implemented in collaboration with a corporate partner.* The Company
remains positive about the long-term value of its pharmaceutical program
and products, but believes that pharmaceutical development can be best
supported from corporate alliances.* The Company will continue to seek
partners for all of its pharmaceutical development products.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
GENERAL. The net loss applicable to common stockholders increased
$149,209 or 10.2%, for the three months ended June 30, 1998 to $1,605,775
from $1,456,566 for the same period in 1997. The increase was due
primarily to increased general and administrative expense and increased
interest expense offset by decreased research and development expense.
REVENUES. For the three months ended June 30, 1998 revenues consisted
of $9,759 from sales of the Company's Proventra-TM- for use in Basics Plus.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development decreased $226,211, or 21.8%, to $810,141 for the three months
ended June 30, 1998 from $1,036,352 for the three months ended June 30,
1997. The decrease was due primarily to decreased clinical trial expenses
associated with the Company's Sporidin-G of approximately $240,000 and
decreased personnel expense of approximately $173,000 offset by increased
clinical trial expenses associated with Diffistat-G of approximately
$132,000 and increased expense of approximately $55,000 relating to pilot
plant depreciation.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $171,057, or 31.9%, to $706,156 for the three months
ended June 30, 1998 from $535,099 for the same period in 1997. The increase
was due primarily to marketing expenses, including consulting and marketing
research, associated with the Company's nutritional products.
INTEREST INCOME. Interest income decreased to $67,727 for the three
months ended June 30, 1998 from $114,885 for the three months ended June
30, 1997. This $47,158 decrease, or 41.0%, is attributable to the
Company's decreased level of investable funds and a decreased earnings
rate.
INTEREST EXPENSE. Interest expense was $162,084 for the three months
ended June 30, 1998 and zero for the three months ended June 30, 1997.
The interest expense for the second quarter in 1998 consisted of
approximately $105,000 of amortization expense associated with the
Company's convertible debentures (see Note 7 in Notes to Financial
Statements), approximately $10,000 of accrued interest expense on the
outstanding convertible debentures and approximately $47,000 of interest
expense associated with the Company's note payable (see Note 8 in Notes to
Financial Statements).
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
GENERAL. The net loss applicable to common stockholders decreased
$210,624, or 6.9%, to $2,822,870 for the six months ended June 30, 1998
from $3,033,494 for the six months ended June 30, 1997. The decrease was
primarily due to decreased research and development expense offset by
increased interest expense and increased general and administrative
expense.
9
<PAGE>
REVENUES. For the six months ended June 30, 1998 revenues consisted
of $12,809 from sales of the Company's Proventra-TM- for use in Basics
Plus.
RESEARCH AND DEVELOPMENT EXPENSES. Expenses for research and
development decreased $737,057, or 34.2%, to $1,418,509 for the six months
ended June 30,1998 from $2,155,566 for the six months ended June 30, 1997.
Approximately $610,000 of the decrease was due to decreased development and
clinical trial expenses associated with Sporidin-G, decreased associated
personnel expenses of approximately $383,000 and decreases in other
pharmaceutical research, quality and procurement expenses of approximately
$163,000. These decreases were offset by increased pilot plant depreciation
expense of approximately $173,000, increased clinical expense for
Diffistat-G of approximately $138,000 and increased expenses associated
with nutritional products of approximately $108,000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $111,972, or 10.1%, to $1,221,067 for the six months
ended June 30, 1998 from $1,109,095 for the six months ended June 30, 1997.
The increase was due to increased marketing related expenses, including
consulting and marketing research, for the Company's nutritional products
of approximately $179,000 offset by decreased outside service expenses of
approximately $67,000.
INTEREST INCOME. Interest income decreased to $192,276 for the six
months ended June 30, 1998 from $231,167 for the six months ended June 30,
1997. This $38,891 decrease, or 16.8%, is attributable to the decreased
level of investable funds offset by a slightly increased earnings rate.
INTEREST EXPENSE. Interest expense was $381,974 for the six months
ended June 30, 1998 and zero for the six months ended June 30, 1997. The
interest expense in 1998 consisted of approximately $256,000 of
amortization expense associated with the Company's convertible debentures
(see Note 7 in Notes to Financial Statements), approximately $29,000 of
accrued interest expense on the outstanding convertible debentures and
approximately $97,000 of interest expense associated with the Company's
note payable (see Note 8 in Notes to Financial Statements).
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. Since the Company's
inception through June 30, 1998, investments in the Company have totaled
approximately $53.1 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 Company's initial public offering (the "Offering"),
after deducting underwriting discounts and offering expenses, and
approximately $28.1 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 decreased by $1,687,910, or 45.1%,
for the six months ended June 30, 1998 to $2,051,141 from $3,739,051 for
the same period in 1997. Cash used in operations for the six month period
ended June 30, 1998 went primarily to fund operating losses, and for the
same period in 1997 cash was used to fund operating losses and for
repayment of current liabilities.
For the six months ended June 30, 1998 the Company redeemed $4,661,532
of its available-for-sale securities. The Company invested $29,527 in
equipment related to the Company's pilot plant manufacturing facility for
the six months ended June 30, 1998. For the same period in 1997 the
Company invested $204,456 in equipment and tennant improvements related to
the pilot plant manufacturing facility and $58,526 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
10
<PAGE>
anticipated cash requirements through approximately the second quarter of
1999.* The Company's working capital and capital requirements will depend
upon numerous factors, including the progress of the Company's market
research, product development and ability to obtain partners with the
appropriate manufacturing, sales, distribution and marketing capabilities.*
The Company's capital requirements also will depend on the levels of
resources devoted to the development of manufacturing capabilities,
technological advances, the status of competitive products and the ability
of the Company to establish partners or strategic alliances to provide
funding to the Company for certain manufacturing, sales, product
development and marketing activities.*
The Company expects to incur substantial additional product
development and other costs, including costs related to clinical studies
and marketing activities.* Capital expenditures may be necessary to obtain
licensure of the existing pilot plant facility and to establish additional
commercial scale manufacturing facilities.* The Company will need to raise
substantial additional funds for longer-term product development,
manufacturing and marketing activities that may be required in the future.
The Company's ability to continue funding its planned operations beyond the
second quarter of 1999 is dependent upon its ability to generate product
revenues or to obtain additional funds through equity or debt financing,
strategic alliances, license agreements or from other financing sources.*
A lack of adequate revenues or 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. 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 substantial dilution to the Company's
current stockholders.*
YEAR 2000 ISSUES
Certain of the Company's business systems may require updating to
continue to function properly beyond 1999. The Company believes that it
will have adequate resources for this purpose and does not expect to incur
significant expenditures to address this issue.*
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the second quarter ended June 30, 1998 contains
certain forward looking statements within the meaning of Section 21E of the
Exchange Act. Such forward-looking statements are based on the beliefs of
the Company's management as well as on assumptions made by and information
currently available to the Company at the time such statements were made.
When used in this Form 10-Q, the words "anticipate", "believe", "estimate",
"expect", "intend" and similar expressions, as they relate to the Company,
are intended to identify such forward-looking statements. Although the
Company believes these statements are reasonable, readers of this Form 10-Q
should be aware that actual results could differ materially from those
projected by such forward-looking statements as a result of the risk
factors listed below and set forth in the Company's Annual Report on Form
10-K for 1997 ("Form 10-K") under the caption "Risk Factors." Readers of
this Form 10-Q should consider carefully the factors listed below and under
the caption "Risk Factors" in the Company's Form 10-K, as well as the other
information and data contained in this Form 10-Q. The Company cautions the
reader, however, that such list of factors under the caption "Risk Factors"
in the Company's Form 10-K may not be exhaustive and that those or other
factors, many of which are outside of the Company's control, could have a
material adverse effect on the Company and its results of operations.
Factors that could cause actual results to differ include, without
limitation, the Company's ability to generate sufficient working capital
and obtain necessary financing, the Company's ability to form strategic
alliances with marketing and distribution partners, the Company's exposure
to product liability claims, consumers' perception of product safety and
quality, the Company's reliance on flawed market research, potential
competitors that are larger and financially stronger, the Company's ability
to receive regulatory approval for its products and the Company's ability
to manufacture an acceptable product on a commercial scale. All
forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by the cautionary
statements set forth hereunder and under the caption "Risk Factors" in the
Company's Form 10-K.
11
<PAGE>
RISK FACTORS
Certain statements made above, including those indicated by an asterisk
(some of which are summarized below), are forward-looking statements that
involve risks and uncertainties, and actual results may differ. Factors that
could cause actual results to differ include those identified below.
EXPECTATION THAT TWO ADDITIONAL PRODUCTS WILL BE IN REGIONAL TEST
MARKETS IN EARLY 1999. The timing of product introduction into test markets
is dependent upon the Company's ability to successfully finalize market
research and product development, with or without a partner or strategic
alliance, and to obtain a partner that has the ability to either provide
final product manufacturing, marketing, sales and distribution activities or
the ability to provide the funding necessary to obtain those activities. The
inability of the Company to bring these two additional products to regional
test markets in early 1999 could have a material adverse effect on the
Company.
THE COMPANY ALSO EXPECTS TO INCUR FURTHER PRODUCT DEVELOPMENT AND
MARKETING RESEARCH EXPENSES AND OUTSIDE LEGAL EXPENSES IN 1998 ASSOCIATED
WITH THE FURTHER DEVELOPMENT OF CERTAIN CONSUMER NUTRITIONAL AND CLINICAL
NUTRITIONAL PRODUCTS. The Company's product development length and cost is
dependent upon, to a certain degree, results of the Company's market research
which may give the Company certain indications of whom the Company's target
customers may be and what types of products they may desire .
ABILITY OF THE COMPANY TO SATISFY ITS ANTICIPATED CASH REQUIREMENTS
THROUGH APPROXIMATELY THE END OF THE SECOND QUARTER OF 1999. The Company's
working capital and capital requirements will depend upon numerous factors,
including the progress of the Company's product development programs and the
timing and cost of market research. 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 funding to the Company for certain manufacturing, sales,
product development and marketing activities. The inability of the Company
to satisfy its cash requirements could have a material adverse effect on the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 1997 Annual Meeting of Stockholders held on May 13, 1998,
the stockholders approved the following:
(a) the election of directors to serve until their successors are duly
elected. Each nominated director was elected as follows:
<TABLE>
<CAPTION>
Director-Nominee Votes For Votes Withheld
---------------- --------- --------------
<S> <C> <C>
R. David Spreng 4,939,974 17,329
Stanley Falkow, Ph.D. 4,940,774 16,529
Robert A. Hoerr, M.D., Ph.D. 4,940,574 16,729
Ronald O. Ostby 4,939,974 17,329
Winston R. Wallin 4,940,774 16,529
</TABLE>
(b) a proposal to ratify the appointment of Ernst & Young LLP to serve
as independent public accountants of the Company for the year ending
December 31, 1998. The proposal received 4,936,608 votes for, and 5,860
votes against, ratification. There were 14,835 abstentions and 0 broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <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 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 Convertible Incorporated By
Preferred Stock of the Company issued to Chiron Corporation, Reference
dated March 29, 1995.(1)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
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 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
4.14 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
4.19 6% Convertible Debenture Purchase Agreement dated Incorporated By
November 18, 1997 among the Company and the Purchasers named Reference
therein.(8)
4.20 Registration Rights Agreement dated November 18, 1997 among Incorporated By
the Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Incorporated By
Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued to Libertyview Incorporated By
Plus Fund dated November 18, 1997.(11) Reference
4.23 6% Convertible Debenture due May 18, 1999 issued to Libertyview Incorporated By
Fund, LLC dated November 18, 1997.(12) Reference
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated Incorporated By
November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Plus Fund dated Incorporated By
November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Fund, LLC dated Incorporated By
November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(16) Reference
4.28 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as of Incorporated By
December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998. Electronic
Transmission
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998. Electronic
Transmission
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998. Electronic
Transmission
#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 O'Lakes Incorporated By
dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. (5) Incorporated By
Reference
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 Minnesota, Incorporated By
N.A., dated as of January 24, 1996.(1) Reference
10.11 Commitment Letter between the Company and Cargill Leasing Incorporated By
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
----------- ----------- ----------------
<C> <S> <C>
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 Cargill Incorporated By
Leasing Corporation, dated June 6, 1996. (2) Reference
10.14 Agreement for Lease between the Company and Land O'Lakes, dated Incorporated By
June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated September 14, 1996. Incorporated By
(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
*10.21 GalaGen Inc. 1997 Incentive Plan. (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with TransAmerica Business Incorporated By
Credit Corporation dated June 8, 1997. (7) Reference
10.23 Amended and Restated License Agreement between the Company and Incorporated By
Land O'Lakes dated March 11, 1998. (19) Reference
##10.24 License Agreement between the Company and Metagenics, Inc. dated Electronic
April 7, 1998. Transmission
11.1 Statement re: computation of per share earnings (loss). Electronic
Transmission
23.1 Consent of Ernst & Young LLP. (19) Incorporated By
Reference
27.1 Financial Data Schedule for Quarter ended June 30, 1998. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, Incorporated By
1996. (19) Reference
</TABLE>
16
<PAGE>
(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).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to Appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
(7) 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, 1997 (File No. 0-27976).
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3(Registration No. 333-41151).
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No. 1
to the Company's Registration Statement on Form S-3 (Registration No.
333-41151).
(19) 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,
1997 (File No. 0-27976).
17
<PAGE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# 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 June 30, 1998.
18
<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: August 13, 1998 By: /s/ ROBERT A. HOERR
-------------------
Robert A. Hoerr,
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 13, 1998 By: /s/ GREGG A. WALDON
-------------------
Gregg A. Waldon,
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<S> <C> <C>
3.2 Restated Certificate of Incorporation Incorporated By
of 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 common stock Incorporated By
of the Company issued to Piper Jaffray Inc., Reference
dated January 26, 1993.(1)
4.3 Warrant to purchase 20,312 shares of common stock Incorporated By
of the Company issued to Gus A. Chafoulias, Reference
dated October 12, 1993.(1)
4.4 Warrant to purchase 20,312 shares of common stock Incorporated By
of the Company issued to John Pappajohn, Reference
dated October 12, 1993.(1)
4.5 Warrant to purchase 9,479 shares of common stock Incorporated By
of the Company issued to Cato Holding Company, Reference
dated June 21, 1994.(1)
4.6 Form of common stock Warrant to purchase shares Incorporated By
of common stock of the Company, issued in Reference
connection with the sale of Convertible
Promissory Notes.(1)
4.7 Warrant to purchase 17,144 shares of Series Incorporated By
F-1 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.8 Warrant to purchase 42,856 shares of Series Incorporated By
F-2 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.9 Warrant to purchase 60,000 shares of Series Incorporated By
F-3 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.10 Warrant to purchase 80,000 shares of Series Incorporated By
F-3 Convertible Preferred Stock of the Reference
Company issued to Chiron Corporation,
dated March 29, 1995.(1)
4.11 Warrant to purchase 18,250 shares of common stock Incorporated By
of the Company issued to IAI Investment Funds Reference
VI, Inc. (IAI Emerging Growth Fund),
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of common stock Incorporated By
of the Company issued to IAI Investment Funds Reference
IV, Inc. (IAI Regional Fund), dated January
30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to John Pappajohn, Reference
dated February 2, 1996.(1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<S> <C> <C>
4.14 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Edgewater Private Reference
Equity Fund, L.P., dated February 2, 1996.(1)
4.15 Warrant to purchase 10,000 shares of common stock Incorporated By
of the Company issued to Joseph Giamenco, Reference
dated February 2, 1996.(1)
4.16 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Gus A. Chafoulias, Reference
dated February 2, 1996.(1)
4.17 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to JIBS Equities, Reference
dated February 2, 1996.(1)
4.18 Warrant to purchase 25,000 shares of common stock Incorporated By
of the Company issued to Land O'Lakes, Inc., Reference
dated February 2, 1996.(1)
4.19 6% Convertible Debenture Purchase Agreement Incorporated By
dated November 18, 1997 among the Company and Reference
the Purchasers named therein.(8)
4.20 Registration Rights Agreement dated November Incorporated By
18, 1997 among the Company and the Holders Reference
named therein.(9)
4.21 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to CPR (USA) Inc. dated November 18, 1997.(10) Reference
4.22 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to Libertyview Plus Fund dated November Reference
18, 1997.(11)
4.23 6% Convertible Debenture due May 18, 1999 issued Incorporated By
to Libertyview Fund, LLC dated November Reference
18, 1997.(12)
4.24 Stock Purchase Warrant issued to CPR (USA) Incorporated By
Inc. dated November 18, 1997.(13) Reference
4.25 Stock Purchase Warrant issued to Libertyview Incorporated By
Plus Fund dated November 18, 1997.(14) Reference
4.26 Stock Purchase Warrant issued to Libertyview Incorporated By
Fund, LLC dated November 18, 1997.(15) Reference
4.27 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(16) Reference
4.28 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(17) Reference
4.29 Warrant issued to CLARCO Holdings dated as Incorporated By
of December 1,1997.(18) Reference
4.30 Warrant issued to Henry J. Cardello dated as Electronic
of April 13, 1998. Transmission
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<S> <C> <C>
4.31 Warrant issued to Henry J. Cardello dated as Electronic
of April 30, 1998. Transmission
4.32 Warrant issued to Henry J. Cardello dated as of Electronic
June 19, 1998. Transmission
#10.1 License Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
#10.2 Royalty Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
#10.3 Supply Agreement between the Company and Incorporated By
Land O'Lakes dated May 7, 1992.(1) Reference
10.4 Master Services Agreement between the Company Incorporated By
and Land O'Lakes dated May 7, 1992.(1) Reference
*10.5 GalaGen Inc. 1992 Stock Plan, as amended. (5) Incorporated By
Reference
10.7 Stock and Warrant Purchase Agreement between Incorporated By
the Company and Chiron Corporation dated March Reference
20, 1995.(1)
#10.8 License and Collaboration Agreement between Incorporated By
the Company and Chiron Corporation dated March Reference
20, 1995.(1)
*10.9 GalaGen Inc. Employee Stock Purchase Plan, Incorporated By
as amended. (2) Reference
10.10 Credit Agreement between the Company and Incorporated By
Norwest Bank Minnesota, N.A., dated as of Reference
January 24, 1996.(1)
10.11 Commitment Letter between the Company and Incorporated By
Cargill Leasing Corporation, dated June 5, Reference
1996. (2)
10.12 Master Equipment Lease between the Company Incorporated By
and Cargill Leasing Corporation, dated June 6, Reference
1996. (2)
10.13 Agreement for Progress Payments between the Incorporated By
Company and Cargill Leasing Corporation, dated Reference
June 6, 1996. (2)
10.14 Agreement for Lease between the Company and Incorporated By
Land O'Lakes, dated June 3, 1996. (2) Reference
*10.15 Letter agreement with John G. Watson dated Incorporated By
September 14, 1996.(3) Reference
#10.16 Agreement with Colorado Animal Research Incorporated By
Enterprises, Inc. dated November 1, 1996. (4) Reference
*10.17 Letter agreement with Francois Lebel, M.D., Incorporated By
dated December 27, 1996. (4) Reference
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION METHOD OF FILING
------- ----------- ----------------
<S> <C> <C>
*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 Stock Incorporated By
Option Compensation Plan. (4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan. (6) Incorporated By
Reference
10.22 Master Loan and Security Agreement with Incorporated By
TransAmerica Business Credit Corporation dated Reference
June 8, 1997. (7)
10.23 Amended and Restated License Agreement between Incorporated By
the Company and Land O'Lakes dated March 11, Reference
1998. (19)
##10.24 License Agreement between the Company Electronic
and Metagenics, Inc. dated April 7, 1998. Transmission
11.1 Statement re: computation of per share Electronic
earnings (loss). Transmission
23.1 Consent of Ernst & Young LLP. (19) Incorporated By
Reference
27.1 Financial Data Schedule for quarter ended June Electronic
30, 1998. Transmission
27.2 Restated Financial Data Schedule for Quarter Incorporated By
ended March 31, 1996. (19) Reference
</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).
(5) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1997 (File No. 0-27976).
(6) Incorporated herein by reference to Appendix A to the Company's 1997
Definitive Proxy Statement on Schedule 14A (File No. 0-27976).
(7) 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, 1997 (File No. 0-27976).
<PAGE>
(8) Incorporated herein by reference to Exhibit No. 4.4 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(9) Incorporated herein by reference to Exhibit No. 4.5 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(10) Incorporated herein by reference to Exhibit No. 4.6 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(11) Incorporated herein by reference to Exhibit No. 4.7 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(12) Incorporated herein by reference to Exhibit No. 4.8 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(13) Incorporated herein by reference to Exhibit No. 4.9 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(14) Incorporated herein by reference to Exhibit No. 4.10 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(15) Incorporated herein by reference to Exhibit No. 4.11 to the Company's
Registration Statement on Form S-3 (Registration No. 333-41151).
(16) Incorporated herein by reference to Exhibit No. 4.12 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(17) Incorporated herein by reference to Exhibit No. 4.13 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(18) Incorporated herein by reference to Exhibit No. 4.14 to Amendment No.
1 to the Company's Registration Statement on Form S-3 (Registration
No. 333-41151).
(19) 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,
1997 (File No. 0-27976).
* Management contact or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K.
# 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 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 FOR THE SIX MONTHS ENDED 1987 (INCEPTION)
-------------------------- ------------------------ TO JUNE 30,
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 1998
------------- ------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
BASIC LOSS PER SHARE:
Weighted average shares outstanding 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss applicable to common
stockholders $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Basis net loss per share applicable
to common stockholders $(0.20) $(0.20) $(0.36) $(0.42) $(20.74)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
DILUTED LOSS PER SHARE:
Weighted average shares outstanding 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
Dilutive potential common shares - - - - -
----------- ----------- ----------- ----------- ------------
Total 8,096,548 7,169,038 7,803,123 7,166,418 2,683,116
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Net loss applicable to common
stockholders $(1,605,775) $(1,456,566) $(2,822,870) $(3,033,494) $(55,641,924)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
Diluted loss per share
applicable to common stockholders $(0.20) $(0.20) $(0.36) $(0.42) $(20.74)
----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ------------
</TABLE>
<PAGE>
WARRANT EXHIBIT 4.30
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
GALAGEN INC.
THIS WARRANT CERTIFIES THAT, for value received, Henry J. Cardello
(herein called "Purchaser") or registered assigns is entitled to subscribe
for and purchase from GalaGen Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Delaware,
at the price specified below (subject to adjustment as noted below) at any
time from and after April 14, 1998 to and including April 14, 2003, Seventy
Five Thousand (75,000) fully paid and nonassessable shares of the Company's
Common Stock, $.01 par value per share ("Common Stock") (subject to
adjustment as noted below).
The warrant purchase price shall be $1.375 per share (subject to
adjustment as noted below).
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the
form attached hereto, delivered to the Company ten days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price in lawful money of the United States. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding l0 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the
heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of
<PAGE>
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
warrant purchase price resulting from such adjustment.
(b) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (c) below) or any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock (any of
such obligations or shares of stock being hereinafter called "Convertible
Securities"), or in any rights or options to purchase Common Stock or
Convertible Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter the holder of this Warrant upon the exercise
hereof will be entitled to receive the number of shares of Common Stock to
which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if
continuously since such holder became the record holder of this Warrant such
holder (x) had been the record holder of the number of shares of Common Stock
then received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing, a
dividend or distribution other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
warrant purchase price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of
shares, the warrant purchase price in effect immediately prior to such
combination shall be proportionately increased.
-2-
<PAGE>
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially all of its assets to
another corporation (any such reorganization, reclassification,
consolidation, merger or sale being hereinafter called an "Event") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, unless lawful and adequate provision shall have been made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock of the Company equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had the Event not taken place,
the Board of Directors of the Company shall declare, at least twenty days
prior to the actual effective date of the Event, and provide written notice
to the holder hereof of the declaration, that this Warrant shall be canceled
at the time of, or immediately prior to the occurrence of, the Event (unless
it shall have been exercised prior to the occurrence of the Event) in
exchange for payment to the holder hereof, within twenty days after the
Event, of cash equal to the amount (if any), for each share of Common Stock
issuable upon exercise of this Warrant, by which the Event Proceeds per share
of Common Stock (as hereinafter defined) exceeds the purchase price per share
of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event,
shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, subject to the payment obligations of the
Company provided in this paragraph (d). For purposes of this paragraph (d),
"Event Proceeds per share of Common Stock" shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common
Stock by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any
Event, then such successor corporation shall assume, by written instrument
executed and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
-3-
<PAGE>
(f) In case any time:
(1) the Company shall declare any cash dividend on Common
Stock at a rate in excess of the rate of the last cash dividend theretofore
paid;
(2) the Company shall pay any dividend payable in stock upon
Common Stock or make any distribution (other than regular cash dividends) to
the holders of Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or other
rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
20 days prior to the action in question and not less than 20 days prior to
the record date or the date on which the Company's transfer books are closed
in respect thereto.
(g) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid; provided, however, that the
members of the Board of Directors of the Company shall not be liable to the
holders hereof for any such determination made in good faith.
-4-
<PAGE>
(h) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close of
business on the date preceding the written notice of exercise required by
paragraph 1 above. "Market price" for purposes of this paragraph 4(h) shall
mean, if the Common Stock is traded on a securities exchange or on The Nasdaq
National Market, the closing price of the Common Stock on such exchange or
The Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or The Nasdaq National Market, or otherwise traded in
the over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company; provided that the shares purchasable pursuant to this Warrant
shall include shares designated as Common Stock of the Company on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 4(d) above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7. (a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that this Warrant or such shares of
Common Stock may only be transferred in accordance with this paragraph 7.
The holder of this Warrant, by acceptance hereof, represents that it has
acquired this Warrant for investment and not with a view to distribution of
this Warrant or the shares of Common Stock issuable upon exercise hereof
within the meaning of the Act and the rules and regulations thereunder.
(b) The Purchaser realizes that the purchase of this Warrant is
a speculative investment, and that the economic benefits which may be derived
therefrom are uncertain. In determining whether or not to purchase the
Warrant, the Purchaser has relied solely upon the
-5-
<PAGE>
publicly-available materials filed by the Company with the Securities and
Exchange Commission, copies of which have been reviewed by the Purchaser, and
upon independent investigations made by the Purchaser and its representatives.
(c) The Purchaser represents to the Company that he is an
"accredited investor" as defined in Rule 501(a) of Regulation D promulgated
under the Act, by virtue of being (i) a natural person whose individual net
worth, or joint net worth with his spouse, at the time of the purchase
exceeds $1,000,000 or (ii) a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
his spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
(d) The holder of this Warrant, by acceptance hereof, agrees
to give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed exercise or transfer of this
Warrant or transfer of shares may be effected without registration or
qualification under the Act and any applicable state securities laws of this
Warrant and the shares of Common Stock issuable or issued upon the exercise
hereof. Upon receipt of such written notice and opinion by the Company, such
holder shall be entitled to exercise this Warrant in accordance with its
terms, or to transfer this Warrant, or to transfer shares of Common Stock
issuable or issued upon the exercise of this Warrant, all in accordance with
the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on transfer
may be endorsed on this Warrant or the certificates for such shares. In the
event of a proposed transfer of this Warrant, prior to the transfer the
proposed transferee shall execute and deliver to the Company a warrant
transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the
owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to
-6-
<PAGE>
subscribe for and purchase such number of shares as shall be designated by
said holder hereof at the time of such surrender.
10. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of
April 14, 1998.
GALAGEN INC.
By__________________________________
Its________________________________
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
the opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws or (ii) such registration.
-7-
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________________________________________
this Warrant, and appoints _____________________________________________________
to transfer this Warrant on the books of GalaGen Inc. with the full power of
substitution in the premises.
Dated: ___________________________________
In the presence of: ___________________________________
___________________________________
(Signature must conform in all
respects to the name of the holder
as specified on the face of this
Warrant without any alteration or
change whatsoever, and the signature
must be guaranteed in the usual
manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the
"Warrant") to purchase ____________________ shares of Common Stock, par value
$.01 ("Common Stock"), of GalaGen Inc., a Delaware corporation (the
"Company"), currently registered in the name of ____________________. In
order to induce the Company to consent to the transfer of the Warrant, the
undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any
of the shares of Common Stock issuable upon exercise thereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, the Warrant and such shares of
Common Stock may only be transferred in accordance with the terms of
paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and
not with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules
and regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature:
_______________________________
Address: _______________________________
Date: _______________________________
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned ___________________________________________
Please insert Social Security or other
identifying number of Purchaser:
___________________________________________
hereby irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ______________________ shares
of the Common Stock provided for therein and tenders payment herewith to the
order of the Company in the amount of $______________________, such payment
being made as provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor
any of the shares of Common Stock issuable upon exercise hereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, this Warrant may be exercised
and the shares of Common Stock issued pursuant to this exercise may only be
transferred in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock
issued pursuant to this exercise for investment and not with a view to
distribution of such shares within the meaning of the Act and the rules and
regulations thereunder.
3. The undersigned is an "accredited investor" as defined in
Rule 501(a) of Regulation D promulgated under the Act.
<PAGE>
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name: _____________________________________________________________________
Address: _____________________________________________________________________
Deliver to:_____________________________________________________________________
Address: _____________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Address: _____________________________________________________________________
Signature _____________________________________
(Signature must conform in all
respects to the name of the holder as
written specified on the face of this
Warrant without any alteration or
change whatsoever)
Dated: ____________________
<PAGE>
WARRANT
EXHIBIT 4.31
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
GALAGEN INC.
THIS WARRANT CERTIFIES THAT, for value received, Henry J. Cardello
(herein called "Purchaser") or registered assigns is entitled to subscribe
for and purchase from GalaGen Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Delaware,
at the price specified below (subject to adjustment as noted below) at any
time from and after April 30, 1998 to and including April 30, 2003, Twenty
Five Thousand (25,000) fully paid and nonassessable shares of the Company's
Common Stock, $.01 par value per share ("Common Stock") (subject to
adjustment as noted below.
The warrant purchase price shall be $2.625 per share (subject to
adjustment as noted below).
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the
form attached hereto, delivered to the Company ten days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price in lawful money of the United States. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding l0 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the
heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be
<PAGE>
exercised, the Company will at all times have authorized, and reserved for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of its Common Stock
to provide for the exercise of the rights represented by this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
warrant purchase price resulting from such adjustment.
(b) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (c) below) or any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock (any of
such obligations or shares of stock being hereinafter called "Convertible
Securities"), or in any rights or options to purchase Common Stock or
Convertible Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter the holder of this Warrant upon the exercise
hereof will be entitled to receive the number of shares of Common Stock to
which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if
continuously since such holder became the record holder of this Warrant such
holder (x) had been the record holder of the number of shares of Common Stock
then received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing, a
dividend or distribution other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
warrant purchase price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller
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<PAGE>
number of shares, the warrant purchase price in effect immediately prior to
such combination shall be proportionately increased.
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially all of its assets to
another corporation (any such reorganization, reclassification,
consolidation, merger or sale being hereinafter called an "Event") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, unless lawful and adequate provision shall have been made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock of the Company equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had the Event not taken place,
the Board of Directors of the Company shall declare, at least twenty days
prior to the actual effective date of the Event, and provide written notice
to the holder hereof of the declaration, that this Warrant shall be canceled
at the time of, or immediately prior to the occurrence of, the Event (unless
it shall have been exercised prior to the occurrence of the Event) in
exchange for payment to the holder hereof, within twenty days after the
Event, of cash equal to the amount (if any), for each share of Common Stock
issuable upon exercise of this Warrant, by which the Event Proceeds per share
of Common Stock (as hereinafter defined) exceeds the purchase price per share
of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event,
shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, subject to the payment obligations of the
Company provided in this paragraph (d). For purposes of this paragraph (d),
"Event Proceeds per share of Common Stock" shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common
Stock by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any
Event, then such successor corporation shall assume, by written instrument
executed and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from such
-3-
<PAGE>
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
(f) In case any time:
(1) the Company shall declare any cash dividend on Common Stock at
a rate in excess of the rate of the last cash dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
Common Stock or make any distribution (other than regular cash dividends)
to the holders of Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or other
rights;
(4) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
20 days prior to the action in question and not less than 20 days prior to
the record date or the date on which the Company's transfer books are closed
in respect thereto.
(g) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as
-4-
<PAGE>
aforesaid; provided, however, that the members of the Board of Directors of
the Company shall not be liable to the holders hereof for any such
determination made in good faith.
(h) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the market price per share of Common Stock as of the close of
business on the date preceding the written notice of exercise required by
paragraph 1 above. "Market price" for purposes of this paragraph 4(h) shall
mean, if the Common Stock is traded on a securities exchange or on The Nasdaq
National Market, the closing price of the Common Stock on such exchange or
The Nasdaq National Market, or, if the Common Stock is otherwise traded in
the over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of which
"market price" is being determined. If at any time the Common Stock is not
traded on an exchange or The Nasdaq National Market, or otherwise traded in
the over-the-counter market, the "market price" shall be deemed to be the
higher of (i) the book value thereof as determined by any firm of independent
public accountants of recognized standing selected by the Board of Directors
of the Company as of the last day of any month ending within 60 days
preceding the date as of which the determination is to be made, or (ii) the
fair value thereof determined in good faith by the Board of Directors of the
Company as of a date which is within l5 days of the date as of which the
determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company; provided that the shares purchasable pursuant to this Warrant
shall include shares designated as Common Stock of the Company on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 4(d) above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7.(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that this Warrant or such shares of
Common Stock may only be transferred in accordance with this paragraph 7.
The holder of this Warrant, by acceptance hereof, represents that it has
acquired this Warrant for investment and not with a view to distribution of
this Warrant or the shares of
-5-
<PAGE>
Common Stock issuable upon exercise hereof within the meaning of the Act and
the rules and regulations thereunder.
(b) The Purchaser realizes that the purchase of this Warrant is a
speculative investment, and that the economic benefits which may be derived
therefrom are uncertain. In determining whether or not to purchase the
Warrant, the Purchaser has relied solely upon the publicly-available
materials filed by the Company with the Securities and Exchange Commission,
copies of which have been reviewed by the Purchaser, and upon independent
investigations made by the Purchaser and its representatives.
(c) The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed exercise or transfer of this
Warrant or transfer of shares may be effected without registration or
qualification under the Act and any applicable state securities laws of this
Warrant and the shares of Common Stock issuable or issued upon the exercise
hereof. Upon receipt of such written notice and opinion by the Company, such
holder shall be entitled to exercise this Warrant in accordance with its
terms, or to transfer this Warrant, or to transfer shares of Common Stock
issuable or issued upon the exercise of this Warrant, all in accordance with
the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on transfer
may be endorsed on this Warrant or the certificates for such shares. In the
event of a proposed transfer of this Warrant, prior to the transfer the
proposed transferee shall execute and deliver to the Company a warrant
transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the
owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to
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<PAGE>
subscribe for and purchase such number of shares as shall be designated by
said holder hereof at the time of such surrender.
10. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of
April 30, 1998.
GALAGEN INC.
By__________________________________
Its_______________________________
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
the opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws or (ii) such registration.
-7-
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto __________________________________________________________ this
Warrant, and appoints ____________________________________________________ to
transfer this Warrant on the books of GalaGen Inc. with the full power of
substitution in the premises.
Dated: ___________________________________
In the presence of: ___________________________________
___________________________________________
(Signature must conform in all respects to
the name of the holder as specified on the
face of this Warrant without any alteration
or change whatsoever, and the signature must
be guaranteed in the usual manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the "Warrant")
to purchase ____________________ shares of Common Stock, par value $.01
("Common Stock"), of GalaGen Inc., a Delaware corporation (the "Company"),
currently registered in the name of ____________________. In order to induce
the Company to consent to the transfer of the Warrant, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of
the shares of Common Stock issuable upon exercise thereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, the Warrant and such shares of
Common Stock may only be transferred in accordance with the terms of
paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules
and regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature
______________________________________
Address _______________________________________
Date _________________________________________
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned ___________________________________________
Please insert Social Security or other
identifying number of Purchaser:
___________________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ______________________ shares of the
Common Stock provided for therein and tenders payment herewith to the order of
the Company in the amount of $______________________, such payment being made as
provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
shares of Common Stock issued pursuant to this exercise may only be
transferred in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution
of such shares within the meaning of the Act and the rules and regulations
thereunder.
<PAGE>
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: _________________________________________________________________
Address: _________________________________________________________________
Deliver to: _________________________________________________________________
Address: _________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
Address: _________________________________________________________________
Signature ____________________________________
(Signature must conform in all
respects to the name of the holder
as written specified on the face of
this Warrant without any alteration
or change whatsoever)
Dated: ____________________
<PAGE>
WARRANT
EXHIBIT 4.32
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
GALAGEN INC.
THIS WARRANT CERTIFIES THAT, for value received, Henry J. Cardello
(herein called "Purchaser") or registered assigns is entitled to subscribe
for and purchase from GalaGen Inc. (herein called the "Company"), a
corporation organized and existing under the laws of the State of Delaware,
at the price specified below (subject to adjustment as noted below) at any
time from and after June 19, 1998 to and including June 19, 2003, Twenty Five
Thousand (25,000) fully paid and nonassessable shares of the Company's Common
Stock, $.01 par value per share ("Common Stock") (subject to adjustment as
noted below).
The warrant purchase price shall be $3.00 per share (subject to
adjustment as noted below).
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the
form attached hereto, delivered to the Company ten days prior to the intended
date of exercise and by the surrender of this Warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
check of the purchase price in lawful money of the United States. The
Company agrees that the shares so purchased shall be and are deemed to be
issued to the holder hereof as the record owner of such shares as of the
close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding l0 days, after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the number of shares, if any, with respect to which
this Warrant shall not then have been exercised shall also be delivered to
the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of
this Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the
heading "Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of
<PAGE>
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the warrant purchase price,
the holder of this Warrant shall thereafter be entitled to purchase, at the
warrant purchase price resulting from such adjustment, the number of shares
obtained by multiplying the warrant purchase price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
warrant purchase price resulting from such adjustment.
(b) In case the Company shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (c) below) or any obligations or any shares of stock of the
Company which are convertible into or exchangeable for Common Stock (any of
such obligations or shares of stock being hereinafter called "Convertible
Securities"), or in any rights or options to purchase Common Stock or
Convertible Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of earnings or
earned surplus, then thereafter the holder of this Warrant upon the exercise
hereof will be entitled to receive the number of shares of Common Stock to
which such holder shall be entitled upon such exercise, and, in addition and
without further payment therefor, each dividend described in clause (i) above
and each dividend or distribution described in clause (ii) above which such
holder would have received by way of dividends or distributions if
continuously since such holder became the record holder of this Warrant such
holder (x) had been the record holder of the number of shares of Common Stock
then received, and (y) had retained all dividends or distributions in stock
or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or
securities paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing, a
dividend or distribution other than in cash shall be considered payable out
of earnings or earned surplus only to the extent that such earnings or earned
surplus are charged an amount equal to the fair value of such dividend or
distribution as determined by the Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
warrant purchase price in effect immediately prior to such subdivision shall
be proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of
shares, the warrant purchase price in effect immediately prior to such
combination shall be proportionately increased.
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<PAGE>
(d) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or sale of all or substantially all of its assets to
another corporation (any such reorganization, reclassification,
consolidation, merger or sale being hereinafter called an "Event") shall be
effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, unless lawful and adequate provision shall have been made
whereby the holder hereof shall thereafter have the right to purchase and
receive, upon the basis and upon the terms and conditions specified in this
Warrant and in lieu of the shares of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock of the Company equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby had the Event not taken place,
the Board of Directors of the Company shall declare, at least twenty days
prior to the actual effective date of the Event, and provide written notice
to the holder hereof of the declaration, that this Warrant shall be canceled
at the time of, or immediately prior to the occurrence of, the Event (unless
it shall have been exercised prior to the occurrence of the Event) in
exchange for payment to the holder hereof, within twenty days after the
Event, of cash equal to the amount (if any), for each share of Common Stock
issuable upon exercise of this Warrant, by which the Event Proceeds per share
of Common Stock (as hereinafter defined) exceeds the purchase price per share
of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event,
shall be canceled at the time of, or immediately prior to, the Event, as
provided in the declaration, subject to the payment obligations of the
Company provided in this paragraph (d). For purposes of this paragraph (d),
"Event Proceeds per share of Common Stock" shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common
Stock by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any
Event, then such successor corporation shall assume, by written instrument
executed and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation to deliver
to such holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in
each such case the Company shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holder of this Warrant at
the address of such holder as shown on the books of the Company, which notice
shall state the warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail
the method of calculation and the facts upon which such calculation is based.
-3-
<PAGE>
(f) In case any time:
(1) the Company shall declare any cash dividend on Common Stock at
a rate in excess of the rate of the last cash dividend theretofore paid;
(2) the Company shall pay any dividend payable in stock upon
Common Stock or make any distribution (other than regular cash dividends)
to the holders of Common Stock;
(3) the Company shall offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
other rights;
(4) there shall be any capital reorganization, or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale of all or substantially all of its assets to, another
corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in any one or more of said cases, the Company shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, of the date on which (aa) the books of the Company shall close
or a record shall be taken for such dividend, distribution or subscription
rights, or (bb) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
Common Stock of record shall participate in such dividend, distribution or
subscription rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be. Such written notice shall be given at least
20 days prior to the action in question and not less than 20 days prior to
the record date or the date on which the Company's transfer books are closed
in respect thereto.
(g) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid; provided, however, that the
members of the Board of Directors of the Company shall not be liable to the
holders hereof for any such determination made in good faith.
(h) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of
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<PAGE>
the amount to be paid by the holder hereof upon such exercise) in respect of
such fraction in an amount equal to the same fraction of the market price per
share of Common Stock as of the close of business on the date preceding the
written notice of exercise required by paragraph 1 above. "Market price" for
purposes of this paragraph 4(h) shall mean, if the Common Stock is traded on
a securities exchange or on The Nasdaq National Market, the closing price of
the Common Stock on such exchange or The Nasdaq National Market, or, if the
Common Stock is otherwise traded in the over-the-counter market, the closing
bid price, in each case averaged over a period of 20 consecutive business
days prior to the date as of which "market price" is being determined. If at
any time the Common Stock is not traded on an exchange or The Nasdaq National
Market, or otherwise traded in the over-the-counter market, the "market
price" shall be deemed to be the higher of (i) the book value thereof as
determined by any firm of independent public accountants of recognized
standing selected by the Board of Directors of the Company as of the last day
of any month ending within 60 days preceding the date as of which the
determination is to be made, or (ii) the fair value thereof determined in
good faith by the Board of Directors of the Company as of a date which is
within l5 days of the date as of which the determination is to be made.
5. As used herein, the term "Common Stock" shall mean and include
the Company's presently authorized Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of
the Company; provided that the shares purchasable pursuant to this Warrant
shall include shares designated as Common Stock of the Company on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 4(d) above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7.(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof
have been registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that this Warrant or such shares of
Common Stock may only be transferred in accordance with this paragraph 7.
The holder of this Warrant, by acceptance hereof, represents that it has
acquired this Warrant for investment and not with a view to distribution of
this Warrant or the shares of Common Stock issuable upon exercise hereof
within the meaning of the Act and the rules and regulations thereunder.
(b) The Purchaser realizes that the purchase of this Warrant is a
speculative investment, and that the economic benefits which may be derived
therefrom are uncertain. In determining whether or not to purchase the
Warrant, the Purchaser has relied solely upon the publicly-available
materials filed by the Company with the Securities and Exchange Commission,
copies of which have been reviewed by the Purchaser, and upon independent
investigations made by the Purchaser and its representatives.
-5-
<PAGE>
(c) The Purchaser represents to the Company that he is an
"accredited investor" as defined in Rule 501(a) of Regulation D promulgated
under the Act, by virtue of being (i) a natural person whose individual net
worth, or joint net worth with his spouse, at the time of the purchase
exceeds $1,000,000 or (ii) a natural person who had an individual income in
excess of $200,000 in each of the two most recent years or joint income with
his spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current year.
(d) The holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory
to the Company to the effect that the proposed exercise or transfer of this
Warrant or transfer of shares may be effected without registration or
qualification under the Act and any applicable state securities laws of this
Warrant and the shares of Common Stock issuable or issued upon the exercise
hereof. Upon receipt of such written notice and opinion by the Company, such
holder shall be entitled to exercise this Warrant in accordance with its
terms, or to transfer this Warrant, or to transfer shares of Common Stock
issuable or issued upon the exercise of this Warrant, all in accordance with
the terms of the notice delivered by such holder to the Company, provided
that an appropriate legend respecting the aforesaid restrictions on transfer
may be endorsed on this Warrant or the certificates for such shares. In the
event of a proposed transfer of this Warrant, prior to the transfer the
proposed transferee shall execute and deliver to the Company a warrant
transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, at the
principal office of the Company by the holder hereof in person or by duly
authorized attorney, upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Company and all other persons dealing with this Warrant as the absolute owner
hereof for any purpose and as the person entitled to exercise the rights
represented by this Warrant, or to the transfer hereof on the books of the
Company, any notice to the contrary notwithstanding; but until such transfer
on such books, the Company may treat the registered holder hereof as the
owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for
and purchase such number of shares as shall be designated by said holder
hereof at the time of such surrender.
-6-
<PAGE>
10. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated as of June
19, 1998.
GALAGEN INC.
By__________________________________
Its_______________________________
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
the opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Securities Act of 1933, as
amended, and all applicable state securities laws or (ii) such registration.
-7-
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto __________________________________________________________
this Warrant, and appoints __________________________________________________
to transfer this Warrant on the books of GalaGen Inc. with the full power of
substitution in the premises.
Dated: ___________________________________
In the presence of: ___________________________________
___________________________________________
(Signature must conform in all respects to
the name of the holder as specified on the
face of this Warrant without any alteration
or change whatsoever, and the signature must
be guaranteed in the usual manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: GalaGen Inc.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the "Warrant")
to purchase ____________________ shares of Common Stock, par value $.01
("Common Stock"), of GalaGen Inc., a Delaware corporation (the "Company"),
currently registered in the name of ____________________. In order to induce
the Company to consent to the transfer of the Warrant, the undersigned hereby
represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of
the shares of Common Stock issuable upon exercise thereof have been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that, accordingly, the Warrant and such shares of
Common Stock may only be transferred in accordance with the terms of
paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the shares of Common Stock
issuable upon exercise thereof within the meaning of the Act and the rules
and regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature _____________________________
Address _______________________________
Date __________________________________
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: GalaGen Inc. (the "Company")
The undersigned ___________________________________________
Please insert Social Security or other
identifying number of Purchaser:
___________________________________________
hereby irrevocably elects to exercise the right of purchase represented by
this Warrant for, and to purchase thereunder, ______________________ shares
of the Common Stock provided for therein and tenders payment herewith to the
order of the Company in the amount of $______________________, such payment
being made as provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
shares of Common Stock issued pursuant to this exercise may only be
transferred in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution
of such shares within the meaning of the Act and the rules and regulations
thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
<PAGE>
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name: ________________________________________________________________________
Address: ______________________________________________________________________
Deliver to: __________________________________________________________________
Address: _____________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated below.
Address: _____________________________________________________________________
Signature _______________________________________
(Signature must conform in all respects
to the name of the holder as written
specified on the face of this Warrant
without any alteration or change
whatsoever)
Dated: ____________________
<PAGE>
April 7, 1998 EXHIBIT 10.24
LICENSE AGREEMENT BETWEEN METAGENICS AND
GALAGEN FOR BACTERIA AND IMMUNOGLOBULIN
COMPOSITIONS FOR GASTROINTESTINAL HEALTH
This Agreement effective this 7th day of April, 1998 is between METAGENICS,
INCORPORATED, a California Corporation, having an office and a place of business
at 971 Calle Negocio, San Clemente, California, 92673 (hereinafter referred to
as "METAGENICS") and GALAGEN, a Delaware Corporation, having an office and place
of business at 4001 Lexington Avenue North, Arden Hills, Minnesota, 55126
(hereinafter referred to as "GALAGEN").
WITNESSETH THAT:
WHEREAS, METAGENICS represents that it has made and owns all right, title
and interest in certain inventions in the field of microorganism culture,
including ownership of all right, title and interest in U.S. Patent No.
5,531,988 for "Bacteria and Immunoglobulin-Containing Composition for Human
Gastrointestinal Health", U.S. Patent No. 5,531,989 for "Immunoglobulin and
Fiber-Containing Composition for Human Gastrointestinal Health" and related
counterparts of these two U.S. patents, both U.S. and non-U.S., if any;
WHEREAS, GALAGEN desires to obtain a license from METAGENICS to allow
GALAGEN to manufacture and/or market products embodying inventions claimed in
the METAGENICS patents; and
WHEREAS, METAGENICS is willing to grant such a license to GALAGEN.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 "GALAGEN FIELD OF USE" means the fields of KEFIR CULTURE-BASED and
YOGURT CULTURE-BASED PRODUCTS to be made, made for others, used, imported,
offered for sale, sold, or otherwise distributed by or for GALAGEN, or a GALAGEN
sublicensee, as dietary supplements, [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***].
1.2 "KEFIR CULTURE-BASED PRODUCTS" and "YOGURT CULTURE-BASED PRODUCTS"
mean nutritional products (i.e., not pharmaceuticals) containing active kefir or
yogurt dairy cultures as the probiotic(s) and immunoglobulins, with or without
fiber.
<PAGE>
1.3 "GALAGEN-BRANDED PRODUCTS" means products that display a GALAGEN
TRADEMARK in a manner to identify GALAGEN as the source of the product or as the
source of an ingredient incorporated into the product.
1.4 "GALAGEN TRADEMARK" means any trademark owned or controlled by
GALAGEN.
1.5 "LICENSED PATENT RIGHTS" shall mean U.S. Patent No. 5,531,988 for
"Bacteria and Immunoglobulin-Containing Composition for Human Gastrointestinal
Health" and U.S. Patent No. 5,531,989 for "Immunoglobulin and Fiber-Containing
Composition for Human Gastrointestinal Health." LICENSED PATENT RIGHTS shall
further include any patents or patent applications which are a divisional,
reissue, reexamination, continuation, continuation-in-part, extension or
counterpart thereof. For purposes of this Agreement, a "counterpart" is a U.S.
or non-U.S. patent, utility model, inventor's certificate, or an application for
a patent, utility model, or inventor's certificate which either claims or is
entitled to claim the benefit of U.S. Patent No. 5,531,988 or U.S. Patent No.
5,531,989, or is a substantial copy of U.S. Patent No. 5,531,988 or U.S. Patent
No. 5,531,989.
1.6 "LICENSED PRODUCT(S)" shall mean any and all apparatuses, articles of
manufacture, and compositions of matter encompassed by one or more claims of the
LICENSED PATENT RIGHTS.
1.7 "LICENSED METHOD(S)" shall mean any and all methods encompassed by one
or more claims of the LICENSED PATENT RIGHTS.
1.8 "SOLE LICENSE" as granted by METAGENICS herein shall mean a license
under which METAGENICS retains the right to continue operating under the subject
matter of the license in the GALAGEN FIELD OF USE, but METAGENICS agrees to
refrain from granting further licenses to any third party other than GALAGEN in
the GALAGEN FIELD OF USE during the term of the license.
1.9 For purposes of determining when royalties accrue under this
Agreement, "SOLD" means whichever of the following shall first occur: when
billed, or if not billed, when delivered to a third party or delivered to a
common carrier and consigned to a third party, or when paid for if paid for
before billing or delivery, or, if sold on consignment, when released from
consignment; provided, however, any LICENSED PRODUCT(S) which is not accepted by
the customer shall not be considered to be SOLD hereunder, and royalties paid
for such LICENSED PRODUCT(S) shall be credited against further royalty payments
to be made hereunder. LICENSED PRODUCT(S) that is transferred between GALAGEN
and its sublicensee(s) shall not be considered to be SOLD hereunder.
2
<PAGE>
1.10 "NET SALES PRICE" shall mean the amount billed or invoiced for sales
of LICENSED PRODUCT(S), less the following:
a. Shipping, installation and packing charges or allowances, if any,
included in such amount;
b. Trade, quantity or cash discounts, and brokers', representatives'
or agents' commissions, including GALAGEN brokers',
representatives' or agents' commissions not in excess of
commissions paid to external brokers, representatives or agents,
if any, allowed and paid;
c. Credits or allowances, if any, given or made on account of
rejection or return of items, or because of retroactive price
reductions;
d. Any tax or other governmental charge included in such amount,
which is imposed directly on or measured by, the sale, lease or
transfer, transportation, delivery or use of such items;
e. Any samples given away for promotional purposes, limited to not
more than 10% of annual sales; and
f. Credits given or made on account of uncollectable debts.
1.11 "EFFECTIVE DATE" means the day and date on which this Agreement
has been fully executed by both parties.
ARTICLE II
LICENSE GRANT FROM METAGENICS TO GALAGEN
2.1 In consideration for the compensation paid by GALAGEN to METAGENICS
under Article IV of this license, METAGENICS agrees to grant and does hereby
grant to GALAGEN a SOLE, worldwide, royalty-bearing license under LICENSED
PATENT RIGHTS to make, have made, make for others, use, import, offer for sale,
sell or otherwise distribute LICENSED PRODUCT(S) as dietary supplements in the
GALAGEN FIELD OF USE, and/or to practice LICENSED METHOD(S), in the GALAGEN
FIELD OF USE.
2.2 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
2.3 GALAGEN shall have the right to grant sublicenses to third party(ies)
only for the purposes of making, having made, making for others, using,
importing, offering for sale, selling or otherwise distributing GALAGEN-BRANDED
PRODUCTS and/or products containing GALAGEN-BRANDED PRODUCTS as ingredients;
provided, however, that GALAGEN shall give written notice to METAGENICS of the
grant of any sublicense(s) and shall guarantee the performance of a sublicensee,
including payment of the royalties under Article IV of this Agreement.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 METAGENICS represents and warrants that it is the owner of the entire
right, title, and interest of LICENSED PATENT RIGHTS and that it has full right
and power to grant the rights set forth in this Agreement.
3.2 METAGENICS represents and warrants that it has no agreements with or
obligations to third parties, or any other commitments, obligations, or liens,
mortgages or encumbrances of any kind or nature whatsoever which may diminish or
limit in any manner the rights granted to GALAGEN under this Agreement.
3.3 METAGENICS represents and warrants that, as of the EFFECTIVE DATE of
this Agreement, there is no threatened or pending litigation by or against
METAGENICS relating to LICENSED PATENT RIGHTS except as otherwise expressly
noted below:
--None--
ARTICLE IV
COMPENSATION
4.1 GALAGEN agrees to pay METAGENICS an initial fee of [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION***]for the SOLE license of Paragraph 2.1 granted to GALAGEN
herein payable within 15 days of the EFFECTIVE DATE of this Agreement.
4.2 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
4.3 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***]
4.4 In the event that GALAGEN grants a sublicense to a third party, in
which the third party is obligated to pay GALAGEN an initial fee for such
sublicense, GALAGEN shall pay METAGENICS a payment of [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] of such initial fee, if any, within 30 days of GALAGEN's receipt
of the initial fee from the sublicensee.
4.5 GALAGEN shall pay METAGENICS a royalty of [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION***] of the NET SALES PRICE for each
4
<PAGE>
LICENSED PRODUCT sold under this Agreement, provided that each such LICENSED
PRODUCT is made, used, imported from or into, offered for sale, sold or
otherwise distributed by GALAGEN, a third party on behalf of GALAGEN, or a
sublicensee, in a country in which METAGENICS owns or controls LICENSED PATENT
RIGHTS containing a pending or valid, unexpired, enforceable patent claim
covering such making, using, importing from or into, offering for sale and/or
sale of such LICENSED PRODUCT.
4.6 With respect to LICENSED PRODUCT(S) SOLD by or for a sublicensee,
GALAGEN, in GALAGEN's discretion, may cause the sublicensee to pay royalties in
accordance with this Article IV directly to METAGENICS or GALAGEN may cause the
sublicensee to pay an amount of royalties to GALAGEN. If GALAGEN causes a
sublicensee to pay an amount of royalties to GALAGEN for sales by the
sublicensee, GALAGEN shall thereafter be responsible for paying royalties for
such sales to METAGENICS in accordance with this Article IV.
4.7 With respect to each LICENSED PRODUCT SOLD by or for GALAGEN,
royalties payable to METAGENICS under this Article IV for such sale shall be
deemed to accrue when such LICENSED PRODUCT is first SOLD.
4.8 With respect to each LICENSED PRODUCT SOLD by or for a sublicensee for
which GALAGEN has caused such sublicensee to pay royalties directly to
METAGENICS, royalties payable to METAGENICS under this Article IV for such sale
shall be deemed to accrue when such LICENSED PRODUCT is first SOLD.
4.9 With respect to each LICENSED PRODUCT SOLD by or for a sublicensee,
regardless of whether GALAGEN has caused such sublicensee to pay an amount of
royalties directly to GALAGEN or directly to METAGENICS, royalties payable by
GALAGEN to METAGENICS under this Article IV for such sale shall be deemed to
accrue when the royalties for such sale are billed by the sublicensee to the
customer.
4.10 It is further understood and agreed by the Parties that no more than
one royalty payment shall be due for any LICENSED PRODUCT subject to royalty
hereunder, regardless of the number of products that the LICENSED PRODUCT is
thereafter incorporated into and regardless of the number of LICENSED PATENT
RIGHTS, or jurisdictions in which the making, having made, making for others,
using, importing from or into, offering for sale and/or sale of such LICENSED
PRODUCT occurs.
ARTICLE V
PAYMENT SCHEDULE, REPORTS, AND RECORDS
5.1 Within sixty (60) days after the end of each calendar quarter in which
royalties accrue under this agreement, GALAGEN and/or any sublicensee, as
appropriate, shall furnish METAGENICS with a written report setting forth the
computation of the royalties
5
<PAGE>
payable to METAGENICS during the preceding calendar quarter. Each report shall
be accompanied by the amount due less any taxes required by a governmental
agency to be withheld with respect to royalties payable to METAGENICS for that
calendar quarter of that year.
5.2 Royalties shall be paid to METAGENICS in U.S. dollars.
5.3 GALAGEN shall keep, and shall cause sublicensee(s) to keep, accurate
and complete records in sufficient detail to enable royalties payable to
METAGENICS hereunder to be verified. GALAGEN shall permit such records to be
inspected once per year upon written notice by METAGENICS for the purpose of
verifying the amount of royalties payable hereunder to METAGENICS. Such
inspection shall be made during reasonable business hours and shall be performed
by an independent auditor, such as a certified public accountant or firm of
certified public accountants reasonably acceptable to GALAGEN and appointed by
METAGENICS. METAGENICS shall bear all the costs of retaining the independent
auditor for such inspection unless the independent auditor finds that the
royalties paid to METAGENICS have been deficient by five percent (5 %) or more
when compared to the amount paid to METAGENICS, in which case GALAGEN shall be
obligated to bear all reasonable costs of retaining the independent auditor for
such inspection. The independent auditors making such inspection shall report
to METAGENICS only the amount of royalties due and payable. Two (2) years after
furnishing METAGENICS with the written report of Paragraph 5.1, GALAGEN shall
have the right to destroy or discard the records which formed the basis for such
written report, and the written report thereafter shall be presumed to be
correct and accurate.
5.4 At GALAGEN's option, the reports and records required in this Article
V may be made by GALAGEN, or alternatively, GALAGEN may cause sublicensee(s) to
make the reports and records required in this Article V.
ARTICLE VI
INFRINGEMENT AND LITIGATION
6.1 In the event that METAGENICS or GALAGEN determines that any LICENSED
PATENT RIGHTS are being infringed in the GALAGEN FIELD OF USE by an unlicensed
third party, the knowledgeable party shall immediately notify the other party in
writing of the name and address of the alleged third party infringer, the
alleged acts of infringement, and any available evidence of infringement, and
any factual evidence supporting such claim of infringement.
6.2 In the event that METAGENICS or GALAGEN determines that any LICENSED
PATENT RIGHTS are being infringed in the GALAGEN FIELD OF USE by an unlicensed
third party, METAGENICS shall have the right to initiate patent infringement
litigation in METAGENICS' name against said alleged third party infringer.
GALAGEN
6
<PAGE>
shall have the right, at GALAGEN's option, to join as co-plaintiff in such legal
action for the purpose of enforcing any claim GALAGEN many have and recovering
any damages GALAGEN incurs arising out of the alleged third party infringement.
However, in all circumstances in which METAGENICS elects to initiate legal
action involving the alleged third party infringer, such legal action shall be
under the sole direction of METAGENICS. METAGENICS shall bear all expenses,
including attorney's fees, incurred in connection with such legal action, but
GALAGEN agrees to perform all actions as are determined to be reasonably
necessary by METAGENICS legal counsel in the conduct of litigation. METAGENICS
shall receive any relief obtained by such litigation, including all monetary
awards. If, at any time during the term of this Agreement, GALAGEN or
METAGENICS shall be unable to uphold the validity of any LICENSED PATENT RIGHTS
against an alleged third party infringer, GALAGEN shall not have a claim for
refund or reimbursement of any previously paid royalty against METAGENICS.
6.3 Upon becoming aware of any third party infringement or alleged third
party infringement of any of the LICENSED PATENT RIGHTS, METAGENICS shall, as
expeditiously as possible and without undue delay, initiate legal action to stop
the alleged third party infringing activity of any of the LICENSED PATENT
RIGHTS. If the alleged third party infringing activity does not cease or
METAGENICS does not initiate legal action to stop the alleged third party
infringing activity within sixty (60) days after receiving notification of
alleged third party infringing activity from GALAGEN, GALAGEN shall have the
right to initiate patent infringement litigation in METAGENICS' name against
said alleged third party infringer. Such litigation will be under the sole
direction of GALAGEN, and at GALAGEN's expense, but METAGENICS agrees to perform
all actions as are determined to be reasonably necessary by GALAGEN's legal
counsel in the conduct of such litigation, including joining in such litigation.
GALAGEN shall receive any relief obtained by such litigation, including all
monetary awards.
6.4 In the event that any third party shall bring an action against
GALAGEN or its sublicensee(s) for alleged infringement of a third party
intellectual property rights arising out of the manufacture, use or sale of
LICENSED PRODUCT(S) subject to royalty hereunder or the practice of LICENSED
METHOD(S), GALAGEN shall promptly give written notice to METAGENICS reporting
such action. METAGENICS shall provide such assistance, including the furnishing
of documents and information and the execution of all necessary documents, as
GALAGEN may reasonably require to defend such action. GALAGEN shall bear the
costs of its own defense and the outcome of any such charge of infringement.
However, during the pendency of such action, if the LICENSED PRODUCT(S) or
LICENSED METHOD(S) would not infringe the third party's intellectual property
rights but for the inclusion of the methods, apparatus, articles of manufacture,
and/or compositions of matter encompassed by one or more claims of the LICENSED
PATENT RIGHTS, then GALAGEN and its sublicensee(s) may reduce any royalty
payment to METAGENICS by one-half for activity in the country where such action
is pending. In the event that GALAGEN or its sublicensee(s) are obligated to
pay royalties or make further payments to
7
<PAGE>
such third party in order to make, have made, make for others, use, import,
offer for sale, sell or otherwise distribute LICENSED PRODUCT(S) or practice
LICENSED METHOD(S) in such country, if the LICENSED PRODUCT(S) or LICENSED
METHOD(S) would not infringe the third party's intellectual property rights but
for the inclusion of the methods, apparatus, articles of manufacture, and/or
compositions of matter encompassed by one or more claims of the LICENSED PATENT
RIGHTS, then such payments shall be creditable by up to one-half of the amount
of royalties payable to METAGENICS with respect to that country.
6.5 METAGENICS and GALAGEN agree to keep each other fully informed as to
the progress of any such third party infringement action or settlement
discussions pertaining to any such alleged third party infringement initiated in
the sole name or joint names of METAGENICS or GALAGEN.
6.6 The party bringing and in control of any third party infringement
action or settlement discussions pertaining to any such alleged third party
infringement shall have the right to dispose of such third party infringement
action or such settlement discussions in a reasonable manner which is consistent
with the best interests of METAGENICS and GALAGEN.
ARTICLE VII
PATENT EFFORT AND PATENT MARKING
7.1 The filing, prosecution, and maintenance of LICENSED PATENT RIGHTS and
the cost thereof shall be the responsibility of METAGENICS. In the event that
METAGENICS elects not to file, prosecute, or maintain any such patents or patent
applications constituting the LICENSED PATENT RIGHTS, METAGENICS shall inform
GALAGEN and give GALAGEN the opportunity to file, prosecute, and/or maintain the
particular patents or patent applications constituting the LICENSED PATENT
RIGHTS.
7.2 If GALAGEN elects to undertake the responsibility to file, prosecute,
and or maintain at least a portion of one of the two patent families defined as
LICENSED PATENT RIGHTS hereinabove, GALAGEN shall thereafter be entitled to
reduce the royalty payment in the amount of any reasonable expenses, including
attorney's fees, incurred by GALAGEN to do so. GALAGEN shall not be liable to
METAGENICS in respect to any filing, prosecution, maintenance or enforcement of
any such patent or patent applications, or any failure to file for, prosecute,
maintain or enforce any patent or patent applications.
7.3 GALAGEN agrees to mark the LICENSED PRODUCTS with an appropriate
patent notice and notice of this license, in accordance with the provisions of
35 U.S.C. Section 287(a), as reasonably requested by METAGENICS.
8
<PAGE>
ARTICLE VIII
CONFIDENTIALITY
8.1 Subject to Paragraphs 8.2 and 8.3, GALAGEN and METAGENICS shall
preserve the terms of this Agreement in confidence during the term of this
Agreement and for 2 (two) years thereafter. Neither party shall have any
obligation to preserve the existence of this Agreement in confidence.
8.2 [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION***].
8.3 In the event that GALAGEN enters into negotiations with a third party
for the purpose of obtaining a sublicense from GALAGEN hereunder, GALAGEN shall
have the right, under appropriate confidentiality provisions, to disclose to
such third party the terms and existence of this Agreement.
ARTICLE IX
ASSIGNABILITY
9.1 This Agreement and the rights and obligations hereunder shall not be
assignable or otherwise transferable, in whole or in part, to third parties by
act or deed of any party hereto or by operation of law, or by order of court,
bankruptcy, receivership or insolvency without the written consent of the other
party; provided, however, that METAGENICS shall have the right to assign its
rights to receive remuneration including royalty under this Agreement to another
without prior written consent of GALAGEN but with written notice to GALAGEN; and
further provided that GALAGEN shall have the right to assign this Agreement
together with its rights and obligations to the successor of the portion of
GALAGEN's business to which LICENSED PATENT RIGHTS related or to a corporation
or entity owning more than 50% of the stock of GALAGEN and entitled to vote for
directors of GALAGEN.
9.2 Any pretended or attempted assignment or transfer by any party hereto
in violation of this Article shall, ipso facto, cause the rights hereunder of
the offending party to cease. Otherwise, this Agreement and its rights and
obligations shall be available to and binding upon permitted assigns, legal
representatives, trustees, purchasers, receivers and successors of the parties
hereto as permitted in Paragraph 9.1.
ARTICLE X
TERM AND TERMINATION
10.1 GALAGEN shall have the right to terminate this Agreement in its
entirety or with respect to any or all LICENSED PATENT RIGHTS in any or all
countries, without cause, upon thirty (30) days written notice to METAGENICS;
provided, however, that such
9
<PAGE>
termination shall not relieve GALAGEN of any obligations for royalty payments
accrued prior to the effective date of such termination. GALAGEN shall be
permitted to sell, transfer, or otherwise dispose of for payment any LICENSED
PRODUCT(S) not sold prior to the effective date of such termination; provided
that such sale, transfer or disposal occurs within six (6) months of the
effective date of termination of this Agreement. During this six (6) month
period, GALAGEN shall continue to provide METAGENICS with the written report of
Paragraph 5.1.
10.2 METAGENICS shall have the right to terminate this Agreement only in
its entirety and only for the following enumerated reasons: (i) GALAGEN's
failure to pay the initial fee or for GALAGEN's nonpayment of accrued royalty;
(ii) GALAGEN, or a third party on behalf of GALAGEN, challenges the validity or
enforceability of any of the LICENSED PATENT RIGHTS by bringing a declaratory
judgment action in any United States District Court of competent jurisdiction,
with the exception that METAGENICS shall not have the right to terminate based
upon GALAGEN requesting reexamination of LICENSED PATENT RIGHTS before the
United States Patent Office; and (iii) GALAGEN files a petition in bankruptcy or
insolvency, or upon or after an adjudication that GALAGEN is bankrupt or
insolvent, or upon or after the filing by GALAGEN of any petition or answer
seeking reorganization, readjustment, rearrangement of GALAGEN under any law
relating to bankruptcy or insolvency, or upon or after the appointment of a
receiver for all or any part of the property of GALAGEN or upon or after the
making by GALAGEN of any proceedings for the liquidation or winding-up of
GALAGEN business or for the termination of the GALAGEN corporate charter.
However, prior to terminating this Agreement, METAGENICS shall give GALAGEN
sixty (60) days written notice of METAGENICS intent to terminate and the
reason(s) why, clearly identifying the alleged breach at issue. If GALAGEN cures
such breach, or can reasonably demonstrate that no breach has occurred, within
said sixty (60) day period, then this Agreement shall remain in full force and
effect as if no such notice and/or breach had occurred.
ARTICLE XI
NOTICE
Any notices or communications under this Agreement shall be in writing and
shall be deemed to have been duly given by either party to the other on the date
hand-delivered, sent by telex, facsimile, or mailed first class, postage
prepaid, and sent to the address or place of business of the other party as
shown below.
TO GALAGEN: Robert A. Hoerr, M.D., Ph.D.
President & CEO
GalaGen Inc.
4001 Lexington Avenue North
Arden Hills, MN 55126
10
<PAGE>
TO METAGENICS: Jeff Katke
Chief Executive Officer
Metagenics, Inc.
971 Calle Negocio
San Clemente, CA 92673
The parties shall promptly provide written notice of any change of address
to the other party.
ARTICLE XII
FORCE MAJEURE
Neither of the parties hereto shall be liable to the other party or be
deemed to be in default under this Agreement if its performance is prevented in
whole or in part by a Force Majeure, including but not limited to, strikes,
accidents, rebellions, blockades, riots, storms, fires, explosions, acts of God,
war, sabotage, any law or administrative ruling of any government or political
subdivision thereof having jurisdiction over such part, or any other cause
similar thereto which is beyond the reasonable control of the party whose
performance is prevented in whole or in part; provided, however, that if the
failure or delay in performance by a party persists continuously for a period of
six (6) months or more, the other party may cancel or terminate this Agreement,
in its entirety and not withstanding the provisions of Article X, by giving
thirty (30) days written notice to the non-performing party. The party whose
performance is prevented by a Force Majeure shall promptly notify the other
party upon becoming aware of a Force Majeure. The non-performing party agrees
to endeavor to assume its performance in accordance with this Agreement as soon
as practicable.
ARTICLE XIII
GOVERNING LAW
This Agreement shall be construed in accordance with the laws of the State
of Minnesota.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 This Agreement contains the complete and entire agreement between the
parties hereto relating to the subject matter hereof, and supersedes any
previous communications, representations, or agreements, whether verbal or
written.
14.2 No change, addition, waiver, amendment, or modification of any of the
terms of conditions hereof shall be valid or binding on either party unless in
writing and signed by an officer of an authorized representative of both
parties.
11
<PAGE>
14.3 The provisions of this Agreement shall be deemed separable.
Additionally, the parties hereto expressly agree that it is not the intent of
either party to violate any of the state or federal public policies, statutes,
or common laws of the United States. It is the intent of both parties to make
this Agreement binding only to the extent that it may lawfully be done under
existing state and federal laws of the United States, whichever may be
applicable. Therefore, if any part of this Agreement is rendered void, invalid,
or unenforceable, or is judged to be in violation of any state or federal law
of the United States, such rendering or judgment shall not affect the validity
or enforceability of the remainder of this Agreement; provided that if the part
or parts which are void, invalid, or unenforceable as aforesaid shall
substantially impair the value of this whole Agreement to either party, that
party may cancel and terminate this Agreement, in its entirety, by giving thirty
(30) days written notice to the other party.
14.4 A failure of either party to enforce any of the provisions of this
Agreement of any rights with respect thereto or to exercise any election
provided for herein, shall in no way be considered a waiver of such provisions,
rights, or elections or in any way to influence the validity of this Agreement.
No term or provisions hereof shall be deemed waived and no breach excused or
consented to, unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. The failure by a party hereto to
enforce any of said provisions, rights, or elections shall not preclude or
prejudice that party from alter enforcing or exercising the same or in any other
provisions, rights, or elections which it may have under this Agreement. Any
consent by any party to, or waiver of, a breach by the other, whether express or
implied, shall not constitute a consent or waiver of, or excuse for any other
different or subsequent breach. All remedies herein conferred upon any party
shall be cumulative and no one shall be exclusive of any other remedy conferred
by law or equity.
14.5 Time is of the essence in the performance of each and every obligation
and covenant imposed by this Agreement.
14.6 Headings used in this Agreement are for reference purposes only and
shall not be deemed a part of this Agreement.
14.7 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, all of which constitute one and the
same agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed by their duly authorized representatives.
METAGENICS, INC. GALAGEN INC.
By /s/ Jeff Katke By /s/ Robert A. Hoerr
----------------------------- -----------------------------
Printed Name: Jeff Katke Printed Name: Robert A. Hoerr
------------------ -----------------
Title: Chief Executive Officer Title: President and
------------------------- Chief Executive Officer
-------------------------
Date: April 8, 1998 Date: April 7, 1998
-------------------------- -------------------------
13
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,653,770
<SECURITIES> 2,850,087
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,588,013
<PP&E> 580,483
<DEPRECIATION> 217,243
<TOTAL-ASSETS> 6,078,535
<CURRENT-LIABILITIES> 626,518
<BONDS> 0
0
0
<COMMON> 82,437
<OTHER-SE> 4,981,251
<TOTAL-LIABILITY-AND-EQUITY> 6,078,535
<SALES> 12,809
<TOTAL-REVENUES> 12,809
<CGS> 6,405
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,639,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381,974
<INCOME-PRETAX> (2,822,870)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,822,870)
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<EPS-PRIMARY> (.36)
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