<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1999.
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period from to .
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Commission file number 0-27976.
GalaGen Inc.
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(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.)
1275 Red Fox Road
Arden Hills, Minnesota 55112-6943
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(Address of principal executive offices) (Zip Code)
(651) 634-4230
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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
- -10,298,996 shares as of May 1, 1999.
1
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INDEX
GALAGEN INC.
<TABLE>
<CAPTION>
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1999 and December 31, 1998.......................3
Statements of Operations - Three months ended
March 31, 1999..............................................................4
Statements of Cash Flows - Three months ended
March 31, 1999..............................................................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.................14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................................15
Item 6. Exhibits and Reports on Form 8-K...........................................15
SIGNATURES...........................................................................22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GALAGEN INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31, 1999 DECEMBER 31, 1998
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(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................. $ 3,067,026 $ 4,081,733
Accounts receivable, net of allowance of $25,768 in 1999 ............. 265,689 314,579
Inventory............................................................. 497,128 303,150
Prepaid expenses...................................................... 164,232 197,994
-------------- --------------
Total current assets.................................................... 3,994,075 4,897,456
Property and equipment.................................................. 677,704 671,796
Less accumulated depreciation......................................... (302,549) (270,418)
-------------- --------------
375,155 401,378
Other assets............................................................ 672,273 774,659
Goodwill................................................................ 192,366 219,847
-------------- --------------
864,639 994,506
Total assets............................................................ $ 5,233,869 $ 6,293,340
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................................ $ 467,890 $ 641,922
Other current liabilities............................................... 290,758 336,992
Convertible debentures.................................................. 145,333 193,333
-------------- --------------
Total current liabilities............................................... 903,981 1,172,247
Commitments
Other long-term liabilities............................................. 45,000 45,000
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 15,000,000
Issued and outstanding shares...................................... - -
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued and outstanding shares - 8,983,996 in 1999;
8,948,446 in 1998................................................. 89,840 89,484
Additional paid-in capital............................................ 62,440,036 62,386,292
Accumulated deficit .................................................. (58,199,687) (57,339,283)
Deferred compensation................................................. (45,301) (60,400)
-------------- --------------
Total stockholders' equity............................................ 4,284,888 5,076,093
-------------- --------------
Total liabilities and stockholders' equity.............................. $ 5,233,869 $ 6,293,340
-------------- --------------
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</TABLE>
See accompanying notes.
Note: The balance sheet at December 31, 1998 has been derived from audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
3
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GALAGEN INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Revenues:
Product sales..................................... $ 435,542 $ 3,050
Product licensing and development revenues........ 147,991 -
------------- --------------
583,533 3,050
Operating expenses:
Cost of goods sold................................ 186,861 1,525
Selling, general and administrative............... 738,190 376,116
Product development............................... 378,946 520,515
Depreciation and amortization..................... 190,415 226,648
------------- -------------
1,494,412 1,124,804
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Operating loss..................................... (910,879) (1,121,754)
Interest income.................................... 55,225 124,549
Interest expense................................... (4,750) (219,890)
-------------- --------------
Net loss........................................... $ (860,404) $ (1,217,095)
------------- -------------
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Net loss per share
Basic and Diluted........................... $ (0.10) $ (0.16)
Weighted average number of common shares
outstanding
Basic and Diluted................................ 8,948,841 7,506,438
</TABLE>
See accompanying notes.
4
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GALAGEN INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------
1999 1998
--------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss............................................. $ (860,404) $ (1,217,095)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization....................... 196,515 384,197
Changes in operating assets and liabilities......... (344,910) (67,387)
-------------- --------------
Net cash used in operating activities................ (1,008,799) (900,285)
-------------- --------------
INVESTING ACTIVITIES:
Purchase of property, plant and equipment............ (5,908) (25,122)
Change in available-for-sale securities, net......... - 1,588,063
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Net cash provided (used) by investing activities..... (5,908) 1,562,941
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FINANCING ACTIVITIES:
Proceeds from common stock........................... - 11,867
Net payment on note payable.......................... - (81,411)
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Net cash provided (used) by financing activities..... - (69,544)
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Increase (decrease) in cash.......................... (1,014,707) 593,112
Cash and cash equivalents at beginning of period..... 4,081,733 155,908
------------- -------------
Cash and cash equivalents at end of period........... $ 3,067,026 $ 749,020
------------- --------------
------------- --------------
SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of convertible promissory notes, plus
related accrued interest, to common stock.......... $ 54,100 $ 508,161
</TABLE>
See accompanying notes.
5
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GALAGEN INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, all
adjustments (consisting of normal, recurring accruals) considered necessary
for fair presentation have been included. Operating results for the three
months ended March 31, 1999, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999. 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, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DEVELOPMENT STAGE
Prior to 1998 the Company was a development stage company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
the current year presentation.
NET LOSS PER SHARE
Net loss per share is presented in accordance with the provisions of
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE
("Statement 128"). Under Statement 128, basic earnings per share is computed
by dividing the net loss by the weighted average number of common shares
outstanding for the year. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock and resulted in the
issuance of common stock. Basic and diluted earnings per share are the same
in all years presented as all potential common shares were antidilutive.
INVENTORY
Inventories are stated at the lower of cost or market using the
first-in, first-out method. The Company evaluates the need for reserves
associated with obsolete inventory as needed. Inventory at March 31, 1999 and
December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Finished goods .................... $318,786 $235,155
Raw materials and supplies ........ 178,342 67,995
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$497,128 $303,150
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</TABLE>
6
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3. 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 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 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. In 1999 and 1998, $50,000 and $1,300,000 of Debenture
principal plus accrued interest was converted into 35,550 shares and
1,260,073 shares of common stock, respectively. The net carrying value of the
Debentures approximates fair market value. In connection with this private
placement, the Company has reserved 1,400,000 shares of common stock for
issuance for the Discounted Shares and 200,000 shares of common stock for
issuance for the warrants.
4. OPERATING LEASE
In June 1997, the Company established a note payable for
approximately $1,319,000 for fixed assets with Transamerica Business Credit
Corporation ("Transamerica"). In June 1998, the Company converted the note
payable into an operating lease. At the time of the conversion the net book
value of the associated assets approximated the note payable balance. Terms
of the operating lease include monthly payments through May 2001 of
approximately $36,000 with a final payment of $165,000 in June 2001. The
operating lease is secured by the Company's property and equipment.
Transamerica received a warrant for 40,000 shares of common stock exercisable
at $2.50 per share as part of the June 1997 transaction. The warrant was
valued at approximately $79,000 and was amortized to interest expense over
the term of the note payable.
7
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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. 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's mission is to become the leading presence in foods, beverages
and dietary supplements that help enhance the immune system. To accomplish
this mission, the Company is focusing its efforts on channels that demand
immune-enhancing benefits in certain segments of the consumer food and
beverage products market and in certain segments of the clinical nutrition
products markets. A critical factor for success of the Company is its
immune-enhancing ingredient which is derived from colostrum, the highly
nutritious first milk from a dairy cow after its calf is born, which has been
branded Proventra-TM- Brand Natural Immune Components ("Proventra"). *The
primary immune-enhancing components of Proventra are antibodies, which are
proteins that enhance the body's immune system to protect against harmful
pathogens. Secondary immune-enhancing components of Proventra providing
further disease resistance are proteins, such as lactoferrin, as well as
multiple vitamins and minerals. The Company, in conjunction with strategic
partners, continues to expand applications for its technology and is
developing a portfolio of Proventra-based products that target the needs of
consumers and the healthcare market.
In October 1998, the Company entered into a collaboration and
license agreement and a manufacturing and supply agreement with Wyeth-Ayerst
Laboratories ("Wyeth-Ayerst"), a division of American Home Products
Corporation. The two companies will develop and commercialize a proprietary
ingredient with unique antibacterial properties for use in pediatric formula
and other nutritional products.* The collaboration, during the research and
development phase of the product, will be funded by Wyeth-Ayerst through
payments to the Company.
In December 1998, the Company acquired a developed line of critical
care enteral nutrition products and formulas from Nutrition Medical, Inc.
("NMI"). These products are being sold to the hospital and home healthcare
industries. The Company is researching ways in which to incorporate certain
of its immune-enhancing ingredients into selected products acquired from NMI
to provide additional proprietary protection and added benefits that are not
currently available in that market segment.
In January 1999, the Company entered into a collaboration agreement
with General Nutrition Corporation, Inc. for product development,
manufacturing, supply and retail marketing of its Proventra. The agreement
calls for the two companies to develop and market a range of immune-enhancing
dietary supplements and nutrition formulas.
In March 1999, the Company entered into an agreement with Tropicana
Products, Inc., a division of PepsiCo Inc. Under this agreement, the two
companies will explore development of nutritious beverages for the
health-conscious consumer.
In March 1999, the Company also entered into a licensing and
distribution agreement with American Institutional Products, Inc. ("AIP"), a
wholly-owned subsidiary of Hormel Foods Corporation. AIP licensed the
manufacturing and distribution rights for a new, clinically tested, cultured
dairy beverage the Company developed to improve the gastrointestinal health
of patients in hospitals and nursing homes. The product includes a patented
ingredient combination and will also incorporate the Company's Proventra.
8
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
GENERAL. The net loss applicable to common stockholders decreased by
$356,691, or 29.3%, for the three months ended March 31, 1999 to $860,404
from $1,217,095 for the same period in 1998. The decrease was due primarily
to increased revenue from the Company's critical care product line, increased
product licensing and development revenues and decreased product development
and personnel expense due to the discontinuation of the pharmaceutical
program, offset by increased selling, marketing and general and
administrative expense in support of the consumer and clinical nutrition
product programs.
REVENUES. For the three months ended March 31, 1999 revenues
consisted of approximately $436,000 in product sales and approximately
$148,000 from product development and licensing revenues. For the three
months ended March 31, 1998 revenues consisted of $3,050 from product sales.
COST OF GOODS SOLD. For the three months ended March 31, 1999 and
1998 the cost of goods sold of $186,861 and $1,525 related to the product
sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $362,074, or 96.3%, for the three months
ended March 31, 1999 to $738,190 from $376,116 for the first quarter of 1998.
Approximately $342,000 of the increase is due to increased sales, marketing
and personnel expense for the Company's consumer and critical care nutrition
products and approximately $20,000 of the increase is due to operating lease
expenses associated with the Company's June 1998 note payable conversion (See
Note 4 in Notes to the Financial Statements).
PRODUCT DEVELOPMENT EXPENSES. Expenses for product development
decreased $141,569, or 27.2%, for the three months ended March 31, 1999 to
$378,946 from $520,515 for the three months ended March 31, 1998. Associated
personnel expense decreased approximately $148,300, expenses related to the
clinical and consumer development programs decreased approximately $48,800
and expenses related to the terminated pharmaceutical program decreased
approximately $34,000. These decreases were offset by increased operating
lease expense from the conversion of the Company's note payable in June 1998
of approximately $89,100 (See Note 4 in Notes to the Financial Statements).
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
three months ended March 31, 1999 decreased $36,233, or 16%, to $190,415 from
$226,648 for the same period in 1998. Approximately $76,000 of the decrease
was from decreased depreciation expense due to the Company`s operating lease
conversion (see Note 4 in Notes to the Financial Statements), approximately
$31,000 of the decrease was from decreased deferred compensation amortization
primarily a result of cancelled options and approximately $11,000 was due to
decreased deferred expense amortization. These decreases were offset by
increased intangible asset amortization of approximately $50,000 and
increased amortization of warrants issued for services of approximately
$32,000.
INTEREST INCOME. Interest income for the three months ended March
31, 1999 decreased $69,324, or 55.7%, to $55,225 from $124,549 for the same
period in 1998. The decrease is primarily attributable to the decreased level
of investable funds.
INTEREST EXPENSE. Interest expense decreased $215,140, or 97.8%, for
the three months ended March 31, 1999 to $4,750 from $219,890 for the three
months ended March 31, 1998. Interest expense for the first quarter of 1999
was due to the amortization of the value of the warrants plus the value of
the discount in connection with the convertible debentures the Company issued
in November 1997 (see Note 3 in Notes to the Financial Statements). For the
period ended March 31, 1998, interest expense consisted of approximately
$169,000 of amortization of the value of the warrants plus the value of the
discount in connection with the Company's convertible debentures and
approximately $51,000 of interest expense associated with the Company's note
payable (see Note 4 of Notes to the Financial Statements).
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company was incorporated in March 1992. On July 24, 1992, Procor
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 March 31, 1999,
investments in the Company have totaled approximately $53.4 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 $28.4 million from private placements of
equity and convertible debt and from conversion of accrued interest on such
debt and the exercise of stock options and warrants. The Company has invested
funds received in the Offering and these private placements in
investment-grade, interest-bearing obligations.
Cash used in operating activities increased by $108,514, or 12.1%,
for the three months ended March 31, 1999 to $1,008,799 from $900,285 for the
same period in 1998. Cash used in operations for the three months ended March
31, 1999 went primarily to fund operating losses, as well as repayment of
current obligations and operating inventory. Cash used in operations for the
same period in 1998 went primarily to fund operating losses.
For the three months ended March 31, 1999, the Company invested
$5,908 in office and computer equipment to support its operations. For the
same period in 1998, the Company redeemed $1,588,063 of its
available-for-sale securities and invested $25,122 in equipment related to
the Company's pilot plant manufacturing facility.
In April 1999, the Company completed the sale of newly issued common
stock that resulted in $1,972,500 of private placement funding. The stock was
sold at $1.50 per share. There were no warrants associated with the
investment. Also in April 1999, the Company repurchased three warrants that
were initially granted to Chiron Corporation in March 1995. The repurchase
price was $375,000.
The Company anticipates that its existing resources and interest
thereon will be sufficient to satisfy its anticipated cash requirements
through approximately the second quarter of 2000.* The Company's working
capital and capital requirements will depend upon numerous factors, including
revenue from product sales, 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 marketing
expense and product development expense.* Capital expenditures may be
necessary 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 2000 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 it 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 the Company does not have an immediate need
for such additional capital at such time.* If the Company has not raised
funds prior to when its needs for funding become immediate, the Company may
be forced to raise funds when conditions are unfavorable, which could result
in significant dilution for current stockholders.*
YEAR 2000 ISSUES
The Company began the process of assessing its risks associated with
Year 2000 date conversion in 1998. This assessment included three main areas:
10
<PAGE>
- the business hardware and software applications, mainly certain
accounting applications and the office network, the Company's
Information Technology ("IT") and
- manufacturing facilities and
- external third party business partners or suppliers.
Prior to the asset acquisition of NMI's critical care nutrition
products, the Company completed its preliminary assessment and concluded that
the Year 2000 risk was focused mainly in the area of its business computer
hardware and computer software applications. Subsequent to the NMI asset
purchase, the Company has undertaken a reassessment and has determined that
the exposure associated with non-compliant external business partners and
suppliers has significantly increased. The assessment has been completed for
the IT and manufacturing facilities and is in process for the third party
partners and suppliers with an estimated completion in mid 1999.
The Company has addressed these issues by:
- installing new network server hardware and software,
specifically for its accounting applications and office
network. This remediation process was completed with total
costs of approximately $60,000. The manufacturers of the
hardware and software have stated that these products are Year
2000 compliant. In planning for the worst case scenarios, the
Company has addressed this issue in its plan. The Company
believes that its hardware and software systems for its
business will be operational for Year 2000, but it may
experience isolated incidences of non-compliance. The testing
of the newly installed hardware and software, along with the
Company's older hardware and software, is anticipated to
conclude by mid 1999; and
- identifying its key business partners and suppliers,
particularly relating to its critical care nutrition business,
and assessing their readiness for Year 2000 to mitigate the
risk to the Company if they are not Year 2000 compliant. The
Company has its critical care nutrition products manufactured
by third parties. If certain vendors, including these critical
care product manufacturers, are unable to deliver product on a
timely basis due to their own Year 2000 issues, the Company
anticipates that there will be other companies who will be able
to deliver such product on a timely basis. Upon completion of
this assessment, the Company will determine what contingency
plans are needed. The Company also recognizes the risks from
other key suppliers if utilities, communications, banking and
government are not ready for Year 2000, but does not believe
the Company will be materially adversely impacted.
The Company's manufacturing facility, completed and operational in
mid-1997, has been Year 2000 compliant since inception and no further work is
considered necessary. The most reasonably likely worst case scenario would be
the inability of the Company to have its critical care nutrition products
manufactured and distributed on a timely basis which could result in
significantly decreased revenues. The Company is currently in the process of
developing its contingency plans for each of its three main areas and should
have them completed in mid-1999.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q for the first quarter ended March 31, 1999 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
1998 ("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
11
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and its results of operations. Factors that could cause actual results to
differ include, without limitation, the Company's ability to achieve a
profitable level of operations, to generate sufficient working capital and
obtain necessary financing to meet capital requirements, loss of Nasdaq
National Listing, the Company's ability to form strategic alliances with
marketing and distribution partners, the Company's exposure to product
liability claims, delays or high costs in product developments, 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.
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.
WE MAY NOT EVER ACHIEVE A PROFITABLE LEVEL OF OPERATIONS.
Our ability to achieve profitable operations depends in large part on:
- - entering into agreements to develop products and establish markets for
those products; and
- - making the transition from a research company to an operating and
marketing company.
We cannot be sure we will be successful in ever achieving either
result. We have experienced significant operating losses in each year since
our inception in 1987. We have an accumulated deficit of more than
$58 million as of March 31, 1999. We may continue to lose money in the
future.
IF WE CANNOT OBTAIN CONTINUING FUNDING, WE MAY BE UNABLE TO
IMPLEMENT OUR BUSINESS PLANS.
If we cannot find adequate funding, we may have to delay or
eliminate some of our product development plans. We may be required to grant
licenses to others to establish markets for products or technologies that we
would otherwise seek to market ourselves.
Our cash requirements for working capital depend on numerous
factors. These factors include:
- our spending on marketing activities, including clinical marketing
trials;
- our progress in finding partners to help us develop products
and market those products;
- the willingness and ability of our partners to provide funding
for our activities;
- our spending on product development programs;
- the rate of technological advances in the production of our
products;
- our spending on facilities, equipment and personnel to make our
products; and
- the status of competitive products.
Our long-term ability to continue funding our planned operations
depends on our ability to obtain additional funds through:
- product revenues;
- equity or debt financing;
- finding partners to help us develop products and market those
products;
- license agreements; or
- other financing sources.
Because of our significant long-term capital requirements, we may
seek to raise funds when conditions are favorable. We may do so even if we do
not have an immediate need for the capital at the time we raise it. If we
have not raised funds prior to when our needs for funding become immediate,
we may be forced to raise funds when conditions are unfavorable. This could
result in significant dilution of our current stockholders.
12
<PAGE>
IF WE DO NOT ACHIEVE A PROFITABLE LEVEL OF OPERATIONS AND CANNOT
FIND FUNDING IN THE FUTURE, WE COULD EVENTUALLY BECOME INSOLVENT OR BANKRUPT.
If we do not achieve a profitable level of operations and we do not
obtain necessary funding from some source other than operations, we could
eventually deplete our cash reserves and become insolvent or bankrupt.
IF WE RELY ON INACCURATE MARKET INFORMATION, WE COULD MAKE DECISIONS
THAT HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
Because we are currently developing our products and markets for
those products, we are particularly reliant on market data. If that data is
inaccurate, we may commit resources to product development and marketing
efforts that do not become profitable. Product development and marketing
efforts that do not become profitable may have a material adverse effect on
our business and financial condition. We have obtained market and related
data from a competitive-market analysis firm. We have not independently
verified the accuracy of that information. In any event, the methodology
typically used in compiling market and related data makes it subject to
inherent uncertainties and estimations. As a result, we cannot be sure as to
the accuracy or completeness of our market information.
INADEQUATE PROVENTRA PRODUCTION COULD HAVE A MATERIAL ADVERSE EFFECT
ON OUR BUSINESS AND FINANCIAL CONDITION.
Given our limited experience in manufacturing Proventra, we cannot
be sure that we will be successful in producing Proventra of acceptable
quality on a commercial scale and at acceptable costs in our pilot plant
facility. If we cannot, our business and financial condition could be
materially adversely affected. Our production of Proventra will be regulated
by the Minnesota Department of Agriculture. We believe that our current
manufacturing facility will meet the anticipated requirements for the
production of Proventra for use in consumer and clinical nutritional products
through the year 2000. Further, we believe that contract manufacturers
would be available to increase our Proventra production capacity quickly, if
required. However, until we begin producing Proventra on a commercial scale,
we cannot be sure that our production capabilities will be adequate
FAILURE OF OUR COLLABORATIONS TO DEVELOP AND MARKET PRODUCTS
CONTAINING PROVENTRA COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND
FINANCIAL CONDITION.
We are relying on collaborations with larger, more established
companies to develop and market products containing Proventra. Our or our
collaborators' inability to bring products to market could have a material
adverse effect on our business and financial condition. We anticipate that
products containing Proventra will be introduced in particular markets in the
last half of 1999 through collaborations we have established with other
companies. However, introduction of these products to test markets on
schedule depends on our ability and our collaborators' ability to accomplish
the following:
- finalize market research;
- finalize product development;
- establish product manufacturing;
- initiate marketing, sales and distribution activities related
to our products; and
- provide the funding necessary to accomplish these activities.
DELAYS OR HIGH COSTS IN PRODUCT DEVELOPMENT COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS AND FINANCIAL CONDITION.
If we, or our strategic partners, cannot obtain accurate marketing
data or develop a product responsive to the needs identified by that data,
our business and financial condition could be materially adversely affected.
The amount of time it will take us, together with our strategic partners, to
develop consumer and clinical nutrition products and the associated costs of
developing those products depends on, among other things, the results of our
market research for consumer and clinical products. It also depends on our
discussions with end users or purchasers of the potential products. Market
research and discussions may give us indications of potential customers, what
types of products they may desire and what clinical information is necessary
for effective marketing and sales.
13
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk is unlikely to have a material adverse
effect on the Company's business, results of operations or financial
condition.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The Company has issued the following equity securities pursuant to
exemptions from registration under the Securities Act of 1933, as amended
(the "Securities Act"). All such sales were made in reliance upon the
exemptions from registration provided under Sections 3(b) and 4(2) of the
Securities Act.
In April 1999, the Company raised $1,972,500 through the private
placement sale of 1,015,000 shares of common stock to Lombard Odier & Cie,
200,000 shares of common stock to Winston R. Wallin, 50,000 shares of common
stock to H. L. Severance, 35,000 shares of common stock to H. L. Severance,
Inc. Profit Sharing Plan and Trust and 15,000 shares of common stock to H. L.
Severance, Inc. Pension Plan and Trust. The shares of common stock were
issued at $1.50 per share.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
3.1 Intentionally left blank.
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.3 Intentionally left blank.
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2-4.5 Intentionally left blank.
4.6 Form of Common Stock Warrant to purchase shares of Common Stock of Incorporated By
the Company, issued in connection with the sale of Convertible Reference
Promissory Notes.(1)
4.7-4.10 Intentionally left blank.
4.11 Warrant to purchase 18,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth Fund), Reference
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund), dated Reference
January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.14 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Edgewater Private Equity Fund, L.P., dated February 2, Reference
1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Company Incorporated By
issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
15
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
4.16 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 Incorporated By
among the Company and the Purchasers named therein.(8) Reference
4.20 Registration Rights Agreement dated November 18, 1997 among the Incorporated By
Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. Incorporated By
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
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, Incorporated By
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 December 1, 1997.(16) Incorporated By
Reference
4.28 Warrant issued to CLARCO Holdings dated as of December 1, 1997.(17) Incorporated By
Reference
4.29 Intentionally left blank.
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998.(20) Incorporated By
Reference
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998.(20) Incorporated By
Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998.(20) Incorporated By
Reference
4.33 Warrant issued to William Young and Rebecca Young dated as of Incorporated By
August 12, 1998.(24) Reference
16
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
4.34 Warrant issued to Henry J. Cardello dated as of September 30, Incorporated By
1998.(24) Reference
4.35 Warrant issued to American Home Products Corporation dated as of Incorporated By
October 15, 1998.(24) Reference
4.36 Form of Registration Rights Agreement dated April 20, 1999.(25) Incorporated By
Reference
4.37 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Lombard Odier & Cie).(26) Reference
4.38 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. Leigh Severance).(27) Reference
4.39 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Profit Sharing Plan and Trust).(28) Reference
4.40 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Pension Plan and Trust).(29) Reference
4.41 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Winston R. Wallin).(30) Reference
#10.1 License Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
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
10.6-10.7 Intentionally left blank.
#10.8 License and Collaboration Agreement between the Company and Chiron Incorporated By
Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By
Reference
10.10-10.11 Intentionally left blank.
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
17
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
10.14 Agreement for Lease between the Company and Land O'Lakes, dated Incorporated By
June 3, 1996.(2) Reference
10.15-10.18 Intentionally left blank.
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan.(4) Incorporated By
Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Incorporated By
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 Land Incorporated By
O'Lakes dated March 11, 1998.(19) Reference
#10.24 License Agreement between the Company and Metagenics, Inc. dated Incorporated By
April 7, 1998.(20) Reference
10.25 Marketing Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.26 Asset Purchase Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.27 Intentionally left blank.
10.28 Asset Purchase Agreement Amendment 1 between the Company and Incorporated By
Nutrition Medical, Inc., dated October 28, 1998.(22) Reference
10.29 Asset Purchase Agreement Amendment 2 between the Company and Incorporated By
Nutrition Medical, Inc., dated December 23, 1998.(23) Reference
#10.30 Collaboration and License Agreement between the Company and Incorporated By
American Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division, dated October 15, 1998.(24)
#10.31 Manufacturing and Supply Agreement between the Company and American Incorporated By
Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division dated October 15, 1998.(24)
#10.32 Product Development Collaboration, Manufacturing and Supply, and Incorporated By
Retail Marketing Agreement between the Company and General Reference
Nutrition Corporation, dated December 22, 1998.(24)
*10.33 Letter agreement with Henry J. Cardello, dated January 1, 1999. Electronic
Transmission
10.34 Repurchase Agreement by and between GalaGen Inc. and Chiron Electronic
Corporation, dated April 1, 1999. Transmission
18
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
##10.35 Licensing and Distribution Agreement by and between GalaGen Inc. Electronic
and American Institutional Products, Inc., dated March 15, 1999. Transmission
27.1 Financial Data Schedule for the quarter ended March 31, 1999. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, Incorporated By
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).
(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).
19
<PAGE>
(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) Intentionally not used.
(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).
(20) Incorporated herein by reference to the same numbered Exhibit
to the Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1998 (File No. 0-27976).
(21) Incorporated herein by reference to the same numbered Exhibit
to the Company's Quarterly Report on Form 10-Q for the period
ended September 30, 1998 (File No. 0-27976).
(22) Incorporated herein by reference to Exhibit No. 2.2 to the
Company's Report on Form 8-K, dated December 23, 1998 (File
No. 0-27976).
(23) Incorporated herein by reference to Exhibit No. 2.3 to the
Company's Report on Form 8-K, dated December 23, 1998 (File
No. 0-27976).
(24) 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, 1998 (File No. 0-27976).
(25) Incorporated herein by reference to Exhibit No. 4.5 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
(26) Incorporated herein by reference to Exhibit No. 4.6 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
(27) Incorporated herein by reference to Exhibit No. 4.7 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
(28) Incorporated herein by reference to Exhibit No. 4.8 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
(29) Incorporated herein by reference to Exhibit No. 4.9 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
(30) Incorporated herein by reference to Exhibit No. 4.10 to
Amendment No. 2 to the Company's Registration Statement on
Form S-3/A (Registration No. 333-71883).
* 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 of which confidential treatment has been
applied for by the Company.
(b) REPORTS ON FORM 8-K
20
<PAGE>
1. The Company filed a report on Form 8-K, dated December 23, 1998 and
filed on January 6, 1999, relating to the purchase of certain critical
care enteral products, related inventory and certain fixed assets from
Nutrition Medical, Inc.
2. The Company filed a report on Form 8-K, dated and filed February 5,
1999, updating the risk factors of the Company.
21
<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: May 17, 1999 By: /s/ Robert A. Hoerr
------------------------------------
Robert A. Hoerr,
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: May 17, 1999 By: /s/ Henry J. Cardello
------------------------------------
Henry J. Cardello
President and Treasurer
(Principal Financial and Accounting
Officer)
22
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
3.1 Intentionally left blank.
3.2 Restated Certificate of Incorporation of the Company.(3) Incorporated By
Reference
3.3 Intentionally left blank.
3.4 Restated Bylaws of the Company.(1) Incorporated By
Reference
4.1 Specimen Common Stock Certificate.(1) Incorporated By
Reference
4.2-4.5 Intentionally left blank.
4.6 Form of Common Stock Warrant to purchase shares of Common Stock of Incorporated By
the Company, issued in connection with the sale of Convertible Reference
Promissory Notes.(1)
4.7-4.10 Intentionally left blank.
4.11 Warrant to purchase 18,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds VI, Inc. (IAI Emerging Growth Fund), Reference
dated January 30, 1996.(1)
4.12 Warrant to purchase 6,250 shares of Common Stock of the Company Incorporated By
issued to IAI Investment Funds IV, Inc. (IAI Regional Fund), dated Reference
January 30, 1996.(1)
4.13 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to John Pappajohn, dated February 2, 1996.(1) Reference
4.14 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Edgewater Private Equity Fund, L.P., dated February 2, Reference
1996.(1)
4.15 Warrant to purchase 10,000 shares of Common Stock of the Company Incorporated By
issued to Joseph Giamenco, dated February 2, 1996.(1) Reference
4.16 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Gus A. Chafoulias, dated February 2, 1996.(1) Reference
4.17 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to JIBS Equities, dated February 2, 1996.(1) Reference
4.18 Warrant to purchase 25,000 shares of Common Stock of the Company Incorporated By
issued to Land O'Lakes, Inc., dated February 2, 1996.(1) Reference
4.19 6% Convertible Debenture Purchase Agreement dated November 18, 1997 Incorporated By
among the Company and the Purchasers named therein.(8) Reference
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
4.20 Registration Rights Agreement dated November 18, 1997 among the Incorporated By
Company and the Holders named therein.(9) Reference
4.21 6% Convertible Debenture due May 18, 1999 issued to CPR (USA) Inc. Incorporated By
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
4.24 Stock Purchase Warrant issued to CPR (USA) Inc. dated November 18, Incorporated By
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 December 1,1997.(16) Incorporated By
Reference
4.28 Warrant issued to CLARCO Holdings dated as of December 1,1997.(17) Incorporated By
Reference
4.29 Intentionally left blank.
4.30 Warrant issued to Henry J. Cardello dated as of April 13, 1998.(20) Incorporated By
Reference
4.31 Warrant issued to Henry J. Cardello dated as of April 30, 1998.(20) Incorporated By
Reference
4.32 Warrant issued to Henry J. Cardello dated as of June 19, 1998.(20) Incorporated By
Reference
4.33 Warrant issued to William Young and Rebecca Young dated as of Incorporated By
August 12, 1998.(24) Reference
4.34 Warrant issued to Henry J. Cardello dated as of September 30, Incorporated By
1998.(24) Reference
4.35 Warrant issued to American Home Products Corporation dated as of Incorporated By
October 15, 1998.(24) Reference
4.36 Form of Registration Rights Agreement dated April 20, 1999.(25) Incorporated By
Reference
4.37 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Lombard Odier & Cie).(26) Reference
4.38 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. Leigh Severance).(27) Reference
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
4.39 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Profit Sharing Plan and Trust).(28) Reference
4.40 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(H. L. Severance, Inc. Pension Plan and Trust).(29) Reference
4.41 Subscription Agreement and Investment Letter dated April 20, 1999 Incorporated By
(Winston R. Wallin).(30) Reference
#10.1 License Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.2 Royalty Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
1992.(1) Reference
#10.3 Supply Agreement between the Company and Land O'Lakes dated May 7, Incorporated By
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
10.6-10.7 Intentionally left blank.
#10.8 License and Collaboration Agreement between the Company and Chiron Incorporated By
Corporation dated March 20, 1995.(1) Reference
*10.9 GalaGen Inc. Employee Stock Purchase Plan, as amended.(2) Incorporated By
Reference
10.10-10.11 Intentionally left blank.
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
10.15-10.18 Intentionally left blank.
*10.19 GalaGen Inc. Annual Short Term Incentive Cash Compensation Plan.(4) Incorporated By
Reference
*10.20 GalaGen Inc. Annual Long Term Incentive Stock Option Compensation Incorporated By
Plan.(4) Reference
*10.21 GalaGen Inc. 1997 Incentive Plan.(6) Incorporated By
Reference
<PAGE>
<CAPTION>
EXHIBIT NO. DESCRIPTION METHOD OF FILING
- ----------- ----------- ----------------
<S> <C> <C>
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 Land Incorporated By
O'Lakes dated March 11, 1998.(19) Reference
#10.24 License Agreement between the Company and Metagenics, Inc. dated Incorporated By
April 7, 1998.(20) Reference
10.25 Marketing Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.26 Asset Purchase Agreement between the Company and Nutrition Medical, Incorporated By
Inc., dated September 1, 1998.(21) Reference
10.27 Intentionally left blank.
10.28 Asset Purchase Agreement Amendment 1 between the Company and Incorporated By
Nutrition Medical, Inc., dated October 28, 1998.(22) Reference
10.29 Asset Purchase Agreement Amendment 2 between the Company and Incorporated By
Nutrition Medical, Inc., dated December 23, 1998.(23) Reference
#10.30 Collaboration and License Agreement between the Company and Incorporated By
American Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division, dated October 15, 1998.(24)
#10.31 Manufacturing and Supply Agreement between the Company and American Incorporated By
Home Products Corporation acting through its Wyeth-Ayerst Reference
Laboratories Division dated October 15, 1998.(24)
#10.32 Product Development Collaboration,Manufacturing and Supply, and Incorporated By
Retail Marketing Agreement between the Company and General Reference
Nutrition Corporation, dated December 22, 1998.(24)
*10.33 Letter agreement with Henry J. Cardello, dated January 1, 1999. Electronic
Transmission
10.34 Repurchase Agreement by and between GalaGen Inc. and Chiron Electronic
Corporation, dated April 1, 1999. Transmission
##10.35 Licensing and Distribution Agreement by and between GalaGen Inc. Electronic
and American Institutional Products, Inc., dated March 15, 1999. Transmission
27.1 Financial Data Schedule for the quarter ended March 31, 1999. Electronic
Transmission
27.2 Restated Financial Data Schedule for Quarter ended March 31, Incorporated By
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).
<PAGE>
(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) Intentionally not used.
(31) 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).
(32) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended June 30,
1998 (File No. 0-27976).
<PAGE>
(33) Incorporated herein by reference to the same numbered Exhibit to the
Company's Quarterly Report on Form 10-Q for the period ended September
30, 1998 (File No. 0-27976).
(34) Incorporated herein by reference to Exhibit No. 2.2 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
(35) Incorporated herein by reference to Exhibit No. 2.3 to the Company's
Report on Form 8-K, dated December 23, 1998 (File No. 0-27976).
(36) 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,
1998 (File No. 0-27976).
(37) Incorporated herein by reference to Exhibit No. 4.5 to Amendment No. 2
to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
(38) Incorporated herein by reference to Exhibit No. 4.6 to Amendment No. 2
to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
(39) Incorporated herein by reference to Exhibit No. 4.7 to Amendment No. 2
to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
(40) Incorporated herein by reference to Exhibit No. 4.8 to Amendment No. 2
to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
(41) Incorporated herein by reference to Exhibit No. 4.9 to Amendment No. 2
to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
(42) Incorporated herein by reference to Exhibit No. 4.10 to Amendment No.
2 to the Company's Registration Statement on Form S-3/A (Registration
No. 333-71883).
* 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 of which confidential treatment has been applied for
by the Company.
<PAGE>
Exhibit 10.33
DIRECT DIAL: 651-634-4244 ROBERT A. HOERR, M.D., PH.D.
FACSIMILE: 651-634-4814 CHAIRMAN AND CHIEF EXECUTIVE OFFICER
E-Mail: [email protected]
January 1, 1999
Henry J. Cardello
3001 Clipstone Court
Alpharetta, GA 30022
Dear Hank:
I am very pleased to offer you the position of President for GalaGen. A
summary of the offer is outlined below:
- Your start date will be January 1, 1999.
- Your salary will be $240,000 annually, payable in twice monthly
periods, which shall be reviewed annually and increased in keeping
with the Company's general compensation practices.
- A grant of 250,000 options for GalaGen common stock, valued at the
close of the NASDAQ market as of January 1, 1999, vesting 50,000
immediately with 200,000 vesting over 5 years at the end of each year,
and terminating in 10 years.
- You will be able to participate in the Company's annual short and long
term incentive programs, as attached, which are in addition to the
option grant above.
- Participation in GalaGen's employee benefit program, a summary of
which is attached and is subject to change from time to time.
- You will become a member of the Board of Directors, effective January
1, 1999.
- GalaGen will pay for your (i) reasonable living expenses in Arden
Hills, estimated to be approximately $1,800 per month, (ii) your
personal travel expenses, including airfare, between Atlanta and Arden
Hills, (iii) plus one airfare for spouse one time per quarter.
- As part of your employment, the Company will purchase certain assets
from MVA, Inc. and certain stock in a corporation as outlined in a
separate agreement(s), the ("Asset Purchases")
- Your vacation accrual schedule will begin at 12 hours per month.
- The Company acknowledges your other business obligations and will
permit sufficient time for you to attend to them, as long as the
Company's obligations remain fulfilled.
<PAGE>
HENRY J. CARDELLO PAGE TWO JANUARY 1, 1999
- -------------------------------------------------------------------------------
As part of this offer, you will be required to sign the standard Employee
Confidentiality Agreement and Invention and Trade Secrets Agreement, the
Policies Regarding Confidentiality and Securities Training and Annual
Certification Form, Supplemental Policy to Policies Regarding Confidentiality
and Securities Training and Annual Certification Form and Conflicts of
Interest and Business Ethics which are routine and in the normal course of
business.
Your primary responsibilities will be as outlined in Exhibit A, which you
will have the authority to conduct. Additionally, GalaGen agrees to consider
the formation of joint ventures entity(ies) for the commercialization of a
nutrition product(s), provided that the joint venture is independently
financed to support the product's commercialization.
Your employment is not for a specific term, and either party may terminate
employment at any time. However, should you choose to terminate prior to 24
months, GalaGen may decide not to continue with the Asset Purchases, at its
option. If GalaGen elects not to pursue the Asset Purchases, you will be
responsible for repayment of the Asset Purchases price on a pro rata basis of
the 24 months.
The terms described in this letter shall be the terms of your employment.
Any additions or modifications of these terms should be in writing and signed
by you and the Chief Executive Officer.
We believe that you will have a considerable effect toward the success of
GalaGen's business and look forward to having you join our team.
Sincerely,
Robert A. Hoerr
enclosures
I ACCEPT THE OFFER AS PRESENTED ABOVE:
Signed: /s/ Henry J. Cardello
---------------------------
Name: /s/ Henry J. Cardello
---------------------------
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
CEO/CFO KEY FUNCTIONS PRESIDENT
- -------------------------------------------------------------------------------------------
CORPORATE
- -------------------------------------------------------------------------------------------
<S> <C> <C>
X Board Coordination
X Public Company: External Financial Reporting
Investor Relations
X Financing
X New Technology/M&A Screening
X Regulatory
X Human Resources - Benefit/Program Admin.
Shared Internal Financials/Budgets Shared
Shared Business Development/Strategic Alliances Shared
Corp./ Public Relations Consumer
Clinical
Day-to-day Business Management X
Human Resources - Personnel X
Physical Facilities Management X
Annual/Strategic Planning X
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.34
REPURCHASE AGREEMENT
THIS AGREEMENT made and entered into as of this 1st day of April, 1999,
by and between GalaGen Inc. ("GalaGen") and Chiron Corporation ("Chiron").
WITNESSETH
WHEREAS, GalaGen has heretofore issued to Chiron three Warrants to
purchase shares of Common Stock of GalaGen, each dated March 29, 1995 (the
"Warrants");
WHEREAS, Chiron is currently the registered holder of the Warrants;
WHEREAS, Chiron desires that GalaGen repurchase the Warrants on the
terms set forth in this Agreement, and GalaGen desires to repurchase the
Warrants on such terms;
NOW THEREFORE, in consideration of the mutual agreements set forth in
this Agreement and for good and valuable other consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. REPURCHASE AND SALE OF THE WARRANTS. Subject to the terms and
conditions hereinafter set forth, and in reliance on the representations and
warranties of GalaGen contained herein, Chiron hereby agrees to sell to
GalaGen the Warrants in their entirety, for an aggregate cash purchase price
equal to $375,000. The aggregate cash purchase price set forth in the
immediately preceding sentence is hereinafter sometimes referred to as the
"Warrant Repurchase Price." Subject to the terms and conditions hereinafter
set forth, and in reliance on the representations and warranties of Chiron
contained herein, GalaGen hereby agrees to repurchase from Chiron the
Warrants in their entirety by payment of the Warrant Repurchase Price.
2. SURRENDER OF DOCUMENTS. On the Closing Date, upon payment by
GalaGen of the Warrant Repurchase Price, Chiron shall surrender and deliver
to GalaGen the original Warrants together with completed Forms of Assignment
in the forms attached to the Warrants naming GalaGen as assignee.
3. CLOSING DATE. Subject to the terms and conditions of this
Agreement, the closing of the repurchase and sale of the Warrants (the
"Closing") shall be held at the offices of GalaGen in Arden Hills, Minnesota
as soon as practicable after the execution and delivery by both parties of
this Agreement, or at such other time and/or on such other date and/or at
such other place as the parties hereto may mutually agree (the date of
Closing being herein referred to as the "Closing Date", which may be the same
as the date of this Agreement). On the Closing Date, GalaGen shall wire
transfer, or cause to be wire transferred, to the account
<PAGE>
of Chiron Corporation, account no. 14725-00611 at Bank of America - San
Francisco, ABA# 121000358, in immediately available funds, the Warrant
Repurchase Price, and Chiron shall simultaneously surrender and deliver to
GalaGen the documents referred to in paragraph 2.
4. REPRESENTATIONS AND WARRANTIES OF CHIRON. Chiron represents and
warrants to GalaGen as follows:
4.1 CORPORATE EXISTENCE AND POWER. Chiron is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power necessary to complete the sale of the
Warrants to GalaGen pursuant to the terms of this Agreement and to perform
its other obligations under this Agreement.
4.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by Chiron of this Agreement have been duly authorized by all
necessary corporate action on the part of Chiron. This Agreement constitutes
the valid and binding agreement of Chiron enforceable against Chiron in
accordance with its terms, except as (i) the enforceability of this Agreement
may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
4.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Chiron of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official, except for
filings with the Securities and Exchange Commission ("SEC") which may be
required of Chiron with respect to Chiron's ownership interest in Galagen.
4.4 NON-CONTRAVENTION. The execution, delivery and performance by
Chiron of this Agreement do not and will not (i) violate the certificate of
incorporation or bylaws of Chiron, (ii) violate any applicable statute, law,
rule, regulation, ordinance, judgment, ruling by a court, writ, injunction,
order or decree, or (iii) require any consent or other action by, or any
notice to, any person or entity under, or constitute a default or create a
penalty under, conflict with or give rise to any right of termination,
cancellation or acceleration of any right or obligation of Chiron under, any
agreement, contract, lease, license or other instrument binding upon or
applicable to Chiron.
4.5 REPRESENTATIONS REGARDING WARRANTS. Chiron is the record and
beneficial owner of the Warrants, free and clear of any pledge, lien,
security interest or other encumbrance, restriction or adverse claim (a
"Lien"), and no Lien will arise as a result of the sale of the Warrants. The
Warrants have not been altered since the original receipt thereof, except as
set forth in the Warrants, there are no limitations upon the right of Chiron
to sell the Warrants to GalaGen; and except as set forth in this Agreement,
Chiron has not granted any right to any other person or entity to acquire the
Warrants. Chiron has the right to
2
<PAGE>
surrender and deliver the Warrants to GalaGen upon receipt of the Warrant
Repurchase Price. No affiliate of Chiron has any right, title or interest in
the Warrants.
4.6 LITIGATION. There is no action, suit, investigation or
proceeding pending against or, to the knowledge of Chiron, threatened against
or affecting, Chiron or any affiliate of Chiron before any court or
arbitrator or any governmental body, agency or official as of the date of
this Agreement which in any manner challenges or seeks to prevent, enjoin,
alter or delay the transactions contemplated by this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF GALAGEN. GalaGen represents and
warrants to Chiron as follows:
5.1 CORPORATE EXISTENCE AND POWER. GalaGen is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all corporate power necessary to repurchase the Warrants
pursuant to the terms of this Agreement and perform its other obligations
under this Agreement.
5.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by GalaGen of this Agreement have been duly authorized by all
necessary corporate action on the part of GalaGen. This Agreement
constitutes the valid and binding agreement of GalaGen enforceable against
GalaGen in accordance with its terms, except as (i) the enforceability of
this Agreement may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting the enforcement of creditors' rights generally and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
5.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by GalaGen of this Agreement require no action by or in respect
of, or filing with, any governmental body, agency or official, provided that
this Agreement may have to be filed with the Securities and Exchange
Commission following the repurchase of the Warrants.
5.4 NON-CONTRAVENTION. The execution, delivery and performance by
GalaGen of this Agreement do not and will not (i) violate the certificate of
incorporation or bylaws of GalaGen, (ii) violate any applicable statute, law,
rule, regulation, ordinance, judgment, ruling by a court, writ, injunction,
order or decree or (iii) require any consent or other action by, or any
notice to, any person or entity under, or constitute a default or create a
penalty under, conflict with or give rise to any right of termination,
cancellation or acceleration of any right or obligation of GalaGen under, any
agreement, contract, lease, license or other instrument binding upon or
applicable to GalaGen, provided that this Agreement may have to be filed with
the Securities and Exchange Commission following the repurchase of the
Warrants.
3
<PAGE>
5.5 LITIGATION. There is no action, suit, investigation or
proceeding pending against, or, to the knowledge of GalaGen, threatened
against or affecting, GalaGen before any court or arbitrator or any
governmental body, agency or official as of the date of this Agreement which
in any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
6. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties contained in Sections 4 and 5 hereof shall survive the Closing
and continue indefinitely and shall be enforceable against the party making
the representations and warranties by the party for whose benefit they are
made. Such representations and warranties shall each be deemed to be
representations and warranties made as of the Closing Date (as well as the
date of this Agreement) unless an officer of the party making them shall
deliver a certificate to the contrary to the other party hereto prior to the
Closing.
7. CONDITIONS TO OBLIGATIONS.
7.1 CONDITIONS TO OBLIGATIONS OF CHIRON AND GALAGEN. The
obligations of Chiron and GalaGen to consummate the Closing are subject to
the satisfaction of the condition that no provision of any applicable law or
regulation and no judgment, injunction, order or decree shall prohibit the
consummation of the Closing.
7.2 CONDITIONS TO OBLIGATION OF GALAGEN. The obligation of
GalaGen to consummate the Closing is subject to the satisfaction of the
following further conditions:
(i) the representations and warranties of Chiron contained in
this Agreement shall be true in all material respects at and as of the
Closing Date as if made at and as of such date.
(ii) GalaGen shall have received the Warrants.
7.3. CONDITIONS TO OBLIGATION OF CHIRON. The obligation of Chiron
to consummate the Closing is subject to the satisfaction of the following
further conditions:
(i) the representations and warranties of GalaGen contained in
this Agreement shall be true in all material respects at and as of the
Closing Date as if made at and as of such date.
(ii) Chiron shall have received the Warrant Repurchase Price.
8. MISCELLANEOUS.
8.1 AMENDMENTS AND WAIVERS. Any provision of this Agreement may
be amended or waived if, but only if, such amendment or waiver is in writing
and is signed, in
4
<PAGE>
the case of an amendment, by each party to this Agreement, or in the case of
a waiver, by the party against whom the waiver is to be effective.
8.2 EXPENSES. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
8.3 SUCCESSORS AND ASSIGNS. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns; provided that no party may
assign, delegate or otherwise transfer any of its rights or obligations under
this Agreement without the consent of the other party hereto.
8.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto regarding the subject matter hereof.
8.5 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard
to the conflicts of law rules of such state.
8.6 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of
which shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
GALAGEN INC.
By /s/ ROBERT A. HOERR
-------------------------------
Its Chairman & CEO
--------------------------
CHIRON CORPORATION
By /s/ James E. Kent
-------------------------------
Its V.P., Treasurer
--------------------------
5
<PAGE>
Exhibit 10.35
LICENSING AND DISTRIBUTION AGREEMENT
THIS AGREEMENT is entered into to be effective as of the 15 day of
March, 1999, by and between GalaGen Inc., a corporation organized under the
laws of the State of Delaware, with its principal place of business at 1275
Red Fox Road, Arden Hills, Minnesota 55112-6943 USA (hereinafter "GalaGen"),
and American Institutional Products, Inc., a corporation organized under the
laws of the State of Minnesota, with its principal place of business at 501
NE 16th Avenue, Austin, Minnesota 55912 (hereinafter "Licensee").
W I T N E S S E T H :
WHEREAS, Licensee is interested and willing to manufacture under
license and distribute certain products developed by GalaGen utilizing
certain ingredients to be purchased from GalaGen by Licensee; and
WHEREAS, GalaGen is willing to license to Licensee the right to
manufacture said certain products for distribution under the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the receipt and sufficiency of which is hereby
acknowledged, GalaGen and Licensee do hereby agree as follows:
I.
RELATIONSHIP
GalaGen hereby grants Licensee the exclusive right and license to
manufacture or have manufactured, promote, market and sell GalaGen's
proprietary clinical nutrition products described in Exhibit A attached
hereto ("Products"), containing proprietary ingredients described in Exhibit
A which are to be purchased by Licensee from GalaGen ("Ingredients") to
hospitals, nursing homes and other inpatient healthcare facilities (the
"Health Market") located in the United States of America and Canada (the
"Territory"). GalaGen agrees not to grant any third party the right to
manufacture for sale or sell or to itself manufacture for sale or sell
Products to
<PAGE>
the Health Market in the Territory, and Licensee agrees that it will not sell
Products other than to the Health Market in the Territory.
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
II.
DUTIES AND OBLIGATIONS OF LICENSEE
The services to be performed by Licensee hereunder shall be all of
those services and duties specified herein and said services shall be
performed by Licensee as a Licensee for GalaGen, and neither Licensee nor its
employees shall be considered employees of GalaGen. During the term of this
Agreement:
(a) Licensee agrees that during the term and in accordance with the
provisions of this Agreement, Licensee will have manufactured the
final, complete Products utilizing the proprietary formulas and
specifications and Ingredients supplied by GalaGen. Licensee will
ensure that Products shall be manufactured:
(i) in compliance with all laws and regulations of the USA or any
political subdivision thereof applicable to the manufacture
and/or labeling of finished Products;
(ii) be wholesome and fit for human consumption;
(iii) comply with nutritional information placed on finished
Products; and
(iv) utilize Ingredients purchased from GalaGen; and
(v) comply with any formulas and specifications for Products
provided by GalaGen to Licensee in writing.
2
<PAGE>
Provided, however, that Licensee shall be excused from compliance with
its obligations hereunder only to the extent such noncompliance results
from GalaGen's failure to comply with its representations and
warranties in Section V.
(b) Licensee agrees to use its best efforts to introduce, diligently
promote the sale and use of, and secure orders for Products in the
Health Market. [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(c) Prior to [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***], the
parties will negotiate in good faith reasonable minimum numbers of
units of Products to be sold by Licensee for the following
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***] period. Six (6) months
prior to the expiration of said [***CONFIDENTIAL TREATMENT REQUESTED;
PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.***] period, and every fifth year thereafter, the parties
will negotiate in good faith reasonable minimum numbers of units of
Products to be sold by Licensee for the next [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***] year period.
(d) The parties agree to develop mutually acceptable [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.***] month's forecasts.
3
<PAGE>
(e) Licensee agrees to obtain GalaGen's prior written approval concerning
any promotional information, materials and other data supplied by
Licensee to customers and potential customers relative to Products.
(f) Licensee shall ensure that Products are sold and advertised in the form
developed by Licensee and approved by GalaGen in writing, and with the
labeling or marking jointly developed with GalaGen and agreed by
Licensee. Licensee shall not alter the same without the express, prior
written consent of GalaGen.
(g) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(h) Licensee shall obtain all licenses, permits or certificates which are
required under applicable law to conduct its business and to resell
Products to the Health Market in the Territory, and shall comply with
all laws applicable to its business.
(i) Licensee or Licensee's designated manufacturer agrees to purchase
Ingredients from GalaGen at the delivered price set forth on Exhibit B
attached hereto. [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
GalaGen shall sell and deliver Ingredients to Licensee at Rochester
Minnesota, or other location agreed upon by both parties ("Delivery
Point"). [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(j) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
4
<PAGE>
(k) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(l) This Agreement sets forth the contract terms between the parties
regarding Licensee's purchase of Ingredients from GalaGen. In the event
that there is any inconsistency between the terms and conditions in
this Agreement and those contained in either party's standard terms and
conditions, the terms of this Agreement shall apply.
(m) Licensee shall carry general liability, product liability and property
damage insurance covering all hazards, injuries, losses or damages
caused by or arising out of possession or sale of Products by Licensee
in form and amounts reasonably satisfactory to GalaGen, provided that
Licensee shall be permitted to include a self-insurance retention
feature up to [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
Licensee shall furnish GalaGen with a certificate of insurance
evidencing the same, naming GalaGen as an additional insured and
providing that GalaGen shall receive [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***] days prior written notice of any cancellation
of such insurance.
(n) GalaGen shall maintain during the term of this Agreement a policy of
general liability insurance, including products liability insurance,
business interruption insurance and contractual insurance, with limits
of no less than [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
GalaGen shall furnish Licensee with a certificate of insurance
evidencing the same, naming Licensee as an additional insured and
5
<PAGE>
providing that Licensee shall receive [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***] prior written notice of any cancellation of
such insurance.
(o) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(p) Licensee shall work with GalaGen to develop and maintain a useful
forecasting procedure to enable GalaGen to efficiently supply
Ingredients in quantities required by Licensee.
III.
DUTIES AND OBLIGATIONS OF GALAGEN
(a) GalaGen shall provide to Licensee, [***CONFIDENTIAL TREATMENT
REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION.***], such ongoing technical assistance and
training for Licensee's personnel with regard to the characteristics,
uses, applications and sale techniques of Products as GalaGen
determines, in its sole discretion, to be appropriate. [***CONFIDENTIAL
TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION.***].
GalaGen shall provide Licensee with copies of manuals and other
marketing and technical documentation relating to Products as GalaGen
shall determine in its sole discretion are desirable.
6
<PAGE>
(b) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
(c) GalaGen shall provide telemarketing support for Licensee's sales of
Products at such time and in such manner as GalaGen and Licensee may
mutually agree from time to time.
(d) GalaGen shall provide Licensee Ingredients which are suitable for the
manufacture of Products, wholesome and fit for human consumption, and
in compliance with all laws and regulations of the USA or any political
subdivision applicable to the use of Ingredients in the manufacture of
Products.
(e) GalaGen shall provide Licensee GalaGen's proprietary formulas and
specifications for the manufacture of Products utilizing Ingredients
which, if properly applied by Licensee following GalaGen's instructions
and using properly qualified personnel and facilities, will produce
Products which are (i) in compliance with all laws and regulations of
the USA, or any political subdivision thereof, applicable to the
manufacture and/or labeling of Products, (ii) wholesome and fit for
human consumption, and (iii) in compliance with such nutritional
information or other label information or promotional information as
GalaGen has authorized Licensee in writing to use in connection with
the labeling or promotion of Products.
(f) [***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
IV.
TRADEMARKS
The parties intend that the labeling of Products sold by Licensee
will bear certain
7
<PAGE>
trademarks owned by GalaGen, [*** CONFIDENTIAL TREATMENT REQUESTED; PORTION
OMITTED FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***] and
such other trademarks of GalaGen as the parties may from time to time agree in
writing (the "GalaGen Trademarks"), together with certain trademarks owned by
Licensee, including [*** CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.***] such other
trademarks of Licensee as Licensee may utilize from time to time (the
"Licensee Trademarks"). The parties intend that the Licensee Trademarks will
be the primary trademarks used on Product labels, with GalaGen Trademarks used
in an endorsement position. GalaGen Trademarks and Licensee Trademarks are
referred to collectively as the "Trademarks".
Solely for the purposes of this Agreement, GalaGen grants to
Licensee the right and license to sell Products bearing GalaGen Trademarks
together with Licensee Trademarks, subject in all cases to the following
terms and conditions:
(a) Products shall continue to meet the same high level of quality as
products presently manufactured and sold by Licensee, shall comply with
GalaGen's proprietary formulas, specifications and standards, and shall
utilize Ingredients. Licensee shall not make material changes to
Products without GalaGen's prior written agreement.
(b) Trademarks when used together shall in all cases appear in the label
presentation (size, configuration, color and placement) as agreed to in
writing from time to time between GalaGen and Licensee.
(c) Each party acknowledges that the other party's Trademarks are the other
party's sole and exclusive property, and agrees that all goodwill
arising out of the use of the other party's Trademarks shall inure
exclusively to the benefit of the other party.
(d) GalaGen Trademarks will not be presented or used by Licensee in a
manner to which GalaGen objects in writing.
8
<PAGE>
(e) The license granted by GalaGen to Licensee hereunder is for the sole
and limited purpose of Licensee performing its obligations under this
Agreement, and for no other purpose. Licensee shall not use GalaGen
Trademarks except with Products as specifically permitted under this
Agreement.
(f) The license granted by GalaGen to Licensee hereunder shall terminate
when this Agreement terminates, and thereafter, Licensee shall not use
GalaGen Trademarks in any application or for any purpose, except to
permit Licensee to sell Products in its inventory after termination as
provided in Section X(b).
(g) Licensee shall provide GalaGen access, at reasonable times, and in a
reasonable manner and with prior written notice, to inspect facilities
where Products are manufactured and stored.
Licensee shall cooperate with GalaGen in safeguarding the GalaGen Trademarks.
In the event Licensee learns of any actual or threatened infringement of, or
challenge to, Licensee's use of any GalaGen Trademark, Licensee shall notify
GalaGen immediately, and GalaGen shall have sole and absolute discretion to
take such action as it deems appropriate.
V.
GALAGEN REPRESENTATIONS AND WARRANTIES
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
VI.
INDEMNIFICATION
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
9
<PAGE>
VII.
CONFIDENTIALITY
For purposes of this Agreement, the term "Confidential Information"
means any information or compilation of information, not generally known,
which is proprietary to the disclosing party and relates to Products or the
disclosing party's other products or product research, including, without
limitation, information relating to research data, product development,
recipes, manufacturing methods or techniques, marketing data, sales and
marketing plans, customer information, financial information and any other
information about the disclosing party's business which is normally
considered confidential or is indicated in writing by the disclosing party to
be confidential or proprietary. "Confidential Information" specifically
includes any proprietary and confidential formulas and specifications
furnished by GalaGen to Licensee.
The term "Confidential Information" as used herein shall not include
any information:
(a) which was in the public domain at the time of disclosure by the disclosing
party to the receiving party;
(b) which is published or otherwise comes into the public domain after its
disclosure to the receiving party through no violation of this
Agreement by the receiving party;
(c) which is disclosed to the receiving party by a third party not under an
obligation of confidence to the disclosing party; or
(d) which is required to be produced by law or regulation or under order of
a court of competent jurisdiction; provided, however, that the
receiving party provide the disclosing party with prompt written notice
of such request or order of disclosure and that the
10
<PAGE>
receiving party cooperate with the disclosing party in seeking to resist
or narrow such request or to secure assurances that the Confidential
Information so disclosed would be kept confidential.
During the term of this Agreement and at all times thereafter, the
receiving party shall hold in strictest of confidence and shall never
disclose, transfer, convey or make accessible to any person any Confidential
Information of the disclosing party. The receiving party agrees not to use
the Confidential Information of the disclosing party except to the extent
necessary to perform its obligations under this Agreement, and agrees not to
allow such Confidential Information to be used for the benefit of anyone
other than the disclosing party. The receiving party agrees to take
reasonable precautions to prevent receiving party's employees,
representatives, agents and others from disclosing or appropriating for their
own use any Confidential Information of the disclosing party.
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION.***].
VIII.
LICENSEE IS INDEPENDENT CONTRACTOR
In performing any of the services under this Agreement, Licensee
shall be an independent contractor and is not an agent, employee, joint
venturer, partner, franchisee or legal representative of GalaGen for any
purposes whatsoever. Licensee shall not have any right or authority to incur
any indebtedness or liability of any kind on GalaGen's behalf or bind or
purport to bind GalaGen in any manner whatsoever. Licensee shall be
exclusively responsible for the manner in which it performs its duties
hereunder and for the profitability, or lack thereof, of its activities under
this Agreement. Licensee shall be solely responsible to its own employees for
any compensation due them, and for compliance with all applicable laws
imposed by any
11
<PAGE>
governmental authority regarding Licensee's employees.
IX.
DURATION - TERMINATION
This Agreement shall begin on the effective date set forth on the
first page of this Agreement, and shall continue in effect until terminated
in accordance with this Section IX, as follows:
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
X.
OBLIGATIONS UP0N TERMINATION
[***CONFIDENTIAL TREATMENT REQUESTED; PORTION OMITTED FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.***].
XI.
FORCE MAJEURE
If the performance of the obligations of the parties under this
Agreement is prevented by acts of God, civil insurrection, acts of enemies,
fire, flood, strikes, riots, war, acts of government, laws, orders,
regulations, embargoes, lack or shortage of labor, materials or
transportation, failure of plants or production facilities or other causes
beyond the reasonable control of the parties, the party affected by said
cause or causes shall immediately notify the other as to the existence of
such cause or causes and upon said notification shall be excused from its
obligation during the period of existence of such cause or causes, provided
such party shall exert commercially reasonable efforts to remove said cause
or causes.
XII.
12
<PAGE>
ASSIGNMENT
This Agreement may not be assigned or otherwise transferred by
either party hereto, by operation of law or otherwise, without the prior
written consent of the other party; provided, however, that GalaGen may,
without securing the prior written consent of Licensee, assign its rights and
obligations hereunder to a successor in any merger, sale of a controlling
interest of its stock, or sale of all, or substantially all, of its assets.
XIII.
ENTIRE AGREEMENT
This Agreement, together with Exhibits A and B attached hereto,
contains the entire agreement of the parties concerning the subject matter
hereof, and supersedes all prior communications, understandings and
agreements between the parties with respect thereto.
XIV.
AMENDMENT AND WAIVER
No purported amendment, modification, or waiver of any provision
hereof shall be binding unless set forth in a writing in the English language
signed by both parties (in the case of amendments and modifications) or by
the party to be charged thereby (in the case of waivers). Any waiver shall be
limited to the circumstance or event specifically referenced in the written
waiver document, and shall not be deemed a waiver of any other term of this
Agreement or of the same circumstance or event upon any recurrence thereof.
Only officers of GalaGen holding the same title as those who have signed this
Agreement shall have the right to execute any amendment, modification or
waiver document on behalf of GalaGen.
XV.
NOTICES
All notices and other communications required or permitted to be given
hereunder shall be in writing and shall be deemed to have been duly given (i)
when received if delivered by
13
<PAGE>
hand; (ii) the next business day after placement with a reputable overnight
carrier for next morning delivery; or (iii) four (4) business days after
deposit, if placed in the US mail for delivery by certified mail, return
receipt requested, postage prepaid, and addressed to the appropriate party at
the address set forth on page one of this Agreement. Each notice shall be
sent to the attention of such party's President. If either party should
change its address, such party shall give written notice to the other party
of the new address in the manner set forth above, but any such notice shall
not be effective until actually received by the addressee.
XVI.
SEVERABILITY
Should any part of this Agreement, for any reason, be declared
invalid, such decision shall not affect the validity of any remaining
portions, and such remaining portion shall remain in full force and effect as
if this Agreement had been executed with the invalid portion eliminated.
XVII.
INJUNCTIVE RELIEF
In addition to any other relief afforded by law, each party shall
have the right to enforce covenants contained in Sections II(e), VII and
IX(c) of this Agreement by specific performance and preliminary, temporary
and permanent injunctive relief against the other party or any other person
concerned thereby. Damages, specific performance and injunctive relief shall
be considered proper modes of relief and are not to be considered alternative
remedies.
XVIII.
APPLICABLE LAW
This Agreement and the rights and obligations of the parties
hereunder shall be governed by, construed and enforced in accordance with the
laws of the State of Minnesota, excluding any choice of law rules which would
refer the matter to the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year
14
<PAGE>
first above written.
GALAGEN INC. AMERICAN INSTITUTIONAL PRODUCTS,
("GalaGen") INC. ("Licensee")
By: /s/ Henry J. Cardello By: /s/ Dan McHugh
-------------------------- ---------------------------------
Its: President Its: Vice President & General Manager
------------------------- --------------------------------
Date: March 12, 1999 Date: March 15, 1999
------------------------ -------------------------------
15
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED MARCH 31, 1999
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,067,026
<SECURITIES> 0
<RECEIVABLES> 265,689
<ALLOWANCES> 0
<INVENTORY> 497,128
<CURRENT-ASSETS> 3,994,075
<PP&E> 677,704
<DEPRECIATION> 302,549
<TOTAL-ASSETS> 5,233,869
<CURRENT-LIABILITIES> 903,981
<BONDS> 0
0
0
<COMMON> 89,840
<OTHER-SE> 4,195,048
<TOTAL-LIABILITY-AND-EQUITY> 5,233,869
<SALES> 435,542
<TOTAL-REVENUES> 583,533
<CGS> 186,861
<TOTAL-COSTS> 1,494,412
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,750
<INCOME-PRETAX> (860,404)
<INCOME-TAX> 0
<INCOME-CONTINUING> (860,404)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860,404)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
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