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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION
REPORTS PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended May 31, 1999
[ ] 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 0-24050
NORTHFIELD LABORATORIES INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State of Other Jurisdiction of Incorporation or Organization)
36-3378733
(I.R.S. Employer Identification Number)
1560 SHERMAN AVENUE, SUITE 1000, EVANSTON, ILLINOIS
(Address of Principal Executive Offices)
60201-4800
(Zip Code)
(847) 864-3500
(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
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. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in the definitive proxy or
information statement incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [X]
As of August 25, 1999, 14,239,875 shares of the Registrant's common
stock, par value $.01 per share, were outstanding. On that date, the aggregate
market value of voting stock (based upon the closing price of the Registrant's
common stock on August 25, 1999) held by non-affiliates of the Registrant was
$129,180,858 (10,878,388 shares at $11.875 per share).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1999 Annual
Meeting are incorporated by reference into Part III of this Form 10-K.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Annual Report contains forward-looking statements concerning,
among other things, our prospects, clinical and regulatory developments
affecting our potential product and our business strategies. These
forward-looking statements are identified by the use of such terms as "intends,"
"expects," "plans," "estimates," "anticipates," "should" and "believes" and are
in certain cases followed by a cross reference to "Risk Factors."
These forward-looking statements involve risks and uncertainties.
Actual results may differ materially from those predicted by the forward-looking
statements because of various factors and possible events, including those
discussed under "Risk Factors." Because these forward-looking statements involve
risks and uncertainties, actual results may differ significantly from those
predicted in these forward-looking statements. You should not place a lot of
weight on these statements. These statements speak only as of the date of this
document or, in the case of any document incorporated by reference, the date of
that document.
All subsequent written and oral forward-looking statements attributable
to Northfield or any person acting on our behalf are qualified by the cautionary
statements in this section. We will have no obligation to revise these
forward-looking statements.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Northfield Laboratories Inc. believes it is a leader in the development
of a safe and effective alternative to transfused blood for use in the treatment
of acute blood loss. Our PolyHeme(TM) blood substitute product is a solution of
chemically modified hemoglobin derived from human blood. Clinical studies to
date indicate that PolyHeme carries as much oxygen, and loads and unloads oxygen
in the same manner, as transfused blood. Infusion of PolyHeme also restores
blood volume. Therefore, PolyHeme should be effective as an oxygen-carrying
resuscitative fluid in the treatment of hemorrhagic shock resulting from
extensive blood loss. Our method of manufacturing PolyHeme is designed to
eliminate the risk of transmission of diseases such as AIDS or hepatitis.
Clinical studies to date indicate that PolyHeme is universally compatible and
accordingly should not require blood typing prior to infusion. Therefore,
PolyHeme should be available for immediate use in emergency situations. In
addition, PolyHeme has an extended shelf life compared to blood.
We are presently conducting clinical trials of PolyHeme at multiple
locations in the United States. Our clinical trials include the infusion of
PolyHeme in elective surgical procedures as well as in trauma and emergency
surgical applications. We are authorized by the Food and Drug Administration to
infuse elective surgical patients with up to six units of PolyHeme. The average
person has the equivalent of 10 units of circulating blood. Patients
participating in our trauma and emergency surgical trials may receive up to 20
units of PolyHeme. We are the only firm to report successful infusion of such
high doses of a blood substitute in any phase of clinical testing.
Infusions have been given during resuscitation, intraoperatively and
postoperatively. The rate of infusion has varied with the clinical setting. The
most rapid rate consisted of the infusion of 20 units in 20 minutes during rapid
hemorrhage. No substantive safety concerns attributed to the infusion of
PolyHeme have been observed. The results of our ongoing clinical trials have
been presented to the American Association for the Surgery of Trauma and the
American College of Surgeons, and have been published in the September 1997
issue of the Journal of Trauma and the August 1998 issue of the Journal of the
American College of Surgeons, both peer-reviewed scientific journals.
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BACKGROUND
The principal function of human blood is to transport oxygen throughout
the body. The lack of an adequate supply of oxygen as a result of blood loss can
lead to organ dysfunction or death. The transfusion of human blood is presently
the only effective means of immediately restoring diminished oxygen-carrying
capacity resulting from blood loss. We estimate that approximately 14 million
units of blood were transfused in the United States in 1998, of which
approximately 8.5 million units were administered to patients suffering the
effects of acute blood loss.
The use of donated blood in transfusion therapy, while effective in
restoring an adequate supply of oxygen in the body of the recipient, has several
limitations. Although testing procedures exist to detect the presence of certain
diseases in blood, these procedures cannot eliminate completely the risk of
blood-borne disease. Transfused blood also can be used only in recipients having
a blood type compatible with that of the donor. Delays in treatment resulting
from the necessity of blood typing prior to transfusion, together with the
limited shelf life of blood and the limited availability of certain blood types,
impose constraints on the immediate availability of compatible blood for
transfusion. There is no commercially available blood substitute which addresses
these problems.
Our scientific research team has been responsible for the original
concept, the early development and evaluation and clinical testing of PolyHeme,
and have authored over 100 publications in the scientific literature relating to
human blood substitute research and development. Members of our scientific
research team have been involved in development of national transfusion policy
through their participation in the activities of the National Heart Lung Blood
Institute, the National Blood Resource Education Panel, the Department of
Defense, the American Association of Blood Banks, the American Blood Commission,
the American College of Surgeons and the American Red Cross.
THE PRODUCT
PolyHeme is a solution of chemically modified hemoglobin derived from
human blood. Hemoglobin is the oxygen-carrying component of the human red blood
cell. We purchase donated blood from The American Red Cross and Blood Centers of
America for use as the starting material for PolyHeme. We use a proprietary
process of separation, filtration and chemical modification to produce PolyHeme.
Hemoglobin is first extracted from red blood cells and filtered to remove
impurities. The purified hemoglobin is next chemically modified using a
multi-step process to create a polymerized form of hemoglobin designed to avoid
the undesirable effects historically associated with hemoglobin-based blood
substitutes, including vasoconstriction, kidney dysfunction, liver dysfunction
and gastrointestinal distress. The modified hemoglobin is then incorporated into
a solution which can be administered as an alternative to transfused blood. One
unit of PolyHeme contains 50 grams of modified hemoglobin, approximately the
same amount of hemoglobin delivered by one unit of transfused blood.
PolyHeme is intended for use as an alternative to transfused blood in
the treatment of acute blood loss. Clinical studies to date indicate that
PolyHeme carries as much oxygen, and loads and unloads oxygen in the same
manner, as transfused blood. Infusion of PolyHeme also restores blood volume.
Therefore, PolyHeme should be effective as an oxygen-carrying resuscitative
fluid in the treatment of hemorrhagic shock resulting from extensive blood loss.
In addition to its utility as an oxygen carrier and blood volume
expander, we believe PolyHeme will have the following additional benefits:
IMPACT ON DISEASE TRANSMISSION. We believe, and laboratory and
clinical tests have thus far indicated, that the manufacturing process used to
produce PolyHeme reduces blood-borne diseases, such as AIDS and hepatitis below
detectable levels, which may be present in transfused blood.
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UNIVERSAL COMPATIBILITY. Clinical studies to date indicate
that PolyHeme is universally compatible and accordingly should not require blood
typing prior to use. The benefits of universal compatibility include the ability
to use PolyHeme immediately, the elimination of transfusion reactions due to
mistakes in blood typing, and the reduction of the inventory burden associated
with maintaining sufficient quantities of blood types having limited
availability.
EXTENDED SHELF LIFE. We believe PolyHeme has a shelf life well
in excess of the 28 to 42 days currently permitted for blood. We estimate that
PolyHeme has a shelf life of approximately 12 months under refrigerated
conditions.
THE MARKET
We estimate that approximately 14 million units of blood were
transfused in the United States in 1998, of which approximately 8.5 million
units were administered to patients suffering the effects of acute blood loss.
Patient charges for the units of blood used in the United States in 1998 for the
treatment of acute blood loss were approximately $2.5 billion. The transfusion
market in the United States consists of two principal segments. The acute blood
loss segment, which comprises approximately 60% of the transfusion market,
includes transfusions required in connection with trauma, surgery and unexpected
blood loss. The chronic blood loss segment represents approximately 40% of the
transfusion market and includes transfusions in connection with general medical
applications and chronic anemias.
PolyHeme is intended for use as an alternative to transfused blood in
the treatment of acute blood loss. The two principal clinical settings in which
patients experience acute blood loss are elective surgery and non-elective,
emergency surgery. Elective surgery represents the largest potential market for
PolyHeme, with approximately 6.5 million units of blood being used in the United
States each year. The major benefit of PolyHeme in this setting is expected to
be increased transfusion safety for patients and health care professionals. In
addition, approximately two million units of blood are used in the United States
each year for emergency surgical procedures. In this setting, the immediate
availability and universal compatibility of PolyHeme is expected to provide
significant advantages over transfused blood by avoiding the delay and
opportunities for error associated with blood typing.
In addition to the foregoing applications for which blood is currently
used, there exist potential sources of demand for which blood is not currently
utilized and for which PolyHeme may be suitable. These include applications in
which the required blood type is not immediately available or in which
transfusions are desirable but not given for fear of a transfusion reaction due
to difficulty in identifying compatible blood. For example, we believe
emergicenters and surgicenters both experience events where an oxygen-carrying
volume expander may be useful. We also believe PolyHeme may be used by Emergency
Medical Technicians in ambulances, medical helicopters and other prehospital
settings. In addition, the military has expressed a high level of interest in
oxygen-carrying products for the resuscitation of battlefield casualties.
CLINICAL TRIALS
Infusions have been given during resuscitation, intraoperatively and
postoperatively. The rate of infusion has varied with the clinical setting. The
most rapid rate consisted of the infusion of 20 units in 20 minutes during rapid
hemorrhage. No substantive safety concerns attributed to the infusion of
PolyHeme have been observed. The results of our ongoing clinical trials have
been presented to the American Association for the Surgery of Trauma and the
American College of Surgeons, and have been published in the September 1997
issue of the Journal of Trauma and the August 1998 issue of the Journal of the
American College of Surgeons, both peer-reviewed scientific journals.
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ELECTIVE SURGICAL APPLICATIONS
We are presently conducting Phase III clinical trials of PolyHeme at
multiple locations in the United States. Our Phase III clinical protocol is a
randomized controlled study in which informed elective surgical patients are
infused with up to six units of PolyHeme (three liters containing 300 grams of
hemoglobin).
We have engaged an international contract research organization to
independently administer the collection of patient data generated by test sites
participating in our Phase III clinical trials. The purpose of independent
administration is to ensure that data collected as part of Phase III trials is
free from any inaccuracy or bias that might result from interactions between the
testing sites and the trial sponsor. As a result of this arrangement, we will
not have access to detailed information regarding the status or results of our
Phase III clinical trials until patient enrollment is completed.
TRAUMA AND EMERGENCY SURGICAL APPLICATIONS
In addition to our Phase III trials, we are continuing to conduct Phase
II clinical trials of PolyHeme in trauma and emergency surgical applications at
civilian hospitals and military medical facilities in the United States. These
continuing clinical trials, which began in 1994, are designed to assess the
safety and effectiveness of PolyHeme in treating acute blood loss and
hemorrhagic shock in trauma and surgical patients. We are authorized by the FDA
to infuse up to 20 units (1000 grams) of PolyHeme to patients participating in
our clinical trials in trauma and emergency surgical applications. This
unprecedented dose is equivalent to twice the blood volume of an average person.
MANUFACTURING AND MATERIAL SUPPLY
We use a proprietary process of separation, filtration and chemical
modification to produce PolyHeme. Since 1990, we have produced PolyHeme in our
21,000 square foot manufacturing facility. We believe this facility is capable
of producing sufficient quantities of PolyHeme for all of our clinical trials in
the United States. We and our independent engineering consultants believe that
our existing manufacturing process may be scaled up without substantial
modification to produce commercial quantities of PolyHeme in larger facilities.
If FDA approval of PolyHeme is received, we presently intend to
manufacture PolyHeme for commercial sale in the United States using our own
facilities. We currently have licensing arrangements for the manufacture of
PolyHeme in certain countries outside the United States. We are also considering
entering into other collaborative relationships with strategic partners which
could involve arrangements relating to the manufacture of PolyHeme.
The successful commercial introduction of PolyHeme will also depend on
an adequate supply of blood to be used as a starting material. We believe that
an adequate supply of blood is obtainable through the voluntary blood services
sector. We have had extensive discussions with existing blood collection
agencies, including The American Red Cross and Blood Centers of America,
regarding sourcing of blood. We currently have short-term purchasing contracts
with each of these agencies. In 1996, we entered into an agreement with
hemerica, Inc., a subsidiary of Blood Centers of America, under which hemerica
will supply us with 82,500 units per year of packed red cells, the source
material for PolyHeme, over a three year period. We have and will continue to
pursue long-term supply contracts with such agencies and other potential
sources, although we cannot ensure that we will be able to obtain sufficient
quantities of blood from the voluntary blood services sector to enable it to
produce commercial quantities of PolyHeme if FDA approval is received.
MARKETING STRATEGIES
If FDA approval of PolyHeme is received, we intend to market PolyHeme
with our own sales force in the United States. We intend to recruit and train a
specialty sales force of approximately 20 individuals to introduce PolyHeme in
selected markets. The selling effort will target approximately 500 hospitals
which utilize over 70% of the nation's blood
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supply. We believe the most important marketing activities will be educating,
stimulating use by and servicing health care professionals.
We may pursue licenses or other arrangements for the manufacture and
distribution of PolyHeme both inside and outside the United States. We have
entered into license agreements with Pharmacia & Upjohn AB and Hemocare Ltd., an
Israeli corporation, to develop, manufacture and distribute PolyHeme in certain
European, Middle Eastern and African countries. The license agreements permit
Pharmacia and Hemocare to utilize PolyHeme and related manufacturing technology
in return for the payment of royalties based upon sales of PolyHeme in the
licensed territories.
In March 1989, we granted Pharmacia an exclusive license to
manufacture, promote and sell PolyHeme in a territory encompassing the United
Kingdom, Germany, the Scandinavian countries and certain countries in the Middle
East. Under the terms of the license agreement, Pharmacia has the right, upon
consultation with us, to promote and sell PolyHeme in the licensed territory
under its own trademark. The license agreement with Pharmacia provides for a
nonrefundable initial fee, two additional nonrefundable fees based upon our
achievement of certain regulatory milestones, and ongoing royalty payments based
upon net sales of PolyHeme in the licensed territory. The license agreement
further provides for a reduction of royalty payments upon the occurrence of
certain events. In addition, under the terms of the agreement, we have the right
under certain circumstances to direct Pharmacia's clinical testing of PolyHeme
in the licensed territory.
In July 1990, we granted Hemocare an exclusive license to manufacture,
promote and sell PolyHeme in a territory encompassing Israel, Cyprus, Ivory
Coast, Jordan, Kenya, Lebanon, Liberia, Nigeria and Zaire. Under the terms of
the license agreement, Hemocare has the right, upon consultation with us, to
promote and sell PolyHeme in the licensed territory under its own trademark. The
license agreement with Hemocare provides for royalty payments based on net sales
of PolyHeme in the licensed territory. In addition, under the terms of the
license agreement, we have the right under certain circumstances to direct
Hemocare's clinical testing of PolyHeme in the licensed territory.
Our present plans with respect to the marketing and distribution of
PolyHeme in the United States and overseas may change significantly based on the
results of the clinical testing of PolyHeme, the establishment of relationships
with strategic partners, changes in the scale, timing and cost of our commercial
manufacturing facility, competitive and technological advances, the FDA
regulatory process, the availability of additional funding and other factors.
COMPETITION
If approved for commercial sale, PolyHeme will compete directly with
established therapies for acute blood loss and may compete with other
technologies currently under development. We cannot ensure that PolyHeme will
have advantages which will be significant enough to cause medical professionals
to adopt it rather than to continue to use established therapies or other new
technologies or products. We also cannot ensure that the price of PolyHeme, in
light of PolyHeme's potential advantages, will be competitive with the price of
established therapies or other new technologies or products.
We believe that the treatment of acute blood loss is the setting most
likely to lead to FDA approval and the application which presents the greatest
market opportunity. However, several companies have developed or are in the
process of developing technologies which are, or in the future may be, the basis
for products which will compete with PolyHeme. Certain of these companies are
pursuing different approaches or means of accomplishing the therapeutic effects
sought to be achieved through the use of PolyHeme. Many of these companies have
substantially greater financial resources, larger research and development
staffs, more extensive facilities and more experience than Northfield in
testing, manufacturing, marketing and distributing medical products. We cannot
ensure that one or more other companies will not succeed in developing
technologies and products which will be available for commercial use prior to
PolyHeme, which will be more effective or less costly than PolyHeme or which
would otherwise render PolyHeme obsolete or noncompetitive.
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We believe that important competitive factors in the market for blood
substitute products will include the relative speed with which competitors can
develop their respective products, complete the clinical testing and regulatory
approval process and supply commercial quantities of their products to the
market. In addition to these factors, competition is expected to be based on the
effectiveness of blood substitute products and the scope of the intended uses
for which they are approved, the scope and enforceability of patent or other
proprietary rights, product price, product supply and marketing and sales
capability. We believe that our competitive position will be significantly
influenced by the timing of the clinical testing and regulatory filings for
PolyHeme, our ability to expand its manufacturing capability to permit
commercial production of PolyHeme, if approved, and our ability to maintain and
enforce our proprietary rights covering PolyHeme and its manufacturing process.
GOVERNMENT REGULATION
The manufacture and distribution of PolyHeme and the operation of our
manufacturing facilities will require the approval of United States government
authorities as well as those of foreign countries. In the United States, the FDA
regulates medical products, including the category known as "biologicals" which
includes PolyHeme. The Federal Food, Drug and Cosmetic Act and the Public Health
Service Act govern the testing, manufacture, safety, effectiveness, labeling,
storage, record keeping, approval, advertising and promotion of PolyHeme. In
addition to FDA regulations, we are also subject to other federal and state
regulations, such as the Occupational Safety and Health Act and the
Environmental Protection Act. Product development and approval within this
regulatory framework requires a number of years and involves the expenditure of
substantial funds.
The steps required before a biological product may be sold commercially
in the United States include preclinical testing, the submission to the FDA of
an Investigational New Drug application, clinical trials in humans to establish
the safety and effectiveness of the product, the submission to the FDA of a
Biologic License Application relating to the product and the manufacturing
facilities to be used to produce the product for commercial sale, and FDA
approval of a BLA.
Preclinical tests include evaluation of product chemistry and studies
to assess the safety and effectiveness of the product and its formulation. The
results of the preclinical tests are submitted to the FDA as part of the
Investigational New Drug application. The goal of clinical testing is the
demonstration in adequate and well-controlled studies of substantial evidence of
the safety and effectiveness of the product in the setting of its intended use.
The results of preclinical and clinical testing are submitted to the FDA from
time to time throughout the trial process. In addition, before approval for the
commercial sale of a product can be obtained, results of the preclinical and
clinical studies must be submitted to the FDA in the form of a BLA. The testing
and approval process requires substantial time and effort and there can be no
assurance that any approval will be granted on a timely basis, if at all. The
approval process is affected by a number of factors, including the severity of
the condition being treated, the availability of alternative treatments and the
risks and benefits demonstrated in clinical trials. Additional preclinical
studies or clinical trials may be requested during the FDA review process and
may delay product approval. After FDA approval for its initial indications,
further clinical trials may be necessary to gain approval for the use of a
product for additional indications. The FDA may also require post-marketing
testing, which can involve significant expense, to monitor for adverse effects.
Among the conditions for BLA approval is the requirement that the
prospective manufacturer's quality controls and manufacturing procedures conform
to FDA requirements. In addition, domestic manufacturing facilities are subject
to biennial FDA inspections and foreign manufacturing facilities are subject to
periodic FDA inspections or inspections by the foreign regulatory authorities
with reciprocal inspection agreements with the FDA. Outside the United States,
we are also subject to foreign regulatory requirements governing clinical trials
and marketing approval for medical products. The requirements governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary
widely from country to country.
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Our regulatory strategy is to pursue clinical testing and FDA approval
of PolyHeme in the United States. We intend to arrange for testing and seek
regulatory approval of PolyHeme outside the United States through licensing or
other arrangements with other foreign or domestic companies.
PATENTS AND PROPRIETARY RIGHTS
We own four United States patents relating to PolyHeme, its
uses and certain of our manufacturing processes. We have obtained counterpart
patents and have additional patent applications pending in Canada, Israel and
various European Union countries. Our United States patents expire in 2006. We
have a policy of seeking patents covering the important techniques, processes
and applications developed from our research and all modifications and
improvements thereto. We also rely upon trade secrets, know-how, continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position. We will continue to seek appropriate protection for
our proprietary technology.
We cannot ensure that our patents or other proprietary rights
will be determined to be valid or enforceable if challenged in court or
administrative proceedings or that we will not become involved in disputes with
respect to the patents or proprietary rights of third parties. An adverse
outcome from these proceedings could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties or
require us to stop using our technology, any of which would result in a material
adverse effect on our results of operations.
RESEARCH AND DEVELOPMENT
Since 1991, the principal focus of our research and
development effort has been the support of the clinical trials necessary for
regulatory approval of PolyHeme. We have also contracted for the preliminary
engineering necessary to assess the production of PolyHeme in commercial
quantities.
In fiscal 1999, 1998 and 1997, our research and development
expenses totaled $7,661,000, $6,675,000, and $5,188,000, respectively. We
anticipate that these expenses will continue to increase as we fund the further
clinical testing of PolyHeme and prepare for production of PolyHeme in
commercial quantities.
HUMAN RESOURCES
As of May 31, 1999, we had 42 employees, of whom 35 were
involved in research and development and seven were responsible for financial
and other administrative matters. We also had consulting arrangements with seven
individuals as of that date. None of our employees are represented by labor
unions, and we are not aware of any organizational efforts on behalf of any
labor unions involving our employees. We consider our relations with our
employees to be excellent.
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RISK FACTORS
You should consider the following matters when reviewing the information
contained in this document. You also should consider the other information
incorporated by reference in this document.
NEED FOR EXTENSIVE CLINICAL TRIALS
The results of our clinical trials may not be sufficient at
present to demonstrate adequately the safety and effectiveness of PolyHeme in
order to file a Biologic License Application ("BLA") with the FDA. If additional
trials are necessary, they may be expensive and time-consuming. The timing of
the FDA review process is uncertain. We cannot ensure that we will be able to
complete our clinical trials successfully or obtain FDA approval of PolyHeme, or
that FDA approval, if obtained, will not include limitations on the indicated
uses for which PolyHeme may be marketed. Our business, financial condition and
results of operations are critically dependent on receiving FDA approval of
PolyHeme. A significant delay in our clinical trials or a failure to achieve FDA
approval of commercial sales of PolyHeme would have a material adverse effect on
us and could result in the cessation of our business. We or the FDA may in the
future suspend clinical trials at any time if it is believed that the subjects
participating in such trials are being exposed to unacceptable health risks.
GOVERNMENT REGULATION AND UNCERTAINTY OF PRODUCT APPROVALS
Our research, development, testing, manufacturing, marketing
and distribution of PolyHeme are, and will continue to be, subject to extensive
regulation, monitoring and approval by the FDA and its foreign counterparts. The
regulatory approval process to establish the safety and effectiveness of
PolyHeme and the safety and reliability of our manufacturing process has already
consumed several years and considerable expenditures. The data obtained from
clinical trials are susceptible to varying interpretations, which could delay,
limit or prevent FDA regulatory approval. The lack of established criteria for
evaluating the effectiveness of blood substitute products could also delay or
prevent FDA regulatory approval. In addition, delay or rejection could be caused
by changes in FDA policies and regulations. Similar delays or rejections may
also be encountered in foreign countries. We cannot ensure that, even after
extensive clinical trials, regulatory approval will ever be obtained for
PolyHeme. Under new FDA guidelines, the FDA may comment upon the acceptability
of a BLA following its submission. We cannot ensure that the FDA will accept our
BLA or, if our BLA is deemed acceptable, that PolyHeme will ultimately be
approved for manufacture and sale based on our BLA. Moreover, if regulatory
approval of PolyHeme is granted, the approval may include limitations on the
indicated uses for which PolyHeme may be marketed. Further, even if such
regulatory approval is obtained, we do not presently have manufacturing
facilities sufficient to produce commercial quantities of PolyHeme. In order to
seek FDA approval of the sale of PolyHeme produced at its first commercial
manufacturing facility, we may be required to conduct a portion of our clinical
trials with product manufactured at that facility. Discovery of previously
unknown problems with PolyHeme or unanticipated problems with our manufacturing
facilities, even after FDA approval of PolyHeme for commercial sale, may result
in the imposition of significant restrictions, including withdrawal of PolyHeme
from the market. Additional laws and regulations may also be enacted which could
prevent or delay regulatory approval of PolyHeme, including laws or regulations
relating to the price or cost-effectiveness of medical products. Any delay or
failure to achieve regulatory approval of commercial sales of PolyHeme is likely
to have a material adverse effect on our financial condition.
EARLY STAGE OF DEVELOPMENT
Northfield was founded in 1985 and is a development stage
company. Since 1985, we have been engaged primarily in the development and
clinical testing of PolyHeme. No revenues have been generated to date from
commercial sales of PolyHeme. Our revenues to date have consisted solely of
license fees and interest income. We cannot ensure that our clinical testing
will be successful, that regulatory approval of PolyHeme will be obtained, that
we will be able to manufacture PolyHeme at an acceptable cost and in appropriate
quantities or that we will be able
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to successfully market and sell PolyHeme. We also cannot ensure that we will not
encounter unexpected difficulties which will have a material adverse effect on
us, our operations or our properties.
RELIANCE ON SINGLE PRODUCT: TECHNOLOGICAL RISK
Northfield's operations have to date consisted primarily of
the development and clinical testing of PolyHeme. We do not expect to realize
product revenues unless we successfully develop and achieve commercial
introduction of PolyHeme. We expect that such revenues, if any, will be derived
solely from sales of PolyHeme. We also expect the use of PolyHeme to be limited
primarily to the acute blood loss segment of the transfusion market. The
biomedical field has undergone rapid and significant technological changes.
Technological developments may result in PolyHeme becoming obsolete or
non-competitive before we are able to recover any portion of the research and
development and other expenses we have incurred to develop and clinically test
PolyHeme. Any such occurrence would have a material adverse effect on us and our
operations.
MANUFACTURING UNCERTAINTIES
We intend to build a commercial-scale manufacturing facility
significantly larger than that currently being used to produce PolyHeme for our
clinical testing. We have no experience in commercial-scale manufacturing, and
there can be no assurance that we can achieve commercial-scale manufacturing
capacity. It is also possible that we may incur substantial cost overruns and
delays compared to existing estimates in building and equipping a
commercial-scale manufacturing facility. Moreover, in order to seek FDA approval
of the sale of PolyHeme produced at our first commercial manufacturing facility,
we may be required to conduct a portion of our clinical trials with product
manufactured at that facility. Accordingly, a delay in achieving scale-up of
manufacturing capabilities will have a material adverse effects on the
completion of our clinical trials and therefore on the commercial manufacture
and sale of PolyHeme. Additionally, the manufacture of PolyHeme will be subject
to extensive government regulation. Among the conditions for marketing approval
is that our quality control and manufacturing procedures conform to the FDA's
good manufacturing practice regulations. We cannot ensure that we will be able
to obtain the necessary regulatory clearances or approvals to manufacture
PolyHeme on a timely basis or at all.
LIMITATION OF SUPPLY OF STARTING MATERIAL
We currently purchase donated blood from The American Red
Cross and Blood Centers of America for use as the starting material for
PolyHeme. In 1996, we entered into an agreement with hemerica, Inc., a
subsidiary of Blood Centers of America, under which hemerica would supply us
with 82,500 units per year of packed red cells, the source material for
PolyHeme, over a three year period. We have plans to enter long-term supply
arrangements with other blood collectors. We cannot ensure that we will be able
to enter into satisfactory long-term arrangements with blood bank operators,
that the price we may be required to pay for starting material will permit us to
price PolyHeme competitively or that we will be able to obtain an adequate
supply of starting material. Additional demand for blood may arise from
competing blood substitute products, some of which are derived from human blood,
thereby limiting our available supply of starting material.
COMPETITION
If approved for commercial sale, PolyHeme will compete
directly with established therapies for acute blood loss and may compete with
other technologies currently under development. We cannot ensure that PolyHeme
will have advantages which will be significant enough to cause medical
professionals to adopt it rather than to continue to use established therapies
or to adopt other new technologies or products. We also cannot ensure that the
cost of PolyHeme will be competitive with the cost of established therapies or
other new technologies or products. The development of blood substitute products
is a rapidly evolving field. Competition is intense and expected to increase.
Several companies have developed or are in the process of developing
technologies which are, or in the future may
<PAGE> 12
be, the basis for products which will compete with PolyHeme. Certain of these
companies are pursuing different approaches or means of accomplishing the
therapeutic effects sought to be achieved through the use of PolyHeme. Many of
these companies have substantially greater financial resources, larger research
and development staffs, more extensive facilities and more experience than
Northfield in testing, manufacturing, marketing and distributing medical
products. We cannot ensure that one or more other companies will not succeed in
developing technologies or products which will become available for commercial
use prior to PolyHeme, which will be more effective or less costly than PolyHeme
or which would otherwise render PolyHeme obsolete or non-competitive.
ABSENCE OF SALES AND MARKETING EXPERIENCE
If approved for commercial sale, we intend to market PolyHeme in the
United States using our own sales force. We have no experience in the sale or
marketing of medical products. Our ability to implement our sales and marketing
strategy for the United States will depend on our ability to recruit, train and
retain a marketing staff and sales force with sufficient technical expertise. We
cannot ensure that we will be able to establish an effective marketing staff and
sales force, that the cost of establishing such a marketing staff and sales
force will not exceed revenues from the sale of PolyHeme or that our marketing
and sales efforts will be successful.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY OR FUNDING
From Northfield's inception through May 31, 1999, we have incurred net
operating losses totaling $68,157,000. We will require substantial additional
expenditures to complete clinical trials, to establish commercial scale
manufacturing processes and facilities, and to establish marketing, sales and
administrative capabilities. These expenditures are expected to result in
substantial losses for at least the next several years. The expense and the time
required to realize any product revenues or profitability are highly uncertain.
We cannot ensure that we will be able to achieve product revenues or
profitability on a sustained basis or at all. We may require substantial
additional funds to achieve commercial production of PolyHeme. Our future
capital requirements will depend on many factors, including the scope and
results of clinical trials, the timing and outcome of regulatory reviews,
administrative and legal expenses, the status of competitive products, the
establishment of manufacturing capacity and the establishment of collaborative
relationships. We cannot ensure that this additional funding will be available
or, if it is available, that it can be obtained on terms and conditions we will
deem acceptable. Any additional funding may result in significant dilution to
then existing stockholders.
UNCERTAINTY OF MARKET ACCEPTANCE
We anticipate that the market price for PolyHeme, if FDA approval is
received, will exceed the cost of transfused blood. Competitors may also develop
new technologies or products which are more effective or less costly than
PolyHeme. We cannot ensure that the price of PolyHeme, considered in relation to
PolyHeme's expected benefits, will be perceived by health care providers and
third party payors as cost-effective, or that the price of PolyHeme will be
competitive with transfused blood or with other new technologies or products.
Our results of operations may be adversely affected if the price of PolyHeme is
not considered cost-effective or if PolyHeme does not otherwise receive market
acceptance.
UNCERTAINTY OF PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
Our ability to compete effectively with other companies will depend, in
part, on our ability to protect and maintain the proprietary nature of our
technology. We cannot be certain as to the degree of protection offered by our
patents or as to the likelihood that additional patents in the United States and
certain other countries will be issued based upon pending patent applications.
Patent applications in the United States are maintained in secrecy until patents
are issued. We cannot be certain that we were the first creator of the
inventions covered by our patents or pending patent applications or that we were
the first to file patent applications for our inventions. The high costs of
enforcing patent and other proprietary rights may also limit the degree of
protection afforded to us. We also rely on unpatented proprietary technology,
and we cannot ensure that others may not independently develop the same or
similar technology or otherwise obtain access to our proprietary technology. We
cannot ensure that our patents or other proprietary rights will be determined to
be valid or enforceable if challenged in court or administrative proceedings or
that we will not become involved in disputes with respect to the patents or
proprietary rights of third parties. An adverse outcome from these proceedings
could subject us to significant liabilities to third parties, require disputed
rights to be licensed from third parties or require us to stop using this
technology, any of which would result in a material adverse effect on our
results of operations.
<PAGE> 13
PART II
ITEM 2. PROPERTIES.
We currently lease a 21,000 square foot pilot manufacturing facility
located in Mt. Prospect, Illinois, and maintain our principal executive offices
in Evanston, Illinois. The leases for our manufacturing facility and executive
offices extend through June 2003 and February 2006, respectively. Rent expense
for our 1999 fiscal year was $499,491. We believe our present manufacturing
facility is capable of producing sufficient quantities of PolyHeme for all of
our clinical trials in the United States.
Currently, we are planning a two-step expansion. After a two-month
shutdown this fall, new equipment will be installed in our current Mt. Prospect,
Illinois manufacturing facility to bring our manufacturing capacity to
approximately 10,000 units. During the second phase of the expansion, we plan to
lease additional facilities adjacent to our current Mt. Prospect facility. Our
preliminary engineering studies indicate that additional capacity of 50-60,000
units could be developed in approximately 16-18 months at a cost of $18-20
million. Northfield is taking this approach due to the capital required to build
a greenfield facility with a 300,000 unit capacity. We view the smaller facility
as financially prudent yet large enough for commercial viability.
We have notified the seller of a parcel of undeveloped land previously
purchased for use as our initial commercial-scale manufacturing facility of our
intention to delay development of the site. Under the terms of our purchase
contract, the seller has the right to repurchase the property for an amount
equal to our acquisition cost of approximately $1.8 million. If the seller
elects not to repurchase the property, we plan to hold the property for future
development.
ITEM 3. LEGAL PROCEEDINGS.
As of May 31, 1999, we were not a party to any material pending legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE> 14
PART III
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The following table sets forth, for the periods indicated, the range of high and
low sales prices for our common stock on the Nasdaq National Market. These
prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low
<S> <C> <C> <C>
May 31, 1997 13 1/2 8 3/8
August 31, 1997 10 3/8 9
November 30, 1997 13 7/8 8 3/8
February 28, 1998 11 1/2 8
May 31, 1998 17 1/4 9 1/2
August 31, 1998 18 1/8 10 1/8
November 30, 1998 15 5/8 9 1/8
February 28, 1999 16 3/8 10 15/16
May 31, 1999 15 10 1/2
August 31, 1999 13 7/8 11
(through August 25, 1999)
</TABLE>
HOLDERS OF RECORD
As of May 31, 1999, there were approximately 400 holders of record and
approximately 8,700 beneficial owners of our common stock. There were as of that
date no issued and outstanding shares of our preferred stock.
DIVIDENDS
We have never declared or paid dividends on our capital stock and do not
anticipate declaring or paying any dividends in the foreseeable future.
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data set forth below for, and as of the end of,
each of the years in the five-year period ended May 31, 1999 and for the period
from June 19, 1985 (inception) through May 31, 1999 were derived from
Northfield's financial statements, which financial statements have been audited
by KPMG LLP, independent certified public accountants.
<TABLE>
<CAPTION>
YEARS ENDED MAY 31, CUMULATIVE
FROM
JUNE 19, 1985
THROUGH
1999 1998 1997 1996 1995 MAY 31, 1999
------ ------ ------ ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
(in thousands, except per share data)
Revenues:
License income $ - - - - - $ 3,000
Costs and expenses:
Research and development 7,661 6,675 5,188 5,223 5,901 59,948
General and administrative 2,311 2,338 2,317 2,509 2,275 29,211
Interest income (net) 2,556 3,130 3,259 2,953 737 18,002
Net loss $(7,416) (5,883) (4,246) (4,779) (7,439) (68,157)
Net loss per basic share $ (0.53) (0.42) (0.30) (0.37) (0.76) (7.94)
Shares used in calculation of per
Share data (1) 14,115 14,093 13,961 12,849 9,850 8,586
<CAPTION>
May 31,
1999 1998 1997 1996 1995
------ ------ -------- ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
(in thousands)
Cash and marketable securities $ 47,561 53,504 60,294 63,984 12,252
Total assets 50,963 56,919 62,343 66,339 14,852
Total liabilities 1,791 1,471 1,048 1,391 1,226
Deficit accumulated during
Development stage (68,157) (60,740) (54,857) (50,611) (45,832)
Total shareholders' equity (2) 49,171 55,448 61,295 64,948 13,626
</TABLE>
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.
(2) Excludes 623,000 shares reserved for issuance upon the exercise of stock
options outstanding as of May 31, 1999. Additional stock options exercisable for
a total of 20,000 shares and 185,000 shares, respectively, were available for
grant as of May 31, 1999 under the Company's Employee Stock Option Plan and
Stock Option Plan for Outside Directors.
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Since Northfield's incorporation in 1985, We have devoted substantially
all of our efforts and resources to the research, development and clinical
testing of our potential product, PolyHeme(TM). We have incurred operating
losses during each year of our operations since inception and expect to incur
substantial additional operating losses for the next several years. From
Northfield's inception through May 31, 1999, we have incurred operating losses
totaling $68,157,000.
Our success will depend on several factors, including our ability to
obtain FDA regulatory approval of PolyHeme and our manufacturing facilities,
obtain sufficient quantities of blood to manufacture PolyHeme in commercial
quantities, manufacture and distribute PolyHeme in a cost-effective manner, and
enforce our patent positions. We have experienced significant delays in the
development and clinical testing of PolyHeme. We cannot ensure that we will be
able to achieve these goals or that we will be able to realize product revenues
or profitability on a sustained basis or at all.
We anticipate that research and development expenses will continue to
increase during the foreseeable future. These expected increases are
attributable to anticipated future clinical trials, monitoring and reporting the
results of these trials and continuing process development associated with
improving our manufacturing capacity to permit commercial-scale production of
PolyHeme. We expect that general and administrative expenses will increase over
the foreseeable future due to increased expenses relating to the expansion of
our organization in support of expanded commercial operations.
RESULTS OF OPERATIONS
We reported no revenues for the fiscal years ended May 31, 1999,
1998 or 1997. From its inception through May 31, 1999,
<PAGE> 17
Northfield has reported total revenues of $3,000,000, all of which were derived
from licensing fees.
OPERATING EXPENSES
Operating expenses for our fiscal years ended May 31, 1999, 1998 and 1997
totaled $9,972,000, $9,013,000 and $7,505,000, respectively. On a percentage
basis, fiscal 1999 operating expenses exceeded fiscal 1998 expenses by 10.6%,
while fiscal 1998 operating expenses exceeded fiscal 1997 expenses by 20.1%.
For the year-ended May 31, 1999, research and development expenses totaled
$7,661,000, representing an increase of $986,000, or 14.8%, from the year ended
May 31, 1998. Substantially all of the fiscal year research and development
expense increase over the prior year relates to our clinical trials and the
amortization of previously capitalized engineering costs.
For the year ended May 31, 1998, research and development expenses totaled
$6,675,000, representing an increase of $1,487,000, or 28.7%, from the year
ended May 31, 1997. The year over year difference is due to increased expenses
related to our clinical trials, validation services related to the our existing
facility and preparatory analysis work for our planned commercial manufacturing
facility.
We anticipate that research and development expenses will continue to
increase significantly for the foreseeable future. Additional costs are being
planned for multi-center clinical trials, third party clinical monitoring,
biostatistical analysis and report preparation and production.
General and administrative expenses for fiscal 1999 totaled $2,311,000
compared to expenses of $2,338,000 for fiscal 1998, representing a decrease of
$27,000, or 1.2%. We will continue to prioritize research and development over
general and administrative expenses. We anticipate that general and
administrative expenses will likely increase over the next several quarters as
planning for commercial development will need to keep pace with the progress of
PolyHeme through the FDA approval process.
General and administrative expenses for fiscal 1998 totaled $2,338,000,
representing a $21,000, or 0.9%, increase from the $2,317,000 reported for the
prior fiscal year. General and administrative spending remained consistent with
the prior fiscal year as we were able to effectively control general and
administrative costs while increasing the level of research and development
activity.
INTEREST INCOME
Interest income in fiscal 1999 equaled $2,556,000, or a $574,000 decrease
from the $3,130,000 in interest income reported in fiscal 1998. Lower available
investment balances and lower interest rates caused the year over year decrease
in interest income.
Interest income for fiscal 1998 totaled $3,130,000, or a $129,000 decrease
from the comparable prior year period. Declining available investment balances
and fluctuating interest rates combined for the 4.0% reduction in interest
income.
Without additional cash inflows, interest income will decline over the
next several quarters as the cost of operations and capital investments will
significantly lower available investment balances.
NET LOSS
Our net loss for the year ended May 31, 1999 was $7,416,000, or $.53 per
basic share, compared to a net loss of $5,883,000, or $.42 per basic share, for
the year ended May 31, 1998. The increase in the loss per basic share is
primarily the result of the increase in the expense of conducting our ongoing
clinical trials.
For the year ended May 31, 1998, we reported a net loss of $5,883,000, or
$.42 per basic share, compared to a prior year net loss
<PAGE> 18
of $4,246,000, or $.30 per basic share. Higher research expenses for expanded
multi-center clinical trials, increased costs associated with validation
procedures for our manufacturing process and lower interest income combined to
cause the reported net loss and per share net loss to increase.
LIQUIDITY AND CAPITAL RESOURCES
From its inception through May 31, 1999, Northfield has expended cash in
operating activities and for the purchase of property, plant, equipment and
engineering services in the amount of $66,379,000. For the years ended May 31,
1999 and 1998, these cash expenditures totaled $7,068,000 and $6,826,000,
respectively. The year over year difference is primarily due to increased cash
expenditures related to our ongoing clinical trials.
We have financed our research and development and other activities to date
through the public and private sale of equity securities and, to a more limited
extent, through the license of product rights. As of May 31, 1999, we had cash
and marketable securities totaling $47,561,000.
We believe our existing capital resources will be adequate to satisfy our
operating capital requirements and maintain our existing manufacturing plant and
office facilities for approximately the next two to three years. Thereafter, we
are likely to require substantial additional capital to continue our operations.
We are currently unable to fund the construction of a large-scale greenfield
manufacturing facility, which is estimated to cost approximately $45 million,
without raising substantial additional capital. Currently, we are planning a
two-step expansion. After a two month shutdown this fall, new equipment will be
installed in our current Mt. Prospect, Illinois manufacturing facility to bring
our manufacturing capacity to approximately 10,000 units. During the second
phase of the expansion, we plan to lease additional facilities adjacent to our
current Mt. Prospect facility. Our preliminary engineering studies indicate that
additional capacity of 50-60,000 units could be developed in approximately 16-18
months at a cost of $18-20 million. Northfield is taking this approach due to
the capital required to build a greenfield facility with a 300,000 unit
capacity. We view the smaller facility as financially prudent yet large enough
for commercial viability.
We may enter into collaborative arrangements with strategic partners which
could provide us with additional funding or absorb expenses we would otherwise
be required to pay. We have engaged in discussions with a number of potential
strategic partners. These discussions are at various stages and we cannot ensure
that any of these arrangements will be consummated.
Our capital requirements may vary materially from those now anticipated
because of the results of our clinical testing of PolyHeme, the establishment of
relationships with strategic partners, changes in the scale, timing or cost of
our commercial manufacturing facility, competitive and technological advances,
the FDA regulatory process, changes in our marketing and distribution strategy
and other factors.
YEAR 2000
We have reviewed our internal computer applications and have consulted
with our vendors who provide software services. We believe we are substantially
year 2000 compliant and that any required changes in coding or hardware will be
handled in a manner non-disruptive to our business and at a minimal cost.
We are dependent in our operations on a number of suppliers whose
individual status in achieving a year 2000 conversion is not known at this time.
In the event that we or any of our significant suppliers experience disruption
due to the year 2000 issue, our operations could be adversely affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Financial Statements on page 21. These Financial
Statements are incorporated by reference into this document.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON A ACCOUNTING AND
FINANCIAL DISCLOSURE.
We have not had a disagreement on any matter of accounting principles or
financial statement disclosure with our independent accountants during our 1999,
1998 or 1997 fiscal years.
<PAGE> 19
PART III
ITEMS 10 THROUGH 13.
The information specified in Items 10 through 13 of Form 10-K has been
omitted in accordance with instructions to Form 10-K. We expect to file with the
Commission in September 1999, pursuant to Regulation 14A, a definitive proxy
statement which will contain the information required to be included in Items 10
through 13 of Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a) The following documents are filed as part of this report:
(1) and (2) See the Index to Financial Statements on page 21
(3) See Description of Exhibits on page 39.
b) None.
c) See Description of Exhibits on page 39.
d) None.
<PAGE> 20
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Financial Statements
May 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
<PAGE> 21
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report F-1
Balance Sheets, May 31, 1999 and 1998 F-2
Statements of Operations, Years ended May 31, 1999, 1998 and 1997 and the
cumulative period from June 19, 1985
(inception) through May 31, 1999 F-3
Statements of Shareholders' Equity (Deficit), Years ended May 31, 1999, 1998 and
1997 and the cumulative period from June 19, 1985
(inception) through May 31, 1999 F-4
Statements of Cash Flows, Years ended May 31, 1999, 1998 and 1997 and the
cumulative period from June 19, 1985
(inception) through May 31, 1999 F-8
Notes to Financial Statements F-9
</TABLE>
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Northfield Laboratories Inc.:
We have audited the accompanying balance sheets of Northfield Laboratories Inc.
(a company in the development stage) as of May 31, 1999 and 1998 and the related
statements of operations, shareholders' equity (deficit), and cash flows for
each of the years in the three-year period ended May 31, 1999 and for the
cumulative period from June 19, 1985 (inception) through May 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northfield Laboratories Inc. (a
company in the development stage) as of May 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the years in the three-year
period ended May 31, 1999 and for the cumulative period from June 19, 1985
(inception) through May 31, 1999 in conformity with generally accepted
accounting principles.
July 2, 1999
F-1
<PAGE> 23
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Balance Sheets
May 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------------ -----------
<S> <C> <C>
Current assets:
Cash $ 25,855,668 26,473,577
Short-term marketable securities 21,705,449 27,030,902
Prepaid expenses 351,340 373,151
Other current assets 268,430 17,657
------------ -----------
Total current assets 48,180,887 53,895,287
Property, plant and equipment, net 2,755,565 2,996,937
Other assets 26,244 27,255
------------ -----------
$ 50,962,696 56,919,479
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,325,030 1,037,267
Accrued expenses 120,624 81,522
Accrued compensation and benefits 221,000 253,345
------------ -----------
Total current liabilities 1,666,654 1,372,134
Other liabilities 124,702 98,976
------------ -----------
Total liabilities 1,791,356 1,471,110
------------ -----------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 5,000,000 shares;
none issued and outstanding - -
Common stock, $.01 par value. Authorized 20,000,000 shares;
issued and outstanding 14,239,875 and 14,097,375 shares
in 1999 and 1998, respectively 142,399 140,974
Additional paid-in capital 117,185,514 116,047,635
Deficit accumulated during the development stage (68,156,573) (60,740,240)
------------ -----------
Total shareholders' equity 49,171,340 55,448,369
------------ -----------
$ 50,962,696 56,919,479
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 24
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Operations
Years ended May 31, 1999, 1998 and 1997
and the cumulative period from June 19, 1985
(inception) through May 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MAY 31, JUNE 19, 1985
------------------------------------------ THROUGH
1999 1998 1997 MAY 31, 1999
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues - license income $ - - - 3,000,000
------------ ---------- ---------- -------------
Costs and expenses:
Research and development 7,660,763 6,675,052 5,187,738 59,947,580
General and administrative 2,311,365 2,338,451 2,317,217 29,210,725
------------ ---------- ---------- -------------
9,972,128 9,013,503 7,504,955 89,158,305
------------ ---------- ---------- -------------
Other income and expense:
Interest income 2,555,795 3,130,125 3,259,262 18,084,966
Interest expense - - - 83,234
------------ ---------- ---------- -------------
2,555,795 3,130,125 3,259,262 18,001,732
------------ ---------- ---------- -------------
Net loss $ (7,416,333) (5,883,378) (4,245,693) (68,156,573)
============ ========== ========== =============
Net loss per share - basic and diluted $ (0.53) (0.42) (0.30) (7.94)
============ ========== ========== =============
Shares used in calculation of
per share data - basic 14,114,676 14,097,375 13,960,557 8,585,788
============ ========== ========== =============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 25
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Years ended May 31, 1999, 1998 and 1997 and the cumulative
period from June 19, 1985 (inception) through May 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------
NUMBER AGGREGATE
OF SHARES AMOUNT
--------- ---------
<S> <C> <C>
Issuance of common stock on August 27, 1985 -- $ --
Issuance of Series A convertible preferred stock at $4.00 per share on
August 27, 1985 (net of costs of issuance of $79,150) -- --
Net loss -- --
--------- ---------
Balance at May 31, 1986 -- --
Net loss -- --
Deferred compensation relating to grant of stock options -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1987 -- --
Issuance of Series B convertible preferred stock at $35.68 per share on
August 14, 1987 (net of costs of issuance of $75,450) -- --
Net loss -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1988 -- --
Issuance of common stock at $24.21 per share on June 7, 1988 (net of costs of issuance of $246,000) -- --
Conversion of Series A convertible preferred stock to common stock on June 7, 1988 -- --
Conversion of Series B convertible preferred stock to common stock on June 7, 1988 -- --
Exercise of stock options at $2.00 per share -- --
Issuance of common stock at $28.49 per share on March 6, 1989 (net of costs of issuance $21,395) -- --
Issuance of common stock at $28.49 per share on March 30, 1989 (net of costs of issuance of $10,697) -- --
Sale of options at $28.29 per share to purchase common stock at $.20 per share on
March 30, 1989 (net of costs of issuance of $4,162) -- --
Net loss -- --
Deferred compensation relating to grant of stock options -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1989 -- --
Net loss -- --
Deferred compensation relating to grant of stock options -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1990 -- --
Net loss -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1991 -- --
Exercise of stock warrants at $5.60 per share -- --
Net loss -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1992 -- --
Exercise of stock warrants at $7.14 per share -- --
Issuance of common stock at $15.19 per share on April 19, 1993 (net of costs of issuance of $20,724) -- --
Net loss -- --
Amortization of deferred compensation -- --
--------- ---------
Balance at May 31, 1993 -- $ --
--------- ---------
</TABLE>
See accompanying notes to financial statements.
(Continued)
F-4
<PAGE> 26
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Years ended May 31, 1999, 1998 and 1997 and the cumulative
period from June 19, 1985 (inception) through May 31, 1999
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ACCUMULATED SHARE-
- ----------------------- --------------------- ----------------------- ADDITIONAL DURING THE DEFERRED HOLDERS'
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT)
- --------- --------- --------- ------- --------- --------- ----------- ----------- ---------- -----------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3,500,000 $ 35,000 -- $ -- -- $ -- $ (28,000) $ -- $ - $ 7,000
-- -- 250,000 250,000 -- -- 670,850 -- - 920,850
-- -- -- -- -- -- -- (607,688) - (607,688)
- --------- --------- --------- -------- ----------- --------- ----------- ----------- ----------- -----------
3,500,000 35,000 250,000 250,000 -- -- 642,850 (607,688) - 320,162
-- -- -- -- -- -- -- (2,429,953) - (2,429,953)
-- -- -- -- -- -- 2,340,000 -- (2,340,000) -
-- -- -- -- -- -- -- -- 720,000 720,000
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
3,500,000 35,000 250,000 250,000 -- -- 2,982,850 (3,037,641) (1,620,000) (1,389,791)
-- -- -- -- 200,633 200,633 6,882,502 -- - 7,083,135
-- -- -- -- -- -- -- (3,057,254) - (3,057,254)
-- -- -- -- -- -- -- -- 566,136 566,136
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
3,500,000 35,000 250,000 250,000 200,633 200,633 9,865,352 (6,094,895) (1,053,864) 3,202,226
413,020 4,130 -- -- -- -- 9,749,870 -- - 9,754,000
1,250,000 12,500 (250,000) (250,000) -- -- 237,500 -- - -
1,003,165 10,032 -- -- (200,633) (200,633) 190,601 -- - -
47,115 471 -- -- -- -- 93,759 -- - 94,230
175,525 1,755 -- -- -- -- 4,976,855 -- - 4,978,610
87,760 878 -- -- -- -- 2,488,356 -- - 2,489,234
-- -- -- -- -- -- 7,443,118 -- - 7,443,118
-- -- -- -- -- -- -- (791,206) - (791,206)
-- -- -- -- -- -- 683,040 -- (683,040) -
-- -- -- -- -- -- -- -- 800,729 800,729
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
6,476,585 64,766 -- -- -- -- 35,728,451 (6,886,101) (936,175) 27,970,941
-- -- -- -- -- -- -- (3,490,394) - (3,490,394)
-- -- -- -- -- -- 699,163 -- (699,163) -
-- -- -- -- -- -- -- -- 546,278 546,278
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
6,476,585 64,766 -- -- -- -- 36,427,614 (10,376,495) (1,089,060) 25,026,825
-- -- -- -- -- -- -- (5,579,872) - (5,579,872)
-- -- -- -- -- -- -- -- 435,296 435,296
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
6,476,585 64,766 -- -- -- -- 36,427,614 (15,956,367) (653,764) 19,882,249
90,000 900 -- -- -- -- 503,100 -- - 504,000
-- -- -- -- -- -- -- (7,006,495) - (7,006,495)
-- -- -- -- -- -- -- -- 254,025 254,025
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
6,566,585 65,666 -- -- -- -- 36,930,714 (22,962,862) (399,739) 13,633,779
15,000 150 -- -- -- -- 106,890 -- - 107,040
374,370 3,744 -- -- -- -- 5,663,710 -- - 5,667,454
-- -- -- -- -- -- -- (8,066,609) - (8,066,609)
-- -- -- -- -- -- -- -- 254,025 254,025
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
6,955,955 $ 69,560 -- $ -- -- $ -- $42,701,314 $ (31,029,471) $ (145,714) $11,595,689
- --------- --------- --------- -------- ---------- --------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
(Continued)
F-5
<PAGE> 27
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Years ended May 31, 1999, 1998 and 1997 and the cumulative
period from June 19, 1985 (inception) through May 31, 1999
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------------------
NUMBER AGGREGATE
OF SHARES AMOUNT
------------- ------------
<S> <C> <C>
Net loss -- $ --
Issuance of common stock at $6.50 per share on May 26, 1994 (net of costs of issuance of $2,061,149) -- --
Cancellation of stock options -- --
Amortization of deferred compensation -- --
------------ -------------
Balance at May 31, 1994 -- --
Net loss -- --
Issuance of common stock at $6.50 per share on June 20, 1994 (net of issuance costs of $172,500) -- --
Exercise of stock options at $7.14 per share -- --
Exercise of stock options at $2.00 per share -- --
Cancellation of stock options -- --
Amortization of deferred compensation -- --
------------ -------------
Balance at May 31, 1995 -- --
Net loss -- --
Issuance of common stock at $17.75 per share on August 9, 1995 (net of issuance costs of $3,565,125) -- --
Issuance of common stock at $17.75 per share on September 11, 1995 (net of issuance costs of $423,238) -- --
Exercise of stock options at $2.00 per share -- --
Exercise of stock options at $6.38 per share -- --
Exercise of stock options at $7.14 per share -- --
Cancellation of stock options -- --
Amortization of deferred compensation -- --
------------ -------------
Balance at May 31, 1996 -- --
Net loss -- --
Exercise of stock options at $0.20 per share -- --
Exercise of stock options at $2.00 per share -- --
Exercise of stock options at $7.14 per share -- --
Amortization of deferred compensation -- --
------------ -------------
Balance at May 31, 1997 -- --
Net loss -- --
Exercise of stock options at $7.14 per share -- --
Amortization of deferred compensation -- --
------------ -------------
Balance at May 31, 1998 -- --
Net loss -- --
Non-cash compensation -- --
Exercise of stock options at $7.14 per share -- --
Exercise of stock warrants at $8.00 per share -- --
------------ -------------
Balance at May 31, 1999 -- $ --
============ =============
</TABLE>
See accompanying notes to financial statements.
(Continued)
F-6
<PAGE> 28
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Shareholders' Equity (Deficit)
Years ended May 31, 1999, 1998 and 1997 and the cumulative
period from June 19, 1985 (inception) through May 31, 1999
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE SERIES B CONVERTIBLE DEFICIT TOTAL
COMMON STOCK PREFERRED STOCK PREFERRED STOCK ACCUMULATED SHARE-
------------------------- ------------------------ ---------------------- ADDITIONAL DURING THE DEFERRED HOLDERS'
NUMBER AGGREGATE NUMBER AGGREGATE NUMBER AGGREGATE PAID-IN DEVELOPMENT COMPEN- EQUITY
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL STAGE SATION (DEFICIT)
- ---------- ------------- ---------- ------------ ---------- ---------- ------------- ------------- ----------- ------------
C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- -- $ -- -- $ -- $ -- $ (7,363,810) -- $ (7,363,810)
2,500,000 25,000 -- -- -- -- 14,163,851 -- -- 14,188,851
-- -- -- -- -- -- (85,400) -- 85,400 --
-- -- -- -- -- -- -- -- 267 267
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
9,455,955 94,560 -- -- -- -- 56,779,765 (38,393,281) (60,047) 18,420,997
-- -- -- -- -- -- -- (7,439,013) -- (7,439,013)
375,000 3,750 -- -- -- -- 2,261,250 -- -- 2,265,000
10,000 100 -- -- -- -- 71,300 -- -- 71,400
187,570 1,875 -- -- -- -- 373,264 -- -- 375,139
-- -- -- -- -- -- (106,750) -- 106,750 --
-- -- -- -- -- -- -- -- (67,892) (67,892)
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
10,028,525 100,285 -- -- -- -- 59,378,829 (45,832,294) (21,189) 13,625,631
-- -- -- -- -- -- -- (4,778,875) -- (4,778,875)
2,925,000 29,250 -- -- -- -- 48,324,374 -- -- 48,353,624
438,750 4,388 -- -- -- -- 7,360,187 -- -- 7,364,575
182,380 1,824 -- -- -- -- 362,937 -- -- 364,761
1,500 15 -- -- -- -- 9,555 -- -- 9,570
10,000 100 -- -- -- -- 71,300 -- -- 71,400
-- -- -- -- -- -- (80,062) -- 80,062 --
-- -- -- -- -- -- -- -- (62,726) (62,726)
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
13,586,155 135,862 -- -- -- -- 115,427,120 (50,611,169) (3,853) 64,947,960
-- -- -- -- -- -- -- (4,245,693) -- (4,245,693)
263,285 2,633 -- -- -- -- 50,025 -- -- 52,658
232,935 2,329 -- -- -- -- 463,540 -- -- 465,869
10,000 100 -- -- -- -- 71,300 -- -- 71,400
-- -- -- -- -- -- -- -- 2,569 2,569
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
14,092,375 140,924 -- -- -- -- 116,011,985 (54,856,862) (1,284) 61,294,763
-- -- -- -- -- -- -- (5,883,378) -- (5,883,378)
5,000 50 -- -- -- -- 35,650 -- -- 35,700
-- -- -- -- -- -- -- -- 1,284 1,284
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
14,097,375 140,974 -- -- -- -- 116,047,635 (60,740,240) -- 55,448,369
-- -- -- -- -- -- -- (7,416,333) -- (7,416,333)
-- -- -- -- -- -- 14,354 -- 14,354
17,500 175 -- -- -- -- 124,775 -- -- 124,950
125,000 1,250 -- -- -- -- 998,750 -- -- 1,000,000
- ---------- ------------- ------- ---------- ------- -------- ------------- ------------ ---------- ------------
14,239,875 $ 142,399 -- $ -- -- $ -- $ 117,185,514 $(68,156,573) -- $ 49,171,340
- ---------- ------------- ======= ========== ======= ======== ============= ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 29
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Statements of Cash Flows
Years ended May 31, 1999, 1998 and 1997
and the cumulative period from June 19, 1985
(inception) through May 31, 1999
<TABLE>
<CAPTION>
CUMULATIVE
FROM
YEARS ENDED MAY 31, JUNE 19, 1985
----------------------------------------------- THROUGH
1999 1998 1997 MAY 31, 1999
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (7,416,333) (5,883,378) (4,245,693) (68,156,573)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 489,773 501,169 489,970 13,858,066
Non-cash compensation 14,354 1,284 2,569 3,464,345
Loss on sale of equipment - - - 66,359
Changes in assets and liabilities:
Prepaid expenses 21,811 (149,287) 27,397 (462,351)
Other current assets (259,940) 400,036 41,208 (2,164,681)
Other assets - 5,177 49,938 (42,147)
Accounts payable 287,763 380,451 (267,281) 1,325,030
Accrued expenses 39,102 (40,037) (50,791) 120,624
Accrued compensation and benefits (32,345) 77,545 (2,250) 221,000
Other liabilities 25,726 5,153 (22,278) 124,702
-------------- -------------- -------------- ---------------
Net cash used in operating activities (6,830,089) (4,701,887) (3,977,211) (51,645,626)
-------------- -------------- -------------- ---------------
Cash flows from investing activities:
Purchase of property, plant, equipment, and
capitalized engineering costs (238,223) (2,123,734) (302,706) (14,733,412)
Proceeds from sale of equipment - - - 76,587
Proceeds from matured marketable securities 49,049,200 49,049,200 69,599,200 333,840,781
Proceeds from sale of marketable securities - - - 7,141,656
Purchase of marketable securities (43,723,747) (37,153,198) (56,230,458) (362,687,887)
-------------- -------------- -------------- ---------------
Net cash provided by (used in) investing activities 5,087,230 9,772,268 13,066,036 (36,362,275)
-------------- -------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of common stock 1,124,950 35,700 589,927 103,488,478
Payment of common stock issuance costs - - - (5,072,012)
Proceeds from issuance of preferred stock - - - 6,644,953
Proceeds from sale of stock options to
purchase common shares - - - 7,443,118
Proceeds from issuance of notes payable - - - 1,500,000
Repayment of notes payable - - - (140,968)
-------------- -------------- -------------- ---------------
Net cash provided by financing activities 1,124,950 35,700 589,927 113,863,569
-------------- -------------- -------------- ---------------
Net (decrease) increase in cash (617,909) 5,106,081 9,678,752 25,855,668
Cash at beginning of period 26,473,577 21,367,496 11,688,744 -
-------------- -------------- -------------- ---------------
Cash at end of period $ 25,855,668 26,473,577 21,367,496 25,855,668
============== ============== ============== ===============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE> 30
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF OPERATIONS IN THE DEVELOPMENT STAGE
Northfield Laboratories Inc. (the Company), a Delaware corporation,
was incorporated on June 19, 1985 to research, develop, test,
manufacture, market, and distribute a hemoglobin-based blood
substitute product. The Company is continuing its research and
development activities.
BASIS OF PRESENTATION
The financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No.
7, Accounting and Reporting by Development Stage Enterprises, which
requires development stage companies to employ the same generally
accepted accounting principles as operating companies.
SHORT-TERM MARKETABLE SECURITIES
Short-term marketable securities consist of government securities,
corporate notes, and certificates of deposit with maturities of less
than one year. The Company classifies its investment securities as
held-to-maturity. Held-to-maturity securities are those securities
which the Company has the ability and intent to hold until maturity.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Premiums
and discounts are amortized or accreted over the life of the related
instrument as an adjustment to yield using the straight-line method,
which approximates the effective interest method. Interest income is
recognized when earned.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and are depreciated
using the straight-line method over the estimated useful lives of the
respective assets, generally five to seven years. Leasehold
improvements are amortized using the straight-line method over the
lesser of the life of the asset or the term of the lease, generally
eight to ten years.
CAPITALIZED ENGINEERING COSTS
Capitalized engineering costs include design and other initial
engineering studies relating to a commercial scale facility. During
fiscal 1999 and 1998, the company capitalized $4,770 and $18,128,
respectively, of such engineering costs. These costs are being
amortized over a three year period. For the years ended May 31, 1999
and 1998, total amortization cost recorded was 185,544 and zero
respectively.
F-9 (Continued)
<PAGE> 31
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
COMPUTATION OF NET LOSS PER SHARE
Basic earnings per share is based on the weighted average number of
shares outstanding and excludes the dilutive effect of unexercised
common equivalent shares. Diluted earnings per share is based on the
weighted average number of shares outstanding and includes the
dilutive effect of unexercised common equivalent shares. Because the
Company reported a net loss for the years ended May 31, 1999, 1998 and
1997 and the cumulative period from June 19, 1985 (inception) through
May 31, 1999, basic and diluted per share amounts are the same.
Had the Company reported net earnings for the years ended May 31,
1999, 1998 and 1997 and the cumulative period from June 19, 1985
(inception) through May 31, 1999, the weighted average number of
shares outstanding would have been diluted by the following common
equivalent securities (not assuming the effects of applying the
treasury stock method):
<TABLE>
<CAPTION>
CUMULATIVE
FROM
JUNE 19, 1985
THROUGH
1999 1998 1997 MAY 31, 1999
------------ ----------- ------------ -----------------
<S> <C> <C> <C> <C>
Stock options 539,250 400,500 369,468 567,397
Warrants 118,836 133,849 135,000 87,143
------------ ----------- ------------ -----------------
658,086 534,349 504,468 654,540
============ =========== ============ =================
</TABLE>
USE OF ESTIMATES
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The fair values of financial instruments, which consist of marketable
securities (note 9), were not materially different from their carrying
values at May 31, 1999 and 1998.
F-10 (Continued)
<PAGE> 32
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, less accumulated depreciation and
amortization, is summarized as follows as of May 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Manufacturing equipment $ 7,330,453 7,116,614
Laboratory equipment 1,330,425 1,330,425
Office furniture and equipment 671,778 832,348
Computer equipment 166,617 --
Leasehold improvements 1,596,927 1,583,360
Capitalized engineering costs 565,218 560,448
Land 1,817,702 1,817,702
---------------- ----------------
13,479,120 13,240,897
Less accumulated depreciation and amortization 10,723,555 10,243,960
---------------- ----------------
$ 2,755,565 2,996,937
================ ================
</TABLE>
Depreciation and amortization expense amounted to $479,595, $390,159 and
$349,730 for the years ended May 31, 1999, 1998 and 1997, respectively.
(3) SHAREHOLDERS' EQUITY
On June 19, 1985, the date of incorporation, the Company authorized
5,500,000 shares of $.10 par value common stock. On August 12, 1985, an
amendment to the Certificate of Incorporation was approved increasing the
authorized number of common shares to 8,750,000 and changing the par value
to $.01.
On June 7, 1988, the Company issued 413,020 additional shares of common
stock for net proceeds of $9,754,000. In conjunction with this transaction,
all outstanding shares of Series A and Series B convertible preferred stock
were converted to common stock and the Series B warrants were converted to
common stock warrants (note 6). In conjunction with this transaction,
options for 47,115 common shares were exercised at $2.00 per share.
On March 6, 1989, the Company issued 175,525 additional shares of common
stock for net proceeds of $4,978,610.
On March 30, 1989, the Company issued 87,760 additional shares of common
stock for net proceeds of $2,489,234. Also on this date, the Company sold
an option to purchase 263,285 shares of common stock for net proceeds of
$7,443,118. The option exercise price was $.20 per share. On July 8, 1996,
the option was exercised and the Company issued all 263,285 shares of
common stock.
On September 30, 1991, the Company issued 90,000 additional shares of
common stock for net proceeds of $504,000. These shares were issued as a
result of the exercise of common stock warrants (note 6).
F-11 (Continued)
<PAGE> 33
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
On June 29, 1992, the Company issued 15,000 additional shares of common
stock for net proceeds of $107,040. These shares were issued as a result of
the exercise of common stock warrants (note 6).
On April 19, 1993, the Company issued 374,370 additional shares of common
stock for net proceeds of $5,667,454.
On May 5, 1994, the Company filed an amended and restated Certificate of
Incorporation effecting a five-for-one stock split of the Company's common
stock. All common share and per share amounts have been adjusted
retroactively to give effect to the stock split. Additionally, the amended
and restated Certificate of Incorporation effected an increase in the
number of authorized shares of common stock to 20,000,000 and authorized
5,000,000 shares of preferred stock.
On May 26, 1994, the Company issued 2,500,000 additional shares of common
stock for net proceeds of $14,188,851. The proceeds were received by the
Company on June 3, 1994.
On June 20, 1994, the Company issued 375,000 additional shares of common
stock for net proceeds of $2,265,000.
During the year ended May 31, 1995, the Company issued 197,570 additional
shares of common stock upon the exercise of stock options for cash at $2.00
and $7.14 per share for net proceeds of $446,539.
On August 9, 1995, the Company issued 2,925,000 additional shares of common
stock for net proceeds of $48,353,624.
On September 11, 1995, the Company issued 438,750 additional shares of
common stock for net proceeds of $7,364,575.
During the year ended May 31, 1996, the Company issued 193,880 additional
shares of common stock upon the exercise of stock options for cash at
$2.00, $6.38, and $7.14 per share for net proceeds of $445,731.
During the year ended May 31, 1997, the Company issued 506,220 additional
shares of common stock upon the exercise of stock options for cash at
$0.20, $2.00, and $7.14 per share for net proceeds of $589,927.
During the year ended May 31, 1998, the Company issued 5,000 additional
shares of common stock upon the exercise of stock options for cash at $7.14
per share for net proceeds of $35,700.
During the year ended May 31, 1999, the Company issued 142,500 additional
shares of common stock upon the exercise of warrants and stock options for
cash at $8.00 and $7.14 per share, respectively, for net proceeds of
$1,124,950.
F-12 (Continued)
<PAGE> 34
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
(4) INCOME TAXES
As a result of losses incurred to date, the Company has not provided for
income taxes. As of May 31, 1999, the Company had net operating loss
carryforwards for income tax purposes of approximately $69,200,000, which
are available to offset future taxable income, if any, through 2001 to
2014. Deferred tax assets primarily resulted from net operating loss
carryforwards and differences in the recognition of research and
development, compensatory stock options, and depreciation expenses and the
tax benefit from the exercise of stock options. Additionally, the Company
had approximately $1,900,000 of research and experimentation tax credits
and investment tax credits available to reduce future income taxes through
2014.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards.
The net deferred tax assets as of May 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 26,900,000 24,100,000
Tax credit carryforwards 1,900,000 1,600,000
Deferred compensation 1,400,000 1,400,000
Other 200,000 700,000
---------------- ----------------
30,400,000 27,800,000
Valuation allowance (30,400,000) (27,800,000)
---------------- ----------------
Net deferred tax asset $ -- --
================ ================
</TABLE>
The net change in the valuation allowance during fiscal 1999, 1998 and 1997
was an increase of $2,600,000, $2,300,000 and $2,700,000, respectively.
(5) STOCK OPTION PLAN
The Company's Restated Nonqualified Stock Option Plan (the Employee Stock
Option Plan) lapsed on September 30, 1996. Following the termination of the
plan, all options outstanding prior to the plan termination may be
exercised in accordance with their terms. As of May 31, 1999, options to
purchase a total of 128,000 shares of the Company's common stock at prices
between $6.38 and $15.19 per share were outstanding under the Employee
Stock Option Plan. These options expire between 2000 and 2004, ten years
after the date of grant.
With an effective date of October 1, 1996, the Company established the
Northfield Laboratories Inc. 1996 Stock Option Plan (the "1996 Option
Plan"). This plan provides for the granting of stock options to the
Company's directors, officers, key employees and consultants. Stock options
to purchase a total of 500,000 shares of common stock are available under
the 1996 Option Plan. During the year ended May 31, 1999, the Company
granted 185,000 options to purchase shares of common stock at $10.81
F-13 (Continued)
<PAGE> 35
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
per share, which was equal to the fair market value of a share of common
stock at the date of grant. These options expire in 2009, ten years after
the date of grant. During the year ended May 31, 1998, the Company granted
100,000 options to purchase shares of common stock at prices of $9.56 and
$13.38 per share, which was equal to the fair market value of a share of
common stock at the dates of grant. These options expire in 2007 and 2008,
ten years after the date of grant.
In September 1994, the Company adopted the Nonqualified Stock Option Plan
for Outside Directors (Directors Plan) which provides for the granting of
nonqualified stock options to directors of the Company who are neither
employees of nor consultants to the Company and who were not directors of
the Company prior to June 1, 1994. Stock options to purchase a total of
200,000 shares of common stock are available under the Directors Plan.
During the year ended May 31, 1999, the Company granted no options to
purchase shares of common stock. During the year ended May 31, 1998, the
Company granted 15,000 options to purchase shares of common stock at a
price of $13.38 per share, which was equal to the fair market value of a
share of common stock at the date of grant. These options expire in 2008,
ten years after the date of grant.
The Company applies the intrinsic value method of APB Opinion No. 25 and
related interpretations in accounting for options granted to directors,
officers, and key employees under the plans. Accordingly, compensation cost
is recorded on the date of grant only if the current market price of the
underlying stock exceeds the exercise price. Had compensation cost for the
Company's stock option plans been determined consistent with SFAS No. 123,
the Company's net loss and net loss per share would have been the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Net loss as reported $ (7,416,333) (5,883,378) (4,245,693)
Pro forma (8,175,218) (6,658,191) (4,526,133)
Net loss per share as reported (0.53) (0.42) (0.30)
Pro forma (0.58) (0.47) (0.32)
=============== ============== ===============
</TABLE>
For purposes of calculating the compensation cost consistent with SFAS No.
123, the fair value of each option grant is estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
Expected volatility 58.5% 57.0% 60.0%
Risk-free interest rate 5.9% 5.5% 6.7%
Dividend yield -- -- --
Expected lives 6.7 years 7.0 years 7.9 years
=============== ============== ===============
</TABLE>
F-14 (Continued)
<PAGE> 36
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
Additional information on shares subject to options is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
------------ ------------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year 455,500 $ 11.49 345,500 $ 10.91 393,435 $ 5.57
Granted 185,000 10.81 115,000 13.05 195,000 10.86
Exercised 17,500 7.14 5,000 7.14 242,935 2.21
Canceled -- -- -- -- -- --
------------ ------------- ------------ ------------- ------------ -------------
Outstanding at end
of year 623,000 $ 11.41 455,500 $ 11.49 345,500 $ 10.91
============ ============= ============ ============= ============ =============
Options exercisable at year
end 338,000 $ 11.62 222,250 $ 11.59 100,250 $ 11.75
============ ============= ============ ============= ============ =============
Weighted-average fair value
of options granted
during the year $ 6.86 $ 8.24 $ 7.55
============ ============ ============
</TABLE>
The following table summarizes information about stock options outstanding
at May 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED OPTIONS WEIGHTED
REMAINING AVERAGE EXERCISABLE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE AT MAY 31, EXERCISE
EXERCISE PRICES OUTSTANDING LIFE PRICE 1999 PRICE
------------------------- --------------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$ 6.38 - 9.56 63,000 4.25 years $ 7.13 35,500 $ 6.60
10.81 - 15.19 560,000 8.17 years 11.90 302,500 12.20
========================= =============== =============== ============= =============== =============
</TABLE>
(6) STOCK WARRANTS
In connection with demand notes dated September 23, 1986, the Company
issued warrants to purchase a total of 90,000 shares of common stock at
$5.60 per share. The warrants were exercised on September 30, 1991 (note
3).
In connection with a demand note dated July 2, 1987, the Company issued
warrants to purchase a total of 3,000 shares of Series B convertible
preferred stock at $35.68 per share. On June 7, 1988, these warrants were
converted to common stock warrants to purchase 15,000 shares of common
stock at $7.14 per share. The warrants were exercised on June 29, 1992
(note 3).
On March 13, 1993, the Company granted warrants to purchase 125,000 shares
of common stock of the Company at $13.00 per share. These warrants were
canceled on August 3, 1994 and were reissued at $8.00 per share. These
warrants were exercised on May 13, 1999 (note 3).
F-15 (Continued)
<PAGE> 37
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
(7) LEASES
Rent expense amounted to $499,491, $444,330 and $439,189 for the years
ended May 31, 1999, 1998 and 1997, respectively.
The Company has renewed the lease for its corporate facility which now
expires in February 2006. The terms of the renewed lease are substantially
the same as the original lease. The Company has the option to cancel the
lease after February 15, 2002, upon giving written notice at least six
months prior to termination, as well as paying a penalty equal to six
months rent of $144,375 at February 15, 2002.
The Company has renewed the lease for its research and manufacturing
facility which now expires in June 2003. The terms of the renewed lease are
substantially the same as the original lease. The lease is secured by a
letter of credit, which is collateralized by a $49,200 certificate of
deposit as of May 31, 1999.
At May 31, 1999, future minimum lease payments under the operating leases
are as follows:
YEARS ENDING
MAY 31, AMOUNT
------------ ---------------
2000 $ 452,739
2001 460,989
2002 474,849
2003 483,609
2004 319,225
2005 and
thereafter 698,844
---------------
$ 2,890,255
===============
(8) EMPLOYEE BENEFIT PLAN
Effective January 1, 1994, the Company established a defined contribution
401(k) savings plan covering each employee of the Company satisfying
certain minimum length of service requirements. Matching contributions to
the accounts of plan participants are made by the Company in an amount
equal to 50% of each plan participant's before-tax contribution, subject to
certain maximum contribution limitations, and are made at the discretion of
the Company. Expenses incurred under this plan for Company contributions
for the years ended May 31, 1999, 1998 and 1997 amounted to $118,167,
$98,567 and $99,781, respectively.
F-16 (Continued)
<PAGE> 38
NORTHFIELD LABORATORIES INC.
(a company in the development stage)
Notes to Financial Statements
May 31, 1999 and 1998
(9) SHORT-TERM MARKETABLE SECURITIES
The fair market value of the Company's short-term marketable securities was
$21,673,300 at May 31, 1999, which included gross unrealized holding losses
of $32,149. The fair market value of the Company's short-term marketable
securities was $27,030,511 at May 31, 1998, which included gross unrealized
holding losses of $391.
At May 31, 1999, all of the Company's short-term marketable securities were
scheduled to mature in less than one year.
(10) SUBSEQUENT EVENT
With an effective date of June 1, 1999, the Company established the
Northfield Laboratories Inc. 1999 Stock Option Plan (the "1999 Option
Plan"). This plan provides for the granting of stock options to the
Company's directors, officers, key employees and consultants. Stock options
to purchase a total of 500,000 shares of common stock are available under
the 1999 Option Plan.
F-17 (Continued)
<PAGE> 39
EXHIBITS
Number Description
3.1 Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March
25, 1994, File No. 33-76856 (the "Registration
Statement")).
3.2 Restated Bylaws of the Registrant (incorporated herein
by reference to Exhibit 3.4 to the Registration
Statement)
10.1 Office Sublease dated as of April 20, 1993 between the
Registrant and First Illinois Bank of Evanston, N.A.,
as Trustee (incorporated herein by reference to Exhibit
10.1 to the Registration Statement)
10.2 Amendment to Lease dated as of January 7, 1998 between
the Registrant and First Illinois Bank of Evanston,
N.A. (incorporated herein by reference to Exhibit
10.1.1 to the Registrant's Quarterly Report on Form
10-Q for the Registrant's quarter ended February 28,
1998).
10.3 Lease dated as of June 8, 1989 between the Registrant
and OTR (incorporated by reference to Exhibit 10.2 to
the Registration Statement)
10.4 Amendment to Lease dated as of May 6, 1998 between the
Registrant and OTR (incorporated herein by reference to
Exhibit 10.11 to the Registrant's Annual Report on Form
10-K for the Registrant's fiscal year ended May 31,
1998).
10.5 License Agreement dated as of March 6, 1989 between the
Registrant and KabiVitrum AB (predecessor of Pharmacia
& Upjohn Inc.) (incorporated herein by reference to
Exhibit 10.6 to the Registration Statement)
10.6 License Agreement dated as of July 20, 1990 between the
Registrant and Eriphyle BV (incorporated herein by
reference to Exhibit 10.7 to the Registration
Statement)
<PAGE> 40
10.7* Northfield Laboratories Inc. 401(K) Plan (incorporated
herein by reference to Exhibit 10.14 to the
Registration Statement)
10.8* Northfield Laboratories Inc. Nonqualified Stock Option
Plan for Outside Directors (incorporated herein by
reference to Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the Registrant's fiscal year
ended May 31, 1994)
10.9* Northfield Laboratories Inc. 1996 Stock Option Plan
(incorporated herein by reference to Exhibit 10.5.1 to
the Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended November 30, 1997)
10.10* Northfield Laboratories Inc. 1999 Stock Option Plan.
10.11* Employment Agreement dated as of January 1, 1999
between the Registrant and Richard E. DeWoskin.
10.12* Employment Agreement dated as of January 1, 1999
between the Registrant and Steven A. Gould, M.D.
10.13* Employment Agreement dated as of January 1, 1999
between the Registrant and Jack J. Kogut.
23.1 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule.
* Indicates a management contract or compensatory plan or arrangement
required to be filed as an exhibit to Form 10-K pursuant to Item 14(c).
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on this August 26,
1999.
NORTHFIELD LABORATORIES INC.
By: /s/ Richard E. DeWoskin
-----------------------
Richard E. DeWoskin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities indicated on August 26, 1999.
SIGNATURE TITLE
/s/ Richard E. DeWoskin Chairman of the Board and Chief
- ------------------------------- Executive Officer (principal executive
Richard E. DeWoskin officer)
/s/ Steven A. Gould, M.D. President and Director
- -------------------------------
Steven A. Gould, M.D.
/s/ Jack J. Kogut Vice President - Finance, Secretary and
- ------------------------------- Treasurer (principal financial and
Jack J. Kogut accounting officer)
/s/ Gerald S. Moss, M.D. Director
- -------------------------------
Gerald S. Moss, M.D.
/s/ Bruce S. Chelberg Director
- -------------------------------
Bruce S. Chelberg
/s/ Jack Olshansky Director
- -------------------------------
Jack Olshansky
/s/ David A. Savner Director
- -------------------------------
David A. Savner
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description Page No.
<S> <C> <C>
3.1 Restated Certificate of Incorporation of the Registrant --
(incorporated herein by reference to Exhibit 3.2 to the
Registrant's Registration Statement on Form S-1, filed
with the Securities and Exchange Commission on March
25, 1994, File No. 33-76856 (the "Registration
Statement")).
3.2 Restated Bylaws of the Registrant (incorporated herein --
by reference to Exhibit 3.4 to the Registration Statement.
10.1 Office Sublease dated as of April 20, 1993 between the
Registrant and First Illinois Bank of
Evanston, N.A., a Trustee (incorporated
herein by reference to Exhibit 10 to the
Registration Statement)
10.2 Amendment to Lease dated as of January 7, 1999 --
Between the Registrant and First Illinois Bank of
Evanston, N.A. (incorporated herein by reference
to Exhibit 10.1.1 to the Registrant's Quarterly
Report on Form 10-Q for the Registrant's
quarter ended February 28, 1998).
10.3 Lease dated as of June 8, 1989 between the Registrant --
And OTR (incorporated by reference to Exhibit 10.2
the Registration Statement)
10.4 Amendment to Lease dated as of May 6, 1998 between --
the Registrant and OTR (incorporated by
reference to Exhibit 10.11 to the
Registrant's Annual Report on Form 10-K for
the Registrant's fiscal year ended
May 31, 1998).
10.5 License Agreement dated as of March 6, 1989 between the --
Registrant and KabiVitrum AB (predecessor or Pharmacia
& Upjohn Inc.) (incorporated herein by reference to
Exhibit 10.6 to the Registration Statement)
10.6 License Agreement dated as of July 20, 1990 between the --
Registrant and Eriphyle BV (incorporated herein by
</TABLE>
26
<PAGE> 43
<TABLE>
<S> <C> <C>
reference to Exhibit 10.7 to the Registration Statement
10.7* Northfield Laboratories Inc. 401(K) Plan (incorporate --
herein by reference to Exhibit 10.14 to the Registration
Statement)
10.8* Northfield Laboratories Inc. Nonqualified Stock Option --
Plan for Outside Directors (incorporated
herein by Reference to Exhibit 10.15 to the
Registrant's Annual Report on Form 10-K for
the Registrant's fiscal year Ended May 31,
1994)
10.9* Northfield Laboratories Inc. 1996 Stock Option Plan
(incorporated herein by reference to Exhibit 10.5.1 to
the Registrant's Quarterly Report on Form 10-Q for the
Registrant's quarter ended November 30, 1997)
10.10* Northfield Laboratories Inc. 1999 Stock Option Plan. 1
10.11* Employment Agreement dated as of January 1, 1999, 9
between the Registrant and Richard E. DeWoskin
10.12* Employment Agreement dated as of January 1, 1999, 18
between the Registrant and Steven A. Gould, M.D.
10.13* Employment Agreement dated as of January 1, 1999, 27
between the Registrant and Jack J. Kogut
23.1 Consent of KPMG LLP 36
27 Financial Data Schedule. 37
</TABLE>
* Indicates a management contract or compensatory plan or arrangement required
to be filed as an exhibit to Form 10-K pursuant to Item 14(c).
<PAGE> 1
Exhibit 10.10
--------------------------------
NORTHFIELD LABORATORIES INC.
1999 STOCK OPTION PLAN
--------------------------------
1. Purpose.
The purpose of the Northfield Laboratories Inc. 1999 Stock Option Plan
(the "Plan") is to promote the long-term success of the Company for the benefit
of the Company's stockholders by encouraging the Company's directors, officers,
employees and consultants to have meaningful investments in the Company. The
Company believes that the possibility of participation under the Plan will
provide the Company's directors, officers, employees and consultants with an
incentive to perform more effectively and will assist the Company in attracting
and retaining directors, officers, employees and consultants of outstanding
training, experience and ability.
2. Definitions.
"Authorized Plan Shares" has the meaning set forth in Section 6(a).
"Award" means an award or grant of a Stock Option made to a
Participant pursuant to Section 8.
"Award Agreement" means the agreement provided in connection with an
Award in accordance with Section 11.
"Award Date" means the date that an Award is made, as specified in the
Award Agreement with respect to such Award.
"Board of Directors" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time.
"Company" means Northfield Laboratories Inc., a Delaware corporation.
"Committee" means the Stock Option Committee of the Board of Directors
or any successor committee thereto.
"Common Stock" means the Company's Common Stock, par value $.01 per
share.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Fair Market Value" on any date means the average of the highest and
the lowest sales prices of a share of Common Stock on The Nasdaq Stock Market,
Inc. ("Nasdaq") for such date; provided that if no sales of Common Stock are
reported on Nasdaq for such date or, in the opinion of
-1-
<PAGE> 2
the Committee, the sales of Common Stock on such date are insufficient to
constitute a representative market, then the Fair Market Value of a share of
Common Stock on such date will be deemed to be the average of the highest and
lowest sales prices of a share of Common Stock as reported on Nasdaq for the
next preceding day on which sales of Common Stock are reported and a
representative market exists.
"ISO" means any Stock Option designated in an Award Agreement as an
"Incentive Stock Option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an
ISO.
"Option Price" means the purchase price of one share of Common Stock
under a Stock Option.
"Participant" means a director, officer of employee of or consultant
to the Company who has been selected by the Committee to receive an Award under
the Plan.
"Plan" means the Northfield Laboratories Inc. 1999 Stock Option Plan,
as amended from time to time.
"Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission pursuant to the Exchange Act, as amended from time to time.
"Settlement Date" means, with respect to any Stock Option that has
been exercised in whole or in part, the date or dates as of which shares of
Common Stock are to be delivered to the Participant and the Option Price
therefor paid.
"Stock Option" means any right to purchase shares of Common Stock
awarded pursuant to Section 8.
"Terminating Event" means any (a) sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all or
substantially all of the Company's assets or (b) consolidation or merger of the
Company in which the Company is not the surviving or continuing corporation, or
pursuant to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company's Common Stock immediately prior to the merger have,
directly or indirectly, at least an 80% ownership interest in the outstanding
Common Stock of the surviving corporation immediately after the merger.
3. Term.
The Plan will be effective as of June 1, 1999 and will remain in
effect through May 31, 2009. After termination of the Plan, no further Awards
may be granted but outstanding Awards will remain effective in accordance with
their terms and the terms of the Plan.
4. Plan Administration.
(a) The Committee will be responsible for administering the Plan. The
Committee will be comprised of two or more members of the Board of
Directors, all of whom
-2-
<PAGE> 3
will be "non-employee directors" as defined in Rule 16b-3 and "outside
directors" as that term is used in Section 162 of the Code and the
regulations promulgated thereunder. The Committee will have full and
exclusive discretionary power to interpret the Plan and determine
eligibility for benefits and to adopt such rules, regulations and
guidelines for administering the Plan as the Committee may deem necessary
or proper. Such power will include, but not be limited to, selecting Award
recipients, establishing all Award terms and conditions and, subject to
Section 11, adopting modifications and amendments to the Plan or any Award
Agreement. The Committee may delegate to one or more of its members or to
one or more agents or advisors such non-discretionary administrative duties
as it may deem advisable, and the Committee or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render
advice with respect to any responsibility the Committee or such person may
have under the Plan.
(b) The Committee may employ attorneys, consultants, accountants and
other persons and the Committee, the Company and its officers and directors
will be entitled to rely upon the advice, opinions or valuations of any
such persons. All actions taken and all interpretations and determinations
made by the Committee in good faith will be final and binding upon the
Participants, the Company and all other interested persons. No member of
the Committee will be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or any Award,
and all members of the Committee will be fully protected by the Company, to
the fullest extent permitted by applicable law, in respect of any such
action, determination or interpretation.
5. Eligibility.
Awards will be limited to persons who are directors, officers or
employees of or consultants to the Company. In determining the persons to whom
Awards will be made, the Committee will, in its sole discretion, take into
account the nature of the person's duties, past and potential contributions to
the success of the Company and such other factors as the Committee will deem
relevant in connection with accomplishing the purposes of the Plan. A person who
has received an Award or Awards pursuant to the Plan, or who has received stock
options or other awards under any other plan or agreement now or hereafter in
effect, may receive an additional Award or Awards pursuant to the Plan.
6. Authorized Awards; Limitations.
Except for adjustments pursuant to Section 7, the maximum number of
shares of Common Stock that will be available for issuance under the Plan (the
"Authorized Plan Shares") will be 500,000. If an Award expires unexercised or is
forfeited, surrendered, canceled, terminated or settled in cash in lieu of
Common Stock, the shares of Common Stock that were theretofore subject, or
potentially subject, to such Award may again be made subject to an Award
Agreement. Common Stock that may be issued under the Plan may be either
authorized and unissued shares, or issued shares that have been reacquired by
the Company and that are being held as treasury shares. No fractional shares of
Common Stock will be issued under the Plan; provided that cash, in an amount
equal to the Fair Market Value of a fractional share of Common Stock as of the
Settlement Date of the Award will
-3-
<PAGE> 4
be paid in lieu of any fractional shares in the settlement of Awards payable in
shares of Common Stock.
7. Adjustments and Reorganizations.
(a) The Committee may make such adjustments to Awards granted under
the Plan (including the terms, exercise price and otherwise) as it deems
appropriate in the event of changes that impact the Company or the
Company's share price or share status; provided that any such actions are
consistently and equitably applied to all affected Participants.
Notwithstanding the foregoing, insofar as any Award is subject to
performance goals established to qualify payments thereunder as
"performance-based compensation" as described in Section 162(m) of the
Code, the Committee will have no power to adjust such Awards other than
negative discretion and the power to adjust Awards for corporate
transactions, in either case to the extent permissible under regulations
interpreting Section 162(m) of the Code.
(b) In the event of any merger, reorganization, consolidation,
recapitalization, separation, liquidation, stock dividend, stock split,
extraordinary dividend, spin-off, rights offering, share combination or
other change in the corporate structure of the Company affecting the Common
Stock, the number of Authorized Plan Shares and the kind of shares that may
be delivered under the Plan will be subject to such equitable adjustment as
the Committee, in its sole discretion, may deem appropriate in order to
preserve the benefits or potential benefits to be made available under the
Plan, and the number and kind and price of shares subject to outstanding
Awards and any other terms of outstanding Awards will be subject to such
equitable adjustment as the Committee, in its sole discretion, may deem
appropriate in order to prevent dilution or enlargement of outstanding
Awards.
8. Awards.
(a) Stock Options granted under the Plan may be either ISOs or
Non-Qualified Stock Options. The Committee may grant any Participant one or
more ISOs, Non-Qualified Stock Options or both types of Stock Options. The
Option Price of a Stock Option will be not less than 100% of the Fair
Market Value of a share of Common Stock on the Award Date. Stock Options
granted pursuant to the Plan will be subject to such additional terms,
conditions or restrictions as may be provided in the Award Agreement
relating to such Stock Option.
(b) Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to ISOs will be interpreted, amended or altered, nor will
any discretion or authority awarded under the Plan be exercised, so as to
disqualify the Plan under Section 422 of the Code or, without the consent
of the Participants affected, to disqualify any ISO under Section 422 of
the Code. An ISO will not be granted to an individual who, on the date of
grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company. The aggregate Fair Market
Value, determined on the Award Date, of the shares of Common Stock or other
stock with respect to which one or more ISOs that are exercisable for the
first time by the Participant during any particular calendar year will not
exceed the $100,000 limitation imposed by Section 422(d) of the Code.
-4-
<PAGE> 5
(c) The Option Price will be paid in full at the time of the exercise
of the Stock Option and may be paid in any of the following methods or
combinations thereof:
(i) in cash or by check, bank draft or money order payable to
the order of the Company;
(ii) subject to approval by the Committee, by the delivery of
shares of Common Stock having an aggregate Fair Market Value on the
date of such exercise equal to the Option Price;
(iii) by the Participant's simultaneous exercise of Stock
Options, sale of shares of Common Stock acquired thereby and
application of the proceeds therefrom to the payment of the Option
Price pursuant to procedures established by the Committee from time to
time; or
(iv) in any other manner that the Committee may approve.
10. Transferability and Beneficiaries.
Unless otherwise determined by the Committee in its sole discretion,
no Awards under the Plan will be assignable, alienable, saleable or otherwise
transferable other than by will or the laws of descent and distribution, or
pursuant to a qualified domestic relations order (as defined by the Code) or
Title I of the Employee Retirement Income Security Act or the rules thereunder.
11. Award Agreements.
Awards under the Plan will be evidenced by Award Agreements that set
forth the details, conditions and limitations for each Award, which may include
the term of an Award, the provisions applicable in the event the Participant's
employment with the Company terminates and the Company's authority to
unilaterally or bilaterally amend, modify, suspend, cancel or rescind any Award.
12. Amendments.
The Committee may suspend, terminate or amend the Plan as it deems
necessary or appropriate to better achieve the purposes of the Plan; provided
that without the approval of the Company's stockholders, no such amendment will
be made for which stockholder approval is necessary to comply with any
applicable tax or regulatory requirement.
13. Tax Withholding.
The Company will have the right to (a) make deductions from any
settlement of an Award made under the Plan, including the delivery or vesting of
shares, or require that shares or cash, or both, be withheld from any Award, in
each case in an amount sufficient to satisfy withholding of any federal, state
or local taxes required by law and (b) take such other action as may be
necessary or appropriate to satisfy any such withholding obligations. The
Committee may determine the manner in which such tax withholding may be
satisfied and may permit shares of Common Stock (rounded up to the next whole
number) to be used to satisfy required tax withholding based on the Fair Market
-5-
<PAGE> 6
Value of any such shares of Common Stock as of the Settlement Date of the
applicable Award. For this purpose, the Committee may permit the use of
outstanding shares held by the applicable Participant or shares issued or
issuable upon the settlement of the applicable Award.
14. Provisions Relating to Terminating Events.
(a) The Company, at its option, may give each Participant at least
ten business days written notice (or, if such notice period is not
practicable, such shorter notice period as the Company determines in good
faith is practicable) prior to the anticipated date of the consummation of
a Terminating Event. Upon receipt of such notice, and for a period of five
business days thereafter (or such other period as may be specified in the
Company's notice with respect to the Terminating Event), each Participant
will be permitted to exercise, in whole or in part, the vested and
unexercised portion of each Stock Option held by such Participant in
accordance with the terms and conditions of the Plan and the Award
Agreement relating to such Stock Option.
(b) Upon the consummation of the Terminating Event, all Stock Options
will be canceled and forfeited to the extent they have not been exercised
in accordance with the provisions of Section 14(a).
(c) If the Terminating Event is not consummated, all Stock Options
exercised pursuant to the Company's notice of the Terminating Event will be
deemed not to have been exercised and will thereafter be exercisable to the
same extent and on the same terms and conditions as if notice of the
Terminating Event had not been given by the Company.
(d) In lieu of delivering notice of a Terminating Event pursuant to
the provisions of Section 14(a), the Company, at its option, may cause the
successor or acquiring corporation in connection with any Terminating Event
or, if applicable, the corporate parent of any such corporation (the
"Successor Corporation"), to assume in writing the obligations of the
Company under the Plan and the outstanding Award Agreements entered into
pursuant to the Plan. In such event, the number and kind of shares
acquirable upon the exercise of the Stock Options and the exercise price
applicable thereto will be adjusted appropriately and the Stock Options as
so adjusted will be deemed solely to represent rights to acquire shares of
the Successor Corporation in the manner provided in the agreements between
the Company and the Successor Corporation.
15. Other Company Benefit and Compensation Programs.
Unless otherwise specifically determined by the Committee in its sole
discretion, settlements of Awards received by a Participant under the Plan will
not be deemed a part of the Participant's regular, recurring compensation for
purposes of calculating payments or benefits from any Company benefit plan or
severance program. Further, the Company may adopt other compensation programs,
plans or arrangements as it deems appropriate or necessary.
16. Unfunded Plan.
Unless otherwise determined by the Committee in its sole discretion,
the Plan will be unfunded and will not create or be construed to create a trust
or a separate fund or funds. The Plan will not establish any fiduciary
relationship between the Company and any Participant or other person.
-6-
<PAGE> 7
To the extent any person holds any rights by virtue of a grant awarded under the
Plan, such right (unless otherwise determined by the Committee in its sole
discretion) will be no greater than the right of an unsecured general creditor
of the Company.
17. Future Rights.
No person will have any claim or right to be granted an Award under
the Plan and no Participant will have any right under the Plan to be retained in
the employment of or to serve as a consultant to the Company.
18. Governing Law.
The validity, construction and effect of the Plan and all Award
Agreements, and any actions taken or relating to the Plan or any Award
Agreement, will be determined in accordance with applicable federal law and the
internal laws, and not the law of conflicts, of the State of Delaware.
-7-
<PAGE> 8
19. Successors and Assigns.
The Plan will be binding on all successors and assigns of each
Participant, including without limitation the estate of such Participant and the
executor, administrator or trustee of such estate, and any receiver or trustee
in bankruptcy or representative of the Participant's creditors.
20. Rights as a Stockholder.
Except as otherwise provided in any Award Agreement, a Participant
will have no rights as a stockholder of the Company until he or she becomes the
holder of record of Common Stock.
21. Awards; Compliance with Section 16.
No Award or other transaction will be permitted under the Plan which
would have the effect of imposing liability for a Participant under Section 16
of the Exchange Act. Irrespective of any other provision of the Plan or any
Award Agreement, any such Award or other transaction purportedly made under or
pursuant to the Plan will be void ab initio.
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<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of this 1st day of January, 1999, by and
between RICHARD DEWOSKIN ("Employee") and NORTHFIELD LABORATORIES INC., a
Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Employee is now employed as the Chairman and Chief Executive
Officer of the Company;
WHEREAS, the Company and Employee now desire to enter into this Agreement
in order to continue such employment for the term set forth herein and subject
to the terms and conditions set forth herein; and
WHEREAS, the Company and Employee desire to continue the Proprietary
Information and Inventions Agreement entered into by and between Employee and
the Company dated October 1, 1986 (the "Proprietary Information and Inventions
Agreement") in full force and effect;
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants hereinafter set forth, the parties do hereby agree as follows:
1. Employment. The Company agrees to employ Employee, and Employee agrees
to remain in the employ of the Company, for the period (the "Employment Period")
beginning on January 1, 1999 and ending on the earlier to occur of (a) December
31, 2000 or (b) the date as of which Employee's employment is terminated
pursuant to paragraph 5 of this Agreement. During the Employment Period,
Employee shall serve as the Vice President Finance of the Company and shall
perform such executive and managerial duties consistent with such position as
the Board of Directors of the Company shall from time to time direct. Employee
shall devote his best efforts to the business of the Company and its
subsidiaries.
2. Location. Employee shall be based at the Company's headquarters in
Evanston, Illinois, or at such other location as may be agreed upon by Employee
and the Board of Directors of the Company. Employee shall, however, also travel
to other locations at such times as may be appropriate for the performance of
his duties under this Agreement.
3. Compensation. During the Employment Period, Employee shall be
compensated as follows:
(a) Salary and Bonus. An "Employment Year" shall be the twelve-month
period beginning on the first day of the Employment Period and on each
anniversary of such date during the Employment Period. For the first Employment
Year, Employee shall be paid an annual base salary at a rate which is not less
than $262,309 per year. Employee's base salary shall be subject to review by the
Board of Directors of the Company and may only be adjusted upward each
Employment Year. Employee's base salary shall be paid in equal, semi-monthly
installments.
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<PAGE> 2
(b) Paid Vacation. Employee shall be entitled to 5 weeks paid
vacation in each calendar year. Any vacation which is not used by Employee will
be forfeited at the end of the calendar year.
(c) Expenses. Employee shall be reimbursed for all reasonable
business expenses incurred in the performance of his duties pursuant to this
Agreement, to the extent such expenses are substantiated and are consistent with
the general policies of the Company and its subsidiaries relating to the
reimbursement of expenses of senior executive officers.
(d) Fringe Benefits. In addition to any other compensation provided
under this Agreement, Employee shall also be entitled to participate, during the
Employment Period, in any and all pension, stock option, relocation, profit
sharing, and other employee benefit plans or fringe benefit programs which are
from time to time maintained by the Company or its subsidiaries for their senior
executive officers, in accordance with the provisions of such plans or programs
as from time to time in effect.
(e) Deduction and Withholding. All compensation and other benefits
payable to or on behalf of Employee pursuant to this Agreement shall be subject
to such deductions and withholding as may be agreed to by Employee or required
by applicable law.
4. Other Benefits. The compensation provisions of this Agreement shall
be in addition to, and not in derogation or diminution of, any benefits that
Employee or his beneficiaries may be entitled to receive under the provisions of
any pension, stock option, profit sharing, disability (except as otherwise
provided in subparagraph 6(b)), relocation or other employee benefit plan now or
hereafter maintained by the Company or by any of its subsidiaries. The Company
shall not make any changes in such plans or arrangements which would adversely
affect the Employee's rights or benefits thereunder, unless such change is made
uniformly in a plan of general application to all of the Company's or a
subsidiary's eligible employees.
5. Termination. The Employee's employment may be terminated without any
breach of this Agreement only under the following circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. If, as a result of the Employee's incapacity due to physical or
mental illness or accident, (i) the Employee shall have been absent from his
duties for the Company on a full-time basis for the entire period of six
consecutive months and (ii) within thirty days after written Notice of
Termination is given (which may occur before or after the end of such six-month
period) shall not have returned to the performance of his duties, the Company
may terminate the Employee's employment for "disability."
(c) Cause. The Company may terminate the Employee's employment
hereunder for "cause." For purposes of this Agreement, "cause" shall mean any
conduct by the Employee involving dishonesty or moral turpitude or any failure
by the Employee to comply with any material term of this Agreement, the
Proprietary Information and Inventions Agreement, or any similar agreement with
the Company to which Employee is a party, which conduct or failure is materially
injurious to the Company, monetarily or otherwise. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for cause
without (i) at least 60 days prior written notice from the Company to the
Employee setting forth the reasons for the Company's intention to terminate for
cause, (ii) an opportunity to cure the stated cause during the 60-day notice
period, and (iii) after
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<PAGE> 3
all of the preceding procedures have been satisfied or made available, delivery
to the Employee of a Notice of Termination from the Board of Directors of the
Company finding that in the good faith opinion of such Board of Directors,
Employee was guilty of the conduct or of the failure described in the second
sentence of this subparagraph, specifying the particulars in detail, and that
the Employee has failed to cure the stated cause.
(d) Termination by the Employee. The Employee may voluntarily
terminate his employment at any time. Employee's termination of employment shall
be for "good reason" if he voluntarily terminates his employment:
(i) within 90 days after a "change in control" (as defined below)
of the Company for any reason;
(ii) at any time after a "change in control" of the Company because:
A. he has been reassigned to a position of lesser rank or
status or to a location other than Evanston, Illinois,
without his consent; or
B. his annual base salary has been reduced; or
C. his benefits have been reduced (unless such reduction is
made uniformly in a plan of general application to all of
the Company's or a subsidiary's eligible employees);
(iii) because of a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten
days after written notice of such noncompliance has been given
by the Employee to the Company; or
(iv) because of any purported termination of the Employee's
employment by the Company which is not effected pursuant to a
Notice of Termination satisfying the requirements of
subparagraph 5(e) hereof (and for purposes of this Agreement no
such purported termination shall be effective).
For purposes of this Agreement, a "change in control" shall mean a change in
control of a nature that would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in effect as of the date of this
Agreement, promulgated pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to the reporting requirements of the Exchange Act;
provided that, without limitation, such a change in control shall be deemed to
have occurred if (i) there shall be consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the Company's assets, (ii) the stockholders of the
Company approve any plan or proposal of liquidation or dissolution of the
Company, (iii) there shall be consummated any consolidation or merger of the
Company in which the Company is not the surviving or continuing corporation, or
pursuant to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company's Common Stock immediately prior to the merger have,
directly or indirectly, at least an 80% ownership interest in the outstanding
Common Stock of the surviving corporation immediately after the merger,
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<PAGE> 4
(iv) any "person" or "group" (as such terms are used in Section 13(d) and 14(d)
of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding voting securities ordinarily having the right to vote for the
election of directors (unless such acquisition of beneficial ownership is
approved by a majority of the Incumbent Board (as defined in clause (v) below))
or (v) individuals who, as of the date of this Agreement, constitute the Board
of Directors of the Company (the "Board" generally, and as of the date hereof,
the "Incumbent Board") cease for any reason to constitute a majority of the
Board, provided that any person becoming a director subsequent to the date of
this Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board. Notwithstanding the foregoing, a public or
private sale or issuance of equity securities, or securities exercisable or
exchangeable for or convertible into equity securities, of the Company for its
own account or for the account of any holder of the Company's equity securities
as of the date hereof shall not result in a "change in control" for purposes of
this Agreement if such sale or issuance is approved by at least three-quarters
of the directors comprising the Incumbent Board.
(e) Notice of Termination. Any termination of the Employee's
employment by the Company or by the Employee (other than termination because of
the Employee's death) shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision of this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Employee's employment under the provision so indicated.
(f) Date of Termination of Employment. "Date of Termination" shall
mean (i) if the Employee's employment is terminated by his death, the date of
his death; (ii) if the Employee's employment is terminated for disability
pursuant to subparagraph 5(b) above, thirty days after Notice of Termination is
given (provided that the Employee shall not have returned to the performance of
his duties during such thirty-day period); (iii) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of Termination
which shall not be less than 10 days nor more than 60 days from the date Notice
of Termination is given; provided that if within thirty days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
6. Compensation Upon Termination of Employment or During Disability.
(a) Death. If the Employee's employment is terminated by his death,
the Company shall continue to pay his full base salary at the rate than in
effect to the Employee's surviving spouse or, if he has no surviving spouse, to
his estate as a death benefit for a period of one (1) month following his Date
of Termination.
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<PAGE> 5
(b) Disability. During any period that the Employee fails to perform
his duties hereunder as a result of incapacity due to physical or mental illness
or accident, the Company shall continue to pay him his full base salary at the
rate then in effect for such period until his Date of Termination.
Notwithstanding the preceding sentence any salary payments made to the Employee
during such period of incapacity shall be reduced (but not below zero) by
amounts actually paid to the Employee for the same period and at or prior to the
time of any such salary payment under disability benefit plans maintained by the
Company; provided such disability benefit amounts were not previously applied to
reduce any such salary payment.
(c) Cause. If the Employee's employment is terminated for cause, the
Company shall pay the Employee his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given
and, except for other compensation or benefits accrued through his Date of
Termination, the Company shall have no further obligations to the Employee under
this Agreement except as otherwise required by applicable law.
(d) Breach; Termination for Good Reason. If (i) in breach of this
Agreement, the Company shall terminate the Employee's employment other than
pursuant to subparagraphs 5(a), 5(b) or 5(c) hereof (it being understood that a
purported termination pursuant to subparagraphs 5(b) or 5(c) hereof which is
disputed and finally determined not to have been proper shall be a termination
of the Employee's employment by the Company in breach of this Agreement) or (ii)
the Employee shall terminate his employment for good reason, then:
A. the Company shall continue to pay the Employee his full base
salary at a rate equal to 100 percent of the annual rate in
effect prior to the date Notice of Termination is given
until the later to occur of December 31, 2000 or the second
anniversary of his Date of Termination, such payments of
continued base salary will be reduced (but not below zero)
by any payments made by the Company under the Proprietary
Information and Inventions Agreement.
B. During the period that Employee is entitled to receive
payments of continued base salary under A. above, Employee
shall continue to participate in any accident, health,
disability, life or similar employee welfare benefit plans
maintained by the Company or its subsidiaries, to the extent
he was eligible to participate in such plans at any time
during the twelve months preceding his Notice of Termination
and at no cost to him; provided that if such continued
participation is precluded by the provisions of such plans
or by applicable law, the Company will provide Employee with
comparable benefits of equivalent value.
C. Employee understands and agrees that if he breaches any
provision of the Proprietary Information and Inventions
Agreement, the Company shall cease to have any obligation to
make any payment under this subparagraph 6(d).
(e) Voluntary Termination. If the Employee voluntarily terminates his
employment other than for good reason, he shall not be entitled to receive any
compensation or
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<PAGE> 6
benefits pursuant to this Agreement other than compensation or benefits accrued
through the Date of Termination.
(f) Severance. If Employee does not continue in employment with the
Company after December 31, 2000 for a reason other than Employee's death,
disability or discharge for cause, the Company shall continue to pay Employee
his full base salary, at a rate equal to the rate in effect immediately prior to
December 31, 2000, until December 31, 2001. Employee shall not be entitled to
receive any severance payments under this subparagraph 6(f) if (i) Employee is
not employed by the Company immediately prior to December 31, 2000, or (ii)
Employee is entitled to receive any benefits under subparagraph 6(d) above.
Severance payments will be reduced (but not below zero) by any payments made
under the Proprietary Information and Inventions Agreement. Employee understands
and agrees that if he breaches any provision of the Proprietary Information and
Inventions Agreement, the Company shall cease to have any obligation to make any
severance payments under this subparagraph.
(g) Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for this paragraph 6 by seeking other employment
or otherwise, nor shall the amount of any payments provided in this Agreement be
reduced by any compensation earned by Employee as the result of his
self-employment or his employment by another employer after his Date of
Termination.
7. Successors; Binding Agreement.
(a) Successors to the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to terminate his employment with the Company for good
reason. As used in this Agreement, "Company" shall mean the Company and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) Assignment. Employee's rights and interests under this Agreement
may not be assigned, pledged or encumbered by him without the Company's written
consent. This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he had continued to live all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's surviving spouse or, if there is no surviving
spouse, to his estate.
8. Proprietary Information. Employee and the Company have entered into
the Proprietary Information and Inventions Agreement, which agreement shall
remain in full force and effect.
9. Payment of Costs and Indemnification.
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(a) Payment of Costs. In the event that a dispute arises regarding
termination of Employee's employment or the interpretation or enforcement of
this Agreement and Employee obtains a final judgment in his favor from a court
of competent jurisdiction from which no appeal may be taken, whether because the
time to do so has expired or otherwise, or his claim is settled by the Company
prior to the rendering of such a judgment, the Company shall promptly pay, or
reimburse to Employee, all reasonable legal fees and expenses incurred by
Employee in contesting or disputing any such termination, in seeking to obtain
or enforce any right or benefit provided for in this Agreement, or in otherwise
pursuing his claim.
(b) Indemnification. The Company shall indemnify and hold Employee
harmless to he maximum extent permitted by law against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees, incurred
by Employee in connection with the defense of, or as a result of, any action or
proceeding (or any appeal from any action or proceeding) in which Employee is
made or is threatened to be made a party by reason of the fact that Employee is
or was an employee, officer, or director of the Company or any of its
subsidiaries, regardless of whether such action or proceeding is one brought by
or in the right of the Company to procure a judgment in its favor. The
undertaking of subparagraph (a) above is independent of, and shall not be
limited or prejudiced by, the undertakings of this subparagraph (b).
(c) Warranty. The Company hereby represents and warrants that the
undertakings of payment and indemnification set out in (a) and (b) above are not
in conflict with the Certificate of Incorporation or by-laws of the Company or
with any validly existing agreement or other proper corporate action of the
Company.
10. General Provisions.
(a) Effect of Headings. The headings of all of the paragraphs and
subparagraphs of this Agreement are inserted for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
(b) Modification, Amendment, Waiver. No modification, amendment, or
waiver of any provision of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(d) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person.
(e) Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the laws of
the State of Illinois.
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(f) Notices. Any notice to be served under this Agreement shall be in
writing and shall be mailed by registered mail, return receipt requested,
addressed:
If to the Company, to:
Northfield Laboratories Inc.
1560 Sherman Avenue
Evanston, Illinois 60201-4800
Attention: Board of Directors
If to Employee, to:
Richard DeWoskin
77 Whittington Course
St. Charles, IL 60174
or to such other place as either party may specify in writing, delivered in
accordance with the provisions of this subparagraph.
(g) Survival. The rights and obligations of the parties shall survive
the term of Employee's employment to the extent that any performance is required
under this Agreement after the expiration or termination of such term.
(h) Entire Agreement. This Agreement, together with the Proprietary
Information and Inventions Agreement described in paragraph 8 above, constitutes
the entire agreement of the parties with respect to the subject matter thereof,
and supersedes all previous agreements between the parties relating to the same
subject matter (but excluding the Proprietary Information and Inventions
Agreement, which agreement shall remain in full force and effect).
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<PAGE> 9
(i) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same document.
11. Parachute Payment Adjustment. If the Company, in good faith,
determines that any part or all of the amounts payable to Employee pursuant to
this Agreement would be "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Company may, in its discretion, reduce the amounts so payable so that the
aggregate present value of such amounts will be less than 3 times the Employee's
"base amount" as defined in Section 280G(b)(3) of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
EMPLOYEE NORTHFIELD LABORATORIES INC.
By
- ---------------------------- -------------------------
Richard DeWoskin Its
------------------------
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EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of this 1st day of January, 1999, by and
between STEVEN A. GOULD, M.D. ("Employee") and NORTHFIELD LABORATORIES INC., a
Delaware corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Employee is now employed as the President of the Company;
WHEREAS, the Company and Employee now desire to enter into this Agreement
in order to continue such employment for the term set forth herein and subject
to the terms and conditions set forth herein; and
WHEREAS, the Company and Employee desire to continue the Proprietary
Information and Inventions Agreement entered into by and between Employee and
the Company dated October 1, 1986 (the "Proprietary Information and Inventions
Agreement") in full force and effect;
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants hereinafter set forth, the parties do hereby agree as follows:
1. Employment. The Company agrees to employ Employee, and Employee agrees
to remain in the employ of the Company, for the period (the "Employment Period")
beginning on January 1, 1999 and ending on the earlier to occur of (a) December
31, 2000 or (b) the date as of which Employee's employment is terminated
pursuant to paragraph 5 of this Agreement. During the Employment Period,
Employee shall serve as the Vice President -- Finance of the Company and shall
perform such executive and managerial duties consistent with such position as
the Board of Directors of the Company shall from time to time direct. Employee
shall devote his best efforts to the business of the Company and its
subsidiaries.
2. Location. Employee shall be based at the Company's headquarters in
Evanston, Illinois, or at such other location as may be agreed upon by Employee
and the Board of Directors of the Company. Employee shall, however, also travel
to other locations at such times as may be appropriate for the performance of
his duties under this Agreement.
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<PAGE> 2
3. Compensation. During the Employment Period, Employee shall be
compensated as follows:
(a) Salary and Bonus. An "Employment Year" shall be the twelve-month
period beginning on the first day of the Employment Period and on each
anniversary of such date during the Employment Period. For the first Employment
Year, Employee shall be paid an annual base salary at a rate which is not less
than $278,276 per year. Employee's base salary shall be subject to review by the
Board of Directors of the Company and may only be adjusted upward each
Employment Year. Employee's base salary shall be paid in equal, semi-monthly
installments.
(b) Paid Vacation. Employee shall be entitled to 5 weeks paid
vacation in each calendar year. Any vacation which is not used by Employee will
be forfeited at the end of the calendar year.
(c) Expenses. Employee shall be reimbursed for all reasonable
business expenses incurred in the performance of his duties pursuant to this
Agreement, to the extent such expenses are substantiated and are consistent
with the general policies of the Company and its subsidiaries relating to the
reimbursement of expenses of senior executive officers.
(d) Fringe Benefits. In addition to any other compensation provided
under this Agreement, Employee shall also be entitled to participate, during the
Employment Period, in any and all pension, stock option, relocation, profit
sharing, and other employee benefit plans or fringe benefit programs which are
from time to time maintained by the Company or its subsidiaries for their senior
executive officers, in accordance with the provisions of such plans or programs
as from time to time in effect.
(e) Deduction and Withholding. All compensation and other benefits
payable to or on behalf of Employee pursuant to this Agreement shall be subject
to such deductions and withholding as may be agreed to by Employee or required
by applicable law.
4. Other Benefits. The compensation provisions of this Agreement shall
be in addition to, and not in derogation or diminution of, any benefits that
Employee or his beneficiaries may be entitled to receive under the provisions of
any pension, stock option, profit sharing, disability (except as otherwise
provided in subparagraph 6(b)), relocation or other employee benefit plan now or
hereafter maintained by the Company or by any of its subsidiaries. The Company
shall not make any changes in such plans or arrangements which would adversely
affect the Employee's rights or benefits thereunder, unless such change is made
uniformly in a plan of general application to all of the Company's or a
subsidiary's eligible employees.
5. Termination. The Employee's employment may be terminated without any
breach of this Agreement only under the following circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. If, as a result of the Employee's incapacity due to physical or
mental illness or accident, (i) the Employee shall have been absent from his
duties for the Company on a full-time basis for the entire period of six
consecutive months and (ii) within thirty days after written Notice of
Termination is given (which may occur before or after the end of such six-month
period) shall not have returned to the performance of his duties, the Company
may terminate the Employee's employment for "disability."
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<PAGE> 3
(c) Cause. The Company may terminate the Employee's employment
hereunder for "cause." For purposes of this Agreement, "cause" shall mean any
conduct by the Employee involving dishonesty or moral turpitude or any failure
by the Employee to comply with any material term of this Agreement, the
Proprietary Information and Inventions Agreement, or any similar agreement with
the Company to which Employee is a party, which conduct or failure is materially
injurious to the Company, monetarily or otherwise. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for cause
without (i) at least 60 days prior written notice from the Company to the
Employee setting forth the reasons for the Company's intention to terminate for
cause, (ii) an opportunity to cure the stated cause during the 60-day notice
period, and (iii) after all of the preceding procedures have been satisfied or
made available, delivery to the Employee of a Notice of Termination from the
Board of Directors of the Company finding that in the good faith opinion of such
Board of Directors, Employee was guilty of the conduct or of the failure
described in the second sentence of this subparagraph, specifying the
particulars in detail, and that the Employee has failed to cure the stated
cause.
(d) Termination by the Employee. The Employee may voluntarily
terminate his employment at any time. Employee's termination of employment shall
be for "good reason" if he voluntarily terminates his employment:
(i) within 90 days after a "change in control" (as defined below)
of the Company for any reason;
(ii) at any time after a "change in control" of the Company because:
A. he has been reassigned to a position of lesser rank or
status or to a location other than Evanston, Illinois,
without his consent; or
B. his annual base salary has been reduced; or
C. his benefits have been reduced (unless such reduction is
made uniformly in a plan of general application to all of
the Company's or a subsidiary's eligible employees);
(iii) because of a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten
days after written notice of such noncompliance has been given
by the Employee to the Company; or
(iv) because of any purported termination of the Employee's
employment by the Company which is not effected pursuant to a
Notice of Termination satisfying the requirements of
subparagraph 5(e) hereof (and for purposes of this Agreement no
such purported termination shall be effective).
For purposes of this Agreement, a "change in control" shall mean a change in
control of a nature that would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in effect as of the date of this
Agreement, promulgated pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject
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to the reporting requirements of the Exchange Act; provided that, without
limitation, such a change in control shall be deemed to have occurred if (i)
there shall be consummated any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the Company's assets, (ii) the stockholders of the Company approve any plan or
proposal of liquidation or dissolution of the Company, (iii) there shall be
consummated any consolidation or merger of the Company in which the Company is
not the surviving or continuing corporation, or pursuant to which shares of the
Company's Common Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the holders of the
Company's Common Stock immediately prior to the merger have, directly or
indirectly, at least an 80% ownership interest in the outstanding Common Stock
of the surviving corporation immediately after the merger, (iv) any "person" or
"group" (as such terms are used in Section 13(d) and 14(d) of the Exchange Act)
becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 30% or
more of the combined voting power of the Company's then outstanding voting
securities ordinarily having the right to vote for the election of directors
(unless such acquisition of beneficial ownership is approved by a majority of
the Incumbent Board (as defined in clause (v) below)) or (v) individuals who, as
of the date of this Agreement, constitute the Board of Directors of the Company
(the "Board" generally, and as of the date hereof, the "Incumbent Board") cease
for any reason to constitute a majority of the Board, provided that any person
becoming a director subsequent to the date of this Agreement whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board. Notwithstanding the foregoing, a public or private sale or issuance of
equity securities, or securities exercisable or exchangeable for or convertible
into equity securities, of the Company for its own account or for the account of
any holder of the Company's equity securities as of the date hereof shall not
result in a "change in control" for purposes of this Agreement if such sale or
issuance is approved by at least three-quarters of the directors comprising the
Incumbent Board.
(e) Notice of Termination. Any termination of the Employee's
employment by the Company or by the Employee (other than termination because of
the Employee's death) shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision of this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Employee's employment under the provision so indicated.
(f) Date of Termination of Employment. "Date of Termination" shall
mean (i) if the Employee's employment is terminated by his death, the date of
his death; (ii) if the Employee's employment is terminated for disability
pursuant to subparagraph 5(b) above, thirty days after Notice of Termination is
given (provided that the Employee shall not have returned to the performance of
his duties during such thirty-day period); (iii) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of Termination
which shall not be less than 10 days nor more than 60 days from the date Notice
of Termination is given; provided that if within thirty days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and
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final arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).
6. Compensation Upon Termination of Employment or During Disability.
(a) Death. If the Employee's employment is terminated by his death,
the Company shall continue to pay his full base salary at the rate than in
effect to the Employee's surviving spouse or, if he has no surviving spouse, to
his estate as a death benefit for a period of one (1) month following his Date
of Termination.
(b) Disability. During any period that the Employee fails to perform
his duties hereunder as a result of incapacity due to physical or mental illness
or accident, the Company shall continue to pay him his full base salary at the
rate then in effect for such period until his Date of Termination.
Notwithstanding the preceding sentence any salary payments made to the Employee
during such period of incapacity shall be reduced (but not below zero) by
amounts actually paid to the Employee for the same period and at or prior to the
time of any such salary payment under disability benefit plans maintained by the
Company; provided such disability benefit amounts were not previously applied to
reduce any such salary payment.
(c) Cause. If the Employee's employment is terminated for cause, the
Company shall pay the Employee his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given
and, except for other compensation or benefits accrued through his Date of
Termination, the Company shall have no further obligations to the Employee under
this Agreement except as otherwise required by applicable law.
(d) Breach; Termination for Good Reason. If (i) in breach of this
Agreement, the Company shall terminate the Employee's employment other than
pursuant to subparagraphs 5(a), 5(b) or 5(c) hereof (it being understood that a
purported termination pursuant to subparagraphs 5(b) or 5(c) hereof which is
disputed and finally determined not to have been proper shall be a termination
of the Employee's employment by the Company in breach of this Agreement) or (ii)
the Employee shall terminate his employment for good reason, then:
A. the Company shall continue to pay the Employee his full base
salary at a rate equal to 100 percent of the annual rate in
effect prior to the date Notice of Termination is given
until the later to occur of December 31, 2000 or the second
anniversary of his Date of Termination, such payments of
continued base salary will be reduced (but not below zero)
by any payments made by the Company under the Proprietary
Information and Inventions Agreement.
B. During the period that Employee is entitled to receive
payments of continued base salary under A. above, Employee
shall continue to participate in any accident, health,
disability, life or similar employee welfare benefit plans
maintained by the Company or its subsidiaries, to the extent
he was eligible to participate in such plans at any time
during the twelve months preceding his Notice of Termination
and at no cost to him; provided that if such continued
participation is precluded by the provisions of such plans
or by
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applicable law, the Company will provide Employee with
comparable benefits of equivalent value.
C. Employee understands and agrees that if he breaches any
provision of the Proprietary Information and Inventions
Agreement, the Company shall cease to have any obligation to
make any payment under this subparagraph 6(d).
(e) Voluntary Termination. If the Employee voluntarily terminates his
employment other than for good reason, he shall not be entitled to receive any
compensation or benefits pursuant to this Agreement other than compensation or
benefits accrued through the Date of Termination.
(f) Severance. If Employee does not continue in employment with the
Company after December 31, 2000 for a reason other than Employee's death,
disability or discharge for cause, the Company shall continue to pay Employee
his full base salary, at a rate equal to the rate in effect immediately prior to
December 31, 2000, until December 31, 2001. Employee shall not be entitled to
receive any severance payments under this subparagraph 6(f) if (i) Employee is
not employed by the Company immediately prior to December 31, 2000, or (ii)
Employee is entitled to receive any benefits under subparagraph 6(d) above.
Severance payments will be reduced (but not below zero) by any payments made
under the Proprietary Information and Inventions Agreement. Employee understands
and agrees that if he breaches any provision of the Proprietary Information and
Inventions Agreement, the Company shall cease to have any obligation to make any
severance payments under this subparagraph.
(g) Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for this paragraph 6 by seeking other employment
or otherwise, nor shall the amount of any payments provided in this Agreement be
reduced by any compensation earned by Employee as the result of his
self-employment or his employment by another employer after his Date of
Termination.
7. Successors; Binding Agreement.
(a) Successors to the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to terminate his employment with the Company for good
reason. As used in this Agreement, "Company" shall mean the Company and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) Assignment. Employee's rights and interests under this Agreement
may not be assigned, pledged or encumbered by him without the Company's written
consent. This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
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<PAGE> 7
devisees and legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he had continued to live all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's surviving spouse or, if there is no surviving
spouse, to his estate.
8. Proprietary Information. Employee and the Company have entered into
the Proprietary Information and Inventions Agreement, which agreement shall
remain in full force and effect.
9. Payment of Costs and Indemnification.
(a) Payment of Costs. In the event that a dispute arises regarding
termination of Employee's employment or the interpretation or enforcement of
this Agreement and Employee obtains a final judgment in his favor from a court
of competent jurisdiction from which no appeal may be taken, whether because the
time to do so has expired or otherwise, or his claim is settled by the Company
prior to the rendering of such a judgment, the Company shall promptly pay, or
reimburse to Employee, all reasonable legal fees and expenses incurred by
Employee in contesting or disputing any such termination, in seeking to obtain
or enforce any right or benefit provided for in this Agreement, or in otherwise
pursuing his claim.
(b) Indemnification. The Company shall indemnify and hold Employee
harmless to the maximum extent permitted by law against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred by Employee in connection with the defense of, or as a result of, any
action or proceeding (or any appeal from any action or proceeding) in which
Employee is made or is threatened to be made a party by reason of the fact that
Employee is or was an employee, officer, or director of the Company or any of
its subsidiaries, regardless of whether such action or proceeding is one brought
by or in the right of the Company to procure a judgment in its favor. The
undertaking of subparagraph (a) above is independent of, and shall not be
limited or prejudiced by, the undertakings of this subparagraph (b).
(c) Warranty. The Company hereby represents and warrants that the
undertakings of payment and indemnification set out in (a) and (b) above are not
in conflict with the Certificate of Incorporation or by-laws of the Company or
with any validly existing agreement or other proper corporate action of the
Company.
10. General Provisions.
(a) Effect of Headings. The headings of all of the paragraphs and
subparagraphs of this Agreement are inserted for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
(b) Modification, Amendment, Waiver. No modification, amendment, or
waiver of any provision of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of
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<PAGE> 8
this Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
(d) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person.
(e) Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the laws of
the State of Illinois.
(f) Notices. Any notice to be served under this Agreement shall be in
writing and shall be mailed by registered mail, return receipt requested,
addressed:
If to the Company, to:
Northfield Laboratories Inc.
1560 Sherman Avenue
Evanston, Illinois 60201-4800
Attention: Board of Directors
If to Employee, to:
Steven A. Gould, M.D.
629 Cherokee Road
Highland Park, IL 60035
or to such other place as either party may specify in writing, delivered in
accordance with the provisions of this subparagraph.
(g) Survival. The rights and obligations of the parties shall survive
the term of Employee's employment to the extent that any performance is required
under this Agreement after the expiration or termination of such term.
(h) Entire Agreement. This Agreement, together with the Proprietary
Information and Inventions Agreement described in paragraph 8 above, constitutes
the entire agreement of the parties with respect to the subject matter thereof,
and supersedes all previous agreements between the parties relating to the same
subject matter (but excluding the Proprietary Information and Inventions
Agreement, which agreement shall remain in full force and effect).
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<PAGE> 9
(i) Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall together
constitute one and the same document.
11. Parachute Payment Adjustment. If the Company, in good faith,
determines that any part or all of the amounts payable to Employee pursuant to
this Agreement would be "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Company may, in its discretion, reduce the amounts so payable so that the
aggregate present value of such amounts will be less than 3 times the Employee's
"base amount" as defined in Section 280G(b)(3) of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
EMPLOYEE NORTHFIELD LABORATORIES INC.
By
- ----------------------------- -------------------------
Steven A. Gould, M.D. Its
------------------------
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made effective as of this 1st day of January, 1999, by and
between JACK KOGUT ("Employee") and NORTHFIELD LABORATORIES INC., a Delaware
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, Employee is now employed as the Vice President - Finance of the
Company;
WHEREAS, the Company and Employee now desire to enter into this Agreement
in order to continue such employment for the term set forth herein and subject
to the terms and conditions set forth herein; and
WHEREAS, the Company and Employee desire to continue the Proprietary
Information and Inventions Agreement entered into by and between Employee and
the Company dated October 1, 1986 (the "Proprietary Information and Inventions
Agreement") in full force and effect;
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants hereinafter set forth, the parties do hereby agree as follows:
1. Employment. The Company agrees to employ Employee, and Employee agrees
to remain in the employ of the Company, for the period (the "Employment Period")
beginning on January 1, 1999 and ending on the earlier to occur of (a) December
31, 2000 or (b) the date as of which Employee's employment is terminated
pursuant to paragraph 5 of this Agreement. During the Employment Period,
Employee shall serve as the Vice President Finance of the Company and shall
perform such executive and managerial duties consistent with such position as
the Board of Directors of the Company shall from time to time direct. Employee
shall devote his best efforts to the business of the Company and its
subsidiaries.
2. Location. Employee shall be based at the Company's headquarters in
Evanston, Illinois, or at such other location as may be agreed upon by Employee
and the Board of Directors of the Company. Employee shall, however, also travel
to other locations at such times as may be appropriate for the performance of
his duties under this Agreement.
3. Compensation. During the Employment Period, Employee shall be
compensated as follows:
(a) Salary and Bonus. An "Employment Year" shall be the twelve-month
period beginning on the first day of the Employment Period and on each
anniversary of such date during the Employment Period. For the first Employment
Year, Employee shall be paid an annual base salary at a rate which is not less
than $219,772 per year. Employee's base salary shall be subject to review by the
Board of Directors of the Company and may only be adjusted upward each
Employment Year. Employee's base salary shall be paid in equal, semi-monthly
installments.
(b) Paid Vacation. Employee shall be entitled to 5 weeks paid
vacation in each calendar year. Any vacation which is not used by Employee will
be forfeited at the end of the calendar year.
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<PAGE> 2
(c) Expenses. Employee shall be reimbursed for all reasonable
business expenses incurred in the performance of his duties pursuant to this
Agreement, to the extent such expenses are substantiated and are consistent with
the general policies of the Company and its subsidiaries relating to the
reimbursement of expenses of senior executive officers.
(d) Fringe Benefits. In addition to any other compensation provided
under this Agreement, Employee shall also be entitled to participate, during the
Employment Period, in any and all pension, stock option, relocation, profit
sharing, and other employee benefit plans or fringe benefit programs which are
from time to time maintained by the Company or its subsidiaries for their senior
executive officers, in accordance with the provisions of such plans or programs
as from time to time in effect.
(e) Deduction and Withholding. All compensation and other benefits
payable to or on behalf of Employee pursuant to this Agreement shall be subject
to such deductions and withholding as may be agreed to by Employee or required
by applicable law.
4. Other Benefits. The compensation provisions of this Agreement shall
be in addition to, and not in derogation or diminution of, any benefits that
Employee or his beneficiaries may be entitled to receive under the provisions of
any pension, stock option, profit sharing, disability (except as otherwise
provided in subparagraph 6(b)), relocation or other employee benefit plan now or
hereafter maintained by the Company or by any of its subsidiaries. The Company
shall not make any changes in such plans or arrangements which would adversely
affect the Employee's rights or benefits thereunder, unless such change is made
uniformly in a plan of general application to all of the Company's or a
subsidiary's eligible employees.
5. Termination. The Employee's employment may be terminated without any
breach of this Agreement only under the following circumstances:
(a) Death. The Employee's employment shall terminate upon his death.
(b) Disability. If, as a result of the Employee's incapacity due to
physical or mental illness or accident, (i) the Employee shall have been absent
from his duties for the Company on a full-time basis for the entire period of
six consecutive months and (ii) within thirty days after written Notice of
Termination is given (which may occur before or after the end of such six-month
period) shall not have returned to the performance of his duties, the Company
may terminate the Employee's employment for "disability."
(c) Cause. The Company may terminate the Employee's employment
hereunder for "cause." For purposes of this Agreement, "cause" shall mean any
conduct by the Employee involving dishonesty or moral turpitude or any failure
by the Employee to comply with any material term of this Agreement, the
Proprietary Information and Inventions Agreement, or any similar agreement with
the Company to which Employee is a party, which conduct or failure is materially
injurious to the Company, monetarily or otherwise. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated for cause
without (i) at least 60 days prior written notice from the Company to the
Employee setting forth the reasons for the Company's intention to terminate for
cause, (ii) an opportunity to cure the stated cause during the 60-day notice
period, and (iii) after all of the preceding procedures have been satisfied or
made available, delivery to the Employee of a Notice of Termination from the
Board of Directors of the Company finding that in the good faith opinion of such
Board of Directors, Employee was guilty of the conduct or of the failure
described
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<PAGE> 3
in the second sentence of this subparagraph, specifying the particulars in
detail, and that the Employee has failed to cure the stated cause.
(d) Termination by the Employee. The Employee may voluntarily
terminate his employment at any time. Employee's termination of employment shall
be for "good reason" if he voluntarily terminates his employment:
(i) within 90 days after a "change in control" (as defined below)
of the Company for any reason;
(ii) at any time after a "change in control" of the Company because:
A. he has been reassigned to a position of lesser rank or
status or to a location other than Evanston, Illinois,
without his consent; or
B. his annual base salary has been reduced; or
C. his benefits have been reduced (unless such reduction is
made uniformly in a plan of general application to all of
the Company's or a subsidiary's eligible employees);
(iii) because of a failure by the Company to comply with any material
provision of this Agreement which has not been cured within ten
days after written notice of such noncompliance has been given
by the Employee to the Company; or
(iv) because of any purported termination of the Employee's
employment by the Company which is not effected pursuant to a
Notice of Termination satisfying the requirements of
subparagraph 5(e) hereof (and for purposes of this Agreement no
such purported termination shall be effective).
For purposes of this Agreement, a "change in control" shall mean a change in
control of a nature that would be required to be reported in response to Item
1(a) of the Current Report on Form 8-K, as in effect as of the date of this
Agreement, promulgated pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the
Company is then subject to the reporting requirements of the Exchange Act;
provided that, without limitation, such a change in control shall be deemed to
have occurred if (i) there shall be consummated any sale, lease, exchange or
other transfer (in one transaction or a series of related transactions) of all
or substantially all of the Company's assets, (ii) the stockholders of the
Company approve any plan or proposal of liquidation or dissolution of the
Company, (iii) there shall be consummated any consolidation or merger of the
Company in which the Company is not the surviving or continuing corporation, or
pursuant to which shares of the Company's Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in which
the holders of the Company's Common Stock immediately prior to the merger have,
directly or indirectly, at least an 80% ownership interest in the outstanding
Common Stock of the surviving corporation immediately after the merger, (iv) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of
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<PAGE> 4
the Company's then outstanding voting securities ordinarily having the right to
vote for the election of directors (unless such acquisition of beneficial
ownership is approved by a majority of the Incumbent Board (as defined in clause
(v) below)) or (v) individuals who, as of the date of this Agreement, constitute
the Board of Directors of the Company (the "Board" generally, and as of the date
hereof, the "Incumbent Board") cease for any reason to constitute a majority of
the Board, provided that any person becoming a director subsequent to the date
of this Agreement whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board (other than an election or nomination of an
individual whose initial assumption of office is in connection with an actual or
threatened election contest relating to the directors of the Company, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) shall be, for purposes of this Agreement, considered as though such person
were a member of the Incumbent Board. Notwithstanding the foregoing, a public or
private sale or issuance of equity securities, or securities exercisable or
exchangeable for or convertible into equity securities, of the Company for its
own account or for the account of any holder of the Company's equity securities
as of the date hereof shall not result in a "change in control" for purposes of
this Agreement if such sale or issuance is approved by at least three-quarters
of the directors comprising the Incumbent Board.
(e) Notice of Termination. Any termination of the Employee's
employment by the Company or by the Employee (other than termination because of
the Employee's death) shall be communicated by written Notice of Termination to
the other party hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision of this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
Employee's employment under the provision so indicated.
(f) Date of Termination of Employment. "Date of Termination" shall
mean (i) if the Employee's employment is terminated by his death, the date of
his death; (ii) if the Employee's employment is terminated for disability
pursuant to subparagraph 5(b) above, thirty days after Notice of Termination is
given (provided that the Employee shall not have returned to the performance of
his duties during such thirty-day period); (iii) if the Employee's employment is
terminated for any other reason, the date specified in the Notice of Termination
which shall not be less than 10 days nor more than 60 days from the date Notice
of Termination is given; provided that if within thirty days after any Notice of
Termination is given the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
6. Compensation Upon Termination of Employment or During Disability.
(a) Death. If the Employee's employment is terminated by his death,
the Company shall continue to pay his full base salary at the rate than in
effect to the Employee's surviving spouse or, if he has no surviving spouse, to
his estate as a death benefit for a period of one (1) month following his Date
of Termination.
(b) Disability. During any period that the Employee fails to perform
his duties hereunder as a result of incapacity due to physical or mental illness
or accident, the Company shall continue to pay him his full base salary at the
rate then in effect for such period until his Date of
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<PAGE> 5
Termination. Notwithstanding the preceding sentence any salary payments made to
the Employee during such period of incapacity shall be reduced (but not below
zero) by amounts actually paid to the Employee for the same period and at or
prior to the time of any such salary payment under disability benefit plans
maintained by the Company; provided such disability benefit amounts were not
previously applied to reduce any such salary payment.
(c) Cause. If the Employee's employment is terminated for cause, the
Company shall pay the Employee his full base salary through the Date of
Termination at the rate in effect at the time Notice of Termination is given
and, except for other compensation or benefits accrued through his Date of
Termination, the Company shall have no further obligations to the Employee under
this Agreement except as otherwise required by applicable law.
(d) Breach; Termination for Good Reason. If (i) in breach of this
Agreement, the Company shall terminate the Employee's employment other than
pursuant to subparagraphs 5(a), 5(b) or 5(c) hereof (it being understood that a
purported termination pursuant to subparagraphs 5(b) or 5(c) hereof which is
disputed and finally determined not to have been proper shall be a termination
of the Employee's employment by the Company in breach of this Agreement) or (ii)
the Employee shall terminate his employment for good reason, then:
A. the Company shall continue to pay the Employee his full base
salary at a rate equal to 100 percent of the annual rate in
effect prior to the date Notice of Termination is given
until the later to occur of December 31, 2000 or the second
anniversary of his Date of Termination, such payments of
continued base salary will be reduced (but not below zero)
by any payments made by the Company under the Proprietary
Information and Inventions Agreement.
B. During the period that Employee is entitled to receive
payments of continued base salary under A. above, Employee
shall continue to participate in any accident, health,
disability, life or similar employee welfare benefit plans
maintained by the Company or its subsidiaries, to the extent
he was eligible to participate in such plans at any time
during the twelve months preceding his Notice of Termination
and at no cost to him; provided that if such continued
participation is precluded by the provisions of such plans
or by applicable law, the Company will provide Employee with
comparable benefits of equivalent value.
C. Employee understands and agrees that if he breaches any
provision of the Proprietary Information and Inventions
Agreement, the Company shall cease to have any obligation to
make any payment under this subparagraph 6(d).
(e) Voluntary Termination. If the Employee voluntarily terminates his
employment other than for good reason, he shall not be entitled to receive any
compensation or benefits pursuant to this Agreement other than compensation or
benefits accrued through the Date of Termination.
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<PAGE> 6
(f) Severance. If Employee does not continue in employment with the
Company after December 31, 2000 for a reason other than Employee's death,
disability or discharge for cause, the Company shall continue to pay Employee
his full base salary, at a rate equal to the rate in effect immediately prior to
December 31, 2000, until December 31, 2001. Employee shall not be entitled to
receive any severance payments under this subparagraph 6(f) if (i) Employee is
not employed by the Company immediately prior to December 31, 2000, or (ii)
Employee is entitled to receive any benefits under subparagraph 6(d) above.
Severance payments will be reduced (but not below zero) by any payments made
under the Proprietary Information and Inventions Agreement. Employee understands
and agrees that if he breaches any provision of the Proprietary Information and
Inventions Agreement, the Company shall cease to have any obligation to make any
severance payments under this subparagraph.
(g) Mitigation. The Employee shall not be required to mitigate the
amount of any payment provided for this paragraph 6 by seeking other employment
or otherwise, nor shall the amount of any payments provided in this Agreement be
reduced by any compensation earned by Employee as the result of his
self-employment or his employment by another employer after his Date of
Termination.
7. Successors; Binding Agreement.
(a) Successors to the Company. The Company will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, by
agreement in form and substance satisfactory to the Employee, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle the Employee to terminate his employment with the Company for good
reason. As used in this Agreement, "Company" shall mean the Company and any
successor to its business and/or assets which executes and delivers the
agreement provided for in this paragraph 7 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) Assignment. Employee's rights and interests under this Agreement
may not be assigned, pledged or encumbered by him without the Company's written
consent. This Agreement and all rights of the Employee hereunder shall inure to
the benefit of and be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If the Employee should die while any amounts would still
be payable to him hereunder if he had continued to live all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Employee's surviving spouse or, if there is no surviving
spouse, to his estate.
8. Proprietary Information. Employee and the Company have entered into
the Proprietary Information and Inventions Agreement, which agreement shall
remain in full force and effect.
9. Payment of Costs and Indemnification.
(a) Payment of Costs. In the event that a dispute arises regarding
termination of Employee's employment or the interpretation or enforcement of
this Agreement and Employee obtains
-32-
<PAGE> 7
a final judgment in his favor from a court of competent jurisdiction from which
no appeal may be taken, whether because the time to do so has expired or
otherwise, or his claim is settled by the Company prior to the rendering of such
a judgment, the Company shall promptly pay, or reimburse to Employee, all
reasonable legal fees and expenses incurred by Employee in contesting or
disputing any such termination, in seeking to obtain or enforce any right or
benefit provided for in this Agreement, or in otherwise pursuing his claim.
(b) Indemnification. The Company shall indemnify and hold Employee
harmless to the maximum extent permitted by law against judgments, fines,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred by Employee in connection with the defense of, or as a result of, any
action or proceeding (or any appeal from any action or proceeding) in which
Employee is made or is threatened to be made a party by reason of the fact that
Employee is or was an employee, officer, or director of the Company or any of
its subsidiaries, regardless of whether such action or proceeding is one brought
by or in the right of the Company to procure a judgment in its favor. The
undertaking of subparagraph (a) above is independent of, and shall not be
limited or prejudiced by, the undertakings of this subparagraph (b).
(c) Warranty. The Company hereby represents and warrants that the
undertakings of payment and indemnification set out in (a) and (b) above are not
in conflict with the Certificate of Incorporation or by-laws of the Company or
with any validly existing agreement or other proper corporate action of the
Company.
10. General Provisions.
(a) Effect of Headings. The headings of all of the paragraphs and
subparagraphs of this Agreement are inserted for convenience of reference only
and shall not affect the construction or interpretation of this Agreement.
(b) Modification, Amendment, Waiver. No modification, amendment, or
waiver of any provision of this Agreement shall be effective unless approved in
writing by both parties. The failure at any time to enforce any of the
provisions of this Agreement shall in no way be construed as a waiver of such
provisions and shall not affect the right of either party thereafter to enforce
each and every provision of this Agreement in accordance with its terms.
(c) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
(d) No Strict Construction. The language used in this Agreement shall
be deemed to be the language chosen by the parties hereto to express their
mutual intent, and no rule of strict construction shall be applied against any
person.
(e) Choice of Law. All questions concerning the construction,
validity and interpretation of this Agreement shall be governed by the laws of
the State of Illinois.
(f) Notices. Any notice to be served under this Agreement shall be in
writing and shall be mailed by registered mail, return receipt requested,
addressed:
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<PAGE> 8
If to the Company, to:
Northfield Laboratories Inc.
1560 Sherman Avenue
Evanston, Illinois 60201-4800
Attention: Board of Directors
If to Employee, to:
Jack Kogut
903 South Kennicott Place
Mt. Prospect, Illinois 60056-4073
or to such other place as either party may specify in writing, delivered in
accordance with the provisions of this subparagraph.
(g) Survival. The rights and obligations of the parties shall survive
the term of Employee's employment to the extent that any performance is required
under this Agreement after the expiration or termination of such term.
(h) Entire Agreement. This Agreement, together with the Proprietary
Information and Inventions Agreement described in paragraph 8 above, constitutes
the entire agreement of the parties with respect to the subject matter thereof,
and supersedes all previous agreements between the parties relating to the same
subject matter (but excluding the Proprietary Information and Inventions
Agreement, which agreement shall remain in full force and effect).
-34-
<PAGE> 9
(i) Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall together
constitute one and the same document.
11. Parachute Payment Adjustment. If the Company, in good faith,
determines that any part or all of the amounts payable to Employee pursuant to
this Agreement would be "excess parachute payments" within the meaning of
Section 280G(b) of the Internal Revenue Code of 1986, as amended (the "Code"),
the Company may, in its discretion, reduce the amounts so payable so that the
aggregate present value of such amounts will be less than 3 times the Employee's
"base amount" as defined in Section 280G(b)(3) of the Code.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
EMPLOYEE NORTHFIELD LABORATORIES INC.
By
- ---------------------------- ------------------------
Jack Kogut Its
-----------------------
-35-
<PAGE> 1
Exhibit 23.1
Consent of KPMG LLP
To Board of Directors
Northfield Laboratories Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-15877, 333-51681, and 333-79579) on Form S-8 of Northfield Laboratories Inc.
of our report dated July 2, 1998, relating to the balance sheets of Northfield
Laboratories Inc. as of May 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for each of the years
in the three-year period ended May 31, 1999 and for the cumulative period from
June 19, 1985 (inception) through May 31, 1999, which report appears in the May
31, 1999 annual report on Form 10-K of Northfield Laboratories Inc.
KPMG LLP [LOGO]
Chicago, Illinois
August 25, 1999
-36-
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