U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____________ to _____________
Commission file number 0-26534
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VION PHARMACEUTICALS, INC.
--------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3671221
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) dentification No.)
4 Science Park, New Haven, CT 06511
-----------------------------------
(Address of Principal Executive Offices)
(203) 498-4210
--------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the issuer's sole class of common equity, as
of April 27, 1999 is: 15,204,922 shares of common stock, $0.01 par value.
--------------------------------------------------
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
Part 1 - Financial Information
Item 1. Financial Statements
BALANCE SHEET
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
----------------
March 31,
1999
(Unaudited)
------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents (Includes $870,418 restricted) $ 3,656,359
Short-term investments -
Accounts receivable 525,994
Other current assets 93,124
----------------
Total current assets 4,275,477
Property and equipment, net 923,140
Security deposits 51,347
Research contract prepayments 416,945
----------------
Total assets $ 5,666,909
----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Obligation under capital leases - current $ 267,317
Accounts payable and accrued expenses 1,332,339
----------------
Total current liabilities 1,599,656
Obligation under capital leases - long term 129,138
----------------
Total Liabilities 1,728,794
Redeemable Preferred Stock:
5% convertible preferred stock Series 1998, $0.01 par value, authorized:
15,000 shares; issued and outstanding: 5,000 shares 4,935,378
(redemption value - $5,187,500)
Shareholders' equity:
Preferred stock, $0.01 par value - 5,000,000 shares authorized consisting of:
Class A convertible preferred stock, $0.01 par value, authorized:
3,500,000 shares; issued and outstanding: 559,077
(liquidation preference - $5,590,770) 5,591
Common stock, $0.01 par value, authorized: 35,000,000 shares;
issued and outstanding: 14,145,285 shares 141,453
Additional paid-in-capital 52,026,274
Deferred compensation (28,838)
Accumulated deficit (53,141,743)
----------------
(997,263)
----------------
Total liabilities and shareholders' equity $ 5,666,909
================
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
STATEMENT OF OPERATIONS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For The Period
From May 1, 1994
Three Months Ended (Inception) through
March 31, March 31, March 31,
--------------------------------------------------------------------
1999 1998 1999
(Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Contract research grants $ 61,946 $ - $ 470,733
Research support 259,468 274,842 3,129,582
Technology license revenues 50,000 - 4,050,000
--------------------------------------------------------------------
Total revenues 371,414 274,842 7,650,315
Operating expenses:
Research and development 2,347,801 2,273,522 29,840,977
General and administrative 504,601 631,709 9,545,427
Nonrecurring collaboration restructuring fee - - 600,000
Purchased research and development - - 4,481,405
Amortization of finance charges - - 345,439
Interest Income (60,366) (142,874) (1,466,554)
Interest Expense 11,607 18,705 172,273
--------------------------------------------------------------------
Net Loss $ (2,432,229) $ (2,506,220) $ (35,868,652)
====================================================================
Preferred stock dividends and accretion $ (80,873) $ (630,464) $ (17,254,067)
--------------------------------------------------------------------
Loss applicable to common shareholders (2,513,102) (3,136,684) (53,122,719)
====================================================================
Basic and diluted loss applicable to common
shareholders per share $ (0.18) $ (0.32)
--------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
Class A Class B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
----------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,107,028 $11,070 0 $0 8,017,961 $ 80,178
----------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (396,988) (3,970) 1,102,757 11,028
Class A convertible preferred stock dividend 47,592 476
Issuance of Class B convertible preferred stock 4,850 49
Conversion of Class B convertible preferred stock (258) (3) 64,642 647
Accretion of dividend payable on Class B convertible
preferred stock
Extension/reissuance of underwriter warrants
Exercise of warrants 238 3
Issuance of common stock 598,336 5,983
Exercise of stock options 50,000 500
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1997 757,632 $ 7,576 4,592 $46 9,833,934 $ 98,339
----------------------------------------------------------------------------
Conversion of Class B convertible preferred stock (4,592) (46) 1,205,178 12,052
Accretion of dividend payable on Class B convertible
preferred stock
Premium on Conversion dividend on class B
convertible preferred stock 585,898 5,859
Conversion of Class A convertible preferred stock (174,981) (1,749) 486,062 4,860
Class A convertible preferred stock dividend 34,005 340
Discount on Series 1998 convertible preferred stock
Series 1998 convertible preferred stock accretion
Common stock issued in exchange for cancellation 1,792,952 17,929
of outstanding warrants
Exercise of stock options 32,750 328
Exercise of warrants 16,272 163
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
----------------------------------------------------------------------------
Balance at December 31, 1998 616,656 $ 6,167 0 $0 13,953,046 $139,530
----------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (57,579) (576) 159,946 1,600
Class A convertible preferred stock dividend
Series 1998 convertible preferred stock accretion
Series 1998 convertible preferred stock accretion
Common stock issued in exchange for cancellation
of outstanding warrants 102 1
Exercise of stock options 6,250 63
Exercise of warrants 25,941 259
Compensation associated with stock option grants
Amortization of deferred compensation
Net loss
----------------------------------------------------------------------------
Balance at March 31, 1999 (Unaudited) 559,077 $ 5,591 0 $0 14,145,285 $141,453
----------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (continued)
Vion Pharmaceuticals, Inc.
( A Development Stage Company)
<TABLE>
Additional Total
Paid-in Deferred Accumulated Stockholders'
Capital Compensation Deficit Equity
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $38,349,072 ($106,760) ($29,261,588) $ 9,071,972
---------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (7,058) (0)
Class A convertible preferred stock dividend 623,038 (623,514) 0
Issuance of Class B convertible preferred stock 4,851,662 (369,861) 4,481,850
Conversion of Class B convertible preferred stock (644) 0
Accretion of dividend payable on Class B convertible
preferred stock 138,365 (138,365) 0
Extension/reissuance of underwriter warrants 168,249 168,249
Exercise of warrants (6) (3)
Issuance of common stock 3,463,818 3,469,801
Exercise of stock options 19,500 20,000
Compensation associated with stock option grants 55,643 55,643
Amortization of deferred compensation 34,632 34,632
Net loss (5,343,594) (5,343,594)
---------------------------------------------------------------------------
Balance at December 31, 1997 $47,661,639 ($ 72,128) ($35,736,922) $11,958,550
---------------------------------------------------------------------------
Conversion of Class B convertible preferred stock (12,006) 0
Accretion of dividend payable on Class B convertible
preferred stock 286,776 (286,776) 0
Premium on Conversion dividend on class B
convertible preferred stock 2,043,532 (2,049,391) 0
Conversion of Class A convertible preferred stock (3,111) 0
Class A convertible preferred stock dividend 329,206 (329,546) 0
Discount on Series 1998 convertible preferred stock 1,597,218 (1,597,218) 0
Series 1998 convertible preferred stock accretion 0 (151,119) (151,119)
Common stock issued in exchange for cancellation 8,441,442
of outstanding warrants (8,502,064) (42,693)
Exercise of stock options 119,854 120,182
Exercise of warrants 10,910 11,073
Compensation associated with stock option grants 51,252 51,252
Amortization of deferred compensation 34,632 34,632
Net loss (10,477,669) (10,477,669)
---------------------------------------------------------------------------
Balance at December 31, 1998 $52,024,648 ($ 37,496) ($50,628,641) $ 1,504,208
---------------------------------------------------------------------------
Conversion of Class A convertible preferred stock (1,024) 0
Class A convertible preferred stock dividend 0
Series 1998 convertible preferred stock accretion (80,873) (80,873)
Series 1998 convertible preferred stock accretion 0 0 0
Common stock issued in exchange for cancellation
of outstanding warrants 473 474
Exercise of stock options 2,436 2,499
Exercise of warrants -259 0
Compensation associated with stock option grants 0
Amortization of deferred compensation 8,658 8,658
Net loss (2,432,229) (2,432,229)
---------------------------------------------------------------------------
Balance at March 31, 1999 (Unaudited) $52,026,274 ($ 28,838) ($53,141,743) ($ 997,263)
---------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
STATEMENT OF CASH FLOWS
Vion Pharmaceuticals, Inc.
(A Development Stage Company)
<TABLE>
<CAPTION>
For the period
For The Three Months from May 1, 1994 (inception)
Ended March 31, through March 31,
-----------------------------------------------------------------
1999 1998 1999
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net loss $ (2,432,229) $ (2,506,220) $ (35,868,652)
Adjustments to reconcile net loss to
cash flows used in operating activities
Purchased research and development - - 4,481,405
Amortization of financing costs - - 345,439
Depreciation and amortization 124,138 122,438 1,076,120
(Increase) in other current assets 739,698 389,563 (618,132)
(Increase) in other assets - - (466,577)
Increase in accounts payable and
accrued expense (1,105,343) 157,022 1,297,807
Accretion on Class B preferred stock - - -
Extension/reissuance of placement agent warrants - - 168,249
Stock issued for services - - 600,417
Stock options issued for compensation 8,658 21,471 808,464
-----------------------------------------------------------------
Net cash (used in) operating activities (2,665,078) (1,815,726) (28,175,460)
-----------------------------------------------------------------
Cash flows used for investing activities:
Purchase of marketable securities - - (24,707,588)
Maturities of marketable securities 2,594,497 1,042,590 24,707,588
Cash portion of MelaRx acquisition - - 4,061
Acquisition of fixed assets (21,094) (22,238) (1,054,827)
-----------------------------------------------------------------
Net cash provided by (used in)
investing activities 2,573,403 1,020,352 (1,050,766)
-----------------------------------------------------------------
Cash flows provided by financing activities:
Initial public offering - - 9,696,210
Net proceeds from issuance of common stock - - 3,283,566
Net proceeds from issuance of preferred stock - - 20,716,288
Repurchase of common stock - - (720)
Net proceeds from bridge financing - - 1,704,269
Repayments of bridge financing - - (2,000,000)
Advances from stockholders - - 250,000
Repayments to stockholders - - (250,000)
Exercise of warrants 2,973 - 14,043
Receipts from sale of unit purchase option - - 250
Repayment of equipment capital lease (76,173) (80,056) (531,321)
-----------------------------------------------------------------
Net cash provided by (used in)
financing activities (73,200) (80,056) 32,882,585
-----------------------------------------------------------------
Net increase (decrease) in cash (164,875) (875,430) 3,656,359
Cash and cash equivalents at beginning of period 3,821,234 3,890,621 -
-----------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,656,359 $ 3,015,191 $ 3,656,359
=================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
VION PHARMACEUTICALS, INC
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Note A) - The Company
-----------
Vion Pharmaceuticals, Inc., formerly OncoRx, Inc., (the "Company") was
incorporated in May 1993 and began operations on May 1, 1994. The Company is in
the development stage and is principally devoted to the research and development
of therapeutic products for the treatment of cancer and cancer related
disorders.
In April 1995, the Company merged into OncoRx Research Corp. a
previously unaffiliated company ("Research"). The stockholders of the Company
were issued shares of common and preferred stock of MelaRx Pharmaceuticals Inc.
("MelaRx"), the 100% owner of Research, in exchange for all of the outstanding
shares of the Company. On April 20, 1995, the Company merged into OncoRx
Research Corp., a wholly-owned subsidiary of MelaRx, which was renamed OncoRx,
Inc. after the merger. The stockholders of the Company were issued 2,654,038
common and 23,859 preferred shares of MelaRx in exchange for 2,000,000 shares of
common stock of the Company valued at $2.16 per share (fair value). In August
1995, the Company completed an initial public offering ("IPO") resulting in net
proceeds to the Company of approximately $9,696,000.
As the shareholders of the Company obtained a majority interest in the
merged company, for accounting purposes, the Company is treated as the acquirer.
Therefore, the transaction is recorded as a purchase in the Company's financial
statements which include the results of operations of the Company from inception
and MelaRx from the date of acquisition. The excess of cost over the fair value
of MelaRx's net tangible assets, $4,481,405, was treated as purchased research
and development and expensed immediately.
The accompanying financial statements are prepared assuming the Company
will continue as a going concern; however, at its current and planned rate of
spending, the Company's cash, cash equivalents and short term investments are
not sufficient to allow it to continue operations through the 1999 calendar
year. The Company requires other sources of capital in order to meet such
budgeted expenditures and to continue its operations throughout the year. The
Company is seeking to enter into significant strategic partnerships with
pharmaceutical companies for the development of its core technologies, through
which it would anticipate receiving some of the substantial revenues and
financing required to continue operations beyond the year end. The Company is
seeking to raise funds through additional means, including (1) sales of its
securities; (2) spin-off, refinancing, or partial sale or disposition of its
rights to certain of its non-core technologies; and (3) equipment lease
financing. No assurance can be given that the Company will be successful in
arranging financing through any of these alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company. The financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification
of assets or the amounts or classification of liabilities that may result from
the outcome of this uncertainty.
6
<PAGE>
(Note B) - Basis of Presentation
---------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
three month period ended March 31, 1999 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1999. For further
information, refer to the financial statements and footnotes thereto included in
the Company's Annual Report for the fiscal year ended December 31, 1998 on Form
10-KSB/A Amendment No. 1 (File No. 0-26534).
(Note C) - Shareholders' Equity
--------------------
On April 20, 1995, 2,000,000 shares of common stock valued at $2.16 per
share were issued in conjunction with the merger with MelaRx (see Note A).
Shortly prior to the consummation of the Merger, the Company issued 76,349
shares of common stock for net proceeds of $206,000 after deducting placement
fees of $14,000.
On August 17, 1995 and September 6, 1995, the Company completed an IPO
of 2,875,000 units, consisting of an aggregate of 2,875,000 shares of common
stock, 2,875,000 redeemable Class A Warrants and 2,875,000 redeemable Class B
Warrants at a price of $4.00 per unit. Each Class A Warrant entitles the holder
to purchase one share of common stock and one Class B Warrant. Each Class B
Warrant entitles the holder to purchase one share of common stock. These
warrants are exercisable through August 13, 2000. The net proceeds to the
Company of the IPO were approximately $9,696,000 before repayment of the bridge
financing noted below.
In connection with the Company's IPO, the Company granted the
underwriter an option, exercisable until August 14, 2000 to purchase up to
250,000 units at $5.20 per unit, subject to adjustment.
Commencing with its IPO, and including the gross proceeds therefrom,
the Company has raised a gross amount of $33,850,000 to date, through the
issuance of common and preferred stock.
Private Placement of Class A Convertible Preferred Stock
- --------------------------------------------------------
On May 22, 1996, the Company completed a private placement of 1,250,000
shares of Class A Convertible Preferred Stock, at $10.00 per share, resulting in
net proceeds to the Company of $11,531,052. Each share of Class A Preferred
Stock is immediately convertible into 2.777777 shares of the Company's common
stock and is entitled to vote on all matters on an "as if converted" basis. The
Company recorded an imputed one-time non-cash dividend of approximately $11.4
million as a result of the difference between the conversion price and the
quoted market price of the Company's common stock as of the date of issuance as
required by the Financial Accounting Standards Board Emerging Issues Task Force
D-60 "Accounting for the Issuance of Convertible Preferred Stock and Debt
Securities with a Nondetachable Conversion Feature" (EITF D-60). The $11.4
million has been recognized as a charge against accumulated deficit with a
corresponding increase in additional paid-in capital. The imputed non-cash
dividend has been included in the dividend
7
<PAGE>
requirement on Preferred Stock and the loss applicable to common shareholders.
In connection with the foregoing transaction, the Company also issued warrants
to the placement agent, exercisable over a five year period, to purchase an
aggregate of 546,875 shares of the Company's common stock at prices ranging from
$3.96 to $12.00. The shares of Class A Preferred Stock pay semi-annual dividends
of 5% per annum, payable in additional shares of Class A Preferred Stock, which
are immediately convertible into common stock of the Company. The Company has
recorded non-cash dividends as a charge against the accumulated deficit and a
credit to additional paid-in capital based on the quoted market price of the
common stock as of the date of the issuance of the preferred dividends of
$623,514 in 1997 and $329,546 in 1998. The non-cash dividend has been included
in the dividend requirement on Preferred Stock and the loss applicable to common
shareholders. The issue contains a provision for a 15% one time dividend payable
in additional Class A Preferred Stock if the Company redeems the issue within 3
years from the date of issuance. In the event that the closing bid price of the
Company's common stock exceeds $10.3125 for 20 trading days in any 30 trading
day period, the Company can redeem the Class A Preferred Stock at the issue
price plus all declared and unpaid dividends thereon. If all of the 559,077
outstanding shares of the Company's Class A Preferred Stock were thus redeemed,
their redemption value would be $5,590,770. The issuance of the Class A
Preferred Stock at closing also triggered certain antidilution adjustment
provisions of the Company's outstanding warrants, resulting in the issuance of
additional warrants. The Company can not pay cash dividends on Common Stock
without the consent of a majority of holders of the Class A Preferred Stock.
Private Placement of Class B Convertible Preferred Stock:
- --------------------------------------------------------
On August 20, 1997, the Company completed a private placement of 4,850
shares of non-voting Class B Convertible Preferred Stock, at $1,000 per share,
resulting in net proceeds to the Company of $4,481,450. Shares of Class B
Preferred Stock were convertible into shares of common stock including an
accretion of 8% per annum. For the three-month period ended March 31, 1998 the
Class B accretion totaled $121,164. Shares of the Class B Preferred Stock were
also eligible, under certain circumstances, to receive dividends paid in Class C
Preferred Stock. The Class C Preferred Stock was immediately convertible into
shares of common stock at the average closing bid price of the Company's common
stock for thirty consecutive business days ending on the private placement
closing date and were not entitled to dividends. Conversions of Class B
Preferred Stock in the quarter ended March 31, 1998 resulted in additional
dividends of Class C preferred stock representing 155,200 shares of common stock
valued at $509,300. These dividends and the Class B accretion were recorded as a
charge against accumulated deficit, with a corresponding increase to additional
paid-in capital for the period ending March 31, 1998. These dividends and
accretion have been included in the dividend requirement on Preferred Stock and
the loss applicable to common shareholders. On August 11, 1998, the Company
reached agreement with each of the holders of its Class B Preferred Stock that
the holders would convert all of the outstanding shares of Class B Preferred
Stock into an aggregate of 867,806 shares of common stock.
Private Placement of 5% Convertible Preferred Stock Series 1998
- ---------------------------------------------------------------
On June 30, 1998, the Company completed a private placement of 5,000
shares of non-voting 5% Convertible Preferred Stock Series 1998 ("Series 1998
Preferred Stock"). The Series 1998 Preferred Stock was issued at $1,000 per
share, resulting in net proceeds to the Company of $4,703,386. The shares of
Series 1998 Preferred Stock accrue dividends of 5% per annum. Each share of
Series 1998 Preferred Stock is convertible into Common Stock based on the
formula of issued price plus accrued
8
<PAGE>
dividends divided by $3.60. Dividends other than non-cash dividends paid in-kind
with respect to other classes or series of preferred stock require consent of
two-thirds majority interest of the holders of Series 1998 Preferred Stock. The
Series 1998 Preferred Stock is manditorily redeemable at $1,000 per share plus
dividends on June 30, 2003. In connection with the sale of the Series 1998
Preferred Stock, the Company imputed a one-time non-cash dividend of
approximately $1.6 million as a result of the difference between the conversion
price and the quoted market price of the Company's common stock at the date of
issuance as required by EITF D-60. Such amount was recognized upon issuance of
the Series 1998 Preferred Stock as a charge against the accumulated deficit with
a corresponding increase to additional paid-in capital. The imputed non-cash
dividend has been included in the dividend requirement on Preferred Stock and
the loss applicable to common shareholders. The dividend requirement on
Preferred Stock also reflects the amortization of the costs of completing the
offering and the accretion of the 5% per annum dividend. The issuance of the
Series 1998 Preferred Stock at closing also triggered certain antidilution
adjustment provisions of the Company's outstanding warrants, resulting in the
issuance of additional warrants (See Note D).
Warrant Exchange Offer
- ----------------------
On May 19, 1998, the Company commenced an offer to exchange each
outstanding Class A Warrant, at the option of the holder, for either (A) 0.438
shares of common stock or (B) 0.254 shares of common stock and $0.66 in cash.
The Company simultaneously offered to exchange each outstanding Class B Warrant,
at the holder's option, for either (A) 0.212 shares of common stock or (B) 0.123
shares of common stock and $0.32 in cash. The Exchange Offer was not conditioned
upon the exchange of a minimum number of Class A Warrants or Class B Warrants.
As a result of the Exchange Offer, 3,209,806 Class A Warrants and 1,881,835
Class B Warrants were exchanged for 1,395,027 and 397,925 shares of the
Company's Common Stock and $39,007 and $3,686 in cash, respectively.
(Note D) - Antidilution Adjustment
-----------------------
As a result of the sale on May 22, 1996 of 1,250,000 shares of Class A
Convertible Preferred Stock, an adjustment was made to the exercise price of the
Class A Warrants and the Class B Warrants and there was a corresponding
distribution of additional Class A Warrants and Class B Warrants. Specifically,
on July 12, 1996 (the "Payment Date") each holder of a Class A Warrant at the
close of business on July 3, 1996 (the "Record Date") was issued an additional
0.1 Class A Warrant and the exercise price of the Class A Warrants was reduced
from $5.20 to $4.73. In addition, on the Payment Date each holder of a Class B
Warrant on the close of business on the Record Date was issued an additional 0.1
Class B Warrant and the exercise price of the Class B Warrants was reduced from
$7.00 to $6.37.
Subsequently, as a result of the sale on June 30, 1998 of 5,000 shares
of Series 1998 Preferred Stock, an additional adjustment was made to the
exercise price of the Class A Warrants and the Class B Warrants with a
corresponding distribution of additional Class A Warrants and Class B Warrants.
Specifically, on September 8, 1998 (the "Payment Date") each holder of a Class A
Warrant at the close of business on August 26, 1998 (the "Record Date") received
an additional 0.02 (2 per 100 outstanding) Class A Warrants and the exercise
price of the Class A Warrants was reduced from $4.73 to $4.63. In addition, on
the Payment Date each holder of a Class B Warrant on the close of business on
the Record Date received an additional 0.02 (2 per 100 outstanding) Class B
Warrants and the exercise price of the Class B Warrants was reduced from $6.37
to $6.23.
9
<PAGE>
(Note E) - Research and License Agreements
-------------------------------
Boehringer Ingelheim Agreement
- ------------------------------
On November 24, 1997, the Company and Boehringer Ingelheim
International GmbH of Germany ("BI") entered into an exclusive worldwide
licensing agreement for the development and marketing of Promycin(R)
(porfiromycin), Vion's most advanced anticancer agent. The agreement provides
the Company with exclusive co-promotion rights to Promycin in the United States
and Canada. BI will have exclusive worldwide rights to market and sell Promycin
outside the United States and Canada. The Company is responsible for the
manufacturing and supply of Promycin for all territories.
In exchange for these rights, the Company received $4.0 million in
upfront technology access fees and net proceeds of $2,869,801 from the sale of
448,336 shares of common stock at a premium to the then current market price. BI
also reimbursed the Company for certain initial development costs and will share
in future worldwide development costs.
The Company has cash equivalents and short-term investments of
$3,656,359 at March 31,1999. This balance includes $870,418 of restricted
investments for Promycin development expenses. Pursuant to the BI Agreement, the
Company must use the BI license fee of $4.0 million exclusively for Promycin
development expenses.
The Company recorded $259,468 of Promycin development expenses as
research support revenue under the agreement during the first three months of
1999. Included in the company's total current assets as of March 31, 1999 is
$486,499 in receivables from BI.
Covance Agreement
- -----------------
During the quarter ended June 30, 1997, the Company entered into a
Clinical Development Agreement (the "Agreement") with Covance Clinical Research
Unit Ltd. and Covance Inc. ("Covance"). Pursuant to the Agreement, the Company
is contracting to Covance the selection and management of clinical sites and the
preparation of clinical trial reports arising from clinical trials performed by
Covance regarding the Company's product candidate Promycin for the inclusion in
a regulatory submission. The Company has incurred estimated expenses of $210,000
for the quarter ended March 31, 1999 under this agreement which has been
expensed as incurred as research and development. Included in the company's
total current liabilities at March 31, 1999 are payables to Covance Development
Service Corporation for $377,989.
10
<PAGE>
(Note F) - Per Share Data
--------------
The following table sets forth the computation of basic and diluted
earnings per share:
------------------- --------------------
1999 1998
- ------------------------------------ ------------------- --------------------
Numerator:
- ------------------------------------ ------------------- --------------------
Net loss ($2,432,229) ($2,506,220)
- ------------------------------------ ------------------- --------------------
Preferred stock dividends
and accretion (80,873) (630,464)
- ------------------------------------ ------------------- --------------------
Numerator for basic and
diluted loss applicable
to common shareholders
per share ($2,513,102) ($3,136,684)
-------------------------------- ------------------- --------------------
Denominator:
- ------------------------------------ ------------------- --------------------
Denominator for basic and
diluted loss applicable to
common shareholders per share 14,034,943 9,891,509
- ------------------------------------ ------------------- --------------------
Basic and diluted loss
applicable to common
shareholders per share ($0.18) ($0.32)
- ------------------------------------ ------------------- --------------------
For additional disclosures regarding warrants and Class A Convertible
Preferred Stock see Note C and D. These potentially dilutive securities were not
included in diluted loss per share applicable to common shareholders as the
effect would be antidilutive. Under the Financial Accounting Standards Board
Statement No. 128, which the Company has adopted, the dilutive effect of stock
options has been excluded.
(Note G) - Subsequent Events
-----------------
In April 1999, the Company consummated a private placement of the
Company's Common Stock. Pursuant to the private placement, the Company issued
893,915 shares of Common Stock at a price of approximately $4.47 per share (the
"Purchase Price"), for aggregate proceeds of $4,000,000.
Subject to certain exceptions, if at any time during the twelve-month
period following the closing of the private placement, the Company issues or
agrees to issue any Common Stock at a price per share which is less than the
Purchase Price, or if the Company issues or agrees to issue any rights, options,
warrants or other securities which are directly or indirectly convertible into
or exchangeable for Common Stock for a consideration per share of Common Stock
deliverable upon conversion or exchange of such rights, options, warrants or
other securities which is less than the Purchase Price (any such new issuance
price per share being referred to as the "New Issue Price"), then the Company
shall immediately thereafter issue to the investors in the private placement, on
a pro rata basis, additional registered, listed shares of Common Stock such that
the total number of shares of Common Stock issued pursuant to the private
placement will equal at least $4,000,000 divided by the New Issue Price. The
foregoing provisions will cease to be effective after the date, if any, upon
which the Company completes a private placement or public offering of its Common
Stock at a price per share in excess of the Purchase Price and also resulting in
gross proceeds equal to or greater than $11,000,000.
11
<PAGE>
ITEM 2. PLAN OF OPERATION.
General
- -------
The Company is a development stage biopharmaceutical company. Its
activities to date have consisted primarily of research and development
sponsored by it pursuant to two separate license agreements with Yale
University, negotiating and obtaining other collaborative agreements, recruiting
management and other personnel, securing its facilities and raising equity and
debt financing. The Company's revenues consist of research grants, technology
license fees and reimbursements for research expenses. The Company has not
generated any revenues from product sales and has incurred substantial operating
losses from its activities.
The Company intends to use a substantial portion of the net proceeds of
its April 1999 and June 1998 private financings, the equity investment, initial
payments and reimbursed cost sharing from the November 24, 1997 exclusive
worldwide licensing agreement with BI to fund its plan of operations, which
includes the following elements for the next 12 months:
o Continue to develop internal research and development
capabilities and conduct research and development with respect to
the Company's core technologies and other product candidates
which may be identified by the Company. The Company expects to
incur substantial expenditures for research and development
expenses. During the next twelve months, the Company plans to
hire seven additional employees.
o Conduct Phase III clinical studies in the U.S. and Europe of
Promycin for treatment of cancer of the head and neck.
Conduct Phase I clinical studies in the U.S. of the Company's
anticancer agent Triapine(TM) for safety and pharmacokinectics.
File Investigational New Drug application(s) with the FDA and
conduct Phase I clinical studies in the U.S. for the safety,
tumor targeting and pharmacokinectics of several bacterial
constructs using the Company's TAPET(TM) cancer therapy delivery
technology.
o Continue to support research and development being performed at
Yale University and by other collaborators and seek additional
collaborative agreements.
The Company currently estimates that anticipated revenues, the
remaining net proceeds of its private placement in April 1999 and June 1998, the
equity investment, initial payments and reimbursed cost sharing from the
agreement with BI and its existing cash and equivalents will be sufficient to
fund its planned operations for approximately the next 7 months. In the event of
delays or unexpected problems in product development, cost overruns, or other
unanticipated expenses commonly associated with a company in an early stage of
development, the Company will sooner require additional funds. In addition, the
Company will need substantial additional financing, beyond this period to fund
further research and development and the Company's working capital requirements.
As of March 31, 1999 the Company estimates that the amount required to fund
operations for the next twelve months is at approximately $10,350,000, of which
approximately $2,950,000 is
12
<PAGE>
subject to reimbursement under the terms of the BI collaboration agreement.
However, the Company's cash requirements may vary materially from those now
planned because of results of research and development, results of product
testing, relationships with strategic partners, changes in focus and direction
of the Company's research and development programs, competitive and
technological advances, the regulatory process in the United States and abroad
and other factors.
The Company received an opinion from its auditors for the fiscal year
ended December 31, 1998, expressing substantial doubt as to its ability to
continue as a going concern. The Company intends to address the immediate need
for additional capital by raising funds through a private placement of its
securities and/or sale of stock, although the Company expects to require
additional financing to fund its longer-term activities and may require
additional capital to fund its operations, acquisitions and new development
projects.
Impact of the Year 2000 Issue
- -----------------------------
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g., 97 for 1997). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software which
uses only two digits to represent the year may recognize a date using 00 as the
Year 1900 rather than the Year 2000. This could result in a system failure or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, perform laboratory analyses, or
engage in similar business activities.
The Company's exposure to potential risks from the Year 2000 Issue
involves Information Technology (IT) systems, scientific instrumentation, and
laboratory facilities. The Company has hired an Information Systems
Administrator and has inventoried all of the software and hardware embedded in
its laboratory and facilities equipment employed in its research and development
programs to ascertain its Year 2000 compliance. The Company has not completed
its assessment of its internal information systems to determine the extent of
any Year 2000 problem. However, based on an initial review, the Company does not
currently believe that it has material exposure to the Year 2000 Issue with
respect to its own information systems, since its existing systems correctly
define the Year 2000 or will correctly define Year 2000 by December 31, 1999.
The Company has also not completed its assessment of its scientific
instrumentation, and laboratory facilities to determine the extent of any Year
2000 problem. However, the Company maintains service agreements covering its
critical instrumentation and laboratory environmental equipment. Accordingly, to
the extent that these service agreements are enforceable, the Company does not
believe that the Year 2000 presents a material exposure with regard to its
critical instrumentation and laboratory environmental equipment.
The Company has purchased Year 2000 upgrades to several software
programs, including its accounting programs, the cost of which has not been
material. To date, the Company has spent an immaterial amount with respect to
its Year 2000 assessment and estimates that its costs to complete its
assessment, as well as any corrective measures, will not be material to the
Company's financial condition, results of operations, or cash flows. The Company
does not expect to reach profitability on an operating basis before 2000 and
therefore expects to fund all such costs from funds it has raised or expects to
raise in various financings.
13
<PAGE>
Management of the Company believes it will complete its review and
implement contingency plans to deal with the Year 2000 issue in a timely manner.
In the event that it does not implement adequate plans, Company operations could
be affected in several adverse ways. Failure of a scientific instrument or
laboratory facility could result, among other things, in the loss of experiments
that would take weeks to set up and repeat. Such delays in the progress of
research could have an adverse impact on the Company's stock price and on its
ability to raise capital, and the cost of repeating lost experiments cannot
reasonably be estimated at this time. In addition, research delays could occur
due to the impact of Year 2000 problems at major vendors, government research
funding agencies, or development partners.
The Company believes it maintains adequate data backup to computers
used in its information systems and scientific instrumentation. The Company
currently does not have a contingency plan in the event that it or any of its
key suppliers and vendors is unable to become Year 2000 compliant. The company
will develop a contingency plan if the Company determines it or any of it key
vendors or suppliers is not likely to achieve its compliance objectives.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had working capital of $2,675,821. The
Company's most recent principal sources of funds through March 31, 1999 have
been $4,749,597 net proceeds from private financing through issuance of 5,000
shares of Series 1998 Convertible Preferred Stock, $4,000,000 from upfront
technology access fees and net proceeds of $2,869,801 from the sale of 486,062
shares of common stock at a premium to the then current market price related to
the BI agreement.
In April 1999, the Company consummated a private placement of the
Company's Common Stock. Pursuant to the private placement, the Company issued
893,915 shares of Common Stock at a price of approximately $4.47 per share (the
"Purchase Price"), for aggregate proceeds of $4,000,000.
The Company used the proceeds of its initial public offering to repay a
previous bridge financing and used the remaining funds and the proceeds of its
sales of convertible preferred stock to implement its business plan, which
included hiring of additional personnel; capital expenditures for the purchase
of equipment, principally for laboratory facilities; costs of research and
development; payment of license fees due under sponsored research agreements;
and grants to Yale University to fund certain research. During the twelve months
ending December 31, 1999, the Company will be required to make payments of an
aggregate of $693,171 to Yale University under sponsored research and license
agreements.
The Company requires substantial new revenues and other sources of
capital in order to meet such budgeted expenditures and to continue its
operations beyond the current year. The Company is seeking to enter into one or
more significant strategic partnerships with pharmaceutical companies for the
development of its core technologies, through which it would anticipate
receiving some of the substantial revenues and financing. The Company has
entered into discussions with several major pharmaceutical companies concerning
such strategic alliances, but there can be no assurance that the Company will be
successful in achieving such alliances, nor can the Company predict what funds
might be available to it if it can achieve such an alliance. The Company will be
required to seek to raise funds through additional means, including (1) sales
and/or a recapitalization of its securities; (2) spin-off, refinancing, or
partial sale or disposition of its rights to certain of its non-core
technologies; and (3) equipment lease financing. No assurance can be given
14
<PAGE>
that the Company will be successful in arranging financing through any of these
alternatives.
Failure to obtain such financing will require the Company to delay,
renegotiate, or omit payment on its outside research funding commitments causing
it to substantially curtail its operations, resulting in a material adverse
effect on the Company.
Forward-Looking Statements - Cautionary Factors
- -----------------------------------------------
Statements included in this Form 10-QSB which are not historical in
nature are forward-looking statements made pursuant to the safe-harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements regarding the Company's future business prospects,
plans, objectives, expectations and intentions are subject to certain risks,
uncertainties and other factors that could cause actual results to differ
materially from those projected or suggested in the forward-looking statements,
including, but not limited to: the inability to raise additional capital, the
possibility that any or all of the Company's products or procedures are found to
be ineffective or unsafe, the possibility that third parties hold proprietary
rights that preclude the Company from marketing its products, and the
possibility that third parties will market a product equivalent or superior to
the Company's product candidates.
15
<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
--------
10.28 - Form of Severance Agreement between the Company and
Terrence W. Doyle, Thomas E. Klein and Thomas Mizelle.
10.29 - Employment Agreement between the Company, Alan Kessman
and PS Capital LLC.
10.30 - Senior Executive Stock Option Plan.
(b) Reports on Form 8-K.
-------------------
On April 26, 1999, the Company filed a Current Report on Form 8-K
with the Commission regarding two press releases relating to a
private placement of the Company's Common Stock.
16
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VION PHARMACEUTICALS, INC.
(Registrant)
By: /s/ Thomas E. Klein
------------------------------
Thomas E. Klein
Vice President - Finance
(Duly authorized signatory and
Chief Financial Officer)
Date: May 14, 1999
17
EXHIBIT 10.28
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT (the "Agreement") dated as of October 15, 1998 (the
"Effective Date") by and between Vion Pharmaceuticals, Inc., a Delaware
corporation (the "Company") with offices at 4 Science Park, New Haven, CT 06511,
and , residing at (the "Executive").
WITNESSETH:
-----------
WHEREAS, the Board of Directors of the Company (the "Board") recognizes
that the continued efforts of Executive are essential to the growth and success
of the Company; and
WHERAS, the Board wishes to provide Executive with certain protections
in the event of a change in control of the Company in order to induce the
continued efforts of Executive on behalf of the Company.
NOW THEREFORE, in consideration of the foregoing and of the premises
set forth herein, the parties hereto agree as follows:
1. DEFINITIONS.
1.1 Change in Control of the Company. For purposes of this Agreement, a
"change in control of the Company" shall be deemed to have occurred if:
(a) any "person", as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions as their ownership of
stock of the Company), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 30 percent or more of the
combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years,
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this subsection) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at
<PAGE>
the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute
at least a majority thereof;
(c) the stockholders of the Company approve a merger
or consolidation of the Company with any other corporation, other than
(I) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 70
percent of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (II) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires more than 30
percent of the combined voting power of the Company's then outstanding
securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
1.2 Cause. For purposes of this Agreement, termination by the Company
of the Executive's employment for "Cause" shall mean termination (a) upon the
willful and continued failure by the Executive to substantially perform his
duties with the Company, after a written demand for substantial performance is
delivered to the Executive by the Board, which demand specifically identifies
the manner in which the Board believes that the Executive has not substantially
performed his duties, (b) the willful engaging by the Executive in an act or
acts of dishonesty constituting a felony under the laws of the United States or
any state thereof and resulting or intended to result directly or indirectly in
gain or personal enrichment at the expense of the Company, or the Executive's
conviction of a felony under the laws of the United States or any state thereof,
or (c) the willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the Company, monetarily or otherwise. For purposes
of this Subsection, no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that his action or omission was in the
best interest of the Company. Notwithstanding the foregoing, the Executive shall
not be deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the entire membership of the
Board at a meeting of the Board (after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel, to be heard before the
Board), finding that in the good faith opinion of the Board the Executive was
guilty of conduct set forth above in this Subsection and specifying the
particulars thereof in detail.
1.3 Good Reason. Termination by the Executive of his employment for
"Good Reason" shall mean, without the Executive's express written consent, the
occurrence within 12 months after a change in control of the Company of any of
the following circumstances:
2
<PAGE>
(a) the assignment to the Executive of any duties
inconsistent with the position with the Company that the Executive
held immediately prior to the change in control of the Company, or a
significant adverse alteration in the nature or status of the
Executive's responsibilities or the conditions of the Executive's
employment from those in effect immediately prior to such change in
control;
(b) a reduction by the Company in the Executive's
annual base salary as in effect on the date hereof or as it may be
increased from time to time, except for across the board salary
reductions similarly affecting all management personnel of the Company
and all management personnel of any person in control of the Company;
(c) the relocation of the Company's offices at which
the Executive is principally employed immediately prior to the date of
the change in control of the Company to a location more than 25 miles
from such location, or the Company's requiring the Executive to be
based anywhere other than the Company's offices at such location,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business travel practices
immediately prior to the date of the change in control of the Company;
(d) the failure by the Company to pay to the
Executive any portion of his current compensation or to pay to the
Executive any portion of an installment of deferred compensation under
any deferred compensation program of the Company within seven days
following receipt by the chief financial officer of the Company of
written notice from the Executive that payment is past due by ten or
more days;
(e) the failure by the Company to continue in effect
any material compensation or benefit plan in which the Executive
participates immediately prior to the change in control of the Company,
unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Executive's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Executive's participation relative to
other participants, than existed at the time of the change in control
of the Company, except for across the board benefit reductions
similarly affecting all management personnel of the Company and all
management personnel of any person in control of the Company; or
(f) the failure of the Company to obtain an agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 hereof.
3
<PAGE>
2. TERMINATION FOLLOWING CHANGE IN CONTROL; CONSULTING SERVICES.
If any of the events described in Section 1.1 constituting a
"change in control of the Company" shall have occurred, the Executive shall be
entitled to the benefits provided in Section 3 upon the subsequent termination
of his employment during the twelve month period following the change in control
of the Company unless such termination is (a) because of the Executive's death,
(b) by the Company for Cause, or (c) by the Executive other than for Good
Reason. If requested by the Company or its successor following a change in
control of the Company that has triggered Executive's rights to the benefits set
forth in Section 3 of this Agreement, Executive shall provide at the time and
place determined by Executive, up to 10 hours per week of consulting services
for a period of six months after the effective date of the change in control of
the Company, for no consideration additional to the benefits set forth in
Section 3 of this Agreement.
3. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE IN CONTROL. If Executive
qualifies for benefits pursuant to Section 2 hereof, then the Executive shall be
entitled to the benefits provided below:
(a) the Company shall pay to the Executive his full base
salary through the date of termination, at the rate in effect at the time notice
of termination is given, no later than the fifth day following the date of
termination, plus accrued vacation pay and all other amounts to which the
Executive is entitled under any compensation plan of the Company at the time
such payments are due;
(b) the Company shall pay as severance pay to the Executive,
not later than the fifth day following the date of termination, a lump sum
severance payment equal to the sum of: (1) twelve months of the Executive's
monthly base salary as in effect as of the date of termination or immediately
prior to the change in control of the Company, whichever is greater; and (2) the
average of the last two cash bonus payments made to Executive prior to the
change in control of the Company; and
(c) until the earlier of (i) 18 months after such termination
or (ii) the date Executive has obtained new full-time employment, the Company
shall make all payments due under COBRA to provide the Executive with group
health insurance benefits substantially similar to those which the Executive was
receiving immediately prior to the date of termination.
Notwithstanding the foregoing, the Executive shall at his sole option, have the
right to defer up to one-half (50%) of the payments due pursuant to subsections
(a) and (b) above, for a period not to exceed 12 months from the date such
payments would otherwise be due hereunder.
4. NO MITIGATION. Except as provided in Section 3(c), the Executive shall not be
required to mitigate the amount of any payment provided for in Section 3 by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for in Section 3 be
4
<PAGE>
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company, or otherwise.
5. ASSIGNMENTS AND SUCCESSORS. No party may assign any of its rights under this
Agreement without the prior consent of the other party. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the heirs, executors, administrators, successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any person other than the parties to this
Agreement any legal or equitable right, remedy, or claim under or with respect
to this Agreement or any provision of this Agreement. This Agreement and all of
its provisions and conditions are for the sole and exclusive benefit of the
parties to this Agreement and their heirs, executors, administrators, successors
and assigns.
6. GOVERNING LAW. The validity, construction, and performance of this Agreement
shall be governed by and interpreted in accordance with the laws of the State of
Connecticut, without giving effect to its conflicts of laws principles.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the
parties and supersedes any prior agreements among the parties, whether written
or oral, relating to the subject matter hereof.
8. COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall constitute an original and all of which shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Severance
Agreement as of the date first above written.
VION PHARMACEUTICALS, INC. (Executive)
By:_____________________________ _____________________________
Name: John A. Spears
Title: President and Chief Executive Officer
5
EXHIBIT 10.29
VION PHARMACEUTICALS, INC.
4 SCIENCE PARK
NEW HAVEN, CT 06511
January 11, 1999
Alan Kessman
11 Hedgerow Lane
Greenwich, CT 06831
PS Capital LLC
11 Hedgerow Lane
Greenwich, CT 06831
Attn: Alan Kessman
Re: Retention of Alan Kessman as Chief Executive Officer
----------------------------------------------------
Gentlemen:
This serves to confirm that Alan Kessman has agreed to act as Chief
Executive Officer of Vion Pharmaceuticals, Inc. (the "Company") on the terms set
forth herein for at least six months from the date hereof with any longer term
to be mutually agreed upon by the parties. The Company shall compensate Mr.
Kessman for his services as such directly as follows:
o Options to purchase 220,000 shares of Common Stock of the Company at the
market price in accordance with the terms of the Company's Senior Executive
Stock Option Plan (the "Plan"); provided, such option shall vest in full six
months from the date of grant and such options shall not be terminable if Mr.
Kessman is no longer acting as Chief Executive Officer of the Company. o Options
to purchase 760,000 shares of Common Stock of the Company at a 10% premium to
the market price as defined in the Plan, such options to vest 25% on July 11,
2000, 50% to vest on July 11, 2001, 75% to vest on July 11, 2002 and 100% to
vest on July 11, 2003 and otherwise in accordance with standard terms and
conditions of options granted to Company management.
In further consideration of allowing for the provision of Mr. Kessman's
services to the Company, the Company agrees to compensate PS Capital LLC ("PSC")
as follows:
o $25,000 per month in cash.
<PAGE>
The parties currently contemplate that Mr. Kessman will provide
consulting services to the Company after the conclusion of his service as Chief
Executive Officer and that 160,000 shares of the 760,000 share option grant set
forth above shall survive as part of the compensation for such consulting
services; provided, that the foregoing is merely a statement of intent and the
foregoing sentence is subject to execution of a definitive agreement between the
parties with respect to the subject matter thereof.
The foregoing shall represent the sole compensation to Mr. Kessman and
PSC for the services to be provided hereunder. Please confirm that you are in
agreement with the foregoing by countersigning the enclosed copy of this letter
and returning it to me.
Very truly yours,
VION PHARMACEUTICALS, INC.
By:/s/ William R. Miller
------------------------
William R. Miller
Chairman of the Board
ACCEPTED AND AGREED TO:
/s/ Alan Kessman
- --------------------------
Alan Kessman (Individually)
PS CAPITAL LLC
By:/s/ Alan Kessman
---------------------
Name: Alan Kessman
Title: Member
2
EXHIBIT 10.30
VION PHARMACEUTICALS, INC.
SENIOR EXECUTIVE STOCK OPTION PLAN
1. Purpose.
-------
The purpose of this plan (the "Plan") is to secure for Vion
Pharmaceuticals, Inc. (the "Corporation") and its stockholders the benefits
arising from capital stock ownership by the Chief Executive Officer of the
Corporation who is expected to contribute to the Corporation's future growth and
success. The Plan permits grants of options to purchase shares of Common Stock,
$.01 par value per share, of the Corporation ("Common Stock").
2. Type of Options and Administration.
----------------------------------
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Corporation (or a
Committee designated by the Board of Directors) and shall be non-statutory
options that are not intended to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Administration. The Plan will be administered by the Board of
Directors of the Corporation, whose construction and interpretation of the terms
and provisions of the Plan shall be final and conclusive. The Board of Directors
may in its sole discretion grant options to purchase shares of Common Stock and
issue shares upon exercise of such options as provided in the Plan. The Board of
Directors shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Board of Directors
necessary or desirable for the administration of the Plan. The Board of
Directors may correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any option agreement in the manner and to the
extent it shall deem expedient to carry the Plan into effect and it shall be the
sole and final judge of such expediency. No director or person acting pursuant
to authority delegated by the Board of Directors shall be liable for any action
or determination under the Plan made in good faith. The Board of Directors may,
to the full extent permitted by or consistent with applicable laws or
regulations (including, without limitation, applicable state law and Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), or
any successor rule ("Rule 16b-3")), delegate any or all of its powers under the
Plan to a committee (the "Committee") appointed by the Board of Directors, and
if the Committee is so appointed all references to the Board of Directors in the
Plan shall mean and relate to such Committee with respect to the powers so
delegated.
<PAGE>
(c) Applicability of Rule 16b-3. Those provisions of the Plan which
make express reference to Rule 16b-3 shall apply to the Corporation only at such
time as the Corporation's Common Stock is registered under the Exchange Act, and
then only to such persons as are required to file reports under Section 16(a) of
the Exchange Act (a "Reporting Person").
(d) Compliance with Section 162(m) of the Code. Section 162(m) of the
Code, added by the Omnibus Budget Reconciliation Act of 1993, generally limits
the tax deductibility to publicly held companies of compensation in excess of
$1,000,000 paid to certain "covered employees" ("Covered Employees"). It is the
Corporation's intention to preserve the deductibility of such compensation to
the extent it is reasonably practicable and to the extent it is consistent with
the Corporation's compensation objectives. For purposes of this Plan, Covered
Employees of the Corporation shall be those employees of the Corporation
described in Section 162(m)(3) of the Code.
(e) Special Provisions Applicable to Non-Statutory Options Granted to
Covered Employees. In order for the full value of non-statutory options granted
to Covered Employees to be deductible by the Corporation for federal income tax
purposes, the Corporation may intend for such non-statutory options to be
treated as "qualified performance based compensation" as described in Treas.
Reg. ss.1.162-27(e) (or any successor regulation). In such case, non-statutory
options granted to Covered Employees shall be subject to the following
additional requirements:
(i) such options and rights shall be granted only by the
Committee; and
(ii) the exercise price of such options shall in no event be
less than the Fair Market Value (as defined below) of the Common Stock as of the
date of grant of such options.
3. Eligibility.
-----------
(a) General. Options may be granted to the Chief Executive Officer of
the Corporation as an inducement to enter into an employment agreement with the
Corporation.
(b) Grant of Options to Reporting Persons. From and after the
registration of the Common Stock of the Corporation under the Exchange Act, the
selection of a director or an officer who is a Reporting Person (as the terms
"director" and "officer" are defined for purposes of Rule 16b-3) as a recipient
of an option, the timing of the option grant, the exercise price of the option
and the number of shares subject to the option shall be determined either: (i)
by the Board of Directors, or (ii) by a committee consisting of two or more
"Non-Employee Directors" having full authority to act in the matter. For the
purposes of the Plan, a director shall be deemed to be a "Non-Employee Director"
only if such person qualifies as a "Non-Employee Director" within the meaning of
Rule 16b-3, as such term is interpreted from time to time.
-2-
<PAGE>
4. Stock Subject to Plan.
---------------------
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 14 below, the maximum number of shares of Common Stock of
the Corporation which may be issued and sold under the Plan is 980,000 shares.
If any option granted under the Plan shall expire, terminate or is canceled for
any reason without having been exercised in full, unpurchased shares subject to
such option shall not be available for subsequent option grants under the Plan.
No employee shall be granted options for more than 980,000 shares of Common
Stock under the Plan in any one fiscal year of the Corporation, subject to
adjustments as provided in Section 14 of this Plan.
5. Forms of Option Agreements.
--------------------------
As a condition to the grant of an option under the Plan, the recipient
of an option shall execute an option agreement in such form not inconsistent
with the Plan as may be approved by the Board of Directors.
6. Purchase Price.
--------------
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option.
(b) Payment of Purchase Price. Options granted under the Plan may
provide for the payment of the exercise price by delivery of cash or a check to
the order of the Corporation in an amount equal to the exercise price of such
options, or, to the extent provided in the applicable option agreement, (i) by
delivery to the Corporation of shares of Common Stock of the Corporation having
a Fair Market Value (as defined below) on the date of exercise equal in amount
to the exercise price of the options being exercised, (ii) by any other means
(including, without limitation, by delivery of a promissory note of the optionee
payable on such terms as are specified by the Board of Directors) which the
Board of Directors determines are consistent with the purpose of the Plan and
with applicable laws and regulations (including, without limitation, the
provisions of Rule 16b-3 and Regulation U promulgated by the Federal Reserve
Board) or (iii) by any combination of such methods of payment.
The "Fair Market Value" of a share of Common Stock of the Corporation
as of a specified date for the purposes of the Plan shall mean the closing price
of a share of the Common Stock on the principal securities exchange on which
such shares are traded on the day immediately preceding the date as of which
Fair Market Value is being determined, or on the next preceding date on which
such shares are traded if no shares were traded on such immediately
-3-
<PAGE>
preceding day, or if the shares are not traded on a securities exchange, Fair
Market Value shall be deemed to be the average of the high bid and low asked
prices of the shares in the over-the-counter market on the day immediately
preceding the date as of which Fair Market Value is being determined or on the
next preceding date on which such high bid and low asked prices were recorded.
If the shares are not publicly traded, Fair Market Value of a share of Common
Stock (including in the case of any repurchase of shares, any distributions with
respect thereto which would be repurchased with the shares) shall be determined
in good faith by the Board of Directors.
7. Option Period.
-------------
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
-------------------
Each option granted under the Plan shall be exercisable either in full
or in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. No option granted to a Reporting Person for purposes of the
Exchange Act, however, shall be exercisable during the first six months after
the date of grant. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. Transferability of Options.
--------------------------
No option granted under this Plan shall be assignable or otherwise
transferable except by the optionee (i) by will or by the laws of descent and
distribution, (ii) pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder or (iii) as a gift to a "Family Member" (as defined below). For
purposes of this Plan "Family Member" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, brother-in-law, or sister-in-law,
including adoptive relationships, any person sharing the employee's household
(other than a tenant or employee), a trust in which these persons have more than
fifty percent of the beneficial interest, a foundation in which these persons
(or the employee) control the management of assets, and any other entity in
which these
-4-
<PAGE>
persons (or the employee) own more than fifty percent of the voting interests.
An option may be exercised during the lifetime of the optionee only by the
optionee or by a permitted transferee as set forth in this Section 9. In the
event an optionee dies during his employment by the corporation or any of its
subsidiaries, or during the three-month period following the date of termination
of such employment, his option shall thereafter be exercisable, during the
period specified to the full extent to which such option was exercisable by the
optionee at the time of his death during the periods set forth in Section 10. If
any optionee or permitted transferee should attempt to dispose of or encumber
his options, other than in accordance with the applicable terms of this Plan or
the applicable option agreement, his interest in such options shall terminate.
10. Effect of Termination of Employment or Other Relationship.
---------------------------------------------------------
Except as specifically set forth to the contrary in the applicable
option agreement, and otherwise subject to the provisions of the Plan, an
optionee may exercise an option (but only to the extent such option was
exercisable at the time of termination of the optionee's employment or other
relationship with the Corporation) at any time within three (3) months following
the termination of the optionee's employment or other relationship with the
Corporation or within one (1) year if such termination was due to the death or
disability of the optionee, but, except in the case of the optionee's death, in
no event later than the expiration date of the Option. If the termination of the
optionee's employment is for cause or is otherwise attributable to a breach by
the optionee of an employment or confidentiality or non-disclosure agreement,
the option shall expire immediately upon such termination. The Board of
Directors shall have the power to determine what constitutes a termination for
cause or a breach of an employment or confidentiality or non-disclosure
agreement, whether an optionee has been terminated for cause or has breached
such an agreement, and the date upon which such termination for cause or breach
occurs. Any such determinations shall be final and conclusive and binding upon
the optionee.
11. Additional Provisions.
---------------------
(a) Additional Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by the
Board of Directors; provided, that such additional provisions shall not be
inconsistent with any other term or condition of the Plan.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its
sole discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or
-5-
<PAGE>
options granted under the Plan may be exercised if it would cause the Plan to
comply with Rule 16b-3 (if applicable).
12. General Restrictions.
--------------------
(a) Investment Representations. The Corporation may require any person
to whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Corporation to the
effect that such person is acquiring the Common Stock subject to the option for
his or her own account for investment and not with any present intention of
selling or otherwise distributing the same, and to such other effects as the
Corporation deems necessary or appropriate in order to comply with federal and
applicable state securities laws, or with covenants or representations made by
the Corporation in connection with any public offering of its Common Stock.
(b) Compliance with Securities Law. Each option shall be subject to the
requirement that if, at any time, counsel to the Corporation shall determine
that the listing, registration or qualification of the shares subject to such
option upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, or that the
disclosure of non-public information or the satisfaction of any other condition
is necessary as a condition of, or in connection with the issuance or purchase
of shares thereunder, such option may not be exercised, in whole or in part,
unless such listing, registration, qualification, consent or approval, or
satisfaction of such condition shall have been effected or obtained on
conditions acceptable to the Board of Directors. Nothing herein shall be deemed
to require the Corporation to apply for or to obtain such listing, registration
or qualification, or to satisfy such condition.
13. Rights as a Stockholder.
-----------------------
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, without limitation, any
rights to receive dividends or non-cash distributions with respect to such
shares) until the date of issue of a stock certificate to the holder for such
shares. No adjustment shall be made for dividends or other rights for which the
record date is prior to the date such stock certificate is issued.
14. Adjustment Provisions for Recapitalization, Reorganizations and Related
Transactions.
-----------------------------------------------------------------------
(a) Recapitalization and Related Transactions. If, through or as a
result of any recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Corporation, or (ii) additional shares
or new or different shares or other non-cash assets are distributed with respect
to such
-6-
<PAGE>
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding options under the Plan, and (z) the
exercise price for each share subject to any then outstanding options under the
Plan, without changing the aggregate purchase price as to which such options
remain exercisable. Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 14 if such adjustment would cause the Plan to fail to
comply with Rule 16b-3.
(b) Reorganization, Merger and Related Transactions. If the Corporation
shall be the surviving corporation in any reorganization, merger or
consolidation of the Corporation with one or more other corporations, any then
outstanding option granted pursuant to the Plan shall pertain to and apply to
the securities to which a holder of the number of shares of Common Stock subject
to such options would have been entitled immediately following such
reorganization, merger, or consolidation, with a corresponding proportionate
adjustment of the purchase price as to which such options may be exercised so
that the aggregate purchase price as to which such options may be exercised
shall be the same as the aggregate purchase price as to which such options may
be exercised for the shares remaining subject to the options immediately prior
to such reorganization, merger, or consolidation.
(c) Board Authority to Make Adjustments. Any adjustments made under
this Section 14 will be made by the Board of Directors, whose determination as
to what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
15. Merger, Consolidation, Asset Sale, Liquidation, Etc.
---------------------------------------------------
In the event of a consolidation or merger in which the Corporation is
not the surviving corporation, or sale of all or substantially all of the assets
of the Corporation in which outstanding shares of Common Stock are exchanged for
securities, cash or other property of any other corporation or business entity
or in the event of a liquidation of the Corporation (collectively, a "Corporate
Transaction"), the Board of Directors of the Corporation, or the board of
directors of any corporation assuming the obligations of the Corporation, may,
in its discretion, take any one or more of the following actions, as to
outstanding options: (i) provide that such options shall be assumed by the
acquiring or succeeding corporation (or an affiliate thereof), (ii) upon written
notice, provide that all unexercised options will terminate immediately prior to
the consummation of such transaction unless such options are exercised by the
optionee within a specified period following the date of such notice, or (iii)
in the event of a Corporate Transaction under the terms of which holders of the
Common Stock of the Corporation will receive upon consummation thereof a cash
payment for each share surrendered in the Corporate Transaction (the
"Transaction Price"), make or provide for a cash payment to the optionee equal
to the difference between (A) the Transaction Price times the number of shares
of Common Stock subject to such outstanding options (to the extent then
exercisable at prices not in excess of the
-7-
<PAGE>
Transaction Price) and (B) the aggregate exercise price of all such outstanding
options in exchange for the termination of such options.
16. No Special Employment Rights.
----------------------------
Nothing contained in the Plan or in any option agreement shall confer
upon any optionee any right with respect to the continuation of employment by
the Corporation or interfere in any way with the right of the Corporation at any
time to terminate such employment or to increase or decrease the compensation of
the optionee.
17. Other Employee Benefits.
-----------------------
Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
18. Amendment of the Plan.
---------------------
(a) The Board of Directors may at any time, and from time to time,
modify or amend the Plan in any respect.
(b) The termination or any modification or amendment of the Plan shall
not, without the consent of an optionee, affect his rights under an option
previously granted. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
the terms and provisions of the Plan and of any outstanding option to the extent
necessary to ensure the qualification of the Plan under Rule 16b-3.
-8-
<PAGE>
19. Withholding.
-----------
(a) The Corporation shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Corporation,
which may be withheld by the Corporation in its sole discretion, the optionee
may elect to satisfy such obligations, in whole or in part, (i) by causing the
Corporation to withhold shares of Common Stock otherwise issuable pursuant to
the exercise of an option or (ii) by delivering to the Corporation shares of
Common Stock already owned by the optionee. The shares so delivered or withheld
shall have a Fair Market Value equal to such withholding obligation as of the
date that the amount of tax to be withheld is to be determined. An optionee who
has made an election pursuant to this Section 19(a) may satisfy his withholding
obligation only with shares of Common Stock which are not subject to any
repurchase, forfeiture, unfulfilled vesting or other similar requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person
whose options have been granted in accordance with the provisions of Section
3(b) herein, no election to use shares for the payment of withholding taxes
shall be effective unless made in compliance with any applicable requirements of
Rule 16b-3.
20. Option Price.
------------
The Board of Directors shall have the authority to effect, at any time
and from time to time, with the consent of the affected optionee, the amendment
of the terms of any and all outstanding options under the Plan to provide an
option exercise price per share which is higher or lower than the then current
exercise price per share of such outstanding options.
21. Effective Date and Duration of the Plan.
---------------------------------------
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors. Amendments to the Plan shall become effective when adopted
by the Board of Directors. Options may be granted under the Plan at any time
after the effective date and before the date fixed for termination of the Plan.
(b) Termination. Unless sooner terminated in accordance with Section
15, the Plan shall terminate upon the earlier of (i) the close of business on
the day next preceding the tenth anniversary of the date of its adoption by the
Board of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
-9-
<PAGE>
22. Governing Law.
-------------
The provisions of this Plan shall be governed and construed in
accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
Adopted by the Board of Directors on January 11, 1999
-10-
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