![](https://savarapharma.com/wp-content/uploads/page-header-blue-ridges-m.jpg)
![](https://savarapharma.com/wp-content/uploads/page-header-blue-ridges-d.jpg)
Filing
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-32157
ADVENTRX Pharmaceuticals, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 84-1318182 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
6725 Mesa Ridge Road, Suite 100, San Diego, CA | 92121 | |
(Address of principal executive offices) | (Zip Code) |
(858) 552-0866
(Registrants telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o
No þ
The number of shares outstanding of the registrants common stock, $0.001 par value, as of August
8, 2008 was 90,252,572.
TABLE OF CONTENTS
Page | ||||||||
PART I | ||||||||
Item 1. | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
Item 2. | 11 | |||||||
Item 3. | 18 | |||||||
Item 4. | 18 | |||||||
PART II | ||||||||
Item 1. | 19 | |||||||
Item 1A. | 19 | |||||||
Item 2. | 19 | |||||||
Item 3. | 19 | |||||||
Item 4. | 19 | |||||||
Item 5. | 20 | |||||||
Item 6. | 20 | |||||||
21 | ||||||||
EXHIBIT 10.1 | ||||||||
EXHIBIT 10.5 | ||||||||
EXHIBIT 10.6 | ||||||||
EXHIBIT 31.1 | ||||||||
EXHIBIT 31.2 | ||||||||
EXHIBIT 32.1 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
June 30, | December 31, | |||||||
2008 | 2007 | |||||||
(Unaudited) | (Note) | |||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 12,638,547 | $ | 14,780,739 | ||||
Short-term investments |
9,431,245 | 18,682,417 | ||||||
Other receivables |
13,426 | 72,029 | ||||||
Prepaid expenses |
719,382 | 615,691 | ||||||
Total current assets |
22,802,600 | 34,150,876 | ||||||
Property and equipment, net |
294,113 | 332,444 | ||||||
Other assets |
61,497 | 58,305 | ||||||
Total assets |
$ | 23,158,210 | $ | 34,541,625 | ||||
Liabilities and Stockholders Equity |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 606,468 | $ | 552,143 | ||||
Accrued liabilities |
1,921,096 | 2,317,910 | ||||||
Accrued compensation and payroll taxes |
961,405 | 622,762 | ||||||
Total current liabilities |
3,488,969 | 3,492,815 | ||||||
Long-term liabilities |
3,567 | 14,270 | ||||||
Total liabilities |
3,492,536 | 3,507,085 | ||||||
Commitments and contingencies |
||||||||
Stockholders equity: |
||||||||
Common stock, $0.001 par value; 200,000,000 shares
authorized; 90,252,572 shares issued and outstanding at
June 30, 2008 and December 31, 2007 |
90,254 | 90,254 | ||||||
Additional paid-in capital |
131,140,320 | 130,140,549 | ||||||
Deficit accumulated during the development stage |
(111,557,567 | ) | (99,198,965 | ) | ||||
Accumulated other comprehensive income (loss) |
(7,333 | ) | 2,702 | |||||
Total stockholders equity |
19,665,674 | 31,034,540 | ||||||
Total liabilities and stockholders equity |
$ | 23,158,210 | $ | 34,541,625 | ||||
Note: | The balance sheet at December 31, 2007 has been derived from audited financial statements at that date. It does not include, however, all of the information and notes required by U.S. generally accepted accounting principles for complete financial statements. |
See accompanying notes to unaudited condensed consolidated financial statements.
3
Table of Contents
ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
Inception | ||||||||||||||||||||
(June 12, 1996) | ||||||||||||||||||||
Three months ended June 30, | Six months ended June 30, | through | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | June 30, 2008 | ||||||||||||||||
Revenues: |
||||||||||||||||||||
Net sales |
$ | | $ | | $ | | $ | | $ | 174,830 | ||||||||||
Cost of goods sold |
| | | | 51,094 | |||||||||||||||
Gross margin |
| | | | 123,736 | |||||||||||||||
Grant revenue |
| | | | 129,733 | |||||||||||||||
Licensing revenue |
500,000 | | 500,000 | 500,000 | 1,000,000 | |||||||||||||||
Total revenues |
500,000 | | 500,000 | 500,000 | 1,253,469 | |||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
4,511,395 | 4,239,610 | 8,331,702 | 7,624,270 | 52,424,075 | |||||||||||||||
Selling, general and
administrative |
2,635,688 | 2,006,396 | 5,000,882 | 4,815,845 | 38,250,471 | |||||||||||||||
Depreciation and amortization |
44,116 | 53,036 | 90,895 | 104,925 | 10,720,927 | |||||||||||||||
In-process research and
development |
| | | | 10,422,130 | |||||||||||||||
Impairment loss write off
of goodwill |
| | | | 5,702,130 | |||||||||||||||
Equity in loss of investee |
| | | | 178,936 | |||||||||||||||
Total operating expenses |
7,191,199 | 6,299,042 | 13,423,479 | 12,545,040 | 117,698,669 | |||||||||||||||
Loss from operations |
(6,691,199 | ) | (6,299,042 | ) | (12,923,479 | ) | (12,045,040 | ) | (116,445,200 | ) | ||||||||||
Interest and other income |
265,669 | 576,214 | 564,877 | 1,198,398 | 4,596,941 | |||||||||||||||
Interest expense |
| | | | (179,090 | ) | ||||||||||||||
Loss before cumulative effect of
change in accounting principle |
(6,425,530 | ) | (5,722,828 | ) | (12,358,602 | ) | (10,846,642 | ) | (112,027,349 | ) | ||||||||||
Cumulative effect of change in
accounting principle |
| | | | (25,821 | ) | ||||||||||||||
Net loss |
(6,425,530 | ) | (5,722,828 | ) | (12,358,602 | ) | (10,846,642 | ) | (112,053,170 | ) | ||||||||||
Preferred stock dividends |
| | | | (621,240 | ) | ||||||||||||||
Net loss applicable to common stock |
$ | (6,425,530 | ) | $ | (5,722,828 | ) | $ | (12,358,602 | ) | $ | (10,846,642 | ) | $ | (112,674,410 | ) | |||||
Net loss per common share basic
and diluted |
$ | (0.07 | ) | $ | (0.06 | ) | $ | (0.14 | ) | $ | (0.12 | ) | ||||||||
Weighted average shares basic
and diluted |
90,252,572 | 89,706,739 | 90,252,572 | 89,691,822 | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
Table of Contents
ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
through | ||||||||||||
Six months ended June 30, | June 30, | |||||||||||
2008 | 2007 | 2008 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (12,358,602 | ) | $ | (10,846,642 | ) | $ | (112,053,170 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
90,895 | 104,925 | 10,270,927 | |||||||||
In-process research and development |
| | 10,422,130 | |||||||||
Share-based compensation for employee awards |
994,258 | 1,189,062 | 7,437,587 | |||||||||
Expense related to stock options issued to non-employees |
5,513 | 38,740 | 205,195 | |||||||||
Expenses paid by issuance of common stock |
| 39,167 | 1,144,697 | |||||||||
Expenses paid by issuance of warrants |
| | 573,357 | |||||||||
Expenses paid by issuance of preferred stock |
| | 142,501 | |||||||||
Expenses related to stock warrants issued |
| | 612,000 | |||||||||
Accretion of discount on investments in securities |
(196,633 | ) | (576,462 | ) | (1,593,024 | ) | ||||||
Amortization of debt discount |
| | 450,000 | |||||||||
Forgiveness of employee receivable |
| | 30,036 | |||||||||
Impairment loss write-off of goodwill |
| | 5,702,130 | |||||||||
Equity in loss of investee |
| | 178,936 | |||||||||
Write-off of license agreement |
| | 152,866 | |||||||||
Write-off of assets available-for-sale |
| | 108,000 | |||||||||
Cumulative effect of change in accounting principle |
| | 25,821 | |||||||||
Changes in assets and liabilities, net of effect of acquisitions: |
||||||||||||
Decrease in prepaid expenses and other assets |
(48,280 | ) | (246,255 | ) | (1,041,674 | ) | ||||||
Increase (decrease) in accounts payable and accrued liabilities |
(16,228 | ) | 1,689,473 | 3,653,294 | ||||||||
Increase (decrease) in other long-term liabilities |
(10,703 | ) | (10,702 | ) | 3,567 | |||||||
Net cash used in operating activities |
(11,539,780 | ) | (8,618,694 | ) | (73,574,824 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchases of short-term investments |
(13,362,230 | ) | (28,294,009 | ) | (110,190,330 | ) | ||||||
Proceeds from sales and maturities of short-term investments |
22,800,000 | 27,675,000 | 102,344,776 | |||||||||
Purchases of property and equipment |
(40,182 | ) | (45,775 | ) | (1,005,580 | ) | ||||||
Purchase of certificate of deposit |
| | (1,016,330 | ) | ||||||||
Maturity of certificate of deposit |
| | 1,016,330 | |||||||||
Payment on obligation under license agreement |
| | (106,250 | ) | ||||||||
Cash acquired from acquisitions, net of cash paid |
| | 32,395 | |||||||||
Issuance of note receivable related party |
| | (35,000 | ) | ||||||||
Payments on note receivable |
| | 405,993 | |||||||||
Advance to investee |
| | (90,475 | ) | ||||||||
Cash transferred in rescission of acquisition |
| | (19,475 | ) | ||||||||
Cash received in rescission of acquisition |
| | 230,000 | |||||||||
Net cash provided by (used in) investing activities |
9,397,588 | (664,784 | ) | (8,433,946 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from sale of preferred stock |
| | 4,200,993 | |||||||||
Proceeds from sale of common stock |
| | 84,151,342 | |||||||||
Proceeds from exercise of stock options |
| 61,200 | 712,367 | |||||||||
Proceeds from sale or exercise of warrants |
| | 11,382,894 | |||||||||
Repurchase of warrants |
| | (55,279 | ) | ||||||||
Payment of financing and offering costs |
| | (6,483,809 | ) | ||||||||
Payments of notes payable and long-term debt |
| | (605,909 | ) | ||||||||
Proceeds from issuance of notes payable and detachable warrants |
| | 1,344,718 | |||||||||
Net cash provided by financing activities |
| 61,200 | 94,647,317 | |||||||||
Net increase (decrease) in cash and cash equivalents |
(2,142,192 | ) | (9,222,278 | ) | 12,638,547 | |||||||
Cash and cash equivalents at beginning of period |
14,780,739 | 25,974,041 | | |||||||||
Cash and cash equivalents at end of period |
$ | 12,638,547 | $ | 16,751,763 | $ | 12,638,547 | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
5
Table of Contents
ADVENTRX Pharmaceuticals, Inc. and Subsidiaries
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (ADVENTRX, we or the Company),
prepared the unaudited interim condensed consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP) for
interim financial information and with the instructions of the Securities and Exchange Commission
(SEC). Accordingly, they do not include all of the information and disclosures required by U.S.
GAAP for annual audited financial statements and should be read in conjunction with our audited
consolidated financial statements and related notes for the year ended December 31, 2007 included
in our Annual Report on Form 10-K filed with the SEC on March 17, 2008 (2007 Annual Report).
The condensed consolidated balance sheet as of December 31, 2007 has been derived from the
audited consolidated financial statements included in the 2007 Annual Report. In the opinion of
management, these consolidated financial statements include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial position, results of
operations, and cash flows for the periods presented. The results of operations for the interim
periods shown in this report are not necessarily indicative of results expected for the full
year.
Since our inception, we have reported accumulated net losses of approximately $112.1 million and
recurring negative cash flows from operations. In order to maintain sufficient cash and
investments to fund future operations, and to continue developing our existing product candidates
at the levels we believe optimizes their value, we will need to raise additional capital in the
short-term and beyond through collaborations, licensing arrangements or other strategic
transactions, public or private sales of our equity securities, and/or debt financings. The
balance of securities available-for-sale under our existing shelf registration was approximately
$60.0 million as of June 30, 2008, but we may be subject to limitations with respect to the
number of securities we can sell under this shelf registration. If we are unable to raise capital
as needed to fund future operations, then we may defer or abandon one or more of our research and
development programs and/or our current commercialization plans for ANX-530 or ANX-514 and may
also need to take additional cost-cutting measures, which could have a material and adverse
effect on our ability to achieve our business objectives. Failure to obtain adequate financing
would adversely affect our ability to operate as a going concern.
The condensed consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, SD Pharmaceuticals, Inc. and ADVENTRX (Europe) Ltd. All intercompany
accounts and transactions have been eliminated in consolidation.
2. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those estimates.
3. Fair Value
Effective January 1, 2008, we adopted Statement of Financial Accounting Standards (FAS) No.
157, Fair Value Measurements (FAS 157). In February 2008, the Financial Accounting Standards
Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-2, Effective Date of FASB
Statement No. 157, which provides a one year deferral of the effective date of FAS 157 for
non-financial assets and non-financial liabilities, except those that are recognized or disclosed
in the financial statements at fair value at least annually. As a result, we only partially
adopted FAS 157 as it relates to our financial assets and liabilities until we are required to
apply this pronouncement to our non-financial assets and liabilities beginning with fiscal year
2009. The adoption of FAS 157 did not have a material impact on our consolidated results of
operations or financial condition.
FAS 157 defines fair value, establishes a framework for measuring fair value under U.S. GAAP and
enhances disclosures about fair value measurements. Fair value is defined under FAS 157 as the
exchange price that would be received for an asset or paid to transfer a liability (an exit
price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to
measure fair value under FAS 157 must maximize the use of observable inputs and minimize the use
of unobservable inputs. FAS 157 describes a fair value hierarchy
6
Table of Contents
based on three levels of inputs, of which the first two are considered observable and the last
unobservable, that may be used to measure fair value which are the following:
| Level 1
Quoted prices in active markets for identical assets or
liabilities. |
||
| Level 2 Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. |
||
| Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. |
The following table represents our fair value hierarchy for our financial assets (cash
equivalents and short-term investments in securities) measured at fair value on a recurring basis
as of June 30, 2008:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Money market funds |
$ | 11,542,750 | $ | | $ | | $ | 11,542,750 | ||||||||
U.S. Government debt securities |
9,431,245 | | | 9,431,245 | ||||||||||||
Total |
$ | 20,973,995 | $ | | $ | | $ | 20,973,995 | ||||||||
Effective January 1, 2008, we adopted FAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities (FAS 159). FAS 159 allows an entity the irrevocable option to elect
to measure specified financial assets and liabilities in their entirety at fair value on a
contract-by-contract basis. If an entity elects the fair value option for an eligible item,
changes in the items fair value must be reported as unrealized gains and losses in earnings at
each subsequent reporting date. In adopting FAS 159, we did not elect the fair value option for
any of our financial assets or financial liabilities.
4. Share-Based Payments
Estimated share-based compensation expense related to equity awards granted to employees for the
three and six months ended June 30, 2008 and 2007 was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Selling, general and administrative expense |
$ | 216,053 | $ | 339,357 | $ | 548,774 | $ | 685,662 | ||||||||
Research and development expense |
139,788 | 249,696 | 445,484 | 503,400 | ||||||||||||
Share-based compensation expense before taxes |
355,841 | 589,053 | 994,258 | 1,189,062 | ||||||||||||
Related income tax benefits |
| | | | ||||||||||||
Share-based compensation expense |
$ | 355,841 | $ | 589,053 | $ | 994,258 | $ | 1,189,062 | ||||||||
Net share-based compensation expense per common
share basic and diluted |
$ | 0.00 | $ | 0.01 | $ | 0.01 | $ | 0.01 | ||||||||
Since we have a net operating loss carryforward as of June 30, 2008, no excess tax benefits for
the tax deductions related to share-based awards were recognized in the condensed consolidated
statement of operations. There were no employee stock options exercised in the six months ended
June 30, 2008. For the six month period ended, June 30, 2007, employees exercised stock options
to purchase 30,000 shares of common stock for aggregate proceeds of $61,200.
At June 30, 2008, total unrecognized estimated compensation cost related to non-vested employee
and non-employee director share-based awards granted prior to that date was $3.0 million, which
is expected to be recognized over a weighted-average period of 3.0 years. During the three and
six months ended June 30, 2008, we granted 850,000 and 2,652,500 stock options, respectively, to
our employees and non-employee directors with an estimated weighted-average grant-date fair value
of $0.42 and $0.48 per share, respectively. During the three and six months ended June 30, 2007,
we granted 459,000 and 1,111,333 stock options, respectively, to our employees and non-employee
directors with the estimated weighted-average grant-date fair value of $2.23 and $2.40 per share,
respectively.
7
Table of Contents
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Weighted expected volatility |
141.9 | % | 137.8 | % | 146.0 | % | 138.0 | % | ||||||||
Average expected term (in years) |
6.0 | 6.1 | 6.2 | 6.1 | ||||||||||||
Average risk-free interest rate |
3.3 | % | 4.8 | % | 3.0 | % | 4.7 | % | ||||||||
Dividend yield |
0 | 0 | 0 | 0 |
Estimated share-based compensation expense related to equity awards granted to non-employee
consultants was ($166) and $13,000 for the three months ended June 30, 2008 and 2007,
respectively, and $6,000 and $39,000 for the six months ended June 30, 2008 and 2007,
respectively.
5. Net Loss Per Common Share
We calculate basic and diluted net loss per common share in accordance with the FAS No. 128,
Earnings Per Share. Basic net loss per common share was calculated by dividing the net loss for
the period by the weighted-average number of common shares outstanding during the period, without
consideration for common stock equivalents. Options and warrants are considered to be common
stock equivalents and are only included in the calculation of diluted earnings per common share
when their effect is dilutive. Because of the net loss, all of the options and warrants were
excluded from the calculation.
We have excluded the following options and warrants from the calculation of diluted net loss per
common share for the three and six months ended June 30, 2008 and 2007 because they are
anti-dilutive, due to the net loss:
2008 | 2007 | |||||||
Warrants |
13,373,549 | 13,408,549 | ||||||
Options |
6,003,231 | 4,686,540 | ||||||
19,376,780 | 18,095,089 | |||||||
6. Comprehensive Loss
Comprehensive loss is defined as the change in equity of a business enterprise during a
period from transactions and other events and circumstances from non-owner sources, including
foreign currency translation adjustments and unrealized gains and losses on short-term
investments. Our components of comprehensive loss consist of net loss and unrealized gains or
losses on short-term investments in securities. For the three months ended June 30, 2008 and
2007, comprehensive loss was $6.4 million and $5.7 million, respectively. For the six months
ended June 30, 2008 and 2007 and the period from inception (June 12, 1996) through June 30, 2008,
comprehensive loss was $12.4 million, $10.8 million and $112.1 million, respectively.
7. Recent Accounting Pronouncements
In May 2008, the FASB issued FAS No. 162, The Hierarchy of Generally Accepted Accounting
Principles (FAS 162). FAS 162 is intended to improve financial reporting by identifying a
consistent hierarchy for selecting accounting principles to be used in preparing financial
statements that are prepared in conformance with U.S. GAAP. Unlike Statement on Auditing
Standards (SAS) No. 69, The Meaning of Present Fairly in Conformity With GAAP, FAS 162 is
directed to the entity rather than the auditor. FAS 162 is effective 60 days following the SECs
approval of the Public Company Accounting Oversight Board (PCAOB) amendments to AU Section 411,
The Meaning of Present Fairly in Conformity with GAAP, and is not expected to have any impact
on the Companys consolidated results of operations, financial condition or liquidity.
In March 2008, the FASB issued FAS No. 161, Disclosures About Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133 (FAS 161). FAS 161 expands quarterly
disclosure requirements in FAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, about an entitys derivative instruments and hedging activities. FAS 161 is
effective for fiscal years beginning after November 15, 2008. We do not expect the adoption of
FAS 161 to have a material impact on our consolidated results of operations or financial
position.
8
Table of Contents
In December 2007, the FASB issued FAS No. 141 (revised 2007) (FAS 141R), Business
Combinations, which replaces FAS No. 141. FAS 141R retains the purchase method of accounting for
acquisitions, but requires a number of changes, including changes in the way assets and
liabilities are recognized in the purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the expensing of
acquisition-related costs as incurred. FAS 141R is effective for financial statements issued for
fiscal year 2009 and will apply prospectively to business combinations completed on or after
January 1, 2009. We are currently evaluating the impact of implementing FAS 141R on our
consolidated financial position, results of operations and liquidity.
8. Licensing Revenue
In October 2006, we entered into a license agreement with Theragenex, LLC (Theragenex). Under
the agreement, we granted Theragenex exclusive rights to develop and commercialize ANX-211 in the
U.S. in exchange for a licensing fee of $1.0 million ($0.5 million of which we received in
January 2007 and $0.5 million of which was due in June 2007), milestone payments and royalties.
In May 2007, we received a letter from TRx Pharma, a subsidiary of Theragenex, that we believe
was intended to constitute notice of termination of the agreement with Theragenex, though the
letter did not explicitly state that it constituted notice of termination. In its letter, TRx
Pharma requested a refund of the initial $0.5 million payment and, in subsequent discussions,
indicated that it did not intend to pay the remaining $0.5 million. On July 3, 2007, we notified
Theragenex that, among other things, its failure to make the final $0.5 million payment
constituted a material breach of the agreement. On August 9, 2007, we delivered a letter to
Theragenex confirming our termination of the agreement as a result of Theragenexs breach,
pursuant to the terms of the agreement.
In May 2008, we settled our dispute with Theragenex. In consideration of and conditioned upon
Theragenex paying us $0.6 million, we and Theragenex agreed to jointly move to dismiss the
underlying arbitration action, and in connection with dismissing the arbitration, we and
Theragenex agreed to release each other from any and all claims related to our past relationship,
including Theragenexs rights under the license agreement.
For the six months ended June 30, 2007, we recognized $0.5 million in licensing revenue, which we
received from Theragenex in January 2007, because our performance obligations were complete,
collectability was reasonably assured and we had no continuing obligations for performance under
the agreement. For the six months ended June 30, 2008, we recognized $0.5 million in licensing
revenue, which represents a portion of the $0.6 million Theragenex settlement payment, because we
met the criteria for revenue recognition. The additional $0.1 million was recognized as other
income. Since January 2007, we received a total of $1.1 million from Theragenex.
9. Supplementary Cash Flow Information
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
Six months ended June 30, | through | |||||||||||
2008 | 2007 | June 30, 2008 | ||||||||||
Supplemental disclosures of cash flow information: |
||||||||||||
Interest paid |
$ | | $ | | $ | 179,090 | ||||||
Income taxes paid |
| | |
9
Table of Contents
Noncash investing and financing transactions excluded from the condensed consolidated statements
of cash flows for the six months ended June 30, 2008 and 2007 and for the period from inception
(June 12, 1996) through June 30, 2008 are as follows:
Inception | ||||||||||||
(June 12, 1996) | ||||||||||||
Six months ended June 30, | through | |||||||||||
2008 | 2007 | June 30, 2008 | ||||||||||
Issuance of warrants, common stock and preferred stock for: |
||||||||||||
Conversion of notes payable and accrued interest |
$ | | $ | | $ | 1,213,988 | ||||||
Prepaid services to consultants |
| | 1,482,781 | |||||||||
Conversion of preferred stock |
| | 2,705 | |||||||||
Acquisitions |
| | 24,781,555 | |||||||||
Payment of dividends |
| | 213,000 | |||||||||
Financial advisor services in connection with private placement |
| | 1,137,456 | |||||||||
Acquisition of treasury stock in settlement of a claim |
| | 34,747 | |||||||||
Cancellation of treasury stock |
| | (34,747 | ) | ||||||||
Assumptions of liabilities in acquisitions |
| | 1,235,907 | |||||||||
Acquisition of license agreement for long-term debt |
| | 161,180 | |||||||||
Cashless exercise of warrants |
| | 4,312 | |||||||||
Dividends accrued |
| | 621,040 | |||||||||
Trade asset converted to available-for-sale asset |
| | 108,000 | |||||||||
Dividends extinguished |
| | 408,240 | |||||||||
Trade payable converted to note payable |
| | 83,948 | |||||||||
Issuance of warrants for return of common stock |
| | 50,852 | |||||||||
Detachable warrants issued with notes payable |
| | 450,000 | |||||||||
Purchases of equipment, which are included in accounts payable |
12,382 | 25,828 | 12,382 | |||||||||
Unrealized (gain) loss on short-term investments |
10,035 | (101 | ) | 7,333 |
10. Commitments and Contingencies
In the normal course of business, we may become subject to lawsuits and other claims and
proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with
assurance.
In May 2008, we settled our dispute with Theragenex. See Note 8 Licensing Revenue for
additional information.
10
Table of Contents
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should
be read in conjunction with the consolidated financial statements and related notes appearing
elsewhere in this report. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual
results may differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including but not limited to those set forth under Item 1A of Part II,
Risk Factors, in this report and Item 1A of Part I, Risk Factors, in our annual report on Form
10-K for the year ended December 31, 2007.
Overview
We are a biopharmaceutical company focused on in-licensing, developing and commercializing
proprietary product candidates primarily for the treatment of cancer and infectious disease. We
seek to improve the performance and commercial potential of existing treatments by addressing
limitations associated with these treatment regimens.
Currently, we are focused primarily on advancing ANX-530 and ANX-514, which are novel emulsion
formulations of currently marketed chemotherapy drugs. We are also developing ANX-510, or
CoFactor®, which is a folate-based biomodulator designed to replace leucovorin as the preferred
method to enhance the activity and reduce the associated toxicity of the widely used cancer
chemotherapeutic agent 5-FU
(5-fluorouracil).
(5-fluorouracil).
We are a development stage company and have incurred annual net losses since inception. We have
devoted substantially all of our resources to research and development (R&D) or to acquisition of
our product candidates. We have not yet marketed any products or generated any significant revenue
from licensing our products or technology. As of June 30, 2008, our accumulated net losses amounted
to $112.1 million. We expect that our R&D, selling, general and administrative (SG&A) and other
operating costs will continue to exceed revenues for the foreseeable future. In order to maintain
sufficient cash and investments to fund future operations, and to continue developing our existing
product candidates at the levels we believe optimizes their value, we will need to raise additional
capital in the short-term and beyond through collaborations, licensing arrangements or other
strategic transactions, public or private sales of our equity securities, and/or debt financings.
If we are unable to raise capital as needed to fund future operations, then we may defer or abandon
one or more of our R&D programs and/or our current commercialization plans for ANX-530 and ANX-514
and may also need to take additional cost-cutting measures which could have a material and adverse
effect on our ability to achieve our business objectives.
As of June 30, 2008, we had cash, cash equivalents, and short-term investments of approximately
$22.1 million, which we believe will be sufficient to sustain our operations through the first
quarter of 2009. We cannot be sure that additional financing will be available when needed, or
that, if available, financing will be obtained on terms favorable to us or our stockholders.
Having insufficient funds may require us to delay, scale-back or eliminate some or all of our
development programs, relinquish some or even all rights to product candidates, or renegotiate less
favorable terms than we would otherwise choose. Failure to obtain adequate financing would
adversely affect our ability to operate as a going concern.
We intend to commercialize ANX-530 and ANX-514 ourselves. In that event, we will likely incur
substantial costs undertaking the activities associated with preparing for commercial launch of a
product, including establishing commercial-scale manufacturing capabilities and hiring sales
personnel and creating and maintaining a sales and distribution organization and associated
regulatory compliance infrastructure. Substantial costs may be incurred in advance of the United
States Food and Drug Administrations (FDA) decisions regarding marketing approvals of ANX-530
and ANX-514. We may also incur significant additional costs to
continue the clinical development of
CoFactor, depending on our assessment of the value of developing CoFactor independently in
particular indications and cancer stages.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon
consolidated financial statements that we have prepared in accordance with U.S. GAAP. The
preparation of these consolidated financial statements requires management to make a number of
assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and
expenses in our consolidated financial statements and accompanying notes. On an on-going basis, we
evaluate these estimates and assumptions, including those related to recognition of expenses in
service contracts, license agreements, share-based compensation and registration payment
arrangements. Management bases its estimates on historical information and assumptions believed to
be reasonable under the
11
Table of Contents
circumstances, the results of which form the basis for making judgments about the carrying values
of assets and liabilities not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
Fair Value. Effective January 1, 2008, we adopted FAS 157, Fair Value Measurements. In February
2008, the FASB issued FSP No. 157-2, Effective Date of FASB Statement No. 157, which provides a
one year deferral of the effective date of FAS 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial statements at fair
value at least annually. As a result, we only partially adopted FAS 157 as it relates to our
financial assets and liabilities until we are required to apply this pronouncement to our
non-financial assets and liabilities beginning with fiscal year 2009. FAS 157 defines fair value,
establishes a framework for measuring fair value under U.S. GAAP and enhances disclosures about
fair value measurements. Fair value is defined under FAS 157 as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. Valuation techniques used to measure fair value under FAS 157
must maximize the use of observable inputs and minimize the use of unobservable inputs. FAS 157
describes a fair value hierarchy based on three levels of inputs, of which the first two are
considered observable and the last unobservable, that may be used to measure fair value which are
the following:
| Level 1 Quoted prices in active markets for identical assets or liabilities. | ||
| Level 2 Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities. |
||
| Level 3 Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities. |
The adoption of FAS 157 did not have a material impact on our consolidated results of operations or
financial condition.
Effective January 1, 2008, we adopted FAS 159, The Fair Value Option for Financial Assets and
Financial Liabilities. FAS 159 allows an entity the irrevocable option to elect to measure
specified financial assets and liabilities in their entirety at fair value on a
contract-by-contract basis. If an entity elects the fair value option for an eligible item, changes
in the items fair value must be reported as unrealized gains and losses in earnings at each
subsequent reporting date. In adopting FAS 159, we did not elect the fair value option for any of
our financial assets or financial liabilities.
Revenue Recognition. We recognize revenue in accordance with Topic 13, Revenue Recognition, and
Emerging Issues Task Force Issue (EITF) No. 00-21, Revenue Arrangements with Multiple
Deliverables (EITF 00-21). Revenue is recognized when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the sellers price to the buyer is fixed and determinable; and (4) collectability is
reasonably assured.
Revenue from license agreements is recognized based on the performance requirements of the
agreement. Revenue is deferred for fees received before earned. Nonrefundable upfront fees that are
not contingent on any future performance by us are recognized as revenue when revenue recognition
criteria under Topic 13 and EITF 00-21 are met and the license term commences. Nonrefundable
upfront fees, where we have ongoing involvement or performance obligations, are recorded as
deferred revenue and recognized as revenue over the life of the contract, the period of the
performance obligation or the development period, whichever is appropriate in light of the
circumstances.
Payments related to substantive, performance-based milestones in an agreement are recognized as
revenue upon the achievement of the milestones as specified in the underlying agreement when they
represent the culmination of the earnings process. Royalty revenue from licensed products will be
recognized when earned in accordance with the terms of the applicable license agreements.
R&D Expenses. R&D expenses consist of expenses incurred in performing R&D activities, including
salaries and benefits, facilities and other overhead expenses, clinical trials, research-related
manufacturing services, contract services and other outside expenses. R&D expenses are charged to
operations as they are incurred. Advance payments, including nonrefundable amounts, for goods or
services that will be used or rendered for future R&D activities are deferred and capitalized. Such
amounts will be recognized as an expense as the related goods are delivered or the related services
are performed. If the goods will not be delivered, or services will not be rendered, then the
capitalized advance payment is charged to expense.
12
Table of Contents
Milestone payments that we make in connection with in-licensed technology or product candidates are
expensed as incurred when there is uncertainty in receiving future economic benefits from the
licensed technology or product candidates. We consider the future economic benefits from the
licensed technology or product candidates to be uncertain until such licensed technology or product
candidates are approved for marketing by the FDA or when other significant risk factors are abated.
For expense accounting purposes, management has viewed future economic benefits for all of our
licensed technology or product candidates to be uncertain.
Payments in connection with our clinical trials are often made under contracts with multiple
contract research organizations that conduct and manage clinical trials on our behalf. The
financial terms of these agreements are subject to negotiation and vary from contract to contract
and may result in uneven payment flows. Generally, these agreements set forth the scope of work to
be performed at a fixed fee or unit price or on a time-and-material basis. Payments under these
contracts depend on factors such as the successful enrollment or treatment of patients or the
completion of other clinical trial milestones. Expenses related to clinical trials are accrued
based on our estimates and/or representations from service providers regarding work performed,
including actual level of patient enrollment, completion of patient studies, and clinical trials
progress. Other incidental costs related to patient enrollment or treatment are accrued when
reasonably certain. If the contracted amounts are modified (for instance, as a result of changes in
the clinical trial protocol or scope of work to be performed), we modify our accruals accordingly
on a prospective basis. Revisions in scope of contract are charged to expense in the period in
which the facts that give rise to the revision become reasonably certain. Because of the
uncertainty of possible future changes to the scope of work in clinical trials contracts, we are
unable to quantify an estimate of the reasonably likely effect of any such changes on our
consolidated results of operations or financial position. Historically, we have had no material
changes in our clinical trial expense accruals that would have had a material impact on our
consolidated results of operations or financial position.
Purchased In-Process Research and Development. In accordance with FAS No. 141, Business
Combinations, we immediately charge the costs associated with purchased in-process research and
development (IPR&D) to statement of operations upon acquisition. These amounts represent an
estimate of the fair value of purchased IPR&D for projects that, as of the acquisition date, had
not yet reached technological feasibility, had no alternative future use, and had uncertainty in
receiving future economic benefits from the purchased IPR&D. We determine the future economic
benefits from the purchased IPR&D to be uncertain until such technology is approved by the FDA or
when other significant risk factors are abated.
Share-based Compensation Expenses. Effective January 1, 2006, we accounted for share-based
compensation awards granted to employees in accordance with the revised FAS No. 123, Share-Based
Payment (FAS 123R) including the provisions of Staff Accounting Bulletins No. 107, Share-Based
Payment and No. 110. Share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the employees requisite
service period. We have no awards with market or performance conditions. As share-based
compensation expense is based on awards ultimately expected to vest, it has been reduced for
estimated forfeitures. FAS 123R requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Forfeitures were estimated based on historical experience. Although estimates of share-based
compensation expenses are significant to our consolidated financial statements, they are not
related to the payment of any cash by us.
We estimate the fair value of stock option awards on the date of grant using the Black-Scholes
option-pricing model (Black-Scholes Model). The determination of the fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by our stock price as
well as assumptions regarding a number of complex and subjective variables. These variables
include, but are not limited to, our expected stock price volatility over the term of the awards,
actual and projected employee stock option exercise behaviors, a risk-free interest rate and
expected dividends. We may elect to use different assumptions under the Black-Scholes Model in the
future, which could materially affect our net income or loss and net income or loss per share.
We account for share-based compensation awards granted to non-employees in accordance with EITF No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services (EITF 96-18). Under EITF 96-18, we determine the
fair value of the share-based compensation awards granted as either the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more
reliably measurable. If the fair value of the equity instruments issued is used, it is measured
using the stock price and other measurement assumptions as of the earlier of either of (1) the date
at which a commitment for performance by the counterparty to earn the equity instruments is reached
or (2) the date at which the counterpartys performance is complete.
The above listing is not intended to be a comprehensive list of all of our accounting policies. In
most cases, the accounting treatment of a particular transaction is specifically dictated by U.S.
GAAP.
13
Table of Contents
Results of Operations
A general understanding of the drug development process is critical to understanding our results of
operations. Drug development in the U.S. and most countries throughout the world is a process that
includes several steps defined by the FDA and similar regulatory authorities in foreign countries.
The FDA approval processes relating to new drugs differ, depending on the nature of the particular
drug for which approval is sought. With respect to any drug product with active ingredients not
previously approved by the FDA, a prospective drug manufacturer is required to submit a new drug
application (NDA), which includes complete reports of pre-clinical, clinical and laboratory
studies and extensive manufacturing information to prove such products safety and effectiveness.
The NDA process generally requires, before the submission of the NDA, filing of an investigational
new drug application, pursuant to which permission is sought to begin clinical testing of the new
drug product. An NDA based on published safety and effectiveness studies conducted by others, or
previous findings of safety and effectiveness by the FDA, may be submitted under Section 505(b)(2)
of the Federal Food, Drug and Cosmetic Act (FDCA). Development of new formulations of
pharmaceutical products under Section 505(b)(2) of the FDCA may have shorter timelines than those
associated with developing new chemical entities.
Generally, with respect to any drug product with active ingredients not previously approved by the
FDA, an NDA must be supported by data from at least phase 1, phase 2 and phase 3 clinical trials.
Phase 1 clinical trials can be expected to last from 6 to 18 months, phase 2 clinical trials can be
expected to last from 12 to 24 months and phase 3 clinical trials can be expected to last from 18
to 36 months. However, clinical development timelines vary widely, as do the total costs of
clinical trials and the likelihood of success. We anticipate that we will make determinations as to
which R&D programs to pursue and how much funding to direct to each program on an ongoing basis in
response to the scientific and clinical success of each product candidate, our ongoing assessment
of its market potential and our available resources.
Our expenditures on R&D programs are subject to many uncertainties, including whether we develop
our product candidates with a partner or independently. At this time, due to such uncertainties and
the risks inherent in the clinical and regulatory process, we cannot estimate with reasonable
certainty the duration of or costs to complete our R&D programs or whether or when or to what
extent we will generate revenues from the commercialization and sale of any of our product
candidates. The duration and cost of our R&D programs, in particular those associated with clinical
trials, vary significantly among programs or within a particular program as a result of a variety
of factors, including:
| the number of trials necessary to demonstrate the safety and efficacy of a product candidate; | ||
| the number of patients who participate in the trials; | ||
| the number of sites included in the trials and rates of site approval for the trials; | ||
| the rates of patient recruitment and enrollment; | ||
| the duration of patient treatment and follow-up; | ||
| the costs of manufacturing our product candidates; and | ||
| the costs, requirements, timing of, and the ability to secure regulatory approvals. |
The difficult process of seeking regulatory approvals for our product candidates, in particular
those containing new chemical entities, and compliance with applicable regulations, requires the
expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining,
regulatory approvals could cause our R&D expenditures to increase and, in turn, have a material and
unfavorable effect on our results of operations. We cannot be certain when, if ever, we will
generate revenues from sales of any of our products.
While substantially all of our R&D expenses are transacted in U.S. dollars, certain of our expenses
are required to be paid in foreign currencies and expose us to transaction gains and losses that
could result from changes in foreign currency exchange rates. We include realized gains and losses
from foreign currency transactions in operations as incurred.
14
Table of Contents
Comparison of Three Months Ended June 30, 2008 and 2007
Revenue. Revenue of $0.5 million was recognized for the three months ended June 30, 2008. No
revenue was recognized for the three months ended June 30, 2007. For the three months ended June
30, 2008, we recognized $0.5 million in licensing revenue, which represents a portion of the $0.6
million Theragenex settlement payment, because we met the criteria for revenue recognition (see
Note 8, Licensing Revenue, of the Notes to Condensed Consolidated Financial Statements
(unaudited) in this report). The remainder of the payment was recorded as other income. We have
not generated any revenue from product sales to date, and we do not expect to generate revenue from
product sales until such time that we have obtained approval from a regulatory agency to sell one
of our product candidates, which we cannot predict will occur.
R&D Expenses. We maintain and evaluate our R&D expenses by the type of cost incurred rather than by
project. We maintain and evaluate R&D expenses by type primarily because of the uncertainties
described above, as well as because we out-source a substantial portion of our work and our R&D
personnel work across multiple programs rather than dedicating their time to one particular
program. We began maintaining such expenses by type on January 1, 2005. The following table
summarizes our consolidated R&D expenses by type for the three months ended June 30, 2008 compared
to the same period in 2007:
Three months ended June 30, | ||||||||||||||||
2008 | 2007 | $ Variance | % Variance | |||||||||||||
External clinical
study fees and
expenses |
$ | 952,345 | $ | 1,746,161 | $ | (793,816 | ) | (45 | %) | |||||||
External
non-clinical study
fees and expenses
(1) |
2,651,533 | 1,385,580 | 1,265,953 | 91 | % | |||||||||||
Personnel costs |
767,729 | 858,173 | (90,444 | ) | (11 | %) | ||||||||||
Share-based
compensation
expense |
139,788 | 249,696 | (109,908 | ) | (44 | %) | ||||||||||
Total |
$ | 4,511,395 | $ | 4,239,610 | $ | 271,785 | 6 | % | ||||||||
(1) | External non-clinical study fees and expenses include preclinical, research-related manufacturing, quality assurance and regulatory expenses. |
R&D expenses increased by $0.3 million, or 6%, to $4.5 million for the three months ended June 30,
2008, compared to $4.2 million for the comparable period in 2007. The increase in R&D expenses was
primarily due to a $1.3 million increase in external research-related manufacturing and regulatory
expenses for ANX-530 and ANX-514, offset by a $0.8 million decrease in external clinical trial
expenses related to ANX-530 and CoFactor, a decrease of $0.1 million in personnel and related
costs and a $0.1 million decrease in share-based compensation expense.
Selling, General and Administrative Expenses. SG&A expenses increased by $0.6 million, or 31%, to
$2.6 million for the three months ended June 30, 2008, compared to $2.0 million for the comparable
period in 2007. The increase was primarily due to a $0.2 million severance expense due to our
former chief financial officers departure in April 2008, as well as an increase of $0.4 million in
consulting expenses for tax services related to a Section 382
analysis, market research for
ANX-530 and legal expenses related to the Theragenex settlement.
Interest and Other Income. Interest and other income decreased by $0.3 million, or 54%, to $0.3
million for the three months ended June 30, 2008, compared to $0.6 million for the comparable
period in 2007. The decrease was primarily attributable to lower interest income based on lower
invested balances. The decrease was partially offset by $0.1 million received as part of the
Theragenex settlement which was recorded as other income.
Net Loss. Net loss was $6.4 million, or $0.07 per share, for the three months ended June 30, 2008,
compared to a net loss of $5.7 million, or $0.06 per share, for the comparable period in 2007.
Comparison of Six Months Ended June 30, 2008 and 2007
Revenue. Revenue for the six months ended June 30, 2008 and 2007 amounted to $0.5 million. For
the six months ended June 30, 2008, we recognized $0.5 million in licensing revenue, which
represents a portion of the $0.6 million Theragenex settlement payment, because we met the criteria
for revenue recognition. The remainder of the payment was recorded as other income. Revenue for
the six months ended June 30, 2007 represents the $0.5 million license fee paid by Theragenex in
January 2007 under our license
15
Table of Contents
agreement with Theragenex. We recognized that nonrefundable license fee as revenue in the period
when the criteria for revenue recognition were met. We have not generated any revenue from product
sales to date, and we do not expect to generate revenue from product sales until such time that we
have obtained approval from a regulatory agency to sell one of our product candidates, which we
cannot predict will occur.
R&D Expenses.
The following table summarizes our consolidated R&D expenses by type for the six months ended June
30, 2008 compared to the same period in 2007, and since January 1, 2005:
January 1, 2005 | ||||||||||||||||||||
Six months ended June 30, | through | |||||||||||||||||||
2008 | 2007 | $ Variance | % Variance | June 30, 2008 | ||||||||||||||||
External clinical study fees and expenses |
$ | 1,974,265 | $ | 3,276,088 | $ | (1,301,823 | ) | (40 | %) | $ | 21,799,882 | |||||||||
External non-clinical study fees and expenses (1) |
4,070,518 | 2,225,487 | 1,845,031 | 83 | % | 12,430,293 | ||||||||||||||
Personnel costs |
1,841,435 | 1,619,295 | 222,140 | 14 | % | 8,115,466 | ||||||||||||||
Share-based compensation expense |
445,484 | 503,400 | (57,916 | ) | (12 | %) | 2,604,180 | |||||||||||||
Total |
$ | 8,331,702 | $ | 7,624,270 | $ | 707,432 | 9 | % | $ | 44,949,821 | ||||||||||
(1) | External non-clinical study fees and expenses include preclinical, research-related manufacturing, quality assurance and regulatory expenses. |
R&D expenses increased by $0.7 million, or 9%, to $8.3 million for the six months ended June 30,
2008, compared to $7.6 million for the comparable period in 2007. The increase in R&D expenses was
primarily due to a $1.8 million increase in external research-related manufacturing and regulatory
expenses for ANX-530 and ANX-514 and an increase of $0.2 million in personnel and related costs,
offset by a $1.3 million decrease in external clinical trial expenses related to ANX-530 and
CoFactor and a $58,000 decrease in share-based compensation expense.
Selling, General and Administrative Expenses. SG&A expenses increased by $0.2 million, or 4%, to
$5.0 million for the six months ended June 30, 2008, compared to $4.8 million for the comparable
period in 2007. The increase was primarily due to a $0.2 million increase in severance expense
related to the departure of our former chief financial officer.
Interest and Other Income. Interest and other income for the six months ended June 30, 2008 was
$0.6 million compared to $1.2 million for the comparable period in 2007. The decrease was primarily
attributable to lower interest income based on lower invested balances. The decrease was
partially offset by $0.1 million received as part of the Theragenex settlement which was recorded
as other income.
Net Loss. Net loss was $12.4 million, or $0.14 per share, for the six months ended June 30, 2008,
compared to a net loss of $10.8 million, or $0.12 per share, for the comparable period in 2007.
Liquidity and Capital Resources
Since our inception we have funded our operations primarily through sales of our equity securities.
As of June 30, 2008, we had cash and cash equivalents and short-term investments in securities
totaling $22.1 million, compared to $33.5 million as of December 31, 2007. The decrease in cash and
investments in securities was attributed to cash used for operations. As of June 30, 2008, we had
$12.6 million in cash and cash equivalents and $9.4 million in short-term investments in
securities. To reduce risk, we recently purchased U.S. Treasury securities, which now comprise
all of our cash equivalents and short-term investments. As a result, future interest income may be
less than we earned in the past.
Operating Activities. Net cash used in operating activities was $11.5 million for the six months
ended June 30, 2008, compared to $8.6 million for the comparable period in 2007. The increase in
net cash used in operating activities was primarily due to: 1) a $1.5 million increase in net loss
primarily due to an increase in R&D expenses and a decrease in interest income, 2) a $0.1 million
net increase in adjustments for non-cash expenses, primarily related to decreased stock
compensation and expenses and decreased accretion, and 3) a $1.5 million net decrease in operating
assets and liabilities primarily due to decreases in accounts payable and accrued liabilities.
16
Table of Contents
Investing Activities. Net cash provided by investing activities was $9.4 million for the six
months ended June 30, 2008, compared to net cash used in investing activities of $0.7 million for
the comparable period in 2007. Net cash provided by investing activities in the
six months ended June 30, 2008 was primarily attributable to proceeds from sales and maturities of
short-term investments in securities, net of purchases of short-term investments in securities.
Financing Activities. There were no financing activities in the six months ended June 30, 2008.
Net cash provided by financing activities was $61,000 in the six months ended June 30, 2007 from
the exercise of an employees stock options.
Accrued Compensation and Payroll Taxes. Accrued compensation and payroll taxes were $0.9 million
at June 30, 2008, compared to $0.6 million at December 31, 2007, an increase of $0.3 million, or
54%. The increase was primarily due to an increase of $0.2 million in the bonus accrual and an
increase of $0.1 million in accrued severance payments related to our separation with our former
president and chief medical officer in January 2008 and our former chief financial officer in April
2008.
Management Outlook
We believe that cash, cash equivalents, and short-term investments of approximately $22.1 million
at June 30, 2008 should be sufficient to sustain our operations through the first quarter of 2009.
However, in order to maintain sufficient cash and investments to fund future operations longer
term, and to continue developing our existing product candidates at the levels we believe optimizes
their value, we will need to raise additional capital in the short-term and beyond through
collaborations, licensing arrangements or other strategic transactions, public or private sales of
our equity securities, and/or debt financings. The balance of securities available-for-sale under
our existing shelf registration was approximately $60.0 million as of June 30, 2008, but we may be
subject to limitations with respect to the number of securities we can sell under this shelf
registration. If we are unable to raise capital as needed to fund future operations, then we may
defer or abandon one or more of our R&D programs and/or our current commercialization plans for
ANX-530 and ANX-514 and may also need to take additional cost-cutting measures, which could have a
material and adverse effect on our ability to achieve our business objectives. In addition, our
ability to timely raise capital on commercially reasonable terms may be limited by requirements,
rules and regulations of the Securities and Exchange Commission and the American Stock Exchange.
If we raise additional funds by issuing equity securities, substantial dilution to existing
stockholders would likely result. If we raise additional funds by incurring debt, the terms of the
debt may involve significant cash payment obligations as well as covenants and specific financial
ratios that may restrict our ability to operate our business.
We cannot be sure that additional financing will be available when needed, or that, if available,
financing will be obtained on terms favorable to us or our stockholders. Having insufficient funds
may require us to delay, scale-back or eliminate some or all of our development programs,
relinquish some or even all rights to product candidates, or renegotiate less favorable terms than
we would otherwise choose. Failure to obtain adequate financing would adversely affect our ability
to operate as a going concern.
We have held discussions with, and intend to continue to seek, potential partners regarding certain
of our product candidates, though some of our product candidates could take several more years of
development before they reach the stage of being partnerable with other companies on terms that we
believe are appropriate. If we successfully consummate a partnering transaction, we may be entitled
to upfront or license fees and milestone payments; however, any such fees and payments will depend
on successfully consummating a transaction and achieving milestones under such arrangements.
For information regarding the risks associated with our need to raise capital to fund our ongoing
and planned operations and limitations on our ability to do so, see Item 1A of Part I, Risk
Factors, in our annual report on Form 10-K for the year ended December 31, 2007.
Recent Accounting Pronouncements
See Note 7, Recent Accounting Pronouncements, of the Notes to the Condensed Consolidated
Financial Statements (unaudited) in this report for a discussion of recent accounting announcements
and their effect, if any, on us.
Forward Looking Statements
This Quarterly Report on Form 10-Q, particularly in Item 2 Managements Discussion and Analysis of
Financial Condition and Results of Operations, includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements, other than statements of historical
17
Table of Contents
fact, are
statements that could be deemed forward-looking statements, including, but not limited to,
statements regarding business strategy, expectations and plans, our objectives for future
operations, including product development, and our future financial
position. When used in this report, the words believe, may, could, will, estimate,
continue, anticipate, intend, expect, indicate and similar expressions are intended to
identify forward-looking statements.
We have based these forward-looking statements largely on our current expectations and projections
about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy, short-term and long-term business operations and
objectives, and financial needs. These forward-looking statements are subject to certain risks and
uncertainties that could cause our actual results to differ materially from those expressed or
implied in these forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in Item 1A of Part I, Risk Factors,
in our annual report on Form 10-K for the year ended December 31, 2007, and those discussed in
other documents we file with the Securities and Exchange Commission. Except as required by law, we
do not intend to update these forward-looking statements publicly or to update the reasons actual
results could differ materially from those anticipated in these forward-looking statements, even if
new information becomes available in the future.
In light of these risks, uncertainties and assumptions, the forward-looking events and
circumstances discussed in this report and in the documents incorporated in this report may not
occur and actual results could differ materially and adversely from those anticipated or implied in
such forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on
such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of our principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Based on this evaluation, our principal executive officer and principal financial officer concluded
that our disclosure controls and procedures are effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and Exchange Commission
rules and forms and is accumulated and communicated to our management, including our principal
executive officer and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with
the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during
the period covered by this report that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
18
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In the normal course of business, we may become subject to lawsuits and other claims and
proceedings. Such matters are subject to uncertainty and outcomes are often not predictable with
assurance.
On October 11, 2007, we filed a demand for arbitration against Theragenex (doing business as TRx
Pharma, LLC and/or TRx Pharmaceuticals, LLC) and David M. Preston, founder, Chairman, President and
Chief Executive Officer of Theragenex in his individual capacity as the alter ego of Theragenex,
seeking damages of up to $10 million with respect to breach of the license agreement, dated October
20, 2006, between us and Theragenex. We terminated the license agreement in August 2007 as a result
of Theragenexs breach. In accordance with the terms of the license agreement, we filed our demand
with the American Arbitration Association and requested that the hearing take place in San Diego,
California. On November 8, 2007, Theragenex responded to our demand, asserting numerous affirmative
defenses counterclaiming intentional misrepresentation, negligent misrepresentation and rescission
and seeking a refund of its $0.5 million payment, plus interest, rescission of the license
agreement and that we pay its reasonable attorneys fees and costs associated with the action. Also
on November 8, 2007, Mr. Preston objected to his participation and being named as a respondent in
the arbitration.
In May 2008, we settled our dispute with Theragenex. In consideration of and conditioned upon
Theragenex paying us $0.6 million, we and Theragenex agreed to jointly move to dismiss the
underlying arbitration action, and in connection with dismissing the arbitration, we and Theragenex
agreed to release each other from any and all claims related to our past relationship, including
Theragenexs license rights to the product.
Item 1A. Risk Factors
An investment in our securities involves a high degree of risk. You should consider carefully the
risks and uncertainties described under Item 1A of Part I of our annual report on Form 10-K for the
year ended December 31, 2007, which is incorporated by reference into this report. The risks
described in our annual report have not materially changed.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
Our 2008 Annual Meeting of Stockholders was held on May 28, 2008. At this meeting, our
stockholders voted on the following three proposals: (1) election of seven nominees to our board of
directors to hold office until our 2009 Annual Meeting of Stockholders and until their successors
are elected and qualified, (2) ratification of the appointment of J.H. Cohn LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2008, and (3) approval of
the Companys 2008 Omnibus Incentive Plan.
19
Table of Contents
Proposal No. 1: Election of Directors
Our stockholders voted to elect all seven director nominees to the board of directors. The votes
regarding Proposal No. 1 were as follows:
Nominees: | Votes For | Votes Withheld | ||||||
Mark N.K. Bagnall |
62,917,591 | 2,163,539 | ||||||
Alexander J. Denner |
61,877,190 | 3,203,940 | ||||||
Michael M. Goldberg |
61,876,590 | 3,204,540 | ||||||
Evan M. Levine |
62,559,749 | 2,521,381 | ||||||
Jack Lief |
61,873,690 | 3,207,440 | ||||||
Mark J. Pykett |
61,878,690 | 3,202,440 | ||||||
Eric K. Rowinsky |
63,935,450 | 1,145,680 |
Proposal No. 2: Ratification of Independent Registered Public Accounting Firm
Our stockholders voted to ratify the appointment of J.H. Cohn LLP. The votes regarding Proposal
No. 2 were as follows:
Votes For | Votes Withheld | Votes Abstained | ||
64,337,035
|
342,980 | 401,115 |
Proposal No. 3: Approval of the Companys 2008 Omnibus Incentive Plan
Our stockholders voted to approve the Companys 2008 Omnibus Incentive Plan. The votes regarding
Proposal No. 3 were as follows:
Votes For | Votes Withheld | Votes Abstained | Broker Non-Votes | |||
21,042,119 | 3,899,847 | 513,660 | 39,625,505 |
Item 5. Other Information
None.
Item 6. Exhibits
An Exhibit Index has been attached as part of this report and is incorporated herein by reference.
20
Table of Contents
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ADVENTRX Pharmaceuticals, Inc. | ||||
Date: August 11, 2008 | By: | /s/ Evan M. Levine | ||
Evan M. Levine | ||||
Chief Executive Officer and President (Principal Executive Officer) |
||||
Date: August 11, 2008 | By: | /s/ Mark N.K. Bagnall | ||
Mark N.K. Bagnall | ||||
Chief Financial Officer and Executive Vice President (Principal Financial and Accounting Officer) |
21
Table of Contents
Exhibit Index
Exhibit | Description | |
10.1#
|
Offer letter, dated April 1, 2008, to Mark N.K. Bagnall (including Exhibits A, B and C thereto) | |
10.2#(1)
|
Letter agreement, dated April 2, 2008, regarding terms of separation with Gregory P. Hanson | |
10.3#(1)
|
Consulting Agreement, dated April 2, 2008 with Gregory P. Hanson | |
10.4#(2)
|
ADVENTRX Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan | |
10.5#
|
Form of Non-Statutory Stock Option Grant Agreement (for directors) under the 2008 Omnibus Incentive Plan | |
10.6#
|
Form of Non-Statutory/Incentive Stock Option Grant Agreement (for consultants/employees) under the 2008 Omnibus Incentive Plan | |
31.1
|
Certification of chief executive officer pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2
|
Certification of chief financial officer pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1*
|
Certification of chief executive officer and chief financial officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | This certification is being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing. | |
# | Indicates management contract or compensatory plan | |
(1) | Filed with the registrants Current Report on Form 8-K on April 16, 2008 (SEC file number 001-32157-08760483) | |
(2) | Filed with the registrants Current Report on Form 8-K on June 2, 2008 (SEC file number 001-32157-08874724) |
22
Exhibit 10.1
April 1, 2008
Mark N.K. Bagnall
5341 Golden Gate Avenue
Oakland, CA 94618
5341 Golden Gate Avenue
Oakland, CA 94618
Dear Mark:
ADVENTRX Pharmaceuticals, Inc. (the Company) is pleased to offer you full-time employment on
the terms and conditions stated in this letter agreement. We would employ you as Executive Vice
President, Chief Financial Officer and Treasurer reporting to Evan M. Levine, Chief Executive
Officer and President. As a condition of and prior to beginning your employment, you must resign
your positions on the Audit, Compensation and Nominating and Governance committees of our Board of
Directors; while resigning from your position as a member of our Board of Directors is not a
condition to employment, as required by our Corporate Governance Guidelines, you will no longer
receive compensation for your services as a member of our Board of Directors.
1. We would initially compensate you at the rate of $350,000 per year, less payroll deductions and
withholding, payable in accordance with our payroll policies. We will review your base salary from
time to time (but no less frequently than annually) in accordance with our procedures for
increasing salaries of similarly situated executives.
2. The Compensation Committee of our Board of Directors has approved a grant to you of an incentive
stock option (to the maximum extent permitted by law and a nonstatutory stock option with respect
to any remaining shares) to purchase up to 500,000 shares of our common stock under our 2005 Equity
Incentive Plan pursuant to a Stock Option Agreement in substantially the form attached hereto as
Exhibit A (the Stock Option Agreement), subject to and conditioned on (a) our not
rescinding this offer of employment to you, or terminating an accepted offer, prior to the Start
Date (as defined below), and (b) your acceptance of our offer of employment and commencement of
employment with us on the Start Date. The grant date of this option will be the Start Date (the
Grant Date), the vesting commencement date will be January 1, 2008, and the exercise price of
this option will be equal to the closing price, as reported on the American Stock Exchange, of one
share of our common stock on the Grant Date, or, if the Grant Date is a day on which the American
Stock Exchange is closed, the next day on which the American Stock Exchange is open for trading.
Subject to the discretion of our Board of Directors, you may receive additional stock options in
the future based upon your performance and our overall success.
3. In addition and subject to the remainder of this Section 3 and Section 4, in the event of your
Involuntary Termination (as defined below) (a) we will continue to pay in cash your base salary in
effect immediately prior to the effective date of such Involuntary Termination, payable in
accordance with our standard payroll practices and subject to applicable income and employment tax
withholdings, for the number of months equal to the number of full 30-day periods you were employed
by us as a full-time employee; provided, however, that in no event will such number of
months exceed 12 (the Severance Period) and (b) the Company will pay to you in cash, in
accordance with the payment schedule set forth in clause (a) above and subject to applicable income
and employment tax withholdings, all costs that the Company would otherwise have incurred to
maintain your medical, dental and similar benefits, as well as matching contributions we would have
made for your benefit under our 401(k) plan (based on the amount you contributed in the pay period
immediately prior to the effective date of such Involuntary Termination, but subject to applicable
maximums), if you had continued to render services to us after such effective date for the duration
of the Severance Period. Prior to your receipt of any payment or benefit provided by this Section
3, you must (x) execute (and not revoke) a general release of claims and agreement in substantially
the form attached hereto as Exhibit B, as such may be revised by the Company, acting
reasonably, to reflect changes in legal requirements, or such other form as may be mutually agreed
to by you and the Company (the Release) and (y) submit your resignation as a member of our Board
of
Mark N.K. Bagnall
April 1, 2008
Page 2 of 7
April 1, 2008
Page 2 of 7
Directors to our Board of Directors, which resignation will be subject to acceptance by our Board
of Directors; provided, however, that, if you do not submit your resignation, the payments
described in clauses (a) and (b) above will begin (assuming you have executed (and not revoked) the
Release) as soon as reasonably practicable following the first annual meeting of stockholders to
occur after the effective date of such Involuntary Termination; provided, further, that, if
the effective date of such Involuntary Termination takes place after the Company has first mailed
materials to its stockholders related to the first annual meeting of stockholders to occur after
the effective date of such Involuntary Termination, the payments described in clauses (a) and (b)
above will begin (assuming you have executed (and not revoked) the Release) as soon as reasonably
practicable following the date on which the Company mails materials to its stockholders related to
the second annual meeting of stockholders to occur after the effective date of such Involuntary
Termination; provided, further, that, at such time as you do submit your resignation and
assuming such payments have not otherwise already been made or initiated, the payments described in
clauses (a) and (b) above will begin (assuming you have executed (and not revoked) the Release) as
soon as reasonably practicable following your submitting your resignation. Such release will
specifically relate to all of your rights and claims and the Companys rights and claims in
existence at the time of such execution that are waivable under applicable law and will confirm
your obligations under the Company Confidentiality Agreement (as defined in Section 8). It is
understood that you will have the applicable period specified in the Older Workers Benefits
Protection Act to consider whether to execute such release, and you may revoke such release within
7 calendar days after execution. In the event you do not execute such release within the
applicable period, or if you revoke such release within the subsequent 7-calendar-day period, you
will not be entitled to the payments and benefits described in this Section 3.
For purposes of this Agreement, an Involuntary Termination is one that occurs by reason of
involuntary dismissal by the Company for any reason other than Misconduct (as defined below) or by
your voluntary resignation for Good Reason, which shall mean the occurrence of one of the
following events or circumstances without your written consent: (i) a change in position that
materially reduces the level of your responsibility, (ii) a material reduction in your base salary,
or (iii) relocation by more than 50 miles from your then-primary work location; provided that your
resignation shall not be for Good Reason unless (x) you provide the Company with written notice
within thirty (30) days after you first have knowledge of the occurrence or existence of such event
or circumstance, (y) the Company fails to correct the circumstance or event so identified within
thirty (30) days after receipt of such written notice, and (z) you resign within ninety (90) days
after the date of delivery of the notice. Misconduct shall mean the commission of any act of
fraud, embezzlement or dishonesty by you, any unauthorized use or disclosure by you of confidential
information or trade secrets of the Company (or any parent or subsidiary), or any other intentional
misconduct by you adversely affecting the business affairs of the Company (or any parent or
subsidiary) in a material manner.
4. You and the Company agree that this letter agreement is intended to comply with the requirements
of Section 409A of the Code and the regulations promulgated thereunder (Section 409A) or an
exemption from Section 409A. In the event that after execution of this letter agreement either you
or the Company makes a determination inconsistent with the preceding sentence, you or the Company t
shall promptly notify the other of the basis for your or its determination. The parties agree to
renegotiate in good faith the terms of this letter agreement if it is mutually determined that this
letter agreement as structured would have adverse tax consequences to you. You and the Company
agree that all payments to be made upon a termination of employment under this letter agreement may
only be made upon a separation from service under Section 409A. You acknowledge and agree that
any payment to be made or benefit to be provided to you pursuant to Section 3 will be delayed for
the first 6 months to the extent necessary for this letter agreement and such payment or benefit to
comply with Section 409A; provided that, if any payment to be made or benefit to be provided to you
is delayed as a result of this Section 4, such payment or benefit will be paid to you in a lump-sum
as soon as permitted under Section 409A. For purposes of this Agreement, each amount to be paid
or benefit to be provided hereunder shall be construed as a separate identified payment for
purposes of Section 409A. In addition, if we
Mark N.K. Bagnall
April 1, 2008
Page 3 of 7
April 1, 2008
Page 3 of 7
reasonably determine that a change in applicable law following the date set forth above causes the
payments to be made or benefits to be provided to be payable to you without delay but in another
manner that complies with Section 409A, you and we agree to amend this letter agreement to reform
the payment provisions set forth in Section 3 to provide to you economic benefits that are as close
as reasonably possible to those contemplated by Section 3 but that still comply with Section 409A.
Subject to the foregoing, this letter agreement will be interpreted, construed and administered in
a manner that satisfies the requirements of Section 409A.
5. As an executive, you would be entitled to participate in our medical, dental, life insurance,
401(k) plan and other benefits on the same terms as our other executives. These programs as well
as other employee benefits and policies are described in further detail in our Policies and
Procedures Manual. We reserve the right to modify or amend at our sole discretion the terms of any
and all employee benefit programs from time to time without advance notice to our employees.
Notwithstanding our employee vacation policy set forth in the Policies and Procedures Manual, you
would be entitled to 20 vacation days per year, which would accrue in accordance with our general
vacation accrual policy, including any maximum accrual limits set forth therein.
6. You will also participate in our 2008 Incentive Plan as a non-CEO executive on the terms and
conditions set forth in such plan and will participate in any other short-term incentive/bonus plan
that the Company may adopt from time to time on the same terms and conditions as generally
applicable to the Companys other executives.
7. Your employment with us would be at will and not for a specified term. We make no express or
implied commitment that your employment will have a minimum or fixed term, that we may take adverse
employment action only for cause or that your employment is terminable only for cause. We may
terminate your employment with or without cause and with or without advance notice at any time and
for any reason. Any contrary representations or agreements that may have been made to you are
superseded by this letter agreement. The at-will nature of your employment described by this
letter agreement shall constitute the entire agreement between you and ADVENTRX concerning the
nature and duration of your employment. Although your job duties, title and compensation and
benefits may change over time, the at-will nature of your employment with us can only be changed in
a written agreement signed by you and our Chief Executive Officer.
8. Our proprietary rights and confidential information are among our most important assets. In
addition to signing this letter agreement, as a condition to your employment you must also sign the
Confidential Information, Non-Solicitation and Invention Assignment Agreement for Employees
attached hereto as Exhibit C (the Company Confidentiality Agreement). As more fully
described in the Company Confidentiality Agreement, we require that in the course of your
employment with us that you not use or disclose to us any confidential information, including trade
secrets, of any former employer or other person to whom you have an obligation of confidentiality.
Rather, you will be expected to use only that information which is generally known and used by
persons with training and experience comparable to your own, which is common knowledge in the
industry or otherwise legally in the public domain, or which is otherwise provided or developed by
us. During our discussions about your proposed job duties, you assured us that you would be able
to perform those duties within the guidelines just described. Accordingly, you further agree that
you will not bring on to our premises any unpublished documents or property belonging to any former
employer or other person to whom you have an obligation of confidentiality.
9. In addition, as an employee, we require that you comply with all of our policies and procedures,
including, without limitation, our Policies and Procedures Manual, our Code of Business Conduct and
Ethics and our Insider Trading and Disclosure Policy, copies of which will, at your request, be
provided to you prior to your beginning work with us. You may be required to sign certain
documents acknowledging your receipt and understanding of these and other documents as an employee,
even though you may
Mark N.K. Bagnall
April 1, 2008
Page 4 of 7
April 1, 2008
Page 4 of 7
have signed such documents as a member of our Board of Directors. Violation of any or our policies
or procedures would be cause for disciplinary action, including termination. For purposes of
Section 6 of our Code of Business Conduct and Ethics, we acknowledge that you have disclosed to us
that you serve on the boards of directors of VIA Pharmaceuticals, Inc. and Forticell Bioscience,
Inc. and that we do not consider these relationships to create conflicts of interest with us;
however, we reserve the right to reconsider this position from time to time as we become aware of
other information regarding these relationships.
10. Your employment with us is also conditioned upon your ability to provide adequate documentation
of your legal right to work in the United States, as well as educational credentials. If you make
any misrepresentations to us or omit to state a material fact necessary in order to make another
statement made not misleading, we may void this letter agreement or, if you are already employed,
terminate your employment.
11. This letter agreement and documents attached hereto shall be governed pursuant to the laws of
the State of California as applied to agreements between California residents entered into and to
be performed entirely within California.
12. If any portion of this letter agreement shall, for any reason, be held invalid or
unenforceable, or contrary to public policy or any law, the remainder of this letter agreement
shall not be affected by such invalidity or unenforceability, but shall remain in full force and
effect, as if the invalid or unenforceable term or portion thereof had not existed within this
letter agreement.
13. We will reimburse your reasonable attorneys fees actually incurred in connection with the
review and negotiation of this letter agreement (including the exhibits hereto) and any related or
ancillary documents, up to a maximum of $5,000, regardless of whether or not you accept our offer
of employment set forth in this letter agreement.
14. If you accept the terms and conditions set forth in this letter agreement, we would like you to
begin full time work with us on April 3, 2008 (the Start Date), and this letter agreement will be
effective as of such date. I look forward to you joining us and being an integral and important
part of our team. Please sign below to accept this offer and return the fully executed letter to
me by April 2, 2008. You should keep one copy of this letter for your own records.
Sincerely,
ADVENTRX Pharmaceuticals, Inc.
|
ACCEPTED AND AGREED: | |||||
/s/ Evan M. Levine
|
/s/ Mark N.K. Bagnall | |||||
Evan M. Levine
|
Mark N.K. Bagnall | |||||
Chief Executive Officer & President |
||||||
Date: April 2, 2008 |
Exhibit A
Stock Option Agreement
ADVENTRX Pharmaceuticals, Inc., a Delaware corporation (the Company), and the undersigned
person (Optionee) have entered into this Stock Option Agreement (this Agreement) effective as
of the Grant Date set forth below. The Company has granted to Optionee the option (the Option) to
purchase the number of shares (the Shares) of common stock, par value $0.001 per share, of the
Company (Common Stock) set forth below at the per Share purchase price (the Exercise Price) set
forth below, pursuant to the terms of this Agreement. The Option was granted under the Companys
2005 Equity Incentive Plan (the Plan).
Optionee Name: |
Mark N.K. Bagnall | |
Grant Date: |
XX/XX/XXXX | |
Vesting Commencement Date: |
January 1, 2008 | |
Shares: |
500,000 | |
Exercise Price: |
$X.XX |
1. Terms of Plan. All capitalized terms used in this Agreement and not otherwise defined shall
have the meanings ascribed thereto in the Plan. Optionee confirms and acknowledges that Optionee
has received and reviewed copies of the Plan and the Information Statement, dated July 13, 2005,
with respect to the Plan. Optionee and the Company agree that the terms and conditions of the Plan
are incorporated in this Agreement by this reference.
2. Nature of the Option. The Option has been granted as an incentive to Optionees Continuous
Service, and is in all respects subject to such Continuous Service and all other terms and
conditions of this Agreement. The Option is intended to be an Incentive Option within the meaning
of the Plan.
3. Vesting and Exercise of Option. The Option shall vest and become exercisable during its term in
accordance with the following provisions:
(a) Vesting and Right of Exercise.
(i) The Option shall vest and become exercisable with respect to one-fifth of the
Shares at the first anniversary of the Vesting Commencement Date set forth in the
preamble of this Agreement and as to one-fifth of the Shares on each anniversary of
the Vesting Commencement Date thereafter until all of the Shares have vested,
subject to Optionees Continuous Service; provided, however, that, in the
event of an Involuntary Termination (as defined in that certain letter agreement,
dated April 1, 2008, by and between the Company and Optionee offering employment to
Optionee (the Offer Letter)) but subject to Optionees timely execution of the
general release of claims and agreement (the Release) referred to in the Offer
Letter and Optionees not revoking the Release as described in
the Offer Letter, the Option shall vest and become exercisable, effective
immediately prior to the effective date of such Involuntary Termination, with
respect to (a) if the effective date of such Involuntary Termination occurs between
January 1 and June 30 of a given calendar year, an additional 50,000 shares and (b)
if the effective date of such Involuntary Termination occurs between July 1 and
December 31 of a given calendar year, an additional 100,000 shares.
(ii) In the event of Optionees death, disability or other termination of
Optionees Continuous Service, the Option shall be exercisable in the manner and to
the extent provided in Section 6.3 of the Plan; provided, however, that,
anything in Section 6.3(a)(i) of the Plan to the contrary notwithstanding but
subject to Optionees timely execution of the Release and Optionees not revoking
the Release as described in the Offer Letter, in the event of an Involuntary
Termination, the Option shall remain exercisable for 180 days following the
effective date of such Involuntary Termination.
(iii) No fraction of a Share shall be purchasable or deliverable upon exercise of
the Option, but in the event any adjustment hereunder of the number of Shares shall
cause such number to include a fraction of a Share, such number of Shares shall be
rounded down to the nearest smaller whole number of Shares.
(b) Method of Exercise. In order to exercise any portion of the Option which has vested,
Optionee shall notify the Company in writing of the election to exercise such vested portion of the
Option and the number of Shares in respect of which the Option is being exercised, by executing and
delivering the Notice of Exercise of Stock Option in the form attached hereto as Exhibit A (the
Exercise Notice). The certificate or certificates representing Shares as to which the Option has
been exercised shall be registered in the name of Optionee.
(c) Restrictions on Exercise.
(i) Optionee may exercise the Option only with respect to Shares that have vested
in accordance with Section 3(a) of this Agreement.
(ii) Optionee may not exercise the Option if the issuance of the Shares upon such
exercise or the method of payment of consideration for such Shares would constitute
a violation of any applicable federal or state securities law or other law or
regulation.
(iii) The method and manner of payment of the Exercise Price will be subject to the
rules under Part 221 of Title 12 of the Code of Federal Regulations as promulgated
by the Federal Reserve Board if such rules apply to the Company at the date of
exercise.
(iv) As a condition to the exercise of the Option, the Company may require Optionee
to make any representation or warranty to the Company at the time of exercise of
the Option as in the opinion of legal counsel for the Company may be required by
any applicable law or regulation, including the execution and delivery of an
appropriate representation statement. Accordingly, the stock certificate(s) for the
Shares issued upon exercise of the Option may bear appropriate legends restricting
transfer.
(v) Optionee may only exercise the Option upon, and the obligations of the Company
under this Agreement to issue Shares to Optionee upon any exercise of the Option is
conditioned on, satisfaction of all federal, state, local or other withholding tax
obligations associated with such exercise (whether so required to secure for the
Company an otherwise available tax deduction or otherwise) (Withholding
Obligations). The Company reserves the right to require Optionee to remit to the
Company an amount sufficient to satisfy all Withholding Obligations prior to the
issuance of any Shares upon any exercise of the Option. Optionee authorizes the
Company to withhold in accordance with applicable law from any compensation payable
to Optionee any amounts necessary to meet any Withholding Obligations.
4. Non-Transferability of Option. The Option may not be transferred in any manner other than by
will or by the laws of descent and distribution. The terms of this Agreement shall bind the
executors, administrators, heirs and successors of Optionee.
5. Method of Payment.
(a) Upon exercise, Optionee shall pay the aggregate Exercise Price of the Shares purchased by
any of the following methods, or a combination thereof, at the election of Optionee:
(i) by cash;
(ii) by certified or bank cashiers check;
(iii) if shares of Common Stock are traded on an established stock market or
exchange on the date of exercise, by surrender of whole shares of Common Stock
having a Market Value equal to the portion of the Exercise Price to be paid by such
surrender, provided that if such shares of Common Stock to be surrendered were
acquired upon exercise of an Incentive Option, Optionee must have first satisfied
the holding period requirements under Section 422(a)(1) of the Code; or
(iv) if shares of Common Stock are traded on an established stock market or
exchange on the date of exercise, pursuant to and under the
terms and conditions of any formal cashless exercise program authorized by the
Company entailing the sale of the Stock subject to an Option in a brokered
transaction (other than to the Company).
(b) If Optionee shall pay all or a portion of the aggregate Exercise Price due upon an
exercise of the Option by surrendering shares of Common Stock pursuant to Section 5(a)(iii), then
Optionee:
(i) shall accompany the Exercise Notice with a duly endorsed blank stock power with
respect to the number of shares of Common Stock to be surrendered and shall deliver
the certificate(s) representing such surrendered shares to the Company at its
principal offices within two business days after the date of the Exercise Notice;
(ii) authorizes and directs the Secretary of the Company to transfer so many of the
shares of Common Stock represented by such certificate(s) as are necessary to pay
the aggregate Exercise Price in accordance with this Agreement;
(iii) agrees that Optionee may not surrender any fractional share as payment of any
portion of the Exercise Price; and
(iv) agrees that, notwithstanding any other provision in this Agreement, Optionee
may only surrender shares of Common Stock owned by Optionee as of the date of the
Exercise Notice in the manner and within the time periods allowed under Rule 16b-3
promulgated under the Exchange Act.
6. Adjustments to Option. Subject to any required action by the stockholders of the Company, the
number of Shares covered by the Option, and the Exercise Price, shall be proportionately adjusted
in accordance with and pursuant to Section 8.1 of the Plan. Such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and conclusive. Except as
expressly provided in this Agreement, no issue by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number of Shares or the Exercise Price.
7. Term of Option. The Option may not be exercised more than 10 years after the Grant Date, and
may be exercised during such term only in accordance with the terms of this Agreement.
8. Not Employment Contract. Nothing in this Agreement shall confer upon Optionee any right to
continue in the employ of the Company or shall interfere with or restrict in any way the rights of
the Company, which are hereby expressly reserved, to terminate Optionees Continuous Service at any
time for any reason whatsoever, with or without cause, subject to the provisions of applicable law.
9. Tax Consequences Generally. Optionee acknowledges that Optionee may suffer adverse tax
consequences as a result of Optionees exercise of the Option. Optionee acknowledges that the
Company advises that Optionee consult with Optionees tax advisers in connection with any exercise
of the Option or disposition of the Shares receivable upon exercise of the Option. Optionee agrees
that Optionee is not relying on the Company for any tax advice with respect to the acceptance or
exercise of the Option, the disposition of any Shares Optionee may acquire upon exercise of the
Option or otherwise. Any adverse consequences incurred by an Optionee with respect to the use of
shares of Common Stock to pay any part of the aggregate Exercise Price or of any tax in connection
with the exercise of an Option, including, without limitation, any adverse tax consequences arising
as a result of a disqualifying disposition within the meaning of Section 422 of the Code shall be
the sole responsibility of Optionee.
10. Adjustments in Acquisitions.
(a) Acceleration Following Change of Control Where Option Not Assumed or Replaced. In accordance
with the provisions of Section 8.2(a) of the Plan, the Option will Accelerate in full in the event
of an Acquisition constituting a Change of Control (as defined in the Plan) if Optionee remains
employed by the Company or one of its Affiliates as of the closing date of such Acquisition, and
the Option is not assumed or replaced by the successor or acquiring entity or the entity in control
of such successor or acquiring entity in accordance with Section 8.2 (referred to for purposes of
this section as the Acquirer). In this regard, if Optionee is offered employment or some other
continuing role by or on behalf of the Acquirer, including but not limited to, continuing
employment with the Company, and in connection therewith, the Acquirer offers to assume or replace
the Option, the Option will not Accelerate if Optionee does not accept the offer.
(b) Acceleration In Connection With Involuntary Termination Preceding and in Connection with Change
of Control. Notwithstanding the foregoing, however, the Option will Accelerate in full in the
event of an Acquisition constituting a Change of Control, even if Optionee does not remain employed
by the Company or one of its Affiliates as of the closing date of such Acquisition, if Optionee is
the subject of an Involuntary Termination prior to such Acquisition and such Involuntary
Termination is directly connected with or the result of such Acquisition.
(c) Acceleration In Connection With and Following Change of Control Where Option Assumed or
Replaced. The foregoing notwithstanding, if the Option is assumed or replaced by the Acquirer, 50%
of any unvested portion of the Option shall be deemed to have vested as of immediately prior to the
closing date of such Acquisition and the remaining unvested portion of the Option (after taking
into account the foregoing) shall vest ratably by month over the 12-month period beginning on the
closing of such Acquisition, subject to Optionees Continuous Service. In the event of Optionees
Involuntary Termination of employment within 12 months after the closing date of such Change of
Control all remaining unvested shares under the assumed Option shall be
accelerated such that the Option will vest as of the effective date of such Involuntary Termination
as to 100% of all Shares thereunder. .
11. Consent of Spouse/Domestic Partner. Optionee agrees that Optionees spouses or domestic
partners interest in the Option is subject to this Agreement and such spouse or domestic partner
is irrevocably bound by the terms and conditions of this Agreement. Optionee agrees that all
community property interests of Optionee and Optionees spouse or domestic partner in the Option,
if any, shall similarly be bound by this Agreement. Optionee agrees that this Agreement is binding
upon Optionees and Optionees spouses or domestic partners executors, administrators, heirs and
assigns. Optionee represents and warrants to the Company that Optionee has the authority to bind
Optionees spouse/domestic partner with respect to the Option. Optionee agrees to execute and
deliver such documents as may be necessary to carry out the intent of this Section 11 and the
consent of Optionees spouse/domestic partner.
IN WITNESS WHEREOF, Optionee and the Company have entered into this Agreement as of the Grant
Date.
ADVENTRX Pharmaceuticals, Inc. | ||||||
Mark N.K. Bagnall
|
By: | |||||
Name: | ||||||
Title: | ||||||
Exhibit A
Notice of Exercise of Stock Option
I
(please print legibly) hereby elect to exercise the stock options(s)
identified below (the Option(s)) granted to me by ADVENTRX Pharmaceuticals, Inc. (the
Company) under its 2005 Equity Incentive Plan (the Plan) with respect to the
number of shares of Common Stock of the Company set forth below (the Shares). I represent
that each Share is fully vested and exercisable and subject to the Option(s). I acknowledge and
agree that my exercise of the Option(s) is subject to the terms and conditions of the Plan and the
Stock Option Agreement(s) governing the Option(s).
1. Shares at $ per share (Grant date):
2. Shares at $ per share (Grant date):
3. Shares at $ per share (Grant date):
4. Shares at $ per share (Grant date):
I choose to pay for the exercise of the above option(s) as follows (please
circle applicable item numbers):
1. Cash: $
2. Check: $ (please make checks payable to ADVENTRX
Pharmaceuticals, Inc.)
3. Surrender of Shares:
Please deliver the stock certificate(s) representing the Shares to (please print legibly): | ||||
Name: |
||||
(please print legibly) | ||||
Signature: |
||||
Date: |
||||
Phone No: |
||||
Exhibit B
GENERAL RELEASE OF CLAIMS AND AGREEMENT
Pursuant to that certain letter agreement, dated April 1, 2008, by and between ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation (the Company), and the undersigned (Executive)
offering employment to Executive (the Offer Letter) and that certain Stock Option Agreement
issued in connection with the Offer Letter (the Option Agreement), and in consideration of and as
a condition precedent to the payments and benefits provided under Section 3 of the Offer Letter and
other benefits provided under Sections 5(a)(i) and 5(a)(ii) of the Option Agreement, Executive
hereby furnishes the Company with this General Release of Claims and Agreement (this Release).
1. Ongoing Obligations. Executive hereby confirms Executives obligations under the
Companys Confidentiality Agreement (as defined in the Offer Letter) and the Companys Policies and
Procedures Manual, Code of Business Conduct and Ethics, Insider Trading and Disclosure Policy and
other policies applicable to Executive.
2. Release. On Executives own behalf and on behalf of Executives heirs, estate and
beneficiaries, Executive hereby waives, releases, acquits and forever discharges the Company, and
each of its parents, subsidiaries and affiliates, and each of their respective past or present
officers, directors, agents, servants, employees, shareholders, predecessors, successors and
assigns, and all persons acting by, through, under, or in concert with them, or any of them (the
Released Parties), of and from any and all suits, debts, liens, contracts, agreements, promises,
claims, causes of action, costs, expenses, attorneys fees, damages, indemnities and obligations,
known and unknown, fixed or contingent, suspected and unsuspected, disclosed and undisclosed
(Claims), from the beginning of time to the date hereof, including without limitation, Claims
that arose as a consequence of Executives employment with the Company, or arising out of the
termination of such employment relationship, or arising out of any act committed or omitted during
or after the existence of such employment relationship, all up through and including the date on
which this Release is executed, including, but not limited to, Claims which were, could have been,
or could be the subject of an administrative or judicial proceeding filed by Executive or on
Executives behalf under federal, state or local law, whether by statute, regulation, in contract
or tort.
3. Waiver of Civil Code Section 1542. Executive acknowledges that Executive has read and
understands Section 1542 of the California Civil Code which reads as follows: A general release
does not extend to claims which the creditor does not know or suspect to exist in his or her favor
at the time of executing the release, which if known by him or her must have materially affected
his or her settlement with the debtor. Executive hereby expressly waives and relinquishes all
rights and benefits under that section and any law of any jurisdiction of similar effect with
respect to the release of any unknown Claims Executive may have against the Company.
4. Claims Not Covered By Release. Notwithstanding the foregoing, nothing in this Release
shall extend to claims which as a matter of law cannot be waived, such as a right to
indemnification under applicable state law. In addition, nothing in this Release shall constitute
a release by Executive of any claims or damages based on any right Executive may have to enforce
the Companys executory obligations under the Offer Letter and the Option Agreement, any right
Executive may have to vested or earned compensation and benefits, or Executives eligibility for
indemnification under applicable law, Company governance documents, Executives indemnification
agreement with the Company or under any applicable insurance policy with respect to Executives
liability as an employee or officer of the Company.
5. Covenant Not to Sue. On Executives own behalf and on behalf of Executives heirs,
estate and beneficiaries, Executive promises and agrees that Executive will never sue any of the
Released Parties with respect to any Claims covered by the provisions of this Release.
6. Non-Disparagement. On Executives own behalf and on behalf of Executives heirs, estate
and beneficiaries, Executive agrees that Executive will not knowingly make any voluntary
statements, written or verbal, or cause or encourage others to make any such statements, that
defame or disparage the Companys business reputation, practices or conduct; provided, however,
that nothing in this Section 6 will prevent Executive from testifying truthfully if compelled by
legal process to do so. The Company will use
reasonable best efforts to cause its officers and directors not to knowingly make any voluntary,
external statements, written or verbal, or cause or encourage others to make any such statements,
that defame or disparage Executive; provided, however, that nothing in this Section 6 will
prevent such officers and directors from testifying truthfully if compelled by legal process to do
so.
7. ADEA Waiver. If Executive is 40 years of age or older at the time of the termination,
Executive acknowledges that Executive is knowingly and voluntarily waiving and releasing any rights
Executive may have under Age Discrimination in Employment Act of 1967, as amended (ADEA).
Executive also acknowledges that the consideration given under the Offer Letter and Option
Agreement for the release set forth herein is in addition to anything of value to which Executive
was already entitled. Executive further acknowledges that Executive has been advised by this
writing, as required by the ADEA and/or the Older Workers Benefits Protection Act, that: (A)
his/her waiver and release do not apply to any rights or claims that may arise on or after the date
Executive executes this Release; (B) Executive has the right to consult with an attorney prior to
executing this Release; (C) Executive has 21 days to consider this Release (although Executive may
choose to voluntarily execute this Release earlier); (D) Executive has 7 days following the
execution of this Release to revoke the Release; and (E) this Release shall not be effective until
the date upon which the revocation period has expired, which shall be the 8th day after this
Release is executed by Executive, without Executives having given notice of revocation. To be
effective, such revocation must be in writing and received by the Companys General Counsel no
later than 5:00 p.m. Pacific time on the 7th calendar day after this Release is signed by
Executive. Executive acknowledges that no benefits or payments will be due Executive under this
Release agreement until after the revocation period has expired.
8. Miscellaneous. This Release and its terms shall be construed under the laws of the
State of California as applied to agreements between California residents entered into and to be
fully performed within California. To the extent any provision of this Release shall be held
invalid or unenforceable by a court of competent jurisdiction, it shall be considered deleted from
this Release and the remainder of such provision and of this Release shall be unaffected and shall
continue in full force and effect.
Executive further acknowledges that Executive has carefully read this Release, and knows and
understands its contents and its binding legal effect. Executive acknowledges that by signing this
Release, Executive does so of Executives own free will, and that it is Executives intention that
Executive be legally bound by its terms.
ADVENTRX PHARMACEUTICALS, INC. | ||||||
By: | ||||||
Title: | ||||||
Date |
||||||
Date: | ||||||
Exhibit C
Confidential Information, Non-Solicitation and
Invention Assignment Agreement for Employees
Invention Assignment Agreement for Employees
This Confidential Information, Non-Solicitation and Invention Assignment Agreement for
Employees (this Agreement) is made and entered into as of April 3, 2008 by and between ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation (the
Company), and Mark N.K. Bagnall
(Employee).
Unless the context otherwise requires, the term Company shall also include all subsidiaries and
any parent entity of the Company.
Background
Employees employment relationship with the Company is a relationship of confidence and trust
between Employee and the Company.
The Company desires to protect its confidential or proprietary business and technical
information that the Company has acquired or developed and will develop or acquire at substantial
expense.
The Company desires to obtain protection against unfair competition from Employee and against
unauthorized use by Employee of the Companys confidential or proprietary business and technical
information and Employee is willing to grant the Company the benefits of certain rights and
covenant to the Company for these purposes pursuant to this Agreement.
Agreement
In consideration and as a condition of Employees employment by the Company and the
compensation paid therefor, the sufficiency of which is hereby acknowledged, it is hereby agreed as
follows:
1. Confidential Information.
(a) Confidentiality. Except as herein provided, Employee agrees that during and
after termination of Employees employment by the Company, Employee (i) shall keep Confidential
Information (as defined below) confidential and shall not directly or indirectly, use, divulge,
publish or otherwise disclose or allow to be disclosed any aspect of Confidential Information
without the Companys prior written consent; (ii) shall refrain from any action or conduct which
might reasonably or foreseeably be expected to compromise the confidentiality or proprietary
nature of the Confidential Information; and (iii) shall follow recommendations made by the Board
of Directors, officers or managers of the Company from time to time regarding Confidential
Information. The term Confidential Information means Inventions (as defined in Section 2(b)),
trade secrets, confidential information, knowledge or data of the Company, or any of its
clients, customers, consultants, stockholders, licensees, licensors, vendors or affiliates, that
Employee may produce, obtain or otherwise acquire or have access to during the course of
Employees employment by the Company (whether before or after the date of this Agreement),
including, without limitation, business plans, records and affairs; customer files and lists;
special customer matters; sales practices; methods and techniques; merchandising concepts,
strategies and plans; sources of supply and vendors; special business relationships with
vendors, agents, and brokers;
1
promotional materials and information; financial matters; mergers; acquisitions; sale or
license of assets; equipment, technologies and processes; selective personnel matters;
inventions; developments; product specifications; procedures; pricing information; intellectual
property; know-how; technical data; software programs; algorithms; operations and production
costs; processes; designs; formulas; ideas; plans; devices; materials; and other similar matters
which are confidential to the Company. All Confidential Information and all tangible materials
containing Confidential Information are and shall remain the sole property of the Company.
(b) Limitation. Employee shall have no obligation pursuant to this Agreement to
maintain in confidence any Confidential Information that (i) is in the public domain at the time
of disclosure, (ii) though originally Confidential Information, subsequently enters the public
domain other than by breach of Employees obligations hereunder or by breach of another persons
or entitys confidentiality obligations, or (iii) is shown by reasonable evidence to have been
known by Employee prior to disclosure to Employee by the Company.
(c) Former Employer or Contractor Information. Employee agrees that Employee has
not and will not, during the term of Employees employment by the Company, (i) improperly use or
disclose any proprietary information or trade secrets of any former employer or other person or
entity with which Employee has an agreement or duty to keep in confidence information acquired
by Employee, if any, or (ii) bring onto the premises of the Company any document or confidential
or proprietary information belonging to such employer, person or entity unless consented to in
writing by such employer, person or entity. Employee will indemnify the Company and hold it
harmless from and against all claims, liabilities, damages and expenses, including reasonable
attorneys fees and costs of suit, arising out of or in connection with any violation of the
foregoing.
(d) Information of Other Persons or Entities. Employee recognizes that the Company
may have received, and in the future may receive, other persons or entities their confidential
or proprietary information subject to a duty on the Companys part to maintain the
confidentiality of such information and to use it only for certain limited purposes. Employee
agrees that Employee owes the Company and such other persons or entities, during Employees
employment by the Company and thereafter, a duty to hold all such confidential or proprietary
information in the strictest confidence and not to disclose it to any person or firm and to use
it in a manner consistent with, and for the limited purposes permitted by, the Companys
agreement with such other person or entity.
(e) Return of Confidential Material. In the event of termination of Employees
employment by the Company for any reason whatsoever, Employee agrees promptly to surrender and
deliver to the Company all records, materials, equipment, drawings, documents and data of any
nature pertaining to any Confidential Information or to Employees employment by the Company,
and Employee will not retain or take with him or her any tangible materials or electronically
stored data, containing or pertaining to any Confidential Information that Employee may produce,
acquire or obtain access to during the course of Employees employment by the Company.
2
2. Inventions.
(a) Inventions Retained and Licensed. Employee has attached hereto, as Exhibit A,
a list describing all inventions, ideas, improvements, designs and discoveries, whether or not
patentable and whether or not reduced to practice, original works of authorship and trade
secrets made or conceived by or belonging to Employee (whether made solely by Employee or
jointly with others) that (i) were developed by Employee prior to Employees employment by the
Company (collectively, Prior Inventions), (ii) relate to the Companys actual or proposed
business, products or research and development, and (iii) are not assigned to the Company
hereunder; or, if no such list is attached, Employee represents that there are no such Prior
Inventions. Except to the extent set forth on Exhibit A, Employee hereby acknowledges that, if
in the course of Employees employment by the Company, Employee incorporates into a Company
product, process or machine a Prior Invention owned by Employee or in which Employee has an
interest, the Company is hereby granted and shall have a nonexclusive, royalty-free,
irrevocable, perpetual, worldwide right and license to make, have made, modify, use, sell,
sublicense and otherwise distribute such Prior Invention as part of or in connection with such
product, process or machine.
(b) Assignment of Inventions. Except as provided in Section 2(e) hereof, Employee
hereby assigns and transfers to the Company Employees entire right, title and interest in and
to all inventions, ideas, improvements, designs, works made for hire and discoveries (the
Inventions), whether or not patentable and whether or not reduced to practice, made or
conceived by Employee, whether solely by Employee or jointly with others, during the period of
Employees employment by the Company that (i) relate in any manner to the actual or demonstrably
anticipated business, work, or research and development of the Company, its affiliates or its
subsidiaries, (ii) are developed in whole or in part on the Companys time or using the
Companys equipment, supplies, facilities or Confidential Information, or (iii) result from or
are suggested by any task assigned to Employee or any work performed by Employee for or on
behalf of the Company, its affiliates or its subsidiaries, or by the scope of Employees duties
and responsibilities with the Company, its affiliates or its subsidiaries. In the event that
Employee believes that Employee is entitled to ownership, either in whole or in part, of an
Invention pursuant to Section 2(c) hereof, Employee shall notify the Company of such in writing.
Except in such cases as the Chief Executive Officer of the Company confirms in writing that
Employee is entitled to ownership, Employee agrees that all Inventions are the sole property of
the Company; provided, however, that this Agreement does not require assignment
of an Invention that qualifies fully for protection under Section 2870 of the California Labor
Code (attached hereto as Exhibit B). Employee further acknowledges that all original works of
authorship that are made by Employee, solely or jointly with others, within the scope of and
during the period of Employees employment by the Company and that are protectible by copyright
are works made for hire, as defined in the U.S. Copyright Act.
(c) Disclosure of Inventions. Employee agrees that in connection with any
Invention: (i) Employee shall promptly disclose such Invention in writing to the Chief
Executive Officer of the Company (which shall be received in confidence by the Company),
regardless of whether Employee believes the Invention is protected by California Labor Code
Section 2870, in order to permit the Company to claim rights to which it may be entitled
3
under this Agreement; and (ii) Employee shall, at the Companys request, promptly execute a written
assignment of title to the Company for any Invention required to be assigned by Section 2(b) (an
Assignable Invention), and Employee will preserve any such Assignable Invention as
Confidential Information of the Company.
(d) Patent and Copyright Registrations. Employee agrees to assist the Company, or
its designee, at the Companys expense, in every proper way to secure the Companys rights in
the Assignable Inventions and any copyrights, patents, mask work rights or other intellectual
property rights relating thereto in any and all countries, including the disclosure to the
Company of all pertinent information and data with respect thereto, the execution of all
applications, specifications, oaths, assignments and other instruments that the Company shall
deem necessary in order to apply for and obtain such rights and in order to assign and convey to
the Company and its successors, assigns and nominees the sole and exclusive right, title and
interest in and to such Assignable Inventions, and any copyrights, patents or other intellectual
property rights relating thereto. Employee further agrees that Employees obligation to execute
or cause to be executed, when it is in Employees power to do so, any such instrument or papers
shall continue after the termination of Employees employment by the Company. If the Company is
unable because of Employees mental or physical incapacity or for any other reason to secure
Employees signature to apply for or to pursue any application for any U.S. or foreign patents
or copyright registrations covering Assignable Inventions or original works of authorship
assigned to the Company as above, then Employee hereby irrevocably designates and appoints the
Company and its duly authorized officers and agents as Employees agent and attorney-in-fact, to
act for and in Employees behalf and stead to execute and file any such applications and to do
all other lawfully permitted acts to further the prosecution and issuance of letters patent or
copyright registrations thereon with the same legal force and effect as if executed by Employee.
(e) Exception to Assignments. Employee understands that the provisions of this
Agreement requiring assignment of Inventions to the Company may not apply to any Invention that
qualifies fully under the provisions of California Labor Code Section 2870 (attached hereto as
Exhibit B). Nevertheless, Employee shall disclose to the Company promptly in writing, pursuant
to Section 2(c), any Inventions that Employee believes meet the criteria in California Labor
Code Section 2870 and are not otherwise disclosed on Exhibit A.
(f) Other Obligations. Employee acknowledges that the Company from time to time
may have agreements with other persons or with the U.S. Government, or agencies thereof, that
impose obligations or restrictions on the Company regarding Inventions made during the course of
work thereunder or regarding the confidential nature of such work. Employee agrees to be bound
by all such obligations and restrictions and to take all action necessary to discharge the
obligations of the Company thereunder.
3. Conflicting Activities.
(a) Prior Agreements. Employee represents and warrants to the Company that
Employee is not currently subject to a non-competition, confidentiality or other such agreement
with a former employer or any other person or entity which prohibits Employee
4
from entering into any employment relationship with the Company or performing the terms of
this Agreement or which could be breached pursuant to Employees employment by the Company or
performance of the terms of this Agreement.
(b) Conflicting Activities. While employed by the Company, Employee will not work
as an employee of or consultant to any other organization or engage in any other activities
which conflict with Employees obligations to the Company, without the express prior written
approval of the Company; provided, however, that, for clarity, subject to the Companys
Corporate Governance Guidelines, as such may be amended from time to time, Employee may
(without the express prior written approval of the Company) serve on a total of three boards of
directors (whether public or private companies), not including the Companys board of directors.
(c) Non-solicitation. Employee agrees that during the period of Employees service
to the Company and for one year after the date of termination of Employees employment by the
Company, Employee will not (i) induce, solicit, recruit or encourage any employee of or
consultant to the Company to leave the employ of or terminate any relationship with the Company,
or (ii) solicit the business of any client or customer of the Company using any Confidential
Information (other than on behalf of the Company).
4. Notice to Third Persons. If Employees employment by the Company is terminated, Employee hereby
consents to the Company notifying Employees new employer or other entity with which Employee has
an employment or a consulting relationship about Employees rights and obligations under this
Agreement.
5. Conflicts. Employee has not entered into, and Employee agrees that Employee will not enter
into, any oral or written agreement in conflict with the terms of this Agreement.
6. Miscellaneous.
(a) Interview Upon Termination. Employee agrees to meet with representatives of
the Company upon or in connection with the termination of Employees employment by the Company
to discuss Employees obligations under this Agreement.
(b) Equitable Relief. Employee agrees that it would be impossible or inadequate to
measure and calculate the Companys damages from any breach of the covenants set forth in this
Agreement. Accordingly, Employee agrees that if Employee breaches this Agreement, including,
without limitation, the provisions of Section 3(c), the Company will have available, in addition
to any other right or remedy available, the right to obtain an injunction from a court of
competent jurisdiction restraining such breach or threatened breach and to specific performance
of any such provision of this Agreement. Employee further agrees that no bond or other security
shall be required in obtaining such equitable relief and Employee hereby consents to such
injunctions issuance and to the ordering of specific performance. In any legal proceeding
commenced under this Section 6(b), the losing party shall pay the prevailing partys actual
attorneys fees and expenses incurred in the preparation for, conduct of or appeal or
enforcement of judgment from the proceeding. The phrase prevailing party
5
shall mean the party who is determined in the proceeding to have prevailed or who prevails
by dismissal, default or otherwise.
(c) Governing Law; Consent to Personal Jurisdiction. This Agreement will be
governed by the laws of the state of California, without regard to the choice of law provisions
thereof. Employee hereby expressly consents to the personal jurisdiction of the state and
federal courts located in California for any lawsuit arising from or relating to this Agreement.
(d) Entire Agreement. This Agreement sets forth the entire agreement and
understanding between the Company and Employee relating to the subject matter herein and merges
all prior discussions and agreements between the parties with respect that subject matter. No
modification of or amendment to this Agreement, nor any waiver of any rights under this
Agreement, will be effective unless in writing signed by the party to be charged. Any
subsequent change or changes in Employees duties, salary or compensation will not affect the
validity or scope of this Agreement.
(e) Severability. In case any provision of this Agreement shall be found by a
court of law to be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions of this Agreement shall not in any way be affected or impaired
thereby.
(f) Successors and Assigns. The terms and conditions of this Agreement shall inure
to the benefit of and be binding upon Employees heirs, executors, administrators and other
legal representatives and the Companys successors and assigns.
(g) Headings. The descriptive heading contained in this Agreement are included for
convenience or reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(h) Waiver.
(i) No failure on the part of either party to exercise any power, right, privilege
or remedy under this Agreement, and no delay on the part of either party in
exercising any power, right, privilege or remedy under this Agreement, shall operate
as a waiver of such power, right, privilege or remedy; and no single or partial
exercise of any such power, right, privilege or remedy shall preclude any other or
further exercise thereof or of any other power, right, privilege or remedy.
(ii) Neither party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege, condition or remedy under this Agreement,
unless the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such party;
and any such waiver shall not be applicable or have any effect except in the
specific instance in which it is given.
(i) Counterparts. This Agreement may be executed in counterparts. Any signature
page delivered by electronic facsimile shall be binding to the same extent as an original
signature page. Any party who delivers such a signature page agrees to later deliver an
original counterpart to any party who requests it.
6
(j) No Employment Contract. Nothing in this Agreement, shall be construed to
create a contract of employment, either express or implied-in-fact, for any fixed term or
requiring cause for termination.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first
written above.
Employee | ADVENTRX Pharmaceuticals, Inc. | |||||
By: | ||||||
Name: Mark N.K. Bagnall |
||||||
Name: | ||||||
Title: | ||||||
7
EXHIBIT A
LIST OF PRIOR INVENTIONS
Title | Date Developed | Description | ||||||
1. |
||||||||
2. |
||||||||
3. |
||||||||
4. |
||||||||
5. |
||||||||
6. |
Additional sheets attached.
No prior inventions, improvements or works of authorship to disclose.
Employee | ||||
Name:
|
Mark N.K. Bagnall | |||
Date: |
||||
EXHIBIT B
CALIFORNIA LABOR CODE SECTION 2870
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
EMPLOYMENT AGREEMENTS; ASSIGNMENT OF RIGHTS
(a) Any provision in an employment agreement which provides that an employee shall assign, or
offer to assign, any of his or her rights in an invention to the his or her employer shall not
apply to an invention that the employee developed entirely on his or her own time without using the
employers equipment, supplies, facilities, or trade secret information except for those inventions
that either:
(1) Relate at the time of conception or reduction to practice of the invention to the
employers business, or actual or demonstrably anticipated research or development of the employer;
or
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to require an employee to
assign an invention otherwise excluded from being required to be assigned under subdivision (a),
the provision is against the public policy of this state and is unenforceable.
Exhibit 10.5
ADVENTRX Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan
Non-Statutory Stock Option Grant Agreement Director
THIS NON-STATUTORY STOCK OPTION GRANT AGREEMENT- Director (this Agreement), effective as of
, 20___(the Grant Date), is entered into by and between ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation (the Company), and (the Grantee).
1. Grant of Option. The Company hereby grants to the Grantee a non-statutory stock
option (the Option) to purchase
shares of common stock of the Company, par value $0.001
per share (the Shares), at the exercise price of $ per Share (the Exercise Price). The
Option is not intended to qualify as an incentive stock option under Section 422 of the Code.
2. Subject to the Plan. This Agreement is subject to the provisions of the ADVENTRX
Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan (the Plan), and, unless the context requires
otherwise, terms used herein shall have the same meaning as in the Plan. In the event of a
conflict between the provisions of the Plan and this Agreement, the Plan shall control.
3. Term of Option. Unless the Option terminates earlier pursuant to the provisions of
this Agreement, the Option shall expire on the tenth anniversary of the Grant Date.
4. Vesting. The Option shall become vested with respect to 1/12 of the Shares at the
end of each successive month after [the Grant Date] until all of the Shares have vested;
provided, however, that the Grantee is then providing Services.
5. Exercise of Option
(a) Manner of Exercise. To the extent vested, the Option may be exercised, in whole
or in part, by delivering written notice to the Company in accordance with paragraph (g) of Section
8 in such form as the Company may require from time to time. Such notice shall specify the number
of Shares subject to the Option as to which the Option is being exercised, and shall be accompanied
by full payment of the Exercise Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan, except that payment with previously acquired Shares may only be made with
the consent of the Committee. The Option may be exercised only in multiples of whole Shares and no
fractional Shares shall be issued.
(b) Issuance of Shares. Upon exercise of the Option and payment of the Exercise
Price for the Shares as to which the Option is exercised, the Company shall issue to the Grantee
the applicable number of Shares in the form of fully paid and nonassessable Shares.
(c) Capitalization Adjustments. The number of Shares subject to the Option and the
Exercise Price shall be equitably and appropriately adjusted as provided in Section 12.2 of the
Plan.
6. Termination of Option
(a) Termination of Service Other Than Due to Death or Disability. Unless the Option
has earlier terminated, the Option shall terminate in its entirety, regardless of whether the
Option is vested, three (3) years after the date the Grantee ceases to provide Services for any
reason other than the Grantees death or Disability. Except as provided in paragraphs (b) and (c)
of this Section, any portion of the Option that is not vested at the time the Grantee ceases to
provide Services shall immediately terminate.
(b) Death. Upon the Grantees death, unless the Option has earlier terminated, to the
extent the Option is not fully vested the Option shall become fully vested and exercisable. The
Grantees executor or personal representative, the person to whom the Option shall have been
transferred by will or the laws of descent and distribution, or such other permitted transferee, as
the case may be, may exercise the Option in accordance with paragraph (a) of Section 5,
provided such exercise occurs within three (3) years after the date of the Grantees death
or the end of the term of the Option pursuant to Section 3, whichever is earlier.
(c) Disability. In the event that the Grantee ceases to provide Services by reason of
Disability, unless the Option has earlier terminated (i) the Option shall become fully vested and
exercisable and (ii) the Option may be exercised, in accordance with paragraph (a) of Section 5,
provided such exercise occurs within three (3) years after the date of Disability or the
end of the term of the Option pursuant to Section 3, whichever is earlier. For purposes of this
Agreement, Disability shall mean the Grantees becoming disabled within the meaning of Section
22(e)(3) of the Code, or as otherwise determined by the Committee in its discretion. The Committee
may require such proof of Disability as the Committee in its sole and absolute discretion deems
appropriate and the Committees determination as to whether the Grantee has incurred a Disability
shall be final and binding on all parties concerned.
(d) Automatic Extension of Exercise Period. Notwithstanding any provisions of
paragraphs (a), (b) or (c) of this Section to the contrary, if exercise of the Option following
termination of service during the time period set forth in the applicable paragraph or sale during
such period of the Shares acquired on exercise would violate any of the provisions of the federal
securities laws (or any Company policy related thereto), the time period to exercise the Option
shall be extended until the later of (i) forty-five (45) days after the date that the exercise of
the Option and sale of the Shares acquired on exercise would not be a violation of the federal
securities laws (or a related Company policy), or (ii) the end of the time period set forth in the
applicable paragraph.
7. Change in Control.
(a) Effect on Option. In the event of a Change in Control, the Option shall (i) vest
and become exercisable on the day prior to the date of the Change in Control if the Grantee is then
providing Services and (ii) terminate on the date of the Change in Control.
- 2 -
(b) Other Agreement or Plan. The provisions of this Section (including the
definition of Cause), shall be superseded by the specific provisions, if any, of a written service
or, if applicable, employment agreement between the Grantee and the Company, or a severance plan of
the Company covering the Grantee, including a change in control severance agreement or plan, to the
extent such a provision provides a greater benefit to the Grantee.
8. Miscellaneous.
(a) No Rights of Stockholder. The Grantee shall not have any of the rights of a
stockholder with respect to the Shares subject to this Option until such Shares have been issued
upon the due exercise of the Option.
(b) No Registration Rights; No Right to Settle in Cash. The Company has no
obligation to register with any governmental body or organization (including, without limitation,
the U.S. Securities and Exchange Commission (SEC)) any of (a) the offer or issuance of any Award,
(b) any Shares issuable upon the exercise of any Award, or (c) the sale of any Shares issued upon
exercise of any Award, regardless of whether the Company in fact undertakes to register any of the
foregoing. In particular, in the event that any of (x) any offer or issuance of any Award, (y) any
Shares issuable upon exercise of any Award, or (z) the sale of any Shares issued upon exercise of
any Award are not registered with any governmental body or organization (including, without
limitation, the SEC), the Company will not under any circumstance be required to settle its
obligations, if any, under this Plan in cash.
(c) Nontransferability of Option. Except to the extent and under such terms and
conditions as determined by the Committee, the Option shall be nontransferable otherwise than by
will or the laws of descent and distribution, and during the lifetime of the Grantee, the Option
may be exercised only by the Grantee or, during the period the Grantee is under a legal disability,
by the Grantees guardian or legal representative. Notwithstanding the foregoing, the Grantee may,
by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the
Company, designate a third party who, in the event of the Grantees death, shall thereafter be
entitled to exercise the Option.
(d) Severability. If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction, such
provision shall (i) be deemed limited to the extent that such court of competent jurisdiction deems
it lawful, valid and/or enforceable and as so limited shall remain in full force and effect, and
(ii) not affect any other provision of this Agreement or part thereof, each of which shall remain
in full force and effect.
(e) Governing Law. This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of California, other than its conflict of laws principles.
(f) Headings. The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
- 3 -
(g) Notices. All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered or mailed by registered or
certified mail, postage prepaid. Notice by mail shall be deemed delivered on the date on which it
is postmarked.
Notices to the Company should be addressed to:
ADVENTRX Pharmaceuticals, Inc.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Attention: General Counsel
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Attention: General Counsel
Notice to the Grantee should be addressed to the Grantee at the Grantees address as it
appears on the records of the Company or a Subsidiary or a successor company (or a subsidiary or
parent thereof).
The Company or the Grantee may by writing to the other party, designate a different address
for notices.
If the receiving party consents in advance, notice may be transmitted and received via
facsimile or via such other electronic transmission mechanism as may be available to the parties.
Such notices shall be deemed delivered when received.
(h) Agreement Not a Contract. This Agreement (and the grant of the Option) is not an
employment or service contract, and nothing in the Option shall be deemed to create in any way
whatsoever any obligation on Grantees part to continue as an employee or director of or consultant
to the Company or a Subsidiary or a successor company (or a subsidiary or parent thereof), or of
the Company or a Subsidiary or a successor company (or a subsidiary or parent thereof) to continue
Grantees service as such an employee, director or consultant.
(i) Entire Agreement; Modification. This Agreement and the Plan contain the entire
agreement between the parties with respect to the subject matter contained herein and may not be
modified, except as provided in the Plan or in a written document signed by each of the parties
hereto, and may be rescinded only by a written agreement signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Grant Date.
ADVENTRX PHARMACEUTICALS, INC. | ||||||
By: | ||||||
Grantee |
- 4 -
Exhibit 10.6
ADVENTRX Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan
[Non-Statutory] [Incentive] Stock Option Grant Agreement
THIS [NON-STATUTORY] [INCENTIVE] STOCK OPTION GRANT AGREEMENT (this Agreement), effective as
of , 20___(the Grant Date), is entered into by and between ADVENTRX
Pharmaceuticals, Inc., a Delaware corporation (the Company), and (the Grantee).
1. Grant of Option. The Company hereby grants to the Grantee a [non-statutory] stock
option (the Option) to purchase
shares of common stock of the Company, par value $0.001 per share (the Shares), at the exercise price of $ per Share (the Exercise Price). The Option is [not] intended to qualify as an incentive stock option under Section 422 of the Code.
shares of common stock of the Company, par value $0.001 per share (the Shares), at the exercise price of $ per Share (the Exercise Price). The Option is [not] intended to qualify as an incentive stock option under Section 422 of the Code.
2. Subject to the Plan. This Agreement is subject to the provisions of the ADVENTRX
Pharmaceuticals, Inc. 2008 Omnibus Incentive Plan (the Plan), and, unless the context requires
otherwise, terms used herein shall have the same meaning as in the Plan. In the event of a
conflict between the provisions of the Plan and this Agreement, the Plan shall control.
3. Term of Option. Unless the Option terminates earlier pursuant to the provisions of
this Agreement, the Option shall expire on the tenth anniversary of the Grant Date.
4. Vesting. The Option shall become vested with respect to one-fourth of the Shares
on [Month/Day/Year] and as to one forty-eighth of the Shares at the end of each successive month
thereafter until all of the Shares have vested; provided, however, that the Grantee is then
providing Services.
5. Exercise of Option
(a) Manner of Exercise. To the extent vested, the Option may be exercised, in whole
or in part, by delivering written notice to the Company in accordance with paragraph (g) of Section
8 in such form as the Company may require from time to time. Such notice shall specify the number
of Shares subject to the Option as to which the Option is being exercised, and shall be accompanied
by full payment of the Exercise Price of such Shares in a manner permitted under the terms of
Section 5.5 of the Plan, except that payment with previously acquired Shares may only be made with
the consent of the Committee. The Option may be exercised only in multiples of whole Shares and no
fractional Shares shall be issued.
(b) Issuance of Shares. Upon exercise of the Option and payment of the Exercise
Price for the Shares as to which the Option is exercised, the Company shall issue to the Grantee
the applicable number of Shares in the form of fully paid and nonassessable Shares.
(c) Capitalization Adjustments. The number of Shares subject to the Option and the
Exercise Price shall be equitably and appropriately adjusted, if applicable, as provided in Section
12.2 of the Plan.
(d) Withholding. No Shares will be issued on exercise of the Option unless and until
the Grantee pays to the Company, or makes satisfactory arrangements with the Company for payment
of, any federal, state or local taxes required by law to be withheld in respect of the exercise of
the Option. The Grantee hereby agrees that the Company may withhold from the Optionees wages or
other remuneration the applicable taxes. At the discretion of the Company, the applicable taxes
may be withheld in kind from the Shares otherwise deliverable to the Grantee on exercise of the
Option, up to the Grantees minimum required withholding rate or such other rate that will not
trigger a negative accounting impact.
(e) Notice of Disposition. Grantee agrees to notify the Company in writing within
fifteen (15) days after the date of any disposition of any of the Shares issued upon exercise of
the Option that occurs within the later of two (2) years after the Grant Date or within one (1)
year after such Shares are transferred to the Grantee.
6. Termination of Option
(a) Termination of Employment or Service Relationship Other Than Due to Retirement, Death,
Disability or Cause. Unless the Option has earlier terminated, the Option shall terminate in
its entirety, regardless of whether the Option is vested, ninety (90) days after the date the
Grantee ceases to provide Services for any reason other than, as applicable, the Grantees
Retirement, death, Disability or termination for Cause. Except as provided in paragraphs (b), (c)
or (d) of this Section, any portion of the Option that is not vested at the time the Grantee ceases
to provide Services shall immediately terminate.
(b) Retirement. Upon the Retirement of the Grantee, unless the Option has earlier
terminated, the Option shall continue in effect (and, for purposes of vesting pursuant to Section
4, the Grantee shall be deemed to continue to be providing Services) until the earlier of (i) two
(2) years after the Grantees Retirement (or, if later, the fifth anniversary of the Grant Date) or
(ii) the expiration of the Options term pursuant to Section 3. For purposes of this Agreement,
Retirement shall mean termination of the Grantees employment with the Company and its
Subsidiaries, or a successor company (or a subsidiary or parent thereof) and their respective
subsidiaries, other than for Cause (a) if (i) the Grantee is then at least age 60 and (ii) the sum
of the Grantees age and years of continuous service with the Company and its Subsidiaries is then
equal to at least 70 or (b) if the Committee characterizes such termination as a Retirement for
purposes of this Agreement. For clarity, this Section 6(b) shall apply only to Grantees who are
Employees at the time of termination.
(c) Death. Upon the Grantees death, unless the Option has earlier terminated, the
Grantees executor or personal representative, the person to whom the Option shall have been
transferred by will or the laws of descent and distribution, or such other permitted transferee, as
the case may be, may exercise the Option in accordance with paragraph (a) of Section 5, to the
extent vested, provided such exercise occurs within twelve (12) months after the date of
the Grantees death or the end of the term of the Option pursuant to Section 3, whichever is
earlier.
- 2 -
(d) Disability. In the event that the Grantee ceases to provide Services by reason of
Disability, unless the Option has earlier terminated, the Option may be exercised, in accordance
with paragraph (a) of Section 5, to the extent vested, provided such exercise occurs within
six (6) months after the date of Disability or the end of the term of the Option pursuant to
Section 3, whichever is earlier. For purposes of this Agreement, Disability shall mean the
Grantees becoming disabled within the meaning of Section 22(e)(3) of the Code, or as otherwise
determined by the Committee in its discretion. The Committee may require such proof of Disability
as the Committee in its sole and absolute discretion deems appropriate and the Committees
determination as to whether the Grantee has incurred a Disability shall be final and binding on all
parties concerned.
(e) Termination for Cause. Upon termination by the Company or a Subsidiary or a
successor company (or a subsidiary or parent thereof) of the Grantees employment or service
relationship for Cause, unless the Option has earlier terminated, the Option shall immediately
terminate in its entirety and shall thereafter not be exercisable to any extent whatsoever. For
purposes of this Agreement, except as otherwise provided in a written employment or severance
agreement between the Grantee and the Company or a severance plan of the Company covering the
Grantee (including a change in control severance agreement or plan), Cause shall mean: the
commission of any act of fraud, embezzlement or dishonesty by Grantee, any unauthorized use or
disclosure by such person of confidential information or trade secrets of the Company or a
Subsidiary or a successor company (or a subsidiary or parent thereof), or any other intentional
misconduct by such person adversely affecting the business affairs of the Company or a Subsidiary
or a successor company (or a subsidiary or parent thereof) in a material manner.
(f) Automatic Extension of Exercise Period. Notwithstanding any provisions of
paragraphs (a), (b), (c) or (d) of this Section to the contrary, if exercise of the Option
following termination of employment or service during the time period set forth in the applicable
paragraph or sale during such period of the Shares acquired on exercise would violate any of the
provisions of federal securities laws (or any Company policy related thereto), the time period to
exercise the Option shall be extended until the later of (i) forty-five (45) days after the date
that the exercise of the Option and sale of the Shares acquired on exercise would not be a
violation of federal securities laws (or a related Company policy), or (ii) the end of the time
period set forth in the applicable paragraph.
7. Change in Control.
(a) Effect on Option. In the event of a Change in Control, to the extent the
successor company (or a subsidiary or parent thereof) does not assume or substitute for the Option
on substantially the same terms and conditions (which may include settlement in the common stock of
the successor company (or a subsidiary or parent thereof)), the Option shall (i) vest and become
exercisable on the day prior to the date of the Change in Control if the Grantee (A) is then
providing Services or (B) was terminated without Cause as an Employee, Consultant or Director in
connection with or in contemplation of the Change in Control and (ii) terminate on the date of the
Change in Control. In the event of a Change in Control and solely if the Grantee was an Employee
on the date of the Change of Control and is an Employee on the date of termination (as contemplated
below), in both cases regardless of whether the Grantee was also a
- 3 -
Director on such dates, to the extent the successor company (or a subsidiary or parent
thereof) assumes or substitutes for the Option on substantially the same terms and conditions
(which may include providing for settlement in the common stock of the successor company (or a
subsidiary or parent thereof)), if within 24 months following the date of the Change in Control the
Grantees employment is terminated by the Company or a Subsidiary or the successor company (or a
subsidiary or parent thereof) without Cause or by the Grantee for Good Reason, the Option shall
become fully vested and exercisable, and may be exercised by the Grantee at any time until the
tenth anniversary of the Grant Date.
(b) Good Reason. For purposes of this Agreement, except as otherwise provided in
paragraph (c) of this Section, Good Reason shall mean, in each case without Grantees explicit
written consent, which Grantee may withhold or provide in Grantees sole and absolute discretion,
(i) a reduction by the Company or a Subsidiary or a successor company (or a subsidiary or parent
thereof) of more than 10% in Grantees rate of annual base salary as in effect immediately prior to
such Change in Control; (ii) a reduction by the Company or a Subsidiary or a successor company (or
a subsidiary or parent thereof) of more than 10% of Grantees individual annual target or bonus
opportunity, except under circumstances where the Company or the Subsidiary or the successor
company (or a subsidiary or parent thereof) implement changes to the bonus structure of similarly
situated employees, including but not limited to changes to the bonus structure designed to
integrate the Companys or the Subsidiarys personnel with other personnel of the successor company
(or a subsidiary or parent thereof); (iii) a change in position that materially reduces Grantees
level of responsibility, including the level of person to whom Grantee reports; or (iv) a
relocation (A) of more than 50 miles from Participants primary office location at the time of the
Change in Control or (B) that would reasonably be expected to increase Grantees commute such that
Grantees commute would reasonably be expected to be more than a total of 1.5 hours per day.
(c) Other Agreement or Plan. The provisions of this Section (including the
definitions of Cause and Good Reason), shall be superseded by the specific provisions, if any, of a
written employment or severance or service agreement between the Grantee and the Company or a
severance plan of the Company covering the Grantee, including a change in control severance
agreement or plan, to the extent such a provision provides a greater benefit to the Grantee.
8. Miscellaneous.
(a) No Rights of Stockholder. The Grantee shall not have any of the rights of a
stockholder with respect to the Shares subject to this Option until such Shares have been issued
upon the due exercise of the Option.
(b) No Registration Rights; No Right to Settle in Cash. The Company has no obligation
to register with any governmental body or organization (including, without limitation, the U.S.
Securities and Exchange Commission (SEC)) any of (a) the offer or issuance of any Award, (b) any
Shares issuable upon the exercise of any Award, or (c) the sale of any Shares issued upon exercise
of any Award, regardless of whether the Company in fact undertakes to register any of the
foregoing. In particular, in the event that any of (x) any offer or issuance of any Award, (y) any
Shares issuable upon exercise of any Award, or (z) the sale of any Shares issued upon
- 4 -
exercise of any Award are not registered with any governmental body or organization
(including, without limitation, the SEC), the Company will not under any circumstance be required
to settle its obligations, if any, under this Plan in cash.
(c) Nontransferability of Option. [For use only with NSOs:] [Except to the
extent and under such terms and conditions as determined by the Committee, the] [For use only
with ISOs:] [The] Option shall be nontransferable otherwise than by will or the laws of descent
and distribution, and during the lifetime of the Grantee, the Option may be exercised only by the
Grantee or, during the period the Grantee is under a legal disability, by the Grantees guardian or
legal representative. Notwithstanding the foregoing, the Grantee may, by delivering written notice
to the Company, in a form provided by or otherwise satisfactory to the Company, designate a third
party who, in the event of the Grantees death, shall thereafter be entitled to exercise the
Option.
(d) Severability. If any provision of this Agreement shall be held unlawful or
otherwise invalid or unenforceable in whole or in part by a court of competent jurisdiction, such
provision shall (i) be deemed limited to the extent that such court of competent jurisdiction deems
it lawful, valid and/or enforceable and as so limited shall remain in full force and effect, and
(ii) not affect any other provision of this Agreement or part thereof, each of which shall remain
in full force and effect.
(e) Governing Law. This Agreement shall be governed by, and interpreted in accordance
with, the laws of the State of California, other than its conflict of laws principles.
(f) Headings. The headings in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.
(g) Notices. All notices required or permitted under this Agreement shall be in
writing and shall be sufficiently made or given if hand delivered or mailed by registered or
certified mail, postage prepaid. Notice by mail shall be deemed delivered on the date on which it
is postmarked.
Notices to the Company should be addressed to:
ADVENTRX Pharmaceuticals, Inc.
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Attention: General Counsel
6725 Mesa Ridge Road, Suite 100
San Diego, CA 92121
Attention: General Counsel
Notice to the Grantee should be addressed to the Grantee at the Grantees address as it
appears on the records of the Company or a Subsidiary or a successor company (or a subsidiary or
parent thereof).
The Company or the Grantee may by writing to the other party, designate a different address
for notices. If the receiving party consents in advance, notice may be transmitted and
- 5 -
received via facsimile or via such other electronic transmission mechanism as may be available
to the parties. Such notices shall be deemed delivered when received.
(h) Agreement Not a Contract. This Agreement (and the grant of the Option) is not an
employment or service contract, and nothing in the Option shall be deemed to create in any way
whatsoever any obligation on Grantees part to continue as an employee or director of or consultant
to the Company or a Subsidiary or a successor company (or a subsidiary or parent thereof), or of
the Company or a Subsidiary or a successor company (or a subsidiary or parent thereof) to continue
Grantees service as such an employee, director or consultant.
(i) Entire Agreement; Modification. This Agreement and the Plan contain the entire
agreement between the parties with respect to the subject matter contained herein and may not be
modified, except as provided in the Plan or in a written document signed by each of the parties
hereto, and may be rescinded only by a written agreement signed by both parties.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Grant Date.
ADVENTRX PHARMACEUTICALS, INC. | ||||||
By: | ||||||
Grantee |
- 6 -
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Evan M. Levine, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 11, 2008 |
||||
/s/ Evan M. Levine
|
||||
Evan M. Levine | ||||
Chief Executive Officer and President | ||||
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark N.K. Bagnall, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q of ADVENTRX Pharmaceuticals, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c. | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d. | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: August 11, 2008 |
||||
/s/ Mark N.K. Bagnall
|
||||
Mark N.K. Bagnall | ||||
Chief Financial Officer and Executive Vice President | ||||
(Principal Financial and Accounting Officer) |
Exhibit 32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant
To
To
Section 906 of The Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form
10-Q for the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Evan M. Levine, Chief Executive Officer and President of the
Company, certify for the purposes of section 1350 of chapter 63 of title 18 of the United States
Code that, to the best of my knowledge,
(i) the Report fully complies with the requirements of section 13(a) of the Securities
Exchange Act of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: August 11, 2008 |
||||
/s/ Evan M. Levine
|
||||
Evan M. Levine | ||||
Chief Executive Officer and President |
In connection with the Quarterly Report of ADVENTRX Pharmaceuticals, Inc. (the Company) on Form
10-Q for the quarter ended June 30, 2008, as filed with the Securities and Exchange Commission on
the date hereof (the Report), I, Mark N.K. Bagnall, Chief Financial Officer and Executive Vice
President of the Company, certify for the purposes of section 1350 of chapter 63 of title 18 of the
United States Code that, to the best of my knowledge,
(i) the fully complies with the requirements of section 13(a) of the Securities Exchange Act
of 1934, and
(ii) the information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
Date: August 11, 2008 |
||||
/s/ Mark N.K. Bagnall
|
||||
Mark N.K. Bagnall | ||||
Chief Financial Officer and Executive Vice President |