-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BWY7pmbLivKRceAd/zNtx3oiz/Hfidd/SIuYneIZzVW/LN+NzzSm/IkHyGv3cV2Y A1XMCrX7ayF7CQwhGRJZ/A== 0000950109-96-001807.txt : 19960329 0000950109-96-001807.hdr.sgml : 19960329 ACCESSION NUMBER: 0000950109-96-001807 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CYTOGEN CORP CENTRAL INDEX KEY: 0000725058 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 222322400 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14879 FILM NUMBER: 96539691 BUSINESS ADDRESS: STREET 1: 600 COLLEGE RD EAST CN 5308 CITY: PRINCETON STATE: NJ ZIP: 08540 BUSINESS PHONE: 6099878200 MAIL ADDRESS: STREET 1: 600 COLLEGE RD EAST CN 5308 STREET 2: 600 COLLEGE RD EAST CN 5308 CITY: PRINCETON STATE: NJ ZIP: 08540 10-K 1 FORM 10-K - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-14879 CYTOGEN CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 22-2322400 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 600 COLLEGE ROAD EAST, 08540-5308 CN5308, (ZIP CODE) PRINCETON, NEW JERSEY (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (609) 987-8200. SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE (TITLE OF CLASS) WARRANTS TO PURCHASE ONE SHARE OF COMMON STOCK, $.01 PAR VALUE, OF REGISTRANT (TITLE OF CLASS) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the registrant's 40,579,729 shares of Common Stock held by non-affiliates of the registrant on February 22, 1996, based on $7.4375 per share, the last reported sale price on the NASDAQ National Market on that date, was $301,811,734. The number of shares of Common Stock outstanding as of February 22, 1996 was 46,881,707 shares. DOCUMENTS INCORPORATED BY REFERENCE
FORM 10-K DOCUMENT PART -------- --------- Portions of the definitive Proxy Statement with III respect to the 1996 Annual Meeting of Stock- holders (hereinafter referred to as the "Proxy Statement"), but specifically excluding the sections titled "Compensation Committee Report on Executive Compensation" and "Performance Graph", which shall not be deemed to be incor- porated by reference herein.
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS GENERAL CYTOGEN Corporation ("CYTOGEN" or the "Company"), a Delaware corporation, is a biopharmaceutical company engaged in the discovery, development, manufacture and marketing of products to better diagnose and treat cancer and other related immunologic diseases. The Company's current portfolio of products provides the targeted delivery of diagnostic and therapeutic substances directly to the sites of disease, as well as cellular therapies for the treatment of cancer and infectious diseases. The Company's business objective is to use patented and proprietary technologies to develop specific in vivo cancer diagnostic imaging agents and targeted therapeutic products that respond to unmet medical needs and can benefit patients with cancer and other diseases. Its wholly-owned subsidiary, Cellcor, Inc. ("Cellcor"), a Delaware corporation, is a biotechnology company. As used herein, the term "Company" may mean CYTOGEN and its wholly-owned subsidiary, taken as a whole, where appropriate. Currently, the Company's highest priority products and technology are: (i) OncoScint(R) CR/OV, CYTOGEN's monoclonal antibody-based diagnostic imaging agent for colorectal and ovarian cancer, which has been approved by the U.S. Food and Drug Administration ("FDA") for both single and repeat administration (see "Cancer Diagnostic Imaging Products--OncoScint CR/OV"); (ii) ProstaScint(TM), a prostate cancer diagnostic imaging product, for which a Product License Application ("PLA") was accepted as filed by FDA in March 1995 (see "Cancer Diagnostic Imaging Products--ProstaScint"); (iii) Quadramet(TM), also referred to by its chemical name, Samarium 153 EDTMP, a cancer therapy agent for the treatment of bone pain associated with bone metastases, for which a New Drug Application ("NDA") was accepted as filed by FDA in August 1995 (see "Cancer Therapeutic Products--Quadramet"); (iv) the Genetic Diversity Library ("GDL") technology involving peptides that have potentially significant commercial applications in the rapid screening of drug candidates, in basic drug discovery programs, in in vitro diagnostics, as peptide-based therapeutics, and in the discovery of synthetic genes or "SynGenes" (see "Research and Development--Genetic Diversity Library Technology-- TSARs\SynGenes"); and (v) the autolymphocyte therapy ("ALT"), developed by Cellcor for the treatment of advanced metastatic renal cell carcinoma ("mRCC"), which is in late Phase III development (see "Cancer Therapeutic Products--ALT Therapy for mRCC"). The Company is continuing to evaluate, invest in and support the sales and marketing activities with respect to OncoScint CR/OV, as well as the potential marketing of ProstaScint and other technically-sophisticated tumor imaging agents. See "Marketing and Sales--OncoScint CR/OV". The Company has also assigned high priority to the product development and commercialization programs for ProstaScint, Quadramet and ALT for the treatment of mRCC. The Company's strategic plan calls for expanding the Company's current product portfolio through the continued in-licensing of additional products and related technologies, such as Quadramet, and the acquisition of other companies with related or complementary products, technologies and/or services, such as Cellcor. No prediction can be made, however, as to when or whether CYTOGEN can accomplish this objective or whether accomplishment of the objective will lead to new commercially-viable products or technologies. In addition, CYTOGEN has committed additional resources to its GDL technology, which, as a result of patent filings and development trends, was previously referred to as the Totally Synthetic Affinity Reagents SynGenes ("TSARs\SynGenes") program. This program involves long peptides that have the ability to recognize and bind to specific target sites in the human body. CYTOGEN believes that the ability of these compounds to bind to predetermined sites may mediate certain diagnostic or therapeutic effects more effectively than other existing products. CYTOGEN is pursuing corporate alliances and basic research and development agreements in order to potentially validate and partially fund the GDL technology programs. While several initial research alliances were formed in 1995, there can be no assurance that these alliances will be successful or that 2 CYTOGEN will be successful in establishing such alliances and agreements in the future. See "Research and Development--Genetic Diversity Library Technology--TSARs\SynGenes". The Company neither makes public forecasts regarding the timing or outcome of FDA-related activities nor makes public predictions regarding the timing of marketing partnerships. No assurance can be given regarding FDA approval or the successful establishment of marketing agreements. CANCER DIAGNOSTIC IMAGING PRODUCTS Overview. Currently, the cancer diagnostic imaging products consist of CYTOGEN's monoclonal antibody-based imaging agents for colorectal, ovarian, prostate, and breast cancers. The Company's imaging products utilize CYTOGEN's proprietary targeted delivery system, employing whole monoclonal antibodies, to deliver the diagnostic radioisotope indium-111 to malignant tumor sites. The imaging products are supplied to hospitals and central radiopharmacies without the radioisotope. Prior to patient administration, the radioisotope is attached by the radiopharmacist using a simple liquid transfer procedure developed by CYTOGEN. During an imaging procedure, the radiolabeled monoclonal antibody product is injected into the patient. The antibody travels through the body seeking out and binding to tumor sites. The radioactivity from the isotope that has been attached to the antibody can be detected from outside the body by a gamma camera. The resultant image identifies the existence, location and extent of disease in the body. Based on clinical studies conducted to date by physicians on behalf of CYTOGEN, the imaging agents have the potential to provide new and useful information not available from other diagnostic modalities regarding the existence, location and extent of the disease (and particularly occult disease not detected by other methods) throughout the body. CYTOGEN believes that this information has the potential to impact the way physicians manage their patients' individual treatments. CYTOGEN also believes that, because its products use a very low dose of one milligram or less of antibody conjugate per administration, the products have the additional advantages of low manufacturing cost and ease of administration. OncoScint CR/OV. OncoScint CR/OV was approved by FDA in the U.S. in December 1992. This product was approved for single use with other appropriate, commercially available diagnostic tests, including but not exclusive to Computerized Tomography (CT) and Magnetic Resonance Imaging (MRI), to locate malignancies outside the liver in patients with known colorectal or ovarian cancer. Prior to receipt of FDA approval, CYTOGEN had completed additional clinical trials which supported repeat administration of the product, and submitted that data to FDA. In November 1995, FDA approved this expanded indication allowing for repeat administration of Oncoscint CR/OV. Repeat administration is an important next step for OncoScint, and may lead to a modest increase in sales. See "Marketing and Sales--OncoScint CR/OV." With respect to Europe, this data was also submitted to the Committee for Proprietary Medicinal Products (the "CPMP"), which had approved OncoScint for colorectal cancer in 1991. In December 1993, OncoScint CR/OV received CPMP approval for repeat administration and ovarian cancer indications. Individual member country approvals are required before marketing under these new indications can be commenced. OncoScint CR/OV is now approved for sale in eight Western European countries and four Eastern European countries. Currently, OncoScint CR/OV is being marketed in the U.S. by CYTOGEN. While the product has technically performed as predicted in clinical applications, OncoScint CR/OV has achieved very limited sales, and negligible sales growth, in both the U.S. and European markets since its introduction. As a result, in 1994, the Company re-evaluated its relationships with its U.S. and European distributors. CYTOGEN reacquired the U.S. marketing rights ("U.S. Rights") for the product from Knoll Pharmaceutical Company ("Knoll") in November 1994. See "Marketing and Sales--Knoll Pharmaceutical". CYTOGEN also reacquired the European marketing rights for OncoScint CR/OV from Chiron B.V., formerly EuroCetus B.V., successor in interest to EuroCetus International, N.V. ("Chiron") in February 1995. In December 1995 and January 1996, CYTOGEN signed agreements with Faulding (Canada) Inc. ("Faulding") and CIS biointernational ("CISbio"), respectively, for the marketing of Oncoscint CR/OV outside the U.S. See "Marketing and Sales--Faulding" and "CIS biointernational." 3 Because CYTOGEN is the first sponsor to obtain FDA marketing approval for a monoclonal antibody-based ovarian cancer imaging product that has been designated as an orphan drug by FDA, CYTOGEN is entitled to certain exclusive marketing rights with respect to the product. See "Government Regulation and Product Testing--Orphan Drug Act." The breast cancer clinical development program, which involves the use of OncoScint CR/OV to determine whether the cancer has spread to the lymph nodes (i.e., beyond the primary tumor), was initiated in May 1995 as a result of positive findings published by the Instituto Nazionale Tumori in Milan, Italy, and is currently in a Phase II human clinical trial. ProstaScint. ProstaScint is a monoclonal antibody that is being developed as a radiolabeled imaging agent to detect the presence and extent of prostate cancer. The antibody utilized in ProstaScint was exclusively licensed to CYTOGEN by Dr. Julius Horosziewicz. The product has been studied in three different indications: presurgical, occult and repeat administration. The Phase III clinical program for ProstaScint was completed in 1994 and the PLA was filed by FDA in March 1995. CYTOGEN is pursuing a co-marketing partner for ProstaScint in the U.S. and is also seeking international marketing alliances for the product. CANCER THERAPEUTIC PRODUCTS Quadramet. Quadramet has been developed as a treatment for the pain associated with bone metastases, a condition that occurs when cancer originates in or spreads to the bone. The clinical development program for Quadramet was completed in the first half of 1995. The Quadramet NDA was filed by FDA in August 1995. CYTOGEN entered into an exclusive license agreement for the U.S. rights to Quadramet from The Dow Chemical Company in March 1993 and assumed responsibility for the development and commercialization of the product at that time. See Note 7 to the Consolidated Financial Statements. In December 1994, CYTOGEN granted to The DuPont Merck Pharmaceutical Company ("DuPont Merck") an exclusive sub-license with respect to CYTOGEN's rights to Quadramet. See "Marketing and Sales--Quadramet". ALT Treatment for mRCC. ALT treatment for mRCC is a proprietary immunotherapy which uses a patient's own white blood cells to augment his or her immune system and thereby treat cancer and certain infectious diseases. In October 1995, patient accrual for the Phase III pivotal clinical trial which involves 203 patients, was completed. The Company expects that the study will conclude in the fourth quarter of 1996. If results from the trial are favorable and FDA concurs, the Company expects to proceed with the submission of a PLA in the first half of 1997. In September of 1995, FDA approved a Treatment IND for the ALT treatment of mRCC, which makes ALT available as a treatment option to patients with mRCC who are not able to participate in ALT clinical trials. The Treatment IND also allows Cellcor to recover costs associated with the treatment. Cellcor is also conducting a Phase III human clinical study in post-surgical patients with non-metastatic kidney cancer with high risk of recurring disease. This study examines the effect of ALT in delaying progression to metastatic disease. This study, which was conducted at 13 sites, completed patient accrual in 1995 and the patients are being followed for survival status. A final analysis of this study is expected to be available in late 1996. ALT is also in Phase I/II development as a treatment for hepatitis B. No prediction can be made, however, as to whether or when such trials will lead to new commercial products. See "Cellcor". Cellcor is actively pursuing development and marketing collaborations in the U.S. and Europe. No assurance can be given regarding the timing or success in developing such collaborations. Antibody-Based Cancer Therapeutics. CYTOGEN's efforts to develop antibody- based, cancer therapeutics are currently limited to prostate therapy. This product utilizes technology similar to the Company's diagnostic products. However, in the therapeutic product, the substance linked to the antibody is a radioisotope that destroys tumor cells. 4 The therapeutic radioisotope that CYTOGEN uses, yttrium-90, is chemically attached to the monoclonal antibody using CYTOGEN's proprietary technology. It is intended that the therapy product will be supplied to radiopharmacies without the radioisotope, which will be attached by the radiopharmacist using a simple procedure developed by CYTOGEN. The prostate therapy product is in a Phase II trial to determine the product's efficacy in patients with early evidence of disease recurrence after radical prostatectomy. Development of the ovarian therapy product, which completed Phase II clinical trials, has been discontinued due to limited patient response to justify further support of the product. RESEARCH AND DEVELOPMENT Genetic Diversity Library (GDL) Technology--TSARs\SynGenes. Long-term research, much of which is preliminary, is being conducted by CYTOGEN on the GDL technology, formerly referred to as TSARs\SynGenes. The GDL program consists of research on long peptides that have the potential to take on 3- dimensional structures. These peptides, which are biologically produced, create vast, highly diverse compound libraries. Unlike conventional small molecule drugs or short peptides, long peptides can act like proteins and can fold to take on very precise biological functions such as specific recognition units ("RUs"). Depending upon the application, these RUs can act as receptors, as targeting agents, or ligands for biological receptors. In certain applications, instead of administering the RU, it is more advantageous to administer the synthetic gene ("SynGene") which encodes for the RU. Such SynGene programs are at an early stage of pre-clinical development. Additionally, CYTOGEN believes its GDL technology can serve as a complementary and enabling technology to support advances in combinatorial chemistry. Combinatorial chemistry, which allows for much more rapid synthesis of new compounds is currently hampered by the lack of equally rapid screening methods that can begin to characterize each compound's potential therapeutic value. Currently, CYTOGEN is working, independently and in collaboration with others, to develop this technology into several potential commercial applications: in the rapid screening of drug candidates; in basic drug discovery and the development of peptide therapeutics; in in vitro diagnostics; and in the discovery of SynGenes. CYTOGEN is the exclusive licensee of certain patent applications and technology owned by the University of North Carolina at Chapel Hill covering the GDL technology. CYTOGEN has filed patent applications in the U.S. and certain foreign countries with respect to its GDL technology. While a significant amount of basic research on the GDL technology has been done by CYTOGEN, this technology is at an earlier stage of development than the technology underlying the monoclonal antibody-based products described above. CYTOGEN is actively pursuing corporate alliances and basic research agreements to support and advance the GDL technology toward commercialization. In December 1995, CYTOGEN and Elan Corporation, plc ("Elan") established a collaborative research and development program to develop orally-administered products using CYTOGEN's GDL technology and Elan's drug delivery system technology. See "Limited Field of Use License Agreements--Elan" and Note 3 to the Consolidated Financial Statements. Two additional collaborations are also underway: the first, is in support of in vitro diagnostics and the second involves the pre-clinical evaluation of certain monoclonal antibodies and corresponding GDL-derived peptides which may lead to the identification of novel immunotherapies for cancer. No assurances can be given regarding the success or timing of these or future research and development programs. PSM. In 1993, CYTOGEN and Memorial Sloan-Kettering Cancer Center ("MSKCC") began a development program involving the prostate specific membrane antigen ("PSM") and CYTOGEN's prostate cancer monoclonal antibody, CYT-351. CYTOGEN holds an exclusive option for an exclusive license under certain patent applications and technology held by MSKCC relating to PSM. Additionally, CYTOGEN is actively seeking license and development agreements to support the PSM program. However, no assurances can be given regarding the success or timing of these efforts. Other Applications. CYTOGEN believes that certain of the technologies it is developing may have medical applications in various other areas, including autoimmune disorders and infectious diseases. The 5 Company intends to expand the research and development of these technologies primarily through strategic alliances with other entities. No predictions can be made regarding the establishment nor the timing of such alliances. The Company expects to devote resources to these other areas to the extent funding is available. No prediction can be made, however, as to when or whether the areas of research described above will yield new scientific discoveries, or whether such research will lead to new commercial products. RESEARCH AND DEVELOPMENT FUNDING Research and development expenditures recorded by the Company include projects conducted by the Company and payments made to sponsored research programs and consultants. CYTOGEN's expenses for its research and development activities (including customer sponsored programs) were $22.6 million, $20.3 million and $24.8 million in fiscal years 1995, 1994, and 1993, respectively. These expenses principally reflect product development efforts and support for various ongoing clinical trials. Research and development expenditures for customer sponsored programs, including CytoRad, were $200,000, $29,000 and $9,112,000 in fiscal years 1995, 1994, and 1993, respectively. MARKETING AND SALES OncoScint CR/OV. Promotion of OncoScint CR/OV involves several different physician audiences, including those who refer patients for imaging procedures as well as those who obtain and interpret the image. Referring physicians are likely to be surgeons and oncologists. Imaging physicians are nuclear medicine specialists and those diagnostic radiologists who have sub-specialty training in nuclear medicine. After receipt of FDA approval in May 1993 of CYTOGEN's marketing materials for OncoScint CR/OV, CYTOGEN began its marketing in the U.S. through its own specialty sales force with an expertise in nuclear medicine, and through a co-promotion arrangement with Knoll, which agreement was terminated in 1994. See "Knoll Pharmaceutical". Since May 1994, CYTOGEN has been the sole marketer of OncoScint CR/OV in the U.S. In 1989, Chiron was granted exclusive marketing and distribution rights in Europe for OncoScint CR/OV, which rights were reacquired in 1995 by the Company under the terms of a disengagement agreement (the "Disengagement Agreement"). See "Chiron B.V." In December 1995 and January 1996, CYTOGEN signed two marketing agreements for Oncoscint CR/OV outside of the U.S. with Faulding and CISbio. See "Faulding (Canada) Inc." and "CIS biointernational." OncoScint CR/OV is a "technique-dependent" product that requires a high degree of proficiency in nuclear imaging, as well as a thorough appreciation of the information the scan can provide. The Company believes that this information regarding the existence, location and extent of disease has the potential to impact a physician's ability to make appropriate patient management decisions. The potential for OncoScint to reduce the number of unnecessary surgeries and the costs associated with such surgery are seen as significant benefits in today's cost-conscious "managed health care" settings. CYTOGEN believes that sales of OncoScint CR/OV may be modestly increased because of the approval of repeat administration (described below), implementation of better quality control at the time the image is actually acquired, and through greater assistance with the interpretation of the scans. The Company is in the process of establishing a network of qualified nuclear medicine physicians through its Partners in Excellence, or PIE(TM) Program (the "PIE Program"). The PIE Program includes rigorous training, testing, and ongoing quality assurance protocols with active support and certification in conjunction with the American College of Nuclear Physicians (ACNP). This program is being further developed in preparation for the launch of the Company's prostate cancer imaging agent, ProstaScint. CYTOGEN is also exploring the use of teleradiology to support the PIE Program in order to allow for improvement of the acquisition and interpretation of both OncoScint CR/OV and ProstaScint scans. Teleradiology can provide immediate, two-way communications by linking an imaging center with an off-site imaging specialist. The use of teleradiology has advanced due to improvements in related computer and telecommunication technologies. 6 The Company is also exploring whether other companies with comparable technique-dependent products would like to take advantage of the PIE Program, which would allow allocation of the marketing and sales costs over a number of different products. While there has been a great deal of interest in the PIE Program from other companies, there can be no assurance that CYTOGEN can attract other products to the PIE Program, that the Company's marketing strategy will be successful, or that product related revenues will increase markedly. In November 1995, CYTOGEN announced that FDA approved the Company's PLA supplement, expanding the approved indications for OncoScint CR/OV to include repeat administration of the product. The initial FDA approval received in December 1992 limited the product to a single administration indication. The approved supplement extends the prior indication to include readministration of OncoScint CR/OV to human anti-mouse antibody ("HAMA")-negative patients who are at risk of recurrence of their cancer. HAMA formation represents an immune response experienced by some patients when injected with a mouse-derived antibody that may affect the effectiveness of the product. Knoll Pharmaceutical. In November 1994, CYTOGEN executed a termination agreement (the "Termination Agreement") with Knoll. Pursuant to the Termination Agreement, CYTOGEN has reacquired from Knoll all U.S. Rights to OncoScint CR/OV, which were previously granted to Knoll pursuant to a License, Supply and Marketing Agreement dated December 19, 1991 (the "Knoll Agreement"). See Note 6 to the Consolidated Financial Statements. Under the terms of the Knoll Agreement, in fiscal years 1994 and 1993, the Company incurred $412,000 and $5.1 million, respectively, in co-promotion expenses, and recognized $430,000 and $977,000 in co-promotion revenues. In each of those fiscal years, the Company also recognized revenues from the supply of commercial product to Knoll by the Company. Chiron B.V. On December 30, 1994, CYTOGEN entered into the Disengagement Agreement with Chiron. Pursuant to a Distribution and License Agreement dated as of October 21, 1989, as amended, CYTOGEN granted to Chiron exclusive marketing and distribution rights in Europe (the "European Rights") to OncoScint CR/OV. Under the Disengagement Agreement, CYTOGEN reacquired the European Rights and purchased certain business assets relating to the European Rights, including existing approvals by the appropriate regulatory authorities to market OncoScint CR/OV in twelve countries in Europe. This reacquisition was consummated on February 16, 1995. See Note 11 to the Consolidated Financial Statements. The Company recognized contract and product related revenues from Chiron of $3,000, $162,000 and $164,000 in fiscal years 1995, 1994 and 1993, respectively. Faulding. In December 1995, CYTOGEN entered into a distribution agreement (the "Faulding Agreement") with Faulding (Canada) Inc. ("Faulding") granting to Faulding the exclusive right to distribute and sell OncoScint CR/OV in Canada. Faulding is currently pursuing the necessary regulatory approvals to market the product in Canada. Pursuant to the terms of the Faulding Agreement, in addition to an up-front cash payment made upon executing the Faulding Agreement, Faulding is required to make an additional payment to CYTOGEN upon the receipt of certain regulatory approvals. The Faulding Agreement also provides for payments for minimum annual purchases of OncoScint CR/OV by Faulding, and for certain royalties based upon net sales, if any, of OncoScint CR/OV by Faulding. The initial term of the Faulding Agreement is seven years. CIS biointernational. In January 1996, CYTOGEN entered into a distribution agreement (the "CISbio Agreement") with CISbio, granting to CISbio the exclusive right to distribute and sell OncoScint CR/OV in all the countries of the world, except for the U.S. and Canada. CISbio has advised CYTOGEN that it expects to re-launch OncoScint CR/OV in eight Western European and four Eastern European countries where the product is approved for marketing, during 1996, and, pursuant to the terms of the CISbio Agreement, CISbio is required to obtain the necessary regulatory approvals in an additional twenty-two countries. Pursuant to the terms of the CISbio Agreement, in addition to an up-front cash payment made upon executing the CISbio Agreement, CISbio is required to make an additional payment to CYTOGEN upon the achievement of a specified marketing milestone. The CISbio Agreement also provides for minimum annual purchases of the components of OncoScint CR/OV by CISbio, and for certain royalties based upon net sales, if any, of OncoScint CR/OV by CISbio. The initial term of the CISbio Agreement is seven years following the first commercial sale of the product by CISbio. 7 QUADRAMET DuPont Merck. On December 20, 1994, CYTOGEN entered into a license agreement (the "DP/Merck Agreement") with DuPont Merck. Under the terms of the DP/Merck Agreement, CYTOGEN granted to DuPont Merck an exclusive sub-license with respect to CYTOGEN's rights to Quadramet pursuant to which DuPont Merck will have responsibility for manufacturing and marketing Quadramet in the U.S., if and when approved for marketing by FDA. The Company has retained the right to co-promote the product to nuclear medicine specialists. See "Cancer Therapeutic Products--Quadramet" and Note 4 to the Consolidated Financial Statements. The DP/Merck Agreement provides that CYTOGEN receives from DuPont Merck up- front fees and milestone payments consisting of: (i) $1.0 million upon execution of the DP/Merck Agreement, which has been paid to CYTOGEN; (ii) $4.0 million from the sale to DuPont Merck of 908,265 shares of CYTOGEN common stock within 20 days of the execution of the DP/Merck Agreement, which sale has occurred, (iii) $4.25 million to fund additional clinical programs to expand the use and marketing of Quadramet, of which $1.3 million was received in 1995, (iv) a $2.0 million milestone payment if and when Quadramet receives FDA approval and (v) royalty payments based on sales, including guaranteed minimum payments. RELATIONSHIP AND SUBSEQUENT MERGER WITH CYTORAD CytoRad Incorporated ("CytoRad"), a biopharmaceutical company formed in December 1991, was established to engage in the research and development of proprietary antibody-based delivery systems for the diagnosis and/or treatment of prostate, ovarian and bladder cancers, utilizing technology licensed from CYTOGEN. In connection with a public offering for CytoRad units, which commenced in February 1992, CYTOGEN and CytoRad entered into a series of contractual arrangements. Subject to the terms and conditions of the agreements between CYTOGEN and CytoRad, CytoRad was required to make up-front and periodic payments to CYTOGEN, and in return CYTOGEN conducted research and development on behalf of CytoRad relating to the products licensed pursuant to agreements. As a result of the agreements, CYTOGEN recorded $5,903,000 of contract revenues in fiscal year 1993, in addition to $2.0 million in up-front license fees received from CytoRad in fiscal year 1993. In March 1994, CytoRad announced that it was exploring modifications to its then existing business relationship with CYTOGEN. Accordingly, the CytoRad Board of Directors did not approve the 1994 development agreement budget and subsequently, no contract revenues from CytoRad were recorded by CYTOGEN in fiscal year 1994. During fiscal year 1993, funds provided under those agreements represented the principal source of funding for the development of the products involved. On November 15, 1994, CYTOGEN and CytoRad executed an Agreement and Plan of Merger (the "CytoRad Merger Agreement") to purchase all of CytoRad's outstanding units. Pursuant to the CytoRad Merger Agreement, on January 20, 1995, CYTOGEN commenced an exchange offer to exchange for each CytoRad unit (a) 1.5 shares of CYTOGEN common stock, (b) a warrant to acquire one share of CYTOGEN common stock for $8.00 that expires January 31, 1997 and (c) a contingent value right (a "CVR") to receive, under certain circumstances and at no additional cost, up to an additional one-half share of CYTOGEN common stock. On February 27, 1995, CYTOGEN completed its acquisition of CytoRad by merging CytoRad with and into a wholly-owned subsidiary of CYTOGEN pursuant to the CytoRad Merger Agreement. Holders of CytoRad common stock who did not tender their CytoRad units in the exchange offer became entitled to receive as a result of the merger one and one-half shares of CYTOGEN common stock and one CVR for each share of CytoRad common stock owned thereby. Although the previously issued warrants forming a part of the CytoRad units not tendered in the exchange offer will remain outstanding following the merger, CYTOGEN has agreed that such warrants will be exercisable at $8.00 per warrant share pursuant to the CytoRad Merger Agreement. 8 As a result of the acquisition, CYTOGEN reacquired all rights it had previously licensed to CytoRad. In addition, as a result of the merger, $11.7 million of CytoRad's cash and securities, before payment of certain of CYTOGEN's transaction costs, were acquired by the Company. On February 29, 1996, CYTOGEN announced that the CVRs had terminated by their terms and were of no further value. Accordingly, CYTOGEN no longer has an obligation to issue shares of its common stock to holders of CVRs on January 31, 1997. MERGER WITH CELLCOR In June 1995, CYTOGEN entered into an Agreement and Plan of Merger, as amended (the "Merger Agreement"), with Cellcor, Inc. ("Cellcor") and a wholly- owned subsidiary of CYTOGEN (the "Merger Subsidiary"), which provided that Cellcor would be merged with and into the Merger Subsidiary (the "Cellcor Merger"), whereupon the separate corporate existence of Cellcor would cease and the Merger Subsidiary would change its name to Cellcor, Inc. Hillman Medical Ventures partnerships and certain of their affiliates (collectively, the "Cellcor Principal Stockholders") owned 46.5% of the Cellcor common stock and 95.2% of the Cellcor preferred stock. The Cellcor Principal Stockholders agreed to vote such shares in favor of the Cellcor Merger pursuant to a Voting and Subscription Agreement (the "Voting Agreement"). In connection with the Cellcor Merger, each holder of Cellcor common stock was granted the non-transferable right to purchase 1.118 shares of CYTOGEN common stock for each share of Cellcor common stock held by such holder at the close of business on August 17, 1995, at a price of $3.89 per share of CYTOGEN common stock (the "Subscription Offering"). Certain of the Cellcor Principal Stockholders purchased $11.5 million of the shares in the Subscription Offering. On October 16, 1995, CYTOGEN's stockholders approved the issuance of securities necessary to effect the acquisition of Cellcor and the Subscription Offering. On October 20, 1995, CYTOGEN completed its acquisition of Cellcor by merging Cellcor with and into the Merger Subsidiary. At that time, each outstanding share of Cellcor common stock was converted into the right to receive 0.60 shares of CYTOGEN common stock and each outstanding share of Cellcor Convertible Preferred Stock was converted into the right to receive 218.94 shares of CYTOGEN common stock. As a result of the Cellcor Merger, CYTOGEN (i) issued 4,713,564 shares of common stock to acquire Cellcor (see Note 1 to the Consolidated Financial Statements), (ii) issued 5,144,388 shares of common stock in connection with the Subscription Offering, which raised a total of $20.0 million (including the $11.5 million purchased by the Cellcor Principal Stockholders) and (iii) reserved for issuance up to 613,694 shares of common stock issuable upon the exercise of Cellcor stock options and warrants assumed by CYTOGEN in the Cellcor Merger. Pursuant to the terms of the Voting Agreement, the Cellcor Principal Stockholders have also agreed that they will not contract to sell, sell or otherwise transfer any shares of CYTOGEN common stock received by them in the Cellcor Merger or purchased by them in the Subscription Offering for a period of two years following the effective date of the Cellcor Merger. On the second anniversary of the Cellcor Merger and each six month anniversary thereafter, the Cellcor Principal Stockholders may so sell or transfer one third of the shares so acquired. The Cellcor Merger reflects the Company's strategy to build its business through, among other things, strategic acquisitions that add complementary products, technologies and services to CYTOGEN's existing portfolio. In particular, the Company has added Cellcor's proprietary ALT products and supportive core competencies in ex vivo cell processing to its product pipeline. See "Cancer Therapeutics Products--ALT Treatment for mRCC". LIMITED FIELD OF USE LICENSE AGREEMENTS In addition to development of its own proprietary products, CYTOGEN and Cellcor have entered into limited field of use licenses for rights in their proprietary technology with various pharmaceutical companies in the U.S., Europe, and Japan. Although the terms of each agreement differ, these agreements generally provide 9 for royalty payments to the Company based on any future product sales. Some of these agreements also provide for fixed payments, purchases of CYTOGEN stock, milestone payments and payments for research services performed by the Company. Elan. In December 1995, CYTOGEN entered into a Research and Development and Option agreement with Elan (the "Elan Agreement") under which both parties will implement a research program that combines CYTOGEN's GDL technology with Elan's drug delivery system technology. Joint research, conducted by the companies' scientists, will exploit GDL-derived peptides that have the ability to target drugs to specific sites within the body. Initial research will focus on the development of products that can be administered orally and pass through the gastrointestinal tract, utilizing specific intestinal cell surface receptors identified by Elan's research team as being best suited to facilitate uptake and absorption of the drug. Under the Elan Agreement, Elan has been granted an option for exclusive worldwide licensing rights to any products developed collaboratively and the Company will receive royalties based on sales, if any, of such products. The Elan Agreement states that the parties anticipate that the research program will continue for an initial period of sixteen months but may be extended for up to an additional one year period by Elan. Elan will provide the funding necessary for both companies to fulfill their respective obligations, with the total cost for the initial period of the research program not to exceed $3.0 million, of which not more than $1.5 million will be paid to the Company. Lilly. In April 1989, CYTOGEN entered into limited field of use license agreements with Eli Lilly and Company ("Lilly") (collectively, the "Lilly Agreement") granting to Lilly a non-exclusive worldwide license to develop and market certain cancer therapy products using CYTOGEN's proprietary monoclonal antibody linker technology to deliver the vinca alkaloid class of compounds, and other cancer therapy drugs proprietary to Lilly. Pursuant to the terms of the Lilly Agreement, in addition to the cash payment and stock purchase already made, Lilly is required to make certain payments to CYTOGEN which in some cases are dependent upon Lilly's achievement of certain scientific milestones in its research. The Lilly Agreement also provides for royalty payments (which are subject to abatement to a certain extent based on milestone payments made) based on net sales of any resulting products. Under the Lilly Agreement, CYTOGEN is required to inform Lilly of improvements to CYTOGEN's technology and Lilly can terminate the Lilly Agreement at any time following the milestone payments described above upon 60 days' prior notice. SRL, Inc. In March 1994, Cellcor announced the signing of a non-exclusive technology licensing and service agreement with SRL, Inc. ("SRL"), a Japanese diagnostic firm. Under the agreement (the "SRL Agreement"), SRL has the right to select from several development options. Varying payments are due to Cellcor depending on the option SRL elects. At this time, the Company expects that it is unlikely that SRL will elect an option that will have a significant impact on its operations or capital needs and there can be no assurance that SRL will elect any development options in the future. MANUFACTURING CYTOGEN has established limited commercial-scale manufacturing capacity in Princeton, New Jersey. An Establishment License Application ("ELA") for the facility in Princeton utilized by CYTOGEN for production of OncoScint CR/OV was approved by FDA in December 1992. It is expected that this facility will allow CYTOGEN to meet its projected production requirements for the OncoScint product line in both the U.S. and Europe for the near term, although no assurances can be given to that effect. In 1993 and 1994, CYTOGEN received additional regulatory approval from FDA for the expansion of its commercial manufacturing processes and facilities. In November 1995, FDA proposed new reforms that would eliminate the requirement that "well-characterized biologic products" be commercially manufactured in an ELA-approved facility. Therefore, while CYTOGEN will be required to maintain Good Manufacturing Practices ("GMP"), under the proposed reforms, it will not be required to obtain regulatory approval for all of its commercial manufacturing processes and facilities. Moreover, under the proposed reforms, CYTOGEN will retain the status of having met FDA ELA requirements and performance standards, which it believes is an important competitive advantage and one it is using to attract additional contract manufacturing business. To date, CYTOGEN has had two contract manufacturing customers for which it is manufacturing clinical supplies. 10 In 1994, CYTOGEN's manufacturing facility was expanded to provide processes and facilities for the manufacture of commercial quantities of the antibody used in ProstaScint. An ELA Supplement was prepared in 1994 in conjunction with the PLA for ProstaScint filed by FDA in March 1995. After receipt of necessary regulatory approvals, CYTOGEN's facility will be the site for the commercial manufacture of ProstaScint. It is expected that this facility will allow CYTOGEN to manufacture its projected production requirements of ProstaScint for the near term, although no assurance can be given that the facility will receive the necessary regulatory approvals to produce commercial quantities of antibodies for ProstaScint, or that commercial quantities of antibodies will be otherwise obtained. Cellcor has established a GMP manufacturing facility for patient-specific cell processing in a high volume setting, suitable for commercial-scale production. Cellcor will pursue opportunities to develop contract manufacturing relationships with other biotechnology companies and academic institutions in the field of patient specific ex vivo cell processing. RAW MATERIALS The raw materials used in the manufacture of the Company's products include several different antibodies. CYTOGEN has both exclusive and non-exclusive license agreements which permit the use of specific monoclonal antibodies in its products. CYTOGEN's first product, OncoScint CR/OV, uses the same monoclonal antibody which has been supplied in clinical quantities and is being supplied in commercial quantities by a single contract manufacturer, Celltech Limited, through a shared manufacturing agreement. CYTOGEN anticipates that the supplier will be able to meet CYTOGEN's needs for commercial quantities of monoclonal antibody. CYTOGEN currently has the in-house production capacity necessary to produce projected commercial quantities of monoclonal antibody for manufacture of ProstaScint and clinical quantities of other monoclonal antibodies to develop other diagnostic imaging and therapy products. Cellcor's cellular therapies require the use of devices and materials manufactured by third parties, which Cellcor seeks to maintain multiple sources for. Cellcor relies on a single source of supply for an important monoclonal antibody used in the cell processing procedures. There can be no assurance that products or devices necessary to implement the Company's living cell therapies will be continuously available or available upon terms favorable to the Company in the future. HUMAN RESOURCES As of December 31, 1995, the Company employed 153 persons full-time, of whom 45 were engaged in research and development activities, 40 were engaged in operations and manufacturing, 21 were engaged in administration and management, 18 were engaged in selling and marketing and 29 were engaged in Cellcor's operations. Of the Company's employees, 25 hold Ph.D. and/or M.D. degrees, and 18 hold other advanced degrees. The Company, from time to time, hires scientific consultants to work on certain of its research and development programs. The Company believes that it has been successful in attracting skilled and experienced scientific personnel; however, competition for such personnel is intense. None of the Company's employees is covered by a collective bargaining agreement. All of the Company's employees have executed confidentiality agreements. The Company considers relations with its employees to be excellent. PATENTS AND PROPRIETARY RIGHTS Consistent with industry practice, the Company has a policy of using patent and trade secret protection to preserve its right to exploit the results of its research and development activities and, to the extent it may be necessary or advisable, to exclude others from appropriating the Company's proprietary technology. 11 The Company's policy is to aggressively protect its proprietary technology by selectively seeking patent protection in a worldwide program. In addition to the U.S., CYTOGEN files patent applications in Canada, major European countries, Japan and additional foreign countries on a selective basis to protect inventions important to the development of its business. CYTOGEN believes that the countries in which it has obtained and is seeking patent coverage for its proprietary technology represent the major focus of the pharmaceutical industry in which CYTOGEN and certain of its licensees will market its and their respective products. CYTOGEN holds 13 current U.S. patents and 52 current foreign patents. CYTOGEN has filed and currently has pending 21 U.S. patent applications and 24 foreign patent applications, covering certain aspects of its technology for diagnostic and therapeutic products, and the methods for their production and use. CYTOGEN intends to file patent applications with respect to subsequent developments and improvements when it believes such protection is in the best interest of CYTOGEN. CYTOGEN's U.S. Patent No. 4,671,958, entitled "Antibody Conjugates For The Delivery of Compounds To Target Sites," is basic to many of CYTOGEN's current and proposed commercial operations. This patent covers in vivo delivery methods using site-specific attachment of compounds to antibody molecules that maintain the antibody's ability to target and bind to antigens such as those expressed by or associated with tumors, blood clots, infections and other disease sites. This patent is scheduled to expire in 2004. In Europe, similar protection is afforded by CYTOGEN's European Patent No. 0088695, entitled "Antibody Conjugates." CYTOGEN's U.S. Patent No. 4,741,900, entitled "Antibody Metal Ion Complexes," provides additional patent protection for its most advanced products which involve the targeting of radioisotopes to tumor cells for purposes of diagnosing or treating cancer. This patent is scheduled to expire in 2004. CYTOGEN's European Patent No. 0173629, entitled "Antibody Metal Ion Complexes" affords similar protection in Europe. CYTOGEN's U.S. Patent No. 4,867,973, entitled "Antibody-Therapeutic Agent Conjugates," provides broad patent protection for many of CYTOGEN's proposed commercial products and those of its licensees which are useful for the in vivo targeting of therapeutic agents for the treatment of a variety of cellular disorders. This patent is scheduled to expire in 2004. CYTOGEN's U.S. Patent No. 5,162,504, entitled "Monoclonal Antibodies to a New Antigenic Marker in Epithelial Prostate Cells and Serum of Prostate Cancer Patients," provides protection for the monoclonal antibody 7E11-C5, the targeting agent used in ProstaScint. Cellcor holds 3 current U.S. patents. Cellcor has filed and currently has pending 4 U.S. patent applications and 2 foreign patent applications. Additional patent protection is being actively pursued for Cellcor related proprietary technology. CYTOGEN is the exclusive licensee of certain patent applications held by the University of North Carolina at Chapel Hill covering GDL technology. CYTOGEN holds an exclusive option for an exclusive license under certain patent applications held by MSKCC covering PSM. CYTOGEN is the exclusive licensee of certain U.S. patents and applications held by Dow covering Quadramet. CYTOGEN may be entitled under certain circumstances to seek extension of the terms of its patents. See "Government Regulation and Product Testing--FDA Approval". The Company also relies upon, and intends to continue to rely upon, trade secrets, unpatented proprietary know-how and continuing technological innovation to develop and maintain its competitive position. The Company typically enters into confidentiality agreements with its licensees and any scientific consultants, and each of CYTOGEN's and Cellcor's employees have entered into agreements with the companies requiring that they forbear from disclosing confidential information of the companies, and assign to the companies all rights in any inventions made while in their employ. The Company believes that its valuable proprietary information is protected to the fullest extent practicable; however, there can be no assurance that (i) any additional patents will 12 be issued to CYTOGEN or Cellcor in any or all appropriate jurisdictions, (ii) litigation will not be commenced seeking to challenge the patent protection or such challenges will not be successful, (iii) the Company's processes or products do not or will not infringe upon the patents of third parties, or (iv) the scope of patents issued will successfully prevent third parties from developing similar and competitive products. It is not possible to predict how any patent litigation will affect the Company's efforts to develop, manufacture or market its products. The technology applicable to the Company's products is developing rapidly. A substantial number of patents have been issued to other biotechnology companies. In addition, competitors have filed applications for, or have been issued, patents and may obtain additional patents and proprietary rights relating to products or processes competitive with those of the Company. In addition, others may have filed patent applications and may have been issued patents to products and to technologies potentially useful to the Company or necessary to commercialize its products or achieve its business goals. There can be no assurance that the Company will be able to obtain licenses of such patents on terms acceptable to the Company. See "Competition." OncoScint is a registered trademark of CYTOGEN. ProstaScint, PIE and SynGene are trademarks of CYTOGEN, pending registration. Quadramet is a trademark of Dow, licensed to CYTOGEN. GOVERNMENT REGULATION AND PRODUCT TESTING The development, manufacture and sale of medical products utilizing the Company's technology are governed by a variety of statutes and regulations in the U.S. and by comparable laws and agency regulations in most foreign countries. FDA Approval. The major regulatory impact on the diagnostic and therapeutic products in the U.S. derives from the Federal Food, Drug and Cosmetic Act (the "FD&C Act") and the Public Health Service Act, and from FDA rules and regulations promulgated thereunder. These acts and regulations require carefully controlled research and testing of products, government review and/or approval prior to marketing the products, inspection and/or licensing of manufacturing and production facilities, adherence to good manufacturing practices during production and continued compliance with product specifications, labeling, and other post-production regulations. The medical products to which the Company intends to apply its technology are subject to substantial governmental regulation and may be classified as new drugs or biologics under the FD&C Act. FDA and similar health authorities in most other countries must approve or license the diagnostic and therapeutic products before they can be commercially marketed. In order to obtain FDA approval, an applicant must submit, as relevant for the particular product, proof of safety, purity, potency and efficacy. In most cases such proof entails extensive pre-clinical, clinical and laboratory tests. The testing, preparation of necessary applications and processing of those applications by FDA is expensive and time-consuming, and may take several years to complete. Together with approval of its ELA with respect to its manufacturing facility in New Jersey, CYTOGEN received initial FDA approval in December 1992 to market OncoScint CR/OV in the U.S. under a single administration indication. The Company received repeat administration approval in November 1995. Difficulties or unanticipated costs may be encountered by the Company or its licensees in their respective efforts to secure necessary governmental approval or licenses, which could delay or preclude the Company or its licensees from marketing their products. Limited indications for use or other conditions could also be placed on any such approvals that could restrict the commercial applications of such products. With respect to patented products or technologies, delays imposed by the government approval process may materially reduce the period during which the Company will have the exclusive right to exploit them, because patent protection lasts only for a limited time, beginning on the date the patent is first granted in the case of U.S. patent applications and when the patent application is first filed in the case of patent applications filed in the European Economic Community. CYTOGEN intends to seek to maximize the useful life of its patents under the Patent Term Restoration Act of 1984 in the U.S. and similar laws if available in other countries. 13 The majority of the diagnostic and therapeutic products will likely be classified as new drugs or biologics and will be subject to the conduct of in vitro tests, pre-clinical testing and a three-phase evaluation process in humans before any marketing application can be prepared. In Phase I, a product is tested in a small number of patients primarily for safety at one or more dosages. In Phase II, in addition to safety, the efficacy of the product against particular diseases is evaluated in a patient population generally somewhat larger than Phase I. Clinical trials of certain diagnostic and cancer therapeutic agents frequently combine Phase I and Phase II into a single Phase I/II study. In Phase III, the product is evaluated in a larger patient population sufficient to generate data to support a claim of safety and efficacy within the meaning of the FD&C Act. Authorization or clearance under the FD&C Act by FDA must be obtained prior to conducting clinical testing by the filing of an exemption for an Investigational New Drug which includes the results of in vitro tests and pre-clinical testing. A similar procedure under the FD&C Act applies to medical devices and diagnostic products. A PLA summarizes the results of clinical tests and other product testing and must be filed with an ELA for the licensing of the product manufacturing processes and facilities for biologics which do not meet the definition of "well-characterized biologic products." An NDA, which is similar to a PLA, may be required to be filed if the product is classified as a drug rather than a biologic. Prior to a PLA or NDA submission, FDA conducts a pre-PLA/NDA meeting. The use of pre-PLA/NDA meetings has increased due to the introduction of FDA User Fees and the increased commitment on the part of FDA to conduct timely reviews of filed applications. The primary purpose of both the pre-PLA and pre-NDA meeting is for the sponsor and FDA to discuss the content and timing of the application and determine whether FDA agrees with the sponsor, based on its preliminary review of the application, that the application is sufficiently complete to be filed and/or to identify any areas that need further evaluation or discussion prior to the filing. Based on FDA regulations, once an application is submitted to FDA, FDA has 60 days to determine whether or not the application is sufficiently complete to be filed. If FDA believes the application is not complete, FDA issues a refuse-to-file letter to the sponsor. Continued compliance with all requirements of the FD&C Act and the conditions in an approved application, including but not limited to product specification, manufacturing process, labeling and promotional material, and record keeping and reporting requirements, is necessary for all products. Failure to comply, or the occurrence of unanticipated adverse effects during commercial marketing, could lead to the need for product recall, or FDA- initiated action, which could delay further marketing until the products are brought into compliance. Similar laws and regulations apply in most foreign countries where the diagnostic and therapeutic products are likely to be marketed. Upon certain circumstances defined in the FD&C Act, certain products may be sold and distributed, in limited quantities, prior to receipt of final FDA approval. The Company believes that certain of its products may qualify for such treatment; however, there can be no assurance that FDA will allow such sales or distribution. FDA has established a process called the Treatment Investigational New Drug ("IND") which makes investigational drugs available for the treatment of patients with a serious or life-threatening disease. For investigational drugs to be eligible for a Treatment IND program, there can be no comparable or satisfactory alternative drug or therapy available to treat the particular disease in the intended patient population. In September 1995, FDA approved a Treatment IND program for ALT to be available as a treatment option to patients with mRCC who were not able to participate in ALT clinical trials. The Treatment IND also allows Cellcor to charge patients for the cost of the treatment. Cellcor has also received authorization from FDA for cost recovery related to the treatment of patients receiving ALT for mRCC under a compassionate use protocol. The only patients who are eligible to participate in this program are patients who have already received six or more treatments in a commercial or research setting. Cellcor was treating approximately 20 patients under this protocol at the end of 1995. 14 Orphan Drug Act. The Orphan Drug Act is intended to provide incentives to manufacturers to develop and market drugs for rare diseases or conditions affecting fewer than 200,000 persons in the U.S. at the time of application for orphan drug designation. A drug that receives orphan drug designation and is the first product to receive FDA marketing approval for a particular indication is entitled to orphan drug status, a seven-year exclusive marketing period in the U.S. for that indication. OncoScint CR/OV, in its ovarian application, has been designated an orphan drug. Under the Orphan Drug Act, the FDA cannot approve any application by another party to market an identical product for treatment of an identical indication unless (i) such party has a license from the holder of orphan drug status, or (ii) the holder of orphan drug status is unable to assure an adequate supply of the drug. However, a drug that is considered by FDA to be different from a particular orphan drug is not barred from sale in the U.S. during such seven-year exclusive marketing period even if it receives marketing approval for the same product claim. Other Regulations. In addition to regulations enforced by FDA, the Company is also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act, Nuclear Regulatory Commission and other present and potential future federal, state or local regulations. Foreign Regulatory Approval. Prior to marketing its products in Western Europe and certain other countries, the Company will be required to receive the favorable recommendation of the CPMP followed by the appropriate government agencies of the respective countries. Substantial requirements, comparable in many respects to those imposed under the FD&C Act, will have to be met before commercial sale is permissible in most countries. There can be no assurance, however, as to whether or when governmental approvals (other than those already obtained) will be obtained or as to the terms or scope of those approvals. COMPETITION The biopharmaceutical field is expected to continue to undergo rapid and significant technological change as well as extensive consolidation. Potential competitors in the U.S. are numerous and include pharmaceutical, chemical, biotechnology, medical device companies and research institutions, many of which have substantially greater capital resources, marketing experience, research and development staffs and facilities than the Company. This competition can be expected to become more intense as commercial applications for biotechnology and pharmaceutical products increase. Some of these companies may be better able than the Company to develop, refine and market products based on monoclonal antibody-based technology, immunotherapy, or on other technologies applicable to the diagnosis and treatment of cancer such as CT, MRI, and chemotherapeutic products. The Company is aware that several companies are engaged in the development of technology and products for targeted radioisotopic and drug delivery, and cellular and gene therapies. The Company understands that certain of these competitors are in the process of conducting human clinical trials, have filed applications for marketing approval by government agencies, or have received marketing approval by government agencies of certain products which will compete with the Company's diagnostic and therapeutic products. Pursuant to its limited field of use license agreements, CYTOGEN has granted certain rights to its licensees to develop and market cancer therapy products which may compete directly with CYTOGEN's diagnostic and therapeutic products. CYTOGEN will receive royalties from any sale of such licensed products and CYTOGEN believes the information which presently is publicly available is insufficient to enable it to definitively evaluate the likely success of these competing products. CYTOGEN depends principally upon its patented antibody-based linker technology to compete with other firms engaged in commercial applications of antibody technology. For this reason, CYTOGEN has focused on those applications where it believes its technology will offer significant advantages over other existing technologies and its patents offer the most protection. CUSTOMERS In fiscal year 1995, the Company received 78% of its total product related, license and contract revenues from three (3) customers: $2.0 million from Dow (see Note 7 to the Consolidated Financial Statements); 15 $1.3 million from DuPont Merck (see "Marketing and Sales--Quadramet" and Note 4 to the Consolidated Financial Statements); and $621,000 from Medi-Physics, Inc., a chain of radiopharmacies. ITEM 2. PROPERTIES The Company's corporate headquarters is located in Princeton, New Jersey. CYTOGEN currently leases approximately 107,700 square feet of administrative, laboratory and manufacturing space in three locations in Princeton. The lease for its 56,900 square foot laboratory and manufacturing facility in Princeton will expire on February 28, 2003 and provides two 5-year renewal options. CYTOGEN has sub-leased 8,715 square feet of the laboratory facility to another company. This sub-lease will expire on April 30, 1996. The lease for CYTOGEN's 31,400 square foot office space in Princeton will expire on June 15, 1997, subject to CYTOGEN's right to renew through June 15, 2002. CYTOGEN also leases an additional 19,400 square feet at a third location in Princeton, under a lease which will expire in December 1999. This third location is used for laboratories and support for production of commercial product. CYTOGEN expects to remain in the Princeton area for the foreseeable future. As of December 31, 1995, the Company had invested approximately $9.8 million for improvements in these buildings it occupies. Cellcor leases 21,500 square feet in Newton, Massachusetts, which houses all of Cellcor's administrative staff and research and operations groups. The lease for this facility will expire on February 29, 2000. Approximately 25% of the facility has been sub-leased to another company under a short-term lease arrangement. The Company leases some of the equipment used in its laboratory and manufacturing facility. See Notes 11 and 18 to the Consolidated Financial Statements included in this Form 10-K for information regarding the Company's obligations under these real property and equipment leases. The Company believes its facilities are in good operating condition and that all real property and equipment are adequate for all present and proposed uses thereof. ITEM 3. LEGAL PROCEEDINGS On April 24, 1995, Cellcor announced that it had agreed to settle a stockholder class action suit brought by William L. Glosser, as representative of a class of Cellcor's stockholders, against Cellcor, Cellcor's directors and Furman Selz Incorporated, individually and as the representative of the 26 underwriters of Cellcor's initial public offering. The suit was originally filed in the Court of Chancery of Delaware on September 18, 1992 and alleged certain securities law violations. At a hearing held on December 21, 1995, an Order and Final Judgment was entered by Chancellor Allen, the Court of Chancery of Delaware, approving the settlement between the parties, which provided for a $700,000 cash payment (which includes approximately $300,000 of fees and expenses of plaintiff's counsel) to the members of the plaintiff class in return for dismissal of all claims against the defendants. Cellcor's insurance carriers paid over $440,000 towards the settlement and Cellcor paid the balance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On October 16, 1995, CYTOGEN held a special meeting of stockholders to approve the issuance of the CYTOGEN's securities necessary to effect the acquisition of Cellcor and to undertake a Subscription Offering to Cellcor stockholders. The following table sets forth information regarding the number of votes cast for, against, abstentions, as well as the number of broker non- votes with respect to the approval of the issuance of CYTOGEN's securities:
BROKER FOR AGAINST ABSTENTIONS NON-VOTES --- ------- ----------- --------- 16,496,706 597,185 212,336 0
16 EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company and their respective ages and positions with the Company as of March 1, 1996 are as follows:
NAME AGE POSITION ---- --- -------- William C. Mills III 40 Chairman of the Board Thomas J. McKearn 47 Chief Executive Officer and President T. Jerome Madison 55 Vice President, Finance, Chief Financial Officer and Secretary L. Michael Hinds 54 Vice President, Marketing and Sales Robert T. Maguire 45 Vice President, Medical Affairs Frederick M. Miesowicz 47 Vice President and Vice President and General Manager of Cellcor Richard Murawski 47 Vice President, Operations Pamela M. Murphy 45 Vice President, Corporate Communications Charles W. Ogelsby 52 Corporate Controller and Assistant Secretary John D. Rodwell 49 Vice President, Research and Development Richard J. Walsh 52 Vice President, Corporate Development
All executive officers are elected annually by the Board of Directors. There is no family relationship among any of the executive officers or directors. BUSINESS EXPERIENCE William C. Mills III has served as Chairman of the Board of the Company since January 1995 and has been a director of the Company since July 1983. Since April 1, 1988, he has been a General Partner of The Venture Capital Fund of New England, Boston, Massachusetts, a series of private venture capital partnerships. Prior to that, Mr. Mills was a General Partner of PaineWebber Ventures, and certain of its predecessor partnerships since April 1981. Mr. Mills holds an A.B. degree from Princeton University, an S.M. degree in Chemistry from The Massachusetts Institute of Technology, and an S.M. degree in Management from M.I.T.'s Sloan School of Management. Thomas J. McKearn joined the Company in July 1981 as Vice President, Research and Development. He has served as the Company's Chief Executive Officer since January 1994 and as President of the Company since September 1991. Dr. McKearn previously served as Executive Vice President of the Company from June 1990 to August 1991 and Senior Vice President, Scientific Affairs of the Company through June 1990. He has been a director of the Company since 1981. From 1978 until he joined the Company, Dr. McKearn was an Assistant Professor in the Department of Pathology at the University of Pennsylvania and Head of the Immunoprotein Laboratory at the Hospital of the University of Pennsylvania. He retains a position as Adjunct Associate Professor in the Department of Pathology at the University of Pennsylvania. Dr. McKearn is a member of the Scientific Advisory Board for Rider College and the New Jersey Cancer Institute. Dr. McKearn holds a B.A. degree from Indiana University, a Ph.D. degree in Immunology from the University of Chicago and an M.D. degree from the Pritzker School of Medicine at the University of Chicago. T. Jerome Madison joined the Company in October 1993 as Vice President of Finance and Chief Financial Officer and Secretary. He has been a director of the Company since December 1994. Mr. Madison is the sole stockholder, and an officer and director of Somerset Central Corporation, a New Jersey corporation through which Mr. Madison provides services to the Company. Previously, Mr. Madison served as President, Chief Executive Officer and General Partner of Montgomery Partners, a venture capital group, from 1991 to 1993 and as President, Chief Executive Officer and General Partner of Founders Court, also a venture capital group, from 1986 to 1991. Mr. Madison was Vice President for finance and administration of the Company from 1982 to 1986. Prior to first joining the Company, he served as Corporate Controller for Rorer Group Inc., (now Rhone- 17 Poulenc Rorer). Mr. Madison holds a B.S. from The Wharton School of the University of Pennsylvania and an M.B.A. from Monmouth University. He is also a Certified Public Accountant. L. Michael Hinds joined the Company in October 1995 as Vice President, Marketing and Sales. From 1981 until he joined the Company, Mr. Hinds held a variety of management positions at Picker International, Inc., a diagnostic imaging company, serving as Vice President, Western Europe from 1991 to 1994, and Vice President, International from 1983 to 1991. Mr. Hinds holds a B.A. degree from the University of Bordeaux and a Ph.D. in international economics from the University of Paris. Robert T. Maguire joined the Company in June 1987. He served as Director, Clinical Investigations and Vice-President, Clinical Investigations of the Company until September 1995, at which time he was elected Vice President, Medical Affairs. Prior to joining the Company, Dr. Maguire held the position of Director, Clinical Research at Wyeth Laboratories. From 1979 to 1983, Dr. Maguire was a Clinical Associate in the Pediatric Oncology Branch, Laboratory of Chemical Pharmacology and the Laboratory of Carcinogen Metabolism at the National Cancer Institute. Dr. Maguire holds an A.B. degree from Princeton University and an M.D. degree from Temple University Medical School. Frederick M. Miesowicz joined the Company in October 1995 as Vice President of the Company. He also serves as Vice President and General Manager of Cellcor. Prior to joining the Company, Dr. Miesowicz served as Cellcor's Senior Vice President of Scientific Affairs since October 1992. Dr. Miesowicz has an extensive background in cellular therapies. Prior to joining Cellcor, he managed the United States and European SteriCell Division of Terumo Medical Corp. and was with E.I. DuPont de Nemours & Company for over 14 years. In 1986, he assumed development responsibility for DuPont's cellular therapy business, working with the National Cancer Institute and others on ex vivo immunotherapies (lymphokine activated killer cells and tumor infiltrating lymphocytes for cancer). He holds a B.S. in Chemistry from Siena College and a Ph.D. in Chemistry from Harvard University. Richard Murawski joined the Company in April 1994 as Vice President, Operations. Mr. Murawski served as Vice President, Operations of Immunomedics, a biopharmaceutical company engaged in the development of antibody products for cancers and infectious diseases, from 1993 to 1994 and as Director of Manufacturing and Director of Operations with Welgen/Wellcome from 1990 to 1992. From 1971 through 1990, Mr. Murawski held numerous positions in the areas of production, engineering and manufacturing at Schering Corporation, a Union, New Jersey research-based company engaged in the manufacture and production of pharmaceutical and healthcare products. He holds a B.S. in Chemical Engineering from Newark College of Engineering (currently New Jersey Institute of Technology). Pamela M. Murphy joined the Company in March 1994 as Vice President, Corporate Communications. Ms. Murphy served as Vice President, Corporate Administration from 1990 to 1994 for Greenwich Pharmaceuticals, a development stage company seeking treatments for autoimmune diseases. From 1987 to 1990, Ms. Murphy held the position of Director of Corporate Communications with Greenwich Pharmaceuticals. Prior to that, Ms. Murphy held various regional and national positions with multiple publishing corporations. Ms. Murphy holds a B.S. degree in Education and Psychology from Northern Arizona University. Charles W. Ogelsby joined the Company in November 1993 as Controller. He was elected Corporate Controller in 1994 and Assistant Secretary in 1995. From 1990 until he joined the Company, Mr. Ogelsby served as President of Ogelsby & Company, a Bryn Mawr, Pennsylvania financial consulting firm providing strategic, operating, financial and accounting services to small companies. From 1988 through 1990, Mr. Ogelsby was Vice President of Founders Court, a venture capital firm. Mr. Ogelsby is a Certified Public Accountant and a member of both the American and Pennsylvania Institutes of Certified Public Accountants. He holds B.S. and M.B.A. degrees from Temple University. John D. Rodwell joined the Company in September 1981. He served as Director, Chemical Research and then as Vice President, Discovery Research, from 1984 until January 1989, at which time he assumed his present 18 responsibilities as Vice President, Research and Development. From 1980 to 1981, Dr. Rodwell was a Research Assistant Professor and, from 1976 to 1980, he was a postdoctoral fellow, both in the Department of Microbiology at the University of Pennsylvania School of Medicine, where he currently is an Adjunct Associate Professor in the Department of Microbiology. Dr. Rodwell is a director and treasurer of the Diversity Biotechnology Consortium located in Sante Fe, New Mexico, which funds basic research in the area of molecular diversity. He holds a B.A. degree from the University of Massachusetts, an M.S. degree in Organic Chemistry from Lowell Technological Institute and a Ph.D. degree in Biochemistry from the University of California at Los Angeles. Richard J. Walsh joined the Company in June 1994 as Vice President, Corporate Development. Mr. Walsh served as Vice President of Biotechnology Acquisitions for American Cyanamid Company from 1992 to 1994. Prior to that position, for six years he was Vice President, Product Licensing and Technology Transfer at The Warner-Lambert Company. From 1967 through 1986, Mr. Walsh held a variety of domestic and international sales, marketing and licensing positions within Parke-Davis and its parent, The Warner-Lambert Company. Mr. Walsh holds a B.S. degree in Pharmacy from the University of Cincinnati. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS CYTOGEN Common Stock is traded on the NASDAQ National Market under the trading symbol "CYTO." The table below sets forth the high and low sale prices for CYTOGEN Common Stock for each of the calendar quarters indicated, as reported by the NASDAQ National Market.
HIGH LOW ---- --- 1994 First Quarter............................................... 7 3 Second Quarter.............................................. 6 1/2 2 7/8 Third Quarter............................................... 5 3/4 3 Fourth Quarter.............................................. 4 1/4 2 3/8 1995 First Quarter............................................... 5 1/4 3 1/16 Second Quarter.............................................. 5 1/4 2 15/16 Third Quarter............................................... 6 1/2 4 1/4 Fourth Quarter.............................................. 5 15/16 3 17/32
As of February 22, 1996 there were approximately 6,522 holders of record of the Common Stock. CYTOGEN has not paid any cash dividends on its Common Stock since its inception and does not anticipate paying any cash dividends on its Common Stock in the foreseeable future. Declaration of dividends on the Common Stock will depend, among other things, upon future earnings, the operating and financial condition of the Company, its capital requirements, and general business conditions. 19 ITEM 6. SELECTED FINANCIAL DATA The following selected financial information has been derived from the financial statements of the Company for each of the five fiscal years in the period ended December 31, 1995, which have been audited by Arthur Andersen LLP, the Company's independent public accountants. The financial summaries set forth below should be read in conjunction with the financial statements, including the notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and other information provided elsewhere in this report.
1995(1) 1994 1993 1992 1991 -------------------- --------- --------- --------- (All amounts in thousands, except per share data) CONSOLIDATED STATEMENTS OF OPERATIONS DATA: Revenues.............. $ 4,985 $ 2,458 $ 10,354 $ 13,367 $ 7,022 --------- --------- --------- --------- --------- Research and development.......... 22,594 20,321 24,844 21,680 21,293 Selling and marketing. 4,493 5,536 9,399 2,679 1,290 Acquisition of technology and marketing rights..... 45,878 4,647 -- -- -- General and administrative....... 4,804 3,962 7,016 5,394 3,612 --------- --------- --------- --------- --------- Operating expenses.... 77,769 34,466 41,259 29,753 26,195 Loss from operations.. $ (72,784) $ (32,008) $ (30,905) $ (16,386) $ (19,173) Non-operating income (expense)............ 264 (798) 1,676 3,447 3,829 --------- --------- --------- --------- --------- Net loss.............. (72,520) (32,806) (29,229) (12,939) (15,344) Dividends on preferred stock................ -- -- -- (1,293) (1,725) --------- --------- --------- --------- --------- Net loss to common stockholders......... $ (72,520) $ (32,806) $ (29,229) $ (14,232) $ (17,069) ========= ========= ========= ========= ========= Net loss per common share................ $ (2.11) $ (1.38) $ (1.38) $ (0.75) $ (0.98) ========= ========= ========= ========= ========= Weighted average common shares outstanding.......... 34,333 23,822 21,121 18,994 17,345 ========= ========= ========= ========= ========= CONSOLIDATED BALANCE SHEETS DATA: Cash and short term investments.......... $ 28,752 $ 7,700 $ 23,764 $ 35,738 $ 54,506 Total assets.......... 37,149 19,690 34,635 52,775 64,471 Long term liabilities. 3,275 4,310 192 276 346 Redeemable preferred stock................ -- -- -- -- 17,250 Redeemable common stock................ -- 2,000 2,000 2,000 2,000 Stockholders' equity.. 25,276 4,368 21,731 45,411 38,760
- -------- (1) Results of Operations and Balance Sheets Data includes information related to Cellcor, Inc. for the period beginning October 20, 1995 to December 31,1995. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS From time to time, as used herein, the term "Company" may include CYTOGEN Corporation ("CYTOGEN") and its wholly-owned subsidiary Cellcor, Inc. ("Cellcor") taken as a whole, where appropriate. Beginning with 1994, the Company changed from a fiscal year end to a calendar year end. Previously, the Company operated on a 52-53 week fiscal year ending on the Saturday nearest to December 31. References below to 1993 relate to the fiscal year ended January 1, 1994. RESULTS OF OPERATIONS Background. Historically, CYTOGEN's revenues have resulted primarily from (i) payments received from the sale of research services pursuant to collaborative agreements, (ii) fees generated from the licensing of its 20 technology and marketing rights to its products and (iii) product related revenues on sales of its OncoScint products in the U.S. and Western Europe. In December 1995, CYTOGEN entered into a research and development and option agreement (the "Elan Agreement") with Elan Corporation, plc ("Elan") under which both parties will implement a research program that combines CYTOGEN's Genetic Diversity Library ("GDL") technology with Elan's drug delivery system technology to collaboratively develop orally administered products. Thereunder, Elan has been granted an option for the exclusive worldwide licensing rights to any products so developed and the Company will receive royalties based on sales, if any, of such products. Elan will provide the funding necessary for the Company to fulfill its obligations under the research program with aggregate payments for work performed by CYTOGEN not to exceed $1.5 million during the first sixteen months of the research program. During 1994, because of a contractual dispute between CYTOGEN and CytoRad Incorporated ("CytoRad"), no contract revenues were recorded by CYTOGEN for research services performed on behalf of CytoRad, although CYTOGEN continued with the development of the products licensed to CytoRad. In 1995, CYTOGEN acquired CytoRad by merging CytoRad with and into a wholly-owned subsidiary of CYTOGEN. See Note 5 to the Consolidated Financial Statements. As a result of the merger, the Company acquired $11.7 million of CytoRad's cash and securities, before payment of certain transaction costs. In addition, in 1995, the Company recorded a one-time non-cash charge to the statement of operations of $19.7 million for the acquisition of technology and marketing rights pertaining to the merger. In December 1994, CYTOGEN entered into a license agreement (the "DP/Merck Agreement") with The DuPont Merck Pharmaceutical Company ("DuPont Merck") pursuant to which DuPont Merck will have responsibility for manufacturing and marketing Quadramet in the U.S., if and when approved for marketing by the U.S. Food and Drug Administration ("FDA"). The Company has retained the right to co-promote the product to nuclear medicine specialists. Pursuant to the DP/Merck Agreement, CYTOGEN received from DuPont Merck an up-front cash payment of $1.0 million in December 1994 and $5.3 million in January 1995, of which $1.3 million is to fund additional clinical programs to expand the use and marketing of Quadramet and $4.0 million was to purchase 908,265 shares of CYTOGEN common stock. See Note 4 to the Consolidated Financial Statements. The New Drug Application ("NDA") for Quadramet was accepted for filing by FDA effective August 1995. The timing and outcome of FDA's decision regarding Quadramet cannot be predicted by the Company at this time. Beginning in July 1994, as a result of the termination of CYTOGEN's relationship with Knoll Pharmaceuticals Company ("Knoll"), product related revenues have included product sales by CYTOGEN to its U.S. customers. See Note 6 to the Consolidated Financial Statements. Since that date, CYTOGEN has not recorded any product sales to Knoll or any co-promotion revenues. In addition, in December 1994, CYTOGEN entered into a disengagement agreement (the "Disengagement Agreement") with Chiron B.V., formerly EuroCetus B.V., successor in interest to EuroCetus International, N.V. ("Chiron") to reacquire the exclusive marketing and distribution rights to OncoScint CR/OV in Europe (the "European Rights") previously granted to Chiron. This reacquisition was consummated in February 1995 and since that date, OncoScint CR/OV has not been marketed outside the U.S. See Note 11 to the Consolidated Financial Statements. To date, sales of OncoScint CR/OV in both the U.S. and European markets have been limited, in part, because OncoScint CR/OV is a "technique-dependent" product that requires a high degree of proficiency in nuclear imaging, as well as a thorough appreciation of the information the scan can provide. CYTOGEN believes that sales of OncoScint CR/OV may be increased because of approval by FDA of repeat administration, which occurred in November 1995, implementation of better quality control at the time the image is actually acquired, and through greater assistance with the interpretation of the scans. The approval of repeat administration extends the prior FDA approval of single administration indication to include readministration of OncoScint CR/OV to human anti-mouse antibody-negative patients who are at risk of recurrence of their cancer. While an important next step for OncoScint, CYTOGEN believes that sales of OncoScint CR/OV may be only modestly increased because of repeat administration. CYTOGEN is in the process of establishing a network of qualified nuclear 21 medicine physicians through its Partners in Excellence or PIE(TM) Program (the "PIE Program"). The PIE Program includes rigorous training, testing, and ongoing quality assurance protocols with active support and certification in conjunction with the American College of Nuclear Physicians. The PIE Program is being further developed in preparation for the launch of ProstaScint, for which a Product License Application ("PLA") was accepted as filed by FDA in March 1995, although the timing and outcome of FDA's decision regarding ProstaScint cannot be predicted by the Company. In addition, CYTOGEN is exploring the use of teleradiology to support the PIE Program in order to allow for improvement of the acquisition and interpretation of both OncoScint CR/OV and ProstaScint scans. In its strictest form, teleradiology provides two-way communications by linking an imaging center with an off-site imaging specialist. The use of teleradiology has advanced due to improvements in related computer and telecommunication technologies. The Company is also exploring whether other companies with their own technique-dependent products would like to participate in the PIE Program, which would allow allocation of the marketing and sales costs over a number of different products. While there has been interest in the PIE Program from other companies, there can be no assurance that CYTOGEN can attract other products to the PIE Program, that this marketing strategy will be successful or that product related revenues will increase markedly. In December 1995 and January 1996, CYTOGEN entered into agreements with Faulding (Canada) Inc. ("Faulding") and CIS biointernational ("CISbio"), respectively, to market and distribute OncoScint CR/OV outside the U.S. Faulding is currently pursuing the necessary regulatory approvals in Canada. CISbio has advised the Company that it expects to relaunch OncoScint CR/OV during 1996 in eight Western European countries and four Eastern European countries where the product has been approved for marketing. In October 1995, CYTOGEN completed its acquisition of Cellcor by merging Cellcor with and into a wholly-owned subsidiary of CYTOGEN. See Note 2 to the Consolidated Financial Statements. Cellcor is a biotechnology company focused on the development and commercialization of autolymphocyte therapy ("ALT"), a proprietary immunotherapy using a patient's own white blood cells to augment the immune system and thereby treat cancer and certain infectious diseases. In the fourth quarter of 1995, Cellcor completed patient accrual for its Phase III pivotal clinical trial using ALT to treat metastatic kidney cancer patients. The study will conclude in the fourth quarter of 1996. If results from the trial are favorable and FDA concurs, the Company expects to proceed with the submission of a PLA in the first half of 1997. There can be no assurance regarding the results of the study or the timing or outcome of FDA's review. Cellcor is also conducting a Phase III human clinical study in post- surgical patients with non-metastatic kidney cancer with high risk of recurring disease to examine the effect of ALT in delaying progression to metastatic disease. ALT is also in Phase I/II development as a treatment for chronic hepatitis B. No prediction can be made, however, as to when or whether such trials will lead to new commercial products. Cellcor has received FDA approval to proceed with a Treatment IND that allows ALT to be available as a treatment option for patients who have no satisfactory alternative therapy to treat their metastatic kidney cancer. The Treatment IND also allows the Company to recover costs associated with the treatment. ALT will be available through the Treatment IND while the Company continues to pursue FDA approval of ALT. As a result of the Cellcor merger, beginning October 1995, the Company's product related revenues included the cost recovery related to the treatment of patients receiving ALT under a compassionate protocol. In addition, the Company recorded a one-time non-cash charge to the statement of operations of approximately $26.2 million for acquisition of Cellcor technology rights. Revenues. Total revenues were $5.0 million in 1995, $2.5 million in 1994 and $10.4 million in 1993. Product related revenues were $1.4 million in 1995 and consisted primarily of domestic sales of OncoScint CR/OV. In 1994, product related revenues from sales of OncoScint CR/OV were $1.4 million and included domestic sales of $1.2 million, Western European sales of $162,000 and a $109,000 reduction for returns of OncoScint CR/OV inventory because of shelf life expiration. In 1993, product related revenues were $1.6 million, including domestic sales of $1.4 million and Western European sales of $164,000. 22 License and contract revenues for 1995, 1994, and 1993 were $3.6 million, $1.0 million and $8.8 million, respectively, and included milestone payments of $2.1 million in 1995, $1.0 million in 1994 and $2.0 million in 1993. The 1995 milestone payments consisted primarily of $2.0 million from The Dow Chemical Company ("Dow"), which was received upon the Company's filing of the NDA with FDA. In 1994, CYTOGEN received a $1.0 million milestone payment from DuPont Merck upon its entering into an agreement with CYTOGEN to manufacture and market Quadramet in the U.S. See Note 4 to the Consolidated Financial Statements. In 1993, CYTOGEN received a milestone payment of $2.0 million from CytoRad as a one-time licensing fee for rights to CYTOGEN's ovarian cancer radiotherapy product and related technology. Revenues from the sale of research services were $1.5 million in 1995 compared to $47,000 in 1994 and $6.8 million in 1993. The decrease in 1995 and 1994 from 1993 is attributable primarily to the absence of contract revenues from CytoRad. The 1995 contract revenues consisted primarily of $1.3 million realized from DuPont Merck for continued clinical development of Quadramet. In 1994, CYTOGEN recorded an aggregate of $47,000 of contract revenues from Bracco (defined below) and Chiron. In 1993, CYTOGEN recorded $5.9 million of contract revenues from CytoRad in addition to the licensing fee from CytoRad and $900,000 from Bracco as defined below. Operating Expenses. Total operating expenses were $77.8 million in 1995, $34.5 million in 1994, and $41.3 million in 1993. The increase of $43.3 million from 1994 to 1995 is largely attributable to the one-time non-cash charges of $45.9 million recorded in 1995 for acquisition of technology and marketing rights from CytoRad and Cellcor, compared to the $4.6 million in charges recorded in 1994 for acquisition of marketing and technology rights from Knoll, Chiron, and CytoRad. In addition, in 1995, the Company recorded a $2.9 million charge for inventory writedowns of commercial inventory relating to OncoScint CR/OV, compared to a $1.1 million charge in 1994. The 1995 and 1994 spending levels, excluding the above mentioned one-time charges, are relatively the same but below the 1993 level, reflecting the Company's objective to control spending and to focus its efforts on its highest priority products and technology, which are (i) OncoScint CR/OV, (ii) Quadramet, (iii) ProstaScint, (iv) the GDL technology and (v) ALT therapy for mRCC. Research and development expenses were $22.6 million in 1995, $20.3 million in 1994 and $24.8 million in 1993. These expenses principally reflect product development efforts and support for various ongoing clinical trials and in 1995, included costs incurred in connection with the submissions of the PLA for ProstaScint and NDA for Quadramet. During 1995, 1994, and 1993, the Company charged $2.9 million, $1.1 million and $2.3 million, respectively, to research and development expenses for inventory writedowns of commercial inventory relating to OncoScint CR/OV. Selling and marketing expenses were $4.5 million in 1995, $5.5 million in 1994 and $9.4 million in 1993. The decrease from the prior year periods is primarily attributable to the reduction of promotional expenses associated with OncoScint CR/OV and in 1995, included the reduction of salaries and employee related expenses that resulted from the restructuring of CYTOGEN's sales force. Acquisition of technology and marketing rights expenses were $45.9 million in 1995 and included $19.7 million and $26.2 million of one-time non-cash charges representing the amounts by which the purchase prices exceeded the fair value of net assets acquired in connection with the CytoRad and Cellcor mergers, respectively. In 1994, CYTOGEN recorded $4.6 million for acquisition of technology and marketing rights, which included $2.4 million and $800,000 of one-time charges for the acquisition of marketing rights to OncoScint CR/OV from Knoll and Chiron, respectively, and $1.4 million of legal and investment banking fees related to the CytoRad merger. General and administrative expenses were $4.8 million in 1995, $4.0 million in 1994 and $7.0 million in 1993. The decrease in 1995 and 1994 from 1993 is largely due to a reserve established in 1993 for the settlement of a class action securities lawsuit (see Note 19 to the Consolidated Financial Statements) and to reduced spending for general legal and corporate communication. Other Income/Expense. Net gain on investments for 1995 was $857,000 compared to a net loss of $470,000 in 1994 and a net gain of $1.7 million in 1993. The net loss in 1994 is attributable primarily to a 23 $1.5 million loss recorded in 1994 as a result of the sale of government securities due to the rise in interest rates. This loss was partially offset by interest income of approximately $1.0 million in 1994. The lower net gain on investments in 1995 when compared to 1993 is due primarily to lower average cash and short term investment balances for the period. Imputed interest expense on liabilities associated with CYTOGEN's termination agreements with Knoll and Chiron was $593,000 in 1995 compared to $328,000 in 1994. Net Loss. Net losses were $72.5 million, $32.8 million and $29.2 million in 1995, 1994 and 1993, respectively. Losses per share were $2.11, $1.38 and $1.38 in 1995, 1994 and 1993, respectively, on 34.3 million, 23.8 million and 21.1 million average shares outstanding in each year, respectively. As discussed above, the increase in 1995 from 1994 and 1993 in the net loss and net loss per common share is primarily attributable to the charges to the statement of operations for the acquisition of technology and marketing rights. At December 31, 1995, the Company had outstanding (i) options to purchase up to 3.0 million shares of CYTOGEN common stock under its various stock option plans with exercise prices ranging from $2.69 to $17.00 per share; (ii) warrants to purchase 4.3 million shares of CYTOGEN common stock with exercise prices ranging from $8.00 to $18.87 per share; (iii) contingent value rights ("CVRs") to receive, under certain circumstances, up to 2.0 million shares of CYTOGEN common stock (which CVRs terminated in February 1996); (iv) the put right to issue and sell to a private institutional investor that number of shares of common stock equal to $5.0 million divided by a formula purchase price per share; and (v) the put right to issue and sell to Fletcher Fund (defined below) up to 675,000 shares of CYTOGEN common stock, subject to adjustment. The loss per share calculation stated above does not take into account the shares issuable in connection with such options, warrants, CVRs and put rights as their effect is antidilutive. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and short term investments were $28.8 million as of December 31, 1995, compared to $7.7 million as of December 31, 1994. The cash used for operating activities was $25.7 million in 1995 compared to $27.7 million in 1994, reflecting a continued commitment by the Company to control spending. Cash used for purchases of property and equipment was $600,000 in 1995 compared to $2.8 million in 1994 reflecting the 1994 capital expenditures associated with the project to create additional manufacturing capacity to produce the antibodies used with ProstaScint. Historically, the Company's primary sources of cash have been proceeds from the issuance and sale of its stock through public offerings and private placements, product related revenues, the sale of research services, fees paid under its license agreements and interest earned on its cash and short term investments. CYTOGEN Common Stock. In January 1995, the Company received from DuPont Merck $4.0 million from the sale of 908,265 shares of CYTOGEN common stock. In September 1995, CYTOGEN and Fletcher Fund L.P. ("Fletcher Fund") entered into an investment agreement (the "Investment Agreement") pursuant to which CYTOGEN (i) sold to Fletcher Fund 665,352 shares of CYTOGEN common stock in September 1995 for an aggregate purchase price of $2.7 million, and (ii) will have the right, during the period beginning October 13, 1995 and ending March 29, 1996, to issue and sell to Fletcher Fund, and Fletcher Fund will be obligated to purchase, up to 675,000 shares of CYTOGEN common stock from time to time at a purchase price per share equal to 101% of the average of the daily volume weighted average price of CYTOGEN common stock on NASDAQ during a designated twenty-one business day period. Under certain circumstances, Fletcher Fund will have the right to decrease or increase the number of shares of CYTOGEN common stock to be purchased in connection with the exercise of a put right by CYTOGEN, but in no event shall the total number of shares sold by CYTOGEN and purchased by Fletcher Fund pursuant to the Investment Agreement exceed 4.9% of the total number of shares of CYTOGEN common stock outstanding, after giving effect to the proposed sale and purchase of the shares in question. The shares to be issued and sold in this transaction were registered pursuant to a registration statement on Form S-3 filed with the Securities and Exchange Commission in April 1994. 24 In October 1995, CYTOGEN acquired Cellcor by merging Cellcor with and into a wholly-owned subsidiary of CYTOGEN. In connection with a subscription offering to Cellcor common stockholders, the Company raised an aggregate of $20.0 million, before certain transaction costs. See Note 2 to the Consolidated Financial Statements. In November 1995, the Company sold 1,256,565 shares of common stock to a private institutional investor in a private placement transaction pursuant to Regulation S of the Securities Act of 1933, as amended, for an aggregate price of $5.0 million and, in connection therewith, the Company was granted the right to put to that private institutional investor, until March 31, 1996, that number of shares equal to $5.0 million divided by a formula purchase price (the "Put Purchase Price"). The Put Purchase Price is equal to 0.925 multiplied by a fraction, the numerator of which is the sum of the closing prices reported on the Nasdaq National Market ("NASDAQ") for the CYTOGEN common stock for each trading day during a twenty-one day pricing period, and the denominator of which is the number of trading days in the pricing period. In 1995 and the first quarter of 1996, Fletcher Capital Markets, Inc. ("Fletcher") purchased an aggregate of 3.3 million shares of CYTOGEN common stock at an aggregate price of approximately $14.3 million, at prices ranging from $4.058 to $4.70 per share, under an option agreement (the "Option") granted to Fletcher in May 1994, as amended. See Note 13 to the Consolidated Financial Statements. CYTOGEN entered into a research and option agreement (the "Bracco Agreement") with Bracco Industria Chimica S.p.A ("Bracco") in September 1989, pursuant to which Bracco purchased 250,000 shares of CYTOGEN common stock (the "Bracco Shares") at $8.00 per share. The Bracco Agreement provided that CYTOGEN would be obligated to repurchase the Bracco Shares from Bracco under certain circumstances for an aggregate purchase price of $2.0 million (the "Purchase Price"). In August 1995, CYTOGEN and Bracco agreed that Bracco would sell the Bracco Shares on NASDAQ and Bracco sold the Bracco Shares for an aggregate share sales price ("Share Sales Price") of $1,375,000, or $5.50 per share. At that date, Bracco had an outstanding payable due and owing to CYTOGEN in an amount equal to $293,408 (the "Payable"). CYTOGEN also agreed to pay to Bracco the amount equal to the difference between (i) the Purchase Price and (ii) the sum of the Share Sales Price plus the Payable (or $331,592), in full settlement of the issue, which amount has been paid. The Company and Nomura Securities International, Inc. ("Nomura") executed an agreement effective as of February 23, 1996 that terminated the Purchase Agreement between CYTOGEN and Nomura dated March 28, 1995. Under that agreement, CYTOGEN could have sold shares of its common stock to Nomura for distribution in the public markets. CYTOGEN had filed a Registration Statement on Form S-3 with the Securities Exchange Commission in 1995, which registration statement was never declared effective. No sales of stock occurred under the terms of the agreement. Because of certain regulatory requirements governing the transaction, the structure of the transaction and its implementation as originally contemplated by the parties and as set forth in the agreement were required to be substantially revised. The parties agreed that it was not in their respective best interests to proceed with the transaction under the terms as so revised and therefore, agreed to terminate the agreement. CYTOGEN has also filed an application with the SEC for withdrawal of the registration statement. Product Related Revenues. CYTOGEN has recorded product related revenues from the sales of its OncoScint Colorectal product in Europe since 1992 and from sales of OncoScint CR/OV in the U.S. since January 1993. To date, sales have not been significant and are not expected to become a significant source of cash flow in 1996. In anticipation of the execution of the Termination Agreement (defined below), as of May 20, 1994, Knoll ceased its selling efforts and since that date, CYTOGEN's direct sales force has been the sole marketer in the U.S. of OncoScint CR/OV. Beginning in July 1994, product related revenues have included direct product sales by CYTOGEN to its U.S. customers. Since that date, CYTOGEN has not recorded any product sales to Knoll or any co-promotion revenues. In May 1995, CYTOGEN announced its initial implementation of the PIE Program described above. Depending on the success of the PIE Program, significant resources might be required. There can be no assurance this marketing strategy will be successful. 25 In November 1994, the Company executed a termination agreement with Knoll (the "Termination Agreement"). The Termination Agreement requires the Company to pay to Knoll, over a four-year period and without interest, $3.0 million to reacquire the U.S. Rights and $5.0 million of liabilities previously incurred under the terms of a license, supply and marketing agreement executed in December 1991 (the "Knoll Agreement"). The payment of these liabilities will be made as follows: $3.1 million in 1995, which amount has been paid; $1.6 million in 1996; $1.6 million in 1997; and $1.7 million in 1998. See Note 6 to the Consolidated Financial Statements. In December 1994, CYTOGEN entered into the Disengagement Agreement with Chiron to reacquire the European Rights and purchase certain business assets relating to the European Rights. The resulting liability of CYTOGEN to Chiron, which consisted of the reacquisition price of $1.0 million, was partially offset by a $127,000 receivable from Chiron, and will be paid over three years and without interest, as follows: $200,000 in 1995, which amount has been paid; $300,000 in 1996; and $377,000 in 1997. Payment is secured by a mortgage covering approximately 11 acres of undeveloped real property owned by the Company in Ewing, New Jersey. This obligation is non-recourse to the Company. See Note 11 to the Consolidated Financial Statements. In December 1995 and January 1996, CYTOGEN entered into agreements with Faulding and CISbio, respectively, to market and distribute OncoScint CR/OV outside the U.S. Faulding is currently pursuing the necessary regulatory approvals in Canada. CISbio has advised the Company that it expects to relaunch OncoScint CR/OV during 1996 in eight Western European countries and four Eastern European countries where the product is approved for marketing. In addition to one-time cash payments made upon execution of the agreements, each of Faulding and CISbio will be required to make a payment upon the achievement of a milestone, payments for the purchase of products and royalties on net sales, if any. Beginning October 1995, as a result of the Cellcor merger, the Company's product related revenues included the cost recovery related to the treatment of patients receiving ALT under a compassionate protocol, and will include the cost recovery associated with the Treatment IND. Research Services and Licenses. In December 1994, CYTOGEN entered into a license agreement with DuPont Merck. Pursuant to the terms of the DP/Merck Agreement, CYTOGEN received from DuPont Merck an up-front cash payment of $1.0 million in December 1994 and $1.3 million in January 1995 to fund additional clinical programs to expand the use and marketing of Quadramet. The DP/Merck Agreement further provides for future payments of up to $2.9 million towards additional clinical programs, a $2.0 million milestone payment if and when Quadramet receives FDA approval and royalty payments based on sales, including guaranteed minimum payments. In February 1995, CYTOGEN acquired CytoRad by merging CytoRad with and into a wholly-owned subsidiary of CYTOGEN. As a result of the merger, the Company will not recognize any further research contract revenues from CytoRad and $11.7 million of CytoRad's cash and securities, before payment of certain transaction costs, were acquired by the Company. See Note 5 to the Consolidated Financial Statements. CYTOGEN acquired an exclusive license in the U.S. from Dow for Quadramet in 1993. See Note 7 to the Consolidated Financial Statements. In the third quarter of 1995, upon the filing of the NDA for Quadramet with FDA, CYTOGEN recorded a one-time licensing fee of $2.0 million from Dow for its use of the Quadramet NDA filing package. At the same time, CYTOGEN was required to pay to Dow $1.0 million, which amount was offset against the $2.0 million payment from Dow. In addition, the Company will be required to pay to Dow $4.0 million if and when Quadramet receives FDA approval. The agreement provides for additional payments by the Company upon achievement of certain milestones and royalties on net sales of the product once commercialized, including guaranteed minimum payments. In December 1995, the Company and Elan entered into the Elan Agreement, under which Elan will provide the funding necessary for the Company to fulfill its obligations under the research program with aggregate 26 payments for work performed by CYTOGEN not to exceed $1.5 million during the first sixteen months of the research program. The Company's capital and operating requirements, as described above, may further change depending upon several factors, including: (i) the amount of resources which the Company devotes to clinical evaluations and the establishment of manufacturing, marketing and sales capabilities; (ii) results of preclinical testing, clinical trials and research and development activities; and (iii) competitive and technological developments. The Company plans to continue to control spending and expects that its existing cash and short term investments of $28.8 million at December 31, 1995, together with other financing and acquisition opportunities which may become available (including sales of stock pursuant to the put rights described above), and the receipt of additional funds from DuPont Merck and Elan in accordance with the terms of the DP/Merck Agreement and Elan Agreement, respectively, will be adequate to support the Company's operations into 1997. The Company's financial strategy is to meet its capital and operating requirements through revenues from existing products, the establishment of strategic marketing alliances and research and development partnerships, the acquisition, in-licensing and development of other technologies, products or services, subcontract manufacturing revenues, license and contract revenues, sale of equity securities as market conditions permit, interest income, and a continued commitment to control spending. This strategy may increase short term expenses and, if successful, increase long term revenues. In addition, certain of these transactions are likely to require payments by the Company in either cash or stock in addition to the costs associated with developing and marketing any product or technology. There can be no assurance as to the strategy's success or that any resulting funds will be sufficient to meet the Company's cash requirements through the time that product related resources are sufficient to cover the Company's operating expenses. The foregoing discussion contains historical information as well as forward looking statements that involve a number of risks and uncertainties. In addition to the risks discussed above, among other factors that could cause actual results to differ materially from expected results are the following: (i) the ability of the Company to maintain any development schedules; (ii) the results of clinical studies; (iii) market acceptance of the Company's products, including programs designed to facilitate use of the products, such as the PIE Program and the use of teleradiology; (iv) the profitability of its products; (v) the ability to attract, and the ultimate success of strategic partnering arrangements, collaborations, and acquisition candidates; (vi) the ability of the Company and its partners to identify new products as a result of those collaborations that are capable of achieving FDA approval, that are cost-effective alternatives to existing products and that are ultimately accepted by the key users of the product; (vii) the success of the Company's distributors in obtaining marketing approvals in Canada and in additional European countries, in achieving milestones and achieving sales of products resulting in royalties; and (viii) the Company's ability to access the capital markets in the future for continued funding of existing projects and for the pursuit of new projects. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to Item 8 is submitted as a separate section of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 27 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Company's Directors is incorporated by reference to the information contained under the captions "Nominees for Directors" and "Security Ownership of Management and Principal Stockholders" in the Company's Proxy Statement. One of the Company's Directors, Bruce R. Ross, is not included in the Proxy Statement because he has advised the Company of his decision not to stand for re-election at the Company's 1996 Annual Meeting of Stockholders. Information concerning Mr. Ross is set forth below. Information regarding the Company's Executive Officers is set forth in Part I of this Form 10-K and incorporated by reference to the information contained under the caption "Security Ownership of Management and Principal Stockholders" in the Company's Proxy Statement. Bruce R. Ross, 55, has served as a director of the Company since April 1994. Mr. Ross was a Senior Vice President of Bristol-Myers Squibb Company's Pharmaceutical Group until his retirement on March 31, 1994. He joined Bristol-Myers in 1967 and progressed through a variety of staff and line management positions in Syracuse, New York; Evansville, Indiana; New York, New York; and most recently, Princeton, New Jersey. He had responsibility for Bristol-Myers Squibb's domestic pharmaceutical operations and the development of its oncology business. Prior to joining Bristol-Myers Squibb, he worked as a researcher in the field of cancer at Upstate Medical Center in Syracuse, New York. Mr. Ross is a member of the Board of Directors of Sugen, Inc. and of the Fox Chase Cancer Center in Philadelphia, is actively involved with the American Cancer Society, and is the Chief Executive Officer of the National Comprehensive Cancer Network. He holds a B.S. degree in Microbiology from Syracuse University. ITEM 11. EXECUTIVE COMPENSATION Incorporated by reference to the information contained under the caption "Executive Compensation" in the Company's Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Incorporated by reference to the information contained under the caption "Security Ownership of Management and Principal Stockholders" in the Company's Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Incorporated by reference to the information contained under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions" in the Company's Proxy Statement. 28 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as a part of the Report: (1) and (2) The response to this portion of Item 14 is submitted as a separate section of this Form 10-K. (3) Exhibits--Each management contract or compensatory plan or arrangement required to be filed as an exhibit hereto pursuant to Item 14(c) of this report is listed in Exhibit Nos. 10.8.1, 10.8.2, 10.8.3, 10.9.1, 10.9.2, 10.9.3, 10.23, 10.26, 10.34 and 10.35 below.
EXHIBIT NO. ------- 2.1 --Agreement and Plan of Merger, dated November 15, 1994 among the registrant, CytoRad Acquisition Corp., a wholly-owned subsidiary of the registrant, and CytoRad Incorporated.(17) 2.2.1 --Agreement and Plan of Merger, dated June 15, 1995 among the registrant, Cellcor Acquisition Corp. (formerly known as Small-C Acquisition Corp.), a wholly-owned subsidiary of the registrant, and Cellcor, Inc.(20) 2.2.2 --First Amendment to Agreement and Plan of Merger, dated September 7, 1995 by and among the registrant, Cellcor Acquisition Corp. and Cellcor, Inc.(23) 3.1 --Restated Certificate of Incorporation, as amended.(14) 3.2 --By-Laws of CYTOGEN Corporation, as amended.(14) 4.1 --Specimen of Common Stock Certificate.(5) 4.2 --Specimen of Warrant Certificate to purchase CYTOGEN Corporation Common Stock, issued to stockholders of CytoRad Incorporated.(11) 4.3 --Specimen of Unit Certificate.(11) 4.4 --Form of Warrant Agreement, including form of warrant, exercisable through January 31, 1997, to purchase 1.0 share of CYTOGEN Corporation Common Stock at $8.00 per share.(14) 10.1 --Voting and Subscription Agreement, dated June 15, 1995 among the registrant, Cellcor Acquisition Corp. and the entities listed on Schedule I thereto.(21) 10.2 --Form of Registration Rights Agreement for Common Stock between CYTOGEN Corporation and certain persons listed on Schedule A thereto.(22) 10.3.1 --Agreement effective as of June 2, 1983 between American Cyanamid Company and CYTOGEN Corporation.(1) 10.3.2 --First Amendment dated January 29, 1985 to License Agreement between American Cyanamid Company and CYTOGEN Corporation.(1) 10.4.1 --Non-Exclusive License Agreement dated April 24, 1989 between Eli Lilly and Company and CYTOGEN Corporation.(7) 10.4.2 --Non-Exclusive License Agreement dated April 24, 1989 between Eli Lilly and Company S.A. and CYTOGEN Corporation.(7) 10.4.3 --Stock Purchase Agreement, dated as of August 22, 1989, between Eli Lilly and Company and CYTOGEN Corporation.(6) 10.5.1 --Production and Supply Agreement, dated September 29, 1989, between CYTOGEN Corporation and Celltech Limited.(10)
29
EXHIBIT NO. ------- 10.5.2 --Amendment No. 1 to the Production and Supply Agreement, dated September 15, 1991, between CYTOGEN Corporation and Celltech Limited.(11)* 10.5.3 --Agreement, dated November 7, 1991, between CYTOGEN Corporation and Celltech Limited (the "Celltech Agreement").(11)* 10.5.4 --Amendment No. 3 to the Production and Supply Agreement, dated January 9, 1992, between CYTOGEN Corporation and Celltech Limited.(13)* 10.5.5 --Amendment No. 4 to the Production and Supply Agreement, dated January 9, 1992, between CYTOGEN Corporation and Celltech Limited.(13)* 10.5.6 --Amendment No. 5 to the Production and Supply Agreement, dated March 10, 1992, between CYTOGEN Corporation and Celltech Limited.(13)* 10.5.7 --Amendment No. 1 to the Celltech Agreement, dated March 9, 1992, between CYTOGEN Corporation and Celltech Limited.(13)* 10.6.1 --Equipment Lease Agreement dated as of June 28, 1988, between MNC Leasing Corporation and CYTOGEN Corporation.(3) 10.6.2 --Equipment Lease Agreement Assignment to General Electric Capital Corporation, dated December 20, 1990, from MNC Leasing Corporation.(9) 10.7.1 --Lease Agreement, dated as of March 16, 1987, by and between Peregrine Investment Partners I, as lessor, and CYTOGEN Corporation, as lessee.(2) 10.7.2 --Amendment, dated as of October 16, 1987, to Lease Agreement between Peregrine Investment Partners I and CYTOGEN Corporation.(4) 10.7.3 --Lease Agreement, dated November 14, 1989 between College Road Associates, Limited Partnership and CYTOGEN Corporation.(10) 10.7.4 --Lease Agreement, dated as of February 20, 1986, between College Road Associates and CYTOGEN Corporation, as amended on June 27, 1986.(8) 10.7.5 --Lease Agreement, dated as of December 23, 1981, by and between The Trustees of Princeton University and CYTOGEN Corporation, as amended on March 27, 1986.(8) 10.7.6 --Lease Agreement, dated as of November 26, 1991, between College Road Associates, Limited Partnership and CYTOGEN Corporation.(11) 10.8.1 --1989 Employee Stock Option Plan.(4) 10.8.2 --CYTOGEN Corporation Standard Form Employee Executive Officer Incentive Stock Option Agreement.(9) 10.8.3 --CYTOGEN Corporation Standard Form Employee Executive Officer Non- Qualified Stock Option Agreement.(9) 10.9.1 --1988 Stock Option Plan for Non-Employee Directors.(4) 10.9.2 --CYTOGEN Corporation Standard Form Non-Employee Director Non- Qualified Stock Option Agreement.(9) 10.9.3 --CYTOGEN Corporation Standard Form 1992 Employee Non-Qualified Stock Option Agreement.(13) 10.10 --Standard Form of Indemnification Agreement entered into between CYTOGEN Corporation and its officers, directors, and consultants.(6) 10.11 --1989 Stock Option Policy for Outside Consultants.(6)
30
EXHIBIT NO. ------- 10.12 --Stock Purchase Option Agreement, dated February 13, 1992, among CYTOGEN Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Shearson Lehman Brothers, and certain other parties as underwriters.(11) 10.13 --Agreement, dated as of December 31, 1992, by and among CYTOGEN Corporation, Unilever N.V., Unilever PLC, Unilever UK Central Resources Ltd. and Unipath Ltd.(13)* 10.14 --License Agreement dated as of March 31, 1993 between CYTOGEN Corporation and The Dow Chemical Company.(12)* 10.15 --Investment Agreement dated as of February 24, 1994 between CYTOGEN Corporation and Fletcher Capital Markets, Inc.(18) 10.16.1 --Amended and Restated Investment Agreement, dated as of May 6, 1994, between CYTOGEN Corporation and Fletcher Capital Markets, Inc.(15) 10.16.2 --Amendment to the Option Agreement between CYTOGEN Corporation and Fletcher Capital Markets, Inc. dated August 10, 1995.(22) 10.16.3 --Second Amendment to the Option Agreement between CYTOGEN Corporation and Fletcher Capital Markets, Inc. dated November 15, 1995. 10.17 --License Agreement by and between CYTOGEN Corporation and The DuPont Merck Pharmaceutical Company.(14)* 10.18 --Agreement to Terminate License, Supply and Marketing Agreement, dated as of November 1, 1994, between CYTOGEN Corporation and Knoll Pharmaceutical Company.(14) 10.19 --Order Fulfillment Agreement, dated as of November 1, 1994, between CYTOGEN Corporation and Knoll Pharmaceutical Company.(14) 10.20 --Letter Agreement, dated November 1, 1994, between CYTOGEN Corporation and Knoll Pharmaceutical Company.(14) 10.21 --Disengagement Agreement, dated December 30, 1994, between CYTOGEN Corporation and Chiron B.V.(14)* 10.22 --1992 CYTOGEN Corporation Employee Stock Option Plan II, as amended.(14) 10.23 --Stock Compensation and Performance Option Agreement, dated December 8, 1994, between CYTOGEN Corporation and Dr. Thomas J. McKearn.(14) 10.24 --License Agreement, dated March 10, 1993, between CYTOGEN Corporation and The University of North Carolina at Chapel Hill, as amended.(19)* 10.25 --Option and License Agreement, dated July 1, 1993, between CYTOGEN Corporation and Sloan-Kettering Institute for Cancer Research.(19)* 10.26 --Description of Arrangement with Somerset Central Corporation. 10.27 --Investment Agreement between CYTOGEN Corporation and Fletcher Fund L.P. dated September 8, 1995.(22) 10.28 --Technology Licensing and Service Agreement, dated March 14, 1994, between Cellcor, Inc. and SRL, Inc.(16) 10.29 --Lease Agreement between Cellcor, Inc. and Leon H. Cohen, Trustee of 200 Wells Avenue Realty Trust, dated January 31, 1990, as amended.(24) 10.30 --CYTOGEN Corporation 1995 Stock Option Plan. 10.31 --Research and Development and Option Agreement, dated December 14, 1995, between CYTOGEN Corporation and Elan Corporation, plc.**
31
EXHIBIT NO. ------- 10.32 --Distribution Agreement, dated December 22, 1995, between CYTOGEN Corporation and Faulding (Canada) Inc.** 10.33 --Distribution Agreement, dated January 16, 1996, between CYTOGEN Corporation and CIS biointernational.** 10.34 --Severance Agreement effective as of January 1, 1994 between CYTOGEN Corporation and Thomas J. McKearn, M.D., Ph.D. 10.35 --Description of Severance Agreement with Richard J. Walsh. 10.36 --Horosziewicz-CYTOGEN Agreement, dated April 20, 1989, between CYTOGEN Corporation and Julius S. Horosziewicz, M.D., DMSe.** 21 --Subsidiaries of CYTOGEN Corporation. 23 --Consent of Arthur Andersen LLP. 27 --Financial Data Schedule (submitted to SEC only in electronic format). 99 --Standard Form of Confidentiality Agreement (as executed by all officers and employees).(2)
- -------- (1) Filed as an exhibit to Form S-l Registration Statement (No. 35-5533) and incorporated herein by reference. (2) Filed as an exhibit to Form 10-K Annual Report for Year Ended January 2, 1988 (Commission File No. 0-14879) and incorporated herein by reference. (3) Filed as an exhibit to Form 10-K Annual Report for Year Ended December 31, 1988 (Commission File No. 0-14879) and incorporated herein by reference. (4) Filed as an exhibit to Form S-8 Registration Statement (No. 33-30595) and incorporated herein by reference. (5) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement (No. 33-5533) and incorporated herein by reference. (6) Filed as an exhibit to Amendment No. 1 to Form S-1 Registration Statement (No. 33-31280) and incorporated herein by reference. (7) Filed as an exhibit to Pre-Effective Amendment No. 2 to Form S-1 Registration Statement (No. 33-31280) and incorporated herein by reference. (8) Filed as an exhibit to Pre-Effective Amendment No. 1 to Form S-1 Registration Statement (No. 33-35430) and incorporated herein by reference. (9) Filed as an exhibit to Form 10-K Annual Report for the Year Ended December 29, 1990 (Commission File No. 0-14879) and incorporated herein by reference. (10) Filed as an exhibit to Amendment No. 1 to Form 10-K Annual Report for the Year Ended December 29, 1990 (Commission File No. 0-14879) and incorporated herein by reference. (11) Filed as an exhibit to Form 10-K Annual Report for the Year Ended December 28, 1991 (Commission File No. 0-14879) and incorporated herein by reference. (12) Filed as an exhibit to Form 10-Q/A-1 Amendment to Quarterly Report for the quarter ended July 3, 1993 (Commission File No. 0-14879) and incorporated herein by reference. (13) Filed as an exhibit to Form 10-K Annual Report for the Year Ended January 2, 1993 (Commission File No. 0-14879) and incorporated herein by reference. (14) Filed as an exhibit to Form S-4 Registration Statement (No. 33-88612) and incorporated herein by reference. (15) Filed as an exhibit to Form 10-Q Quarterly Report for the quarter ended March 31, 1994 (Commission File No. 0-14879), as amended, and incorporated herein by reference. (16) Filed as Exhibit 10.1 to Cellcor, Inc.'s Form 10-Q Quarterly Report for the quarter ended March 31, 1994 (Commission File No. 0-19823) and incorporated herein by reference. (17) Filed as an exhibit to Form 8-K dated November 15, 1994 (Commission File No. 0-14879) and incorporated herein by reference. (18) Filed as an exhibit to Form 10-K Annual Report for the Year Ended January 1, 1994 (Commission File No. 0-14879) and incorporated herein by reference. 32 (19) Filed as an exhibit to Form 10-K Annual Report for the Year Ended December 31, 1994 (Commission File No. 0-14879) and incorporated herein by reference. (20) Filed as an exhibit to Form 8-K dated June 15, 1995 (Commission File No. 0-14879) and incorporated herein by reference. (21) Filed as Annex B to the Joint Proxy Statement/Prospectus dated July 17, 1995 and incorporated herein by reference. (22) Filed as an exhibit to Form S-4 Registration Statement (No. 33-62617) and incorporated herein by reference. (23) Filed as Annex A to the Joint Proxy Statement/Prospectus constituting part of the Registration Statement on Form S-4 (No. 33-62617) and incorporated herein by reference. (24) Filed as Exhibit 10.09 to Cellcor, Inc.'s Form S-1 Registration Statement (No. 33-45448) and incorporated herein by reference. * CYTOGEN Corporation has received confidential treatment of certain provisions contained in this exhibit pursuant to an order issued by the Securities and Exchange Commission. The copy filed as an exhibit omits the information subject to the confidentiality grant. ** CYTOGEN Corporation has requested confidential treatment of certain provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request. (b) Reports on Form 8-K: The Company filed two Reports on Form 8-K during the fourth quarter of 1995 and the dates of such reports were October 16, 1995 and October 20, 1995. The Form 8-K dated October 16, 1995 reported on "Item 5. Other Events" with respect to a press release announcing the results of the special stockholders' meeting. The Form 8-K dated October 20, 1995 reported on "Item 2. Acquisition or Disposition of Assets" regarding the completion of the acquisition of Cellcor pursuant to the Agreement and Plan of Merger and filed therein were the following financial statements: (a) Cellcor Audited Balance Sheets as of December 31, 1994 and 1993, Statements of Operations for the three years ended December 31, 1994, Statements of Cash Flows for the three years ended December 31, 1994, Statements of Stockholders' Equity for the three years ended December 31, 1994 and related Notes to Financial Statements; (b) Cellcor Unaudited Balance Sheet as of June 30, 1995, Statements of Operations for six months ended June 30, 1995 and 1994, Statements of Cash Flows for six months ended June 30, 1995 and 1994 and related Notes to Financial Statements; and (c) CYTOGEN and Subsidiaries Unaudited Pro Forma Condensed Combined Balance Sheet as of June 30, 1995, Statements of Operation for the year ended December 31, 1995 and for the six months ended June 30, 1995 and related Notes to Financial Statements. (c) Exhibits: The Exhibits filed with this Form 10-K are listed above in response to Item 14(a)(3). (d) Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this Form 10-K. 33 SIGNATURES PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON THE 26TH DAY OF MARCH, 1996. CYTOGEN CORPORATION /s/ Thomas J. McKearn By __________________________________ THOMAS J. MCKEARN PRESIDENT AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Thomas J. McKearn and T. Jerome Madison or either of them, his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that either of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED. SIGNATURE TITLE DATE /s/ William C. Mills III Chairman of the March 26, 1996 - ------------------------------------- Board of Directors WILLIAM C. MILLS III /s/ Thomas J. McKearn President, Chief March 26, 1996 - ------------------------------------- Executive Officer THOMAS J. MCKEARN and Director (Principal Executive Officer) /s/ T. Jerome Madison Vice President, March 26, 1996 - ------------------------------------- Chief Financial T. JEROME MADISON Officer, Secretary and Director (Principal Financial and Accounting Officer) /s/ Charles E. Austin Director March 26, 1996 - ------------------------------------- CHARLES E. AUSTIN 34 SIGNATURE TITLE DATE /s/ John E. Bagalay, Jr. Director March 26, 1996 - ------------------------------------- JOHN E. BAGALAY, JR. /s/ Ronald J. Brenner Director March 26, 1996 - ------------------------------------- RONALD J. BRENNER /s/ Robert F. Hendrickson Director March 26, 1996 - ------------------------------------- ROBERT F. HENDRICKSON /s/ Donald E. O'Neill Director March 26, 1996 - ------------------------------------- DONALD E. O'NEILL /s/ Bruce R. Ross Director March 26, 1996 - ------------------------------------- BRUCE R. ROSS 35 ANNUAL REPORT ON FORM 10-K FISCAL YEAR ENDED DECEMBER 31, 1995 ITEM 8, ITEM 14(A)(1) AND (2) AND ITEM 14(D) CYTOGEN CORPORATION PRINCETON, NEW JERSEY 36 FORM 10-K ITEM 14(A)(1) AND (2) AND ITEM 14(D) CYTOGEN CORPORATION AND SUBSIDIARIES LIST OF CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (1) Consolidated Financial Statements The following consolidated financial statements of CYTOGEN Corporation and Subsidiaries together with the related notes and report of Arthur Andersen LLP, independent public accountants, are included in Item 8:
PAGE IN FORM 10-K --------- Report of Independent Public Accountants............................. 38 Consolidated Balance Sheets as of December 31, 1995 and 1994......... 39 Consolidated Statements of Operations--Years Ended December 31, 1995, December 31, 1994 and January 1, 1994............................... 40 Consolidated Statements of Stockholders' Equity--Years Ended December 31, 1995 and December 31, 1994 and January 1, 1994.................. 41 Consolidated Statements of Cash Flows--Years Ended December 31, 1995, December 31, 1994 and January 1, 1994............................... 42 Notes to Consolidated Financial Statements........................... 43 (2) Consolidated Financial Statement Schedules The following consolidated financial statement schedule of CYTOGEN Corporation and Subsidiaries is included in Item 14(d): Schedule II--Valuation and Qualifying Accounts....................... 54
37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To CYTOGEN CORPORATION: We have audited the accompanying consolidated balance sheets of CYTOGEN Corporation (a Delaware Corporation) and Subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CYTOGEN Corporation and Subsidiaries as of December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, PA February 2, 1996 (except with respect to the matter discussed in Note 5 as to which the date is February 29, 1996) 38 CYTOGEN CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1995 1994 --------- --------- ASSETS: Current Assets: Cash and cash equivalents.............................. $ 27,551 $ 7,700 Short term investments................................. 1,201 - Restricted Cash........................................ 383 - Accounts receivable, net of allowance for doubtful accounts of $536 and $526 in 1995 and 1994, respectively.......................................... 284 294 Receivable from CytoRad Incorporated................... - 810 Inventories............................................ 356 3,159 Other current assets................................... 360 437 --------- --------- Total current assets................................. 30,135 12,400 --------- --------- Property and Equipment: Leasehold improvements................................. 9,850 9,005 Equipment and furniture................................ 6,535 5,923 --------- --------- 16,385 14,928 Less--Accumulated depreciation and amortization........ (10,923) (9,377) --------- --------- Net property and equipment........................... 5,462 5,551 --------- --------- Other Assets............................................. 1,552 1,739 --------- --------- $ 37,149 $ 19,690 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current Liabilities: Accounts payable and accrued liabilities............... $ 6,385 $ 6,371 Current portion of long term liabilities............... 2,213 2,641 --------- --------- Total current liabilities............................ 8,598 9,012 --------- --------- Long Term Liabilities.................................... 3,275 4,310 --------- --------- Commitments and Contingencies (Note 18) Redeemable Common Stock, 250,000 shares issued and outstanding in 1994, at redemption value................ - 2,000 --------- --------- Stockholders' Equity: Preferred stock, $.01 par value, 5,400,000 shares authorized--none issued............................... - - Common stock, $.01 par value, 69,600,000 shares authorized, 46,040,000 and 24,658,000 shares issued and outstanding in 1995 and 1994, respectively........ 460 247 Additional paid-in capital............................. 253,122 159,941 Unrealized gains on short term investments............. 34 - Accumulated deficit.................................... (228,340) (155,820) --------- --------- Total stockholders' equity........................... 25,276 4,368 --------- --------- $ 37,149 $ 19,690 ========= =========
The accompanying notes are an integral part of these statements. 39 CYTOGEN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 1994 1993 -------- -------- -------- Revenues: Product related................................ $ 1,377 $ 1,411 $ 1,591 License and contract........................... 3,608 1,047 8,763 -------- -------- -------- Total Revenues............................... 4,985 2,458 10,354 -------- -------- -------- Operating Expenses: Research and development....................... 22,594 20,321 24,844 Selling and marketing.......................... 4,493 5,536 9,399 Acquisition of technology and marketing rights. 45,878 4,647 - General and administrative..................... 4,804 3,962 7,016 -------- -------- -------- Total Operating Expenses..................... 77,769 34,466 41,259 -------- -------- -------- Loss from Operations............................. $(72,784) $(32,008) $(30,905) -------- -------- -------- Gain (loss) on investments, net.................. 857 (470) 1,676 Interest expense................................. (593) (328) - -------- -------- -------- Net Loss......................................... $(72,520) $(32,806) $(29,229) ======== ======== ======== Net Loss per Common Share........................ $ (2.11) $ (1.38) $ (1.38) ======== ======== ======== Weighted Average Common Shares Outstanding....... 34,333 23,822 21,121 ======== ======== ========
The accompanying notes are an integral part of these statements. 40 CYTOGEN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
UNREALIZED ADDITIONAL GAINS ON COMMON PAID-IN SHORT-TERM ACCUMULATED STOCK CAPITAL INVESTMENTS DEFICIT ------ ---------- ----------- ----------- Balance, January 2, 1993............. $208 $138,988 $ - $ (93,785) Granted 500 shares of common stock... - 2 - - Issued 287,120 shares of common stock upon exercise of stock options...... 3 1,401 - - Proceeds from warrants issued in connection with CytoRad Incorporated--1993 portion.......... - 3,636 - - Issued warrants to purchase 260,000 shares of common stock in connection with acquired technology............ - 507 - - Net loss............................. - - - (29,229) ---- -------- ---- --------- Balance, January 1, 1994............. 211 144,534 - (123,014) Issued 3,400,000 shares of common stock............................... 34 14,374 - - Issued 197,942 shares of common stock per settlement of lawsuit........... 2 998 - - Granted 10,000 shares of common stock............................... - 27 - - Issued 2,680 shares of common stock upon exercise of stock options...... - 8 - - Net loss............................. - - - (32,806) ---- -------- ---- --------- Balance, December 31, 1994........... 247 159,941 - (155,820) Issued 2,830,182 shares of common stock............................... 28 11,520 - - Redemption of common stock........... 3 1,372 - - Issued 6,035,235 shares of common stock in connection with the acquisition of CytoRad Inc.......... 60 29,638 - - Issued 4,713,565 shares of common stock in connection with the acquisition of Cellcor Inc. (see Note 1)............................. 47 21,164 - - Issued 5,144,388 shares of common stock in connection with a subscription offering............... 51 19,480 - - Granted 15,000 shares of common stock............................... - 50 - - Issued 2,393,000 shares of common stock upon exercise of stock options............................. 24 9,957 - - Unrealized gains on investments...... - - 34 - Net loss............................. - - - (72,520) ---- -------- ---- --------- Balance, December 31, 1995........... $460 $253,122 $ 34 $(228,340) ==== ======== ==== =========
The accompanying notes are an integral part of these statements. 41 CYTOGEN CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (ALL AMOUNTS IN THOUSANDS)
1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Loss........................................ $(72,520) $(32,806) $(29,229) Adjustments to Reconcile Net Loss to Cash Used for Operating Activities: Acquisition of Marketing and Technology Rights....................................... 45,878 3,220 - Depreciation and Amortization................. 1,546 1,009 1,297 Imputed Interest.............................. 593 328 - Idle Equipment................................ - - 215 Inventory Writedown........................... 2,926 1,074 2,346 Writedown of Land............................. - - 600 Warrants Issued to Acquire Technology......... - - 507 Stock Grants.................................. 78 62 7 Amortization of Deferred Charges.............. (17) (110) (84) Changes in Assets and Liabilities, Net of Effect from Acqusitions: Accounts receivable, net.................... (255) (71) 2,531 Receivable from CytoRad Incorporated........ - (62) 480 Inventories................................. (82) (145) (998) Other current assets........................ 469 238 1,328 Other assets................................ 291 (327) 1 Accounts payable and accrued liabilities.... (2,170) 667 5,620 Other liabilities........................... (2,461) (722) - -------- -------- -------- Total adjustments......................... 46,796 5,161 13,850 -------- -------- -------- Net cash used for operating activities........ (25,724) (27,645) (15,379) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Net Cash Acquired in CytoRad Acquisition (See Note 5)........................................ 10,455 - - Net Cash Used to Acquire Cellcor Inc. (See Note 2)............................................. (3,463) - - (Increase) Decrease in Short Term Investments... (1,167) 19,690 13,171 Increase in Restricted Cash..................... (383) - - Purchases of Property and Equipment............. (595) (2,835) (1,555) -------- -------- -------- Net cash provided by investing activities..... 4,847 16,855 11,616 -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from Issuance of Common Stock.......... 41,060 14,416 1,403 Redemption of Common Stock...................... (332) - - Proceeds from Warrants Issued in Connection with CytoRad Incorporated........................... - - 3,557 -------- -------- -------- Net cash provided by financing activities..... 40,728 14,416 4,960 -------- -------- -------- Net Increase in Cash and Cash Equivalents....... 19,851 3,626 1,197 Cash and Cash Equivalents, Beginning of Year.... 7,700 4,074 2,877 -------- -------- -------- Cash and Cash Equivalents, End of Year.......... $ 27,551 $ 7,700 $ 4,074 ======== ======== ========
The accompanying notes are an integral part of these statements. 42 CYTOGEN CORPORATION AND SUDSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Business CYTOGEN Corporation ("CYTOGEN" or the "Company") is a biopharmaceutical company engaged in the discovery, development, manufacture and marketing of products to better diagnose and treat cancer and other related immunologic diseases. In November 1995, FDA approved the PLA supplement for OncoScint CR/OV, expanding the approved indication to include repeat administration of the product. OncoScint CR/OV was initially approved by FDA in December 1992 but restricted to a single administration per patient. In August 1995, the NDA for Quadramet (or Samarium 153 EDTMP), CYTOGEN's treatment for the severe pain associated with cancer that spreads to the bone, was officially filed by FDA. In March 1995, the PLA for ProstaScint, CYTOGEN's prostate cancer diagnostic imaging product, was officially filed by FDA. In 1991, CYTOGEN received approval for the sale of its OncoScint colorectal cancer imaging product in Europe. In October 1995, CYTOGEN acquired Cellcor. Cellcor, a wholly-owned subsidiary of CYTOGEN, is a biotechnology company engaged in the development and commercialization of cellular therapies. References herein to the "Company" may mean CYTOGEN and Cellcor on a consolidated basis taken as a whole, where appropriate. In order to develop, manufacture and commercialize its products effectively, the Company will require additional financing. Operations of the Company are subject to certain risks and uncertainties including, but not limited to uncertainties related to product market acceptance and clinical trials, technological uncertainty, uncertainties of future profitability, access to capital, dependence on collaborative relationships and key personnel. Basis of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Fiscal Year Beginning in 1994, the Company changed from a fiscal year end to a calendar year end. Previously, the Company operated on a 52-53 week fiscal year ending on the Saturday nearest to December 31. References to 1993 relate to the fiscal year ended January 1, 1994. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and all highly-liquid investments with a maturity of three months or less at the time of purchase. Short Term Investments Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. At December 31, 1995, the Company's short term investments are classified as available for sale and are carried at fair value based on quoted market prices. Differences between an investment's amortized cost and fair value are charged directly to stockholders' equity, net of income taxes. Accordingly, a net unrealized gain of approximately $34,000 has been recorded as a separate component of stockholders' equity at December 31, 1995. 43 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Restricted Cash The Company has entered into equipment lease financing arrangements that require the issuance of letters of credit that are secured by certain cash and cash equivalents. The aggregate amount of these cash and cash equivalents totaled $383,000 and are segregated and classified as restricted cash in the accompanying consolidated balance sheets. Inventory The Company's inventory is primarily related to OncoScint CR/OV, its FDA- approved monoclonal antibody-based imaging agent for the diagnosis of colorectal and ovarian cancers. Inventory is stated at the lower of cost or market using the first-in, first-out method and consisted of:
1995 1994 -------- ---------- Raw Materials............................................ $ 46,000 $2,771,000 Work in Process.......................................... - 49,000 Finished Goods........................................... 310,000 339,000 -------- ---------- $356,000 $3,159,000 ======== ==========
At December 31, 1995 and 1994, inventory is net of reserves of $3.8 million and 1.5 million, respectively. Property and Depreciation Equipment and furniture are stated at cost net of depreciation and a $215,000 reserve for idle equipment. Leasehold improvements are amortized on a straight-line basis over the lease period or the estimated useful life, whichever is shorter. Equipment and furniture are depreciated on a straight- line basis over five years. Expenditures for repairs and maintenance are expensed as incurred. For 1995, 1994 and 1993, repairs and maintenance expenses were $274,000, $382,000 and $310,000, respectively. Other Assets Other assets consist primarily of undeveloped real property with a net book value of $1,284,000, which is valued at the lower of cost or market (see Note 11). Revenue Recognition Product related revenues include (i) product sales by CYTOGEN to its customers and its former U.S. and European distributors, Knoll and Chiron, respectively, (ii) co-promotion revenues, which resulted from the sale of commercial product by Knoll to its customers, and (iii) royalty payments on product sales by Chiron to its customers. Product sales are recognized upon shipment of finished goods. Co-promotion revenues were recognized upon the shipment by Knoll of product to its customers. Royalty revenues were recognized when Chiron shipped product to its customers. See Notes 6 and 11 for discussion of the changes in CYTOGEN's relationships with Knoll and Chiron, respectively. Beginning on October 20, 1995, as a result of CYTOGEN's acquisition of Cellcor (see Note 2), product related revenues also include the recovery of costs associated with the treatment of patients who have received ALT for metastatic renal cell carcinoma under a compassionate protocol, based on the expected payments from third party payors and patients. License and contract revenues include milestone payments and fees under collaborative agreements with third parties, the sale of research services and materials, and revenues from other miscellaneous sources. Revenues from milestone payments are recognized when all parties concur that the events stipulated in the agreement have been achieved. Revenues from cost-plus contracts are recognized when the costs are incurred. 44 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Research and Development Research and development expenditures consist of projects conducted by the Company and payments made to sponsored research programs and consultants. All research and development costs are expensed as incurred. Research and development expenditures for customer sponsored programs were $200,000, $29,000 and $9,112,000 in 1995, 1994 and 1993, respectively. Patent Costs Patent costs are expensed as incurred. Common Stock Outstanding As a result of the Cellcor merger, the issued and outstanding shares of Cellcor common stock and preferred stock ("Cellcor Shares") were converted into the right to receive shares of CYTOGEN common stock. As of December 31, 1995, certain holders of Cellcor Shares had not yet exchanged their Cellcor Shares for shares of CYTOGEN common stock. For accounting purposes, all Cellcor Shares were deemed exchanged for issued and outstanding shares of CYTOGEN common stock as of the date of the Cellcor merger. See Note 2. Loss Per Share Net loss per common share is based upon the weighted average common shares outstanding during each period. Common stock equivalents and other potentially dilutive securities are not included as their effect is antidilutive. New Accounting Pronouncements The Financial Accounting Standards Board has issued SFAS No. 123, "Accounting for Stock-Based Compensation." The Company is required to adopt this standard for the year ending December 31, 1996. The Company has elected to adopt the disclosure requirement of this pronouncement. The adoption of this pronouncement will have no impact on the Company's statement of operations. Reclassification Certain reclassifications have been reflected in the 1993 and 1994 financial statements to conform with the 1995 presentation. Supplemental Schedule of Noncash Financing Activity In 1994, CYTOGEN issued 197,942 shares of common stock in settlement of a lawsuit (see Note 19). 2. CELLCOR, INC.: CYTOGEN entered into an Agreement and Plan of Merger dated June 15, 1995, as amended (the "Merger Agreement"), with Cellcor. At the effective time of the Cellcor merger, each outstanding share of Cellcor common stock was converted into the right to receive 0.60 shares of CYTOGEN common stock and each outstanding share of Cellcor Convertible Preferred Stock was converted into the right to receive 218.94 shares of CYTOGEN common stock. In addition, holders of record of Cellcor common stock were granted the non-transferable right to purchase for cash up to an aggregate of approximately $26 million of CYTOGEN common stock (the "Subscription Offering"). Each holder of Cellcor common stock was entitled to purchase 1.118 shares of CYTOGEN common stock for each share of Cellcor common stock (rounded down to the nearest whole number) held by such holder at the close of business on the Subscription Offering record date, at a price of $3.89 per share of CYTOGEN common stock. Under the terms of the Merger Agreement, CYTOGEN also assumed all then outstanding options to purchase Cellcor common stock granted under Cellcor employee stock option 45 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) plans ("Cellcor Stock Options") and all then outstanding warrants to purchase Cellcor common stock, exercisable for the equivalent of CYTOGEN common stock using the above described exchange ratio. On October 20, 1995, CYTOGEN completed its acquisition of Cellcor. As a result of the Cellcor merger, CYTOGEN issued (i) 4,713,564 shares of CYTOGEN common stock to acquire Cellcor (see Note 1) and (ii) 5,144,388 shares of CYTOGEN common stock in connection with the Subscription Offering raising a total of $20.0 million, and has reserved for issuance up to 606,952 shares of CYTOGEN common stock issuable upon the exercise of Cellcor Stock Options. The transaction was accounted for by using the purchase method of accounting, whereby the Company recorded a one-time, non-cash charge of approximately $26.2 million for acquisition of technology rights to its statement of operations in the fourth quarter of 1995, which charge represented the amount by which the purchase price exceeded the fair value of net assets acquired from Cellcor. 3. ELAN CORPORATION: In December 1995, CYTOGEN and Elan entered into the Elan Agreement under which both parties will implement a research program that combines CYTOGEN's GDL technology with Elan's drug delivery system technology to collaboratively develop orally administered products. Thereunder, Elan has been granted an option for the exclusive worldwide licensing rights to any products so developed and the Company will receive royalties based on sales, if any, of such products. Elan will provide the funding necessary for the Company to fulfill its obligations under the research program with aggregate payments for work performed by CYTOGEN not to exceed $1.5 million during the first sixteen months of the research program. 4. DUPONT MERCK: On December 20, 1994, CYTOGEN entered into the DP/Merck Agreement with DuPont Merck. Under the terms of the DP/Merck Agreement, CYTOGEN has licensed to DuPont Merck CYTOGEN's manufacturing and marketing rights to Quadramet in the U.S., if and when approved for marketing by FDA. CYTOGEN has retained the right to co-promote the product to nuclear medicine specialists. CYTOGEN acquired the U.S. rights to Quadramet from Dow pursuant to a license agreement in March 1993 and assumed responsibility for the development and commercialization of the product at that time (see Note 7). The NDA for Quadramet was officially filed by FDA in August 1995. Pursuant to the terms of the DP/Merck Agreement, CYTOGEN received from DuPont Merck an up-front cash payment of $1.0 million in December 1994, $4.0 million in January 1995 for the sale of 908,265 shares of CYTOGEN's common stock to DuPont Merck and $1.3 million in January 1995 to fund additional clinical programs to expand the use and marketing of Quadramet. The DP/Merck Agreement further provides for future payments of up to $2.9 million toward additional clinical programs, a $2.0 million milestone payment if and when Quadramet receives FDA approval, and royalty payments based on sales, including guaranteed minimum payments. 5. CYTORAD INCORPORATED: On November 15, 1994, CYTOGEN entered into an Agreement and Plan of Merger (the "CytoRad Merger Agreement") with CytoRad to purchase all of CytoRad's outstanding units, each unit consisting of one share of the callable common stock of CytoRad and one warrant to purchase one share of CYTOGEN common stock at $24.15 per share. Pursuant to the CytoRad Merger Agreement, on January 20, 1995, CYTOGEN commenced an exchange offer to exchange for each CytoRad unit (i) 1.5 shares of CYTOGEN common stock, (ii) a warrant to acquire one share of CYTOGEN common stock for $8.00 that expires January 31, 1997 and (iii) a CVR to receive, under certain circumstances and at no additional cost, up to one- half share of CYTOGEN common stock. The CVRs were to be triggered in the event that the aggregate trading price of 1.5 shares of CYTOGEN common 46 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) stock and the new warrant averaged less than $12.00 during the 45 consecutive trading days ending January 31, 1997, but were to expire and have no value if the aggregate trading price for such securities averaged $12.00 or more during any 45 consecutive trading days prior to January 31, 1997. On February 29, 1996, the Company announced that the CVRs had expired by their terms and were of no further value. Accordingly, the Company no longer has an obligation to issue shares of its common stock to holders of CVRs on January 31, 1997. On February 27, 1995, CYTOGEN completed its acquisition of CytoRad by merging CytoRad with and into a wholly-owned subsidiary of the Company. Holders of CytoRad common stock who did not tender their CytoRad units in the exchange offer became entitled to receive as a result of the merger one and one-half shares of CYTOGEN common stock and one CVR for each share of CytoRad common stock owned thereby. As of December 31, 1995, CYTOGEN had issued 6,035,235 shares of common stock, 4,023,495 CVRs and 4,023,495 warrants pursuant to the exchange offer. Although the 1,505 previously issued CYTOGEN warrants forming a part of CytoRad units not tendered in the exchange offer remain outstanding after the merger, the Company has agreed that such warrants will be exercisable at $8.00 per warrant share pursuant to the terms of the CytoRad Merger Agreement. As a result of the merger, the Company reacquired all rights it had previously licensed to CytoRad. In addition, the Company acquired $11.7 million of CytoRad's cash and securities, before payment of certain transaction costs. In the first quarter of 1995, CYTOGEN recorded approximately $19.7 million for acquisition of technology and marketing rights as a charge to its statement of operations, representing the amount by which the purchase price exceeded the fair value of net assets acquired from CytoRad. Prior to the merger, CYTOGEN did not recognize any contract revenues for services performed on behalf of CytoRad in 1995 and 1994, due to the uncertainty of the CytoRad business relationship. In 1993, CYTOGEN recorded $5.9 million of contract revenues from CytoRad, net of amortization of warrants issued. 6. KNOLL PHARMACEUTICAL COMPANY: In December 1991, CYTOGEN and Knoll entered into the Knoll Agreement for the co-promotion of OncoScint CR/OV in the U.S. The agreement provided for revenues from product sales from the supply of commercial product by CYTOGEN to Knoll, co-promotion revenues from the sale of commercial product by Knoll to its customers, and reimbursement to CYTOGEN of certain product development expenses. CYTOGEN also agreed to share with Knoll certain sales promotion expenses which were to be paid by CYTOGEN from earned co-promotion revenues. In 1994 and 1993, CYTOGEN incurred $412,000 and $5.1 million, respectively, in co-promotion expenses and recognized $430,000 and $977,000, respectively, in co-promotion revenues. On November 1, 1994, CYTOGEN executed the Termination Agreement with Knoll. Pursuant to the Termination Agreement, the Company has reacquired from Knoll all U.S. marketing rights (the "U.S. Rights") to OncoScint CR/OV, which were previously granted to Knoll pursuant to the Knoll Agreement. The Termination Agreement requires the Company to pay to Knoll, over a four-year period and without interest, $3.0 million to reacquire the U.S. Rights and $5.0 million of liabilities previously incurred under the terms of the Knoll Agreement. The payment of these liabilities will be made as follows: $3.1 million in 1995 (which amount has been paid); $1.6 million in 1996; $1.6 million in 1997; and $1.7 million in 1998. In November 1994, CYTOGEN recorded a non-recurring charge of $2.4 million for the reacquisition of the U.S. Rights. Imputed interest of $521,000 and $328,000 relating to the obligation, which was discounted based upon a 10% interest rate, was recorded in 1995 and 1994, respectively. In anticipation of the execution of the Termination Agreement, as of May 20, 1994, Knoll ceased its selling efforts, and since that date, CYTOGEN's direct sales force has been the sole marketer in the U.S. of OncoScint CR/OV. Beginning on July 1, 1994, the Company has not recorded any product sales to Knoll or any co-promotion revenues. 47 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. THE DOW CHEMICAL COMPANY: In 1993, CYTOGEN acquired an exclusive license in the U.S. from Dow for Quadramet. In connection with this acquisition, CYTOGEN issued to Dow warrants to purchase 260,000 shares of CYTOGEN's common stock at $12.50 per share. The Company valued the warrants at $507,000 and recorded this amount as a charge to research and development expense. In the third quarter of 1995, upon the filing of the NDA for Quadramet with FDA, CYTOGEN recorded a one-time licensing fee of $2.0 million from Dow for its use of the Quadramet NDA filing package. At the same time, CYTOGEN was required to pay to Dow $1.0 millon. The Company will be required to pay to Dow $4.0 million if and when Quadramet receives FDA approval. The agreement provides for additional payments by the Company upon achievement of certain milestones and royalties on net sales of the product once commercialized, including guaranteed minimum payments. 8. REVENUES FROM MAJOR CUSTOMERS: Customers who contributed 10% or more of the Company's total product related, license and contract revenues were as follows:
CUSTOMER 1995 1994 1993 -------- ---- ---- ---- Dow (Note 7).................................................. 39% - % - % DuPont Merck (Note 4)......................................... 27 41 - Medi-Physics, Inc............................................. 12 - - Knoll (Note 6)................................................ - 16 14 CytoRad (Note 5).............................................. - - 76
Medi-Physics, Inc. is a chain of radiopharmacies. 9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
1995 1994 ---------- ---------- Professional and legal................................ $1,487,000 $ 468,000 Accounts payable...................................... 1,307,000 1,572,000 Payroll............................................... 1,267,000 278,000 Research contracts and materials...................... 965,000 2,694,000 Other accruals........................................ 1,359,000 1,359,000 ---------- ---------- $6,385,000 $6,371,000 ========== ==========
10. LINE-OF-CREDIT: At December 31, 1995, the Company had an unused secured line-of-credit of $3.0 million expiring in July 1996. Interest rates on any borrowings under the line-of-credit will vary depending on the amounts borrowed. The Company did not have any borrowings outstanding under the line-of-credit in 1994 and 1995. 48 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. LONG TERM LIABILITIES:
1995 1994 ---------- ---------- Due to Knoll, net of $722,000 receivable in 1994 (Note 6)............................................ $4,237,000 $6,157,000 Due to Chiron, net of $125,000 receivable in 1994.... 785,000 712,000 Capital lease obligations............................ 448,000 - Deferred charges..................................... 18,000 82,000 ---------- ---------- 5,488,000 6,951,000 Less: Current portion................................ 2,213,000 2,641,000 ---------- ---------- $3,275,000 $4,310,000 ========== ==========
On December 30, 1994, CYTOGEN entered into the Disengagement Agreement with Chiron. Pursuant to a Distribution and License Agreement dated as of October 21, 1989 and as amended on May 18, 1992, CYTOGEN had granted to Chiron the European Rights, under which contract and product related revenues of $3,000, $162,000 and $164,000 were recognized in 1995, 1994 and 1993, respectively. Under the Disengagement Agreement, CYTOGEN reacquired the European Rights and purchased certain business assets relating to the European Rights, including existing approvals by the appropriate regulatory authorities to market OncoScint CR/OV in 12 countries in Europe. This reacquisition was consummated on February 16, 1995. The resulting liability of CYTOGEN to Chiron, which consisted of the reacquisition price of $1.0 million, was partially offset by a then outstanding receivable of $127,000 from Chiron, and will be paid over three years and without interest, as follows: $200,000 in 1995 (which amount has been paid), $300,000 in 1996 and $377,181 in 1997. Payment is secured by a mortgage covering approximately 11 acres of undeveloped real property owned by the Company in Ewing, New Jersey. This obligation is non-recourse to the Company. As a result of the reacquisition of the European Rights, CYTOGEN recorded a liability and non-recurring charge of $800,000 in the fourth quarter of 1994. Imputed interest of $71,000 relating to the obligation, based upon a 10% interest rate, was recorded in 1995. In December 1995 and January 1996, CYTOGEN entered into agreements with Faulding and CISbio, respectively, to market and distribute OncoScint CR/OV outside the U.S. (see Note 18). The Company leases certain equipment under capital leases which will expire on various dates through 2000. Property and equipment leased under non- cancelable capital leases have a net book value of $462,000 at December 31, 1995. Payments to be made under capital lease obligations (including interest of $84,000) are as follows: $139,000 in 1996, $133,000 in 1997, $126,000 in 1998, $119,000 in 1999 and $15,000 in 2000. 12. REDEEMABLE COMMON STOCK: In September 1989, CYTOGEN entered into the Bracco Agreement, pursuant to which Bracco purchased 250,000 shares of CYTOGEN common stock at $8.00 per share. The Bracco Agreement provided that CYTOGEN would be obligated to repurchase the Bracco Shares from Bracco under certain circumstances for an aggregate purchase price of $2.0 million (the "Purchase Price"). In August 1995, CYTOGEN and Bracco agreed that Bracco would sell the Bracco Shares on NASDAQ and Bracco sold the Bracco Shares for an aggregate purchase price of $1,375,000 (the "Shares Sale Price"), or $5.50 per share. At that date, Bracco had an outstanding account payable due and owing to CYTOGEN in an amount equal to $293,408 (the "Payable"). CYTOGEN also agreed to pay to Bracco the amount equal to the difference between (i) the Purchase Price and (ii) the sum of the Shares Sales Price plus the Payable (or $331,592), in full settlement of the issue, which amount has been paid. Under the Bracco Agreement, contract revenues of $41,000 and $860,000 were recognized in 1994 and 1993, respectively. 49 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. COMMON STOCK: In January 1994, CYTOGEN sold an aggregate of 2 million shares of common stock to several European institutions, realizing net proceeds of $9.1 million. On May 6, 1994, CYTOGEN and Fletcher entered into a revised investment agreement under which (i) Fletcher purchased 500,000 shares of CYTOGEN common stock at a price of $3.50 per share totalling $1.7 million, (ii) assignees of Fletcher purchased an additional 900,000 shares of CYTOGEN common stock in August 1994 at $4.00 per share totalling $3.6 million, (iii) Fletcher purchased 1.8 million shares of CYTOGEN common stock in August 1995, at an aggregate price of approximately $7.3 million, or $4.058 per share, under the Option, pursuant to which Fletcher could purchase up to 9.9% of CYTOGEN's outstanding common stock (including shares previously purchased), (iv) Fletcher purchased 500,000 shares of CYTOGEN common stock in November 1995, at an aggregate price of $2.3 million, or $4.696 per share, pursuant to the exercise of the Option, as amended in August 1995, and (v) Fletcher purchased an aggregate of 1.0 million shares of CYTOGEN common stock in January 1996, at an aggregate price of $4.7 million, or $4.70 per share, pursuant to the exercise of the Option, as amended in November 1995. In September 1995, CYTOGEN and Fletcher Fund entered into the Investment Agreement pursuant to which CYTOGEN (i) sold to Fletcher Fund 665,352 shares of CYTOGEN common stock on September 11, 1995 for an aggregate purchase price of $2.7 million, and (ii) will have the right, during the period beginning October 13, 1995 and ending March 29, 1996, to issue and sell to Fletcher Fund, and Fletcher Fund will be obligated to purchase, up to 675,000 shares of CYTOGEN common stock from time to time (collectively, the "Put Rights") at a purchase price per share equal to 101% of the average of the daily volume weighted average price of CYTOGEN common stock on NASDAQ during a designated twenty-one business day period. Under certain circumstances, Fletcher Fund will have the right to decrease or increase the number of shares of CYTOGEN common stock to be purchased in connection with the exercise of a Put Right by CYTOGEN, but in no event shall the total number of shares sold by CYTOGEN and purchased by Fletcher Fund pursuant to the Investment Agreement exceed 4.9% of the total number of shares of CYTOGEN common stock outstanding, after giving effect to the proposed sale and purchase of the shares in question. The shares to be issued and sold in this transaction were registered pursuant to a registration statement on Form S-3 filed with the Commission in April 1994. In November 1995, the Company sold 1,256,565 shares of common stock to a private institutional investor in a private placement transaction pursuant to Regulation S of the Securities Act for an aggregate price of $5.0 million and, in connection therewith, the Company was granted the right to put to that investor, until March 31, 1996, that number of shares equal to $5 million divided by a formula purchase price. The Company and Nomura executed an agreement effective as of February 23, 1996 that terminated the Purchase Agreement between the Company and Nomura dated March 28, 1995. No sales of stock occurred under the terms of the agreement. See Notes 2, 4, 5 and 19 for information related to the Company's issuance of common stock in connection with the Cellcor merger, DP/Merck Agreement, CytoRad merger and settlement of stockholders litigation, respectively. See Note 12 for discussion of redeemable common stock. 50 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 14. STOCK OPTIONS AND GRANTS: The Company has various stock option plans which provide for the issuance of incentive and non-qualified stock options to employees, non-employee directors and outside consultants, for which an aggregate of 4,070,500 shares of common stock have been reserved. The persons to whom options may be granted and the number, type, and terms of the options vary among the plans. Options are granted with an exercise term of 10 years and generally become exercisable in installments over periods of up to 5 years at an exercise price determined either by the plan or equal to the fair market value of the common stock at the date of grant. Under certain circumstances, vesting may accelerate. In September 1993, the Company offered new options to non-executive employees in exchange for existing options, both vested and non-vested, at an exercise price equal to the fair market value of the common stock on the date of the restructuring. Activity under these plans was as follows:
NUMBER OF PRICE RANGE SHARES PER SHARE --------- ----------- Balance at January 2, 1993............................ 1,804,540 $1.00-20.00 Granted............................................. 887,900 5.63-19.88 Exercised........................................... (287,120) 1.00-15.69 Cancelled........................................... (718,010) 3.18-20.00 --------- ----------- Balance at January 1, 1994............................ 1,687,310 $1.00-17.00 Granted............................................. 778,080 2.44-6.19 Exercised........................................... (2,680) 1.00-3.88 Cancelled........................................... (334,770) 3.88-17.00 --------- ----------- Balance at December 31, 1994.......................... 2,127,940 $1.00-17.00 Granted............................................. 1,425,607 2.69-5.47 Exercised........................................... (91,400) 1.00-3.88 Cancelled........................................... (509,290) 2.69-17.00 --------- ----------- Balance at December 31, 1995.......................... 2,952,857 $2.69-17.00 ========= ===========
At December 31, 1995, options to purchase 670,843 shares were exercisable and 310,142 shares were available for issuance of additional options that may be granted under the plans. In connection with the Cellcor merger (see Note 2), CYTOGEN reserved for issuance 606,952 shares of common stock that will become issuable upon the exercise of the Cellcor Stock Options assumed by CYTOGEN under the terms of the Merger Agreement. At December 31, 1995, 603,052 Cellcor Stock Options were outstanding at exercise prices ranging from $0.50 to $8.75 and 301,889 Cellcor Stock Options were exercisable. In 1995, 1994 and 1993, respectively, 15,000, 10,000 and 500 shares of common stock were granted to the officers of the Company and a member of CYTOGEN's Scientific Advisory Board. The expense related to these commitments to grant shares of stock is based upon the fair value of those shares on the date of the commitment and is recognized over the period beginning with such commitment and ending with the actual grant. 15. RELATED PARTY TRANSACTIONS: Consulting services are provided under an agreement with a company owned by an officer of the Company, who is a member of the Board of Directors. In 1993, one of CYTOGEN's former principal stockholders, who was a member of the Board of Directors, also provided consulting services to CYTOGEN. The annual fees under the agreements were $208,000, $180,000 and $61,900 in 1995, 1994 and 1993, respectively. The seven members of CYTOGEN's Scientific Advisory Board were stockholders and provided consulting services to CYTOGEN in 1993. Consulting fees, including stock grants, paid to the five non-employee members totaled $47,000 in 1993. 51 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. PENSION PLANS: CYTOGEN maintains a defined contribution pension plan. The contribution is determined by the Board of Directors each year and is based upon a percentage of gross wages of eligible employees. The plan provides for vesting over five years, with credit given for prior service. CYTOGEN also makes contributions under a 401(k) plan in amounts which match up to 50% of the salary deferred by the participants. Matching is capped at 6% of deferred salaries. Total pension expense was $311,000, $256,000 and $335,000 for 1995, 1994 and 1993, respectively. 17. INCOME TAXES: As of December 31, 1995, CYTOGEN had federal net operating loss carryforwards of approximately $123 million. The Company also had federal and state research and development tax credit carryforwards of approximately $5 million. The net operating loss and credit carryforwards have begun to expire in 1995. The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been an "ownership change". Such an "ownership change" as described in Section 382 of the Internal Revenue Code may limit the Company's utilization of its net operating loss and tax credit carryforwards. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. Based upon the Company's earnings history, a valuation allowance for deferred tax assets is required to reduce the Company's net deferred tax assets to the amount realizable at present (zero). Significant components of the Company's deferred tax assets for federal and state income taxes are as follows (in thousands):
1995 1994 -------- -------- Deferred tax assets: Net operating loss carryforwards....................... $ 41,800 $ 34,000 Capitalized research and development expenses.......... 19,300 16,000 Research and development credit........................ 5,000 4,000 Reacquisition of technology and marketing rights....... 1,500 1,500 Inventory reserves..................................... 2,800 1,000 Other, net............................................. 830 - -------- -------- Total deferred tax assets............................ 71,230 56,500 Valuation allowance for deferred tax assets.......... (71,230) (56,500) -------- -------- Net deferred tax assets............................ $ - $ - ======== ========
In 1995, CYTOGEN acquired CytoRad (see Note 5) and Cellcor (see Note 2), both of which have net operating loss carryforwards. Approximately $20 million of these carryforwards may be available to offset future taxable income. An additional net operating loss carryforward may be available in certain circumstances. A 100% valuation allowance was established on the acquisition dates as realization of these tax assets is uncertain. 52 CYTOGEN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. COMMITMENTS AND CONTINGENCIES: The Company leases its facilities and certain equipment under non-cancelable operating leases which expire at various times through 2003. Rent expense incurred on these leases was $1.2 million, $1.2 million and $1.3 million in 1995, 1994 and 1993, respectively. Minimum future obligations under the operating leases total $8.4 million as of December 31, 1995 and will be paid as follows: $2.0 million in 1996, $1.6 million in 1997, $1.3 million in 1998, $1.3 million in 1999, $0.9 million in 2000 and an aggregate of $1.3 million in 2001 through 2003. The Company has an agreement which provides for equipment lease financings. As of December 31, 1995, the Company has $1.1 million in sale-leaseback refinancings of which approximately $400,000 was outstanding against this arrangement. The refinancings resulted in a deferred gain which is being amortized over the lease term of 45 months. The sale-leaseback refinancings are secured by $358,200 in standby letters of credit provided under a letter of credit agreement. Minimum future obligations under these and other non- cancelable leases totalled $150,000 at December 31, 1995 and will be paid in 1996. The Company is obligated to make minimum future payments under research and development contracts which expire at various times. As of December 31, 1995, the minimum future payments under contracts with fixed terms totalled $342,000 and will be paid as follows: $312,000 in 1996, $26,000 in 1997 and $4,000 in 1998. Under contracts whose expirations are not fixed, the annual minimum payments are $41,000 in 1996, $56,000 in 1997, $66,000 in 1998, $76,000 in 1999, $86,000 in 2000 and thereafter. In addition, the Company is obligated to pay royalties on revenues from commercial products developed from the research, including certain guaranteed minimum payments. In December 1995 and January 1996, CYTOGEN entered into agreements with Faulding and CISbio, respectively, to market and distribute OncoScint CR/OV outside the U.S. Faulding is currently pursuing the necessary regulatory approvals in Canada. CISbio is expected to relaunch OncoScint CR/OV during 1996 in eight Western European countries and four Eastern European countries where the product has been approved for marketing. 19. LITIGATION: On November 18, 1994, final approval was given to the settlement of the 1992 class action securities law suit, which provided for a $1,950,000 cash payment (which includes approximately $900,000 of fees and expenses of plantiffs' counsel), the issuance of 197,942 shares of CYTOGEN common stock and an additional $500,000 payable if the Company has annual earnings per share of $.50 or greater during any fiscal year commencing with 1993 through 1996. 53 CYTOGEN CORPORATION AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- ---------- ------------------------------- ---------- ------------- ADDITIONS BALANCE AT ------------------------------- BEGINNING CHARGED TO COSTS BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES OTHER ACCOUNTS DEDUCTIONS END OF PERIOD ----------- ---------- ---------------- -------------- ---------- ------------- FOR THE YEAR ENDED DECEMBER 31, 1995: Allowances for doubtful accounts receivable.......... $526,000 $ 10,000 $ - $ - $536,000 FOR THE YEAR ENDED DECEMBER 31, 1994: Allowances for doubtful accounts receivable.......... $526,000 $ - $ - $ - $526,000 FOR THE YEAR ENDED JANUARY 1, 1994: Allowances for doubtful accounts receivable.......... $263,000 $263,000 $ - $ - $526,000
54
EXHIBIT INDEX ------------- Exhibit Sequentially Number Description Numbered Page - ------ ----------- ------------- 10.16.3 Second Amendment to the Option Agreement between CYTOGEN Corporation and Fletcher Capital Markets, Inc., dated November 15, 1995. 10.26 Description of arrangement with Somerest Central Corporation. 10.30 CYTOGEN Corporation 1995 Stock Option Plan. 10.31 Research and Development and Option Agreement, dated December 14, 1995, between CYTOGEN Corporation and Elan Corporation, plc.** 10.32 Distribution Agreement, dated December 22, 1995, between CYTOGEN Corporation and Faulding (Canada) Inc.** 10.33 Distribution Agreement, dated January 16, 1996, between CYTOGEN Corporation and CIS biointernational.** 10.34 Severance Agreement effective as of January 1, 1994 between CYTOGEN Corporation and Thomas J. McKearn, M.D., Ph.D. 10.35 Description of Severance Agreement with Richard J. Walsh. 10.36 Horosziewicz - CYTOGEN Agreement, dated April 20, 1989, between CYTOGEN Corporation and Julius S. Horosziewicz, M.D., DMSe.** 21 Subsidiaries of CYTOGEN Corporation 23 Consent of Arthur Andersen LLP 27 Financial Data Schedule (Submitted to SEC only in electronic format)
** CYTOGEN Corporation has requested confidential treatment of certain provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request. -65- EX-10.16.3 2 2ND AMENDMENT TO OPTION AGREEMENT 11/15/95 Exhibit 10.16.3 SECOND AMENDMENT TO OPTION AGREEMENT ------------------------------------ This Second Amendment to the Option Agreement dated as of May 6, 1994 (the "Original Agreement") by and between CYTOGEN CORPORATION, a Delaware corporation (the "Company"), and FLETCHER CAPITAL MARKETS, INC., a New York corporation (the "Investor"), is dated as of the 15th day of November, 1995. WHEREAS, the Company and the Investor have entered into an Amended and Restated Investment Agreement dated as of May 6, 1994 (the "Investment Agreement") providing for the issue and sale by the Company to the Investor of an aggregate of 1,400,000 shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"); and WHEREAS, the Investor (or its assignees) has acquired all 1,400,000 shares of the Common Stock pursuant to the terms of the Investment Agreement; and WHEREAS, on July 28, 1995, the Investor delivered an Election Notice to the Company whereby the Investor exercised its option to purchase an additional 1,800,000 shares of Common Stock at an aggregate purchase price of $7,304,400.00, or $4.058 per share; and WHEREAS, the parties entered into an Amendment to Option Agreement (the "First Amendment"), dated August 10, 1995, pursuant to which the Company extended the Expiration Date of the Option and permitted the Investor to acquire additional shares of Common Stock at the Per Share Exercise Price and upon the other terms and conditions set forth in the Original Agreement. WHEREAS, on November 14, 1995, the Investor delivered an Election Notice to the Company whereby the Investor exercised its option to purchase an additional 500,000 shares of Common Stock at an aggregate purchase price of $2,348,000.00 or $4.696 per share; and WHEREAS, the parties hereto wish to further extend the Expiration Date of the Option and to permit the Investor to acquire additional shares of Common Stock at the Per Share Exercise Price and upon the other terms and conditions set forth in the Original Agreement. NOW, THEREFORE, in consideration of the Investor's exercise of its option and the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. All capitalized terms used herein and not defined shall have the respective meanings ascribed to them in the Original Agreement. -2- Section 2. Section 1 of the Original Agreement (as amended by the First Amendment) is hereby deleted and restated to read in its entirety as follows: Grant of Option. The Company hereby grants to the Investor an --------------- irrevocable option (the "Option") to purchase up to the number of shares of Common Stock specified in Section 2 below (the "Option Shares") at the Exercise Price (as defined herein). The Option may be exercised by the Investor, in whole or in part and from time to time, after the Second Closing and prior to the Expiration Date (as defined below), by delivering an Election Notice (as defined below) to the Company; provided, that, if at any time following 180 days after the -------- date of the Second Closing, any person shall commence a tender offer for Common Stock and such tender offer shall contain a condition that the Investor shall not exercise the Option prior to the consummation of such tender offer, then the Investor shall not thereafter deliver an Election Notice to the Company until such tender offer has been consummated or abandoned. The Option shall expire on February 15, 1996 (the "Expiration Date"). -3- Section 3. Section 2 of the Original Agreement (as amended by the First Amendment) is hereby deleted and restated to read in its entirety as follows: Right to Exercise Option, Number of Shares, Exercise Price. Subject ---------------------------------------------------------- to the provisions of this Option Agreement, the Investor shall have the right to purchase from the Company, and the Company shall issue and sell to the Investor the Option Shares, in whole or in part and from time to time, but with a minimum of the lesser of, (i) 500,000 shares of Common Stock, or (ii) the remaining Option Shares available under the Option Agreement in each Election Notice, at the Per Share Exercise Price (as defined in this Section). The number of shares of Common Stock that shall constitute the Option Shares shall be 3,300,000. The Investor shall be entitled to exercise the Option on any Exercise Dates prior to the Expiration Date, on which dates the Investor shall be entitled to elect to purchase all or any portion of the Option Shares. The Per Share Exercise Price shall be equal to the product of (i) the average per share daily closing price of the Common Stock as reported on the Nasdaq National Market ("Nasdaq") for the period beginning sixty (60) trading -4- days prior to an Exercise Date and ending on the Nasdaq trading day next preceding the Exercise Date, and (ii) 0.95. The Company shall use its best efforts to keep the Registration Statement (as defined in the Investment Agreement) continuously effective from the date on which it is first declared effective through the date of the Option Closing. In the event that the Investor wishes to exercise all or part of the Option, Investor shall deliver to the Company a written notice substantially in the form attached hereto as Exhibit A (the "Election Notice"). The Election Notice shall specify the number of Option Shares the Option is being exercised for. Section 4. Except as specifically set forth herein, the terms and conditions of the Original Agreement remain unchanged and in full force and effect. Section 5. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same instrument. -5- IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the date first above written. CYTOGEN CORPORATION By:/s/ T.J. Madison --------------------------- FLETCHER CAPITAL MARKETS, INC. By:/s/ Vern O. Sedlacek --------------------------- -6- EX-10.26 3 ARRANGEMENT WITH SOMERSET CENTRAL Exhibit 10.26 DESCRIPTION OF ARRANGEMENT WITH SOMERSET CENTRAL CORPORATION T. Jerome Madison is Vice-President, Chief Financial Officer, Secretary and a director of the Company. Mr. Madison's services are provided to the Company under an agreement between the Company and Somerset Central Corporation, a New Jersey corporation of which Mr. Madison is the sole stockholder and an officer and director. The arrangement calls for monthly payments of $13,750 plus expenses. For the year ended December 31, 1995, the Company recorded approximately $208,000 for services rendered and expenses reimbursed under the arrangement. The amount paid in respect of 1995 includes a one-time, $31,000 special fee earned for effecting certain specified events. EX-10.30 4 1995 STOCK OPTION PLAN Exhibit 10.30 CYTOGEN CORPORATION 1995 STOCK OPTION PLAN Date Adopted: March 28, 1995 CYTOGEN CORPORATION 1995 STOCK OPTION PLAN 1. Purpose; Effective Date. (a) The purposes of this Plan are to further the interests of Cytogen Corporation (the "Company") by retaining the services of persons now serving as officers and other employees of the Company, attracting and retaining the services of persons capable of serving as officers and employees of the Company and providing incentives for such employees to exert maximum efforts to promote the success of the Company. (b) The effective date of this Plan is March 28, 1995. This Plan will become effective on that date, subject to approval of the Plan not later than September 30, 1995 by a majority of the votes cast at a duly held stockholders meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the Plan. Nothing in this Plan shall affect the rights or obligations of holders of options granted under any other Company stock option plan. 2. Definitions. Whenever used in this Plan, the following terms will have the meanings set forth in this paragraph: "Board of Directors" means the Board of Directors of the Company. -------------------- "Code" means the U.S. Internal Revenue Code of 1986, as amended. ------ "Committee" means the committee described in paragraph 3. ----------- "Common Stock" means the common stock, par value $. 01 per share, of the -------------- Company. "Date of Grant" means with respect to any Option the date the Committee --------------- approves the grant of the Option or such later date as may be specified by the Committee as the date the option will become effective. "Disinterested Director" means a member of the Board who is a "disinterested ------------------------ person" within the meaning of Rule 16b-3(d)(3) under the Securities Exchange Act of 1934, or any successor provision. "Employee" means any person employed by the Company (including, without ---------- limitation, a person employed by the Company who is also an officer or director of the Company). "Exercise Price" means with respect to any Option the price per share which ---------------- must be paid upon exercise of the Option. "Fair Market Value" means (i) if the Common Stock is traded in a market in ------------------- which actual transactions are reported, the mean of the high and low prices at which the Common Stock is reported to have traded on the relevant date in all markets on which trading in the Common Stock is reported, or if there is no reported sale of the Common Stock on the relevant date, the mean of the highest reported bid price and lowest reported asked price for the Common Stock on the relevant date, (ii) if the Common Stock is Publicly Traded but only in markets in which there is no reporting of actual transactions, the mean of the highest reported bid price and the lowest reported asked price for the Common Stock on the relevant date, or (iii) if the Common Stock is not Publicly Traded, the value of a share of Common Stock as determined by the most recent valuation prepared by an independent expert at the request of the Committee. "Incentive Stock Option" means any Option that at the time of the grant ------------------------ qualifies and is designated as an incentive stock option within the meaning of Section 422 of the Code. "Non-Qualified Option" means any Option that is not an Incentive Stock ---------------------- Option. "Option" means any Incentive Stock Option or Non-Qualified Option granted -------- under this Plan. "Option Agreement" means an agreement in such form as may be determined by ------------------ the Committee, executed and delivered by the Company to the holder of any Option with respect to that Option. "Outside Director" means a member of the Board who is not a current employee ------------------ of the Company (or a related entity), is not a former employee who is receiving compensation for prior services (other than benefits under a tax-qualified retirement plan), was not an officer of the Company at any time, and is not currently receiving remuneration, either directly or indirectly, in any capacity other than as a director. "Plan" means the Cytogen Corporation 1995 Stock Option Plan. ------ "Publicly Traded" means, with respect to any class of stock, that the ----------------- class of stock is required to be registered under Section 12 of the Securities Exchange Act of 1934, as amended, or that stock of that class has been sold within the preceding 12 months in an underwritten public offering. "Ten Percent Shareholder" means, with respect to the grant of any Option, a ------------------------- person who at the Date of Grant is the beneficial owner of stock possessing more than 10% of the total combined voting power of all classes of stock of the Company. -2- "Termination of Employment" means the time when the employee-employer --------------------------- relationship between an Employee and the Company ceases to exist for any reason, or the time when an officer who is not also an Employee ceases to be an officer of the Company for any reason, including, but not limited to, a termination by resignation, discharge, death, Total Disability or retirement. Any leave of absence taken with the consent of the Company for a period of not more than 90 days shall not be a Termination of Employment, or if longer, so long as the optionee's right to reemployment with the Company is guaranteed by contract. If the period of leave exceeds 90 days and if the right to reemployment is not guaranteed by contract, the Termination of Employment will be deemed to occur on the 91st day of the leave. "Total Disability" means inability of an Employee to engage in any ------------------ substantial gainful activity by reason of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months. All determinations as to the date and extent of disability of an Employee will be made by the Committee. 3. Administration. (a) This Plan shall be administered by a Committee, which shall be composed of not less than two Outside Directors who are also Disinterested Directors. The Committee may, from time to time, adopt or rescind rules and regulations for carrying out the provisions and purposes of this Plan. Subject to the express provisions of this Plan, the Committee shall have sole authority, in its absolute discretion, to determine which Employees shall receive Options, the time when Options shall be granted, the terms and provisions of the Options (which may differ from one another) and to do everything necessary or appropriate to administer this Plan, including, without limitation, interpreting the provisions of this Plan and the Options. All determinations made by the Committee with respect to this Plan and the Options shall be final, binding and conclusive. (b) No member of the Committee shall be liable for any act or omission of the Committee or any other member of the Committee, or for any act or omission on his own part, in connection with the administration of this Plan, unless it resulted from the member's own willful misconduct. 4. Persons Eligible to Receive Options. (a) Options may be granted under this Plan only to persons who at the Date of Grant either (i) are officers or Employees of the Company or (ii) have agreed to become officers or Employees of the Company, and, in either case, are determined by the Committee to be of substantial importance to the Company. (b) Options granted to persons who are not yet officers or Employees at the Date of Grant may not be exercised until the optionee has become an officer or -3- Employee, and shall expire if the optionee fails to commence service as an officer or Employee within six months (or such other period as the Committee may determine) after the Date of Grant. (c) Incentive Stock Options may be granted only to persons who are salaried Employees at the Date of Grant, and only on such terms as are provided in paragraphs 6, 7 and 8 hereof. (d) No Employee to whom Options may be granted under this Plan may be granted Options to purchase more than 200,000 shares in any one calendar year. 5. Stock Subject to the Plan. (a) Subject to any adjustment as provided in paragraph 9, the maximum number of shares of Common Stock as to which Options may be granted under this Plan is 2,402,635 shares reduced by the number of outstanding options granted under the Cytogen Corporation 1989 Employee Stock Option Plan (the "1989 Plan") that are exercised after the effective date of this Plan. If any Option expires or is cancelled or surrendered without being exercised in full, the number of shares as to which the Option is not exercised will once again become shares as to which new Options may be granted. The Common Stock which is issued on exercise of Options may be authorized but unissued shares or shares which have been issued and reacquired by the Company. (b) For administrative purposes only, the Committee shall establish the following two accounts: (i) an account indicating the number of shares of Common Stock as to which Options may then be granted under the Plan (the "Current Account"), and (ii) a reserve account showing the number of shares of Common Stock as to which Options may not then be granted under the Plan (the "Reserve Account"). The Committee may issue Options only with respect to the shares of Common Stock credited to the Current Account. The Current Account shall initially be credited with 1,106,815 shares of Common Stock and the Reserve Account shall initially be credited with 1,295,820 shares of Common Stock. After the effective date of this Plan: (i) in addition to appropriate adjustments for Options granted hereunder, the Current Account shall be credited with one share of Common Stock for each share of Common Stock subject to an outstanding option granted under the 1989 Plan that expires, is cancelled or surrendered without being exercised in full, and (ii) the Reserve Account shall be debited by one share of Common Stock for each share of Common Stock subject to an outstanding option granted under the 1989 Plan that (a) is exercised after the effective date of this Plan, or (b) expires, is cancelled or surrendered without being exercised in full. 6. Grants of Options. (a) Subject to paragraph 4(d), the Committee will have complete discretion to determine when, and to which officers or other Employees, Options are to be granted, the number of shares of Common Stock to which Options granted to each officer or -4- other Employee will relate, whether and to what extent Options granted to an officer or other Employee will be Incentive Stock Options or Non-Qualified Options and, subject to the provisions of paragraphs 7 and 8, the Exercise Price and the term of each Option. The Committee may, in its discretion at the time of granting the Option, provide that the Exercise Price may be paid in cash, by the surrender of Common Stock, by an interest-bearing promissory note, or by other means; subject, however, to any requirements of applicable law which may limit the type or amount of such non-cash consideration. If payment by promissory note is permitted: (i) the optionee shall be required to make a cash payment upon exercise of the Option of not less than 20% of the Exercise Price; (ii) the note shall provide for full recourse against the maker; and (iii) the note shall be payable in full prior to its stated maturity upon the optionee's Termination of Employment for any reason other than death or Total Disability. (b) Any Options which are not designated as Incentive Stock Options when they are granted will be Non-Qualified Options. (c) Promptly after the Date of Grant of each Option, the Company shall cause an Option Agreement to be executed and delivered to the holder of the Option. The Option Agreement shall clearly state whether the Option granted is or is not an Incentive Stock Option. Separate Option Agreements shall be used for Incentive Stock Options and Non-Qualified Stock Options. (d) Except as otherwise determined by the Committee, and subject to the requirements of applicable law, the entire Exercise Price received by the Company upon the exercise of an option shall constitute stated capital to the extent of the aggregate par value of the Common Stock issued upon exercise of the Option. (e) Any Option granted under this Plan prior to the date the Plan is approved by the Company's stockholders shall not be exercisable unless and until the Plan is so approved. 7. Option Provisions. (a) Exercise Price. No consideration shall be payable by any optionee for the grant of an Option. Subject to the provisions of paragraph 8, the Exercise Price of each Option will be as determined by the Committee. The Exercise Price of a Non-Qualified Option may be less than the Fair Market Value of the Common Stock on the Date of Grant of the Option. (b) Term. The term of each Option will be as determined by the Committee, but in no event will the term of an Option be longer than ten years from the Date of Grant, or five years in the case of an Incentive Stock Option granted to a Ten Percent Shareholder. Options may not be exercised before six months after the Date of Grant. Options will cease to be exercisable prior to the expiration of their term under certain circumstances as provided in paragraphs 7(f), (g), and (h). Subject to the foregoing, and -5- to any vesting or other conditions imposed at the time it is granted, an Option may be exercised in whole or in part at any time, or from time to time, during its term. (c) Manner of Exercise. To exercise an Option, the person exercising the Option must deliver to the Company, at its principal office: (i) a notice of exercise, which states the extent to which the Option is being exercised; (ii) a certified or bank cashier's check in an amount, or Common Stock with a Fair Market Value, equal to the Exercise Price of the Option times the number of shares as to which it is being exercised, or consideration in such other form as may be permitted under the terms on which the Option is granted; and (iii) a certified or bank cashier's check equal to any withholding taxes the Company is required to pay because of the exercise of the Option. The Committee may permit an Employee, as an alternative to making the payment described in clause (iii), to authorize the Company to withhold a sum equal to the withholding taxes the Company is required to pay from the Employee's salary and bonus payments over a period of not more than six months (or such longer period as the Company may approve). The date on which the Company receives all the items specified in this subsection will be the date on which the Option is exercised to the extent described in the notice of election. (d) Delivery of Stock Certificates. As promptly as practicable after an Option is exercised, the Company will deliver to the person who exercises the Option certificates, registered in that person's name, representing the number of shares of Common Stock which were purchased by the exercise of the Option. Each certificate may bear a legend to indicate, if applicable, that (i) the Common Stock represented by the certificate was issued in a transaction which was not registered under the Securities Act of 1933, as amended, and may only be sold or transferred in a transaction which is registered under that Act or is exempt from the registration requirements of that Act, and (ii) the Common Stock represented by the certificate is subject to the obligation of the holder to pay any unpaid balance of the Exercise Price (whether pursuant to a promissory note or otherwise), and/or that the Common Stock is pledged to secure such an obligation. (e) Nontransferability of Options. During the lifetime of the person to whom an Option is issued, the Option may be exercised only by that person or his or her guardian or legal representative. An Option may not be assigned, pledged or hypothecated in any way, will not be subject to execution, and will not be transferable otherwise than by will or the laws of descent and distribution. The Company will not recognize any attempt to assign, transfer, pledge, hypothecate or otherwise dispose of an Option contrary to the provisions of this Plan, or any levy of any attachment or similar process upon any Option, and, except as expressly stated in this Plan, the Company will -6- not be required to, and will not, issue Common Stock on exercise of an Option to anyone who claims to have acquired that Option from the person to whom it was granted. (f) Termination of Employment of Holder of Option Other Than Because of Total Disability or Death. If there is a Termination of Employment of a person to whom an Option has been granted, other than by reason of the person's death or Total Disability, each Option held by the person may be exercised (if otherwise exercisable) until the earlier of (i) the end of the three-month period immediately following the date of the Termination of Employment, (ii) the expiration of the term specified in the Option, or (iii) such earlier time as may be determined by the Committee at the time of granting the Option. (g) Total Disability of Holder of Option. If there is a Termination of Employment of a person to whom an Option has been granted by reason of his or her Total Disability, each Option held by the person may be exercised (if otherwise exercisable) until the earlier of (i) the end of the one-year period immediately following the date of the Termination of Employment, (ii) the expiration of the term specified in the Option, or (iii) such earlier time as may be determined by the Committee at the time of granting the Option. (h) Death of Holder of Option. If there is a Termination of Employment of a person to whom an Option has been granted by reason of his or her death, or a former officer or Employee dies following the date of his or her Termination of Employment but at a time when an Option still would be exercisable by that person but for the death of the person, each Option held by the person at the time of his or her death may be exercised by the person or persons to whom the Option passed by will or by the laws of descent and distribution (but by no other persons) until the earlier of (i) the end of the one-year period immediately following the date of death (or such other period as may be determined by the Committee at the time of granting the Option), (ii) the expiration of the term specified in the Option, or (iii) if the death occurs after the Termination of Employment, the end of the period in which the Option could be exercised under paragraph 7(f) or (g). 8. Special Provisions Relating to Incentive Stock Options. No Incentive Stock Option may be granted after March 27, 2005. The Exercise Price of an Incentive Stock Option will be not less than 100% of the Fair Market Value of the Common Stock on the Date of Grant of the Option. An Incentive Stock Option may not be granted to a person who, at the time the Option is granted, is a Ten Percent Shareholder, unless (i) the Exercise Price of the Option is at least 110% of the Fair Market Value of the Common Stock on the Date of Grant and (ii) the Option by its terms is not exercisable after the expiration of five years from the Date of Grant. To the extent that the aggregate Fair Market Value (determined at the time an Incentive Stock Option is granted) of the Common Stock with respect to which Incentive Stock Options are first exercisable by an Employee during any calendar year (under this Plan and any -7- other incentive stock option plans of the Company) exceeds $100,000, such Options shall be treated as Non-Qualified Options. 9. Recapitalization. (a) The existence of outstanding Options shall not affect in any way the right or power of the Company or its stockholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Common Stock or the rights thereof, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business or any other corporate act or proceeding, whether of a similar character or otherwise. Unless otherwise determined by the Board, the issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe therefor, or on conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number, class or price of shares of Common Stock then subject to outstanding Options. (b) If as a result of any (i) reorganization or liquidation of the Company or (ii) reclassification of the Company's capital stock, or (iii) consolidation or merger of the Company with or into another corporation, or sale of all or substantially all the assets of the Company (a reorganization or liquidation of the Company or reclassification of the Company's capital stock, or a merger, consolidation or sale of the type described in this subsection being a "Corporate Transaction") while an Option is outstanding, the holders of the Common Stock become entitled to receive with respect to their Common Stock, securities or assets other than, or in addition to, their Common Stock, upon exercise of that Option the holder will receive what the holder would have owned if the holder had exercised the Option immediately before the Corporate Transaction which occurred while the Option was outstanding and had not disposed of anything the holder would have received as a result of that and all subsequent Corporate Transactions. 10. Rights of Option Holder. (a) The holder of an Option will not have any rights as a stockholder by reason of holding that Option. Upon exercise of an Option, the holder will be deemed to acquire the rights of a stockholder when, but not before, the issuance of Common Stock as a result of the exercise is recorded in the stock records of the Company. (b) Nothing in this Plan or in the grant of an Option will confer upon any Employee the right to continue in the employment of the Company or will interfere with or restrict in any way the rights of the Company to discharge any Employee at any time -8- for any reason whatsoever, with or without cause, nor will it impose any obligation on the Employee to remain in the employ of the Company. 11. Laws and Regulations. The obligation of the Company to sell and deliver shares of Common Stock on exercise of Options will be subject to the condition that legal counsel for the Company be satisfied that the sale and delivery will not violate the Securities Act of 1933, as amended, or any other applicable laws, rules or regulations. 12. Withholding of Taxes. (a) In addition to the requirement in paragraph 7(c) that in order to exercise an Option a person must make a payment to the Company or authorize withholding in order to enable the Company to pay any withholding taxes due as a result of the exercise, if a person who exercised an Incentive Stock Option disposes of shares of Common Stock acquired through exercise of that Incentive Stock Option either (i) within two years after the Date of Grant of the Incentive Stock Option or (ii) within one year after the issuance of the shares on exercise of the Incentive Stock Option, the person will notify the Company promptly of the occurrence of the event and, if the event was a disposition of Common Stock acquired on exercise of an Incentive Stock Option, the amount realized upon the disposition. (b) If, whether because of a disposition of Common Stock acquired on exercise of an Incentive Stock Option, or otherwise, the Company is required to pay withholding taxes to any Federal, state or other taxing authority and the Employee fails to provide the Company with the funds with which to pay that withholding tax, the Company may withhold up to 50% of each payment of salary or bonus to the Employee (which will be in addition to any other required or permitted withholding), until the Company has been reimbursed for the entire withholding tax it was required to pay. (c) The obligations contained in this paragraph 12 shall bind each optionee, and each optionee, by accepting and/or exercising an Option, shall be deemed to agree to observe and comply with them. 13. Reservation of Shares. The Company will at all times keep reserved for issuance on exercise of Options a number of authorized but unissued or reacquired shares of Common Stock equal to the maximum number of shares the Company may be required to issue on exercise of outstanding Options (assuming no subsequent adjustments under paragraph 9). -9- 14. Amendment of the Plan. The Board of Directors may at any time and from time to time modify or amend this Plan in any respect effective at any date the Board of Directors determines; provided, that without the approval of the stockholders of the Company the Board of Directors may not, (i) except as provided in paragraph 9, increase the maximum number of shares of Common Stock which may be issued on exercise of Options granted under this Plan; (ii) change the categories of persons eligible to receive Options; (iii) increase the per-employee limit specified in paragraph 4(d), or (iv) take any other action requiring the approval of the stockholders of the Company in order to maintain the exemption available under Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission. No modification or amendment of this Plan will, without the consent of the holder of an outstanding Option, adversely affect the holder's rights under that Option. 15. Interpretation The Committee shall have the power to interpret the Plan and to make and amend rules for putting it into effect and administering it. It is intended that the Incentive Stock Options granted under the Plan shall constitute incentive stock options within the meaning of section 422 of the Code, that the Non-Qualified Options shall constitute property subject to federal income tax pursuant to the provisions of section 83 of the Code and that the Plan shall qualify for the exemption available under Rule 16b-3 (or any similar rule) of the Securities and Exchange Commission. It is also intended that all compensation income recognized by optionees as the result of the exercise of Options or the disposition of Common Stock acquired on exercise of Options shall be considered performance-based compensation excludable from such optionee's "applicable employee remuneration" pursuant to section 162(m)(4)(C) of the Code. The provisions of the Plan shall be interpreted and applied insofar as possible to carry out such intent. 16. Termination of the Plan. This Plan shall terminate on March 27, 2005 unless sooner terminated. The Board of Directors may suspend or terminate this Plan at any time or from time to time, but no such action may adversely affect the rights of a person holding an outstanding Option. -10- EX-10.31 5 RESEARCH & DEVELOPMENT AND OPTION AGREEMENT 12/14/95 Exhibit 10.31 RESEARCH AND DEVELOPMENT AND OPTION AGREEMENT This Agreement dated as of December 14, 1995, (the "Agreement") by and between CYTOGEN CORPORATION ("Cytogen"), a Delaware corporation, having its place of business at 600 College Road East, Princeton, NJ 08540-5308, and ELAN CORPORATION, plc ("Elan"), organized and existing under the laws of Ireland, having its place of business at Monksland, Athlone, County Westmeath, Ireland. WHEREAS, Cytogen has developed a genetic diversity library technology which, among other things, may be utilized to discover peptide molecules which target certain cell receptors; and WHEREAS, Elan has developed drug delivery technologies including, without limitation, encapsulation technologies which have been shown to facilitate the transport of a spectrum of drugs across a variety of biological barriers, including, without limitation, intestinal epithelium, pulmonary epithelium, dermis, vascular endothelium and the blood brain barrier; and WHEREAS, Elan has developed in vitro screening assays to characterize -------- the transport of drugs, including peptides, across a variety of biological barriers; and WHEREAS, Elan has developed a phage display and combinatorial library technology which, among other things, may be utilized to discover peptide molecules which target certain cell receptors or facilitate the transport of a drug across a Biological Barrier (as hereinafter defined), which technology will not be utilized as part of the Research Program (as hereinafter defined); and thus this Agreement shall not be construed as granting Cytogen any right or license to peptides discovered by Elan using Elan's phage display and combinatorial library technology; and WHEREAS, discussions between representatives of both parties have been held concerning the combination of Cytogen's GDL Technology, as hereinafter defined, and Elan's Technology, as hereinafter defined, to develop a novel drug delivery approach; and WHEREAS, as both parties desire to implement a collaborative research program to demonstrate enhanced absorption in vivo of a drug across a Biological ------- Barrier, as hereinafter defined, in an animal model using the GDL Patents and GDL Technology, as hereinafter defined, and Elan Patents and Elan Technology, as hereinafter defined. NOW THEREFORE, the parties hereto, intending to be legally bound, agree as follows: 1. Definitions. Unless otherwise provided, each capitalized term used ----------- herein shall have the following meanings. 1.1 "Affiliate(s)" shall mean, with respect to a party to this Agreement, any corporation, partnership or organization which directly or indirectly controls, is controlled by or is under common control with such party. Existence of such control - 2 - is established by the direct or indirect ownership of more than 50% of the voting interest in an entity. 1.2 "Biological Barrier" shall mean the intestinal epithelium, the pulmonary epithelium, the blood-brain barrier, and the dermis. 1.3 "Cytogen Products" shall mean Products that are not covered by one or more claims, or produced, processed, or otherwise manufactured by any method and/or process covered by one or more claims, of an application or patent within the Elan Patents or the Program Patents relating to the Elan Patents or the Elan Technology. 1.4 "Cytogen Program Patents" shall mean Program Patents conceived or made solely by one or more Cytogen employees. 1.5 "Cytogen Program Technology" shall mean Program Technology that (a) is related to the GDL Patents or GDL Technology; and (b) is unrelated to the Elan Patents or Elan Technology. 1.6 "Elan Patents" shall mean inventions owned or controlled by or licensed to Elan that are directed to in vivo drug delivery methods and drug delivery systems, including without limitation, drug encapsulation methods and systems, or biological systems designed to assay biological agents, including without limitation, peptides, with respect to their transport, toxicity, (including without limitation, inflammation), absorption, or adsorption properties; all United States and - 3 - foreign patent applications which may be filed covering such inventions, as well as continuations, continuations-in-part, divisions and renewals thereof; all United States and foreign patents which may be granted thereon, and all reissues, reexamined patents, and extensions thereof. A list of the Elan Patents shall be promptly furnished to Cytogen at its request at any time during the Research Program Period. 1.7 "Elan Products" shall mean Products that are not covered by one or more claims, or produced, processed, or otherwise manufactured by any method and/or process covered by one or more claims, of an application or patent within the GDL Patents or of the Program Patents that relate to the GDL Patents or GDL Technology. Moreover, Elan Products shall not include any Product containing a peptide or a molecule derived from such peptide, in which the peptide was identified from a peptide library in the performance of the Research Program, in which such peptide, peptide library, or method of identification is covered by one or more claims of an application or patent within the GDL Patents or the Program Patents that relate to the GDL Patents or GDL Technology. 1.8 "Elan Program Patents" shall mean Program Patents conceived or made solely by one or more Elan employees. 1.9 "Elan Program Technology" shall mean Program Technology that (a) is related to the Elan Patents or Elan Technology; and (b) is unrelated to the GDL Patents or GDL Technology. - 4 - 1.10 "Elan Technology" shall mean all Technology related to one or more inventions within the Elan Patents, that is owned or controlled by or licensed to Elan, the subject matter of which is in vivo drug delivery methods ------- and drug delivery systems, including without limitation, drug encapsulation methods and systems, or biological systems designed to assay biological agents, including without limitation, peptides, with respect to their transport, toxicity, (including, without limitation, inflammation), absorption, or adsorption properties. 1.11 "Field" shall mean the treatment of human disease and human disorders. 1.12 "GDL Patents" shall mean the patent applications identified in Schedule A annexed hereto, and all continuations, continuations-in-part, divisions and renewals thereof; all United States and foreign patents which may be granted thereon, and all reissues, reexamined patents, and extensions thereof, as well as the inventions described and claimed therein, that are owned or controlled by or licensed to Cytogen with the right to sublicense. Schedule A shall be updated from time-to-time. 1.13 "GDL Technology" shall mean all Technology related to one or more inventions within the GDL Patents, that is owned or controlled by or licensed to Cytogen with the right to sublicense. 1.14 "Joint Program Patents" shall mean Program Patents conceived or made jointly by (i) one or more Elan employees; and (ii) one or more Cytogen employees. - 5 - 1.15 "Know-How Product" shall mean any product that (a) is contained within Program Technology; or (b) is produced, processed or otherwise manufactured by any method and/or process contained within the Program Technology. 1.16 "Option Period" shall mean the period commencing on the date hereof and continuing until ninety (90) days after the Research Program Termination Date, as may be extended pursuant to Section 4.2 hereof. 1.17 "Product" shall mean any product which, at the time of manufacture, use or sale is either (a) covered by one or more pending claims of an application or one or more Valid Claims of a patent within the Program Patents; or (b) produced, processed, or otherwise manufactured by any method and/or process covered by one or more pending claims of an application or one or more Valid Claims of a patent within the Program Patents; or (c) contains a peptide or a molecule derived from such peptide, in which the peptide was identified from a peptide library in the performance of the Research Program, and in which such peptide, peptide library, or method of identification is covered by one or more pending claims of an application or one or more Valid Claims of a patent within the GDL Patents or Program Patents. 1.18 "Program Patents" shall mean (a) all inventions which are conceived or made at any time during the Research Program in connection with any research conducted under the Research Program; and (b) all United States and foreign patent applications which may be filed covering such inventions, as well - 6 - a continuations, continuations-in-part, divisions and renewals thereof; all United States and foreign patents which may be granted thereon, and all reissues, reexamined patents, and extensions thereof. 1.19 "Program Technology" shall mean all technical information pertaining to the Research Plan of Exhibit A including all inventions, formulas, methods, plans, processes specifications, characteristics, equipment, design, know-how, experience and trade secrets which the participants in the Research Plan may discover or learn in connection with their respective work for or participation in the Research Program, to the extent that, as of its date of disclosures to both parties, is not (a) already known to one of the parties; (b) disclosed in the published literature; (c) generally available to industry; or (d) obtained by one of the parties from a third party without binder of secrecy, provided, however, that such third party has no confidentiality obligation to - -------- ------- the other party or any of its affiliates with respect to such information. All such information which is characterized as Program Technology shall cease to be Program Technology when, through no fault or omission of either party hereto, such information becomes (a) disclosed in the published literature; or (b) generally available to industry; or (c) obtained by one of the parties from a third party without binder of secrecy, provided, however, that such third party ------- has no confidentiality obligation to the other party or any of its affiliates with respect to such information. - 7 - 1.20 "Research Plan" shall mean the Research and Development Plan to be agreed to by the parties on or before January 8, 1996, a preliminary draft of which is attached hereto as Exhibit A, and which Plan shall include a specific schedule for work, milestones and personnel requirements associated with the development of a drug formulation or formulations that is transported across a Biological Barrier. 1.21 "Research Program" shall mean all research, experimentation or development relating to the product proposed to be conducted or conducted by the parties hereto under the terms of the Research Plan. 1.22 "Research Program Period" shall mean the period commencing on the date hereof and continuing until the Research Program Termination Date. 1.23 "Research Program Termination Date" shall mean the date of delivery by Cytogen of the final written research report which summarizes the data and findings generated during the "Research Program, which report shall be delivered within thirty (30) days of the completion of the Research Program, as may be extended pursuant to Section 2.5 hereof. 1.24 "Supervisory Committee" shall mean the committee as described in Section 2.4 hereof. 1.25 "Technology" shall mean a party's discoveries, processes, instruments, machines, materials, compositions, test procedures, manufacturing processes, techniques, formulations, methodologies, data, information, inventions, and trade secrets, - 8 - to the extent that, as of the date of disclosure and/or delivery to the other party ("receiving party") was not (a) known to the receiving party as evidenced by written documentation; (b) disclosed in published literature; (c) generally available to industry; or (d) obtained by the receiving party from a third party without binder of secrecy, provided, however, that such third party has no -------- ------- confidentiality obligations to the party hereto disclosing the information ("disclosing party") or to any of its Affiliates with respect to such subject matter. All subject matter which is characterized as Technology shall cease to be Technology when, through no fault or omission of the receiving party, such subject matter becomes (a) disclosed in the published literature; or (b) generally available to industry; or (c) obtained by the receiving party from a third party without binder of secrecy, provided, however, that such third party -------- ------- has no confidentiality obligations to the disclosing party or any of its Affiliates with respect to such subject matter. 1.26 "Territory" shall mean all of the countries in the World. 1.27 "Valid Claim" shall mean a claim of an issued, unexpired Patent which has not been abandoned, or held invalid in an unappealed or unappealable final decision rendered by a court of competent jurisdiction. 2. Research Program. ---------------- 2.1 Research Plan. Each of the parties hereto shall use all ------------- commercially reasonable efforts to undertake the Research - 9 - Program in accordance with the Research Plan. Each party shall designate up to six of its employees as scientific members to the Research Program Council who will have specific responsibilities designated under this Research Plan. The Research Plan shall be updated in writing to a revised Research Plan from time- to-time upon mutual written agreement of the parties. 2.2 Research Funding. Elan shall be responsible for providing all ---------------- funding necessary for both parties to undertake their respective duties and obligations under the Research Program and all other costs and expenses related thereto. The total cost of the Research Program shall not exceed Three Million Dollars ($3,000,000) (the "Research Budget"), with aggregate payments for work performed by Cytogen not to exceed one Million Five Hundred Thousand Dollars ($1,500,000). 2.3 Payments to Cytogen. During the term of the Research Program, ------------------- Cytogen shall submit monthly invoices to Elan for all work performed by Cytogen which shall be billed at the rate of $[*] per hour per person of research time, inclusive of all taxes (the "Research Fee"), and which invoice shall be accompanied by documentation sufficient to support the Research Fee set forth in such invoice. During the initial term of this Agreement, Elan shall have no obligations to pay Cytogen for any additional expenses or costs other than the Research Fee. Payment of the Research Fee shall be made by Elan within thirty (30) days of receipt of an invoice. * Information omitted and filed separately with the Commission under Rule 24b-2. - 10 - 2.4 Research Management. Elan and Cytogen shall establish a ------------------- Supervisory Committee comprised of a designee of each of Cytogen and Elan, who shall initially be Thomas J. McKearn and Donal Geaney, or such other members of senior management as may be appointed by each party and approved by the other. The Supervisory Committee shall meet periodically and no less than once a quarter to review the overall conduct and performance of the Research Program. Each of the parties hereto shall provide to the Supervisory Committee monthly written reports and data on the status of their work under the Research Program and such other reports and information as may be requested by the Supervisory Committee from time to time to perform its duties hereunder. The Supervisory Committee may make such changes or modifications to the Research Plan as may be necessary to achieve the milestones set forth therein. Within thirty (30) days of the completion of the Research Program, as determined by the Supervisory Committee, Cytogen shall prepare and deliver to the Supervisory Committee a final written report which summarizes the data and findings arising from both its work and that of Elan under the Research Program. Elan agrees to cooperate and provide reasonable assistance to Cytogen in the preparation of such written report and Elan shall have the opportunity to review the final written report prior to its submission to the Supervisory Committee. 2.5 Duration and Extension of Research Program. The Research Program ------------------------------------------ shall be conducted for that period of time - 11 - established in the Research Plan. The parties anticipate that the Research Program shall commence on or about January 3, 1996, and shall continue for a period of sixteen (16) months. At the written request of Elan, such period may be extended at any time during the Research Program Period for an additional period not to exceed one (1) year, provided that any and all costs and expenses incurred in implementing the Research Program during such extended period shall be included in a modified research budget to be agreed to by the parties and shall be the sole responsibility of Elan. 3. Grant of Licenses. ----------------- 3.1 Grant by Cytogen to Elan. Subject to the terms and conditions of ------------------------ the option granted pursuant to Section 4.1 hereof and of any License Agreement between the parties entered into pursuant to Section 4.3 hereof, Cytogen hereby grants to Elan: (a) the exclusive, perpetual, royalty-free right and license under the Joint Program Patents and Cytogen Program Patents, with the right to sublicense, to make, use, sell, offer for sale, and import Elan Products that are covered by one or more claims directed to in vivo drug delivery systems or directed to methods for in vivo drug delivery of an application or patent within Program Patents that are related to the Elan Patents or Elan Technology; and (b) the exclusive, perpetual, royalty-free right and license under Program Technology, with the right to - 12 - sublicense, to make, use, sell, offer for sale, and import products that (i) are contained within Elan Program Technology; or (ii) are produced, processed or otherwise manufactured by any method and/or process contained within the Elan Program Technology. 3.2 Grant by Elan to Cytogen. Subject to the terms ------------------------ and conditions of the option granted pursuant to Section 4.1 hereof and of any License Agreement between the parties entered into pursuant to Section 4.3 hereof, Elan hereby grants to Cytogen: (a) the exclusive, perpetual royalty-free right and license under the Joint Program Patents and the Elan Program Patents, with the right to sublicense, to make, use, sell, offer for sale, and import Cytogen Products that are covered by one or more claims of an application or patent within the Program Patents relating to the GDL Patents or GDL Technology, that are not directed to in vivo drug delivery systems or directed to methods for in vivo drug delivery; and (b) the exclusive, perpetual royalty-free right and license under Program Technology, with the right to sublicense, to make, use, sell, offer for sale, and import products that (i) are contained within Cytogen Program Technology; or (ii) are produced, processed, or otherwise manufactured by any method and/or process contained within the Cytogen Program - 13 - Technology, that are not directed to in vivo drug delivery systems or directed to methods for in vivo drug delivery. 3.3 No Diligence Obligations. Elan shall have no obligation to use ------------------------ diligence or best efforts to exercise the rights and licenses granted Elan pursuant to Section 3.1 hereof. Cytogen shall have no obligation to use diligence or best efforts to exercise the rights and licenses granted Cytogen pursuant to Section 3.2 hereof. 3.4 Exclusion. Nothing contained herein shall be construed as --------- granting Elan any right or license under the GDL Patents or GDL Technology, other than the option right set forth in Section 4.1 hereof. Subject to the option granted in Section 4.1, nothing contained herein shall be construed as hindering Cytogen's right to freely practice and license GDL Patents and GDL Technology. Nothing contained herein shall be construed as hindering Elan's right to freely practice and license Elan Patents and Elan Technology. 3.5 Other Products. Subject to Sections 3.1, 3.2, 4.1 and 4.5 -------------- hereof, for products that are contained within Program Technology and that are related to both (i) the Elan Patents or Elan Technology, and (ii) the GDL Patents or GDL Technology; and for products that (a) are covered by one or more claims, or are produced, processed, or otherwise manufactured by any method and/or process covered by one or more claims, of an application or patent within the GDL Patents or of the Program Patents that - 14 - relate to the GDL Patents or GDL Technology; and also (b) are covered by one or more claims, or are produced, processed, or otherwise manufactured by any method and/or process covered by one or more claims, of an application or patent within the Elan Patents or Program Patents that relate to the Elan Patents or Elan Technology; the parties agree to mutually negotiate in good faith an agreement regarding the rights to make, use, sell, offer for sale, and import such products. 4. Option Agreement. ---------------- 4.1 Grant of Option. In partial consideration for the payments under --------------- Section 2 hereof, Cytogen hereby grants to Elan an exclusive option to acquire the exclusive royalty-bearing right and license under the Cytogen Program Patents, the Cytogen Program Technology, the Joint Program Patents, the Program Technology, and the GDL Patents and GDL Technology, with the right to grant sublicenses to others, to make, use, sell, offer for sale, and import Products and Know-How Products that are orally administered drug formulations that are transported across the intestinal epithelium, solely for use in the Field in the Territory. This option may be exercised at any time during the Option Period. 4.2 Renewal of Option. The Option Period may be extended by Elan for ----------------- an additional three (3) month period, upon written notice to Cytogen at any time prior to thirty (30) days before the expiration of the Option Period. In the event that the parties are engaged in good faith negotiations prior to the - 15 - expiration of such renewal period, then, upon a written notice to Cytogen, the Option Period may further be extended for an additional sixty (60) days. 4.3 Exercise of Option. The option may be exercised by Elan by ------------------ written notice to Cytogen during the Option Period, as may be extended pursuant to Section 4.2 hereof, and upon receipt of such written notice the parties hereto shall commence the good faith negotiations of an exclusive license (the "License Agreement"). The terms of the License Agreement shall include, among other things, the following basic terms and conditions: (a) Grant of License to Elan. Cytogen would grant Elan the ------------------------ exclusive royalty-bearing right and license under the Cytogen Program Patents, the Joint Program Patents, and the GDL Patents and GDL Technology, the Cytogen Program Technology and the Program Technology, with the right to grant sublicenses to others, to make, use, sell, offer for sale, and import Products and Know-How Products that are orally administered drug formulations that are transported across the intestinal epithelium, solely for use in the Field in the Territory. (b) Grant Back to Cytogen. Regarding any Product, the --------------------- manufacture, use, sale or importation of which (i) is licensed to Elan as set forth in subparagraph (a) directly hereinabove, and (ii) is not covered by the Elan Technology or Elan Program - 16 - Technology or one or more pending claims of an application or Valid Claims of a patent within the Elan Patents or Elan Program Patents, Cytogen shall have the right to make written inquiry of Elan as to whether Elan wishes to terminate its license with respect to such Product. Sixty (60) days subsequent to receipt of such inquiry, if Elan has not agreed in writing to continue the license with respect to such Product and, accordingly, to continue to use its commercially reasonable efforts and diligence to develop, produce and market such a Product, Cytogen would have the right upon written notice of the same to Elan to terminate the license granted with respect to such Product, and, upon such termination, Elan would grant Cytogen the exclusive, perpetual royalty-free license under the Program Patents to make, use, sell, offer for sale, and import such Product. (c) Exploitation. Elan would agree that, throughout the ------------ Term of the License Agreement, it will use its commercially reasonable efforts to develop, produce and market Products or Know-How Products that are orally administered drug formulations that are transported across the intestinal epithelium for use in the Field in the Territory. - 17 - (d) Royalty Payments by Elan to Cytogen. ----------------------------------- (1) In the event that Elan or its Affiliates shall directly market and sell the Products or Know-How Products, annual earned royalty payments shall equal [*] percent ([*]%) of all net sales of the Products and Know-how Products made by Elan or its Affiliates. In the event that the Products or Know-How Products are sold by a joint venture of which Elan is a participant, the parties shall negotiate in good faith the appropriate royalty structure. In the event that Elan appoints a licensee to market and sell the Products and Know-How Products, earned royalties shall equal [Information omitted and filed separately with the Commission under Rule 24b-2. ] (2) The License Agreement shall provide that in the event that the sum of the Licensing Fees * Information omitted and filed separately with the Commission under Rule 24b-2. - 18 - received by Elan and Manufacturing Fees received by Elan in any given year are less than an amount equal to [*] percent ([*]%) of all net sales of the Products and Know-How Products generated by licensees of Elan in such year, then the parties will negotiate in good faith an appropriate adjustment to the earned royalty for such year, and, in the event the parties are unable to reach agreement within one hundred twenty (120) days of the end of such year, the determination of the appropriate adjustment to earned royalties shall be submitted to arbitration pursuant to Section 10.1 hereof. (e) A right of first negotiation extended to Elan for a license to make, use, sell, and import Products and Know-How Products that are drug formulations that (i) are transported across the pulmonary epithelium through a nebulized formulation for use in the Field in the Territory; or (ii) are transported across the blood brain barrier for use in the Field in the Territory; or (iii) are transported across the dermis for use in the Field in the Territory (each an "Additional Product") on identical terms as set forth in Section 4.5 hereof. (f) Keeping by Elan of books and records relevant to royalty payments and by Cytogen relevant to * Information omitted and filed separately with the Commission under Rule 24b-2. - 19 - manufacturing costs, if applicable -- standard provisions. (g) Reports and royalty payments by Elan -standard provisions. (h) Confidential Information -- standard provisions. (i) Third Party Infringement -- standard provisions. (j) Mutual Indemnifications -- standard provisions. (k) Obtaining of appropriate insurance by Elan, and where appropriate, by Cytogen -- standard provisions. (l) Appropriate warranties and limitations on liabilities -- standard provisions. (m) Patent marking obligations on Elan -- standard provisions. (n) A term of the later of ten (10) years from first commercial sale, or the date of the last applicable patent to expire, with appropriate termination provisions. (o) Depending in part upon whether the Product or Know-How Product that is an orally administered drug formulation transported across the intestinal epithelium for use in the Field in the Territory has a biological or chemical formulation base, either Elan or - 20 - Cytogen or a mutually acceptable third party will become the exclusive manufacturer of such Product pursuant to a manufacturing agreement which will be negotiated and executed on commercially reasonable terms. (p) Ownership of all regulatory approvals and related submissions shall reside with Elan -- standard provision. 4.4 Termination of Option. In the event that the parties fail to --------------------- execute a License Agreement during the Option Period, then, subject to the rights granted in Section 3.1 hereof, Elan shall own the Elan Program Patents and Cytogen shall own the Cytogen Program Patents. 4.5 Right of First Offer. -------------------- (a) During the Term of this Agreement, Cytogen shall promptly notify Elan in writing of its intention to develop or commercialize with a third party or on its own behalf any Additional Product. Such notice shall set forth such data and other information as in its possession regarding the Additional Product necessary for Elan to evaluate the offer. Within sixty (60) days of such notice, Elan shall confirm in writing of its intent to negotiate with Cytogen for the rights to an Additional Product. (b) In the event Elan exercises its rights pursuant to this Section 4.5, the parties shall negotiate in good faith to determine mutually - 21 - acceptable terms and conditions thereto, which terms (including financial terms) shall be substantially similar to those contained herein or in the License Agreement, provided, however, that the financial terms under any future research and development program shall be dependent on the nature, scope and risk inherent in each particular program. In the event that Elan does not elect to enter into negotiations with Cytogen or if, by the expiration of one hundred twenty (120) days from Cytogen's initial notice, the parties cannot decide upon mutually agreeable terms and conditions, Cytogen shall be free to undertake development or commercialization of an Additional Product itself, or through or with one or more third parties provided, however, that the terms of any agreement with a third party shall be no more favorable to Cytogen than any terms previously offered by Elan without first reoffering such new terms to Elan in accordance with this Section. 5. Inventions and Patent Prosecution. --------------------------------- 5.1 Notice of Inventions. Each party shall promptly notify and fully -------------------- disclose in writing all ideas and developments, whether or nor patentable, conceived or reduced to practice by either party in connection with the performance of the Research Program. The parties shall consult with each other to review such development and determine its patentability. - 22 - 5.2. Filing, Prosecution, and Maintenance of Program Patents. ------------------------------------------------------- 5.2.1 Program Patents Related to the GDL Patents or GDL ------------------------------------------------- Technology. Throughout the term of this Agreement, Cytogen, at its expense, - ---------- shall have the right but shall not be obligated to file United States and/or foreign patent applications covering any patentable invention included within the Program Patents that (i) is related to the GDL Patents or GDL Technology, and (ii) is unrelated to the Elan Patents and Elan Technology; to prosecute and defend such applications against third party oppositions; and upon grant of any Letters Patent covering such invention, to maintain such Letters Patent in force. Cytogen shall have the right to control such filing, prosecution, defense and maintenance; however, Elan shall be provided with copies of all documents relating to such filing, prosecution, and defense, in sufficient time to review such documents and comment thereon, if desired by Elan, prior to filing. If Cytogen elects not to file or prosecute such applications or maintain such Letters Patent, Cytogen shall so notify Elan, in which event Elan shall have the right to file or prosecute such applications and to maintain such Letters Patent entirely at its own expense. 5.2.2 Program Patents Related to the Elan Patents or Elan --------------------------------------------------- Technology. Throughout the term of this Agreement, Elan, at its own expense, - ---------- shall have the right, but shall not be obligated, to file United States and/or foreign - 23 - patent applications covering any patentable invention included within the Program Patents that (i) is related to the Elan Patents or Elan Technology, and (ii) is unrelated to the GDL Patents and GDL Technology; to prosecute and defend such applications against third party oppositions; and upon grant of any Letters Patent covering such invention, to maintain such Letters Patent in force. To the extent permitted by law, such patent applications will be filed initially in Ireland. Elan shall have the right to control such filing, prosecution, defense and maintenance; however, Cytogen shall be provided with copies of all documents relating to such filing, prosecution, and defense in sufficient time to review such documents and comment thereon, if desired by Cytogen, prior to filing. If Elan elects not to file or prosecute such applications or maintain such Letters Patent, Elan shall so notify Cytogen, in which event Cytogen shall have the right to file or prosecute such applications and to maintain such Letters Patent entirely at its own expense. 5.2.3 Other Program Patents. The filing, prosecution and --------------------- defense of applications and maintenance of patents within the Program Patents that are not covered by Sections 5.2.1 and 5.2.2 above, shall be as follows: (1) Cytogen Program Patents. For such applications ----------------------- and patents that are within Cytogen Program Patents, Cytogen shall have the right, but not obligation, at its expense, to file and prosecute and defend such patent - 24 - applications, and maintain such patents. Cytogen shall have the right to control such filing, prosecution, defense and maintenance; however, Elan shall be provided with copies of all documents relating to such filing, prosecution, and defense, in sufficient time to review such documents and comment thereon, if desired by Elan, prior to filing. If Cytogen elects not to file or prosecute such applications or maintain such Letters Patent, Cytogen shall so notify Elan, in which event Elan shall have the right to file or prosecute such applications and to maintain such Letters Patent entirely at its own expense. To the extent permitted by law, such patent applications will be filed initially in Ireland. (2) Elan Program Patents. For such applications and -------------------- patents that are within Elan Program Patents, Elan shall have the right, but not obligation, at its expense, to file and prosecute and defend such patent applications, and maintain such patents. Elan shall have the right to control such filing, prosecution, defense and maintenance; however, Cytogen shall be provided with copies of all documents relating to such filing, prosecution, and defense in sufficient time to review such documents and comment thereon, if desired by Cytogen, prior to filing. If Elan elects not to file or prosecute such applications or maintain such Letters Patent, Elan shall so notify Cytogen, in which event Cytogen shall have the right to file or - 25 - prosecute such applications and to maintain such Letters Patent entirely at its own expense. To the extent permitted by law, such patent applications will be filed initially in Ireland. (3) Joint Program Patents. For such applications and --------------------- patents that are within Joint Program Patents, the parties shall mutually agree as to the filing, prosecution, defense, and maintenance thereof, for each such patent and patent application. In the absence of such agreement, each party shall be free to proceed with such filing, prosecution, defense, and maintenance. To the extent permitted by law, such patent applications will be filed initially in Ireland. 5.2.4 GDL Patent and Elan Patents. Nothing contained herein --------------------------- shall be construed as imposing on Cytogen any obligations to Elan with respect to the filing, prosecution and defense of applications and maintenance of patents within the GDL Patents. Nothing contained herein shall be construed as imposing on Elan any obligations to Cytogen with respect to the filing, prosecution and defense of applications and maintenance of patents within the Elan Patents. 6. Ownership. Ownership of Program Patents and Program Technologies --------- shall be as follows: (a) Cytogen shall wholly own legal title to (i) all Cytogen Program Patents, and (ii) all Program Technology conceived or made solely by one or more Cytogen employees. - 26 - (b) Elan shall wholly own legal title to (i) all Elan Program Patents, and (ii) all Program Technology conceived or made solely by one or more Elan employees. (c) Cytogen and Elan shall jointly own legal title to (i) all Joint Program Patents, and (ii) all Program Technology conceived or made jointly by (1) one or more Elan employees; and (2) one or more Cytogen employees. 7. Representations and Warranties. ------------------------------ 7.1 By Cytogen. Cytogen represents and warrants to Elan as follows: ---------- (a) Cytogen has all necessary corporate power to authorize the execution and consummation of this Agreement. (b) Cytogen either (i) legally and/or beneficially owns the patents and patent applications within the GDL Patents; or (ii) has licensed such patents and patent applications with the right to sublicense, including the right of Elan to further sublicense. 7.2 By Elan. Elan represents and warrants to Cytogen as follows: ------- (a) Elan has all necessary corporate power to authorize the execution and consummation of this Agreement. (b) Elan either (i) legally and/or beneficially owns the patents and patent applications within the Elan Patents; or (ii) has licensed such patents and patent applications with the right to sublicense, including the right of Elan to further sublicense, including the right of Cytogen to further sublicense. - 27 - 8. Term, Termination and Breach. ---------------------------- 8.1 Term. The term of this Agreement shall begin on the date hereof ---- and, unless terminated earlier under this Section 8, will terminate on the later of (a) fifteen (15) years from the date hereof, or (b) the last-to-expire of all patents included within the Program Patents and GDL Patents. Termination of the Research Program or Option Period shall not terminate this Agreement, which shall continue in full force and effect. 8.2 Material Breach. Either party may terminate this Agreement upon --------------- a material breach of any of the terms of this Agreement by the other party if the terminating party has given a breaching party notice of the breach and the breaching party has failed to remedy such breach within forty-five (45) days of the notice of the breach. For purposes of this Agreement, failure of either party to materially comply with the Research Plan, including a failure to achieve milestones, shall constitute a breach. 8.3 Change of Control. Upon a change of control in either party, the ----------------- other party may terminate this Agreement by providing thirty (30) days notice of such termination within sixty (60) days of the change of control event. For purposes of this Section, change of control shall mean the acquisition of fifty percent (50%) or more of the issued and outstanding equity securities of the affected party in either a single transaction, or a series of related transactions by a non-Affiliate. - 28 - 8.4 Insolvency. This Agreement may be terminated by either Cytogen ---------- or Elan (a) in the event that a case or proceeding shall be commenced and continue undismissed or unstayed for a period of sixty (60) calendar days against the other (the "Insolvent Party") or such Insolvent Party shall commence a voluntary case, in either case seeking relief under the bankruptcy laws or any other law relating to bankruptcy, insolvency, reorganization, winding up or composition or adjustment of debts, in each case as now or hereafter in effect, or (b) the Insolvent Party shall apply for, consent to, or fail to contest, the appointment of a receiver, liquidator, custodian, trustee or the like for such party or for all or any part of its property, or (c) the Insolvent Party shall make a general assignment for the benefit of its creditors, or (d) either party shall fail to, or admit in writing its inability to, pay, or generally not be paying, its debts as they become due. 8.5 License Agreement. Elan may, at its option, terminate this ----------------- Agreement upon thirty (30) days written notice if the parties hereto have failed to execute the License Agreement within one hundred twenty (120) days after Elan's written exercise of its option pursuant to Section 4.3 hereof (the "Optional Termination Date") provided, however, in the event that the parties continue to negotiate in good faith on the Optional Termination Date, the Optional Termination Date shall be extended for an additional thirty (30) days to permit the execution of the License Agreement. - 29 - 8.6 Rights Upon Termination. In the event this Agreement is ----------------------- terminated by either party prior to the execution of the License Agreement, then each of the parties shall promptly return the other's Technology. 9. Confidentiality. --------------- 9.1 Non-Use. ------- (a) All information provided by one party to the other under this Agreement shall be regarded as confidential, unless the parties have agreed otherwise in writing. Cytogen and Elan agree for themselves and their Affiliates that during the term of this Agreement and for five years thereafter, each of them shall keep completely confidential and shall not disclose to any third party or publish or submit for publication or otherwise divulge or use, any technical information furnished to it by the other party, except (i) to consultants, Affiliates, sub-licensees, manufacturers and agents who are obligated to maintain it in confidence pursuant to written agreements which are at least as stringent as the terms of this Section 9; (ii) as necessary to obtain approval from a governmental agency in order to market the Product; - 30 - (iii) as reasonably may be required in a patent application covering the subject matter which is encompassed within this Agreement; or (iv) as otherwise may be required by law, regulation or judicial order. (b) Should Elan wish to use a third party to have the Product that is an orally administered drug formulation transported across the intestinal epithelium for use in the Field manufactured for Elan, it may do so only if such third party accepts the confidentiality, nondisclosure, and non-use provisions set forth herein as binding upon them. 9.2 Confidential Information. Excepted from this secrecy obligation ------------------------ is such information which as can be established by competent proof: (a) was known, other than under binder of secrecy or non-use to the receiving party prior to its disclosure to such party; (b) has become public other than through acts or omissions attributable to the receiving party; or (c) was subsequently lawfully obtained from a third party not acquiring the information under an obligation of confidentiality from the disclosing party. 10. Miscellaneous Provisions. ------------------------ 10.1 [Information omitted and filed separately with the Commission under Rule 24b-2. - 31 - Information omitted and filed separately with the Commission under Rule 24b-2. - 32 - ] 10.2 Remedies. Each of the parties hereto acknowledges and agrees -------- that in the event of a breach or threatened breach of this Agreement, the other party has no adequate remedy at law and accordingly shall be entitled to injunctive and other equitable remedies in addition to any remedy it might have at law or in equity. 10.3 Public Communications. Neither party shall make any press --------------------- release or other similar public disclosure or announcement concerning this Agreement, without the prior written consent of the non-disclosing party, except as otherwise required by law. Consent will be deemed granted if no response is received from the non-disclosing party within five (5) business days of its confirmed written request for approval from the disclosing party. Notwithstanding the foregoing, in the event such disclosure or public announcement is required to be made on - 33 - a more immediate basis in order to comply with applicable state or federal securities laws, then approval will be deemed granted if no response is received from the non-disclosing party within the timeframes required by law; provided, however, that the disclosing party provides the non-disclosing party with notice of the legally required timeframe for approval of the disclosure at the time of providing a copy of the proposed disclosure or announcement. 10.4 Approval of Publications. All proposed publications, abstracts ------------------------ or oral presentations disclosing research or results obtained in the performance of the Research Program must be agreed to by both parties and must be submitted for review at least sixty (60) days in advance of the expected publication or presentation date. In the event either party is of the opinion that such publication, abstract or presentation would constitute the disclosure of subject matter proprietary to either company or the premature publication of patentable subject matter, either party shall promptly notify the other in writing, who should then delay publication or presentation of such article or abstract for a period of sixty (60) days until either (a) a United States patent application shall have been filed, or (b) the relevant teaching shall have been sufficiently deleted from the proposed publication, abstract or presentation in order to preclude public disclosure of the subject matter. 10.5 Consents Not Unreasonably Withheld or Delayed. Whenever --------------------------------------------- provision is made in this Agreement for either party to - 34 - secure the consent or approval of the other, such consent or approval shall not be unreasonably withheld or delayed. 10.6 Entire Agreement: Waivers. This Agreement constitutes the ------------------------- entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect to such subject matter. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar). 10.7 Amendment or Modification. The parties hereto may not amend or ------------------------- modify this Agreement except in such manner as may be agreed upon by a written instrument executed by both parties. 10.8 Independent Contractors. The parties agree that with respect to ----------------------- the business arrangement contemplated herein they shall both be acting as independent contractors and nothing herein contained or contained in this Agreement shall constitute the parties as entering upon a joint venture nor shall constitute either party as the agent for the other for any purposes whatsoever. 10.9 Survival. Etc. Sections 3.1 (Grant by Cytogen to Elan), 3.2 -------------- (Grant by Elan to Cytogen), 3.3 (No Diligence Obligations), 3.4 (Exclusion), 5.2 (Filing, Prosecution, and Maintenance of Program Patents, 6 (Ownership), 9 (Confidentiality), 10.1 (Arbitration) and 10.14 (Governing Law) of this Agreement shall survive the expiration or termination of - 35 - this Agreement for any reason and shall continue in full force and effect forever thereafter. 10.10 Severability. In the event that any provision hereof would, ------------ under applicable law, be invalid or unenforceable in any respect, such provision shall (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof. 10.11 Assignment; Binding Effect. Neither party shall assign, -------------------------- transfer or otherwise dispose of this Agreement in whole or in part to any individual, firm or corporation without the prior written consent of the other party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, this Agreement shall be assignable by either party without the consent of the other to an Affiliate. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors and assigns (each of which such transferees, successors and assigns shall be deemed to be a party hereto for all purposes hereof). 10.12 Notices. Any notices or other communications required or ------- permitted hereunder shall be sufficiently given if in - 36 - writing and delivered personally or sent by telecopier, Federal Express (or similar courier service), or registered or certified mail, postage prepaid, addressed as follows: If to Cytogen, to it at: Cytogen Corporation 600 College Road East Princeton, NJ 08540-5308 Attention: President Fax No. (609) 951-9298 If to Elan, to it at: Elan Corporation plc Monksland Athlone, County Westmeath Ireland Fax No. 011-353-902-92427 Attention: President Unless otherwise specified herein, such notices or other communications shall be deemed received (a) on the date delivered, if delivered personally, (b) three business days after being sent by Federal Express or a similar overnight courier service, if sent by Federal Express or such similar courier service, (c) one business day after being delivered, if delivered by telecopier and (d) five business days after being sent, if sent by registered or certified mail. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to the other party hereto. 10.13 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be deemed an - 37 - original, but all of which together shall constitute but one and the same instrument. 10.14 Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of New Jersey applicable to contracts executed in and to be performed in that state, without giving effect to any choice or conflict of law provision or rule that would cause the application of the laws of any other jurisdiction. - 38 - IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Agreement to be executed, as of the date first above written by their respective officers thereunto duly authorized. CYTOGEN CORPORATION By: /s/ Thomas J. McKearn ----------------------------- Title: President and CEO ELAN CORPORATION plc By: /s/ Thomas Lynch ---------------------------- Title: Chief Financial Officer and Executive Vice President LIST OF SCHEDULES - ----------------- SCHEDULE A List of United States and Foreign Patent Applications related to the GDL technology EX-10.32 6 DISTRIBUTION AGREEMENT 12/22/95 Exhibit 10.32 DISTRIBUTION AGREEMENT ---------------------- This Agreement is made as of this 22nd day of December, 1995 by and between CYTOGEN CORPORATION, a Delaware corporation having its principal place of business at 600 College Road East, Princeton, New Jersey 08540 ("Cytogen") and FAULDING (CANADA) INC., a Canadian corporation having its principal place of business at 334 Aime-Vincent, Vaudreuil, Canada J7V 5V5 ("Faulding"). WHEREAS, Cytogen has developed and commercialized in vivo colorectal -- ---- and ovarian cancer imaging products which use monoclonal antibodies as part of radioisotopic detection techniques; and WHEREAS, Faulding has substantial experience in marketing biotechnology-based medical products and desires to distribute Cytogen's colorectal and ovarian cancer imaging products in Canada; and WHEREAS, Faulding has paid all amounts due and owing under that certain letter of intent by and between the parties hereto; and WHEREAS, Cytogen is willing to use Faulding as its exclusive distributor in Canada. NOW THEREFORE, in consideration of the premises and the mutual covenants herein recited, and other good and valuable considerations, the receipt of which is acknowledged, it is agreed as follows: ARTICLE I - DEFINITIONS As used in this Agreement, the following terms, whether used in the singular or plural, shall have the meanings indicated: 1.1 Effective Date shall mean the date of this Agreement first written -------------- above, which shall also be the date on which both parties execute this Agreement. 1.2 FDA shall mean the United States Food and Drug Administration. --- 1.3 First Commercial Sale shall mean the first time sales are made of --------------------- the Product by Faulding or its sublicensees to an unrelated third party. 1.4 HPB shall mean the Health Protection Branch of the Department of --- Health, Canada. 1.5 Marketing Applications shall mean health registration applications ---------------------- pending before the HPB that are required as a condition precedent to marketing the Products within the Territory. - 2 - 1.6 Marketing Authorizations shall mean authorization by an appropriate ------------------------ governmental agency required as a condition precedent to the sale of the Products within the Territory. 1.7 Net Sales Revenue shall mean [Information omitted and filed ----------------- separately with the Commission under Rule 24b-2. ] 1.8 Products shall mean and collectively include Cytogen's in vivo -------- -- ---- diagnostic imaging products which utilize its patented or proprietary technology and are used for the screening, diagnosis and monitoring of human colorectal and ovarian cancer and are known as OncoScint CR/OV. 1.9 Territory shall mean Canada. --------- 1.10 Trademark shall mean "OncoScint." --------- - 3 - ARTICLE II - APPOINTMENT OF DISTRIBUTOR 2.1 Appointment of Distributor. Subject to the terms and conditions of -------------------------- this Agreement, Cytogen hereby appoints Faulding as exclusive distributor of the Products within the Territory. Cytogen reserves the right to grant similar distribution rights in the Products to third parties for distribution and sale outside of the Territory provided, however, such third parties shall be prohibited from selling or distributing the Products within the Territory during the term of this Agreement. 2.2 Rights to Other Products. In the event that Cytogen subsequently ------------------------ determines to grant marketing and distribution rights in the Territory to its product using monoclonal antibodies for use with radioisotopes in in vivo -- ---- imaging for prostate cancer presently known as ProstaScint (the "Other Product"), Cytogen shall provide Faulding a right of first offer with respect to such rights in accordance with the following procedure. 2.2.1 Cytogen shall deliver to Faulding a written notice setting forth the material terms of the offer (the "Offer"), including any pricing information, definitions of the market and territory, product data and specifications, and any additional information necessary for Faulding to evaluate the Offer. - 4 - 2.2.2 Notice of Faulding's intention to accept an Offer shall be evidenced by a writing signed by Faulding and delivered to Cytogen prior to the end of the sixty (60) day period following the date of receipt of such Offer by Faulding. 2.2.3 In the event that Faulding does not elect to accept the Offer, Cytogen may grant the marketing and distribution rights to the Other Product to a third party on the same terms as set forth in the Offer, or market and sell the Other Product in the applicable territory with its own direct sales force; provided, however, the marketing and distribution rights to the Other -------- ------- Product may not be granted to a third party on terms and conditions materially more favorable from those set forth in the Offer until the marketing and distribution rights are again offered to Faulding under the procedures specified in this Section 2.2. 2.3 Marketing Authorizations. ------------------------ 2.3.1 Cytogen's Obligations. Cytogen shall use its best --------------------- efforts to transfer or otherwise assign to Faulding any and all Marketing Applications. These Marketing Applications shall identify Faulding as both an importer and distributor of the Products. Cytogen shall deliver to Faulding, at Cytogen's expense, all scientific, clinical, toxicologic and manufacturing data in the possession of Cytogen and necessary to obtain all required Marketing Authorizations within the Territory, provided, - 5 - however, if such necessary data is not in the possession of Cytogen, the parties shall meet to determine if and in what manner the data may be obtained. 2.3.2 Faulding's Obligations. At its own expense, Faulding ---------------------- shall use its best efforts to (i) assist in the transfer, assignment or amendment of the Marketing Applications, and (ii) obtain all necessary Marketing Authorizations within the Territory in a commercially reasonable time. Faulding shall provide Cytogen with quarterly progress reports of its efforts to obtain Marketing Authorizations. 2.4 Trademark License. Cytogen hereby grants to Faulding the non- ----------------- transferable right and license, with no right to grant sublicenses, to use the Trademark within the Territory, alone or in conjunction with any one or more trademarks of Faulding on the Products. Faulding shall use the trademark in prominent form on Products sold in the Territory pursuant to the license granted herein. Cytogen represents and warrants that the Trademark has been registered in the Territory, that Cytogen has the authority to grant the right and license to the Trademark to Faulding for use in the Territory, and that Cytogen is not aware of any infringement of the Trademark in the Territory by a third party. 2.5 Provision of Data. Each of the parties agrees to provide the other ----------------- promptly with all clinical and technical information and data with respect to the Product which is - 6 - developed during the term of this Agreement and which is necessary to comply with all regulatory requirements and for the marketing and sale of the Product in accordance with this Agreement. ARTICLE III - PAYMENTS 3.1 Milestone Payments. In consideration of the distribution rights ------------------ granted to Faulding herein, Faulding shall make the following payments to Cytogen in United States dollars at the following times and in accordance with the occurrence of the following events: [Information omitted and filed separately with the Commission under rule 24b-2. ] 3.2 Purchase Price. For each vial of Product delivered to Faulding -------------- pursuant to Article IV hereof, Faulding shall pay to Cytogen the sum of [Information omitted and filed separately with the Commission under Rule 24b- 2.], which shall be due and payable within thirty (30) days of receipt of an invoice from Cytogen. - 7 - 3.3 Additional Payments. In addition to the payments due under Section ------------------- 3.2 hereof, commencing on the second anniversary of the First Commercial Sale, Faulding shall pay to Cytogen an amount equal to [*] percent ([*]%) of Net Sales Revenue. Payments due under this Section 3.3 shall be made within forty-five (45) days after the end of each quarter. 3.4 Quarterly Reports. Within forty-five (45) days after the end of ----------------- each quarter, Faulding shall provide Cytogen with a written statement with respect to such period specifying the Net Sales Revenue of Products during the period and the amount of additional payments due, if any, under Section 3.3 hereof. 3.5 Record and Audit Rights. ----------------------- 3.5.1 Faulding shall keep complete and accurate records pertaining to the sale of Products appropriate to determine additional consideration payable under Section 3.3 of this Agreement. 3.5.2 At the request and expense of Cytogen, an independent auditor selected by Cytogen shall have access limited to once per calendar year at Faulding's principal place of business during ordinary business hours to such records maintained by Faulding as may be necessary to: (a) determine, with respect to the preceding year the correctness of any report or payment made under this Agreement, or * Information omitted and filed separately with the Commission under Rule 24b-2. - 8 - (b) obtain information with respect to the preceding year as to the additional payments due under Section 3.3 hereof. If deemed necessary or desirable in the sole opinion of the accountant, the accountant shall at Cytogen's expense be permitted to consult with and obtain the assistance of consultants selected by the accountant and acceptable to Faulding. Such acceptance shall not be unreasonably withheld. Neither the accountant nor the selected consultants shall disclose to Cytogen or any third parties any information relating to the business of Faulding other than information relating solely to the accuracy of the reports and payments under this Agreement and shall execute a reasonably acceptable confidentiality agreement. 3.6 Method of Payments. All payments due hereunder shall be made in ------------------ United States funds collectible in New York, New York, U.S.A. by wire-transfer. All payments due Cytogen under this Agreement which are received later than the due date shall be subject to an additional payment of one percent (1%) per month or - 9 - portion thereof as liquidated damages for payments received later than the due date. 3.7 Refund of Milestone Payments. Within ten (10) days of the ---------------------------- occurrence of any of the following events, Cytogen shall pay to Faulding all monies received by Cytogen pursuant to Section 3.1 hereof. 3.7.1 The NDS for the Product has not been approved by the HPB for the indications included in the initial filing by December 31, 1996. 3.7.2 Faulding has terminated this Agreement pursuant to Section 10.8 hereof. 3.8 Price Adjustments. [Information omitted and filed separately with ----------------- the Commission under Rule 24b-2.] - 10 - ARTICLE IV - SUPPLY OF PRODUCTS 4.1 Terms of Faulding Requirements. Subject to the terms and conditions ------------------------------ hereof, Cytogen agrees to sell and Faulding agrees to purchase from Cytogen Faulding's entire requirements of the Products, solely for use and/or sale in the Territory. Cytogen shall use its best efforts to manufacture the Products and supply them to Faulding in quantities sufficient to satisfy Faulding's needs in accordance with the provisions of this Article IV. All Products supplied by Cytogen hereunder shall have a minimum of nine (9) months remaining shelf life determined as of the date of receipt by Faulding. 4.2 Terms of Supply. The following terms relate to supply of Products: --------------- 4.2.1 Purchase Estimates. Faulding shall submit to Cytogen, ------------------ beginning ninety (90) days before the first anticipated order of Products and at the beginning of each calendar quarter thereafter, a non-binding estimate of the amount of Products to be required and purchased by Faulding for the next three months and the next 12-month periods. 4.2.2 Purchase Orders. Within thirty (30) days before the --------------- beginning of each calendar quarter thereafter, Faulding shall provide Cytogen with binding written orders for its purchases of Products for that calendar quarter, specifying - 11 - the required delivery dates for each order. Cytogen shall supply the Products in accordance with the purchase orders. 4.2.3 Delivery of Products. Cytogen shall deliver the Products to -------------------- Faulding F.O.B. Cytogen's place of business in New Jersey, U.S.A. 4.2.4 Product Pricing. Faulding shall have sole discretion to --------------- establish the resale price of the Products to third parties subject only to any regulatory or governmental limitations. 4.3 Inspection and Dispute Resolution Relating to Satisfaction of ------------------------------------------------------------- Product Specifications. The following provisions relate to inspection and - ---------------------- resolution of disputes: 4.3.1 Inspection. Each shipment of Product by Cytogen shall ---------- be accompanied by a certificate of analysis for the production batch. Faulding shall inspect and analyze each batch of Product delivered by Cytogen in a manner consistent with its standard sampling procedures and any claims regarding quantity or quality of same shall be made by Faulding in writing to Cytogen specifying in reasonable detail the nature and basis for the claim and citing relevant control numbers or other information to enable specific identification of Product in question, and shall be given within thirty (30) days of said delivery or, if later, by the date on which the basis for such claim should reasonably have been discovered after the exercise of due diligence. All - 12 - claims made by Faulding after its inspection of finished product shall be handled on a case-by-case basis during which time Cytogen shall have the right to first inspect any Product involved before being required to take any action with respect thereto. Cytogen shall make its investigation within thirty (30) days of receipt of notice of a claim from Faulding. 4.3.2 Resolution of Disputes Relating to Product Specifications. --------------------------------------------------------- If the parties hereto fail to agree as to whether a delivered quantity of Product meets its agreed specifications, then the parties shall cooperate to have the batch in dispute analyzed by a qualified independent testing laboratory selected by Faulding to which Cytogen does not have reasonable objection. The following provisions shall apply with respect to the results indicated by such independent laboratory: (a) If the batch of Product is determined to have met its specifications, then Faulding shall bear the costs of the independent laboratory testing and shall accept the shipment of such Product. (b) If the batch of Product is determined not to meet its specifications, then Cytogen promptly shall replace the affected quantity of Product, Faulding shall, at Cytogen's expense, dispose of such quantity in such - 13 - manner as Cytogen shall direct, and Cytogen shall bear the costs of the independent laboratory testing. 4.4 Packaging. Cytogen shall supply all Products in finished product --------- form; provided, Faulding shall supply Cytogen with camera-ready art work for all -------- labels and packaging material. Each shipment shall include, at no cost to Faulding, additional vials of Product for quality control purposes in quantities equal to five percent (5%) of the vials ordered but in no case more than 50 vials for each shipment. 4.5 Title. Title to all Products shipped by Cytogen shall pass to ----- Faulding upon delivery F.O.B. Cytogen's place of business. Risk of loss shall pass to Faulding upon delivery. Faulding shall be responsible for making payment of insurance, shipping, duties and similar costs associated with delivery of the Products. 4.6 Reporting. Each party agrees to report to the other party in --------- writing any serious adverse reactions or any side effects which occur or other adverse events with Product as promptly as possible but in no event later, (i) with respect to the event set forth in Section 4.6.1(a), within 24 hours after receipt of information of such event ("Reaction Notice"), (ii) with respect to the event set forth in Section 4.6.1(b) below, within five (5) days of receipt of a Reaction Notice, and (iii) - 14 - with respect to the events set forth in Section 4.6.1(c)-(e) below, within ten (10) days of receipt of a Reaction Notice. Any such reactions or side effects must be reported (in full detail if requested) irrespective of whether there is a causal connection with the Product being administered or whether the causal connection is unclear or presumed to be not likely. 4.6.1 For purposes of this reporting covenant, a serious adverse event is a reaction which meets one or more of the following criteria: (a) a reaction that is life threatening or fatal; (b) a reaction that resulted in hospitalization, or if the patient was already hospitalized, a reaction which prolonged hospitalization; (c) a reaction that resulted in severe or permanent disability; (d) a reaction that involved congenital anomaly or overdose, or cancer which was not already present at the beginning of treatment with Product; or (e) a reaction that is considered to be important, significant or otherwise medically serious. 4.6.2 Each of the parties hereto shall monitor all relevant journals and media communications for information on - 15 - factors materially affecting the use or efficacy of the Product and shall promptly inform the other party of such information. The informing party may provide in writing its evaluation of such information. Either party shall promptly inform the other if it has actual knowledge of any measures which are necessary to eliminate or minimize any risk associated with the use of a specific production lot of the Product. ARTICLE V - ADDITIONAL OBLIGATIONS OF FAULDING 5.1 Marketing Obligations. Faulding agrees to use its diligent efforts --------------------- to promote and distribute the Products, at its own expense, in the Territory as soon as feasible after the Effective Date of this Agreement and upon receipt of the applicable Marketing Authorizations and such marketing materials as Cytogen is required to furnish hereunder using diligent efforts to maximize sales and market penetration at the earliest date. Subject to Cytogen's obligations under Article VIII hereof, Faulding shall also be responsible for all quality control, lot release for Canadian requirements, promotional activities, marketing and selling efforts, distribution and technical services. All promotional materials developed by Faulding shall be approved by Cytogen. Cytogen shall promptly review such materials, and if no written response is provided by Cytogen within thirty (30) days after receipt of such material, - 16 - then the material will be deemed to have been approved by Cytogen. Costs associated with participation by either Faulding or Cytogen in international conferences or symposia which provide important marketing opportunities for both parties shall be shared on terms to be negotiated for each such event. Cytogen shall promptly make available for use by Faulding in the Territory all promotional material developed by Cytogen for the Product, at no expense to Faulding. 5.2 Marketing Plans. Faulding shall submit to Cytogen a Product launch --------------- plan for the Products in the Territory as soon as possible and, in any event no later than ninety (90) days from the Effective Date, and on or before October of each year thereafter, an annual marketing and sales plan for the Products. Each of these plans shall include specific marketing sales strategies, tactics and goals, market research analysis, promotion budgets, and sales projections. 5.3 Compliance with Laws. Faulding shall use its best efforts to market -------------------- and distribute the Products in the Territory in compliance with local laws and regulations and good commercial practice and for uses and applications approved by Cytogen for the Products. 5.4 Minimum Purchase Requirements. Faulding shall pay to Cytogen the ----------------------------- minimum annual purchase requirements in the amounts set forth in Schedule A hereto which establish the minimum - 17 - payments due under Section 3.2 hereof (the "Minimum Annual Purchase Requirements"). 5.5 Purchase Forecasts. Faulding shall submit to Cytogen the quarterly ------------------ purchase forecasts for the Product as required pursuant to Section 4.2.1 hereof and submit purchase orders for the Products pursuant to Section 4.2.2 hereof. ARTICLE VI - FAILURE TO MEET MINIMUM ANNUAL PURCHASE REQUIREMENTS In the event that in any given year, the total payments by Faulding under Sections 3.2 and 3.3 hereof do not, in the aggregate, equal or exceed the Minimum Annual Purchase Requirements for such year (which shall be adjusted each year upon agreement by the parties to reflect any short-falls attributable to Cytogen's failure, if any, to provide Product on a timely basis as required by Article III hereof) and Faulding fails to pay such short-fall within sixty (60) days of the end of such year, then Cytogen may, at its sole discretion, convert the grant of the distribution rights pursuant to Section 2.1 hereof to a non- exclusive basis and correspondingly reduce the royalties payable to Cytogen pursuant to Section 3.3 hereof. Such election shall be made by delivery of written notice by Cytogen to Faulding and shall take effect on the date set forth in the notice. - 18 - ARTICLE VII - CONFIDENTIAL INFORMATION The parties hereto agree that each shall keep completely confidential and shall not publish or otherwise divulge or use for its own benefit or for the benefit of any third party any information of a proprietary nature furnished to it (the "receiving party") by the other party (the "disclosing party") for a period of five (5) years after the termination of this Agreement without the prior written approval of the disclosing party in each instance, except to the extent that it is necessary to divulge such information for the obtaining of governmental approval for the marketing of the Products. Nothing in this Article 7 shall prevent disclosure or use of information (i) already known to the receiving party, (ii) which was known to the public at the time of disclosure, or subsequently becomes so known through no act or omission of such party, or (iii) which is properly acquired by the receiving party from a third party having the right to convey such information. Information of a proprietary nature shall include, but not be limited to, information concerning a party's products, proposed products, marketing plans, methods of manufacture, customers or any other information or materials in whatever form not generally known to the public. - 19 - ARTICLE VIII - WARRANTY 8.1 Warranties. Cytogen represents and warrants to Faulding that all ---------- Products manufactured and delivered to Faulding pursuant to this Agreement: (a) shall meet Cytogen's specifications for such Product at the time of delivery by Cytogen to Faulding and throughout its stated shelf-life, provided however, that such Product has been stored in accordance with the instructions on the labelling of the packaging for such Product; (b) shall be manufactured and stored by Cytogen in compliance with all aspects of current applicable federal, state, provincial and local laws, rules, and regulations in a plant which meets the requirements of the Regulatory Authority in filings in the Territory and current Good Manufacturing Practices as defined by the Regulatory Authority in the Territory; (c) shall be free from all adulteration, misbranding, and defects in materials, composition, and manufacture within the meaning of the FDA and Cosmetic Act and other - 20 - applicable regulatory requirements in the Territory; and (d) shall be free and clear of all security interests, liens, or other encumbrances of any kind or character. 8.2 Infringement. Cytogen represents and warrants to Faulding that to ------------ the best of its knowledge the use and sale of the Product does not infringe any Canadian patent or violate the trade secret rights or other intellectual property rights of any third party. 8.3 Ownership. Faulding acknowledges and agrees that Cytogen owns the --------- technical information with respect to Product, if any, and all industrial and intellectual property rights of any kind in relation to such technical information including the right to patents, registered or other designs, copyright and any other confidential information. Nothing contained in this Agreement shall be effective to give Faulding any rights of ownership in and to the Product technical information and to the intellectual property in relation to the Product technical information and providing the Product technical information to Faulding under this Agreement is for the sole purpose of obtaining approval from the Regulatory Authorities in the territory for the Product. - 21 - 8.4 Remedy. With respect to any Product found by Faulding to be ------ unacceptable pursuant to Article 4 hereof, Cytogen shall grant to Faulding a credit equal to the purchase price paid by Faulding for such Product and reimburse Faulding for any related insurance, customs, or handling expenses incurred by Faulding. In no event shall Cytogen be liable under this Agreement for any failure of any Product to meet the Specifications due to improper use, storage or shipment by Faulding or anyone receiving the Product from Faulding. ARTICLE IX - INDEMNIFICATION 9.1 Indemnification by Cytogen. Cytogen agrees to and hereby does -------------------------- indemnify and hold Faulding harmless from and against all claims, damages, losses, costs and expenses, including reasonable attorneys' fees, which Faulding may incur by reason of any Products sold or furnished by Cytogen which result in injury, illness or death of any person, to the extent that such claims arise out of or result from either the negligence or willful misconduct of Cytogen in (i) product design, or (ii) manufacturing, or from a breach of any representations or warranties by Cytogen hereunder, except if such claims arise from the gross negligence or willful misconduct of Faulding. 9.2 Indemnification by Faulding. Faulding hereby agrees to and hereby --------------------------- does indemnify and hold Cytogen harmless from and - 22 - against all claims, damages, losses, costs and expenses, including reasonable attorneys' fees, which Cytogen may incur to the extent that such claims arise out or result from (i) the unlawful sale or other distribution of Products by Faulding, including any improper sales by Faulding to customers who are located in any territory outside the Territory, (ii) the negligent or willful misconduct of Faulding in the distribution, labeling or packaging of the Products, (iii) recommended use of Products by Faulding in violation of this Agreement, or (iv) breach of any representation or warranty by Faulding hereunder except for such claims which arise out of or result from the gross negligence, or willful misconduct of Cytogen. 9.3 Contribution. In the event the negligence of Faulding and Cytogen ------------ contribute to any loss, cost, damages, claim or expense relating to Product supplied and/or distributed or sold hereunder, then Faulding and Cytogen shall be responsible for that portion of the loss, cost, damages, claim or expense to which its negligence contributed. 9.4 Infringement. Cytogen shall indemnify and hold Faulding, its parent ------------ companies, affiliates and subsidiaries, and the officers, directors and employees of each of them, harmless from any and all liability relating to any claim of patent infringement based on distribution or sale of Products under this Agreement. - 23 - 9.5 Procedure. --------- (a) If Faulding or any of its Affiliates or subsidiaries or Cytogen or any of its Affiliates or subsidiaries (in each case an "Indemnified Party") receives any written claim which it believes is the subject of indemnity hereunder by Cytogen or Faulding, as the case may be, (in each case as "Indemnifying Party"), the Indemnified Party shall, as soon as reasonably practicable after forming such belief, give notice thereof to the Indemnifying Party, including full particulars of such claim to the extent known to the Indemnified Party; provided, that the failure to give timely notice to the Indemnifying Party as contemplated hereby shall not release the Indemnifying Party from any liability to the Indemnified Party other than pursuant to this section, the Indemnifying Party shall have the right, by prompt notice to the Indemnified Party, to assume the defense of such claim with counsel reasonably satisfactory to the Indemnified Party, and at the cost of the Indemnifying - 24 - Party. If the Indemnifying Party does not so assume the defense of such claim or, having done so, does not diligently pursue such defense, the Indemnified Party may assume such defense, with counsel of its choice, but for the account of the Indemnifying Party. If the Indemnifying Party so assumes such defense, the Indemnified Party may participate therein through counsel of its choice, but the cost of such counsel shall be for the account of the Indemnified Party. (b) The Party not assuming the defense of any such claim shall render all reasonable assistance to the Party assuming such defense, and all out-of-pocket costs of such assistance shall be for the account of the Indemnifying Party. ARTICLE X - TERM AND TERMINATION 10.1 Term. This Agreement shall commence on the Effective Date and shall ---- continue in force for a fixed term of seven (7) years unless terminated earlier under the provisions of this Agreement. At the end of the fixed term and each additional term thereafter, this Agreement shall be automatically renewed on the - 25 - same terms and conditions for an additional two (2) year period unless earlier terminated under the provisions hereof or unless one party gives to the other notice of its intention to terminate at least six (6) months prior to the expiration of the fixed term hereof or of any renewal period. 10.2 Failure to Make Payment. Cytogen may terminate this Agreement at ----------------------- any time upon Faulding's failure to make payments due to Cytogen pursuant to this Agreement and the continuation of such failure for more than thirty (30) days after delivery of written notice to Faulding of such failure. 10.3 Failure to Commercialize. Cytogen may terminate this Agreement at ------------------------ any time upon Faulding's failure to use diligent efforts to move ahead with its obligations to market, sell and distribute Products under Section 5.1 hereof and upon the continuation of such failure for more than ninety (90) days after delivery of written notice to Faulding of such failure, except where such failure of Faulding is a result of the failure of Cytogen to meet its obligations as defined in this Agreement or due to circumstances beyond the reasonable control of Faulding pursuant to Section 11.7 hereof. 10.4 Material Breach. Either party may terminate this Agreement upon --------------- ninety (90) days prior written notice in the event of the other party's breach of any other material provision of this Agreement, if such default or breach is not remedied within - 26 - ninety (90) days from the date of such notice, except where such default or breach is due to circumstances beyond the reasonable control of the other party pursuant to Section 11.7 hereof. 10.5 Bankruptcy. If, during the term of this Agreement, either party ---------- makes an assignment, of this Agreement or generally, for the benefit of creditors, or becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditor's arrangement or composition, or if any comparable proceeding is instituted against the other party and is not dismissed within ninety (90) days of such institution, then the other party may terminate this Agreement immediately upon delivery of written notice thereof. 10.6 Control Event. In the event that either party (i) sells all or ------------- substantially all of its assets to a non-affiliate, or (ii) has more than 50% of its equity securities purchased by a single purchaser who is a non-affiliate in one transaction (a "Control Event"), then the other party may terminate this Agreement with thirty (30) days prior written notice at any time within twelve (12) months after the occurrence of the Control Event. 10.7 No Waiver. Any failure to terminate shall not be construed as a --------- waiver by the aggrieved party of its right to terminate for future defaults or breaches. - 27 - 10.8 No Marketing Approvals. Faulding may terminate this Agreement by ---------------------- written notice at any time (i) within thirty (30) days after December 31, 1996 if the NDS is not approved by such date, or (ii) within the three (3) month period following the Effective Date if Faulding receives notice of a claim, or otherwise has reasonable grounds to believe, that the sale or use of the Product infringes the intellectual property rights of a third party. 10.9 Effects of Termination. ---------------------- 10.9.1 Return of Property. Upon termination of this ------------------ Agreement, each party shall upon the request of the other party return all books, records, documents and data which it shall have received from the other party pursuant to this Agreement and which it shall still have in its possession; provided, however, that a single copy may be retained for legal -------- ------- archival purposes by each party. 10.9.2 Accrued Payments. Termination of this Agreement by ---------------- either party shall not prejudice the right of either party to recover any payments due at the time of termination, and shall not prejudice any cause of action or claim of either party accruing under this Agreement. 10.9.3 Marketing Rights. Upon termination of this Agreement, ---------------- Faulding's rights to market, distribute and sell the Products shall immediately cease except with respect to the sale - 28 - of Products from existing inventory in the possession of Faulding on the date of termination. The parties shall undertake to negotiate in good faith a mutually acceptable agreement to satisfy any contractual obligations of Faulding to supply the Product to third parties, and Cytogen shall supply all necessary inventory under such agreements. 10.9.4 Marketing Authorizations. Upon termination of this ------------------------ Agreement, Faulding shall assign or otherwise transfer to Cytogen or its designees all Marketing Applications and Marketing Authorizations for the Products provided, however, if such termination does not result from a breach of this Agreement by Faulding, Cytogen shall reimburse Faulding for its costs incurred in obtaining such Marketing Authorizations. 10.9.5 Trademark. Upon termination of this Agreement, the --------- license to use the Trademark shall also terminate and all right, title and interest in the Trademark shall belong to Cytogen. ARTICLE XI - GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and interpreted ------------- in accordance with the laws of the State of New Jersey, within the United States of America, as though all parties were resident of, and the contract was to be performed in, New Jersey. - 29 - 11.2 Jurisdiction. Any dispute arising out of this Agreement shall be ------------ subject only to the jurisdiction of the State of New Jersey and venue for such litigation shall be proper only in the courts of the State of New Jersey and the federal courts located in such state. The parties hereto consent to and confer the personal jurisdiction only upon the courts of the State of New Jersey and the federal courts located in such state. 11.3 Entire Agreement. Except for that certain confidentiality agreement ---------------- dated June 23, 1995, this Agreement represents the entire Agreement and understanding of the parties hereto with respect to the marketing and distribution of the Products, supersedes all previous agreements and understandings related thereto and may only be amended or modified in writing signed by an authorized representative of the parties hereto. 11.4 Assignment. Neither party may assign, transfer or otherwise dispose ---------- of any of its rights or obligations pursuant to this Agreement without the prior written consent of the other party except in connection with the sale or merger of the entire business. Such consent shall not be unreasonably withheld. 11.5 Notice. All notices under this Agreement shall be in writing and ------ shall be deemed given if sent by telex, telecopier (except for legal process in each such case), certified or registered mail or commercial courier (return receipt or confirmation of delivery required), or by personal delivery to - 30 - the party to receive such notices or other communications called for this Agreement at the following addresses (or at such other address for a party as shall be specified by such party by like notice): CYTOGEN CORPORATION 600 College Road East Princeton, New Jersey 08540 Attention: President and CEO FAULDING (CANADA) INC. 334 Aime-Vincent Vaudreuil, Canada J7V 5V5 Attention: President 11.6 Limitation on Liability. In no event shall either party be liable ----------------------- to the other for incidental or consequential damages, even if such party shall have been advised of the possibility of the same. 11.7 Force Majeure. Except for the obligation to make payments under ------------- this Agreement, each of the parties hereto shall be excused from the performance of its obligations hereunder in the event such performance is prevented by force majeure, and such excuse shall continue so long as the condition constituting such force majeure continues for thirty (30) days after the termination of such condition. For the purposes of this Agreement, force majeure is defined to include causes beyond the control of the parties hereto, including without limitation, acts - 31 - of God, acts, resolutions or laws of any government, war, war-like conditions, civil commotion, destruction of production facilities or materials by fire, earthquake or storm, labor disturbances, epidemic and failure of public utilities or common carriers. 11.8 Publicity. Neither party shall make any press release or other --------- similar public disclosure or announcement concerning this Agreement, without the prior written consent of the non-disclosing party, which consent shall not be unreasonably withheld, except as otherwise required by law. Consent will be deemed granted if no response is received from the non-disclosing party within fifteen (15) days of its confirmed written request for approval from the disclosing party. Notwithstanding the foregoing, in the event such disclosure or public announcement is required to be made on a more immediate basis in order to comply with applicable laws, then approval will be deemed granted if no response is received from the non-disclosing party within the timeframes required by law; provided, however, that the disclosing party provides the non- disclosing party with notice of the legally required timeframe for approval of the disclosure at the time of providing a copy of the proposed disclosure or announcement. 11.9 Survival of Rights. The provisions of Article 7 (Confidential ------------------ Information), Article 9 (Indemnification), Section - 32 - 11.1 (Governing Law), Section 11.2 (Jurisdiction) and Section 11.7 (Limitation on Liability) shall survive the expiration or termination of this Agreement. 11.10 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original and all of which shall constitute but one and the same document. - 33 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CYTOGEN CORPORATION By: /s/ Thomas J. McKearn --------------------------- FAULDING (CANADA) INC. By: /s/ Fabio Lanzieri --------------------------- - 34 - Distribution Agreement Between Cytogen Corporation and Faulding Canada Inc. Dated: December 22, 1995 ----------------- Schedule A - Minimum purchase requirements (In Units) [Information omitted and filed separately with the Commission under Rule 24b-2.] - 35 - EX-10.33 7 DISTRIBUTION AGREEMENT 01/16/96 Exhibit 10.33 DISTRIBUTION AGREEMENT ---------------------- This Agreement is made as of this 16th day of January, 1996 by and between CYTOGEN CORPORATION, a Delaware corporation having its principal place of business at 600 College Road East, Princeton, New Jersey 08540 ("Cytogen") and CIS biointernational, a French corporation having its principal place of business at B.P. 32-91192 Gif-Sur-Yvette, Cedex, France ("CIS"). WHEREAS, Cytogen has developed and commercialized in vivo colorectal -- ---- and ovarian cancer imaging products which use monoclonal antibodies as part of radioisotopic detection techniques; and WHEREAS, CIS has substantial experience in marketing biotechnology- based medical products and desires to distribute Cytogen's colorectal and ovarian cancer imaging products in all countries throughout the world other than the United States and Canada; and WHEREAS, Cytogen is willing to use CIS as its exclusive distributor in the identified territories. NOW THEREFORE, in consideration of the premises and the mutual covenants herein recited, and other good and valuable considerations, the receipt of which is acknowledged, it is agreed as follows: ARTICLE I - DEFINITIONS As used in this Agreement, the following terms, whether used in the singular or plural, shall have the meanings indicated: 1.1 CIS shall mean CIS biointernational and those of its subsidiaries --- engaged in business in the Territory. 1.2 Components shall mean, collectively or individually, the following ---------- three non-labeling elements of the Product: (1) the monoclonal antibody with linker vial (MAB-B72.3-GYK-DTPA), (2) the sodium acetate vial, and (3) the filter paper. 1.3 Disruption Event shall mean the occurrence of an extraordinary event ---------------- beyond the reasonable control of CIS which results in the inability of CIS to sell the Products in its Major Countries for a continuous period of three (3) months, including, without limitation, recall of the Products by a government agency, lack of supply of the Products by Cytogen, failure by Cytogen to meet any of its commitments under Article VIII hereof, failure by Cytogen to enter into an agreement with Celltech Ltd. in accordance with Article VIII hereof within ninety (90) days of the Effective Date, failure to provide documentation in -2- accordance with Section 2.3.1(i) hereof, or a patent infringement action which results in a court of competent jurisdiction prohibiting the sale of the Products by CIS. 1.4 Effective Date shall mean the date of this Agreement first written -------------- above. 1.5 FDA shall mean the United States Food and Drug Administration. --- 1.6 First Commercial Sale shall mean the first time sales are made of --------------------- Product by CIS to an unrelated third party. 1.7 Marketing Authorizations shall mean authorization by an appropriate ------------------------ governmental agency required as a condition precedent to the sale of the Products within any country of the Territory. 1.8 Major Countries shall mean the countries identified on Schedule A --------------- attached hereto. 1.9 Net Sales Revenue shall mean [Information omitted and filed ----------------- separately with the Commission under Rule 24b-2. -3- ] 1.10 Products shall mean and collectively include Cytogen's in vivo -------- -- ---- diagnostic imaging products, including any future improvements, which contain the Components and utilize its patented or proprietary technology and are used for the screening, diagnosis and monitoring of human colorectal and ovarian cancer, or other human cancers as provided in Section 11.4 hereof, and are known as OncoScint CR/OV. 1.11 Territory shall mean all countries of the world other than the --------- United States of American and Canada. 1.12 Trademark shall mean "OncoScint." --------- ARTICLE II - APPOINTMENT OF DISTRIBUTOR 2.1 Appointment of Distributor. Subject to the terms and conditions of -------------------------- this Agreement, Cytogen hereby appoints CIS as exclusive distributor of the Products within the Territory. CIS -4- shall have the right to appoint sub-distributors in those countries in the Territory in which CIS does not maintain a direct sales effort provided, however, that CIS deliver to Cytogen prior written notice of the appointment of any sub-distributor. Cytogen reserves the right to grant similar distribution rights in the Products to third parties for distribution and sale outside of the Territory. 2.2 Rights to Other Products. In the event that Cytogen subsequently ------------------------ determines to grant marketing and distribution rights in the Territory to its product using monoclonal antibodies for use with radioisotopes in in vivo -- ---- imaging for prostate cancer presently known as ProstaScint (the "Other Product"), Cytogen shall provide CIS a right of first offer with respect to such rights in accordance with the following procedure. CIS will also receive priority consideration if Cytogen decides to use a distributor in the Territory for any other of its products using radioisotopes. 2.2.1 Cytogen shall deliver to CIS a written notice setting forth the material terms of the offer (the "Offer"), including any pricing information, definitions of the market and territory, product data and specifications, and any additional information necessary for CIS to evaluate the Offer. 2.2.2 Notice of CIS' intention to accept an Offer shall be evidenced by a writing signed by CIS and delivered to -5- Cytogen prior to the end of the sixty (60) day period following the date of receipt of such Offer by CIS. 2.2.3 In the event that CIS does not elect to accept the Offer, Cytogen may grant the marketing and distribution rights to the Other Product to a third party on the same terms as set forth in the Offer, or market and sell the Other Product in the applicable territory with its own direct sales force provided, however, the marketing and distribution rights to the Other Product may not be granted to a third party on terms and conditions materially more favorable (after giving consideration to the relative marketing qualifications of such third party) from those set forth in the Offer until the marketing and distribution rights are again offered to CIS under the procedures specified in this Section 2.2. 2.3 Marketing Authorizations. ------------------------ 2.3.1 Cytogen's Obligations. Cytogen shall use its best --------------------- efforts to transfer or otherwise assign to CIS all Marketing Authorizations which had been obtained by Chiron b.v. as a licensee of the Products in the Territory and are more specifically identified on Schedule A attached hereto. These Marketing Authorizations shall identify CIS as both an importer and distributor of the Products. Cytogen shall (i) use diligent efforts to cause Chiron to deliver to CIS within sixty (60) days from the Effective Date a copy of completed documentation upon -6- which Marketing Authorizations have been granted to Cytogen, Chiron, or any of its previous sub-distributors such as CSC Pharmaceuticals, (ii) provide, as requested by CIS, all previously completed scientific, clinical, toxicologic and manufacturing data necessary to obtain Marketing Authorizations in all other countries in the Territory, (iii) use best efforts to deliver to CIS, as requested by CIS, any modified or additional data which Cytogen has available or subsequently develop to assist CIS to comply with any applicable law, rule or regulation in the Territory, or to provide CIS' customers with the most current scientific information about the Product. In the event that the transfer of the Marketing Authorizations to CIS with respect to the countries identified in Schedule A hereto are not completed in a commercially reasonable time, then the parties shall renegotiate the Milestone Payments and Minimum Annual Purchase Requirements based upon the revised size of the relevant markets. 2.3.2 CIS' Obligations. At its own expense, CIS shall use its ---------------- diligent efforts to (i) assist in the transfer of existing Marketing Authorizations and (ii) obtain all necessary Marketing Authorizations within twenty-two (22) of the thirty-six (36) other countries identified in Schedule B, in a commercially reasonable time and to submit full and complete applications for Marketing Authorizations in those twenty-two (22) countries -7- hereto within two years of the First Commercial Sale of the Product by CIS in any Major Country after transfer of Marketing Authorizations in such Major Country. CIS shall provide Cytogen with quarterly progress reports of its efforts to obtain Marketing Authorizations. ARTICLE III - PAYMENTS 3.1 Milestone Payments. In consideration of the distribution rights ------------------ granted to CIS herein, CIS shall make the following payments to Cytogen at the following times and in accordance with the occurrence of the following events: [Information omitted and filed separately with the Commission under Rule 24b-2. -8- ] 3.2 Purchase Price. For each set of Components delivered to CIS -------------- pursuant to Article IV hereof, CIS shall pay to Cytogen the sum of [*], or [*] for a vial of monoclonal antibody with linker, [*] for a vial of sodium acetate, and [*] for filter paper, which shall be due and payable within sixty (60) days of receipt of an invoice from Cytogen, as may be adjusted pursuant to Section 3.6 hereof. 3.3 Additional Payments. In addition to the payments due under Section ------------------- 3.2 hereof, commencing on the second anniversary of the first day of the month following the First Commercial Sale in any Major Country following transfer of the Marketing Authorizations, CIS shall pay to Cytogen an amount equal to the following: 3.3.1 During the third year following the First Commercial Sale in any Major Country following transfer of the Marketing Authorizations, [*]% of Net Sales Revenue for such year; * Information omitted and filed separately with the Commission under Rule 24b-2. -9- 3.3.2 During the fourth year following the First Commercial Sale in any Major Country following transfer of the Marketing Authorizations, [*]% of Net Sales Revenues for such year; 3.3.3 During the fifth year following the First Commercial Sale in any Major Country following transfer of the Marketing Authorizations, and for each year thereafter, [*]% of Net Sales Revenue for such year. Payments due under this Section 3.3 shall be made within forty-five (45) days after the end of each year. 3.4 Quarterly Reports. Within forty-five (45) days after the end of ----------------- each quarter, CIS shall provide Cytogen with a written statement with respect to such period specifying the Net Sales Revenue of Products during the period in the amount of additional payments due, if any. 3.5 Record and Audit Rights. ----------------------- 3.5.1 CIS shall keep complete and accurate records pertaining to the sale of Products appropriate to determine additional consideration payable under Section 3.3 of this Agreement. 3.5.2 At the request and expense of Cytogen, an independent auditor selected by Cytogen and acceptable to CIS shall have access limited to once per calendar year at CIS' * Information omitted and filed separately with the Commission under Rule 24b-2. -10- principal place of business during ordinary business hours to such records maintained by CIS as may be necessary to: (a) determine, with respect to the preceding year the correctness of any report or payment made under this Agreement, or (b) obtain information with respect to the preceding year as to the additional consideration payable in the case of CIS' failure to report or pay such payment pursuant to this Agreement. If deemed necessary or desirable in the sole opinion of the independent auditor, the independent auditor shall at Cytogen's expense be permitted to consult with and obtain the assistance of consultants selected by the independent auditor and acceptable to CIS. Such acceptance shall not be unreasonably withheld. Neither the accountant nor the selected consultants shall disclose to Cytogen or any third parties any information relating to the business of CIS other than information relating solely to the accuracy of the reports and payments under this Agreement. -11- 3.6 Method of Payments. All payments due hereunder shall be made in ------------------ United States funds collectible in New York, New York, U.S.A. by wire-transfer. In the event that Net Sales Revenues are made by CIS in currencies other than the U.S.Dollar,such Net Sales Revenue shall first (i) be converted to French Francs at the spot exchange rates between such foreign currency and the French Franc published in the Wall Street Journal for the last business day of the year in which such Net Sales Revenues are made, and then (ii) such French Franc amounts shall be converted to U.S. Dollars at the spot exchange rate between the French Franc and the U.S. Dollar published in the Wall Street Journal for the last business day of the year in which such Net Sales Revenue are made (the "Effective Exchange Rate"). In the event that the Effective Exchange Rate for any applicable year deviates by more than 10% from the Base Exchange Rate, as hereinfter defined, in effect for such year, then the Purchase Price during such year shall be adjusted by multiplying the Purchase Price by one-half of a fraction, the numerator of which is the difference between the Effective Exchange Rate and the Base Exchange Rate and the denominator of which is the Base Exchange Rate [for example, a Base Exchange Rate of FF5 per US $1.0 changing to an Effective Exchange Rate of FF5.6 per US $1.0 will result in a Purchase Price adjustment of 6% (one-half of FF 0.6 difference = FF 0.3, or 6% of the FF base rate)]. For purposes of this -12- Section, the Base Exchange Rate shall be equal to the spot exchange rate between the French Franc and the U.S. Dollar, as published in the Wall Street journal on (a) during the first two years following the Effective Date, the Effective Date, and (b) commencing with the third year following the Effective Date, the last day of the year preceding the year in which the determination of the applicable Purchase Price is to be made. All payments due to Cytogen under this Agreement which are received later than the due date shall be subject to an additional payment of one percent (1%) per month or portion thereof as liquidated damages for payments received later than the due date. 3.7 Withholding Taxes. If withholding taxes are levied by any taxing ----------------- authority in the Territory in connection with the receipt by Cytogen of any royalties or other sums payable under this Agreement, then CIS shall have the right to pay such taxes to the local tax authority on behalf of Cytogen and make the payment to Cytogen of the net amount due after deduction of such taxes, together with (i) evidence of payment of such taxes, (ii) indication of the amount of such tax paid on Cytogen's behalf, and (iii) indication of the authority to whom it was paid. -13- ARTICLE IV - SUPPLY OF PRODUCTS 4.1 Terms of CIS Requirements. Subject to the terms and conditions ------------------------- hereof, Cytogen agrees to sell and CIS agrees to purchase from Cytogen CIS' entire requirements of the Products, solely for use and/or sale in the Territory. 4.2 Terms of Supply. The following terms relate to supply of Products: --------------- 4.2.1 Purchase Estimates. CIS shall submit to Cytogen, ------------------ beginning ninety (90) days before the first anticipated order of Products and at the beginning of each calendar quarter thereafter, a non-binding estimate of the amount of Products to be required and purchased by CIS for the next three months and the next 12-month periods. 4.2.2 Purchase Orders. Within thirty (30) days before the --------------- beginning of each calendar quarter thereafter, CIS shall provide Cytogen with binding written orders for its purchases of Products for that calendar quarter, specifying the required delivery dates for each order. Cytogen shall supply the Products in accordance with the purchase orders. 4.2.3 Costs of Product. CIS shall pay for Components supplied ---------------- by Cytogen at the prices stated in Section 3.2 hereof. 4.2.4 Delivery of Products. Upon compliance with Section -------------------- 4.2.1 hereof by CIS, Cytogen shall deliver the Products -14- to CIS FCA New York area airport within one (1) month after transmission by CIS of the order by telecopy, and CIS shall be responsible for handling and transportation charges necessary to transport the Products from Cytogen's place of business in Princeton, New Jersey to such airport. 4.2.5 Audit of Production Site. With thirty (30) days written ------------------------ notice from CIS, Cytogen shall provide CIS with access to its manufacturing and quality control facilities during regular business hours to conduct such inspections as may be required by European Good Manufacturing Practices or other applicable laws in the Territory. 4.3 Inspection and Dispute Resolution Relating to Satisfaction of ------------------------------------------------------------- Product Specifications. The following provisions relate to inspection and - ---------------------- resolution of disputes: 4.3.1 Inspection. Each shipment of Product by Cytogen shall ---------- be accompanied by a certificate of analysis for the production batch. CIS shall inspect and analyze each batch of Product delivered by Cytogen and any claims regarding quantity or quality of same shall be made by CIS in writing to Cytogen specifying in reasonable detail the nature and basis for the claim and citing relevant control numbers or other information to enable specific identification of Product in question, and shall be given within thirty (30) days of said delivery or, if later, by the date on which the basis for such claim reasonably have -15- been discovered after the exercise of due diligence. All claims made by CIS after its inspection of finished product shall be handled on a case-by-case basis during which time Cytogen shall have the right to first inspect any Product involved before being required to take any action with respect thereto. 4.3.2 Resolution of Disputes Relating to Product ------------------------------------------ Specifications. If the parties hereto fail to agree as to whether a delivered - -------------- quantity of Product meets its agreed specifications, then the parties shall cooperate to have the batch in dispute analyzed by a qualified independent testing laboratory selected by CIS to which Cytogen does not have reasonable objection. The following provisions shall apply with respect to the results indicated by such independent laboratory: (a) If the batch of Product is determined to have met its specifications, then CIS shall bear the costs of the independent laboratory testing and shall accept the shipment of such Product. (b) If the batch of Product is determined not to meet its specifications, then Cytogen promptly shall replace the affected quantity of Product, CIS shall, at Cytogen's expense, dispose of such quantity in such manner as Cytogen shall direct, and Cytogen shall bear -16- the costs of the independent laboratory testing. 4.4 Packaging. Cytogen shall supply all Products in bulk unlabeled --------- vials. Each shipment shall include, at no cost to CIS, additional vials of Product for quality control purposes and batch release by Dutch Authorities in quantities equal to ten percent (10%) of the vials ordered but in no case more than 75 vials for each shipment. Each shipment from a new batch will include complete batch records with appropriate certificates of analysis for both raw material and finished product. Cytogen shall also provide filter paper and sodium acetate buffers. All other packaging and labeling materials shall be the responsibility of CIS. 4.5 Title. Title to all Products shipped by Cytogen shall pass to CIS ----- upon delivery FCA New York Airport. Risk of loss shall pass to CIS upon delivery. CIS shall be responsible for making payment of insurance, shipping, duties and similar costs associated with delivery of the Products. 4.6 Reporting. Each party agrees to report to the other party in --------- writing any serious adverse reactions or any side effects which occur or other adverse events with Product as promptly as possible but in no event later, (i) with respect to the event set forth in Section 4.6.1(a), within 24 hours after receipt of information of such event ("Reaction Notice"), (ii) -17- with respect to the event set forth in Section 4.6.1(b) below, within five (5) days of receipt of a Reaction Notice, and (iii) with respect to the events set forth in Section 4.6.1(c)-(f) below, within ten (10) days of receipt of a Reaction Notice. Any such reactions or side effects must be reported (in full detail if requested) irrespective of whether there is a causal connection with the Product being administered or whether the causal connection is unclear or presumed to be not likely. 4.6.1 For purposes of this reporting covenant, a serious adverse event is a reaction which meets one or more of the following criteria: (a) a reaction that is life threatening or fatal; (b) a reaction that resulted in hospitalization, or if the patient was already hospitalized, a reaction which prolonged hospitalization; (c) a reaction that resulted in severe or permanent disability; (d) a reaction that involved congenital anomaly or overdose, or cancer which was not already present at the beginning of treatment with Product; or (e) a reaction that is considered to be important, significant or otherwise medically serious. -18- 4.6.2 Each of the parties hereto shall monitor all relevant journals and media communications for information on factors materially affecting the use or efficacy of the Product and shall promptly inform the other party of such information. The informing party may provide in writing its evaluation of such information. Either party shall promptly inform the other if it has actual knowledge of any measures which are necessary to eliminate or minimize any risk associated with the use of a specific production lot of the Product. ARTICLE V - ADDITIONAL OBLIGATIONS OF CIS 5.1 Marketing Obligations. CIS agrees to use its diligent efforts to --------------------- promote and distribute the Products, at its own expense, in the Territory as soon as feasible after the Effective Date of this Agreement and upon receipt of the applicable Marketing Authorizations using diligent efforts to maximize sales and market penetration at the earliest date. CIS shall also be responsible for all quality control, lot release, packaging of components into Product kits, labeling, promotional activities and technical services. All promotional materials developed by CIS shall be approved by Cytogen. Costs associated with participation by either CIS or Cytogen in international conferences and symposia which provide important marketing -19- opportunities for both parties shall be shared on terms to be negotiated for each such event. 5.2 Marketing Plans. CIS shall submit to Cytogen a Product launch plan --------------- for the Products in the Territory as soon as possible and, in any event no later than ninety (90) days from the Effective Date, and on or before October of each year thereafter, an annual marketing and sales plan for the Products. Each of these plans shall include specific marketing sales strategies, tactics and goals, market research analysis, promotion budgets, and sales projections. 5.3 Compliance with Laws. CIS shall use its best efforts to market and -------------------- distribute the Products in the Territory in compliance with local laws and regulations and good commercial practice and for uses and applications approved by Cytogen for the Products. 5.4 Minimum Purchase Requirements. CIS shall pay to Cytogen the minimum ----------------------------- annual purchase requirements in the amounts set forth in Schedule C hereto (the "Minimum Annual Purchase Requirements"). 5.5 Purchase Forecasts. CIS shall submit to Cytogen the quarterly ------------------ purchase forecasts for the Product as required pursuant to Section 4.2.1 hereof and submit purchase orders for the Products pursuant to Section 4.2.2 hereof. -20- ARTICLE VI - FAILURE TO MEET MINIMUM ANNUAL PURCHASE REQUIREMENTS In the event that in any given year, the total payments by CIS under Section 3.2 hereof does not equal or exceed the Minimum Annual Purchase Requirements for such year (which shall be adjusted each year upon agreement by the parties to reflect any short-falls attributable to Cytogen's failure, if any, to provide Product on a timely basis as required by Section 4.2.4, or delays in transferring the Market Authorizations, or Force Majeure affecting CIS, and CIS fails to pay such short-fall within sixty (60) days of the end of such year, then Cytogen may, at its sole discretion and as its sole remedy, convert the grant of the distribution rights pursuant to Section 2.1 hereof to a non-exclusive basis. Such election shall be made by delivery of written notice by Cytogen to CIS and shall take effect on the date set forth in the notice. ARTICLE VII - CONFIDENTIAL INFORMATION The parties hereto agree that each shall keep completely confidential and shall not publish or otherwise divulge or use for its own benefit or for the benefit of any third party any information of a proprietary nature furnished to it (the "receiving party") by the other party (the "disclosing party") for a period of five (5) years upon the termination of this Agreement without the prior written approval of the disclosing -21- party in each instance, except to the extent that it is necessary to divulge such information for the obtaining of governmental approval for the marketing of the Products. Nothing in this Article 7 shall prevent disclosure or use of information (i) already known to the receiving party, (ii) which was known to the public at the time of disclosure, or subsequently becomes so known through no act or omission of such party, or (iii) which is properly acquired by the receiving party from a third party having the right to convey such information. Information of a proprietary nature shall include, but not be limited to, information concerning a party's products, proposed products, marketing plans, methods of manufacture, customers or any other information or materials in whatever form not generally known to the public. ARTICLE VIII - WARRANTY All Products supplied by Cytogen to CIS in accordance with the provisions of this Agreement shall be manufactured at facilities registered with the FDA, to the extent required by law, and applicable European regulatory agencies for such manufacture and in accordance with applicable governmental requirements including, without limitation, current European Good Manufacturing Practices, and all applicable laws, rules and regulations of each governmental agency having jurisdiction over -22- the manufacture and sale of the Products in accordance with the provision of this Agreement. All Products shall meet the specifications established and set forth within the product license applications for such Products approved by the applicable governmental agencies, and shall be of at least the same level of quality and purity as required by all applicable laws, rules, and/or regulations, provided that CIS and Cytogen collaborate to meet new or revised standards. Cytogen shall use diligent efforts to cause Celltech Ltd. to conclude an agreement under which (i) Celltech commits itself to let CIS consult and collect, when and as required by any government agency, any information concerning the batch records of the monoclonal antibody, MAB B.72.3, produced by Celltech, and (ii) CIS agrees to keep this information confidential. ARTICLE IX - INDEMNIFICATION 9.1 Indemnification by Cytogen. Cytogen agrees to and hereby does -------------------------- indemnify and hold CIS harmless from and against all claims, damages, losses, costs and expenses, including reasonable attorneys' fees, which CIS may incur by reason of any Products sold or furnished by Cytogen which result in injury, illness or death of any person, to the extent that such claims arise out of or result from (i) product design, (ii) manufacturing, or (iii) a breach of the warranty set forth in Article 8 hereof, except if -23- such claims arise from the gross negligence or willful misconduct of CIS. 9.2 Indemnification by CIS. CIS hereby agrees to and hereby does ---------------------- indemnify and hold Cytogen harmless from and against all claims, damages, losses, costs and expenses, including attorneys' fees, which Cytogen may incur to the extent that such claims arise out or result from (i) the unlawful sale or other distribution of Products by CIS or use by any purchasers, including any improper sales by CIS to customers who are located in any territory outside the Territory, (ii) the distribution, labeling or packaging of the Products, or (iii) recommended use of Products by CIS in violation of this Agreement, except for such claims which arise out of or result from the gross negligence, or willful misconduct of Cytogen. 9.3 Infringement. Cytogen shall, at its own expense, defend or at its ------------ option settle any action brought against CIS or its customers which consists of a claim that the use or the sale of the Products in the Territory infringes any intellectual property right belonging to a third party and Cytogen shall hold CIS harmless and indemnify CIS against all damages, losses, or liabilities resulting from such claims. Cytogen shall be released from its obligations under this clause unless CIS promptly notifies Cytogen of claim and gives Cytogen express authority to proceed as contemplated by this clause (and procures -24- such authority from its customers where necessary) and provides Cytogen with all available information and assistance as Cytogen may reasonable require. Cytogen is not aware of any patents or other proprietary rights of third parties which would be infringed upon by the import or sale of Products in the Territory. ARTICLE X - TERM AND TERMINATION 10.1 Term. This Agreement shall commence on the Effective Date and shall ---- continue in force for a fixed term of seven (7) years commencing with the First Commercial Sale by CIS in any Major Country after the transfer of Marketing Authorizations in that country, unless terminated earlier under the provisions of this Agreement. At the end of the fixed term and each additional term thereafter, this Agreement shall be automatically renewed on the same terms and conditions for an additional one (1) year period unless earlier terminated under the provisions hereof or unless one party gives to the other notice of its intention to terminate at least one year prior to the expiration of the fixed term hereof or of any renewal period. 10.2 Failure to Make Payment. Cytogen may terminate this Agreement at ----------------------- any time upon CIS' failure to make payments due to Cytogen pursuant to this Agreement and the continuation of such -25- failure for more than thirty (30) days after delivery of written notice to CIS of such failure. 10.3 Failure to Commercialize. Cytogen may terminate this Agreement at ------------------------ any time upon CIS' failure to use diligent efforts to move ahead with its obligations to market, sell and distribute Products under Section 5.1 hereof in the Major Countries and the other twenty-two countries referred to in Section 2.3.2 hereof and upon the continuation of such failure for more than ninety (90) days after delivery of written notice to CIS of such failure, except where such failure of CIS is a result of the failure of Cytogen to meet its obligations as defined in this Agreement or due to circumstances beyond the reasonable control of CIS pursuant to Section 11.8 hereof. 10.4 Material Breach. Either party may terminate this Agreement upon --------------- ninety (90) days prior written notice in the event of the other party's breach of any other material provision of this Agreement, if such default or breach is not remedied within ninety (90) days from the date of such notice, except where such default or breach is due to circumstances beyond the reasonable control of the other party pursuant to Section 11.8 hereof. It is acknowledged by the parties hereto that failure to meet Minimum Annual Purchase Requirements shall not constitute a breach hereunder. -26- 10.5 Bankruptcy. If, during the term of this Agreement, either party ---------- makes an assignment, of this Agreement or generally, for the benefit of creditors, or becomes insolvent or seeks protection under any bankruptcy, receivership, trust deed, creditor's arrangement or composition, or if any comparable proceeding is instituted against the other party and is not dismissed within ninety (90) days of such institution, then the other party may terminate this Agreement immediately upon delivery of written notice thereof. 10.6 Control Event. In the event that either party (i) sells all or ------------- substantially all of its assets, or (ii) has more than 50% of its equity securities purchased by a single purchaser in one transaction (a "Control Event"), then the other party may terminate this Agreement with thirty (30) days prior written notice at any time within twelve (12) months after the occurrence of the Control Event. 10.7 No Waiver. Any failure to terminate shall not be construed as a --------- waiver by the aggrieved party of its right to terminate for future defaults or breaches. 10.8 Effects of Termination. ---------------------- 10.8.1 Return of Property. Upon termination of this ------------------ Agreement, each party shall upon the request of the other party return all books, records, documents and data which it shall have received from the other party pursuant to this Agreement; -27- provided, however, that a single copy may be retained for legal archival purposes by each party. 10.8.2 Accrued Payments. Termination of this Agreement by ---------------- either party shall not prejudice the right of Cytogen to recover any payments due at the time of termination, and shall not prejudice any cause of action or claim of either party accruing under this Agreement. 10.8.3 Marketing Rights. Upon termination of this Agreement, ---------------- CIS' rights to market, distribute and sell the Products shall immediately cease except with respect to the sale of Products from inventory but in no event for more than sixty (60) days following termination. 10.8.4 Marketing Authorizations. Upon termination of this ------------------------ Agreement for any reason including the occurrence of a Control Event, CIS shall assign or otherwise transfer to Cytogen or its designees all Marketing Authorizations for the Products in consideration for the reimbursement of all costs incurred by CIS in conducting those studies and tests which were necessary to obtain the Marketing Authorizations, provided, that CIS furnished prior notice of such studies and an opportunity to comment. 10.8.5 Upon termination of this Agreement, the license to use the Trademark shall also terminate and all right, title and interest in the Trademark shall belong to Cytogen. -28- ARTICLE XI - GENERAL PROVISIONS 11.1 Governing Law. This Agreement shall be governed by and interpreted ------------- in accordance with the laws of the State of New Jersey, within the United States of America, as though all parties were resident of, and the contract was to be performed in, New Jersey. 11.2 Jurisdiction. Any dispute arising out of this Agreement with ------------ respect to the failure of CIS to make payments under this Agreement shall be subject only to the jurisdiction of the State of New Jersey and venue for such litigation shall be proper only in the courts of the State of New Jersey and the federal courts located in such state. The parties hereto consent to and confer the personal jurisdiction only upon the courts of the State of New Jersey and the federal courts located in such state. Disputes arising in connection with any other obligation or duty of the parties under this Agreement shall be subject to the jurisdiction and venue of Great Britain. 11.3 New Indications. If either party before or after studies conducted --------------- at its own expense believes that the Product may have a medically and commercially important new indication, it will provide the other party with evidence of such an improvement and the parties will enter into good faith negotiations as a means to expedite obtaining both U.S. and international Market Authorizations for such indication. Each -29- party reserves the right not to commercialize in its territory if, despite good faith negotiations, it determines that it is in its best interests not to pursue such improvement. 11.4 Entire Agreement. This Agreement represents the entire Agreement ---------------- and understanding of the parties hereto with respect to the marketing and distribution of the Products, supersedes all previous agreements and understandings related thereto and may only be amended or modified in writing signed by an authorized representative of the parties hereto. 11.5 Assignment. Neither party may assign, transfer or otherwise dispose ---------- of any of its rights or obligations pursuant to this Agreement without the prior written consent of the other party except in connection with the sale or merger of the entire business. Such consent shall not be unreasonably withheld. 11.6 Notice. All notices under this Agreement shall be in writing and ------ shall be deemed given if sent by telex, telecopier (except for legal process in each such case), certified or registered mail or commercial courier (return receipt or confirmation of delivery required), or by personal delivery to the party to receive such notices or other communications called for this Agreement at the following addresses (or at such other address for a party as shall be specified by such party by like notice): -30- CYTOGEN CORPORATION 600 College Road East Princeton, New Jersey 08540 Attention: President and CEO CIS BIO INTERNATIONAL B.P. 32-91192 Gif-Sur-Yvette Cedex, France Attention: Director of Marketing 11.7 Limitation on Liability. In no event shall either party be liable ----------------------- to the other for incidental or consequential damages, including, without limitation, loss of profits, punitive damages and damages arising from a breach by CIS of its contractual obligations with its customers, even if such party shall have been advised of the possibility of the same. 11.8 Force Majeure. Except for the obligation to make payments under ------------- this Agreement, each of the parties hereto shall be excused from the performance of its obligations hereunder in the event such performance is prevented by force majeure, and such excuse shall continue so long as the condition constituting such force majeure continues for thirty (30) days after the termination of such condition. For the purposes of this Agreement, force majeure is defined to include causes beyond the control of the parties hereto, including without limitation, acts of God, acts, resolutions or laws of any government, war, war like conditions, civil commotion, destruction of production -31- facilities or materials by fire, earthquake or storm, labor disturbances, epidemic and failure of public utilities or common carriers. 11.9 Publicity. Neither party shall make any press release or other --------- similar public disclosure or announcement concerning this Agreement, without the prior written consent of the non-disclosing party, except as otherwise required by law. Consent will be deemed granted if no response is received from the non- disclosing party within fifteen (15) days of its confirmed written request for approval from the disclosing party. Notwithstanding the foregoing, in the event such disclosure or public announcement is required to be made on a more immediate basis in order to comply with applicable state or federal securities laws, then approval will be deemed granted if no response is received from the non-disclosing party within the timeframes required by law; provided, however, that the disclosing party provides the non-disclosing party with notice of the legally required timeframe for approval of the disclosure at the time of providing a copy of the proposed disclosure or announcement. 11.10 Survival of Rights. The provisions of Article 7 (Confidential ------------------ Information), Article 9 (Indemnification), Section 11.1 (Governing Law), Section 11.2 (Jurisdiction) and -32- Section 11.7 (Limitation on Liability) shall survive the expiration or termination of this Agreement. 11.11 Counterparts. This Agreement may be executed in any number of ------------ counterparts, each of which shall be an original and all of which shall constitute but one and the same document. -33- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. CYTOGEN CORPORATION By: /s/ Thomas J. McKearn ---------------------------- CIS biointernational By: /s/ Jean-Pierre Cabocel ---------------------------- -34- SCHEDULE A Countries with existing OncoScint CR/OV Marketing Authorizations to be transferred to CIS Major Countries --------------- France Germany Italy Spain United Kingdom Non-Major Countries ------------------- Belgium Denmark Hungary Ireland Luxembourg Poland Poland Slovakia The Czech Republic The Netherlands -35- SCHEDULE B CANDIDATE COUNTRIES FOR NEW MARKETING AUTHORIZATIONS (MAs) (CIS to obtain MAs in at least 22 of these countires) Europe South America Africa-Middle Orient Asia-Pacific Austria Argentina Algeria Australia Finland Brazil Egypt China Greece Chile Israel Hong Kong Norway Colombia Kuwait Indonesia Portugal Cuba Lebanon Japan Sweden Mexico Morocco New Zealand Switzerland Venezuela Saudi Arabia The Philippines South Africa Singapore Tunisia South Korea Turkey Taiwan United Arab Emirates Thailand -36- SCHEDULE C Minimum Annual Purchase Requirements [Information omitted and filed separately with the Commission under Rule 24b-2.] -37- EX-10.34 8 SEVERANCE AGREEMENT THOMAS J. MCKEARN Exhibit 10.34 SEVERANCE AGREEMENT ------------------- THIS SEVERANCE AGREEMENT effective as of January 1, 1994 (this "Agreement") between CYTOGEN CORPORATION, a Delaware corporation (the "Company"), and THOMAS J. McKEARN, M.D., Ph.D. (the "Employee"). Background ---------- The Employee is currently employed by the Company as President and Chief Executive Officer. The Board of Directors (the "Board") of the Company has determined that it is in the best interests of the Company and its shareholders for the Company to make the following severance arrangements with the Employee. These arrangements provide for compensation to be paid to the Employee in the event his employment with the Company is terminated under the circumstances described in this Agreement. NOW, THEREFORE, in consideration of the mutual covenants and obligations hereinafter set forth, the parties hereto agree as follows: 1. Severance. In consideration of the Employee's continued --------- employment by the Company, the Company agrees to provide the Employee with the following severance benefits. In the event the Employee's employment is terminated by the Company for any reason other than for Cause (defined below), then, and only in that circumstance, the Employee (or his beneficiaries in the event of his death before the payment in full of the severance amounts) shall be entitled to receive an amount equal to one (1) year's salary (at the rate in effect for the Employee immediately prior to the effective date of such termination without Cause), which shall be payable, at the sole discretion of the Company, in monthly installments as the salary would have been paid, or in a lump sum. 2. Definitions. As used herein, "Cause" shall mean the Employee's ----------- (i) material refusal or failure to perform and discharge his duties and responsibilities to the Company in accordance with the terms of his employment, or willful action or inaction that is materially inconsistent with the terms of his employment, (ii) material breach of his fiduciary duties as an officer or member of the Board of Directors of the Company or any subsidiary or affiliate of the Company, (iii) conviction of a felony, or (iv) conviction of any other crime involving the personal dishonesty or moral turpitude. 3. Designation of Beneficiary. The Employee, upon executing this -------------------------- Agreement, shall execute and file with the Company a designation of the beneficiary (and a designation of one or more successor beneficiaries in the event of the death of a beneficiary) to whom he desires any amount that might be payable in the event of his death before payment in full of the severance amounts to be paid and distributed. The Employee shall have the right to change such designation or designations from time to time by executing and filing a subsequent designation with the Company. Any subsequent designation delivered to the Company shall be deemed to revoke all prior designations. If the Employee shall have made no such written designation or the last designation should be invalid or such beneficiary or successor beneficiary, if a natural person shall not be in existence, the Company shall pay and distribute any amount payable by reason of death to the then person and persons in the first of the following classes (equally among members of any class) or successive preference beneficiaries living: (i) widow, (ii) children and (iii) executors and administrators. The Company may make such payment or distributions directly to the guardian of the beneficiary's person, or to the person with whom the beneficiary may reside or to any other person deemed suitable by the Company, in all of the foregoing cases without requiring any bond or surety of any such payee; and the Company shall not be bound to see to the application or use of any payments so made. 4. Notices. All notices, advices and communications to be given or ------- otherwise made to any party to this Agreement shall be deemed to be sufficient if contained in a written instrument delivered in person, sent by air courier or sent by first-class, registered or certified mail, postage prepaid, addressed to such party at the address set forth below: If to the Employee, to: Thomas J. McKearn 6040 Lower Mountain Road New Hope, PA 18938 If to the Company, to: Cytogen Corporation 600 College Road East Princeton, NJ 08540 Attention: William C. Mills III, Chairman -2- with a copy to: Dechert Price & Rhoads Princeton Pike Corporate Center 997 Lenox Drive Building Three, Suite 210 Lawrenceville, NJ 08648 Attention: James J. Marino, Esquire provided, however, that either party to this Agreement may change the address to - -------- ------- which notices are to be delivered or mailed to such party by giving notice thereof to the other party. If mailed as aforesaid, any such communication shall be deemed to have been given on the third business day following that on which the piece of mail containing such communication is posted. 5. Binding Agreement; Benefit. The provisions of this Agreement -------------------------- shall be binding upon, and shall inure to the benefit of, the respective heirs, executors, administrators or other legal representatives, successors and assigns of each of the parties hereto. 6. Governing Law. This Agreement shall be governed by, and construed ------------- and enforced in accordance with, the laws of the State of New Jersey. 7. Waiver of Breach. The waiver by either party of a breach of any ---------------- provision of this Agreement by the other party must be in writing and shall not operate or be construed as a waiver of any other breach by such party receiving the waiver. 8. Entire Agreement; Amendments. This Agreement may be amended only ---------------------------- by an agreement in writing signed by each of the parties hereto. 9. Assignment. This Agreement is personal in its nature and the ---------- parties hereto shall not, without the consent of the other, assign or transfer this Agreement or any right or obligations hereunder; provided, however, that -------- ------- the provisions hereof shall inure to the benefit of, and be binding upon each successor of the Company, whether by merger, consolidation, transfer of all or substantially all assets, or otherwise. 10. Headings. The section headings contained in this Agreement are -------- for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. -3- IN WITNESS WHEREOF, the parties have duly executed this Agreement on the date first above written. CYTOGEN CORPORATION By:/s/ William C. Mills III ------------------------- William C. Mills III /s/ Thomas J. McKearn ---------------------------- Thomas J. McKearn -4- EX-10.35 9 SEVERANCE AGREEMENT RICHARD J. WALSH Exhibit 10.35 DESCRIPTION OF SEVERANCE AGREEMENT WITH RICHARD J. WALSH Under the terms of his offer of employment, Mr. Richard Walsh, Vice President of Corporate Development, will be entitled to receive as severance pay six months of salary (increased by an additional month for each year of service, up to a maximum of twelve months) if his employment with CYTOGEN is terminated without cause. EX-10.36 10 HOROSZIEWICZ - CYTOGEN AGREEMENT 04/20/89 Exhibit 10.36 HOROSZIEWICZ-CYTOGEN AGREEMENT This Agreement, effective the 20th day of April 1989, between Julius S. Horosziewicz, M.D., DMSc., whose address is Millard Fillmore Hospital, Department of Urology, 3 Gates Circle, Buffalo, New York, 14209, (hereinafter "HOROSZIEWICZ") and Cytogen Corporation, with offices at 600 College Road East, Princeton, New Jersey, 08540, (hereinafter "CYTOGEN"). ARTICLE I BACKGROUND 1.01 Research conducted by HOROSZIEWICZ has resulted in the discovery of a certain murine monoclonal antibody which detects an antigen associated with human prostatic epithelium and reacts with serum of prostatic cancer patients, and the hybridoma for producing this antibody. 1.02 HOROSZIEWICZ has filed a patent application in the United States Patent and Trademark Office describing and claiming said murine monoclonal antibody and the hybridoma which produces it. 1.03 HOROSZIEWICZ desires to assign said patent application in order to expedite the commercialization of the murine antibody and its use in therapeutic and diagnostic products. 1.04 Since January, 1987 scientists at CYTOGEN have been collaborating with HOROSZIEWICZ in evaluating the monoclonal antibody and have determined that it has potential commercial value. 1.05 CYTOGEN wishes to take an assignment of said patent application and to plan the commercialization of the monoclonal antibody and HOROSZIEWICZ is willing to assign the patent application to CYTOGEN for that purpose. ARTICLE II DEFINITIONS 2.01 "Affiliate" shall mean any corporation, company, partnership, joint venture and/or firm which controls, is controlled by or is under common control with CYTOGEN. Control shall mean (a) in the case of corporate entities, direct or indirect ownership of at least forty percent (40%) of the stock or participating shares entitled to vote for the election of directors; and (b) in the case of non-corporate entities, direct or indirect ownership of at least forty percent (40%) of the equity interest with the power to direct the management and policies of such non-corporate entity. 2.02 "Agreement" shall mean this Agreement. - 2 - 2.03 "Antibody" shall mean that murine monoclonal antibody to prostatic carcinoma cells designated as 7Ell-C5 antibody which is produced from the corresponding Hybridoma, including its conjugates, derivatives, fragments and covalently and genetically modified structures, including reclones. 2.04 "Assigned Application" shall mean United States Patent Application Serial Number 07/202,869 entitled "Monoclonal Antibodies to a New Antigenic Marker in Epithelial Prostatic Cells and Serum of Prostatic Cancer Patients" filed in the United States Patent and Trademark Office on June 3, 1988 by HOROSZIEWICZ. 2.05 "Effective Date" shall be the date first written above. 2.06 "Field of Use" shall mean any and all in vitro and in vivo uses of -- ----- -- ---- Product in the diagnosis, prophylaxis and treatment of disease. 2.07 "Hybridoma" shall mean the cell line which is capable of producing the Antibody, and genetically modified derivatives of the cell line, including reclones. 2.08 "Improvements" shall mean any advances in or modifications to Product and Hybridoma which HOROSZIEWICZ develops or acquires during the term of this Agreement including, but not limited to, all scientific data developed by HOROSZIEWICZ during - 3 - his conduct of research sponsored by CYTOGEN as provided in sub-paragraph (iv), paragraph 5.01, Article V hereinbelow. 2.09 "Know-How" shall mean all data, information, technology or special ability on the part of HOROSZIEWICZ relating to the research, development, manufacture, testing or use of Hybridoma or Antibody, which are reasonably related to Product for use in the Field of Use and which are useful in seeking approval from appropriate governmental health authorities to market Product for the diagnosis, prophylaxis and treatment of diseases including all animal, laboratory and human clinical data, technical information, knowledge, inventions, techniques, processes, systems, formulae, results of experimentation, designs, statistics and records pertaining to Hybridoma and Antibody; characterization of Antibody; and all methods of making and using Hybridoma and Antibody in the detection, evaluation, prevention and treatment of any disease or condition, whether conducted for experimental or clinical purposes, owned or controlled by HOROSZIEWICZ. 2.10 "Net Sales" shall mean [Information omitted and filed separately with he Commission under Rule 24b-2. - 4 - ] 2.11 "Patent Assets" shall mean the Assigned Application, any division, continuation or continuation-in-part of the Assigned Application and any patent which shall issue based on the Assigned Application, division, continuation or continuation-in-part; any - 5 - patent which is a reissue or extension of, or a patent of addition to, any patent issuing from Assigned Application, or any division, continuation or continuation-in-part of Assigned Application; any patent application or patent identified hereinbefore which is hereafter filed or issued in any country of the Territory; and any patent application which is related to or based on any of HOROSZIEWICZ's Know-How developed during the performance of this Agreement,including, but not limited to, the performance of research by HOROSZIEWICZ which shall be sponsored by CYTOGEN as provided in sub-paragraph (iv), paragraph 5.01, Article V, hereinbelow, and any division, continuation and continuation-in-part of said patent application; and any patent which is a reissue or extension of, or a patent of addition to, any such patent. 2.12 "Payment Product" shall mean and include any Product for use in the Field of Use (i) which is within the scope of a Valid Claim of a Patent Asset; or (ii) whose use is within the scope of a Valid Claim of a Patent Asset; or (iii) which is manufactured or packaged within the scope of a Valid Claim of a Patent Asset. 2.13 "Product" shall mean any one or more of the following: (a) ascites or culture supernatant fluid which contains Antibody, (b) purified Antibody, (c) chemically, biochemically and genetically modified Antibody, and (d) a composition which incorporates (i) Antibody or (ii) chemically, biochemically, - 6 - genetically, including covalently, modified Antibody in physical admixture with inert or active ingredients. 2.14 "Valid Claim" shall mean and include a claim in an issued patent of a Patent Asset which has not lapsed or become abandoned and which claim has not been declared invalid by an unreversed or unappealable decision or judgment of a court of competent jurisdiction. 2.15 "Territory" shall mean the entire world. ARTICLE III ASSIGNMENT, WARRANTY AND INDEMNIFICATION 3.01 Attached hereto and made part of this Agreement is an Assignment of Assigned Application dated April 20, 1989, by HOROSZIEWICZ conveying all right, title and interest in and to said Assigned Application and to all inventions and discoveries disclosed in said Assigned Application to CYTOGEN. 3.02 HOROSZIEWICZ warrants and represents that he has full right, title and interest in and to the Assigned Application, Hybridoma, Antibody and Know-How; that he has the power to make the assignment provided for in paragraph 3.01 hereinabove and to enter into this Agreement without burdens, encumbrances, restraints or limitations of any kind which could adversely affect the right and - 7 - title of CYTOGEN under this Agreement; and that there exist no outstanding written or oral agreements or commitments of any kind inconsistent with this Agreement to which HOROSZIEWICZ is a party. 3.03 HOROSZIEWICZ shall indemnify and hold harmless CYTOGEN against any and all actions, suits, claims, demands, prosecutions, liabilities or judgments that may be brought, instituted or arise against CYTOGEN based on the ownership by CYTOGEN of the Assigned Application and its progeny as defined under "Patent Assets" in Article I hereinabove, Know How and Improvements and the practice by CYTOGEN, or any licensee of CYTOGEN, of the inventions disclosed in the Patent Assets, Know How and Improvements. ARTICLE IV DELIVERY AND MAINTENANCE 4.01 CYTOGEN acknowledges delivery by HOROSZIEWICZ of samples of Hybridoma and Antibody which, except for the expression by the Hybridoma of retroviral reverse transcriptase, were delivered free of other immunoglobulins and non- immunoglobulin contaminants and possessed the physical and chemical properties stated in the KnowHow which was delivered to CYTOGEN simultaneously with the delivery of Hybridoma and Antibody. 4.02 During the term of this Agreement and at the expense of Cytogen, HOROSZIEWICZ and CYTOGEN shall maintain repositories of - 8 - Hybridoma to ensure a supply of said Hybridoma to CYTOGEN and HOROSZIEWICZ in the event of death or unfavorable modification of either party's supplies of said Hybridoma. The details of said repositories (including quantities, specific clones and sister clones to be maintained) shall be agreed to by the parties in each instance. HOROSZIEWICZ may use the Hybridoma only to perform research for CYTOGEN under this Agreement and for his own private, non- transferrable research; HOROSZIEWICZ may not make the Hybridoma available to any third party. 4.03 HOROSZIEWICZ shall forthwith and from time to time during the term of this Agreement make available to CYTOGEN all Know-How relevant to the production of Antibody from Hybridoma, including prompt notification to CYTOGEN of any data or results which relate to a change in the characteristics or performance of Hybridoma or Antibody. ARTICLE V CONSIDERATION, GRANT AND PAYMENTS 5.01 In consideration for, (i) The Assignment provided for in paragraph 3.01 hereinabove; and, (ii) The delivery of the Hybridoma, Antibody and Know-How; the maintenance of the Hybridoma, and the availability of - 9 - Know-How as provided for in Article IV hereinabove, the right and title to all of which HOROSZIEWICZ hereby grants, assigns and transfers to CYTOGEN; and, (iii) The right to possess and use the Hybridoma, Antibody and Know- How in the Territory; and the right to make, have made, use and sell any and all Payment Products under Patent Assets in the Field of Use throughout the Territory, the right and title to all of which HOROSZIEWICZ hereby grants, assigns and transfers to CYTOGEN; and, (iv) Research to be performed by HOROSZIEWICZ in the field of monoclonal antibodies useful in the treatment of prostatic cancer, under the sponsorship of CYTOGEN in accordance with a protocol to be agreed to by the parties and to be made part of this Agreement, and the Improvements and Know-How developed by HOROSZIEWICZ during the course of said research, the right and title to all of which HOROSZIEWICZ hereby grants, assigns and transfers to CYTOGEN; CYTOGEN shall pay HOROSZIEWICZ and/or his designee(s) the following compensation: (a) The sum of [Information omitted and filed separately with the Commission under Rule 24b-2.] upon the Effective Date of this Agreement, which sum shall be paid directly to Mr. S. Leslie Misrock, 1155 Avenue of the Americas, New - 10 - York, New York 10036, to reimburse Mr. Misrock for his prior sponsorship of HOROSZIEWICZ's research; (b) The sum of [Information omitted and filed separately with the Commission under Rule 24b-2.] said payment to be made directly to HOROSZIEWICZ in four (4) equal quarterly installments of [Information omitted and filed separately with the Commission under Rule 24b-2.], the first payment to be made on a date within thirty (30) days from the Effective Date of this Agreement. (c) A payment of [Information omitted and filed separately with the Commission under Rule 24b-2.] (d) In the event CYTOGEN licenses Payment Products to a non-affiliated third party and receives a royalty on Net Sales by such non-affiliated third party of such Payment Product, the payments due HOROSZIEWICZ under Section 5.01(c) of this Agreement shall be superceded and the net royalty actually received by CYTOGEN from such third party shall be shared between CYTOGEN and HOROSZIEWICZ as follows: [Information omitted and filed separately with the ommission under Rule 24b-2. - 11 - ] 5.02 The payment provided for in sub-paragraph (c) of the paragraph 5.01, Article V hereinabove due under Patent Assets shall continue until the date of expiration of the last to expire of the Patent Assets in each country, whereupon all further payments to HOROSZIEWICZ on Net sales under sub-paragraph (c), paragraph 5.01, Article V in said country shall cease and no further payments shall be due; provided however, (i) in those countries of the Territory wherein a patent application as defined under "Patent Assets" in paragraph 2.11, Article II hereinabove has been filed but shall not have issued into a corresponding, valid and subsisting patent ten (10) years from the date of first commercialization of a Payment Product in a given country of the Territory then, in that event, no further royalties shall be due and payable to HOROSZIEWICZ effective upon the date of expiration of said ten (10)-year period with respect to each applicable country, and (ii) in those countries wherein an Assigned Application or corresponding patent application has been filed and abandoned, no further royalties shall be due and payable to HOROSZIEWICZ effective upon the date of such abandonment; provided further, in those countries of the Territory wherein a patent application as defined under "Patent Assets" in paragraph 2.11, Article II hereinabove is pending and one or more of the Payment Products become subject to substantial competition, the payment provided for in sub-paragraph (c), - 12 - paragraph 5.01, Article V shall be suspended for so long as such competition subsists. Substantial competition, as used herein, is intended to mean the sale by any third party of a Product in excess of One Million Dollars ($1,000,000.00) in each affected country. ARTICLE VI PAYMENT REMITTANCE AND RECORDS 6.01 Payments based on Net Sales as required under subparagraph (c), paragraph 5.01, Article V to be made by CYTOGEN to HOROSZIEWICZ shall be made in United States Dollars for each calendar quarter and each such payment shall include the payments which shall have accrued during the subject calendar quarter and shall be accompanied by a report setting forth separately the Net Sales of Payment Products sold under Patent Assets during said calendar quarter in each country of the Territory and the calculation of payments payable for such calendar quarter. Payments based on United States sales shall be made within sixty (60) days following the end of each calendar quarter, while payments based on Net Sales outside the United States shall be made within ninety (90) days following the end of each calendar quarter. 6.02 No payments shall be due on sales between CYTOGEN and its Affiliates; between Affiliates, or between CYTOGEN and its licensees. - 13 - 6.03 The remittance of payments payable under sub-paragraph (c), paragraph 5.01, Article V on Net Sales of Payment Products outside the United States shall be made to HOROSZIEWICZ at the official rate of exchange of the currency of the country from which the payments are payable (as quoted by the Citibank of New York City) for the last business day of the calendar quarter in which the payments were payable (less any withholding or transfer taxes which are applicable). CYTOGEN shall supply HOROSZIEWIcz with proof of payment of such taxes paid on CYTOGEN's behalf. 6.04 CYTOGEN shall keep and maintain records of sales made pursuant to the rights granted hereunder. Such records shall be open to inspection at any reasonable time during normal business hours within three (3) years after the payment period to which such records relate by an independent Certified Public Accountant (or equivalent in a foreign country) selected and paid for by HOROSZIEWICZ, who shall have the right to examine the records kept pursuant to this Agreement and to report findings of said examination of records to HOROSZIEWICZ insofar as it is necessary to evidence any mistake or underpayment on the part of CYTOGEN. ARTICLE VII PATENTS 7.01 CYTOGEN shall have full responsibility for the prosecution of the Assigned Application in the United States Patent - 14 - and Trademark Office, including the payment of expenses, attorney fees related thereto, and maintenance fees. 7.02 The selection of countries outside the United States in which the Assigned Application and its progeny, as defined under "Patent Assets" in Article I hereinabove shall be filed prior to the expiration of the Convention Date under the Paris Convention in countries outside the United States; the filing thereof, and the expenses relating to the prosecution and maintenance thereof, including attorney fees, annuities and taxes, shall be the responsibility of CYTOGEN. CYTOGEN shall promptly advise HOROSZIEWICZ of its decisions relating to filing in countries outside the United States. In the event HOROSZIEWICZ determines that certain countries of the world outside the United States should be added to the list of those wherein filing of the progeny of Assigned Application has been decided upon by CYTOGEN then, in that event, HOROSZIEWICZ shall be free to effectuate such filing, including payment for subsequent prosecution, maintenance, taxes and annuities, at his own expense. CYTOGEN shall aid HOROSZIEWICZ by providing him with all documents necessary to accomplish such filing. 7.03 CYTOGEN shall have sole responsibility for the selection of patent counsel to file, prosecute and maintain the Patent Assets in all countries of the Territory. - 15 - ARTICLE VIII CREDIT 8.01 All payments made by CYTOGEN to HOROSZIEWICZ under subparagraphs (a) and (b), paragraph 5.01, Article V hereinabove and all payments made by CYTOGEN to HOROSZIEWICZ relating to expenses applicable to filing, prosecution, attorney fees, maintenance, taxes and annuities under paragraphs 7.01 and 7.02, Article VII hereinabove, shall be credited against payments due and payable under sub- paragraph (c), paragraph 5.01, Article V and paragraph 6.01, Article Vi hereinabove. ARTICLE IX INFRINGEMENT 9.01 In the event CYTOGEN is sued by a third party charging infringement of a patent resulting from the manufacture, use or sale by CYTOGEN of a Payment Product, CYTOGEN shall promptly notify HOROSZIEWICZ and may, at its option and in its sole discretion, discontinue the manufacture, use or sale of a Payment Product in the applicable country. In the event the suit is continued, CYTOGEN shall have the right, during the period in which any such suit is pending, to apply all of its litigation expenses in such suit against the payments due HOROSZIEWICZ under sub-paragraph (c), paragraph 5.01, Article V and paragraph 6.01, Article VI hereinabove. - 16 - 9.02 In the event of a judgment in any suit requiring CYTOGEN to (a) pay royalty to (b) grant a sublicense to or (c) enter into a cross-licensing arrangement with a third party, or in the event of a settlement of such suit requiring royalty payments to be made, licenses granted, or cross-licensing entered into, payments due HOROSZIEWICZ under sub-paragraph (c), paragraph 5.01, Article V hereinabove shall be correspondingly reduced by the amounts due under the requirement of such judgment or under the terms of such settlement; provided however, that such reduction shall not reduce the payments due HOROSZIEWICZ under sub-paragraph (c), paragraph 5.01, Article V to an amount less than one- half (1/2) of the amount which would otherwise be due HOROSZIEWICZ thereunder. 9.03 In the event CYTOGEN shall be compelled by a governmental agency to grant a compulsory license to a third party in any country of the Territory wherein Patent Assets are subsisting, under laws applicable to such country, on terms more favorable than those granted CYTOGEN under this Agreement, including, but not limited to the payments due HOROSZIEWICZ under sub-paragraph (c), paragraph 5.01, Article V and paragraph 6.01, Article VI hereinabove, at a rate lower than those required to be paid by CYTOGEN, then CYTOGEN shall promptly notify HOROSZIEWICZ of such compulsory license and the terms applicable under such compulsory license shall supersede the corresponding terms under this Agreement as at the date on which such compulsory license shall have become effective. - 17 - 9.04 Each party shall promptly notify the other party if it becomes aware of any infringement of Patent Assets. CYTOGEN shall have no obligation to HOROSZIEWICZ to initiate litigation or otherwise protect any patent or proprietary right assigned under this Agreement and shall be free to pursue any course of action it elects to take in connection with such acts of infringement by third parties. In the event CYTOGEN decides to initiate or to fully participate in any legal action initiated by a third party to protect its interests, HOROSZIEWICZ shall cooperate with CYTOGEN in such action. If CYTOGEN elects to institute suit against a third party to protect any patent or proprietary rights assigned under this Agreement, all associated costs (including reasonable attorney fees) which have been paid by CYTOGEN shall be offset against any payments due and payable to HOROSZIEWICZ under subparagraph (c), paragraph 5.01, Article V and paragraph 6.01, Article VI hereinabove. ARTICLE X COMMERCIAL DEVELOPMENT AND RE-ASSIGNMENT 10.01 CYTOGEN agrees to use reasonable efforts to commercialize the Antibody as soon as reasonably practicable, consistent with its sound and reasonable business practices and judgment. CYTOGEN shall advise HOROSZIEWICZ in writing on an annual basis regarding its efforts toward commercial development of the Antibody. Such progress reports by CYTOGEN shall continue until either (a) the - 18 - Antibody shall have been commercialized by CYTOGEN or (b) CYTOGEN, in its judgment, shall conclude that the marketing and commercialization of the Antibody is impracticable, inadvisable or not feasible, and shall so advise HOROSZIEWICZ in writing. 10.02 In the event that CYTOGEN (a) fails to continue reasonable efforts toward commercial development of the Antibody, or (b) decides against marketing the Antibody as described in paragraph 10.01 of this Article X within five (5) years from the Effective Date of this Agreement, CYTOGEN shall re-assign the Assigned Application and its progeny, as defined in "Patent Assets" under Article I hereinabove to HOROSZIEWICZ and the assignments made to CYTOGEN by HOROSZIEWICZ hereunder shall automatically be converted to non-exclusive license rights. In the event of such automatic conversion, (i) the payment rate provided for in subparagraph (c), paragraph 5.01, Article V hereinabove shall be reduced from [Information omitted and filed separately with the Commission under Rule 24b- 2.], which payment shall be payable for the periods of time provided for in paragraph 5.02, Article V hereinabove commencing with the date of such automatic conversion, and (ii) all further responsibility by CYTOGEN under Article VII shall cease. ARTICLE XI TERM AND TERMINATION 11.01 Unless sooner terminated as herein provided, this Agreement shall continue in full force and effect for the time - 19 - commencing with the Effective Date and continuing (a) as to those countries of the Territory wherein issued and valid patents as defined under "Patent Assets" are subsisting, until the date of expiration of the last such patent in such country, and (b) as to those countries of the Territory wherein the Assigned Application or a corresponding patent application has been filed and (i) is pending, until the date ten (10) years following the date of first commercial sale in the applicable country, for so long as said patent application is pending, or (ii) has been abandoned, until the date of abandonment. Upon the expiration of any of the applicable dates provided for in (a) and (b) of this paragraph 11.01, the payments required under sub-paragraph (c), paragraph 5.01, Article V shall be fully paid upon such date and, as provided in paragraph 5.02. Article V hereinabove, no further payments shall be due HOROSZIEWICZ as to the applicable country. ARTICLE XII ASSIGNABILITY 12.01 This Agreement is not assignable by either party except with the prior written consent of the other and except that it may be assigned without consent (i) by HOROSZIEWICZ in whole or in part to a private charitable trust and/or public foundation (qualifying under Section 501(c) (3) of the Internal Revenue Code) for cancer research, and (ii) by CYTOGEN to the successor of CYTOGEN or to a - 20 - person acquiring all or substantially all of the business and/or assets of CYTOGEN. ARTICLE XIII NOTICE 13.01 Any notice required under this Agreement shall be in writing and shall be considered given one day after such notice, properly addressed and shipped overnight service, is sent by either party to the other. Proper address for notice is as follows: if to HOROSZIEWICZ: Julius S. Horosziewicz, M.D., DMSC. Senior Research Scientist Department of Urology Millard Fillmore Hospital 3 Gates Circle Buffalo, New York 14209 c/o Ms. Ramena Bober with copies to: S. Leslie Misrock, Esq- Pennie & Edmonds 1155 Avenue of the Americas New York, New York 10036 if to CYTOGEN: Thomas J. McKearn, M.D., PhD. Senior Vice President Scientific Affairs Cytogen Corporation 201 College Road East Princeton, New Jersey 08540 - 21 - with copies to: William J. Ryan, Esq. Vice President & General Counsel Cytogen Corporation 600 College Road East Princeton, New Jersey 08540 ARTICLE XIV MISCELLANEOUS 14.01 This Agreement constitutes the entire Agreement between the parties and supersedes all written and oral prior agreements or understandings. No variation or modification of the terms or provisions of this Agreement shall be valid unless in writing and signed by both parties. 14.02 Waiver by CYTOGEN or HOROSZIEWICZ of any single default or breach or succession of defaults or breaches by the other shall not deprive the waiving party of any right to terminate this Agreement arising out of any subsequent breach. 14.03 All matters affecting the interpretation, validity and performance of this Agreement shall be governed by the laws of the State of New York. 14.04 (a) CYTOGEN shall indemnify and hold harmless HOROSZIEWICZ against any and all actions, suits, claims, demands, prosecutions, liabilities or judgments that may be brought, - 22 - instituted or arise against HOROSZIEWICZ based on or arising out of an action by CYTOGEN under this Agreement relating to the following: (i) the use by third parties of Antibody sold or supplied by CYTOGEN; (ii) the manufacture, packaging, use, sale, or other distribution of products containing Antibody by CYTOGEN; (iii) any representation made or warranty given by CYTOGEN with respect to the Hybridoma or Antibody; (iv) the distribution or the use by CYTOGEN of the Hybridoma or Antibody. (b) Upon the filing of any suit or claim, HOROSZIEWICZ shall permit CYTOGEN's attorneys, at CYTOGEN's discretion and cost, to handle and control the defense of any such claim or suit, provided that attorneys retained by HOROSZIEWICZ at his own expense shall be permitted to join in any such defense. No party shall settle any such claim or suit without the prior written consent of the other party, which shall not be unreasonably withheld. (c) CYTOGEN shall not indemnify or hold harmless HOROSZIEWICZ against any action, suit, claim, demand prosecution, - 23 - liability or judgment that may be brought, instituted or arise against HOROSZIEWICZ based on or arising out of any negligence or action of HOROSZIEWICZ, including further research on Hybridoma or on Antibody. IN WITNESS WHEREOF, HOROSZIEWICZ and CYTOGEN have caused this Agreement to be executed in duplicate; HOROSZIEWICZ personally and CYTOGEN by its duly authorized officer. /s/ Julius S. Horosziewicz, M.D., D.Msc - ---------------------------------------- Julius S. Horosziewicz, M.D., DMSc. April 20, 1989 - ---------------------------------------- Date CYTOGEN CORPORATION By:/s/ W.J. Ryan -------------------- Name: W.J. Ryan ------------------ Title: Vice President ----------------- April 18, 1989 - ----------------------- Date - 24 - EX-21 11 SUBSIDIARIES OF CYTOGEN CORPORATION Exhibit 21 Subsidiaries of CYTOGEN Corporation Cellcor, Inc., a Delaware corporation, is a wholly-owned subsidiary of CYTOGEN Corporation. CytoRad Acquisition Corp., a Delaware corporation, is a wholly-owned subsidiary of CYTOGEN Corporation. CYTOGEN UK Limited, a private limited company organized under the laws of the United Kingdom, is a wholly-owned subsidiary of CYTOGEN Corporation. EX-23 12 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 03/25/96 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To CYTOGEN CORPORATION: As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement (File No. 33-30595), filed with the Securities and Exchange Commission on August 18, 1989, Form S-3 Registration Statement (File No. 33-35140), filed with the Securities and Exchange Commission on May 31, 1990, Form S-8 Registration Statement (File No. 33-52574), filed with the Securities and Exchange Commission on September 29, 1992, Form S-8 Registration Statement (File No. 33-57004), filed with the Securities and Exchange Commission on January 12, 1993, Form S-3 Registration Statement (File No. 33-77396) filed with the Securities and Exchange Commission on April 6, 1994, Form S-8 Registration Statement (File No. 33-63321), filed with the Securities and Exchange Commission on October 10, 1995 and Form S-8 Registration Statement (File No. 333-00431), filed with the Securities and Exchange Commission on January 25, 1996. ARTHUR ANDERSEN LLP Philadelphia, PA March 25, 1996 EX-27 13 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 27,551,000 1,201,000 820,000 (536,000) 356,000 30,135,000 16,385,000 (10,923,000) 37,149,000 8,598,000 0 0 0 460,000 24,816,000 37,149,000 1,377,000 5,842,000 0 7,476,000 70,293,000 0 593,000 (72,520,000) 0 (72,520,000) 0 0 0 (72,520,000) (2.11) 0
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