-----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, IQTDDZcfcAJyym9SvOWvA8EC7iBNlWZW5TGZSghDsi7v8CZmBnrjwotGhZusfgEH +JGQmZBs2hzwVERExqyVNQ== 0000912057-01-515795.txt : 20010516 0000912057-01-515795.hdr.sgml : 20010516 ACCESSION NUMBER: 0000912057-01-515795 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIO TECHNOLOGY GENERAL CORP CENTRAL INDEX KEY: 0000722104 STANDARD INDUSTRIAL CLASSIFICATION: MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833] IRS NUMBER: 133033811 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15313 FILM NUMBER: 1636316 BUSINESS ADDRESS: STREET 1: 70 WOOD AVE S CITY: ISELIN STATE: NJ ZIP: 08830 BUSINESS PHONE: 9086328800 MAIL ADDRESS: STREET 1: 70 WOOD AVENUE SOUTH CITY: ISELIN STATE: NJ ZIP: 08830 10-Q 1 a2049333z10-q.txt 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 Commission File Number 0-15313 BIO-TECHNOLOGY GENERAL CORP. (Exact name of registrant as specified in its charter) Delaware 13-3033811 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 70 Wood Avenue South, Iselin, New Jersey 08830 (Address of principal executive offices) (732) 632-8800 (Registrant's telephone number, including area code) ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, par value $.01 per share, outstanding as of May 1, 2001: 57,264,058 INDEX
PAGE Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at March 31, 2001 and December 31, 2000......................................................3 Consolidated Statements of Operations for the three months ended March 31, 2001 and 2000...................................................................4 Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2001...............................................................5 Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000...................................................................6 Notes to Consolidated Financial Statements...................................................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................................10 Part II. Other Information Item 2. Changes in Securities and Use of Proceeds...................................................18 Item 6. Exhibits and Reports on Form 8-K............................................................18
2 PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (In thousands except share data)
March 31, 2001(Unaudited) December 31, 2000 - ----------------------------------------------------------------------------------------------- ---------------------- ASSETS: Current Assets Cash and cash equivalents....................................... $ 55,487 $ 26,353 Short-term investments.......................................... 58,675 93,217 Accounts receivable............................................. 50,615 39,188 Inventories..................................................... 10,050 9,880 Deferred income taxes........................................... 2,445 2,445 Prepaid expenses and other current assets....................... 1,838 989 --------- ---------- Total current assets ........................................ 179,110 172,072 --------- ---------- Deferred income tax............................................. 13,170 5,745 Account receivable ............................................. 1,703 1,703 Severance pay funded............................................ 2,224 2,321 Property and equipment, net..................................... 31,663 27,819 Other investment................................................ 5,000 --- Other assets.................................................... 3,641 3,565 --------- ---------- Total assets ................................................ $236,511 $213,225 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Deferred revenues............................................... $1,151 $1,153 Accounts payable ............................................... 10,091 6,420 Other current liabilities ...................................... 29,299 11,155 --------- ---------- Total current liabilities ................................... 40,541 18,728 --------- ---------- Negative goodwill.................................................... 18,357 --- Long-term debt....................................................... 20,126 20,000 Deferred revenues.................................................... 10,265 10,551 Provision for severance pay.......................................... 4,451 4,593 Stockholders' equity: Preferred stock - $.01 par value; 4,000,000 shares authorized; no shares issued.......................... --- --- Common stock - $.01 par value; 150,000,000 shares authorized; issued: 57,177,000 (54,765,000 at December 31, 2000)........................................... 572 547 Capital in excess of par value ................................. 199,113 179,586 Deficit......................................................... (50,946) (14,817) Accumulated other comprehensive loss............................ (5,968) (5,963) --------- ---------- Total stockholders' equity .................................. 142,771 159,353 --------- ---------- Total liabilities and stockholders' equity ............... $236,511 $213,225 ========= ==========
The accompanying notes are an integral part of these consolidated balance sheets. 3 CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands except per share data)
Three Months Ended March 31, - -------------------------------------------------------------------------------------------------------------------------- 2001 2000* -------------------------------------------------- Revenues: Product sales...................................................... $ 29,887 $12,507 Contract fees...................................................... 289 1,838 Royalties ......................................................... 843 635 Other revenues..................................................... 221 432 Interest income.................................................... 2,496 1,351 ----------- ---------- 33,736 16,763 ----------- ---------- Expenses: Research and development........................................... 5,930 5,397 Cost of product sales.............................................. 5,139 2,336 General and administrative......................................... 3,277 3,446 Marketing and sales................................................ 4,741 3,256 Royalties.......................................................... 646 654 Interest and finance............................................... 17 30 Write-off of in-process research and development acquired.......... 45,600 -- ----------- ---------- 65,350 15,119 ----------- ---------- Income (loss) before income taxes..................................... (31,614) 1,644 Income taxes.......................................................... 4,515 559 ----------- ---------- Income (loss) before cumulative effect of change in accounting principle............................................... (36,129) 1,085 Cumulative effect of change in accounting principle.................. -- (8,178) ----------- ---------- Net loss............................................................. $(36,129) $(7,093) =========== ========== Earnings per common share: Basic: Income (loss) before cumulative effect of change in accounting principle............................................ $ (0.66) $ 0.02 Cumulative effect of change in accounting principle............... -- (0.15) ----------- ---------- Net loss.......................................................... $ (0.66) $ (0.13) =========== ========== Diluted: Income (loss) before cumulative effect of change in accounting principle....................................................... $ (0.66) $ 0.02 Cumulative effect of change in accounting principle............... -- (0.14) ----------- ---------- Net loss.......................................................... $ (0.66) $ (0.12) =========== ========== Weighted average number of common and common equivalent shares Basic ............................................................ 55,117 53,748 =========== ========== Diluted .......................................................... 55,117 57,373 =========== ==========
* See Note 3 The accompanying notes are an integral part of these consolidated statements. 4 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) (in thousands)
Accumulated Stock Capital in Other Total Common Par Excess of Comprehensive Stockholders' Shares Value Par Value Deficit Loss Equity - ------------------------------------- ------------- ------------ ---------------- ------------- --------------- --------------- Balance, December 31, 2000....... 54,765 $547 $179,586 $(14,817) $(5,963) $159,353 Comprehensive income: Net loss for three months ended March 31, 2001...... (36,129) (36,129) Unrealized loss on marketable securities, net............. (5) (5) --------------- Total comprehensive loss......... (36,134) --------------- Issuance of common stock in Myelos acquisition....... 2,345 24 19,009 19,033 Issuance of common stock......... 61 1 483 484 Exercise of stock options........ 6 35 35 ------------- ------------ ---------------- ------------- --------------- --------------- Balance, March 31, 2001.......... 57,177 $572 $199,113 $(50,946) $(5,968) $142,771 ============= ============ ================ ============= =============== ===============
The accompanying notes are an integral part of this consolidated statement. 5 CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (In thousands)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2001 2000 --------- --------- Cash flows from operating activities: Net loss............................................................ $ (36,129) $ (7,093) Adjustments to reconcile net loss to net cash provided by operating activities: Cumulative effect of accounting change, net..................... --- 8,178 Deferred revenue................................................ (288) 637 Depreciation and amortization................................... 787 728 Provision for severance pay..................................... (142) 302 Write-off of in-process research and development acquired....... 45,600 -- Loss (gain) on sales of short-term investments.................. (303) 260 Gain on sales of fixed assets................................... (1) (12) Deferred income taxes........................................... -- 733 Common stock as payment for services............................ 17 (221) Changes in: receivables......................................... (11,427) 9,545 inventories......................................... (170) (712) prepaid expenses and other current assets........... (1,075) (1,559) accounts payable.................................... 3,673 (3,267) other assets........................................ (100) (251) other current liabilities........................... 2,599 2,161 --------- -------- Net cash provided by operating activities............................ 3,041 9,429 --------- -------- Cash flows from investing activities: Short-term investments............................................ (1,614) (6,662) Capital expenditures.............................................. (4,439) (1,616) Severance pay funded (used) ...................................... 97 (91) Proceeds from sales of fixed assets............................... 25 40 Cash acquired from acquisition.................................... 67 -- Other investment.................................................. (5,000) -- Proceeds from sales of short-term investments..................... 36,454 6,447 --------- -------- Net cash provided by (used in) investing activities.................. 25,590 (1,882) --------- -------- Cash flows from financing activities: Proceeds from issuance of common stock............................ 503 6,287 --------- -------- Net increase in cash and cash equivalents.............................. 29,134 13,834 Cash and cash equivalents at beginning of period..................... 26,353 18,703 --------- -------- Cash and cash equivalents at end of period........................... $ 55,487 $ 32,537 ========= ======== SUPPLEMENTARY INFORMATION Other information: Acquisition of Myelos Corporation Assets acquired................................................. $ 8,194 $ -- Liabilities assumed............................................. (1,124) -- Negative goodwill............................................... (18,357) -- Amounts due..................................................... (15,348) -- Equity issued................................................... (19,032) -- In-process research and development acquired.................... 45,600 -- --------- -------- Net cash acquired............................................. $ (67) $ -- ========== ========
The accompanying notes are an integral part of these consolidated statements. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: BASIS OF PRESENTATION In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation. Due to fluctuations in quarterly revenues earned, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The accounting policies continue unchanged from December 31, 2000. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Note 2: ACQUISITION AND INVESTMENT ACQUISITION OF MYELOS CORPORATION On March 19, 2001, BTG acquired Myelos Corporation, a privately-held biopharmaceutical company focused on the development of novel therapeutics to treat diseases of the nervous system. Under the terms of the acquisition agreement, BTG paid Myelos shareholders $35,000,000 in a combination of cash and stock ($14,000,000 in cash and $21,000,000 through the issuance of approximately 2,344,700 shares of the Company's common stock (based on a value of $8.9564, representing the average closing price of BTG's common stock for the 20 trading day period ending one day prior to February 21, 2001, the date the acquisition agreement was executed)). In addition, BTG has agreed to pay the Myelos shareholders an additional $30,000,000 if BTG is able to file a New Drug Application with respect to Prosaptide to treat neuropathic pain or neuropathy, of which at least $14,000,000 will be paid through the issuance of shares of BTG common stock. The remaining $16,000,000 can be paid, at BTG's option, in cash, shares of BTG common stock or a combination thereof. BTG has also agreed that if Prosaptide is approved by the United States Food and Drug Administration for the treatment of neuropathic pain or neuropathy, BTG will pay the Myelos shareholders 15% of net sales of Prosaptide during the 12 month period beginning on the earlier of (i) the 25th full month after commercial introduction of Prosaptide in the United States for the treatment of neuropathic pain or neuropathy and (ii) April 1, 2010. At least 50% of this payment must be in shares of BTG common stock, with the remainder payable, at BTG's option, in cash, shares of BTG common stock or a combination thereof. In no event is BTG required to issue more than 10,962,000 shares of its common stock; any equity required to be issued in excess of that amount will be issued in shares of BTG preferred stock. The preferred stock would be non-voting, non-convertible, non-transferable, non-dividend paying (except to the extent a cash dividend is paid on the BTG common stock), with no mandatory redemption for a period of 20 years and one day from the closing date of the acquisition, and a right to share in proceeds in liquidation, up to the liquidation amount. The transaction was treated as a "purchase" for accounting purposes. The purchase price for accounting purposes is approximately $33,000,000, based on a value for the approximately 2,344,700 shares of Company common stock issued in the acquisition of $8.1172, representing the average closing price of the Company's common stock for the four day period preceding the date the terms of the acquisition were agreed to (February 21, 2001). In connection with the Merger and based on an independent valuation, BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology. At the date of the Merger the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date. The Company recorded negative goodwill of $18,357,000 on its balance sheet, primarily because the amount written off as in-process research and development acquired exceeded the purchase price for accounting purposes. This negative goodwill will be amortized over its expected useful life of five years. The Company allocated values to the in-process research and development based on an independent valuation of the research and development project. The value assigned to these assets was determined by estimating the costs to develop the acquired technology into a commercially viable product, estimating the resulting net cash flows from the product, and discounting the net cash flows to their present 7 value. The revenue projection used to value the in-process research and development was based on estimates of relevant market size and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by the Company and its competitors. The resulting net cash flows from such product are based on management's estimates of cost of sales, operating expenses and income taxes from such product. The Company believes that the assumptions used in the forecasts were reasonable at the time of the merger. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such product, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process research and development relate to the ability to successfully develop a product and the projected timing of completion of, and revenues attributable to, that product. The Company estimates that it will cost approximately $30,000,000 to complete development of the product over the next three to five years. The following pro forma consolidated results of operations for the three month period ended March 31, 2001 was prepared assuming the acquisition at Myelos occurred on January 1, 2001. The pro forma results of operations are not necessarily indicative of the consolidated results which actually would have occurred if the acquisition had been consummated at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.
Three months ended March 31, 2001 ------------------------------------ (In thousands except per share data) As Reported Pro Forma ----------- ----------- Total revenues...................................................... $33,736 $33,736 Net loss............................................................ $(36,129) $(36,339) Loss per common share (basic and diluted)........................... $(0.66) $(0.66)
The pro forma results were adjusted to record amortization of negative goodwill. INVESTMENT IN OMRIX BIOPHARMACEUTICALS, INC. In January 2001, in order to obtain a period of exclusivity to negotiate a possible strategic relationship with Omrix Biopharmaceuticals, Inc., BTG loaned $2,500,000 to Omrix and agreed to convert the loan into, and to purchase an additional $2,500,000 of, shares of Omrix preferred stock if it did not pursue a relationship. BTG determined not to pursue a strategic relationship with Omrix, and on March 31, 200l converted the existing loan into, and purchased an additional $2,500,000 of, shares of Omrix preferred stock, which is convertible into approximately 4.5% of Omrix common stock (on a fully-diluted basis). Omrix is a privately-held company that develops and markets a unique surgical sealant and a number of immunology products based on blood plasma processing technology. Omrix currently sells its products in Europe, South America and the Middle East. Note 3: SAB 101 Effective January 1, 2000, the Company adopted Staff Accounting Bulletin 101 ("SAB 101") issued by the Securities and Exchange Commission in December 1999. As a result of adopting SAB 101, the Company changed the way it recognizes revenue from contract fees for the license of marketing and distribution rights where the consideration is a one-time nonrefundable payment. Prior to the issuance of SAB 101, the Company recorded revenue from the license of marketing and distribution rights when the rights were licensed and/or when these payments were received. In accordance with SAB 101, the related revenues are now being recognized over the term of the related agreements. Effective January 1, 2000, the Company recorded a cumulative effect of change in accounting principle related to contract revenues recognized in prior years in the amount of $12,558,000, net of income taxes of $4,380,000. Contract fees that have been received but not yet recognized as revenue are recorded as deferred revenue on the balance sheet. 8 Following is a reconciliation of the quarterly information for March 31, 2000 as reported:
As reported Adjustments As Adjusted ----------- ----------- ----------- (In thousands except per share data) Contract fees $2,425 $(637) $1,838 Income taxes $796 $(237) $559 Earnings (loss) per common share: Basic $0.03 $(0.16) $(0.13) Diluted $0.03 $(0.15) $(0.12)
9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 2001 compared with three months ended March 31, 2000 STATEMENTS IN THIS QUARTERLY REPORT ON FORM 10-Q CONCERNING THE COMPANY'S BUSINESS OUTLOOK OR FUTURE ECONOMIC PERFORMANCE; ANTICIPATED PROFITABILITY, REVENUES, EXPENSES OR OTHER FINANCIAL ITEMS; INTRODUCTIONS AND ADVANCEMENTS IN DEVELOPMENT OF PRODUCTS, AND PLANS AND OBJECTIVES RELATED THERETO; AND STATEMENTS CONCERNING ASSUMPTIONS MADE OR EXPECTATIONS AS TO ANY FUTURE EVENTS, CONDITIONS, PERFORMANCE OR OTHER MATTERS, ARE "FORWARD-LOOKING STATEMENTS" AS THAT TERM IS DEFINED UNDER THE FEDERAL SECURITIES LAWS. FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE STATED IN SUCH STATEMENTS. SUCH RISKS, UNCERTAINTIES AND FACTORS INCLUDE, BUT ARE NOT LIMITED TO, CHANGES AND DELAYS IN PRODUCT DEVELOPMENT PLANS AND SCHEDULES, CHANGES AND DELAYS IN PRODUCT APPROVAL AND INTRODUCTION, CUSTOMER ACCEPTANCE OF NEW PRODUCTS, CHANGES IN PRICING OR OTHER ACTIONS BY COMPETITORS, PATENTS OWNED BY THE COMPANY AND ITS COMPETITORS, CHANGES IN HEALTHCARE REIMBURSEMENT, RISK OF OPERATIONS IN ISRAEL, RISK OF PRODUCT LIABILITY, GOVERNMENTAL REGULATION, DEPENDENCE ON THIRD PARTIES TO MANUFACTURE PRODUCTS AND COMMERCIALIZE PRODUCTS, GENERAL ECONOMIC CONDITIONS, AS WELL AS OTHER RISKS DETAILED IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000. OVERVIEW BTG is engaged in the research, development, manufacture and marketing of biopharmaceutical products. Through a combination of internal research and development, acquisitions, collaborative relationships and licensing arrangements, BTG has developed a portfolio of therapeutic products, including eight products that have received regulatory approval for sale, of which seven are currently being marketed, four products that are in registration or clinical trials and several products that are in pre-clinical development. BTG pursues the development of both products with broad markets as well as products with specialized niche markets where BTG can seek Orphan Drug designation and potential marketing exclusivity. BTG was founded in 1980 to develop, manufacture and market novel therapeutic products. BTG's overall administration, licensing, human clinical studies, marketing activities, quality assurance and regulatory affairs are primarily coordinated at its headquarters in Iselin, New Jersey. Pre-clinical studies, research and development activities and manufacturing of the Company's genetically engineered and fermentation products are primarily carried out through its wholly owned subsidiary in Rehovot, Israel. ACQUISITION OF MYELOS CORPORATION On March 19, 2001, BTG acquired Myelos Corporation, a privately-held biopharmaceutical company focused on the development of novel therapeutics to treat diseases of the nervous system. Under the terms of the acquisition agreement, BTG paid Myelos shareholders $35 million in a combination of cash and stock ($14 million in cash and $21 million through the issuance of approximately 2,344,700 shares of BTG common stock (based on a value of $8.9564, representing the average closing price of BTG's common stock for the 20 trading day period ending one day prior to the February 21, 2001 date the acquisition agreement was executed)). In the event that (i) BTG publicly announces that it will file a New Drug Application ("NDA") related to the use of Prosaptide to treat neuropathic pain or neuropathy, (ii) BTG receives FDA minutes stating that the clinical data possessed by BTG is sufficient for an NDA filing for the use of Prosaptide to treat neuropathic pain or neuropathy without requiring any further testing or (iii) BTG initiates preparation of an NDA for Prosaptide for the treatment of neuropathic pain or neuropathy (the date the earliest of the foregoing occurs being the "Payment Trigger Date"), then BTG will pay to the Myelos shareholders an additional $30 million, at least approximately $14 million of which must be paid in shares of BTG common stock, valued at the average of the closing prices of BTG common stock during the 20 trading days ending on the Payment Trigger Date, and the remainder can be paid in cash, shares of BTG common stock, or a combination thereof, as determined by BTG in its sole discretion. 10 In addition, in the event that the FDA approves the sale of Prosaptide for the treatment of neuropathic pain or neuropathy, BTG will pay the Myelos shareholders 15% of the net sales of Prosaptide for the treatment of neuropathic pain or neuropathy during the 12 month period beginning on the earlier of (i) the 25th full month after commercial introduction of Prosaptide in the United States for the treatment of neuropathic pain or neuropathy and (ii) April 1, 2010. At least 50% of this payment must be paid in shares of BTG common stock, valued at the average of the closing prices of BTG common stock during the 20 days ending one day prior to the payment, and the remainder can be paid in cash, shares of BTG common stock, or a combination thereof, as determined by BTG in its sole discretion. In no event will BTG be obligated to issue in aggregate to the Myelos shareholders more than 10,962,000 shares of BTG common stock. Any amount of the contingent payments that cannot be paid in shares of BTG common stock shall instead be paid in shares of BTG's preferred stock. The preferred stock will be non-voting, non-convertible, non-transferable, non-dividend paying (except to the extent a cash dividend is paid on the BTG common stock), with no mandatory redemption for a period of 20 years and one day from the closing date of the acquisition, and a right to share in proceeds in liquidation, up to the liquidation amount. The transaction was treated as a "purchase" for accounting purposes. The purchase price for accounting purposes is approximately $33,000,000, based on a value for the approximately 2,344,700 shares of Company common stock issued in the acquisition of $8.1172, representing the average closing price of the Company's common stock for the four day period preceding the date the terms of the acquisition were agreed to (February 21, 2001). In connection with the Merger and based on an independent valuation, BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology. At the date of the Merger the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date. The Company recorded negative goodwill of $18,357,000 on its balance sheet, primarily because the amount written off as in-process research and development acquired exceeded the purchase price for accounting purposes. This negative goodwill will be amortized over its expected useful life of five years. The Company allocated values to the in-process research and development based on an independent valuation of the research and development project. The value assigned to these assets was determined by estimating the costs to develop the acquired technology into a commercially viable product, estimating the resulting net cash flows from the product, and discounting the net cash flows to their present value. The revenue projection used to value the in-process research and development was based on estimates of relevant market size and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by the Company and its competitors. The resulting net cash flows from such product are based on management's estimates of cost of sales, operating expenses and income taxes from such product. The Company believes that the assumptions used in the forecasts were reasonable at the time of the merger. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such product, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process research and development relate to the ability to successfully develop a product and the projected timing of completion of, and revenues attributable to, that product. The Company estimates that it will cost approximately $30,000,000 to complete development of the product over the next three to five years. 11 RESULTS OF OPERATIONS The following tables set forth for the fiscal periods indicated the percentage of revenues represented by certain items reflected on the Company's statements of operations.
Three Months Ended March 31, ------------------------------ 2001 2000 ---- ---- Revenues: Products sales.............................................. 88.6% 74.6% Contract fees............................................... 0.9 11.0 Royalties................................................... 2.4 3.8 Other revenues.............................................. 0.7 2.6 Interest income............................................. 7.4 8.0 ------ ----- Total.................................................... 100.0% 100.0% ------ ----- Expenses: Research and development.................................... 17.6% 32.2% Cost of product sales....................................... 15.2 13.9 General and administrative.................................. 9.7 20.6 Marketing and sales......................................... 14.1 19.4 Royalties................................................... 1.9 3.9 Interest and finance........................................ 0.0 0.2 Write-off of in-process research and development acquired... 135.2 -- ------ ----- Total.................................................... 193.7 90.2 ------ ----- Income (loss) before income taxes.............................. (93.7) 9.8 Income taxes................................................... 13.4 3.3 ------ ----- Income (loss) before cumulative effect of change in accounting principle................................... (107.1) 6.5 Cumulative effect of change in accounting principle............ -- (48.8) ------ ----- Net loss....................................................... (107.1)% (42.3)% ====== =====
BTG has historically derived its revenues from product sales as well as from collaborative arrangements with third parties, under which the Company may earn up-front contract fees, may receive funding for additional research (including funding from the Chief Scientist of the State of Israel), is reimbursed for producing certain experimental materials, may be entitled to certain milestone payments, may sell product at specified prices, and may receive royalties on sales of product. The Company anticipates that product sales will continue to constitute the majority of its revenues in the future. Revenues have in the past displayed and will in the immediate future continue to display significant variations due to changes in demand for its products, the operational needs of its customers, new product introductions by the Company and its competitors, the obtaining of new research and development contracts and licensing arrangements, the completion or termination of such contracts and arrangements, the timing and amounts of milestone payments, and the timing of regulatory approvals of products. 12 The following table summarizes the Company's sales of its commercialized products as a percentage of total product sales for the periods indicated:
Three Months Ended March 31, --------------------------- 2001 2000 ---- ---- Oxandrin........................................ 55.8% 40.1% Bio-Tropin...................................... 18.5 31.7 BioLon.......................................... 7.5 14.7 Delatestryl..................................... 17.8 12.7 Other........................................... 0.4 0.8 ------- ------ Total..................................... 100.0% 100.0% ======= ======
The Company believes that its product mix will change significantly as it continues to focus on: (i) increasing market penetration of its existing products; (ii) expanding into new markets; and (iii) commercializing additional products. The following table summarizes the Company's U.S. and international product sales as a percentage of total product sales for the period indicated:
Three Months Ended March 31, ---------------------------------- 2001 2000 ---- ---- United States................................. 74.2% 53.2% International................................. 25.8 46.8 ------ ------ Total................................... 100.0% 100.0% ====== ======
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000. REVENUES. Total revenues increased 101% in the first quarter of 2001 to $33,736,000 from $16,763,000 in the first quarter of 2000. The increase in total revenues from the comparable prior period was entirely due to the substantial increase in product sales. Product sales increased by $17,380,000, or 139%, in the three months ended March 31, 2001 from the comparable prior period. Oxandrin sales to Gentiva Health Services ("Gentiva"), the Company's wholesale and retail distributor of Oxandrin in the United States, increased by $11,683,000, or 233%, in the three months ended March 31, 2001 compared to the three months ended March 31, 2000. The increase in sales to Gentiva was due to: (i) the completion, in May 2000, of Gentiva's reduction in the amount of Oxandrin inventory it carries, which reduction began in April 1999; (ii) increased end-user sales of Oxandrin by Gentiva; and (iii) the commencement, in September 2000, of sales to the Ross Products Division of Abbott Laboratories for the long-term care market. Product sales of human growth hormone, Delatestryl and BioLon increased $1,568,000, $3,729,000 and $401,000, or 37%, 135% and 22%, respectively, over the comparable period in 2000. Contract fees in the three months ended March 31, 2001 represent contract fees received in prior periods but recognized in the first quarter of 2001 in accordance with SAB 101. Of the contract fees earned in the three months ended March 31, 2000, $1,475,000, or 80% of total contract fees, was earned in respect of BTG's Hepatitis-B-vaccine, and the remainder consists primarily of contract fees received in prior years but recognized in the quarter ended March 31, 2000 in accordance with SAB 101. Royalties were $843,000 in the first quarter of 2001, as compared to $635,000 in the same period last year. These revenues consist of royalties from the licensee of the Company's Mircette product. 13 Other revenues were primarily generated from partial research and development funding by the Chief Scientist of the State of Israel. Interest income increased $1,145,000, or 85%, over the comparable prior period, primarily as a result of increased cash balances (including short-term investments) resulting mainly from cash flow from operations, proceeds from a $20,000,000 loan borrowed to finance construction of the Company's new manufacturing facility in Israel, and the exercise of options subsequent to March 31, 2000. RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense increased 10% in the first quarter of 2001 to $5,930,000 from $5,397,000 in the first quarter of 2000. The increase in research and development expenditures resulted mainly from the increase in research and development personnel and the increased level of grants by BTG for clinical studies. COST OF PRODUCT SALES. Cost of product sales increased by 120% in the three months ended March 31, 2001 to $5,139,000 from $2,336,000 in the three months ended March 31, 2000 as a result of the 139% increase in product sales. Cost of product sales as a percentage of product sales decreased to 17.2% as compared to 18.7% in the comparable period last year. Cost of product sales as a percentage of product sales decreased due to manufacturing efficiencies and the more favorable mix of products. Oxandrin and human growth hormone have a relatively low cost of manufacture as a percentage of product sales, while BioLon has the highest cost to manufacture as a percentage of product sales. Cost of product sales as a percentage of product sales varies from year to year and quarter to quarter depending on the quantity and mix of products sold. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense decreased by 5% in the three months ended March 31, 2001 to $3,277,000 from $3,466,000 in the comparable prior period. As a percentage of revenues, general and administrative expense decreased to approximately 9.7% of revenues in the first quarter of 2001 compared to 20.6% of revenues in the comparable prior year period. The decrease in general and administrative expense derived mainly from reduction of legal fees as compared to the same quarter last year, when legal fees increased primarily due to the reactivation in the fourth quarter of 1998 of the Company's declaratory judgment action against Genentech in respect of the Company's human growth hormone product in the United States, and reduction of compensation costs, partially offset by increased expenses associated with merger and acquisition activities. The substantial decrease in general and administrative expenses as a percentage of revenues derived principally from the substantial increase in total revenues. MARKETING AND SALES EXPENSE. Marketing and sales expense increased 46% in the first quarter of 2001 to $4,741,000 from $3,256,000 for the prior year period. As a percentage of revenues, marketing and sales expense decreased to approximately 14.1% from 19.4% for the first quarter of 2000. These expenses primarily related to the sales and marketing force in the United States that the Company established to promote distribution of Oxandrin in the United States. The increase was primarily due to increased personnel, principally sales force, and other expenses associated with these personnel and increased advertising, promotional and market research activities. ROYALTIES. Royalties were $646,000 in the three months ended March 31, 2001, as compared to $654,000 in the three months ended March 31, 2000. These expenses consist primarily of royalties to entities from which the Company licensed certain of its products and to the Chief Scientist. INCOME TAXES. Provision for income taxes for the three months ended March 31, 2001 was $4,515,000, representing approximately 32.3% of income before income taxes (excluding the write-off of in-process research and development acquired which is a non recurring item and is not a tax deductible item), as compared to $559,000, or 34% of income before income taxes, in the comparable quarter last year. The decrease in the effective tax rate in the first quarter of 2001 compared to the first quarter of 2000 was primarily due to an increase in revenues generated by BTG-Israel, which is entitled to certain Israeli tax benefits. BTG's consolidated effective tax rate differs from the statutory rate because of Israeli tax benefits, tax credits and similar items which reduce the effective tax rate. WRITE-OFF OF IN-PROCESS RESEARCH AND DEVELOPMENT ACQUIRED. In the three months ended March 31, 2001 BTG wrote-off $45,600,000 as in-process research and development acquired relating to the acquisition of Myelos Corporation. In connection with the acquisition BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology based on an independent valuation. At the date of the Merger the technology acquired in the acquisition 14 was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date. EARNINGS PER COMMON SHARE. BTG had approximately 1.4 million additional basic weighted average shares outstanding for the three month period ended March 31, 2001 as compared to the same period in 2000. The increased number of basic shares was primarily the result of the issuance, subsequent to March 31, 2000, of shares upon the exercise of options and the issuance of approximately 2.3 million shares to the former shareholders of Myelos in March 2001. For 2001 diluted weighted average shares outstanding does not include dilutive securities because the effect would be anti-dilutive. On a pro-forma basis, excluding the write-off of in-process research and development acquired, net income would have been $9,471,000, or $0.17 per share on both a basic and diluted share basis. Diluted weighted average shares outstanding would have been 55,809,000, a decrease of 1.6 million shares from the comparable period in 2000, primarily due to the fact that more outstanding options would not be considered common equivalent because their exercise price was above the average fair market value of the common stock for the first quarter of 2001, which average fair market value was lower than in the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital at March 31, 2001 was $138,855,000 as compared to $153,344,000 at December 31, 2000. The cash flows of the Company have fluctuated significantly due to the impact of net income, capital spending, working capital requirements, the issuance of Common Stock and other financing activities. BTG expects that cash flow in the near future will be primarily determined by the levels of net income and financings, if any, undertaken by the Company. Net cash increased by $29,134,000 and $13,834,000 in the three months ended March 31, 2001 and 2000, respectively. Net cash provided by operating activities was $3,041,000 and $9,429,000 in the three months ended March 31, 2001 and 2000, respectively. Net loss was $36,129,000 and $7,093,000 in the same periods, respectively. In the three months ended March 31, 2001 the Company had net cash provided by operating activities despite the net loss mainly due to the write-off of in-process research and development acquired of $45,600,000, an increase in accounts payable and other current liabilities of $3,674,000 and $2,599,000, respectively, partially offset by an increase in accounts receivable and prepaid expenses and other current assets of $11,427,000 and $1,075,000, respectively. In the three months ended March 31, 2000 BTG had net cash provided by operating activities despite the net loss primarily due to the cumulative effect of change in accounting principle, net of $8,178,000, as a result of the adoption of SAB 101, a decrease in accounts receivable of $9,545,000 and an increase in other current liabilities of $2,161,000 partially offset by an increase in prepaid expenses and other current assets of $1,559,000 and a decrease in accounts payable of $3,267,000. Net cash used in investing activities was $25,590,000 and $1,882,000 in the three months ended March 31, 2001 and 2000, respectively. Net cash used in investing activities included capital expenditures of $4,439,000 and $1,616,000 in these periods, respectively, primarily for the new manufacturing facility, as well as a $5,000,000 investment in Omrix in the first quarter of 2001. The remainder of the net cash used in investing activities was primarily for purchases and sales of short-term investments. Net cash provided by financing activities was $503,000 and $6,287,000 in the three months ended March 31, 2001 and 2000, respectively, which are net proceeds from issuance of Common Stock as a result of the exercise of stock options. In April 1999, BTG purchased a manufacturing facility in Israel for approximately $6,250,000. The Company will initially locate its production activities for FibrimageTM at this new facility, and will thereafter move the remainder of its production activities to this facility. The Company expects that construction will be completed in the second half of 2001. Following completion of the construction, BTG will begin the validation process, which is currently expected will take approximately six to nine months for all products. BTG expects it will cost approximately $40,000,000 to complete the production facility (excluding the cost of purchasing the facility), of 15 which approximately $15,878,000 had been expended through March 31, 2001. As of March 31, 2001 BTG had outstanding commitments of $16,768,000 related to completion of this facility. In June 2000 Bio-Technology General (Israel) Ltd., BTG's wholly-owned subsidiary ("BTG-Israel"), entered into a $20,000,000 revolving credit facility with Bank Hapoalim B.M. to finance a portion of the cost of completing its new production facility. Short-term borrowings under the facility are due 12 months from the date of borrowing and long-term borrowings are due five years from the date of borrowing. Loans under the facility bear interest at the rate of LIBOR plus 0.5% in the case of short-term borrowings and LIBOR plus 1% in the case of long-term borrowings. Amounts repaid under the facility can be reborrowed. The credit facility is secured by the assets of BTG-Israel and has been guaranteed by the Company. At March 31, 2001 the Company had outstanding long-term borrowings of $20,000,000 under the facility. BTG maintains its funds in money market funds, commercial paper and other liquid debt instruments. BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluations on its non-U.S. dollar assets and liabilities. The cost of the Company's operations in Israel, as expressed in dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the Israeli Shekel in relation to the U.S. dollar. The rate of inflation (as measured by the consumer price index) was approximately 1% in the first quarter of 2000, while the Shekel's value in relation to the U.S. dollar increased by approximately 3%. For the full year of 2000, the rate of inflation was unchanged while the Israeli Shekel's value in relation to the U.S. dollar increased by approximately 3%. In the three months ended March 31, 2001 the consumer price index decreased by 0.5% and the Shekel's value in relation to the U.S. dollar decreased by approximately 3.7%. As a result, for those expenses linked to the Israeli Shekel, such as salaries and rent, this resulted in corresponding increase in these costs in U.S. dollar terms in 2000 but a decrease in these costs in U.S. dollar terms in the first quarter of 2001. To the extent that expenses in Shekels exceed BTG's revenues in Shekels (which to date have consisted primarily of research funding from the Chief Scientist and product sales in Israel), the devaluations of Israeli currency have been and will continue to be a benefit to BTG's financial condition. However, should BTG's revenues in Shekels exceed its expenses in Shekels in any material respect, the devaluation of the Shekel will adversely affect BTG's financial condition. Further, to the extent the devaluation of the Shekel with respect to the U.S. dollar does not substantially offset the increase in the costs of local goods and services in Israel, BTG's financial results will be adversely affected as local expenses measured in U.S. dollars will increase. The Company believes that its remaining cash resources as of March 31, 2001, together with anticipated product sales, scheduled payments to be made to BTG under its current agreements with pharmaceutical partners, the proceeds from sales of equity and continued funding from the Chief Scientist at current levels, will be sufficient to fund the Company's current operations for the foreseeable future. There can, however, be no assurance that product sales will occur as anticipated, that scheduled payments will be made by third parties, that current agreements will not be canceled, that the Chief Scientist will continue to provide funding at current levels, or that unanticipated events requiring the expenditure of funds will not occur. The satisfaction of the Company's future cash requirements will depend in large part on the status of commercialization of the Company's products, the Company's ability to enter into additional research and development and licensing arrangements, and the Company's ability to obtain additional equity investments, if necessary. There can be no assurance that the Company will be able to obtain additional funds or, if such funds are available, that such funding will be on favorable terms. MARKET RISK Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. To date BTG's exposure to market risk has been limited and it is not currently hedging any market risk, although it may do so in the future. BTG does not hold or issue any derivative financial instruments for trading or other speculative purposes. BTG's obligations under its $20,000,000 revolving credit facility bear interest at floating rates and, therefore, BTG is impacted by changes in prevailing interest rates. A 100 basis point increase in market interest rates on the $20,000,000 outstanding under this facility at March 31, 2001 would result in an increase in its annual 16 interest expense of $200,000. Because these borrowings relate to the construction of BTG's new facility, interest expense is currently being capitalized. BTG's material interest bearing assets consist of cash and cash equivalents and short-term investments consisting primarily of investments in U.S. Treasury bonds, short-term corporate bonds and mutual funds which invest in short-term bonds. BTG's interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates. As discussed above under "--Liquidity and Capital Resources," BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluations on its non-U.S. dollar assets and liabilities. All of BTG's revenues are in U.S. dollars except for payments from the Chief Scientist and sales of its products in Israel, which are denominated in Israeli Shekels. 17 PART II. OTHER INFORMATION Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On March 19, 2001, BTG issued 2,344,657 shares of its common stock to the shareholders of Myelos in connection with BTG's acquisition of Myelos. The common stock issued by the Company in this transaction was not registered under the Securities Act of 1933, as amended, in reliance upon exemptions contained in Section 4(2) thereof. Each of the Myelos shareholders made representations to the effect that (i) the shares were being acquired for its own account and not with a view to, or for sale in connection with, any distribution; (ii) acknowledging that the shares were restricted securities under Rule 144; (iii) it had knowledge and experience in business matters, was capable of evaluating the merits and risks of the investment, and was able to bear the risk of loss; and (iv) it had the opportunity to make inquiries of and obtain information from BTG. The Company is obligated to register the common stock for resale under the Securities Act of 1933, as amended. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (1) EXHIBITS: 10.1 Employment Agreement, dated as of March 14, 2001, between Bio-Technology General Corp. and Bernard R. Tyrrell. (2) REPORTS ON FORM 8-K Current Report on Form 8-K dated February 21, 2001 reporting the execution of a definitive agreement for the Company to acquire Myelos Corporation. Current Report on Form 8-K dated March 19, 2001 reporting the Company's acquisition of Myelos Corporation. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BIO-TECHNOLOGY GENERAL CORP. --------------------------- (Registrant) By: /s/ SIM FASS ----------------------- Chairman and Chief Executive Officer (Principal Executive Officer) /s/ YEHUDA STERNLICHT ------------------------ Vice President-Finance and Chief Financial Officer (Principal Financial and Accounting Officer) Dated: May 14, 2001 EX-10.1 2 a2049333zex-10_1.txt EX-10.1 Exhibit 10.1 EMPLOYMENT AGREEMENT AGREEMENT made as of March 14, 2001, between BIO-TECHNOLOGY GENERAL CORP., a Delaware corporation with an office at 70 Wood Avenue South, Iselin, New Jersey 08830 (the "Company") and Bernard R. Tyrrell, having a residence at 31 Fischer Farm Road, Belle Mead, New Jersey 08502 (the "Executive"). W I T N E S S E T H: WHEREAS, the Company desires that Executive be employed to serve in a senior executive capacity with the Company, and Executive desires to be so employed by the Company, upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the premises and of the mutual promises, representations and covenants herein contained, the parties hereto agree as follows: 1. EMPLOYMENT. The Company hereby employs Executive and Executive hereby accepts such employment, subject to the terms and conditions herein set forth. Executive shall hold the office of Senior Vice President, Marketing and Sales, reporting to the President of the Company. During any periods that the position of President is vacant, the Executive shall report, during the period of such vacancy, to the Chief Executive Officer. 2. TERM. The initial term of employment under this Agreement shall begin on the date hereof (the "Employment Date") and shall continue for a period of two (2) years from that date, subject to prior termination in accordance with the terms hereof. Thereafter, this Agreement shall automatically be renewed for successive two (2) year terms unless either party shall give the other ninety (90) days prior written notice of its intent not to renew this Agreement. 3. COMPENSATION. (a) As compensation for the employment services to be rendered by Executive hereunder, including all services as an officer or director of the Company and any of its subsidiaries, the Company agrees to pay, or cause to be paid, to Executive, and Executive agrees to accept, payable in equal installments in accordance with Company practice, an initial annual salary of $230,000. Executive's annual salary hereunder for the remaining years of employment shall be determined by the Board of Directors in its sole discretion; provided, however, that Executive's annual salary shall not be reduced during the term of Page 2 of 11 this Agreement below the highest annual salary paid to Executive at any time during such term. (b) Executive shall be entitled to bonuses from time to time in such amounts as may be determined by the Board of Directors in its sole discretion. 4. EXPENSES. The Company shall pay or reimburse Executive, upon presentment of suitable vouchers, for all reasonable business and travel expenses that may be incurred or paid by Executive in connection with his employment hereunder. Executive shall comply with such restrictions and shall keep such records as the Company may deem necessary to meet the requirements of the Internal Revenue Code of 1986, as amended from time to time, and regulations promulgated thereunder. 5. OTHER BENEFITS. Executive shall be entitled to a vacation allowance of not less than four (4) weeks per annum and to participate in and receive any other benefits customarily provided by the Company to its senior management personnel (including any profit sharing, pension, short and long-term disability insurance, hospital, major medical insurance, dental insurance and group life insurance plans in accordance with the terms of such plans) and including stock option and/or stock purchase plans, all as determined from time to time by the Board of Directors of the Company. Unused annual vacation may not be carried over to other years except that with the consent of the Chief Executive Officer the Executive may carry over unused vacation in those instances in which Executive has been unable to utilize fully his annual vacation entitlement due to exigencies of Company business matters and needs. 6. DUTIES. (a) Executive shall perform such duties and functions as the President or Chief Executive Officer of the Company shall from time to time determine in accordance with what it is normal and customary for an individual holding Executive's position to perform, and Executive shall comply in the performance of such duties and functions with the policies of the Board of Directors. (b) Executive agrees to devote his entire working time, attention and energies to the performance of the business of the Company and of any of its subsidiaries by which he may be employed; and Executive shall not without the approval of the Board of Directors, directly or indirectly, alone or as a member of any partnership or other business organization, or as an officer, director or employee of any other corporation, partnership or other business organization, be actively engaged in or concerned with any other duties or pursuits of a business nature which interfere with the performance of his duties hereunder, or which, even if non-interfering, may be, in the reasonable Page 3 of 11 determination of the Board of Directors of the Company in its sole discretion, inimical, or contrary, to the best interests of the Company. (c) All fees, compensation or commissions received by Executive during the term of this Agreement for personal services (including, but not limited to, commissions and compensation received as a fiduciary or a director, and fees for lecturing and teaching) rendered at the request of the Company shall be paid to the Company when received by Executive, except those fees that the Board of Directors determines may be kept by Executive. (d) Nothing in this Section 6 or elsewhere in this Agreement shall be construed to prevent Executive from investing or trading in non-conflicting investments as he sees fit for his own account, including real estate, stocks, bonds, securities, commodities or other forms of investments. (e) The principal location at which the Executive shall perform his duties hereunder shall be at the Company's offices in Iselin, New Jersey or at such other location as may be designated from time to time by the Board of Directors of the Company, provided that if the principal location of Executive's duties is transferred from Iselin, New Jersey, the new principal location of Executive's duties shall not be transferred beyond a 50-mile radius of Iselin, New Jersey without Executive's consent. Notwithstanding the foregoing, Executive shall perform such services at such other locations as may be required from the proper performance of his duties hereunder, and Executive recognizes that such duties may involve significant travel. 7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION. (a) Executive's employment hereunder may be terminated at any time upon written notice from the Company to Executive: (i) upon the determination by the Board of Directors, after Executive has received notice that his performance is not satisfactory for any reason which would not constitute justifiable cause (as defined in 7(d)) and which notice specifies with reasonable particularity how such performance is not satisfactory, that Executive has failed to remedy such performance to the reasonable satisfaction of the Board of Directors within thirty (30) days of such notice; or (ii) upon the determination by the Board of Directors that there is justifiable cause (as defined in 7(d)) for such termination and upon ten (10) days' prior written notice of same to Executive. Page 4 of 11 (b) Executive's employment shall terminate upon: (i) the death of Executive; or (ii) the "disability" of Executive (as defined in 7(c)) pursuant to 7(f) hereof. (c) For the purposes of this Agreement, the term "disability" shall mean the inability of Executive, due to illness, accident or any other physical or mental incapacity, substantially to perform his duties for a period of three (3) consecutive months or for a total of six (6) months (whether or not consecutive) in any twelve (12) month period during the term of this Agreement, as reasonably determined by the Board of Directors of the Company in its sole discretion after examination of Executive by an independent physician reasonably acceptable to Executive. (d) For the purposes hereof, the term "justifiable cause" shall mean and be limited to: (i) Executive's conviction (which, through lapse of time or otherwise, is not subject to appeal) of any crime or offense involving the Company's or its subsidiaries' money or other property or which constitutes a felony in the jurisdiction involved; (ii) Executive's performance of any act or his failure to act, for which it is determined by independent counsel retained by the Board of Directors (which counsel shall not be an individual or firm which at any time within the prior three (3) years has represented the Company, any executive employed by the Company, the Board of Directors or any individual Director), after due inquiry in which Executive is given the opportunity to be heard and represented by counsel, that if Executive were prosecuted, a crime or offense involving money or property of the Company or its subsidiaries, or which would constitute a felony in the jurisdiction involved, would have occurred and Executive would, in all reasonable probability, be convicted; provided, however, that if such independent counsel does not make such determination, then the Company shall pay Executive's reasonable counsel fees and expenses incurred in defending Executive during such inquiry; (iii) any disclosure which has not been authorized or subsequently ratified by the Company or which is not required to be made pursuant to any judicial proceeding or by statute or regulation, by Executive to any person, firm or corporation other than the Company, its subsidiaries and its and their directors, officers and Page 5 of 11 employees, of any confidential information or trade secret of the Company or any of its subsidiaries; (iv) any attempt by Executive to secure any improper personal profit in connection with the business of the Company or any of its subsidiaries; or (v) Executive's repeated and willful failure to comply with his duties under 6(a) or 6(b) (other than failure to comply with instructions or policies which are illegal or improper) where such conduct shall not have ceased or been cured within thirty (30) days following receipt by Executive of written warning from the Board of Directors. Upon termination of Executive's employment for justifiable cause, this Agreement shall terminate immediately and Executive shall not be entitled to any amounts or benefits hereunder other than such portion of Executive's annual salary as has been accrued through the date of his termination of employment and reimbursement of expenses pursuant to Section 4 hereof. (e) If Executive shall die during the term of his employment hereunder, this Agreement shall terminate immediately. In such event, the estate of Executive shall thereupon be entitled to receive such portion of Executive's annual salary as has been accrued through the date of his death and such bonus, if any, as the Board of Directors in its sole discretion may determine to award taking into account Executive's contributions to the Company prior to his death. If Executive's death shall occur while he is on Company business, the estate of Executive shall be entitled to receive, in addition to the other amounts set forth in this subsection (e), an amount equal to one-half of his then annual salary. (f) Upon Executive's "disability", the Company shall have the right to terminate Executive's employment. Notwithstanding any inability to perform his duties, Executive shall be entitled to receive his compensation (including bonus, if any) as provided herein until he begins to receive long-term disability insurance benefits under the policy provided by the Company pursuant to Section 5 hereof (the period during which Executive continues to receive his compensation hereunder being the "Transition Period"). During the Transition Period, the Company shall (i) allow Executive to participate in the Company's 401k plan to the extent permitted by such plan and (ii) at Company's expense and to the same extent that Executive had participated, prior to termination of his employment, in the Company's health insurance, dental insurance, life insurance and disability insurance programs, continue Executive's participation in such programs. Any termination pursuant to this subsection (f) shall be effective on the date thirty (30) days after which Executive shall have received written notice of the Company's election to terminate. Page 6 of 11 (g) Notwithstanding any provision to the contrary contained herein, in the event that Executive's employment is terminated by the Company at any time for any reason other than justifiable cause, disability or death, or in the event the Company shall fail to renew this Agreement: (i) each month during the Severance Period, the Company shall pay to Executive, in full satisfaction and in lieu of any and all other payments due and owing to Executive under the terms of this Agreement (other than any payments constituting reimbursement of expenses pursuant to Section 4 hereof), an amount equal to one-twelfth of the sum of his then annual salary plus the amount of the last bonus awarded to Executive (less all amounts, if any, required to be withheld), payable bi-weekly; (A) The "Severance Period" shall commence on the date of termination and shall comprise one month for each month that Executive was employed by Company, provided however, that in no event shall such period be less than six (6) months nor more than twelve (12) months. (ii) Executive shall have a right to exercise any options which are exercisable as of the date of termination at any time during a period of six (6) months following the effective date of termination; (iii) the Company shall continue to allow Executive to participate in the Company's 401k plan to the extent permitted by such plan for twelve (12) months following the effective date of termination; and (iv) the Company shall continue to allow Executive to participate, at the Company's expense and to the same extent that Executive had participated prior to termination of his employment, in the Company's health insurance, dental insurance, life insurance and disability insurance programs, to the extent permitted under such programs, until the earlier of the expiration of the Severance Period or until such time as Executive becomes eligible to participate in another employer's group health, dental and disability insurance plans; provided, however, that Executive shall notify the Company of his acceptance of a position with a new employer, together with the specific date on which Executive shall become eligible for coverage in such new employer's health, dental, life and disability insurance programs, such notice to be given within fifteen (15) days following commencement of such employment. Page 7 of 11 (h) Executive may terminate his employment at any time upon thirty (30) days' prior written notice to the Company. Upon Executive's termination of his employment hereunder, this Agreement (other than Sections 4, 7, 10, 11, 12 and 13, which shall survive) shall terminate immediately. In such event, Executive shall be entitled to receive such portion of Executive's annual salary as has been accrued to date. Executive shall be entitled to reimbursement of expenses pursuant to Section 4 hereof and to participate in the Company's benefit plans to the extent participation by former employees is required by law or permitted by such plans, with the expense of such participation to be specified in such plans for former employees. 8. REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE. (a) Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties hereunder or requiring him to perform employment, consulting, business related or similar duties for any other person. (b) Executive agrees to submit to a medical examination and to cooperate and supply such other information and documents as may be required by any insurance company in connection with the Company's obtaining life insurance on the life of Executive, and any other type of insurance or fringe benefit as the Company shall determine from time to time to obtain. 9. REPRESENTATIONS OF COMPANY. The Company represents and warrants that the Board of Directors has consented to the Company entering into this Agreement with Executive on the terms set forth herein and that all written consents, resolutions and approvals required to give full force and effect to this Agreement and to the Company's obligations hereunder have been obtained. 10. NON-INTERFERENCE. Executive agrees that for a period of one year following the termination of Executive's employment hereunder, Executive shall not, directly or indirectly, request or cause collaborative partners, universities, governmental agencies, contracting parties, suppliers or customers with whom the Company or any of its subsidiaries has a business relationship to cancel or terminate any such business relationship with the Company or any of its subsidiaries or solicit, interfere with or entice from the Company any employee (or former employee) of the Company. Page 8 of 11 11. INVENTIONS AND DISCOVERIES. (a) Insofar as is related to the principal business activities and products of the Company and any of its subsidiaries or joint ventures, Executive shall promptly and fully disclose to the Company, and with all necessary detail for a complete understanding of the same, all developments, know-how, discoveries, inventions, improvements, concepts, ideas, writings, formulae, processes and methods of a financial or other nature (whether copyrightable, patentable or otherwise) made, received, conceived, acquired or written during working hours, or otherwise, by Executive (whether or not at the request or upon the suggestion of the Company) during the period of his employment with, or rendering of advisory or consulting services to, the Company or any of its subsidiaries, solely or jointly with others (collectively the "Subject Matter"). (b) Executive hereby assigns and transfers, and agrees to assign and transfer, to the Company, all his rights, title and interest in and to the Subject Matter, and Executive further agrees to deliver to the Company any and all drawings, notes, specifications and data relating to the Subject Matter, and to execute, acknowledge and deliver all such further papers, including applications for copyrights or patents, as may be necessary to obtain copyrights and patents for any thereof in any and all countries and to vest title thereto to the Company. Executive shall assist the Company in obtaining such copyrights or patents during the term of this Agreement, and any time thereafter on reasonable notice and at mutually convenient times, and Executive agrees to testify in any prosecution or litigation involving any of the Subject Matter; provided, however, that Executive shall be compensated in a timely manner at the rate of $250.00 per hour (with a minimum of $1500 per day), plus out-of-pocket expenses incurred in rendering such assistance or giving or preparing to give such testimony if it is required of his employment hereunder. 12. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. (a) Executive shall not, during the term of this Agreement, or at any time following termination of this Agreement, directly or indirectly, disclose or make accessible (other than as is required in the regular course of his duties, including, without limitation, disclosures to the Company's advisors and consultants), or as may be required by law or regulation or pursuant to a judicial proceeding (in which case Executive shall give the Company prior written notice of such required disclosure) or with the prior written consent of the Board of Directors of the Company), to any person, firm or corporation, any confidential information acquired by him during the course of, or as an incident to, his employment or the rendering of his advisory or consulting services hereunder, relating to the Company or any of its subsidiaries, or any corporation, partnership or other entity owned or controlled, directly or indirectly, by any of the foregoing, or in which any of the foregoing has a beneficial interest, including, but not limited to, the business affairs of each of the foregoing. Such confidential information shall include, but shall not be limited to, proprietary technology, trade secrets, patented processes, research and development data, know-how, market studies and forecasts, Page 9 of 11 competitive analyses, pricing policies, employee lists, personnel policies, the substance of agreements with customers and others, marketing or dealership arrangements, servicing and training programs and arrangements, customer lists and any other documents embodying such confidential information. This confidentiality obligation shall not apply to any confidential information which thereafter becomes publicly available other than pursuant to a breach of this Section 12(a) by Executive. (b) All information and documents relating to the Company and its affiliates as hereinabove described shall be the exclusive property of the Company, and Executive shall use commercially reasonable best efforts to prevent any publication or disclosure thereof. Upon termination of Executive's employment with the Company, all such documents, records, reports, writings and other similar documents containing confidential information, including copies thereof, then in Executive's possession or control shall be returned and left with the Company. 13. SPECIFIC PERFORMANCE. Executive agrees that if he breaches, or threatens to commit a breach of, any of the provisions of Sections 10, 11 or 12 (the "Restrictive Covenants"), the Company shall have, in addition to, and not in lieu of, any other rights and remedies available to the Company under law and in equity, the right to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. Notwithstanding the foregoing, nothing herein shall constitute a waiver by Executive of his right to contest whether a breach or threatened breach of any Restrictive Covenant has occurred. 14. AMENDMENT OR ALTERATION. No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto. 15. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New Jersey applicable to agreements made and to be performed entirely therein. 16. SEVERABILITY. The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect. Page 10 of 11 17. NOTICES. Any notices required or permitted to be given hereunder shall be sufficient if in writing, and if delivered by hand, or sent by certified mail, return receipt requested, to the addresses set forth above or such other address as either party may from time to time designate in writing to the other, and shall be deemed given as of the date of the delivery or date of receipt. 18. WAIVER OR BREACH. It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party. 19. ENTIRE AGREEMENT AND BINDING EFFECT. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, distributors, successors and assigns. Notwithstanding the foregoing, any prior agreements between Executive and the Company relating to the confidentiality of information, trade secrets, patents, indemnification, and stock options shall not be affected by this Agreement. 20. SURVIVAL. The termination of Executive's employment hereunder or the expiration of this Agreement shall not affect the enforceability of Sections 4, 7, 9, 10, 11, 12 and 13 hereof. 21. FURTHER ASSURANCES. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement. 22. HEADINGS. The Section headings appearing in this Agreement are for the purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, demand or affect its provisions. Page 11 of 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. BIO-TECHNOLOGY GENERAL CORP. By: /s/ Sim Fass --------------------------------------- Sim Fass, Chairman and CEO Date: March 14, 2001 -------------------------------------- /s/ Bernard Tyrrell ------------------------------------------- Bernard Tyrrell Date: March 2, 2001 ------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----