-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, A6Oj1kESWjMl9MAzj5uUByk4EG5hirFmHfRH8hNUF2s9AP962JhJ68yGDdGVE570 JOc4TxgSGQNXEVlvMyjdiw== 0000950110-95-000358.txt : 19950508 0000950110-95-000358.hdr.sgml : 19950508 ACCESSION NUMBER: 0000950110-95-000358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950505 SROS: NASD 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: 1934 Act SEC FILE NUMBER: 000-15313 FILM NUMBER: 95534930 BUSINESS ADDRESS: STREET 1: 70 WOOD AVENUE SOUTH 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 FORM 10Q PERIOD ENDED MARCH 31, 1995 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, 1995 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) (908) 632-8800 (Registrant's telephone number, including area code) Former address: Not Applicable - -------------------------------------------------------------------------------- (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, 1995 43,194,325 ---------- INDEX Page ---- Part I. Financial Information Item 1. Financial Statements: Consolidated Balance Sheets at March 31, 1995 and December 31, 1994 ............... 3 Consolidated Statements of Operations for the three months ended March 31, 1995 and 1994............................. 4 Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 1995 ........................ 5 Consolidated Statements of Cash Flows for the three months ended March 31, 1995 and 1994............................. 6 Notes to Consolidated Financial Statements .......................................... 7-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 10-17 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K ...................... 18 -2- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands) March 31, 1995 December (Unaudited) 31, 1994 ------------- -------- ASSETS Current Assets: Cash and cash equivalents ......................... $ 17,762 $16,891 Receivables: Trade and other .................................. 2,854 2,436 Israeli government and other contract research ....................................... 330 290 Inventories ....................................... 1,833 1,632 Prepaid expenses and other current assets ......... 471 172 ------- -------- Total current assets ............................. 23,250 21,421 Equipment and leasehold improvements, net .......... 4,649 4,800 Marketing rights, net .............................. 4,958 5,174 Patents, net ....................................... 384 370 Other assets ....................................... 550 575 -------- -------- Total assets ..................................... $ 33,791 $ 32,340 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term bank loans ............................. $ 114 $ 64 Current portion of long-term debt ................. 1,251 1,251 Accounts payable .................................. 720 1,091 Other current liabilities ......................... 6,571 5,363 -------- -------- Total current liabilities ........................ 8,656 7,769 -------- -------- Long-term liabilities .............................. 1,165 1,389 -------- -------- 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: 43,194,000 (42,876,000 at December 31, 1994) ............................ 432 429 Capital in excess of par value .................... 120,255 120,008 Deficit ........................................... (95,905) (96,307) Less - treasury stock at cost, 83,000 shares (67,000 at December 31, 1994) .................... (340) (303) - deferred compensation .................... (472) (570) - Common Stock subscriptions receivable .... -- (75) -------- --------- Total stockholders' equity ....................... 23,970 23,182 -------- --------- Total liabilities and stockholders' equity ....... $ 33,791 $ 32,340 ======== ========= The accompanying notes are an integral part of these consolidated balance sheets. -3- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands except per share data) Three Months Ended March 31, ------------------ 1995 1994 ---- ---- Revenues: Product sales .......................................... $ 5,183 $ 3,106 Research and development revenues under collaborative agreements ........................ 188 1,612 Contract fees .......................................... 95 615 Other revenues ......................................... 57 251 Interest income ........................................ 226 97 -------- -------- 5,749 5,681 -------- -------- Expenses: Research and development ............................... 2,741 3,376 Cost of product sales .................................. 652 304 General and administrative ............................. 1,660 2,470 Commissions and royalties .............................. 150 142 Interest and finance expenses .......................... 40 90 Other expenses ......................................... 104 81 -------- -------- 5,347 6,463 -------- -------- Income (loss) before extraordinary gain ................. 402 (782) Extraordinary gain resulting from debt forgiveness ...................................... -- 1,500 -------- -------- Net income .............................................. $ 402 $ 718 ======== ======== Earnings (loss) per share: Income (loss) per common share before extraordinary gain ................................................. $ 0.01 ($ 0.02) Extraordinary gain per common share .................... -- 0.04 -------- -------- Net income per common share ............................ $ 0.01 $ 0.02 ======== ======== Shares used in computation (Includes common stock equivalents) ................... 43,397 39,135 ======== ======== The accompanying notes are an integral part of these consolidated statements. Certain prior period amounts have been reclassified to conform with current period presentation. -4- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) (in thousands)
Common Stock ------------ Capital in Common Stock Par Excess of Treasury Deferred Subscriptions Stockholders' Shares Value Par Value Deficit Stock Compensation Receivable Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance, December 31, 1994 42,876 $ 429 $ 120,008 $ (96,307) $ (303) $ (570) $ (75) $ 23,182 Issuance of common stock .. 10 22 22 Exercise of stock options . 202 2 41 43 Issuance of common stock on Series A note conversions (including capitalized interest) ............... 106 1 184 185 Amortization of deferred compensation ............. 98 98 Purchase of treasury stock (37) (37) Repayment of common stock subscriptions ........... 75 75 Net income for three months ended March 31, 1995 .... 402 402 --------- --------- --------- --------- --------- ------- -------- --------- Balance, March 31, 1995 ... 43,194 $ 432 $ 120,255 $ (95,905) $ (340) $ (472) $ -- $ 23,970 ========= ========= ========= ========= ========= ======= ======== ========= The accompanying notes are an integral part of this consolidated statement.
-5- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, --------------- 1995 1994 ---- ---- Cash flows from operating activities: Net income............................................... $ 402 $ 718 Adjustments to reconcile net income to net cash used in operating activities: Extraordinary gain resulting from debt forgiveness..... -- (1,500) Depreciation and amortization.......................... 782 711 (Gain) on disposal of fixed assets..................... (7) (37) Common stock as payment for services................... 22 10 Change in: receivables................................. (458) (287) inventories ......................................... (201) (434) prepaid expenses and other current assets ........... (299) (298) accounts payable .................................... (371) 487 other assets ........................................ 25 26 other current liabilities ........................... 1,258 (194) ------- -------- Net cash provided by (used in) operating activities........ 1,153 (798) ------- -------- Cash flows from investing activities: Capital expenditures..................................... (327) (740) Change in patents........................................ (22) (56) Proceeds from sales of fixed assets and investment ...... 25 54 ------- -------- Net cash used in investing activities.................... (324) (742) ------- -------- Cash flows from financing activities: Long-term debt........................................... -- (1,800) Proceeds from issuance of common stock................... 43 744 Repayment of common stock subscriptions.................. 75 102 Interest on Series A and Series B Notes.................. (8) (8) Purchase of treasury stock............................... (37) -- Repayment of Series A Notes.............................. (31) -- ------- -------- Net cash provided by (used in) financing activities........ 42 (962) ------- -------- Net increase (decrease) in cash and cash equivalents ...... 871 (2,502) Cash and cash equivalents at beginning of year............. 16,891 16,051 ------- -------- Cash and cash equivalents at end of period................. $17,762 $ 13,549 ======= ======== Supplementary Information - ------------------------- Non-cash investing and financing activities: Series A and Series B note conversions .................. $ 185 $ 2 Other information: Interest paid ........................................... $ 13 $ 21 The accompanying notes are an integral part of these consolidated statements. -6- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1: Statement on Adjustments 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, 1994. 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, 1994. Note 2: Private Placement Financing On December 31, 1993, the Company and Bio-Cardia Corporation ("Bio-Cardia") completed a private placement of 375 units (the "Offering"), each unit ("Unit") consisting of four shares of common stock of Bio-Cardia and Warrants to purchase 15,000 shares of the Company's common stock. All of the cash proceeds of the financing are received by Bio-Cardia. In consideration of the Warrants included in the Units, the Company received from each purchaser of Units an option (the "Stock Purchase Option"), exercisable at any time on or prior to December 31, 1997, to purchase the Bio-Cardia stock at a purchase price beginning at 125% and increasing over time to 200% of the cash portion of the price paid for such stock. Such purchase price may be paid in cash, shares of the Company's common stock or both, at the Company's discretion. In connection with the closing of the financing, the Company licensed to Bio-Cardia the right to pursue the development and commercialization of certain of the Company's products. The Company and Bio-Cardia have entered into a research and development agreement pursuant to which the Company will conduct research, development and clinical testing of these products. Bio-Cardia and the Company had originally budgeted approximately $32 million of the net proceeds of the Offering (less if the Stock Purchase Option was exercised prior to January 1, 1997) to fund development and commercialization of the products licensed to Bio-Cardia over a period of four years and to reimburse BTG for previously incurred research and development expenses. However, holders of 218 Units failed to make the required July 1, 1994 payment of $10,000 per Unit, which resulted in Bio-Cardia being unable to pay certain amounts due BTG in respect of research and development conducted by BTG on behalf of Bio-Cardia and in reimbursement of previously incurred research and development expenses. In October 1994 Bio-Cardia reached settlements with certain of the defaulting stockholders, holding an aggregate of 178 Units, who surrendered to Bio-Cardia their Bio-Cardia stock and Warrants to purchase an aggregate of 2,670,000 shares of BTG common stock (the "Surrendered Warrants") in exchange for a release from their future funding obligations to Bio-Cardia. The net effect of this settlement was to reduce the funding expected by Bio-Cardia by approximately $14,240,000. In addition, Bio-Cardia commenced legal action against the remaining defaulting stockholders, holding an aggregate of 40 Units, who owe an aggregate of $3,200,000. Accordingly, Bio-Cardia will not be in a position to fund the up to $32 million research and development program originally contemplated by Bio-Cardia and BTG. As a result, BTG has the right to terminate the Technology License Agreement and repossess all rights to the technology licensed or sublicensed to Bio-Cardia without the payment of any amounts to Bio-Cardia other than a royalty on all Improvements -7- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES (as defined in the Technology License Agreement) to the Products developed pursuant to the development program conducted by BTG on behalf of Bio-Cardia. At March 31, 1995, Bio-Cardia owed BTG approximately $3,660,000 for research and development performed by BTG on behalf of Bio-Cardia during 1994 and the three months ended March 31, 1995, as well as $1,330,000 in reimbursement of previously incurred research and development expenses. The Company did not recognize as revenues the amounts due from Bio-Cardia in respect of research and development performed by the Company on behalf of Bio-Cardia during the three months ended March 31, 1995. For the three months ended March 31, 1994, the Company recognized $1,373,000 of research and development revenues under collaborative agreements from Bio-Cardia. The Company has agreed not to terminate the Technology License Agreement in 1995 as a result of the Bio-Cardia defaults in 1994 and has further agreed to fund a revised research and development budget for 1995 aggregating approximately $6.2 million to the extent Bio-Cardia does not have sufficient funds and to advance to Bio-Cardia amounts required by Bio-Cardia for general and administrative expenses. Bio-Cardia anticipates that it will receive $900,000 in 1995 from third parties (of which $400,000 was received in January 1995), and up to $3,140,000 from its existing stockholders under the Investor Notes, subject to the Exchange Offer described below. However, because the Company has not at this time committed to fund any research and development for Bio-Cardia in 1996 or 1997 or to exercise the Stock Purchase Option, and, therefore, because there can be no assurance that Bio-Cardia will have the funds needed to fund research and development after December 31, 1995, Bio-Cardia, with the Company's consent, has offered to the current Bio-Cardia stockholders the ability to avoid having to make any additional payments to Bio-Cardia under their Investor Note (the "Exchange Offer"). Under the terms of the Exchange Offer, Bio-Cardia has offered to exchange $4,250 in cash (together with interest on $2,500 from the date Bio-Cardia received such funds) and forgiveness of $17,500 principal amount of the Investor Note remaining outstanding for each one share of Bio-Cardia common stock and an unconditional release. The Company has agreed to return to Bio-Cardia the cash necessary to make the Exchange Offer. The cash to be returned includes $1,920,000 received from Bio-Cardia in 1994 and the three months ended March 31, 1995 but not recognized as revenues, which are included in other current liabilities on the December 31, 1994 balance sheet ($1,710,000) and the March 31, 1995 balance sheet ($1,920,000). If all Bio-Cardia stockholders who are not in default accept the Exchange Offer, BTG will advance to Bio-Cardia an aggregate of $2,639,000 (plus the amount of interest to be paid), for which BTG will recognize an expense of approximately $800,000 in the second quarter of 1995. In addition, Bio-Cardia has agreed that if by December 15, 1995 (i) the average daily price of the Company's common stock for any 20 trading days in any 30 consecutive trading day period did not exceed $3.50, (ii) the best closing bid price of the Warrants did not exceed $1.10 during any 20 trading days, and (iii) the exercise price of the Warrants had not been reduced in connection with the sale of BTG, then Bio-Cardia will distribute to the Bio-Cardia stockholders accepting the Exchange Offer some or all of the Surrendered Warrants such that, in the aggregate, the Warrants issued in the Offering, together with the Surrendered Warrants distributed by Bio-Cardia, have a value of $16,500 per Unit as determined using the Black Scholes option pricing formula using an assumption of no dividends and a volatility of 70%. The Exchange Offer is conditioned upon acceptance by holders of at least 139 Units (constituting approximately 90% of the Units held by non-defaulting Bio-Cardia stockholders), although this condition can be waived. The Company has agreed that if the Exchange Offer is consummated, it will amend the Warrants to provide that if the Company enters into certain transactions which would result in the sale of the Company for cash at a price per share of the Company's common stock less than $6.59, then the exercise price of the Warrants will automatically be reduced to a price per share equal to the difference between the sale price and $1.10. The Company's agreement to fund the Exchange Offer and Bio-Cardia's operations in 1995 to the extent Bio-Cardia does not have sufficient funds will adversely affect BTG's results of operations for the year ended December 31, 1995. -8- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES Note 3: Income Taxes The Company has not provided any income taxes for the three months ended March 31, 1995 and 1994 as any interim tax provision would be offset by available net operating loss carryforwards. -9- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three months ended March 31, 1995 compared with three months ended March 31, 1994 Results of Operations: The Company has been principally engaged in research and product development activities since it commenced operation in October 1980 and has incurred substantial net losses from inception through December 31, 1994. The Company reported net income of approximately $0.4 million or $0.01 per share in the three months ended March 31, 1995 compared to a net income after extraordinary gain resulting from debt forgiveness of approximately $0.72 million or $0.02 per share in the three months ended March 31, 1994. The net income after extraordinary gain for the three months ended March 31, 1994 includes an extraordinary gain of $1.5 million or $0.04 per share. The Company had approximately 4.3 million additional shares outstanding for the three months ended March 31 1995, as compared to the same period in 1994. The Company's revenues are classified in five categories: product sales, research and development revenues under collaborative agreements, contract fees (representing licensing and option fees), other revenues (substantially all of which is funding from the Chief Scientist of the Israeli government) and interest income. Revenues from each of these categories have fluctuated, and are expected to continue to fluctuate, from period to period as new licensing and research and development relationships are established and milestones attained, scheduled payments under existing arrangements become due and products are commercialized. Revenues from product sales, derived primarily from the Company's human growth hormone ("hGH"), pharmaceutical grade hyaluronic acid ("BioLon(R)") and injectable testosterone ("Delatestryl(R)") amounted to $5,183,000 and $3,106,000, or 94% and 56% of revenues (exclusive of interest income), for the three month periods ended March 31, 1995 and 1994, respectively. Sales of hGH were $3,840,000 and $2,310,000 in the three months ended March 31, 1995 and 1994, or 75% and 74% of product sales, respectively. The increase in sales of hGH was primarily the result of increased sales to JCR Pharmaceuticals Co., Ltd., the Company's exclusive distributor in Japan. Sales of BioLon were $726,000 and $380,000, or 14% and 12% of product sales, in the three month period ended March 31, 1995 and 1994, respectively. The increase in sales of BioLon was due to new product launches in the first quarter of 1995 as well as increased sales to its distributors who had launched the product prior to the first quarter of 1995. In the three month periods ended March 31, 1995 and 1994, sales of Delatestryl were $172,000 and $193,000, or 3% and 6% of product sales, respectively. In aggregate, $445,000 and $223,000 were earned from sales of other products for the three month periods ended March 31, 1995 and 1994, respectively. For the three month periods ended March 31, 1995 and 1994 research and development revenues under collaborative agreements of $188,000 and $1,612,000, or 3% and 29%, respectively, of revenues (exclusive of interest income), was earned. Of the research and development revenues under collaborative agreements earned in the three months ended March 31, 1994, $1,373,000, or 85% of total research and development revenues under collaborative agreements, was earned in respect of research and development activities conducted pursuant to the research and development agreement which the Company entered into with Bio-Cardia Corporation ("Bio-Cardia") in December 1993. See "- Liquidity and Capital Resources." All the research and development revenues under collaborative agreements earned in the three month period ended March 31, 1995 was earned with respect to AIDS research for the -10- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES National Institutes of Health ("NIH") as compared with $167,000 or 10% in the comparable period in 1994. In aggregate, for other projects, $72,000 was earned in the three months ended March 31, 1994. For the three month periods ended March 31, 1995 and 1994 contract fees of $95,000 and $615,000, or 2% and 11%, respectively, of revenues (exclusive of interest income), were earned. For the three months ended March 31, 1995, $85,000 or 89% of total contract fees, was earned in respect of the license of the marketing rights for the Company's hGH in South America. Of the contract fees earned in the three months ended March 31, 1994, $500,000, or 81% of total contract fees, was earned in respect of the license of the marketing rights for Oxandrin(R) (oxandrolone) in Australia and $100,000, or 16%, in respect of marketing rights for hGH in Canada. Other revenues, which consist primarily of partial funding of several of the Company's research and development projects by the Chief Scientist of the Israeli government ("Chief Scientist"), were $57,000 and $251,000, or 1% and 4%, respectively, of revenues (exclusive of interest income), during the three months ended March 31, 1995 and 1994, respectively. For the three months ended March 31, 1995, Chief Scientist funding represented 88% of other revenues as compared with 84% in the same period in 1994. Interest income on the Company's investment portfolio amounted to $226,000 and $97,000 for the three month periods ended March 31, 1995 and 1994, respectively. The increase in interest income derived primarily from an increase in cash balances resulting from $9,000,000 received from financing transactions consummated in October 1994, as well as higher yield. The Company conducts research on potential products for which it has retained future rights for its own account and on behalf of its partners for which it receives certain current revenues and, if successful, future revenues in the form of royalties or manufacturing rights. Expenditures for research and development in the three month periods ended March 31, 1995 and 1994 were $2,741,000 and $3,376,000, respectively. The decrease in these expenditures resulted from a change in the focus of the Company's research and development activities towards the Company's commercialized products and those which are nearing commercialization and away from early stage research and development activities, as well as a decrease in research and development activities conducted on behalf of Bio-Cardia. Expenditures for research and development in the three months ended March 31, 1995 include $673,000 on behalf of Bio-Cardia, which were not reimbursed to the Company. In the same period in 1994, expenditures for research and development on behalf of Bio-Cardia were $1,003,000, all of which was reimbursed by Bio-Cardia. See "-Liquidity and Capital Resources." Cost of product sales, primarily related to commercial sales of hGH, BioLon and Delatestryl, were $652,000 and $304,000 in the three month periods ended March 31, 1995 and 1994, respectively. 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. Cost of product sales as a percentage of product sales is expected to decrease as the quantity sold increases due to economies of scale. In addition, certain products, such as hGH, have a lower cost of sales than other products. General and administrative expenses for the three month periods ended March 31, 1995 and 1994 were $1,660,000 and $2,470,000, respectively. In the three months ended March 31, 1994 the Company spent approximately $0.8 million in respect of the complaint filed by Genentech Inc. ("Genentech") with the United States International Trade Commission relating to hGH. See "- Liquidity and Capital Resources." Commissions and royalties expenses for the three months ended March 31, 1995 and 1994 were approximately $150,000 and $142,000, respectively. These expenses consist primarily of royalties to the Chief Scientist and to entities from which the Company licensed certain of its products. -11- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES For the three month periods ended March 31, 1995 and 1994 the Company recorded interest and finance expenses of $40,000 and $90,000, respectively. Interest expense in the three months ended March 31, 1994, derived mainly from interest on the Company's balance payable to The Du Pont Merck Pharmaceutical Company ("Du Pont Merck") as described below. See "- Liquidity and Capital Resources." In the three months ended March 31, 1994 the Company recognized an extraordinary gain of $1,500,000 resulting from the Company's payment, in January 1994, of $1,500,000 to SmithKline Beecham ("SB") in full satisfaction of its $3,000,000 obligation to SB. See "- Liquidity and Capital Resources." The Company expects to incur additional operating losses in the coming quarters at least until more of its products have received all required regulatory approvals and are being actively marketed. Liquidity and Capital Resources The Company's working capital at March 31, 1995 was $14,594,000 as compared to $13,652,000 at December 31, 1994. The Company's cash requirements have been and continue to be satisfied primarily through (i) product sales, (ii) funding of projects through collaborative research and development arrangements, (iii) contract fees, (iv) government of Israel funding of a portion of certain research and development projects, and (v) equity and debt financings. There can be no assurance that these financing alternatives will be available in the future to satisfy the Company's cash requirements. The major portion of the Company's revenues is derived from product sales and the Company's collaborative arrangements, under which the Company may earn up-front contract fees, may receive funding for additional research, 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. Revenues have in the past displayed and will in the immediate future continue to display significant variations due to 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. The Company manages its Israeli operations with the object of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non-U.S. dollar assets and liabilities. The Bank of Israel's monetary policy is to manage the exchange rate while allowing the Consumer Price Index to rise by approximately 11% in 1993, 14% in 1994, and at a 2% annual rate in the three month period ended March 31, 1995. For those expenses linked to the Israeli Shekel, such as salaries and rent, this resulted in corresponding increases in these costs in U.S. dollars. In 1993 and 1994 the Shekel was devalued by approximately 8% and 1%, respectively, against the U.S. dollar. Because of the insignificant devaluation of the Shekel against the U.S. dollar despite the 14% annual rate of increase in the Consumer Price Index during 1994, BTG's cost of local goods and services, to the extent linked in whole or in part to the Consumer Price Index, increased in U.S. dollar terms in 1994. To the extent that expenses in Shekels exceed the Company's income in Shekels (which to date have consisted primarily of research and development funding from the Chief Scientist and sales of Bio-Tropin(TM), the Company's human growth hormone product in Israel, and BioLon in Israel), the devaluations of Israeli currency have been and will continue to be a benefit to the Company's financial condition. However, should the Company's income in Shekels exceed its expenses in Shekels in any material respect, the devaluation of the Shekel will adversely affect the Company'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, the Company's financial results will be adversely affected -12- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES as local expenses expressed in U.S. dollar terms will increase. There can be no assurance that the government of Israel will continue to devalue the Shekel from time to time to offset the effects of inflation in Israel. The Company maintains its funds in money market funds, commercial paper and other liquid short-term debt instruments. The Company's investment policy is to preserve principal and to avoid risk. The cash flows of the Company have fluctuated significantly due to the impact of net losses, capital spending, and issuance of common stock and other financings. The Company expects that cash flow in the near future will be primarily determined by the levels of net income or loss, depreciation and amortization, and financings, if any, undertaken by the Company. In the three months ended March 31, 1995 net cash increased by $871,000, primarily as a result of net income of $402,000, depreciation and amortization of $782,000 and a net increase in other current liabilities of $1,258,000, which were partially offset by an increase in current assets of $958,000 and a decrease in accounts payable of $371,000. Net investing activities during the three months ended March 31, 1995 were $324,000. In the three months ended March 31, 1994 net cash decreased by $2,502,000, primarily resulting from payment of long-term debt of $1,800,000 (consisting of the payment to SB and to Du Pont Merck), net investing activities of $742,000, a loss before extraordinary gain of $782,000 and a net increase in current assets of $1,019,000, which were partially offset by a net increase in current liabilities of $293,000 and depreciation and amortization of $711,000. The Company does not currently have any material commitments for capital expenditures. In June 1991, the Company concluded an agreement with Du Pont Merck pursuant to which it reacquired all the rights relating to the Company's hGH it licensed to Du Pont Merck, together with all rights to all data generated in pharmacological, toxicological and clinical studies and encompassed in the Investigational New Drug Application and New Drug Application files currently pending with the U.S. Food and Drug Administration for the treatment of human growth hormone deficient children. The Company agreed to pay Du Pont Merck royalties on net sales of hGH up to a maximum of $5,000,000, including a minimum royalty of $2,000,000 (using a 10% 1991 present value). Three hundred thousand dollars of the minimum royalty was due December 31, 1993 and was paid in February 1994. The remainder of the minimum royalty was to be paid as follows: $500,000 to be paid by December 31, 1994 (which has not been paid); $500,000 to be paid by December 31, 1995; $700,000 to be paid by December 31, 1996; and the remainder to be paid by December 31, 1997. In February 1995 the Company agreed to pay Du Pont Merck $1,000,000 in July 1995 in full satisfaction of its obligation to Du Pont Merck. As a result, the Company will record an extraordinary gain of approximately $1,370,000 in the third quarter of 1995 and stop accrual of interest on the balance due to Du Pont Merck. However, the Company may elect to pay Du Pont Merck in the second quarter of 1995, in which event the Company will record the extraordinary gain in the second quarter of 1995. In June 1991 the Committee for Proprietary Medicinal Products ("CPMP") of the European Economic Community ("EEC") approved SB's application for the use of the Company's hGH for growth hormone deficient children. In November 1992 the Company and SB entered into an agreement, effective July 17, 1992, whereby the Company reacquired all rights to its human growth hormone in Europe and certain other countries previously licensed to SB. The reacquired rights include the EEC CPMP approval of the use of the Company's hGH for growth hormone deficient children, together with all individual EEC member country approvals and pricing approvals obtained by SB. The license agreement was terminated in connection with the reacquisition of rights. Simultaneous with the execution of the agreement with SB, the Company entered into an exclusive distribution agreement with the Ferring Group for the marketing of the Company's human growth hormone for the enhancement of growth and stature in children. The agreement covers all of Europe as well as countries comprising the former Soviet Union. Initial country -13- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES approvals have been received in Belgium, Denmark, Italy, France, Germany, Luxembourg, The Netherlands, Spain and the United Kingdom and sales began during the fourth quarter of 1994 in The Netherlands and Germany. In connection with the reacquisition of rights from SB, the Company agreed to pay SB an aggregate of $3,000,000 over a period of up to five years, approximating SB's payments to the Company under the license agreement. In January 1994 the Company paid SB $1,500,000 in full satisfaction of its obligation to SB. Accordingly, the Company recorded an extraordinary gain of $1,500,000 during the first quarter of 1994. On December 31, 1993, the Company and Bio-Cardia completed a private placement of 375 units (the "Offering"), each unit ("Unit") consisting of four shares of common stock of Bio-Cardia and Warrants to purchase 15,000 shares of the Company's common stock. All of the cash proceeds of the financing are received by Bio-Cardia. In consideration of the Warrants included in the Units, the Company received from each purchaser of Units an option (the "Stock Purchase Option"), exercisable at any time on or prior to December 31, 1997, to purchase the Bio-Cardia stock at a purchase price beginning at 125% and increasing over time to 200% of the cash portion of the price paid for such stock. Such purchase price may be paid in cash, shares of the Company's common stock or both, at the Company's discretion. In connection with the closing of the financing, the Company licensed to Bio-Cardia the right to pursue (i) the worldwide development and commercialization of the Company's Imagex, Bio-Flow, Factorex and Bio-Lase products for all cardio-vascular indications, the Company's OxSODrol product for the inhibition of reocclusion of coronary arteries during and after thrombolysis or angioplasty or in cases of unstable angina, and for the prevention of restenosis, and the Company's OxSODrol product for the treatment of bronchopulmonary dysplasia in premature neonates, and (ii) the development and commercialization of the Company's sodium hyaluronate-based products for ophthalmic applications in the United States and Japan to protect the corneal endothelium during intraocular surgery and other pharmaceutical applications where a shock-absorbing and lubricating material compatible with the human body is required. The Company and Bio-Cardia have entered into a research and development agreement pursuant to which the Company will conduct research, development and clinical testing of these products. Bio-Cardia has determined not to pursue Bio-Lase for the inhibition of acute reocclusion and treatment of diabetic thromboembolism, and OxSODrol for the inhibition of reocclusion of coronary arteries during and after thrombolysis or angioplasty or in cases of unstable angina, and for the prevention of restenosis, as preliminary studies were not sufficiently encouraging to justify continued pursuit of these products. Bio-Cardia and the Company had originally budgeted approximately $32 million of the net proceeds of the Offering (less if the Stock Purchase Option was exercised prior to January 1, 1997) to fund development and commercialization of the products licensed to Bio-Cardia over a period of four years and to reimburse BTG for previously incurred research and development expenses. However, holders of 218 Units failed to make the required July 1, 1994 payment of $10,000 per Unit, which resulted in Bio-Cardia being unable to pay certain amounts due BTG in respect of research and development conducted by BTG on behalf of Bio-Cardia and in reimbursement of previously incurred research and development expenses. In October 1994 Bio-Cardia reached settlements with certain of the defaulting stockholders, holding an aggregate of 178 Units, who surrendered to Bio-Cardia their Bio-Cardia stock and Warrants to purchase an aggregate of 2,670,000 shares of BTG common stock (the "Surrendered Warrants") in exchange for a release from their future funding obligations to Bio-Cardia. The net effect of this settlement was to reduce the funding expected by Bio-Cardia by approximately $14,240,000. In addition, Bio-Cardia commenced legal action against the remaining defaulting stockholders, holding an aggregate of 40 Units, who owe an aggregate of $3,200,000. Accordingly, Bio-Cardia will not be in a position to fund the up to $32 million research and development program originally contemplated by Bio-Cardia and BTG. As a result, BTG has the right to terminate the Technology License Agreement and repossess all rights to the technology licensed or sublicensed to Bio-Cardia without the payment of any amounts to Bio-Cardia other than a royalty on all Improvements (as defined in the Technology License Agreement) to the Products developed pursuant to the development program conducted by BTG on behalf of Bio-Cardia. At March 31, 1995, Bio- -14- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES Cardia owed BTG approximately $3,660,000 for research and development performed by BTG on behalf of Bio-Cardia during 1994 and the three months ended March 31, 1995, as well as $1,330,000 in reimbursement of previously incurred research and development expenses. The Company did not recognize as revenues the amounts due from Bio-Cardia in respect of research and development performed by the Company on behalf of Bio-Cardia during the three months ended March 31, 1995. For the three months ended March 31, 1994, the Company recognized $1,373,000 of research and development revenues under collaborative agreements from Bio-Cardia. The Company has agreed not to terminate the Technology License Agreement in 1995 as a result of the Bio-Cardia defaults in 1994 and has further agreed to fund a revised research and development budget for 1995 aggregating approximately $6.2 million to the extent Bio-Cardia does not have sufficient funds and to advance to Bio-Cardia amounts required by Bio-Cardia for general and administrative expenses. Bio-Cardia anticipates that it will receive $900,000 in 1995 from third parties (of which $400,000 was received in January 1995), and up to $3,140,000 from its existing stockholders under the Investor Notes, subject to the Exchange Offer described below. However, because the Company has not at this time committed to fund any research and development for Bio-Cardia in 1996 or 1997 or to exercise the Stock Purchase Option, and, therefore, because there can be no assurance that Bio-Cardia will have the funds needed to fund research and development after December 31, 1995, Bio-Cardia, with the Company's consent, has offered to the current Bio-Cardia stockholders the ability to avoid having to make any additional payments to Bio-Cardia under their Investor Note (the "Exchange Offer"). Under the terms of the Exchange Offer, Bio-Cardia has offered to exchange $4,250 in cash (together with interest on $2,500 from the date Bio-Cardia received such funds) and forgiveness of $17,500 principal amount of the Investor Note remaining outstanding for each one share of Bio-Cardia common stock and an unconditional release. The Company has agreed to return to Bio-Cardia the cash necessary to make the Exchange Offer. The cash to be returned includes $1,920,000 received from Bio-Cardia in 1994 and the three months ended March 31, 1995 but not recognized as revenues, which are included in other current liabilities on the December 31, 1994 balance sheet ($1,710,000) and the March 31, 1995 balance sheet ($1,920,000). If all Bio-Cardia stockholders who are not in default accept the Exchange Offer, BTG will advance to Bio-Cardia an aggregate of $2,639,000 (plus the amount of interest to be paid), for which BTG will recognize an expense of approximately $800,000 in the second quarter of 1995. In addition, Bio-Cardia has agreed that if by December 15, 1995 (i) the average daily price of the Company's common stock for any 20 trading days in any 30 consecutive trading day period did not exceed $3.50, (ii) the best closing bid price of the Warrants did not exceed $1.10 during any 20 trading days, and (iii) the exercise price of the Warrants had not been reduced in connection with the sale of BTG, then Bio-Cardia will distribute to the Bio-Cardia stockholders accepting the Exchange Offer some or all of the Surrendered Warrants such that, in the aggregate, the Warrants issued in the Offering, together with the Warrants distributed by Bio-Cardia, have a value of $16,500 per Unit as determined using the Black Scholes option pricing formula using an assumption of no dividends and a volatility of 70%. The Exchange Offer is conditioned upon acceptance by holders of at least 139 Units (constituting approximately 90% of the Units held by non-defaulting Bio-Cardia stockholders), although this condition can be waived. The Company has agreed that if the Exchange Offer is consummated, it will amend the Warrants to provide that if the Company enters into certain transactions which would result in the sale of the Company for cash at a price per share of the Company's common stock less than $6.59, then the exercise price of the Warrants will automatically be reduced to a price per share equal to the difference between the sale price and $1.10. The Company's agreement to fund the Exchange Offer and Bio-Cardia's operations in 1995 to the extent Bio-Cardia does not have sufficient funds will adversely affect BTG's results of operations for the year ended December 31, 1995. A number of the Company's other products are in the process of gaining approval from various governmental agencies in the United States and other countries. While costs associated with this process are generally borne by the Company's collaborative partners, the approval processes have been -15- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES considerably longer than the Company expected, thereby resulting in delays in revenues until such product approvals have been obtained. As a result, the Company has had to continue to finance its operations through debt and equity offerings and collaborative research arrangements that provided research funding. The Company believes that these delays have negatively impacted the Company's ability to attract funding and that, as a result, the terms of such financings were less favorable to the Company than they might otherwise have been had the Company's product revenues provided sufficient funds to finance the large costs of taking a product from discovery through commercialization. As a result, the Company has had to license the commercialization of many of its products to third parties in exchange for research funding and royalties on product sales; this will result in lower revenues than if the Company had commercialized the product on its own. The Company is party to several proceedings relating to patents owned by it or others. The Company anticipates that the costs of such proceedings will be significant, and that such expenses could have a material adverse effect on the Company's results of operations. Should the Company be unsuccessful in any of these proceedings, it may be unable to commercialize the products which are the subject of such proceedings in certain countries, and may be unable to produce the products in Israel, which could have a material adverse effect on the Company's revenues and results of operations. On March 16, 1993, Genentech filed a complaint with the U.S. International Trade Commission (the "ITC") alleging, among other things, that BTG's importation of hGH into the United States violates Section 337 of the Tariff Act of 1930 because of the existence of certain claims in U.S. patents of Genentech. Genentech sought an immediate investigation and an order that BTG cease and desist from importing hGH into the United States. Additionally, Genentech filed a motion for a temporary exclusion order ("TEO") seeking to exclude the Company from importing human growth hormone into the United States pending the outcome of the investigation. On February 25, 1994, the ITC adopted the initial determination of the administrative judge hearing this matter denying the motion for a TEO. The trial on the Genentech complaint was held in April 1994. In January 1995 the ITC issued a final decision dismissing the complaint with prejudice as a sanction for Genentech's conduct which resulted in an incomplete record and violated the due process rights of BTG and Novo-Nordisk A/S, another respondent in the proceeding. The ITC also found no violation by BTG of Section 337 of the Tariff Act of 1930. In March 1995 Genentech filed a notice of appeal of the ITC decision in the United States Court of Appeals for the Federal Circuit. During 1993 and 1994, BTG incurred total legal fees of approximately $4,200,000 relating to the ITC proceeding. On December 1, 1994, Genentech filed a lawsuit against BTG in the United States District Court for the District of Delaware alleging that BTG's hGH infringed two Genentech patents. In January 1995, BTG commenced an action against Genentech in the United States District Court for the Southern District of New York seeking, among other things, declaratory judgment as to the non-infringement, invalidity and unenforceability of such Genentech patents as well as damages resulting from Genentech's actions in the ITC proceedings. Genentech's lawsuit in Delaware has been transferred to New York, and BTG is seeking to have the cases consolidated. BTG believes that it does not infringe any valid Genentech patent, although there can be no assurance that BTG will not be found to be infringing Genentech's patents. If BTG is found by the district court to infringe one or more claims in U.S. patents of Genentech, it likely will be precluded from selling its hGH in the United States. The Company expects to incur substantial legal fees in defending and prosecuting these lawsuits. The Company believes that its remaining cash resources as of March 31, 1995, together with anticipated product sales, scheduled payments to be made to BTG under its current agreements with pharmaceutical partners and third parties, the anticipated research and development revenues under collaborative agreements, the proceeds from sales of equity and continued funding from the Chief Scientist at current levels, will be sufficient to fund the Company's ongoing operations until the end of 1996. There can, however, be no assurance that product sales will occur as anticipated, that scheduled payments will be -16- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES made by third parties, that current agreements will not be canceled, that committed payments under collaborative agreements will be received, 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. The Company expects to seek, from time to time, additional sources of funds, the form of which will vary depending upon prevailing market and other conditions and may include short- or long-term borrowings or the issuance of debt or equity securities. However, 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. In addition, the indentures under which the Company's debt securities were issued limit the ability of the Company to satisfy its cash requirements through borrowings or the issuance of debt securities, and prohibit the sale of equity securities at a price per share of less than $1.00 (as adjusted under certain circumstances). The Company continues to seek additional collaborative research and development and licensing arrangements, in order to provide revenue from sales of certain products and funding for a portion of the research and development expenses relating to the products covered, although there can be no assurance that the Company will be able to obtain such agreements. -17- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES Part II. OTHER INFORMATION Item 6. Exhibits and Reports on form 8-K a) Exhibits: 10.1 Employment Agreement, dated as of April 24, 1995, between Bio-Technology General Corp. and William Pursley. 27 Financial Data Schedule. (b) Reports on Form 8-K: None -18- BIO-TECHNOLOGY GENERAL CORP. AND SUBSIDIARIES 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 -------------------------------- Sim Fass President/CEO, Principal Executive Officer /s/ YEHUDA STERNLICHT -------------------------------- Yehuda Sternlicht Chief Financial Officer, Principal Financial and Accounting Officer Dated: May 3, 1995 -19- EX-10.1 2 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AGREEMENT made as of April 24, 1995, between BIO-TECHNOLOGY GENERAL CORP., a Delaware corporation with an office at 70 Wood Avenue South, Iselin, New Jersey 08830 (the "Company"), and William Pursley, 31 Orchard Drive, Hollis, New Hampshire 03049 (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, Sales and Commercial Development, reporting to the President and Chief Executive Officer of the Company. 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 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. 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 $175,000. 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 salary shall be increased each year (on the date of the annual meeting of the Board of Directors of the Company), commencing with the 1996 annual meeting of the Board of Directors, by at least six percent (6%). In addition, 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 which 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 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 vacations may not be carried over to other years without the consent of the Board of Directors excepting 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. RELOCATION TO ISELIN, NEW JERSEY METROPOLITAN AREA. (a) Executive hereby agrees to relocate to the Iselin, New Jersey metropolitan area within six months of the Employment Date. Executive hereby acknowledges that the Company is entering into this Agreement in reliance upon Executive's covenant to relocate to the Iselin, New Jersey metropolitan area within six months of the Employment Date. (b) Executive hereby agrees that prior to his relocation to the Iselin, New Jersey metropolitan area, he will spend that number of days each week at the Company's executive offices as the President and Chief Executive Officer of the Company may direct. 7. STOCK OPTIONS. (a) The Company will recommend to the Compensation and Stock Option Committee of the Board of Directors (the "Committee") that Executive be granted an incentive stock option, pursuant to an incentive stock option agreement substantially in the form of Exhibit 7(a) hereto, to purchase 75,000 shares of the Company's Common Stock (the "Options"), at an exercise price per share equal to the 2 fair market value of the Company's Common Stock on the date of grant, such Options to become exercisable as to 18,750 shares on the first anniversary date of this Agreement and as to an additional 18,750 shares on each successive anniversary date of this Agreement. (b) The Company will also recommend to the Committee that the Options become exercisable upon the termination of Executive's employment (i) pursuant to Sections 10(a)(i) or 10(b) herein or (ii) by reason of the Company's failure to renew this Agreement. (c) In addition, Executive shall be entitled to the grant of additional options from time to time in such amounts as may be determined by the Committee in its sole discretion. Any future grant of stock options shall be subject to such terms as the Committee in its sole discretion shall specify at the time of grant. 8. LOANS. (a) On the Employment Date the Company shall loan to the Executive $40,000 (the "First Loan") pursuant to the terms of a promissory note in the form attached hereto as Exhibit 8(a). The First Loan will be due and payable on the first anniversary of the Employment Date; provided, however, that the Company shall forgive repayment of the First Loan, and shall forgive payment of all accrued interest thereon, on the first anniversary of the Employment Date if Executive is still an employee on such date. In addition, the Company shall forgive repayment of the First Loan, and all accrued interest thereon, if prior to the first anniversary of the Employment Date any of the following shall occur: (i) Executive's employment with the Company is terminated by the Company for any reason which would not constitute justifiable cause (as defined in Section 10(d) hereof) following a Change in Control of the Company (as defined in Section 8(c) hereof); (ii) if the Executive's employment with the Company terminates by reason of the death or disability (as defined in Section 10(c) hereof) of Executive; or (iii) if the Company shall terminate Executive's employment for any reason which would not constitute justifiable cause (as defined in Section 10(d) hereof). (b) In addition, on the Employment Date the Company shall loan to the Executive an additional $40,000 (the "Second Loan") pursuant to the terms of a promissory note in the form attached hereto as Exhibit 8(b). The Second Loan will become due and payable, with all accrued interest thereon, on the earliest to occur of the following: (i) June 30, 1997; (ii) if the Company shall terminate Executive's employment for justifiable cause (as defined in Section 10(d) hereof), on such date; or (iii) if the Executive shall resign from his position with the Company, on the effective date of such resignation. Notwithstanding the foregoing, the Company shall forgive repayment of the Second Loan, and all accrued interest thereon, if prior to the date such loan becomes due and payable Executive's employment with the Company is terminated by the Company for any reason which would not constitute justifiable cause 3 (as defined in Section 10(d) hereof) following a Change in Control of the Company (as defined in Section 8(c) hereof). (c) For purposes of this Section 8, a "Change in Control of the Company" shall be deemed to occur if (i) there shall be consummated (x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company; (ii) the stockholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company; (iii) any person (as such term is used in Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act) of 40% or more of the Company's outstanding Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. 9. DUTIES. (a) Executive shall perform such duties and functions as the President and Chief Executive Officer of the Company shall from time to time determine and Executive shall comply in the performance of his duties 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, directly or indirectly, alone or as a member of any partnership or other organization, or as an officer, director or employee of any other corporation, partnership or other organization, be actively engaged in or concerned with any other duties or pursuits which interfere with the performance of his duties hereunder, or which, even if non-interfering, may be, in the reasonable 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 4 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 9 or elsewhere in this Agreement shall be construed to prevent Executive from investing or trading in nonconflicting 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 for the proper performance of his duties hereunder, and Executive recognizes that such duties may involve significant travel. 10. 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 and has failed to remedy such performance to the satisfaction of the Company, that Executive's performance of his duties has not been fully satisfactory for any reason which would not constitute justifiable cause (as hereinafter defined) upon thirty (30) days' prior written notice to Executive; or (ii) upon the determination by the Board of Directors that there is justifiable cause (as hereinafter defined) for such termination upon ten (10) days' prior written notice to Executive; or (iii) if Executive has not relocated to the Iselin, New Jersey metropolitan area within nine months after the Employment Date. (b) Executive's employment shall terminate upon: (i) the death of Executive; or (ii) the "disability" of Executive (as hereinafter defined pursuant to subsection (c) herein) pursuant to subsection (f) hereof. 5 (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: Executive's conviction (which, through lapse of time or otherwise, is not subject to appeal) of any crime or offense involving money or other property of the Company or its subsidiaries or which constitutes a felony in the jurisdiction involved; 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 may be counsel for the Company), after due inquiry in which Executive is given the opportunity to be heard, that if Executive were prosecuted and convicted, 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; any unauthorized disclosure by Executive to any person, firm or corporation other than the Company, its subsidiaries and its and their directors, officers and employees, of any confidential information or trade secret of the Company or any of its subsidiaries; any attempt by Executive to secure any improper personal profit in connection with the business of the Company or any of its subsidiaries; the failure by Executive to devote his full time to the affairs of the Company and its subsidiaries; Executive's pursuit of activities which in the reasonable determination of the Board of Directors of the Company are inimical, or contrary, to the best interests of the Company; the engaging by Executive in any business other than the business of the Company and its subsidiaries which interferes with the performance of his duties hereunder; or Executive's repeated and willful failure to follow the instructions of the Chief Executive Officer of the Company or the policies established by the Board of Directors and communicated to Executive (other than instructions or policies which are illegal or improper) where such conduct shall not have ceased or offense cured within 30 days following written warning from the Company. 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 6 addition to the other amounts set forth in this subsection (e), an amount equal to one-half 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. Any termination pursuant to this subsection (f) shall be effective on the date 30 days after which Executive shall have received written notice of the Company's election to terminate. (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, failure to relocate to the Iselin, New Jersey metropolitan area within nine months of the Employment Date, disability or death, or in the event the Company shall fail to renew this Agreement, the Company shall (i) 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), a severance payment in an amount equal to his then annual salary (less all amounts, if any, required to be withheld), payable bi-weekly in equal installments, and (ii) 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 and disability insurance programs, to the extent permitted under such programs, until the earlier of (x) one year or (y) Executive becoming eligible to participate in another employer's group health and disability insurance plans. 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 and disability insurance programs, such notice to be given within 15 days following commencement of such employment. (h) Executive may terminate his employment at any time upon 30 days' prior written notice to the Company. Upon Executive's termination of his employment hereunder, this Agreement (other than Sections 4, 7, 8, 10, 12, 13, 14 and 15, 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 as specified in such plans for former employees. 11. 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 7 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. 12. 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 any 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. 13. 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 $100.00 8 per hour (with a minimum of $500 per day), plus out-of-pocket expenses incurred in rendering such assistance or giving or preparing to give such testimony if it is required after termination of his employment hereunder. 14. 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 is required by law (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, the directors of the Company or its subsidiaries, any client of 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, 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 14(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 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. 15. SPECIFIC PERFORMANCE. Executive agrees that if he breaches, or threatens to commit a breach of, any of the provisions of Sections 12, 13 or 14 (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 9 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. 16. 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. 17. GOVERNING LAW. This Agreement shall be governed by the laws of the State of New Jersey applicable to agreements made and to be performed therein. 18. 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. 19. 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 mailing. 20. 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. 21. 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, all prior agreements between Executive and the Company relating to the confidentiality of information, trade secrets, patents and stock options shall not be affected by this Agreement. 10 22. SURVIVAL. The termination of Executive's employment hereunder or the expiration of this Agreement shall not affect the enforceability of Sections 4, 7, 10, 12, 13, 14 and 15 hereof. 23. 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. 24. 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. 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 /s/ WILLIAM PURSLEY ---------------------------- William Pursley 11 EXHIBIT 7(A) STOCK OPTION AGREEMENT PURSUANT TO BIO-TECHNOLOGY GENERAL CORP. 1992 STOCK OPTION PLAN * * * INCENTIVE STOCK OPTION AGREEMENT made as of the __th day of _____, ____, between BIO-TECHNOLOGY GENERAL CORP., a Delaware corporation (the "Company"), and _________________, an employee of the Company or of a subsidiary of the Company (the "Optionee"). W I T N E S S E T H: WHEREAS, the Company desires, by affording the Optionee an opportunity to purchase shares of its Common Stock, $.01 par value per share (the "Common Stock"), as hereinafter provided, to carry out the purpose of the Company's 1992 Stock Option Plan (the "Plan"): NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements hereinafter contained, the parties hereto mutually covenant and agree as follows: 1. Grant of Option. The Company hereby grants to the Optionee an incentive stock option (the "Option") to purchase all or any part of an aggregate of ______ shares of Common Stock (such number being subject to adjustment as provided in Paragraph 6) on the terms and conditions hereinafter set forth. 2. Purchase Price. The purchase price of the shares of Common Stock issuable upon exercise of the Option (the "Option Price") shall be $______ per share, which is not less than one hundred percent (100%) of the fair market value per share of Common Stock on the date hereof. Payment shall be made in cash, by certified check or in shares of Common Stock in the manner prescribed in Paragraph 7 hereof. 3. Term of Option. The term of the Option shall be for a period of ten (10) years from the date hereof, subject to earlier termination as provided in Paragraph 5. The Option is exercisable during its term only in accordance with the provisions of Exhibit A attached hereto; provided, however, that if the Optionee is a citizen of the State of Israel, the Option may not be exercised in whole or in part unless (i) the 12 Optionee can, under applicable Israeli law, purchase the shares of Common Stock, and (ii) all necessary permits, including but not limited to a specific permit from the Controller of Foreign Currency of the Bank of Israel, have been obtained by or on behalf of the Optionee. Except as provided in Paragraph 5, the Option may not be exercised unless, at the time the Option is exercised and at all times from the date it was granted, the Optionee shall then be and shall have been, an employee of the Company or any subsidiary. 4. Nontransferability. The Option shall not be transferable otherwise than by will or the laws of descent and distribution to the extent provided in Paragraph 5, and the Option may be exercised, during the lifetime of the Optionee, only by him. More particularly (but without limiting the generality of the foregoing), the Option may not be assigned, transferred (except as provided above), pledged or hypothecated in any way, shall not be assignable by operation of law, and shall not be subject to execution, attachment or similar process. Any attempted assignment, transfer, pledge, hypothecation or other disposition of the Option contrary to the provisions hereof and of the Plan, and the levy of any execution, attachment, or similar process upon the Option, shall be null and void and without effect; provided, however, that if the Optionee shall die while in the employ of the Company or any subsidiary, his estate, personal representative, or beneficiary shall have the right to exercise the Option to the extent provided in Paragraph 5. 5. Termination of Option. If the Optionee shall cease to be employed by the Company or any subsidiary as the result of his dismissal without cause, then the Option, to the extent that it is exercisable by him at the time he ceases to be employed by the Company or any subsidiary, and only to the extent that the Option is exercisable as of such time, may be exercised by him within three (3) months after such time; provided, however, that the Compensation and Stock Option Plan Committee may, in its sole discretion, determine that he has more than three (3) months from the date he ceases to be employed by the Company or any subsidiary to exercise the Option. If the Optionee shall cease to be employed by the Company or any subsidiary as the result of his dismissal for cause (as determined by the Board of Directors in its sole discretion), then the Compensation and Stock Option Plan Committee may, in its sole discretion, determine that the Option, to the extent that it is exercisable by the Optionee at the time he ceases to be employed by the Company or any subsidiary, and only to the extent that the Option is exercisable as of such time, may be exercised by him within thirty (30) days after such time. If the Optionee shall cease to be employed by the Company or any subsidiary as the result of his disability, then the Option, to the extent that it is exercisable by him at the time he ceases to be employed by the Company or any subsidiary, and only to the extent that the Option is exercisable as of such time, may be exercised by him within twelve (12) months after such time. 13 If the Optionee shall voluntarily terminate his employment with the Company or any subsidiary, then the Option, to the extent that it is exercisable by the Optionee at the time he ceases to be employed by the Company or any subsidiary, and only to the extent that the Option is exercisable as of such time, may be exercised by him within three (3) months after such time; provided, however, that the Compensation and Stock Option Plan Committee may, in its sole discretion, determine that he has more than three (3) months from the date he ceases to be employed by the Company or any subsidiary to exercise the Option. If the Optionee shall die while in the employ of the Company or any subsidiary, his estate, personal representative, or beneficiary shall have the right, subject to the provisions of Paragraph 3, to exercise the Option (to the extent that the Optionee would have been entitled to do so at the time of his death) at any time within twelve (12) months from the date of his death. In the event of the institution of any legal proceedings directed to the validity of the Plan or the Option, the Company may, in its sole discretion, and without incurring any liability therefor to the Optionee, terminate the Option. 6. Changes in Capital Stock. Upon any readjustment or recapitalization of the Company's capital stock whereby the character of the Common Stock shall be changed, appropriate adjustments shall be made so that the capital stock issuable upon exercise of the Option after such readjustment or recapitalization shall be the substantial equivalent of the Common Stock issuable upon exercise of the Option. In the case of a merger, sale of assets or similar transaction which results in a replacement of the Common Stock with stock of another corporation, the Company will make a reasonable effort, but shall not be required, to replace any outstanding Options granted under the Plan with comparable options to purchase the stock of such other corporation, or will provide for immediate maturity of all outstanding Options, with all Options not being exercised within the time period specified by the Board of Directors being terminated. 7. Method of Exercising Option. Subject to the terms and conditions of this Agreement, the Option may be exercised by written notice to the Company at its offices at 70 Wood Avenue South, Iselin, New Jersey 08830 (Attention: President). Such notice shall state that the Option is being exercised thereby and the number of shares of Common Stock in respect of which it is being exercised. It shall be signed by the person or persons so exercising the Option and shall be accompanied by payment in full of the Option Price for such shares of Common Stock in cash, by certified check or in shares of Common Stock. If shares of Common Stock are tendered as payment of the Option Price, the value of such shares shall be their fair market value as of the date of exercise. If such tender would result in the issuance of fractional shares of Common Stock, the Company shall instead return the balance in cash or by check to the Optionee. The Company shall issue, in the name of the person or persons exercising the Option, and deliver a 14 certificate or certificates representing such shares as soon as practicable after notice and payment shall be received. In the event the Option shall be exercised by any person or persons other than the Optionee, pursuant to Paragraph 5, such notice shall be accompanied by appropriate proof of the right of such person or persons to exercise the Option. The Optionee shall have no rights of a stockholder with respect to shares of Common Stock to be acquired by the exercise of the Option until a certificate or certificates representing such shares are issued to him. All shares of Common Stock purchased upon the exercise of the Option as provided herein shall be fully paid and non-assessable. 8. General. The Company shall at all times during the term of the Option reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy the requirements of this Agreement, shall pay all original issue taxes, if any, with respect to the issuance of shares of Common Stock pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and shall, from time to time, use its best efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto. 9. Representations of Optionee. The Optionee hereby represents that he and any related persons or entities, within the meaning of Section 425(d) of the Internal Revenue Code of 1986, do not own as much as ten percent (10%) of the total combined voting power of all classes of capital stock of the Company, and in accepting the Option herein granted to him, agrees to the terms of such Option as of the date hereof. 10. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by first class mail, postage prepaid, to the address as hereinafter provided. Each notice shall be deemed to have been given on the date it is received. Each notice to the Company shall be addressed to it at its offices at 70 Wood Avenue South, Iselin, New Jersey 08830 (Attention: President). Each notice to the Optionee or other person or persons then entitled to exercise the Option shall be addressed to the Optionee or such other person or persons at the Optionee's last known address. 11. Reimbursement of Expenses. If the Optionee is not a citizen or resident of the United States, the Optionee, as a condition hereof, agrees to reimburse the Company at its request for any foreign exchange premiums or license, transfer taxes or similar sums of money payable outside the United States by the Company in connection with the exercise of the Option under this Agreement. 12. Incorporation of Plan. Notwithstanding the terms and conditions herein, this Agreement shall be subject to and governed by all the terms and conditions 15 of the Plan. A copy of the Plan has been delivered to the Optionee and is hereby incorporated by reference. In the event of any discrepancy or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall control. 13. Continuance of Employment. The granting of the Option is in consideration of the Optionee's continuing employment by the Company or any subsidiary; provided, however, nothing in this Agreement shall confer upon the Optionee the right to continue in the employ of the Company or any subsidiary or affect the right of the Company or any subsidiary to terminate the Optionee's employment at any time in the sole discretion of the Company or any subsidiary, with or without cause. 14. Interpretation. The interpretation and construction of any terms or conditions of the Plan, or of this Agreement or other matters related to the Plan by the Compensation and Stock Option Plan Committee shall be final and conclusive. 15. Enforceability. This Agreement shall be binding upon the Optionee, his estate, his personal representatives and beneficiaries. IN WITNESS WHEREOF, the Company has caused this Agreement to be duly exercised by its officer thereunto duly authorized, and the Optionee has hereunto set his hand all as of the day and year first above written. BIO-TECHNOLOGY GENERAL CORP. By:______________________________ Authorized Officer OPTIONEE _________________________________ Address:_________________________ _________________________________ 16 EXHIBIT A TO INCENTIVE STOCK OPTION AGREEMENT The Option is exercisable during its term only in accordance with the following: No. of Years From Date of Percentage Exercisable Option Agreement Per Time Period Cumulative - ---------------- --------------- ----------------- One ....................... 25% = ______ sh. 25% = ______ sh. Two ....................... 25% = ______ sh. 50% = ______ sh. Three ..................... 25% = ______ sh. 75% = ______ sh. Four ...................... 25% = ______ sh. 100% = ______ sh. 17 EXHIBIT 8(A) PROMISSORY NOTE THIS NOTE IS SUBJECT TO CERTAIN TERMS CONTAINED IN AN EMPLOYMENT AGREEMENT ENTERED INTO BY AND BETWEEN WILLIAM PURSLEY AND BIO-TECHNOLOGY GENERAL CORP., DATED APRIL __, 1995 (THE "EMPLOYMENT AGREEMENT"). $40,000.00 April___, 1995 FOR VALUE RECEIVED, the undersigned, William Pursley (the "Maker") hereby absolutely and unconditionally promises to pay to the order of BIO-TECHNOLOGY GENERAL CORP. (the "Holder") or its assigns, at the Holder's office at 70 Wood Avenue South, Iselin, New Jersey or at such other place as the Holder may designate by written notice to the Maker, the principal sum of Forty Thousand United States Dollars ($40,000) on or before April ___, 1996 (the "Maturity Date"), together with simple interest on the unpaid principal balance from time to time outstanding at the rate of 6.8% per annum from the date hereof to maturity. The Maker agrees to pay any costs and expenses (including reasonable attorneys' fees and disbursements) incurred by the Holder in the collection of interest and/or principal on this Note which is not paid when due. Payments of both principal and interest shall be made in lawful money of the United States. The Maker shall have the right to prepay this Note, in whole or in part, at any time without penalty. Any prepayments shall be applied first to accrued interest until the entire amount thereof has been paid and next to principal. The unpaid principal amount shall forthwith mature, together with the interest accrued thereon, in the event of the happening of any one or more of the following events: (a) any petition in bankruptcy is filed by or against the Maker, or any proceedings in bankruptcy, or under any Act of Congress relating to the relief of debtors, being commenced for the relief or readjustment of any indebtedness of Maker; (b) the making by Maker of an assignment for the benefit of creditors or the taking advantage by Maker of any insolvency law; or (c) the appointment of a receiver of any property of the Maker. Notwithstanding the forgoing, the Company agrees to forgive repayment of the principal amount of the loan and all accrued interest thereon, if any one of the following occurs on or before the Maturity Date: (i) the Maker's employment with the Holder is terminated by the Holder for any reason which would not constitute justifiable cause (as defined in Section 10(d) of the Employment Agreement) following a Change in Control of the Company (as defined in 8(c) of the Employment Agreement); (ii) the Maker's employment with the Holder terminates by reason of the death or disability (as defined in Section 10(c) of the Employment Agreement) of the Maker; or (iii) the Holder shall terminate the Maker's employment for any reason 18 which would not constitute justifiable cause (as defined in Section 10(d) of the Employment Agreement). Additionally, the Company shall forgive repayment of the principal amount of the loan and all accrued interest thereon on the Maturity Date if, on that date, the Maker is still an employee of the Holder. No failure or delay on the part of the Holder in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right hereunder preclude any other or future exercise thereof or the exercise of any other rights hereunder. No waiver shall be deemed to be made by the Holder of any of its rights hereunder unless the same shall be in writing, signed on behalf of the Holder, and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the Holder or the obligations of the Maker to the Holder in any other respect at any other time. All amendments hereto must be in writing. The Holder may assign all or any part of its interest in this Note and the transferee(s) shall thereupon be vested with all the powers and rights herein given to the Holder with respect hereto. This Note is executed under and is to be construed by the laws of the State of New Jersey, without giving effect to conflicts of law. Presentment, demand for payment, notice of dishonor, protest and notice of protest are hereby expressly waived. ______________________________ William Pursley 19 EXHIBIT 8(B) PROMISSORY NOTE THIS NOTE IS SUBJECT TO CERTAIN TERMS CONTAINED IN AN EMPLOYMENT AGREEMENT ENTERED INTO BY AND BETWEEN WILLIAM PURSLEY AND BIO-TECHNOLOGY GENERAL CORP., DATED APRIL __, 1995 (THE "EMPLOYMENT AGREEMENT"). $40,000.00 April ___, 1995 FOR VALUE RECEIVED, the undersigned, William Pursley (the "Maker"), hereby absolutely and unconditionally promises to pay to the order of BIO-TECHNOLOGY GENERAL CORP. (the "Holder") or its assigns, at the Holder's office at 70 Wood Avenue South, Iselin, New Jersey or at such other place as the Holder may designate by written notice to the Maker, the principal sum of Forty Thousand United States Dollars ($40,000) on or before June 30, 1997 (the "Maturity Date"), together with simple interest on the unpaid principal balance from time to time outstanding at the rate of 6.8% per annum from the date hereof to maturity. The Maker agrees to pay any costs and expenses (including reasonable attorneys' fees and disbursements) incurred by the Holder in the collection of interest and/or principal on this Note which is not paid when due. Payments of both principal and interest shall be made in lawful money of the United States. Notwithstanding the forgoing, the undersigned agrees that this Note will become immediately due and payable, with all accrued interest thereon, upon the occurrence of any of the following: (i) if the Holder shall terminate the undersigned's employment for justifiable cause (as defined in Section 10(d) of the Employment Agreement), on such date; (ii) if the undersigned shall resign from his position with the Holder, on the effective date of such resignation; (iii) any petition in bankruptcy is filed by or against the Maker, or any proceedings in bankruptcy, or under any Act of Congress relating to the relief of debtors, being commenced for the relief or readjustment of any indebtedness of Maker; (iv) the making by Maker of an assignment for the benefit of creditors or the taking advantage by Maker of any insolvency law; or (v) the appointment of a receiver of any property of the Maker. Notwithstanding the foregoing, the Company shall forgive repayment of this Note, and all accrued interest thereon, if prior to this Note becoming due and payable the Maker's employment with the Holder is terminated by the Holder for any reason which would not constitute justifiable cause (as defined in Section 10(d) of the Employment Agreement) following a Change in Control of the Company (as defined in 8(c) of the Employment Agreement). The Maker shall have the right to prepay this Note, in whole or in part, at any time without penalty. Any prepayments shall be applied first to accrued interest until the entire amount thereof has been paid and next to principal. 20 No failure or delay on the part of the Holder in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Holder of any right hereunder preclude any other or future exercise thereof or the exercise of any other rights hereunder. No waiver shall be deemed to be made by the Holder of any of its rights hereunder unless the same shall be in writing, signed on behalf of the Holder, and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the Holder or the obligations of the Maker to the Holder in any other respect at any other time. All amendments hereto must be in writing. The Holder may assign all or any part of its interest in this Note and the transferee(s) shall thereupon be vested with all the powers and rights herein given to the Holder with respect hereto. This Note is executed under and is to be construed by the laws of the State of New Jersey, without giving effect to conflicts of law. Presentment, demand for payment, notice of dishonor, protest and notice of protest are hereby expressly waived. ____________________________________ William Pursley 21 EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1995 MAR-31-1995 17,762 0 3,184 0 1,833 23,250 4,649 0 33,791 8,656 1,165 432 0 0 23,538 33,791 5,183 5,749 652 5,307 0 0 40 402 0 402 0 0 0 402 0.01 0
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