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0001104659-01-501380.txt : 20010813 0001104659-01-501380.hdr.sgml : 20010813 ACCESSION NUMBER: 0001104659-01-501380 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010810 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: 1704843 BUSINESS ADDRESS: STREET 1: 70 WOOD AVE S CITY: ISELIN STATE: NJ ZIP: 08830 BUSINESS PHONE: 9086328800 MAIL ADDRESS: STREET 1: 70 WOOD AVENUE SOUTH CITY: ISELIN STATE: NJ ZIP: 08830 10-Q 1 j1390_10q.htm 10-Q Prepared by MerrillDirect

FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

Commission File Number 0-15313

BIO–TECHNOLOGY GENERAL CORP.
(Exact name of registrant as specified in its charter)

Delaware	13–3033811
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

70 Wood Avenue South, Iselin, New Jersey 08830
(Address of principal executive offices)

(732) 632-8800
(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year,
if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesý Noo

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 August 2, 2001: 58,054,118

INDEX

Part I. Financial Information

	Item 1.	Financial Statements:

		Consolidated Balance Sheets at June 30, 2001 and December 31, 2000

		Consolidated Statements of Operations for the three and six months ended June 30, 2001 and 2000

		Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2001

		Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and 2000

		Notes to Consolidated Financial Statements

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Part II. Other Information

	Item 4.	Submission of Matters to a Vote of Security Holders

	Item 6.	Exhibits and Reports on Form 8-K

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS
(In thousands except share data)

				June 30,
				2001(Unaudited)			December 31, 2000

ASSETS:
Current Assets
	Cash and cash equivalents			$	54,502		$	26,353
	Short-term investments			57,952			93,217
	Accounts receivable			43,050			39,188
	Inventories			10,467			9,880
	Deferred income taxes			1,436			2,445
	Prepaid expenses and other current assets			737			989

		Total current assets		168,144			172,072


Deferred income tax				12,409			5,745
Account receivable				1,703			1,703
Severance pay funded				2,361			2,321
Property and equipment, net				38,212			27,819
Other assets				9,149			3,565

		Total assets		$	231,978		$	213,225


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Deferred revenues			$	1,150		$	1,153
	Accounts payable			9,613			6,420
	Other current liabilities			14,821			11,155

		Total current liabilities		25,584			18,728


Negative goodwill				17,280			---
Long-term debt				20,126			20,000
Deferred revenues				9,978			10,551
Provision for severance pay				5,202			4,593

Stockholders’ equity:
	Preferred stock - $.01 par value; 4,000,000 shares authorized; no shares issued			---			---
	Common stock - $.01 par value; 150,000,000 shares authorized; issued: 57,898,000 (54,765,000 at December 31, 2000)			579			547
	Capital in excess of par value			203,873			179,586
	Deficit			(43,953		)	(14,817		)
	Accumulated other comprehensive loss			(6,691		)	(5,963		)

		Total stockholders’ equity		153,808			159,353

			Total liabilities and stockholders’ equity	$	231,978		$	213,225

The accompanying notes are an integral part of these consolidated balance sheets.

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands except per share data)

			Six Months Ended June 30,							Three Months Ended June 30,

				2001			2000*			2001		2000*

Revenues:
	Product sales			$	55,190		$	26,589		$	25,303	$	14,082
	Contract fees			576			9,551			290		7,713
	Royalties			1,693			1,380			850		745
	Other revenues			411			893			187		462
	Interest income			4,073			3,192			1,577		1,841

				61,943			41,605			28,207		24,843

Expenses:
	Research and development			13,115			11,032			7,185		5,635
	Cost of product sales			8,958			4,247			3,819		1,911
	General and administrative			5,918			6,628			2,641		3,182
	Marketing and sales			9,298			8,571			4,557		5,315
	Royalties			911			918			265		264
	Finance			17			47			---		17
	Write-off of in-process research and
		development acquired		45,600			---			---		---

				83,817			31,443			18,467		16,324


Income (loss) before income taxes				(21,874		)	10,162			9,740		8,519
Income taxes				7,262			3,481			2,747		2,922

Income (loss) before cumulative effect of change in accounting principle				(29,136		)	6,681			6,993		5,597
Cumulative effect of change in accounting principle				---			8,178			---		---

Net income (loss)				$	(29,136	)	$	(1,497	)	$	6,993	$	5,597


Earnings per common share:
	Basic:
	Income (loss) before cumulative effect of change in accounting principle			$	(0.52	)	$	0.12		$	0.12	$	0.10
	Cumulative effect of change in accounting principle			---			(0.15		)	---		---

	Net income (loss)			$	(0.52	)	$	(0.03	)	$	0.12	$	0.10

	Diluted:
	Income (loss) before cumulative effect of change in accounting principle			$	(0.52	)	$	0.12		$	0.12	$	0.10
	Cumulative effect of change in accounting principle			---			(0.14		)	---		---

	Net income (loss)			$	(0.52	)	$	(0.02	)	$	0.12	$	0.10

Weighted average number of common and common equivalent shares
	Basic			56,250			54,026			57,388		54,303

	Diluted			56,250			57,188			58,899		57,015

* See Note 3
The accompanying notes are an integral part of these consolidated statements.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(in thousands)

		Common Stock			Capital in Excess of Par Value		Deficit			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity

		Shares	Par Value

Balance, December 31, 2000		54,765	$	547	$	179,586	$	(14,817	)	$	(5,963	)	$	159,353
Comprehensive income:
	Net loss for six months ended June 30, 2001						(29,136		)				(29,136		)
	Unrealized loss on marketable securities, net									(728		)	(728		)

Total comprehensive loss													(29,864		)

Issuance of common stock in Myelos acquisition		2,345	24		19,009								19,033
Issuance of common stock		133	1		980								981
Exercise of stock options		655	7		4,298								4,305

Balance, June 30, 2001		57,898	$	579	$	203,873	$	(43,953	)	$	(6,691	)	$	153,808

The accompanying notes are an integral part of this consolidated statement.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

				Six Months Ended June 30

				2001			2000

Cash flows from operating activities:
	Net loss			$	(29,136	)	$	(1,497	)
	Adjustments to reconcile net loss to net cash provided by operating activities:
		Cumulative effect of accounting change, net		---			8,178
		Depreciation and amortization		1,659			1,467
		Amortization of negative goodwill		(1,033		)	---
		Provision for severance pay		609			148
		Write-off of in-process research and development acquired		45,600			---
		Loss (gain) on sales of short-term investments		(303		)	304
		Loss (gain) on sales of fixed assets		11			(16		)
		Deferred income taxes		---			68
		Common stock issued as payment for services		35			30
		Changes in: Receivables		(3,862		)	1,409
			Inventories	(587		)	(1,258		)
			Prepaid expenses and other current assets	26			(29		)
			Deferred revenue	(576		)	424
			Accounts payable	4,962			1,019
			Other current liabilities	3,468			2,650

Net cash provided by operating activities				20,873			12,897

Cash flows from investing activities:
	Short-term investments			(1,614		)	(26,152		)
	Capital expenditures			(11,735		)	(4,393		)
	Changes in other assets			(852		)	(682		)
	Severance pay funded (used)			(40		)	(65		)
	Proceeds from sales of fixed assets			132			44
	Net cash paid in acquisition			(15,320		)	---
	Other investment			(5,000		)	---
	Proceeds from sales of short-term investments			36,454			9,051

Net cash provided by (used in) investing activities				2,025			(22,197		)


Cash flows from financing activities:
	Proceeds from issuance of common stock			5,251			7,191


Net increase (decrease) in cash and cash equivalents				28,149			(2,109		)
Cash and cash equivalents at beginning of period				26,353			18,703

Cash and cash equivalents at end of period				$	54,502		$	16,594

Supplementary Information
Other information:
	Income tax paid			$	2,036		$	---
	Interest paid			662			---
	Acquisition of Myelos Corporation:
		Assets acquired		$	8,258		$	---
		Liabilities assumed		(1,125		)	---
		Negative goodwill		(18,313		)	---
		Equity issued		(19,033		)	---
		In-process research and development acquired		45,600			---

		Cash paid (including acquisition costs of $1,387).		15,387			---
		Less – cash acquired		(67		)	---

		Net cash paid		$	15,320		$	---

The accompanying notes are an integral part of these consolidated statements.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Basis of Presentation

In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of only normal recurring accruals, considered necessary for a fair presentation. Due to fluctuations in quarterly revenues earned, operating results for interim periods are not necessarily indicative of the results that may be expected for the full year. The accounting policies continue unchanged from December 31, 2000. For further information, refer to the Consolidated Financial Statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

Note 2: Acquisition and Investment

Acquisition of Myelos Corporation

On March 19, 2001, BTG acquired Myelos Corporation, a privately-held biopharmaceutical company focused on the development of novel therapeutics to treat diseases of the nervous system. Under the terms of the acquisition agreement, BTG paid Myelos shareholders $35,000,000 in a combination of cash and stock ($14,000,000 in cash and $21,000,000 through the issuance of approximately 2,344,700 shares of the Company’s common stock (based on a value of $8.9564, representing the average closing price of BTG’s common stock for the 20 trading day period ending one day prior to February 21, 2001, the date the acquisition agreement was executed)). In addition, BTG has agreed to pay the Myelos shareholders an additional $30,000,000 if BTG is able to file a New Drug Application with respect to Prosaptide to treat neuropathic pain or neuropathy, of which at least $14,000,000 will be paid through the issuance of shares of BTG common stock. The remaining $16,000,000 can be paid, at BTG’s option, in cash, shares of BTG common stock or a combination thereof. BTG has also agreed that if Prosaptide is approved by the United States Food and Drug Administration for the treatment of neuropathic pain or neuropathy, BTG will pay the Myelos shareholders 15% of net sales of Prosaptide during the 12 month period beginning on the earlier of (i) the 25^thfull month after commercial introduction of Prosaptide in the United States for the treatment of neuropathic pain or neuropathy and (ii) April 1, 2010. At least 50% of this payment must be in shares of BTG common stock, with the remainder payable, at BTG’s option, in cash, shares of BTG common stock or a combination thereof. In no event is BTG required to issue more than 10,962,000 shares of its common stock; any equity required to be issued in excess of that amount will be issued in shares of BTG preferred stock. The preferred stock would be non-voting, non-convertible, non-transferable, non-dividend paying (except to the extent a cash dividend is paid on the BTG common stock), with no mandatory redemption for a period of 20 years and one day from the closing date of the acquisition, and a right to share in proceeds in liquidation, up to the liquidation amount.

The transaction was treated as a “purchase” for accounting purposes. The purchase price for accounting purposes is approximately $34,387,000 (including acquisition costs of $1,387,000), based on a value for the approximately 2,344,700 shares of Company common stock issued in the acquisition of $8.1172, representing the average closing price of the Company’s common stock for the four day period preceding the date the terms of the acquisition were agreed to (February 21, 2001). In connection with the merger and based on an independent valuation, BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology. At the date of the merger the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date. The Company recorded negative goodwill of $18,313,000 on its balance sheet, primarily because the amount written off as in-process research and development acquired exceeded the purchase price for accounting purposes. This negative goodwill is being amortized over its expected useful life of five years. In accordance with SFAS No. 142, amortization of the negative goodwill will cease beginning January 1, 2002, and the balance remaining will be maintained as a deferred credit until it is either netted against the contingent payments or reflected in net income as an extraordinary item should the contingent payments not become due because the technology did not meet the milestones which trigger payment.

The Company allocated values to the in-process research and development based on an independent valuation of the research and development project. The value assigned to these assets was determined by estimating the costs to develop the acquired technology into a commercially viable product, estimating the resulting net cash flows from the product, and discounting the net cash flows to their present value. The revenue projection used to value the in-process research and development was based on estimates of relevant market size and growth factors, expected trends in technology, and the nature and expected timing of new product introductions by the Company and its competitors. The resulting net cash flows from such product are based on management’s estimates of cost of sales, operating expenses and income taxes from such product. The Company believes that the assumptions used in the forecasts were reasonable at the time of the merger. No assurance can be given, however, that the underlying assumptions used to estimate sales, development costs or profitability, or the events associated with such product, will transpire as estimated. For these reasons, actual results may vary from projected results. The most significant and uncertain assumptions relating to the in-process research and development relate to the ability to successfully develop a product and the projected timing of completion of, and revenues attributable to, that product. The Company estimates that it will cost approximately $30,000,000 to complete development of the product over the next four to five years.

The following pro forma consolidated results of operations for the six month period ended June 30, 2001 was prepared assuming the acquisition at Myelos occurred on January 1, 2001. The pro forma results of operations are not necessarily indicative of the consolidated results which actually would have occurred if the acquisition had been consummated at the beginning of the year presented, nor does it purport to represent the results of operations for future periods.

	Six months ended June 30, 2001

	(In thousands except per share data)

	As Reported			Pro Forma

Total revenues	$	61,943		$	61,943
Net loss	$	(29,136	)	$	(29,466	)
Loss per share (basic and diluted)	$	(0.52	)	$	(0.52	)

The pro forma results include the effect of the amortization of negative goodwill.

Investment in Omrix Biopharmaceuticals, Inc.

In January 2001, in order to obtain a period of exclusivity to negotiate a possible strategic relationship with Omrix Biopharmaceuticals, Inc., BTG loaned $2,500,000 to Omrix and agreed to convert the loan into, and to purchase an additional $2,500,000 of, shares of Omrix preferred stock if it did not pursue a relationship. BTG determined not to pursue a strategic relationship with Omrix, and on March 31, 200l converted the existing loan into, and purchased an additional $2,500,000 of, shares of Omrix preferred stock, which is convertible into approximately 4.5% of Omrix common stock (on a fully-diluted basis). Omrix is a privately-held company that develops and markets a unique surgical sealant and a number of immunology products based on blood plasma processing technology. Omrix currently sells its products in Europe, South America and the Middle East.

Note3: SAB 101

Effective January 1, 2000, the Company adopted Staff Accounting Bulletin 101 (“SAB 101”) issued by the Securities and Exchange Commission in December 1999. As a result of adopting SAB 101, the Company changed the way it recognizes revenue from contract fees for the license of marketing and distribution rights where the consideration is a one-time nonrefundable payment. Prior to the issuance of SAB 101, the Company recorded revenue from the license of marketing and distribution rights when the rights were licensed and/or when these payments were received. In accordance with SAB 101, the related revenues are now being recognized over the term of the related agreements. Effective January 1, 2000, the Company recorded a cumulative effect of change in accounting principle related to contract revenues recognized in prior years in the amount of $12,558,000, net of income taxes of $4,380,000. Contract fees that have been received but not yet recognized as revenue are recorded as deferred revenue on the balance sheet.

Following is a reconciliation of the information for the three and six months ended June 30, 2000 as reported:

For the three months ended June 30, 2000:

		As reported		Adjustments		As Adjusted

		(In thousands except per share data)
Contract fees		$	7,500	$	213	$	7,713
Income taxes		$	2,843	$	79	$	2,922
Earnings per common share:
	Basic	$	0.10	$	---	$	0.10
	Diluted	$	0.10	$	---	$	0.10

For the six months ended June 30, 2000:

		As reported		Adjustments			As Adjusted

		(In thousands except per share data)
Contract fees		$	9,975	$	(424	)	$	9,551
Income taxes		$	3,639	$	(158	)	$	3,481
Cumulative effect of change in accounting principle		$	---	$	(8,178	)	$	(8,178	)
Earnings (loss) per common share:
	Basic	$	0.13	$	(0.16	)	$	(0.03	)
	Diluted	$	0.12	$	(0.14	)	$	(0.02	)

Note 4: New Accounting Statements:

In June 2001, the FASB approved SFAS Nos. 141 and 142 entitled “Business Combinations” and “Goodwill and Other Intangible Assets”, respectively. SFAS No. 141, among other things, eliminates the pooling of interests method of accounting for business acquisitions entered into after June 30, 2001. SFAS No. 142 requires companies to use a fair-value approach to determine whether there is an impairment of existing and future goodwill. SFAS No. 141 is applied to all business combinations initiated after June 30, 2001. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. As a result of the adoption of SFAS No. 142, beginning in 2002 the Company will no longer amortize the negative goodwill resulting from the Myelos acquisition, which reduced general and administrative expense by approximately $1,000,000 per quarter for financial reporting purposes. Under SFAS No. 142, the negative goodwill balance remaining at December 31, 2001 will be maintained on the Balance Sheet as a deferred credit until it is either netted against the contingent payments, if any, made to the former Myelos shareholders or reflected in net income as an extraordinary item should the contingent payments not become due. Except for the increase in reported general and administrative expense resulting from the elimination of the amortization of negative goodwill, the Company does not expect the adoption of these statements to have a material impact on its consolidated financial statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Three and six months ended June 30, 2001
compared with three and six months ended June 30, 2000

Statements in this Quarterly Report on Form 10-Q concerning the Company’s business outlook or future economic performance; anticipated profitability, revenues, expenses or other financial items; introductions and advancements in development of products, and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are “forward-looking statements” as that term is defined under the Federal Securities Laws. Forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially from those stated in such statements. Such risks, uncertainties and factors include, but are not limited to, changes and delays in product development plans and schedules, changes and delays in product approval and introduction, customer acceptance of new products, changes in pricing or other actions by competitors, patents owned by the Company and its competitors, changes in healthcare reimbursement, risk of operations in Israel, risk of product liability, governmental regulation, dependence on third parties to manufacture products and commercialize products, general economic conditions, as well as other risks detailed in the Company’s filings with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

Overview

BTG is engaged in the research, development, manufacture and marketing of biopharmaceutical products. Through a combination of internal research and development, acquisitions, collaborative relationships and licensing arrangements, BTG has developed a portfolio of therapeutic products, including eight products that have received regulatory approval for sale, all of which are currently being marketed, four products that are in registration or clinical trials and several products that are in pre-clinical development. BTG pursues the development of both products with broad markets as well as products with specialized niche markets where BTG can seek Orphan Drug designation and potential marketing exclusivity.

BTG was founded in 1980 to develop, manufacture and market novel therapeutic products. BTG’s overall administration, licensing, human clinical studies, marketing activities, quality assurance and regulatory affairs are primarily coordinated at its headquarters in Iselin, New Jersey. Pre-clinical studies, research and development activities and manufacturing of the Company’s genetically engineered and fermentation products are primarily carried out through its wholly owned subsidiary in Rehovot, Israel.

Acquisition of Myelos Corporation

In the event that (i) BTG publicly announces that it will file a New Drug Application (“NDA”) related to the use of Prosaptide to treat neuropathic pain or neuropathy, (ii) BTG receives United States Food and Drug Administration (“FDA”) minutes stating that the clinical data possessed by BTG is sufficient for an NDA filing for the use of Prosaptide to treat neuropathic pain or neuropathy without requiring any further testing or (iii) BTG initiates preparation of an NDA for Prosaptide for the treatment of neuropathic pain or neuropathy (the date the earliest of the foregoing occurs being the “Payment Trigger Date”), then BTG will pay to the Myelos shareholders an additional $30 million, at least approximately $14 million of which must be paid in shares of BTG common stock, valued at the average of the closing prices of BTG common stock during the 20 trading days ending on the Payment Trigger Date, and the remainder can be paid in cash, shares of BTG common stock, or a combination thereof, as determined by BTG in its sole discretion.

In addition, in the event that the FDA approves the sale of Prosaptide for the treatment of neuropathic pain or neuropathy, BTG will pay the Myelos shareholders 15% of the net sales of Prosaptide for the treatment of neuropathic pain or neuropathy during the 12 month period beginning on the earlier of (i) the 25^th full month after commercial introduction of Prosaptide in the United States for the treatment of neuropathic pain or neuropathy and (ii) April 1, 2010. At least 50% of this payment must be paid in shares of BTG common stock, valued at the average of the closing prices of BTG common stock during the 20 days ending one day prior to the payment, and the remainder can be paid in cash, shares of BTG common stock, or a combination thereof, as determined by BTG in its sole discretion.

In no event will BTG be obligated to issue in aggregate to the Myelos shareholders more than 10,962,000 shares of BTG common stock. Any amount of the contingent payments that cannot be paid in shares of BTG common stock shall instead be paid in shares of BTG’s preferred stock. The preferred stock will be non-voting, non-convertible, non-transferable, non-dividend paying (except to the extent a cash dividend is paid on the BTG common stock), with no mandatory redemption for a period of 20 years and one day from the closing date of the acquisition, and a right to share in proceeds in liquidation, up to the liquidation amount.

Results of Operations

The following tables set forth for the fiscal periods indicated the percentage of revenues represented by certain items reflected on the Company’s statements of operations.

			Six Months Ended June 30,				Three Months Ended June 30,

			2001		2000		2001		2000

Revenues:
	Products sales		89.1	%	63.9	%	89.7	%	56.7	%
	Contract fees		0.9		23.0		1.0		31.0
	Royalties		2.7		3.3		3.0		3.0
	Other revenues		0.7		2.1		0.7		1.9
	Interest income		6.6		7.7		5.6		7.4

		Total	100.0		100.0		100.0		100.0

Expenses:
	Research and development		21.2		26.5		25.5		22.7
	Cost of product sales		14.5		10.2		13.5		7.7
	General and administrative		9.6		16.0		9.4		12.8
	Marketing and sales		15.0		20.6		16.2		21.4
	Royalties		1.5		2.2		0.9		1.0
	Finance		0.0		0.1		---		0.1
	Write-off of in-process research and development acquired		73.6		---		---		---

		Total	135.4		75.6		65.5		65.7

Income (loss) before income taxes			(35.4	)	24.4		34.5		34.3
Income taxes			11.7		8.4		9.7		11.8

Income (loss) before cumulative effect of change in accounting principle			(47.1	)	16.0		24.8		22.5
Cumulative effect of change in accounting principle			---		19.6		---		---

Net income (loss)			(47.1)	%	(3.6)	%	24.8	%	22.5	%

The following tables set forth for the fiscal periods indicated the Company’s pro forma statement of operations excluding the effect resulting from the Myelos acquisition of (i) the write-off of in-process research and development acquired in the six months ended June 30, 2001 and (ii) the amortization of negative goodwill in the three and six months ended June 30, 2001. The tables also set forth for the fiscal periods indicated the pro forma percentage of revenues represented by these items.

			Six Months Ended June 30, 2001						Three Months Ended June 30, 2001

			(dollars in thousands)
Revenues:
		Product sales	$		55,190	89.1		%	$		25,303	89.7		%
		Contract fees	576			0.9			290			1.0
		Royalties	1,693			2.7			850			3.0
		Other revenues	411			0.7			187			0.7
		Interest income	4,073			6.6			1,577			5.6

			61,943			100.0			28,207			100.0

Expenses:
		Research and development	13,115			21.2			7,185			25.5

		Cost of product sales	8,958			14.5			3,819			13.5

		General and administrative	6,951			11.2			3,674			13.0

		Marketing and sales	9,298			15.0			4,557			16.2

		Royalties	911			1.5			265			0.9

		Finance	17			0.0			---			---

	Write-off of in-process research and development acquired			---			---			---			---

			39,250			63.4			19,500			69.1


Income before income taxes			22,693			36.6			8,707			30.9
Income taxes			7,262			11.7			2,747			9.7

Net income			$		15,431	24.9		%	$		5,960	21.2		%

BTG has historically derived its revenues from product sales as well as from collaborative arrangements with third parties, under which the Company may earn up-front contract fees, may receive funding for additional research (including funding from the Chief Scientist of the State of Israel), is reimbursed for producing certain experimental materials, may be entitled to certain milestone payments, may sell product at specified prices, and may receive royalties on sales of product. The Company anticipates that product sales will continue to constitute the majority of its revenues in the future. Revenues have in the past displayed and will in the immediate future continue to display significant variations due to changes in demand for its products, the operational needs of its customers, new product introductions by the Company and its competitors, the obtaining of new research and development contracts and licensing arrangements, the completion or termination of such contracts and arrangements, the timing and amounts of milestone payments, and the timing of regulatory approvals of products.

Oxandrin sales in the six months ended June 30, 2001 were $34,579,000, an increase of $23,167,000, or 203%, from the six months ended June 30, 2000. The increase in Oxandrin sales was due to: (i) the commencement, in September 2000, of sales by the Ross Products Division of Abbott Laboratories for the long-term care market, including stocking activity by wholesalers in connection with the launch of this product in the long-term care market; (ii) the completion, in May 2000, by Gentiva Health Services (“Gentiva”), the Company’s wholesale and retail distributor of Oxandrin in the United States, of a reduction in the amount of Oxandrin inventory it carries, which reduction began in April 1999; and (iii) increased wholesaler sales of Oxandrin by Gentiva. Following the completion of its inventory reduction, Gentiva is now purchasing on a monthly basis, an amount of Oxandrin equal to the average wholesaler sales during the preceding three months. During the first six months of 2001 Oxandrin prescriptions increased by approximately 47% over the same period last year, and increased approximately 7% from the first quarter to the second quarter of 2001. However, to date the average prescriptions written for the long-term care market involve a lower dose of Oxandrin than the average prescription written for other markets. As a result of the stocking purchases by wholesalers from Gentiva in connection with the launch of Oxandrin into the long-term care market, the slowdown in the increase of Oxandrin prescriptions written in the second quarter and Gentiva’s current purchasing pattern from BTG, the Company anticipates that sales of Oxandrin to Gentiva in the third and fourth quarter of 2001 will be lower than in the first and second quarter of 2001.

The following table summarizes the Company’s sales of its commercialized products as a percentage of total product sales for the periods indicated:

			Six Months Ended June 30,					Three Months Ended June 30,

		2001			2000		2001			2000

Oxandrin		62.7		%	38.5	%	70.7		%	45.4	%
Bio-Tropin		20.1			37.7		22.0			41.6
BioLon		7.4			11.5		7.3			12.0
Delatestryl		9.3			11.0		--			--
Other		0.5			1.3		0.0			1.0

	Total	100.0		%	100.0	%	100.0		%	100.0	%

The Company believes that its product mix will change significantly as it continues to focus on: (i) increasing market penetration of its existing products; (ii) expanding into new markets; and (iii) commercializing additional products.

The following table summarizes the Company’s U.S. and international product sales as a percentage of total product sales for the period indicated:

			Six Months Ended June 30,					Three Months Ended June 30,


		2001			2000		2001			2000

United States		72.8		%	48.4	%	71.2		%	44.2	%
International		27.2			51.6		28.8			55.8

	Total	100.0		%	100.0	%	100.0		%	100.0	%

Comparison of Six Months Ended June 30, 2001 and June 30, 2000.

Revenues. Total revenues increased 49% in the six months ended June 30, 2001 to $61,943,000 from $41,605,000 in the same period in 2000. The increase in total revenues from the comparable prior period was mainly due to the substantial increase in product sales partially offset by a substantial decrease in contract fees.

Product sales increased by $28,601,000, or 108%, in the six months ended June 30, 2001 from the comparable prior period. Oxandrin sales in the six months ended June 30, 2001 were $34,579,000, an increase of $23,167,000, or 203%, from the six months ended June 30, 2000. As discussed above, the increase in Oxandrin sales was due to: (i) the commencement, in September 2000, of sales by the Ross Products Division of Abbott Laboratories for the long-term care market, including stocking activity by wholesalers in connection with the launch of this product in the long-term care market; (ii) Gentiva’a completion, in May 2000, of a reduction in the amount of Oxandrin inventory it carries, which reduction began in April 1999; and (iii) increased wholesaler sales of Oxandrin by Gentiva. Product sales of human growth hormone and BioLon increased $1,277,000 and $595,000, or 13% and 17%, respectively, over the comparable period in 2000. Delatestryl sales in the first half of 2001 were $5,118,000, an increase of $3,611,000, or 240%, over the comparable period of 2000. All of the Delatestryl sales in 2001 occurred in the first quarter. Gentiva, which acts as BTG’s wholesale distributor of Delatestryl in the United States, reduced its Delatestryl inventory during 2000, which BTG believes was in anticipation of the FDA permitting the production of a competing injectable testosterone product used to treat men with hypogonadism (testosterone deficiency) which the FDA had previously stopped. To date the FDA has not permitted the commencement of production of this competing product.

Contract fees in the six months ended June 30, 2001 decreased by $8,972,000, or 94%, from the comparable prior period. Contract fees earned in the six months ended June 30, 2001 represent contract fees received in prior periods but recognized in the six months period ended June 30, 2001 in accordance with SAB 101. Of the contract fees earned in the six months ended June 30, 2000, $5,000,000, or 52% of total contract fees, was earned in respect of the license of worldwide distribution rights of Bio-Hy to DePuy Orthopedics, a Johnson & Johnson company, $2,500,000, or 26% of total contract fees, was earned as a milestone payment under its strategic alliance with Teva Pharmaceutical Industries Ltd. focusing on the development and global commercialization of several generic recombinant therapeutic products and the license of distribution rights in the United States for the Company’s human growth hormone and $1,475,000, or 15% of total contract fees, was earned as milestone payments under its license and development and distribution agreements with Swiss Serum relating to BTG’s Hepatitis-B-Vaccine.

Royalties were $1,693,000 in the six months ended June 30, 2001, as compared to $1,380,000 in the same period last year. These revenues consist of royalties from the licensee of the Company’s Mircette product.

Other revenues were primarily generated from partial research and development funding by the Chief Scientist of the State of Israel.

Interest income for the six months ended June 30, 2001 increased $881,000, or 28%, over the comparable prior period, primarily as a result of increased cash balances (including short-term investments) resulting mainly from cash flow from operations and proceeds from a $20,000,000 loan borrowed to finance construction of the Company’s new manufacturing facility in Israel. This was partially offset by lower interest rates, the use of approximately $15,387,000 to acquire Myelos, the use of approximately $15,980,000 to fund construction of the Company’s new manufacturing facility after June 30, 2000 and the use of $5,000,000 to purchase shares of Omrix Biopharmaceuticals.

Research and Development Expense. Research and development expense increased 19% in the six months ended June 30, 2001 to $13,115,000 from $11,032,000 in the same period of 2000. The increase in research and development expenditures resulted mainly from the increase in research and development personnel as well as the addition of research and development activities for Prosaptide following the acquisition of Myelos.

Cost of Product Sales. Cost of product sales increased by 111% in the six months ended June 30, 2001 to $8,958,000 from $4,247,000 in the six months ended June 30, 2000, primarily due to the 108% increase in product sales. Cost of product sales as a percentage of product sales increased slightly to 16.2% as compared to 16.0% in the comparable period last year. Cost of product sales as a percentage of product sales increased due to the mix of products. Oxandrin and human growth hormone have a relatively low cost of manufacture as a percentage of product sales, while BioLon has the highest cost to manufacture as a percentage of product sales. Cost of product sales as a percentage of product sales varies from year to year and quarter to quarter depending on the quantity and mix of products sold.

General and Administrative Expense. General and administrative expense decreased by 11% in the six months ended June 30, 2001 to $5,918,000 from $6,628,000 in the comparable prior period. The decrease in general and administrative expense was due solely to the amortization of negative goodwill resulting from the Myelos acquisition of $1,033,000. On a pro forma basis to exclude the effect of the amortization of negative goodwill, general and administrative expense for the six months ended June 30, 2001 was $6,951,000, an increase of 5% from the comparable period in 2000. The increase in general and administrative expense (excluding the effect of the amortization of negative goodwill) was primarily due to increased compensation costs and expenses associated with merger and acquisition activities, partially offset by a reduction of legal fees as compared to 2000, when legal fees increased primarily due to the reactivation in the fourth quarter of 1998 of the Company’s declaratory judgment action against Genentech in respect of the Company’s human growth hormone product in the United States. As a percentage of revenues, general and administrative expense (excluding the effect of the amortization of negative goodwill) decreased to 11.2% in the six months ended June 30, 2001 from 15.9% in the six months ended June 30, 2000. The substantial decrease in general and administrative expense as a percentage of revenues derived principally from the substantial increase in total revenues.

Marketing and Sales Expense. Marketing and sales expense increased 8% in the six months ended June 30, 2001 to $9,298,000 from $8,571,000 for the prior year period. These expenses primarily related to the sales and marketing force in the United States that the Company established to promote distribution of Oxandrin in the United States. The increase was primarily due to increased personnel, principally sales force, and other expenses associated with these personnel and increased advertising, promotional and market research activities.

Royalties. Royalties were $911,000 in the six months ended June 30, 2001, as compared to $918,000 in the six months ended June 30, 2000. These expenses consist primarily of royalties to entities from which the Company licensed certain of its products and to the Chief Scientist.

Income Taxes. Provision for income taxes for the six months ended June 30, 2001 was $7,267,000, representing approximately 32.0% of income before income taxes (on a pro forma basis excluding the write-off of in-process research and development acquired and amortization of negative goodwill, which are not taken into account in computing income taxes), as compared to $3,481,000, or 34.3% of income before income taxes, in the comparable period last year. The decrease in the effective tax rate in the six months ended June 30, 2001 compared to the same period of 2000 was primarily due to an increase in revenues generated by BTG-Israel, which is entitled to certain Israeli tax benefits. BTG’s consolidated effective tax rate differs from the statutory rate because of Israeli tax benefits, tax credits and similar items which reduce the effective tax rate.

Write-off of in-process research and development acquired. In the six months ended June 30, 2001 BTG wrote-off $45,600,000 as in-process research and development acquired relating to the acquisition of Myelos Corporation. In connection with the acquisition BTG allocated $45,600,000 to in-process research and development projects of Myelos, representing the estimated fair value based on risk-adjusted cash flows of the acquired technology based on an independent valuation. At the date of the merger the technology acquired in the acquisition was not fully commercially developed and had no alternative future uses. Accordingly, the value was expensed as of the acquisition date.

Earnings per Common Share. BTG had approximately 2.2 million additional basic weighted average shares outstanding for the six month period ended June 30, 2001 as compared to the same period in 2000. The increased number of basic shares was primarily the result of the issuance, subsequent to June 30, 2000, of shares upon the exercise of options and the issuance of approximately 2.3 million shares to the former shareholders of Myelos in March 2001. For 2001 diluted weighted average shares outstanding does not include dilutive securities because the effect would be anti-dilutive.

On a pro-forma basis, excluding the write-off of in-process research and development acquired and amortization of negative goodwill, net income would have been $15,431,000, or $0.27 per share on both a basic and diluted share basis. Diluted weighted average shares outstanding would have been 57,375,000, a slight increase of 0.2 million shares from the comparable period in 2000, primarily as a result of the higher basic weighted average shares outstanding for the six months ended June 30, 2001, partially offset by the fact that less outstanding options were considered common equivalents because their exercise price was above the average fair market value of the common stock for the six months ended June 30, 2001, which average fair market value was lower than in the same period last year.

Comparison of Three Months Ended June 30, 2001 and June 30, 2000.

Revenues. Total revenues increased 14% in the second quarter of 2001 to $28,207,000 from $24,843,000 in the second quarter of 2000. The increase in total revenues from the comparable prior period was entirely due to the substantial increase in product sales, partially offset by a substantial decrease in contract fees.

Product sales increased by $11,221,000, or 80%, in the three months ended June 30, 2001 from the comparable prior period in 2000. Oxandrin sales in the three months ended June 30, 2001 were $17,887,000, an increase of $11,484,000, or 179%, from the three months ended June 30, 2000. The increase in Oxandrin sales was due to: (i) the commencement, in September 2000, of sales by the Ross Products Division of Abbott Laboratories for the long-term care market; (ii) the completion, in May 2000, of Gentiva’s reduction in the amount of Oxandrin inventory it carries, which reduction began in April 1999; and (iii) increased wholesaler sales of Oxandrin by Gentiva. Product sales of human growth hormone and BioLon increased (decreased) $(291,000), and $194,000, or 5% and 12%, respectively, over the comparable period in 2000. There were no sales of Delatestryl in the three months ended June 30, 2000 and 2001.

Contract fees in the three months ended June 30, 2001 represent contract fees received in prior periods but recognized in the second quarter of 2001 in accordance with SAB 101. Of the contract fees earned in the three months ended June 30, 2000, $5,000,000, or 65% of the total contract fees, was earned in respect of the license of worldwide distribution rights of Bio-Hy to Depuy Orthopedics, a Johnson & Johnson company, and $2,500,000, or 32% of total contract fees, was earned as a milestone payment under its strategic alliance with Teva Pharmaceutical Industries Ltd. focusing on the development and global commercialization of several generic recombinant therapeutic products and the license of distribution rights in the United States for the Company’s human growth hormone.

Royalties were $850,000 in the second quarter of 2001, as compared to $745,000 in the same period last year. These revenues consist of royalties from the licensee of the Company’s Mircette product.

Other revenues were primarily generated from partial research and development funding by the Chief Scientist of the State of Israel.

Interest income decreased $264,000, or 14%, over the comparable prior period, primarily as a result of lower interest rates, the use of $15,387,000 to acquire Myelos, the use of approximately $15,980,000 to fund construction of the Company’s new manufacturing facility after June 30, 2000 and the use of $5,000,000 to purchase shares of Omrix Biopharmaceuticals.

Research and Development Expense. Research and development expense increased 28% in the second quarter of 2001 to $7,185,000 from $5,635,000 in the second quarter of 2000. The increase in research and development expenditures resulted mainly from the increase in research and development personnel as well as the addition of research and development activities for Prosaptide following the acquisition of Myelos, partially offset by decreased levels of grants by BTG for clinical studies.

Cost of Product Sales. Cost of product sales increased by 100% in the three months ended June 30, 2001 to $3,819,000 from $1,911,000 in the three months ended June 30, 2000, primarily as a result of the 80% increase in product sales. Cost of product sales as a percentage of product sales increased to 15.1% as compared to 13.6% in the comparable period last year. Cost of product sales as a percentage of product sales increased due to the mix of products. Oxandrin and human growth hormone have a relatively low cost of manufacture as a percentage of product sales, while BioLon has the highest cost to manufacture as a percentage of product sales. Cost of product sales as a percentage of product sales varies from year to year and quarter to quarter depending on the quantity and mix of products sold.

General and Administrative Expense. General and administrative expense decreased by 17% in the three months ended June 30, 2001 to $2,641,000 from $3,182,000 in the comparable prior period. The decrease in general and administrative expense was due solely to the amortization of negative goodwill resulting from the Myelos acquisition of $1,033,000. On a pro forma basis to exclude the effect of the amortization of negative goodwill, general and administrative expense for the three months ended June 30, 2001 was $3,674,000, an increase of 15% from the comparable period in 2000. The increase in general and administrative expenses (excluding the effect of the amortization of negative goodwill) was primarily due to increased compensation costs, partially offset by a reduction of legal fees as compared to 2000, when legal fees increased primarily due to the reactivation in the fourth quarter of 1998 of the Company’s declaratory judgment action against Genentech in respect of the Company’s human growth hormone product in the United States. As a percentage of revenues, general and administrative expense (excluding the effect of the amortization of negative goodwill) increased to 13.0% in the three months ended June 30, 2001 from 12.8% in the three months ended June 30, 2000.

Marketing and Sales Expense. Marketing and sales expense decreased 14% in the second quarter of 2001 to $4,557,000 from $5,315,000 for the prior year period. As a percentage of revenues, marketing and sales expense decreased to approximately 16.2% from 21.4% for the second quarter of 2000. These expenses primarily related to the sales and marketing force in the United States that the Company established to promote distribution of Oxandrin in the United States. The decrease was primarily due to the timing of advertising, promotions and market research expenses.

Royalties. Royalties were $265,000 in the three months ended June 30, 2001, as compared to $264,000 in the three months ended June 30, 2000. These expenses consist primarily of royalties to entities from which the Company licensed certain of its products and to the Chief Scientist.

Income Taxes. Provision for income taxes for the three months ended June 30, 2001 was $2,747,000, representing approximately 31.5% of income before income taxes (on a pro forma basis excluding the amortization of negative goodwill, which is not taken into account in computing income taxes), as compared to $2,922,080, or 34.3% of income before income taxes, in the comparable quarter last year. The decrease in the effective tax rate in the second quarter of 2001 compared to the second quarter of 2000 was primarily due to an increase in revenues generated by BTG-Israel, which is entitled to certain Israeli tax benefits. BTG’s consolidated effective tax rate differs from the statutory rate because of Israeli tax benefits, tax credits and similar items which reduce the effective tax rate.

Earnings per Common Share. BTG had approximately 3.1 million additional basic weighted average shares outstanding for the three month period ended June 30, 2001 as compared to the same period in 2000. The increased number of basic shares was primarily the result of the issuance, subsequent to June 30, 2000, of shares upon the exercise of options and the issuance of approximately 2.3 million shares to the former shareholders of Myelosin March 2001. BTG had approximately 1.9 million additional diluted weighted average share outstanding for the three month period ended June 30, 2001, as compared to the same period in 2000, primarily as a result of the higher basic weighted average shares outstanding for the three months ended June 30, 2001, partially offset by the fact that less outstanding options were considered common equivalents because their exercise price was above the average fair market value of the common stock for the three months ended June 30, 2001, which average fair market value was lower than in the same period last year.

On a proforma basis, excluding the amortization of negative goodwill, net income would have been $5,960,000 or $ 0.10 per share on both a basic and diluted share basis.

Liquidity and Capital Resources

The Company’s working capital at June 30, 2001 was $142,560,000, as compared to $153,344,000 in December 31, 2000.

The cash flows of the Company have fluctuated significantly due to the impact of net income, capital spending, working capital requirements, the issuance of Common Stock and other financing activities. BTG expects that cash flow in the near future will be primarily determined by the levels of net income and financings, if any, undertaken by the Company. Net cash increased (decreased) by $28,149,000 and $(2,109,000) in the six months ended June 30, 2001 and 2000, respectively.

Net cash provided by operating activities was $20,873,000 and $12,897,000 in the six months ended June 30, 2001 and 2000, respectively. Net loss was $29,136,000 and $1,497,000 in the same periods, respectively. In the six months ended June 30, 2001 the Company had net cash provided by operating activities despite the net loss mainly due to the write-off of in-process research and development acquired of $45,600,000, an increase in accounts payable and other current liabilities of $4,962,000 and $3,468,000, respectively, and depreciation and amortization of $1,662,000, partially offset by an increase in accounts receivable of $3,862,000 and the amortization of negative goodwill of $1,033,000. In the six months ended June 30, 2000 BTG had net cash provided by operating activities despite the net loss primarily due to the cumulative effect of change in accounting principle, net of $8,178,000, as a result of the adoption of SAB 101, a decrease in accounts receivable of $1,409,000, an increase in accounts payable and other current liabilities of $1,019,000 and $2,650,000, respectively, and depreciation and amortization of $1,467,000, partially offset by an increase in inventories of $1,258,000.

Net cash provided by (used in) investing activities was $2,025,000 and $(22,197,000) in the six months ended June 30, 2001 and 2000, respectively. Net cash used in investing activities included capital expenditures of $11,735,000 and $4,393,000 in these periods, respectively, primarily for the new manufacturing facility, as well as a $5,000,000 investment in Omrix in the six months ended June 30, 2001. In the six months ended June 30, 2001, BTG paid net cash of $15,320,000 in connection with the acquisition of Myelos. The remainder of the net cash used in investing activities was primarily for purchases and sales of short-term investments.

Net cash provided by financing activities was $5,251,000 and $7,179,000 in the six months ended June 30, 2001 and 2000, respectively, which are net proceeds from issuance of Common Stock primarily resulting from the exercise of stock options.

In April 1999, BTG purchased a manufacturing facility in Israel for approximately $6,250,000. The Company will initially locate its production activities for Fibrimage^TM at this new facility, and will thereafter move the remainder of its production activities to this facility. The Company expects that construction will be completed in the second half of 2001. Following completion of the construction, BTG will begin the validation process, which is currently expected will take approximately six to nine months for all products. BTG expects it will cost approximately $40,000,000 to complete the production facility (excluding the cost of purchasing the facility and the cost of post-completion validation), of which approximately $22,000,000 had been expended through June 30, 2001. As of June 30, 2001 BTG had outstanding commitments of approximately $12,000,000 related to completion of this facility. In addition, the Company has agreed to purchase additional property adjacent to the new manufacturing facility for approximately $2,000,000, of which approximately $400,000 has been paid to date. This property will allow the Company to locate its principal research and development activities adjacent to the manufacturing facility.

In June 2000 Bio-Technology General (Israel) Ltd., BTG’s wholly-owned subsidiary (“BTG-Israel”), entered into a $20,000,000 revolving credit facility with Bank Hapoalim B.M. to finance a portion of the cost of completing its new production facility. Short-term borrowings under the facility are due 12 months from the date of borrowing and long-term borrowings are due five years from the date of borrowing. Loans under the facility bear interest at the rate of LIBOR plus 0.5% in the case of short-term borrowings and LIBOR plus 1% in the case of long-term borrowings. Amounts repaid under the facility can be reborrowed. The credit facility is secured by the assets of BTG-Israel and has been guaranteed by the Company. At June 30, 2001 the Company had outstanding long-term borrowings of $20,000,000 under the facility.

BTG maintains its funds in money market funds, commercial paper and other liquid debt instruments.

BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non-U.S. dollar assets and liabilities. The cost of the Company’s operations in Israel, as expressed in dollars, is influenced by the extent to which any increase in the rate of inflation in Israel is not offset (or is offset on a lagging basis) by a devaluation of the Israeli Shekel in relation to the U.S. dollar. The rate of inflation (as measured by the consumer price index) was approximately 0.4% in the six months ended June 30, 2000, while the Shekel’s value in relation to the U.S. dollar increased by approximately 2%. For the full year of 2000, the rate of inflation was unchanged while the Israeli Shekel’s value in relation to the U.S. dollar increased by approximately 3%. In the six months ended June 30, 2001 the consumer price index decreased by 1% and the Shekel’s value in relation to the U.S. dollar decreased by approximately 3%. As a result, for those expenses linked to the Israeli Shekel, such as salaries and rent, this resulted in corresponding increase in these costs in U.S. dollar terms in 2000 but a decrease in these costs in U.S. dollar terms in the six months ended June 30, 2001. To the extent that expenses in Shekels exceed BTG’s revenues in Shekels (which to date have consisted primarily of research funding from the Chief Scientist and product sales in Israel), the devaluation of Israeli currency have been and will continue to be a benefit to BTG’s financial condition. However, should BTG’s revenues in Shekels exceed its expenses in Shekels in any material respect, the devaluation of the Shekel will adversely affect BTG’s financial condition. Further, to the extent the devaluation of the Shekel with respect to the U.S. dollar does not substantially offset the increase in the costs of local goods and services in Israel, BTG’s financial results will be adversely affected as local expenses measured in U.S. dollars will increase.

The Company believes that its remaining cash resources as of June 30, 2001, together with anticipated product sales, scheduled payments to be made to BTG under its current agreements with pharmaceutical partners, the proceeds from sales of equity and continued funding from the Chief Scientist at current levels, will be sufficient to fund the Company’s current operations for the foreseeable future. There can, however, be no assurance that product sales will occur as anticipated, that scheduled payments will be made by third parties, that current agreements will not be canceled, that the Chief Scientist will continue to provide funding at current levels, or that unanticipated events requiring the expenditure of funds will not occur. The satisfaction of the Company’s future cash requirements will depend in large part on the status of commercialization of the Company’s products, the Company’s ability to enter into additional research and development and licensing arrangements, and the Company’s ability to obtain additional equity investments, if necessary. There can be no assurance that the Company will be able to obtain additional funds or, if such funds are available, that such funding will be on favorable terms.

Market Risk

Market risk is the exposure to loss resulting from changes in interest rates, foreign currency exchange rates, commodity prices and equity prices. To date BTG’s exposure to market risk has been limited and it is not currently hedging any market risk, although it may do so in the future. BTG does not hold or issue any derivative financial instruments for trading or other speculative purposes.

BTG’s obligations under its $20,000,000 revolving credit facility bear interest at floating rates and, therefore, BTG is impacted by changes in prevailing interest rates. A 100 basis point increase in market interest rates on the $20,000,000 outstanding under this facility at June 30, 2001 would result in an increase in its annual interest expense of $200,000. Because these borrowings relate to the construction of BTG’s new facility, interest expense is currently being capitalized.

BTG’s material interest bearing assets consist of cash and cash equivalents and short–term investments consisting primarily of investments in commercial papers, time deposits and mutual funds which invest in short–term instruments. BTG’s interest income is sensitive to changes in the general level of interest rates, primarily U.S. interest rates and other market conditions.

As discussed above under “Liquidity and Capital Resources,” BTG manages its Israeli operations with the objective of protecting against any material net financial loss in U.S. dollars from the impact of Israeli inflation and currency devaluation on its non–U.S. dollar assets and liabilities. All of BTG’s revenues are in U.S. dollars except for payments from the Chief Scientist and sales of its products in Israel, which are denominated in Israeli Shekels.

Part II. OTHER INFORMATION

Item 4. Submission of Matters to a Vote of Security Holders

(a)	The Annual Meeting of Stockholders of Bio-Technology General Corp. was held on June 19, 2001.

(b)	(i)	The following persons, comprising the entire Board of Directors, were elected at the Annual Meeting pursuant to the following vote tabulation:

		Name	Votes For	Votes Withheld

		Herbert J. Conrad	49,653,101	943,069
		Sim Fass	49,207,176	1,388,994
		Carl Kaplan	49,615,801	980,369
		Allan Rosenfield	49,652,717	943,453
		David Tendler	49,660,327	935,843
		Virgil Thompson	49,659,001	937,169
		Dan Tolkowsky	49,653,327	942,843
		Faye Wattleton	49,654,751	941,419
		Herbert Weissbach	49,654,501	941,669

(ii) In addition to the election of directors, a proposal to adopt the Company’s 2001 Stock Option Plan was approved, with 14,006,414 shares voted in favor, 6,768,937 shares voted against, 258,196 shares abstaining and 29,562,623 broker non-votes.

Item 6. Exhibits and Reports on Form 8-K

(1) Exhibits

	10.1	Employment Agreement, dated as of June 4, 2001, between Bio-Technology General Corp. and John A. Bond.
	10.2	Bio-Technology General Corp. 2001 Stock Option Plan.

(2) Reports on Form 8-K

None

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
		Chairman and Chief Executive Officer
		(Principal Executive Officer)


	/s/	John A. Bond
		John A. Bond
		Senior Vice President-Finance and Treasurer
		(Principal Financial and Accounting Officer)

Dated : August 9, 2001

EX-10.1 3 j1390_ex10d1.htm EX-10.1 Prepared by MerrillDirect

EXHIBIT 10.1

EMPLOYMENT AGREEMENT

AGREEMENT made as of June 4, 2001, between BIO-TECHNOLOGY GENERAL CORP., a Delaware corporation with an office at 70 Wood Avenue South, Iselin, New Jersey 08830 (the "Company") and John A. Bond, having a residence at 130 Colket Lane, Devon, PA 19333 (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, Finance and Treasurer, reporting to the 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 (2) year terms unless either party shall give the other ninety (90) days prior written notice of its intent not to renew this Agreement.

3. COMPENSATION.

(a) As compensation for the employment services to be rendered by Executive hereunder, including all services as an officer or director of the Company and any of its subsidiaries, the Company agrees to pay, or cause to be paid, to Executive, and Executive agrees to accept, payable in equal installments in accordance with Company practice, an initial annual salary of $230,000. Executive's annual salary hereunder for the remaining years of employment shall be determined by the Board of Directors in its sole discretion; provided, however, that Executive's annual salary shall not be reduced during the term of this Agreement below the highest annual salary paid to Executive at any time during such term.

(b) Executive shall be entitled to bonuses from time to time in such amounts as may be determined by the Board of Directors in its sole discretion.

4. EXPENSES.

The Company shall pay or reimburse Executive, upon presentment of suitable vouchers, for all reasonable business and travel expenses that may be incurred or paid by Executive in connection with his employment hereunder. Executive shall comply with such restrictions and shall keep such records as the Company may deem necessary to meet the requirements of the Internal Revenue Code of 1986, as amended from time to time, and regulations promulgated thereunder.

5. OTHER BENEFITS.

Executive shall be entitled to a vacation allowance of not less than four (4) weeks per annum and to participate in and receive any other benefits customarily provided by the Company to its senior management personnel (including any profit sharing, pension, short and long-term disability insurance, hospital, major medical insurance, dental insurance and group life insurance plans in accordance with the terms of such plans) and including stock option and/or stock purchase plans, all as determined from time to time by the Board of Directors of the Company. Unused annual vacation may not be carried over to other years except that with the consent of the Chief Executive Officer the Executive may carry over unused vacation in those instances in which Executive has been unable to utilize fully his annual vacation entitlement due to exigencies of Company business matters and needs.

6. DUTIES.

(a) Executive shall perform such duties and functions as the President or Chief Executive Officer of the Company shall from time to time determine in accordance with what it is normal and customary for an individual holding Executive's position to perform, and Executive shall comply in the performance of such duties and functions with the policies of the Board of Directors.

(b) Executive agrees to devote his entire working time, attention and energies to the performance of the business of the Company and of any of its subsidiaries by which he may be employed; and Executive shall not without the approval of the Board of Directors, directly or indirectly, alone or as a member of any partnership or other business organization, or as an officer, director or employee of any other corporation, partnership or other business organization, be actively engaged in or concerned with any other duties or pursuits of a business nature which interfere with the performance of his duties hereunder, or which, even if non-interfering, may be, in the reasonable determination of the Board of Directors of the Company in its sole discretion, inimical, or contrary, to the best interests of the Company.

(c) All fees, compensation or commissions received by Executive during the term of this Agreement for personal services (including, but not limited to, commissions and compensation received as a fiduciary or a director, and fees for lecturing and teaching) rendered at the request of the Company shall be paid to the Company when received by Executive, except those fees that the Board of Directors determines may be kept by Executive.

(d) Nothing in this Section 6 or elsewhere in this Agreement shall be construed to prevent Executive from investing or trading in non-conflicting investments as he sees fit for his own account, including real estate, stocks, bonds, securities, commodities or other forms of investments.

(e) The principal location at which the Executive shall perform his duties hereunder shall be at the Company's offices in Iselin, New Jersey or at such other location as may be designated from time to time by the Board of Directors of the Company, provided that if the principal location of Executive's duties is transferred from Iselin, New Jersey, the new principal location of Executive's duties shall not be transferred beyond a 50-mile radius of Iselin, New Jersey without Executive's consent. Notwithstanding the foregoing, Executive shall perform such services at such other locations as may be required from the proper performance of his duties hereunder, and Executive recognizes that such duties may involve significant travel.

7. TERMINATION OF EMPLOYMENT; EFFECT OF TERMINATION.

(a) Executive's employment hereunder may be terminated at any time upon written notice from the Company to Executive:

	(i)	upon the determination by the Board of Directors, after Executive has received notice that his performance is not satisfactory for any reason which would not constitute justifiable cause (as defined in 7(d)) and which notice specifies with reasonable particularity how such performance is not satisfactory, that Executive has failed to remedy such performance to the reasonable satisfaction of the Board of Directors within thirty (30) days of such notice; or

	(ii)	upon the determination by the Board of Directors that there is justifiable cause (as defined in 7(d)) for such termination and upon ten (10) days' prior written notice of same to Executive.

(b) Executive's employment shall terminate upon:

(i) the death of Executive; or

(ii) the "disability" of Executive (as defined in 7(c)) pursuant to 7(f) hereof.

(c) For the purposes of this Agreement, the term "disability" shall mean the inability of Executive, due to illness, accident or any other physical or mental incapacity, substantially to perform his duties for a period of three (3) consecutive months or for a total of six (6) months (whether or not consecutive) in any twelve (12) month period during the term of this Agreement, as reasonably determined by the Board of Directors of the Company in its sole discretion after examination of Executive by an independent physician reasonably acceptable to Executive.

(d) For the purposes hereof, the term "justifiable cause" shall mean and be limited to:

	(i)	Executive's conviction (which, through lapse of time or otherwise, is not subject to appeal) of any crime or offense involving the Company's or its subsidiaries' money or other property or which constitutes a felony in the jurisdiction involved;

	(ii)	Executive's performance of any act or his failure to act, for which it is determined by independent counsel retained by the Board of Directors (which counsel shall not be an individual or firm which at any time within the prior three (3) years has represented the Company, any executive employed by the Company, the Board of Directors or any individual Director), after due inquiry in which Executive is given the opportunity to be heard and represented by counsel, that if Executive were prosecuted, a crime or offense involving money or property of the Company or its subsidiaries, or which would constitute a felony in the jurisdiction involved, would have occurred and Executive would, in all reasonable probability, be convicted; provided, however, that if such independent counsel does not make such determination, then the Company shall pay Executive's reasonable counsel fees and expenses incurred in defending Executive during such inquiry;

	(iii)	any disclosure which has not been authorized or subsequently ratified by the Company or which is not required to be made pursuant to any judicial proceeding or by statute or regulation, by Executive to any person, firm or corporation other than the Company, its subsidiaries and its and their directors, officers and employees, of any confidential information or trade secret of the Company or any of its subsidiaries;

	(iv)	any attempt by Executive to secure any improper personal profit in connection with the business of the Company or any of its subsidiaries; or

	(v)	Executive's repeated and willful failure to comply with his duties under 6(a) or 6(b) (other than failure to comply with instructions or policies which are illegal or improper) where such conduct shall not have ceased or been cured within thirty (30) days following receipt by Executive of written warning from the Board of Directors.

Upon termination of Executive's employment for justifiable cause, this Agreement shall terminate immediately and Executive shall not be entitled to any amounts or benefits hereunder other than such portion of Executive's annual salary as has been accrued through the date of his termination of employment and reimbursement of expenses pursuant to Section 4 hereof.

(e) If Executive shall die during the term of his employment hereunder, this Agreement shall terminate immediately. In such event, the estate of Executive shall thereupon be entitled to receive such portion of Executive's annual salary as has been accrued through the date of his death and such bonus, if any, as the Board of Directors in its sole discretion may determine to award taking into account Executive's contributions to the Company prior to his death. If Executive's death shall occur while he is on Company business, the estate of Executive shall be entitled to receive, in addition to the other amounts set forth in this subsection (e), an amount equal to one-half of his then annual salary.

(f) Upon Executive's "disability", the Company shall have the right to terminate Executive's employment. Notwithstanding any inability to perform his duties, Executive shall be entitled to receive his compensation (including bonus, if any) as provided herein until he begins to receive long-term disability insurance benefits under the policy provided by the Company pursuant to Section 5 hereof (the period during which Executive continues to receive his compensation hereunder being the "Transition Period"). During the Transition Period, the Company shall (i) allow Executive to participate in the Company's 401k plan to the extent permitted by such plan and (ii) at Company's expense and to the same extent that Executive had participated, prior to termination of his employment, in the Company's health insurance, dental insurance, life insurance and disability insurance programs, continue Executive's participation in such programs. Any termination pursuant to this subsection (f) shall be effective on the date thirty (30) days after which Executive shall have received written notice of the Company's election to terminate.

(g) Notwithstanding any provision to the contrary contained herein, in the event that Executive's employment is terminated by the Company at any time for any reason other than justifiable cause, disability or death, or in the event the Company shall fail to renew this Agreement:

(i)		each month during the Severance Period, the Company shall pay to Executive, in full satisfaction and in lieu of any and all other payments due and owing to Executive under the terms of this Agreement (other than any payments constituting reimbursement of expenses pursuant to Section 4 hereof), an amount equal to one-twelfth of the sum of his then annual salary plus the amount of the last bonus awarded to Executive (less all amounts, if any, required to be withheld), payable bi-weekly;

	(A)		The "Severance Period" shall commence on the date of termination and shall comprise one month for each month that Executive was employed by Company, provided however, that in no event shall such period be less than six (6) months nor more than twelve (12) months.

(ii)		Executive shall have a right to exercise any options which are exercisable as of the date of termination at any time during a period of six (6) months following the effective date of termination;

(iii)		the Company shall continue to allow Executive to participate in the Company's 401k plan to the extent permitted by such plan for twelve (12) months following the effective date of termination; and

(iv)		the Company shall continue to allow Executive to participate, at the Company's expense and to the same extent that Executive had participated prior to termination of his employment, in the Company's health insurance, dental insurance, life insurance and disability insurance programs, to the extent permitted under such programs, until the earlier of the expiration of the Severance Period or until such time as Executive becomes eligible to participate in another employer's group health, dental and disability insurance plans; provided, however, that Executive shall notify the Company of his acceptance of a position with a new employer, together with the specific date on which Executive shall become eligible for coverage in such new employer's health, dental, life and disability insurance programs, such notice to be given within fifteen (15) days following commencement of such employment.

(h) Executive may terminate his employment at any time upon thirty (30) days' prior written notice to the Company. Upon Executive's termination of his employment hereunder, this Agreement (other than Sections 4, 7, 10, 11, 12 and 13, which shall survive) shall terminate immediately. In such event, Executive shall be entitled to receive such portion of Executive's annual salary as has been accrued to date. Executive shall be entitled to reimbursement of expenses pursuant to Section 4 hereof and to participate in the Company's benefit plans to the extent participation by former employees is required by law or permitted by such plans, with the expense of such participation to be specified in such plans for former employees.

8. REPRESENTATIONS AND AGREEMENTS OF EXECUTIVE.

(a) Executive represents and warrants that he is free to enter into this Agreement and to perform the duties required hereunder, and that there are no employment contracts or understandings, restrictive covenants or other restrictions, whether written or oral, preventing the performance of his duties hereunder or requiring him to perform employment, consulting, business related or similar duties for any other person.

(b) Executive agrees to submit to a medical examination and to cooperate and supply such other information and documents as may be required by any insurance company in connection with the Company's obtaining life insurance on the life of Executive, and any other type of insurance or fringe benefit as the Company shall determine from time to time to obtain.

9. REPRESENTATIONS OF COMPANY.

The Company represents and warrants that the Board of Directors has consented to the Company entering into this Agreement with Executive on the terms set forth herein and that all written consents, resolutions and approvals required to give full force and effect to this Agreement and to the Company's obligations hereunder have been obtained.

10. NON-INTERFERENCE.

Executive agrees that for a period of one year following the termination of Executive's employment hereunder, Executive shall not, directly or indirectly, request or cause collaborative partners, universities, governmental agencies, contracting parties, suppliers or customers with whom the Company or any of its subsidiaries has a business relationship to cancel or terminate any such business relationship with the Company or any of its subsidiaries or solicit, interfere with or entice from the Company any employee (or former employee) of the Company.

11. INVENTIONS AND DISCOVERIES.

(a) Insofar as is related to the principal business activities and products of the Company and any of its subsidiaries or joint ventures, Executive shall promptly and fully disclose to the Company, and with all necessary detail for a complete understanding of the same, all developments, know-how, discoveries, inventions, improvements, concepts, ideas, writings, formulae, processes and methods of a financial or other nature (whether copyrightable, patentable or otherwise) made, received, conceived, acquired or written during working hours, or otherwise, by Executive (whether or not at the request or upon the suggestion of the Company) during the period of his employment with, or rendering of advisory or consulting services to, the Company or any of its subsidiaries, solely or jointly with others (collectively the "Subject Matter").

(b) Executive hereby assigns and transfers, and agrees to assign and transfer, to the Company, all his rights, title and interest in and to the Subject Matter, and Executive further agrees to deliver to the Company any and all drawings, notes, specifications and data relating to the Subject Matter, and to execute, acknowledge and deliver all such further papers, including applications for copyrights or patents, as may be necessary to obtain copyrights and patents for any thereof in any and all countries and to vest title thereto to the Company. Executive shall assist the Company in obtaining such copyrights or patents during the term of this Agreement, and any time thereafter on reasonable notice and at mutually convenient times, and Executive agrees to testify in any prosecution or litigation involving any of the Subject Matter; provided, however, that Executive shall be compensated in a timely manner at the rate of $250.00 per hour (with a minimum of $1500 per day), plus out-of-pocket expenses incurred in rendering such assistance or giving or preparing to give such testimony if it is required of his employment hereunder.

12. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.

(a) Executive shall not, during the term of this Agreement, or at any time following termination of this Agreement, directly or indirectly, disclose or make accessible (other than as is required in the regular course of his duties, including, without limitation, disclosures to the Company's advisors and consultants), or as may be required by law or regulation or pursuant to a judicial proceeding (in which case Executive shall give the Company prior written notice of such required disclosure) or with the prior written consent of the Board of Directors of the Company), to any person, firm or corporation, any confidential information acquired by him during the course of, or as an incident to, his employment or the rendering of his advisory or consulting services hereunder, relating to the Company or any of its subsidiaries, or any corporation, partnership or other entity owned or controlled, directly or indirectly, by any of the foregoing, or in which any of the foregoing has a beneficial interest, including, but not limited to, the business affairs of each of the foregoing. Such confidential information shall include, but shall not be limited to, proprietary technology, trade secrets, patented processes, research and development data, know-how, market studies and forecasts, competitive analyses, pricing policies, employee lists, personnel policies, the substance of agreements with customers and others, marketing or dealership arrangements, servicing and training programs and arrangements, customer lists and any other documents embodying such confidential information. This confidentiality obligation shall not apply to any confidential information which thereafter becomes publicly available other than pursuant to a breach of this Section 12(a) by Executive.

(b) All information and documents relating to the Company and its affiliates as hereinabove described shall be the exclusive property of the Company, and Executive shall use commercially reasonable best efforts to prevent any publication or disclosure thereof. Upon termination of Executive's employment with the Company, all such documents, records, reports, writings and other similar documents containing confidential information, including copies thereof, then in Executive's possession or control shall be returned and left with the Company.

13. SPECIFIC PERFORMANCE.

Executive agrees that if he breaches, or threatens to commit a breach of, any of the provisions of Sections 10, 11 or 12 (the "Restrictive Covenants"), the Company shall have, in addition to, and not in lieu of, any other rights and remedies available to the Company under law and in equity, the right to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company and that money damages would not provide an adequate remedy to the Company. Notwithstanding the foregoing, nothing herein shall constitute a waiver by Executive of his right to contest whether a breach or threatened breach of any Restrictive Covenant has occurred.

14. AMENDMENT OR ALTERATION.

No amendment or alteration of the terms of this Agreement shall be valid unless made in writing and signed by both of the parties hereto.

15. GOVERNING LAW.

This Agreement shall be governed by the laws of the State of New Jersey applicable to agreements made and to be performed entirely therein.

16. SEVERABILITY.

The holding of any provision of this Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Agreement, which shall remain in full force and effect.

17. NOTICES.

Any notices required or permitted to be given hereunder shall be sufficient if in writing, and if delivered by hand, or sent by certified mail, return receipt requested, to the addresses set forth above or such other address as either party may from time to time designate in writing to the other, and shall be deemed given as of the date of the delivery or date of receipt.

18. WAIVER OR BREACH.

It is agreed that a waiver by either party of a breach of any provision of this Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party.

19. ENTIRE AGREEMENT AND BINDING EFFECT.

This Agreement contains the entire agreement of the parties with respect to the subject matter hereof and shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, heirs, distributors, successors and assigns. Notwithstanding the foregoing, any prior agreements between Executive and the Company relating to the confidentiality of information, trade secrets, patents, indemnification, and stock options shall not be affected by this Agreement.

20. SURVIVAL.

The termination of Executive's employment hereunder or the expiration of this Agreement shall not affect the enforceability of Sections 4, 7, 9, 10, 11, 12 and 13 hereof.

21. FURTHER ASSURANCES.

The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further action as may be necessary or appropriate to carry out the purposes and intent of this Agreement.

22. HEADINGS.

The Section headings appearing in this Agreement are for the purposes of easy reference and shall not be considered a part of this Agreement or in any way modify, demand or affect its provisions.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

	BIO-TECHNOLOGY GENERAL CORP.


	By: /s/	Sim Fass
		Sim Fass, Chairman and CEO

	Date:	June 4, 2001



	/s/	John Bond
		John A. Bond

	Date:	June 4, 2001

EX-10.2 4 j1390_ex10d2.htm EX-10.2 Prepared by MerrillDirect

BIO-TECHNOLOGY GENERAL CORP.
2001 STOCK OPTION PLAN

1. Purpose. The purpose of the Bio-Technology General Corp. 2001 Stock Option Plan (the “Plan”) is to enable Bio-Technology General Corp. (the “Company”) and its stockholders to secure the benefits of common stock ownership by key personnel of the Company and its affiliates. The Board of Directors of the Company (the “Board”) believes that the granting of options under the Plan will foster the Company's ability to attract, retain and motivate those individuals who will be largely responsible for the continued profitability and long-term future growth of the Company.

2. Stock subject to the Plan. Subject to adjustment as provided in Section 6 below, the Company may issue a total of 10,000,000 shares of its common stock, $.01 par value (the “Common Stock”), pursuant to the Plan. Such shares may be either authorized and unissued or held by the Company in its treasury. New options may be granted under the Plan with respect to shares of Common Stock which are covered by the unexercised portion of an option which has terminated or expired by its terms, by cancellation or otherwise.

3. Administration. The Plan will be administered by the Board or by a committee (the Board in such capacity or such committee being referred to as the “Committee”) consisting of at least three directors appointed by and serving at the pleasure of the Board. Subject to the provisions of the Plan, the Committee, acting in its sole and absolute discretion, will have full power and authority to grant options under the Plan, to interpret the provisions of the Plan, to fix and interpret the provisions of option agreements made under the Plan, to supervise the administration of the Plan, and to take such other action as may be necessary or desirable in order to carry out the provisions of the Plan. A majority of the members of the Committee will constitute a quorum. The Committee may act by the vote of a majority of its members present at a meeting at which there is a quorum or by unanimous written consent. The decision of the Committee as to any disputed question, including questions of construction, interpretation and administration, will be final and conclusive on all persons. The Committee will keep a record of its proceedings and acts and will keep or cause to be kept such books and records as may be necessary in connection with the proper administration of the Plan. The Company shall indemnify and hold harmless each member of the Committee and the Board and any employee of the Company who provides assistance with the administration of the Plan from and against any loss, cost, liability (including any sum paid in settlement of a claim with the approval of the Board), damage and expense (including the advancement of reasonable legal and other expenses incident thereto) arising out of or incurred in connection with the Plan, unless and except to the extent attributable to such person’s fraud or willful misconduct.

4. Eligibility. Options may be granted under the Plan to present or future employees of the Company or an affiliate of the Company and to directors of, or consultants to, the Company or an affiliate who are not employees, provided that incentive stock options (“Incentive Stock Options”) within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), may only be granted to employees of the Company or a subsidiary of the Company (a “Subsidiary”) within the meaning of Section 424(f) of the Code. Subject to the provisions of the Plan, the Committee may from time to time select the persons to whom options will be granted, and will fix the number of shares covered by each such option and establish the terms and conditions thereof, including, without limitation, the exercise price, restrictions on exercisability of the option or on the disposition of the shares of Common Stock issued upon exercise of the option, and whether or not the option is to be treated as an Incentive Stock Option. For purposes hereof, affiliate of the Company means a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company.

5. Terms and Conditions of Options. Each option granted under the Plan will be evidenced by a written agreement in a form approved by the Committee. Each such option will be subject to the terms and conditions set forth in this Section and such additional terms and conditions not inconsistent with the Plan (and, in the case of an Incentive Stock Option, not inconsistent with the provisions of the Code applicable thereto) as the Committee deems appropriate.

(a) Option Exercise Price. In the case of an option which is not treated as an Incentive Stock Option, the exercise price per share may not be less than 85% of the Fair Market Value of a share of Common Stock on the date the option is granted; and, in the case of an Incentive Stock Option, the exercise price per share may not be less than 100% of the Fair Market Value of a share of Common Stock on the date the option is granted (110% in the case of an optionee who, at the time the option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or a Subsidiary (a “ten percent stockholder”)). For purposes hereof, the Fair Market Value of a share of Common Stock on any date will be equal to the closing sale price per share as published by a national securities exchange on which shares of the Common Stock are traded on such date or, if there is no sale of Common Stock on such date, the average of the bid and asked prices on such exchange at the close of trading on such date or, if shares of the Common Stock are not listed on a national securities exchange on such date, the closing price or, if none, the average of the bid and asked prices in the over the counter market at the close of trading on such date, or if the Common Stock is not traded on a national securities exchange or the over the counter market, the fair market value of a share of the Common Stock on such date as determined in good faith by the Committee.

(b) Option Period. The period during which an option may be exercised will be fixed by the Committee and will not exceed ten years from the date the option is granted (five years in the case of an Incentive Stock Option granted to a ten percent stockholder).

(c) Exercise of Options. Subject to earlier termination of the option as provided herein, unless the Committee determines otherwise, options will be exercisable from and after the date of grant. Vesting or other restrictions on the exercisability of an option will be set forth in the related option agreement. All or part of the exercisable portion of an option may be exercised at any time during the option period. An option may be exercised by transmitting to the Company (1) a written notice specifying the number of shares to be purchased, and (2) payment of the exercise price, together with the amount, if any, deemed necessary by the Committee to enable the Company to satisfy its tax withholding obligations with respect to such exercise (unless other arrangements acceptable to the Company are made with respect to the satisfaction of such withholding obligations).

(d) Payment of Exercise Price. The purchase price of shares of Common Stock acquired pursuant to the exercise of an option granted under the Plan may be paid in cash, certified or bank check, and/or such other form of payment as may be permitted by the Committee from time to time, including, without limitation, shares of Common Stock which, if acquired from the Company, have been owned by the optionee (free and clear of any liens or encumbrances) for at least six months or, if the Common Stock is publicly-traded, pursuant to a cashless exercise procedure established by the Company in accordance with Regulation T of the Federal Reserve Board.

(e) Rights as a Stockholder. No shares of Common Stock will be issued in respect of the exercise of an option granted under the Plan until full payment therefor has been made and the applicable tax withholding obligation has been satisfied or provided for, which withholding obligation, if satisfied with shares of Common Stock subject to an option being exercised, shall not exceed the statutory minimum rate. The holder of an option will have no rights as a stockholder with respect to any shares covered by an option until the date a stock certificate for such shares is issued to him or her. Except as otherwise provided herein, no adjustments shall be made for dividends or distributions of other rights for which the record date is prior to the date such stock certificate is issued.

(f) Nontransferability of Options. No option granted under the Plan may be assigned or transferred except by will or by the applicable laws of descent and distribution; and each such option may be exercised during the optionee's lifetime only by the optionee. Notwithstanding the preceding sentence, the Committee may, in its sole discretion, permit an optionee to transfer an option (other than an Incentive Stock Option), in whole or in part, to such persons and/or entities as are approved by the Committee from time to time and subject to such terms and conditions as the Committee may determine from time to time.

(g) Termination of Employment or Other Service. Except as otherwise provided herein or determined by the Committee, the following rules will apply with regard to options held by an optionee at the time of his or her termination of employment or other service with the Company and its affiliates:

(1) Termination due to Death or Disability. If an optionee’s employment or other service terminates due to his or her death or Disability (or if the optionee’s employment or other service is terminated by reason of his or her Disability and the optionee dies within one year of such termination of employment or other service), then: (A) that portion of an option that is not exercisable on the date of termination will immediately terminate, and (B) that portion of an option that is exercisable on the date of termination will remain exercisable, to the extent exercisable on the date of termination, by the optionee (or the optionee’s designated beneficiary or representative) during the one year period following the date of termination (or, during the one year period after the later death of a disabled optionee) or, if sooner, until the expiration of the stated term thereof, and, to the extent not exercised during such period, will thereupon terminate. For purposes hereof, unless otherwise determined by the Committee, the term “Disability” means the inability of an optionee to perform the customary duties of his or her employment or other service for the Company or an affiliate by reason of a physical or mental incapacity which is expected to result in death or be of indefinite duration.

(2) Termination for Cause or at a Time when Cause Exists. If an optionee’s employment or other service is terminated by the Company or an affiliate for Cause or if, at the time of his or her termination, grounds for a termination for Cause exist, then any option held by the optionee (whether or not then exercisable) will immediately terminate and cease to be exercisable. For purposes hereof, unless otherwise determined by the Committee, the term “Cause” means: (A) in the case where there is no employment or consulting agreement between the optionee and the Company or its affiliates at the time of grant or where such an agreement exists but does not define “cause” (or words of like import), the optionee’s dishonesty, fraud, insubordination, willful misconduct, refusal to perform services, unsatisfactory performance of services or material breach of any written agreement between the optionee and the Company or its affiliates, or (B) in the case where there is an employment or consulting agreement between the optionee and the Company or its affiliates at the time of grant which defines “cause” (or words of like import), the meaning ascribed to such term under such agreement.

(3) Other Termination. Except as provided in subsections (1) and (2) above, if an optionee’s employment or other service terminates for any reason or no reason, then: (A) that portion of an option held by the optionee that is not exercisable on the date of termination will immediately terminate, and (B) that portion of an option that is exercisable on the date of termination will remain exercisable, to the extent exercisable on the date of termination, by the optionee during the ninety day period following the date of termination or, if sooner, until the expiration of the stated term thereof, and, to the extent not exercised during such period, will thereupon terminate.

(h) Incentive Stock Options. In the case of an Incentive Stock Option granted under the Plan, at the time the option is granted, the aggregate fair market value (determined at the time of grant) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by the optionee during any calendar year may not exceed $100,000 (or such other amount required by the Code from time to time).

(i) Other Provisions. The Committee may impose such other conditions with respect to the exercise of options, including, without limitation, any conditions relating to the application of federal or state securities laws, as it may deem necessary or advisable.

(j) Maximum Option Grant. The maximum option grant which may be made to an employee of the Company or an affiliate in any calendar year shall not cover more than 250,000 shares.

6. Capital Changes, Reorganization, Sale.

(a) Adjustments Upon Changes in Capitalization. The aggregate number and class of shares which may be issued under the Plan, the maximum number of shares for which options may be granted to any employee in any calendar year, the number and class of shares covered by each outstanding option and the exercise price per share shall all be adjusted proportionately for any increase or decrease in the number of issued shares of Common Stock resulting from a split-up or consolidation of shares or any like capital adjustment, or the payment of any stock dividend.

(b) Acceleration of Vesting Upon Change of Control. If there is a change of control of the Company (as defined in subsection (f) below), then all outstanding options shall become fully exercisable whether or not the vesting conditions, if any, set forth in the related option agreements have been satisfied, and each optionee shall have the right to exercise his or her options prior to such change of control and for as long thereafter as the option shall remain in effect in accordance with its terms and the provisions hereof.

(c) Conversion of Options on Stock for Stock Exchange. If the stockholders of the Company receive capital stock of another corporation (“Exchange Stock”) in exchange for their shares of Common Stock in any transaction involving a merger (other than a merger of the Company in which the holders of Common Stock immediately prior to the merger have the same proportionate ownership of Common Stock in the surviving corporation immediately after the merger), consolidation, acquisition of property or stock, separation or reorganization (other than a mere reincorporation or the creation of a holding company), all options granted hereunder shall be converted into options to purchase shares of Exchange Stock unless the Company and the corporation issuing the Exchange Stock, in their sole discretion, determine that any or all such options granted hereunder shall not be converted into options to purchase shares of Exchange Stock but instead shall terminate, in which case the Company shall notify the optionees in writing or electronically, at least 15 days prior to the consummation of the transaction, that the options shall become fully exercisable whether or not the vesting conditions, if any, set forth in the related option agreements have been satisfied for the period specified in the notice (but in any case not less than 15 days from the date of such notice). The amount and price of converted options shall be determined by adjusting the amount and price of the options granted hereunder in the same proportion as used for determining the number of shares of Exchange Stock the holders of the Common Stock receive in such merger, consolidation, acquisition of property or stock, separation or reorganization. To the extent provided in subsection (b) above, the converted options shall be fully vested whether or not the vesting requirements set forth in the option agreement have been satisfied.

(d) Fractional Shares. In the event of any adjustment in the number of shares covered by any option pursuant to the provisions hereof, any fractional shares resulting from such adjustment will be disregarded and each such option will cover only the number of full shares resulting from the adjustment.

(e) Determination of Board to be Final. All adjustments under this Section 6 shall be made by the Board, and its determination as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. Unless an optionee agrees otherwise, any change or adjustment to an Incentive Stock Option shall be made in such a manner so as not to constitute a “modification” as defined in Section 424(h) of the Code and so as not to cause the optionee's Incentive Stock Option issued hereunder to fail to continue to qualify as an Incentive Stock Option.

(f) Change of Control Defined. For purposes hereof, a change in control of the Company is deemed to occur if (1) there occurs (A) any consolidation or merger in which the Company is not the continuing or surviving entity or pursuant to which shares of the Common Stock would be converted into cash, securities or other property, other than (x) a consolidation or merger of the Company in which the holders of the Common Stock immediately prior to the consolidation or merger have the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger, or (y) a consolidation or merger which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (by being converted into voting securities of the continuing or surviving entity) more than 50% of the combined voting power of the voting securities of the surviving or continuing entity immediately after such consolidation or merger and which would result in the members of the Board immediately prior to such consolidation or merger (including, for this purpose, any individuals whose election or nomination for election was approved by a vote of at least two-thirds of such members), constituting a majority of the board of directors (or equivalent governing body) of the surviving or continuing entity immediately after such consolidation or merger; or (B) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the Company's assets; (2) the Company's stockholders approve any plan or proposal for the liquidation or dissolution of the Company; (3) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended) shall become the beneficial owner (within the meaning of Rule 13d-3 under said Act) of 40% or more of the Common Stock other than pursuant to a plan or arrangement entered into by such person and the Company; or (4) 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 of the Board unless the election or 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.

7. Amendment and Termination of the Plan. The Board may amend or terminate the Plan. Except as otherwise provided in the Plan with respect to equity changes, any amendment which would increase the aggregate number of shares of Common Stock as to which options may be granted under the Plan, or modify the class of employees eligible to receive options under the Plan shall, to the extent required by applicable law or exchange requirements, be subject to the approval of the holders of the Common Stock. No amendment or termination may affect adversely any outstanding option without the written consent of the optionee.

8. No Rights Conferred. Nothing contained herein will be deemed to give any individual any right to receive an option under the Plan or to be retained in the employ or service of the Company or any affiliate.

9. Governing Law. The Plan and each option agreement shall be governed by the laws of the State of Delaware, without regard to its principles of conflicts of law.

10. Decisions and Determinations of Committee to be Final. Except to the extent rights or powers under this Plan are reserved specifically to the discretion of the Board, the Committee shall have full power and authority to interpret the Plan and any option agreement made under the Plan and to determine all issues which arise thereunder or in connection therewith, and the decision of the Board or the Committee, as the case may be, shall be binding and conclusive on all interested persons.

11. Term of the Plan. The Plan shall be effective as of April 30, 2001, the date on which it was adopted by the Board, subject to the approval of the stockholders of the Company. The Plan will terminate on April 30, 2011, the date ten years after the date of its adoption by the Board, unless sooner terminated by the Board. The rights of optionees under options outstanding at the time of the termination of the Plan shall not be affected solely by reason of the termination and shall continue in accordance with the terms of the option (as then in effect or thereafter amended).