-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SbJOSbN/9rm5PyVq17jLWhgwp/4wBofcFfVYWU6SS6eHwvguLiWJxWZzDRA908Ql 8wr2Bg4+6CmehlGc1BKNeA== 0000916304-02-000008.txt : 20020414 0000916304-02-000008.hdr.sgml : 20020414 ACCESSION NUMBER: 0000916304-02-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IGEN INTERNATIONAL INC /DE CENTRAL INDEX KEY: 0000916304 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 942852543 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23252 FILM NUMBER: 02542837 BUSINESS ADDRESS: STREET 1: 16020 INDUSTRIAL DR CITY: GAITHERSBURG STATE: MD ZIP: 20877 BUSINESS PHONE: 3019848000 MAIL ADDRESS: STREET 1: 16020 INDUSTRIAL DRIVE CITY: GAITHERSBURG STATE: MD ZIP: 20877 FORMER COMPANY: FORMER CONFORMED NAME: IGEN INC /CA/ DATE OF NAME CHANGE: 19931216 10-Q 1 f10q-12_01.txt SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 For Quarter Ended December 31, 2001 Commission File Number 0-23252 IGEN INTERNATIONAL, INC. ------------------------------------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 94-2852543 ------------------------------------------------------------ (State or other jurisdiction (IRS Employer incorporation or organization) Identification No.) 16020 INDUSTRIAL DRIVE, GAITHERSBURG, MD 20877 ------------------------------------------------------------ (Address of principal executive offices) (Zip Code) 301-869-9800 ------------------------------------------------------------ (Registrant's telephone number, including area code) 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 Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 1, 2002 ----- ------------------------------- Common Stock, $0.001 par value 21,953,605 IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001
INDEX PAGE PART I FINANCIAL INFORMATION Item 1: CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets - December 31, 2001 and March 31, 2001 3 Consolidated Statements of Operations - For the three and nine months ended December 31, 2001 and 2000 4 Consolidated Statements of Cash Flows - For the nine months ended December 31, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16 Item 3: QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23 PART II OTHER INFORMATION Item 1: LEGAL PROCEEDINGS 24 Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS 24 Item 6: EXHIBITS AND REPORTS ON FORM 8-K 25 SIGNATURES
IGEN INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
December 31, 2001 March 31,2001 ----------------- ------------- ASSETS (Unaudited) CURRENT ASSETS: Cash and cash equivalents $ 5,884 $ 4,872 Short term investments 43,433 10,217 Accounts receivable, net 9,114 5,863 Inventory 3,898 4,995 Other current assets 1,765 1,834 --------- --------- Total current assets 64,094 27,781 --------- --------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS: 21,456 18,106 Accumulated depreciation and amortization (12,804) (10,021) --------- --------- Equipment and leasehold improvements, net 8,652 8,085 --------- --------- NONCURRENT ASSETS: Investment in and advances to affiliate 2,354 - Restricted cash 2,864 2,120 Other 1,001 1,147 --------- --------- Total noncurrent assets 6,219 3,267 --------- --------- TOTAL $ 78,965 $ 39,133 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable and accrued expenses $ 13,914 $ 13,170 Note payable 4,971 4,668 Deferred revenue 614 794 Obligations under capital leases 57 53 --------- --------- Total current liabilities 19,556 18,685 --------- --------- NONCURRENT LIABILITIES: Subordinated convertible debentures 29,581 28,229 Note payable 19,374 23,142 Convertible preferred stock dividend payable 2,983 5,121 Other noncurrent liabilities 12 329 --------- --------- Total noncurrent liabilities 51,950 56,821 --------- --------- STOCKHOLDERS' EQUITY (DEFICIT): Convertible preferred stock, $0.001 par value, 10,000,000 shares authorized, Issuable in Series: Series A, 600,000 shares designated, none issued; Series B, 25,000 designated, 8,500 and 18,200 shares issued and outstanding- liquidation value of $8,500 and $18,200 plus accrued and unpaid dividends 1 1 Common stock: $0.001 par value, 50,000,000 shares authorized: 21,679,000 and 17,261,400 shares issued and outstanding 22 17 Additional paid-in capital 201,889 124,816 Stock notes receivable (3,710) (3,710) Accumulated deficit (190,743) (157,497) --------- --------- Total stockholders' equity (deficit) 7,459 (36,373) --------- --------- TOTAL $ 78,965 $ 39,133 ========= =========
See notes to consolidated financial statements IGEN INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA) UNAUDITED
THREE MONTHS ENDED NINE MONTHS ENDED DECEMBER 31, DECEMBER 31, 2001 2000 2001 2000 -------- -------- -------- -------- REVENUES: Royalty income $ 5,458 $ 4,219 $ 16,554 $ 11,883 Product sales 4,516 4,081 10,932 8,506 Contract fees 450 200 593 2,255 -------- -------- -------- -------- 10,424 8,500 28,079 22,644 -------- -------- -------- -------- OPERATING COSTS AND EXPENSES: Product costs 1,409 1,278 3,406 2,848 Research and development 6,397 7,640 20,756 19,931 Selling, general and administrative 5,902 4,090 17,543 12,105 Litigation costs-net 900 3,300 8,812 7,221 -------- -------- -------- -------- 14,608 16,308 50,517 42,105 -------- -------- -------- -------- LOSS FROM OPERATIONS (4,184) (7,808) (22,388) (19,461) OTHER EXPENSE-NET (1,287) (1,240) (3,807) (3,481) EQUITY IN LOSS OF AFFILIATE (3,756) - (7,001) - -------- -------- -------- -------- LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE (9,227) (9,048) (33,246) (22,942) CUMULATIVE EFFECT OF ACCOUNTING CHANGE - (6,995) - (6,995) -------- -------- -------- -------- NET LOSS (9,227) (16,043) (33,246) (29,937) PREFERRED DIVIDENDS (349) (526) (1,179) (1,566) -------- -------- -------- -------- NET LOSS ATTRIBUTED TO COMMON SHAREHOLDERS $ (9,576) $(16,569) $(34,425) $(31,503) ======== ======== ======== ======== BASIC AND DILUTED NET LOSS PER COMMON SHARE: Loss before cumulative effect of accounting change $ (0.48) $ (0.60) $ (1.80) $ (1.56) Cumulative effect of accounting change - (0.44) - (0.44) -------- -------- -------- -------- BASIC AND DILUTED NET LOSS PER COMMON SHARE $ (0.48) $ (1.04) $ (1.80) $ (2.00) ======== ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING-BASIC AND DILUTED 20,105 15,861 19,146 15,714 ======== ======== ======== ========
See notes to consolidated financial statements IGEN INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) UNAUDITED
NINE MONTHS ENDED DECEMBER 31, 2001 2000 -------- -------- OPERATING ACTIVITIES: Net loss $(33,246) $(29,937) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 3,133 2,761 Amortization of detachable warrant and stock options 1,148 1,062 Beneficial conversion feature of subordinated debentures - 6,995 Changes in assets and liabilities: Increase in accounts receivable (3,251) (2,588) Decrease (increase) in inventory 1,097 (1,011) Decrease in other current assets 69 246 (Decrease) increase in deferred revenue (453) 461 Increase in accounts payable and accrued expenses 1,619 2,294 -------- -------- Net cash used for operating activities (29,884) (19,717) -------- -------- INVESTING ACTIVITIES: Expenditures for equipment and leasehold improvements (4,250) (4,214) Investments in and advances to affiliate (1,454) - Purchase of short-term investments (67,403) (5,367) Sale and maturities of short-term investments 34,187 34,939 -------- -------- Net cash (used for) provided by investing activities (38,920) 25,358 -------- -------- FINANCING ACTIVITIES: Issuance of common stock-net 77,382 158 Payments on notes payable (3,465) (1,084) Preferred dividends paid (3,317) (1,179) Payments on capital lease obligations (40) (57) Restricted cash (744) (488) -------- -------- Net cash provided by (used for) financing activities 69,816 (2,650) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 1,012 2,991 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,872 3,172 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,884 $ 6,163 ======== ======== SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES: Accrued unpaid dividends $ 1,179 $ 1,566 ======== ======== Common stock issued to pay accrued interest $ 875 $ - ======== ======== Common stock issued in exchange for notes receivable $ - $ 3,710 ======== ======== Equipment and leasehold improvement contributed to affiliate $ 900 $ - ======== ========
See notes to consolidated financial statements IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information. These financial statements should be read together with the audited financial statements and notes for the year ended March 31, 2001 contained in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted. In the opinion of the Company's management, the financial statements reflect all adjustments necessary to present fairly the results of operations for the three and nine-month periods ended December 31, 2001 and 2000, the Company's financial position at December 31, 2001 and the cash flows for the nine-month periods ended December 31, 2001 and 2000. The results of operations for the interim period are not necessarily indicative of the results of the entire year. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents and Short-Term Investments - Includes cash in banks, money market funds, securities of the U.S. Treasury, and certificates of deposit with original maturities of three months or less. The Company has classified its short-term investments consisting of U.S. Government Obligations and Corporate Debt-Securities as "available for sale". These available for sale securities are accounted for at their fair value and unrealized gains and losses on these securities, if any, are reported as a separate component of stockholders' equity. The Company uses specific identification on computing realized gains and losses on sale of investments. Concentration of Credit Risk - The Company has invested its excess cash generally in securities of the U.S. Treasury, money market funds, certificates of deposit and corporate bonds. The Company invests its excess cash in accordance with a policy objective that seeks to ensure both liquidity and safety of principal. The policy limits investments to certain types of instruments issued by institutions with strong investment grade credit ratings and places restrictions on their terms and concentrations by type and issuer. The Company has not experienced any losses on its investments due to credit risk. Restricted Cash - The Company has a debt service reserve of $1.7 million at December 31, 2001 that is restricted in use and held in trust as collateral(see Note 4). In conjunction with the Roche Diagnostics (Roche) litigation, the Company has escrowed a total of $1.1 million related to Physician's Office Laboratory sales (see Note 8). IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Inventory is recorded at the lower of cost or market using the first-in, first-out method and consists of the following (in thousands):
December 31, 2001 March 31, 2001 ----------------- -------------- Finished goods $ 945 $1,028 Work in process 1,681 1,912 Raw materials 1,272 2,055 ------ ------ Total $3,898 $4,995 ====== ======
Equipment and Leasehold Improvements are carried at cost. Depreciation is computed over the estimated useful lives of the assets, generally three to five years, using accelerated methods, except for leasehold improvements, which are amortized on a straight-line basis over the lesser of the life of the lease or the asset's useful life. Evaluation of Long-lived Assets - The Company evaluates the potential impairment of long-lived assets based upon projections of undiscounted cash flows whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Management believes no impairment of these assets exists as of December 31 and March 31, 2001, respectively. Comprehensive Income - The Company has no significant elements of comprehensive income other than net loss. Revenue Recognition - The Company derives revenue principally from three sources: product sales, royalty income and contract fees. Product sales revenue is generally recognized when contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. The Company accrues a provision for estimated sales returns and other allowances and deferrals, as a reduction of revenue at the time of revenue recognition. Royalty income is recorded when earned based on information provided by licensees. Revenue from services performed under contracts is recognized over the term of underlying customer contract or at the end of the contract, when obligations have been satisfied. For services performed on a time and material basis, revenue is recognized upon performance. Amounts received in advance of performance under contracts or commercialization agreements are recorded as deferred revenue until earned. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) Loss Per Share - The Company uses Statement of Financial Accounting Standard (SFAS) No. 128 "Earnings per Share" for the calculation of basic and diluted earnings per share. The Company's loss has been adjusted by dividends accumulated on the Company's Series B Convertible Preferred Stock. Reclassifications - Certain prior period amounts have been reclassified to conform to the current period presentation. New Accounting Standards - In June 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations". SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS 143 is effective for fiscal years beginning after June 15, 2002. The Company is in the process of evaluating the impact of implementing SFAS 143. In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment of Long-Lived Assets" which supersedes SFAS No 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" and the accounting and reporting provisions of APB No 30, "Reporting the Results of Operations, Reporting and Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" for the disposal for a segment of business. This statement is effective for fiscal years beginning after December 15, 2001. SFAS No 144 retains many of the provisions of SFAS No. 121 but addresses certain implementation issues associated with that Statement. The Company is currently evaluating the impact of implementing SFAS 144. 3. EQUITY FINANCING During the period from February to October 2001, the Company sold 3 million shares of common stock for approximately $55.4 million (including 1,999,025 shares for $42.9 million during the nine-months ended December 31, 2001), to Acqua Wellington North American Equities Fund LLC (Acqua) pursuant to an equity financing facility agreement. All shares of common stock sold to Acqua were registered under a shelf-registration statement and were sold at a 4.75-6% discount to the market at the time of sale. There were no commissions, warrants or other direct costs associated with these sales. In December 2001, the Company entered into stock purchase and sale agreements with certain institutional investors for the private placement of the Company's common stock. Under the terms of these agreements, the Company sold 1,062,947 shares of its common stock for an aggregate sale price of $ 31.3 million. Pursuant to these agreements, these shares were subsequently registered for resale on a shelf-registration statement filed with the U.S. Securities and Exchange Commission. There were no commissions, warrants or other significant direct costs associated with these sales. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) 4. NOTE PAYABLE In March 1999, the Company entered into a debt financing with John Hancock Mutual Life Insurance Company under a Note Purchase Agreement (Note) from which the Company received $30 million. The seven year, 8.5% Senior Secured Notes mature in 2006 with principal and interest installments of $1.7 million due quarterly through March 2006. The Company is required to make note principal and interest payments of $6.9 million in each fiscal year through 2006. Collateral for the debt is represented by royalty payments and rights of the Company to receive monies due pursuant to the Company's license agreement with Roche. Additional collateral is represented by a Restricted Cash account, which had a balance of $1.7 million at December 31, 2001. Covenants within the Note include compliance with annual and quarterly Royalty Payment Coverage Ratios, which are tied to royalty payments and debt service. 5. SUBORDINATED CONVERTIBLE DEBENTURES In January 2000, the Company completed a placement of $35 million principal amount of Subordinated Convertible Debentures. The 5% debentures, if not converted, mature January 2005 with semi-annual interest payments to be made in cash or an equivalent value of common stock. The debentures are immediately convertible into 1,129,032 shares of the Company's common stock, which represents a $31 per share conversion price. As part of this financing, the Company also issued detachable warrants to purchase 282,258 shares of common stock with an exercise price of $31 per share. Using the Black-Scholes model and the relative fair value of the warrants and the debentures at the time of issuance, these warrants were valued at approximately $7 million. The detachable warrant value has been recorded as a reduction of the face value of the convertible debentures. Costs associated with placing the debentures totaling $1.9 million were deferred and have been netted against the recorded convertible debenture balance. The convertible debenture discount consisting of the warrant value and debt issuance costs is being amortized over the five-year life of the debentures. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) 6. INVESTMENT IN AFFILIATE During August 2001, the Company entered into agreements with Meso Scale Technologies, LLC. ("MST") continuing Meso Scale Diagnostics, LLC. ("MSD"), a joint venture formed solely by the Company and MST in 1995. MSD was formed for the development and commercialization of products utilizing a proprietary combination of MST's multi-array technology together with ORIGEN and other technologies owned by the Company. MST is a company established and wholly-owned by the son of IGEN's Chief Executive Officer. Under the amended agreements that were negotiated by an independent committee of the Company's Board of Directors, the Company holds a 31% voting equity interest in MSD, and is entitled to a preferred return on $28.6 million of the funds previously invested in MSD and on additional funds it invests. MST owns the remaining 69% of the voting equity interest in MSD. The Company agreed, subject to certain conditions, to fund the joint venture through its term, which runs to November 2003. The funding commitment for calender year 2002 is $21.5 million, subject to a permitted variance of fifteen percent. Thereafter, the funding commitment would be determined on the basis of an annual budget to be approved by a committee of the Company's Board of Directors. This funding commitment may be satisfied in part through in-kind contributions of scientific and administrative personnel and shared facilities. MST and MSD have the right to terminate the joint venture prior to November 2003 under certain circumstances, including a change in control of the Company, as defined. Upon termination, expiration or non-renewal of the joint venture agreement, MSD and MST jointly have the right to repurchase the Company's interest in MSD based on a fair market value analysis, subject to certain discounts. In addition, if the Company ceases to fund the joint venture, under certain circumstances, it must provide MSD with transitional funding for an additional six months. Under most circumstances, significant MSD governance matters require the approval of both the Company and MST. In conjunction with the amended agreements and the progress made by MSD in the development of its products, the Company has determined that future contributions to MSD would be made based on the future investment benefit to be obtained by the Company. Therefore, the Company's share of MSD losses for the quarter and nine-months ended December 31, 2001 totaling $3.8 million and $7 million, respectively, were recorded as Equity in Loss of Affiliate. Prior to July 1, 2001, the Company accounted for its equity investments in MSD as research and development funding and accordingly, recorded all MSD investments as research and development expenses as incurred. At December 31, 2001, the Company's Investment in Affiliate totaled $2.4 million, which represents contributions to MSD, net of Equity on Loss of Affiliate, since the effective date of the amended agreements. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) 7. STOCK NOTES RECEIVABLE In connection with the exercise of stock options by officers in July 2000, the Company granted loans in the principal amounts of $3.7 million, maturing in July 2007. The loans are 6.62% simple interest (paid annually), full recourse loans against all assets of the borrowers, collateralized by the pledge of 180,000 shares of the Company's common stock owned by the borrowers. 8. LITIGATION Roche - ----- In 1997, the Company filed a lawsuit against Roche Diagnostics GmbH (formerly Boehringer Mannheim GmbH) in the Southern Division of the United States District Court for the District of Maryland. The lawsuit arises out of a 1992 License and Technology Development Agreement (the "Agreement"), under which the Company licensed to Roche certain rights to develop and commercialize diagnostic products based on the Company's ORIGEN technology. In its lawsuit, the Company alleged that Roche failed to perform certain material obligations under the Agreement, including development and commercialization of ORIGEN technology according to the contractual timetable; exploitation of the license to the extent contemplated by the parties; phase out of certain non-royalty-bearing product lines; exploitation of ORIGEN technology only within Roche's licensed fields; proper treatment of intellectual property rights regarding ORIGEN technology; maintenance of records essential to the computation of royalties; and proper computation and payment of royalties. In August 2000, the Company filed an Amended Complaint in the lawsuit asserting additional breach of contract claims and a claim for unfair competition. On January 10, 2002, a jury issued its verdict in this litigation and found Roche liable to the Company for $105 million in compensatory damages and $400 million in punitive damages. The jury also confirmed the Company's rights to improvements under the license agreement, which includes Roche's Elecsys(R) 1010, 2010 and E170 lines of clinical diagnostic immunoassay analyzers, the tests developed for use on those systems, and Roche's nucleic acid amplification technology called PCR. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) The jury further concluded that Roche: violated its duty to the Company of good faith and fair dealing; engaged in unfair competition against the Company; and materially breached the license agreement. The jury's finding of material breach would permit the Company to terminate the agreement with Roche. Finally, the jury found in the Company's favor and against Roche on all of Roche's counterclaims, except for one in which the Company was ordered to pay $500,000. The jury's decisions, including the Company's right to terminate the license agreement, would be effective once affirmed on appeal. During an appeal process, Roche continues to be obligated to pay royalties to the Company under the license. The Company has notified Roche that the license agreement will terminate upon the appellate court affirming the Company's right to do so. In September 1998, a subsidiary of Ares-Serono ("Serono") filed a patent infringement claim against the Company, Roche and Organon Teknika in the U.S. District Court for the District of Delaware. The action claimed that Serono's patent "A Method of Assay Employing a Magnetic Electrode" was being infringed by the Company and its licensees. Subsequently, F. Hoffman LaRoche, Ltd., a member of the Roche family of companies, acquired the patent from Serono and continued in Serono's place to assert the infringement claim against the Company and Organon Teknika. A trial was held in Delaware on this matter during February 2001. During November 2001, the Company settled this patent infringement action. Under the terms of the settlement, Roche dismissed with prejudice all claims against the Company, paid the Company $5.7 million as reimbursement for legal fees incurred in the litigation and granted the Company a fully paid-up, perpetual, worldwide, non-exclusive license (with the right to grant sublicenses) to the patent in suit. Hitachi - ------- In December 1997, IGEN International K.K., a Japanese subsidiary of the Company, filed a lawsuit in Tokyo District Court against Hitachi Ltd. ("Hitachi"). The lawsuit seeks to enjoin Hitachi from infringing a license registration (known in Japan as a "senyo-jisshi-ken") held by IGEN K.K. and Eisai Co., Ltd., a company to which IGEN has licensed ORIGEN technology rights. The lawsuit requests injunctive relief preventing Hitachi from manufacturing, using or selling the Elecsys 2010, which incorporates the Company's patented ORIGEN technology, in Japan. Hitachi is the sole manufacturer for Roche of the Elecsys 2010 immunoassay instrument. Roche is licensed to market the Elecsys 2010 worldwide, except in Japan, to central hospital laboratories and clinical reference laboratories. A hearing is scheduled in this litigation for May 2002 and a decision of the court may be issued thereafter. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) Other Matters - ------------- In February 2001, Brown Simpson Strategic Growth Fund L.P., Brown Simpson Strategic Growth Fund, Ltd. and Brown Simpson Partners I (collectively "Brown Simpson")initiated a shareholder derivative lawsuit for and on behalf of the shareholders of the Company in the Circuit Court for Montgomery County, Maryland against four of the Company's current directors, two former directors, three executive officers and the Company as a nominal defendant. In the complaint, Brown Simpson, stating that it holds 100 shares of the Company's common stock, alleges breach of fiduciary duties by the named individual defendants in connection with transactions between the Company and other entities in which certain directors and officers are alleged to have an nterest, including the Meso Scale Diagnostics, LLC. joint venture. In March 2001, a second shareholder derivative lawsuit was filed by Laurence Paskowitz in the Circuit Court for Montgomery County, Maryland, for and on behalf of the shareholders of the Company. The lawsuit names as defendants all of the Company's existing officers and directors, two former directors and the Company as a nominal defendant. The allegations and the relief sought in this complaint are substantially the same as those set forth in the complaint filed by Brown Simpson. The Complaint was later amended to add direct calaims against the defendants and to seek class action certification for those direct claims. Both lawsuits seek principally the following: that the defendants hold in trust and be required to account for and restore to the Company damages that IGEN has allegedly sustained by reason of the allegations and relief relating to board and management composition. The Paskowitz complaint also seeks damages for a class of IGEN shareholders for the direct claims against the individual defendants. The complaints do not include any claims against the Company. In 2000, the Board of Directors established an Independent Committee to evaluate substantially similar issues as those raised in both shareholder complaints and delegated the exclusive power and authority to the Committee to review and investigate the matters identified in the derivative actions and to determine what measures or actions, if any, should be undertaken on behalf of the Company in response. The Committee was also authorized to address any other issues raised as a result of the Committee's investigation and to effect any such measures or actions on behalf of the Company with full power and authority of the Board, subject only to the requirements of Delaware law and the Company's governing documents. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) On August 24, 2001, the Independent Committee issued a report summarizing its findings. In its report, the Independent Committee concluded that the actions undertaken by the Committee completely address the demands made in the complaints as they relate to the derivate actions, including those claims directed at the MSD joint venture. The Committee found that it is not in the best interest of the Company's stockholders to pursue any of the shareholders demands and urged the Court to dismiss the derivative claims in the lawsuits. The Company and the individual defendants have filed motions to dismiss or, in the alternative, for summary judgment in both lawsuits. A hearing took place in December 2001 to address the Company's motion. Immediately prior to the hearing date, the Brown Simpson plaintiffs amended their complaint by adding a new plaintiff and by alleging the new plaintiff has been a shareholder of the Company since 1994. At the December hearing, the Circuit Court held that: (i)the claims of Brown Simpson plaintiffs that were holders of convertible securities and not owners of the common stock are dismissed; (ii)any claims asserted by the Brown Simpson plaintiffs relating to transactions that took place prior to November 15, 2000 are barred; (iii) any claims asserted by the Paskowitz plantiff relating to transactions that took place prior to April 15, 2000 are barred; (iv)all direct claims asserted by Paskowitz would be dismissed. The Circuit Court did not address the claims asserted by the newly introduced plaintiff. All of the claims asserted by the Brown Simpson plaintiffs relate to transactions that took place prior to November 15, 2000. All of the claims (except one relating to loans to executive officers for the exercise of stock options) asserted by Paskowitz relate to transactions that took place prior to April 15, 2000. The Court granted the plaintiffs leave until February 1, 2002 to amend their complaints. None of the plaintiffs filed an amended complaint by that date and the Company has filed a renewed motion to dismiss and for summary judgment of all remaining claims based, in part, on the prior rulings of the Circuit Court. The Circuit Court has scheduled a new hearing for March 2002 to address the Company's pending motion to dismiss and for summary judgment. The Company believes that the claims are wholly without merit and that meritorious defenses are available. The Company intends to vigorously contest and defend against these claims and to assert all of its legal rights in this matter, including all counterclaims. The lawsuits are not expected to have a material adverse effect on the Company's financial position, results of operations or cash flows. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued) The Company is involved, from time to time, in various other legal proceedings arising in the ordinary course of business. In the opinion of management, based on review with legal counsel, the Company does not believe that any such legal proceedings will have a material adverse impact on its financial position, results of operations or cash flows. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We have devoted substantial resources to the research and development of our proprietary technologies, primarily the ORIGEN(R) technology for the clinical diagnostic, life science and industrial markets. We currently derive a majority of our revenue from royalties received from licensees that develop and market certain ORIGEN-based systems. We also generate sales of our own products, particularly the M-Series(TM) System and related consumable reagents. We may selectively pursue additional strategic alliances, which could result in additional license fees or contract revenues. Since inception, we have incurred significant losses and, as of December 31, 2001, we had an accumulated deficit of $190 million. We expect to continue to incur substantial research and development, manufacturing and general and administrative costs associated with our operations. As a result, we will need to generate higher revenue to achieve profitability. In addition to historical information, this document contains forward-looking statements within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to statements regarding the potential market and market growth for diagnostic products, potential impact of competitive products, the Company's expectations regarding the level of anticipated royalty and revenue growth in the future, the potential market for products in development, financing plans, the outcome of litigation, the Company's plans and objectives for future operations, assumptions underlying such plans and objectives, the need for and availability of additional capital and other forward-looking statements included in this document. The words "may", "should", "could", "will", "expect", "intend", "estimate", "anticipate", "believe", "plan" and similar expressions have been used in this document to identify forward-looking statements. We have based these forward-looking statements on our current views with respect to future events and financial performance. Such statements are based on management's current expectations and are subject to a number of risks and uncertainties, which could cause actual results to differ materially from those, described in the forward-looking statements. In particular, careful consideration should be given to the cautionary statements in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and to the risks and uncertainties detailed in the Company's Annual Report on Form 10-K for the year ended March 31, 2001 and in the final prospectus dated February 7, 2002, previously filed with the Securities and Exchange Commission. The Company disclaims any intent or obligation to update these forward-looking statements. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) RESULTS OF OPERATIONS THE QUARTER AND NINE MONTHS IN REVIEW REVENUE. Total revenue for the quarter and nine-months ended December 31, 2001 were $10.4 million and $28.1 million, respectively. This represents increases of $1.9 million (23%) and $5.4 million (24%), respectively, when compared with the same prior year periods. The growth in revenue was due to increases in royalty income and product sales. Royalty income was $5.5 million and $16.6 million during the quarter and nine- months ended December 31, 2001, an increase of 29% and 39%, respectively, over the same prior year periods. Royalties from Roche represent approximately $5.2 million (95%) and $15.7 million (95%) of the total royalty income for the current quarter and nine-month period, respectively, compared to $4 million (94%) and $11.2 million (94%) in the comparable prior year periods. These increases were attributable to higher Roche sales of its Elecsys product line, which is based on IGEN's ORIGEN technology that was licensed to Roche under a 1992 license agreement. The Company is involved in litigation with Roche arising out of this agreement. One of the disputes in the litigation relates to Roche's computation of royalties to which the Company believes it is entitled under the agreement. See Note 8 of Notes to Consolidated Financial Statements. Product sales were $4.5 million and $10.9 million, respectively, during the quarter and first nine-months of the current year, which represent increases of 11% and 29%, respectively, over the prior year's product sales of $4.1 million and $8.5 million, for the same respective periods. This growth in product sales was led by increased shipments of the M-SERIES line of instrumentation and consumable products, as well as revenue generated from the sale of clinical diagnostic tests to physician office laboratory (POL) customers in the United States. We began serving these POL customers in June 2000 when Roche transferred the customers in order to comply with a court ordered preliminary injunction. Contract fees were $450,000 in the current quarter and $593,000 for the first nine-months of the current year. This compares to $200,000 and $2.3 million, respectively, for the same prior year periods. The current year fees related primarily to work completed in conjunction with the development of assays for Roche. The prior year's contract fees were primarily from a non-recurring amount received in connection with our alliance with Bayer Diagnostics. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OPERATING COSTS AND EXPENSES. Product costs were $1.4 million (31% of product sales) and $3.4 million (31% of product sales) for the quarter and nine-months ended December 31, 2001. This compares with product costs of $1.3 million (31% of product sales) and $2.8 million (34% of product sales) for the quarter and nine-months ended December 31, 2000. The higher prior year product costs are attributable to the M-SERIES retrofit program instituted during the quarter ended September 30, 2000, which upgraded the M-8 analyzers in the field with new software and hardware components. Research and development expenses were $6.4 million and $20.8 million for the quarter and first nine-months of the current year. This represents a decrease of approximately $1.2 million from the $7.6 million incurred in the same quarter last year while increasing $825,000 when compared to the same nine-month period last year. For the quarter ended December 31, 2001, the decrease is attributable to contributions of $3.8 million related to the amended (August, 2001) Meso Scale Diagnostics ("MSD") joint venture being classified as Equity in Loss of Affiliate (see "Equity in Loss of Affiliate" below). In periods prior to June 30, 2001, contributions to MSD were classified as a research and development cost. Including all MSD related costs, research and development expense would have increased by $2.5 million (33%) and $7.8 million (39%) in the current quarter and first nine-months of the current year when compared with the same prior year periods. These increases were due to ongoing development costs and product enhancements associated with the M-SERIES family of products, development of new assays for the life science market, R&D of new systems and technologies, including hospital point-of-care products and costs associated with MSD. Selling, general and administrative expenses were $5.9 million and $17.5 million in the third quarter and first nine-months of fiscal 2002, which represent increases of $1.8 million (44%) and $5.4 million (45%) over the same prior year periods. These increases were primarily attributable to higher selling, marketing and customer support costs as well as legal and other expenses associated with the amendment and extension of the MSD joint venture. Costs related to our litigation with Roche were offset by a settlement payment the Company received during the current quarter from Roche. Under the terms of the settlement, Roche dismissed, with prejudice, all claims against the Company, reimbursed the Company for the legal fees the Company incurred in defending this Delaware litigation which total approximately $5.7 million and granted the Company a fully paid-up, perpetual, worldwide, non-exclusive license (with the right to sublicense) under the patent in suit. Absent this settlement, costs related to our litigation with Roche increased to $6.6 million and $14.5 million for the quarter and nine-months ended December 31, 2001 from $3.3 million and $7.2 million in the same prior year periods. The increases are attributable to expanded activities in several areas, including pre-trial motions and the preparation and conduct of the trial that began on October 23, 2001 and was concluded on January 10, 2002. The increased litigation costs also included financial and legal advisory fees associated with settlement discussions with Roche. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) OTHER EXPENSE. Other expense, net of interest income was $1.3 million for the quarters ended December 31, 2001 and 2000. In the first nine-months of the current year, other expense increased to $3.8 million from $3.5 million in the same prior year period due to lower cash balances (and lower interest income) during the first quarter of the current year. EQUITY IN LOSS OF AFFILIATE. During August 2001, the Company entered into agreements with Meso Scale Technologies, LLC. ("MST") continuing Meso Scale Diagnostics, LLC. ("MSD"), a joint venture formed solely by the Company and MST in 1995. MSD was formed for the development and commercialization of products utilizing a proprietary combination of MST's multi-array technology together with ORIGEN and other technologies owned by the Company. In conjunction with the amended agreements and the progress made by MSD in the development of its products, the Company has determined that future contributions to MSD would be made based on the future investment benefit to be obtained by the Company. Therefore, the Company's share of MSD losses for the quarter and nine-months ended December 31, 2001 totaled $3.8 million and $7 million, were recorded as Equity in Loss of Affiliate. Prior to July 1, 2001, the Company accounted for its equity investments in MSD as research and development funding and accordingly, recorded all MSD investments as research and development expenses as incurred. NET LOSS. The net loss for the current quarter was $9.2 million ($0.48 per common share, after consideration of the effect of preferred dividends) compared to a net loss of $16 million ($1.04 per common share, after consideration of the effect of preferred dividends) in the same prior year quarter. The net loss for the nine-months ended December 31, 2001 was $33.2 million ($1.80 per common share, after consideration of the effect of preferred dividends) compared to a net loss of $29.9 million ($2.00 per common share, after consideration of the effect of preferred dividends) for the nine-months ended December 31, 2000. The losses in the prior year comparable periods included a one-time, non-cash charge of $7 million ($0.44 per share) to record the cumulative effect of an accounting change which was adopted in accordance with the Financial Accounting Standards Board's Emerging Issue Task Force. Results of operations in the future are likely to fluctuate substantially from quarter to quarter as a result of various factors, which include the volume and timing of orders for M-SERIES or other products; the timing of instrument deliveries and installations; variations in revenue recognized from royalties and other contract revenues; whether POL customers renew contracts; whether Roche will continue to supply service and assays to POL customers; the mix of products sold; whether instruments are sold to or placed with customers; the timing of the introduction of new products; competitors' introduction of new products; variations in expenses incurred in connection with the operation of the business, including legal fees, research and development costs and sales and marketing costs; equity in losses of affiliate; manufacturing capabilities; and the volume and timing of product returns and warranty claims. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company has experienced significant operating losses each year since inception and expects those losses to continue. Losses have resulted from a combination of lower royalty revenue than the Company believes it is entitled to under the License Agreement with Roche, costs incurred in research and development, Roche litigation costs, selling costs and other general and administrative costs. The Company expects to incur additional operating losses as a result of increases in expenses for manufacturing, marketing and sales capabilities, research and product development, general and administrative costs and equity in losses of affiliate, offset in part by lower Roche litigation costs beginning in the fourth quarter of fiscal 2002. The Company's ability to become profitable in the future will depend, among other things, on its ability to expand the commercialization of existing products; introduce new products into the market; develop marketing, sales and distribution capabilities cost-effectively; and complete new business arrangements. LIQUIDITY AND CAPITAL RESOURCES Through December 31, 2001, the Company has financed operations through the sale of Preferred and Common Stock, aggregating approximately $178 million; the placement of a $30 million debt financing with John Hancock Life Insurance Company in March 1999; and a $35 million private placement of subordinated convertible debentures in January 2000. Under the Hancock financing, the Company is obligated to make quarterly principal and interest payments of $1.7 million through March 2006. Under the subordinated convertible debentures, unless and until the holders of the debentures convert their debentures into common stock, the Company will be required to make semi-annual interest payments of $875,000 through January 2005. Interest payments may be made in cash or an equivalent value of common stock. In addition, the Company has received funds from collaborative research and licensing agreements, sales of its ORIGEN-based line of products and royalties from product sales by licensees. During the period from February to October 2001, the Company sold 3 million shares of common stock for approximately $55.4 million (including 1,999,025 shares for $42.9 million during the nine-months ended December 31, 2001), to Acqua Wellington North American Equities Fund LLC ("Acqua") pursuant to an equity financing facility agreement. All shares of common stock sold to Acqua were registered under a shelf-registration statement and were sold at a 4.75-6% discount to the market at the time of sale. There were no commissions, warrants or other direct costs associated with these sales. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) In December 2001, the Company entered into stock purchase and sale agreements with certain institutional investors for the private placement of the Company's common stock. Under the terms of these agreements, the Company sold 1,062,947 shares of its common stock for an aggregate sale price of $31.3 million. Pursuant to these agreements, these shares were subsequently registered for resale on a shelf-registration statement filed with the U.S. Securities and Exchange Commission. There were no commissions, warrants or other significant direct costs associated with these sales. As of December 31, 2001, the Company had $49.3 million in cash, cash equivalents and short-term investments with working capital of $44.5 million. Cash used in operations increased to $29.9 million for the nine-months ended December 31, 2001, as compared to $19.7 million for the corresponding prior year period, primarily due to a higher loss before accounting change. The Company used approximately $4.3 million and $4.2 million of cash for the acquisition of equipment and leasehold improvements during the nine-months ended December 31, 2001 and 2000, respectively. The Company believes material commitments for capital expenditures may be required in a variety of areas, such as product development programs. The Company has not, at this time, made commitments for any such capital expenditure or secured additional sources to fund such commitments. For fiscal 2002, future minimum lease payments for which the Company is obligated under capital lease agreements approximate $66,000 (including interest) while facility and equipment operating lease commitments approximate $2.5 million. During August 2001, the Company entered into agreements with MST continuing MSD, a joint venture formed solely by the Company and MST in 1995. Under the terms of the joint venture agreement, the Company agreed, subject to certain conditions, to fund the joint venture through November 2003. This funding commitment may be satisfied in part through in-kind contributions of scientific and administrative personnel and shared facilities. The funding commitment for calender year 2002 is $21.5 million, subject to permitted variance of fifteen percent. Thereafter, the funding commitment would be determined on the basis of an annual budget to be approved by a committee of the Company's Board of Directors. Should no budget be approved, the Company would be required to provide transitional funding for an additional six months, and MSD and MST have the right to terminate the joint venture, unless the budget calls for funding that exceeds 110% of the prior twelve months funding and the Board of Directors makes a reasonable good faith determination for the rejection. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) The Company has a substantial amount of indebtedness, and there is a possibility that the Company may be unable to generate cash or arrange financing sufficient to pay the principal of, interest on and other amounts due with respect to indebtedness when due, or in the event any of it is accelerated. In addition, the Company indebtedness may require that it dedicate a substantial portion of its expected cash flow from operations to service indebtedness, which would reduce the amount of expected cash flow available for other purposes, including working capital and capital expenditures. The Company needs substantial amounts of money to fund operations. In this regard, the Company from time to time has discussions with third parties, including multinational corporations, regarding various business arrangements including distribution, marketing, research and development, joint venture and other business agreements, which could provide for substantial up-front fees or payments. Further, the Company is considering and evaluating the advisability and feasibility of a variety of financing alternatives, which could be completed in the near term, including issuance of additional debt or equity securities. There can be no assurance that the Company will successfully complete any of the foregoing arrangements and access to funds could be adversely impacted by many factors, including the results of pending litigation, the volatility of the price of the Company's common stock, continuing losses from operations and other factors. The Company believes that existing capital resources, together with revenue from product sales, royalties and contract fees will be adequate to fund operations through calendar year 2002. If the Company is unable to raise additional capital, we may have to scale back, or even eliminate, some programs. Alternatively, the Company may consider pursuing arrangements with other companies, such as granting licenses or entering into joint ventures, on terms and conditions that may not be favorable to it. Roche has the right to continue to market its Elecsys products within its licensed field until the Company's right to terminate the Agreements is affirmed on appeal. In connection with the litigation with Roche, the Company has notified Roche that the license agreement will terminate upon the appellate court affirming the Company's right to do so. Termination of the license agreement would have a material adverse effect on the Company's royalty revenue unless, and until, the Company entered into a strategic partnership with another company that is able to develop and commercialize diagnostic instruments within the field presently licensed to Roche. There can be no assurance that the Company would be able to enter into such a strategic partnership on favorable terms, if at all. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) A hearing is scheduled in the Hitachi litigation for May 2002, following which a decision by the Japanese court may be issued. The Company does not expect that failure to prevail in the Hitachi litigation by itself would have a material adverse effect on the Company's revenue or sales, because Hitachi would continue to manufacture Roche instruments and the Company would continue to earn royalties in connection with Roche sales. There can be no assurance that the Hitachi litigation would not have a material adverse effect on the Company's intellectual property, regardless of whether the outcome of the litigation is favorable. Success by the Company in the Hitachi litigation could have a material adverse effect on the Company's royalty revenues from sales of Elecsys products to the extent that Roche's sales of Elecsys instruments are hindered because it needs to find a new manufacturer for its instruments or make arrangements to have Hitachi manufacture the instruments outside of Japan. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information about market risks for the nine-months ending December 31, 2001 does not differ materially from that discussed under Item 7A of the Company's Annual Report on Form 10-K for the year ended March 31, 2001. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 PART II OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS The information required under this item is incorporated herein by reference to Part I, Item 1 - Note 8 of Notes to Consolidated Financial Statements. ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS In December 2001, the Company entered into purchase agreements with Acqua Wellington Private Placement Fund, Ltd., Acqua Wellington Opportunity I Limited, and Brown Simpson Partners I, Ltd. for the private placement of the Company's common stock. Under the terms of these agreements, the Company sold an aggregate of 1,062,987 shares of its common stock for an aggregate sales price of $31.3 million. The Company sold the shares of common stock pursuant to an exemption from the registration requirements of the Securities Act provided by Section 4(2) and/or Regulation D promulgated thereunder, which exemption was supported, by representations and warranties provided by the institutional investors, the number of purchasers, the size of the offering, the nature of the investors, restrictive legends placed on the shares of common stock issued in the transactions, the absence of general solicitation or advertising, the filing of appropriate forms with state and federal securities regulatory authorities, among other things. As required by the purchase agreements, the shares of common stock were subsequently registered for resale on a shelf-registration statement filed with the U.S. Securities and Exchange Commission. There were no commissions, warrants or other direct costs associated with these sales. ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.1 Indemnification Agreement, dated as of October 26, 2001 between the Company and Jacob Wohlstadter.Filed herewith. * 10.2 Termination Protection Program. Filed herewith.* *denotes compensatory plan or arrangement (b) The Company filed reports on Form 8-K under Item 5, Other Events on December 19, 2001 and January 11, 2002. IGEN INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2001 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. IGEN International, Inc. Date: February 13, 2002 /s/ George V. Migausky ----------------- ---------------------- George V. Migausky Vice President of Finance Chief Financial Officer (On behalf of the Registrant and as Principal Financial Officer) EX-10 3 ex10-1_f10qdec01.txt INDEMNIFICATION AGREEMENT Exhibit 10.1 INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement") is entered into as of October 26, 2001, by and between IGEN International, Inc., a Delaware corporation (the "Company"), to and for the benefit of Jacob N. Wohlstadter (the "Indemnified Party"). WITNESSETH: WHEREAS, the Company previously engaged the Indemnified Party to perform services as an independent contractor to the Company for periods both prior to and from and after November 30, 1995; and WHEREAS, it was contemplated in connection with the Indemnified party's performance of services for the Company that the Company would provide indemnification for the Indemnified Party; WHEREAS, the Company has previously executed and delivered an indemnification agreement relating to, among other things, indemnification of the Indemnified Party and JW Consulting Services, L.L.C. by the Company in connection with the performance of services to the Company from and after November 30, 1995; and WHEREAS, the parties desire to execute and deliver this Agreement to provide indemnification, in accordance with the terms hereof, for services rendered prior to November 30, 1995; NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. ----------- Capitalized terms used herein shall have the meaning defined in the recitals set forth above or shall have the meaning defined herein. In addition, the following terms when used with initial capitalization shall have the following meanings: "Claim" shall mean any threatened, pending or completed claim, action, demand, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal. "Damages" shall mean any losses, liabilities, damages (including consequential, special and incidental), claims, demands, judgments, settlements, fines, penalties, expenses and costs (including Defense Costs). "Defense Costs" shall mean any costs, charges, bonds, fees and expenses, including reasonable attorneys' fees and fees of experts and consultants, reasonably incurred in the investigation, defense or prosecution of any Claim. "Person" shall mean an individual, partnership, limited partnership, corporation, company, association, business trust, limited liability company, trust, unincorporated association, joint venture, or governmental entity, authority or agency. "Third Party" shall mean any trustee, receiver, creditor, contractor, vendor or service provider to the Company or any other person doing business or otherwise associated with the Company. 2. INDEMNIFICATION BY THE COMPANY; LIMITATIONS. (a) Third Party Claims. The Company shall defend, indemnify ------------------ and hold harmless the Indemnified Party from and against any and all Damages asserted against or suffered or incurred by the Indemnified Party in connection with any Claim brought by any Person, including any Third Party, arising from, relating to or resulting from any alleged acts or omissions of the Indemnified Party related to or arising out of the performance or non-performance of services to or for the benefit of the Company in periods prior to November 30, 1995. (b) Reimbursement for and Advancement of Defense Costs. The -------------------------------------------------- Company shall reimburse the Indemnified Party for any and all Defense Costs relating to a Claim subject to indemnification under Section 2(a) incurred by ------------ the Indemnified Party in accordance with Section 3. Defense Costs incurred by --------- the Indemnified Party shall be paid by the Company in advance of the final disposition of such Claim, within 20 days after the receipt by the Company of a statement or statements from the Indemnified Party requesting such advance payment. In addition, the Indemnified Party may request and receive an advance for anticipated Defense Costs by submitting to the Company a statement or statements which shall reasonably evidence the anticipated Defense Costs. Each statement submitted pursuant to this Section shall include an undertaking by the Indemnified Party to repay any previously advanced Defense Costs in the event that it is ultimately determined that the Indemnified Party is not entitled to indemnification under Section 2(c). ------------ (c) Limitation on Indemnification. Anything to the contrary ----------------------------- herein notwithstanding, the Company shall not be required hereunder to indemnify the Indemnified Party for any Damages to the extent the underlying Claim arises from acts or omissions (i) which constitute intentional misconduct of the Indemnified Party, (ii) which constitute a knowing violation of law by the Indemnified Party, or (iii) which are specifically prohibited from being included in an otherwise enforceable indemnification provision or agreement by the applicable law of the jurisdiction in question. (d) No Duplication of Payments. The Company shall not be -------------------------- liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Indemnified Party has otherwise actually and properly received payment of such amounts under any insurance policy, contract, agreement or otherwise. (e) Non-exclusivity. Nothing herein shall be deemed to --------------- diminish or otherwise restrict the Indemnified Party's right to indemnification under applicable law, or any other agreement, instrument or document, including any certificate or articles of incorporation, bylaws, limited liability company agreement or other governing organizational document (including the letter agreement dated as of November 30, 1995 between the Company and the Indemnified Party relating to indemnification of the Indemnified Party by the Company in connection with the Indemnified Party's relationship with Meso Scale Diagnostics, LLC. (the "MSD INDEMNIFICATION LETTER") and the Indemnification Agreement, dated as of August 15, 2001, effective as of November 30, 1996, among the Company, the Indemnified Party and JW Consulting Services, L.L.C. ("JW CONSULTING") relating to, among other things, indemnification of the Indemnified Party and JW Consulting by the Company in connection with the performance of services to the Company from and after November 30, 1995 (the "INDEMNIFICATION AGREEMENT")). 3. INDEMNIFICATION PROCEDURES. -------------------------- (a) Notice of Claim. The Indemnified Party shall promptly notify the Company in writing of any Claim in respect of which indemnification could be sought under this Agreement. Such notice shall be given with reasonable promptness after the Indemnified Party becomes aware of such Claim; provided, however, that failure to give prompt notice shall not adversely affect or disqualify any claim for indemnification hereunder except to the extent the Company is materially prejudiced thereby. Such notice shall specify the nature of the Claim, the amount of Damages (to the extent such amount is then known to the Indemnified Party at such time and without prejudice to any right the Indemnified Party may have to thereafter be indemnified in any greater amount) and all material information regarding such Claim which is then known to the Indemnified Party. (b) Control of Defense by the Indemnified Party. Following ------------------------------------------- delivery of the notice described in Section 3(a), the Indemnified Party shall ------------ keep the Company fully informed and, unless the Company exercises the right of control set forth in Section 3(c), shall use its reasonable efforts to contest ------------ and defend such Claim with its own legal counsel and present any defense reasonably suggested by the Company or its counsel. To the extent the Indemnified Party controls the defense of such Claim, the Company shall reimburse or pay the Defense Costs as they are incurred, or advance such Defense Costs as requested in accordance with Section 2(b). If, in accordance with ------------ Section 3(c), the Company properly elects to assume and control defense of such - ------------ Claim, then the Company shall immediately reimburse the Indemnified Party for any unreimbursed Defense Costs incurred or paid by, or on behalf of, the Indemnified Party in connection with the defense of such Claim prior to the receipt by the Indemnified Party of the Assumption and Acknowledgment Notice (as such term is defined below) relating to such Claim. If the Company assumes and controls defense of such Claim, the Indemnified Party shall reasonably cooperate with the Company in such defense. If the Company does not assume and control defense of such Claim, the Company shall continue to have the right to participate in the defense of such Claim (subject to the right of the Indemnified Party to control the defense of such Claim), at its own expense. (c) Assumption and Control of Defense by the Company. ------------------------------------------------- Subject to Section 3(d), the Company, upon written notice to the Indemnified Party (the "ASSUMPTION AND ACKNOWLEDGMENT NOTICE") within 30 days after receipt of the notice described in Section 3(a), ------------ may assume and control, at its own expense, the defense of the Claim with counsel approved by the Indemnified Party (which approval shall not be unreasonably withheld or delayed). The Assumption and Acknowledgment Notice shall notify the Indemnified Party of (i) the Company's intention to assume and control the defense of such Claim and (ii) the Company's unconditional acknowledgment of its indemnification liability hereunder for the full amount of Damages arising under or relating to such Claim (unless and to the extent it is determined based upon information not theretofore made available to the Company subsequent to such date that the Company is not liable to indemnify the Indemnified Party pursuant to Section 2(c)). At all times, the Indemnified Party ------------- shall retain the right to approve all pleadings and other submissions of whatever kind relating to the Claim prior to their filing or submission (which approval shall not be unreasonably withheld or delayed), and shall be kept fully informed of all stages of the Claim. (d) Restrictions on the Company's Ability to Assume and --------------------------------------------------- Control Defense of the Claim. Notwithstanding anything in Section 3(c) to the - ----------------------------- ------------ contrary, the Company shall not be entitled to control the defense of any Claim if (i) the Company fails to provide the Assumption and Acknowledgment Notice within 30 days after receipt of the notice contemplated in Section 3(a), (ii) ------------ the Indemnified Party has reasonably concluded that there may be legal defenses available to the Indemnified Party that are different from or in addition to those available to the Company or (iii) the Company has not employed counsel satisfactory to the Indemnified Party to assume the defense of such Claim within a reasonable time after receiving notice of the commencement of such Claim. In any such case, the Indemnified Party shall be entitled to control the defense of such Claim and be reimbursed in accordance with Section 2(b). Notwithstanding ------------ anything contained herein to the contrary, the Indemnified Party may provide written notice to the Company that the Indemnified Party prefers that the Company, and therefore directs and instructs the Company to, assume and control defense of such Claim, in which case the Company will assume and control defense of such Claim in accordance with Section 3(c), and deliver the Assumption and ------------ Acknowledgment Notice contemplated by such Section, as promptly as practicable following receipt of such notice. The Company's assumption of control of the defense of such Claim pursuant to the preceding sentence shall not constitute an acknowledgement by the Company of its indemnification liability under this Agreement. (e) Continued Participation by the Indemnified Party. If the ------------------------------------------------ Company assumes control of the defense of a Claim in accordance with the provisions of Sections 3(c) or 3(d), the Indemnified Party may notify the --------------------- Company in writing that the Indemnified Party thereafter desires to retain separate counsel in order to participate in or proceed independently with the defense of such Claim, at the Indemnified Party's own expense; provided that, the Indemnified Party shall be reimbursed by the Company for the reasonable fees and expenses of such counsel incurred by the Indemnified Party if (i) the Company, in its discretion, provides written authorization to the Indemnified Party for the employment of such counsel and the reimbursement of such fees and expenses, or (ii) there are legal defenses available to the Indemnified Party that are not available to the Company, or counsel representing the Company and the Indemnified Party, under applicable ethical rules and opinions, would be required to seek consent to such joint representation of the Company and the Indemnified Party. (f) Settlement of the Claim. If the Indemnified Party desires ------------------------ to claim indemnification hereunder with respect to the compromise or settlement of any Claim, as a condition precedent to such indemnification, the Indemnified Party shall first notify the Company in writing of any firm settlement or compromise proposal the Indemnified Party receives or intends to make with respect to such Claim prior to accepting or offering such proposal. The Indemnified Party shall not settle or compromise any Claim in respect of which the Indemnified Party is entitled to be indemnified by the Company hereunder without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed. The exercise of any right of consent or withholding of consent under this Section 3(f) shall not affect, excuse, modify or relieve the Company of any of its obligations under this Agreement. 4. REPRESENTATIONS AND WARRANTIES. The Company hereby represents ------------------------------ and warrants to the Indemnified Party as of the date of execution hereof that: (a) Organization: Good Standing. The Company is a --------------------------- corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and is duly authorized to transact business and is in good standing in each jurisdiction where the failure to so qualify would have a material adverse effect on the performance by the Company of its obligations hereunder. (b) Authorization. The Company has all requisite corporate ------------- power and authority to execute, deliver and perform its obligations under this Agreement. (c) Non-Contravention. The execution and delivery by the ----------------- Company of this Agreement and the performance by it of its obligations hereunder have been duly authorized by all necessary corporate actions and do not and will not: (i) contravene its certificate of incorporation or by-laws; (ii) conflict with, result in a breach of or constitute a default under any material contract, agreement or other instrument to which it is a party or by which it or its property is bound; or (iii) violate any applicable statute, law, rule, regulation, writ, injunction, order, decree, judgment or award of any government authority. (d) Execution and Binding Effect. This Agreement has been ---------------------------- duly executed and delivered on behalf of the Company and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. (e) Absence of Conflicts. Except to the extent set forth on -------------------- Schedule 4(e), no litigation, arbitration or other proceeding against the Company by or before any government authority, court, arbitrator or mediator with valid jurisdiction is in progress, pending or, to the best knowledge of the Company, threatened against the Company, which challenges the validity of this Agreement or that is reasonably likely to have a material adverse effect upon (i) the Company, (ii) the Company's ability to perform its obligations hereunder or (iii) the validity or enforceability of this Agreement. (f) Consents and Approvals. The execution and delivery by the ---------------------- Company of this Agreement and the performance by the Company of its obligations hereunder do not and will not require any approval, consent, permit, license or other authorization of, or filing or registration with, or any other action by, any Person (including government approvals) which, as of the date hereof, has not been duly obtained, made or taken and all such approvals, consents, permits, licenses, authorizations, filings and registrations have been disclosed to the Indemnified Party and are in full force and effect and, with respect to government approvals, are final and non-appealable. 5. EVENTS OF DEFAULT ----------------- (a) Events of Default. It shall constitute an event of ----------------- default hereunder (each, an "EVENT OF DEFAULT") with respect to the Company if any of the following shall occur: (i) the Company fails to pay all Damages covered by a valid obligation to provide indemnification hereunder within 30 days after (A) the Company's receipt of written notice that either a judgment or order in respect of the Claim giving rise to such Damages has been rendered by a competent governmental authority and such judgment or order has become final and not subject to any further appeal, (B) the reaching of a final settlement or compromise in relation to such Claim in accordance with Section 3(f) hereof, or ------------ (C) the Company waives, whether by affirmative action or inaction, its right to contest such Claim in any judicial proceeding in accordance with Section 3; (ii) the Company fails to use reasonable efforts to cause the removal (by insurance, bond or otherwise) of any lien or encumbrance of record on the assets of the Indemnified Party arising from, or in connection with, any Claim which gives rise to a valid obligation to provide indemnification hereunder within 60 days of receipt of written notice from the Indemnified Party of the existence of such lien or encumbrance; (iii) the Company fails to pay, in accordance with Section 2(b), any Defense Costs incurred by the Indemnified Party in connection - ------------ with the contest or defense of any Claim with respect to which the Company is responsible pursuant to Section 3; or --------- (iv) the Company breaches any other term or provision of this Agreement and such breach cannot be cured or is not cured within 30 days after notice by the Indemnified Party to the Company of such breach. (b) Remedies. If an Event of Default occurs, the Company -------- shall be considered to have breached this Agreement and, at any time thereafter, the Indemnified Party may bring suit against the Company to recover any unpaid amounts or obtain such other relief available to the Indemnified Party at law or in equity. In the event the Indemnified Party is successful, in whole or in part, in obtaining any such unpaid amounts or other relief contemplated in this Section 5(b), the Company shall reimburse the Indemnified Party for all costs - ------------ and expenses associated with the efforts of the Indemnified Party to obtain such relief. 6. TERMINATION. This Agreement shall continue until, and terminate ----------- upon the later of: (a) the expiration of any applicable statute of limitations with respect to those matters which the Indemnified Party is granted rights of indemnification or advancement of expenses hereunder or (b) the final termination of all pending proceedings in respect of which the Indemnified Party is granted rights of indemnification or advancement of expenses hereunder and of any proceeding commenced by the Indemnified Party pursuant to Section 5(b) of ------------ this Agreement relating thereto. 7. MISCELLANEOUS. ------------- (a) Headings; Interpretation. The headings in this Agreement ------------------------ are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. All terms defined in this Agreement include the plural as well as the singular. Whenever the words "include," "includes" and "including" are used in this Agreement, they are deemed to be followed by the words "without limitation." (b) Severability. If any provision of this Agreement is ------------ for any reason found to be unenforceable, the remainder of this Agreement will continue in full force and effect. (c) Entire Agreement; Amendments. This Agreement constitutes ---------------------------- a complete statement of all of the agreements among the parties as of the date hereof with respect to the matters contemplated hereby, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, between them with respect thereto and cannot be changed or terminated orally. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to alter, amend, conflict with or otherwise affect the rights and obligations of the Company and the Indemnified Party pursuant to the MSD Indemnification Letter or the Indemnification Agreement or any other written agreement between the Company and the Indemnified Party. The parties hereto have not relied on any statements, representations, warranties or covenants, whether oral or written, other than those set forth in this Agreement. (d) No Waiver. The failure of a party to insist upon --------- strict adherence to any term of this Agreement on any occasion shall not be considered a waiver or deprive that party of the right to insist later on adherence thereto, or thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and signed by the party against whom enforcement is sought in order to be effective. (e) Assignment: Successors. This Agreement may not be ---------------------- transferred or assigned by the Company (including by merger or operation of law) without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed). Without limiting the availability of any remedies at law or in equity, any attempted transfer or assignment by the Company without the prior written consent of the Indemnified Party (which consent shall not be unreasonably withheld or delayed) will be void. To the extent this Agreement or any rights or obligations hereunder are transferred or assigned in a manner that is permitted by this Agreement, this Agreement shall be binding upon all assigns and successors in interest of the parties hereto (including any transferee or assignee of all or substantially all of such party's assets and any successor by merger or operation of law). (f) Third Party Beneficiaries. The provisions of this ------------------------- Agreement shall not confer any rights or remedies upon any person or entity, other than (i) the Indemnified Party and the heirs, executors, legal representatives and assigns of the Indemnified Party, as the case may be, and (ii) the Company and its permitted assigns and successors in interest. (g) Notices. All notices, requests, demands and other ------- communications under this Agreement shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipt of which is acknowledged by the party to whom said notice or other communication shall have been directed, (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (iii) sent by overnight courier, when received and signed for at the appropriate address listed below, or (iv) sent by facsimile, at the time when received in legible form by the recipient at the appropriate address listed below and when the recipient has been requested to acknowledge receipt of the entire telecopier or facsimile transmission upon the sending or receiving of the acknowledgment of receipt (which acknowledgment the recipient will promptly give) when received if sent by overnight courier, addressed as follows: (A) If to the Indemnified Party: 9905D Gable Ridge Terrace Rockville, MD 20850 Facsimile: (301) 947-7240 (B) If to the Company: IGEN International, Inc. 16020 Industrial Drive Gaithersburg, MD 20877 Attn: Richard J. Massey, Ph.D. Facsimile: (301) 208-3799 or to such other address as a party may specify from time to time by notice hereunder. (h) Governing Law. This Agreement shall be governed by and ------------- construed in accordance with the laws of the State of Delaware (without reference to the conflicts of laws principles thereof). The parties hereby consent to the non-exclusive jurisdiction of the state and federal courts of the State of Delaware. (i) Counterparts. This Agreement may be executed and ------------ delivered in one or more counterparts, each of which shall be an original but all of which shall together constitute a single agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first set forth above. IGEN INTERNATIONAL, INC. By: /s/Richard J. Massey________________ ------------------------------------ Name: Richard J. Massey___________________ ------------------------------------ Title: President___________________________ ------------------------------------ /s/Jacob N. Wohlstadter______________________ --------------------------------------------- Jacob N. Wohlstadter SCHEDULE 4(E) OUTSTANDING LITIGATION 1. IGEN International, Inc. V. Roche Diagnostics GmBH, D.Md. No. PJM 97-3461 2. F. Hoffman-La Roche, Ltd. V. IGEN International, Inc., et al., D.Del. No. 1:98cv00318 3. Brown Simpson Strategic Growth Fund, L.P., et al., v. Wohlstadter, et al., Cir. Ct. Montgomery Cty., MD C.A. No. 218263V 4. Paskowitz v. Wohlstadter, et al., Cir. Ct. Montgomery Cty., MD, C.A. No. 219321V EX-10 4 ex10-2_f10qdec01.txt EXHBIT 10.2 Exhibit 10.2 IGEN INTERNATIONAL, INC. TERMINATION PROTECTION PROGRAM Section 1. Definitions. The following terms shall have the meaning ascribed ----------- to them: (A) "Applicable Bonus" shall mean the highest maximum annual bonus that was (or could have been under an established bonus plan) paid to a Participant in respect of any of the three full calendar years preceding or following a Change of Control. (B) "Base Salary" shall mean a Participant's annual base salary in effect on the date of the Change of Control or the date of termination, whichever is higher. (C) "Board" shall mean the board of directors of the Company. (D) "Cause" shall mean (i) the Participant's conviction of a felony, or (ii) either of the following that, in each case, results in demonstrable harm to the Company's financial condition or business reputation (I) the Participant's willful malfeasance or misconduct in relation to the performance of his/her duties to the Company, or (II) the Participant's repeated willful refusal to perform his/her duties. (E) "Change of Control" shall mean (i) any Person or Group, other than a Group of which an Excluded Person is a member, becoming the beneficial owner of 20% or more of the Company's then outstanding voting securities, (ii) any merger, consolidation, reorganization or similar transaction involving the Company, other than, in the case of any of the foregoing, a transaction in which the Company's shareholders immediately prior to the transaction hold immediately thereafter, in the same proportion as immediately prior to the transaction, not less than a majority of the combined voting power of the then outstanding voting securities with respect to the election of the board of directors of the resulting entity, (iii) any change in a majority of the Board within a 24 month period (unless the change was approved by 2/3 of the Incumbent Directors), (iv) any liquidation or sale of all or substantially all of the Company's assets, provided that no grant to a third party of a license to use intellectual property made on an arm's length basis shall constitute a Change of Control, or (v) any other transaction so defined by the Board. (F) "Code" shall mean the Internal Revenue Code of 1986, as amended, and, as applicable, the regulations promulgated thereunder. (G) "Company" shall mean IGEN International, Inc., and, after a Change of Control, any successor or successors thereto. (H) "Compensation" shall mean the sum of a Participant's Applicable Bonus and Base Salary. (I) "Employee Benefits" shall mean, except as otherwise specified by the Chief Executive Officer of the Company with respect to a Participant at the time such Participant is designated as a Participant, the employee and fringe benefits and perquisites (including without limitation all medical, dental, life insurance, disability and pension (including maximum matching contributions) benefits) made available to a Participant (and his or her eligible dependents) immediately prior to a Change of Control (or the economic equivalent thereof where pension laws prohibit or restrict such benefits). (J) "Excluded Person" shall mean Samuel J. Wohlstadter, Nadine Wohlstadter, their respective "Affiliates" or "Associates" (each as defined in Rule 12b-2 under the Exchange Act), their respective heirs and any trust or foundation to which either of them have transferred or may transfer the Company's voting securities. (K) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (L) "Good Reason" shall mean, except as otherwise specified by the Chief Executive Officer of the Company at the time a Participant is designated as a Participant (provided that such exception does not adversely affect such Participant), with respect to such a Participant, (i) a decrease in (or failure to increase in accordance with the terms of any employment contract) the Participant's base salary or bonus opportunity, (ii) a diminution in the aggregate employee benefits and perquisites provided to the Participant, (iii) a diminution in the Participant's title, reporting relationship, duties or responsibilities, (iv) relocation of the Participant's primary office more than 35 miles from its current location, or (v) the failure by any successor to the Company to explicitly assume this Program and the Company's obligations hereunder. (M) "Gross-Up Payment" shall have the meaning ascribed to such term in Section 4. (N) "Group" shall have the meaning ascribed to such term in the Exchange Act. (O) "Incumbent Director" shall mean a member of the Board on the date this Program was adopted together with any director who is appointed as a member of the Board, or who is nominated to become a member of the Board by, or with the approval of, at least 2/3 of the directors who qualified as Incumbent Directors at the time of such appointment or nomination. (P) "Participant" shall mean an employee of the Company designated by the Chief Executive Officer of the Company to participate in this Program. Once so designated, a Participant's rights hereunder may not be diminished unless such Participant's employment with the Company is terminated in a manner that will not permit him or her to become eligible for any payments hereunder. (Q) "Person" shall have the meaning ascribed to such term in the Exchange Act. (R) "Program" shall mean this Termination Protection Program, as it may be amended from time to time. (S) "Severance Payments" shall have the meaning ascribed to such term in Section 4. (T) "Total Payments" shall have the meaning ascribed to such term in Section 4. Section 2. Term. This Program shall be effective as of December 1, 2001, and ---- shall continue in effect through December 1, 2004; provided, however, that, commencing on December 1, 2004, and on each December 1 thereafter, this Program shall be automatically extended for one additional year unless, not later than October 1 of such year, the Company provides written notice to each Participant that this Program shall not be so extended. In addition, if this Program is in effect on the date of a Change of Control, then it shall continue in effect for not less than three years following such Change of Control. Section 3. Termination Protection. If during the term of this Program ---------------------- (a) a Participant's employment with the Company is terminated by the Company without Cause, or a Participant resigns for Good Reason, in each case within thirty months following a Change of Control, or (b) a Participant's employment with the Company is terminated prior to a Change of Control (which subsequently occurs) at the request of a party involved in such Change of Control, or otherwise in connection with or in anticipation of a Change of Control, then in the case of each of clauses (a) and (b) such Participant shall become entitled to the following compensation, benefits and rights, except as otherwise specified by the Chief Executive Officer of the Company with respect to a Participant at the time such Participant is designated as a Participant: (i) A cash lump sum, payable within ten days following the date of termination, equal to the sum of: (A) such Participant's pro rata target annual bonus in respect of the year of termination, (B) any unpaid Base Salary through the date of termination, (C) any bonus earned but unpaid as of the date of termination for any previously completed year, (D) all compensation previously deferred but not yet paid (except as otherwise agreed by such Participant), (E) reimbursement for any unreimbursed expenses incurred by such Participant prior to the date of termination, and (F) except as otherwise specified by the Chief Executive Officer of the Company, an amount equal to 150% of such Participant's Compensation. (ii) Such employee and fringe benefits and perquisites, if any, to which such Participant may be entitled as of the date of termination under the relevant plans, policies and programs of the Company. (iii) Any unvested Company stock options held by such Participant that are outstanding on the date of termination shall become fully vested as of such date, and all Company stock options held by such Participant that are outstanding on such date shall remain exercisable for two years following such date (or, if longer, until the date such options would otherwise terminate). (iv) Except as otherwise specified by the Chief Executive Officer of the Company with respect to a Participant at the time such Participant is designated as a Participant, continued eligibility for such Participant and his/her eligible dependents to receive Employee Benefits, for a period of 18 months following such Participant's date of termination, except where the provision of such Employee Benefits would result in a duplication of benefits provided by any subsequent employer. (v) Reimbursement of all reasonable expenses incurred by such Participant within 18 months following such Participant's date of termination for professional outplacement services (provided by consultants selected by such Participant) and employment search activities. (vi) The amounts specified in Section 4. (vii) All rights such Participant has to indemnification from the Company immediately prior to the Change of Control shall be retained for the maximum period permitted by applicable law, and any director's and officer's liability insurance covering such Participant immediately prior to the Change of Control shall be continued throughout the period of any applicable statute of limitations. (viii) The Company shall advance to such Participant all costs and expenses, including all attorneys' fees and disbursements, incurred by such Participant in connection with any legal proceedings (including arbitration), which relate to the termination of employment or the interpretation or enforcement of any provision of this Program, and the Participant shall have no obligation to reimburse the Company for any amounts advanced hereunder where such Participant prevails in such proceeding with respect to at least one material issue, it being acknowledged that settlement of any such proceeding shall relieve the Participant from any reimbursement obligation. Section 4. Excise Tax Gross-Up. In the event a Participant becomes entitled to ------------------- any amounts or benefits payable in connection with a Change of Control (whether or not such amounts are payable pursuant to this Program) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to such Participant within ten days following the date of his/her termination of employment an additional amount (the "Gross-Up Payment") such that the net amount retained by such Participant, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section, shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (a) any other payments or benefits received or to be received by such Participant in connection with a Change of Control or such Participant's termination of employment (whether pursuant to the terms of this Program or any other plan, arrangement or agreement with the Company, any entity whose actions result in a Change of Control or any entity affiliated with the Company, or such entity) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G of the Code, and all "excess parachute payments" within the meaning of Section 280G of the Code shall be treated as subject to the Excise Tax, unless in the opinion of a nationally-recognized tax counsel selected by such Participant such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G of the Code, or are otherwise not subject to the Excise Tax, (b) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (i) the total amount of the Total Payments and (ii) the amount of excess parachute payments within the meaning of Section 280G of the Code, and (c) the value of any non-cash benefits or any deferred payments or benefits shall be determined by a nationally-recognized accounting firm selected by such Participant in accordance with the principles of Section 280G of the Code. For purposes of determining the amount of the Gross-Up Payment, such Participant shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of such Participant's residence on his/her date of termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of such Participant's employment (including by reason of any payment or benefit the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. Section 5. No Mitigation or Offset. Except as provided in Section 3(iv), a ----------------------- Participant shall not be required to mitigate the amount of any payment or benefit provided for under this Program by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for hereunder be reduced by any compensation or benefits earned or received by such Participant as the result of employment by a subsequent employer, by retirement benefits, by offset against any amount claimed to be owed by such Participant to the Company or otherwise. Section 6. Validity. The invalidity or unenforceability of any provision of this -------- Program shall not affect the validity or enforceability of any other provision of this Program, which other provision shall remain in full force and effect. Section 7. Withholding. All payments hereunder shall be reduced by any ----------- applicable taxes required by applicable law to be paid or withheld by the Company. Section 8. Modification or Waiver. No provision of this Program may be modified, ---------------------- waived or discharged, unless such waiver, modification, or discharge is agreed to in writing and signed by any Participant whose rights hereunder would be adversely affected thereby. Section 9. Applicable Law. This Program shall be governed by and construed in -------------- accordance with the laws of the State of Maryland, without regard to conflicts of laws principles thereof. Section 10. No Liability. Neither the Board nor the Chief Executive Officer of ------------ the Company shall have any liability for any decision made in good faith in interpreting, implementing or operating this Program, including without limitation, any changes made to the definition Good Reason, in establishing the list of Participants, or in selecting the Participants to be included in any of the Appendices attached to this Program. The Company hereby agrees to indemnify and hold harmless each member of the Board and each officer, including without limitation the Chief Executive Officer of the Company, for (and in each case, advance) any and all costs and expenses incurred in connection with the administration, operation and implementation of the Program, including without limitation any changes made to the definition Good Reason, in establishing the list of Participants, or in selecting the Participants to be included in any of the Appendices attached to this Program. No amounts paid under this Section 10 for or on account of any of the foregoing officers or directors shall be included in Compensation under this Program. ADDENDUM I TO THE IGEN INTERNATIONAL, INC. TERMINATION PROTECTION PROGRAM 1. The Chief Executive Officer of the Company may designate up to 39 employees of the Company to participate in the Program at any particular time, on the basis of name, title, function, or compensation level. The Chief Executive Officer of the Company shall at all times be a Participant and shall have no less favorable rights under the Program than any other Participant. As of December 1, 2001, the employees specified on Appendix A shall constitute the Participants. 2. The Chief Executive Officer of the Company may designate, with respect to up to 3 Participants, that any reason for resigning within the thirty day period following the first anniversary of a Change of Control shall also constitute "Good Reason." As of December 1, 2001, the Participants identified on Appendix B have been so designated. 3. The Chief Executive Officer of the Company may designate, with respect to up to 39 Participants, that "Employee Benefits" shall also include an annual comprehensive physical/check-up. As of December 1, 2001, the Participants identified on Appendix C have been so designated. 4. The Chief Executive Officer of the Company may designate, with respect to up to 3 Participants, that the percentage specified in Section 3(i)(F) shall be 300% rather than 150%. As of December 1, 2001, the Participants identified on Appendix D have been so designated. 5. The Chief Executive Officer of the Company may designate, with respect to up to 6 Participants, that the percentage specified in Section 3(i)(F) shall be 200% rather than 150%. As of December 1, 2001, the Participants identified on Appendix E have been so designated. 6. The Chief Executive Officer of the Company may designate, with respect to up to 3 Participants, that the period specified in Section 3(iv) shall be, instead of 18 months, life (with respect to medical and dental benefits and the annual comprehensive physical/check-up) and 36 months (with respect to all other coverages). As of December 1, 2001, the Participants identified on Appendix F have been so designated. 7. The Chief Executive Officer of the Company may designate, with respect to up to 39 Participants, that the period specified in Section 3(iv) shall be 24 months instead of 18 months. As of December 1, 2001, the Participants identified on Appendix G have been so designated. -----END PRIVACY-ENHANCED MESSAGE-----