UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-30929
KERYX BIOPHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-4087132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
|
(ADDRESS INCLUDING ZIP CODE OF PRINCIPAL EXECUTIVE OFFICES)
212-531-5965
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by an (X) whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| NO |_|
Indicate by an (X) whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes |_| NO |X|
As of May 6, 2003, the registrant had outstanding 20,322,710 shares of Common Stock, $0.001 par value per share.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Interim Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002........................................ 3
Interim Consolidated Statements of Operations for the three months ended March 31, 2003 and 2002................... 4
Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2002................... 5
Notes to Interim Consolidated Financial Statements of March 31, 2003............................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................................................. 28
Item 4. Controls and Procedures........................................ 28
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds...................... 29 Item 6. Exhibits and Reports on Form 8-K............................... 29 SIGNATURES.............................................................. 30 CERTIFICATIONS.......................................................... 31 |
ITEM 1. FINANCIAL STATEMENTS
Keryx Biopharmaceuticals, Inc. (A Development Stage Company)
March 31 December 31
2003 2002
(Unaudited) (Audited)
----------- -----------
Assets
Current assets
Cash and cash equivalents $ 19,559 $ 13,350
Investment securities, held-to-maturity 2,760 10,575
Deposits in respect of employee severance
obligations (current portion) 340 299
Accrued interest receivable 66 206
Deferred tax asset -- 170
Other receivables and prepaid expenses 178 267
-------- --------
Total current assets 22,903 24,867
-------- --------
Deposits in respect of employee severance obligations -- 117
Property, plant and equipment, net 1,289 3,031
Other assets (primarily intangible assets), net 296 1,088
-------- --------
Total assets $ 24,488 $ 29,103
======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 753 $ 920
Income taxes payable 158 177
Accrued compensation and related liabilities 1,279 1,420
-------- --------
Total current liabilities 2,190 2,517
-------- --------
Liability in respect of employee severance obligations -- 188
Deferred tax liability, net -- 68
-------- --------
Total liabilities 2,190 2,773
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value per share (40,000,000 and
40,000,000 shares authorized, 20,123,185 and 19,913,185
shares issued, 20,076,885 and 19,866,885 shares outstanding
at March 31, 2003 and December 31, 2002, respectively) 20 20
Additional paid-in capital 71,959 72,067
Treasury stock, at cost, 46,300 shares at March 31, 2003
and at December 31, 2002 (77) (77)
Unearned compensation (314) (178)
Deficit accumulated during the development stage (49,290) (45,502)
-------- --------
Total stockholders' equity 22,298 26,330
-------- --------
Total liabilities and stockholders' equity $ 24,488 $ 29,103
======== ========
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The accompanying notes are an integral part of the consolidated financial statements.
Keryx Biopharmaceuticals, Inc. (A Development Stage Company)
Amounts
Three months ended March 31, accumulated
------------------------------ during the
development
2003 2002 stage
(Unaudited) (Unaudited) (Unaudited)
------------ ------------ ------------
Management fees from related party $ -- $ -- $ 300
------------ ------------ ------------
Operating expenses
Research and development:
Non-cash compensation $ (266) $ (580) $ 6,947
Other research and development 3,371 2,943 27,282
------------ ------------ ------------
Total research and development expenses 3,105 2,363 34,229
------------ ------------ ------------
General and administrative:
Non-cash compensation 2 (6) 3,393
Other general and administrative 664 1,310 15,069
------------ ------------ ------------
Total general and administrative expenses 666 1,304 18,462
------------ ------------ ------------
Total operating expenses 3,771 3,667 52,691
------------ ------------ ------------
Operating loss (3,771) (3,667) (52,391)
Interest income, net 85 174 3,720
------------ ------------ ------------
Net loss before income taxes (3,686) (3,493) (48,671)
Income taxes 102 50 619
------------ ------------ ------------
Net loss $ (3,788) $ (3,543) $ (49,290)
============ ============ ============
Basic and diluted loss per common share $ (0.19) $ (0.18) $ (3.76)
============ ============ ============
Weighted average shares used in computing
basic and diluted net loss per common share 20,011,036 19,890,335 13,092,903
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The accompanying notes are an integral part of the consolidated financial statements.
Keryx Biopharmaceuticals, Inc. (A Development Stage Company)
Amounts
accumulated
Three months ended March 31, during the
---------------------------- development
2003 2002 stage
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,788) $(3,543) $(49,290)
Adjustments to reconcile cash flows used in
operating activities:
Employee stock compensation expense 3 4 8,963
Consultants' and third-party stock compensation
expense (negative expense) (267) (590) 1,377
Issuance of common stock to technology licensor -- 359 359
Interest on convertible notes settled
through issuance of preferred shares -- -- 253
Depreciation and amortization 264 211 1,590
Loss on disposal of property, plant and equipment -- 2 84
Impairment charges 2,295 -- 2,295
Exchange rate differences (4) 11 80
Changes in assets and liabilities:
Decrease (increase) in other receivables
and prepaid expenses 89 128 (173)
Decrease (increase) in accrued interest
receivable 140 108 (66)
Changes in deferred tax provisions and
valuation allowance 102 (57) --
(Decrease) increase in accounts payable
and accrued expenses (119) (135) 751
(Decrease) increase in income taxes payable (19) 104 158
Increase (decrease) in accrued compensation
and related liabilities (141) (258) 1,279
Provision for employee severance obligations (188) 210 --
------- ------- --------
Net cash used in operating activities (1,633) (3,446) (32,340)
------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment -- (693) (4,400)
Proceeds from disposals of property,
plant and equipment -- 33 37
Investment in other assets, net (74) (67) (1,197)
Proceeds from (additions to) deposits in
respect of employee severance obligations 117 (37) --
Deposits in respect of employee severance
obligations (current portion) (41) -- (340)
Proceeds from sale and maturity of
(investment in) short-term securities 7,815 4,771 (2,760)
------- ------- --------
Net cash provided by (used in)
investing activities $ 7,817 $ 4,007 $ (8,660)
------- ------- --------
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The accompanying notes are an integral part of the consolidated financial statements.
Keryx Biopharmaceuticals, Inc. (A Development Stage Company)
Amounts
accumulated
Three months ended March 31, during the
--------------------------------- development
2003 2002 stage
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans $ -- $ -- $ 500
Proceeds from long-term loans -- -- 3,251
Issuance of convertible note, net -- -- 2,150
Issuance of preferred shares, net and
contributed capital -- -- 8,453
Receipts on account of shares previously
issued -- -- 7
Proceeds from initial public offering, net -- -- 46,298
Proceeds from exercise of options and warrants 21 -- 57
Purchase of treasury stock -- -- (77)
-------- --------- ---------
Net cash provided by financing activities 21 -- 60,639
-------- --------- ---------
Effect of exchange rate on cash 4 (11) (80)
-------- --------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 6,209 550 19,559
Cash and cash equivalents at beginning
of period 13,350 23,345 --
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 19,559 $ 23,895 $ 19,559
======== ========= =========
NON-CASH TRANSACTIONS
Conversion of short-term loans into
contributed capital $ -- $ -- $ 500
Conversion of long-term loans into
contributed capital -- -- 2,681
Conversion of long-term loans into
convertible notes of Partec -- -- 570
Conversion of convertible notes of Partec
and accrued interest into stock in Keryx -- -- 2,973
Issuance of warrants to related party
as finder's fee in private placement -- -- 114
Declaration of stock dividend -- -- 3
Conversion of Series A preferred stock to
common stock -- -- --*
Purchase of property, plant and equipment
and other assets on credit -- 136 --
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for interest $ --* $ --* $ 139
Cash paid for income taxes 19 -- 390
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* Amount less than $1,000
The accompanying notes are an integral part of the consolidated financial statements.
Keryx Biopharmaceuticals, Inc. (A Development Stage Company)
NOTE 1 - GENERAL
BASIS OF PRESENTATION
Keryx Biopharmaceuticals, Inc. ("Keryx" or the "Company") is a biopharmaceutical company focused on the acquisition, development and commercialization of novel pharmaceutical products for the treatment of serious, life-threatening diseases, including diabetes and cancer. The Company was incorporated in Delaware in October 1998 (under the name Paramount Pharmaceuticals, Inc., which was later changed to Lakaro Biopharmaceuticals, Inc. in November 1999, and finally to Keryx Biopharmaceuticals, Inc. in January 2000). The Company commenced activities in November 1999, and since then has operated in one segment of operations, namely the development and commercialization of clinical compounds and core technologies for the life sciences.
Until November 1999, most of the Company's activities were carried out by Partec Limited, an Israeli corporation formed in December 1996, and its subsidiaries SignalSite Inc. (85% owned) and its subsidiary, SignalSite Israel Ltd. (wholly owned), and Vectagen Inc. (87.25% owned) and its subsidiary, Vectagen Israel Ltd. (wholly owned) (hereinafter collectively referred to as "Partec"). In November 1999, the Company acquired substantially all of the assets and liabilities of Partec and, as of that date, the activities formerly carried out by Partec are now performed by the Company. At the date of the acquisition, Keryx and Partec were entities under common control (the controlling interest owned approximately 79.7% of Keryx and approximately 76% of Partec) and accordingly, the assets and liabilities were recorded at their historical cost basis by means of an "as if" pooling and Partec is being presented as a predecessor company. Consequently, these financial statements include the activities performed in previous periods by Partec by aggregating the relevant historical financial information with the financial statements of the Company as if they had formed a discrete operation under common management for the entire development stage.
The Company owns a 100% interest in Keryx (Israel) Ltd., organized in Israel, Keryx Biomedical Technologies Ltd., organized in Israel, and Keryx Securities Corp., a U.S. corporation incorporated in the Commonwealth of Massachusetts.
In March 2003, the Company gave notice of termination to employees in its Jerusalem, Israel laboratory facility. As a result of such terminations, the Company has indicated its intention to cease its research and development activities in Israel and further decrease its administrative activities in its Jerusalem facility. Substantially all of the biopharmaceutical development and administrative activities during the quarter were conducted in the United States, and therefore, the Company has one geographical segment. The majority of the Company's fixed assets are still held in Israel, although the Company intends to either sell or dispose of these assets.
The accompanying unaudited interim consolidated financial statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. All adjustments which are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the interim financial statements have been included. Nevertheless, these financial statements should be read in conjunction with the Company's audited financial statements contained in its Annual Report on Form 10-K for the year ended December 31, 2002. The results of operations for
the period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period.
The Company has not had revenues from its planned principal operations and is dependent upon significant financing to fund the working capital necessary to execute its business plan. If the Company determines to seek additional funding, there can be no assurance that the Company will be able to obtain any such funding on terms that are acceptable to it, if at all.
STOCK - BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed by the Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations, to account for stock option plans for employees and directors, as allowed by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-based Compensation" (SFAS No. 123). As such, compensation expense would be recorded on the measurement date only if current market price of the underlying stock exceeded the exercise price. SFAS No. 123 is applied to stock options and warrants granted to other than employees and directors. The Company has adopted the disclosure requirements of SFAS No. 123 and SFAS No. 148 for awards to its directors and employees.
Had the compensation expenses for stock options granted under the Company's stock option plans been determined based on fair value at the grant dates consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amount below:
Amounts
Accumulated
For the three months ended March 31, During the
------------------------------------- Development
2003 2002 Stage
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
Net loss, as reported $(3,788) $(3,543) $(49,290)
Add: Stock-based compensation expense
to employees and directors
determined under the intrinsic value-
based method, as included in reported net
loss, net of related tax effects 3 5 8,963
Deduct: Total stock-based compensation expense
to employees and directors
determined under fair value-based
method for all awards, net of
related tax effects (719) (338) (11,762)
------- ------- --------
Pro forma net loss $(4,564) $(3,876) $(52,089)
Losses per common share,
Basic and diluted:
As reported $ (0.19) $ (0.18) $ (3.76)
Pro forma $ (0.22) $ (0.19) $ (3.98)
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LOSS PER SHARE
Basic net loss per share is computed by dividing the losses allocable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share does not reflect the effect of 4,384,715 common shares to be issued upon exercise of stock options and warrants, as their inclusion would be anti-dilutive.
NOTE 2 - STOCKHOLDERS' EQUITY
The compensation committee of the Company's board of directors did not grant, during the three months ended March 31, 2003, options to purchase any shares of the Company's common stock to any of its employees, directors or consultants. In addition, options for the purchase of 259,456 shares of the Company's common stock were forfeited and options for the purchase of 210,000 shares of the Company's common stock were exercised during the three months ended March 31, 2003.
The Company did not repurchase any shares of its common stock during the three months ended March 31, 2003 pursuant to the stock repurchase program approved by its board of directors in November 2002. Under its stock repurchase program the Company was authorized to repurchase up to 2,453,700 additional Keryx shares as of March 31, 2003.
NOTE 3 - INCOME TAXES
In September 2001, one of the Company's Israeli subsidiaries received the status of an "Approved Enterprise" which grants certain tax benefits in Israel in accordance with the "Law for the Encouragement of Capital Investments, 1959". In June 2002, the subsidiary received formal temporary notification that it had met the requirements for implementation of the benefits under this program.
Under its Approved Enterprise status, the subsidiary must maintain certain conditions and submit periodic reports. Failure to comply with the conditions of the Approved Enterprise status could cause the subsidiary to lose previously accumulated tax benefits. Through March 31, 2003, our subsidiary has received tax benefits of approximately $731,000. As a result of the restructuring implemented in 2002, the staff and activity of this subsidiary were materially reduced. In January 2003, the subsidiary notified the Israeli governmental authority of such reductions and requested that the program instituted prior to the cost reductions be approved. In February 2003, the Israeli governmental authority informed the subsidiary that it may be in non-compliance with the conditions of its Approved Enterprise program because of the indicated reductions. As part of the restructuring implemented during the first quarter of 2003, as described in Note 4, the Company has decided to close down its Jerusalem laboratory facility operated by the subsidiary. The subsidiary is currently undergoing discussions with the Israeli governmental authority and at this point, it is uncertain as to whether or not any past benefits will need to be repaid. Accordingly, the Company has not recorded any charge with respect to this potential liability.
NOTE 4 - RESTRUCTURING
2003 Restructuring
In March 2003, the Company gave notice of termination to four employees, all based in its Jerusalem laboratory facility, and, in addition, the Company has indicated its intention to cease its research and development activities and further decrease its administrative activities in its Jerusalem facility (the "current restructuring").
As a result of these actions, the Company reevaluated its long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and took a non-cash impairment charge of approximately $2,295,000, all of which was included in research and development expenses. The impairment charge included a write-off of approximately $1,509,000 in fixed assets and approximately $786,000 in other investments relating to intangible assets.
The current restructuring included a four person, or approximately 18%, reduction in the Company's work force. All of such persons were research personnel involved in early stage projects. As of March 31, 2003, none of the employees terminated under the current restructuring had left the Company, since their final date of employment was subsequent to March 31, 2003.
Through March 31, 2003, the Company had total accumulated expenses of approximately $35,000 for severance benefits for employees terminated under the current restructuring, all of which had been previously expensed as part of the Company's ongoing accrual for employee severance benefits in accordance with Israeli law.
No severance benefits were paid during the period, because no employees have left the Company under the current restructuring as of March 31, 2003, since their final date of employment was subsequent to March 31, 2003.
As of March 31, 2003, approximately $35,000 in severance obligations related to the current restructuring is included in accrued compensation and related liabilities. A portion of this amount was formerly included in liability in respect of employee severance obligations and was reclassified to current liabilities after it became short-term in nature. With respect to this liability, the Company had funded deposits in respect of employee severance obligations of approximately $31,000 that were reclassified to current assets, as they will be redeemed in the short-term. In addition, as a result of the current restructuring, the Company reclassified its liability in respect of employee severance obligations to a current liability and similarly reclassified its deposits in respect of employee severance obligations to current assets.
The Company may also incur other costs related to the current restructuring of its Jerusalem-based activities. (See Note 3 with regard to potential liability in respect of tax benefits received by a subsidiary of the Company as an Approved Enterprise.).
In addition, the Company intends to further reduce its remaining activities in its Jerusalem facility. The Company believes that these reductions, which will include further personnel reductions and sales of fixed assets, will likely require an asset impairment charge during the second and/or third quarters of 2003, although the amount of this impairment charge and other costs associated with the further curtailment of its activities in its Jerusalem facility cannot be determined at this time. The carrying value of the assets that could be impaired, thus resulting in a non-cash write down, including fixed assets, totals approximately $776,000. The Company may also incur other costs relating to the further reduction of its Jerusalem-based activities. The portion of the Company's lease obligations relating to its Jerusalem facility amounts to approximately $1,052,000 through the end of 2005. Costs of severance benefits for the employees who are likely to receive notice of termination as part of this further reduction are accrued to the balance sheet date as part of the liability in respect of employee severance benefits in accordance with Israeli law.
2002 Restructuring
In 2002, the Company implemented a strategic reorganization (the "2002 restructuring"). The 2002 restructuring was designed to substantially reduce early stage research expenditures so that the Company could focus primarily on the development of its lead product candidate KRX-101 for the treatment of diabetic nephropathy and on the acquisition of additional clinical stage compounds. The 2002 restructuring included a 46 person, or approximate 70%, reduction in the Company's work force, including senior management, administrative staff, and research personnel involved in early stage projects. As of March 31, 2003, 45 employees had left under the 2002 restructuring.
Through March 31, 2003, the Company had total accumulated expenses of approximately $1,118,000 for severance benefits for employees terminated under the 2002 restructuring, almost all of which had been expensed in prior periods.
As of March 31, 2003, 45 employees have left the Company under 2002 restructuring and approximately $389,000 of severance benefits have been paid.
As of March 31, 2003, approximately $729,000 in severance obligations related to the 2002 restructuring is included in accrued compensation and related liabilities. With respect to this liability, the Company had funded deposits in respect to employee severance obligations of approximately $200,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited, consolidated financial statements and the related footnotes thereto, appearing elsewhere in this report.
OVERVIEW
We are a biopharmaceutical company focused on the acquisition, development and commercialization of novel pharmaceutical products for the treatment of serious, life-threatening diseases, including diabetes and cancer.
In the second half of 2002 and March of 2003, we undertook corporate restructurings that have resulted in the reduction of staff and a re-focus of our efforts primarily on the development of our lead compound, KRX-101, which has completed a Phase 2 trial, and on the acquisition of additional late stage clinical compounds. For a further discussion of these restructurings, see "- Restructuring" below.
Our lead compound under development is sulodexide, or KRX-101, to which we have an exclusive license in North America, Japan and other markets. In 2001, KRX-101 was granted Fast-Track designation for the treatment of diabetic nephropathy and, in 2002, we announced that the FDA had agreed, in principle, to permit us to avail ourselves of the accelerated approval process under subpart H of the FDA's regulations governing applications for the approval to market a new drug.
To date, we have not received approval for the sale of any of our drug candidates in any market.
We were incorporated as a Delaware corporation in October 1998. We commenced operations in November 1999, following our acquisition of substantially all of the assets and certain of the liabilities of Partec Ltd., our predecessor company that began its operations in January 1997. Since commencing operations, our activities have been primarily devoted to developing our technologies and drug candidates, raising capital, purchasing assets for our corporate offices and laboratory facilities and recruiting personnel. We are a development stage company and have no product sales to date. Our major sources of working capital have been proceeds from various private placements of equity securities and from our initial public offering. We have two wholly owned operating subsidiaries, Keryx Biomedical Technologies Ltd. and Keryx (Israel) Ltd., which have historically engaged in research and development activities and administrative activities in Israel. For a further discussion of our current research, development and administrative activities in Israel, see "2003 Restructuring" and "2002 Restructuring" below.
Research and development expenses consist primarily of salaries and related personnel costs, fees paid to consultants and outside service providers for
laboratory development, facilities-related and other expenses relating to the design, development, testing, and enhancement of our product candidates, as well as expenses related to in-licensing or acquisition of new product candidates. We expense our research and development costs as they are incurred.
General and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including business development, general legal activities and facilities related expenses.
Our results of operations include non-cash compensation expense as a result of the grants of stock, stock options and warrants. We account for stock-based employee and director compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation," as allowed by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123), and comply with the disclosure provisions of SFAS No. 123 and SFAS No. 148. Compensation expense for options and warrants granted to employees and directors represents the intrinsic value (the difference between the stock price of the common stock and the exercise price of the options or warrants) of the options and warrants at the date of grant, as well as the difference between the stock price at reporting date and the exercise price, in the case where a measurement date has not been reached. Compensation for options and warrants granted to consultants and other third-parties has been determined in accordance with SFAS No. 123, as the fair value of the equity instruments issued, and according to the guidelines set forth in EITF 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." The compensation cost is recorded over the respective vesting periods of the individual stock options and warrants. The expense is included in the respective categories of expense in the statement of operations. We expect to record additional non-cash compensation expense in the future, which may be significant. However, because some of the options and warrants issued to employees, consultants and other third-parties either do not vest immediately or vest upon the achievement of certain milestones, the total expense is uncertain.
We have incurred negative cash flow from operations since our inception. We anticipate incurring negative cash flow from operations for the foreseeable future. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts and our clinical trials.
STOCK REPURCHASE PROGRAM
In November 2002, our board of directors authorized a stock repurchase program of up to 2.5 million shares of our common stock. Purchases under the stock repurchase program may be made in the open market or in private transactions from time to time. The stock repurchase program is being funded using our working capital. We did not repurchase any shares of our common stock during the three months ended March 31, 2003 pursuant to the stock repurchase program. Under the stock repurchase program, up to 2,453,700 shares of our common stock remain available for repurchase as of March 31, 2003.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amount of assets and liabilities and related disclosure of contingent assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the applicable period. Actual results may differ from these estimates under different assumptions or conditions.
We define critical accounting policies as those that are reflective of significant judgments and uncertainties, and may potentially result in materially different results under different assumptions and conditions. In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies include the following:
Foreign Currency Translation. In preparing our consolidated financial statements, we translate non-US dollar amounts in the financial statements of our Israeli subsidiaries into US dollars. Under the relevant accounting guidance the treatment of any gains or losses resulting from this translation is dependent upon management's determination of the functional currency. The functional currency is determined based on management's judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiaries. Generally, the currency in which a subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures would be considered the functional currency. However, any dependency upon the parent and the nature of the subsidiary's operations must also be considered. If any subsidiary's functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary's financial statements would be included as a separate part of our stockholders' equity under the caption "cumulative translation adjustment." However, if the functional currency of the subsidiary is deemed to be the US dollar then any gain or loss associated with the translation of these financial statements would be included within our statement of operations. Based on our assessment of the factors discussed above, we consider the US dollar to be the functional currency for each of our Israeli subsidiaries because the majority of the transactions of each subsidiary, including billings, payroll, taxes and other major obligations, are conducted using the US dollar. Therefore all gains and losses from translations are recorded in our statement of operations. Had we used the Israeli currency as the functional currency of our subsidiaries, exchange gains and losses would have been treated as a component of stockholders' equity, as other comprehensive income, included in a statement of comprehensive income. We believe that the amount of such comprehensive income for the three months ended March 31, 2003 would not have been material.
Accounting For Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves management estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations. Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have fully offset our US deferred tax asset with a valuation allowance. Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the expiration of such deferred tax assets were the primary factors considered by management in establishing the valuation allowance. The deferred tax asset in
our financial statements for the comparative period relates to our wholly owned Israeli subsidiaries. These subsidiaries have generated taxable income in respect of services provided within the group, and therefore we believed in the past that the deferred tax asset relating to the Israeli subsidiaries would be realized. It should be noted that as the income has been derived from companies within the consolidated group, it had been eliminated upon consolidation. During the quarter, we decided to cease our research and development activities in Israel and further decrease our administrative activities in our Jerusalem facility. In addition, since the Israeli subsidiaries are no longer expected to generate income, we do not believe that the deferred tax asset will be realized. We therefore have decided to record a valuation allowance against the deferred tax asset, resulting in an expense in the statement of operations for the three months ended March 31, 2003.
In September 2001, one of our Israeli subsidiaries received the status of an "Approved Enterprise" which grants certain tax benefits in Israel in accordance with the "Law for the Encouragement of Capital Investments, 1959". Through March 31, 2003, this Israeli subsidiary will have received tax benefits of approximately $731,000 as a result of the subsidiary's status as an "Approved Enterprise." In June 2002, the subsidiary received formal temporary notification that it had met the requirements for implementation of the benefits under this program. In January 2003, the subsidiary notified the Israeli governmental authority of reductions in its staff and operations that had formed the basis of its Approved Enterprise program, and requested that the program instituted prior to the cost reductions be approved. In February 2003, the Israeli governmental authority informed this subsidiary that it may be in non-compliance with the conditions of its Approved Enterprise program because of the indicated reductions. As part of the restructuring implemented during the first quarter of 2003, as described below, we decided to close down our Jerusalem laboratory facility. Our subsidiary is currently undergoing discussions with the Israeli governmental authority and at this point we are uncertain as to whether or not any of the past benefits will need to be repaid. Accordingly, we have not recorded any charge with respect to this potential liability.
Stock Compensation. During historical periods, we have granted options to employees, directors and consultants, as well as warrants to other third parties. In applying SFAS No. 123, we use the Black-Scholes pricing model to calculate the fair market value of our options and warrants. The Black-Scholes model takes into account volatility in the price of our stock, the risk-free interest rate, the estimated life of the option or warrant, the closing market price of our stock and the exercise price. We have assumed for the purposes of the Black-Scholes calculation that an option will be exercised one year after it fully vests. We base our estimates of our stock price volatility on the volatility during the year prior to the grant of the option or warrant. However, this estimate is neither predictive nor indicative of the future performance of our stock. For purposes of the calculation, it was assumed that no dividends will be paid during the life of the options and warrants.
In accordance with EITF 96-18, "Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling, Goods or Services," total compensation expense for options issued to consultants is determined at the "measurement date." The expense is recognized over the vesting period for the options. Until the measurement date is reached, the total amount of compensation expense remains uncertain. We record option compensation based on the fair value of the options at the reporting date. These options are then revalued, or the total compensation is recalculated based on the then current fair value, at each subsequent reporting date. This results in a change to the amount previously recorded in respect of the option grant and additional expense or a negative expense may be recorded in subsequent periods based on changes in the assumptions used to calculate fair value, such as changes in market price, until the measurement date is reached and the compensation expense is determined.
Impairment Of Long-Lived Assets And Long-Lived Assets To Be Disposed Of. We have adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No. 144) from January 1, 2002. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset or used in its disposal. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We have conducted such a review in light of our restructuring in 2003. Our review included estimating each drug candidate's chance of continued development, partnering and FDA approval, its estimated market size and share, and potential royalty rate. We believe, based upon this review of our future net cash flow estimates for each of drug candidates and the decision to close our laboratory facility in Jerusalem, that an impairment charge should be recorded for the quarter ended March 31, 2003. Any changes in any of these estimates could affect the need to record an impairment charge or the amount of the charge thereof. See "- Restructuring" below.
RESTRUCTURING
2003 Restructuring
In March 2003, we gave notice of termination to four employees, all based in our Jerusalem laboratory facility, and, in addition, we indicated our intention to cease our research and development activities and further decrease our administrative activities in our Jerusalem facility (the "current restructuring").
As a result of these actions, we reevaluated our long-lived assets in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and took a non-cash impairment charge of $2,295,000, all of which was included in research and development expenses. The impairment charge included a write-off of $1,509,000 in fixed assets and approximately $786,000 in other investments relating to intangible assets.
The current restructuring included a four person, or approximately 18%, reduction in our work force. All of such persons were research personnel involved in early stage projects. As of March 31, 2003, none of the employees terminated under our current restructuring had left us, since their final date of employment was subsequent to March 31, 2003.
Through March 31, 2003, we had total accumulated expenses of $35,000 for severance benefits for employees terminated under our current restructuring, all of which had been previously expensed as part of our ongoing accrual for employee severance benefits in accordance with Israeli law.
No severance benefits were paid during the period, because no employees have left us under our current restructuring as of March 31, 2003, since their final date of employment was subsequent to March 31, 2003.
As of March 31, 2003, $35,000 in severance obligations related to the current restructuring is included in accrued compensation and related liabilities. A portion of this amount was formerly included in liability in respect of employee severance obligations and was reclassified to current liabilities after it became short-term in nature. With respect to this liability, we had funded deposits in respect of employee severance obligations of $31,000 that were reclassified to current assets, as they will be redeemed in the short-term. In addition, as a result of the current restructuring, we reclassified our liability in respect of employee severance obligations to a current
liability and similarly reclassified our deposits in respect of employee severance obligations to current assets.
We may also incur other costs related to the current restructuring of our Jerusalem-based activities, with regard to potential liability in respect of tax benefits received by our subsidiary as an Approved Enterprise.
In addition, we intend to further reduce our remaining activities in our Jerusalem facility. We believe that these reductions, which are expected to include further personnel reductions and sales of fixed assets, will likely require an asset impairment charge during the second and/or third quarters of 2003, although the amount of this impairment charge and other costs associated with the further curtailment of our activities in our Jerusalem facility cannot be determined at this time. The carrying value of the assets that could be impaired, thus resulting in a non-cash write down, including fixed assets, totals approximately $776,000. We may also incur other costs relating to the further reduction of our Jerusalem-based activities. For example, the portion of our lease obligations relating to our Jerusalem facility amounts to approximately $1,052,000 through the end of 2005. Costs of severance benefits for the employees who are expected to receive notice of termination as part of this further reduction are accrued to the balance sheet date as part of the liability in respect of employee severance benefits in accordance with Israeli law.
2002 Restructuring
In the second half of 2002, we implemented a strategic reorganization (the "2002 restructuring"). The 2002 restructuring was designed to substantially reduce early stage research expenditures so that we could focus primarily on the development of our lead product candidate KRX-101 for the treatment of diabetic nephropathy and on the acquisition of additional clinical stage compounds. The 2002 restructuring included a 46 person, or approximate 70%, reduction in the Company's work force, including senior management, administrative staff, and research personnel involved in early stage projects. As of March 31, 2003, 45 employees had left under the 2002 restructuring.
Through March 31, 2003, we had total accumulated expenses of $1,118,000 for severance benefits for employees terminated under our 2002 restructuring, almost all of which had been expensed in prior periods.
As of March 31, 2003, 45 employees have left us under the 2002 restructuring and $389,000 of severance benefits have been paid.
As of March 31, 2003, $729,000 in severance obligations related to the 2002 restructuring is included in accrued compensation and related liabilities. With respect to this liability, we had funded deposits in respect to employee severance obligations of $200,000.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
2002
Revenue. We did not have any revenue for the three months ended March 31, 2003 and March 31, 2002.
Research and Development Expenses. Research and development expenses, including non-cash compensation expense related to stock option grants and warrant issuances, increased by $742,000 to $3,105,000 for the three months ended March 31, 2003, as compared to expenses of $2,363,000 for the three months ended March 31, 2002. The increase in research and development expenses
was due primarily to the non-cash impairment charge associated with our decision to cease our Jerusalem laboratory activities, as described above. These increases were partially offset by a decline in early stage research and development expenditures as a result of the 2002 restructuring.
We expect our research and development costs to decrease for the remainder of 2003 as the result of the implementation of the current and 2002 restructurings.
Non-cash compensation expense related to stock option grants and warrant issuances was negative $266,000 for the three months ended March 31, 2003 as compared to negative $580,000 for the three months ended March 31, 2002. This negative non-cash compensation expense was primarily due to the revaluation of previously issued options and warrants to consultants and other third parties as a result of the decline in our stock price pursuant to the provisions of SFAS No. 123 and EITF 96-18.
General and Administrative Expenses. General and administrative expenses, including non-cash compensation expense related to stock option grants and warrant issuances, decreased by $638,000 to $666,000 for the three months ended March 31, 2003, as compared to expenses of $1,304,000 for the three months ended March 31, 2002. The decrease in general and administrative expenses was due primarily to reduced personnel and related costs associated with the 2002 restructuring.
We expect our general and administrative costs to decrease for the remainder of 2003 as the result of the implementation of the current and 2002 restructurings.
Non-cash compensation expense related to stock option grants was $2,000 for the three months ended March 31, 2003 as compared to negative $6,000 for the three months ended March 31, 2002.
Interest Income (Expense), Net. Interest income, net, decreased by $89,000 to $85,000 for the three months ended March 31, 2003, as compared to income of $174,000 for the three months ended March 31, 2002. The decrease resulted from a lower level of invested funds and the general decline in market interest rates when compared to the comparable period last year.
Income Taxes. Income tax expense increased by $52,000 to $102,000 for the three months ended March 31, 2003, as compared to an expense of $50,000 for three months ended March 31, 2002. The increase in income tax expense was primarily due to the creation of a valuation allowance against the deferred tax asset and the deferred tax liability of our Israeli subsidiaries, associated with the cessation of our research and development activities and further decrease in administrative activities in our Jerusalem facility. Income tax expense for the comparative period is attributable to taxable income from the continuing operations of our subsidiaries in Israel. This income is eliminated upon consolidation of our financial statements.
Impact of Inflation. The effects of inflation and changing prices on our operations were not significant during the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations from inception primarily through various private and public financings. As of March 31, 2003, we had received net proceeds of $46.3 million from our initial public offering, and $11.6 million from private placement issuances of common and preferred stock, including $2.9 million raised through the contribution by holders of their notes issued by our predecessor company.
As of March 31, 2003, we had $22.4 million in cash, cash equivalents, interest receivable and short-term securities, a decrease of $1.7 million from December 31, 2002. Cash used in operating activities for the three months ended March 31, 2003 was $1.6 million as compared to $3.4 million for the three months ended March 31, 2002. This decrease in cash used in operating activities was due primarily to reduced early stage research activities and associated personnel and general and administrative expenses. For the three months ended March 31, 2003, net cash provided by investing activities of $7.8 million was primarily the result of the maturity of short-term securities.
As of March 31, 2003, we have known contractual obligations, commitments and contingencies of $1,444,000. Of this amount, $218,000 relates to research and development agreements, all of which is due within the next year, and $48,000 relates to other agreements due within the next year. The additional $1,178,000 relates to operating lease obligations, of which $506,000 is due within the next year, with the remaining $672,000 due within one to three years.
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Payments Due By Period
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Contractual Obligations Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
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Research and Development Agreements $ 218,000 $218,000 -- -- --
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Operating Leases 1,178,000 506,000 672,000 -- --
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Other Agreements 48,000 48,000 -- -- --
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Total Contractual Cash Obligations $1,444,000 $772,000 $672,000 -- --
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Additionally, we have undertaken to make contingent milestone payments to certain of our licensors of up to approximately $5.0 million over the life of the licenses, which expire from 2017 to 2023. In certain cases, such payments will reduce any royalties due on sales of related products. In the event that the milestones are not achieved, we remain obligated to pay one licensor $50,000 annually until the license expires.
We believe that our $22.4 million in cash, cash equivalents, interest receivable and short-term securities as of March 31, 2003 will be sufficient to enable us to meet our planned operating needs and capital expenditures for at least the next 24 months. Our cash and cash equivalents as of March 31, 2003 are invested in highly liquid investments such as cash, money market accounts and short-term US corporate debt securities. As of March 31, 2003, we are unaware of any known trends or any known demands, commitments, events, or uncertainties that will, or that are reasonably likely to, result in a material increase or decrease in our required liquidity. We expect that our liquidity needs throughout 2003 will continue to be funded from existing cash, cash equivalents, and short-term securities.
Our forecast of the period of time through which our cash, cash equivalents and short-term securities will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control.
These factors include the following:
o the timing of expenses associated with product development of our proprietary product candidates, especially KRX-101, and including those expected to be in-licensed, partnered or acquired;
o the timing of the in-licensing, partnering and acquisition of new product opportunities;
o the progress of the development efforts of parties with whom we have entered or intend to enter into research and development agreements;
o our ability to achieve our milestones under licensing arrangements;
o the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
o the amount of any funds expended to repurchase our common stock.
We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our stock or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed.
RISK FACTORS THAT MAY AFFECT RESULTS
This Quarterly Report on Form 10-Q contains forward-looking statements, including statements about our future operating results, our drug development programs and potential strategic alliances. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words "believe," "anticipate," "plan," "expect," "intend" and similar expressions to help identify forward-looking statements.
There are a number of important factors that could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this Form 10-Q. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
RISKS RELATED TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY AND HAVE INCURRED SUBSTANTIAL OPERATING LOSSES SINCE OUR INCEPTION. WE EXPECT TO CONTINUE TO INCUR LOSSES IN THE FUTURE AND MAY NEVER BECOME PROFITABLE.
We have a limited operating history. You should consider our prospects in light of the risks and difficulties frequently encountered by early stage companies. In addition, we have incurred operating losses since our inception, expect to continue to incur operating losses for the foreseeable future and may never become profitable. As of March 31, 2003, we had an accumulated deficit of approximately $49.3 million. As we expand our
development efforts, we will incur increasing losses. We may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates or technologies.
We have not yet commercialized any products or technologies and cannot be sure we will ever be able to do so. Even if we commercialize one or more of our drug candidates or technologies we may not become profitable. Our ability to achieve profitability depends on a number of factors, including our ability to complete our development efforts, obtain regulatory approval for our drug candidates and successfully commercialize our drug candidates and technologies.
IF WE ARE UNABLE TO SUCCESSFULLY BEGIN OR COMPLETE OUR CLINICAL TRIALS OF KRX-101, OUR ABILITY TO ACHIEVE OUR CURRENT BUSINESS STRATEGY WILL BE ADVERSELY AFFECTED.
Whether or not and how quickly we complete clinical trials is dependent in part upon the rate at which we are able to engage clinical trial sites and, thereafter, the rate of enrollment of patients. Patient enrollment is a function of many factors, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the study and the existence of competitive clinical trials. If we experience delays in identifying and contracting with sites and/or in patient enrollment in our clinical trial program, we may incur additional costs and delay our development program for KRX-101.
Additionally, we have submitted a subpart H clinical development plan to the FDA for the clinical development of KRX-101 for diabetic nephropathy. A final agreement on the specifics of our clinical program for that development plan has not been agreed to with the FDA and we cannot give any assurance that an acceptable final agreement on the specifics of such clinical program will ever be reached with the FDA. In fact, based on the FDA's comments to our most recent submission, we believe that additional discussions with the FDA will be required prior to final agreement on the specifics of our subpart H accelerated approval clinical program. We cannot assure you that those discussions will take place or, if they do take place, the timing of such discussions, or that the results of such discussions will be satisfactory to us. Additionally, the FDA has stated that based on the novelty of the approach that we have discussed with them, they would want to refer our proposed approach to the Cardio-Renal Advisory Committee.
Moreover, even if we are able to reach final agreement with the FDA regarding the specifics of an accelerated approval approach, no assurance can be given that we will be able to meet the requirements set forth in such agreement. The subpart H process is complex and requires flawless execution. Many companies who have been granted the right to utilize an accelerated approval approach have failed to obtain approval. The clinical timeline, scope and consequent cost for the development of KRX-101 will depend, in part, on the final outcome of our discussions with the FDA. Moreover, negative or inconclusive results from the clinical trials we hope to conduct or adverse medical events could cause us to have to repeat or terminate the clinical trials. Accordingly, we may not be able to complete the clinical trials within an acceptable time frame, if at all.
OUR DRUG CANDIDATES ARE IN EARLY STAGES OF DEVELOPMENT AND MAY NEVER RECEIVE THE NECESSARY REGULATORY APPROVALS.
Our drug candidates are in early stages of development. We have not received, and may never receive, regulatory approval for clinical trials for any of our drug candidates. We will need to conduct significant additional research and human testing before we can apply for product approval with the FDA or with regulatory authorities of other countries. Preclinical testing and clinical development are long, expensive and uncertain processes. Satisfaction of
regulatory requirements typically depends on the nature, complexity and novelty of the product and requires the expenditure of substantial resources. Data obtained from preclinical and clinical tests can be interpreted in different ways, which could delay, limit or prevent regulatory approval. It may take us many years to complete the testing of our drug candidates and failure can occur at any stage of this process. Negative or inconclusive results or medical events during a clinical trial could cause us to delay or terminate our development efforts.
Clinical trials also have a high risk of failure. A number of companies in the pharmaceutical industry, including biotechnology companies, have suffered significant setbacks in advanced clinical trials, even after achieving promising results in earlier trials. If we experience delays in the testing or approval process or if we need to perform more or larger clinical trials than originally planned, our financial results and the commercial prospects for our drug candidates may be materially impaired. In addition, we have limited experience in conducting and managing the clinical trials necessary to obtain regulatory approval in the United States and abroad and, accordingly, may encounter unforeseen problems and delays in the approval process.
BECAUSE WE LICENSE OUR PROPRIETARY TECHNOLOGIES, TERMINATION OF THESE AGREEMENTS WOULD PREVENT US FROM DEVELOPING OUR DRUG CANDIDATES.
We do not own KRX-101, our KinAce platform, or the SIB technology. We have licensed these technologies from others. These license agreements require us to meet development or financing milestones and impose development and commercialization due diligence on us. In addition, under these agreements we must pay royalties on sales of products resulting from licensed technologies and pay the patent filing, prosecution and maintenance costs related to the licenses. If we do not meet our obligations in a timely manner or if we otherwise breach the terms of our agreements, our licensors could terminate the agreements and we would lose the rights to KRX-101 and the KinAce and SIB technologies.
BECAUSE OUR REVISED BUSINESS MODEL IS BASED, IN PART, ON THE ACQUISITION OR IN-LICENSING OF ADDITIONAL CLINICAL PRODUCT CANDIDATES, IF WE FAIL TO ACQUIRE OR IN-LICENSE SUCH CLINICAL PRODUCT CANDIDATES, OUR LONG TERM BUSINESS PROSPECTS WILL BE SUBSTANTIALLY IMPAIRED.
As a major part of our business strategy, we plan to acquire or in-license clinical stage product candidates. If we fail to acquire or in-license such product candidates, we may not achieve expectations of our future performance. Because we do not intend to engage in significant discovery research, we must rely on third parties to sell or license new product opportunities to us. Other companies, including some with substantially greater financial, development, marketing and sales resources, are competing with us to acquire or in-license such products or product candidates. We may not be able to acquire or in-license rights to additional products or product candidates on acceptable terms, if at all.
IF WE DO NOT ESTABLISH OR MAINTAIN DRUG DEVELOPMENT AND MARKETING ARRANGEMENTS WITH THIRD PARTIES, WE MAY BE UNABLE TO COMMERCIALIZE OUR TECHNOLOGIES INTO PRODUCTS.
We are an emerging company and do not possess all of the capabilities to fully commercialize our product candidates on our own. From time to time, we may need to contract with third parties to:
o assist us in developing, testing and obtaining regulatory approval for and commercializing some of our compounds and technologies; and
o market and distribute our drug candidates.
For example, we are currently seeking third party partners to conduct further preclinical development of the KinAce platform and other early stage programs. There can be no assurance that we will be able to successfully enter into agreements with such partners on terms that are acceptable to us. If we are unable to successfully contract with third parties for these services when needed, or if existing arrangements for these services are terminated, whether or not through our actions, or if such third parties do not fully perform under these arrangements, we may have to delay, scale back or end one or more of our drug development programs or seek to develop or commercialize our technologies independently, which could result in delays. Further, such failure could result in the termination of license rights to one or more of our technologies. Moreover, if these development or marketing agreements take the form of a partnership or strategic alliance, such arrangements may provide our collaborators with significant discretion in determining the efforts and resources that they will apply to the development and commercialization of products based on our technologies. Accordingly, to the extent that we rely on third parties to research, develop or commercialize products based on our technologies, we are unable to control whether such products will be scientifically or commercially successful.
WE RELY ON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS. IF THESE THIRD PARTIES DO NOT SUCCESSFULLY MANUFACTURE OUR PRODUCTS OUR BUSINESS WILL BE HARMED.
We have no experience in manufacturing products for clinical or commercial purposes and do not have any manufacturing facilities. We intend to use third parties to manufacture our products for use in clinical trials and for future sales. We may not be able to enter into third party contract manufacturing agreements on acceptable terms, if at all.
Contract manufacturers often encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, compliance with FDA and foreign regulations, production costs and development of advanced manufacturing techniques and process controls. Our third party manufacturers may not perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our drug candidates. In addition, our contract manufacturers will be subject to ongoing periodic, unannounced inspections by the FDA and corresponding foreign governmental agencies to ensure strict compliance with, among other things, current good manufacturing practices, in addition to other governmental regulations and corresponding foreign standards. We will not have control over, other than by contract, third party manufacturers' compliance with these regulations and standards. Switching or engaging multiple manufacturers may be difficult because the number of potential manufacturers is limited and, particularly in the case of KRX-101, the process by which multiple manufacturers make the drug substance must be identical at each manufacturing facility. It may be difficult for us to find and engage replacement or multiple manufacturers quickly and on terms acceptable to us if at all. Moreover, if we need to change manufacturers, the FDA and corresponding foreign regulatory agencies must approve these manufacturers in advance, which will involve testing and additional inspections to ensure compliance with these regulations and standards.
If third-party manufacturers fail to deliver the required quantities of our drug candidates on a timely basis and at commercially reasonable prices, and if we fail to find replacement or multiple manufacturers on acceptable terms, our ability to develop and deliver products on a timely and competitive basis may be adversely impacted and our business, financial condition or results of operations will be materially harmed.
In the event that we are unable to obtain or retain third party manufacturers, we will not be able to commercialize our products as planned. The manufacture
of our products for clinical trials and commercial purposes is subject to FDA and foreign regulations. No assurance can be given that our third party manufacturers will comply with these regulations or other regulatory requirements now or in the future.
While we currently have a contract manufacturing relationship for KRX-101, we do not believe that this relationship will be sufficient to meet our needs for clinical and commercial supplies. Accordingly, we are currently seeking to establish an alternative contract manufacturing relationship which we believe will be adequate to satisfy our current clinical and commercial supply needs. As we seek to transition our manufacturing of KRX-101 to a new contract manufacturer, we will need to create a reproducible manufacturing process that will ensure consistent manufacture of KRX-101 across multiple batches and sources. As with all heparin-like compounds, the end product is highly sensitive to the manufacturing process utilized. Slight changes in process will often result in a different end product. Accordingly, the creation of a reproducible process will be required for the successful commercialization of KRX-101. There can be no assurance that we will be successful in this endeavor.
IF WE ARE NOT ABLE TO OBTAIN THE RAW MATERIAL REQUIRED FOR THE MANUFACTURE OF OUR LEAD PRODUCT CANDIDATE, KRX-101, OUR ABILITY TO DEVELOP AND MARKET THIS PRODUCT CANDIDATE WILL BE SUBSTANTIALLY HARMED.
Source materials for KRX-101, our lead product candidate, are derived from porcine intestines. Long-term supplies for KRX-101 could be affected by limitations in the supply of porcine intestines, over which we will have no control. Additionally, diseases affecting the world supply of pigs could have an actual or perceived negative impact on our ability, or the ability of our contract manufacturers, to source, make and/or sell KRX-101. Such negative impact could materially adversely affect the commercial success of KRX-101.
IF OUR COMPETITORS DEVELOP AND MARKET PRODUCTS THAT ARE MORE EFFECTIVE THAN OURS, OUR COMMERCIAL OPPORTUNITY MAY BE REDUCED OR ELIMINATED.
Our commercial opportunity will be reduced or eliminated if our competitors develop and market products that are more effective, have fewer side effects or are less expensive than our drug candidates. Other companies have products or drug candidates in various stages of preclinical or clinical development to treat diseases for which we are seeking to discover and develop drug candidates. Some of these potential competing drugs are further advanced in development than our drug candidates and may be commercialized earlier. Even if we are successful in developing effective drugs, our products may not compete successfully with products produced by our competitors.
Our competitors include pharmaceutical companies and biotechnology companies, as well as universities and public and private research institutions. In addition, companies active in different but related fields represent substantial competition for us. Many of our competitors have significantly greater capital resources, larger research and development staffs and facilities and greater experience in drug development, regulation, manufacturing and marketing than we do. These organizations also compete with us to recruit qualified personnel, attract partners for joint ventures or other collaborations, and license technologies that are competitive with ours. As a result, our competitors may be able to more easily develop technologies and products that would render our technologies or our drug candidates obsolete or noncompetitive.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT AND RETAIN ADDITIONAL PERSONNEL, OUR OPERATIONS COULD BE DISRUPTED AND OUR BUSINESS COULD BE HARMED.
Subsequent to the current and 2002 restructurings, we currently have 17 full and part-time employees and several other persons working under research agreements or consulting agreements. To successfully develop our drug candidates, we must be able to attract and retain highly skilled personnel. In addition, if we lose the services of our current personnel, in particular, Michael S. Weiss, our Chairman and Chief Executive Officer, our ability to continue to develop our lead drug candidates could be materially impaired. In addition, while we have employment agreements with Mr. Weiss and our other key executives, these agreements would not prevent any of them from terminating their employment with us.
ANY ACQUISITIONS WE MAKE MAY NOT BE SCIENTIFICALLY OR COMMERCIALLY SUCCESSFUL.
As part of our business strategy, we may effect acquisitions to obtain additional businesses, products, technologies, capabilities and personnel. If we make one or more significant acquisitions in which the consideration includes stock or other securities, your equity in us may be significantly diluted. If we make one or more significant acquisitions in which the consideration includes cash, we may be required to use a substantial portion of our available cash.
Acquisitions involve a number of operational risks, including:
o difficulty and expense of assimilating the operations, technology and personnel of the acquired business;
o inability to retain the management, key personnel and other employees of the acquired business;
o inability to maintain the acquired company's relationship with key third parties, such as alliance partners;
o exposure to legal claims for activities of the acquired business prior to acquisition;
o diversion of management attention; and
o potential impairment of substantial goodwill and write-off of in-process research and development costs, adversely affecting our reported results of operations.
RISKS RELATED TO OUR FINANCIAL CONDITION
IF WE ARE UNABLE TO OBTAIN ADDITIONAL FUNDS ON TERMS FAVORABLE TO US, OR AT ALL, OUR BUSINESS WOULD BE HARMED.
We expect to use rather than generate funds from operations for the foreseeable future. Based on our current plans, we believe our existing cash and cash equivalents will be sufficient to fund our operating expenses and capital requirements for at least the next two years. However, the actual amount of funds that we will need prior to or after that date will be determined by many factors, some of which are beyond our control. As a result, we may need funds sooner or in different amounts than we currently anticipate. These factors include:
o the progress of our development activities;
o the progress of our research activities;
o the number and scope of our development programs;
o our ability to establish and maintain current and new licensing or acquisition arrangements;
o our ability to achieve our milestones under our licensing arrangements;
o the costs involved in enforcing patent claims and other intellectual property rights; and
o the costs and timing of regulatory approvals.
If our capital resources are insufficient to meet future capital requirements, we will have to raise additional funds. If we are unable to obtain additional funds on terms favorable to us or at all, we may be required to cease or reduce our operating activities or sell or license to third parties some or all of our technology. If we raise additional funds by selling additional shares of our capital stock, the ownership interests of our stockholders will be diluted. If we raise additional funds through the sale or license of our technology, we may be unable to do so on terms favorable to us.
OUR RESTRUCTURINGS MAY NOT ACHIEVE THE RESULTS WE INTEND AND MAY HARM OUR BUSINESS.
Since mid-2002, we have been restructuring the company, including the current and 2002 restructurings. Our workforce reduction consisted principally of research personnel primarily involved in early-stage projects, along with certain managerial and administrative staff. The implementation of our restructurings has placed, and may continue to place, a significant strain on our managerial, operational, financial and other resources. If we are unable to implement our restructurings effectively, we may not successfully achieve our business strategy or reduce our costs. Moreover, we may be required to further reduce our headcount and/or program-specific expenditures, which could require us to further scale back or abandon any of our development activities, or license to others products or technologies we would otherwise have sought to commercialize ourselves.
DUE TO THE RECENT REDUCTIONS IN STAFF AND ACTIVITY AT OUR RESEARCH AND DEVELOPMENT SUBSIDIARY LOCATED IN ISRAEL, CERTAIN TAX BENEFITS WE HAD RECEIVED FROM THE ISRAELI GOVERNMENT MAY BE REVOKED AND WE MAY BE REQUIRED TO REPAY SOME OR ALL OF SUCH TAX BENEFITS PREVIOUSLY RECEIVED.
In September 2001, one of our Israeli subsidiaries received the status of an "Approved Enterprise," a status which grants certain tax benefits in Israel in accordance with the "Law for the Encouragement of Capital Investments, 1959". Through March 31, 2003, our Israeli subsidiary will have received tax benefits of approximately $731,000 as a result of our subsidiary's status as an "Approved Enterprise." As a result of recent cost reductions, the staff and activity of this subsidiary have been materially reduced. In January 2003, the subsidiary notified the Israeli governmental authority of reductions in its staff and operations that had formed the basis of its Approved Enterprise program, and requested that the program instituted prior to the cost reductions be approved. In February 2003, the Israeli governmental authority informed this subsidiary that it may be in non-compliance with the conditions of its Approved Enterprise program because of the indicated reductions. As part of the restructuring implemented during the first quarter of 2003, we decided to close down our Jerusalem laboratory facility. Our subsidiary is currently undergoing discussions with the Israeli governmental authority and at this point we are uncertain as to whether or not any of the past benefits will need to be repaid. Accordingly, we have not recorded any charge with respect to this
potential liability. It is possible that as a result of these cost reductions and the close down of the Jerusalem laboratory facility, some or all of the tax benefits received to date will need to be repaid, which could adversely affect our cash flow and results of operations.
RISKS RELATED TO OUR INTELLECTUAL PROPERTY
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY THIRD PARTIES MAY BE ABLE TO USE OUR TECHNOLOGY, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO COMPETE IN THE MARKET.
Our commercial success will depend in part on our ability and the ability of our licensors to obtain and maintain patent protection on our drug products and technologies and successfully defend these patents and technologies against third-party challenges. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date. Accordingly, the patents we use may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products. Furthermore, others may independently develop similar or alternative technologies or design around our patented technologies. The patents we use may be challenged, invalidated or fail to provide us with any competitive advantage.
Moreover, we rely on trade secrets to protect technology where we believe patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While we require our employees, collaborators and consultants to enter into confidentiality agreements, this may not be sufficient to adequately protect our trade secrets or other proprietary information. In addition, we share ownership and publication rights to data relating to some of our drug candidates with our research collaborators and scientific advisors. If we cannot maintain the confidentiality of this information, our ability to receive patent protection or protect our proprietary information will be at risk.
LITIGATION OR THIRD-PARTY CLAIMS OF INTELLECTUAL PROPERTY INFRINGEMENT COULD REQUIRE US TO SPEND SUBSTANTIAL TIME AND MONEY DEFENDING SUCH CLAIMS AND ADVERSELY AFFECT OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS.
Third parties may assert that we are using their proprietary technology without authorization. In addition, third parties may have or obtain patents in the future and claim that our technologies infringe their patents. If we are required to defend against patent suits brought by third parties, or if we sue third parties to protect our patent rights, we may be required to pay substantial litigation costs, and our management's attention may be diverted from operating our business. In addition, any legal action against our licensors or us that seeks damages or an injunction of our commercial activities relating to the affected technologies could subject us to monetary liability and require our licensors or us to obtain a license to continue to use the affected technologies. We cannot predict whether our licensors or we would prevail in any of these types of actions or that any required license would be made available on commercially acceptable terms, if at all.
RISKS RELATED TO OUR COMMON STOCK
CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
As of March 31, 2003, our executive officers, directors and principal stockholders (including their affiliates) beneficially own, in the aggregate, approximately 37.6% of our outstanding common stock, including, for this purpose, currently exercisable options and warrants held by our executive
officers, directors and principal stockholders. As a result, these persons, acting together, may have the ability to effectively determine the outcome of all matters submitted to our stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, such persons, acting together, may have the ability to effectively control our management and affairs. Accordingly, this concentration of ownership may harm the market price of our common stock by discouraging a potential acquirer from attempting to acquire us.
OUR STOCK PRICE COULD BE VOLATILE AND YOUR INVESTMENT COULD DECLINE IN VALUE.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in price in response to various factors, many of which are beyond our control. These factors include:
o developments concerning our drug candidates;
o announcements of technological innovations by us or our competitors;
o new products introduced or announced by us or our competitors;
o changes in financial estimates by securities analysts;
o actual or anticipated variations in quarterly operating results;
o expiration or termination of licenses, research contracts or other collaboration agreements;
o conditions or trends in the regulatory climate and the biotechnology, pharmaceutical and genomics industries;
o changes in the market valuations of similar companies; and
o additions or departures of key personnel.
In addition, equity markets in general, and the market for biotechnology and life sciences companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies traded in those markets. These broad market and industry factors may materially affect the market price of our common stock, regardless of our development and operating performance. In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted against that company. Such litigation, if instituted against us, could cause us to incur substantial costs to defend such claims and divert management's attention and resources, which could seriously harm our business.
THE GENERAL BUSINESS CLIMATE IS UNCERTAIN AND WE DO NOT KNOW HOW THIS WILL IMPACT OUR BUSINESS OR OUR STOCK PRICE.
Over the past several years, there have been dramatic changes in economic conditions, and the general business climate has been negatively impacted. Indices of the U.S. stock markets have fallen significantly and consumer confidence has waned. Compounding the general unease about the current business climate are the still unknown economic and political impacts of the September 11, 2001 terrorist attacks and hostilities abroad. We are unable to predict how any of these factors may affect our business or stock price.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT. THIS COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR OUR COMMON STOCK.
Provisions in our certificate of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, or control us. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation allows us to issue preferred stock with rights senior to those of the common stock without any further vote or action by the stockholders and our bylaws eliminate the right of stockholders to call a special meeting of stockholders, which could make it more difficult for stockholders to effect certain corporate actions. These provisions could also have the effect of delaying or preventing a change in control. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to the holders of our common stock or could adversely affect the rights and powers, including voting rights, of such holders. In certain circumstances, such issuance could have the effect of decreasing the market price of our common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive from our investments without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the prevailing interest rate later rises, the principal amount of our investment will probably decline. We maintain our portfolio in cash equivalents and short- and long-term interest bearing securities, including corporate debt, money market funds and government debt securities. The average duration of all of our investments held in the first quarter of 2003 was less than one year. Due to the short-term nature of these investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is required.
Foreign Currency Rate Fluctuations. While our Israeli subsidiaries transact business in New Israel Shekels or NIS, most operating expenses and commitments are linked to the US dollar. As a result, there is currently minimal exposure to foreign currency rate fluctuations. Any foreign currency revenues and expenses are translated using the daily average exchange rates prevailing during the year and any transaction gains and losses are included in net income. In the future, our subsidiaries may enter into NIS-based commitments that may expose us to foreign currency rate fluctuations.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. Based on their evaluations as of a date within 90 days of the filing date of this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.
(b) Changes in internal controls. There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their most recent evaluation.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) Use of Proceeds From Registered Securities
We received net proceeds (after deducting underwriting discounts and commissions and offering expenses) of $46.3 million from the sale of 5,200,000 shares of common stock in our initial public offering in July 2000. As of March 31, 2003, we have used the net proceeds of this offering as follows:
o approximately $5.6 million to fund the development of KRX-101 for diabetic nephropathy;
o approximately $3.8 million to fund the development of KRX-123 for hormone-resistant prostate cancer;
o approximately $10.3 million to fund expansion of our KinAce platform and to further develop the compounds we have generated with it; and
o approximately $14.2 million to use as working capital, in-licensing development activities and for general corporate purposes.
We intend to use our current capital resources primarily to advance KRX-101 and to in-license, acquire and develop novel clinical stage compounds. The timing and amounts of our actual expenditures will depend on several factors, including the timing of our entry into collaboration agreements, the progress of our clinical trials, the progress of our research and development programs, the results of other pre-clinical and clinical studies and the timing and costs of regulatory approvals.
Until we use the net proceeds, we intend to invest the funds in short and long-term, investment-grade, interest-bearing instruments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed on the Exhibit Index are included with this report.
10.1 - Employment Agreement between Keryx Biopharmaceuticals, Inc. and Michael S. Weiss dated as of December 23, 2002
10.2 - 1999 Stock Option Plan (as amended)
10.3 - 2000 Stock Option Plan (as amended)
10.4 - 2002 CEO Incentive Stock Option Plan
99.1 - Certifications pursuant to 18 U.S.C. Section 1350
99.2 - Certifications pursuant to 18 U.S.C. Section 1350
(b) Reports on Form 8-K
On April 7, 2003, the Company furnished a Current Report on Form 8-K under Items 7, 9 and 12, containing a copy of its earnings release for the period ended December 31, 2002 (including financial statements) pursuant to Item 12 (Results of Operations and Financial Condition).
On May 14, 2003, the Company furnished a Current Report on Form 8-K under Item 9, containing a copy of its earnings release for the period ended March 31, 2003 (including financial statements) pursuant to Item 12 (Results of Operations and Financial Condition).
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.
KERYX BIOPHARMACEUTICALS, INC.
Date: May 15, 2003 /s/ Ira Weinstein
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Ira Weinstein
Interim Chief Financial Officer & Treasurer
(Principal Financial and Accounting Officer)
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CERTIFICATIONS
I, Michael S. Weiss, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Keryx Biopharmaceuticals, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003 /s/ Michael S. Weiss
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Michael S. Weiss
Chief Executive Officer
(Principal Executive Officer)
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I, Ira Weinstein, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Keryx Biopharmaceuticals, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the such auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
/s/ Ira Weinstein
--------------------------------------------
Ira Weinstein
Dated: May 15, 2003 Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
10.1 - Employment Agreement between Keryx Biopharmaceuticals, Inc. and Michael S. Weiss dated as of December 23, 2002.
10.2 - 1999 Stock Option Plan (as amended)
10.3 - 2000 Stock Option Plan (as amended)
10.4 - 2002 CEO Incentive Stock Option Plan
99.1 - Certification pursuant to 18 U.S.C. Section 1350
99.2 - Certification pursuant to 18 U.S.C. Section 1350
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement, effective as of December 23, 2002, by and between Keryx Biopharmaceuticals, Inc. ("Keryx" or the "Corporation"), a Delaware corporation having an address at 750 Lexington Avenue, New York, NY, and Michael Weiss, an individual residing at 300 E. 77th Street, NY, NY 10021 ("Weiss").
WITNESSETH:
WHEREAS, the Corporation desires to employ Weiss as Chairman and Chief Executive Officer of Keryx and Weiss desires to be employed by Keryx as Chairman and Chief Executive Officer of Keryx, all pursuant to the terms and conditions hereinafter set forth;
NOW THEREFORE, in consideration of the foregoing and the mutual promises and covenants herein contained, it is agreed as follows:
1. EMPLOYMENT DUTIES
(a) Keryx hereby engages and employs Weiss, and Weiss accepts engagement and employment, as Chairman and Chief Executive Officer of Keryx. As such he shall be responsible for the overall management, direction and leadership of the Corporation. He shall report directly to the Board of Directors. The description of responsibilities set forth herein shall serve as a general statement of the duties, responsibilities and authority of Weiss. Additional duties, responsibilities and authority consistent with that of Chairman and CEO may be assigned to Weiss by the Board of Directors of the Corporation from time to time in its reasonable discretion.
(b) Weiss will devote substantially all of his gainful time to the discharge of his duties and responsibilities under this Agreement. Notwithstanding the above, the Company acknowledges that Weiss continues to be active in several ventures and companies and nothing contained herein will serve to limit his current or future involvement in such or similar ventures or companies, provided that such activities do not interfere in his ability to fulfill the requirements of the position of Chairman and Chief Executive Officer of Keryx.
(c) Weiss acknowledges and agrees that the performance by Weiss of his duties hereunder may require significant domestic and international travel by Weiss.
2. TERM
Weiss's employment hereunder shall commence on December 23, 2002, and shall continue until such employment is terminated as hereinafter provided in Paragraph 8 (the "Term").
3. COMPENSATION
(a) As compensation for the performance of his duties on behalf of Keryx, Weiss shall be compensated as follows:
(i) Base Salary and Annual Increases. Weiss shall receive a salary at the annualized rate of two hundred and fifty thousand dollars ($250,000), less applicable state and federal withholdings, (as may be adjusted from time to time in accordance with this Agreement, the "Base Salary"), payable in accordance with the Corporation's payroll policies and subject to standard payroll deductions and withholdings. Weiss shall be entitled to annual salary increases the amount of which shall be subject to the sole discretion of the Corporation's Board of Directors.
(ii) Bonuses. Weiss shall be eligible to receive an annual bonus at the end of each calendar year of up to 100% of his annual base salary, less applicable state and federal withholdings, (the "Target Bonus") based upon his achievement of corporate goals and objectives ("Corporate G&Os"), agreed to with the Board of Directors at the beginning of each calendar year, to the satisfaction of the Board of Directors. In addition, Weiss shall be entitled to receive two (2) one-time only bonuses ("Special Bonuses") upon the achievement of each of the First Milestone Event and the Second Milestone Event (each as defined below), in the amount of $1,000,000 and $2,000,000 (less applicable state and federal withholdings), respectively, provided that Weiss may only receive each Special Bonus if, on the date the relevant Milestone Event is achieved, he is employed by the Corporation as an officer or director.
(iii) Equity. The Corporation will grant Weiss options (the
"Options") to purchase a total of 4,050,000 shares of the common stock of the
Corporation (the "Initial Grant") at an exercise price equal to the closing
price of the Corporation's Common Stock on Nasdaq on the trading day prior to
the start of Weiss's employment (the "Exercise Price"), which options shall be
exercisable for a period of ten (10) years from the date of issuance. Weiss's
Options will be granted under the Corporation's 1999 and 2000 Stock Option Plans
and the 2002 CEO Incentive Stock Option Plan (the "Plans") and will be subject
to the terms and conditions thereof, including any stock option agreement
entered into by Weiss and the Corporation thereunder; provided, however, that if
any provisions of this Agreement that are inconsistent with the terms and
conditions of the Plans and any such stock option agreement, the terms of this
Agreement shall control. In accordance with the Plans, should any change be made
to the Common Stock by reason of any stock split, stock dividend, extraordinary
cash dividend, recapitalization, combination of shares, exchange of shares or
other change affecting the outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made to
(A) the total number and/or class of securities subject to such options and (B)
the Exercise Price in order to reflect such change and thereby preclude a
dilution or enlargement under such options. The Initial Grant shall vest as
follows:
(A) 450,000 after twelve months of employment;
(B) 112,500 after fifteen months of employment;
(C) 112,500 after eighteen months of employment;
(D) 112,500 after twenty one months of employment;
(E) 112,500 after twenty four months of employment;
(F) 112,500 after twenty seven months of employment;
(G) 112,500 after thirty months of employment;
(H) 112,500 after thirty three months of employment;
(I) 112,500 after thirty six months of employment;
(J) 1,350,000 after seven (7) years, provided that he is employed on that date as Chairman and/or Chief Executive Officer and/or a director of the Corporation. The exercisability of these options shall be accelerated in full upon the occurrence of the earlier of:
a. the Corporation achieving a total market capitalization on a fully diluted basis of more than $500 million, as determined utilizing the following formula (the "Market Capitalization Formula"): fully diluted shares (including shares attributable to all options, warrants, other purchase rights and convertible securities, and including shares held by affiliates (collectively "market capitalization shares")) multiplied by the three consecutive trading day average of the closing price of its common stock as reported by Nasdaq (or such other exchange as such shares are then listed or in the good-faith determination of the board, if not then listed or quoted) plus long-term debt (as set forth in the most recent financial statements of the Corporation) minus Working Capital (as defined below) and minus the aggregate exercise price of all options and warrants included in the market capitalization shares; or
b. the Corporation possessing at least $100
million in Working Capital (which shall mean
as of any date, (1) the current assets plus
investment securities or similar asset which
have maturities in excess of 12 months minus
(2) current liabilities) (the occurrence of
either of the items in (J)a. and b. being
referred to as the "First Milestone Event").
(K) 1,350,000 after seven (7) years, provided that he is employed on that date as Chairman and/or Chief Executive Officer and/or a director of the Corporation. The exercisability of these options shall be accelerated in full upon the occurrence of the earlier of:
a. the Corporation achieving a total market capitalization on a fully diluted basis of more than
$1 billion, as determined utilizing the Market Capitalization Formula; or
b. the Corporation possessing at least $150 million in Working Capital (the occurrence of either of the items in (K)a. and b. being referred to as the "Second Milestone Event").
These options are intended to qualify as "incentive stock options" under section 422 of the Internal Revenue Code of 1986, as amended, to the extent allowable. In the event of a Change of Control or a Reorganization Event, as those terms are defined in the 2002 CEO Incentive Stock Option Plan, or in the event that Weiss is terminated by the Corporation without Cause (as defined below) or terminates his employment for Good Reason (as defined below) or dies or suffers a "Disability" as defined below, the exercisability of any of the options described in this paragraph 3(a)(iii) that are unexercisable at the time of such event or termination shall accelerate (and, in the case of a Change of Control or a Reorganization Event, such acceleration shall occur at a time and in a manner which allows Weiss to participate in such event in respect of the shares subject to such options in the same manner as other shareholders). Additionally, the Board of Directors shall have the discretion to accelerate all or a portion of these options at any time. In addition, at the discretion of the Board of Directors, the Employee shall be entitled to annual and/or special grants of subsequent stock options. Weiss shall be entitled to pay the exercise price of any or all of the options described in this paragraph 3(a)(iii) by each of the methods set forth in the 2002 CEO Incentive Stock Option Plan and shall be allowed to satisfy any withholding obligations incurred on the exercise of such options by electing to have option shares withheld upon such exercise. The Corporation shall use best efforts to cause all of the shares underlying such options to be fully registered and freely tradable, including for resale without any limitations or restrictions, provided, however, that while Weiss is an employee or director of the Company, Weiss agrees to abide by the trading restrictions that may be imposed upon him from time to time pursuant to any laws, statutes, rules or regulations to which the shares underlying the options may be subject from time to time.
(b) Expenses. Keryx shall reimburse Weiss for all normal, usual and necessary expenses incurred by Weiss in furtherance of the business and affairs of Keryx, including travel and entertainment, provided Weiss submits to Keryx appropriate vouchers, receipts or other proof of Weiss's expenditures and otherwise in accordance with such Expense Reimbursement Policy as may from time to time be adopted by the Board of Directors of Keryx.
(c) Annual Leave and Holidays. Weiss shall be entitled during the term of this Agreement to twenty five (25) business days of paid annual leave per year as well as Company holidays as outlined in the Company's employee handbook. Weiss shall not be allowed to accrue more than thirty (30) business days of annual leave except in unusual circumstances and with the permission of the Corporation. Should Weiss' annual leave balance exceed thirty (30) days at the end of any calendar year, the excess number of days shall be paid out in accordance with the Corporation's regular payroll procedures.
(d) Employee Benefits. During the Term of his employment, Weiss shall be entitled to participate in all employee and fringe benefit plans and programs generally offered to other members of the Corporation's senior management, including, without limitation, any pension, profit sharing, incentive, retirement, insurance, health and disability benefits and plans, to the extent that Weiss is eligible under and subject to the provisions of such plans. The Corporation reserves its right to modify or terminate any of its employee and fringe benefit plans and programs at any time. Weiss shall also be entitled to reimbursement for excess life and disability insurance of up to $10,000 in premiums per year.
4. REPRESENTATIONS AND WARRANTIES BY WEISS AND KERYX
(a) Weiss hereby represents and warrants to Keryx as follows:
(i) Neither the execution and delivery of this Agreement nor the performance by Weiss of his duties and other obligations hereunder violate any statute, law, determination or award, or conflict with or constitute a default under (whether immediately, upon the giving of notice or lapse of time or both) any prior employment agreement, contract, or other instrument to which Weiss is a party or by which he is bound.
(ii) Weiss has the full right, power and legal capacity to enter and deliver this Agreement and to perform his duties and other obligations hereunder. This Agreement constitutes the legal, valid and binding obligation of Weiss enforceable against him in accordance with its terms. No approvals or consents of any persons or entities are required for Weiss to execute and deliver this Agreement or perform his duties and other obligations hereunder.
(b) Keryx hereby represents and warrants to Weiss as follows:
(i) Keryx is duly organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite corporate power and authority to own its properties and conduct its business in the manner presently conducted.
(ii) Keryx has the full power and authority to enter into this Agreement and to incur and perform its obligations hereunder.
(iii) The execution, delivery and performance by Keryx of this Agreement does not conflict with or result in a material breach or violation of or constitute a material default under (whether immediately, or upon the giving of notice or lapse of time or both) the certificate of incorporation or by-laws of Keryx, or any agreement or instrument to which Keryx is a party or by which Keryx or any of its properties may be bound or affected.
5. CONFIDENTIAL INFORMATION
Weiss agrees to sign and comply with the Corporation's Proprietary Information and Inventions Agreement, annexed hereto as Attachment A.
6. NON-COMPETITION
(a) Weiss understands and recognizes that his services to Keryx are special and unique and agrees that, during the Term, and for a period of 12 months from the date of termination of his employment, whether voluntary or involuntary, he shall not in any manner, directly or indirectly, on behalf of himself or any person, firm, partnership, joint venture, corporation or other business entity ("Person"), enter into or engage in any business directly competitive with Keryx's business, either as an individual for his own account, or as a partner, joint venturer, treasurer, agent, consultant, advisor, salesperson, employee, officer, director or shareholder of a Person operating or intending to operate within the area that Keryx is, at the date of termination, conducting its business (the "Restricted Businesses"); provided, however, that nothing herein will preclude Weiss from holding one percent (1%) or less of the stock of any publicly traded corporation. For a business to be "directly competitive", it would have to be developing a drug in the same class and for the same indication. For example, a company developing a GAG for Diabetic Nephropathy would be protected by this clause, however, a company developing a GAG for another disease or developing a drug other than a GAG for Diabetic Nephropathy would not be protected. Additionally, all of Weiss' current ventures and businesses are hereby excluded.
(b) In the event that Weiss breaches any provisions of this Section 6 or there is a threatened breach, then, in addition to any other rights which Keryx may have, Keryx shall be entitled, without the posting of a bond or other security, to injunctive relief to enforce the restrictions contained herein. In the event that an actual proceeding is brought in equity to enforce the provisions of this Section 6, Weiss shall not argue as a defense that there is an adequate remedy at law nor shall Keryx be prevented from seeking any other remedies that may be available.
7. NON-SOLICITATION AND NON-INTERFERENCE
During the Term, and for 12 months from the date of termination of his employment, whether voluntary or involuntary, Weiss shall not, directly or indirectly, without the prior written consent of Keryx:
(a) solicit or induce any employee of Keryx or any subsidiary, parent, affiliate or successor ("Affiliate") of Keryx to leave the employ of Keryx or any Affiliate or hire for any purpose any employee of Keryx or any Affiliate or any employee who has left the employment of Keryx or any Affiliate within six months of the termination of said employee's employment with Keryx; or
(b) interfere with or disrupt or attempt to disrupt Keryx's or its Affiliates' business relationship with any of their partners, service providers, clients, customers and/or suppliers.
8. TERMINATION
(a) Either party may terminate Weiss's employment with the Corporation without Cause (in the case of the Corporation) or Good Reason (in the case of Weiss) (as such terms are defined herein) at any time upon ninety (90) days' notice. The Corporation shall have the right, in its sole discretion, to require Weiss to continue working for the Corporation during the notice period. For purposes of this Agreement, Weiss shall have "Good Reason" upon the occurrence of: (A) A failure to elect or reelect Weiss to the office of Chief Executive Officer and Chairman of the Board of Directors of the Company or other change by the Corporation of Weiss' function, duties or responsibilities such that Weiss is no longer the highest ranking officer of the Corporation, or any other materially adverse change in such functions, duties or responsibilities, without Weiss' written consent; (B) a reduction of Weiss's base salary (as set forth in paragraph 3(a)(i)) by more than ten percent (10%), except where the Corporation has made reductions in the base salary of other senior management throughout the Corporation; or (C) the Corporation's breach of any material term of this Agreement; (D) a Change in Control or Reorganization Event or (E) the relocation of Weiss' principal office, without his prior consent, to a facility or location that is more than fifty (50) miles away from Weiss' then present location. "Good Reason" shall not exist unless the Corporation has not cured the basis for Weiss' resignation within fifteen (15) days following Weiss' written notice to the Corporation specifying the basis of his resignation. For purposes of this Agreement, "Cause" shall mean: (F) material breach by Weiss of the confidentiality, non-compete, ownership of inventions and non-solicitation covenants contained in this Employment Agreement; (G) the willful and continual failure or refusal by Weiss to perform his duties under this Employment Agreement (other than by reason of death or Disability (as defined below), or other reasons beyond Weiss' control), provided such failure or refusal continues for a period of 30 days after receipt of written notice thereof from the Board of Directors in reasonable detail of such failure or refusal; (H) any action by Weiss constituting willful misconduct in respect of Weiss' obligation to the Corporation that results in material, economic damage to the Corporation; (I) conviction of a felony . Notwithstanding the foregoing, the following shall not constitute Cause for the termination of the employment of Weiss or the modification or diminution of any of his authority hereunder: any personal or policy disagreement between the Corporation and Weiss, or Weiss and any member of the Board of Directors of the Corporation; or any action taken by Weiss in connection with his duties hereunder if Weiss acted in good faith and in a manner he reasonably believed to be in, and not opposed to, the best interest of the Corporation.
(b) If the Corporation terminates Weiss without Cause or Weiss terminates his employment for Good Reason, the Board of Directors shall take the necessary steps so that (i) any outstanding, but unvested, options granted to Weiss in accordance with paragraph 3(a)(iii), above, shall vest upon the effective date of his termination; and (ii) the period during which Weiss shall be permitted to exercise such options shall be extended to the earlier of (A) two (2) years from the effective date of his termination and (B) December 23, 2012. In addition, in the event of a termination of Weiss' employment pursuant to this subsection, provided that Weiss executes a waiver and release of claims in a form similar to the form attached to this
Agreement promptly upon the expiration of any revocation period contained in such waiver and release (without Weiss having revoked such waiver and release) as Attachment B, Weiss shall be entitled to receive (I) a lump sum severance payment promptly upon the expiration of any revocation period contained in such waiver and release (without Weiss having revoked such waiver and release) equal to one year's annual gross base salary and (II) a lump-sum payment equal to the product obtained by multiplying (A) the Bonus to which Weiss would have been entitled for the calendar year of termination (based on the achievement of Corporate G&Os) if Weiss had remained employed hereunder throughout such calendar year times (B) a fraction whose numerator equals the number of days Weiss was employed hereunder during such calendar year and whose denominator is 365, such payment to be due to Weiss at the time Weiss' Bonus for such calendar year would have been due if Weiss had remained employed hereunder. Such payment shall be less applicable state and federal withholdings. The one-year severance payment shall be in addition to his salary during the notice period.
(c) In the event of a Change of Control Event or a Reorganization Event, as those terms are defined in the 2002 CEO Incentive Stock Option Plan, Weiss shall be entitled to (i) the immediate acceleration of any outstanding, but unvested options granted to him in accordance with paragraph 3(a)(iii), above, and (ii) the extension of the period during which Weiss shall be permitted to exercise such options to the earlier of two (2) years from the effective date of his termination (if applicable) and December 23, 2012. In addition, in the event of a termination of Weiss' employment in anticipation of a Change of Control or a Reorganization Event or within 12 months thereafter, provided that Weiss executes a waiver and release of claims in a form similar to the form attached to this Agreement as Attachment B, Weiss shall be entitled to receive a lump sum severance payment promptly upon the expiration of any revocation period contained in such waiver and release (without Weiss having revoked such waiver and release) equal to the product of (x) one years' annual gross Base Salary plus the Target Bonus for the year in which the termination occurred and (y) 2, less applicable state and federal withholdings. This payment shall be in addition to his salary during the notice period if Weiss is terminated in connection with such Change of Control Event or Reorganization Event.
(d) Should Weiss's employment terminate by his death or disability, he or his estate, if applicable, shall be entitled to continue to receive his base salary for three (3) months (less applicable state and federal withholdings) following his last day of actual employment by the Corporation. (For purposes of this section, "disability" shall be deemed to have occurred if Weiss is unable, due to any physical or mental disease or condition, to perform his normal duties of employment for 120 consecutive days or 180 days in any twelve-month period.) In addition, the Board of Directors shall take the necessary steps so that (i) any outstanding, but unvested, options granted to him in accordance with paragraph 3(a)(iii), above, shall vest upon the effective date of his termination; and (ii) the period during which he shall be permitted to exercise such options shall be extended to the earlier of two (2) years from the effective date of his termination and December 24, 2012. Should Weiss' employment terminate as a result of his death, the benefits granted herein, shall be granted instead to his lawful heir or heirs.
(e) Notwithstanding the foregoing, the Corporation may terminate Weiss immediately and without prior notice for Cause.
(f) In the event that Weiss's employment has been terminated in accordance with Section 8(e), above, Weiss shall not be entitled to receive any of the severance benefits set forth in this Section 8, but he shall be entitled to any unpaid
wages, bonuses, and any benefits under the benefit and compensation plans, policies and arrangements of the Corporation in which in participates, which have accrued through his date of termination.
(g) If the aggregate of all amounts and benefits due Weiss, under this
Agreement or any other plan, program, agreement or arrangement of the
Corporation or any of its Affiliates, which, if received by Weiss in full, would
constitute "parachute payments" as such term is defined in and under Section
280G of the Code (collectively, "Change in Control Benefits"), reduced by all
Federal, state and local taxes applicable thereto, including the excise tax
imposed pursuant to Section 4999 of the Code, is less than the amount Weiss
would receive, after taxes, if Weiss received aggregate Change in Control
Benefits equal to only three times Weiss' "base amount", as defined in and under
Section 280G of the Code, less $1.00, then such Change in Control Benefits as
Weiss shall select shall be reduced or eliminated to the extent necessary so
that the Change in Control Benefits received by Weiss will not constitute
parachute payments (provided that reduction in such cash Change in Control
Benefits can achieve this objective). The determinations with respect to this
Section 8(f) shall be made by an independent auditor (the "Auditor") paid by the
Company. The Auditor shall be the Corporation's regular independent auditor
unless Weiss reasonably objects to the use of that firm, in which event the
Auditor shall be a nationally recognized United States public accounting firm
chosen by Weiss in consultation with the Corporation. For purposes of this
Agreement, the term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any reference to a particular section of the Code shall include any
provision that modifies, replaces or supersedes such section.
It is possible that after the determinations and selections made pursuant to this Section 8(g) Weiss will receive Change in Control Benefits that are, in the aggregate, either more or less than the limitations provided in this Section 8(g) above (hereafter referred to as an "Excess Payment" or "Underpayment", respectively). If it is established, pursuant to a final determination of a court or an Internal Revenue Service proceeding that has been finally and conclusively resolved, that an Excess Payment has been made, Weiss shall refund the Corporation on demand such Excess Payment. In the event that it is determined (x) by arbitration under Section 12 below, (y) by a court of competent jurisdiction, or (z) by the Auditor upon request by Weiss or the Corporation, that an Underpayment has occurred, the Corporation shall pay an amount equal to the Underpayment to Weiss within 10 days of such determination.
(h) In the event of any termination of Weiss' employment hereunder, Weiss
shall have no obligation to seek other employment or otherwise mitigate the
obligations of the Corporation under this Agreement. Any amounts due under this
Section 8 are considered to be reasonable by the Corporation and are not in the
nature of a penalty
9. INDEMNIFICATION
The Corporation shall defend and indemnify Weiss in his capacity as Chief Executive Officer and Chairman of the Board of Directors of the Corporation against any and all claims, judgments, damages, liabilities, costs and expenses (including reasonable attorney's fees) arising out of, based upon or related to Weiss' performance of services hereunder, except to the extent that such claims arise out of
Weiss' (a) willful misconduct, (b) bad faith, (c) gross negligence or (d) reckless disregard of the duties involved in the conduct of Weiss' position.
In addition, the Corporation shall take whatever steps are necessary to establish a policy of indemnifying its officers and directors, including, but not limited to Weiss, for all actions taken in good faith in pursuit of their duties and obligations to the Corporation. Such steps shall include, but shall not necessarily be limited to, the obtaining of an appropriate level of Directors and Officers Liability coverage and including such provisions in the Corporations' by-laws or certificate of incorporation, as applicable and customary. The rights to indemnification shall survive any termination of this Agreement.
10. NOTICES
Any notice or other communication under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or via facsimile against receipt thereof or confirmed in the case of facsimile; two (2) business days after being sent by Federal Express or similar internationally recognized courier service; or seven (7) business days after being mailed registered or certified mail, postage prepaid, return receipt requested, to either party at the address set forth above, or to such other address as such party shall give by notice hereunder to the other party.
11. SEVERABILITY OF PROVISIONS
If any provision of this Agreement shall be declared by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced in whole or in part, the remaining conditions and provisions or portions thereof shall nevertheless remain in full force and effect and enforceable to the extent they are valid, legal and enforceable, and no provision shall be deemed dependent upon any other covenant or provision unless so expressed herein.
12. ENTIRE AGREEMENT; MODIFICATION
Other than in respect of the stock options, this Agreement contains the entire agreement of the parties relating to the subject matter hereof, and the parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement that are not set forth herein. No modification of this Agreement shall be valid unless made in writing and signed by the parties hereto.
13. BINDING EFFECT
The rights, benefits, duties and obligations under this Agreement shall inure to, and be binding upon, Keryx, its successors and assigns, and upon Weiss and his legal representatives. This Agreement constitutes a personal service agreement, and the performance of Weiss's obligations hereunder may not be transferred or assigned by Weiss.
14. NON-WAIVER
The failure of either party to insist upon the strict performance of any of the terms, conditions and provisions of this Agreement shall not be construed as a waiver or relinquishment of future compliance therewith, and said terms, conditions and provisions shall remain in full force and effect. No waiver of any term or condition of this Agreement on the part of either party shall be effective for any purpose whatsoever unless such waiver is in writing and signed by such party.
15. GOVERNING LAW; RESOLUTION OF DISPUTES
This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of New York without regard to principles of conflicts of law.
Any Claim arising out of or relating to this Agreement, any other agreement between Weiss and the Corporation or any of its Affiliates, Weiss' employment with the Corporation, or any termination thereof (a "Covered Claim") shall (except to the extent otherwise provided in Section 6 or 16 with respect to certain requests for injunctive relief) be resolved by binding confidential arbitration, to be held in the Borough of Manhattan in New York City, in accordance with the Commercial Arbitration Rules (and not the National Rules for Resolution of Employment Disputes) of the American Arbitration Association and this Section 15. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Corporation shall promptly pay all costs and expenses (including without limitation attorneys' fees and other charges of counsel) incurred by Weiss or Weiss' beneficiaries in resolving any Covered Claim, subject to receiving a written undertaking from the recipient to reimburse any such amounts paid to the extent that it is finally determined that the Corporation substantially prevailed in respect of such Covered Claim. Pending the resolution of any Covered Claim, Weiss (and Weiss' beneficiaries) shall continue to receive all payments and benefits due under this Agreement or otherwise, unless an arbitrator appointed pursuant to this Section 15 determines otherwise.
16. REMEDIES FOR BREACH
Weiss understands and agrees that any breach of Sections) 5 and/or 7 of this Agreement by him could cause irreparable damage to Keryx and to the Affiliates, and that monetary damages alone would not be adequate and, in the event of such breach, Keryx shall have, in addition to any and all remedies of law, the right to an injunction, specific performance or other equitable relief to prevent or redress the violation of Keryx's rights under such Sections.
17. HEADINGS
The headings of paragraphs are inserted for convenience and shall not affect
any interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
EMPLOYEE:
By: /s/ Michael S. Weiss
--------------------------------
Name: Michael S. Weiss
|
KERYX BIOPHARMACEUTICALS, INC.
By: /s/ Lindsay A. Rosenwald
--------------------------------
Name: Lindsay A. Rosenwald
Title: Director
|
ATTACHMENT A
Proprietary Information and Inventions Agreement
In consideration of my employment or continued employment by Keryx Biopharmaceuticals, Inc. (together with any subsidiary of Keryx Biopharmaceuticals, Inc., the "Corporation"), and the compensation now and hereafter paid to me, I hereby agree as follows:
1. Recognition of Corporation's Rights; Nondisclosure. At all times during the term of my employment and thereafter, I will hold in strictest confidence and will not disclose, use, lecture upon or publish any of the Corporation's Proprietary Information (defined below), except as such disclosure, use or publication may be required in connection with my work for the Corporation, or unless an officer of the Corporation expressly authorizes such in writing.
The term "Proprietary Information" shall mean trade secrets, confidential knowledge, data or any other proprietary information of the Corporation. By way of illustration but not limitation, "Proprietary Information" includes (a) inventions, mask works, trade secrets, ideas, processes, formulas, source and object codes, data, programs, other works of authorship, know-how, improvements, discoveries, developments, designs and techniques (hereinafter collectively referred to as "Inventions"); and (b) information regarding plans for research, development, new products, regulatory matters, marketing and selling, business plans, budgets and unpublished financial statements, licenses, prices and costs, suppliers and customers; and information regarding the skills and compensation of other employees of the Corporation. Notwithstanding the foregoing, the following shall not be deemed Proprietary Information: (c) was in my possession or control prior to the date of disclosure; (d) was in the public domain or enters into the public domain through no improper act on my part; (e) is approved for public release by written authorization by the Corporation; or (f) is required to be disclosed by me by legal, administrative or judicial order.
2. Third Party Information. I understand, in addition, that the Corporation has received, and in the future will receive, from third parties confidential or proprietary information ("Third Party Information") subject to a duty on the Corporation's part to maintain the confidentiality of such information and to use it only for certain limited purposes. During the term of my employment and thereafter, I will hold Third Party Information in the strictest confidence and will not disclose to anyone (except in connection with my work for the Corporation), unless expressly authorized by an officer of the Corporation in writing.
3. Assignment of Inventions
3.1 Assignment
(a) I hereby assign to the Corporation all my right, title and interest in and to any and all Inventions and all patent rights, copyrights, mask work rights,
trademarks, trade secret rights, all other rights throughout the world in connection therewith, and the goodwill associated with all of the foregoing (collectively, "Proprietary Rights"), whether or not patentable or registrable under patent, copyright, trademark or similar statutes, made or conceived or reduced to practice or learned by me, either alone or jointly with others, during the period of my employment with the Corporation and in connection therewith. Inventions assigned to, or as directed by, the Corporation under this Paragraph 3 are hereinafter referred to as "Corporation Inventions". I agree, upon request, to execute, verify and deliver assignments of the Proprietary Rights to the Corporation or its designee and I hereby appoint the Corporation my attorney-in-fact with respect to the Proprietary Rights for the purpose of effecting any or all of the Corporation's rights to the Proprietary Rights.
3.1 Government. I also agree to assign to or as directed by the Corporation all my right, title and interest in and to any and all Inventions, full title to which is required to be assigned to the United States of America by a contract between the Corporation and United States of America or any of its agencies.
3.2 Works for hire. I acknowledge that all original works of
authorship which are made by me (solely or jointly with others) within the scope
of my employment and which are protectable by copyright are "works made for
hire", as that term is defined in the United States Copyright Act (17 U.S.C.
Section 101).
4. Enforcement of Proprietary Rights. From time to time, I will assist the Corporation in every proper way to obtain and enforce United States and foreign Proprietary Rights relating to Corporation Inventions in any and all countries. My obligation to assist the Corporation with respect to Proprietary Rights relating to such Corporation Inventions in any and all countries shall continue beyond the termination of my employment, but the Corporation shall compensate me at a reasonable rate after my termination for the time actually spent by me at the Corporation's request on such assistance.
I hereby waive and quitclaim to the Corporation any and all claims, of any nature whatsoever, which I now or may hereafter have for infringement of any Proprietary Rights assigned hereunder to the Corporation.
5. Obligation to Keep Corporation Informed. During the period of my employment, I will promptly disclose all Inventions to the Corporation fully and in writing and will hold such Inventions in trust for the sole right and benefit of the Corporation. In addition, after termination of my employment, I will promptly disclose all patent applications filed by me within a year after termination of employment.
6. Prior Inventions. Inventions, if any, patented or unpatented, which I
made prior to the commencement of my employment with the Corporation are
excluded from the scope of this Agreement. To preclude any possible uncertainty,
I have set forth in Exhibit A attached hereto a complete list of all Inventions
(i) that I have, alone or jointly with others, conceived, developed or reduced
to practice or
caused to be conceived, developed or reduced to practice prior to the commencement of my employment with the Corporation, (ii) that I consider to be my property or the property of third parties and (iii) that I wish to have excluded from the scope of this Agreement. If disclosure of any such Invention on Exhibit A would cause me to violate any prior confidentiality agreement, I understand that I am not to list such Inventions in Exhibit A but am to inform the Corporation that all such Inventions have not been listed for that reason.
7. No Improper Use of Materials. During my employment by the Corporation, I will not improperly use or disclose any confidential information or trade secrets, if any, of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Corporation any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person.
8. No Conflicting Obligation. I represent that my performance of all the terms of this Agreement and my performance of my duties as an employee of the Corporation do not and will not breach any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Corporation. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict herewith.
9. Return of Corporation Documents. When I leave the employ of the Corporation, I will deliver to the Corporation any and all drawings, notes, memoranda, specifications, devices, formulas, molecules, cells, storage media, including software, documents and computer printouts, together with all copies thereof, and any other material containing or disclosing any Corporation Inventions, Third Party Information or Proprietary Information of the Corporation. I further agree that any property situated on the Corporation's premises and owned by the Corporation, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Corporation personnel at any time with or without notice. Prior to leaving, I will cooperate with the Corporation in completing and signing the Corporation's termination statement for technical and management personnel.
10. Legal and Equitable Remedies. Because my services are personal and unique and because I may have access to and may become acquainted with the Proprietary Information of the Corporation, the Corporation shall have the right to enforce this Agreement and any of its provisions by injunction, specific performance or other equitable relief, without bond, without prejudice to any other rights and remedies that the Corporation may have for a breach of this Agreement, and I waive the claim or defense that the Corporation has an adequate remedy at law. I shall not, in any action or proceeding to enforce any of the provisions of this Agreement, assert the claim or defense that such an adequate remedy at law exists.
11. Notices. Any notices required or permitted hereunder shall be given to me at the address specified below or at such other address as I shall specify in writing.
Such notice shall be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three days after the date of mailing.
12. General Provisions.
12.1 Governing Law. This Agreement is executed under seal and will be governed by and construed according to the laws of the State of New York.
12.2 Entire Agreement. This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior discussions between us. No modification or amendment of this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing, signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement. As used in this Agreement, the period of my employment includes any time during which I may be retained by the Corporation as a consultant.
12.3 Severability. If one or more of the provisions in this Agreement are deemed unenforceable by law, then the remaining provisions will continue in full forced and effect.
12.4 Successors and Assigns. This Agreement will be binding upon my heirs, executors, administrators and other legal representatives and will be for the benefit of the Corporation, its successors, and its assigns. I may not assign any of my rights, or delegate any of my obligations, under this Agreement.
12.5 Survival. The provisions of this Agreement shall survive the termination of my employment and the assignment of this Agreement by the Corporation to any successor in interest or other assignee.
12.6 Employment. I agree and understand that nothing in this Agreement shall confer on me any right with respect to continuation of my employment with the Corporation, or shall it interfere in any way with my right or the Corporation's right to terminate my employment at any time, with or without cause.
12.7 Waiver. No waiver by the Corporation of any breach of this Agreement shall be a waiver of any preceding or succeeding breach. No waiver by the Corporation of any right under this Agreement shall be construed as a wavier of any other right. The Corporation shall not be required to give notice to enforce strict adherence to all terms of this Agreement.
12.8 Counterparts. This Agreement may be executed in counterparts, all of which together shall for all purposes constitute one Agreement, binding on each of the parties hereto notwithstanding that each such party shall not have signed the same counterpart.
12.9 Jurisdiction and Venue; Waiver of Jury Trial. In case of any dispute hereunder, the parties will submit to the exclusive jurisdiction and venue of any court of competent jurisdiction sitting in New York County, and will comply with
all requirements necessary to give such court jurisdiction over the parties and the controversy. EACH PARTY HEREBY WAIVES ANY RIGHT TO A JURY TRIAL AND TO CLAIM OR RECOVER PUNITIVE DAMAGES.
12.10 Disclosure. I shall disclose the existence and terms of this Agreement to any employer or other person that I may work for or be engaged by after the termination of my employment or engagement at the Corporation. I agree that the Corporation may, after notification to me, provide a copy of this Agreement to any business or enterprise (i) which I may directly or indirectly own, manage, operate, finance, join, control or participate in the ownership, management, operation, financing, or control of, or (ii) with which I may be connected with as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise, or in connection with which I may use or permit my name to be used. I will provide the names and addresses of any of such persons or entities as the Corporation may from time to time reasonably request.
This Agreement shall be effective as of the first day of my employment with the Corporation, namely December 23, 2002.
I UNDERSTAND THAT THIS AGREEMENT AFFECTS MY RIGHTS TO INVENTIONS I MAKE DURING MY EMPLOYMENT, AND RESTRICTS MY RIGHTS TO DISCLOSE OR USE THE CORPORATION'S CONFIDENTIAL INFORMATION DURING OR SUBSEQUENT TO MY EMPLOYMENT.
I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.
Signature:
/s/ Michael S. Weiss -------------------------------- Michael S. Weiss |
ACCEPTED AND AGREED TO:
Keryx Biopharmaceuticals, Inc.
By: /s/ Lindsay A. Rosenwald
--------------------------------
Signature
Name: Lindsay A. Rosenwald
Title: Director
|
ATTACHMENT B
Employee Agreement And Release
Except as otherwise set forth in this Employee Agreement and Release (the
"Agreement") between the undersigned and Keryx Biopharmaceuticals, Inc. (the
"Corporation"), I hereby release, acquit and forever discharge the Corporation,
its parents, affiliates and subsidiaries, and their officers, directors, agents,
servants, employees, attorneys, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys fees, damages, indemnities and obligations of
every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising out of or in any
way related to agreements, events, acts or conduct at any time prior to and
including the execution date of this Agreement, including but not limited to:
all such claims and demands directly or indirectly arising out of or in any way
connected with my employment with the Corporation or the termination of that
employment; claims or demands related to stock, stock options, or any other
ownership interests in the Corporation, or expense reimbursements; claims
pursuant to any federal, state or local law, statute, or cause of action
including, but not limited to, Title VII of the Civil Rights Act of 1964, 42
U.S.C. ss. 2000e et seq., the Age Discrimination in Employment Act, 29 U.S.C.
ss. 621 et seq. ("ADEA"), the Americans With Disabilities Act of 1990, 42 U.S.C.
ss. 12101 et seq., the Massachusetts Fair Employment Practices Act, M.G.L.
c.151B, ss. 1 et seq., the New York Human Rights Law, N.Y. Exec. Law, Art. 15,
ss.290 et seq. and the New York City Human Rights Law, N.Y.C. Admin. Code
ss.8-101 et seq., all as amended, and all claims arising out of the Fair Credit
Reporting Act, 15 U.S.C. ss. 1681 et seq., and the Employee Retirement Income
Security Act of 1974 ("ERISA"), 29 U.S.C. ss. 1001 et seq., the Massachusetts
Civil Rights Act, M.G.L. c.12 ss ss. 11H and 11I, the Massachusetts Equal Rights
Act, M.G.L. c.93 ss. 102 and M.G.L. c.214, ss.1C, the Massachusetts Labor and
Industries Act, M.G.L. c. 149, ss. 1 et seq., and the Massachusetts Privacy Act,
M.G.L. c.214, ss.1B, all as amended; tort law; contract law; wrongful discharge;
discrimination; harassment; retaliation; fraud; defamation; emotional distress;
and breach of the implied covenants of good faith and fair dealing.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that; (a) my waiver and release do not apply to any rights or claims that may arise after the execution date of this Agreement; (b) I have been advised hereby that I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period had expired, which shall be the eighth day after this Agreement is executed by me.
In giving this release, which includes claims that may be unknown to me at present, I hereby expressly waive and relinquish all rights and benefits under any law of any jurisdiction with respect to my release of any such presently unknown claims I may have against the Corporation. Notwithstanding the foregoing, this release shall not apply to claims I have or may have in the future for (a) indemnification as provided for in the Employment Agreement which survive the termination of the Employment Agreement or (b) arising from any payments or benefits due me following the termination of my employment or (c) arising from any written document pursuant to which I have been or may in the future be granted stock options or other equity-based compensation.
Dated: _______________________
EXHIBIT 10.2
KERYX BIOPHARMACEUTICALS, INC.
1999 SHARE OPTION PLAN
(As Amended - May 13, 2003)
1. Purposes of the Plan. The purposes of this Share Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants and to promote the success of the Company's business. Options granted under this Plan may or may not contain such terms as will qualify the Options as Incentive Share Options ("ISOs") within the meaning of Section 422(b) of the United State Internal Revenue Code of 1986, as amended (the "Code"). Options granted under this Plan will be designated for tax purposes as determined by the Administrator at the time of the grant in accordance with Applicable Laws.
2. Definitions. As used herein, the following definitions and the definitions set forth in Section 1 above shall apply.
(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the administration of share option plans under U.S. state corporate laws, U.S. federal and state securities laws, U.S. tax laws, the stock exchange or quotation system on which the shares are listed or quoted and the applicable laws of any country or jurisdiction where the shares are registered or options are granted under the Plan.
(c) "Board" means the Board of Directors of the Company or of any Parent or Subsidiary of the Company.
(d) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof.
(e) "Company" means Keryx Biopharmaceuticals, Inc., a corporation under the laws of the State of Delaware.
(f) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(g) "Director" means a member of the Board.
(h) "Employee" means any person, including officers of the Company (within the meaning of the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or
between the Company, any Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.
(i) "Fair Market Value" means, as of any date, the value of a Share determined as follows:
(i) If the Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market, the Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last market trading day prior to the time of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value shall be the mean between the high bid and low asked prices for the Shares on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Shares, the Fair Market Value thereof shall be determined in good faith by the Administrator.
(j) "Option" means a share option granted pursuant to the Plan.
(k) "Option Agreement" means a written or electronic agreement or letter between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. The Option Agreement shall specify whether, and to what extent, the Options which are the subject of the Agreement are intended to be ISOs or Options intended to be taxed under the Code but not intended to qualify as ISO's ("NSOs").
(l) "Optioned Shares" means the Shares subject to an Option.
(m) "Optionee" means the holder of an outstanding Option granted under the Plan.
(n) "Parent" means any company other than the Company, whether now or hereafter existing, in an unbroken chain of companies ending with the Company if, at the time of the granting of the Option, each of the companies other than the Company owns shares possessing 50 percent or more of the total combined voting power of all classes of shares in one of the other companies in such chain.
(o) "Plan" means this Lakaro Biopharmaceuticals, Inc. 1999 Share Option Plan.
(p) "Repurchaser" means (i) the Company, if permitted by Applicable
Laws; (ii) if the Company is not permitted by Applicable Laws, then any
affiliate or subsidiary of the Company designated by the Board of Directors; or
(iii) if the majority of the Board of Directors of the Company so decide, any
other third party or parties designated by the Board of Directors,
provided in no case shall the Company provide financial assistance to any other party to purchase the Shares if doing so is prohibited by Applicable Laws.
(q) "Service Provider" means an Employee, Director or Consultant.
(r) "Share" means a share of the Company's common shares having a par value of $0.001, as adjusted in accordance with Section 11 below.
(s) "Subsidiary" means any company other than the Company, whether now or hereafter existing, in an unbroken chain of companies beginning with the Company if, at the time of the granting of the Option, each of the companies other than the last company in an unbroken chain owns shares possessing 50 percent or more of the total combined voting power of all classes of shares in one of the other companies in such chain.
3. Shares Subject to the Plan. Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be subject to option and sold under the Plan is two million eight hundred twenty thousand (2,820,000) Shares. The Shares may be authorized, but unissued, or acquired by the Repurchaser.
If an Option expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future distribution under the Plan, other than Shares which have been acquired by the Repurchaser pursuant to the terms of the Plan.
4. Administration of the Plan.
(a) Procedure. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options may from time to time be granted hereunder;
(iii) to determine the number of Shares to be covered by each such award granted hereunder;
(iv) to approve forms of the Option Agreement for use under the Plan;
(v) to determine the terms and conditions of any Option granted hereunder, including, without limitation, the vesting schedule, and whether and to what extent an Option shall be ISO's;
(vi) to determine whether and under what circumstances an Option may be settled in cash as set forth under subsection 9(e) instead of Shares;
(vii) to reduce the exercise price of any Option to the then current Fair Market Value, if the Fair Market Value of the Shares covered by such Option has declined since the date the Option was granted;
(viii) to prescribe, amend and rescind rules and regulations relating to the Plan;
(ix) subject to Applicable Laws, to allow Optionees to satisfy withholding tax obligations by electing to have the Company, if permitted under Applicable Laws, withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Optionees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and
(x) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees.
(d) Grants to Committee Members. If the Administrator is a Committee appointed by the Board, the grant of Options under the Plan to members of such Committee, if any, shall be made by the Board and not by such Committee.
5. Eligibility.
(a) Options may be granted to Service Providers.
(b) The Plan shall not confer upon any Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company or a Parent or Subsidiary, nor shall it interfere in any way with his or her right or the Company's right, or the right of the Company's Parent or Subsidiary, subject to any employment agreements, to terminate such relationship at any time, with or without cause.
6. Term of Plan. The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years after the earlier of its adoption by the Board or its approval by the Company's Shareholders, unless sooner terminated under Section 13 of the Plan.
7. Term of Option. Unless stated otherwise in the Option Agreement, the term of each Option shall be no more than ten (10) years from the date of grant thereof.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Administrator in accordance with Applicable Laws and subject to guidelines as shall be suggested by the Board from time to time, if any.
(b) The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) consideration received by the Company under a formal cashless exercise program, if such program is adopted by the Company in connection with the Plan, or (5) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
(c) The proceeds received by the Company from the issuance of Shares subject to the Options will be added to the general funds of the Company and used for its corporate purposes.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be tolled during any unpaid leave of absence other than leave pursuant to law. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by Applicable Laws, the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee or, if requested by the Optionee, in the name of the Optionee and his or her spouse, or in the name of a valid trust established by the Optionee. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Shares, notwithstanding the exercise of the Option. To avoid doubt, until the Shares are issued, such Optionee shall not have the right to vote at any meeting of the shareholders of the Company, nor shall the Optionees be deemed to be a class of shareholders or creditors of the Company. Upon their issuance, unless otherwise determined by the Board, the Shares shall carry equal voting rights as the common stock of the company on all matters where such vote is permitted by
Applicable Law. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 11 of the Plan.
If any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of their issuance shall be delayed for the period necessary to take such action.
Exercise of an Option in any manner shall result in a decrease in the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or disability (as defined below), the Optionee may exercise his or her Option within such period of time (of at least thirty (30) days) as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). Unless otherwise determined by the Administrator and in the absence of a specified time in the Option Agreement, the Option shall remain exercisable for ninety (90) days following the Optionee's termination, except that the Option shall remain exercisable for only thirty (30) days following the Optionee's termination if such termination is with cause (as determined by the Company). Unless otherwise determined by the Administrator, if, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise within the time specified by the Option Agreement, the Plan or the Administrator the portion of his or her Option that had vested, the vested portion of the Option shall terminate, and the Shares covered by such portion shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of a physical or mental impairment, which has lasted or is expected to last for a continuous period of not less than 12 months and which causes the Optionee's total and permanent disability to engage in any substantial gainful activity, or for such other period and/or such other conditions as are specifically provided in the Option Agreement or any other agreement between a Grantee and the Company ("Disability"), the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent the Option is vested on the date of termination, but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to the entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider, the Option may be exercised within such period of time as is specified in the Option Agreement (of at least six (6) months) to the extent that the Option is vested on the date of death (but in no event later
than the expiration of the term of such Option as set forth in the Option
Agreement) by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance. In the absence of a specified
time in the Option Agreement, the Option shall remain exercisable for twelve
(12) months following the Optionee's death, unless otherwise extended by the
Administrator. If, at the time of death, the Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time, if permitted under Applicable Laws, offer to buy out for a payment in cash or Shares, an Option previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Optionee at the time that such offer is made. No such offer shall obligate the Optionee to relinquish his or her Option.
10. Transferability of Options. Unless otherwise specifically provided in an Option Agreement, Options may be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner, only to an Optionee's spouse or descendants, or to a trust (or other entity owned by such a trust) for the primary benefit of the Optionee, his spouse and/or descendants ("Permitted Transferees"), and may be exercised, during the lifetime of the Optionee, only by the Optionee or a Permitted Transferee.
11. Adjustments Upon Changes in Capitalization or Merger.
(a) Changes in Capitalization. Subject to any required action by the shareholders of the Company, the number of Shares covered by each outstanding Option, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the exercise price per Share of each such outstanding Option shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Shares, rights issues or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however that conversion of any convertible securities (including the Series A Convertible Preferred Stock) of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the administrator shall notify each Optionee a soon as practicable
prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until fifteen (15) days prior to such transaction as to all of the Optioned Shares, including Shares as to which the Option would not otherwise be exercisable. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
(c) Reorganization and Change in Control Events
(1) Definitions
(a) A "Reorganization Event" shall mean:
(i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property; or
(ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership of any capital stock of the
Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule
13d-3 promulgated under the Exchange Act) 30% or
more of either (x) the then-outstanding shares of
common stock of the Company (the "Outstanding
Company Common Stock") or (y) the combined voting
power of the then-outstanding securities of the
Company entitled to vote generally in the election
of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes
of this subsection (i), the following acquisitions
shall not constitute a Change in Control Event:
(A) any acquisition directly from the Company
(excluding an acquisition pursuant to the
exercise, conversion or exchange of any security
exercisable for, convertible into or exchangeable
for common stock or voting securities of the
Company, unless the Person exercising, converting
or exchanging such security acquired such security
directly from the Company or an underwriter or
agent of the Company), (B) any acquisition by any
employee benefit
plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (C) any acquisition by any corporation pursuant to a Business Combination (as defined below) which complies with clauses (x) and (y) of subsection (iii) of this definition, or (D) any acquisition by Lindsay A. Rosenwald, Paramount Capital Inc., or any entity controlled by, controlling or under common control with Paramount Capital, Inc. (each such party is referred to herein as an "Exempt Person") of any shares of capital stock of the Company; provided that, after such acquisition, such Exempt Person does not beneficially own more than 49% of either (i) the Outstanding Company Common Stock or (ii) the Outstanding Company Voting Securities; or
(ii) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or
(iii) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (x) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding Company Voting Securities, respectively, immediately prior to such Business Combination and (y) no Person (excluding Exempt Persons, the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination).
(c) "Good Reason" shall mean any significant diminution in the Optionee's title, authority, or responsibilities from and after such Reorganization Event or Change in Control Event, as the case may be, or any reduction in the annual cash compensation payable to the Optionee from and after such Reorganization Event or Change in Control Event, as the case may be, or the relocation of the place of business at which the Optionee is principally located to a location that is greater than 50 miles from the current site.
(d) "Cause" shall mean any (i) willful failure by the Optionee, which failure is not cured within 30 days of written notice to the Optionee from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Optionee which affects the business reputation of the Company.
(2) Effect on Options
(a) Reorganization Event. Upon the occurrence of a Reorganization Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to a Reorganization Event (regardless of
whether such event will result in a Change in Control Event), except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between an Optionee and the Company, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Reorganization Event also constitutes a Change in Control Event, such assumed or substituted options shall become immediately exercisable in full if, on or prior to the date which is eighteen (18) full months after the date of the consummation of the Reorganization Event, the Optionee's employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Optionee or is terminated without Cause by the Company or the acquiring or succeeding corporation. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Grantee and the Company, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Optionees, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such
Reorganization Event, except to the extent exercised by the Optionees before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Reorganization Event and that each Optionee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.
(b) Change in Control Event that is not a Reorganization
Event. Upon the occurrence of a Change in Control Event
that does not also constitute a Reorganization Event,
except to the extent specifically provided to the
contrary in the instrument evidencing any Option or any
other agreement between the Optionee and the Company,
the Board shall provide that all outstanding Options
shall be assumed, or equivalent options shall be
substituted, by the acquiring or succeeding corporation
(or an affiliate thereof); provided that such assumed or
substituted options shall become immediately exercisable
in full if, on or prior to the date which is eighteen
(18) full months after the date of the consummation of
the Change of Control Event, the Optionee's employment
with the Company or the acquiring or succeeding
corporation is terminated for Good Reason by the
Optionee or is terminated without Cause by the Company
or the acquiring or succeeding corporation. For purposes
hereof, an Option shall be considered to be assumed if,
following consummation of the Change of Control Event,
the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior
to the consummation of the Change of Control Event, the
consideration (whether cash, securities or other
property) received as a result of the Change of Control
Event by holders of Common Stock for each share of
Common Stock held immediately prior to the consummation
of the Change of Control Event (and if holders were
offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however,
that if the consideration received as a result of the
Change of Control Event is not solely common stock of
the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the
acquiring or succeeding
corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Change of Control Event.
Notwithstanding the foregoing, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Grantee and the Company, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Grantees, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Change of Control Event and will terminate immediately prior to the consummation of such Change of Control Event, except to the extent exercised by the Grantees before the consummation of such Change of Control Event; provided, however, that in the event of a Change of Control Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Change of Control Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Change of Control Event and that each Grantee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.
12. Date of Grant. Subject to Applicable Laws, the date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Service Provider to whom an Option is so granted within a reasonable time after the date of such grant.
13. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Board shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination.
14. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option, the method of payment and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Option, the Administrator may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required.
15. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
16. Reservation of Shares. The Company, during the term of this Plan, shall at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
17. Shareholder Approval of Plan. The Plan shall be subject to approval by the shareholders of the Company. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws.
18. Continuance of Status. Neither the Plan nor any Option Agreement shall impose any obligation on the Company, or a Parent or Subsidiary thereof, to continue any Optionee as a Service Provider, and nothing in the Plan or in any Option Agreement shall confer upon any Service Provider any right to continue as a Service Provider.
19. Governing Law. This Plan shall be governed by and construed and enforced in accordance with the laws of the state of Delaware applicable to contracts made and to be performed therein, without giving effect to the principles of conflict of laws.
20. Tax Consequences. Any tax consequences arising from the grant or exercise of any Option, from the payment for Shares or from any other event or act (of the Company or the Optionee) hereunder, shall be borne solely by the Optionee. Furthermore, the Optionee shall agree to indemnify the Company and hold it harmless against and from any and all liability for
any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Optionee.
21. Multiple Agreements. The terms of each Option may differ from other Options granted under the Plan at the same time. The Administrator may also grant more than one Option to a given Optionee during the term of the Plan, either in addition to, or in substitution for, one or more Options previously granted to that Optionee.
22. Provision for Foreign Participants. The Board of Directors may, without amending the Plan, modify awards or options granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefit or other matters.
Adopted by the Stockholders on November 15, 1999, and amended by the Board of Directors on December 22, 1999, November 20, 2001 and May 13, 2003
EXHIBIT 10.3
KERYX BIOPHARMACEUTICALS, INC.
2000 STOCK OPTION PLAN
(As Amended - May 13, 2003)
1. PURPOSES OF THE PLAN
The purposes of this Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees, Directors and Consultants, and to promote the success of the Company's business. The Company intends that these purposes will be effected by the granting of incentive stock options ("Incentive Options") as defined in Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), nonqualified stock options ("Nonqualified Options"), restricted stock ("Restricted Stock Awards"), unrestricted stock ("Unrestricted Stock Awards"), performance shares ("Performance Share Awards"), and stock appreciation rights ("Stock Appreciation Rights").
2. DEFINITIONS
(a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 hereof.
(b) "Applicable Laws" means the requirements relating to the administration of share option plans under U.S. state corporate laws, U.S. federal and state securities laws, and the rules promulgated thereunder, U.S. tax laws, the stock exchange or quotation system on which the Shares are listed or quoted and the applicable laws of any country or jurisdiction where the Shares are registered or Awards are granted under the Plan.
(c) "Award" means Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards, and Stock Appreciation Rights.
(d) "Award Agreement" means a written agreement between the Company and a Grantee evidencing the terms and conditions of an individual Award grant.
(e) "Award Share" means the Shares subject to an Award.
(f) "Board" means the Board of Directors of the Company.
(g) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 hereof.
(h) "Company" means Keryx Biopharmaceuticals, Inc., a corporation formed under the laws of the State of Delaware.
(i) "Consultant" means any person who is engaged by the Company or any Parent or Subsidiary to render consulting or advisory services to such entity.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including officers of the Company (within the meaning of the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder), and Directors employed by the Company or any Parent or Subsidiary of the Company. A person employed by the Company or any Parent or Subsidiary shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, any Parent, any Subsidiary, or any successor. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company for purposes of granting Incentive Options.
(l) "Fair Market Value" means, as of any date, the value of a Share determined as follows:
(i) If the Shares are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, Fair Market Value shall be the closing sales price for such Shares (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last full market trading day immediately prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Shares are regularly quoted by a recognized securities dealer but selling prices are not reported, Fair Market Value shall be the mean between the high bid and low asked prices for the Shares on the last full market trading day immediately prior to the day of determination; or
(iii) In the absence of an established market for the Shares, Fair Market Value thereof shall be determined in good faith by the Administrator.
(m) "Grantee" means the holder of an outstanding Award granted under the Plan.
(n) "Non-employee Director" means a Director who is not also an employee or officer of the Company or any Parent or Subsidiary.
(o) "Option" means an Incentive Option or a Nonqualified Option.
(p) "Parent" means any company other than the Company, whether now or hereafter existing, in an unbroken chain of companies ending with the Company if, at the time of the granting of the Award, each of the companies other than the Company owns shares possessing 50 percent or more of the total combined voting power of all classes of shares in one of the other companies in such chain.
(q) "Plan" means this Keryx Biopharmaceuticals, Inc. 2000 Stock Option Plan.
(r) "Repurchaser" means (i) the Company, if permitted by Applicable Laws; (ii) if the Company is not permitted by Applicable Laws, then any affiliate or subsidiary of the Company designated by the Board; or (iii) if the Board so decides, any other third party or parties designated by the Board, provided in no case shall the Company provide financial assistance to any other party to purchase the Awards if doing so is prohibited by Applicable Laws.
(s) "Service Provider" means an Employee, Director or Consultant.
(t) "Share" means a share of the Company's common stock having a par value of $0.001, as adjusted in accordance with Section 16 below.
(u) "Subsidiary" means any company other than the Company, whether now or hereafter existing, in an unbroken chain of companies beginning with the Company if, at the time of the granting of the Option, each of the companies other than the last company in an unbroken chain owns shares possessing 50 percent or more of the total combined voting power of all classes of shares in one of the other companies in such chain.
3. AUTHORIZED SHARES
(a) Options, Restricted Shares, Unrestricted Shares and Performance Share Awards may be granted under the Plan subject to the provisions of Section 16 of the Plan, for up to an aggregate of 2,970,000 Shares.
(b) If an Award expires or becomes unexercisable without having been exercised in full, the unpurchased Award Shares which were subject thereto shall become available for future grant under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan shall not be returned to the Plan and shall not become available for future grant under the Plan.
4. ADMINISTRATION
(a) Procedure. The Plan shall be administered by the Board or a Committee appointed by the Board, which Committee shall be constituted to comply with Applicable Laws.
(b) Powers of the Administrator. Subject to the terms and conditions of the Plan, and in the case of a Committee, the specific duties delegated by the Board to such Committee, and subject to the approval of any relevant authorities, the Administrator shall have the authority, in its discretion:
(i) to determine Fair Market Value;
(ii) to select the Service Providers to whom Awards may from time to time be granted hereunder;
(iii) to determine from time to time the Awards to be granted to eligible persons under the Plan and to prescribe the terms and conditions (which need not be identical) of Awards granted under the Plan to such persons;
(iv) to approve forms of the Award Agreements for use under the Plan;
(v) to determine the terms and conditions of any Award granted hereunder, including, without limitation, the vesting schedule, and whether and to what extent an Option shall be an Incentive Option;
(vi) to determine whether and under what circumstances an Award may be settled in cash as set forth under subsection 14(f) instead of Shares;
(vii) to reduce the exercise price of any Award to the then current Fair Market Value, if the Fair Market Value of the Shares covered by such Award has declined since the date the Award was granted;
(viii) to exercise such powers and to perform such acts as are deemed necessary or expedient to promote the best interests of the Company with respect to the Plan, including but not limited to prescribe, amend and rescind any rules related to the Plan;
(ix) to amend any outstanding Award, subject to Section 17 hereof, and to accelerate the vesting or extend the exercisability of any Award and to waive conditions or restrictions on any Award, to the extent it shall deem appropriate;
(x) subject to Applicable Laws, to allow Grantees to satisfy withholding tax obligations by electing to have the Company, if permitted under Applicable Laws, withhold from the Shares to be issued upon exercise of an Award that number of Shares having a Fair Market Value equal to the amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by Grantees to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; and
(xi) to construe and interpret the terms of the Plan the Award Agreements and Awards.
(c) Effect of Administrator's Decision. All decisions, determinations and interpretations of the Administrator shall be final and binding on all Grantees.
(d) Grants to Committee Members. If the Administrator is a Committee appointed by the Board, the grant of Awards under the Plan to members of such Committee, if any, shall be made by the Board and not by such Committee.
5. ELIGIBILITY
(a) General. Incentive Options may be granted only to officers or other employees of the Company or any Parent or Subsidiary, including to members of the Board who are also officers or employees of the Company or any Parent or Subsidiary. All other Awards may be granted to officers or other employees of the Company, its Parent or Subsidiary and to Consultants and Non-employee Directors. Nonqualified Options shall be granted to Non-employee Directors pursuant to Section 8. In addition to the automatic grants set forth in Section 8, Nonqualified Options may be granted to
Non-employee Directors in the discretion of the Administrator, but such Option Awards shall be made subject to approval by the stockholders of the Company.
(b) Limit on Incentive Option Grants. Notwithstanding any other provision of the Plan, the aggregate fair market value (determined as of the time an Incentive Option is granted) of the Shares with respect to which Incentive Options are exercisable for the first time by any individual during any calendar year (under all plans of the Company, or any Parent or Subsidiary, if any) shall not exceed $100,000.
(c) Continuing Relationship. The Plan and the Award Agreements shall not confer upon any Grantee any right with respect to continuing the Grantee's relationship as a Service Provider with the Company or its Parent or Subsidiary, nor shall it interfere in any way with his or her right or the Company's right, or the right of its Parent or Subsidiary, subject to any employment agreements, to terminate such relationship at any time, with or without cause.
(d) Award Agreements. Subject to the terms and conditions of the Plan, each Award Agreement shall contain provisions as the Committee shall from time to time deem appropriate. Award Agreements need not be identical, but each Award Agreement shall include by appropriate language the substance of the applicable provisions set forth herein, and any such provision may be included in the Award Agreement by reference to the Plan. In the case of a conflict between the terms of any Award Agreement and the Plan, the terms of the Plan shall control in all cases.
6. TERM OF THE PLAN
The Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years after the earlier of its adoption by the Board or its approval by the Company's stockholders, unless sooner terminated under Section 17 of the Plan.
7. OPTION AWARDS
(a) Expiration. Unless otherwise stated in the Award Agreement, each Option shall expire on the tenth anniversary of the date on which the Award was granted, as specified in the Award Agreement.
(b) Exercise; Minimum Shares Exercisable. Each Award shall be exercisable in such installments (which need not be equal) and at such times as may be designated by the Committee. The minimum number of shares with respect to which an Award may be exercised at any time shall be one hundred (100) shares, or such lesser number as is subject to exercise under the Option at the time. To the extent not exercised, installments shall accumulate and be exercisable, in whole or in part, at any time after becoming exercisable, but not later than the date the Award expires.
(c) Purchase Price. The purchase price per Share subject to each Award shall be determined by the Administrator on the effective date of grant, but may not be less than 85% of the Fair Market Value of the Shares on the effective date of grant; provided, however, that the purchase price per Share subject to each Incentive Option shall be not less than the Fair Market Value of the Shares on the effective date of grant.
(d) Transfer. No Award granted hereunder shall be transferable by the Grantee other than by will or by the laws of descent and distribution. Awards may be exercised during the Grantee's lifetime only by the Grantee, or his or her guardian or legal representative. Notwithstanding the foregoing, Nonqualified Options may be transferred without consideration to members of the Grantee's immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners and to charities unless otherwise provided in the applicable Award Agreement.
(e) Award Agreement to Israeli Grantees. At the discretion of the Administrator, the Award Agreement to Israeli Grantees may contain specific provisions relating to the allocation of Options to a Trustee on behalf of the Grantees and additional provisions as may be deemed appropriate pursuant to relevant changes in tax legislation in Israel.
8. OPTIONS GRANTED TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grant. Each Non-Employee Director shall automatically be granted on the day he or she first becomes Director, a Non-qualified Option to acquire 25,000 Shares and each Non-employee Director who is serving as Director of the Company on the next business day after the adjournment of each annual stockholders meeting, after the 2000 annual meeting, shall automatically be granted on such day a Nonqualified Option to acquire 5,000 Shares. The exercise price per share for the Shares covered by an Award Agreement granted under this Section 8 shall be equal to the Fair Market Value of the Shares on the date the Award is granted. An Award granted hereunder shall be subject to the provisions set forth in Section 7 unless provided otherwise in the Award Agreement.
(b) Exercise. An Award granted under this Section 8 shall become
exercisable in accordance with the Award Agreement. Awards granted under this
Section 8 may be exercised only by the written notice to the Company specifying
the number of Shares to be purchased and tender of the full purchase price of
the Shares pursuant to one or more of the methods specified in Section 15(a)
hereof.
(c) Transfer. No Award granted hereunder shall be transferable by the Grantee other than by will or by the laws of descent and distribution. Awards may be exercised during the Grantee's lifetime only by the Grantee, or his or her guardian or legal representative. Notwithstanding the foregoing, Nonqualified Options may be transferred without consideration to members of the Grantee's immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners and to charities unless otherwise provided in the applicable Award Agreement.
9. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an Award entitling the recipient to acquire Shares, at par value or such other purchase price determined by the Administrator subject to such restrictions and conditions as the Administrator may determine at the time of grant ("Restricted Stock"). Conditions may be based, among other things, on continuing employment (or other business relationship) and/or achievement of pre-established performance
goals and objectives.
(b) Rights as Stockholder. Upon execution of a written instrument setting forth the Restricted Stock Award and paying any applicable purchase price, Grantee shall have the rights of a stockholder with the respect to the voting of the Restricted Stock, subject to such conditions and terms contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, certificates evidencing the Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 9(d) below.
(c) Transfer. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the written instrument evidencing the Restricted Stock Award. If a Grantee's employment (or other business relationship) with the Company or its Parent or Subsidiary terminates for any reason, the Company shall have the right to repurchase all shares of Restricted Stock with the respect to which conditions have not lapsed at their purchase price, from the Grantee or the Grantee's legal representative.
(d) Conditions of Vesting. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company's right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the Shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed "vested." Except as may otherwise be provided by the Administrator at any time, a Grantee's rights in any shares of Restricted Stock that have not vested shall automatically terminate upon Grantee's termination of employment (or other business relationship with the Company and its Subsidiary) and such shares shall either be forfeited or subject to the Company's right of repurchase as provided in this Section 9.
(e) Payment. The Award Agreement evidencing the Restricted Stock Award may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock.
10. UNRESTRICTED STOCK AWARDS
(a) Nature of Unrestricted Stock Awards. The Administrator may, in its sole discretion, grant (or sell at a purchase price determined by the Administrator) an Unrestricted Stock Award, pursuant to which the Grantee may receive Shares free of any restrictions under the Plan. Unrestricted Stock Awards may be granted or sold as described in the preceding sentence in respect of past services or other valid consideration, or in lieu of cash compensation due to such Grantee.
(b) Deferral of Receipt of Award. The Administrator may permit the Grantee of any Unrestricted Stock Award to elect in advance to defer receipt of such Award in accordance with such rules and procedures as may be established by the Administrator for that purpose.
(c) Transfer. The right to receive Shares on a deferred basis may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of decent and
distribution.
11. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award is an Award entitling the recipient to receive Shares upon the attainment of performance goals specified in the Award Agreement. The Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals applicable under each such Award, the periods during which performance is measured, the price, if any, to be paid by the Grantee for such Performance Shares upon the achievement of the performance goals, and all other limitations and conditions applicable to the Performance Share Awards.
(b) Restrictions on Transfer. Unless otherwise permitted by the Administrator, Performance Share Awards and all rights with respect to such Awards may not be sold, assigned, transferred, pledged or otherwise encumbered, other than by will or the laws of descent and distribution.
(c) Rights as a Stockholder. A Service Provider receiving a Performance Share Award shall have the rights of a stockholder only as to Shares actually received by the Service Provider under the Plan and only upon satisfaction of all conditions specified in the Award Agreement evidencing the Performance Share Award (or in a performance plan adopted by the Administrator).
(d) Termination. Except as may otherwise be provided by the Administrator, at any time prior to termination of employment (or other business relationship), a Service Provider's rights in all Performance Share Awards shall automatically terminate upon the termination of his or her employment (or business relationship) with the Company and any Parent or Subsidiary for any reason.
12. STOCK APPRECIATION RIGHTS AWARDS
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive an amount in cash in an amount equal to the excess of the Fair Market Value of a Share, on the date of exercise over the exercise price per Stock Appreciation Right set by the Administrator at the time of grant, which price shall not be less than 85% of the Fair Market Value of the Shares on the grant date (or of the option exercise price per share, if the Stock Appreciation Right was granted in tandem with an Option) multiplied by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised.
(b) Grant of Stock Appreciation Rights. A Stock Appreciation Right
may be granted by the Administrator in tandem with, or independently of, any
Award granted pursuant to the Plan (other than Options granted pursuant to
Section 8). In the case of a Stock Appreciation Right granted in tandem with a
Nonqualified Option, such Stock Appreciation Right may be granted either at or
after the time of the grant of such Option. In the case of a Stock Appreciation
Right granted in tandem with an Incentive Option, such Stock Appreciation Right
may be granted only at the time of the grant of the Incentive Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Committee, subject to the following:
(i) Stock Appreciation Rights granted in tandem with an Option shall be exercisable at such time or times and to the extent that the related Option shall be exercisable.
(ii) A Stock Appreciation Right or applicable portion thereof granted in tandem with an Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option. Upon exercise of Stock Appreciation Right, the applicable portion of any related Option shall be surrendered.
(iii) Stock Appreciation Rights granted in tandem with an Option shall be transferable only when and to the extent that the underlying Option would be transferable. Unless otherwise permitted by the Administrator, Stock Appreciation Rights not granted in tandem with an Option shall not be transferable otherwise than by will or the laws of descent or distribution. All Stock Appreciation Rights shall be exercisable during the Grantee's lifetime only by the Grantee, the Grantee's legal representative or a permitted transferee.
13. CONDITIONS UPON ISSUANCE OF SHARES
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award, the method of payment and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an Award, the Administrator may require the person exercising such Award to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment purposes and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is in the best interests of the Company.
14. METHOD OF EXERCISE
(a) Delivery of Notice. Any Award granted under the Plan may be exercised by the Grantee in whole or, subject to Section 7(b) hereof, in part by delivering to the Company on any business day a written notice stating the number of Shares the Grantee then desires to purchase.
(b) Procedure for Exercise; Rights as a Stockholder. Any Award granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and/or set forth in the Award Agreement. Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be tolled during any unpaid leave of absence other than leave pursuant to law. An Award may not be exercised for a fraction of a Share.
A pro rata cash payment will be made to a Grantee in lieu of fractional shares that may be due to such Grantee upon exercise of an Award.
An Award shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Award, and (ii) full payment for the Shares with respect to which the Award is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by Applicable Laws, the Award Agreement and the Plan. Shares issued upon exercise of an Award shall be issued in the name of the Grantee or, if requested by the Grantee, in the name of the Grantee and his or her spouse, or in the name of a valid transferee. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Shares, notwithstanding the exercise of the Award. To avoid doubt, until the Shares are issued, such Grantee shall not have the right to vote at any meeting of the stockholders of the Company, nor shall the Grantees be deemed to be a class of stockholders or creditors of the Company. Upon their issuance, the Shares shall carry equal voting rights as the common stock of the company on all matters where such vote is permitted by Applicable Law. The Company shall issue (or cause to be issued) such Shares promptly after the Award is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 16 of the Plan.
If any law or regulation requires the Company to take any action with respect to the Shares specified in such notice before the issuance thereof, then the date of their issuance shall be delayed for the period necessary to take such action.
Exercise of an Award in any manner shall result in a decrease in the number of Shares thereafter available, for delivery under the Award, by the number of Shares as to which the Award is exercised.
(c) Termination of Relationship as a Service Provider. Unless the Administrator determines that a longer period is applicable or such longer period is otherwise set forth in the Award Agreement, if a Grantee ceases to be a Service Provider, other than upon the Grantee's death or Disability (as defined below), the Grantee may exercise his or her Award within a period of ninety (90) days following the Grantee's termination to the extent that the Award is vested on the date of termination (but in no event later than the expiration of such Award as set forth in the Award Agreement). Notwithstanding the foregoing, should the Grantee's termination be for cause (as determined by the Company), such period shall not exceed thirty (30) days following the Grantee's termination. Unless otherwise determined by the Administrator, if, on the date of termination, the Grantee is not vested as to his or her entire Award, the unvested portion shall not be exercisable and the Shares covered by the unvested portion of the Award shall revert to the Plan. If, after termination, the Grantee does not exercise within the time specified by the Award Agreement, the Plan or the Administrator the portion of his or her Award that had vested, the vested portion of the Award shall terminate, and the Shares covered by such portion shall revert to the Plan.
(d) Disability of Grantee. If a Grantee ceases to be a Service Provider as a result of a physical or mental impairment, which has lasted or is expected to last for a continuous period of not less than 12 months and which causes the Grantee's total and permanent disability to engage in any
substantial gainful activity, or for such other period and/or such other conditions as are specifically provided in the Award Agreement or any other agreement between a Grantee and the Company ("Disability"), the Grantee may exercise his or her Award within such period of time as is specified in the Award Agreement (such period shall be at least six (6) months) to the extent the Award is vested on the date of termination, but in no event later than the expiration date of the term of such Award as set forth in the Award Agreement. In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve (12) months following the Grantee's termination. If, on the date of termination, the Grantee is not vested as to the entire Award, the unvested portion shall not be exercisable and the Shares covered by the unvested portion of the Award shall revert to the Plan. If, after termination, the Award is not exercised within the time specified herein, the Award shall terminate, and the Shares covered by such Award shall revert to the Plan.
(e) Death of Grantee. If a Grantee dies while a Service Provider, the Award may be exercised within such period of time as is specified in the Award Agreement (such period be at least six (6) months) to the extent that the Award is vested on the date of death (but in no event later than the expiration of the term of such Award as set forth in the Award Agreement) by the Grantee's estate or by a person who acquires the right to exercise the Award by bequest or inheritance. In the absence of a specified time in the Award Agreement, the Award shall remain exercisable for twelve (12) months following the Grantee's death, unless otherwise extended by the Administrator. If, at the time of death, the Grantee is not vested as to the entire Award, the unvested portion shall not be exercisable and the Shares covered by the unvested portion of the Award shall revert to the Plan. If the Award is not so exercised within the time specified herein, the Award shall terminate, and the Shares covered by such Award shall revert to the Plan.
(f) Buyout Provisions. The Administrator may at any time, if permitted under Applicable Laws, offer to buy out for a payment in cash or Shares, an Award previously granted, based on such terms and conditions as the Administrator shall establish and communicate to the Grantee at the time that such offer is made. No such offer shall obligate the Grantee to relinquish his or her Award.
15. PAYMENT OF PURCHASE PRICE
(a) Payment. Payment for the Shares purchased pursuant to the exercise of an Award may be made in such form as shall be acceptable to the Administrator in its sole discretion and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) consideration received by the Company under a formal cashless exercise program, or (5) any combination of the foregoing methods of payment. In making its determination as to the type of consideration to accept, the Administrator shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.
(b) Use of Proceeds. The proceeds received by the Company from the issuance of Shares subject to the Awards will be added to the general funds of the Company and used for its corporate purposes.
16. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER
(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by or underlying each outstanding Award and the number of Shares which have been authorized for issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the exercise price per Share of each such outstanding Award shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Shares, rights issues or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities (including the Series A Convertible Preferred Stock) of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Award.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Grantee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its sole discretion may provide for a Grantee to have the right to exercise his or her Awards until fifteen (15) days prior to such transaction as to all of the Shares, including Shares as to which the Award would not otherwise be exercisable. To the extent it has not been previously exercised, an Award will terminate immediately prior to the consummation of such proposed action.
(c) Reorganization and Change in Control Events
(1) Definitions
(a) A "Reorganization Event" shall mean:
(i) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property; or
(ii) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction.
(b) A "Change in Control Event" shall mean:
(i) the acquisition by an individual, entity or
group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership of any
capital stock of the Company if, after such
acquisition, such Person beneficially owns
(within the meaning of Rule 13d-3
promulgated under the Exchange Act) 30% or
more of either (x) the then-outstanding
shares of common stock of the Company (the
"Outstanding Company Common Stock") or (y)
the combined voting power of the
then-outstanding securities of the Company
entitled to vote generally in the election
of directors (the "Outstanding Company
Voting Securities"); provided, however, that
for purposes of this subsection (i), the
following acquisitions shall not constitute
a Change in Control Event: (A) any
acquisition directly from the Company
(excluding an acquisition pursuant to the
exercise, conversion or exchange of any
security exercisable for, convertible into
or exchangeable for common stock or voting
securities of the Company, unless the Person
exercising, converting or exchanging such
security acquired such security directly
from the Company or an underwriter or agent
of the Company), (B) any acquisition by any
employee benefit plan (or related trust)
sponsored or maintained by the Company or
any corporation controlled by the Company,
or (C) any acquisition by any corporation
pursuant to a Business Combination (as
defined below) which complies with clauses
(x) and (y) of subsection (iii) of this
definition, or (D) any acquisition by
Lindsay A. Rosenwald, Paramount Capital,
Inc., or any entity controlled by,
controlled or under common control with
Paramount Capital, Inc. (each such party is
referred to herein as an "Exempt Person") of
any shares of capital stock of the Company;
provided that, after such acquisition, such
Exempt Person does not beneficially own more than ___% of either (i) the Outstanding Company Common Stock or (ii) the Outstanding Company Voting Securities; or
(ii) such time as the Continuing Directors (as defined below) do not constitute a majority of the Board (or, if applicable, the Board of Directors of a successor corporation to the Company), where the term "Continuing Director" means at any date a member of the Board (x) who was a member of the Board on the date of the initial adoption of this Plan by the Board or (y) who was nominated or elected subsequent to such date by at least a majority of the directors who were Continuing Directors at the time of such nomination or election or whose election to the Board was recommended or endorsed by at least a majority of the directors who were Continuing Directors at the time of such nomination or election; provided, however, that there shall be excluded from this clause (y) any individual whose initial assumption of office occurred as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents, by or on behalf of a person other than the Board; or
(iii) the consummation of a merger, consolidation,
reorganization, recapitalization or share
exchange involving the Company or a sale or
other disposition of all or substantially
all of the assets of the Company (a
"Business Combination"), unless, immediately
following such Business Combination, each of
the following two conditions is satisfied:
(x) all or substantially all of the
individuals and entities who were the
beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such
Business Combination beneficially own,
directly or indirectly, more than 50% of the
then-outstanding shares of common stock and
the combined voting power of the
then-outstanding securities entitled to vote
generally in the election of directors,
respectively, of the resulting or acquiring
corporation in such Business Combination
(which shall include, without limitation, a
corporation which as a result of such
transaction owns the Company or
substantially all of the Company's assets
either directly or through one or more
subsidiaries) (such resulting or acquiring
corporation is referred to herein as the
"Acquiring Corporation") in substantially
the same proportions as their ownership of
the Outstanding Company Common Stock and
Outstanding Company Voting Securities,
respectively, immediately prior to such
Business Combination and (y) no
Person (excluding Exempt Persons, the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination).
(c) "Good Reason" shall mean any significant diminution in the Grantee's title, authority, or responsibilities from and after such Reorganization Event or Change in Control Event, as the case may be, or any reduction in the annual cash compensation payable to the Grantee from and after such Reorganization Event or Change in Control Event, as the case may be, or the relocation of the place of business at which the Grantee is principally located to a location that is greater than 50 miles from the current site.
(d) "Cause" shall mean any (i) willful failure by the Grantee, which failure is not cured within 30 days of written notice to the Grantee from the Company, to perform his or her material responsibilities to the Company or (ii) willful misconduct by the Grantee which affects the business reputation of the Company.
(2) Effect on Options
(a) Reorganization Event. Upon the occurrence of a Reorganization Event (regardless of whether such event also constitutes a Change in Control Event), or the execution by the Company of any agreement with respect to a Reorganization Event (regardless of whether such event will result in a Change in Control Event), except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Grantee and the Company, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof); provided that if such Reorganization Event also constitutes a Change in Control Event, such assumed or substituted options shall become immediately exercisable in full if, on or prior to the date which is eighteen (18) full months after the date of the consummation of the Reorganization Event, the Grantee's employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Grantee or is terminated without Cause by the Company or the acquiring or succeeding corporation. For purposes hereof, an Option shall be considered to be assumed if, following consummation of the
Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.
Notwithstanding the foregoing, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Grantee and the Company, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Grantees, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Grantees before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the "Acquisition Price"), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Reorganization Event and that each Grantee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.
(b) Change in Control Event that is not a Reorganization Event. Upon the occurrence of a Change in Control Event that does not also constitute a Reorganization Event, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other
agreement between the Optionee and the Company, the
Board shall provide that all outstanding Options shall
be assumed, or equivalent options shall be substituted,
by the acquiring or succeeding corporation (or an
affiliate thereof); provided that if such assumed or
substituted options shall become immediately exercisable
in full if, on or prior to the date which is eighteen
(18) full months after the date of the consummation of
the Change of Control Event, the Grantee's employment
with the Company or the acquiring or succeeding
corporation is terminated for Good Reason by the Grantee
or is terminated without Cause by the Company or the
acquiring or succeeding corporation. For purposes
hereof, an Option shall be considered to be assumed if,
following consummation of the Change of Control Event,
the Option confers the right to purchase, for each share
of Common Stock subject to the Option immediately prior
to the consummation of the Change of Control Event, the
consideration (whether cash, securities or other
property) received as a result of the Change of Control
Event by holders of Common Stock for each share of
Common Stock held immediately prior to the consummation
of the Change of Control Event (and if holders were
offered a choice of consideration, the type of
consideration chosen by the holders of a majority of the
outstanding shares of Common Stock); provided, however,
that if the consideration received as a result of the
Change of Control Event is not solely common stock of
the acquiring or succeeding corporation (or an affiliate
thereof), the Company may, with the consent of the
acquiring or succeeding corporation, provide for the
consideration to be received upon the exercise of
Options to consist solely of common stock of the
acquiring or succeeding corporation (or an affiliate
thereof) equivalent in fair market value to the per
share consideration received by holders of outstanding
shares of Common Stock as a result of the Change of
Control Event.
Notwithstanding the foregoing, except to the extent specifically provided to the contrary in the instrument evidencing any Option or any other agreement between a Grantee and the Company, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Grantees, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Change of Control Event and will terminate immediately prior to the consummation of such Change of Control Event, except to the extent exercised by the Grantees before the consummation of such Change of Control Event; provided, however, that in the event of a Change of Control Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Change of Control Event (the "Acquisition Price"), then the Board may instead
provide that all outstanding Options shall terminate upon consummation of such Change of Control Event and that each Grantee shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options.
(3) Effect on Restricted Stock Awards
(a) Reorganization Event that is not a Change in Control Event. Upon the occurrence of a Reorganization Event that is not a Change in Control Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award.
(b) Change in Control Event. Upon the occurrence of a Change in Control Event (regardless of whether such event also constitutes a Reorganization Event), except to the extent specifically provided to the contrary in the instrument evidencing any Restricted Stock Award or any other agreement between a Grantee and the Company, the purchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company's successors and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Change in Control Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award, provided that, each such Restricted Stock Award shall immediately become free from all conditions or restrictions if, on or prior to the date which is eighteen (18) full months after the date of the consummation of the Change in Control Event, the Grantee's employment with the Company or the acquiring or succeeding corporation is terminated for Good Reason by the Grantee or is terminated without Cause by the Company or the acquiring or succeeding corporation.
17. AMENDMENT AND TERMINATION OF THE PLAN
(a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan.
(b) Stockholder Approval. The Board shall obtain stockholder approval of any Plan amendment to the extent necessary to comply with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Grantee, unless mutually agreed otherwise between the Grantee and the Administrator, which agreement must be in writing and signed by the Grantee and the Company. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Awards granted under the Plan prior to the date of such termination.
18. INABILITY TO OBTAIN AUTHORITY
The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary for the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
19. RESERVATION OF SHARES
The Company, during the term of this Plan, shall at all times reserve and keep available and authorized for issuance such number of Shares as shall be sufficient to satisfy the requirements of the Plan.
20. STOCKHOLDER APPROVAL OF PLAN
The Plan shall be subject to approval by the stockholders of the Company obtained in the manner and to the degree required under applicable laws and the Company's organizational documents.
21. GOVERNING LAW
This Plan shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, except to the extent that such law is preempted by federal law.
22. TAX CONSEQUENCES
Any tax consequences arising from the grant or exercise of any Award, from the payment for Shares, or from any other event or act (of the Company or the Grantee) hereunder, shall be borne solely by the Grantee. Furthermore, the Grantee shall agree to indemnify the Company and hold it harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Grantee.
23. PROVISIONS FOR FOREIGN PARTICIPANTS
The Board of Directors may, without amending the Plan, modify Awards granted to participants who are foreign nationals or employed outside the United States to recognize differences in laws, rules, regulations or customs of such foreign jurisdictions with respect to tax, securities, currency, employee benefits or other matters.
Adopted by the Shareholders on June 26, 2000 and amended by the Board of Directors on December 20, 2000, November 20, 2001 and May 13, 2003
EXHIBIT 10.4
KERYX BIOPHARMACEUTICALS, INC.
2002 CEO INCENTIVE STOCK OPTION PLAN
SPECIAL NONSTATUTORY STOCK OPTION AGREEMENT
1. Grant of Option.
This Agreement evidences the grant by Keryx Biopharmaceuticals, Inc., a Delaware corporation (the "Company"), on December 23, 2002 (the "Grant Date") to Michael S. Weiss, Chairman and Chief Executive Officer of the Company (the "Executive"), of an option to purchase (the "Option"), in whole or in part, on the terms provided herein, and on the terms provided in the Employment Agreement dated as of December 23, 2002, between the Company and the Executive (the "Employment Agreement"), a total of 2,002,657 shares (the "Shares") of common stock, $0.001 par value per share, of the Company (the "Common Stock") at $1.30 per share (the "Option Price"). Unless earlier terminated, this Option shall expire on December 23, 2012 (the "Final Exercise Date"). It is intended that the Option shall not be an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
2. Vesting Schedule.
(a) Regular Vesting. Subject to the provisions of subsection 2(b), below, the Option shall become exercisable ("vest") as follows:
(i) the Option to purchase all of the Shares shall vest on December 23, 2009 , provided that the Executive is employed on that date as Chairman and/or Chief Executive Officer and/or a director of the Company.
(ii) Notwithstanding subsection 2(a)(i) above, the exercisability of the Option to purchase 652,657 of the Shares shall be accelerated in full upon the occurrence of the earlier of:
a. The Company achieving a total market capitalization on a fully diluted basis of more than five hundred million dollars ($500,000,000) (including shares attributable to all outstanding shares, options, warrants, other purchase rights and convertible securities, and including shares held by affiliates collectively "Fully Diluted Shares"), as determined by the following formula: Fully Diluted Shares multiplied by the average of the Fair Market Value (as defined below) of the common stock for three consecutive trading days plus long-term liabilities minus Working Capital (as defined below) and minus the aggregate exercise price of all options and warrants included in the Fully Diluted Shares; or
b. The Company possessing at least one hundred million dollars ($100,000,000) in "Working Capital" (which shall mean as of any date, the current assets plus investment securities or similar assets which have maturities in excess of 12 months less current liabilities).
(iii) Notwithstanding subsection 2(a)(i) above, the exercisability of the Option to purchase 1,350,000 of the Shares shall be accelerated in full upon the occurrence of the earlier of:
a. The Company achieving a total market capitalization on a fully diluted basis of more than one billion dollars ($1,000,000,000), as determined by the following formula: Fully Diluted Shares multiplied by the average of the Fair Market Value of the common stock for three consecutive trading days plus Long-term Debt minus Working Capital and minus the aggregate exercise price of all options and warrants included in the Fully Diluted Shares; or
b. The Company possessing at least one hundred and fifty million dollars ($150,000,000) in Working Capital.
(b) Accelerated Vesting. Upon the earlier to occur of (i) a Change of
Control or Reorganization Event, each as defined below, or (ii) upon termination
of the Executive's employment for any reason, including, without limitation, as
a result of the Executive's death or Disability (as defined below) other than
(A) for Cause by the Company (as defined in the Employment Agreement) or (B)
without Good Reason by the Executive (as defined in the Employment Agreement),
the vesting schedule with respect to the Option shall be accelerated so that the
Option shall become vested and exercisable as to all of the Shares that would
otherwise have first become exercisable on any vesting date scheduled to occur
on or after such Change of Control or Reorganization Event or termination of the
Executive's employment, as the case may be, (x) as of a specified time prior to
the Reorganization Event or Change of Control in such a manner as to allow the
Executive and/or Permitted Transferees to take part in such Reorganization Event
or Change of Control on the same terms as other holders of Common Stock; or (y)
immediately upon the effective date of the termination of the Executive's
employment, as the case may be. Additionally, the Board of Directors shall have
the discretion to accelerate the vesting of all or a portion of the Option at
any time.
(c) Definitions. For the purposes of this Agreement:
(i) A "Reorganization Event" shall mean:
(A) any merger or consolidation of the Company with or into another entity as a result of which all of the Common Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property; or
(B) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction.
(ii) A "Change in Control Event" shall mean:
(A) the acquisition by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership of any capital stock of the Company if, after such acquisition, such Person beneficially owns (within the meaning of Rule 13d-3 promulgated under the Exchange Act) 30% or more of either (I) the then-outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (II) the combined voting power of the then-outstanding securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (A), the following acquisitions shall not constitute a Change in Control Event: (1) any
acquisition directly from the Company (excluding an
acquisition pursuant to the exercise, conversion or
exchange of any security exercisable for, convertible
into or exchangeable for common stock or voting
securities of the Company, unless the Person exercising,
converting or exchanging such security acquired such
security directly from the Company or an underwriter or
agent of the Company), (2) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company, (3) any acquisition by any corporation
pursuant to a Business Combination (as defined below)
which complies with clauses (I) and (II) of subsection
(C) of this definition, or (4) any acquisition by
Lindsay A. Rosenwald, Paramount Capital, Inc., or any
entity controlled by, controlled or under common control
with Paramount Capital, Inc. (each such party is
referred to herein as an "Exempt Person") of any shares
of capital stock of the Company.
(B) such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board (or, if
applicable, the Board of Directors of a successor
corporation to the Company), where the term "Continuing
Director" means at any date a member of the Board (I)
who was a member of the Board on the date of the initial
adoption of this Plan by the Board or (II) who was
nominated or elected subsequent to such date by at least
a majority of the directors who were Continuing
Directors at the time of such nomination or election or
whose election to the Board was recommended or endorsed
by at least a majority of the directors who were
Continuing Directors at the time of such nomination or
election; provided, however, that there shall be
excluded from this clause (II) any individual whose
initial assumption of office occurred as a result of an
actual or threatened election contest with respect to
the election or removal of directors or other actual or
threatened solicitation of proxies or consents, by or on
behalf of a person other than the Board; or
(C) the consummation of a merger, consolidation, reorganization, recapitalization or share exchange involving the Company or a sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), unless, immediately following such Business Combination, each of the following two conditions is satisfied: (I) all or substantially all of the individuals and entities who were the beneficial owners of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then-outstanding shares of common stock and the combined voting power of the then-outstanding securities entitled to vote generally in the election of directors, respectively, of the resulting or acquiring corporation in such Business Combination (which shall include, without limitation, a corporation which as a result of such transaction owns the Company or substantially all of the Company's assets either directly or through one or more subsidiaries) (such resulting or acquiring corporation is referred to herein as the "Acquiring Corporation") in substantially the same proportions as their ownership of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, respectively, immediately prior to such Business Combination; and (II) no Person (excluding Exempt Persons, the Acquiring Corporation or any employee benefit plan (or related trust) maintained or sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly or indirectly, 30% or more of the then-outstanding shares of common stock of the Acquiring Corporation, or of the combined voting power of the then-outstanding securities of such corporation entitled to vote generally in the election of directors (except to the extent that such ownership existed prior to the Business Combination).
(iii) "Fair Market Value" shall mean, as of any date, the value of a a share of Common Stock of the Company determined as follows:
(A) If the shares of Common Stock are listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market, Fair Market Value shall be the closing sales price for such shares (or the closing bid, if no sales were reported) as quoted on such exchange or system for the last full market trading day immediately prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(B) If the shares of Common Stock are regularly quoted by a recognized securities dealer but selling prices are not reported, Fair Market Value shall be the mean between the high bid and low asked prices for such shares on the last full market trading day immediately prior to the day of determination; or
(C) In the absence of an established market for the shares of Common Stock, Fair Market Value thereof shall be determined in good faith by the Administrator.
(iv) "Disability" shall mean a situation wherein the Executive is unable, due to any physical or mental disease or condition, to perform his normal duties of employment for 120 consecutive days or 180 days in any twelve-month period.
(d) The right of exercise shall be cumulative so that to the extent the Option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all Shares for which it is vested until the earlier of the Final Exercise Date or the termination of this Option under Section 3 hereof.
3. Exercise of Option.
(a) Method of Exercise. Subject to the conditions set forth herein, this Option may be exercised from time to time by delivery of written notice of exercise to the Company from the Executive or a Permitted Transferee. Such notice shall specify the total number of Shares to be purchased and shall be accompanied by payment in full (or an arrangement for payment in full) in accordance with Section 3(b) below. Such exercise shall be effective upon delivery to the Company of such written notice together with the required payment (or arrangement for payment). This option may be exercised for less than the full number of Shares for which it is then exercisable, provided that no such exercise may be for any fractional Share.
(b) Method of Payment. Payment of the purchase price for Shares purchased upon an exercise of this Option may be made: (i) by delivery to the Company of cash, a wire transfer of available funds, or a check payable to the order of the Company and backed by sufficient funds, in each case in an amount equal to the purchase price of such Shares; (ii) by delivery to the Company of shares of the Company then owned by the Executive having an aggregate Fair Market Value as of the date of delivery equal to the purchase price of the Shares being purchased upon the exercise of this Option, provided that the shares being delivered in payment for such Shares have been held by the Executive for at least six (6) months or have such other characteristics such that the use of such shares does not result in an accounting charge to the Company; (iii) if allowed by applicable law, through reasonable cashless exercise procedures that are from time to time established or approved by the Company and that afford the Executive the opportunity to sell immediately some or all of the Shares underlying the exercised portion of this Option in order to generate sufficient cash to pay the option purchase price, provided that the Company shall not unreasonably delay establishing, or approving, such procedures upon reasonable request by the Executive; (iv) in the event that the Company elects to account for this Option in accordance with FAS 123 such that payment in the following fashion does not change the manner of accounting for this Option were the payment of the exercise price in cash, by authorizing the Company to withhold Shares that would otherwise be delivered on such exercise having a Fair Market Value on the date of exercise equal to the amount of the purchase price; (v) if allowed by applicable law, by delivering to the Company a full recourse three-year promissory note which shall (A) bear interest, payable at maturity, at the applicable federal rate (as defined in and under Section 1274(d) of the Code), and (B) be secured by a pledge of the Shares delivered on such exercise, subject to the right of the Executive or his Permitted Transferee to sell such Shares and remit the after-tax proceeds of such sale to the Company in repayment of such note; or (vi) by any combination of (i), (ii), (iii), (iv) or (v).
(c) Delivery of Shares Tendered in Payment of Purchase Price. Payment by delivery of Shares may be effected by delivering one or more stock certificates or by otherwise delivering Shares to the Company's reasonable satisfaction (including, without limitation, through an "attestation" procedure that is reasonably acceptable to the Company), in each case accompanied by such endorsements, stock powers, signature guarantees or other documents or assurances as may reasonably be required by the Company. If a certificate or certificates or other documentation representing Shares in excess of the amount required are delivered, a certificate (or other satisfactory evidence of ownership) representing the excess number of Shares shall promptly be returned by the Company.
(d) Delivery of Option Shares. The Company shall, upon payment in accordance with Section 3(b) above of the aggregate purchase price for the number of Shares purchased, make prompt delivery of such Shares to the Executive or Permitted Transferee and pay all original issue and transfer taxes and all other fees and expenses incident to such delivery. All Shares delivered upon any exercise of this option shall, when issued in accordance with the terms of this Agreement and delivered: (i) be duly authorized, validly issued, fully paid and nonassessable; (ii) be registered, or otherwise qualified, for sale, and for resale, under state and Federal securities laws to the extent that other Shares of the same class are then so registered or qualified; provided, however, that in no event shall the Company be required to prepare and file a Form S-3 reoffer prospectus in respect of such Shares prior to the
earlier of (A) 18 months following the date hereof or (B) immediately prior to the exercise by the Executive or his Permitted Transferee of all or any portion of this Option; and (iii) be listed, or otherwise qualified, for trading on any securities exchange or securities market on which Shares of the same class are then listed or qualified. To the extent that Shares are not promptly delivered to the Executive or Permitted Transferee (as the case may be) when due as a result of any action or inaction by the Company, the Company shall promptly make the Executive or Permitted Transferee whole for any resulting expense or loss of benefit. The Company shall deliver cash in lieu of any fractional Share.
(e) Termination of Relationship as a Service Provider. Unless the Board of Directors or any committee charged with administering this Agreement (the "Administrator") determines that a longer period is applicable or such longer period is otherwise set forth in this paragraph, if the Executive ceases to be an employee, director or consultant of the Company (a "Service Provider"), other than upon the Executive's death or Disability, the Executive, or his Permitted Transferee, may exercise the Option within a one (1) year period following his termination to the extent that the Option is vested on the date of termination (but in no event later than the Final Exercise Date). Notwithstanding the foregoing, (i) should the Executive's termination be by the Company for Cause, such period shall be for a length of thirty (30) days following the Executive's termination; and (ii) should the Executive's employment be terminated on the account of his death, on account of Disability, by the Company without Cause, or by the Executive for Good Reason, the Executive, or his Permitted Transferee, as applicable, may exercise the Option within a period of two (2) years following such termination (but in no event later than the Final Exercise Date). If, on the date of termination, the Executive is not vested as to the entire Option (after taking into account paragraph 2(b) above), the unvested portion shall not be exercisable and the unvested portion of the Option shall be cancelled. If, after termination, the Executive, or his Permitted Transferee, as applicable, does not exercise the portion of the Option that had vested within the time specified by this Agreement or the Administrator, such vested portion of the Option shall terminate.
(f) Buyout Provisions. The Administrator may at any time, if permitted under applicable laws, offer to buy out the Option for a payment in cash or Shares, based on such terms and conditions as the Administrator shall establish and communicate to the Executive at the time that such offer is made. No such offer shall obligate the Executive to relinquish the Option.
4. Taxes and Withholding.
No Shares will be issued pursuant to the exercise of this Option unless and until the Executive or a Permitted Transferee pays to the Company, or makes provision satisfactory to the Company for payment of, any federal, state or local withholding taxes required by law to be withheld in respect of this Option. The Executive or Permitted Transferee may satisfy any such tax obligations in the manner provided in Section 3(b)(i) or (ii), above, for payment of the purchase price, or by electing to have Shares withheld from the exercise of this Option having a Fair Market Value equal to the amount of such tax obligations.
Furthermore, the Executive hereby agrees to indemnify the Company and hold it harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Executive or a Permitted Transferee. Transfer of the Option, or any portion thereof, shall be conditional upon the execution of an agreement whereby the Permitted Transferee assumes the obligations of indemnification set forth in this paragraph.
5. Transferability of the Option.
The Option granted hereunder shall not be transferable by the Executive other than by will or by the laws of descent and distribution. Notwithstanding the foregoing, the Option, or any portion thereof, may be transferred without consideration to members of the Executive's immediate family, to trusts for the benefit of such family members, to partnerships in which such family members are the only partners and to charities (including the Executive's estate, the "Permitted Transferees"). The Option may be exercised during the Executive's lifetime only by the Executive, or his guardian or legal representative, or a Permitted Transferee.
6. Conditions on Delivery of Stock.
(a) Legal Compliance. Shares shall not be issued pursuant to the exercise of the Option unless the exercise of the Option, the method of payment and the issuance and delivery of such Shares shall comply with applicable laws and shall be further subject to the approval of counsel for the Company with respect to such compliance.
(b) Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. The Company shall use its best efforts to remedy such inability to gain authority as soon as reasonably possible.
7. Adjustments.
(a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by or underlying the Option, as well as the exercise price per Share of the Option shall be proportionately adjusted for extraordinary cash dividends and for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, recapitalization, combination or reclassification of the Shares, rights issues or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Administrator, whose determination shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of the Shares subject to the Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify the Executive and each Permitted Transferee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its sole discretion may provide for the Executive and each Permitted Transferee to have the right to exercise this Option until fifteen (15) days prior to such transaction as to all of the Shares, including Shares as to which the Option would not otherwise be exercisable. To the extent it has not been previously exercised, this Option will terminate immediately prior to the consummation of such proposed transaction.
(c) Reorganization and Change in Control Events. Upon the occurrence of a Reorganization Event or a Change in Control, or the execution by the Company of any agreement with respect to a Reorganization Event or a Change in Control, the Board shall provide that the portion of the Option that is outstanding shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, the Option shall be considered to be assumed if, following consummation of the Reorganization Event or Change of Control, the new options confer the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event or Change of Control, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event or Change of Control by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event or Change of Control (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event or Change of Control is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of the Option to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value as determined in good faith by the Board to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event or Change of Control.
8. Continuation of Employment.
Neither this Agreement nor the Option shall confer upon the Executive any right to continued employment by (or any other relationship with) the Company or any subsidiary, affiliate or parent thereof, or limit in any respect the right of the Company to terminate the Executive's employment or other relationship with the Company or any subsidiary, affiliate or parent thereof, as the case may be, at any time.
9. Stockholder Rights.
No person or entity shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to this Option until becoming the record holder of such shares.
10. Construction.
This Agreement shall be interpreted consistent with the terms of the Employment Agreement.
11. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, but without regard to the principle of conflict of laws thereof. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby.
12. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding upon the Executive, the Company, their respective beneficiaries, heirs, executors, administrators, legal representatives and guardians, and their permitted successors and assigns.
13. Notices.
All notices and other communications required or permitted hereunder shall
be in writing and deemed to have been received on the date of delivery if
delivered by hand or overnight express, or three days after the date of posting
if mailed by registered or certified mail, postage prepaid, addressed to the
Company at 750 Lexington Avenue, New York, New York 10022, and to the Executive
at 300 East 77th Street, NY, NY 10021 (or such other address to which the
Company or the Executive hereby notifies the other party hereto to send such
notices and communications). Such notices and other communications shall not be
considered delivered until actually received or deemed received pursuant to this
Section 13.
14. Amendment of Option.
No amendment, alteration, suspension or termination of the Option shall impair the rights of the Executive, unless mutually agreed otherwise between the Executive and the Company, which agreement must be in writing and signed by the Executive and the Company.
15. Reservation of Shares
The Company, during the term of this Agreement, shall at all times reserve and keep available and authorized for issuance such number of Shares as shall be sufficient to satisfy the requirements of
the Option.
IN WITNESS WHEREOF, the Company has caused this option to be executed under its corporate seal by its duly authorized representative. This Option shall take effect as a sealed instrument.
KERYX BIOPHARMACEUTICALS, INC.
By: /s/ Lindsay A. Rosenwald
-----------------------------------
Name: Lindsay A. Rosenwald
Title: Director
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AGREED TO AND ACCEPTED BY:
EXECUTIVE
/s/ Michael S. Weiss ---------------------------- Michael S. Weiss |
Address: 300 East 77th Street
New York, NY 10021
EXHIBIT 99.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Keryx Biopharmaceuticals, Inc. (the "Company") for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Michael S. Weiss, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
a. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Michael S. Weiss
-----------------------------
Dated: May 15, 2003 Michael S. Weiss
Chief Executive Officer
(Principal Executive Officer)
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 99.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Keryx Biopharmaceuticals, Inc. (the "Company") for the period ended March 31, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Ira Weinstein, Interim Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:
a. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
b. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Ira Weinstein
--------------------------------------------
Dated: May 15, 2003 Ira Weinstein
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)
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A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.