UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________to _________
Commission file number 000-14242
CELSION CORPORATION
-------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1256615
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
10220-I Old Columbia Road
Columbia, Maryland 21046-1705
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 290-5390
--------------
CHEUNG LABORATORIES, INC.
-------------------------
(Former name, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of March 31, 1998, the Registrant had outstanding 36,014,782 shares
of Common Stock, $.01 par value.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CELSION CORPORATION
BALANCE SHEETS
March 31, 1998 and September 30, 1997
ASSETS
3/31/1998 9/30/1997
--------- ---------
Current assets:
Cash and cash equivalents $112,883 $267,353
Accounts receivable 33,132 5,891
Inventories 388,009 329,741
Prepaid expenses 1,259 8,207
Other current asset 52,362 26,755
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Total current assets 587,645 637,947
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Property and equipment - at cost:
---------------------------------
Furniture and office equipment 185,367 180,348
Laboratory and shop equipment 47,048 92,228
-------- --------
232,415 272,576
Less accumulated depreciation 205,599 213,885
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Net value of property and equipment 26,816 58,691
Other assets:
-------------
Patent licenses (net of amortization) 132,104 126,571
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Total other assets 132,104 126,571
-------- --------
Total assets $746,565 $823,209
======== ========
2
LIABILITIES AND STOCKHOLDERS' EQUITY
3/31/1998 9/30/1997
--------- ---------
Current liabilities:
- --------------------
Accounts payable - trade $ 797,344 $ 614,173
Notes payable-other 142,542 1,369,800
Notes payable - related parties 32,148 221,943
Accrued interest payable - related parties 44,551 245,784
Accrued interest payable - other 153,243 116,604
Accrued compensation 360,216 331,715
Accrued professional fees 193,097 256,301
Other accrued liabilities 20,538 15,504
Deferred revenues 112,031 112,031
------------ ------------
Total current liabilities 1,855,710 3,283,855
------------ ------------
Long term liabilities:
- ----------------------
Long term debt -- --
Total long-term liabilities -- --
------------ ------------
Total liabilities 1,855,710 3,283,855
------------ ------------
Stockholders' equity:
- ---------------------
Capital stock - $.01 par value; 51,000,000 shares
authorized, 36,014,782 and 29,095,333 issued and
outstanding for 3/31/1998 and 9/30/1997, respectively 360,147 290,953
Additional paid-in capital 15,708,412 12,511,923
Accumulated deficit (17,177,704) (15,263,522)
------------ ------------
Total stockholders'(deficit) equity (1,109,145) (2,460,646)
------------ ------------
Total liabilities and shareholders' equity $ 746,565 $ 823,209
============ ============
See accompanying notes.
3
CELSION CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended March 31, Six Months Ended March 31
1998 1997 1998 1997
Revenue:
Hyperthermia sales and parts $ 110,260 $ 19,253 $ 110,260 $ 113,293
Total revenue 110,260 19,253 110,260 113,293
Cost of sales 45,500 12,248 45,500 44,111
------------ ------------ ------------ ------------
Gross profit 64,760 7,005 64,760 69,182
Operating expenses:
Selling, general and administrative 655,494 577,735 1,341,069 974,011
Research and development 458,780 (133) 601,107 42,101
Total operating expenses 1,114,274 577,602 1,942,176 1,016,112
------------ ------------ ------------ ------------
(Loss) Income from operations (1,049,514) (570,597) (1,877,416) (946,930)
Loss in investment fund -- -- -- (40,000)
Other(expense) income -- 8,287 -- 24,865
Interest income (expense) (7,494) (40,381) (43,004) (78,882)
Miscellaneous income-non -- -- 6,239 --
operating
Total other income & expenses (7,494) -- (36,765) --
(Loss) Income before income taxes (1,057,008) (602,691) (1,914,181) (1,040,948)
Income taxes -- -- -- --
Net (loss) income ($1,057,008) ($602,691) ($1,914,181) ($1,040,948)
============ ============ ============ ============
Net (loss)income per common share ($0.03) ($0.02) ($0.06) ($0.04)
============ ============ ============ ============
Weighted average shares outstanding $ 34,386,021 $ 25,638,317 $ 32,584,716 $ 25,433,061
============ ============ ============ ============
See accompanying notes.
4
CELSION CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended March 31,
1998 1997
Cash flows from operating activities:
Net (loss) income ($1,914,181) ($1,040,948)
Noncash items included in net (loss) income:
Loss in investment fund -- 40,000
Depreciation and amortization 9,947 5,655
Bad debt expense -- 1,133
Net changes in:
Accounts receivable (27,241) (21,528)
Inventories (58,268) (34,795)
Accrued interest receivable -- (16,376)
Other current assets (18,449) --
Prepaid expenses (210) (1,651)
Accounts payable-trade 209,420 457,935
Accrued interest payable - related parties (143,205) (115,057)
Accrued interest payable - other 36,639 48,813
Accrued compensation 28,501 85,384
Accrued professional fees (63,204) 60,000
Other accrued liabilities 5,034 (85,452)
----------- -----------
Net cash (used) provided by operating activities (1,935,218) (616,886)
Cash flows from investing activities:
Purchase of property and equipment 26,394 (3,428)
Investment in patents (10,000) --
----------- -----------
Net cash provided (used) by investing activities 16,394 (3,428)
----------- -----------
Cash flows from financing activities:
Payment on notes (net) (89,522) (3,750)
5
Six Months Ended March 31,
1998 1997
Proceeds of stock issuances 1,853,876 383,889
----------- -----------
Net cash provided by financing activities 1,764,354 380,084
----------- -----------
Net increase(decrease) in cash (154,470) (240,175)
Cash at beginning of period 267,353 246,931
----------- -----------
Cash at end of the period $ 112,882 $ 6,756
=========== ===========
Schedule of noncash investing and financing
transactions: Conversion of accounts payable, debt
and accrued interest payable through issuance of
common stock $ 1,411,808 $ --
=========== ===========
See accompanying notes.
6
CELSION CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited condensed financial statements of Cheung
Laboratories, Inc. (the"Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for Form 10-Q and Article 10 of Regulation S-X. The
September 30, 1997 balance sheet was derived from audited financial statements.
The balance sheet as of March 31, 1998 and the statements of operations for the
three and six-month periods ended March 31, 1998 and 1997, and the statements of
cash flows for the six month periods ended March 31, 1998 and 1997, are
unaudited but include all adjustments (consisting of normal recurring
adjustments) which the Company considers necessary for a fair presentation of
the financial position at such dates and the operating results and cash flows
for those periods. Although the Company believes that the disclosures in these
financial statements are adequate to make the information presented not
misleading, certain information normally included in financial statements and
related footnotes prepared in accordance with generally-accepted accounting
principles has been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These financial statements should be
read in conjunction with the Company's audited financial statements for the year
ended September 30, 1997, which were included as part of the Company's Report on
Form 10-K/A.
Note 2. Common Stock Outstanding and Per Share Information
Net loss per common and common equivalent share was computed by dividing
net loss by the weighted average number of shares of Common Stock. For the six
months ended March 31, 1998 and the comparable prior year period, weighted
average shares increased to 32,584,716 from 25,433,061. The increase is due
primarily to certain conversions of convertible notes and debts, issuance of
common stock for certain private placements, exercise of stock options, and
executive compensation. In accordance with the requirements of Financial
Accounting Standard No. 128, which the Company adopted as of December 31, 1997,
common stock equivalents have been excluded from the calculation of net loss per
share as their inclusion would be anti-dilutive.
Note 3. Inventories
Inventories are carried at the lower of actual cost or market and cost is
determined using the average cost matter. The components of inventories on
3/31/1998 and 9/30/1997 are as follows:
3/31/1998 9/30/1997
--------- ---------
Materials $277,406 $235,748
Work in process 19,993 16,990
Finished products 90,610 77,003
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$388,009 $329,741
======== ========
7
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements in this report that relate to future plans, events or
performance are forward-looking statements. Actual results, events or
performance may differ materially due to a variety of factors, including the
factors described on the Form 10-K/A for the year ended September 30, 1997.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
Overview
Celsion Corporation (the "Company") was incorporated in the State of
Maryland in 1982 under the name A.Y. Cheung Associates, Inc. The Company changed
its name to Cheung Laboratories, Inc. on June 31, 1984 and to Celsion
Corporation on May 1, 1998. It has been engaged in developing and marketing
minimally invasive thermotherapy devices utilized in the treatment of cancer as
well as genitourinary diseases associated with benign growth of the prostate in
older males, the most common being benign prostatic hyperplasia ("BPH").
Thermotherapy (also known as hyperthermia), or heat therapy, is a historically
recognized successful method of treatment. In modern thermotherapy, a controlled
heat dose is targeted to treatment sites using microwave and/or other energy for
therapeutic benefits. Thermotherapy is a clinically established, adjuvant
modality for at least doubling tumor response to radiation therapy or
chemotherapy. However, delivering the necessary heat within the body without
damaging surrounding tissue has been a major impediment to the use of
thermotherapy for deep seated disease. The Company has an exclusive license from
the Massachusetts Institute of Technology ("MIT") for adaptive phase array
("APA") technology which the Company believes will overcome this problem. This
technology, originally developed for the Strategic Defense Initiative (Star
Wars) plans of the Department of Defense, applies adaptive phased arrays of
microwave energy in conjunction with traditional radiation or chemotherapy for
the deep heating of breast, prostate and other deep seated cancers.
The Company will be concentrating its business on the development of
two recently acquired technologies: (i) from MIT, APA targeting of microwave
energy, which the Company believes will have broad cancer and other medical
applications, and (ii) balloon catheter technology for enhanced thermotherapy of
BPH and other genitourinary tract conditions. While the balloon catheter
technology is related to the Company's previous BPH thermotherapy devices, the
Company believes the APA technology has the potential to serve as the core
technology for a broad array of medical devices, and accordingly the Company
will devote most of its resources to the exploitation of the APA technology.
8
Results of Operations
Six Months Ended March 31, 1997 and 1998
The Company is concentrating on the development of the new technologies
it recently acquired to significantly expand the capabilities and market for its
products and has ceased active sales of its current equipment. The Company
received revenue of $110,260 in the six months ended March 31, 1998, compared to
revenue of $113,293 in the same period in the prior fiscal year. With the focus
on the development and marketing of the new thermotherapy systems utilizing the
patented technologies, the Company anticipates that most of its future revenue
will be generated by treatments administered utilizing its thermotherapy systems
and the sales of disposable kits. Revenue from the new technologies is not
expected until the new technologies are developed and approved for sale by
governmental regulatory agencies.
Cost of sales for the six months ended March 31, 1998 was $45,500,
compared to $44,111 in the six months ended March 31, 1997.
Research and development expense increased to $601,107 in the six
months ended March 31, 1998 from $42,101 in the six months ended March 31, 1997
due to increased emphasis on technology enhancements. The year to year increase
reflects the increased availability of funds for research during the current
year period. The Company expects to significantly increase its expenditures for
research and development to fund the development or enhancement of products by
incorporating the APA technology and the MMTC technology.
Selling, general and administrative expenses increased substantially to
$1,341,069 in the six months ended March 31, 1998 from $974,011 in the six
months ended March 31, 1997. The higher expenses were primarily due to the
increase in consulting and legal expenses, and compensation expenses, including
$234,375 in compensation expense recorded for the 250,000 shares of common stock
issued to Spencer Volk. The Company expects selling and marketing expense to
increase substantially as it expands its advertising and promotional activities
and increases its marketing and sales force, in anticipation of the
commercialization of its new thermotherapy systems.
Interest expense decreased to $43,004 in the six months ended March 31,
1998 from $78,882 in the six months ended March 31, 1997. The decrease was due
to the repayment on certain notes.
The net loss for the six months ended March 31, 1998 was $1,914,181.
The loss per share was $0.06. Operating losses will continue while the Company
is developing its new equipment. Losses thereafter will depend upon a number of
factors including the market acceptance of the new technologies.
Liquidity and Capital Resources
Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of $17,177,704 and a shareholders'
deficit of $1,109,145 at March 31, 1998. The Company has funded its operations
9
primarily through the sale of equity securities. At March 31, 1998, the Company
had cash, cash equivalents and short-term investments aggregating approximately
$112,883. Net cash used in the Company's operating activities was $2,019,496 for
the six months ended March 31, 1998. The Company must raise additional cash to
continue its operations.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, including
seeking FDA approval for the domestic sale of the Company's products, expand its
sales and marketing activities. The Company expects that its existing capital
resources will not be adequate to fund the Company's operations through the next
twelve months. The Company is dependent on raising additional capital to fund
its development of technology and to implement its business plan. Such
dependence will continue at least until the Company begins marketing its new
technologies. The Company does not have any firm commitments for additional
capital and there can be no assurance that the Company will be able to raise
sufficient additional capital to continue its operations.
The Company's future capital requirements and the adequacy of available
funds will depend on numerous factors, including: the successful
commercialization of the thermotherapy systems; progress in its product
development efforts; the magnitude and scope of such efforts; progress with
preclinical studies and clinical trials; the cost and timing of manufacturing
scale-up; the development of effective sales and marketing activities; the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights; the emerging of competing technological and market
developments; and the development of strategic alliances for the marketing of
the Company's products. To the extent that funds generated from the Company's
operations are insufficient to meet current or planned operating requirements,
the Company will be required to obtain additional funds through equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources. The Company does not have any committed sources of additional
financing, and there can be no assurance that additional funding, if necessary,
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company may be required to delay, scale-back or eliminate certain
aspects of its operations or attempt to obtain funds through arrangements with
collaborative partners or others that may require the Company to relinquish
rights to certain of its technologies, product candidates, products or potential
markets. If adequate funds are not available, the Company's business, financial
condition and results of operations will be materially and adversely effected.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company presently is not a party to any litigation, and the Company is not
aware of any threat of litigation, except as follows:
The Company has been named as a defendant in a lawsuit filed by
Eastwell Management Services, Ltd. ("Eastwell") in the United States District
Court for the District of Maryland. In the lawsuit, Eastwell is seeking damages
in the amount of $125,000, plus interest. The Company denies that any funds are
10
due to Eastwell and intends to defend the lawsuit. Eastwell has moved the court
for permission to amend its complaint to increase the claimed damages to
$250,000 and to request punitive damages. The Company has requested that the
court deny such motion.
In the normal course of business, the Company may be subject to
warranty and product liability claims on its thermotherapy equipment. The
Company does not have a product liability insurance policy in effect. The
assertion of any product liability claim against the Company, therefore, may
have an adverse affect on its financial condition. As of March 31, 1998, no
liability claims against the Company have been asserted.
Item 2. Changes in Securities
At the April 27, 1998 Annual Meeting, the shareholders increased the
Company's authorized capitalization to 100,000,000 shares of common stock, $.01
par value. See Item 3 below.
During the quarter ended March 31, 1998, the Company issued the
following securities without registration under the Securities Act of 1933:
1. The Company issued 1,356,166 shares to twelve persons upon
conversion of previously outstanding convertible notes totalling $556,028. The
issuance was made to a limited number of accredited investors upon conversion of
previously outstanding convertible securities. The Company believes the issuance
was exempt from registration under the Securities Act pursuant to Sections
3(a)(9), 4(2) or 4(6) of the Securities Act and Regulation D promulgated
thereunder.
2. The Company issued 1,778,000 shares to forty-one accredited
investors for cash consideration totalling $889,000. The issuance was made to a
limited number of accredited investors. The Company believes the issuance was
exempt from registration under the Securities Act pursuant to Section 4(2) or
4(6) of the Securities Act and Regulation D promulgated thereunder.
3. The Company issued 75,000 shares to a shareholder on exercise of a
stock option. The Company received consideration of $26,250. The issuance was
made to a single accredited investor. The Company believes the issuance was
exempt from registration under the Securities Act pursuant to Section 4(2) or
4(6) of the Securities Act and Regulation D promulgated thereunder.
4. The Company issued 44,942 shares to two shareholders. These two
shareholders had received shares from the Company in January, 1997 on conversion
of debt. The Company determined, at the prompting of one of the shareholders,
that it had miscalculated the number of shares issued in 1997, and these shares
were issued as an adjustment to correct such miscalculation. The issuance was
made to a limited number of accredited investors. The Company believes the
issuance was exempt from registration under the Securities Act pursuant to
Section 4(2) or 4(6) of the Securities Act and Regulation D promulgated
thereunder.
11
Item 3. Defaults upon Senior Securities
In its Form 10-Q for the quarter ended December 31, 1997, the Company
reported on a default in its loan from the George T. Horton Trust. During the
quarter ended March 31, 1998 the principal balance of such loan (other than
$100,000 which the holder has agreed to convert to common stock) has been
reduced to $18,000.
Item 4. Submission of Matters to a Vote of Securities Holders
On April 27, 1998 the Company held its Annual Shareholders meeting.
Listed below are the names of the seven directors elected at the
meeting and their respective terms of office.
Name Term Expires
Spencer J. Volk 2001
Augustine Y. Cheung 2001
Warren C. Stearns 1999
Walter B. Herbst 2000
Mel D. Soule 2000
Max E. Link 2001
John Mon 1999
Listed below is the vote count related to the other matters approved at the
meeting:
Proposition For Against Abstain
To approve an amendment to the Company's by- 28,531,934 171,083 142,050
laws adopting a staggered board of directors.
To ratify the appointment of Stegman & Company 32,186,822 5,425 152,768
as auditors to examine the Company's accounts for
the fiscal year ending September 30, 1998;
To amend the Company's Articles of Incorporation 31,672,167 466,873 205,975
to increase the number of authorized shares to
100,000,000 shares.
To amend the Company's Articles of Incorporation 32,016,210 112,147 216,658
to change the Company's name to Celsion
Corporation or variations thereof approved by the Directors.
12
Proposition For Against Abstain
To approve an omnibus stock option plan. 27,626,867 357,943 418,451
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Those exhibits previously filed with the Securities and Exchange
Commission as required by Item 601 of Regulation S-K, are incorporated
herein by reference in accordance with the provisions of Rule 12b-32.
3.1 Certificate of Amendment to Certificate of Incorporation effective May
1, 1998.
3.2 Amendment to By-laws
10.1 Omnibus Stock Option Plan
11. Computation of per share earnings.
27. Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the period reported upon.
13
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.
DATE: May 15, 1998 Celsion Corporation
(Registrant)
/s/ Spencer J. Volk
Spencer J. Volk
President
/s/ John Mon
John Mon
Treasurer, Chief Accounting Officer
14
CHEUNG LABORATORIES, INC.
ARTICLES OF AMENDMENT
CHEUNG LABORATORIES, INC., a Maryland corporation, having its principal
office at 10220 Old Columbia Road, Suite I, Columbia, MD 21046-1705 (hereinafter
referred to as the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended by striking in
their entirety Articles FIRST and FOURTH, and by substituting in lieu thereof
the following:
FIRST: The name of the corporation (which is hereinafter
called the "Corporation") is: CELSION CORPORATION.
FOURTH: The total number of shares of stock of all classes
which the Corporation has authority to issue is 100,000,000 shares of
common stock, with a par value of $.01 per share, amounting in the
aggregate to $1,000,000.00.
SECOND: Prior to such amendment the total number of shares of stock of
all classes which the Corporation had authority to issue was 51,000,000 shares
of common stock, with a par value of $.01 per share, amounting in the aggregate
to $510,000.00.
THIRD: By vote, the Board of Directors of the Corporation duly advised
the foregoing Articles of Amendment and, by action taken by the stockholders of
the Corporation pursuant to a stockholders meeting held April 27, 1998, and
proxy statement dated March 20, 1998, the stockholders of the Corporation duly
approved said Articles of Amendment.
FOURTH: The foregoing amendments are to be effective on May 1, 1998.
We, the undersigned President and Secretary swear under penalties of
perjury that the foregoing is a corporate act.
ATTEST: CHEUNG LABORATORIES, INC.
/s/ JOHN MON By: /s/ SPENCER J. VOLK
------------------------- ----------------------------------
John Mon, Secretary Spencer J. Volk, President
CELSION CORPORATION
Amendment to By-Laws
ARTICLE II, "DIRECTORS" is amended as follows:
Section 2. "NUMBER AND TENURE" is amended to read, in its entirety, as follows:
-------------------
Section 2. NUMBER
------
The number of Directors shall be seven (7), which
number may be altered by a majority of the entire Board of Directors, provided
that it shall never be less than three (3) nor more than nine (9). The number of
Directors may be increased or decreased by the affirmative vote of not less than
two-thirds (2/3) of the entire Board of Directors, but the action may not affect
the tenure of office of any Director.
Section 2.5 is inserted to read as follows:
Section 2.5. Election. The Board of Directors shall be divided into
three classes (designated as Class I, Class II or Class III), each class to be
as nearly equal in number as possible. The term of office of directors of the
initial Class I directors will expire at the first annual meeting of
shareholders after their election, that of the initial Class II directors will
expire at the second annual meeting after their election, and that of the
initial Class III directors will expire at the third annual meeting after their
election. At each annual meeting following such classification and division of
the members of the Board of Directors, a number of directors equal to the number
of directorships in the class whose term expires at the time of such meeting
shall be elected to hold office until the third succeeding annual meeting of
shareholders of the Corporation.
Each Director shall hold office for the class term for which he is
elected and until his successor shall be elected and qualified. Notwithstanding
anything herein to the contrary, any Director may be removed from office at any
time by the vote or written consent of shareholders representing not less than
two-thirds of the issued and outstanding stock entitled to vote.
AS APPROVED BY THE SHAREHOLDERS ON APRIL 27, 1998.
CHEUNG LABORATORIES, INC.
OMNIBUS STOCK OPTION PLAN
ARTICLE I
Purpose
The purpose of the Omnibus Stock Option Plan (the "Plan") is
to enable Cheung Laboratories, Inc. (the "Company") to offer employees and
directors of, and consultants to, the Company and its subsidiaries, options to
acquire equity interests in the Company, thereby attracting, retaining and
rewarding such persons, and strengthening the mutuality of interests between
such persons and the Company's stockholders.
ARTICLE II
Definitions
For purposes of the Plan, the following terms shall have the
following meanings:
2.1 "Award" shall mean an award under the Plan of any Stock
Option.
2.2 "Board" shall mean the Board of Directors of the
Company.
2.3 "Change of Control" shall mean the occurrence of any one
of the following: (i) the Company enters into an agreement of reorganization,
merger or consolidation pursuant to which the Company or a Subsidiary is not the
surviving corporation, (ii) the Company sells substantially all its assets to a
purchaser other than a Subsidiary, or (iii) other than in a transaction that has
been approved by the Board, shares of stock of the Company representing in
excess of 50% of the total combined voting power of all outstanding classes of
stock of the Company or Parent are acquired, in one transaction or a series of
transactions, by a single purchaser or group of related purchasers.
2.4 "Code" shall mean the Internal Revenue Code of 1986,
as amended.
2.5 "Committee" shall mean the Compensation Committee of the
Board consisting of two or more Directors of the Company. If the Board has not
established a Compensation Committee, the Committee shall consist of the Board.
2.6 "Common Stock" shall mean the Common stock, $.01 par
value, of the Company.
2.7 "Consultant" shall mean any individual who is a
consultant to the Company or a Subsidiary.
2.8 "Director" shall mean any individual who is a member of
the Board or the Board of Directors of a Subsidiary.
2.9 "Disability" shall mean a disability that results in the
termination of a Participant's employment with the Company or a Subsidiary, as
determined pursuant to standard Company procedures.
2.10 "Fair Market Value" for purposes of the Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, shall mean, as of any date, the average of the high and low
sales prices of a share of Common Stock as reported on the principal national
securities exchange on which the Common Stock is listed or admitted to trading,
or, if not listed or traded on any such exchange, the Nasdaq Stock Market
("Nasdaq"), or, if such sales prices are not available, the average of the bid
and asked prices per share reported on Nasdaq, or, if such quotations are not
available, the fair market value as determined by the Board, which determination
shall be conclusive.
2.11 "Incentive Stock Option" shall mean any Stock Option
awarded under the Plan intended to be and designated as an "Incentive Stock
Option" within the meaning of Section 422 of the Code.
2.12 "Non-Qualified Stock Option" shall mean any Stock
Option awarded under the Plan that is not an Incentive Stock Option.
2.13 "Participant" shall mean an employee, Director or
Consultant to whom an Award has been made pursuant to the Plan.
2.14 "Stock Option" or "Option" shall mean any option to
purchase shares of Common Stock granted pursuant to Article VI.
2.15 "Subsidiary" shall mean any subsidiary of the Company,
80% or more of the voting stock of which is owned, directly or indirectly, by
the Company.
2
2.16 "Termination for Cause" shall mean a Termination of
Employment that has been designated as a "termination for cause" pursuant to
standard Company procedures.
2.17 "Termination of Employment" shall mean a termination of
employment with, or service as a Director or Consultant of, the Company and all
of its Subsidiaries for reasons other than a military or personal leave of
absence granted by the Company or any Subsidiary.
ARTICLE III
Administration
3.1 The Committee. The Plan shall be administered and
interpreted by the Committee.
3.2 Awards. The Committee shall have full authority to grant
Stock Options, pursuant to the terms of the Plan, to persons eligible under
Article V. In particular, the Committee shall have the authority:
(a) to select the persons to whom Stock Options
may from time to time be granted hereunder;
(b) to determine whether and to what extent
Incentive Stock Options and Non-Qualified Stock Options, or any combination
thereof, are to be granted hereunder to one or more persons eligible to receive
Awards under Article V;
(c) to determine the number of shares of Common
Stock to be covered by each such Award granted hereunder; and
(d) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Award granted hereunder
(including, but not limited to, the option price, the term of the option, and
any provision affecting the exercisability or acceleration of, any Award).
3.3 Guidelines. Subject to Article VII hereof, the Committee
shall have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan as it shall, from time to time, deem
advisable; to interpret the terms and provisions of the Plan and any Award
issued under the Plan (and any agreements relating thereto); and to otherwise
supervise the administration of the Plan.
3
The Committee may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any Award granted in the manner and to the
extent it shall deem necessary to carry the Plan into effect. Notwithstanding
the foregoing, no action of the Committee under this Section 3.3 shall impair
the rights of any Participant without the Participant's consent, unless
otherwise required by law.
3.4 Decisions Final. Any decision, interpretation or other
action made or taken in good faith by the Committee arising out of or in
connection with the Plan shall be final, binding and conclusive on the Company,
all Participants and their respective heirs, executors, administrators,
successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common
Stock which may be issued under the Plan shall be 2,000,000 shares of Common
Stock (subject to any increase or decrease pursuant to Section 4.2), which may
be either authorized and unissued Common Stock or issued Common Stock reacquired
by the Company. If any Option granted under the Plan shall expire, terminate or
be cancelled for any reason without having been exercised in full, the number of
unpurchased shares shall again be available for the purposes of the Plan.
4.2 Changes. In the event of any merger, reorganization,
consolidation, recapitalization, dividend (other than a dividend or its
equivalent which is credited to a Participant or a regular cash dividend), stock
split, or other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares which may be issued under the Plan, in the number and option price of
shares subject to outstanding Options granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any Award shall always be a whole number.
4
ARTICLE V
Eligibility
5.1 Employees. Officers and other employees of the Company
and its Subsidiaries are eligible to be granted Awards under the Plan.
5.2 Directors and Consultants. Directors and Consultants are
eligible to be granted Awards under the Plan, provided that Directors and
Consultants who are not employees of the Company or a Subsidiary may not be
granted Incentive Stock Options.
ARTICLE VI
Stock Options
6.1 Options. Each Stock Option granted under the Plan shall
be either an Incentive Stock Option or a Non-Qualified Stock Option.
6.2 Grants. The Committee shall have the authority to grant
to any person eligible under Article V one or more Incentive Stock Options,
Non-Qualified Stock Options, or both types of Stock Options. To the extent that
any Stock Option does not qualify as an Incentive Stock Option (whether because
of its provisions or the time or manner of its exercise or otherwise), such
Stock Option or the portion thereof which does not qualify as an Incentive Stock
Option shall constitute a separate Non-Qualified Stock Option.
6.3 Incentive Stock Options. Anything in the Plan to the
contrary notwithstanding, no term of the Plan relating to Incentive Stock
Options shall be interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify the Plan
under Section 422 of the Code, or, without the consent of the Participants
affected, to disqualify any Incentive Stock Option under such Section 422.
6.4 Terms of Options. Options granted under the Plan shall
be subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the Plan, as
the Committee shall deem desirable:
5
(a) Stock Option Contract. Each Stock Option
shall be evidenced by, and subject to the terms of, a Stock Option Contract
executed by the Company and the Participant. The Stock Option Contract shall
specify whether the Option is an Incentive Stock Option or a Non-Qualified Stock
Option, the number of shares of Common Stock subject to the Stock Option, the
option price, the option term, and the other terms and conditions applicable to
the Stock Option.
(b) Option Price. Subject to section (l) below,
the option price per share of Common Stock purchasable upon exercise of a Stock
Option shall be determined by the Committee at the time of grant but shall be
not less than 100% of the Fair Market Value of the Common Stock on the date of
grant if the Stock Option is intended to be an Incentive Stock Option.
(c) Option Term. Subject to section (l) below,
the term of each Stock Option shall be fixed by the Committee, but no Stock
Option shall be exercisable more than ten years after the date it is granted.
(d) Exercisability. Stock Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at the time of grant; provided, however,
that the Committee may waive any installment exercise or waiting period
provisions, in whole or in part, at any time after the date of grant, based on
such factors as the Committee shall deem appropriate in its sole discretion.
(e) Method of Exercise. Subject to such
installment exercise and waiting period provisions as may be imposed by the
Committee, Stock Options may be exercised in whole or in part at any time during
the option term by giving written notice of exercise to the Company specifying
the number of shares of Common Stock to be purchased and the option price
therefor. The notice of exercise shall be accompanied by payment in full of the
option price in such form as the Committee may accept and, if requested, by the
representation described in Section 9.2. The option price may be paid in cash or
check acceptable to the Company or by any other consideration as the Committee
deems acceptable. Unless otherwise determined by the Committee in its sole
discretion at or after grant, if there is an established trading market in the
Common Stock, payment in full or in part may be made in the form of Common Stock
duly owned by the Participant (and for which the Participant has good title free
and clear of any liens and encumbrances), based on the Fair Market Value of the
Common Stock on the last trading date preceding payment. Upon payment in full of
the option price, as provided herein, a stock certificate or stock certificates
representing the number of shares of Common Stock to which the Participant is
entitled shall be issued and delivered to the Participant. A Participant shall
6
not be deemed to be the holder of Common Stock, or to have the rights of a
holder of Common Stock, with respect to shares subject to the Option, unless and
until a stock certificate or stock certificates representing such shares of
Common Stock are issued to such Participant.
(f) Death. If a Participant's employment by the
Company or a Subsidiary terminates by reason of death, unless otherwise
determined by the Committee at the time of grant, any Stock Option held by such
Participant which was exercisable at the date of death may be exercised by the
legal representative of the Participant's estate at any time or times during the
period beginning on the date of death and ending one year after the date of
death or until the expiration of the stated term of such Stock Option, whichever
period is shorter, and any Stock Option not exercisable at the date of death
shall be forfeited.
(g) Disability. If a Participant's employment by
the Company or a Subsidiary terminates by reason of Disability, unless otherwise
determined by the Committee at the time of grant, any Stock Option held by such
Participant which was exercisable on the date of such Termination of Employment
may thereafter be exercised by the Participant at any time or times during the
period beginning on the date of such termination and ending one year after the
date of such termination or until the expiration of the stated term of such
Stock Option, whichever period is shorter, and any Stock Option not exercisable
on the date of such Termination of Employment shall be forfeited. If an
Incentive Stock Option is exercised after the expiration of the exercise period
that applies for purposes of Section 422 of the Code, such Stock Option will
thereafter be treated as a Non-Qualified Stock Option.
(h) Termination of Employment. In the event of
a Termination of Employment by reason of retirement or for any reason other than
death, Disability or Termination for Cause, unless otherwise determined by the
Committee at the time of grant, any Stock Option held by such Participant which
was exercisable on the date of such Termination of Employment may be exercised
by the Participant at any time or times during the period beginning on the date
of such Termination of Employment and ending one month after such date or until
the expiration of the stated term of such Stock Option, whichever period is
shorter, and any Stock Option not exercisable on the date of such Termination of
Employment shall be forfeited.
(i) Termination for Cause. In the event of a
Termination for Cause, any Stock Option held by the Participant which was not
exercised prior to the date of such Termination for Cause shall be forfeited.
7
(j) Change of Control. The Committee shall have
the discretion to determine, with respect to each Award, whether the Option will
contain a provision accelerating the vesting of the Option upon a Change of
Control.
(k) Incentive Stock Option Limitations. To the
extent that the aggregate Fair Market Value (determined as of the date of grant)
of the Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by the Participant during any calendar year under
the Plan and/or any other stock option plan of the Company or any subsidiary or
parent corporation (within the meaning of Section 424 of the Code) exceeds
$100,000, such Options shall be treated as Options which are not Incentive Stock
Options.
Should the foregoing provisions not be necessary in
order for the Stock Options to qualify as Incentive Stock Options, or should any
additional provisions be required, the Committee may amend the Plan accordingly,
without the necessity of obtaining the approval of the stockholders of the
Company.
(l) Ten-Percent Stockholder Rule. Notwithstanding
any other provision of the Plan to the contrary, no Incentive Stock Option shall
be granted to any person who, immediately prior to the grant, owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, unless the option price is at least 110% of the
Fair Market Value of the Common Stock on the date of grant and the Option, by
its terms, expires no later than five years after the date of grant.
ARTICLE VII
Termination or Amendment
7.1 Termination or Amendment of the Plan. The Committee may
at any time amend, discontinue or terminate the Plan or any part thereof
(including any amendment deemed necessary to ensure that the Company may comply
with any regulatory requirement referred to in Article IX); provided, however,
that, unless otherwise required by law, the rights of a Participant with respect
to Awards granted prior to such amendment, discontinuance or termination, may
not be impaired without the consent of such Participant and, provided further,
without the approval of the Company's stockholders, no amendment may be made
that would (i) materially increase the aggregate number of shares of Common
8
Stock that may be issued under the Plan (except by operation of Section 4.2);
(ii) materially modify the requirements as to eligibility to participate in the
Plan; or (iii) materially increase the benefits accruing to Participants.
7.2 Amendment of Awards. The Committee may amend the terms
of any Award theretofore granted, prospectively or retroactively, but, subject
to Article IV, no such amendment or other action by the Committee shall impair
the rights of any holder without the holder's consent. The Committee may also
substitute new Stock Options for previously granted Stock Options having higher
option prices.
ARTICLE VIII
Unfunded Plan
8.1 Unfunded Status of Plan. The Plan is intended to
constitute an "unfunded" plan for incentive compensation. With respect to any
payment not yet made to a Participant by the Company, nothing contained herein
shall give any such Participant any rights that are greater than those of a
general creditor of the Company.
ARTICLE IX
General Provisions
9.1 Nonassignment. Except as otherwise provided in the Plan,
Awards made hereunder and the rights and privileges conferred thereby shall not
be sold, transferred, assigned, pledged or hypothecated in any way (whether by
operation of law or otherwise), and shall not be subject to execution,
attachment or similar process. Upon any attempt to transfer, assign, pledge,
hypothecate or otherwise dispose of such Award, right or privilege contrary to
the provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.
9.2 Legend. The Committee may require each person acquiring
shares pursuant to an Award under the Plan to represent to the Company in
writing that the Participant is acquiring the shares without a view to
9
distribution thereof. The stock certificates representing such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates representing shares of Common Stock
delivered under the Plan shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange or stock market upon which the Common Stock is then listed or
traded, any applicable Federal or state securities law, and any applicable
corporate law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.
9.3 Other Plans. Nothing contained in the Plan shall prevent
the Board from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements may
be either generally applicable or applicable only in specific cases.
9.4 No Right to Employment. Neither the Plan nor the grant
of any Award hereunder shall give any Participant or other employee any right
with respect to continuance of employment by the Company or any Subsidiary, nor
shall there be a limitation in any way on the right of the Company or any
Subsidiary by which a Participant is employed to terminate such Participant's
employment at any time. Neither the Plan nor the grant of any Award hereunder
shall give any Director or Consultant any right with respect to continued
service as a director or consultant, nor shall the Plan impose any limitation on
the right of the Company to terminate a Consultant's services at any time or
constitute evidence of any agreement or understanding by the Company's
stockholders that the Company will nominate any director for reelection.
9.5 Withholding of Taxes. The Company shall have the right
to reduce the number of shares of Common Stock otherwise deliverable pursuant to
the Plan by an amount that would have a Fair Market Value equal to the amount of
all Federal, state and local taxes required to be withheld, or to deduct the
amount of such taxes from any cash payment otherwise to be made to the
Participant. In connection with such withholding, the Committee may make such
arrangements as are consistent with the Plan as it may deem appropriate.
9.6 Listing and Other Conditions.
(a) If the Common Stock is listed on a national
securities exchange, the issuance of any shares of Common Stock pursuant to an
Award shall be conditioned upon such shares being listed on such exchange. The
10
Company shall have no obligation to issue such shares unless and until such
shares are so listed, and the right to exercise any Option shall be suspended
until such listing has been effected.
(b) If at any time counsel to the Company shall
be of the opinion that any sale or delivery of shares of Common Stock pursuant
to an Award is or may in the circumstances be unlawful or result in the
imposition of excise taxes under the statutes, rules or regulations of any
applicable jurisdiction, the Company shall have no obligation to make such sale
or delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as amended, or
otherwise with respect to shares of Common Stock or Awards, and the right to
exercise any Option shall be suspended until, in the opinion of such counsel,
such sale or delivery shall be lawful or shall not result in the imposition of
excise taxes.
(c) Upon termination of any period of suspension
under this Section 9.6, any Award affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares available
before such suspension and as to shares which would otherwise have become
available during the period of such suspension, but no such suspension shall
extend the term of any Option.
9.7 Governing Law. The Plan and actions taken in connection
herewith shall be governed and construed in accordance with the laws of the
State of Utah.
9.8 Construction. Wherever any words are used in the Plan in
the masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever any
words are used herein in the singular form they shall be construed as though
they were also used in the plural form in all cases where they would so apply.
9.9 Liability of the Board and the Committee. No member of
the Board or the Committee nor any employee of the Company or any of its
subsidiaries shall be liable for any act or action hereunder, whether of
omission or commission, by any other member or employee or by any agent to whom
duties in connection with the administration of the Plan have been delegated or,
except in circumstances involving bad faith, gross negligence or fraud, for
anything done or omitted to be done by himself.
9.10 Other Benefits. No payment pursuant to an Award under
the Plan shall be deemed compensation for purposes of computing benefits under
any retirement plan of the Company or any Subsidiary nor affect any benefits
under any other benefit plan now or hereafter in effect under which the
availability or amount of benefits is related to the level of compensation.
11
9.11 Costs. The Company shall bear all expenses incurred in
administering the Plan, including expenses of issuing Common Stock upon the
exercise of Options granted.
9.12 Severability. If any part of the Plan shall be
determined to be invalid or void in any respect, such determination shall not
affect, impair, invalidate or nullify the remaining provisions of the Plan which
shall continue in full force and effect.
9.13 Successors. The Plan shall be binding upon and inure to
the benefit of any successor or successors of the Company.
9.14 Headings. Article and section headings contained in the
Plan are included for convenience only and are not to be used in construing or
interpreting the Plan.
ARTICLE X
Effective Date of Plan and Amendments
10.1 The Plan as amended hereby shall be effective as of the
earlier of (i) the date of first issuance of any Award under the Plan and (ii)
the date of its approval by the Company's stockholders ("Stockholder Approval");
provided, that any issuance of an Award prior to Stockholder Approval will be
subject to Stockholder Approval being obtained within one year of the date of
the Plan as amended hereby was approved by the Company's board of directors.
ARTICLE XI
Term of Plan
11.1 No Stock Option shall be granted pursuant to the Plan
on or after the tenth anniversary of its original approval by the Company's
stockholders, but Awards granted prior to such tenth anniversary may extend
beyond that date.
As adopted by the Board of Directors on January 19, 1998 and
approved by the stockholders on April 27, 1998.
12
A True Copy.
/s/ JOHN MON
------------------
Secretary
13
EXHIBIT 11
CELSION CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March 31, Six Months Ended March 31
1998 1997 1998 1997
Net (loss) income (1,057,008) (602,691) (1,914,181) (1,040,948)
Weighted average shares 34,386,021 25,638,317 32,584,716 25,433,061
outstanding
Net (loss)income per common share (0.03) ($0.024) (0.06) ($0.04)
* Common stock equivalents have been excluded from the calculation of net loss
per share as their inclusion would be anti-dilutive.
15
5
6-MOS
SEP-30-1998
OCT-01-1997
MAR-31-1998
112883
0
33132
0
388009
587645
232415
205599
746565
1855710
0
0
0
(1109145)
0
746565
110260
110260
45500
45500
1942176
0
43004
(1914181)
0
(1914181)
0
0
0
(1914181)
(0.06)
0
