SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[_] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
PHOTOGEN TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PHOTOGEN TECHNOLOGIES, INC.
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
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NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON WEDNESDAY, JUNE 17, 1998
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TO THE STOCKHOLDERS OF PHOTOGEN TECHNOLOGIES, INC.:
Notice is hereby given that the annual meeting of stockholders of Photogen
Technologies, Inc., a Nevada corporation (the "Company"), will be held at the
Drake Hotel, 140 East Walton Place, Chicago, Illinois on Wednesday, June 17,
1998, at 10:00 a.m., Chicago time, for the following purposes:
1. To amend paragraph (b) of Article Fifth of the Restated Articles of
Incorporation to increase the authorized number of directors to six,
to delete the names of the initial directors and to further restate
the Restated Articles of Incorporation to reflect the foregoing
amendments.
2. To elect six directors to the Board of Directors, including one
director to fill the vacancy created by the increase in the number of
authorized directors.
3. To ratify and approve the Photogen Technologies, Inc. 1998 Long Term
Incentive Plan.
4. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Please notify the Company by June 10, 1998 if you plan to attend the annual
meeting in person. Space is limited.
Only stockholders of record as of the close of business on May 11, 1998
will be entitled to notice of the annual meeting and to vote at the annual
meeting and any adjournment thereof. A list of stockholders of the Company
entitled to vote at the meeting will be available for inspection by stockholders
at the Company's office, for ten days prior to the annual meeting during normal
business hours.
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED
PROXY CARD IN THE ENVELOPE PROVIDED, WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. IF A STOCKHOLDER DECIDES
TO ATTEND THE MEETING, HE OR SHE MAY, IF SO DESIRED, REVOKE THE
PROXY AND VOTE THE SHARES IN PERSON. ATTENDANCE AT THIS
MEETING DOES NOT ITSELF SERVE TO REVOKE YOUR PROXY.
By Order of the Board of Directors,
Eric A. Wachter, Ph.D.
Secretary
Knoxville, Tennessee
April 29, 1998
PHOTOGEN TECHNOLOGIES, INC.
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
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PROXY STATEMENT
FOR
1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JUNE 17, 1998
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This Proxy Statement is furnished to the holders of Common Stock, par
value $.001 per share, of Photogen Technologies, Inc. (the "Company") in
connection with the solicitation of Proxies on behalf of the Board of
Directors of the Company for the Annual Meeting of Stockholders to be held at
10:00 a.m. Chicago time on Wednesday, June 17, 1998 (the "Annual Meeting").
The Annual Meeting will be held at the Drake Hotel, 140 East Walton Place,
Chicago, Illinois. Only stockholders of record at the close of business on
May 11, 1998 are entitled to notice of and to vote at the Annual Meeting.
The Company's stockholders will be solicited by mail on or about May 29, 1998.
Returning your completed Proxy will not prevent you from voting in
person at the Annual Meeting should you be present and wish to do so. Any
such Proxy may be revoked by a stockholder at any time before it is exercised
by either giving written notice of such revocation to the Secretary of the
Company or submitting a later-dated Proxy to the Company prior to the Annual
Meeting. A stockholder attending the Annual Meeting may revoke his proxy and
vote in person if he desires to do so, but attendance at the Annual Meeting
will not of itself revoke the Proxy.
The Company expects to reimburse brokerage houses, custodians, nominees
and fiduciaries for reasonable out-of-pocket expenses incurred by them in
connection with the mailing of the Proxy. The entire expense of the
solicitation, including the cost of preparing, assembling and mailing the
proxy materials, will be borne by the Company.
Shares represented by executed and unrevoked Proxies will be voted in
accordance with the instructions contained therein or, in the absence of such
instructions, in accordance with the recommendations of the Board of
Directors. Neither abstentions nor broker non-votes will be counted for the
purpose of determining whether any given proposal has been approved by the
stockholders of the Company. The amendment to Article Fifth of the Company's
Restated Articles
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of Incorporation and the approval of the Photogen Technologies, Inc. 1998
Long Term Incentive Plan require the affirmative vote of a majority of the
votes cast on each proposal, provided the votes cast on each proposal
represent over 50% in interest of the Common Stock entitled to vote on each
proposal. The election of directors requires a plurality of the votes cast
by the holders of the Company's Common Stock. A "plurality" means that the
individuals who receive the largest number of affirmative votes cast are
elected as directors up to the maximum number of directors to be chosen at
the Annual Meeting. If there are insufficient votes cast to satisfy such 50%
requirement, the Annual Meeting may be adjourned in order to permit further
solicitation of proxies.
As to all matters that may come before the Annual Meeting, each
stockholder will be entitled to one vote for each share of Common Stock of
the Company held by him at the close of business on May 11, 1998. The
holders of a majority of the shares of Common Stock of the Company entitled
to vote and present in person or represented by proxy will constitute a
quorum at the Annual Meeting. Abstentions and broker non-votes will be
counted for purposes of determining the presence of a quorum. As of May 11,
1998 there will be 36,875,001 shares of Common Stock outstanding.
DISSENTERS' RIGHTS OF APPRAISAL
There are no dissenters' rights of appraisal in connection with the vote
of the stockholders with respect to the matters to be voted on.
PROPOSALS BY STOCKHOLDERS
Any proposals by stockholders of the Company intended to be presented at
the 1999 Annual Meeting of Stockholders must be received by the Company for
inclusion in the Company's Proxy Statement and form of Proxy by December 31,
1998. Proposals should be directed to the attention of the Secretary of the
Company.
PROPOSAL 1 - AMENDMENT TO
RESTATED ARTICLES OF INCORPORATION
The Company's Board of Directors has determined that it would be in
the best interests of the Company and its stockholders to expand the size of
the Board to six members. Many of the exchanges on which the Company may
seek listing require that a listed company's board of directors have at least
two independent members (i.e., directors who are not employed by the
Company). By increasing the size of the Company's Board of Directors,
stockholders will be able to elect an independent director who, along with
Dr. Weinstein (the other independent director) will
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comprise the required two independent directors. The Board does not
presently expect the increase in the number of directors to have any material
anti-takeover effects on the Company.
In order to increase the authorized number of directors to six,
paragraph (b) of Article Fifth of the Restated Articles of Incorporation must
be amended. In addition, the names of the initial directors originally
stated in Article Fifth will be deleted as permitted by Section 78.403 of the
Nevada General Corporation Law. Accordingly, as a result of the amendment,
paragraph (b) of Article Fifth would read in its entirety as follows:
(b) The authorized number of members constituting the Board of
Directors of the Corporation is six (6).
The Restated Articles of Incorporation will be further restated to reflect the
foregoing amendment.
In conjunction with the anticipated presence of two independent
directors, the Company's Board will create two new committees: the Audit
Committee and the Compensation Committee. These Committees will each consist of
two independent directors, and Dr. Weinstein and Lester McKeever, Jr. (who is
nominated to become a director) are expected to become the members of the Audit
Committee and the Compensation Committee.
The Company's Audit Committee will have general responsibility for
meeting with the Company's independent public accountants and reviewing the
scope and results of auditing procedures and the Company's accounting procedures
and controls. The Audit Committee will also provide general oversight with
respect to the accounting principles employed in the Company's financial
reporting. The Compensation Committee will generally be responsible for
reviewing the performance and total compensation package for the Company's
executive officers, including the President and Chief Executive Officer;
considering the modification of existing compensation and employee benefit
programs and the adoption of new plans; administering the terms and provisions
of any equity compensation or stock option plans (including the 1998 Plan,
described below), 401(k), profit sharing plan and similar employee benefit
plans; and reviewing the compensation and benefits, if any, of non-employee
directors. The administration of such option, compensation or similar plans
includes the determination, subject to the respective plan provisions, of the
individuals eligible to receive awards, the individuals to whom awards are
granted, the nature of the awards to be granted, the number of awards to be
granted, and the exercise price, vesting schedule, term and all other conditions
and terms of the awards to be granted.
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RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the amendment
to paragraph (b) of Article Fifth of the Company's Restated Articles of
Incorporation.
PROPOSAL 2 -- ELECTION OF SIX DIRECTORS
TO THE COMPANY'S BOARD OF DIRECTORS
DIRECTORS AND EXECUTIVE OFFICERS
At the Annual Meeting (assuming the proposed amendment to the Company's
Restated Articles of Incorporation is approved and the size of the Board is
increased), there will be six directors standing for election. Each of the
Company's five incumbent directors is nominated for reelection. Biographical
information for Lester H. McKeever, Jr., who is nominated to be elected to the
Board upon the effectiveness of the amendment to the Company's Restated Articles
of Incorporation, is also provided. Each of the directors will serve a one year
term which will extend to the next annual meeting of shareholders and until his
successor is elected and qualified, or until his earlier death, retirement,
resignation or removal. Officers generally serve at the discretion of the Board
of Directors. A brief discussion of the business experience of each director
and executive officer during the past five years is also set forth below. None
of these individuals is a director of any other company subject to the reporting
requirements under the federal securities laws.
JOHN A. SMOLIK, age 49, has served as President and Chief Executive Officer
and Chairman of the Board since May 16, 1997, and was elected Chief Financial
Officer on November 21, 1997. He is primarily responsible for day to day
activities of developing and implementing plans, strategies and relationships
necessary to accomplish both the short and long term goals of the Company. Mr.
Smolik has over 25 years of experience in pharmaceutical, medical diagnostic and
industrial enzyme businesses. Mr. Smolik is one of the founders of Photogen
L.L.C., Genase L.L.C. and Genencor International. During the five years prior
to becoming an officer of the Company, he was associated with Genase, served as
Senior Management Consultant for QualPro, Inc., and was a principal in his
management consulting firm, JTS Associates. He has an M.B.A. from the
University of Connecticut and a B.S. in chemical engineering from the University
of Washington.
ERIC A. WACHTER, PH.D., age 35, has served as a Director, Secretary and
Treasurer since May 16, 1997. He is primarily responsible for developing and
demonstrating the functional feasibility of the laser system hardware, including
focusing and targeting. He is also responsible for development of
nontherapeutic laser applications. He received a Ph.D. in chemistry from the
University of Wisconsin-Madison and a B.S. in chemistry (cum laude) in the
honors program, Indiana University, Bloomington. Dr. Wachter is one of the
founders of Photogen L.L.C. and for the five years prior to May 1997 he was
associated with the Oak Ridge National Laboratory.
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Dr. Wachter is a physical-analytical chemist who concentrates in the fields of
biochemistry, optical spectroscopy and instrumentation research and development.
He has numerous technical publications in these fields along with three U.S.
Patents, numerous pending patent applications and numerous patent disclosures.
WALTER G. FISHER, PH.D., age 35, has served as a Director since May 16,
1997. He is primarily responsible for developing specific laser activation
requirements for photoactive drugs, and for demonstrating imaging feasibility.
He received a Ph.D. in chemistry from Purdue University and a B.S. in chemistry
from the University of Cincinnati. Dr. Fisher is one of the founders of
Photogen L.L.C. and for the five years prior to May 1997 he was associated with
the Oak Ridge National Laboratory. Dr. Fisher is a physical-analytical chemist
who concentrates in the related fields of molecular spectroscopy, non-lineal
laser physics and photochemistry. He has a number of technical publications in
these fields with two issued U.S. Patents, several pending patent applications
and patent disclosures.
CRAIG DEES, PH.D., age 44, has served as a Director since May 16, 1997. He
is primarily responsible for researching and developing photodynamic therapy
protocols, photoactive pharmaceuticals, and targeting systems, as well as for
demonstrating the safety and efficacy of that technology in animals. He
received a Ph.D. in molecular biology from the School of Veterinary Medicine,
University of Wisconsin-Madison, an M.S. in immunology, School of Veterinary
Medicine, Auburn University and a B.S. in microbiology, Brigham Young
University. Dr. Dees is one of the founders of Photogen L.L.C. and for the five
years prior to May 1997 he was associated with the Oak Ridge National
Laboratory. Dr. Dees is a molecular biologist who concentrates in the related
fields of molecular virology, microbiology, immunology and biochemistry. He has
many technical publications in these fields, patents and numerous patent
disclosures.
ROBERT J. WEINSTEIN, M.D., age 51, has served as a Director since February
28, 1997. During the last five years, Dr. Weinstein served as Chief Executive
Officer of HMO America, Inc. and subsequently held the same position in United
HealthCare of Illinois when United HealthCare acquired HMO America in 1993. On
January 1, 1996 he became a consultant to United HealthCare Corporation. He is
a graduate of the Chicago Medical School.
LESTER H. MCKEEVER, JR., age 63, is nominated to serve as a Director.
Since 1976, Mr. McKeever has been Managing Partner of the firm of Washington,
Pittman & McKeever, a Chicago, Illinois firm of certified public accountants and
consultants providing a broad range of professional services. Mr. McKeever is
also Chairman of the Federal Reserve Bank of Chicago, and he serves as a
director of MBIA Insurance Corp. of Illinois, Worldwide Broadcasting, Inc., and
Printing Specialities, Inc. Mr. McKeever serves on several not-for-profit
boards and councils, including the Chicago Urban League (formerly Chairman of
the Board), Business Advisory Counsel--University of Illinois College of
Commerce at Urbana-Champaign, University of Illinois Board of Trustees
(Treasurer), Illinois Institute of Technology, IIT Chicago Kent College of Law,
and the Chicago Symphony Orchestra Association. Mr. McKeever received his
Bachelor of Science degree
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in accounting from the University of Illinois at Urbana-Champaign and his J.D.
with distinction from the IIT-Chicago Kent College of Law.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the company recommends a vote FOR the election of
each of the director nominees listed above.
MEETINGS OF THE BOARD
The Company's Board of Directors acted by unanimous written consent on
approximately five occasions during the fiscal year ended December 31, 1997.
The Executive Committee acted by written consent on approximately two
occasions during the 1997 fiscal year. No incumbent director attended fewer
than 75% of all meetings of the Board of Directors, or fewer than 75% of all
meetings of a committee on which such director served during the past fiscal
year.
As discussed above, the Company in the past has not had a standing audit,
nominating or compensation committee of the Board. After the amendment to the
Restated Articles of Incorporation and the election of Mr. McKeever, the Company
will have an Audit Committee and a Compensation Committee, whose members are
expected to be Dr. Weinstein and Mr. McKeever.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and beneficial owners
of more than 10% of the Company's Common Stock are required by regulations
promulgated by the Securities and Exchange Commission to furnish the Company
with copies of all Section 16(a) forms that they file.
Until the effectiveness of the Company's Form 10-SB on February 23,
1998, the Company's officers and directors have not been subject to Section
16(a) of the Exchange Act because the Company did not have a class of stock
registered under Section 12(g) of the Exchange Act. On February 23, 1998,
the Company's registration under Section 12(g) became effective. Based
solely on review of the copies of such forms furnished to the Company, the
Company believes that as of February 23, 1998, all of its officers, directors
and greater-than-10% beneficial owners complied with Section 16(a) filing
requirements applicable to them.
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PROPOSAL 3 - PHOTOGEN TECHNOLOGIES, INC.
1998 LONG TERM INCENTIVE PLAN
INTRODUCTION. The Company's Board of Directors has adopted the Photogen
Technologies, Inc. 1998 Long Term Incentive Plan (the "1998 Plan") for the
Company's directors, executives and other key employees and certain consultants
of the Company and its subsidiaries. The effectiveness of the 1998 Plan is
subject to stockholder approval.
The 1998 Plan is intended to advance the Company's interests by
providing such persons with additional incentives to promote the success of
the Company's business, to increase their proprietary interest in the success
of the Company and to encourage them to remain in the Company's employ. The
Board believes that the 1998 Plan is a necessary tool to help the Company
compete effectively with other enterprises for the services of new employees
and to retain key employees and directors, all as may be required for the
future development of the Company's business. The Company cannot determine
at this time how many potential consultants or new employees will be eligible
for receipt of Awards under the 1998 Plan. The Company currently has seven
employees, five of whom serve as directors of the Company. The Board
presently contemplates that current employee directors will not be considered
for awards under the 1998 Plan during the Company's 1999 fiscal year.
Each director, each nominee for director and each officer and employee of
the Company has, by reason of being eligible to receive awards under the 1998
Plan, an interest in seeing that the 1998 Plan is adopted by the stockholders.
Set forth below is a summary of certain material features of the 1998 Plan.
The complete text of the 1998 Plan is attached to this Proxy Statement as
Exhibit A.
NATURE OF AWARDS TO BE GRANTED PURSUANT TO THE 1998 PLAN. The 1998 Plan
provides for the grant of options intended to qualify as "incentive stock
options" ("ISOs") under Section 422(b) of the Internal Revenue Code of 1986 (the
"Code") and non-qualified stock options ("NQSOs") and Restricted Stock Awards.
Options designated as ISOs by the Compensation Committee of the Board of
Directors (the "Compensation Committee") will contain terms designed to comply
with the provisions of Section 422(b). All options issued pursuant to the 1998
Plan and not expressly designated as ISOs shall be conclusively deemed to be
NQSOs.
COMMON STOCK SUBJECT TO THE 1998 PLAN. The aggregate number of shares of
Common Stock covered by the 1998 Plan is 2,000,000 shares.
Shares issued upon exercise of options or awards of Restricted Stock under
the 1998 Plan may be either authorized but unissued shares or shares re-acquired
by the Company. If, on or prior
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to the termination of the 1998 Plan, an award granted thereunder expires or is
terminated for any reason without having been exercised or vested in full, the
unpurchased or unvested shares will again become available for the grant of
awards under the 1998 Plan. Shares of Common Stock covered by options
surrendered in connection with the exercise of other options will not be deemed
to have been exercised and shall again become available for the grant of awards
under the 1998 Plan.
The purchase price of the shares of Common Stock covered by each NQSO will
be determined by the Committee and will be at least the par value of the shares;
ISOs will have an exercise price of at least 100% of the fair market value of
the Common Stock at the time the option is granted. No option granted to any
person who, at the time of such grant, owns, taking into account the attribution
rules of Section 424(d) of the Code, stock possessing more than 10% of the total
combined voting power of all classes of the Company's stock or of the stock of
any of its corporate subsidiaries, may be designated as an ISO unless at the
time of such grant the purchase price of the shares of Common Stock covered by
such option is at least 110% of the fair market value, but in no event less than
the par value, of such shares. The aggregate fair market value (determined as
of the time each ISO is granted) of the shares of Common Stock with respect to
which ISOs issued to any one person thereunder are exercisable for the first
time during any calendar year may not exceed $100,000.
Awards of Restricted Stock under the 1998 Plan will be made at the
discretion of the Compensation Committee and will consist of shares of Common
Stock granted to a participant and covered by a Restricted Stock award
agreement. At the time of an award, a participant will have the benefits of
ownership in respect of such shares, including the right to vote such shares and
receive dividends thereon and other distributions, subject to the restrictions
set forth in the 1998 Plan and in the Restricted Stock award agreement. The
shares will be legended and, at the option of the Company, may be held in escrow
by the Company and may not be sold, transferred or disposed of until such
restrictions have lapsed. Each award may be subject to a lapsing formula
pursuant to which the restrictions on transferability lapse over a particular
time period. The Compensation Committee has broad discretion as to the specific
terms and conditions of each award, including applicable rights upon certain
terminations of employment.
The 1998 Plan provides that the fair market value shall be deemed to be the
closing sale price at which the shares of Common Stock were traded on the
principal securities exchange (including the over-the-counter bulletin board) on
which the shares are traded on the date of the meeting of the Compensation
Committee at which the award is granted, or if no sale of the Common Stock was
made on any national securities exchange on such date, then on the next
preceding day on which there was a sale of the Common Stock. The Company's
Common Stock is not currently listed on any national exchange and the Company
maintains no active trading market for its common stock (although the Company is
seeking listing on the NASDAQ Smallcap Market or the American Stock
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Exchange); however, the Common Stock currently trades in the over-the-counter
"bulletin board" market from time to time under the symbol "PHGN."
ADMINISTRATION OF THE 1998 PLAN. The 1998 Plan will be administered by the
Compensation Committee. The Compensation Committee has full and exclusive
authority to determine the grant of awards under the 1998 Plan. Dr. Weinstein
and Mr. McKeever will serve as the members of the Compensation Committee.
PURCHASE OF COMMON STOCK UNDER THE 1998 PLAN. Each award granted under the
1998 Plan will be granted pursuant to and subject to the terms and conditions of
an award agreement (an "Award Agreement") to be entered into between the Company
and the awardholder at the time of such grant. Any Award Agreement will
incorporate by reference all of the terms and provisions of the 1998 Plan as in
effect at the time of grant and may contain such other terms and provisions as
may be approved by the Compensation Committee.
The expiration date of an award granted under the 1998 Plan will be as
determined by the Compensation Committee at the time of grant, provided that
an ISO will expire not more than ten years after the date it is granted. Each
award will become exercisable or vested in whole, in part or in installments
at such time or times as the Compensation Committee may prescribe and specify
in the Award Agreement at the time the award is granted.
In the event of a "Change in Control" (defined below) of the Company,
awards granted under the 1998 Plan which, by their terms, vest or are
exercisable in installments, will become immediately exercisable or vested in
full. A "Change in Control" will be deemed to have occurred as of the first
day that any one or more of the following conditions are satisfied
(capitalized terms not otherwise defined herein are defined in the 1998
Plan): (a) the acquisition by any Person of Beneficial Ownership of 50% or
more of either (A) the then outstanding shares of Common Stock of the
Company, or (B) the combined voting power of the outstanding voting
securities of the Company entitled to vote generally in the election of
Directors; provided, however, that for purposes of this provision, the
following transactions do not constitute a Change of Control: (1) any
acquisition directly from the Company through a public offering of shares of
Common Stock of the Company, (2) any acquisition by the Company, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or
(4) any acquisition by any corporation pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (c), below; (b) the
cessation, for any reason, of the individuals who constitute the Company's
Board of Directors as of the date hereof ("Incumbent Board") to constitute at
least a majority of the Company's Board of Directors; provided, however, that
any individual becoming a Director following the date hereof whose election,
or nomination for election by the Company's stockholders, was approved by a
vote of at least a majority of the Directors then comprising the Incumbent
Board shall be considered as though such individual was a member of the
Incumbent Board, but excluding any such individual whose initial assumption
of office occurs
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because of an actual or threatened election contest with respect to the election
or removal of Directors to other actual or threatened solicitation of proxies or
consents by or on behalf of Person other than the Company's Board of Directors;
(c) the consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company
("Business Combination") unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the Beneficial
Owners, respectively, of the outstanding shares of Common Stock of the Company
and the outstanding voting securities of the Company immediately before such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of Common Stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of Directors, as the case may be, of the Company
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transactions owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately before such Business Combination of the outstanding shares of Common
Stock and the outstanding voting securities of the Company, as the case may be;
(B) no party (excluding any corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 50% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
before the Business Combination; and (C) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Company's Board of Directors at the time of the
execution of the initial agreement, or of the action of the Company's Board of
Directors, providing for such Business Combination; or (d) the approval by the
stockholders of the Company of a complete liquidation or dissolution of the
Company. These provisions of the 1998 Plan may have some deterrent effect on
certain mergers, tender offers or other takeover attempts, thereby having some
potential adverse effect on the market price of the Company's Common Stock.
The exercise price for options granted under the 1998 Plan may be paid
in any of the following ways, which may be combined for any given exercise:
(a) the exercise price may be paid in cash or its equivalent; (b) the
exercise price may be paid by tendering previously acquired shares of Common
Stock having a fair market value equal to the aggregate exercise price for
the options being exercised; or (c) subject to applicable requirements of the
Exchange Act, the optionholder may deliver with his or her exercise notice
irrevocable instructions to a broker to promptly deliver to the Company an
amount of sale or loan proceeds sufficient to pay the exercise price.
Awards granted under the 1998 Plan are assignable or transferable by will
or pursuant to the laws of descent and distribution or as otherwise specifically
permitted by the Award Agreement or by the Committee, and options will be
exercisable during the awardholder's lifetime by the
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awardholder himself or herself or any permitted transferee. No holder of any
option will have any rights to dividends or other rights of a stockholder with
respect to shares subject to an option prior to the purchase of such shares upon
exercise of the option.
TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY OF OPTIONHOLDER. Each
option, to the extent it has not been previously exercised, will terminate upon
the earliest to occur of: (i) the expiration of the option period set forth in
the Award Agreement; (ii) for ISOs, the expiration of three months following the
Participant's retirement (following the Participant's Retirement, NQSOs will
terminate upon the expiration of the option period set forth in the Award
Agreement); (iii) the expiration of 12 months following the Participant's death
or disability; (iv) immediately upon termination for cause; or (v) the
expiration of 90 days following the Participant's termination of employment for
any reason other than cause, Change in Control, death, disability, or
retirement. Upon a termination of employment related to a Change in Control,
options will be treated in the manner set forth in the Change of Control
provisions.
Upon a Participant's death, disability, or retirement, all Restricted Stock
will vest immediately. Each Award Agreement will set forth the extent to which
the Participant will have the right to retain unvested restricted shares
following termination of the Participant's employment with the Company in all
other circumstances. Such provisions will be determined in the sole discretion
of the Compensation Committee, will be included in the Award Agreement entered
into with each Participant, need not be uniform among all shares of Restricted
Stock issued pursuant to the 1998 Plan, and may reflect distinctions based on
the reasons for termination of employment.
EXPIRATION, TERMINATION AND AMENDMENT OF THE 1998 PLAN. The 1998 Plan may,
at any time or from time to time, be terminated, modified, altered, suspended or
amended by the Board of Directors or the Compensation Committee. The Board of
Directors or the Compensation Committee may, insofar as permitted by law, from
time to time with respect to any shares of Common Stock at the time not subject
to options or other awards, suspend or discontinue the 1998 Plan or revise or
amend it in any respect whatsoever, except that, without approval of the
stockholders of the Company, no such revision or amendment shall increase the
number of shares available for grants of ISOs under the 1998 Plan or alter the
class of participants in the 1998 Plan. Subject to the provisions described
above, the Board of Directors or the Compensation Committee will have the power
to amend the 1998 Plan and any outstanding awards granted thereunder in such
respects as the Board of Directors or the Compensation Committee may, in its
sole discretion, deem advisable in order to incorporate in the 1998 Plan or any
such award any new provision or change designed to comply with or take advantage
of requirements or provisions of the Code or other statute, or rules or
regulations of the Internal Revenue Service or other federal or state
governmental agency enacted or promulgated after the adoption of the 1998 Plan.
Any award outstanding under the 1998 Plan at the time of the 1998 Plan's
termination shall remain in effect in accordance with its terms and conditions
and those of the 1998 Plan.
-11-
Notwithstanding the foregoing, neither the Board of Directors nor the
Compensation Committee may cancel outstanding awards and issue substitute awards
in replacement thereof or reduce the exercise price of any outstanding options.
FEDERAL TAX CONSEQUENCES. The Company believes that the following
generally summarizes the federal income tax consequences of awards under the
Plan for participants and the Company. A participant will not be deemed to
have received any income subject to tax at the time a stock option (including
an ISO) or Restricted Stock award that is subject to conditions, restrictions
or contingencies is awarded, nor will the Company be entitled to a tax
deduction at that time. When a stock option (other than an ISO) is
exercised, the participant will be deemed to have received an amount of
ordinary income equal to the excess of the fair market value of the shares
purchased over the exercise price. The income tax consequences of Restricted
Stock Awards will depend on how the awards are structured, but generally, a
participant will be deemed to have ordinary income at the time a Restricted
Stock Award is distributed to him free of all conditions, restrictions and
contingencies. In each case, the Company will be allowed a tax deduction in
the year and in an amount equal to the amount of ordinary income that the
participant is deemed to have received. The extent of the deduction for
certain highly compensated employees may be limited to $1 million annually
for performance based awards under Section 162(m) of the Internal Revenue Code.
If an ISO is exercised by a participant who satisfies certain employment
requirements at the time of exercise, the participant will not be deemed to have
received any income subject to tax at such time, although the excess of the fair
market value of the common stock so acquired on the date of exercise over the
exercise price will be an item of tax preference for purposes of the alternative
minimum tax. Section 422 of the Code provides that if the Common Stock is held
at least one year after the exercise date and two years after the date of grant,
the participant will realize a long-term capital gain or loss upon a subsequent
sale, measured as the difference between the exercise price and the sales price.
If Common Stock acquired upon the exercise of an ISO is not held for one year, a
"disqualifying disposition" results, at which time, the participant is deemed to
have received an amount of ordinary income equal to the lesser of (a) the excess
of the fair market value of the Common Stock on the date of exercise over the
exercise price or (b) the excess of the amount realized on the disposition of
the shares over the exercise price. If the amount realized on the
"disqualifying disposition" of the Common Stock exceeds the fair market value on
the date of exercise, the gain on the excess of the ordinary income portion will
be treated as a capital gain. Any loss on the disposition of Common Stock
acquired through the exercise of an ISO is a capital loss. No income tax
deduction will be allowed to the Company with respect to shares of Common Stock
purchased by a participant through the exercise of an ISO, provided there is no
"disqualifying disposition" as described above. In the event of a
"disqualifying disposition", the Company is entitled to a tax deduction equal to
the amount of ordinary income recognized by the participant.
NEW PLAN BENEFITS
No awards have been granted under the 1998 Plan. The Board of Directors of
the Company contemplates that no Awards under the 1998 Plan will be given to
current directors during the fiscal
-12-
year ending December 31, 1998 in view of their existing substantial holdings in
the Company. Because the 1998 Plan gives broad discretion with respect to the
Awards to the Compensation Committee the amount of the Awards which would have
been granted to the eligible officers, directors and key employees during the
fiscal year ending December 31, 1997 cannot be determined at this time. During
the 1998 fiscal year the Company may consider hiring additional employees and/or
consultants who may become eligible for receipt of Awards under the 1998 Plan.
At this point the Company has made no arrangements to hire additional employees
or consultants, and therefore cannot provide information as to the amount of the
Awards, if any, which would be granted to such persons.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company recommends a vote FOR the adoption of
the 1998 Plan.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Company's
common stock as of March 31, 1998 by directors and executive officers, and any
person or group known to the Company to be the owner of more than five percent
of the Company's shares.
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ---------- --------
Common Stock John Smolik (Chairman of the 4,800,000(1) 13.02
Board, President, Chief
Executive Officer, Chief
Financial Officer)
7327 Oak Ridge Highway
Suite B
Knoxville, TN 37931
Common Stock Eric A. Wachter, Ph.D. 4,800,000(1) 13.02
(Director, Secretary)
7327 Oak Ridge Highway
Suite B
Knoxville, TN 37931
-13-
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ---------- --------
Common Stock Craig Dees, Ph.D. (Director) 4,800,000(1) 13.02
7327 Oak Ridge Highway
Suite B
Knoxville, TN 37931
Common Stock Walter G. Fisher, Ph.D. 4,800,000(1) 13.02
(Director)
7327 Oak Ridge Highway
Suite B
Knoxville, TN 37931
Common Stock Timothy Scott, Ph.D. 4,800,000(1) 13.02
7327 Oak Ridge Highway
Suite B
Knoxville, TN 37931
Common Stock Robert J. Weinstein, M.D.
(Director) and 3,455,421 9.37
Lois Weinstein (Joint Tenants)
875 N. Michigan Avenue
Suite 2930
Chicago, IL 60611-1901
Common Stock Theodore Tannebaum 3,350,421 9.09
875 N. Michigan Avenue
Suite 2930
Chicago, IL 60611-1901
Common Stock Lester H. McKeever, Jr. 35,000 0.09
(Director nominee)
6700 South Oglesby Avenue
Chicago, IL 60649
Common Stock Stuart P. Levine 3,426,921 9.29
875 N. Michigan Avenue
Suite 2930
Chicago, IL 60611-1901
Common Stock All directors and executive 22,690,421 61.53
officers as a group (6
persons, including director
nominee)
-14-
AMOUNT AND
NATURE OF
NAME AND ADDRESS BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------------- ------------------- ---------- --------
Common Stock Parties to Voting Agreement(2) 34,594,878 93.8
(9 persons)
- ------------------
(1) Each individual granted five-year warrants to the following principals of
Aurora Capital Corp.: (i) S. Fuchs to acquire 180,000 of such individual's
shares (for an aggregate of 900,000 shares), (ii) J. Margolis to acquire
8,000 of such individual's shares (for an aggregate of 40,000 shares) and
(iii) S. Ross to acquire 4,000 of such individual's shares (for an
aggregate of 20,000 shares). See paragraph 4(b) under "Recent Sales of
Unregistered Securities", below.
(2) The parties to the Voting Agreement may be deemed to be a "group" within
the meaning of Instruction 7 to Item 403 of Regulation S-B. The Voting
Agreement is described below.
A change of control occurred with respect to the Company on May 16, 1997.
On that date, M T Financial Group, Inc. ("M T Financial"), the former name of
the Company, acquired Photogen, Inc. The acquisition was effected by Photogen,
Inc. merging with a subsidiary of M T Financial and becoming M T Financial's
wholly-owned subsidiary. In connection with M T Financial's acquisition of
Photogen, Inc., among other things, the following occurred:
- M T Financial changed its name to "Photogen Technologies, Inc."
- In exchange for their interest in Photogen, Inc., the Company issued
shares to the five Photogen principals, resulting in their ownership
of 67% of the Company's outstanding common stock; Theodore Tannebaum,
Dr. Weinstein and two other investors retained beneficial ownership of
30% of the outstanding common stock; and the public (approximately 450
stockholders) retained 3% of the outstanding common stock.
- Drs. Wachter, Fisher, Dees, Weinstein and Mr. Smolik were elected to
the Board of Directors of the Company and Photogen, Inc.; Drs. Wachter
and Weinstein and Mr. Smolik were elected to the Executive Committee;
and Mr. Smolik became Chief Executive Officer of both entities.
- The Company's Articles of Incorporation and Bylaws were amended to
implement unanimous voting requirements by the Board of Directors and
Executive Committee regarding certain extraordinary events.
-15-
As part of the Photogen acquisition, Drs. Wachter, Dees, Fisher, Scott and
Mr. Smolik (the "Tennessee Stockholders") entered into a Voting Agreement with
Mr. Tannebaum, Dr. Weinstein and certain other Chicago-based stockholders (the
"Chicago Stockholders"). The Voting Agreement will be amended to reflect the
proposed increase in the size of the Board. The Tennessee Stockholders and
Chicago Stockholders together currently own beneficially 34,594,878 shares, or
approximately 93.8% of the Company's outstanding common stock. The Voting
Agreement provides that the Tennessee Stockholders and Chicago Stockholders will
vote their shares of common stock (i) in accordance with the unanimous
recommendation of the Board of Directors with respect to any amendments to the
Articles of Incorporation or Bylaws, (ii) to fix the number of directors at six,
(iii) to elect to the Board of Directors four persons nominated by holders of
80% of the shares of the Tennessee Stockholders and one person nominated by
holders of 80% of the shares of the Chicago Stockholders (and to remove any such
director at the request of the stockholders who nominated him), and (iv) to fix
the number of directors on the Board's Executive Committee at three, two of whom
will be selected by the Tennessee Stockholders and one of whom will be selected
by the Chicago Stockholders. The election of the sixth director is not subject
to the Voting Agreement. Certain extraordinary transactions will require
approval of all six of the Company's directors. In addition, the Company agreed
to comparable voting requirements and restrictions with respect to Photogen,
Inc. in its capacity as sole stockholder of that corporation. The Voting
Agreement has a term of 15 years, so long as the Tennessee Stockholders and
Chicago Stockholders are the beneficial owners of 20% or more of the Company's
outstanding common stock during that period. The Tennessee Stockholders and
Chicago Stockholders together control management of the Company.
There are no arrangements currently known to the Company which may result
in a future change of control of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a Consent and Assignment of Lease dated November
13, 1997 which assigned the lease between Genase, L.L.C. and its landlord for
rental of executive offices and laboratory space. Mr. Smolik, Chairman, Chief
Executive Officer, President and Chief Financial Officer of the Company, and Dr.
Dees, a director and employee of the Company, are members of Genase, L.L.C. The
Consent and Assignment was approved by the Executive Committee of the Company's
Board of Directors, a majority of whose members are not associated with Genase,
L.L.C.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid by the Company to its
officers and directors for services rendered to the Company in all capacities
during the year ended December 31, 1997. No officer or director received any
compensation during the fiscal years ended December 31, 1995 or 1996.
-16-
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
-------------------------------- ----------------------------------------
Awards
Other -------------------------- Payouts All
Annual Restricted Securities Other
Compen- Stock Underlying LTIP Compen-
Salary Bonus sation Award(s) Options Payouts sation
Name and Principal Position Year(1) ($) ($) ($) ($) (#) ($) ($)
- ---------------------------------------------------------------------------------------------------------------------------------
John Smolik, 1997 $46,033 $ 0 $ 0 0 0 0 $ 0
President (CEO), 1996 - - - - - - -
Chairman, Chief 1995 - - - - - - -
Financial Officer
Eric A. Wachter, Ph.D., 1997 $46,033 $ 0 $ 0 0 0 0 $ 0
Director, Secretary, 1996 - - - - - - -
Treasurer 1995 - - - - - - -
Walter G. Fisher, Ph.D., 1997 $46,033 $ 0 $ 0 0 0 0 $ 0
Director 1996 - - - - - - -
1995 - - - - - - -
Craig Dees, Ph.D., 1997 $46,033 $ 0 $ 0 0 0 0 $ 0
Director 1996 - - - - - - -
1995 - - - - - - -
Stuart P. Levine(2) 1997 $ 0 $ 0 $ 0 0 0 0 $ 0
Michael T. Lyon(3) 1997 $ 0 $ 0 $ 0 0 0 0 $ 0
- ------------
(1) This amount represents payment for a partial year from May 16, 1997 to
December 31, 1997. Mr. Smolik and Drs. Wachter, Fisher and Dees all joined the
Company as of May 16, 1997 and are subject to employment agreements pursuant to
which the Company will compensate each individual at an annual gross salary of
$85,000.
(2) Mr. Levine served as President and Chief Executive Officer of the
Company from February 28, 1997 to May 16, 1997.
(3) Mr. Lyon served as President and Chief Executive Officer of the
Company during the 1997 fiscal year until February 28, 1997.
The Company entered into Employment Agreements with Drs. Wachter, Fisher
and Dees, as research scientists, and with Mr. Smolik, as Chief Executive
Officer, as of May 16, 1997. Each Employment Agreement has an initial five-year
term and provides that while the individual is employed by the Company and for
two years after termination he will not engage in competitive activities against
the Company. The Employment Agreements also require the employee to promptly
and fully disclose to the Board of Directors all inventions, discoveries,
improvements, know-how, works or other intellectual property conceived,
discovered or made by the employee during his employment and twelve months
thereafter, if such inventions are related to or useful in the business or
demonstrably anticipated business of the Company, or result from duties assigned
-17-
to the named individual by the Company or from the use of any of the Company's
assets and facilities. Drs. Wachter, Fisher and Dees, and Mr. Smolik will each
receive an annual gross salary of $85,000 and typical health, life and
disability insurance benefits that are available to any salaried employee of the
Company. The Company has two additional employees, Dr. Tim Scott (a research
scientist and owner of 4,800,000 shares of Company Common Stock), who is subject
to an Employment Agreement providing for salary and other terms similar to those
described above, and Mr. Jay Harkins (a laboratory technician). Dr. Scott (who
may be deemed a "significant employee") has a Ph.D. in Chemical Engineering
from the University of Wisconsin-Madison, 1985, and a B.S. in Chemical
Engineering from the University of Tennessee-Knoxville, 1980. Dr. Scott has
experience in the fields of chemical separations, material science, and
biotechnology. He has numerous technical publications in these fields, over
ten U.S. patents, and has licensed separations technology for petrochemical
processing, solvent extraction, and analytical chemistry applications.
The Company does not have any compensatory plans or arrangements resulting
from the resignation, retirement or any other termination of an executive
officer's employment with the Company or from a change in control.
The directors of the Company receive no specified compensation for serving
as directors, and have no standard arrangements providing for such compensation.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
BDO Seidman LLP, Chicago, Illinois, has served as independent certified
public accountants for the Company and its predecessors and subsidiaries since
1995, including the 1997 fiscal year, and it is expected that such firm will
serve in that capacity for the 1998 fiscal year. Management expects that a
representative of BDO Seidman LLP will be present at the Annual Meeting to
make a statement if he desires to do so and to be available to answer
appropriate questions posed by stockholders.
FINANCIAL STATEMENTS
The Company's audited financial statements for the fiscal year ended
December 31, 1997, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other selected information are
included in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997, which are incorporated herein by reference. The Company's
Form 10-KSB for the year ended December 31, 1997 is attached as the Appendix
to this Proxy Statement.
DISSEMINATION OF INFORMATION
Because until May 1997, the Company and its predecessor, MT Financial
Group, Inc. had not been actively engaged in business operations, the Company
adopted the practice of mailing press releases and certain other information
about material developments to stockholders of record. With the Company's
filing of its Form 10-SB, Form 10-KSB and other reports with the Securities and
Exchange Commission describing its business, the Company no longer believes it
is necessary or
-18-
cost-effective to mail on a regular basis copies of various materials to
stockholders. Accordingly, the Company will discontinue that practice,
except to the extent required by appliable law or exchange rules.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any business which will be presented for consideration
at the Annual Meeting other than that specified herein and in the Notice of
Annual Meeting of Stockholders, but if other matters are presented, it is the
intention of the persons designated as proxies to vote in accordance with their
judgment on such matters.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 1997, INCLUDING THE FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS
ATTACHED IN THE APPENDIX TO THIS PROXY STATEMENT.
Please SIGN, DATE and RETURN the enclosed Proxy promptly.
By Order of the Board of Directors,
Eric A. Wachter, Ph.D.
Secretary
April 29, 1998
-19-
EXHIBIT A TO PROXY STATEMENT
PHOTOGEN TECHNOLOGIES, INC.
1998 LONG TERM INCENTIVE COMPENSATION PLAN
1. ESTABLISHMENT, OBJECTIVES AND DURATION.
1.1 ESTABLISHMENT OF THE PLAN. Photogen Technologies, Inc. hereby
establishes an incentive compensation plan to be known as the "Photogen
Technologies, Inc. 1998 Long Term Incentive Compensation Plan" (the "Plan"), as
set forth in this document. The Plan permits the grant of Incentive Stock
Options, Nonqualified Stock Options and Restricted Stock.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize the
profitability and growth of the Company through the use of incentives which are
consistent with the Company's objectives and which link the interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants. The Plan is further intended to provide
flexibility to the Company in its ability to motivate, attract, and retain the
services of Participants who make significant contributions to the Company's
success and to allow Participants to share in the success of the Company.
1.3 DURATION OF THE PLAN. The Plan shall become effective as of the date it
is approved by the stockholders of Photogen Technologies, Inc. (the "Effective
Date"). The Plan shall remain in effect, subject to the right of the Board of
Directors or the Committee to amend or terminate the Plan at any time pursuant
to Section 11 hereof, until all Shares subject to it shall have been purchased
or acquired according to the Plan's provisions. However, in no event may an
Incentive Stock Option be granted under the Plan on or after May 27, 2008.
2. DEFINITIONS.
Whenever used in the Plan, the following terms shall have the meanings set forth
below:
2.1 "AFFILIATE" means a "parent corporation" or "subsidiary corporation" as
defined in Section 424 of the Code.
2.2 "AWARD" means, individually or collectively, a grant under this Plan of
Incentive Stock Options, Nonqualified Stock Options or Restricted Stock.
2.4 "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company.
2.6 "CAUSE" shall be determined by the Committee, exercising good faith and
reasonable judgment, and shall mean the occurrence of any one or more of the
following:
(a) The willful and continued failure by the Participant to
substantially perform his duties (other than any such failure resulting from the
Participant's Disability) after a written demand for substantial performance is
delivered by the Committee to the Participant that identifies in reasonable
detail the manner in which the Committee believes that the Participant has not
substantially performed his duties, and the Participant has failed to remedy the
situation within 30 calendar days of receiving such notice; or
(b) The Participant's conviction for committing an act of fraud,
embezzlement, theft or another act constituting a felony; or
(c) Any breach by a Participant of any written agreement with the
Company, including any agreement concerning a Participant's employment,
non-competition or confidentiality of Company proprietary information; or
(d) The willful engaging by the Participant in gross misconduct
materially and demonstrably injurious to the Company, as determined by the
Committee.
2.7 "CHANGE IN CONTROL" of the Company shall be deemed to have occurred as
of the first day that any one or more of the following conditions shall have
been satisfied:
(a) The acquisition by any Person of Beneficial Ownership of 50% or
more of either (i) the then outstanding shares of Common Stock of the Company,
or (ii) the combined voting power of the outstanding voting securities of the
Company entitled to vote generally in the election of Directors; provided,
however, that for purposes of this subsection, the following transactions shall
not constitute a Change of Control: (A) any acquisition directly from the
Company through a public offering of shares of Common Stock of the Company, (B)
any acquisition by the Company, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any corporation pursuant to
a transaction which complies with clauses (i), (ii) and (iii) of subsection (C)
below;
(b) The cessation, for any reason, of the individuals who constitute
the Company's Board of Directors as of the date hereof ("Incumbent Board") to
constitute at least a majority of the Company's Board of Directors; provided,
however, that any individual becoming a Director following the date hereof whose
election, or nomination for election by the Company's stockholders, was approved
by a vote of at least a majority of the Directors then comprising the Incumbent
Board
2
shall be considered as though such individual was a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs because 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 Company's Board of Directors;
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company ("Business Combination") unless, following such Business Combination,
(i) all or substantially all of the individuals and entities who were the
Beneficial Owners, respectively, of the outstanding shares of Common Stock of
the Company and the outstanding voting securities of the Company immediately
before such Business Combination beneficially own, directly or indirectly, more
than 50% of, respectively, the then outstanding shares of Common Stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of Directors, as the case may be, of the Company
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately before such Business Combination of the outstanding shares of Common
Stock and the outstanding voting securities of the Company, as the case may be;
(ii) no party (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 50%; or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
before the Business Combination; and (iii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Company's Board of Directors at the time of the
execution of the initial agreement, or of the action of the Company's Board of
Directors, providing for such Business Combination; or
(d) The approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2.8 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time.
2.9 "COMMITTEE" means the Compensation Committee of the Board, as specified
in Section 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
3
2.10 "COMPANY" means Photogen Technologies, Inc., a Nevada corporation, and
also means any corporation of which a majority of the voting capital stock is
owned directly or indirectly by Photogen Technologies Inc. or by any of its
Subsidiaries, and any other corporation designated by the Committee as being a
Company hereunder (but only during the period of such ownership or designation).
2.11 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.12 "DISABILITY", as applied to a Participant, means that the Participant
(a) has established to the satisfaction of the Committee that the Participant is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to last for a
continuous period of not less than 12 months (all within the meaning of Section
22(e)(3) of the Code), and (b) has satisfied any requirement imposed by the
Committee in regard to evidence of such disability.
2.13 "ELIGIBLE PERSON" shall mean all Employees, Directors or consultants of
the Company or any Affiliate; provided, however, that no Award may be granted to
anyone who is not an "employee" as that term is defined in General Instruction
A.(1)(a) of Form S-8, as such definition may be amended from time to time,
without first receiving advice and guidance from the Company's outside counsel
as to the effect of such grant.
2.14 "EMPLOYEE" means any officer or employee of the Company.
2.15 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16 "FAIR MARKET VALUE" Except as otherwise determined by the Committee, the
"Fair Market Value" of a share of Common Stock as of any date shall be equal to
the closing sale price of a share of Common Stock as reported on The National
Association of Securities Dealers' New York Stock Exchange Composite Reporting
Tape (or if the Common Stock is not traded on The New York Stock Exchange, the
closing sale price on the exchange on which it is traded or as reported by an
applicable automated quotation system, including the over-the-counter bulletin
board) (the "Composite Tape"), on the applicable date or, if no sales of Common
Stock are reported on such date, the closing sale price of a share of Common
Stock on the date the Common Stock was last reported on the Composite Tape (or
such other exchange or automated quotation system, if applicable) as of the date
of the meeting of the Committee at which the award was granted.
4
2.17 "IMMEDIATE FAMILY MEMBERS" means the spouse, children and grandchildren
of a Participant.
2.18 "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Section 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.19 "INSIDER" shall mean an individual who is, on the relevant date, a
Director, a 10% Beneficial Owner of any class of the Company's equity securities
that is registered pursuant to Section 12 of the Exchange Act or an officer of
the Company, as defined under Section 16 of the Exchange Act and as determined
by the Board of Directors from time to time.
2.20 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the Board
of Directors of the Company but who is not an Employee of the Company.
2.21 "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase Shares
granted under Section 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.22 "OPTION" means an Incentive Stock Option or a Nonqualified Stock Option,
as described in Section 6 herein.
2.23 "OPTION PRICE" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.24 "PARTICIPANT" means an Eligible Person who has outstanding an Award
granted under the Plan.
2.25 "PERIOD OF RESTRICTION" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance objectives, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares of
Restricted Stock are subject to a substantial risk of forfeiture, as provided in
Section 7 herein.
2.26 "PERSON" shall have the meaning ascribed to such term in Section 3(a)(9)
of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
"group" as defined in Section 13(d) thereof.
2.27 "RESTRICTED STOCK" means an Award granted to a Participant pursuant to
Section 7 herein.
5
2.28 "RETIREMENT" as applied to a Participant, means the Participant's
termination of employment in a manner which qualifies the Participant to receive
immediately payable retirement benefits under any applicable retirement plan
maintained by the Company (the "Retirement Plan"), under the successor or
replacement of such Retirement Plan if it is then no longer in effect, or under
any other retirement plan maintained or adopted by the Company which is
determined by the Committee to be the functional equivalent of such Retirement
Plan; or, with respect to a Participant who may not or has not participated in a
retirement plan or if there is no such retirement plan maintained by the Company
or an Affiliate, "Retirement" shall have the meaning determined by the Committee
from time to time.
2.29 "SHARES" means Common Stock of Photogen Technologies, Inc., par value
$.001 per share.
2.30 "SUBSIDIARY" means any corporation, partnership, joint venture or other
entity in which the Company has a majority voting interest.
3. ADMINISTRATION.
3.1 THE COMMITTEE. The Plan shall be administered by the Committee, or by
any other committee appointed by the Board, which Committee shall consist solely
of two or more "Nonemployee Directors" within the meaning of Rule 16b-3 under
the Exchange Act, or any successor provision. The members of the Committee
shall be appointed from time to time by, and shall serve at the discretion of,
the Board of Directors.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law and subject to the
provisions herein, the Committee shall have full power in its discretion to
select Eligible Persons who shall participate in the Plan; determine the sizes
and types of Awards; determine the terms and conditions of Awards (including
vesting periods and restrictions); prescribe the form of, construe and interpret
any agreement or instrument entered into under the Plan as they apply to
Participants; construe and interpret the terms and conditions of this Plan;
establish, amend, or waive rules and regulations for the Plan's administration
as they apply to Participants; alter, amend, suspend or terminate the Plan in
whole or in part; and (subject to the provisions of Section 11 herein) amend the
terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by law,
the Committee may delegate its authority as identified herein.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Employees, Participants and their
estates and beneficiaries.
6
3.4 COSTS OF PLAN. The costs and expenses incurred in the operation and
administration of the Plan shall be borne by the Company.
3.5 INDEMNIFICATION. Each person who is or shall have been a member of the
Committee shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in settlement thereof, to the fullest extent
permitted by the Nevada General Corporation Law. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Sections of Incorporation
or Bylaws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless. In addition, a member of the
Committee, in the performance of any act (or in refraining from taking any
action) in connection with the Plan, shall not be liable to the Company, its
stockholders, Employees, Participants or any person when relying in good faith
upon the records of the Company or upon such information or statements presented
to the Company by any of its officers, employees or other persons as to matters
the member reasonably believes are within such other person's professional or
expert competence and who has been selected with reasonable care by or on behalf
of the Company.
4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS.
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be 2,000,000. Shares issued upon
exercise of Options or Awards of Restricted Stock under the Plan may be either
authorized but unissued Shares or Shares re-acquired by the Company. If, on or
prior to the termination of the Plan, an Award granted thereunder expires or is
terminated for any reason without having been exercised or vested in full, the
unpurchased or unvested Shares covered thereby will again become available for
the grant of Awards under the Plan. Shares of Common Stock covered by Options
surrendered in connection with the exercise of other Options shall not be deemed
to have been exercised and shall again become available for the grant of awards
under the Plan.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
Section 4.1, as may be determined to be appropriate and equitable by the
7
Committee, in its sole discretion, to prevent dilution or enlargement of rights;
provided, however, that the number of Shares subject to any Award shall always
be a whole number.
5. ELIGIBILITY AND PARTICIPATION.
5.1 ELIGIBILITY. All Eligible Persons are eligible to participate in this
Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may from time to time in its discretion select Eligible Persons to
whom Awards shall be granted and shall determine the nature and amount of each
Award.
5.3 PERFORMANCE-BASED AWARDS. The Committee may, in its discretion, grant
Awards that are wholly contingent on the attainment of performance goals
established by the Committee from time to time. The performance goals may
relate to one or more of the following performance measures, as determined by
the Committee for each applicable performance period: (i) return to
stockholders, (ii) cash flow, (iii) return on equity, (iv) Company created
income (for example, income due to Company initiated cost reductions or
productivity improvements), (v) sales growth, (vi) earnings and earnings growth,
(vii) return on assets, (viii) stock price, (ix) earnings per share, (x) market
share, (xi) customer satisfaction, and (xii) attaining regulatory approvals or
other regulatory benchmarks. Any such performance goals and the applicable
performance measures will be determined by the Committee at the time of grant
and reflected in an Award Agreement. The number or value of performance-based
stock Awards that will be paid out to any Participant at the end of the
applicable performance period, which may be one year or longer as determined by
the Committee, will depend on the extent to which the Company attains the
established performance goals. Awards intended to be performance-based stock
Awards shall be subject to such restrictions and conditions as may be required
under Section 162(m) to be performance-based compensation thereunder.
6. STOCK OPTIONS.
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine, which need not be uniform for all Participants. The
Award Agreement also shall specify whether the Option is intended to be an ISO
within the meaning of Code Section 422, or an NQSO whose grant is intended not
to fall under the provisions of Code Section 422.
8
6.3 PROVISIONS FOR NQSOs. Each Stock Option intended to be a Non-Qualified
Stock Option shall be subject to the terms and conditions which the Committee
determines to be appropriate, subject to the following minimum standards for any
such Non-Qualified Stock Option:
(a) The option price (per share) of the Shares covered by each
Non-Qualified Stock Option shall be determined by the Committee but shall not be
less than the par value per share of Common Stock.
(b) Each Award Agreement shall state the date or dates on which it
first is exercisable and the date after which it may no longer be exercised, and
may provide that the Stock Option rights accrue or become exercisable in
installments over a period of months or years, or upon the occurrence of certain
conditions or the attainment of stated goals or events; and
(c) Exercise of any Stock Option may be conditioned upon the
Participant's execution of a Share purchase agreement in form satisfactory to
the Committee providing, among other things, that:
(1) The Participant's or the Participant's estate, heirs and
representatives right to sell the Shares may be restricted;
and
(2) The Participant or the Participant's estate, heirs and
representatives may be required to execute letters of
investment intent and must also acknowledge that the Shares
will bear legends noting any applicable restrictions.
6.4 PROVISIONS FOR ISOs. Each Stock Option intended to be an Incentive
Stock Option shall be issued only to an Employee and be subject to at least the
following terms and conditions, with such additional restrictions or changes as
the Committee determines are appropriate but not in conflict with Code Section
422 and relevant regulations and rulings of the Internal Revenue Service:
(a) The Incentive Stock Option shall meet the minimum standards
required of Non-Qualified Stock Options, as described in Section 6.3 except
clause (a) thereunder.
(b) Immediately before the Incentive Stock Option is granted, if the
Participant owns, directly or by reason of the applicable attribution rules in
Code Section 424(d):
(1) Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an
Affiliate, the option price per share of the Shares covered
by each Incentive Stock Option shall not be less than one
hundred percent (100%) of the Fair Market Value per share of
the Shares on the date of the grant of the Incentive Stock
Option.
(2) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, the option price per
9
share of the Shares covered by each Incentive Stock Option
shall not be less than one hundred ten percent (110%) of the
said Fair Market Value on the date of grant.
(c) For Participants who own:
(1) Ten percent (10%) or less of the total combined voting power
of all classes of share capital of the Company or an
Affiliate, each Incentive Stock Option shall terminate not
more than ten (10) years from the date of the grant or at
such earlier time as the Award Agreement may provide;
(2) More than ten percent (10%) of the total combined voting
power of all classes of share capital of the Company or an
Affiliate, each Incentive Stock Option shall terminate not
more than five (5) years from the date of the grant or at
such earlier time as the Award Agreement may provide.
(d) The Award Agreements shall restrict the amount of Options which
may be exercisable in any calendar year (under this or any other Incentive Stock
Option plan of the Company or an Affiliate) so that the aggregate Fair Market
Value (determined at the time each Incentive Stock Option is granted) of the
stock with respect to which Incentive Stock Options are exercisable for the
first time by the Participant in any calendar year does not exceed one hundred
thousand dollars ($100,000), provided that this subparagraph shall have no force
or effect if its inclusion in the Plan is not necessary for Options issued as
Incentive Stock Options to qualify as Incentive Stock Options pursuant to
Section 422(d) of the Code.
(e) No Incentive Stock Options shall be granted after the date which
is the earlier of ten (10) years from the date of the adoption of the Plan by
the Company and the date of the approval of this Plan by the shareholders of the
Company.
(f) Each Participant who receives an Incentive Stock Option must
agree to notify the Company in writing immediately after the Participant makes a
Disqualifying Disposition of any shares acquired pursuant to the exercise of an
Incentive Stock Option. A Disqualifying Disposition is any disposition
(including any sale) of such shares before the later of (i) two years after the
date the Participant was granted the Incentive Stock Option, or (ii) one year
after the date the Participant acquired shares by exercising the Incentive Stock
Option. If the Participant has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter.
10
6.5 PAYMENT. Options granted under this Section 6 shall be exercised in
accordance with the applicable Award Agreement by the delivery of a proper
notice of exercise to the Company, setting forth the number of Shares with
respect to which the Option is to be exercised. No shares of Common Stock shall
be issued on the exercise of an Option unless the Option Price is paid for in
full at the time of exercise. Payment shall be made in cash, which may be paid
by check or other instrument acceptable to the Committee. In addition, subject
to compliance with applicable laws and regulations and such conditions as the
Committee may impose, the Option holder may deliver with his exercise notice
irrevocable instructions to a broker to promptly deliver to the Company an
amount of sale or loan proceeds sufficient to pay the exercise price. As soon
as practicable after receipt of proper notification of exercise and full
payment, the Company shall deliver to the Participant, in the Participant's
name, Share certificates in an appropriate amount based upon the number of
Shares purchased under the Option(s).
6.6 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Section 6 as it may deem advisable, including, without
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any state securities laws applicable to such
Shares.
6.7 TERMINATION OF EMPLOYMENT. Each Option, to the extent it has not been
previously exercised, shall terminate upon the earliest to occur of: (a) the
expiration of the Option period set forth in the Award Agreement; (b) for ISOs,
the expiration of three months following the Participant's Retirement (following
the Participant's Retirement, NQSOs shall terminate upon the expiration of the
Option period set forth in the Option Award Agreement); (c) the expiration of 12
months following the Participant's death or Disability; (d) immediately upon
termination for Cause; or (e) the expiration of 90 days following the
Participant's termination of employment for any reason other than Cause, Change
in Control, death, Disability, or Retirement. Upon a termination of employment
related to a Change in Control, Options shall be treated in the manner set forth
in Section 10.
6.8 NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be
sold, transferred, pledged, assigned or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, all
ISOs granted to a Participant under the Plan shall be exercisable during his or
her lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. The Committee may, in its
discretion, authorize all or a portion of NQSOs granted to a Participant to be
on terms which permit transfer by such Participant to (i) Immediate Family
Members, (ii) a trust or trusts for the exclusive benefit of such Immediate
Family Members, or (iii) a partnership in which such Immediate Family Members
are the only partners, provided that (A) there may be no consideration for any
such transfer, (B) the Award Agreement pursuant to which such Options are
granted must be approved by the Committee,
11
and must expressly provide for transferability in a manner consistent with this
Section, and (C) subsequent transfers of transferred Options shall be prohibited
except those by will or the laws of descent and distribution. Following
transfer, any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer, provided that for
purposes of this Plan, the term "Participant" shall be deemed to refer to the
transferee. The events of termination of employment shall continue to be
applied with respect to the original Participant, following which the Options
shall be exercisable by the transferee only to the extent, and for the periods
specified in this Section 6.8. Notwithstanding the foregoing, should the
Committee provide that Options granted be transferable, the Company by such
action incurs no obligation to notify or otherwise provide notice to a
transferee of early termination of the Option. In the event of a transfer, as
set forth above, the original Participant is and will remain subject to and
responsible for any applicable withholding taxes upon the exercise of such
Options.
7. RESTRICTED STOCK.
7.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine. Without limiting the generality of the foregoing, Restricted Shares
may be granted in connection with payouts under other compensation programs of
the Company.
7.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.
7.3 TRANSFERABILITY. Except as provided in this Section 7, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
7.4 OTHER RESTRICTIONS. Subject to the Plan, the Committee shall impose
such other conditions and/or restrictions on any Shares of Restricted Stock
granted pursuant to the Plan as it may deem advisable including, without
limitation, a requirement that Participants pay a stipulated purchase price for
each Share of Restricted Stock, restrictions based upon the achievement of
specific performance objectives, time-based restrictions on vesting following
the attainment of the performance objectives, and/or restrictions under
applicable federal or state securities laws. At the discretion of the
Committee, the Company may retain the certificates representing Shares of
Restricted Stock in the Company's possession until such time as all conditions
and/or restrictions applicable to such Shares have been satisfied. Except as
otherwise provided in this Section 7, Shares
12
of Restricted Stock covered by each Restricted Stock grant made under the Plan
shall become freely transferable by the Participant after the last day of the
applicable Period of Restriction, subject to applicable securities laws.
7.5 VOTING RIGHTS. During the Period of Restriction, Participants holding
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
7.6 DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. Such dividends may be paid currently, accrued as
contingent cash obligations, or converted into additional shares of Restricted
Stock, upon such terms as the Committee establishes. The Committee may apply
any restrictions to the dividends that the Committee deems appropriate. In the
event that any dividend constitutes a "derivative security" or an "equity
security" pursuant to Rule 16(a) under the Exchange Act, such dividend shall be
subject to a vesting period equal to the remaining vesting period of the Shares
of Restricted Stock with respect to which the dividend is paid.
7.7 TERMINATION OF EMPLOYMENT. Upon a Participant's death, Disability, or
Retirement, all Restricted Shares shall vest immediately. Each Restricted Stock
Award Agreement shall set forth the extent to which the Participant shall have
the right to retain unvested Restricted Shares following termination of the
Participant's employment with the Company in all other circumstances. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with each Participant, need not be
uniform among all Shares of Restricted Stock issued pursuant to the Plan, and
may reflect distinctions based on the reasons for termination of employment.
8. BENEFICIARY DESIGNATION.
A Participant under the Plan may make written designation of a
beneficiary on forms prescribed by and filed with the Secretary of the Company.
Such beneficiary, or if no such designation of any beneficiary has been made,
the legal representative of such Participant or such other person entitled
thereto as determined by a court of competent jurisdiction, may exercise, in
accordance with and subject to the provisions of Section 6, any unterminated and
unexpired Option granted to such Participant to the same extent that the
Participant himself could have exercised such Option were he alive or able;
provided, however, that no Option granted under the Plan shall be exercisable
for more Shares than the Participant could have purchased thereunder on the date
his employment by, or other relationship with, the Company and its Subsidiaries
was terminated.
13
9. RIGHTS OF ELIGIBLE PERSONS AND PARTICIPANTS.
Nothing in this Plan or any Award Agreement shall be deemed to: prevent
the Company or an Affiliate from terminating the employment, consultancy or
director status of a Participant; prevent a Participant from terminating his or
her own employment, consultancy or director status; give any Participant a right
to be retained in employment or other service by the Company or any Affiliate
for any period of time; confer on any person any right to be selected as a
Participant.
10. CHANGE IN CONTROL.
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire term; and
(b) Any restriction periods and restrictions imposed on Shares of
Restricted Stock shall lapse; provided, however, that the degree of vesting
associated with Restricted Stock which has been conditioned upon the achievement
of performance conditions pursuant to Section 5.3 herein shall be determined in
the manner set forth in Section 7.4 herein.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Section 10 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards.
11. AMENDMENT, MODIFICATION, AND TERMINATION.
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. Subject to Section 10.2
herein, the Board or the Committee may at any time and from time to time, alter,
amend, suspend or terminate the Plan in whole or in part, except that, without
approval of the stockholders of the Company, no such revision or amendment shall
increase the number of shares available for grants of ISOs under the Plan or
alter the class of participants in the Plan. Notwithstanding the foregoing,
neither the Company nor the Board or Committee on its behalf may cancel
outstanding Awards and issue substitute Awards in replacement thereof or reduce
the exercise price of any outstanding Options without stockholder approval.
14
11.2 ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan.
11.3 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification
of the Plan shall adversely affect in any material way any Award previously
granted under the Plan, without the written consent of the Participant holding
such Award.
12. WITHHOLDING.
12.1 TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
12.2 SHARE WITHHOLDING. To the extent provided by the Committee, a
Participant may elect to have any distribution to be made under this Plan to be
withheld or to surrender to the Company shares of Common Stock already owned by
the Participant to fulfill any tax withholding obligation.
13. SUCCESSORS.
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase of
all or substantially all of the business and/or assets of the Company, or a
merger, consolidation or otherwise.
14. LEGAL CONSTRUCTION.
14.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular; and, the singular shall include the plural.
15
14.2 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the illegal or invalid provision shall be
modified to the extent necessary to be legal and valid and shall be enforced as
modified.
14.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares
under the Plan shall be subject to all applicable laws, rules, and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required.
14.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under
this Plan are intended to comply with all applicable conditions of Rule 16b-3 or
its successors under the Exchange Act. To the extent any provision of the Plan
or action by the Committee fails to so comply, it shall be deemed null and void,
to the extent permitted by law and deemed advisable by the Committee.
14.5 GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Nevada.
15. RIGHTS AS A SHAREHOLDER.
No Participant to whom an Award has been granted shall have rights as a
shareholder with respect to any Shares covered by such Award, except after due
exercise of the Award and tender of the full purchase price for any Shares being
purchased pursuant to such exercise and registration of the Shares in the
Company's share register in the name of the Participant.
16. PURCHASE FOR INVESTMENT.
16.1 Unless the offering and sale of the Shares to be issued upon the
particular exercise of an Option shall have been effectively registered under
the Securities Act of 1933 (the "1933 Act"), the Company shall be under no
obligation to issue the Shares covered by such exercise unless and until the
person(s) who exercise such Option shall represent and warrant to the Company,
prior to the receipt of such Shares, that such person(s) are acquiring such
Shares for their own respective accounts, for investment, and not with a view
to, or for sale in connection with, the distribution of any such Shares. The
person(s) acquiring such Shares shall be bound by the provisions of the
following legend which shall be endorsed upon the certificate(s) evidencing
their Shares issued pursuant to such exercise or such grant:
The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended, or
under state securities laws to the extent applicable. The
shares may not be sold,
16
offered for sale, or otherwise transferred in the absence of an
effective registration statement under said Act (and any registration
or qualification as may be required under such state laws) or an
opinion of counsel satisfactory to the company and its counsel that
such registration or qualification is not required.
16.2 The Company may delay issuance of the Shares until completion of any
action or obtaining of any consent which the Company deems necessary under any
applicable law (including, without limitation, state securities or "blue sky"
laws).
17
APPENDIX
This Appendix, consisting of the Company's Annual Report on
Form 10-KSB (excluding exhibits), together with the foregoing Proxy
Statement, contains the information required to be provided by the Company's
annual report to security holders pursuant to the Rules and Regulations of
the Securities and Exchange Commission.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____________ to _____________
Commission File No. 0-23553
PHOTOGEN TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 36-4010347
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7327 OAK RIDGE HIGHWAY, SUITE B
KNOXVILLE, TN 37931
(Address of principal executive offices) (Zip Code)
(423) 769-4012
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, par value $.001 per share
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
-----
Issuer's revenues for its most recent fiscal year: $107,133.
The aggregate market value of voting common equity held by non-affiliates
computed as of March 13, 1998 was approximately $38,833,423 (computed on the
basis of the average of the closing bid and ask price of a share of Common
Stock as reported in the over-the-counter bulletin board market).
The number of shares outstanding of each of the Issuer's classes of common
equity, as of March 13, 1998,: 36,875,000
Documents Incorporated By Reference: Portions of the registrant's definitive
proxy statement for its 1998 annual
meeting of stockholders are incorporated
by reference into Part III.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
COMPANY HISTORY. The Company, through its wholly-owned subsidiary
Photogen, Inc., is a development stage company focused on creating
photodynamic-related health care products based on its proprietary simultaneous
two photon excitation technology. The Company has discovered new methods for
using laser-generated light to activate photoactive agents within deep tissue
sufficient to produce a range of beneficial therapeutic and diagnostic outcomes.
These technologies involve methods, materials and devices that may be used to
produce light and photoactive agents that will destroy diseased cells, remove
tissue or identify and diagnose disease. The Company and its business are
subject to certain Risk Factors summarized below.
The Company is the successor by merger to Bemax Corporation ("Bemax").
Bemax was a California corporation organized on June 25, 1984 to develop and
market computer printer products. Bemax completed a public offering in April
1985 of 1,000,000 Units (consisting of one share of common stock and one warrant
to acquire an additional share of common stock) at a price of $1.00 per Unit.
None of the warrants were exercised and all have since expired. Bemax remained
in the development stage and, due to lack of capital, it ceased operations in
November 1988. From 1988 through May 1997, the Company (and its predecessors)
remained inactive while seeking and evaluating possible acquisition candidates.
In October 1994, Bemax issued 21,595,704 shares (all share amounts in this
paragraph are adjusted to reflect a subsequent two-for-one reverse stock split)
of common stock to Theodore Tannebaum, resulting in Mr. Tannebaum owning 95% of
Bemax's outstanding common stock. In December 1994, Bemax issued an aggregate
of 6,478,700 shares of common stock to Robert J. Weinstein, M.D. and another
investor. In March 1995, Bemax merged into its wholly-owned Nevada subsidiary
named M T Financial Group, Inc. ("M T Financial") which was organized on
December 28, 1994. M T Financial was the surviving corporation and Bemax
thereby changed its state of incorporation from California to Nevada. As part
of that merger, each two shares of Bemax common stock were converted into one
share of M T Financial common stock.
M T Financial learned of the possibility of acquiring Photogen in
February of 1997. At that time, Photogen was organized as a Tennessee
limited liability company. As part of the acquisition, the limited liability
company dissolved and transferred its assets to its five members, who in turn
transferred those assets to Photogen, Inc. (a newly organized Tennessee
corporation) and the five members of the limited liability company became
equal shareholders of Photogen, Inc. Photogen, Inc. then merged with a
subsidiary of M T Financial and became M T Financial's wholly-owned
subsidiary. In connection with M T Financial's acquisition of Photogen, the
following occurred (in addition to certain other material events discussed in
the Company's filings with the Securities and Exchange Commission):
- M T Financial changed its name to "Photogen Technologies, Inc."
- In exchange for their interest in Photogen, Inc., the Company issued
shares to the five Photogen principals, resulting in their ownership
of 67% of the Company's outstanding common stock; Mr. Tannebaum, Dr.
Weinstein and two other investors retained beneficial ownership of 30%
of the outstanding common stock; and the public (approximately 450
stockholders) retained 3% of the outstanding common stock.
- Drs. Wachter, Fisher, Dees, Weinstein and Mr. Smolik were elected to
the Board of Directors of the Company and Photogen, Inc.; Drs. Wachter
and Weinstein and Mr. Smolik were elected to the Executive Committee;
and Mr. Smolik became Chief Executive Officer of both entities.
- The Company's Articles of Incorporation and By-laws were amended to
implement unanimous voting requirements by the Board of Directors and
Executive Committee regarding certain extraordinary events.
- Dr. Weinstein and two other investors purchased additional shares of
common stock for an aggregate of $1,803,450 and, with Mr. Tannebaum,
made a capital contribution to the Company so that its cash and cash
equivalents equaled $3,000,000.
Since May 1997, the Company has obtained laboratory space, commenced animal
research studies and engaged in the other activities described below. The
Company currently has six employees, all of whom work on a full-time basis
primarily on matters for Photogen, Inc.
PHOTODYNAMIC THERAPY. The photodynamic therapeutic process combines a
photoactive agent (a drug) with light at a specific wavelength in a manner that
produces a therapeutic effect. The photodynamic process is designed to destroy
undesirable or diseased cells, bacteria, viruses and other pathogens.
Photodynamic therapy is of great interest because it offers the potential for
non-invasive treatment of diseases like cancer while avoiding chemotherapy,
radiation therapy, surgery and the discomfort and hazards associated with these
treatments.
In the early 1900's, scientists began to explore the phenomenon that
certain compounds produced tissue irritation after being exposed to sunlight.
These early observations resulted in two important medical applications of light
and photoactive agents: laser surgery and photodynamic treatment of disease.
Subsequently, light delivered by a laser has been used in "bloodless" surgery
and other applications ranging from removing tattoos to removing wrinkles. The
first application of photodynamic therapy was the use of the photoactive agent
Psoralen and ultraviolet light to treat severe cases of psoriasis.
PHOTOFRIN-Registered Trademark- is a recently approved photoactive agent used
with red light to treat esophageal cancer and non-small cell lung cancer.
Psoralen and PHOTOFRIN-Registered Trademark-, both of which were developed and
are owned by others, are the only therapeutic photoactive agents currently
approved by the United States Food and Drug Administration (the "FDA").
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Photodynamic therapies may be delivered without surgery, chemotherapy, or
radiation therapy. The Company believes that photodynamic treatments may be
administered multiple times without creating a resistant or more virulent form
of the disease, may be easily administered, cost less than conventional
treatments, and may avoid or postpone the pain and complications of conventional
therapy.
Each photoactive agent has unique chemical and biological
characteristics, and requires light of a specific wavelength to produce a
therapeutic effect. The activated agent has a short life and impacts only
those cells containing the agent that are exposed to the required light
energy. For example, Psoralen is inactive in the absence of light. However,
ultraviolet light at 350-400 nm (nanometers) transforms Psoralen into a
highly toxic compound that binds with DNA, making it impossible for the cell
to survive. PHOTOFRIN-Registered Trademark- has a different chemical
structure and therefore requires light of a different wavelength to produce
its therapeutic effect. PHOTOFRIN-Registered Trademark- activated with light
at 400-630 nm, reacts with oxygen in the cell to produce a short-lived
compound called singlet oxygen. Singlet oxygen is extremely toxic and
destroys all cellular components that it contacts.
Photoactive agents used by the Company's competitors are activated when the
agent absorbs a single unit of light energy (a photon) at the required
wavelength. This process of activation is called "single photon absorption."
Lasers or high-intensity lamps are commonly used to provide light with the
necessary energy. Single photon absorption is a linear process, activating
photoactive agents present in any tissue or cell in the path of the light beam.
Since the beam -- and therefore the site of activation -- cannot be limited to
diseased cells or tissues, any control of the activation site must be achieved
by physically restricting where the light is directed. Furthermore, damage can
occur in surrounding, healthy tissue which is in the line of the laser's light
beam. For these reasons, competitors' applications have been limited to topical
treatments or to treatments in which the diseased tissue is reached through
invasive endoscopes, catheters or similar devices.
The ability to non-invasively treat diseased cells deep within tissue is
further limited by the natural tendency of tissue components to absorb and
scatter light. Tissue components such as water, blood, proteins and melanin all
absorb and scatter light energy at different wavelengths. In essence, scatter
occurs when light (photons) bounces off various tissue components. Both
absorption and scatter reduce energy in the light beam available to activate
photoactive agents. This reduction can be so significant as to limit the
effective treatment depth to a few millimeters or less.
The amount of light energy lost to absorption and scatter varies with the
wavelength of the light: the longer the wavelength, the less the absorption and
scatter. The depth of treatment achieved with light at 1000 nm will be many
times greater than that achieved with light at 500 nm. The Company's tests
suggest that natural absorption and scatter for light used to activate Psoralen
and PHOTOFRIN-Registered Trademark- (at wavelengths up to 630 nm) is still
significant and limits depth of treatment to a few millimeters. This limitation
is especially important in the treatment of large tumors where the light may not
be able to penetrate the entire tumor mass or where diseased cells are located
3
centimeters deep within the body. Photodynamic processes that use longer
wavelength light hold the promise of deeper penetration without requiring
invasive treatment.
The Company has discovered methods for using light energy to activate
photoactive agents that address many of the limitations of current
photodynamic therapy processes based on single photon absorption. The
Company's technologies produce and use a special beam of light to activate
photoactive agents, thus offering improvements in the areas of photodynamic
therapy and photodynamic imaging. Each of the Company's technologies are in
the experimental or development stage; and the description of these
technologies involves forward looking statements that are subject to the Risk
Factors described below. The Company's technologies contained within its
patent applications currently filed or expected to be filed with the United
States Patent and Trademark Office are:
- Simultaneous two photon excitation
- Fast pulsed delivery of light energy
- Cellular targeting
- Photoactive agents
- Imaging and signal processing
1. SIMULTANEOUS TWO PHOTON EXCITATION. The Company's light beam is
special in that it contains photons at approximately one half the energy of the
photons conventionally used to activate photoactive agents in single photon
absorption processes. The Company's technology is based on "simultaneous two
photon excitation:" a beam that uses two photons of longer wavelength light to
activate photoactive agents so that absorption and scatter are significantly
reduced. The Company expects simultaneous two photon excitation to accomplish
non-invasive treatment at depths greater than those achieved by the current
single photon absorption processes used by its competitors.
For example, Psoralen, when activated with single photon absorption,
requires light energy (one photon) at 350-400 nm. Psoralen can be activated
using simultaneous two photon excitation with two photons each at 700-800 nm.
PHOTOFRIN-Registered Trademark-, activated with single photon absorption,
requires one 350-630 nm photon; but when activated with simultaneous two photon
excitation, it requires two photons each at 700-1260 nm. In both cases,
excitation occurs through absorption of two photons to reach the same activated
state reached with one photon at shorter wavelengths. The Company's alternative
procedure is designed to achieve the same level of activation and the same level
of therapeutic effectiveness as single photon activation.
Simultaneous two photon excitation provides the potential to control or
limit the site of agent activation. Single photon absorption is a linear
process, activating photoactive agents all along the light beam path.
Because simultaneous two photon excitation requires two photons to activate
the photoactive agent, it is a nonlinear process. The rate at which the
photoactive agent is activated is a function of the square of photon
concentration and can be substantially limited to the focus of a beam where
the power is high. This feature, together with the use of optics to focus
the beam, enables three
4
dimensional control over the activation site without incidental activation or
destruction of healthy cells outside the target area. The ability to limit
activation of a photoactive agent to a defined three dimensional space may
improve the overall safety and efficacy of photodynamic therapy.
Activating photoactive agents with two lower energy, longer wavelength
photons should allow the safe use of many previously unacceptable photoactive
agents. These agents, when activated using single photon absorption
processes, require light between 350-550 nm. Light at these wavelengths
falls in the ultraviolet or visible range and may increase the chance of
developing skin cancer. For example, Psoralen, presently activated with
350-400 nm light, can be activated using simultaneous two photon excitation
at 700-800 nm without exposing the patient to ultraviolet light. The Company
believes this new ability will expand the applications for Psoralen beyond
treating psoriasis. Like Psoralen, other photoactive compounds activated with
ultraviolet or visible light may also become candidates for simultaneous two
photon activation, yielding useful new photoactive agents.
The human body also contains its own mixture of photoactive agents that
can be used to produce a desirable therapeutic effect. These photoactive
agents are used in laser surgery, skin resurfacing, hair removal and delicate
eye surgery. Typically, a laser is used to provide light energy at a certain
wavelength. Water, blood, proteins and other compounds absorb this light and
convert the energy to highly localized heat. The targeted tissue's
temperature quickly rises, causing cells to explode or burn at the point of
illumination. These same photoactive agents within the body can be activated
with simultaneous two photon excitation, allowing the Company's process to
also be useful for surgical applications. The Company has not completed
demonstration of this technology in animal or human models, but expects to do
so in animal trials it is currently conducting (see "Animal Studies," below).
2. FAST PULSED DELIVERY OF LIGHT ENERGY. The method by which the
light energy is packaged and delivered contributes to the safety and efficacy
of simultaneous two photon excitation. The Company uses fast pulsed, high
peak power laser light to activate photoactive agents. This capability is
most significant when used in laser surgery. Despite the current success of
lasers for surgery, the Company believes there is a need for devices that
offer reduced damage to adjacent tissue, better spatial control and improved
treatment margins. The Company believes that the use of fast pulsed, high
peak power lasers may provide valuable enhancements to current procedures.
For example, fast pulsed laser light can be used to activate water in cells
to quickly destroy cells. This capability is especially useful in surgery and
in the removal of surface cells. The expected advantage of this approach is
that there may be much less damage to adjacent tissue, less post-procedure
swelling and faster healing. The Company has not yet completed demonstration
of this technology in animal or human models, but expects to do so in animal
trials it is currently conducting (see "Animal Studies," below).
3. CELLULAR TARGETING. The Company has demonstrated, IN VITRO (in other
words, "outside the body," as in a test tube, petri dish or similar medium), the
ability to add a targeting molecule to a photoactive agent, use the targeting
molecule to deliver the photoactive agent to a specific cellular target, and
then activate the photoactive agent to destroy the cell. Increasing the
5
specificity of the photoactive agent is another way to enhance overall treatment
specificity. Company scientists are continuing to pursue development of
targeted photoactive agents that will allow cell-specific delivery and
treatment. The Company has not demonstrated this technology in animal or human
clinical trials.
4. PHOTOACTIVE AGENTS. Company scientists are exploring development of
new photoactive agents that are preferentially absorbed in diseased cells and
may be activated with the Company's simultaneous two photon excitation
technology at wavelengths that should increase tissue treatment depth. This
technology is in the experimental stage and has not been demonstrated in animal
or human clinical trials.
5. IMAGING AND SIGNAL PROCESSING. Simultaneous two photon excitation,
fast pulsed lasers and cellular targeting, when combined with signal
processing technology described in one of the Company's patent applications,
may enable the development of a safe, sensitive diagnostic imaging procedure.
Such a laser-based procedure would avoid exposing a patient to harmful
x-rays and enable improved early detection of diseases such as breast cancer.
To date, x-rays have been the most popular tool for discovering many forms
of cancer and other diseases. The danger and limitations of x-rays are well
known; unfortunately, no other imaging technique has so far been able to replace
x-rays. A safe and improved alternative to x-rays for soft tissue imaging is
important because it can provide the early detection of disease. In the case of
breast cancer, x-ray mammography can only detect suspicious masses at sizes
greater than 0.5 cm, and it cannot distinguish between a benign calcification or
a malignant tumor.
There are a number of alternative techniques being developed, but none the
Company is aware of offers the potential sensitivity of a laser-based imaging
system. A laser imaging system, coupled with targeted flourescent imaging
agents, has the potential to identify suspicious masses and provide a diagnosis
at the same time. The Company's imaging process will require the use of a
cell-specific, fluorescent imaging agent. When the agent is administered to the
patient, it should travel to and concentrate in the diseased tissue. Laser
light is used to activate the imaging agent, causing it to fluoresce and produce
a detectable signal used to produce a three-dimensional image of the tissue. If
the imaging agent is specific for a certain type of cancer, for example, and a
mass is found, the diagnostician may conclude that the mass must be cancerous
because the imaging agent would attach only to cancerous tissue. Therefore,
detection and diagnosis are possible in one procedure. Problems faced by
developers of competing laser imaging systems result from detecting light
emitted by tissue and converting the detected signals into two or three
dimensional images. While there are many software processes that convert
signals to images (a process called tomography) the Company believes these laser
processes have so far been unable to produce images that meet the requirements
for sensitivity and early detection. The Company is not aware of any laser
mammography devices currently approved by the FDA.
The Company's two photon imaging technology has been demonstrated only on a
small IN VITRO basis, and has not been demonstrated in animal or clinical
trials.
6
ANIMAL STUDIES. The Company is currently conducting animal studies to
test and evaluate the application of certain aspects of its technologies in
animals. The objectives of the animal studies are to test the two photon
excitation process with respect to safety, tumor reduction, activation of
photoactive agents and treatment depth. The studies are being conducted
under a contract with the University of Tennessee School of Veterinary
Medicine (which terminates on September 30, 1998) and another contract with
the Thompson Cancer Survival Center (terminating on October 30, 1998).
Preliminary results of these studies demonstrate controlled, simultaneous
two-photon activation of PHOTOFRIN-Registered Trademark-
(PHOTOFRIN-Registered Trademark- is a photoactive agent produced by QLT
PhotoTherapeutics, Inc.) using light at 730 nm, in the livers of laboratory
mice. The Company believes this is the first demonstration of in vivo
activation of a photoactive agent using a two photon activation process.
Results obtained to date confirm the noninvasive activation of
PHOTOFRIN-Registered Trademark- by observation of lesions formed on the livers
of PHOTOFRIN-Registered Trademark- treated laboratory mice. Lesions were formed
by focusing a 730 nm beam through the skin of the mouse, onto the mouse liver.
Lesions were well defined, with cell necrosis limited to the focal region of the
activation beam. Microscopic examination of tissues confirmed localization of
necrosis to the beam focus, and a notable absence of collateral damage. In
contrast, substantial collateral damage was clearly observed in control animals
treated with PHOTOFRIN-Registered Trademark- and activated using a single photon
activation process with light at 630 nm. Additional experiments, designed to
measure the increase in tissue temperature during exposure to laser irradiation,
showed that light at 730 nm caused substantially less heating than light at 630
nm. Furthermore, tissue treated with 730 nm light alone (without
PHOTOFRIN-Registered Trademark-) showed no detectable adverse effect. These
results were made possible using Photogen's proprietary simultaneous two-photon
activation process, which allows use of activation wavelengths that more easily
penetrate tissue. Photogen's activation process further enables three
dimensional control over the activation site. The results obtained from the
animal studies to date are preliminary in nature, and the Company's technologies
must undergo significant additional testing and regulatory approval before it
can commercialize any of these technologies. See "Risk Factors," below.
PATENTS AND STATUS. In October 1996, Photogen filed two patent
applications with the United States Patent and Trademark Office. The first
patent application relates to therapeutic methods, and the second application
relates to imaging methods. Both patent applications involve the use of
simultaneous two photon excitation, fast-pulsed delivery of light energy and
cellular targeting. The imaging patent application also contains technology
with respect to signal processing. The Patent and Trademark Office notified the
Company that its therapy application should be divided into three applications
and could not proceed as just one application. The Company elected to first
pursue the divisional application covering its method of treating tissue with
simultaneous two photon excitation of photoactive agents. In November, 1997,
the Company received a written notice of allowance from the Patent and Trademark
Office allowing over 60 claims on this first divisional application. The other
inventions are expected to be pursued in other divisional applications. The
Company is not aware of any developments at the Patent and Trademark Office
regarding its imaging technology. See "Risk Factors -- Uncertainties Regarding
Patent Matters," below.
7
The Company has also sought patent protection for the technologies
reflected in its therapy and imaging patent applications in India and under the
Patent Cooperation Treaty, which covers countries in Europe and such other
countries as Japan, Korea, China, Brazil and others.
OBJECTIVES. The Company's overall objective is to leverage its knowledge
in photophysics and biochemistry and its proprietary technologies through
contractual collaborations with third parties to thereby produce products and
generate revenues.
The Company's business strategy to achieve this goal is summarized below:
1. Utilize contractual collaborations with third parties to access the
skills and resources required to design, test, obtain regulatory
approval, manufacture, sell and support light delivery and imaging
systems and surgical laser devices that incorporate two photon
excitation and the Company's other technologies.
2. Focus initial product development on surgical laser devices and laser
activation systems that can be used to activate existing photoactive
agents. Follow development of these activation systems with future
development of the Company's photoactive agents, targeting agents and
deep tissue applications.
3. Focus the Company's internal efforts on demonstrating the Company's
technology in appropriate animal and human models, developing
activation procedures for existing photoactive agents, cellular
targeting and imaging agents, and demonstrating the efficacy of the
Company's imaging technology.
The Company does not expect to achieve revenues from operations in the near
future. During the last fiscal year, substantially all of the Company's
operating expenses have been devoted to research and development activities.
None of these costs have been borne directly by customers and the Company will
not be able to pass on any such costs to customers unless and until it has a
marketable product. The Company's first revenues, if any, are expected to
derive from licensing fees and royalties from collaborative relationships.
Thereafter, if and when the Company develops a saleable product, the Company
expects to generate revenues from product sales.
The Company's objectives and business strategy are subject to change based
on numerous factors, including the results of preclinical and clinical testing,
the availability of suitable collaborative relationships, the nature of
competition, regulatory requirements and the availability of capital. The
Company's ability to implement its business strategy and achieve revenues is
subject to certain Risk Factors, described below.
POTENTIAL PRODUCT APPLICATIONS. Currently, the Company has not developed
any products, and the Company's ability to do so is subject to certain Risk
Factors described below. The Company believes its technologies have potential
applications in the following three market areas:
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- Photodynamic treatment of diseases
- Diagnostic imaging
- Surgical laser devices
Potential products that service these markets are identified in Table I below:
TABLE I
POTENTIAL MARKETS AND PRODUCTS
MARKET POTENTIAL PRODUCTS
- --------------------------------------------------------------------------------
Photodynamic treatment of diseases Photoactive agents
Light delivery systems
Disease-specific targeting agents
Delivery of treatment services to
patients
Diagnostic imaging Laser based imaging systems
Imaging agents
Disease-specific targeting agents
Delivery of treatment services to
patients
Surgical laser devices Surgical laser devices
Treatment tools
Delivery of treatment services to
patients
Table II provides a partial listing of the types of diseases that may be
treated with photodynamic therapies.
TABLE II
EXAMPLES OF APPLICATIONS FOR PHOTODYNAMIC THERAPY
GENERAL DISEASE CATEGORY SPECIFIC CONDITION
- --------------------------------------------------------------------------------
Cancer Barrett's Esophagus
Non-small cell lung cancer
Non melanoma skin cancer
Melanoma
Breast cancer
Prostate cancer
Colorectal cancer
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GENERAL DISEASE CATEGORY SPECIFIC CONDITION
- --------------------------------------------------------------------------------
Skin disease Psoriasis
Actinic keratosis
Ophthalmology Age related macular degeneration
Cardiovascular Plaque removal
Restenosis
AIDS Kaposis sarcoma
Infectious Disease Contained bacterial infections
Fungal infections
Viral infections
Parasitic infections
GOVERNMENT REGULATIONS. All of the products the Company presently
contemplates developing will require approval of the United States Food and Drug
Administration ("FDA") for sales and use within the United States and of
comparable foreign agencies for sales outside the United States. The FDA and
comparable regulatory agencies impose substantial requirements on the
manufacturing and marketing of pharmaceutical products and medical devices.
These agencies and other entities regulate, among other things, research and
development activities and the testing, manufacture, quality control, safety,
effectiveness, labeling, storage, record keeping, approval, advertising and
promotion of the Company's proposed products. At present the Company has made
no submissions to the FDA regarding any of its proposed products. See "Risk
Factors -- Unproven Safety and Efficacy; No Clinical Trials," below.
The process required by the FDA before the Company's products may be
marketed in the U.S. generally involves the following: (i) preclinical
laboratory and animal tests; (ii) submission of an application which must become
effective before clinical trials may begin; (iii) adequate and well-controlled
human clinical trials to establish the safety and efficacy of the product in its
intended indication; and (iv) FDA approval of the application.
For pharmaceutical products, preclinical tests include laboratory
evaluation of the product, its chemistry, formulation and stability, as well as
animal studies to assess the potential safety and efficacy of the product. If
the FDA is satisfied with the results and data from preclinical tests, it will
authorize human trials. Human clinical trials are typically conducted in three
sequential phases which may overlap. Each of the three phases involves testing
and study of specific aspects of the effects of the pharmaceutical on human
subjects, including testing for safety, dosage tolerance, side effects,
absorption, metabolism, distribution, excretion and clinical efficacy. The FDA
recently
10
announced a new policy intended to accelerate the approval process for cancer
therapies, and the Company intends to explore ways to take advantage of that
accelerated process.
Historically, obtaining FDA approval for photodynamic therapies has been a
significant challenge. Not only must the photoactive agent be approved as a
drug, but the laser activation system must also be approved as a medical device.
The FDA has dealt with this "combination product" by delegating authority for
overall approval to the drug side of the agency. Accordingly, when a
photodynamic therapy agent is approved as a drug, it is approved for a specific
indication under its specific labeling. Only one laser is approved to deliver
the treatment, and currently PHOTOFRIN-Registered Trademark- has been approved
for use in treating esophageal cancer and non-small cell lung cancer. The
Company's competitors have reported progress with the FDA regarding the new
drugs SnET2 and ALA (aminolevuline acid). Both drugs are in Phase II/III
clinical trials.
The FDA is also gaining experience with lasers through the many 510(k) and
premarket approval submissions for non-photodynamic therapy laser applications.
Medical devices can be cleared for commercial distribution through a
notification to the FDA under Section 510(k) of the applicable statute. The
510(k) notification must demonstrate to the FDA that the device is as safe and
effective or substantially equivalent to a legally marketed device that was or
is currently on the United States market and therefore does not require
premarket approval. Certain devices that sustain human life, are of substantial
importance in preventing impairment of human health, or which present a
potential unreasonable risk of illness or injury, are subject to special
controls through a premarket approval ("PMA") process in order to obtain
marketing clearance.
The Company plans to capitalize on existing knowledge about photoactive
drugs and medical lasers by developing initial treatments based on existing
photoactive agents. The Company hopes that combining its techniques with the
body of information already in existence will reduce product approval times.
The testing and approval process requires substantial time, effort, and
financial resources, and there can be no assurance that any approval will be
granted on a timely basis, if at all. Success in preclinical or early stage
clinical trials does not assure success in later stage clinical trials. The FDA
or the research institution sponsoring the trials may suspend clinical trials or
may not permit trials to advance from one phase to another at any time on
various grounds, including a finding that the subjects or patients are being
exposed to an unacceptable health risk. Once issued, a product approval may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur after the product reaches the market. If regulatory approval of
a product is granted, such approval may impose limitations on the indicated uses
for which a product may be marketed. In addition, the FDA may require testing
and surveillance programs to monitor the effectiveness of approved products that
have been commercialized, and the agency has the power to prevent or limit
further marketing of a product based on the results of these post-marketing
programs. Further, later discovery of previously unknown problems with a
product may result in restrictions on the product,
11
including its withdrawal from the market. Marketing the Company's products
abroad will require similar regulatory approvals and is subject to similar
risks.
The Company, in the ordinary course of business, must also comply with a
variety of other governmental regulations. These regulations impose, among
other things, standards of conduct, recordkeeping, labeling and reporting.
Specific regulations affecting the Company's current and proposed operations
are environmental discharge requirements, good laboratory practices governing
use of biological substances, good manufacturing practices regarding the
manufacture of drugs and other products, animal care and use regulations,
labor and general business practices laws and regulations for the use of
lasers. The Company does not presently anticipate the cost of compliance in
these areas to present a major obstacle to the Company achieving its goals.
Another form of regulation that will impact the Company's business are the
recent developments in health care reimbursement and delivery practices as a
means to better control health care costs. See "Risk Factors -- Uncertainties
Regarding Reimbursement and Health Care Reform," below. The Company views these
changes as a potential benefit to its business. Photodynamic therapy and laser
based procedures are usually less complicated and costly than traditional
surgery and radiation and can be applied in an outpatient setting. For these
reasons, it is possible that photodynamic therapy may become a preferred
procedure by health insurers and other third party payors.
COMPETITION. The industry in which the Company operates is intensely
competitive, and there is rapid change with respect to technology for the
diagnosis and treatment of diseases. Existing or future pharmaceutical and
laser companies, government entities and universities may create developments
that accomplish similar functions to the Company's technologies in ways that
are less expensive, receive faster regulatory approval, or receive greater
market acceptance than the Company's products. See "Risk Factors --
Substantial Competition," below.
The Company's competitors generally have greater capital resources and
access to capital; greater internal resources for activities in research and
development, clinical testing and trials, production and distribution; existing
collaborative relationships with third parties; and have made greater progress
in the preclinical and clinical testing of their products. In addition, the
Company's competitors may be disinclined to form collaborative relationships
with the Company directly, or to permit their collaborative partners to work
with the Company. See "Risk Factors -- Reliance on Third Parties, Collaborative
Relationships and Employees," below. The Company is aware of one competitor,
QLT PhotoTherapeutics, that has already received FDA approval for use of its
proprietary photoactive agent, PHOTOFRIN-Registered Trademark-, in treatment of
esophageal cancer and non-small cell lung cancer. Other competitors, namely
Miravant, Inc. and Dusa Pharmaceuticals, have advanced their proprietary
photoactive agents to Phase II/III clinical trials.
12
The Company believes that its unique technologies may offset to an extent
the disadvantages from its competitive position. The Company's technology,
based on the two photon excitation model, may change the traditional emphasis in
photodynamic therapy from the drug to the light delivery source. The Company
believes this may enable it to add value to existing and future products of drug
manufacturers. In addition, the unique properties of the Company's laser
activation process may give it a competitive advantage over other light delivery
methods that require invasive procedures.
RISK FACTORS
The Company cannot provide assurances that it will successfully achieve its
goals or the commercial development of its technology in the foreseeable future.
The Company's success in this regard must at this time be deemed speculative.
This Form 10-KSB and other announcements and documents of the Company contain
forward-looking statements which involve risks, uncertainties and other factors
that may cause the Company's actual results or performance to differ materially
from any results or performance expressed or implied by such forward-looking
statements. The statements under the caption "Risk Factors" are intended to
serve as cautionary statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and should be read in conjunction with the
forward-looking statements in this Report and statements presented elsewhere by
management of the Company. Factors that could cause or contribute to those
differences include the following:
DEVELOPMENT STAGE COMPANY; NO PRODUCTS. The Company and its technology are
in an early stage of development. The Company does not have any products for
sale and has not generated revenues from sales. The Company does not expect to
achieve revenues for at least several years. The products currently
contemplated for development by the Company will require significant additional
research and development, preclinical and clinical testing and regulatory
approval prior to commercialization. There can be no assurances that the
Company's research or product development efforts will be successfully
completed, or that any resulting products will be successfully transformed into
marketable products, that required regulatory approvals can be obtained, that
products can be manufactured at an acceptable cost and with appropriate quality,
that any approved products can be successfully marketed, or that any products
will be favorably accepted in the market.
HISTORY OF LOSSES; NO ASSURANCE OF FUTURE PROFITS; NO DIVIDENDS. The
Company and its predecessors have not declared or paid any cash dividends to
stockholders, and the Company does not expect to do so in the foreseeable
future. The Company expects to incur substantial and increasing losses for at
least the next several years as its financial resources are used for research
and development, preclinical and clinical testing and regulatory activities,
manufacturing, marketing and
13
related expenses. The Company cannot provide assurances that it will be able to
achieve profitability in the future.
UNPROVEN SAFETY AND EFFICACY; NO CLINICAL TRIALS. None of the Company's
proposed drug and device products have completed the extensive preclinical and
clinical testing for efficacy and safety in animals and humans required for
regulatory approval prior to commercial use. This process may take at least
several years, and the Company may encounter problems or delays. If clinical
trials are successful, there can be no assurances that the Company's proposed
products will demonstrate sufficient safety or efficacy to warrant approval by
the FDA or other domestic or foreign regulatory authorities or that any
approvals will cover the clinical indications for which the Company may seek
approval. See "Government Regulations," above.
RELIANCE ON THIRD PARTIES, COLLABORATIVE RELATIONSHIPS AND EMPLOYEES. The
Company does not have manufacturing or clinical testing facilities for its
proposed products. The Company intends to enter into collaborative
relationships with third parties in connection with the research and
development, preclinical and clinical testing, manufacturing, marketing and
distribution of its proposed products. The Company initially will also be
dependent on third parties for supply of laser products and for supplies of
photodynamic drugs. There can be no assurances that the Company will be able to
negotiate acceptable collaborative and supply arrangements or that collaborative
arrangements will result in marketable products. In addition, there can be no
assurances that collaborative relationships will not limit or restrict the
Company or give the Company an adequate supply of necessary resources. Further,
there can be no assurances that the Company's collaborative partners will not
develop or pursue alternative technologies either on their own or with others,
including the Company's competitors, as a means of developing or marketing
products for the diseases targeted by the collaborative programs and the
Company's proposed products. The Company is also highly dependent upon six
employees for scientific and management expertise.
SUBSTANTIAL ADDITIONAL FINANCING REQUIRED. The Company has incurred
negative cash flows from operations since its inception and will expend
substantial funds in connection with its research and development programs.
The Company will require substantial additional funding (the amount of which
cannot be accurately estimated at this time; however, the amount could be at
least $50 million) to continue or undertake its research and development
activities, clinical testing and manufacturing, marketing, sales,
distribution and administrative activities. Depending on market conditions,
the Company will attempt to raise additional capital through equity and debt
offerings, collaborative relationships and other available sources. No
assurances can be given that additional funds will be available on acceptable
terms (if at all) or the extent of dilution to existing stockholders that may
result from such offerings. See "Management's Discussion and Analysis of
Financial Condition or Plan of Operation," below.
SUBSTANTIAL COMPETITION. Many of the Company's competitors have
substantially greater financial, technical and human resources than the Company
and, alone or with collaborative
14
partnerships, have substantially greater experience in developing products,
conducting preclinical or clinical testing, obtaining regulatory approvals and
manufacturing and marketing. See "Competition," above.
UNCERTAINTIES REGARDING REIMBURSEMENT AND HEALTH CARE REFORM. Third party
payors (including health insurers, managed care entities and similar
organizations) are increasingly challenging the price of medical procedures and
services and establishing protocols which may limit physicians' selections of
products and procedures. The extent to which third party payors will provide
reimbursement for health care procedures and services (especially those using
innovative technologies) is uncertain, and there can be no assurances that
adequate reimbursement coverage will be available to enable the Company to
achieve market acceptance of its proposed products or to maintain price levels
sufficient for realization of an appropriate return on its proposed products.
See "Government Regulations," above.
UNCERTAINTIES REGARDING PATENT MATTERS. The Company's success will depend,
in part, on its ability to obtain, assert and defend its patents, protect trade
secrets and operate without infringing the proprietary rights of others. There
is a risk that some of the Company's patent applications will not result in
issued patents; and there is a risk that any issued patents will not provide the
Company with proprietary protection or competitive advantages, will be designed
around by others, will be challenged by others and held to be invalid or
unenforceable or that the patents of others will have a material adverse effect
on the Company. The Company's current technology and any related patents are
subject to two Confirmatory Licenses in favor of the United States Government as
required by applicable regulations, in which the Company granted an irrevocable
license to the Government to use the technology under certain circumstances and
granted certain "march-in rights" (permitting the Department of Energy to make
use of the technology under certain circumstances). The Company also seeks to
protect its proprietary technology and processes in part by confidentiality
agreements; however, there can be no assurances that these agreements will not
be breached, that the Company will have adequate remedies for any breach, or
that the Company's trade secrets will not otherwise become known or be
independently discovered by competitors. See "Patents and Status," above.
CONTROL BY EXISTING STOCKHOLDERS. As of December 31, 1997, the Company's
officers, directors and principal stockholders beneficially owned approximately
95% of the outstanding common stock. The Company's principal stockholders are
also parties to a Voting Agreement concerning the election of certain designees
to the Board of Directors of the Company and Photogen, Inc. These stockholders
will be able to elect the Company's directors and will have the ability to
influence significantly the Company and the direction of its business and
affairs. Such concentration of ownership may delay or prevent a change in
control of the Company, and may also result in the scarcity of outstanding
shares currently available for purchase on the open markets. These factors may
affect the market and the market price for the common stock in ways that do not
reflect the intrinsic value of the Company's stock. See "Security Ownership of
Certain Beneficial Owners and
15
Management" in the Company's definitive proxy statement for the 1998 annual
meeting of stockholders and "Management's Discussion and Analysis of Financial
Condition or Plan of Operation," below.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices and laboratory consists of approximately
4,000 square feet in Knoxville, Tennessee. Approximately 1,000 square feet of
the facility are subject to a Lease Agreement between Photogen, Inc. and the
landlord. The Company leases the balance of space in this facility under a
Consent and Assignment of Lease from Genase, L.L.C. and, therefore, is
subject to Genase, L.L.C.'s Master Lease with P.C. Powell and Wilma Powell
(several directors of the Company are associated with Genase, L.L.C. -- see
"Certain Relationships and Related Transactions," below). The Company's
lease also entitles it to use certain scientific equipment located in this
facility. The property and equipment are in good condition. In the opinion of
management, the Company's interest in the facility is adequately covered by
insurance. The Company pays a monthly rental of $4,680 for the facility
(including certain equipment) plus charges for utilities and similar items.
The leases expire in 1999 and 2000 respectively, and the Company has two
options to renew the leases for additional terms of three years each. The
Company also has an option to purchase the facility at any time during the
term of the lease or any renewal period. There are no present plans for
further improvement or development of the leased space, although the Company
may acquire or lease additional facilities or equipment as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material litigation or
proceeding and is not aware of any material litigation or proceeding threatened
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the stockholders of the Company for a
vote during the fourth quarter of the 1997 fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION FOR COMPANY COMMON STOCK. The Company maintains no
active trading market for its common stock, however, the Common Stock has been
traded in the over-the-counter "bulletin board" market from time to time under
the symbol "PHGN."
16
The high and low trading prices for the Company's common stock (including M
T Financial during 1996; see "Overview of Company," above) during each quarter
of the last two fiscal years are set forth below.
Year Ended Year Ended
December 31, 1996 December 31, 1997
(Amounts in $)
High Low High Low
---- --- ---- ---
1st Quarter .50 .50 .625 .625
2nd Quarter .625 .625 --- ---
3rd Quarter .625 .625 5.00 2.00
4th Quarter .625 .625 12.00 4.375
For the period January 1, 1998 through March 13, 1998, the low and high
prices for the Company's common stock were $10.75 and $18.75, respectively.
Volume for the period January 1, 1998 through March 13, 1998 was
approximately 211,335 shares.
The foregoing information was obtained from the National Association of
Securities Dealers as reported in the over-the-counter "bulletin board." The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions. The foregoing
information for 1996 and 1997 reflects trade prices, and not bid or ask
prices, because the small number of trades through market makers for the
Company's stock historically has not yielded meaningful bid and ask prices
(however, in the fourth quarter of 1997, volume was 390,723 shares). See
"Risk Factors -- Control by Existing Stockholders," above, regarding the
possible effects of the concentrated ownership of the Company's stock on the
market and price of the stock.
There are no shares of common stock subject to outstanding options or
warrants to purchase, or securities convertible into, common stock that have
been created, agreed to or authorized by the Company (certain stockholders,
however, have granted warrants covering an aggregate of 960,000 of
their shares; see "Security Ownership of Certain Beneficial Owners and
Management," below).
The Company has no agreements to register under the Securities Act of 1933
any shares held by its stockholders.
17
Approximately 35,569,878 shares of common stock are "restricted stock"
or are beneficially owned by persons who are currently, or during the last 12
months were, affiliates of the Company as defined in Rule 144 under the
Securities Act. A portion of those shares would be eligible for resale by
Company affiliates and others who have satisfied the requisite holding
periods, subject to the volume limitations and other provisions of Rule 144
and applicable law.
As of December 31, 1997, the Company's common stock was held by
approximately 482 shareholders, including brokers holding stock in "street
name."
Holders of the Company's common stock are entitled to receive such
dividends as may be declared by its Board of Directors. The Company has not
declared or paid dividends on its common stock, and the Company does not
anticipate paying any dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES. During the last three years,
the Company (including M T Financial; see "Description of Business -- Company
History," above) made the following sales of its common stock without
registration under the Securities Act of 1933 (the "Securities Act"). In each
case where the purchase price was paid in cash, the Company used the proceeds of
the sales for working capital purposes. All share amounts in this section have
been adjusted for a two-for-one reverse stock split that occurred in March of
1995.
1. On October 7, 1994, the Company sold 21,595,704 shares of common stock
to Theodore Tannebaum. The total purchase price was $1,000,002 ($.0231528 per
pre-split share), and the entire proceeds of the sale were paid to the Company
in cash. The Company did not use any underwriters or brokers and there were no
commissions or underwriting discounts. This transaction was exempt from
registration under the Securities Act pursuant to Section 4(2) of that Act, on
the basis of the following factors: the Company made the offer and sale to only
one person without any public advertising or solicitation; the investor had
access to material information about the Company and the opportunity to inquire
of the Company's officers with respect to any further information he sought; the
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof; and the certificates
representing the shares bear a legend restricting their transfer except in
compliance with applicable securities laws.
2. On December 9, 1994, the Company sold 3,239,350 shares of common stock
to Robert Weinstein, M.D. and 3,239,350 shares of common stock to Stuart Levine.
At that time, Mr.
18
Levine was a director and officer of the Company. The total purchase price for
the two sales was $300,000 ($.0231528 per pre-split share), and the entire
proceeds of the sale were paid to the Company in cash. The Company did not use
any underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of that Act, on the basis of the
following factors: the Company made the offer and sale to only two persons
without any public advertising or solicitation; each investor had access to
material information about the Company and the opportunity to inquire of the
Company's officers with respect to any further information he sought; each
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof; and the certificates
representing the shares bear a legend restricting their transfer except in
compliance with applicable securities laws.
3. On March 31, 1995, the Company issued shares of common stock to its
existing stockholders as a result of the merger of the Company's predecessor,
Bemax Corporation, into its wholly-owned subsidiary M T Financial Group, Inc.
The purpose of this merger was to change the issuer's domicile from California
to Nevada. As a result of the merger, each Bemax stockholder was entitled to
receive one share of M T Financial common stock for every two shares of Bemax
common stock. A total of 29,211,019 M T Financial shares were issued. The
Company did not use an underwriter or broker in this transaction and did not
receive any proceeds. This transaction was exempt from registration under the
Securities Act pursuant to Rule 145(a)(2), which provides that there is no offer
or sale of securities in a statutory merger the sole purpose of which is to
change the issuer's domicile within the United States.
4. On May 16, 1997, the Company issued shares of common stock in a
restructuring and merger in connection with the acquisition of Photogen, Inc.:
(a) As part of its restructuring, the Company sold 2,975,359 shares to Dr.
Weinstein, 2,975,359 shares to Mr. Levine and 362,115 shares to Thomas
Rosenberg, for a total purchase price of $1,803,450 ($.28568 per share). The
entire proceeds of the sales were paid to the Company in cash. The purpose of
the restructuring was, among other things, to provide the Company with
sufficient funds so that (together with its existing capital) it had $3 million
of cash items at the time it acquired Photogen, Inc. The Company did not use
any underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) of that Act, on the basis of the
following factors: the Company made the offer and sale to only three persons
without any public advertising or solicitation; each investor had access to
material information about the Company and the opportunity to inquire of the
Company's officers with respect to any further information he sought; each
investor was an "accredited investor" within the meaning of Rule 501 of
Regulation D under the Securities Act and acquired the shares for investment and
not with a view to the resale or distribution thereof;
19
and the certificates representing the shares bear a legend restricting their
transfer except in compliance with applicable securities laws.
(b) As consideration for the acquisition of Photogen, Inc., the Company
issued 4,800,000 shares to each of Eric A. Wachter, Ph.D., Craig Dees, Ph.D.,
Walter G. Fisher, Ph.D., Timothy Scott, Ph.D. and John Smolik (for a total of
24,000,000 shares). Drs. Wachter, Dees, Fisher and Scott and Mr. Smolik were
the shareholders and directors of Photogen, Inc. The Company issued its common
stock to these individuals in connection with the merger of Photogen, Inc. with
a subsidiary of the Company. The sale of these securities to each of the five
Photogen principals was exempt from registration under the Securities Act
pursuant to Section 4(2) of that Act, on the basis of the following factors: the
Company made the offer and sale to only five persons without any public
advertising or solicitation; each investor had access to material information
about the Company and the opportunity to inquire of the Company's officers with
respect to any further information he sought; each investor was an officer or
director of Photogen, Inc. and four of them would, upon issuance of the
Company's shares, become directors of the Company; each investor acquired the
shares for investment and not with a view to the resale or distribution thereof;
and the certificates representing the shares bear a legend restricting their
transfer except in compliance with applicable securities laws. The Company did
not use any underwriters and there were no underwriting discounts; however,
Photogen, Inc. had engaged Aurora Capital Corp. as its broker for the
transaction between the Company and Photogen, Inc. After the closing, three
principals of Aurora Capital Corp. received an aggregate of $180,000 from the
Company for their services and the five Photogen, Inc. shareholders granted the
Aurora Capital Corp. principals warrants to acquire an aggregate of 960,000 of
their shares of Company common stock. The shares subject to the warrants are
being held in escrow and are subject to restrictions on transfer. None of the
warrants have been exercised at this time; and any stock certificates issued
upon exercise of the warrants will bear legends restricting their transfer
except in compliance with applicable securities laws.
5. On March 13, 1998, the Company completed the sale of an aggregate
of 875,000 shares to approximately 42 accredited investors. The total
purchase price was $7,000,000 ($8.00 per share), and the entire proceeds of
the sales were paid to the Company in cash. The Company did not use any
underwriters or brokers and there were no commissions or underwriting
discounts. These transactions were exempt from registration under the
Securities Act pursuant to Section 4(2) and/or Rule 506 of Regulation D of
that Act, on the basis of the following factors: the Company made the offer
and sale to a limited number of prospective investors without any public
advertising or solicitation; each investor had access to material information
about the Company and the opportunity to inquire of the Company's officers
with respect to any further information he sought; each investor was an
"accredited investor" within the meaning of Rule 501 of Regulation D under
the Securities Act and acquired the shares for investment and not with a view
to the resale or distribution thereof; and the certificates representing the
shares bear a legend restricting their transfer except in compliance with
applicable securities laws.
20
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION.
UNCERTAINTIES RELATING TO COMPANY. Since the Company acquired Photogen,
Inc., the Company has been principally engaged in the research and development
of drugs and medical device products for use in photodynamic therapy. The
Company has not completed development of any product at this time. Portions of
the discussion in this Item contain forward looking statements and are subject
to the Risk Factors described above.
RESULTS OF OPERATIONS. The Company has not generated revenues from the
sale of any proposed products or other operations, and has continued to
experience losses. The Company's net loss for the year ended December 31,
1997 was $554,702. The losses are attributable primarily to expenses related
to pursuing patent protection for the Company's technology, acquiring
equipment and commencing animal studies, and other general and administrative
costs. The Company expects to continue to incur increasing losses for at
least the next several years as it intensifies its research and development,
clinical testing, regulatory approval activities and engages the manufacture
and/or sale of any products that the Company may develop. The Company's
revenue for the year ended December 31, 1997 was $107,133 and resulted
primarily from investment income on the proceeds from the sale of common
stock in the Company's recent restructuring. The proceeds of the sales of
the Company's common stock are invested primarily in United States Government
obligations. Because the Company has no revenues from operations at this
time, investment of such funds in that manner is necessary to enable the
Company to avoid becoming subject to the Investment Company Act of 1940.
LIQUIDITY; CAPITAL RESOURCES. On March 13, 1998, the Company completed
a private placement of 875,000 shares of common stock for $8.00 a share to a
number of accredited investors. The Company received $7,000,000 in gross
proceeds from this offering.
The 875,000 shares sold in the private placement were not registered
under applicable securities laws and are considered "restricted stock."
These shares cannot be sold by their holders in the absence of a registration
statement except pursuant to an exemption from registration (including in
compliance with SEC Rule 144 after the shares have been held for at least one
year). The Company expects to use the proceeds from the sale of the common
stock (net of legal, accounting and other expenses related to the offering
estimated to be approximately $50,000), over the next 18 to 24 months, for
corporate overhead and operating expenses, animal and clinical trials, the
purchase or lease of scientific and laboratory equipment, legal and
regulatory consulting fees and for other working capital purposes, assuming
the Company has no revenues during that period.
21
The Company expects to consider additional financing transactions in the
future. See "Risk Factors -- Substantial Additional Financing Required."
The Company filed in December 1997 a Registration Statement on Form
10-SB with the Securities and Exchange Commission to register its common
stock under Section 12(g) of the Exchange Act. The Form 10-SB became
automatically effective 60 days after its filing, on February 23, 1998. The
Company is exploring the possibility of listing its common stock with the
NASDAQ (Small Cap Market) or with the American Stock Exchange. The Company
recently submitted information and listing applications, but has not heard
any formal response from either exchange. The listing process typically
takes many months to complete.
PATENT AND OPERATIONAL MATTERS. The Company has received a formal written
notice of allowance on the first of three divisional patent applications. This
first divisional application covers the area of simultaneous two photon
excitation in a variety of applications. The Company believes this establishes
the beginning of a strong proprietary position in an exciting new technology.
The Company recently filed the second and third divisional applications. The
Company is continuing to pursue patent protection for its imaging technology
with the U. S. Patent and Trademark Office, and in India and under the Patent
Cooperation Treaty (covering countries in Europe, Japan, Korea, China, Brazil
and others). The Company is not aware of any developments with respect to the
U.S. Patent and Trademark Office's consideration of its imaging patent
application or its foreign patent applications. See "Risk Factors --
Uncertainties Regarding Patent Matters," above.
The Company has executed two contracts to conduct animal studies which seek
to demonstrate the efficacy of the Company's technology in animal models,
including the spatial control, safety, multiple agent activation and depth of
penetration. The total cost of these contracts is $214,816. The animal
studies began during the fourth quarter of 1997. The animal studies are
described in Item 1 above.
The Company is occupying approximately 4,000 square feet of office and
laboratory space in Knoxville, Tennessee. The Company pays a monthly rental
of $4,680 for the facility (including certain equipment) plus charges for
utilities and similar items. The Company is proceeding to equip its laser
research and development laboratory with certain laser equipment systems made
available by a large laser manufacturer. The Company has received, installed
and started-up two laser systems required for conduct of animal studies. To
date, $212,000 has been invested in office and laboratory equipment. The
Company expects to spend an additional $250,000 to acquire the instruments
necessary to support animal clinical trials, and development of its
proprietary photoactive agent and targeting systems.
22
PLAN OF OPERATION. During the next twelve months, the Company will
continue with animal trials and evaluation of its proprietary photoactive
agent candidates, pursuing patent protection and seeking potential
collaboration candidates. The Company anticipates expenditures for
additional employees and equipment to be minimal until the final results of
the animal testing are known. The animal studies contract includes the
Company's use of personnel employed by the testing facility. In addition,
the Company raised $7,000,000 in a private placement that was completed on
March 13, 1998. For these reasons, the Company believes it has enough cash
resources for its currently anticipated needs during the next twelve months
and will not have to raise additional funds; however, as noted above,
complete development and commercialization of the Company's technology will
require substantial additional funds. See "Risk Factors," above.
YEAR 2000 COMPLIANCE. The Company believes that as it develops its
computer system, all hardware/software will be year-2000 compliant. The
Company does not presently expect the costs of year-2000 compliance to be
material.
23
ITEM 7. FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Photogen Technologies, Inc.
Knoxville, Tennessee
We have audited the accompanying consolidated balance sheets of Photogen
Technologies, Inc. (including Photogen, Inc., formerly Photogen, L.L.C.), a
development stage company, as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the period from November 3, 1996 (inception) to December 31, 1996 and the year
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Photogen
Technologies, Inc. (including Photogen, Inc., formerly Photogen, L.L.C.) at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for the period from November 3, 1996 (inception) to December 31, 1996 and the
year ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Chicago, Illinois
February 25, 1998
24
FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DECEMBER 31, 1996 1997
- -----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 82,631
Interest receivable - 21,402
Prepaid expenses - 8,164
Marketable securities - 409,238
- -----------------------------------------------------------------------------
TOTAL CURRENT ASSETS - 521,435
UNITED STATES TREASURY NOTES, total face value
$1,538,000 - 1,531,413
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, less
accumulated depreciation of $17,454 - 194,252
PATENT COSTS 5,489 37,273
- -----------------------------------------------------------------------------
$ 5,489 $ 2,284,373
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
25
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
DECEMBER 31, 1996 1997
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ - $ 118,233
Current portion of obligations under capital leases (Note 3) - 18,626
- ------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES - 136,859
OBLIGATIONS UNDER CAPITAL LEASES (Note 3) - 60,469
- ------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 4)
SHAREHOLDERS' EQUITY (Notes 2 and 5)
Preferred stock; par value $.01 per share; 5,000,000 shares
authorized; none issued - -
Common stock; par value $.001 per share; 150,000,000 shares
authorized; 36,000,000 shares issued and outstanding - 36,000
Additional paid-in capital - 2,607,526
Members' capital 5,489 -
Deficit accumulated during the development stage - (556,481)
- ------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 5,489 2,087,045
- ------------------------------------------------------------------------------------------------------
$ 5,489 $ 2,284,373
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26
CONSOLIDATED STATEMENT OF OPERATIONS
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
REVENUES
Investment income $ - $ 107,133 $ 107,133
EXPENSES
General and administrative 1,779 661,835 663,614
- ----------------------------------------------------------------------------------------------------------
NET LOSS $ (1,779) $ (554,702) $ (556,481)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
BASIC AND DILUTED LOSS PER COMMON SHARE $ - $ (.02)
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING - 33,665,117
- -----------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Common Stock Additional During the
------------------- Members' Paid-in Development
Shares Amount Capital Capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
Contribution of capital - $ - $ 7,268 $ - $ - $ 7,268
Net loss for the period ended December 31,
1996 - - (1,779) - - (1,779)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1996 - - 5,489 - - 5,489
Net loss and capital contributions for the
period January 1, 1997 to May 15, 1997 - - 3,511 - (3,511) -
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at May 15, 1997 - - 9,000 - (3,511) 5,489
Issuance of stock for cash 6,312,833 6,313 - 1,797,137 - 1,803,450
Effect of recapitalization and merger 29,687,167 29,687 (9,000) 1,181,500 1,732 1,203,919
Cost associated with recapitalization and
merger - - - (371,111) - (371,111)
Net loss for the period May 16, 1997 to
December 31, 1997 - - - - (554,702) (554,702)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, at December 31, 1997 36,000,000 $ 36,000 $ - $ 2,607,526 $ (556,481) $ 2,087,045
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
CONSOLIDATED STATEMENT OF CASH FLOWS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,779) $ (554,702) $ (556,481)
Depreciation 62 17,454 17,516
Gain on sale of marketable securities - (29,737) (29,737)
Loss on sale of United States Treasury Notes - 9,265 9,265
Changes in operating assets and liabilities
Prepaid expenses - (8,164) (8,164)
Interest receivable - (21,402) (21,402)
Accounts payable - 118,233 118,233
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (1,717) (469,053) (470,770)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of marketable securities - 1,764,464 1,764,464
Purchase of marketable securities - (2,182,967) (2,182,967)
Purchase of United States Treasury Notes - (2,044,876) (2,044,876)
Sale of United States Treasury Notes - 1,639,850 1,639,850
Purchase of equipment - (129,167) (129,167)
Patent costs (5,551) (31,784) (37,335)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,551) (984,480) (990,031)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on capital lease obligations - (3,444) (3,444)
Proceeds from issuance of common stock - 6,313 6,313
Proceeds from capital contributions by shareholders
(Note 2) 7,268 1,904,406 1,911,674
Cost of recapitalization - (371,111) (371,111)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,268 1,536,164 1,543,432
- ------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
29
Period From CUMULATIVE
November 3, YEAR AMOUNTS
1996 to ENDED FROM
December 31, DECEMBER 31, NOVEMBER 3,
1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ - $ 82,631 $ 82,631
CASH AND CASH EQUIVALENTS, at beginning of period - - -
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, at end of period $ - $ 82,631 $ 82,631
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES FOR 1997
U.S. Treasuries in the amount of $1,096,650 were
received in recapitalization.
Equipment purchased under capital lease amounted
to $82,539.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
1. ORGANIZATION AND
SIGNIFICANT
ACCOUNTING POLICIES
NATURE OF Photogen Technologies, Inc. (the "Company"),
OPERATIONS through its subsidiary Photogen, Inc.,
successor to Photogen, L.L.C., is a development
stage company that is attempting to develop
proprietary laser-based technologies to enhance
the safety and efficacy of photodynamic therapy
("PDT") and photodynamic imaging for the
diagnosis and treatment of cancer and
infectious diseases.
Photogen, L.L.C. was organized as a limited
liability company ("LLC") and was treated as a
partnership for federal income tax purposes.
The 1996 financial statements do not reflect
assets the members may have outside their
interests in the LLC, nor any obligations,
including income taxes, of the individual
members.
PRINCIPLES OF Intercompany balances and transactions have
CONSOLIDATION been eliminated in consolidation.
ESTIMATES The financial statements include estimated
amounts and disclosures based on management's
assumptions about future events. Actual
results may differ from those estimates.
CASH EQUIVALENTS Highly liquid investments with a maturity of
three months or less when purchased are
classified as cash equivalents. The carrying
amount approximates fair value because of the
short maturity of those investments.
MARKETABLE Marketable securities consisting of marketable
SECURITIES debt securities are classified as
available-for-sale securities. Fair value
approximates cost at December 31, 1997.
INVESTMENT IN UNITED The Company considers its investment in United
STATES TREASURY NOTES States Treasury Notes to be available-for-sale
securities and all investments mature within
one year. Unrealized holding gains and losses
are excluded from earnings (fair value
approximates cost) and are reported as a
separate component of shareholders' equity
until realized.
EQUIPMENT AND Equipment and leasehold improvements are stated
LEASEHOLD at cost. Depreciation and amortization are
IMPROVEMENTS being provided, on accelerated and
straight-line methods, over the estimated
useful lives of the assets. Leasehold
improvements are being amortized on a
straight-line basis over the lives of the
respective leases or the service lives of the
improvements, whichever is shorter.
31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
PATENT COSTS Patent costs are amortized over the lesser of
the estimated useful life or the statutory life
of the patent perfection costs on the
straight-line method. At December 31, 1997
patent costs have not been amortized as the
patents have not yet been issued. The Company
reviews the carrying values of its patents and
other long-lived assets for possible impairment
whenever an event or change in circumstances
indicates that the carrying amount of the
assets may not be recoverable. Any long-lived
assets held for disposal are reported at the
lower of their carrying amounts or fair value
less cost to sell.
INCOME TAXES The Company recognizes deferred tax assets and
liabilities for the expected future tax
consequences of temporary differences between
the tax basis and financial reporting basis of
certain assets and liabilities based upon
currently enacted tax rates expected to be in
effect when such amounts are realized or
settled.
The Company has not recorded an income tax
benefit for losses incurred of approximately
$556,000 which expire in 2012. The Company is
in the development stage and realization of the
losses is not likely. An income tax valuation
allowance has been provided for the losses
realized to date.
BASIC AND DILUTED LOSS Basic and diluted loss per common share is
PER COMMON SHARE computed based on the weighted average number
of common shares outstanding.
In March 1997, the FASB issued SFAS 128,
"Earnings Per Share". The new standard
simplifies earnings per share and requires
presentation of two new amounts, basic and
diluted earnings per share. The Company
adopted this standard for the year ended
December 31, 1997.
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
2. RECAPITALIZATION On May 16, 1997, MT Financial Group, Inc. (an
AND MERGER inactive public company), through its wholly
owned subsidiary, effected a reverse merger
with Photogen, Inc., successor to Photogen,
L.L.C. ("Photogen"). Legally, Photogen is a
wholly owned subsidiary of Photogen
Technologies, Inc. (formerly known as MT
Financial Group, Inc.).
For financial reporting purposes, Photogen was
deemed to be the acquiring entity. The
transaction has been reflected in the
accompanying financial statements as (1) a
recapitalization of Photogen (consisting of a
48,000-for-one stock split and change in par
value) and (2) an issuance of shares by
Photogen in exchange for all of the outstanding
shares of MT Financial Group, Inc.
As part of the recapitalization, the Company
sold 6,312,833 shares of common stock for a
total purchase price of approximately
$1,814,000. Further, as consideration for the
acquisition of Photogen, Inc., 24,000,000
shares of common stock were issued.
Legal and brokerage fees of approximately
$371,000 were charged to additional paid-in
capital as costs of the recapitalization and
merger. Included in the paid-in capital is the
net cash of approximately $109,000 by MT
Financial Group, Inc.
3. OBLIGATIONS UNDER The following is a schedule of future minimum
CAPITAL LEASES payments under the capital leases as of
December 31, 1997, together with the present
value of net minimum lease payments:
YEAR ENDING DECEMBER 31, Amount
------------------------------------------------
1998 $ 28,834
1999 28,834
2000 25,407
2001 13,915
------------------------------------------------
Net minimum lease payments 96,990
Less amount representing interest 17,895
------------------------------------------------
Present value of net minimum
lease payments $ 79,095
------------------------------------------------
------------------------------------------------
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
The equipment which is leased under the
capitalized lease agreement and classified as
equipment has a cost of $82,539 and accumulated
amortization of $4,200.
4. COMMITMENTS The Company is leasing offices and a
laboratory. The leases expire in 1999 and 2000
and include two options for renewal for additional
terms of three years each. Total rental
expense charged to operations for the year
ended December 31, 1997 aggregated
approximately $32,000. There was no rental
expense for the period ended December 31, 1996.
Future minimum lease payments under operating
leases with initial or remaining terms of one
year or more are approximately $25,000 for
1998; $16,000 for 1999; and $3,000 for 2000.
The Company has entered into employment
agreements with certain officers and employees
for an initial term of five years. Under the
terms of these agreements, the officers and
employees are each entitled to an annual salary
of $85,000 plus fringe benefits.
5. SUBSEQUENT EVENT In March 1998, the Company completed a private
placement offering for 875,000 shares of common
stock. The Company received gross proceeds of
$7,000,000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
The information required by Item 9 is incorporated by reference to
the information under the caption "Directors, Executive Officers, Promoters
and Control Persons; Compliance with Section 16(a) of the Exchange Act" in
the Company's definitive proxy statement for the 1998 annual meeting of
stockholders.
34
ITEM 10. EXECUTIVE COMPENSATION.
The information required by Item 10 is incorporated by reference to the
information under the caption "Executive Compensation" in the Company's
definitive proxy statement for the 1998 annual meeting of stockholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by Item 11 is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial
Owners and Management" in the Company's definitive proxy statement for the
1998 annual meeting of stockholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by Item 12 is incorporated by reference to the
information under the caption "Certain Relationships and Related Transactions"
in the Company's definitive proxy statement for the 1998 annual meeting of
stockholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following is a list of exhibits filed as part of this
Form 10-KSB. Exhibits that were previously filed are incorporated by
reference. For exhibits incorporated by reference, the location of the
exhibit in the previous filings is indicated in parenthesis.
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Registration Statement on
Form 10-SB dated December 24, 1997.)
3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
3.4 Bylaws of Photogen, Inc. (Filed as exhibit 3.4 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
35
EXHIBIT NO. DESCRIPTION
9.1 Voting Agreement dated May 16, 1997 entered into by Eric A.
Wachter, Ph.D., Craig Dees, Ph.D., Walter G. Fisher, Ph.D., Tim
Scott, Ph.D., John Smolik, Theodore Tannebaum, Robert J.
Weinstein, M.D., Stuart P. Levine, and Thomas B. Rosenberg, and
joined into by the Company. (Filed as exhibit 9.1 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.1 Consent and Assignment to Lease entered into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November 13,
1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
10.2 Lease Agreement entered into by the Company, P.C. Powell and Wilma
Powell dated June 1, 1997. (Filed as exhibit 10.2 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.3 Research Contract entered into by the Company and the University
of Tennessee, College of Veterinary Medicine dated as of October
1, 1997 (Filed as Exhibit 10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997.)
10.4 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form 10-SB
dated December 24, 1997.)
10.5 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801) dated
February 4, 1997. (Filed as exhibit 10.5 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
36
EXHIBIT NO. DESCRIPTION
10.6 Form of Employment Agreements entered into by the Company and each
of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D.,
and Craig Dees, Ph.D. dated May 16, 1997 (Filed as exhibit 10.6 to
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
10.7 Form of Non-competition/Non-disclosure Agreements entered into by
the Company and each of John Smolik, Eric A. Wachter, Ph.D.,
Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy C. Scott
dated May 16, 1997. (Filed as exhibit 10.7 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
10.8 Form of Warrant Agreement entered into by the Company and
certain other parties dated May 16, 1997. (Filed as exhibit 10.8
to the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
10.9 Escrow Agreement entered into by the Company, American National
Bank and Trust Company of Chicago, Photogen Technologies, Inc.,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., John Smolik,
Craig Dees, Ph.D., Timothy C. Scott, Ph.D., Stuart Fuchs, Jeff
Elliot Margolis, and Stephen L. Ross, dated May 16, 1997. (Filed
as exhibit 10.9 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
10.10 Research Agreement entered into by the Company, the Thompson
Cancer Survival Center, and Masoud Panjehpour, Ph.D., dated as
of November 1, 1997.
21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
27 Financial Data Schedule.
REPORTS ON FORM 8-K. The Company filed a report on Form 8-K on December 8,
1997 regarding the Company's press release stating that it had received a
written notice of allowance from the United States Patent and Trademark office
on a portion of the claims in the Company's therapeutic patent application.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 30, 1998 Photogen Technologies, Inc.
By: /s/ John Smolik
--------------------------------
John Smolik, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ John Smokik Chairman of the Board, March 30, 1998
---------------------------------- President, Chief
John Smolik Executive Officer and
Chief Financial Officer
(Principal executive and
financial and accounting
officer)
/s/ Eric A. Wachter
---------------------------------- Director, Secretary March 30, 1998
Eric A. Wachter, Ph.D. and Treasurer
/s/ Craig Dees
---------------------------------- Director March 30, 1998
Craig Dees, Ph.D.
/s/ Walter G. Fisher
---------------------------------- Director March 30, 1998
Walter G. Fisher, Ph.D.
/s/ Robert J. Weinstein
---------------------------------- Director March 30, 1998
Robert J. Weinstein, M.D.
38
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
+3.1 Restated Articles of Incorporation of Photogen Technologies, Inc.
(Filed as exhibit 3.1 to the Company's Registration Statement on
Form 10-SB dated December 24, 1997.)
+3.2 Bylaws of Photogen Technologies, Inc. (Filed as exhibit 3.2 to
the Company's Registration Statement on Form 10-SB dated
December 24, 1997.)
+3.3 Charter of Photogen, Inc. (Filed as exhibit 3.3 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+3.4 Bylaws of Photogen, Inc. (Filed as exhibit 3.4 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+9.1 Voting Agreement dated May 16, 1997 entered into by Eric A.
Wachter, Ph.D., Craig Dees, Ph.D., Walter G. Fisher, Ph.D., Tim
Scott, Ph.D., John Smolik, Theodore Tannebaum, Robert J.
Weinstein, M.D., Stuart P. Levine, and Thomas B. Rosenberg, and
joined into by the Company. (Filed as exhibit 9.1 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.1 Consent and Assignment to Lease entered into by the Company,
Genase, L.L.C. and P.C. Powell and Wilma Powell dated November
13, 1997. (Filed as exhibit 10.1 to the Company's Registration
Statement on Form 10-SB dated December 24, 1997.)
+10.2 Lease Agreement entered into by the Company, P.C. Powell and
Wilma Powell dated June 1, 1997. (Filed as exhibit 10.2 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.3 Research Contract entered into by the Company and the University
of Tennessee, College of Veterinary Medicine dated as of October
1, 1997 (Filed as exhibit 10.1 to the Company's Quarterly Report
on Form 10-QSB for the quarter ended September 30, 1997).
+10.4 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation and Detection of Molecular Diagnostic Agents
(Serial No. 08/741,370) dated February 4, 1997. (Filed as
exhibit 10.4 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
+10.5 Confirmatory License in favor of the U.S. Department of Energy
relating to the Company's Method for Improved Selectivity in
Photo-Activation of Molecular Agents (Serial No. 08/739,801)
dated February 4, 1997. (Filed as exhibit 10.5 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
EXHIBIT NO. DESCRIPTION
+10.6 Form of Employment Agreements entered into by the Company and
each of John Smolik, Eric A. Wachter, Ph.D., Walter G. Fisher,
Ph.D., and Craig Dees, Ph.D. dated May 16, 1997. (Filed as
exhibit 10.6 to the Company's Registration Statement on Form 10-
SB dated December 24, 1997.)
+10.7 Form of Non-competition/Non-disclosure Agreements entered into by
the Company and each of John Smolik, Eric A. Wachter, Ph.D.,
Walter G. Fisher, Ph.D., Craig Dees, Ph.D. and Timothy C. Scott
dated May 16, 1997. (Filed as exhibit 10.7 to the Company's
Registration Statement on Form 10-SB dated December 24, 1997.)
+10.8 Form of Warrant Agreement entered into by the Company and certain
other parties dated May 6, 1997. (Filed as exhibit 10.8 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
+10.9 Escrow Agreement entered into by the Company, American National
Bank and Trust Company of Chicago, Photogen Technologies, Inc.,
Eric A. Wachter, Ph.D., Walter G. Fisher, Ph.D., John Smolik,
Craig Dees, Ph.D., Timothy C. Scott, Ph.D., Stuart Fuchs, Jeff
Elliot Margolis, and Stephen L. Ross, dated May 16, 1997. (Filed
as exhibit 10.9 to the Company's Registration Statement on Form
10-SB dated December 24, 1997.)
*10.10 Research Agreement entered into by the Company, the Thompson
Cancer Survival Center, and Masoud Panjehpour, Ph.D., dated as of
November 1, 1997.
+21 Subsidiaries of the registrant. (Filed as exhibit 21 to the
Company's Registration Statement on Form 10-SB dated December 24,
1997.)
*27 Financial Data Schedule.
- --------------------
+ Incorporated by reference from the filing indicated.
* Filed herewith.
PHOTOGEN TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
JUNE 17, 1998
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF PHOTOGEN TECHNOLOGIES, INC.
The undersigned hereby appoints John Smolik and Robert Weinstein, M.D.,
or either one of them acting singly in the absence of the other, with full
power of substitution, the proxy and proxies of the undersigned to vote the
shares of Common Stock, par value $.001 per share, of Photogen Technologies,
Inc. ("Photogen"), which the undersigned could vote, and with all power the
undersigned would possess, if personally present at the Annual Meeting of
Stockholders of Photogen Technologies, Inc. to be held at the Drake Hotel,
140 Each Walton Place, Chicago, Illinois, on Wednesday, June 17, 1998, at
10:00 a.m., Chicago Time, and any adjournment thereof, all as set forth in
the accompanying Proxy Statement:
1. Approval of amendments to paragraph (b) of Article Fifth of Photgen's
Restated Articles of Incorporation.
/ / FOR / / AGAINST / / ABSTAIN
2. Election of Directors
/ / FOR all nominees listed below to serve a term of one year each
(except as marked to the contrary below)
/ / WITHHOLD AUTHORITY to vote for all nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual nominee, mark a
line through the nominee's name in the list below.
John A. Smolik
Eric A. Wachter, Ph.D.
Walter G. Fisher, Ph.D.
Craig Dees, Ph.D.
Robert J. Weinstein, M.D.
Lester H. McKeever, Jr.
3. Approval of the Photogen Technologies, Inc. 1998 Long Term Incentive
Plan.
/ / FOR / / AGAINST / / ABSTAIN
(Continued and to be dated and signed on other side)
(Continued from other side)
4. In their discretion, to act upon any matters incidental to the foregoing
and such other business as may properly come before the Annual Meeting, or
any adjournment thereof.
This Proxy when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR ITEMS 1, 2 AND 3 ABOVE. Any holder who wishes to withhold
the discretionary authority referred to in Item 4 above should mark a line
through the entire Item.
The undersigned hereby acknowledges receipt of Photogen's April 29, 1998
Proxy Statement (including the Annual Report on Form 10-KSB for the year
ended December 31, 1997).
Dated: , 1998
------------
- ----------------------------------------
Signature(s)
- ----------------------------------------
(Please sign exactly and as fully as your
name appears on your stock certificate.
If shares are held jointly, each stockholder
must sign. When signing as an attorney,
executor, administrator, trustee or guardian,
please give full title as such.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY, USING THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.