<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-58819.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INTRACEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 2834 04-2980325
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL NUMBER)
CLASSIFICATION CODE NUMBER)
</TABLE>
2005 NW SAMMAMISH ROAD, SUITE 107
ISSAQUAH, WASHINGTON 98027
(425) 392-2992
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
SIMON R. MCKENZIE
CHIEF EXECUTIVE OFFICER
INTRACEL CORPORATION
2005 NW SAMMAMISH ROAD, SUITE 107
ISSAQUAH, WASHINGTON 98027
(425) 392-2992
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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JOSEPH W. BARTLETT, ESQ. ALAN L. JAKIMO, ESQ.
ALLEN L. WEINGARTEN, ESQ. BROWN & WOOD LLP
MORRISON & FOERSTER LLP ONE WORLD TRADE CENTER
1290 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10104 (212) 839-5300
(212) 468-8000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
TO BE REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------
Common Stock, $.0001 par value.............. $57,500,000 $16,963(2)
- ------------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Estimated pursuant to Rule 457(o) under the Securities Act solely for the
purpose of calculating the registration fee.
(2) Previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1998
PROSPECTUS
, 1998
SHARES
INTRACEL CORPORATION
COMMON STOCK
All of the shares of common stock offered hereby are being sold by Intracel
Corporation ("Intracel" or the "Company"). Prior to this offering, there has
been no public market for the common stock of the Company. It is currently
estimated that the initial public offering price will be between $ and
$ per share. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price.
Application has been made to have the common stock approved for quotation
on the Nasdaq National Market under the symbol "ICEL."
------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share...................... $ $ $
Total(3)....................... $ $ $
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</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ , which will be paid by
the Company.
(3) The Company and Michael G. Hanna, Ph.D., the Chairman of the Board and Chief
Scientific Officer of the Company (the "Selling Stockholder"), have granted
to the Underwriters a 30-day option to purchase up to and
additional shares, respectively, at the Price to the Public less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions, Proceeds to the Company, and
proceeds to the Selling Stockholder will be $ , $ , $ , and
$ , respectively. See "Underwriting."
The shares of common stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York on or about
, 1998.
DONALDSON, LUFKIN & JENRETTE
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE> 3
[PICTURE OF COMPANY FACILITIES]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING STABILIZING, THE PURCHASE OF COMMON STOCK TO COVER SYNDICATE SHORT
POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------------
ZYMMUNE(R) is a registered United States trademark of the Company.
ASI(BCL), HumaRAD(16.88), HumaRAD(88BV59), Apo-Tek Lp(a) and Accu-D(x) are
trademarks of the Company. Other trademarks used herein belong to various other
parties. As used herein, "OncoVAX(CL)" means OncoVAX(CL)(R), "HumaSPECT" means
HumaSPECT, and "ZYMMUNE" means ZYMMUNE(R).
------------------------
All references to Stage I, Stage II, Stage III and Stage IV colon cancer
set forth herein refer to different stages of the disease based upon the status
of a patient's tumor nodes and metastases.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus, including "Risk Factors" and
the consolidated financial statements and notes thereto. Unless otherwise
indicated, all information in this Prospectus assumes (i) no exercise of the
Underwriters' over-allotment option, or currently outstanding stock options,
granted by the Company and (ii) the conversion of all shares of the Company's
Series A, A-1, A-3, B-1 and B-2 preferred stock into shares of common stock
effective upon the closing of this offering (the "Preferred Stock Conversion").
All references to the "Company" or "Intracel" herein include Intracel
Corporation, its predecessor Massachusetts corporation and their respective
subsidiaries. Unless otherwise indicated, all references to years refer to the
fiscal years of the Company ending December 31.
THE COMPANY
Intracel is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and immunotherapeutic and
diagnostic products for cancers and infectious diseases. Based upon the results
of Phase III clinical trials, the Company is preparing a Biologics License
Application ("BLA") for its OncoVAX(CL) cancer vaccine for the post-surgical
treatment of Stage II colon cancer, the most common form of colon cancer. The
Company is also planning to initiate Phase III clinical trials for OncoVAX(CL)
in combination with chemotherapy for Stage III colon cancer, has initiated Phase
III clinical trials for its proprietary formulation of keyhole limpet hemocyanin
("KLH") for the treatment of refractory bladder cancer, and is planning to
initiate a Phase II/III clinical trial for its ASI(BCL) vaccine for the
treatment of low-grade B-cell lymphoma. In addition, the Company markets a
portfolio of in vitro diagnostic products and is introducing a number of new
diagnostic products for detecting and monitoring various cancers, AIDS and heart
disease.
The Company believes that OncoVAX(CL) is the first vaccine to demonstrate
efficacy for the post-surgical treatment of Stage II colon cancer, and has
recently announced the results of a ten-year Phase III clinical trial for
OncoVAX(CL) conducted at University Hospital, Vrije Universiteit, Amsterdam (the
"Amsterdam" trial). This randomized, multi-centered 254-patient clinical trial
was the third in a series of clinical trials of OncoVAX(CL) conducted in the
United States and Europe. The series included a Phase III clinical trial
conducted by the Eastern Cooperative Oncology Group (the "ECOG" trial) and a
Phase II/III clinical trial conducted by Dr. Herbert C. Hoover, Jr. (the
"Hoover" trial). In the Amsterdam trial, which added a fourth booster
vaccination to the regimen, the Company believes that OncoVAX(CL) demonstrated a
61% reduction in the rate of recurrences and a 50% improvement in the survival
rate for patients with Stage II colon cancer when compared to surgery alone. The
Company believes that the results of the Amsterdam trial are supported by
positive trends shown in the ECOG and Hoover trials. Stage II colon cancer
accounts for approximately 120,000 of the more than 200,000 new cases of colon
cancer diagnosed in the United States and Europe each year. There is currently
no product approved by the United States Food and Drug Administration (the
"FDA") for patients with Stage II colon cancer, and surgery is the principal
means of treatment. The Company plans to file a BLA for OncoVAX(CL) with the FDA
in late 1998 and is presently seeking the necessary regulatory and reimbursement
approvals in certain countries in Europe. If the FDA does not consider the
trials discussed above as relevant or supporting to the efficacy of OncoVAX(CL),
the FDA may require additional clinical trials of OncoVAX(CL) prior to or after
the FDA's approval of the product.
OncoVAX(CL) is a multivalent vaccine produced from a patient's own
surgically removed tumor. The tumor is collected immediately after surgery and
delivered to one of the Company's OncoVAX treatment centers ("OncoVAX Centers")
for manufacture and subsequent administration of the vaccine. Each OncoVAX
Center has been designed to treat up to 2,000 patients per year. The Company
plans to establish OncoVAX Centers at or near hospitals with established surgery
practices, serving areas characterized by high population density and high
incidence of colon cancer. Each OncoVAX Center will require less than 3,000
square feet and will employ a staff of production technicians and a supervising
physician. Facilities for the first OncoVAX Center in the United States have
been established at Lehigh Valley Hospital in Allentown, Pennsylvania, and the
terms of the Company's ownership in, and operation of, the center are being
developed pursuant to a letter of intent with Lehigh Valley Hospital. A second
OncoVAX Center in the United States is being established at the Company's
therapeutic manufacturing facility in Rockville, Maryland. The first
3
<PAGE> 5
OncoVAX Center in Europe is being established at University Hospital, Vrije
Universiteit, Amsterdam. The Company plans to establish more than 25 OncoVAX
Centers in the United States and more than 15 OncoVAX Centers in Europe. Each
OncoVAX Center will cost approximately $1.0 to $3.0 million dollars to build.
The Company expects revenues from operating OncoVAX Centers to offset the cost
of new centers.
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent,
HumaSPECT, and its B-cell lymphoma vaccine ASI(BCL). The Company has filed an
amendment to the Investigational New Drug application ("IND") for OncoVAX(CL)
with the FDA to commence a Phase III clinical trial for the use of OncoVAX(CL)
in combination with chemotherapy for the treatment of Stage III colon cancer.
The Company believes that this combination therapy will be more effective in the
treatment of Stage III colon cancer than either OncoVAX(CL) or chemotherapy
administered alone. The Company is currently in discussions with the FDA
regarding the commencement of the Phase III clinical trial for this combination
therapy. No assurance can be given that the Company will be given clearance to
commence this Phase III clinical trial in a timely manner, if at all.
As a complementary product for OncoVAX(CL), the Company has developed
HumaSPECT, a totally human antibody labeled with a radioisotope, to monitor
recurrence and metastatic spread of colon cancer. In a Phase III clinical trial
completed in 1996, the Company believes that HumaSPECT demonstrated significant
advantages over CT scans, the current standard for detecting recurrence and
metastatic spread of colon cancer. Based on these results, the Company has filed
a BLA in the United States and a Marketing Authorization Application ("MAA") in
Europe for HumaSPECT. The FDA has completed its initial review of the Company's
BLA submitted for HumaSPECT and the manufacturing facility for this product, and
is now reviewing the Company's responses to the FDA's initial round of questions
as well as the Company's responses to the FDA inspection of the manufacturing
facility. There can be no assurance that the Company will obtain FDA approval to
market HumaSPECT in the United States in a timely manner, if at all. With
respect to the MAA, the Company was notified on September 25, 1998 that the
European Commission has decided to grant marketing authorization for HumaSPECT.
The Company has initiated a Phase III clinical trial for KLH for the
treatment of refractory bladder cancer. In Phase II clinical trials, the Company
believes that KLH demonstrated significantly less toxicity than the leading
FDA-approved product for the treatment of bladder cancer. The Company has
entered into a strategic partnership with Mentor Corporation ("Mentor"), a
leading urology company, under which Mentor has been funding research and
development, is required to make milestone payments to the Company and will
market KLH worldwide. Mentor also markets Accu-D(x), the Company's rapid bladder
cancer test.
The Company plans to file an amendment to the IND for its ASI(BCL)vaccine
with the FDA to commence a Phase II/III clinical trial for such vaccine in the
first half of 1999. ASI(BCL) is designed to prevent recurrence of low-grade
non-Hodgkin's B-cell lymphoma, the most common type of B-cell lymphoma, in
patients who have achieved remission through chemotherapy and/or immunotherapy.
ASI(BCL), like OncoVAX(CL), is an autologous vaccine and is produced using a
unique antigen derived from a patient's own cancerous cells. The Company
believes that a Phase I clinical trial has demonstrated that ASI(BCL) can
stimulate a specific immune response and is associated with improved clinical
outcomes.
The Company has substantial expertise in the development and manufacturing
of totally human antibodies. In April 1998, the Company commenced enrollment in
its Phase I clinical trial for its totally human antibody HumaRAD(16.88) for the
treatment of head and neck cancer and plans to submit an IND with the FDA to
commence a Phase I clinical trial of a related product, HumaRAD(88BV59) for the
treatment of ovarian cancer, in the first half of 1999. In addition, the Company
is developing several antibody products to treat life-threatening infectious
diseases.
Through its wholly owned subsidiary, Bartels, Inc. ("Bartels"), the Company
also markets a portfolio of innovative in vitro diagnostic products for the
confirmation of viral and bacterial diseases. The Company markets these
diagnostic products domestically to approximately 1,500 hospitals and clinical
laboratories through its internal sales force. Internationally, the Company
relies upon third-party distributors to market its diagnostic products. In 16
foreign countries, the Company is marketing a one-minute test for HIV/AIDS based
on its proprietary INSTI technology. In addition, the Company is introducing a
number of new
4
<PAGE> 6
diagnostic products, including its Apo-Tek Lp(a) test kit to monitor an
important indicator of heart disease, its Accu-D(x) test to monitor the
recurrence of bladder cancer and its ZYMMUNE test to monitor CD4/CD8 levels in
patients with HIV/AIDS.
The Company's technology foundation in cancer vaccines and human antibodies
is supported by a clinical trial group with expertise in designing and
implementing complex clinical trials and by state-of-the-art manufacturing
facilities capable of producing commercial quantities of its therapeutic,
diagnostic and prognostic products. To conduct research, development,
manufacturing and marketing of its products, the Company employs over 230 people
in multiple facilities, including its corporate headquarters in Issaquah,
Washington, a therapeutic product facility located in Rockville, Maryland and
diagnostic product facilities in Issaquah, Washington and Richmond, British
Columbia, Canada.
5
<PAGE> 7
THE OFFERING
<TABLE>
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Common Stock Offered by the Company.......... shares
Common Stock to be Outstanding After the
Offering................................... shares(1)
Use of Proceeds.............................. To support the establishment and early
operation of OncoVAX Centers, to repay
existing indebtedness, and the balance for
the Company's other research and development
programs, to conduct clinical trials for the
Company's cancer and infectious disease
products and for working capital and other
general corporate purposes. The Company may
also use a portion of the net proceeds to
acquire technologies or products com-
plementary to its business. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol....... ICEL
</TABLE>
- ---------------
(1) The foregoing computations exclude: (i) 3,285,228 shares of common stock
issuable upon exercise of stock options outstanding as of June 30, 1998, at
a weighted-average exercise price of $1.81 per share; (ii) 1,204,103 shares
of common stock issuable upon exercise of warrants expected to remain
outstanding after this offering, at a weighted-average exercise price of
$5.64 per share; and (iii) 1,625,000 shares of common stock issuable upon
exercise of warrants granted in conjunction with the refinancing of various
short-term and long-term debt which occurred subsequent to June 30, 1998,
but before the date of this Prospectus, which are exercisable at an exercise
price per share equal to the price to the public per share set forth on the
cover page of this Prospectus, unless a registered public offering of the
Company's common stock is not consummated on or prior to December 31, 1998,
in which case all 1,625,000 shares are exercisable at $10.00 per share.
RISK FACTORS
This offering involves a high degree of risk. See "Risk Factors."
6
<PAGE> 8
SUMMARY FINANCIAL DATA
The following Summary Consolidated Financial and Operating Data of the
Company is qualified by reference to and should be read in connection with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto which
are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED PRO FORMA SIX MONTHS ENDED
YEAR ENDED JUNE 30 ENDED DECEMBER 31 YEAR ENDED JUNE 30,
------------------------- DECEMBER 31 ----------------- DECEMBER 31 -------------------------
1993 1994 1995 1995 1996 1997 1997(1) 1997 1998(2)
------ ------ ------- ----------- ------- ------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
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STATEMENT OF OPERATIONS
DATA:
Revenue................. $1,776 $1,618 $ 1,566 $ 2,426 $14,718 $13,452 $ 21,341 $ 7,073 $ 9,816
Cost of revenue......... 533 449 824 1,779 7,433 9,493 16,109 4,478 6,852
Selling, general and
administrative........ 962 801 1,580 2,593 5,740 8,478 12,922 3,602 8,025
Research and
development........... 785 1,078 1,174 1,118 1,043 556 8,633 340 5,465
Acquired research and
development........... 2,100 37,718
Amortization of cost in
excess of net assets
acquired.............. 151 908 908 993 454 496
Reorganization
expense............... 917
------ ------ ------- ------- ------- ------- -------- ------- --------
Total operating
expense............. 2,280 2,328 3,578 7,741 16,041 19,435 38,657 8,874 58,556
------ ------ ------- ------- ------- ------- -------- ------- --------
Loss from operations.... (504) (710) (2,012) (5,315) (1,323) (5,983) (17,316) (1,801) (48,740)
Interest income
(expense), net........ 47 22 68 (135) (2,179) (2,496) (3,334) (1,210) (1,780)
Gain on pension
curtailment........... 800
Loss on sale-leaseback
transaction........... (335)
------ ------ ------- ------- ------- ------- -------- ------- --------
Loss before
extraordinary item.... (457) (688) (1,944) (5,450) (3,502) (8,479) (20,985) (3,011) (49,720)
Extraordinary gain on
early extinguishment
of debt............... 1,367
------ ------ ------- ------- ------- ------- -------- ------- --------
Net loss.............. $ (457) $ (688) $(1,944) $(4,083) $(3,502) $(8,479) $(20,985) $(3,011) $(49,720)
====== ====== ======= ======= ======= ======= ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (3) AS ADJUSTED(3)(4)
----------- ------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 725 $ 10,547 $ 52,885
Working capital (deficit)................................. (5,709) 4,113 47,316
Total assets.............................................. 42,772 52,594 94,932
Long-term debt, non-convertible, including current
portion................................................. 33,595 42,826 37,826
Long-term debt, convertible, including current portion.... 233 10,620 10,387
Redeemable, convertible preferred stock................... 20,692 20,692
Accumulated deficit....................................... (70,429) (70,429) (70,429)
Total stockholders' equity (deficit)...................... (24,224) (29,100) 39,795
</TABLE>
- ---------------
(1) Gives effect to the acquisition of PerImmune Holdings, Inc. and Subsidiary
("PerImmune Holdings") as if it had occurred on January 1, 1997. See "Pro
Forma Consolidated Financial Information."
(2) Represents the Company as consolidated with PerImmune Holdings.
(3) Gives effect to the refinancing of various short-term and long-term debt
which occurred subsequent to June 30, 1998, but before the date of this
Prospectus but excludes the effect of 1,625,000 shares of common stock
issuable upon exercise of warrants granted in connection with this
refinancing and which are expected to remain outstanding after this
offering, at an exercise price per share equal to the price to the public
per share set forth on the cover page of this Prospectus, unless a
registered public offering of the Company's common stock is not consummated
on or prior to December 31, 1998, in which case 1,625,000 are exercisable at
$10.00 per share. $6.0 million of the cash and cash equivalents is
maintained in a segregated bank account from which the Company is permitted
to obtain funds upon request to the lender. See Note 14 to the Company's
consolidated financial statements contained elsewhere in this Prospectus.
(4) Adjusted to reflect (i) the Preferred Stock Conversion, (ii) the exercise of
warrants for the purchase of 502,066 shares of common stock at a
weighted-average price of $4.66 per share upon consummation of this
offering, (iii) the automatic conversion of certain notes payable into
54,648 shares of common stock, upon consummation of this offering and (iv)
the sale of common stock offered hereby with an assumed total net proceeds
of $45,000,000 and the repayment of $5,000,000 of indebtedness.
7
<PAGE> 9
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information in this
Prospectus before purchasing the shares of common stock offered hereby.
DEPENDENCE ON ONCOVAX(CL)
The Company's future growth and profitability will depend on its ability to
introduce and market OncoVAX(CL) and establish OncoVAX Centers. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
for OncoVAX(CL) in a timely manner, if at all. The failure of the Company to
introduce and market OncoVAX(CL) and establish OncoVAX Centers in a timely
manner would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company believes that the results of the Amsterdam, ECOG and Hoover
trials of OncoVAX(CL) will provide sufficient evidence to support the approval
by the FDA of the Company's BLA for OncoVAX(CL) being prepared for submission.
If the FDA does not consider the ECOG and Hoover trials as relevant or
supporting to the efficacy of OncoVAX(CL), there can be no assurance that the
FDA will consider the Amsterdam trial alone as a sufficient basis for approval.
Given the May 1998 FDA Guidance Document entitled "Providing Clinical Evidence
of Effectiveness of Human Drug and Biological Products," which discusses the use
and limitations of a single clinical trial to form the basis for approval of a
BLA, and the views the FDA has expressed on this subject with respect to
OncoVAX(CL) combined with chemotherapy for the treatment of Stage III colon
cancer discussed below, there can be no assurance that the FDA will not require
additional clinical trials of OncoVAX(CL) prior to FDA acceptance of the
Company's BLA for filing or, ultimately, for approval.
The Company may elect to seek approval of OncoVAX(CL) under the accelerated
approval provisions of the Food and Drug Administration Modernization Act of
1997 (the "FDA Modernization Act"). The accelerated approval regulations apply
to products used in the treatment of serious or life-threatening illnesses that
appear to provide meaningful therapeutic benefits over existing treatments.
These regulations permit approval of such products before clinical research is
completed based on the product's effect on a clinical endpoint or surrogate
endpoint. When a product is approved under the accelerated approval regulations,
the sponsor may be required to conduct additional adequate and well-controlled
studies to verify that the effect on the surrogate endpoint correlates with
improved clinical outcome or to otherwise verify the clinical benefit. In the
event such postmarketing studies do not verify the drug's anticipated clinical
benefit, or if there is other evidence that the drug product is not shown to be
safe and effective, expedited withdrawal procedures permit the FDA, after a
hearing, to remove a product from the market. Significant uncertainty exists as
to the extent to which these accelerated approval regulations will result in
accelerated review and approval. Furthermore, the FDA has not made available
comprehensive guidelines with respect to these regulations and retains
considerable discretion to determine eligibility for accelerated review and
approval. Accordingly, the FDA could employ such discretion to deny eligibility
of OncoVAX(CL) as a candidate for accelerated review or to require additional
clinical trials or other information before approving OncoVAX(CL). A
determination that OncoVAX(CL) is not eligible for accelerated review and delays
and additional expenses associated with generating a response to any such
request for additional trials could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Government Regulation; No Assurance of Regulatory Approvals" and
"Business -- Government Regulation."
Even if OncoVAX(CL) is approved for marketing by the FDA and other
regulatory authorities, there can be no assurance that it will be commercially
successful or that the Company will be successful in establishing and operating
OncoVAX Centers and manufacturing OncoVAX(CL) on a commercial scale at a cost
that will enable the Company to realize a profit. If OncoVAX(CL) is approved,
its commercialization through the Company's OncoVAX Centers would be
substantially different from the manner in which most anti-cancer treatments,
including chemotherapeutics, are now manufactured and distributed. Despite the
results of the clinical trials of
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OncoVAX(CL) and the absence of any therapeutic products currently approved by
the FDA for post-surgical treatment of Stage II colon cancer, there can be no
assurance that oncologists and other physicians will refer patients for
treatment with OncoVAX(CL). Market acceptance also could be affected by the
availability of third-party reimbursement. Failure of OncoVAX(CL) to achieve
significant market acceptance could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"-- Uncertainty Related to Health Care Reform and Third Party Reimbursement" and
"Business -- Competition."
On May 26 and July 24, 1998, the FDA's Center for Biologics Evaluation and
Research ("CBER") advised the Company in writing that its proposed Phase III
clinical trial relating to the use of OncoVAX(CL) in combination with
chemotherapy for the treatment of Stage III colon cancer had been placed on
clinical hold and, therefore, may not begin until certain manufacturing
information is provided to CBER. The Company has responded to CBER's requests.
The Company believes that upon evaluation of this information, CBER will remove
the clinical hold and allow the clinical trial to begin by the fourth quarter of
1998. CBER also asked questions regarding the study to determine whether it
would constitute a "pivotal" Phase III trial sufficient to support approval. In
addition, the FDA questioned whether a single pivotal study would be sufficient
to approve a product for this indication and requested further information on
this issue. The Company intends to provide all requested information. There can
be no assurance at this time that the FDA will allow the study to commence or
will consider this clinical trial to be sufficient to support approval.
HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES
The Company has experienced significant losses since inception. The
Company's net losses were $21.0 million for the year ended December 31, 1997 (on
a pro-forma basis after giving effect to the acquisition of PerImmune Holdings
as if it had occurred on January 1, 1997) and $3.5 million, $8.5 million and
$49.7 million for the years ended December 31, 1996, 1997 and the six months
ended June 30, 1998, respectively. The loss for the six months ended June 30,
1998 includes a one-time expense of $37.7 million related to the acquired
in-process research and development in connection with the Company's acquisition
of PerImmune Holdings on January 2, 1998. As of June 30, 1998, the Company's
accumulated deficit was approximately $70.4 million. The Company expects to
incur significant additional operating losses primarily in connection with the
establishment and operation of its OncoVAX Centers, ongoing and expanded
research and development and expanded and later stage clinical trials. The
Company expects that losses will fluctuate from quarter to quarter and that such
fluctuations may be substantial. Most of the Company's product candidates are in
development in preclinical studies and clinical trials and have not generated
product revenues. To achieve and sustain profitable operations, the Company,
alone or with others, must develop successfully, obtain regulatory approval for,
manufacture, introduce, market and sell its products. The time frame necessary
to achieve market success is long and uncertain. There can be no assurance that
the Company will ever generate sufficient product revenues to become profitable
or to sustain profitability. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Pro Forma Consolidated
Financial Information."
SUBSTANTIAL LEVERAGE
Following the consummation of the offering of common stock pursuant to this
Prospectus, the Company will have indebtedness that is substantial in relation
to its stockholders' equity, as well as interest and debt service requirements
that are significant compared to its income and cash flow from operations. Such
indebtedness is secured by substantially all of the Company's assets. At June
30, 1998, the Company's total indebtedness was approximately $33.8 million.
The degree to which the Company is leveraged could have important
consequences to holders of the common stock, including the following: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from operations
must be dedicated to the payment of interest on its debt and its other
indebtedness, thereby reducing funds available to the Company for other
purposes, (iii) the agreements governing the Company's long-term indebtedness
contain certain restrictive financial and operating covenants, (iv) certain of
the Company's long-term indebtedness is secured by substantially all the
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assets of the Company and (v) the Company's substantial degree of leverage may
limit its flexibility to adjust to changing market conditions, reduce its
ability to withstand competitive pressures and make it more vulnerable to a
downturn in general economic conditions or its business. See "Business -- 1998
Debt Refinancings."
The Company's ability to pay interest on its long-term indebtedness and
satisfy its other obligations will depend on its future operating performance,
which will be affected by prevailing economic conditions and financial, business
and other factors, many of which are beyond its control. Although the Company
believes it will be able to pay its obligations as they come due, there can be
no assurance that the Company will generate earnings in any future period
sufficient to cover its fixed charges. In the absence of adequate operating
results and cash flows, the Company may be required to adopt alternative
strategies that include reducing or delaying capital expenditures, disposing of
material assets or operations, refinancing its indebtedness or seeking
additional equity capital to meet its debt service obligations. Certain of the
Company's long-term debt instruments contain covenants that restrict the
Company's ability to take certain of the foregoing actions, including selling
assets and using proceeds therefrom. There can be no assurance as to the timing
of such actions, the ability of the Company to consummate such actions under its
existing financial agreements or the proceeds that the Company could realize
therefrom, and there can be no assurance that any such refinancing would be
feasible at the time or that such proceeds would be adequate to meet the
obligations then due.
DEVELOPMENT, INTRODUCTION AND MARKETING OF NEW PRODUCTS
The Company's future growth and profitability will depend, in part, on its
ability to develop, introduce and market new products based on its proprietary
technologies. Many of the Company's products are currently under development,
either in preclinical testing or clinical trials. Other products are planned for
future development. The time period required for such development is extensive
and highly uncertain and such development requires substantial expense. The new
products developed by the Company may prove to be ineffective or unreliable.
They may be difficult to manufacture in a cost-effective manner, may fail to
receive necessary regulatory clearances, may not achieve market acceptance or
may encounter other unanticipated difficulties. The failure of the Company to
develop, introduce and market new products in a timely manner, if at all, could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business."
UNCERTAINTIES ASSOCIATED WITH CLINICAL TRIALS
The Company has conducted and plans to continue to undertake extensive and
costly clinical trials to assess the safety and efficacy of its product
candidates. Such trials are often subject to setbacks and delays. The rate of
completion of the Company's clinical trials is dependent upon, among other
factors, the rate of patient enrollment. Patient enrollment is a function of
many factors, including the nature of the Company's clinical trial protocols,
existence of competing protocols, size of the patient population, proximity of
patients to clinical sites and eligibility criteria for the study. Delays in
patient enrollment will result in increased expenses and delays, which could
have a material adverse effect on the Company's business, results of operations
and financial condition. The Company cannot assure that patients enrolled in the
Company's clinical trials will respond to the Company's product candidates.
Failure to comply with FDA regulations applicable to clinical trials could
result in delay, suspension or cancellation of such trials (e.g., clinical hold)
and/or refusal by the FDA to accept the results of such trials. In addition, the
FDA may suspend clinical trials at any time if it concludes that the
participants in such trials are being exposed to unacceptable risks. Thus, there
can be no assurance that any clinical trials will be completed successfully
within any specific time period, if at all, with respect to any of the Company's
product candidates. Furthermore, there can be no assurance that human clinical
trials will show any current or future product candidate to be safe and
effective or that data derived therefrom will be suitable for submission to the
FDA or will support the Company's submission of a BLA, Product License
Application ("PLA") or New Drug Application ("NDA"). See "-- Dependence on
OncoVAX(CL)" for a description of certain issues relating to the clinical trials
of OncoVAX(CL), "Business -- Therapeutic Products -- OncoVAX(CL) for the
treatment of colon cancer" for a description of certain issues relating to the
Company's BLA for HumaSPECT and "Business -- Government Regulation."
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<PAGE> 12
GOVERNMENT REGULATION: NO ASSURANCE OF REGULATORY APPROVALS
All new drugs, biologics and diagnostic products, including the Company's
products under development, are subject to extensive and rigorous government
regulation in the United States and elsewhere. The requirements imposed by
regulators of pharmaceuticals and medical devices vary from country to country.
In the United States, regulation is administered by the federal government,
principally the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC
Act") and other laws including, in the case of biologics, the Public Health
Service Act (the "PHS Act"), and by state and local governments. Such
regulations govern, among other things, the development, testing, manufacture,
labeling, storage, premarket approval, advertising, promotion, sales and
distribution of such products and post-approval monitoring of safety and
efficacy.
In the European Union, the European Medicines Evaluation Agency ("EMEA") is
responsible for administering a centralized assessment procedure for European
Union-wide authorizations valid in Britain, France, Germany, Italy, Spain and
Greece ("Member States") for medicinal products of significant therapeutic
interest or comprising a significant innovation.
In addition, regulatory approval of prices is required in most countries
other than the United States. For example, regulators in certain European
countries condition their approval of a pharmaceutical product on the agreement
of the seller not to sell the product for more than a certain price in their
respective countries. In some cases, the price established in any of these
countries may serve as a benchmark in the other countries. As such, the price
approved in connection with the first approval obtained in any of these European
countries may serve as the maximum price that may be approved in the other
European countries. Also, a price approved in one of these European countries
that is lower than the price previously approved in the other European countries
may require a reduction in the prices in those other European countries. In such
an event, there can be no assurance that the resulting prices would be
sufficient to generate an acceptable return on the Company's investment in its
products.
The regulatory process, which includes preclinical studies and clinical
trials of each potential product, is lengthy, expensive and uncertain. Prior to
commercial sale in the United States, most new drugs, biologics and diagnostic
products, including the Company's products under development, must be approved
by the FDA. Securing FDA marketing approvals often requires the submission of
extensive preclinical and clinical data and supporting information to the FDA.
Product approvals, if granted, can be withdrawn for failure to comply with
regulatory requirements or upon the occurrence of unforeseen problems following
initial marketing. Moreover, regulatory approvals for products such as new
drugs, biologics and diagnostic products, even if granted, may require that the
labeling for such products include significant limitations on the uses for which
such products may be marketed. There can be no assurance that the Company will
be able to obtain necessary regulatory approvals in a timely manner, if at all,
for any of its product candidates, and delays in receipt or failures to receive
such approvals or failures to comply with existing or future regulatory
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Failure to comply with applicable FDA and other regulatory requirements can
result in sanctions being imposed on the Company or the manufacturers of its
products, including warning letters, fines, product recalls or seizures,
injunctions, refusals to permit products to be imported into or exported out of
the United States, refusals of the FDA to grant premarket approval of drugs,
biologics or devices, refusals of the FDA to allow the Company to enter into
government supply contracts, withdrawals of previously approved marketing
applications and criminal prosecutions.
The pharmaceutical legislation of the European Union requires any person
seeking to market a medicinal product for human use to obtain approval of an
MAA. While procedures for approval of MAAs have been harmonized within the
European Union through directives for implementation into the domestic law of
each Member State and by regulations having direct effect, the specific
approvals and the time required for approval varies from country to country and
may, in some instances, involve additional testing. Drugs which fall within the
definition of "high technology medicines" under the Annex to Council Regulation
2809/93 undergo the centralized approval system under which the Committee for
Proprietary Medicinal Products ("CPMP") is obliged to give an opinion as to
whether a marketing authorization has been granted within 210 days (although the
"clock" may be stopped if further information is required).
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Manufacturers of drugs, biologics and devices also are required to comply
with the FDA current Good Manufacturing Practice ("cGMP") regulations or similar
foreign regulations, which include requirements relating to quality control and
quality assurance as well as the corresponding maintenance of records and
documentation. Manufacturing facilities are subject to inspection by the FDA and
other government regulators, including unannounced inspection in their own and
other jurisdictions. Certain material manufacturing changes to approved drugs,
biologics and diagnostic products also are subject to FDA and foreign regulatory
review and approval. There can be no assurance that the Company or its suppliers
will be able to comply with the applicable cGMP regulations and other FDA or
other post-approval regulatory requirements such as adverse event reporting.
Failure to comply with the post-approval regulatory requirements can lead to
product withdrawal and/or other regulatory action by the FDA. Such failure could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Governmental Regulation."
In addition to regulation by the FDA, the Nuclear Regulatory Commission
(the "NRC") and some individual states (referred to as "Agreement States") also
regulate companies that possess radioactive material and those that manufacture,
prepare or transfer radioactive drugs for commercial distribution. Agreement
States typically regulate in a manner similar to the NRC. The Company's
incorporation of radioactive materials in its labeled products, HumaSPECT,
HumaRAD(16.88) and HumaRAD(88BV59), will subject it to these NRC requirements.
To comply, the Company must apply for and maintain appropriate licenses and
comply with reporting, recordkeeping and other regulatory requirements. The
Company's failure to comply with the regulatory requirements could subject it to
enforcement actions including civil penalties and orders to modify, suspend, or
revoke its licenses. With a suspended or revoked license, the Company would need
to cease and desist from possessing the radioactive material necessary for
producing its products and from distributing its products.
GOVERNMENT REGULATION; FRAUD AND ABUSE, FACILITY LICENSURE AND CORPORATE
PRACTICE
The Company has established, or may establish in the future, various
financial relationships with potential purchasers of the Company's products and
with sources of referral, including hospitals, clinical laboratories and
physicians. In addition, the Company provides coding advice to customers and,
operating through its OncoVAX Centers, expects to seek reimbursement for its
products and services from patients and/or third-party payers (including
Medicare, Medicaid and private health insurers). Consequently, the Company is
subject to various federal and state laws pertaining to health care fraud and
abuse, including anti-kickback laws, physician self-referral laws and false
claims laws. Anti-kickback laws make it illegal to solicit, offer, receive, or
pay any remuneration in exchange for, or to induce, the referral of business.
Physician self-referral laws restrict the ability of a physician to refer
patients to entities with which the physician has a financial relationship.
False claims laws prohibit anyone from knowingly and willfully presenting, or
causing to be presented, claims for payment that contain false or fraudulent
information. Violations of these laws are punishable by criminal and/or civil
sanctions and may render the Company ineligible for reimbursement for its
products and services. Although the Company intends to operate in compliance
with these laws, because of the broad scope of some of these laws, there can be
no assurance that one or more of the Company's practices will not be challenged
by governmental authorities under certain of these laws, that the Company will
not be required to alter its practices as a result or that the occurrence of one
or more of these events will not have a material adverse effect on the Company's
business. See "Business -- Government Regulation."
The Company's OncoVAX Centers will be subject to state laws regulating the
licensure and operation of healthcare facilities and clinics where patients
receive treatment. The structure and operation of the OncoVAX Centers and each
OncoVAX Center's relationship to supervising physicians and other healthcare
professionals also must comply with laws existing in some states that prohibit
the corporate practice of professions. These laws vary from state to state and
are enforced by the courts and regulatory authorities with broad discretion. The
Company intends to structure and operate its OncoVAX Centers in compliance with
these laws, but a failure to meet these requirements could have a material
adverse effect on the Company's ability to market OncoVAX(CL) and this, in turn,
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Government Regulation."
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FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's operations to date have consumed substantial and increasing
amounts of cash. The Company's negative cash flow from operations is expected to
continue and to accelerate in the foreseeable future. The development of the
Company's technology and potential products, including the establishment of
OncoVAX Centers in the United States and Europe, will continue to require a
commitment of substantial funds. The Company expects that its existing capital
resources, including the net proceeds of the Offering and interest thereon, will
be adequate to satisfy the requirements of its current and planned operations
until the end of 1999. However, the rate at which the Company expends its
resources is variable, may be accelerated and will depend on many factors,
including the scope and results of preclinical studies and clinical trials,
continued progress of the Company's research and development of product
candidates, the cost, timing and outcome of regulatory approvals, the expenses
of establishing a sales and marketing force, the cost of establishing and
operating OncoVAX Centers, the cost of manufacturing, the cost involved in
preparing, filing, prosecuting, maintaining, defending and enforcing patent
claims, the acquisition of technology licenses, the status of competitive
products and the availability of other financing.
The Company may need to raise substantial additional capital to fund its
operations and may seek such additional funding through public or private equity
or debt financings, as well as through collaborative arrangements. There can be
no assurance that such additional funding will be available on acceptable terms,
if at all. If additional funds are raised by issuing equity securities,
substantial equity dilution to stockholders may result. If adequate funds are
not available, the Company may be required to delay, reduce the scope of, or
eliminate one or more of its research and development programs, curtail its
operations or obtain funds through arrangements with collaborative partners or
others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would otherwise
seek to develop or commercialize on its own. See "Pro Forma Consolidated
Financial Information" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEPENDENCE UPON PROPRIETARY TECHNOLOGY; UNCERTAINTY OF INTELLECTUAL PROPERTY
RIGHTS
Extensive research has been conducted in the cancer vaccine and monoclonal
antibody fields by pharmaceutical and biotechnology companies and other
organizations and a substantial number of patents in these fields have been
issued to other pharmaceutical and biotechnology companies. In addition,
competitors may have applications for additional patents pending and may obtain
additional patents and proprietary rights related to products or processes
competitive with or similar to those of the Company. Patent applications are
maintained in secrecy for a period after filing and, in the United States,
patent applications are confidential until the patent is issued. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the patents potentially adverse to the Company's interests
that may have been issued to other companies, research or academic institutions,
or others. No assurance can be given that such patents do not exist, have not
been filed, or could not be filed or issued, which contain claims relating to
the Company's technology, products or processes. To date, no consistent policy
has emerged regarding the breadth of claims allowable in pharmaceutical and
biotechnology patents.
The Company is aware of various patents that have been issued to others
that pertain to a portion of the Company's prospective business. There can be no
assurance that other patents do not exist in the United States or in other
countries or that patents will not be issued to third parties that contain
preclusive or conflicting claims with respect to OncoVAX(CL) or any of the
Company's other product candidates or programs. Commercialization of cancer
vaccines and monoclonal antibody-based products may require licensing and/or
cross-licensing of one or more patents with other organizations in the field.
There can be no assurance that the licenses that might be required for the
Company's processes or products would be available on commercially acceptable
terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may
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also be necessary to enforce any patents issued to the Company or to determine
the scope and validity of third-party proprietary rights. If competitors of the
Company prepare and file patent applications in the United States that claim
technology also claimed by the Company, the Company may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
cost to the Company, even if the eventual outcome is favorable to the Company.
An adverse outcome could subject the Company to significant liabilities to third
parties and require the Company to license disputed rights from third parties or
to cease using such technology.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Many non-United States
jurisdictions allow oppositions by third parties to granted patents and/or
issued patents. The Company may have to participate in opposition proceedings in
non-United States jurisdictions to prevent a third party from obtaining a patent
that may be adverse to the Company's interests. Also, the Company may have to
defend against a third party's opposition to a patent granted and/or issued to
the Company. There can be no assurance that the Company will be successful in an
opposition proceeding, and participation in such a proceeding could result in
substantial cost to the Company whether or not the eventual outcome is favorable
to the Company. Moreover, there is certain subject matter which is patentable in
the United States and not generally patentable outside of the United States and
this may limit the protection the Company can obtain on some of its inventions
outside of the United States. For example, methods of treating humans are not
patentable in many countries outside of the United States. These and/or other
issues may prevent the Company from obtaining patent protection outside of the
United States, which could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Patents and Other Intellectual Property."
The Company also relies on trade secrets and trademarks to protect its
technology, especially where patent protection is not believed to be appropriate
or obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its key employees, consultants, medical
advisory board members, collaborators and contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and trademarks or
those of its collaborators or contractors will not otherwise become known or be
discovered independently by competitors. All of the Company's material patents,
including those which relate to the Company's OncoVAX(CL), HumaSPECT and the
Company's HumaRAD products, have been pledged to secure certain of the Company's
existing debt obligations. See "Business -- 1998 Debt Refinancings."
HIGHLY COMPETITIVE INDUSTRY; RISK OF TECHNOLOGICAL OBSOLESCENCE
The pharmaceutical and biotechnology industries are intensely competitive.
Many of the product candidates being developed by the Company, if approved,
would compete with existing drugs, therapies and diagnostic products and with
new drugs, therapies and diagnostic products under development, including, in
the case of cancer treatments, angiogenesis inhibitors, gene therapy, advanced
hormonal replacement therapy and new chemotherapeutics. There are many
pharmaceutical companies, diagnostic companies, biotechnology companies, public
and private universities and research organizations actively engaged in research
and development of products for the treatment of people with cancer. Many of
these organizations have financial, technical, manufacturing and marketing
resources greater than those of the Company. Several of them may have developed
or are developing therapies or diagnostic products that could be used for
treatment or diagnosis of the same diseases targeted by the Company. If a
competing company were to develop or acquire rights to a safer or more
efficacious treatment of or diagnostic products for the same diseases targeted
by the Company, or one which offers significantly lower costs of treatment or
diagnosis, the Company's business, financial condition and results of operations
could be materially adversely affected.
The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in
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developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are safer or more effective than those under development or proposed to be
developed by the Company. There can be no assurance that research and
development by others will not render the Company's technology or product
candidates obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies. See
"Business -- Competition."
DEPENDENCE ON MANAGEMENT AND OTHER KEY PERSONNEL
The Company is dependent upon a limited number of key management and
technical personnel. The loss of the services of one or more of such key
employees could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company's
success will be dependent upon its ability to attract and retain additional
highly qualified personnel. The Company faces intense competition in its
recruiting activities, and there can be no assurance that the Company will be
able to attract and/or retain qualified personnel. See "Management."
EXPOSURE TO PRODUCT LIABILITY
The manufacture and sale of human therapeutic and diagnostic products
involve an inherent risk of product liability claims and associated adverse
publicity. The Company has only limited commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations.
UNCERTAINTY RELATED TO THIRD-PARTY REIMBURSEMENT
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. Initiatives to reform
health care financing continue to be dominated by cost-containment efforts. The
Company anticipates that Congress, state legislatures and the private sector
will continue to review and assess controls on health care spending through
limitations on the growth of private health insurance premiums and Medicare and
Medicaid spending, the increased use of capitated managed care contractors by
government payors, price controls on pharmaceuticals and other fundamental
changes to the health care delivery system. Any such proposed or actual changes
could affect the Company's ultimate profitability or could cause the Company to
limit or eliminate spending on development projects. In anticipation of the
impending demographic shifts brought about by the "baby boom" generation,
legislative debate concerning potential reform to Medicare, the government's
health financing program for persons over age 65, is expected to continue, and
market forces are expected to drive reductions in health care costs. The Company
cannot predict what impact the adoption of any federal or state health care
reform measures or future private sector reforms may have on its business.
In the United States and foreign markets, sales of the Company's proposed
products will depend in part upon the availability of reimbursement from
third-party payors, such as government health administration authorities,
managed care providers, private health insurers and other organizations. The
Company has very limited experience obtaining coverage and reimbursement for its
products in the United States. Third-party payors are increasingly challenging
the price and cost effectiveness of medical products and services. Significant
uncertainty exists as to the reimbursement status of newly approved health care
products. OncoVAX(CL), as potentially the first vaccine to treat colon cancer
approved for marketing by government regulators, faces particular uncertainties
due to the absence of a comparable, approved therapy to serve as a model for
pricing and reimbursement decisions.
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As an autologous product that will not generally be sold through
traditional commercial channels, OncoVAX(CL) may present unique coverage and
payment issues for Medicare. Because the Company's plans concerning the
production, distribution and administration of OncoVAX(CL) do not precisely fit
the models established for drug coverage and payment by Medicare, the Company
cannot predict whether Medicare will cover and pay for the biologic under its
established rules for drugs and biologics. Failure to obtain coverage and
adequate reimbursement could have a material adverse effect on the Company's
ability to market OncoVAX(CL). With respect to private payors, there can be no
assurance that the Company's product candidates will be considered cost
effective or that adequate third-party reimbursement will be available to enable
the Company to maintain price levels sufficient to realize an appropriate return
on its investment in product development. If adequate coverage and reimbursement
rates are not provided by the government and third-party payors for the
Company's products, the market acceptance of these products could be adversely
affected, which could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Reimbursement."
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
The manufacturing and administration of the Company's HumaRAD products and
HumaSPECT require the handling, use and disposal of (90)Yttrium and Technetium
Tc 99m, respectively, each a radioactive isotope. These activities must comply
with various state and federal regulations. Violations of these regulations
could delay significantly completion of clinical trials and commercialization of
these products.
The Company expects to continue using hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, contamination or injury from the handling and disposal of
these materials, as well as for unexpected remedial costs and penalties that may
result from any violation of applicable regulations, which could result in a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, the Company may incur substantial costs to
comply with environmental regulations. See "Business -- Radioactive and Other
Hazardous Materials."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY FLUCTUATIONS
The Company's international operations are anticipated to comprise a
substantial percentage of the Company's net revenue in the future and,
accordingly, the Company will be subject to risks associated with international
operations. Such risks include managing a multinational organization,
fluctuations in currency exchange rates, the burden of complying with
international laws and other regulatory and product certification requirements
and changes in such laws and requirements, tariffs and other trade barriers,
import and export controls, restrictions on the repatriation of funds,
inflationary conditions, staffing, employment and severance issues, political
and economic instability and longer payment cycles in certain countries. The
inability to effectively manage these and other risks could adversely affect the
Company's business, financial condition and results of operations.
TAX LOSS CARRYFORWARDS
The Company's net operating loss carryforwards ("NOLs") expire through the
year 2012. Under Section 382 of the Internal Revenue Code of 1986, as amended,
utilization of prior NOLs is limited after an ownership change, as defined in
Section 382, to an annual amount equal to the value of the corporation's
outstanding stock immediately before the date of the ownership change multiplied
by the federal long-term exempt tax rate. Each of the Company and PerImmune
Holdings has experienced an ownership change, and is limited in its use of its
prior NOLs. In the event the Company or PerImmune Holdings achieves profitable
operations, these limitations would have the effect of increasing the Company's
consolidated tax liability and reducing net income and available cash reserves.
See Note 8 to the consolidated financial statements of the Company and Note 13
to the consolidated financial statements of PerImmune Holdings.
16
<PAGE> 18
CONTROL BY OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
Following consummation of this offering, directors, executive officers and
principal stockholders of the Company will beneficially own approximately %
of the outstanding shares of the Company's common stock. Accordingly, these
stockholders, individually and as a group, may be able to control the Company
and direct its affairs and business, including any determination with respect to
a change in control of the Company, future issuances of common stock or other
securities by the Company, declaration of dividends on the common stock and the
election of directors. See "Principal and Selling Stockholders."
FUTURE MERGERS AND ACQUISITIONS
The Company may acquire complementary businesses, products or technologies
in the future although the Company has no pending agreements or commitments. No
assurance can be given that the Company will not incur problems in integrating
any future acquisition and there can be no assurance that any future acquisition
will result in the Company's becoming profitable or, if the Company achieves
profitability, that such profitability will be sustainable. Furthermore, there
can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. Any such problem
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, future acquisitions by the
Company may result in dilutive issuances of equity securities, the incurrence of
additional debt, large one-time write-offs and the creation of goodwill or other
intangible assets that could result in amortization expense. These factors could
have a material adverse effect on the Company's business, financial condition
and results of operations.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the common
stock and there is no assurance that an active market will develop or be
sustained after this offering. The initial public offering price will be
determined through negotiations among the Company and the Underwriters and may
bear no relationship to the price at which the common stock will trade upon
consummation of this offering. The securities markets have from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. The market prices of the common
stock of many publicly held biotechnology and pharmaceutical companies have in
the past been, and can in the future be expected to be, especially volatile.
Announcements of technological innovations or new products by the Company or its
competitors, release of reports by securities analysts, developments or disputes
concerning patents or proprietary rights, regulatory developments, changes in
regulatory or medical reimbursement policies, economic and other external
factors, as well as period-to-period fluctuations in the Company's financial
results, may have a significant and adverse impact on the market price of the
common stock. See "Underwriting."
POTENTIAL ADVERSE IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of common stock to be sold in this offering will be
freely tradable, except for shares purchased by or issued to any "affiliate" of
the Company (within the meaning of the Securities Act). The remaining shares of
common stock, representing approximately % of the outstanding common stock
upon consummation of this offering, will be deemed "restricted securities" under
the Securities Act, and, as such, will be subject to restrictions on the timing,
manner and volume of sales of such shares. Certain holders of those shares will
have the right to request the registration of their shares under the Securities
Act following the completion of a period of one year, in the case of directors
and executive officers, and a period of 180 days, in the case of certain other
stockholders, after the date of this Prospectus, which, upon the effectiveness
of such registration, would permit the free transferability of such shares. In
addition, the Company intends to file a registration statement on Form S-8 for
the shares held pursuant to its stock option plans, which may make these shares
freely tradeable. See "Shares Eligible for Future Sale."
The Company, its executive officers and directors and certain of its
current stockholders have agreed that, subject to certain limited exceptions,
for a period of one year, in the case of directors and executive officers,
17
<PAGE> 19
and a period of 180 days, in the case of such other stockholders, after the date
of this Prospectus, without the prior written consent of the Underwriters, they
will not, directly or indirectly, offer to sell, sell or otherwise dispose of
any shares of common stock. See "Underwriting."
No predictions can be made as to the effect, if any, that future sales of
shares or the availability of shares for future sale, will have on the market
price for common stock prevailing from time to time. The sale of a substantial
number of shares held by existing stockholders, whether pursuant to a subsequent
public offering or otherwise, or the perception that such sales could occur,
could adversely affect the market price of the common stock and could materially
impair the Company's future ability to raise capital through an offering of
equity securities.
DILUTION
Purchasers of the shares of common stock offered hereby will experience
immediate dilution of $ per share in net tangible book value (deficit) per
share after deducting the underwriting discounts and estimated offering
expenses. Such investors will experience additional dilution upon the exercise
of outstanding options. See "Dilution."
ADVERSE IMPACT OF POSSIBLE ISSUANCES OF PREFERRED STOCK;
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
The Board of Directors has authority to issue up to 5,000,000 shares of
preferred stock and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock could affect adversely the voting power of the holders of common stock and
the likelihood that such holders will receive dividend payments and payments
upon liquidation. Additionally, the issuance of preferred stock and certain
provisions in the Company's Amended and Restated Certificate of Incorporation,
as amended (the "Certificate of Incorporation"), and Bylaws may have the effect
of delaying, deferring or preventing a change in control of the Company, may
discourage bids for the common stock at a premium over the market price of the
common stock and may affect adversely the market price of and the voting and
other rights of the holders of the common stock.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and software used by many companies may need to
be upgraded to comply with such "Year 2000" requirements.
Management has initiated a program to prepare the Company's computer
systems and other electronic applications for the year 2000 (the "Year 2000
Program"). Through the Year 2000 Program, management is currently reviewing the
Company's computer systems and other electronic applications in order to
identify potential Year 2000 problems. Based upon preliminary results of the
Year 2000 Program, management anticipates that the Company's Year 2000
compliance expenses will not be material and that the Company's Year 2000
Program will be completed before January 1, 2000. The Company's failure to
successfully complete its Year 2000 Program could have a material adverse effect
on the Company's business, financial condition and results of operations.
18
<PAGE> 20
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements, which may be deemed to
include the Company's plans to commercialize OncoVAX(CL) and other product
candidates, conduct clinical trials with respect to OncoVAX(CL) and other
product candidates, seek regulatory approvals, open OncoVAX Centers, expand its
sales and marketing capability, use OncoVAX Centers to conduct clinical trials,
evaluate additional product candidates for subsequent clinical and commercial
development and apply the proceeds of this offering. In addition, this
Prospectus states the Company's belief that the net proceeds of this offering
and interest thereon will be adequate to satisfy the requirements of its current
and planned operations through the end of 1999. Actual results could differ
materially from those projected in any forward-looking statements for a variety
of reasons, including those detailed above in this "Risk Factors" section or
elsewhere in this Prospectus.
19
<PAGE> 21
THE COMPANY
The Company is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and of immunotherapeutic
and diagnostic products for cancers and infectious diseases. Since its formation
in 1987, the Company has grown in part as a result of various strategic mergers
and acquisitions.
On January 2, 1998, the Company acquired in a tax-free merger (the
"Merger") all of the capital stock of PerImmune Holdings, which conducts
operations through PerImmune, Inc., its wholly owned subsidiary ("PerImmune").
PerImmune's core research and development expertise in cancer and infectious
diseases complements those previously developed by the Company. The Company's
expanded resources and greater management depth resulting from the Merger have
increased the Company's ability to offer a broader spectrum of diagnostic,
prognostic and immunotherapeutic products targeted at cancer and infectious
diseases. In particular, the addition of PerImmune's large clinical development
group has augmented development of the Company's therapeutic products and the
Company's sales and marketing organization has enabled the direct launch of many
of PerImmune's diagnostic products. PerImmune Holdings was incorporated in 1996
by the management of PerImmune to acquire all of the common stock of PerImmune
from Organon Teknika Corporation, an indirect wholly owned subsidiary of Akzo
Nobel, NV ("Organon Teknika").
In November 1995, the Company entered into a Stock Purchase Agreement with
Dade International, Inc. ("Dade") by which the Company acquired all of the
common stock of Bartels held by Dade. This acquisition provided the Company with
entry into the diagnostic products retail market.
The Company has historically used significant amounts of debt to finance
its operations. In 1998, the Company completed a comprehensive refinancing of
its outstanding debt securities. See "Business -- 1998 Debt Refinancings."
The Company was incorporated under the laws of Massachusetts in 1987 and
reincorporated under the laws of Delaware in 1997. The Company's principal
executive offices are located at 2005 NW Sammamish Road, Suite 107, Issaquah,
Washington 98027 and its telephone number is (425) 392-2992.
20
<PAGE> 22
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares
of common stock offered hereby, after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$45.0 million ($ million if the over-allotment option granted by the
Company to the Underwriters is exercised in full) based upon an assumed initial
public offering price of $ per share.
The Company anticipates that such net proceeds, together with its other
available cash and cash equivalents, will be used as follows: (i) approximately
$25.0 million to support the establishment and early operation of OncoVAX
Centers; (ii) $5.0 million to repay existing indebtedness bearing interest at a
rate of 12% per annum due when the Company receives the proceeds of this
offering; (iii) approximately $5.0 million for the Company's other research and
development programs and to conduct clinical trials for the Company's cancer and
infectious disease products and (iv) the balance for working capital and other
general corporate purposes. The Company may also use a portion of the net
proceeds to acquire technologies or products complementary to its business,
although no material expenditures in connection with any such acquisitions are
anticipated as of the date of this Prospectus. Pending application as described
above, the Company intends to invest the net proceeds from this offering in
short-term investment-grade, interest-bearing instruments.
The amounts and timing of the Company's actual expenditures for the
purposes described above will depend upon a number of factors, including: the
scope and results of preclinical studies and clinical trials; continued progress
of the Company's research and development of product candidates; the cost,
timing and outcome of regulatory approvals; the adequacy of manufacturing and
other facilities; the expenses of expanding the Company's sales and marketing
force; the cost involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; the acquisition of technology licenses;
the status of competitive products and the availability of other financing. The
Company will require substantial additional funds to conduct its operations in
the future, and there can be no assurance that such funding will be available on
acceptable terms, if at all. The Company expects that its existing capital
resources, including the net proceeds of this offering and interest thereon,
will be adequate to satisfy the requirements of its current and planned
operations until the end of 1999. The occurrence of certain unforeseen events or
changed business conditions, however, could result in the application of the
proceeds of this offering in a manner other than as described in this
Prospectus.
DIVIDEND POLICY
The Company has never paid a cash dividend on its common stock and does not
anticipate paying any cash dividends in the foreseeable future.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth at June 30, 1998: (a) the actual
capitalization of the Company; (b) the pro forma capitalization of the Company,
giving effect to the refinancing of various short-term and long-term debt which
occurred subsequent to June 30, 1998, but before the date of this Prospectus and
(c) the pro forma capitalization as adjusted to reflect: (i) the Preferred Stock
Conversion, the probable exercise of certain warrants and the automatic
conversion of certain outstanding notes payable into common stock, each upon the
consummation of this offering and (ii) the receipt of the estimated net proceeds
from the sale of the shares of common stock offered hereby at an
assumed initial public offering price of $ per share and after deducting the
underwriting discounts and commissions and offering expenses payable by the
Company. This table should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------
PRO PRO FORMA AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
-------- ---------- --------------
(DOLLAR IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 725 $ 10,547 $ 52,885
======== ========== ============
Long-term debt, non-convertible, including current
portion................................................... $ 33,595 $ 42,826 $ 37,826
Long-term debt, convertible, including current portion(3)... 233 10,620 10,387
Redeemable and convertible preferred stock, $0.0001 par
value; 5,000,000 shares authorized; of which 1,780,220
shares have been authorized for issue in five series
subject to mandatory redemption, of which 1,459,530 shares
are issued and outstanding, actual and pro forma; none pro
forma as adjusted(4)...................................... 20,692 20,692
Stockholder's equity (deficit):
Series A-2 preferred stock, $0.0001 par value; 155,000
shares authorized; 47,030 shares issued and
outstanding, actual; none pro forma and pro forma as
adjusted...............................................
Common stock, $0.0001 par value; 25,000,000 shares
authorized; 11,025,768 shares issued and outstanding,
actual and pro forma; shares issued and
outstanding, pro forma
as adjusted(5)......................................... 1 1 2
Additional paid-in capital................................ 46,204 41,328 110,222
Accumulated deficit....................................... (70,429) (70,429) (70,429)
-------- ---------- ------------
Total stockholders' equity (deficit).............. (24,224) (29,100) 39,795
-------- ---------- ------------
Total capitalization.............................. $ 30,296 $ 45,038 $ 88,008
======== ========== ============
</TABLE>
- ---------------
(1) Gives effect to the refinancing of various short-term and long-term debt
which occurred subsequent to June 30, 1998, but before the date of this
Prospectus. $6.0 million of the cash and cash equivalents is maintained in a
segregated bank account from which the Company is permitted to obtain funds
upon request to the lender. See Note 14 to the Company's consolidated
financial statements contained elsewhere in this Prospectus.
(2) Adjusted to reflect the Preferred Stock Conversion, the exercise of certain
warrants and the automatic conversion of certain outstanding notes payable
into common stock, each upon the consummation of this offering, and the sale
of common stock offered hereby and the repayment of $5,000,000 of
indebtedness.
(3) Actual includes $232,500 in short-term notes payable which will
automatically be converted into 54,648 shares of common stock upon
consummation of this offering and pro forma also includes approximately
$10,387,000 in notes payable which may be converted at the payee's option
into common stock calculated by the sum of the then outstanding principal
amount and all accrued interest divided by the price to the public per share
set forth on the cover page of this Prospectus.
(4) On an actual and pro forma basis, includes Series A, 730,000 shares
authorized, 627,977 shares issued and outstanding; Series A-1, 850,000
shares authorized, 677,443 shares issued and outstanding; Series A-3,
200,000 shares authorized, 153,890 shares issued and outstanding; Series
B-1, 100 shares authorized, issued and outstanding; and Series B-2, 120
shares authorized, issued and outstanding. None of such shares will be
outstanding on a pro forma as adjusted basis.
(5) The foregoing computations exclude: (i) 3,285,228 shares of common stock
issuable upon exercise of stock options outstanding as of June 30, 1998, at
a weighted-average exercise price of $1.81 per share; (ii) 1,204,103 shares
of common stock issuable upon exercise of warrants expected to remain
outstanding after this offering, at a weighted-average exercise price of
$5.64 per share; and (iii) 1,625,000 shares of common stock issuable upon
exercise of warrants granted in conjunction with the refinancing of various
short-term and long-term debt which occurred subsequent to June 30, 1998,
but before the date of this Prospectus, which are exercisable at an exercise
price per share equal to the price to the public per share set forth on the
cover page of this Prospectus, unless a registered public offering of the
Company's common stock is not consummated on or prior to December 31, 1998,
in which case all 1,625,000 shares are exercisable at $10.00 per share.
22
<PAGE> 24
DILUTION
The pro forma net tangible book value (deficit) of the Company as of June
30, 1998, was $( ), or $( ) per share of common stock. Pro forma
net tangible book value (deficit) per share represents the Company's total
tangible assets less total liabilities and Series A-2 preferred stock, divided
by shares of common stock outstanding (after reflecting the Preferred
Stock Conversion, the conversion of notes into shares of common stock,
which notes automatically convert upon consummation of this offering, and the
exercise of warrants to purchase shares of common stock, which warrants
automatically expire ten days after consummation of this offering). Without
taking into account any other changes in the net tangible book value after June
30, 1998, other than to give effect to the sale of shares of
common stock by the Company in this offering (at the initial price and after
deducting the underwriting discounts and commissions and estimated offering
expenses) and the application of the estimated proceeds thereof, the pro forma
net tangible book value (deficit) of the Company as of June 30, 1998, would have
been $ , or $ per share. This amount represents an immediate
improvement in net tangible book value (deficit) of $ per share to existing
stockholders and immediate dilution in pro forma net tangible book value
(deficit) of $ attributable to new investors purchasing common stock in
this offering. Dilution per share to new investors represents the difference
between the pro forma net tangible book deficit per share of common stock
immediately upon consummation of this offering and the amount per share paid by
purchasers of common stock of the Company in this offering. The following table
illustrates this per share dilution as of June 30, 1998:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $
---------
Pro forma net tangible book value (deficit) per share at
June 30, 1998..........................................
Improvement per share attributable to new investors.......
------
Pro forma net tangible book value (deficit) per share after
this offering.............................................
---------
Dilution per share to new investors......................... $
=========
</TABLE>
23
<PAGE> 25
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited consolidated pro forma statement of operations (the
"Pro Forma Consolidated Financial Information") gives pro forma effect to the
completion of the Merger of PerImmune Holdings on January 2, 1998, after giving
effect to the pro forma adjustments described in the accompanying notes as if
the Merger had occurred on January 1, 1997. The Pro Forma Consolidated Financial
Information has been prepared from, and should be read in conjunction with, the
historical consolidated financial statements and notes thereto of each of the
Company and PerImmune Holdings.
The Pro Forma Consolidated Financial Information is provided for
illustrative purposes only and does not purport to represent what the actual
results of operations of the Company would have been had the Merger occurred on
the date assumed, nor is it necessarily indicative of the Company's future
operating results. The following table enumerates the unaudited pro forma
consolidated statement of operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------
ACQUIRED PRO FORMA PRO FORMA
COMPANY BUSINESS ADJUSTMENTS CONSOLIDATED
---------- -------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue
Product..................................... $ 13,452 $ 2,111 $ 15,563
Contract.................................... 5,778 5,778
---------- -------- ------- ----------
Total revenue............................. 13,452 7,889 21,341
Cost of revenue
Product..................................... 9,493 1,600 11,093
Contract.................................... 5,016 5,016
---------- -------- ------- ----------
Total cost of revenue..................... 9,493 6,616 16,109
Selling, general and administrative........... 8,478 2,849 $ 1,595(1) 12,922
Research and development...................... 556 8,077 8,633
Amortization of cost in excess of net assets
acquired.................................... 908 85(1) 993
---------- -------- ------- ----------
Total operating expense.................. 19,435 17,542 1,680 38,657
---------- -------- ------- ----------
Loss from operations..................... (5,983) (9,653) (1,680) (17,316)
Interest income (expense), net................ (2,496) (838) (3,334)
Loss on sale-leaseback transaction............ (335) (335)
---------- -------- ------- ----------
Net loss................................. (8,479) (10,826) (1,680) (20,985)
Preferred stock dividends/accretion........... (1,261) (32) 32(2) (1,261)
---------- -------- ------- ----------
Net loss used in calculating loss per
share.................................. $ (9,740) $(10,858) $(1,648) $ (22,246)
========== ======== ======= ==========
Historical net loss per share................. $ (2.39)
==========
Pro forma net loss per share.................. $ (2.33)
==========
Shares used in calculating per share data..... 4,073,398 9,552,052
========== ==========
</TABLE>
- ---------------
(1) Represents the pro forma effects of amortization expenses recognized on
intangible assets on which a portion of the purchase price was allocated in
conjunction with the Merger. The allocation of the purchase price, the
amortization periods of the intangible assets and the annual amortization
expense to be recognized on those assets are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
PURCHASE AMORTIZATION ANNUAL
PRICE PERIOD AMORTIZATION
ALLOCATION (YEARS) EXPENSE
---------- ------------ ------------
<S> <C> <C> <C>
Working capital (deficit) acquired.......................... $ (145)
Other long-term assets...................................... 5,436
Workforce in progress....................................... 144 3 $ 48
Product technology.......................................... 6,861 10 686
Patents..................................................... 8,608 10 861
Cost in excess of net assets acquired....................... 849 10 85
Acquired in-process research and development................ 37,718
------- ------
$59,471 $1,680
======= ======
</TABLE>
(2) Represents the pro forma effect of the Merger. The acquired business' Series
A and Series B redeemable and convertible preferred stock was exchanged for
Intracel Series B-1 and Series B-2 preferred stock. Accordingly, the
acquired business' preferred stock dividends/accretion is eliminated.
24
<PAGE> 26
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA FOR INTRACEL CORPORATION
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," the consolidated financial statements of the Company and the notes
thereto included elsewhere in this Prospectus. The statement of operations data
for the years ended June 30, 1993 and June 30, 1994 and the balance sheet data
at June 30, 1993, June 30, 1994, June 30, 1995 and December 31, 1995 are derived
from the financial statements of the Company not included in this Prospectus.
The statement of operations data for the year ended June 30, 1995, the six
months ended December 31, 1995 and the year ended December 31, 1996 and the
balance sheet data as of December 31, 1996 are derived from the consolidated
financial statements of the Company included elsewhere in this Prospectus and
have been audited by Ernst & Young LLP, independent auditors. The financial
statement data as of and for the year ended December 31, 1997 is derived from
the financial statements of the Company included elsewhere in this Prospectus
and has been audited by PricewaterhouseCoopers LLP, independent accountants. The
pro forma financial data for the year ended December 31, 1997 and the financial
data as of and for the periods ended June 30, 1997 and 1998 are unaudited but
have been prepared on a basis consistent with the audited consolidated financial
statements of the Company and the notes thereto and included all adjustments
(constituting only normal recurring adjustments), which the Company considered
necessary for a fair presentation of the information. The results of operation
for the six months ended June 30, 1998 are not necessarily indicative of results
to be expected for the year or for any future periods.
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED JUNE 30 ENDED DECEMBER 31
-------------------------- DECEMBER 31 -------------------
1993 1994 1995 1995(2) 1996 1997
------ ------- ------- ----------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Product................................ $1,776 $ 1,618 $ 1,566 $ 2,426 $ 14,718 $ 13,452
Contract...............................
------ ------- ------- ------- -------- --------
Total revenue........................ 1,776 1,618 1,566 2,426 14,718 13,452
------ ------- ------- ------- -------- --------
Cost of revenue
Product................................ 533 449 824 1,779 7,433 9,493
Contract...............................
------ ------- ------- ------- -------- --------
Total cost of revenue................ 533 449 824 1,779 7,433 9,493
Selling, general and administrative...... 962 801 1,580 2,593 5,740 8,478
Research and development................. 785 1,078 1,174 1,118 1,043 556
Acquired research and development........ 2,100
Amortization of costs in excess of net
assets acquired........................ 151 908 908
Reorganization expense................... 917
------ ------- ------- ------- -------- --------
Total operating expense.............. 2,280 2,328 3,578 7,741 16,041 19,435
------ ------- ------- ------- -------- --------
Loss from operations................... (504) (710) (2,012) (5,315) (1,323) (5,983)
Interest income (expense), net........... 47 22 68 (135) (2,179) (2,496)
Gain on pension curtailment..............
Loss on sale-leaseback transaction.......
------ ------- ------- ------- -------- --------
Loss before extraordinary item......... (457) (688) (1,944) (5,450) (3,502) (8,479)
Extraordinary gain on early
extinguishment of debt................. 1,367
------ ------- ------- ------- -------- --------
Net loss............................... (457) (688) (1,944) (4,083) (3,502) (8,479)
Preferred stock dividends................ (211) (266) (790) (1,261)
------ ------- ------- ------- -------- --------
Net loss used in calculating loss per
share................................ $ (457) $ (688) $(2,155) $(4,349) $ (4,292) $ (9,740)
====== ======= ======= ======= ======== ========
Net loss basic and diluted per
share(3)............................. $(0.12) $ (0.17) $ (0.54) $ (1.12) $ (1.10) $ (2.39)
====== ======= ======= ======= ======== ========
Shares used in computing net loss per
share.................................. 3,915 3,947 3,963 3,886 3,895 4,073
====== ======= ======= ======= ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 648 $ 421 $ 2,370 $ 4,072 $ 3,145 $ 1,975
Working capital (deficit)................ 1,072 569 2,273 1,986 2,226 (401)
Total assets............................. 1,912 1,632 3,728 25,646 27,355 28,042
Long-term debt, including current
portion................................ 102 281 193 18,047 22,557 19,672
Redeemable, convertible preferred
stock.................................. 3,961 9,578 10,367 11,222
Accumulated deficit...................... (537) (1,226) (3,381) (7,730) (12,021) (20,708)
Total stockholders' equity (deficit)..... 1,422 834 (1,314) (5,624) (9,717) (9,306)
<CAPTION>
PRO FORMA SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31 -------------------------
1997(1) 1997 1998(2)
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue
Product................................ $ 15,563 $ 7,073 $ 7,744
Contract............................... 5,778 2,072
-------- -------- --------
Total revenue........................ 21,341 7,073 9,816
-------- -------- --------
Cost of revenue
Product................................ 11,093 4,478 5,223
Contract............................... 5,016 1,629
-------- -------- --------
Total cost of revenue................ 16,109 4,478 6,852
Selling, general and administrative...... 12,922 3,602 8,025
Research and development................. 8,633 340 5,465
Acquired research and development........ 37,718
Amortization of costs in excess of net
assets acquired........................ 993 454 496
Reorganization expense...................
-------- -------- --------
Total operating expense.............. 38,657 8,874 58,556
-------- -------- --------
Loss from operations................... (17,316) (1,801) (48,740)
Interest income (expense), net........... (3,334) (1,210) (1,780)
Gain on pension curtailment.............. 800
Loss on sale-leaseback transaction....... (335)
-------- -------- --------
Loss before extraordinary item......... (20,985) (3,011) (49,720)
Extraordinary gain on early
extinguishment of debt.................
-------- -------- --------
Net loss............................... (20,985) (3,011) (49,720)
Preferred stock dividends................ (1,261) (537) (1,317)
-------- -------- --------
Net loss used in calculating loss per
share................................ $(22,246) $ (3,548) $(51,037)
======== ======== ========
Net loss basic and diluted per
share(3)............................. $ (2.33) $ (0.91) $ (4.70)
======== ======== ========
Shares used in computing net loss per
share.................................. 9,552 3,908 10,863
======== ======== ========
BALANCE SHEET DATA:
Cash and cash equivalents................ $ 697 $ 725
Working capital (deficit)................ 2,586 (5,709)
Total assets............................. 24,176 42,772
Long-term debt, including current
portion................................ 20,078 33,828
Redeemable, convertible preferred
stock.................................. 10,786 20,692
Accumulated deficit...................... (15,240) (70,429)
Total stockholders' equity (deficit)..... (9,073) (24,224)
</TABLE>
- ---------------
(1) Gives effect to the acquisition of PerImmune Holdings as if it had occurred
on January 1, 1997. See "Pro Forma Consolidated Financial Information."
(2) The six months ended December 31, 1995 and the subsequent periods include
the operations of Bartels, which was acquired by the Company in November
1995. The 1998 results include the operations of PerImmune Holdings, which
the Company acquired in January 1998. See Note 11 to the Company's
consolidated financial statements.
(3) See Note 2 to the Company's consolidated financial statements contained
elsewhere in this Prospectus for an explanation of earnings per share
calculations.
25
<PAGE> 27
SELECTED FINANCIAL DATA FOR PERIMMUNE HOLDINGS AND PREDECESSOR COMPANIES
The selected financial data below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of PerImmune Holdings and the
notes thereto included elsewhere in this Prospectus. The balance sheet data as
of December 31, 1993 and the statement of operations data for the year then
ended and for the year ended December 31, 1994 are derived from the financial
statements of OT Biotechnology Research Institute ("BRI"), a predecessor company
to PerImmune which operated as a division of Organon Teknika, an indirect wholly
owned subsidiary of Akzo Nobel, NV. Such financial statements are not included
in this Prospectus but have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The balance sheet data as of December 31, 1994 and
1995 are derived from the financial statements of PerImmune, which was
incorporated as a wholly owned subsidiary of Organon Teknika in December 1994
(BRI and PerImmune, collectively, are referred to as the "Predecessor
Companies"). Such financial statements are not included in this Prospectus but
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The statement of operations data for the year ended December 31,
1995 is derived from the statement of operations of PerImmune, which is included
elsewhere in this Prospectus and which was audited by KPMG Peat Marwick LLP,
independent certified public accountants. The balance sheet data as of August 2,
1996 have been derived from the unaudited financial statements of PerImmune and
have been prepared on a basis consistent with the audited financial statements
of PerImmune and the notes thereto and include all adjustments (constituting
only normal recurring adjustments) necessary for a fair presentation of the
information. The statement of operations data for the period ended August 2,
1996 is derived from the financial statements of PerImmune included elsewhere in
this Prospectus and has been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The balance sheet data as of December 31, 1996 and
the statement of operations data for the period then ended were derived from the
consolidated financial statements of PerImmune Holdings included elsewhere in
this Prospectus and have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The balance sheet data as of December 31, 1997 and
the statement of operations data for the year then ended are derived from the
consolidated financial statements of PerImmune Holdings included elsewhere in
this Prospectus, and have been audited by PricewaterhouseCoopers LLP,
independent accountants.
<TABLE>
<CAPTION>
PREDECESSOR COMPANIES (1) PERIMMUNE HOLDINGS
--------------------------------------- -------------------------
JANUARY 1 AUGUST 3
YEAR ENDED DECEMBER 31 THROUGH THROUGH YEAR ENDED
--------------------------- AUGUST 2 DECEMBER 31 DECEMBER 31
1993 1994 1995 1996 1996 1997
------- ------- ------- --------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Government contracts.................................... $ 3,947 $ 6,005 $ 6,578 $ 3,420 $ 2,751 $ 1,869
Commercial and affiliate contracts...................... 11,099 10,483 11,313 7,176 1,106 3,909
Product sales........................................... 821 1,247 1,407 1,632 594 2,111
------- ------- ------- ------- ------- --------
Total revenue....................................... 15,867 17,735 19,298 12,228 4,451 7,889
------- ------- ------- ------- ------- --------
Operating expenses:
Cost of contracts and sales:
Government contracts.................................... 3,469 5,173 5,779 3,375 1,968 1,585
Commercial and affiliate contracts...................... 9,996 9,796 10,189 6,299 886 3,431
Product sales........................................... 609 822 1,124 1,102 325 1,600
------- ------- ------- ------- ------- --------
Total cost of contracts and sales................... 14,074 15,791 17,092 10,776 3,179 6,616
Selling, general and administrative....................... 1,034 1,264 1,283 740 708 2,241
Research and development.................................. 467 239 360 189 4,683 8,077
Other..................................................... 50 29 14 10 608
------- ------- ------- ------- ------- --------
Total operating expenses............................ 15,575 17,344 18,764 11,719 8,580 17,542
------- ------- ------- ------- ------- --------
Income (loss) from operations....................... 292 391 534 509 (4,129) (9,653)
Interest (expense), net..................................... (446) (837)
Loss on sale-leaseback transaction.......................... (335)
------- ------- ------- ------- ------- --------
Income (loss) before income taxes................... 292 391 534 509 (4,575) (10,825)
Provision for income taxes.................................. (111) (285) (356) (68)
------- ------- ------- ------- ------- --------
Net income (loss)................................... $ 181 $ 106 $ 178 $ 441 $(4,575) $(10,825)
======= ======= ======= ======= ======= ========
BALANCE SHEET DATA: (UNAUDITED)
Cash and cash equivalents................................... $ 2 $ 2 $ 2 $ 193 $ 2,424 $ 2,504
Working capital (deficit)................................... 3,123 3,244 3,014 (18) (3,835) (8,871)
Total assets................................................ 7,506 12,694 12,829 12,650 13,624 8,030
Long-term debt, including current portion................... 14,835 10,393
Redeemable, convertible preferred stock..................... 9,786
Retained earnings (accumulated deficit)..................... 178 619 (5,485) (16,310)
Total stockholders' equity (deficit)........................ 5,844 10,242 10,521 9,161 (5,485) (16,027)
</TABLE>
- ---------------
(1) Effective August 3, 1996, 100% of PerImmune's common stock was acquired by
PerImmune Holdings from Organon Teknika in exchange for a $9,234,935 note
payable. Prior to the acquisition, the Predecessor Companies performed
certain research and development activities for, and were reimbursed by,
Organon Teknika and other affiliates under contractual agreements. The
revenue and cost related to those activities prior to the acquisition were
presented as part of "Revenue -- Commercial and affiliate contracts" and
"Cost of contacts and sales -- Commercial and affiliate contracts" in the
above selected financial data. Subsequent to the acquisition by PerImmune
Holdings, costs incurred in research and development activities were
presented as "Research and development" expenses as those activities were
primarily performed for PerImmune's own benefit and were not reimbursed.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and elsewhere in
this Prospectus. This discussion and analysis should be read in conjunction with
the financial statements and the notes thereto included elsewhere in this
Prospectus.
OVERVIEW
The Company is an integrated biopharmaceutical company operating in one
business segment, focused on the development and commercialization of cancer
vaccines and of immunotherapeutic and diagnostic products for cancers and
infectious diseases. The Company is applying its extensive expertise in
immunology and its clinical, regulatory, manufacturing and marketing experience
to develop a portfolio of innovative therapeutic, prognostic and diagnostic
products.
On January 2, 1998, the Company acquired all of the capital stock of
PerImmune Holdings. With the consummation of the Merger, PerImmune Holdings
became a subsidiary of Intracel. Management's Discussion and Analysis of
Financial Condition and Results of Operations for each of Intracel and PerImmune
Holdings for 1997, 1996 and 1995 will be presented, as appropriate, on a
separate basis. The results of operations for the six-month period ended June
30, 1998 and forward-looking liquidity and capital resources will be discussed
on a consolidated basis.
INTRACEL -- RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH THE SIX MONTHS ENDED JUNE 30,
1997
Revenues increased $2.7 million, or 38.0%, to $9.8 million as compared to
$7.1 million for the six months ended June 30, 1998 and 1997, respectively.
Product revenues generated by the Company's portfolio of diagnostic products,
which are used for the confirmation of viral and bacterial diseases, increased
by $0.6 million, or 8.6%, to $7.7 million as compared to $7.1 million for the
six months ended June 30, 1997. This increase is primarily the result of $1.4
million of product revenues arising from the acquisition of PerImmune Holdings
offset by a decline of $0.8 million of product revenues as compared to the six
months ended June 30, 1997. This decline is due to eroding sales prices of
certain of the Company's product lines due to increased competition, the loss of
a distribution right to a high sales volume product and the Company's decision
at the end of 1997 to move its manufacturing for the INSTI product to Canada,
which came on line in March 1998. Contract revenues for the six months ended
June 30, 1998 were $2.1 million, all attributable to the acquisition of
PerImmune Holdings.
Cost of revenues increased $2.4 million, or 53.3%, to $6.9 million as
compared to $4.5 million for the six months ended June 30, 1998 and 1997,
respectively. This increase was primarily comprised of $1.6 million for cost of
contract revenue and $1.2 million of cost of product revenues wholly
attributable to the acquisition of PerImmune Holdings offset by a slight decline
in cost of product revenues for the six months ended June 30, 1998 as compared
to the six months ended June 30, 1997.
Selling, general and administrative expenses increased $4.4 million, or
122.2%, to $8.0 million as compared to $3.6 million for the six months ended
June 30, 1998 and 1997, respectively. This increase is primarily comprised of
$1.8 million of expenses associated with the hiring of additional personnel,
primarily resulting from the Company's continued expansion of its internal
marketing and sales organization, $1.2 million of related expenses attributable
to the acquisition of PerImmune Holdings and $0.8 million of amortization
expense pertaining to assets acquired from PerImmune Holdings.
Research and development expense increased $5.2 million, or 1,733.3%, to
$5.5 million as compared to $0.3 million for the six months ended June 30, 1998
and 1997, respectively. $5.3 million of this increase is attributable to the
acquisition of PerImmune Holdings.
27
<PAGE> 29
Interest expense increased by $0.6 million, or 50%, to $1.8 million as
compared to $1.2 million for the six months ended June 30, 1998 and 1997,
respectively. This increase is primarily attributable to the debt acquired in
the PerImmune Holdings acquisition.
A gain of $0.8 million was recognized in association with the curtailment
of the PerImmune Holdings pension plan.
1997 COMPARED TO 1996
Diagnostics revenue decreased $1.2 million, or 8.2%, to $13.5 million in
1997 as compared to $14.7 million for the twelve months ended December 31, 1996.
The Company believed the decline was in part related to the ineffectiveness of a
third-party distributor agreement. In response, the Company decided to establish
its own internal marketing and sales organization and terminated such agreement
during 1997. During 1997, the Company's INSTI product for HIV/AIDS testing was
introduced to international markets at a price designed to facilitate market
penetration. This pricing strategy resulted in an increase of revenues from $0.1
million to $0.5 million.
Cost of product sales increased $2.1 million, or 28.4%, to $9.5 million in
1997. The increase was partly attributable to a $1.1 million charge for excess
and obsolete inventory used for research-related product sales. The remaining
$1.0 million increase was due primarily to cost of product sales for INSTI
products exceeding product revenues for INSTI products by $0.8 million.
Selling, general and administrative expenses increased by $2.8 million, or
49.1%, to $8.5 million. The increase was due to several factors. The Company
established its own internal marketing and sales organization in 1997. In
addition, the Company formed a regulatory department to provide quality control
in compliance with regulatory requirements to support Bartel's lines of
production and newly emerging products such as INSTI and ZYMMUNE. The Company
also incurred costs in connection with the Company's merger and acquisition
program, which included the Merger on January 2, 1998. A lease for a fully
developed diagnostic manufacturing facility was acquired in September 1996 with
associated costs included for all in 1997.
Research and development expenses decreased $0.4 million, or 40.0%, to $0.6
million in 1997 as a result of reduced payments under a specific contract.
Reorganization expense of $0.9 million was incurred in 1996, in connection with
the Company's relocation from Cambridge, Massachusetts to Issaquah, Washington.
Interest expense increased $0.3 million, or 13.6%, to $2.5 million in 1997
primarily related to interest rate increases associated with certain debt
instruments.
SIX MONTHS ENDED DECEMBER 31, 1995
Due to a change in the Company's fiscal year end from June 30 to December
31 during 1995, all information in the following paragraphs under this section
applies to the six months ended December 31, 1995.
Product sales for the six months ended December 31, 1995 were $2.4 million,
primarily comprised of $1.8 million from diagnostic product sales generated by
Bartels from the date of its acquisition.
For the six-month period ended December 31, 1995, cost of product sales was
$1.8 million, primarily comprised of $1.2 million pertaining to Bartels cost of
product sales. Selling, general and administrative expenses for the six months
ended December 31, 1995 totaled $2.6 million.
Research and development expenses of $1.1 million for the six-month period
ended December 31, 1995 were associated with a specific contract. An additional
$2.1 million was expensed in the six months ended December 31, 1995 for acquired
in-process research and development associated with the acquisition of Bartels.
The Company recognized an extraordinary gain for the six months ended
December 31, 1995 of $1.4 million, pertaining to the Company's early retirement
of debt.
28
<PAGE> 30
TWELVE MONTHS ENDED JUNE 30, 1995
Net revenues of $1.6 million for the year ended June 30, 1995 were
comprised of sales of proteins and antibodies for use in diagnostic and research
applications.
Cost of sales of $0.8 million consisted of the cost to manufacture the
various proteins and antibodies for the year ended June 30, 1995. Selling,
general and administrative expenses were $1.6 million for the year ended June
30, 1995.
Research and development expenses of $1.2 million for the year ended June
30, 1995 were associated with a specific contract.
INTRACEL -- LIQUIDITY
The Company's operating activities used $2.5 million in 1997 resulting from
the net loss of $2.9 million (adjusted for non-cash items) offset by a $0.4
million reduction in investment in working capital. Investing activities used
$4.2 million of which $2.0 million represented the deposit in escrow of
restricted cash associated with a debt issue. Additionally, $1.4 million was
invested in the purchase of property and equipment and $0.8 million was invested
or advanced to Bartels Prognostics, Inc., an unconsolidated subsidiary in which
the Company has a minority interest ("Bartels Prognostics"). Net cash from
financing activities of $5.5 million was primarily comprised of $1.7 million
from the sale of preferred stock and $6.0 million net from the sale of common
stock and the exercise of warrants and options, offset by $2.3 million of
payments on long-term debt net of proceeds of new issuances and associated
costs.
PERIMMUNE HOLDINGS -- RESULTS OF OPERATIONS
PerImmune Holdings' operations are conducted in one business segment which
applies biotechnology and other life sciences technologies to develop and
provide products and services. PerImmune Holdings groups these activities into
three operating activities: Government Contracts, Commercial Contracts and
Product Sales.
PerImmune Holdings' operations began on August 3, 1996 with its acquisition
of PerImmune from Organon Teknika, an indirect wholly owned subsidiary of Akzo
Nobel, NV, in a leveraged buyout. Therefore, all comparisons are for the full
year of 1997 as compared to approximately five months of 1996.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED WITH THE FIVE MONTHS ENDED
DECEMBER 31, 1996
Revenues increased $3.4 million, or 75.6%, to $7.9 million in the 1997
period. Government contracts revenues decreased $0.9 million, or 32.1%, to $1.9
million. This decrease was the result of several contracts which ended during
the United States government fiscal year, October 1996 to September 1997, with
only one of those contracts being renewed, at a much lower dollar value than in
prior years. Management decided to de-emphasize the government contract business
and instead focus on future products and services. Commercial contract revenues
increased by $2.8 million, or 254.5%, to $3.9 million in the 1997 period. This
increase was due to the start of a research and development contract with Baxter
Healthcare Corporation ("Baxter") and the difference in the length of the two
reporting periods. Product sales increased by $1.5 million, or 250.0%, to $2.1
million in the 1997 period due entirely to the difference in the length of the
two reporting periods. There was also a decrease of $0.3 million in 1997 sales
due to the completion of research and development for PerImmune's previous
parent in 1996.
Gross profit was approximately the same for both years. Government contract
gross profits declined from 28.5% of sales to 15.2% of sales due to the start-up
of new contracts and additional costs not expected on contracts completed.
Commercial contract gross profits declined from 19.9% of sales in the 1996
period to 12.2% in the 1997 period of sales due to non-billable overruns on
various fixed price research and development contracts. Product sales gross
profits decreased from 45.3% in the 1996 period to 24.2% in 1997 of sales due to
start-up and validation expenses related to products that received marketing
clearance from the FDA in late 1997.
Selling, general administrative expense increased by $1.5 million in the
1997 period, or 214.3%, due to the change in reporting periods and the initial
payment of over $0.3 million in connection with marketing studies
29
<PAGE> 31
prior to the launch of the HumaSPECT product line. Previously, PerImmune's
former parent had paid marketing costs for this product line.
Research and development costs increased $3.4 million, or 72.3%, in 1997
due to the change in reporting periods, introduction of several clinical trials
and filing of applications for approval with the FDA, offset by lower research
and development activity as PerImmune Holdings placed more emphasis on its
largest projects while eliminating others. Other expense increased by $0.6
million due in part to facility costs that in the past had been allocated to
government contracts that were completed in 1996.
Interest expense increased by $0.6 million, or 150.0%, to $1.0 million in
1997, due to the change in reporting periods. Interest income of $0.2 million in
1997 was due to the earnings on excess cash received from the sale-leaseback of
PerImmune's corporate headquarters building in January 1997, which also resulted
in a $0.3 million loss.
PERIMMUNE HOLDINGS -- LIQUIDITY
PerImmune Holdings' operating activities used $8.5 million in 1997
resulting from the net loss of $9.9 million (adjusted for non-cash items) offset
by a $1.4 million in reduction in investment in working capital. Investing
activities generated $3.6 million of which $5.1 million related to the purchase
and sale-leaseback transaction referred to above and leaseback improvements
offset by capital expenditures of $0.3 million and $1.2 million paid to an
investment bank. Net cash from financing activities of $5.0 million included
$9.8 million from issuance of convertible preferred stock, $0.3 million from
issuance of common stock and $0.9 million from issuance of notes payable offset
by $5.6 million in payment of notes payable and $0.4 million of increase in
restricted cash.
CONSOLIDATED LIQUIDITY AND CAPITAL RESOURCES
As stated earlier, the future liquidity and capital resources of the
Company will be discussed on a post-Merger consolidated basis.
The Company's operating activities used $6.7 million for the six months
ended June 30, 1998, resulting from the net loss of $9.1 million (adjusted for
non-cash items) offset by a $2.4 million reduction in investment in working
capital. Investing activities for the six months ended June 30, 1998 provided
$3.6 million, of which $2.5 million represented cash acquired in conjunction
with the Merger, $2.0 million represented the release of restricted cash in
escrow, offset by $0.4 million associated with the increase in other assets
acquired in conjunction with the Merger and $0.4 million used for the
acquisition of property and equipment. Financing activities for the six months
ended June 30, 1998 provided $1.8 million primarily from the issuance of new
debt of $8.7 million, net of issuance costs, offset by payments of a long-term
obligation and under a line of credit in the aggregate amount of $6.6 million.
During the first quarter of 1998, the Company announced the results of a
ten-year Phase III clinical trial for OncoVAX(CL), which the Company believes is
the first vaccine to demonstrate efficacy for the post-surgical treatment of
Stage II colon cancer. The Company plans to begin treatment of patients using
the OncoVAX(CL) vaccine by establishing OncoVAX Centers in Europe and the United
States. Over 40 OncoVax Centers are expected to be established in the next
several years. The Company expects capital expenditures to increase over the
next several years as the OncoVAX Centers are established. Currently, the
Company is investigating various options for funding the OncoVAX Center capital
expenditures which are estimated to require an investment of less than $1.5
million per site. This may include, but is not limited to, capital equipment
vendor financing, lease lines, and strategic alliances with the hospitals
associated with the OncoVAX Centers. Currently the Company has no material
commitments for such capital expenditures. In addition to the capital
expenditures required for each OncoVAX Center, working capital requirements of
the Company will increase in association with the build-up of patient
receivables as each OncoVAX Center becomes operational.
As of June 30, 1998, the Company's accumulated deficit was approximately
$70.4 million. Included in the accumulated deficit is a one-time expense of
$37.7 million which was incurred in the first quarter of 1998 related to
acquired in-process research and development consisting of six projects which
were undergoing
30
<PAGE> 32
continuing development and/or clinical trials as they approached approval by the
FDA. As each of these projects was in development at the date of the Merger with
PerImmune, technological feasibility for the projects was not established. The
research projects acquired were all specifically designed to address specific
indications with focused therapies, which may or may not lead to the development
of "platform technologies," having alternative future uses outside of the
contemplated indications. If the Company continues to pursue such "platform
technologies," the aggregate expenditures to facilitate the completion of these
projects for the remainder of 1998, 1999, 2000, 2001 and 2002 are estimated to
be $1.5 million, $3.5 million, $3.6 million, $3.7 million and $2.7 million,
respectively.
At June 30, 1998, the Company had a working capital deficit of
approximately $5.9 million with approximately $0.7 million in cash and cash
equivalents as its principal source of liquidity. Subsequent to June 30, 1998,
the Company received approximately $1.3 million in milestone payments under
various contracts and agreements which PerImmune had entered into prior to the
Merger. As all of PerImmune's contracts and commitments survived the Merger, the
Company is now responsible for honoring the terms and conditions of these
agreements. The Company considers all such contracts and agreements to be of a
normal, recurring nature and consistent with the operational functions of the
Company. The material contracts are discussed in further detail in the notes to
the financial statements of PerImmune Holdings, Inc. and Subsidiary and
elsewhere in this Prospectus.
During 1997, the Company received certain amendments and waivers to a debt
agreement and its covenants. These amendments and waivers were retroactive to
January 1, 1997 and remained in effect until June 30, 1998. The amendments and
waivers became effective upon the consummation of the Merger. On April 1, 1998,
the Company repaid all amounts outstanding under the debt agreement associated
with the amendments and waivers.
Subsequent to June 30, 1998, the Company obtained additional financing of
approximately $42.0 million through the issuance of equity securities and
additional debt instruments. Of this amount, approximately $27.3 million was
used for the retirement of existing debt or to redeem outstanding shares of
preferred stock, approximately $4.9 million was deposited into an escrow account
which is equivalent to four scheduled interest payments on the new debt
agreement, $6.0 million was deposited into a segregated bank account from which
the Company is permitted to obtain funds upon request to the lender, with the
balance applied to meeting the working capital needs of the Company. The
Company's current material indebtedness consists of a 12% Guaranteed Senior
Secured Primary Note due August 25, 2003 in the aggregate original principal
amount of $35.0 million and a 12% Guaranteed Senior Secured Escrow Note due
August 25, 2003 in the aggregate original principal amount of $6.0 million. See
further discussion of the outstanding indebtedness of the Company as set forth
under "Business -- 1998 Debt Refinancings" and elsewhere in this Prospectus.
The Company believes that its sources of liquidity, together with net
proceeds from its private placements and borrowings, as well as the proceeds
from this offering will be sufficient to satisfy its funding needs for
operations through the end of 1999. Since June 30, 1995, the Company has
incurred negative cash flow from operations and does not expect to generate
positive cash flow to fund its operations for the next few years. This estimate
of the period for which the Company expects its available sources of liquidity
to be sufficient to meet its capital requirements is a forward-looking statement
that involves risks and uncertainties. There can be no assurance that the
Company will be able to meet its capital requirements for this period as a
result of certain factors set forth under "Risk Factors -- Future Capital
Requirements: Uncertainty of Additional Funding" and elsewhere in this
Prospectus. In the event the Company's capital requirements are greater than
estimated, the Company may need to raise additional capital to fund its research
and development and to expand its sales and marketing efforts to support the
commercialization of its products under development. The Company's future
liquidity and capital funding requirements will depend on numerous factors,
including the extent to which the Company's products under development are
successfully developed and gain market acceptance, the timing of regulatory
actions regarding the Company's products under development, the costs and timing
of expansion of sales, marketing and manufacturing activities, procurement and
enforcement of patents important to the Company's business and results of
clinical trials, regulatory approvals and competition. There can be no assurance
that additional capital will be available on terms acceptable to the Company, if
at all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available,
31
<PAGE> 33
may include restrictive covenants. If adequate funds are not available, the
Company may be required to curtail certain Company operations or to obtain funds
through entering into collaborative agreements or other arrangements on
unfavorable terms. The failure by the Company to raise capital on acceptable
terms when needed could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company may incur additional operating losses over the next few years
in connection with the establishment and operation of its OncoVAX Centers.
Historically, such losses have been principally the result of the various costs
associated with the Company's research and development programs and pre-clinical
and clinical activities. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. To date the
Company's revenues have primarily resulted from product sales of diagnostic test
kits. The Company's ability to achieve a consistent, profitable level of
operations is dependent in large part upon continued product research and
development, obtaining regulatory approvals for its existing identified products
and successfully manufacturing and marketing such products.
YEAR 2000 COMPLIANCE
Management has initiated the Year 2000 Program to prepare the Company's
computer systems and other electronic applications for the year 2000. Through
the Year 2000 Program, management is currently reviewing the Company's computer
systems and other electronic applications in order to identify potential Year
2000 problems. Based upon preliminary results of the Year 2000 Program,
management anticipates that the Company's Year 2000 compliance expenses will not
be material and that the Company's Year 2000 Program will be completed before
January 1, 2000. The Company's failure to successfully complete its Year 2000
Program could have a material adverse effect on the Company's business,
financial condition and results of operations.
32
<PAGE> 34
BUSINESS
GENERAL
Intracel is an integrated biopharmaceutical company focused on the
development and commercialization of cancer vaccines and immunotherapeutic and
diagnostic products for cancers and infectious diseases. Based upon the results
of Phase III clinical trials, the Company is preparing a BLA for its OncoVAX(CL)
cancer vaccine for the post-surgical treatment of Stage II colon cancer, the
most common form of colon cancer. The Company is also planning to initiate Phase
III clinical trials for OncoVAX(CL) in combination with chemotherapy for Stage
III colon cancer, has initiated Phase III clinical trials for KLH for the
treatment of refractory bladder cancer, and is planning to initiate a Phase
II/III clinical trial for its ASI(BCL) vaccine for the treatment of low-grade
B-cell lymphoma. In addition, the Company markets a portfolio of in vitro
diagnostic products and is introducing a number of new diagnostic products for
detecting and monitoring various cancers, AIDS and heart disease.
The Company believes that OncoVAX(CL) is the first vaccine to demonstrate
efficacy for the post-surgical treatment of Stage II colon cancer, and has
recently announced the results of the ten-year Phase III Amsterdam trial. This
randomized, multi-centered 254-patient clinical trial was the third in a series
of clinical trials of OncoVAX(CL) conducted in the United States and Europe. The
series included the Phase III ECOG trial and the Phase II/III Hoover trial. In
the Amsterdam trial, which added a fourth booster vaccination to the regimen,
the Company believes that OncoVAX(CL) demonstrated a 61% reduction in the rate
of recurrences and a 50% improvement in the survival rate for patients with
Stage II colon cancer when compared to surgery alone. The Company believes that
the results of the Amsterdam trial are supported by positive trends shown in the
ECOG and Hoover trials. Stage II colon cancer accounts for approximately 120,000
of the more than 200,000 new cases of colon cancer diagnosed in the United
States and Europe each year. There is currently no product approved by the FDA
for patients with Stage II colon cancer, and surgery is the principal means of
treatment. The Company plans to file a BLA for OncoVAX(CL) with the FDA in late
1998 and is presently seeking the necessary regulatory and reimbursement
approvals in certain countries in Europe. If the FDA does not consider the
trials discussed above as relevant or supporting to the efficacy of OncoVAX(CL),
the FDA may require additional clinical trials of OncoVAX(CL) prior to or after
the FDA's approval of the product.
OncoVAX(CL) is a multivalent vaccine produced from a patient's own
surgically removed tumor. The tumor is collected immediately after surgery and
delivered to one of the Company's OncoVAX Centers for manufacture and subsequent
administration of the vaccine. Each OncoVAX Center has been designed to treat up
to 2,000 patients per year. The Company plans to establish OncoVAX Centers at or
near hospitals with established surgery practices, serving areas characterized
by high population density and high incidence of colon cancer. Each OncoVAX
Center will require less than 3,000 square feet and will employ a staff of
production technicians and a supervising physician. Facilities for the first
OncoVAX Center in the United States have been established at Lehigh Valley
Hospital in Allentown, Pennsylvania, and the terms of the Company's ownership
in, and operation of, the center are being developed pursuant to a letter of
intent with Lehigh Valley Hospital. A second OncoVAX Center in the United States
is being established at the Company's therapeutic manufacturing facility in
Rockville, Maryland. The first OncoVAX Center in Europe is being established at
University Hospital, Vrije Universiteit, Amsterdam. The Company plans to
establish more than 25 OncoVAX Centers in the United States and more than 15
OncoVAX Centers in Europe. Each OncoVAX Center will cost approximately $1.0 to
$3.0 million dollars to build. The Company expects revenues from operating
OncoVAX Centers to offset the cost of new centers.
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent,
HumaSPECT, and its B-cell lymphoma vaccine ASI(BCL). The Company has filed an
amendment to the IND for OncoVAX(CL) with the FDA to commence a Phase III
clinical trial for the use of OncoVAX(CL) in combination with chemotherapy for
the treatment of Stage III colon cancer. The Company believes that this
combination therapy will be more effective in the treatment of Stage III colon
cancer than either OncoVAX(CL) or chemotherapy administered alone. The Company
is currently in discussions with the FDA regarding the commencement of the Phase
III clinical trial for this
33
<PAGE> 35
combination therapy. No assurance can be given that the Company will be given
clearance to commence this Phase III clinical trial in a timely manner, if at
all.
As a complementary product for OncoVAX(CL), the Company has developed
HumaSPECT, a totally human antibody labeled with a radioisotope, to monitor
recurrence and metastatic spread of colon cancer. In a Phase III clinical trial
completed in 1996, the Company believes that HumaSPECT demonstrated significant
advantages over CT scans, the current standard for detecting recurrence and
metastatic spread of colon cancer. Based on these results, the Company has filed
a BLA in the United States and an MAA in Europe for HumaSPECT. The FDA has
completed its initial review of the Company's BLA submitted for HumaSPECT and
the manufacturing facility for this product, and is now reviewing the Company's
responses to the FDA's initial round of questions as well as the Company's
responses to the FDA inspection of the manufacturing facility. There can be no
assurance that the Company will obtain FDA approval to market HumaSPECT in the
United States in a timely manner, if at all. With respect to the MAA, the
Company was notified on September 25, 1998 that the European Commission has
decided to grant marketing authorization for HumaSPECT.
The Company has initiated a Phase III clinical trial for KLH for the
treatment of refractory bladder cancer. In Phase II clinical trials, the Company
believes that KLH demonstrated significantly less toxicity than the leading
FDA-approved product for the treatment of bladder cancer. The Company has
entered into a strategic partnership with Mentor, a leading urology company,
under which Mentor has been funding research and development, is required to
make milestone payments to the Company and will market KLH worldwide. Mentor
also markets Accu-D(x), the Company's rapid bladder cancer test.
The Company plans to file an amendment to the IND for its ASI(BCL)vaccine
with the FDA to commence a Phase II/III clinical trial for such vaccine in the
first half of 1999. ASI(BCL) is designed to prevent recurrence of low-grade
non-Hodgkin's B-cell lymphoma, the most common type of B-cell lymphoma, in
patients who have achieved remission through chemotherapy and/or immunotherapy.
ASI(BCL), like OncoVAX(CL), is an autologous vaccine and is produced using a
unique antigen derived from a patient's own cancerous cells. The Company
believes that a Phase I clinical trial has demonstrated that ASI(BCL) can
stimulate a specific immune response and is associated with improved clinical
outcomes.
The Company has substantial expertise in the development and manufacturing
of totally human antibodies. In April 1998, the Company commenced enrollment in
its Phase I clinical trial for its totally human antibody HumaRAD(16.88) for the
treatment of head and neck cancer and plans to submit an IND with the FDA to
commence a Phase I clinical trial of a related product, HumaRAD(88BV59) for the
treatment of ovarian cancer, in the first half of 1999. In addition, the Company
is developing several antibody products to treat life-threatening infectious
diseases.
Through Bartels, the Company also markets a portfolio of innovative in
vitro diagnostic products for the confirmation of viral and bacterial diseases.
The Company markets these diagnostic products domestically to approximately
1,500 hospitals and clinical laboratories through its internal sales force.
Internationally, the Company relies upon third-party distributors to market its
diagnostic products. In 16 foreign countries, the Company is marketing a
one-minute test for HIV/AIDS based on its proprietary INSTI technology. In
addition, the Company is introducing a number of new diagnostic products,
including its Apo-Tek Lp(a) test kit to monitor an important indicator of heart
disease, its Accu-D(x) test to monitor the recurrence of bladder cancer and its
ZYMMUNE test to monitor CD4/CD8 levels in patients with HIV/AIDS.
The Company's technology foundation in cancer vaccines and human antibodies
is supported by a clinical trial group with expertise in designing and
implementing complex clinical trials and by state-of-the-art manufacturing
facilities capable of producing commercial quantities of its therapeutic,
diagnostic and prognostic products. To conduct research, development,
manufacturing and marketing of its products, the Company employs over 230 people
in multiple facilities, including its corporate headquarters in Issaquah,
Washington, a therapeutic product facility located in Rockville, Maryland and
diagnostic product facilities in Issaquah, Washington and Richmond, British
Columbia, Canada.
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<PAGE> 36
BACKGROUND INFORMATION
Overview
Cancer is a family of more than one hundred different diseases which can be
categorized into two broad groups: (i) solid tumors, like colon, breast,
prostate and lung cancer and (ii) hematologic, or blood-borne, cancers like
B-cell lymphoma and leukemia. Both groups are generally characterized by a
breakdown of the cellular mechanisms that ordinarily regulate cell growth and
cell death in healthy tissues.
Cancers develop from normal cells in the body. When a cell ceases to act
according to its pre-programmed function, it may become malignant and grow
uncontrollably. In solid tumors, malignant cells disrupt the normal function of
the tissues in which they are growing and can also spread to other tissues in
the body or "metastasize." This disruption in vital organs, such as the lungs or
the liver, frequently leads to death. Blood-borne cancers primarily affect blood
cells and the immune system. Death from blood-borne cancers is usually caused by
infection and/or vital organ failure.
Despite a substantial investment in cancer research and development during
the past several decades, the overall incidence of cancer is now higher than it
was 30 years ago. According to the World Health Organization, cancer kills six
million people per annum worldwide. The American Cancer Society estimates that,
in the United States, the incidence of new cancer cases in 1998 will be
approximately 1.2 million and that over 560,000 people will die from cancer. In
addition, according to the American Cancer Society, over 35% of all Americans,
or 85 million people, now living will eventually contract some form of cancer.
According to statistics published by the American Cancer Society which are
based on estimates from the National Cancer Institute, approximately 35% of all
new cancer cases and approximately 24% of cancer deaths in the United States in
1998 will be attributable to colorectal, breast, ovarian, bladder and head and
neck cancer. The diagnosis and treatment of these cancers and B-cell lymphoma
are the subject of current development efforts by the Company. The following
table details the new cases, deaths and direct treatment expenditures for
selected cancers in the United States:
NEW CASES, DEATHS AND ANNUAL EXPENDITURES FOR SELECTED CANCERS IN THE UNITED
STATES
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
ANNUAL
EXPENDITURES(2)
TYPE NEW CASES(1) DEATHS(1) (IN MILLIONS)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Lung 171,500 160,100 $5,060
- ---------------------------------------------------------------------------------
Colorectal 131,600 56,500 6,465
- ---------------------------------------------------------------------------------
Breast 180,300 43,900 6,599
- ---------------------------------------------------------------------------------
Prostate 184,500 39,200 4,610
- ---------------------------------------------------------------------------------
Ovarian 25,400 14,500 906
- ---------------------------------------------------------------------------------
Bladder 54,400 12,500 2,172
- ---------------------------------------------------------------------------------
Head and neck 30,300 8,000 N/A
- ---------------------------------------------------------------------------------
Non-Hodgkin's lymphoma(3) 55,400 24,900 N/A
- ---------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) Source: American Cancer Society's Cancer Facts and Figures, 1998.
(2) Includes all direct treatment expenses but excludes all indirect and actual
morbidity costs. Source: Brown M.L., Fintor L.; "The Economic Burden of
Cancer," Cancer Prevention and Control, New York, Marcel Dekker, 1995.
(3) Includes B-cell lymphoma, which accounts for a vast majority of new cases
and deaths.
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<PAGE> 37
Current Cancer Treatments
The three most common methods of treating patients with cancer are surgery,
chemotherapy and radiation. Surgery is primarily performed to remove solid
tumors that are accessible to the surgeon and can be effective if the cancer has
not yet metastasized. Frequently, however, the surgeon cannot remove all of the
cancerous cells associated with the solid tumor. This results in the need for
post-surgical "adjuvant" treatment methods, such as chemotherapy or radiation,
to kill or limit growth of remaining cancerous cells and to prevent recurrence
of the cancer.
Chemotherapy, which typically involves the intravenous administration of
cytotoxic drugs designed to destroy cancerous cells, is used for the treatment
of both solid tumors and blood-borne malignancies. Chemotherapeutic drugs
generally interfere with cell division and are therefore more toxic to rapidly
dividing cancer cells. Since cancer cells can often survive the effect of a
single drug, several different drugs are usually given in a combination therapy
designed to target overlapping mechanisms of cellular metabolism and to
overwhelm the ability of cancer cells to develop drug resistance. Nevertheless,
partial and even complete remissions achieved by chemotherapy are often not
permanent, because the treatment does not kill all the cancer cells, and the
cancer resumes its progression within a few months or years of treatment.
Chemotherapy is often re-administered to relapsed patients whose response
typically becomes shorter with each successive treatment as resistance
increases. Eventually, most patients become "refractory" to chemotherapy,
meaning that the length of their response, if any, to treatment is so brief as
to conclude that further chemotherapy regimes would be of little or no benefit.
Chemotherapeutic drugs are not sufficiently specific to cancer cells to
avoid affecting normal cells, especially those that are growing rapidly. As a
result, patients often experience debilitating side effects such as nausea,
vomiting, hair loss, anemia and fatigue, as well as life-threatening side
effects such as immune system suppression. These side effects can limit the
effectiveness of therapy because the clinician must avoid exceeding the maximum
dose of drug that the patient can tolerate. Since dosages must be limited to
avoid unacceptable side effects, it may not be possible to administer
sufficiently high doses of chemotherapeutic drugs to overcome the natural
ability of cancer cells to become resistant.
Radiation is employed to irradiate a solid tumor and surrounding tissues
and is a first-line therapy for inoperable tumors, but side effects are a
limiting factor in treatment. Radiation accomplishes its purpose by killing
cancer cells through a process called ionization. Some cells die immediately
after radiation because of the direct effect, though most die because the
radiation damages the chromosomes and DNA thereby limiting cell division.
Radiation is used frequently in conjunction with surgery either to reduce the
tumor mass prior to surgery or to destroy any tumor cells that may remain at the
tumor site after surgery. However, radiation therapy cannot assure that all
tumor cells will be destroyed and has very limited utility for treating
widespread metastatic disease.
Mechanisms of Immunity
The immune system is composed of specialized cells that recognize, destroy
and eliminate disease-causing foreign substances or cancer cells. There are two
generally recognized components of immunity, cellular immunity and humoral
immunity. Cellular immunity is effected by T lymphocytes ("T-cells"), natural
killer cells, macrophages, and polymorphonuclear leukocytes. T-cells recognize
and can be directly toxic to viruses, bacteria, parasites and cancer cells.
T-cells also secrete cytokines which recruit and activate other immune cells,
such as macrophages, natural killer cells and polymorphonuclear leukocytes, to
the site of infection or tumor, where these cells engulf, or secrete cytotoxic
substances that kill, the foreign substances, infectious agents or cancer cells.
T-cells also direct the development of humoral immunity. Humoral immunity is
effected by antibodies produced by B lymphocytes ("B-cells"). Antibodies are
proteins produced in response to foreign substances called "antigens."
Antibodies have a region that binds specifically to the antigen and a region
that binds other immune cells such as macrophages and natural killer cells. The
region that binds other immune cells is only recognized by these cells when the
antibody is bound to the antigen. Thus, the antibody specifically directs the
elimination of the antigen from the body. In persons with healthy immune
systems, cancerous cells are recognized as antigens and eliminated through a
process called immune
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<PAGE> 38
surveillance. In patients with cancer, the immune surveillance process often
fails, thus allowing cancerous cells to evade elimination by the immune system
and develop into tumors and lymphomas. It is believed, however, that the immune
system's ability to fight cancer can be enhanced through various
immunotherapeutic approaches.
Emerging Immunotherapeutic Cancer Treatments
Scientific progress in defining key aspects of the molecular biology and
immunology of cancer in recent years has yielded a number of promising new
treatment approaches, which potentially overcome some of the major drawbacks of
current treatment modalities. The Company believes that one of the most
promising approaches for the development of cancer treatments is immunotherapy.
The four principal immunotherapeutic or cancer vaccine approaches are described
in the following table and include: (i) Active Specific Immunotherapy, (ii)
Active Non-Specific Immunotherapy, (iii) Antibody-Based Immunotherapy and (iv)
Adoptive Immunotherapy. The Company is developing products which utilize one or
more of the first three of these approaches.
IMMUNOTHERAPEUTIC APPROACHES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
TYPE OF IMMUNOTHERAPY DESCRIPTION
- -------------------------------------------------------------------------------------
<S> <C>
Active Specific Activation of anti-tumor immunity using antigenic tumor
cells, cell lysates, or extracted/synthetic tumor antigens.
- -------------------------------------------------------------------------------------
Active Non-Specific Activation of anti-tumor immunity and other nonspecific
effector cells using microbial or chemical immunomodulators.
- -------------------------------------------------------------------------------------
Antibody-Based Transfer of antibodies or antisera, providing indirect
enhancement to immunity.
- -------------------------------------------------------------------------------------
Adoptive Transfer of immunological cells from one patient to another.
</TABLE>
Active Specific Immunotherapy involves the stimulation of a patient's
immune system by using a patient's own cancer cells or extracted or synthetic
tumor associated antigens. Cancer vaccines based upon active specific
immunotherapy are typically mixed with a non-specific adjuvant whose role is to
stimulate the immune system's response to the vaccine. By isolating cells or
antigenic components from the tumor, mixing them with an adjuvant, and
reintroducing this mixture back into the individual, the immune system may be
induced to develop a response capable of destroying tumor cells. Active specific
immunotherapy treatments are generally being developed as an adjuvant to
surgery. Adjuvant therapy is necessary because surgery often fails to remove all
primary or metastatic cancer cells. Active specific immunotherapy may offer the
means by which an individual's immune system can be activated throughout the
body to search out and destroy these residual cancer cells. The Company's active
specific immunotherapeutic products include OncoVAX(CL) for the treatment of
colon cancer and ASI(BCL) for the treatment of B-cell lymphoma.
Active Non-Specific Immunotherapy involves the stimulation of a patient's
immune system by using non-specific microbial or chemical immunomodulators, such
as Bacillus Calmette-Guerin ("BCG"), the only FDA-approved immunomodulator for
the treatment of bladder cancer. The mechanisms by which these non-specific
immunomodulators enhance the immune response to antigens are poorly understood
but are thought to involve the inducement of a local inflammatory reaction. This
reaction results in the recruitment and activation of antigen presenting cells,
the production of cytokines and the recruitment of effector T-cells and B-cells
to the site of the antigen. Some of these non-specific agents have also been
shown to be effective as immunogenic carriers and adjuvants. The Company's
active non-specific immunotherapeutic products include KLH for the treatment of
refractory bladder cancer.
Antibody-Based Immunotherapy involves the use of anti-cancer monoclonal
antibodies as stand-alone therapeutics to augment a patient's immune system or
as targeting mechanisms for the administration of radiation or chemotherapy.
While monoclonal antibodies have been shown to be effective in binding to cancer
cells, problems associated with their specificity, immunogenicity and variable
binding properties have to date resulted in a limited number of useful
applications for even the most effective monoclonal antibodies when
37
<PAGE> 39
used alone. Research has increasingly moved towards using monoclonal antibodies
as vehicles for targeting the administration of radiation or chemotherapy to the
immediate vicinity of malignant cells. The Company's antibody-based
immunotherapeutic products include HumaRAD(16.88) and HumaRAD(88BV59), totally
human antibodies labeled with (90)Yttrium for the intratumoral treatment of head
and neck cancer and of ovarian cancer, respectively.
Adoptive Immunotherapy involves the transfer of immunological cells with
anti-cancer properties from one patient into another in the hope that these
cells either directly or indirectly produce anti-cancer effects on growing
tumors. Although significant advances have been made, the available data remains
inconclusive. At present, the Company is not active in this field.
THERAPEUTIC PRODUCTS
The Company has accumulated and developed proprietary technology and
expertise in several different approaches to the development of cancer vaccines
and immunotherapeutics. The diversity of the Company's product and technology
portfolio reflects the Company's belief that different approaches are required
for different cancers. The following table sets forth the Company's leading
therapeutic and in vivo monitoring products, classifies each according to its
immunotherapeutic approach, specifies the cancer indication treated or monitored
by each and summarizes the regulatory status of each:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
THERAPEUTIC PRODUCTS
- ---------------------------------------------------------------------------------------------------------
IMMUNOTHERAPEUTIC/ CLINICAL TRIAL STATUS/
PRODUCT DIAGNOSTIC APPROACH INDICATION EXPECTED MILESTONES(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OncoVAX(CL) Active Specific Stage II colon cancer Phase III complete, BLA
Immunotherapy filing expected in late
1998. Launch in Europe
expected in first half of
1999 subject to opinions
on national regulatory
status.(2)
- ---------------------------------------------------------------------------------------------------------
OncoVAX(CL) plus Active Specific Stage III colon cancer Amendment to IND filed for
chemotherapy Immunotherapy plus Phase III.(3)
chemotherapy
- ---------------------------------------------------------------------------------------------------------
HumaSPECT Antibody-Based Diagnosis Monitoring of colon BLA submitted in the
cancer United States.(4)
Marketing authorization
granted in Europe.
- ---------------------------------------------------------------------------------------------------------
KLH Active Non-Specific Refractory bladder cancer Phase III initiated.
Immunotherapy
- ---------------------------------------------------------------------------------------------------------
ASI(BCL) Active Specific B-cell lymphoma Phase II/III amendment to
Immunotherapy IND planned for submission
in 1999.
- ---------------------------------------------------------------------------------------------------------
HumaRAD(16.88) Antibody-Based Diagnosis Head and neck cancer Phase I enrollment
commenced.
- ---------------------------------------------------------------------------------------------------------
HumaRAD(88BV59) Antibody-Based Diagnosis Ovarian cancer Phase I IND planned for
submission in 1999.
- ---------------------------------------------------------------------------------------------------------
HumaSPECT Antibody-Based Diagnosis Ovarian cancer Phase II completed.
- ---------------------------------------------------------------------------------------------------------
MONOGENE(INT) Antibody-Based Gene HIV Phase I IND planned for
Therapy submission in 1999.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) See "Risk Factors -- Government Regulation: No Assurance of Regulatory
Approvals" and "-- Government Regulation."
(2) See "Risk Factors -- Dependence on OncoVAX(CL)" for a description of certain
issues relating to the proposed BLA filing.
(3) See "Risk Factors -- Dependence on OncoVAX(CL)" for a description of certain
issues relating to the status of this IND amendment.
(4) See "Business -- Therapeutic Products -- OncoVAX(CL) for the treatment of
colon cancer" for a description of certain issues relating to the Company's
BLA for HumaSPECT.
38
<PAGE> 40
OncoVAX(CL) for the treatment of colon cancer
The American Cancer Society estimates that approximately 95,600 Americans
will be diagnosed with colon cancer in 1998 and approximately 47,700 will die
from colon cancer in 1998, ranking second only to lung cancer as a cause of
death from cancer. According to Facts and Figures in the European Community
(1993), colon cancer afflicts over 120,000 people annually in Europe, with
deaths from colon cancer estimated at over 79,000 per year. Colon cancer is
generally classified into four categories or stages according to the status of
the tumor nodes and metastasis. In Stage I colon cancer, the tumor has not
penetrated the bowel wall and surgery is curative in more than 90% of the cases.
In Stage II colon cancer, penetration of the bowel wall has occurred but
regional lymph nodes are negative and surgery is curative for approximately 70%
of these patients. Approximately two-thirds of patients with colon cancer
present with Stage II disease. In Stage III colon cancer, the tumor has spread
to the lymph nodes and the cure rate is moderate to poor depending on the extent
of lymph node involvement. In Stage IV colon cancer, the cancer has spread to
other vital organs in the body and is fatal in the vast majority of cases.
Generally, patients that recur present with advanced colon cancer and the
prognosis for these patients is very poor.
Except for surgery, there is no medically accepted treatment for either
Stage I or Stage II colon cancer and trials using adjuvant chemotherapy have not
clearly demonstrated any patient benefit. For Stage III colon cancer, a
combination of the chemotherapeutic drugs 5-fluorouracil ("5-FU") and levamisole
or leucovorin is the treatment of choice in the United States and in Europe. The
Company estimates that between 20% and 30% of patients fail to complete their
course of chemotherapy because of adverse reactions.
OncoVAX(CL) is an active specific immunotherapeutic for the post-surgical
treatment of patients diagnosed with Stage II colon cancer. OncoVAX(CL) is
prepared for each patient using the patient's own surgically removed tumor.
After receipt at an OncoVAX Center, the tumor is enzymatically treated to
separate the tumor cells and these cells are frozen awaiting preparation of the
vaccine. The vaccine consists of a regimen of four inoculations administered
over a period of six months. When a patient presents approximately four to five
weeks after surgery for the first inoculation and one week later for the second
inoculation, a portion of the tumor cells is thawed, irradiated to neutralize
tumorigenic potential and combined with a proprietary formulation of BCG that
serves as an immunogenic enhancer. The third inoculation (given one week after
the second inoculation) and the final booster inoculation (given six months
after the initial inoculation) are prepared the same way but without the
addition of BCG.
In the Amsterdam trial, OncoVAX(CL) was tested in the prospectively
randomized, multi-center Phase III clinical trial. A total of 254 patients were
randomized postoperatively to receive either OncoVAX(CL) or no further treatment
after eligibility was established. Eligible patients included patients with
confirmed Stage II or Stage III disease whose primary tumors had an adequate
number of cells to allow for the production of OncoVAX(CL). Twelve hospitals
within a four-hour radius of University Hospital screened potential candidates
for the protocol. The potential candidate's colon resection was performed at one
of the twelve sites, and the tumor specimen was transported to University
Hospital's vaccine production laboratory for processing.
The Company believes that the Amsterdam trial demonstrated that, at a
median follow-up period of 5.4 years after treatment, OncoVAX(CL) significantly
reduces the rate of tumor recurrences by 44% in patients with Stage II and III
colon cancer. In Stage II patients, OncoVAX(CL) had the greatest impact with a
statistically significant 61% reduction in the rate of recurrences along with
proportional increases in overall survival.
The Company believes that, in addition to its efficacy, OncoVAX(CL) has
demonstrated an extremely favorable safety profile. Over a 15-year period, more
than 700 people have received either a three- or four-shot regimen of
OncoVAX(CL) with no significant side effects reported. The Company believes that
the results of the Amsterdam trial confirmed positive trends seen in the ECOG
and Hoover trials that tested OncoVAX(CL) administered in regimens of three
inoculations without a six-month booster inoculation.
The Company is now preparing a BLA for OncoVAX(CL) for submission to the
FDA in late 1998. The Company is also seeking the necessary registrations and
reimbursement approvals in certain countries in Europe.
39
<PAGE> 41
To commercialize OncoVAX(CL), the Company is planning to establish OncoVAX
Centers at or near hospitals with established surgery practices. OncoVAX Centers
have been designed to treat up to 2,000 patients per year. Each OncoVAX Center
will require less than 3,000 square feet and contain all the equipment,
facilities and personnel necessary to manufacture, store and administer
OncoVAX(CL). The first centers in the United States are planned for areas
characterized by high population density and high incidence of colon cancer. In
each OncoVAX Center, the Company will employ a staff of production technicians
and a supervising physician. Each OncoVAX Center will be responsible for
collecting tumors from regional colorectal surgeons. The Company estimates that
most OncoVAX Centers can be established and put into operation for an investment
of less that $1.5 million per site. Facilities for the first OncoVAX Center in
the United States have been established at Lehigh Valley Hospital in Allentown,
Pennsylvania, and the terms of the Company's ownership in, and operation of, the
facilities are being developed pursuant to a letter of intent with Lehigh Valley
Hospital. A second OncoVAX Center in the United States is being established at
the Company's therapeutic manufacturing facility in Rockville, Maryland. The
first OncoVAX Center in Europe is being established at University Hospital,
Vrije Universiteit, Amsterdam. The Company plans to establish more than 25
OncoVAX Centers in the United States and more than 15 OncoVAX Centers in Europe.
Herbert C. Hoover, Jr., M.D., the Chairman of the Department of Surgery at
Lehigh Valley Hospital, has been appointed as Medical Director of the Company.
See "-- Medical Advisory Board." In this capacity, Dr. Hoover has agreed to
spend 25% of his professional time to continue to assist the Company in setting
up OncoVAX Centers. The Company has agreed to pay to Lehigh Valley Hospital the
sum of $125,000 per annum, which amount will be offset by Lehigh Valley Hospital
against the salary that the hospital pays to Dr. Hoover. It is anticipated that
Dr. Hoover's time commitment to the Company will increase with the progressive
implementation of the Company's OncoVAX(CL) program and that the salary offset
will be renegotiated to appropriately reflect his growing time commitment.
Intracel has agreed to grant to Dr. Hoover options to purchase up to 200,000
shares of the Company's common stock with an exercise price to be determined.
25% of such options will be fully vested upon grant and 25% of such options will
vest on the first, second and third anniversaries of such grant. In addition,
the Company has agreed to grant to Dr. Hoover an additional 100,000 options at
such time as the OncoVAX Center at Lehigh Valley Hospital is open and treating
the first patients. It is anticipated that further stock options will be granted
to Dr. Hoover in connection with the achievement of additional milestones to be
determined in the future. Dr. Hoover currently is the holder of 300,000 shares
of the Company's common stock.
The Company plans to leverage its OncoVAX Centers to perform expedited
clinical trials and to launch other products, such as its in vivo imaging agent
HumaSPECT for monitoring recurrence of colon cancer and ASI(BCL) for prevention
of recurrence of disease in B-cell lymphoma. In the immediate term, the Company
plans to use the OncoVAX Centers to conduct a Phase III clinical trial for
OncoVAX(CL) in combination with chemotherapy to treat Stage III colon cancer
patients. See "Risk Factors -- Dependence on OncoVAX(CL)" for the status of the
Company's clinical trial for such product.
The Company plans to market OncoVAX(CL) in conjunction with HumaSPECT,
which has been designed to detect recurrence of colorectal cancer. HumaSPECT is
a totally human antibody that is labeled with a radioisotope and then injected
into a patient to detect recurrent or metastatic spread of colon cancer. Because
HumaSPECT utilizes a human antibody (rather than a non-human antibody that can
elicit an adverse reaction by the patient's own immune system), it can be
repeatedly infused. A multi-center Phase III clinical trial was completed for
HumaSPECT in 1996. In this trial, HumaSPECT demonstrated to be as accurate as CT
scans in detecting recurrence of colorectal cancer and significantly superior to
CT scans in determining whether a recurrence is inoperable. The Company has
since submitted a BLA to the FDA and recently received marketing authorization
for HumaSPECT in Europe. The Company believes, with the European Commission's
approval, that HumaSPECT is the first totally human antibody approved for use in
humans. HumaSPECT is also being evaluated in clinical trials for its efficacy in
detecting recurrent lung, ovarian and prostate cancer. The Company plans to
recommend HumaSPECT to patients vaccinated with OncoVAX(CL) to monitor
recurrence and metastatic spread during the three-year period following
vaccination. HumaSPECT can be administered and the results interpreted at an
OncoVAX Center, with the results sent to a patient's oncologist or physician for
further action, if required.
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On November 5, 1997, the FDA advised the Company in writing that its BLA
for HumaSPECT was not approvable at that time. The letter raised questions
regarding clinical and manufacturing process issues and questions related to the
FDA's inspection of the manufacturing facility itself. The Company submitted
responses to the issues raised in the FDA letter via letters dated April 10, May
19 and 29, and July 15 and 24, 1998. The Company believes it has fully responded
to all issues raised by the FDA. Once a company fully responds to the FDA, the
agency has six months to either approve the BLA or issue a "complete action"
letter setting forth specific deficiencies, if any, and the actions necessary to
receive approval. There can be no assurance, however, that upon review of these
submissions that the FDA ultimately will approve the BLA for HumaSPECT.
KLH for the treatment of bladder cancer
The American Cancer Society estimates that there will be 54,400 new cases
of bladder cancer in the United States in 1998. Bladder cancer is the fourth
most prevalent malignant disease among male patients and the eighth among female
patients. The Company estimates that approximately 350,000 people in the United
States currently have had or are living with bladder cancer. Patients diagnosed
with bladder cancer present with superficial tumors of which approximately 80%
are papillary and the remaining 20% are carcinoma in situ ("CIS"). Superficial
papillary tumors respond well to endoscopic surgery and post-surgical adjuvant
therapy, but recurrence at the same or another site in the bladder is relatively
common. CIS has particularly invasive and lethal potential and is not amenable
to surgical resection. Intravesicular therapy, using chemotherapy and/or BCG, is
used to treat endoscopically unresectable bladder cancer lesions. It is also
used after surgery as adjuvant therapy designed to prevent recurrences.
The Company is developing an active, non-specific immunotherapeutic
approach for the treatment of bladder cancer using a proprietary formulation of
keyhole limpet hemocyanin. Keyhole limpet hemocyanin is a potent immune
stimulator that induces a non-specific inflammatory response in the bladder.
However, a tumor-specific phenomenon may be involved as it has been recognized
that keyhole limpet hemocyanin shares an antigen in common with bladder cancer
cells. The Company believes that keyhole limpet hemocyanin has a significantly
more favorable toxicity profile than BCG therapy and chemotherapy. Keyhole
limpet hemocyanin is also being used by the Company and others as an immunogenic
enhancer for products based upon active specific immunotherapy.
The Company has completed a Phase I/II dose escalation study on KLH for
superficial bladder cancer and CIS of the bladder. KLH was administered as a
treatment for those bladder cancer patients that did not respond to treatment
with BCG or chemotherapy. Data from the Phase I/II study indicates that, of the
25% of all bladder cancer patients who fail to respond to BCG or other forms of
treatment, KLH has a greater than 50% complete response rate. Based upon these
results, the Company has commenced a Phase III clinical trial to evaluate the
efficacy of KLH for the treatment of refractory bladder cancer.
The Company has entered into a strategic partnership agreement for the
marketing and distribution of KLH with Mentor. Under the terms of the agreement,
the Company will receive additional funding for research and development,
milestone payments and 30% of the net sales of the product.
ASI(BCL) for the treatment of B-cell Lymphoma
The American Cancer Society estimates that approximately 55,400 cases of
non-Hodgkin's lymphoma will be diagnosed in the United States in 1998. As with
other cell types in the body, the B-cells and T-cells of the immune system may
become malignant and grow as systemic tumors such as lymphomas. B-cell non-
Hodgkin's lymphomas are one such group of cancers of the immune system and
currently afflict approximately 250,000 people in the United States alone.
B-cell non-Hodgkin's lymphomas are diverse with respect to both diagnosis and
treatment and are generally classified as low-grade, intermediate or high grade.
The Company estimates that approximately half of the 250,000 patients afflicted
with non-Hodgkin's lymphoma in the United States have low-grade or follicular
lymphoma and approximately 18,000 of these have been diagnosed within the
previous 12 months. Treatment alternatives for lymphoma patients include
chemother-
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<PAGE> 43
apy, radiation and Rituxan(R), which is currently indicated for use in
refractory, low-grade, CD20 positive B-cell non-Hodgkin's lymphoma.
In conjunction with researchers at Stanford University, the Company has
been developing ASI(BCL), an active specific immunotherapeutic product for the
treatment of B-cell lymphoma, as an adjuvant therapy to chemotherapy and
antibody-based immunotherapy. The approach is based upon the observation that
each clone of B-cells expresses on the cell surface an antibody unique to that
clone. Each patient's B-cell lymphoma may be characterized by the unique portion
of the antibody molecule, the idiotype, expressed on the surface of that
patient's tumor cells and this idiotype constitutes a patient-specific,
tumor-specific antigen. By stimulating an immune response against this idiotype,
the Company believes that ASI(BCL) may be able to prevent the continuous pattern
of tumor relapse in B-cell lymphoma patients completing remission therapy.
Results from a Phase I study indicated that when B-cell lymphoma patients
were immunized during remission, 71% (15 out of 21) developed an immune response
to ASI(BCL). Of these responding patients, 87% (13 out of 15) remained in a
state of remission for a median duration of 7.9 years. An additional Phase I
activity study has been ongoing since 1995 for which the Company has prepared 31
vaccines, of which 27 have now been administered. Based upon results obtained to
date, the Company is preparing to file an amendment to its existing IND to
commence a Phase II/III clinical trial of ASI(BCL) in the United States in the
first half of 1999.
HumaRAD
The Company is developing HumaRAD(16.88) and HumaRAD(88BV59), radiolabeled
human monoclonal antibodies for the treatment of head and neck cancer and of
ovarian cancer, respectively. Focal head and neck cancer grows locally and
usually metastasizes to the regional lymph nodes rather than to distant sites.
This compartmentalization provides an opportunity for intratumoral injection of
a radiolabeled monoclonal antibody. The American Cancer Society estimates that
30,300 people in the United States will develop head and neck cancer in 1998 and
that approximately 8,000 people will die in 1998 from the disease. Surgery and
radiation are the only currently available treatments for head and neck cancer
and are often disfiguring. Like head and neck cancer, ovarian cancer is a
relatively localized disease. The American Cancer Society estimates that, in
1998, there will be 25,400 cases of newly diagnosed ovarian cancer in the United
States and that approximately 14,500 people will die in 1998 from the disease.
Approximately 70% of patients with ovarian cancer are diagnosed with advanced
disease. The introduction of platinum combination chemotherapy and taxol has
greatly improved medium-term survival, but long-term survival rates remain low.
The prognosis is particularly poor for patients with recurrent or progressive
disease.
The Company's HumaRAD products utilize radioimmunotherapy ("RIT"), a form
of targeted radiation therapy, by having a human monoclonal antibody carry a
therapeutic dose of radiation, in this case (90)Yttrium, to tumor cells. By
targeting "compartmentalized" tumors with intratumoral injections of a human
monoclonal antibody, the Company believes its HumaRAD products may overcome
systemic toxicity and the antigenicity of non-human antibodies, two of the major
problems previously encountered with RIT in the treatment of solid tumors.
The Company has developed extensive expertise in the RIT field. The
Company's HumaRAD human monoclonal antibodies bind with a variety of tumor types
in vivo and have been shown to be specific for tumor localization in patients
with colorectal, breast, ovarian and head and neck cancer. One of the most
important advantages seen with these HumaRAD products is their lack of
immunogenicity in patients. This is in contrast to a single administration of a
mouse monoclonal antibody from which the majority of patients develop a human
anti-mouse response precluding further or frequent treatment with the mouse
antibody. The administration of HumaRAD, even following multiple infusions, does
not elicit a human anti-human response. This is important because multiple
infusions are necessary to deliver a therapeutic dose of radiation.
The Company, by using intratumoral injections of HumaRAD(16.88) in patients
with head and neck cancer, has been able to demonstrate that it can deliver
therapeutic doses of radiation to the primary tumor and metastatic lymph nodes.
In ovarian cancer, where the whole peritoneal cavity is at risk and the majority
of patients present with advanced disease, the Company is evaluating the
intraperitioneal administration of
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HumaRAD(88BV59) in patients who have minimal residual disease following surgery
and chemotherapy. The Company has commenced enrollment of its Phase I clinical
trial of HumaRAD(16.88) for the treatment of head and neck cancer and plans to
submit an IND with the FDA to commence a Phase I clinical trial of
HumaRAD(88BV59) for the treatment of ovarian cancer in the first half of 1999.
Other products
The successful development of HumaSPECT and the Company's HumaRAD products
has enabled the Company to extend its human antibody program to the development
of products to treat several serious infectious diseases in North America and
Europe. The principal targets of this program are life-threatening infectious
diseases, including nosocomial, or hospital-borne, infections and HIV/AIDS.
The Company is developing human monoclonal antibodies for three different
types of bacteria: staphylococcus epidermidis, enterococcus faecalis and
enterococcus faecium. Some of this work was initiated pursuant to an agreement
with Baxter which terminated in March 1998. Baxter may have some residual
licensing rights to products developed during the course of this contract.
Staphylococcus epidermis is a major cause of infections of premature infants in
hospitals. Enterococcus faecalis and enterococcus faecium are major causes of
serious infections in immunocompromised patients. The seriousness of
enterococcus infection, particularly faecium, is exacerbated by the increasing
prevalence of resistance to antibiotics, including vancomycin. The Company plans
to file an IND to commence Phase I clinical trials of one or more of these
antibodies in the first half of 1999.
The Company has also been developing its MONOGENE(INT) antibody-based gene
therapy product for the treatment of patients with HIV/AIDS. MONOGENE(INT)
involves the introduction of an antibody gene into key immune cells of the body.
The antibody gene allows the immune cells to produce an antibody fragment which
binds to the critical integrase protein and which, in extensive preclinical
testing, has been shown to strongly inhibit HIV infection. The Company believes
that this gene therapy approach is less toxic and less likely to result in viral
resistance than certain other therapies. The Company is currently focused on
manufacturing clinical grade quantities of MONOGENE(INT) necessary for use in
conducting a Phase I clinical trial.
DIAGNOSTIC PRODUCTS
In addition to its therapeutic products portfolio, the Company also
develops, manufactures and markets a portfolio of in vitro diagnostic products.
The Company's diagnostic business unit has been expanded through acquisition and
internal development to include the following products:
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
DIAGNOSTIC PRODUCTS
- -------------------------------------------------------------------------------------------------
PRODUCT DIAGNOSTIC USES STATUS(1)
- -------------------------------------------------------------------------------------------------
Confirmatory diagnostic Viruses and bacteria Being marketed.
products
- -------------------------------------------------------------------------------------------------
INSTI HIV-1/2 HIV Registered or approved in 16
countries.
- -------------------------------------------------------------------------------------------------
Chemotrax(BR) Breast cancer Pre-market approval ("PMA")
application approved.
- -------------------------------------------------------------------------------------------------
ZYMMUNE CD4/CD8 HIV 501(k) cleared. Being marketed.
- -------------------------------------------------------------------------------------------------
Accu-D(x) Bladder cancer 501(k) cleared. Being marketed by
Mentor.
- -------------------------------------------------------------------------------------------------
Apo-Tek Lp(a) Cardiovascular disease 501(k) cleared. Being marketed by
Sigma Diagnostics, Inc. ("Sigma").
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "-- Government Regulation -- Device Regulation."
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Confirmatory diagnostic products
With the exception of pathogens which have a major effect on the blood
supply, such as HIV and hepatitis, a significant volume of virology and
bacteriology testing in the United States and elsewhere continues to employ
standard cell culture techniques. Depending on the pathogen suspected and the
organs involved, a fecal, sputum or blood sample is taken from the patient and
sent to a hospital or clinical laboratory in a plastic transport containing a
liquid preservative. The laboratory incubates the patient sample with a cell-
line selected for its ability to produce the suspected pathogen. After a
standard incubation period, the cells are then exposed to antibodies that
recognize the virus or bacterium for which the test has been designed. These
antibodies are coupled with dyes or enzymes so laboratory technicians can
observe whether the virus or bacterium is present.
Through Bartels, the Company manufactures and/or markets a comprehensive
family of products required for every step of this process and is widely
regarded as one of the leading suppliers in the field. The product portfolio
includes 31 transports, 50 cell-lines, more than 60 antibodies and 66
enzyme-linked immuno-assay ("ELISA") tests. The Company also supplies
instrumentation required to read the results of its ELISA tests. In accordance
with standard industry practice, these instruments are generally furnished to
customers at a charge that is based, in part, upon customer purchase volume.
INSTI HIV-1/2
After several international clinical trials, the Company is currently
launching a rapid test for detection of HIV-1 and HIV-2. The INSTI HIV-1/2 test
takes approximately one minute to run, is easy to perform and interpret and is
as sensitive and specific as most instrument-based tests which take more than an
hour or more and many steps to perform. The product has been registered/approved
in India, Thailand, Chile, Russia, Pakistan, South Africa, Venezuela, Costa
Rica, Panama, Colombia, Jordan, Belize, Haiti, the Dominican Republic, Surinam
and Turkey. The Company has not sought and does not anticipate seeking approval
of this product for marketing in the United States. INSTI HIV-1/2 is the first
product utilizing the Company's INSTI platform technology that provides a fast
and accurate antibody detection system for serum, plasma and whole blood
samples. In addition to speed and accuracy, the INSTI format has been designed
for high-volume, low-cost production. The product is being manufactured at the
Company's facility in Richmond, British Columbia, Canada.
Chemotrax(BR)
Until recently, there has been no FDA-approved test to determine the
sensitivity of solid tumors to the range of chemotherapeutic agents available to
treat these tumors. In 1996, after a four-year PMA application process, Bartels
Prognostics (a company, unrelated to Bartels, in which Intracel has a minority
financial interest) received FDA approval to market Chemotrax(BR), a
chemotherapeutic sensitivity test to be used in conjunction with the treatment
of breast cancer. Clinical trials demonstrated that Chemotrax(BR) accurately
measured breast tumor cell sensitivity to 5-FU, a type of chemotherapy widely
used to treat breast and other cancers, and that assay results correlated
closely to patient clinical responses to 5-FU. Bartels Prognostics has received
FDA approval of an investigational device exemption ("IDE") for the testing of
four other chemotherapeutic agents and intends to supplement the IDE to obtain
FDA approval to those two other chemotherapeutic agents so that a panel of
standard chemotherapies can be evaluated for each breast cancer patient. The
clinical trials have not yet commenced. The Company has exclusive rights to
market Chemotrax(BR).
ZYMMUNE CD4/CD8
The Company is launching ZYMMUNE CD4/CD8, a product to determine the number
of CD4 and CD8 immune cells in the body. CD4/CD8 counts are an important marker
for staging and treating HIV-infected individuals and implementing therapeutic
intervention. The demand for CD4/CD8 testing is expected to grow as patients on
the new triple therapy regimes live longer and require extended monitoring. The
standard methodology used to determine the level of these immune cells has been
a combination of flow cytometry and hematology. ZYMMUNE CD4/CD8 is a simpler,
less costly alternative to the flow cytometer
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and provides results in less than 35 minutes. The ZYMMUNE CD4/CD8 testing system
received final FDA clearance in November 1995 and is now in expanded field
trials.
Accu-D(x)
The Company has developed Accu-D(x), a point-of-care in vitro diagnostic
test for the detection of recurrent bladder cancer. Accu-D(x) is a urine-based
test which can be performed in a physician's office in about seven minutes. The
Company estimates that the market potential for Accu-D(x) in the United States
includes approximately 350,000 persons previously diagnosed with bladder cancer.
Accu-D(x) was cleared for marketing by the FDA in April 1997. The Company has
also entered into an agreement with Mentor for the marketing and distribution of
Accu-D(x), pursuant to which product sales began in early 1998. Under the terms
of the agreement, the Company receives 50% of the net sales of the product.
Apo-Tek Lp(a)
In November 1997, the Company received FDA clearance to market its Apo-Tek
Lp(a) test kit which detects Lipoprotein(a) ("Lp(a)"), a single independent risk
factor for astherosclerotic cardiovascular disease. The Company estimates that
over 57 million Americans have one or more types of cardiovascular disease. The
Company's Apo-Tek Lp(a) test can be used with human serum or plasma to detect
and accurately quantify Lp(a) levels and shows no cross reactivity with
plasminogen or other plasma components. The Company currently has a distribution
agreement with Sigma in connection with Apo-Tek Lp(a), pursuant to which product
sales began in early 1998.
MANUFACTURING
The Company manufactures its therapeutic products in Rockville, Maryland in
a facility of approximately 120,000 square feet. The Rockville, Maryland
facility contains facilities for production of human monoclonal antibodies, gene
therapy and production of vaccines from antisera as well as extensive research
and development facilities. The Company manufactures all of its FDA-cleared
diagnostic products in two registered facilities totaling approximately 54,000
square feet in Issaquah, Washington. The Company's INSTI HIV-1/2 product is
manufactured in a facility of approximately 7,000 square feet in Richmond,
British Columbia, Canada. Facilities for the first OncoVAX Center in the United
States have been established at Lehigh Valley Hospital in Allentown,
Pennsylvania, and the terms of the Company's ownership in, and operation of, the
center are being developed pursuant to a letter of intent with Lehigh Valley
Hospital. A second OncoVAX Center in the United States is being established at
the Company's therapeutic manufacturing facility in Rockville, Maryland. The
first OncoVAX Center in Europe is being established at University Hospital,
Vrije Universiteit, Amsterdam, The Netherlands. The Company is planning to
establish more than 40 OncoVAX Centers in the United States and Europe to
manufacture and administer OncoVAX(CL). All of the Company's facilities are
leased. Upon establishment of the OncoVAX Centers, the Company believes that its
facilities will be adequate for the foreseeable future.
MARKETING AND SALES
The Company markets and sells its diagnostic products in the United States
through its own direct sales force, which consists of 17 employees. Outside the
United States, the Company utilizes local distributors for the sale of its
diagnostic products. The Company has appointed Sigma and Mentor as exclusive
world-wide distributors for Apo-Tek Lp(a) and of Accu-D(x), respectively.
The Company plans to market and sell OncoVAX(CL) and HumaSPECT through
OncoVAX Centers to be established in the United States and Europe. The Company
anticipates that OncoVAX Centers will be supported by account representatives
with both sales and service responsibilities with centralized marketing support
located in Rockville, Maryland. The Company has appointed Mentor as exclusive
world-wide distributor for KLH, but has not appointed distributors for any of
its other therapeutic products.
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RESEARCH AND DEVELOPMENT
The Company employs approximately 25 people in research and development, 16
of whom hold advanced degrees in chemistry and molecular biology. Their research
and development efforts range from generic cancer vaccines to gene therapy for
HIV/AIDS. For the six months ended December 31, 1995, the year ended December
31, 1996 and the year ended December 31, 1997, the Company (on a pro-forma basis
after giving effect to the Merger as if it had occurred on January 1, 1997)
spent $1.1 million, $1.0 million and $8.6 million, respectively, on research and
development.
REIMBURSEMENT
The ability of the Company to successfully commercialize its products
depends, in part, on coverage and reimbursement of such products by third-party
payers, such as government health care programs (including Medicare and
Medicaid), indemnity insurers, and managed care organizations. In the past
several years there have been numerous initiatives on the federal and state
government levels for comprehensive or incremental reforms affecting the payment
for health care services and products, including a number of proposals that
would significantly limit reimbursement under the Medicare and Medicaid
programs. The Company anticipates that federal and state governments will
continue to review and assess health care delivery systems and payment
methodologies. There can be no assurance that adequate third-party coverage and
reimbursement will be available for the Company's products. If adequate coverage
and reimbursement are not provided by government and other third-party payers
for uses of the Company's products, the market acceptance of these products
could be adversely affected.
In the United States, almost all people over age 65 have primary health
care coverage through the federal Medicare program administered by the Health
Care Financing Administration ("HCFA"). The strong correlation between the
incidence of cancer and age means that HCFA's decisions concerning coverage and
payment for OncoVAX(CL) by Medicare will be financially significant to the
Company. As an autologous product that will not generally be sold through
traditional commercial channels, OncoVAX(CL) may present unique coverage and
payment issues for Medicare. Currently, once approved by the FDA, Medicare
covers medically necessary biologics administered as part of or incident to a
physician's service when furnished to beneficiaries in settings such as
physicians' offices or clinics. Under federal law, HCFA pays physicians the
lesser of their actual charge for the drug or 95% of the commercially published
price of the drug. The Company plans to work to ensure that HCFA addresses and
resolves any unique OncoVAX(CL) issues under its existing policies that
generally provide Medicare coverage and payment for FDA-approved drugs.
Medicare's decision concerning coverage and reimbursement of OncoVAX(CL)
also may be useful in assuring private coverage and payment. Adults under age 65
who have insurance coverage are likely to have employer sponsored or
work-related health plans, which are increasingly likely to involve some element
of managed care with policies similar to those of Medicare. Because coverage and
payment issues for private insurance coverage are heavily dependent on the
provisions in the insurance contract, the Company is planning to work closely
with payors and patients to obtain coverage and payment for OncoVAX(CL).
GOVERNMENT REGULATION
The testing, manufacturing, labeling, advertising, promotion, export and
marketing, among other things, of the Company's therapeutic and diagnostic
products are subject to extensive regulation by governmental authorities in the
United States and other countries. Therapeutic and diagnostic products that are
administered to patients are regulated as drugs or biologic drugs, while
diagnostic products that are used on blood and tissue samples taken from
patients are regulated as devices. In Europe, in vitro diagnostic devices will
be subject to a Directive, to be adopted in 1999, which will create a harmonized
regime for such products. For the purposes of European Community law,
OncoVAX(CL) is neither a medical device or medicinal product and therefore is
unharmonized. Regulatory requirements are accordingly to be determined on a
national basis. In certain Member States, OncoVAX(CL) would be unregulated.
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Drug Regulation
Non-biological drugs and biological drugs are generally subject to some of
the same laws and regulations. Ultimately, however, they are approved under
different regulatory frameworks, with non-biological drugs being approved under
the FDC Act through an NDA and biological drugs being approved under the PHS Act
by a BLA. Among other things, the FDA Modernization Act clarifies that
biological products are subject to the same requirements as non-biological
products under the FDC Act, except that a biological product licensed under the
PHS Act is not required to have an NDA. Thus, as a biologic, OncoVAX(CL) is
subject to IND regulations prior to approval and will be regulated as both a
biologic and a drug once it has an approved BLA. Traditionally, a company
seeking FDA approval to market a biological drug (in contrast to a non-
biological drug) was required to file and obtain approval of a PLA and an
Establishment License Application ("ELA") with the FDA pursuant to the PHS Act
before commercial marketing of the product could begin. The FDA Modernization
Act repealed the statutory requirement for an ELA for a biological product.
Instead, a single BLA covering both the product and the facility in which the
product is manufactured is now required. As of February 19, 1998, the effective
date of the FDA Modernization Act, approval of applications filed under the old
system will result in the issuance of a BLA for the product. No refiling or
other action on the part of the applicant will be required to implement this
conversion to a single license. At the present time, the Company believes that
OncoVAX(CL) and other immunotherapeutics that it may develop will be regulated
by the FDA as biologics.
The steps required before a drug or biologic may be approved for marketing
in the United States generally include (i) preclinical laboratory tests and
animal tests, (ii) the submission to the FDA of an IND application for human
clinical testing, which must become effective before human clinical trials may
commence, (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the product, (iv) in the case of a biologic, the
submission to the FDA of a BLA, or in the case of a drug, an NDA, (v) FDA review
of the BLA or NDA and (vi) satisfactory completion of an FDA inspection of the
manufacturing facilities at which the product is made to assess compliance with
cGMPs. 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.
Preclinical studies include laboratory evaluation of the product, as well
as animal studies to assess the safety and potential efficacy of the product.
The results of the preclinical studies, together with manufacturing information
and analytical data, are submitted to the FDA as part of the IND. The IND
automatically will become effective thirty days after receipt by the FDA unless
the FDA, before that time, raises concerns or questions about the conduct of the
trials as outlined in the IND and places the trial on clinical hold. In such
case, the IND sponsor and the FDA must resolve any outstanding concerns before
clinical trials can proceed. There can be no assurance that submission of an IND
will result in FDA authorization to commence clinical trials. Moreover, once
trials have commenced, the FDA may stop the trials, or particular types of
trials, by placing a "clinical hold" on such trials because of concerns about,
for example, the safety of the product being tested or the adequacy of the trial
design. Such holds can cause substantial delay and in some cases may require
abandonment of a product or a particular trial.
Clinical trials involve the administration of the investigational products
to healthy volunteers or patients under the supervision of a qualified principal
investigator consistent with an informed consent. Further, each clinical trial
must be reviewed and approved by an independent Institutional Review Board
("IRB") at each institution at which the study will be conducted. The IRB will
consider, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.
Clinical trials typically are conducted in three sequential phases, but the
phases may overlap. In Phase I, the initial introduction of the drug into human
subjects, the drug is usually tested for safety (adverse effects), dosage
tolerance, absorption, metabolism, distribution, excretion and pharmacodynamics.
Phase II clinical trials usually involve studies in a limited patient population
to (i) evaluate the efficacy of the drug for specific, targeted indications,
(ii) determine dosage tolerance and optimal dosage and (iii) identify possible
adverse effects and safety risks. Phase III clinical trials generally further
evaluate clinical efficacy and test further for safety within an expanded
patient population and at multiple clinical sites. Phase IV clinical trials are
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conducted after approval to gain additional experience from the treatment of
patients in the intended therapeutic indication and to document a clinical
benefit in the case of drugs approved under accelerated approval regulations. If
the FDA approves a product while a company has ongoing clinical trials that were
not necessary for approval, a company may be able to use the data from these
clinical trials to meet all or part of any Phase IV clinical trial requirement.
These clinical trials are often referred to as "Phase III/IV post-approval
clinical trials." Failure to promptly conduct Phase IV clinical trials could
result in withdrawal of approval for products approved under accelerated
approval regulations.
In the case of products for severe or life-threatening diseases, the
initial clinical trials are sometimes done in patients rather than in healthy
volunteers. Since these patients are afflicted already with the target disease,
it is possible that such clinical trials may provide evidence of efficacy
traditionally obtained in Phase II clinical trials. These trials are referred to
frequently as Phase I/II trials. There can be no assurance that Phase I, Phase
II or Phase III testing will be completed successfully within any specific time
period, if at all, with respect to any of the Company's product candidates.
Furthermore, the FDA may suspend clinical trials at any time on various grounds,
including a finding that the subjects or patients are being exposed to an
unacceptable health risk.
The results of the preclinical studies and clinical trials, together with
detailed information on the manufacture and composition of the product, are
submitted to the FDA in the form of a BLA or NDA requesting approval to market
the product. Before approving a BLA or NDA, the FDA will inspect the facilities
at which the product is manufactured and will not approve the product unless the
manufacturing facility is in cGMP compliance. The FDA may delay approval of a
BLA or NDA if applicable regulatory criteria are not satisfied, require
additional testing or information, and/or require postmarketing testing and
surveillance to monitor safety or efficacy of a product. There can be no
assurance that FDA approval of any BLA or NDA submitted by the Company will be
granted on a timely basis, if at all. Also, if regulatory approval of a product
is granted, such approval may entail limitations on the indicated uses for which
such product may be marketed. Any FDA approvals that may be granted will be
subject to continual review, and newly discovered or developed safety or
efficacy data may result in withdrawal of products from marketing. Moreover, if
and when such approval is obtained, the marketing and manufacture of the
Company's products would remain subject to extensive regulatory requirements
administered by the FDA and other regulatory bodies, including compliance with
cGMPs and adverse event reporting requirements. Failure to comply with these
regulatory requirements could, among other things, result in product seizures,
recalls, fines, injunctions, suspensions, or withdrawals of regulatory
approvals, operating restrictions and criminal prosecutions.
The FDA Modernization Act establishes a new statutory program for the
approval of fast track drugs, including biological products. The fast track
program is designed to facilitate the development and expedite the approval of
therapies that are intended to treat serious or life-threatening conditions,
such as cancer and AIDS, and that demonstrate the potential to address unmet
medical needs for such conditions. Under the new fast track program, a request
for designation may be submitted concurrently with, or any time after, the
submission of an application for an IND. If a product meets the statutory
criteria, the Secretary is required to designate it as a fast track drug within
60 days of the request for designation. An application for a fast track drug may
be approved upon determination that the drug has an effect on a clinical
endpoint or a surrogate endpoint that is reasonably likely to predict clinical
benefit. While precise time frames for approval of fast track products have not
been established, the Prescription Drug User Fee Act established performance
goals correspondence between the FDA Commissioner and Congress committing the
agency to a six-month review period for priority drugs.
The Company may elect to seek approval of OncoVAX(CL) under this
accelerated approval process. If a product is approved under the accelerated
approval regulations, the sponsor may be required to conduct additional adequate
and well-controlled studies to verify that the effect on the surrogate marker
represents improved clinical outcome or otherwise confirm the effect on a
clinical endpoint. In the event such postmarketing studies do not verify the
drug's anticipated clinical benefit, or if there is other evidence that the drug
product is not shown to be safe and effective, expedited withdrawal procedures
permit the FDA, after a hearing, to remove a product from the market. For
products approved under the accelerated approval provisions, promotional
materials must be submitted to the FDA for review 30 days prior to
dissemination.
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Significant uncertainty exists as to the extent to which such initiative will
result in accelerated review and approval. Further, the FDA has not made
available comprehensive guidelines with respect to this initiative, and it
retains considerable discretion in determining eligibility for accelerated
review and approval and is not bound by discussions that an applicant may have
with FDA staff. Accordingly, the FDA could employ such discretion to deny
eligibility of OncoVAX(CL) as a candidate for accelerated review or require
additional clinical trials or other information before approving OncoVAX(CL).
The Company cannot predict the ultimate impact, if any, of the new approval
process on the timing or likelihood of FDA approval of OncoVAX(CL) or any of its
other potential products.
Treatment of patients with an experimental therapy may be allowed under a
treatment IND before general marketing begins and pending FDA approval. Charging
for an investigation product also may be allowed under a treatment IND to
recover certain costs of development, if various requirements are met. The
Company may elect to file a treatment IND pending approval of its BLA for
OncoVAX(CL).
The Company also will be subject to a variety of regulations governing
clinical trials and sales of its products outside the United States. Whether or
not FDA approval has been obtained, approval of a product by the comparable
non-U.S. regulatory authorities must be obtained prior to the commencement of
marketing of the product in their respective countries. The approval process
varies from country to country and the time needed to secure approval may be
longer or shorter than that required for FDA approval.
The pharmaceutical legislation of the European Union requires any person
seeking to market a medicinal product for human use to obtain approval of an
MAA. Procedures for granting such authorizations have been harmonized within the
European Union through the issue of directives for implementation into the
domestic law of each Member State and by Regulations having direct effect. There
are two authorization procedures by which approvals can be sought to market
pharmaceutical products in more than one Member State. The first is a
centralized assessment procedure administered by the EMEA. The second is a
decentralized, or "mutual recognition," procedure available only to
non-biologics. Pursuant to this procedure, an applicant may apply for a national
authorization in one Member State. Upon obtaining that authorization, an
applicant may make further national applications in such other Member States as
are relevant to the applicant, requesting the relevant national authorities in
those Member States to recognize, by reference to the assessment report of the
relevant national authority in the first Member State, the marketing
authorization already granted. In the event of objection, European Union
authorities require that binding arbitration determine whether authorizations
should be granted and, if so, on what terms. The Company's policy is to design
its clinical trials in order to meet the eligibility requirements for
centralized EMEA approval. Drugs which fall within the definition of "high
technology medicines" under the Annex to Council Regulation 2809/93 undergo the
centralized approval system under which the CPMP is obliged to give an opinion
as to whether a marketing authorization has been granted within 210 days
(although the "clock" may be stopped if further information is required).
In addition, prices are regulated in most countries other than the United
States. For example, regulators in certain European countries condition their
approval of a pharmaceutical product on the agreement of the seller not to sell
the product for more than a certain price in their respective countries. In some
cases, the price established in any of these countries may serve as a benchmark
in the other countries. As such, the price approved in connection with the first
approval obtained in any of these European countries may serve as the maximum
price that may be approved in the other European countries. Also, a price
approved in one of these European countries that is lower than the price
previously approved in the other European countries may require a reduction in
the prices in such other European countries. In such event, there can be no
assurance that the resulting prices would be sufficient to generate an
acceptable return on the Company's investment in its products.
Device Regulation
Pursuant to the FDC Act and the regulations promulgated thereunder, the FDA
regulates the preclinical and clinical testing, manufacturing, labeling,
distribution and promotion of medical devices. In the United States, medical
devices are classified into one of three classes (i.e., Class I, II, or III) on
the basis of the controls deemed necessary by the FDA to reasonably ensure their
safety and effectiveness. Class I devices are
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subject to general controls (e.g., labeling, premarket notification and
adherence to cGMPs) and Class II devices are subject to general and special
controls (such as performance standards, postmarket surveillance, patient
registries, and FDA guidelines). Generally, Class III devices are those which
must receive premarket approval by the FDA to ensure their safety and
effectiveness (life-sustaining, life-supporting and implantable devices, or new
devices which have been found not to be substantially equivalent to legally
marketed devices). Before a new device can be introduced in the market, the
manufacturer must generally obtain FDA clearance or approval through either
clearance of a 510(k) notification or approval of a PMA application. However,
most Class I devices are now exempt from the FDA's market clearance
requirements.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed Class I or Class II device, or if it is a
preamendment Class III device for which the FDA has called for PMA applications.
A PMA application must be supported by valid scientific evidence to demonstrate
the safety and effectiveness of the device, typically including the results of
clinical trials, bench tests and laboratory and animal studies. The PMA
application must also contain a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device. In addition, the submission must include the
proposed labeling, advertising literature and any training materials.
Once the FDA determines that the PMA application is sufficiently complete
to permit a substantive review, the FDA will accept the application for filing
and begin its review. Although the FDA has 180 days to review a PMA application,
such reviews generally take one to three years, and may take significantly
longer, from the date the PMA application is accepted for filing.
During the review of a PMA application, an advisory committee likely will
be convened to review and evaluate the application and provide recommendations
to the FDA as to whether the device should be approved. The FDA is not bound by
the recommendation of the advisory panel. In addition, prior to approval, the
FDA generally will inspect the manufacturing facility to ensure compliance with
applicable cGMP requirements. If granted approval, the PMA application may
include significant limitations on the indicated uses for which the product may
be marketed, and the agency may require post-marketing studies of the device.
If the FDA's evaluation of the PMA application or manufacturing facilities
is not favorable, the FDA will deny approval of the PMA application or issue a
"non-approval" letter. The FDA may determine that additional clinical trials are
necessary, in which case approval may be delayed for one or more years while
additional clinical trials are conducted and submitted. The PMA application
process can be expensive, uncertain and lengthy, and a number of devices for
which FDA clearance has been sought by other companies have never been approved
for marketing. Modifications to a device that is the subject of an approved PMA
application, its labeling or its manufacturing process may require approval by
the FDA of PMA application supplements or new PMA applications. Supplements to a
PMA application often require the submission of the same type of information
required for an initial PMA application, except they are generally limited to
that information needed to support the proposed change.
A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class III medical device
for which the FDA has not called for PMA applications. In some cases, 510(k)
submissions require clinical data. It generally takes from four to 12 months
from submission to obtain 510(k) premarket clearance, but it may take longer.
The FDA may determine that a proposed device is not substantially equivalent to
a legally marketed device, or that additional information is needed before a
substantial equivalence determination can be made. A "not substantially
equivalent" determination, or a request for additional information could prevent
or delay the market introduction of new products that fall into this category.
For any devices that are cleared through the 510(k) process, modifications or
enhancements that could significantly affect safety or effectiveness, or
constitute a major change in the intended use of the device, will require new
510(k) submissions.
If human clinical trials of a device are required, whether for a 510(k) or
a PMA application, and the device presents a "significant risk," the sponsor of
the trial (usually the manufacturer or the distributor of the device) will have
to file an IDE application prior to commencing human clinical trials. The IDE
application
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must be supported by data, typically including the results of animal and
laboratory testing. If the IDE application is approved by the FDA and one or
more appropriate IRBs, human clinical trials may begin at a specific number of
investigational sites with a specific number of patients, as approved by the
FDA. If the device presents a "nonsignificant risk" to the patient, a sponsor
may begin the clinical trial after obtaining approval for the study by one or
more appropriate IRBs without the need for FDA approval. Submission of an IDE
does not give assurance that the FDA will approve the IDE and, if it is
approved, there can be no assurance that the FDA will determine that the data
derived from these studies supports the safety and efficacy of the device or
warrants the continuation of clinical studies. Sponsors of clinical trials are
permitted to sell investigational devices distributed in the course of the study
provided such compensation does not exceed recovery of the costs of manufacture,
research, development and handling. An IDE supplement must be submitted to and
approved by the FDA before a sponsor or investigator may make a change to the
investigational plan that may affect its scientific soundness or the rights,
safety or welfare of human subjects.
Although clinical investigations of most devices are subject to the IDE
requirements, clinical investigations of in vitro diagnostic ("IVDs") tests are
exempt from the IDE requirements, including FDA approval of investigations,
provided the testing meets certain exemption criteria. IVD manufacturers must
also establish distribution controls to assure that IVDs distributed for the
purpose of conducting clinical investigations are used only for that purpose.
Pursuant to current FDA policy, manufacturers of IVDs labeled for
investigational use only ("IUO") or research use only ("RUO") are encouraged by
the FDA to establish a certification program under which investigational IVDs
are distributed to or utilized only by individuals, laboratories or health care
facilities that have provided the manufacturer with a written certification of
compliance indicating that the IUO or RUO product will be restricted in use and
will, among other things, meet institutional review board and informed consent
requirements.
Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation,
including routine inspections of facilities by the FDA and certain state
agencies. Manufacturers of medical devices for marketing in the United States
are required to adhere to applicable regulations setting forth detailed cGMP
requirements, which include testing, control and documentation requirements.
Manufacturers must also comply with Medical Device Reporting ("MDR")
requirements that a firm report to the FDA any incident in which its product may
have caused or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to cause
or contribute to a death or serious injury. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.
The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements, and other
applicable regulations. With respect to devices, the FDA Modernization Act will
affect the IDE, 510(k) and PMA application processes, and also will affect
device standards and data requirements, procedures relating to humanitarian and
breakthrough devices, tracking and postmarket surveillance, accredited
third-party review, and the dissemination of off-label information. The Company
cannot predict how or when these changes will be implemented or what effect the
changes will have on the regulation of the Company's products. Changes in
existing requirements or adoption of new requirements could have a material
adverse effect on the Company's business, financial condition, and results of
operations. There can be no assurance that the Company will not incur
significant costs to comply with laws and regulations in the future or that laws
and regulations will not have a material adverse effect on the Company's
business, financial condition or results of operations.
Within the European Community, there exists a harmonized European
regulatory regime for medical devices (Directive 93/42/EEC) and from 1999, a
separate Directive for in vitro diagnostics will be adopted. These Directives
require that relevant products satisfy certain Essential Requirements and bear a
marking to demonstrate compliance.
The Company is also subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not be
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required to incur significant costs to comply with such laws and regulations in
the future or that such laws or regulations will not have a material adverse
effect upon the Company's ability to do business.
Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
clearances or approvals, and criminal prosecution. The FDA also has authority to
request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
Health Care Fraud and Abuse
The Company is subject to various federal and state laws pertaining to
health care fraud and abuse, including anti-kickback laws, physician
self-referral laws, and false claim laws. Violations of these laws are
punishable by criminal and/or civil sanctions. The Company has never been
challenged by a government authority under these laws, and intends to seek legal
counsel and structure its operations in order to comply with such laws. However,
because of the breadth of some of these laws, the Company cannot provide
assurances that one or more of its current or future practices would not be
challenged by governmental authorities under these laws.
Anti-Kickback Laws. The Company's operations are subject to federal and
state anti-kickback laws. The Federal Health Care Programs Anti-Kickback Statute
(section 1128B(b) of the Social Security Act) prohibits persons or entities
from, among other things, knowingly and willfully offering, paying, soliciting
or receiving any remuneration, directly or indirectly, overtly or covertly, in
cash or in kind, in return for or to induce (i) the referral of an individual
for the furnishing of any item or service for which payment may be made in whole
or in part under a Federal Health Care Program, including Medicare and Medicaid,
or (ii) the purchasing, ordering, or recommending of any product or service for
which payment may be made in whole or in part under a Federal Health Care
Program. The statute is broad in scope and has been interpreted by federal
courts and administrative tribunals to apply if even "one purpose" (as opposed
to the primary or sole purpose) of an arrangement is to induce the referral of
business. The statute contains certain exceptions, and regulations have created
certain "safe harbors," which identify specific practices that might otherwise
fall within the broad language of the statutory prohibition, but that are not
considered unlawful under the statute. Safe harbors exist for, among other
things, certain investment interests held in an entity by a referral source, as
well as employment and personal service arrangements. Each safe harbor contains
a number of requirements that must be met. Practices that do not satisfy all of
the requirements of an applicable safe harbor do not necessarily violate the
statute, although such practices may be subject to scrutiny by federal
enforcement officials. Several states also have anti-kickback laws that vary in
scope and may apply regardless of whether a Federal Health Care Program is
involved.
The Company has established, or may establish in the future, various
financial relationships with potential purchasers of the Company's products or
sources of referral, including hospitals, clinical laboratories and physicians.
For example, the Company may lease space from hospitals and may contract with
clinical laboratories for testing to be performed in connection with patient
treatment. As long as such relationships involve the lease or purchase by the
Company of space, products or services needed for the Company's operations, and
the amounts paid represent fair market value, the Company believes that such
relationships should not be found to violate the anti-kickback laws. In
addition, certain supervising physicians at the Company's OncoVAX Centers, as
well as physician-members of the Company's Medical Advisory Board, may
recommend, order or purchase the Company's products, or refer patients to the
Company's OncoVAX Centers. Arrangements with these physicians will be structured
to either meet the requirements of the applicable safe harbors for employment
and personal service arrangements or, as with the other relationships described
above, compensate the individuals a fair market value amount for their services.
Potential purchasers of the Company's products or sources of referral may
acquire investment interests in the Company or in the OncoVAX Centers. The
Company believes that such interests could qualify for the investment interests
safe harbor or, absent safe harbor compliance, should not be found to violate
the anti-kickback laws as long as such interests are offered and purchased for a
fair market value amount and any return on investment is proportional to the
amount of the investment. The Company may provide certain customers with
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volume-based discounts on the sale of laboratory reagents and instrumentation
necessary to read ELISA tests. The Company believes that its policies for
providing discounts and instrumentation are consistent with standard industry
practices and should not be found to violate the anti-kickback laws.
Physician Self-Referral Laws. To the extent it has financial relationships
with physicians, the Company is subject to federal and state physician
self-referral laws. The federal Medicare/Medicaid physician self-referral law
(the "Stark law," section 1877 of the Social Security Act) prohibits a physician
from referring Medicare and Medicaid beneficiaries to an entity for specified
"designated health services" if the physician has either an investment interest
in the entity or a compensation arrangement with the entity. There are several
exceptions to the Stark law prohibition, including exceptions for employment and
personal service arrangements, as well as investment interests in publicly
traded companies with stockholder equity exceeding $75 million. Several states
also have physician self-referral laws that vary in scope and may apply
regardless of whether a Federal Health Care Program is involved.
As described above, the Company has established, or may establish in the
future, various financial relationships with physicians who may refer patients
to the Company's OncoVAX Centers. To the extent that the centers will furnish
designated health services, such as outpatient prescription drugs, the Company
intends to structure arrangements with referring physicians to be in compliance
with the Stark law. For example, arrangements with supervising physicians at the
Company's OncoVAX Centers, as well as physician-members of the Company's Medical
Advisory Board, will be structured to meet the requirements of applicable Stark
law exceptions, including exceptions for employment and personal service
arrangements. Certain physician-members of the Company's Medical Advisory Board
may hold investment interests in the Company. Since such investment interests
would not currently qualify for a Stark law exception, the Company intends to
enter into agreements with these physicians that prohibit the physicians from
referring patients to the Company's OncoVAX Centers until the Company has
sufficient stockholder equity to qualify for the Stark law exception for
ownership in a publicly traded company. Moreover, once the Company's stock
becomes publicly traded, it will not be in a position to know or control whether
some physicians who refer patients to OncoVAX Centers may be investors in the
Company. Absent the Company having sufficient stockholder equity to qualify for
the Stark law exception for ownership in a publicly traded company, any such
referrals that do occur could be found to be in violation of the Stark law.
False Claims Laws. The Company is subject to federal and state laws
prohibiting individuals or entities from knowingly and willfully presenting, or
causing to be presented, false reimbursement claims to third-party payers,
including the Medicare and Medicaid programs. Although the Company does not
currently submit reimbursement claims to third-party payers for any of its
products, the Company may provide customers with CPT coding recommendations for
its products. Moreover, once operational, the Company's OncoVAX Centers may
submit claims to third-party payers. The Company intends that claims submitted
to third-party payers by OncoVAX Centers will comply with requirements imposed
by such payers, including Medicare program requirements for the coverage of
biologics administered incident to a physician's service.
Facility Licensure and Corporate Practice of Medicine
States generally require that certain types of health care facilities have
regulatory licenses in order to operate and treat patients. Facilities must
satisfy specified regulatory requirements, and undergo periodic surveys or
inspections by state licensing bodies, in order to obtain and maintain such
licenses. Some states may require licensure of the Company's OncoVAX Centers.
The Company intends to obtain and maintain all required regulatory licenses for
the OncoVAX Centers.
Many states also have laws restricting the corporate practice of medicine.
These laws generally prohibit non-physician entities from practicing medicine or
otherwise exercising control over a physician's practice of medicine. In some
states, these laws prohibit business corporations from employing physicians to
render medical services on behalf of the corporation, although the retention of
physicians on an independent contractor basis is generally permissible. The
Company intends to retain supervising physicians for its OncoVAX Centers in
compliance with these laws.
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Other Regulation
The Company is subject to laws of more general applicability dealing with
issues such as occupational safety, employment, medical leave, and civil rights
and discrimination. Federal, state and local governments in many instances are
expanding the regulatory requirements on businesses, and the imposition of these
requirements may have the effect of increasing operating costs and reducing the
profitability of the Company's operations.
RADIOACTIVE AND OTHER HAZARDOUS MATERIALS
The NRC and the Agreement States regulate companies that possess
radioactive material and those that manufacture, prepare, or transfer
radioactive drugs for commercial distribution to assure the public's safety
through proper use of radioactive materials. Agreement States typically regulate
in a manner similar to the NRC. The Company's incorporation of radioactive
materials into its HumaRAD products and HumaSPECT subjects it to these NRC
requirements. To comply, the Company must apply for and maintain appropriate
licenses and comply with reporting, recordkeeping, and other regulatory
requirements. Obtaining and maintaining a license includes demonstrating that:
the Company's equipment and facilities are adequate to protect health and
minimize danger to life and property; the personnel are adequately qualified to
operate the equipment; and environmental concerns are adequately addressed.
Other regulatory requirements include specific packaging and labeling
compliance, measuring radiation emitted from products before distribution,
conducting daily inspections and maintaining instruments used to measure the
product's radiation. The regulatory authorities periodically conduct routine
inspections, the frequency of which varies depending on the Company's history
and changes in volume or character of manufacturing operations.
The NRC takes enforcement actions against those companies failing to
achieve compliance with NRC regulations. The Company's failure to comply with
the regulatory requirements could subject it to enforcement actions including
civil penalties up to $5,500 per violation per day and orders to modify, suspend
or revoke its licenses. With a suspended or revoked license, the Company would
be required to cease possessing the radioactive material necessary for producing
its products and distributing its products. The nature of a particular penalty
will depend on who discovered the violation and upon its severity, its
repetitiveness and the willfulness involved. The manufacturing and
administration of the Company's HumaRAD products and HumaSPECT require the
handling, use and disposal of (90)Yttrium and Technetium Tc 99m, respectively,
each a radioactive isotope. These activities must comply with various state and
NRC regulations regarding the handling and use of radioactive materials.
Violations of these regulations could significantly delay completion of clinical
trials and commercialization of the Company's HumaRAD products and HumaSPECT.
The administration of the Company's HumaRAD products and HumaSPECT entails
the introduction of radioactive materials into patients. These patients emit
radioactivity at levels that pose a safety concern to others around them,
especially healthcare workers for whom the cumulative effect of repeated
exposure to radioactivity is of particular concern. These concerns are addressed
in regulations promulgated by the NRC, as well as by various state and local
governments and individual hospitals. Generally, patients who emit radioactivity
above specified levels are required to be hospitalized, where they can be
isolated from others until radiation falls to acceptable levels. The NRC
recently enacted regulations that have made it easier for hospitals to treat
patients with radioactive materials on an outpatient basis. Under these
regulations, the Company's HumaRAD products and HumaSPECT may be administered on
an outpatient basis in most cases. Although state and local governments often
follow the lead of the NRC, many currently do not, and there can be no assurance
that they will do so or that patients receiving the Company's HumaRAD products
and HumaSPECT will not have to remain hospitalized for one to three days
following administration, adding to the overall cost.
The Company expects to continue using hazardous chemicals and radioactive
compounds in its ongoing research activities. Although the Company believes that
safety procedures for handling and disposing of such materials will comply with
the standards prescribed by state and federal regulations, the risk of
accidental contamination or injury from these materials cannot be completely
eliminated. The Company could be held liable for any damages that result from
such an accident, contamination or injury from the handling and
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disposal of these materials as well as for unexpected remedial costs and
penalties that may result from any violation of applicable regulations, which
could result in a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the Company may incur
substantial costs to comply with environmental regulations.
PATENTS AND OTHER INTELLECTUAL PROPERTY
The Company believes that patent and trade secret protection is important
to its business and that its future will depend in part on its ability to
maintain its technology licenses, protect its trade secrets, secure additional
patents and operate without infringing the proprietary rights of others.
Currently, the Company has an extensive portfolio of patents and additional
pending patent applications in connection with most of the Company's therapeutic
products. This includes United States Patent No. 5,484,596, which covers the
OncoVAX(CL) method of treatment and will expire in January 2013.
Extensive research has been conducted in the cancer vaccine and monoclonal
antibody fields by pharmaceutical and biotechnology companies and other
organizations and a substantial number of patents in these fields have been
issued to other pharmaceutical and biotechnology companies. In addition,
competitors may have applications for additional patents pending and may obtain
additional patents and proprietary rights related to products or processes
competitive with or similar to those of the Company. Patent applications are
maintained in secrecy for a period after filing and, in the United States,
patent applications are confidential until the patent is issued. Publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries and the filing of related patent applications. The Company may not
be aware of all of the patents potentially adverse to the Company's interests
that may have been issued to other companies, research or academic institutions,
or others. No assurance can be given that such patents do not exist, have not
been filed, or could not be filed or issued, which contain claims relating to
the Company's technology, products or processes. To date, no consistent policy
has emerged regarding the breadth of claims allowable in pharmaceutical and
biotechnology patents.
The Company is aware of various patents that have been issued to others
that pertain to a portion of the Company's prospective business. There can be no
assurance that other patents do not exist in the United States or in other
countries or that patents will not be issued to third parties that contain
preclusive or conflicting claims with respect to OncoVAX(CL) or any of the
Company's other product candidates or programs. Commercialization of cancer
vaccines and monoclonal antibody-based products may require licensing and/or
cross-licensing of one or more patents with other organizations in the field.
There can be no assurance that the licenses that might be required for the
Company's processes or products would be available on commercially acceptable
terms, if at all.
The Company's breach of an existing license or failure to obtain a license
to technology required to commercialize its product candidates may have a
material adverse effect on the Company's business, financial condition and
results of operations. Litigation, which could result in substantial costs to
the Company, may also be necessary to enforce any patents issued to the Company
or to determine the scope and validity of third-party proprietary rights. If
competitors of the Company prepare and file patent applications in the United
States that claim technology also claimed by the Company, the Company may have
to participate in interference proceedings declared by the United States Patent
and Trademark Office to determine priority of invention, which could result in
substantial cost to the Company, even if the eventual outcome is favorable to
the Company. An adverse outcome could subject the Company to significant
liabilities to third parties and require the Company to license disputed rights
from third parties or to cease using such technology.
Patents issued and patent applications filed internationally relating to
biologics are numerous and there can be no assurance that current and potential
competitors and other third parties have not filed or in the future will not
file applications for, or have not received or in the future will not receive,
patents or obtain additional proprietary rights relating to products or
processes used or proposed to be used by the Company. Many non-United States
jurisdictions allow oppositions by third parties to granted patents and/or
issued patents. The Company may have to participate in opposition proceedings in
non-United States jurisdictions to prevent a third party from obtaining a patent
that may be adverse to the Company's interests. Also, the
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Company may have to defend against a third party's opposition to a patent
granted and/or issued to the Company. There can be no assurance that the Company
will be successful in an opposition proceeding, and participation in such a
proceeding could result in substantial cost to the Company whether or not the
eventual outcome is favorable to the Company. Moreover, there is certain subject
matter which is patentable in the United States and not generally patentable
outside of the United States and may limit the protection the Company can obtain
on some of its inventions outside of the United States. For example, methods of
treating humans are not patentable in many countries outside of the United
States. These and/or other issues may prevent the Company from obtaining patent
protection outside of the United States, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company also relies on trade secrets and trademarks to protect its
technology, especially where patent protection is not believed to be appropriate
or obtainable. The Company protects its proprietary technology and processes, in
part, by confidentiality agreements with its key employees, consultants, medical
advisory board members, collaborators and contractors. There can be no assurance
that these agreements will not be breached, that the Company would have adequate
remedies for any breach, or that the Company's trade secrets and trademarks or
those of its collaborators or contractors will not otherwise become known or be
discovered independently by competitors. All of the Company's material patents,
including those which relate to the Company's OncoVAX(CL), HumaSPECT and the
Company's HumaRAD products, have been pledged to secure certain of the Company's
existing debt obligations. See "-- 1998 Debt Refinancings."
1998 DEBT REFINANCINGS
On April 1, 1998, the Company issued to each of Northstar High Yield Fund
and Northstar High Total Return Fund II a 12.5% promissory note (each such note,
an "April 1998 Note") in the principal amount of $4.0 million and a warrant to
purchase 49,066 shares of common stock (collectively, the "April 1998
Securities"). The Company applied approximately $6.7 million of the $8.0 million
proceeds from the sale of the April 1998 Securities to retire the Company's
existing credit facility with Creditanstalt AB. The maturity of the April 1998
Notes was subsequently extended from April 17, 1998 to August 21, 1998 and the
principal amount of the April 1998 Note issued to Northstar High Total Return
Fund II was increased to $6.0 million, bringing the total principal amount
outstanding under the April 1998 Notes to $10.0 million.
On July 31, 1998, the Company's subsidiary, PerImmune Holdings, entered
into an agreement with Organon Teknika (the "Organon Amendment") whereby Organon
Teknika agreed to extend the maturity of a promissory note issued by PerImmune
Holdings in the original principal amount of approximately $9.2 million, plus
all unpaid accrued interest as calculated on the date of this offering (the
"Organon Note"), from August 1, 1998 to January 15, 2000. The Organon Amendment
provides that, from and after the date of the consummation of this offering
until paid in full, interest will accrue on the Organon Note at the rate of 10%
per annum, and shall be due and payable on a quarterly basis, commencing on each
November 1 thereafter. The Organon Amendment also provides that the Organon Note
shall mature on January 15, 2000 and shall be payable in quarterly installments
over the nine or twelve month period thereafter, depending on the Company's cash
and cash equivalent balances as of December 31, 1999. The Organon Note is
convertible, at the option of Organon Teknika, into common stock any time from
and after the date of the consummation of this offering at a conversion price
equal to the price to the public set forth on the cover page of this Prospectus,
subject to certain anti-dilution adjustments. The Organon Note is secured by a
first priority perfected security interest in all of the patents owned by
PerImmune Holdings including those related to OncoVAXCL, HumaSPECT and the
Company's HumaRAD products (the "PerImmune Patents"). The Organon Amendment also
extended the date of certain milestone payments due under the Intellectual
Property Agreement, dated August 2, 1996, by and among PerImmune Holdings and
Akzo Nobel Pharma International, B.V. ("Akzo") (the "Intellectual Property
Agreement"). Under the Organon Amendment, the Company agreed to guarantee
payment of the Organon Note and payment of milestone payments due under the
Intellectual Property Agreement.
On August 25, 1998, the Company completed a comprehensive refinancing of
its outstanding indebtedness (the "August 1998 Refinancing"). In the August 1998
Refinancing, the Company issued to Northstar High Yield Fund, Northstar High
Total Return Fund, Northstar High Total Return Fund II and Northstar
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<PAGE> 58
Strategic Income Fund (collectively, the "Northstar Funds") (i) the Company's
12% guaranteed senior secured primary notes due August 25, 2003 in the aggregate
original principal amount of $35.0 million (the "August 1998 Primary Notes"),
(ii) the Company's 12% guaranteed senior secured escrow notes due August 25,
2003 in the aggregate original principal amount of $6.0 million (the "August
1998 Escrow Notes" and, together with the August 1998 Primary Notes, the "August
1998 Notes") and (iii) common stock warrants to purchase up to 1,625,000 shares
of common stock (the "August 1998 Warrants" and, together with the August 1998
Notes, the "August 1998 Securities"). In addition, the Company amended and
restated (i) certain provisions of warrants previously granted to certain of the
Northstar Funds and (ii) certain provisions of that portion of a warrant
previously granted to CoreStates Enterprise Fund ("CoreStates"), which was
assigned and transferred to the Northstar Funds (the "CoreStates Warrant"). The
description of the agreements that effected the August 1998 Refinancing
contained herein does not purport to be complete and is qualified in its
entirety by reference to such agreements, which have been filed as Exhibits to
the Registration Statement of which this Prospectus is a part.
As consideration for their purchase of the August 1998 Securities, the
Northstar Funds (i) contributed to the Company (A) each of the 12.5% April 1998
Notes, (B) a senior secured promissory note in the original principal amount of
$4.7 million issued by the Company to Northstar High Total Return Fund on
December 27, 1995, due and payable on December 21, 2000 (the "1995 Note") and
(C) an aggregate of 47,030 shares of the Company's Series A-2 preferred stock
("Series A-2 Preferred Stock") and (ii) paid the remaining proceeds from the
purchase of the August 1998 Securities to the Company.
The net cash proceeds from the sale of the August 1998 Securities were
applied (i) to discharge the Company's indebtedness to (A) CoreStates in the
aggregate amount of $5,097,568.91 for repayment of a Secured Promissory Note, in
the original principal amount of $4.0 million, bearing an interest rate of 13%
per annum, (B) Northstar High Total Return Fund in the amount of $7,171,131
including interest for repayment of the 1995 Note, (C) Northstar High Yield Fund
and Northstar High Total Return Fund II in the amount of $10,113,014 for
repayment of the April 1998 Notes and (D) Northstar High Total Return Fund in
the amount of $4,876,423 for redemption of certain shares of the Series A-2
Preferred Stock, (ii) to make a $500,000 milestone payment owed by PerImmune
Holdings to Akzo pursuant to the Intellectual Property Agreement, (iii) to
advance to subsidiaries of the Company capital required by such subsidiaries in
the amount of $2,321,864.09, (iv) to fund a (A) $6.0 million escrow account
("Segregated Account") (which sum represents all of the cash proceeds from the
sale of the August 1998 Escrow Notes) and (B) a $4.92 million escrow (the
"Escrow Account"), which amount is sufficient to pay, together with the proceeds
from the investment thereof, the first four quarterly interest payments on the
August 1998 Notes. In addition, in conjunction with the sale of the August 1998
Securities, CoreStates transferred the CoreStates Warrant, representing the
right to purchase up to 238,610 shares of the Company's Common Stock, to the
Northstar Funds.
The August 1998 Notes are secured by (i) a first priority security interest
in all the existing and future assets of the Company, other than the PerImmune
Patents and certain equipment financed pursuant to the Loan and Authority
Agreement, dated September 30, 1997, between the Company and the Washington
Economic Development Finance Authority, and a second security interest in
certain of the PerImmune Patents and (ii) a pledge of all the issued and
outstanding capital stock of the existing and future subsidiaries of the
Company.
The Company is permitted to obtain funds upon request from such Segregated
Account, provided that no event of default (as defined) occurs. The Company may
draw out of the Escrow Account to make scheduled interest payments on the August
1998 Notes, provided that, after giving effect to any such withdrawal, the
Company, subject to certain conditions, is required to maintain the balance in
the Escrow Account at an amount sufficient to pay the next four scheduled
interest payments, and, after the first two successive full payments of interest
hereafter, at a level sufficient to pay the next two successive full payments of
interest on the outstanding August 1998 Notes. The Northstar Funds will have a
first priority security interest in the Escrow Account. The Escrow Account will
be terminated after payment in full of all interest accrued through and
including the twelfth successive interest payment due on the August 1998 Notes,
with any balance
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<PAGE> 59
remaining in the Escrow Account to be retained by the Company. The August 1998
Notes are guaranteed by all the existing subsidiaries of the Company and will be
guaranteed by all future subsidiaries of the Company.
The August 1998 Notes, among other things, require that the Company comply
with certain financial covenants beginning in the year 2000 including, without
limitation, maintaining an adjusted debt to EBITDA (as defined) ratio, minimum
levels of tangible net worth and interest coverage, and maximum levels of
leverage for certain periods. In addition, the August 1998 Notes impose certain
limitations on the ability of the Company to, among other things, (i) incur
additional indebtedness, (ii) pay dividends or make certain other restricted
payments, (iii) consummate certain asset sales, (iv) enter into certain
transactions with affiliates, (v) incur liens, (vi) merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its assets, (vii) enter into certain restrictive
arrangements relating to the Company's subsidiaries, (viii) extend credit and
(ix) make investments.
Pursuant to the terms of the August 1998 Primary Notes, up to $5.0 million
aggregate principal amount of the August 1998 Primary Notes must be redeemed (at
a price equal to 100% of their principal amount plus accrued and unpaid
interest, if any, to the date of redemption), when and as the Company receives
the net proceeds from the sale of common stock offered hereby. Pursuant to the
terms of the August 1998 Escrow Notes, the Company must notify the noteholders
of its sale of common stock offered hereby and, if requested, up to $6.0 million
aggregate principal amount of the August 1998 Escrow Notes must be redeemed, in
whole or in part (at a price equal to 100% of their principal amount plus
accrued and unpaid interest, if any, to the date of redemption), when and as the
Company receives the net proceeds from the sale of common stock offered hereby.
See "Use of Proceeds."
The Northstar Funds may require the Company to repurchase an aggregate of
up to $7.5 million aggregate principal of the August 1998 Notes at a price equal
to 100% of their principal amount plus accrued and unpaid interest, upon the
failure of Intracel to satisfy certain ratios of EBITDA to interest expense as
measured at the end of each of three successive fiscal quarters of the Company
commencing March 31, 2000.
The Northstar Funds may require the Company to prepay the August 1998
Notes, in whole or in part, at a price equal to 101% of the principal amount so
prepaid, plus accrued interest to the date of prepayment, if there is a Change
of Control (as defined) of the Company, or if Simon R. McKenzie shall cease to
be the principal executive officer of the Company in charge of the Company's
management and policies for a period of 30 days or more.
The August 1998 Primary Notes may be prepaid, in whole or in part, at the
option of the Company initially at a redemption price of 112% of the principal
amount thereof, and declining to 100% of the principal amount thereof after July
31, 2002, plus accrued and unpaid interest, if any, to the date of redemption.
The August 1998 Escrow Notes may be prepaid, in whole or in part, at the option
of the Company, provided that certain notice requirements are met.
Events of default under the August 1998 Notes include, among other things,
(i) failure to pay principal or interest on the August 1998 Notes when due, (ii)
breaches of representations, warranties and covenants, (iii) defaults under
other indebtedness of the Company or its subsidiaries, (iv) failure to
consummate an equity offering on or prior to December 31, 1999, with an
aggregate offering price of not less than $40.0 million and aggregate proceeds
to the Company (net of selling expenses and underwriters' discounts or selling
agent's commission) of not less than $35.0 million, (v) the occurrence of
certain events of bankruptcy, (vi) certain adverse judgments against the Company
or its subsidiaries, (vii) certain ERISA events and (viii) other customary
defaults, in certain cases after the expiration of a grace period.
The August 1998 Warrants are exercisable until August 25, 2003 at an
exercise price which as of the date hereof equals the price to the public set
forth on the cover page of this Prospectus, less the underwriting discounts and
commissions, per share, subject to certain anti-dilution adjustments. As part of
the August 1998 Refinancing, the Company agreed to grant certain demand and
"piggyback" registration rights to the Northstar Funds and their affiliates with
respect to the shares of common stock held by them, including those issuable
upon exercise of warrants, and has agreed to file a registration statement
covering such shares 181 days after the date of this Prospectus. See "Shares
Eligible for Future Sale."
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<PAGE> 60
COMPETITION
The pharmaceutical and biotechnology industries are intensely competitive.
Many of the product candidates being developed by the Company, if approved,
would compete with existing drugs, therapies and diagnostic products. There are
many pharmaceutical companies, biotechnology companies, public and private
universities and research organizations actively engaged in research and
development of products for the treatment of people with cancer. Many of these
organizations have financial, technical, manufacturing and marketing resources
greater than those of the Company. Several of them may have developed or are
developing therapies or diagnostic products that could be used for treatment or
diagnosis of the same diseases targeted by the Company. If a competing company
were to develop or acquire rights to a more efficacious therapeutic or
diagnostic product for the same diseases targeted by the Company, or one which
offers significantly lower costs of treatment or diagnosis, the Company's
business, financial condition and results of operations could be materially
adversely affected.
The Company believes that competition in the development and marketing of
new cancer therapies will be based primarily on product efficacy and safety,
time to market and price. To the extent the Company's product programs are
successful, it also intends to rely to some degree on patents and other
intellectual property and orphan drug designations to protect its products from
competition.
The Company believes that its product development programs will be subject
to significant competition from companies utilizing alternative technologies as
well as to increasing competition from companies that develop and apply
technologies similar to the Company's technologies. Other companies may succeed
in developing products earlier than the Company, obtaining approvals for such
products from the FDA more rapidly than the Company or developing products that
are more effective than those under development or proposed to be developed by
the Company. There can be no assurance that research and development by others
will not render the Company's technology or product candidates obsolete or
non-competitive or result in treatments superior to any therapy developed by the
Company, or that any therapy developed by the Company will be preferred to any
existing or newly developed technologies.
PRODUCT LIABILITY AND INSURANCE
The manufacture and sale of human therapeutic and diagnostic products
involve an inherent risk of product liability claims and associated adverse
publicity. The Company has only limited commercial product liability insurance.
There can be no assurance that the Company will be able to maintain existing
insurance or obtain additional product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such insurance is
expensive, difficult to obtain and may not be available in the future on
acceptable terms, if at all. An inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims brought against the Company in excess of its insurance
coverage, if any, or a product recall could have a material adverse effect upon
the Company's business, financial condition and results of operations.
HUMAN RESOURCES
As of June 30, 1998, the Company had over 230 employees. The Company's
employees are not represented by a collective bargaining agreement. The Company
believes its relations with its employees are good.
MEDICAL ADVISORY BOARD
The Company's Medical Advisory Board is comprised of internationally
recognized clinical researchers in the fields of oncology and cancer surgery.
The Medical Advisory Board advises the Company's management on strategic issues
related to the Company's clinical development programs and consists of the
following individuals:
Herbert C. Hoover, Jr., M.D., co-chairman of the Medical Advisory Board and
Medical Director of the Company, is the Chairman of the Department of Surgery at
Lehigh Valley Hospital in Allentown, Pennsylvania and the Vice Chairman of the
Department of Surgery and Professor of Surgery at Pennsylvania
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<PAGE> 61
State University/Milton S. Hershey Medical Center, Hershey, Pennsylvania. Dr.
Hoover is the holder of the Anne C. and Carl R. Anderson Chair of Surgery at
Lehigh Valley Hospital. Dr. Hoover obtained a B.A. from the Kansas State College
of Pittsburgh in 1966 and his M.D. in 1970 from the University of Kansas School
of Medicine. Dr. Hoover is a member of numerous professional societies and
national, regional, medical school and hospital committees and boards, as well
as being on the editorial board of various medical and scientific journals.
Herbert Michael Pinedo, M.D., Ph.D., co-chairman of the Medical Advisory
Board, is Professor of Medical Oncology and Chief of the Department of Medical
Oncology at the Vrije Universiteit in Amsterdam, the Netherlands. Dr. Pinedo
obtained his M.S. and his M.D. degree in 1967 and his Ph.D. in Medical Science
in 1972, from the Medical School of the University of Leiden in Amsterdam, the
Netherlands. Dr. Pinedo belongs to numerous professional societies, university
and hospital committees and boards, and is on the editorial board of numerous
medical journals.
Michael Andrew Choti, M.D. is Director, Johns Hopkins Colon Cancer Center,
and Medical Director, Outpatient Center at The Johns Hopkins Hospital and has
been Assistant Professor in the Department of Surgery at The Johns Hopkins
School of Medicine since 1992, Assistant Professor in the Department of Oncology
at The Johns Hopkins School of Medicine since 1995, and a full-time staff member
in the Department of Surgery at The Johns Hopkins Hospital. Dr. Choti obtained
his B.S. in 1979 from the University of California at Irvine and his M.D. in
1983 from Yale University School of Medicine. Dr. Choti is a member of various
professional societies as well as being involved in various professional
activities.
Ronald Levy, M.D. has been Chief of the Division of Oncology at Stanford
University School of Medicine since 1993. From 1987, Dr. Levy has been Professor
of Medicine, Division of Oncology, at Stanford University School of Medicine,
holder of the Summy Chair at Stanford University School of Medicine, and an
American Cancer Society Clinical Research Professor. Dr. Levy obtained his A.B.
from Harvard University in 1963 and obtained his M.D. from Stanford University
in 1968. Dr. Levy is a member of numerous medical societies and an active member
of various professional review organizations, including the Margaret Early Trust
Research Grant Committee and the Scientific Advisory Board of CellPro, Bothell,
Washington.
H. Kim Lyerly, M.D., Ph.D. is Professor of Surgery, Immunology, and
Pathology and Clinical Director of the Duke Center for Genetic and Cellular
Therapies at Duke University Medical Center. Dr. Lyerly obtained his B.S. in
1980 from the University of California at Riverside and his M.D. from the
University of California at Los Angeles in 1983. Dr. Lyerly is on the Editorial
Board of Annals of Surgery and International Journal of Surgical Science. Dr.
Lyerly has been awarded numerous honors and belongs to numerous professional
societies. Since 1990, Dr. Lyerly has been a research sponsor working with
various M.D.s and Ph.D.s, as well as an investigator since 1988 working on
protocols for the treatment of diseases such as AIDS and leukemia, and on
molecular therapeutics programs.
Bruce G. Wolff, M.D. is Professor of Surgery at the Mayo Medical School and
a consultant in colon, rectal, and general surgery, at the Mayo Clinic. Dr.
Wolff obtained a B.S. from Davidson College and his M.D. from Duke University
School of Medicine. Dr. Wolff belongs to numerous in-house Mayo Clinic
organizations as well as national and regional organizations including being
vice-chairman of the American Cancer Society Executive Committee on Allied
Health Personnel.
LEGAL PROCEEDINGS
The Company is party to claims and litigation that arise in the normal
course of business. Management believes that the ultimate outcome of these
claims and litigation will not have a material impact on the financial position
or results of operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the Company's
current directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Michael G. Hanna, 62 Chairman of the Board and Chief Scientific Officer
Ph.D. ..................
Simon R. McKenzie......... 41 President, Chief Executive Officer and Director
Lawrence A. Bloom......... 42 Senior Vice President and Chief Financial Officer
Daniel S. Reale........... 43 Senior Vice President and President, OncoVAX(CL) Division
Persis M. Strong.......... 44 Senior Vice President and President, Bartels Diagnostics
Division
Diana Goroff, Ph.D........ 44 Vice President, Operations
Peggy McGaw............... 40 Vice President, Finance
Carl T. Foster............ 33 Vice President, Business Development
Patricia A. Barnett....... 48 Vice President, Reimbursement
Raymond J. Schuyler....... 62 Director
Joseph Caligiuri.......... 69 Director
Steven Gerber, M.D. ...... 44 Director
Alexander Klibanov, 48 Director
Ph.D. ..................
</TABLE>
- ---------------
Michael G. Hanna, Ph.D. is currently Chairman of the Board and Chief
Scientific Officer of the Company. Dr. Hanna had been Chairman of the Board,
Chief Executive Officer and President of PerImmune since 1994. Dr. Hanna founded
the Litton Institute of Applied Biotechnology ("LIAB") in 1982. In 1985, Organon
Teknika assumed operations of LIAB and Dr. Hanna served as Senior Vice President
of Organon Teknika. Prior to his position at LIAB in 1982, Dr. Hanna served as
the Director of the National Cancer Institute, Frederick Cancer Research Center.
Simon R. McKenzie founded Intracel in 1987 and serves as President, Chief
Executive Officer and a director of the Company. From 1987 to the present, Mr.
McKenzie has served as President of Intracel and, from 1995 to 1997, Mr.
McKenzie was also Chairman of the Board. Prior to forming Intracel, Mr. McKenzie
co-founded and managed Baltech, Inc., an early stage pharmaceutical company
developing a new class of antiviral drugs including candidates for treating
Herpes Simplex. Since 1997, Mr. McKenzie has served on the Board of Directors of
New Century Pharmaceuticals, an early stage company working in x-ray
crystallography.
Lawrence A. Bloom is Chief Financial Officer for the Company. Mr. Bloom
joined the Company in January 1998 as Senior Vice President, Corporate
Development and was promoted to his current position in August 1998. From 1996
to 1997, Mr. Bloom was a consultant to emerging biotechnology companies. From
1991 to 1995, Mr. Bloom served as Senior Vice President for Dillon Read Inc., an
investment banking firm. From 1985 to 1990, Mr. Bloom served as Vice President
and Associate Portfolio Manager for Lehman Management Co., a $15 billion money
management division of Shearson/Lehman American Express.
Daniel S. Reale is currently Senior Vice President of the Company and
President of the Company's OncoVAX(CL) Division. From 1994 to 1997, Mr. Reale
served as President and Chief Operating Officer of Coral Therapeutics, a
provider of in-hospital apheresis-based technologies, where he was responsible
for the establishment of 10 hospital-based state-of-the-art blood service units
in cGMP environments. From 1989 to 1994, Mr. Reale served as Senior Vice
President, Operations for Chartwell Home Therapies, L.P., where Mr. Reale
oversaw 14 infusion pharmacies with hospital based supporting clinics.
Persis M. Strong presently serves as Senior Vice President of the Company
and President of the Company's Bartels Diagnostics Division. She joined the
Company in 1995 as Vice President of Marketing. Ms. Strong has over 17 years of
management and business development experience in the medical diagnostics
industry. Prior to joining the Company, Ms. Strong spent seven years with Binax,
Inc., a point-of-care
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diagnostics company, where she served as Vice President of Marketing. From 1981
to 1988, Ms. Strong was employed by Ventrex Laboratories, Inc., a biotechnology
company, in various marketing and management positions. Ms. Strong has extensive
international business experience and has successfully organized and negotiated
manufacturing and distribution arrangements in over 35 international markets.
Diana Goroff, Ph.D. is Vice President of Operations. From 1991 to 1998, Dr.
Goroff served as Director of Parenteral Drug Manufacturing for PerImmune. Dr.
Goroff has extensive experience with production of monoclonal antibodies and has
recently managed the clinical production of the Company's first totally human
antibody.
Peggy McGaw is Vice President, Finance. Ms. McGaw joined the Company in
January 1998 as Controller and has been promoted twice, once to Director of
Finance in late January 1998 and then to her current position in July 1998. From
1995 to 1997, Ms. McGaw served as the Financial Reporting Manager of Western
Wireless Corp., a telecommunication service provider. From 1991 to 1995, Ms.
McGaw was employed by PricewaterhouseCoopers LLP (formerly Coopers & Lybrand
L.L.P.), most recently as a Business Assurance Manager affiliated with the
firm's National High Tech Group. Ms. McGaw is a certified public accountant and
has extensive experience working with emerging technology based companies and in
obtaining public financing.
Carl T. Foster joined the Company as Vice President of Business Development
in June 1998. From 1997 to June 1998, Mr. Foster served as Managing Director of
Ferghana Partners, Inc., an investment banking firm. From 1989 to 1997, Mr.
Foster was employed by Merck and Co., Inc. and Astra Merck, Inc., which are
affiliated pharmaceutical companies, most recently as Director of Licensing and
Business Development of Astra Merck, Inc..
Patricia A. Barnett joined the Company in August 1998 as Vice President of
Reimbursement in August 1998. From 1987 to August 1998, Ms. Barnett was employed
by Bristol-Myers Squibb Company, a pharmaceutical company, most recently as
Associate Director of Reimbursement. In addition, from 1993 to 1997, Ms. Barnett
was also employed by Genentech, Inc., a biotechnology company, as a Senior
Manager of Health Economics and Policy and Health Care Affairs.
Raymond J. Schuyler has been a director of Intracel since August 1995. Mr.
Schuyler is a Senior Vice President and Chief Investment Officer of Orion
Capital and Security Insurance Co. of Hartford, one of Intracel's principal
institutional stockholders. Mr. Schuyler has been involved in investment banking
and portfolio management for more than 38 years.
Joseph Caligiuri became a director of Intracel immediately following the
Merger. Mr. Caligiuri retired as a Corporate Executive Vice President of Litton
Industries, Inc. in April 1993, where he had worked since 1969. Mr. Caligiuri
also serves as a member of the Board of Directors of Titan Corporation, a
commercial and military electronic and information systems company and Avnet,
Inc., an electronics components and distribution company.
Steven Gerber, M.D. became a director of Intracel immediately following the
Merger. Dr. Gerber is a senior pharmaceutical industry analyst and Head of
Healthcare Research for CIBC Oppenheimer, an investment banking firm. Dr. Gerber
holds a medical staff appointment at Cedars-Sinai Medical Center in Los Angeles.
He is also a member of the Board of Overseers of Tufts University School of
Medicine, and a member of the Board of Directors of Syncor International
Corporation.
Alexander Klibanov, Ph.D. has been a director of Intracel since July 1992.
For more than five years, Dr. Klibanov has been a Professor of Chemistry in the
Department of Chemistry at the Massachusetts Institute of Technology. He serves
on the editorial and review board of numerous scientific publications in the
fields of chemistry and biochemistry. He is a leader in the fields of
enzymology, having published numerous related articles in leading publications.
There are no family relationships among any of the persons who are
directors or executive officers of Intracel.
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Directors of the Company are elected by holders of common stock for a
three-year term, and are divided into three classes with staggered terms that
currently have expiration dates as follows: (a) Class I Directors -- 1999, (b)
Class II Directors -- 2000 and (c) Class III Directors -- 2001. As of the date
hereof, Messrs. and serve as Class I Directors, Messrs. and
serve as Class II Directors and Messrs. and serve as Class
III Directors.
SUMMARY OF EXECUTIVE COMPENSATION
The table below sets forth certain information concerning the compensation
earned by the Company's Chief Executive Officer and each of the other most
highly compensated executive officers of the Company (collectively, the "Named
Executive Officers") whose aggregate cash compensation exceeded $100,000 for
services rendered in all capacities to the Company during the year ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
--------------------- ----------------------------
SHARES OF
COMMON STOCK
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUSES OPTIONS COMPENSATION
- ------------------------------------------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C>
Simon R. McKenzie
President and Chief Executive Officer... $186,434
Persis M. Strong
Senior Vice President, Marketing........ 118,550 20,000
Matthew L. Root
Chief Financial Officer(1).............. 94,003 $20,000
Cheryl Cataldo
Corporate Secretary(1).................. 111,374
</TABLE>
- ---------------
(1) Mr. Root served as chief financial officer for a portion of 1997, and Ms.
Cataldo served as an executive officer for a portion of 1997. They were not
officers of the Company as of the last day of fiscal year 1997.
The following table sets forth information regarding stock options granted
pursuant to the Company Stock Option Plan (as defined) during the fiscal year
ended December 31, 1997 to each of the Named Executive Officers. The Company has
never granted any stock appreciation rights.
OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL OPTIONS ANNUAL RATES OF
GRANTED TO STOCK PRICE
NUMBER OF EMPLOYEES APPRECIATION FOR
SECURITIES IN FISCAL YEAR OPTION TERM
UNDERLYING OPTIONS ENDED EXERCISE PRICE EXPIRATION ---------------------
NAME GRANTED DECEMBER 31, 1997 PER SHARE(1) DATE 5% 10%
- ---------------------- ------------------ ----------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Simon R.
McKenzie(2).........
Persis M. Strong(3)... 20,000 15.4% $4.50 12/31/02 $24,865 $54,946
Matthew L. Root.......
Cheryl Cataldo........
</TABLE>
- ---------------
(1) All share numbers and prices adjusted to reflect a two-for-one stock split
on December 31, 1997. The Company granted options totaling 130,000 shares
(as adjusted) during the year ended December 31, 1997.
(2) As of August 31, 1998, the Company had granted Mr. McKenzie warrants to
purchase 679,341 shares of common stock at an exercise price of $4.50.
(3) On December 31, 1997, the Company issued a five-year option for 10,000
shares at an exercise price of $9.00 per share of which 33% was immediately
vested and exercisable. An additional 33% of the options vest and are
exercisable on or after the first anniversary date, and the remainder vest
and are exercisable on the second anniversary date. Subsequent to a
two-for-one split of the common stock effected as of December 31, 1997, this
option has been adjusted to 20,000 shares at an exercise price of $4.50 per
share.
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<PAGE> 65
No options were exercised by the Named Executive Officers in 1997. The
following table sets forth the specified information concerning unexercised
options held by the Named Executive Officers as of December 31, 1997.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT VALUE OF UNEXERCISED
TO UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END AT FISCAL YEAR END(1)
-------------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Simon R. McKenzie...................... 200,000(2) $475,480
Persis M. Strong....................... 51,666(2) 28,334 90,000 $ 30,000
Matthew L. Root........................
Cheryl Cataldo......................... 7,467 13,333 4,933 6,667
</TABLE>
- ---------------
(1) Calculated based upon the difference between the exercise price and the
$4.50 estimated fair market value of the underlying securities as of
December 31, 1997.
(2) As of August 31, 1998, the Company had granted Mr. McKenzie warrants to
purchase 679,341 shares of common stock at an exercise price of $4.50 per
share and options to Ms. Strong to purchase 15,000 shares of common stock at
an exercise price of $7.50 per share.
On July 5, 1998, Mr. McKenzie exercised options to acquire 120,000 shares
of the Company's common stock at an exercise price of $2.50 per share. Mr.
McKenzie received a loan from the Company in the amount of $300,000 to
facilitate his exercising such options. The loan, which matures on July 5, 2002,
bears interest at a rate of 10% per annum (payable at maturity).
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with certain of its key
employees. The following is a summary of the material terms and conditions of
such agreements and is subject to the detailed provisions of the respective
agreements attached as exhibits to the Registration Statement.
Dr. Hanna entered into an employment agreement with the Company as of
January 2, 1998, providing for his employment as Chairman of the Board and Chief
Scientific Officer of the Company with a base salary of $200,000, which may be
increased by discretionary bonus payments. In addition, the agreement provides
for a $50,000 bonus if the Company's initial OncoVAX Center commences treatment
of its first cancer patient prior to December 31, 1998 and a bonus of $50,000 if
HumaSPECT receives FDA or MAA final approval prior to September 30, 1998. The
Company may terminate employment for cause (as defined) or either party may
terminate upon 30 days prior notice. Pursuant to the employment agreement, the
Company has provided to Dr. Hanna a $2,000,000 life insurance policy which will
be fully funded within five years. Dr. Hanna's compensation also includes
customary perquisites and other personal benefits. If Dr. Hanna's employment is
terminated without cause, or Dr. Hanna terminates the agreement by reason of
constructive discharge (as defined), the Company is obligated to pay him a lump
sum amount equal to the monthly portion of his base salary multiplied by 36,
certain benefits for a three-year period following termination and, to the
extent he is not fully vested with the Company retirement plans, the difference
between any amounts payable to him under such plans and amounts which would have
been payable had he been vested. If employment is terminated on account of
medical disability (as defined), the Company is obligated to pay Dr. Hanna an
amount equal to two-thirds of his base salary (less any amounts paid as workers
compensation, social security disability or other federal, state or local
disability benefits) for the period ending the earlier of (i) the date that Dr.
Hanna becomes employed in a full-time manner or substantially full-time basis,
in which case he shall receive his base salary without adjustment or (ii) the
date that Dr. Hanna attains normal retirement age. The agreement has an initial
three-year term and shall be negotiated on an annual basis upon expiration of
the initial term. The agreement also provides that Dr. Hanna may not engage in
certain competitive activities with the Company for a period of one year
following termination of the agreement.
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<PAGE> 66
Mr. McKenzie entered into an employment agreement with the Company as of
January 2, 1998, providing for his employment as President and Chief Executive
Officer of the Company with a base salary of $200,000, which may be increased by
discretionary bonus payments. In addition, the agreement provides for a $50,000
bonus if a private placement of the Company's equity securities aggregating not
less than $3,000,000 is consummated by December 31, 1998 and a bonus of $50,000
if a public offering of the Company's equity securities registered under the
Securities Act aggregating not less than $20,000,000 is consummated by December
31, 1998. In addition, pursuant to the agreement the Company granted to Mr.
McKenzie warrants, exercisable at $4.50 per share, to acquire 679,341 shares of
common stock. Mr. McKenzie's compensation also includes customary perquisites
and other personal benefits. The Company may terminate employment for cause (as
defined) or either party may terminate the agreement upon 30 days prior notice.
If such agreement is terminated without cause, or Mr. McKenzie terminates the
agreement by reason of constructive discharge (as defined), the Company is
obligated to pay him a lump sum amount equal to the monthly portion of his base
salary multiplied by 36, certain benefits for a three-year period following
termination and, to the extent he is not fully vested with the Company
retirement plans, the difference between any amounts payable to him under such
plans and amounts which would have been payable had he been vested. If
employment is terminated on account of medical disability (as defined), the
Company is obligated to pay Mr. McKenzie an amount equal to two-thirds of his
base salary (less any amounts paid as workers compensation, social security
disability or other federal, state or local disability benefits) for the period
ending the earlier of (i) the date that Mr. McKenzie becomes employed in a
full-time manner or substantially full-time basis, in which case he shall
receive his base salary without adjustment or (ii) the date that Mr. McKenzie
attains normal retirement age. The agreement has an initial four-year term and
shall be negotiated on an annual basis upon expiration of the initial term. Mr.
McKenzie has agreed not to compete with the Company for a period of one year
following termination of the agreement.
Mr. Reale entered into an employment agreement with the Company effective
March 8, 1998, providing for his employment as President of the OncoVAX(CL)
Division with a base salary of $200,000, which may be increased by discretionary
bonus payments. Pursuant to the agreement, the Company has granted Mr. Reale
options to purchase 100,000 shares of its common stock at an exercise price of
$7.50 per share vesting at a rate of 25% on the commencement of his employment
and 25% on each of the first, second and third anniversaries thereof. If Mr.
Reale achieves the first and second year performance objectives set forth
therein, his options will vest at an accelerated rate. Additionally, Mr. Reale
may receive additional performance bonuses totaling up to 100% of his salary.
Mr. Reale's compensation includes customary perquisites and other personal
benefits.
Ms. Strong entered into an employment agreement with the Company effective
June 1, 1998, providing for her employment as Senior Vice President and
President of the Bartels Diagnostic Division with a base salary of $160,000,
which may be increased by discretionary bonus payments. During her employment
with the Company, Ms. Strong has purchased 10,000 shares of common stock and
been granted options to purchase 95,000 shares of common stock with exercise
prices ranging from $2.50 per share to $7.50 per share. Ms. Strong's
compensation includes customary perquisites and customary benefits.
Mr. Bloom entered into an employment agreement with the Company effective
February 1, 1998, providing for his employment as Senior Vice President of
Corporate Development with a base salary of $160,000, which may be increased by
discretionary bonus payments and option grants. Prior to his entering this
employment agreement, Mr. Bloom had a consulting agreement with the Company from
August 1997 to February 1998, pursuant to which he was paid $51,000. Mr. Bloom
has purchased 20,000 shares of common stock in the Company and has been granted
options to purchase 35,000 shares of common stock with the exercise prices
ranging from $4.50 per share to $7.50 per share. Mr. Bloom's compensation
includes customary perquisites and customary benefits. Subsequent to entering
into the employment agreement, Mr. Bloom was promoted to Chief Financial
Officer.
Ms. McGaw entered into an employment agreement with the Company effective
January 6, 1998, providing for her employment as Controller of the Company with
a base salary of $70,000, which may be increased by performance and
discretionary bonus payments. Ms. McGaw's compensation includes customary
perquisites and customary benefits. Subsequent to entering into the employment
agreement, Ms. McGaw has
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<PAGE> 67
been promoted twice, once to Director of Finance and then to Vice President,
Finance which has increased her base salary to $155,000.
Mr. Foster entered into an employment agreement with the Company effective
May 19, 1998, providing for his employment as Vice President of Business
Development with a base salary of $200,000, which may be increased by
discretionary bonus payments. Pursuant to the agreement, the Company has granted
Mr. Foster options to purchase 100,000 shares of its common stock at an exercise
price of $10.00 per share vesting at a rate of 25% on the commencement of his
employment and 25% on each of the first, second and third anniversaries thereof.
If Mr. Foster achieves the first and second year performance objectives set
forth therein, his options will vest at an accelerated rate. Additionally, Mr.
Foster may receive additional performance bonuses totaling up to 100% of his
salary. Mr. Foster's compensation includes customary perquisites and customary
benefits.
STOCK OPTION PLANS
Intracel Stock Option Plans
The Company has reserved 800,000 shares of common stock for issuance under
its 1989 Stock Option Plan and 1990-91 Stock Option Plan (the "Company Stock
Option Plan") which provides for the granting of options to key employees and
consultants of the Company and its subsidiaries. The option price per share, the
amount of shares underlying each option, the vesting period and the expiration
date are determined by the Board of Directors at the date of the grant, except
that the option price may not be less than the fair market value (as defined) of
stock on the date of the grant and the option period may not exceed ten years.
For stockholders possessing more than a 10% ownership interest, the option price
shall not be less than 110% of the fair market value at the date of grant. The
vesting period for options issued in 1997 ranged from 24 months to 48 months and
all had expiration dates five years from the date of issue. At June 30, 1998,
options to purchase 1,134,534 shares of common stock at $1.00 to $10.00 per
share were outstanding, of which 652,533 were vested and exercisable. See Note
10 to the Company's consolidated financial statements contained elsewhere in
this Prospectus.
PerImmune Holdings, Inc. Stock Option Plan
Pursuant to the Amended and Restated 1996 Stock Option Plan of PerImmune
Holdings (the "PerImmune Stock Option Plan") for independent directors,
executive officers and key employees and consultants (all as defined) of
PerImmune Holdings, PerImmune and the Company, PerImmune Holdings reserved 500
shares of its common stock, par value $.01 per share, for issuance. At the time
of the Merger, options to purchase 257 shares of PerImmune Holdings were
outstanding, of which options to purchase 86 shares of PerImmune Holdings were
vested and exercisable. In connection with the Merger, the Company assumed
PerImmune Holdings' obligations under the PerImmune Stock Option Plan.
Consequently, each option outstanding under the PerImmune Stock Option Plan
converted into an option to purchase 9,108.32 shares of common stock upon
exercise. Of the options to purchase 257 shares of PerImmune Holdings, options
to purchase 255 shares of PerImmune Holdings were granted to employees of
PerImmune Holdings at an exercise price of $2,725 per share and options to
purchase two shares of PerImmune Holdings were granted to directors of PerImmune
Holdings at an exercise price of $45,000 per share.
RETIREMENT SAVINGS PLANS
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches employees' contributions at the discretion of the Company's
Board of Directors. The Company did not match employee contributions to the
401(k) savings plan in the 1997, 1996 and 1995 periods. The Company does not
provide other post-retirement benefits.
In connection with the Merger, the Company assumed PerImmune Holdings'
employee pension plan, a noncontributory defined benefit pension plan (the
"PerImmune Holdings Plan") retroactive to August 2, 1996. The Company froze the
benefits under the PerImmune Holdings Plan in February 1998, and determined that
the remaining PerImmune Holdings Plan assets and recorded pension liability
exceeded the
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<PAGE> 68
obligation relating to the participants. As a result of the curtailment of the
plan benefits, the Company recorded income of $800,000 and reduced the related
pension liability in accordance with Statement of Financial Accounting Standards
No. 88, "Employers Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans."
In addition, PerImmune Holdings maintains a defined-contribution savings
plan under Section 401(k) of the Internal Revenue Code. This plan covers
substantially all full-time employees. Participating employees may defer a
portion of their pretax earnings up to the Internal Revenue Service annual
contribution limit. PerImmune Holdings matches employee contributions according
to a specified formula. PerImmune Holdings' matching contributions totalled
$176,098 and $72,779 for the year ended December 31, 1997, and period from
August 3, 1996 through December 31, 1996, respectively.
COMMITTEES OF THE BOARD OF DIRECTORS
In March 1998, the Board of Directors designated a Compensation Committee,
which consists of Joseph Caligiuri, Steven Gerber and Alexander Klibanov. The
Compensation Committee reviews executive salaries and administers any bonuses,
incentive compensation and stock options of the Company issuable to management
employees and directors of the Company. In addition, the Compensation Committee
consults with management of the Company regarding compensation policies and
practices of the Company. Also in March 1998, the Board of Directors established
an Audit Committee consisting of Joseph Caligiuri, Simon R. McKenzie and Raymond
J. Schuyler, an Executive Committee consisting of Michael J. Hanna, Simon R.
McKenzie and Raymond J. Schuyler and a Finance Committee consisting of Steven
Gerber, Simon R. McKenzie and Raymond J. Schuyler. The Audit Committee will
review the professional services provided by the Company's independent auditors,
the annual financial statements of the Company and the Company's internal
financial controls.
DIRECTOR COMPENSATION
Fees. None of the Company's directors who are also employees of the Company
receive cash compensation for attendance at meetings of the Board of Directors
or at meetings of committees of the Board of Directors of which they are
members. Independent, non-employee directors shall be entitled to cash
compensation of $1,500 for attendance at meetings of the Board of Directors or
at meetings of committees of the Board of Directors of which they are members.
All directors receive reimbursement for reasonable travel expenses incurred in
connection with attendance at each Board of Directors and committee meeting.
Stock Options. To attract and retain independent, non-employee directors
for the Company, the Company has issued, and intends to continue to issue, to
its independent directors, a one-time grant of 15,000 options to purchase the
Company's common stock pursuant to the Company Stock Option Plan, in amounts
determined at the discretion of the Board of Directors or the Compensation
Committee and exercisable at a price equal to the fair market value of the
common stock on the date of grant. These options vest over a three-year period.
Independent directors will generally be granted stock options upon their initial
appointment, and independent directors and stockholder representative directors
may be granted stock options during their term of service as an incentive for
continued service. Employee directors are not granted stock options for their
services as directors.
CONFIDENTIALITY AND NON-COMPETE AGREEMENTS
The Company has entered into employment agreements containing
confidentiality and non-compete provisions with each of its key employees. The
agreements provide that, among other things, all inventions, discoveries and
ideas which are, directly or indirectly, related to or suggested by the
employee's employment or is pertinent to any field of business or research in
which the Company is engaged or is considering engaging during the employee's
employment shall be the sole and exclusive property of the Company. The
agreements also provide that, for a specified period from the date of
termination of employment with the Company for any reason, the employee will
not, directly or indirectly, engage, participate or invest in any business
activity anywhere in the world that is competitive with or similar to the
products and services of the Company or make use of any of the Company's
confidential information.
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<PAGE> 69
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of August 31, 1998, and as adjusted
to reflect the sale of the shares of common stock offered hereby (assuming no
exercise of the Underwriters' over-allotment option), by: (i) each person (or
group of affiliated persons) known by the Company to own beneficially more than
five percent of the Company's outstanding common stock; (ii) each of the
Company's directors; (iii) each Named Executive Officer of the Company; and (iv)
all directors and executive officers of the Company as a group. Dr. Michael G.
Hanna, Jr. (the "Selling Stockholder") has granted the Underwriters a 30-day
option to purchase up to an aggregate of additional shares of
common stock on the same terms and conditions as the Offering to cover
over-allotments, if any, in connection with this offering. See "Underwriting."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED NUMBER BENEFICIAL OWNERSHIP
NAME, TITLE AND PRIOR TO OFFERING(2) OF SHARES AFTER OFFERING(2)
ADDRESS OF OFFICERS, -------------------- BEING -----------------------
DIRECTORS AND BENEFICIAL OWNERS(1) NUMBER PERCENT OFFERED NUMBER PERCENT(3)
---------------------------------- --------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Michael G. Hanna, Ph.D.(4) 5,460,437 32.45% -- 5,460,437 --%
Chairman of the Board
and Chief Scientific Officer
Northstar Funds, TD Partners and 1,348,479 8.01 -- 1,348,479 --
Thomas O. Dial(5)
2 Pickwick Plaza
Greenwich, CT 06830
Security Insurance Co. of Hartford(6) 1,305,298 7.76 -- 1,305,298 --
600 Fifth Avenue
New York, NY 10020
Simon R. McKenzie(7) 1,264,809 7.19 -- 1,264,809 --
President, Chief Executive
Officer and Director
Mentor Corporation(8) 1,152,540 6.85 -- 1,152,540 --
5425 Hollister Avenue
Santa Barbara, CA 93111
Syncor International Corporation(9) 998,810 5.94 -- 998,810 --
6464 Canoga Avenue
Woodland Hills, CA 91367
Dianne Goroff, Ph.D.(10) 364,332 2.13 -- 364,332 --
Vice President of Operations
Raymond Schuyler(11) 111,575 * -- 111,575 *
Director
Persis M. Strong(12) 80,416 * -- 80,416 *
Senior Vice President and President
Bartels Diagnostics Division
Alexander Klibanov, Ph.D.(13) 80,000 * -- 80,000 *
Director
Joseph Caligiuri(14) 27,324 * -- 27,324 *
Director
Daniel S. Reale(15) 25,000 * -- 25,000 *
Senior Vice President and
President, OncoVAX(CL) Division
Carl Foster(15) 25,000 * -- 25,000 *
Vice President, Business Development
Lawrence Bloom(16) 23,750 * -- 23,750 *
Chief Financial Officer
Steven Gerber, M.D.(17) 9,108 * -- 9,108 --
Director
All directors and executive officers 7,362,452 40.76% -- 7,362,452 --%
as a group (12 persons)
</TABLE>
- ---------------
* Less than 1% of the outstanding shares of common stock.
(1) Unless otherwise indicated, the address for each person is c/o Intracel
Corporation, 2005 NW Sammamish Road, Suite 107, Issaquah, Washington 98027.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission"). In computing the
number of shares beneficially owned by a person and the percentage
ownership of that person, shares of common stock and preferred stock
subject to options and warrants held by that person that are exercisable
within 60 days are deemed outstanding. Such shares, however, are not deemed
outstanding for purposes of computing percentage ownership of any other
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<PAGE> 70
person. Options vest over a period of three to five years from the date of
grant. Options granted under the PerImmune Holdings, Inc. 1996 Stock Option
Plan have been adjusted and reflected in the equivalent number of shares of
the Company under the merger and consolidation terms of the options
agreement. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have sole voting and sole
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable.
(3) Based on 16,826,914 shares outstanding prior to this offering (including
11,160,568 shares of common stock, 5,109,632 shares of common stock which
will be issued pursuant to the Preferred Stock Conversion, 54,648 shares of
common stock which will be issued under automatic conversion features of
certain outstanding debt, and 502,066 shares of common stock issuable under
warrants immediately exercisable after this offering), and shares
of common stock outstanding after this offering.
(4) Includes 4,554,160 shares of common stock held for Dr. Hanna's personal
account and 906,277 shares of common stock over which Dr. Hanna has sole
voting power under the terms of a voting trust entered into among certain
other founding employees of PerImmune Holdings. Such voting trust will
terminate upon consummation of this offering.
(5) Includes 15,576 shares of Series A-1 preferred stock (which will be
automatically converted to 31,575 shares of common stock at the conclusion
of this offering) held by Northstar High Yield Fund; 249,170 shares of
Series A-1 preferred stock (which will be automatically converted to
505,112 shares of common stock at the conclusion of this offering), and
159,074 shares of common stock held by Northstar Advantage High Total
Return Fund; and 222,222 shares of common stock held by Northstar Balance
Sheet Opportunities; but does not include warrants to purchase 1,218,508
shares of common stock held by Northstar Advantage High Total Return Fund,
warrants to purchase 596,661 shares of common stock held by Northstar High
Total Return Fund II, warrants to purchase 59,451 shares of common stock
held by Northstar Strategic Income Fund, and warrants to purchase 275,142
shares of common held by Northstar High Yield Fund, all of which are
expected to remain outstanding after this offering. Also includes 67,884
shares of Series A preferred stock and 78,925 shares of Series A-1
preferred stock (which will be automatically converted to 135,768 and
157,850 shares of common stock upon consummation of this offering), and
warrants to purchase 5,546 shares of common stock at a price of $4.00 per
share) held by TD Partners; and 131,332 shares of common stock beneficially
owned by Mr. Thomas O. Dial. Northstar High Yield Fund, High Total Return
Fund, High Total Return Fund II, Strategic Income Fund and Balance Sheet
Opportunities Fund are registered mutual funds of Northstar Financial
Management Services, Inc., a registered financial management firm. Mr. Dial
is an employee of Northstar Financial Management Services, Inc. and
Portfolio Manager of the Northstar High Total Return Fund, High Total
Return Fund II, and Balance Sheet Opportunities Fund, and Managing Partner
of TD Partners. Mr. Dial disclaims beneficial ownership of any of
Northstar's holdings of the Company's stock. As Managing Partner of TD
Partners, Mr. Dial has voting and investment power with respect to that
partnership.
(6) Includes 381,958 shares of Series A preferred stock and 157,847 shares of
Series A-1 preferred stock which will be automatically converted to 763,916
and 315,694 shares of common stock, respectively, upon consummation of this
offering, and 225,688 shares of common stock. Security Insurance Co. of
Hartford is a subsidiary of Orion Capital Corporation, a New York Stock
Exchange-listed insurance holding company.
(7) Includes 439,096 shares of common stock beneficially owned, 80,000 shares
issuable upon exercise of options that are currently fully vested and
exercisable and 679,341 shares issuable upon exercise of warrants to be
granted in accordance with an employment agreement dated January 2, 1998,
and 66,372 shares of common stock held in an escrow account created under a
settlement agreement with a terminated employee, over which Mr. McKenzie
has voting control.
(8) Includes 120 shares of Series B-2 preferred stock which will be
automatically converted to 1,152,540 shares of common stock upon
consummation of this offering. Mentor Corporation is a medical technology
developer, manufacturer, and distributor. Mentor and the Company are
parties in a joint development agreement. Voting control of Mentor's
holdings of the Company's securities rests with a Mentor executive
committee.
(9) Includes 100 shares of Series B-1 preferred stock which will be
automatically converted to 998,810 shares of common stock upon consummation
of this offering. Syncor International Corp. is a pharmacy services company
engaged in compounding and distributing radiopharmaceutical products and
services. Syncor and the Company are parties to a joint development
agreement. Voting control of Syncor's holdings of the Company's securities
rests with a Syncor executive committee.
(10) Includes 273,249 shares issuable upon exercise of options that are
currently fully vested and exercisable and 91,083 shares which will be
distributed from the voting trust upon consummation of this offering.
(11) Includes 15,788 shares of Series A-1 preferred stock which will be
automatically converted to 31,575 shares of common stock upon consummation
of this offering, 60,000 shares of common stock, and 20,000 shares of
common stock issuable upon exercise of options which are fully vested and
exercisable.
(12) Includes 10,000 shares of common stock and 70,416 shares of common stock
issuable upon exercise of options which are fully vested and exercisable.
(13) Includes 40,000 shares of common stock issuable upon exercise of options
which are fully vested and exercisable and 40,000 shares of common stock.
(14) Includes 9,108 shares of common stock issuable upon exercise of options
which are fully vested and exercisable and 18,216 shares which will be
distributed from the voting trust upon consummation of this offering.
(15) Includes 25,000 shares of common stock issuable upon exercise of options
which are fully vested and exercisable.
(16) Includes 20,000 shares of common stock and 3,750 shares of common stock
issuable upon exercise of options which are fully vested and exercisable.
(17) Includes 9,108 shares of common stock issuable upon exercise of options
which are fully vested and exercisable.
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<PAGE> 71
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Company's Certificate of Incorporation, and Bylaws, copies
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
As of August 31, 1998, the authorized capital stock of the Company
currently consists of (i) 25,000,000 shares of common stock, and (ii) 5,000,000
shares of preferred stock. Immediately prior to the date hereof, there were
16,826,914 shares of common stock outstanding (including 5,109,632 shares of
common stock issuable upon the automatic conversion of the 1,475,766 shares of
preferred stock issued and outstanding, or accrued, on the date hereof; 502,066
shares of common stock issuable in connection with "in-the-money" warrants
issued and outstanding on the date hereof, which warrants automatically expire
upon the closing of this offering; and 54,648 shares of common stock issuable in
connection with three convertible Promissory Notes issued and outstanding on the
date hereof, which Notes automatically convert into common stock upon the
consummation of this offering) held by approximately 148 holders of record.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held of
record on all matters on which stockholders are entitled to vote. Holders of
common stock do not have cumulative voting rights and, therefore, holders of a
majority of the shares of common stock voting for the election of directors can
elect all of the directors. In such event, the holders of the remaining shares
of common stock will not be able to elect any directors.
Holders of common stock are entitled to receive such dividends as may be
declared from time to time by the Board of Directors out of funds legally
available therefor. The Company has not paid any cash dividends since inception
and does not anticipate paying cash dividends in the foreseeable future. In the
event of liquidation, dissolution or winding up of the Company, the holders of
common stock are entitled to share ratably in any corporate assets remaining
after payment of all debts, subject to any preferential rights of any
outstanding preferred stock. See "Dividend Policy."
Holders of common stock have no preemptive, conversion or redemption rights
and are not subject to further calls or assessments by the Company. All of the
outstanding shares of common stock are, and the shares offered by the Company
hereby will be, if issued, validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors have authority to issue up to 5,000,000 shares of
preferred stock and to fix the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. Upon consummation of this
offering, all 1,475,766 shares of convertible preferred stock issued and
outstanding, or accrued, will automatically convert into 5,109,632 shares of the
Company's common stock.
WARRANTS
In connection with several transactions, the Company issued warrants
("Warrants") to buy a total of 3,526,989 shares of common stock, of which
Warrants to purchase 3,331,169 shares of common stock are still outstanding. The
Warrants may be exercised in whole or in part at any time after the date of
issue until the expiration date by delivering the warrant agreement with the
duly executed form of subscription to the Company. Warrants generally expire
five years from the date of issue and are subject to antidilution protection.
Outstanding Warrants to purchase 502,066 shares of common stock are subject
to accelerated expiration upon the earlier of: (i) this offering; or (ii) the
date immediately prior to the effective date of any
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<PAGE> 72
consolidation of the Company with or merger of the Company into any other
corporation or entity or the sale or transfer of all or substantially all of the
assets of the Company to another person or entity.
On July 22, 1994, the Company issued Warrants to purchase 51,999 shares of
common stock to several Series A stockholders in connection with the Preferred
Stock Purchase Agreement between the Company and the Series A preferred
stockholders. After giving effect to a two-for-one split of the common stock
effected as of December 31, 1997 (the "Stock Split"), the remaining outstanding
Warrants are currently exercisable for a total of 67,252 shares of the common
stock at an exercise price of $4.00 per share, and which will expire upon
conclusion of this offering unless exercised.
In connection with an additional Preferred Stock Purchase Agreement entered
into by the Company and several Series A-1 preferred stockholders on September
27, 1995, the Company issued Warrants to purchase 86,462 shares of common stock.
After giving effect to the Stock Split, such Warrants are currently exercisable
into 172,924 shares of common stock at an exercise price of $4.00 per share, and
which will expire upon conclusion of this offering unless exercised. On November
21, 1995, the Company issued Warrants to purchase 91,177 shares of common stock
in connection with a second closing under the Preferred Stock Purchase Agreement
dated September 27, 1995. After giving effect to the Stock Split, such Warrants
are currently exercisable into 182,354 shares of common stock at an exercise
price of $4.50 per share, and which will expire upon conclusion of this offering
unless exercised.
On December 28, 1995, the Company issued Warrants to purchase 94,010 shares
of common stock in connection with a Warrant and Note Agreement with Northstar
Advantage High Total Return Fund. After giving effect to the Stock Split, such
Warrants are currently exercisable into 188,020 shares of common stock at an
exercise price of $7.00 per share.
On June 11, 1996, the Company issued Warrants to purchase 159,073 shares of
common stock in connection with a Note and Warrant Purchase Agreement with
CoreStates Enterprise Fund. After giving effect to the Stock Split, such
Warrants are currently exercisable into 318,146 shares of common stock at an
exercise price of $7.00 per share.
On June 21, 1996, the Company issued Warrants to purchase 79,537 shares of
common stock in connection with a Note and Warrant Purchase Agreement with
Northstar Advantage High Total Return Fund. These warrants were exercised on
November 18, 1997 at a price of $7.00 per share.
On January 2, 1998, the Company issued Warrants to purchase 679,341 shares
of common stock in connection with an employment agreement between Simon R.
McKenzie, the Company's Chief Executive Officer, and the Company. The Warrants
currently carry an exercise price of $4.50 per share, and expire five years from
the date of issue.
On April 1, 1998, the Company issued Warrants to purchase 98,132 shares of
common stock in connection with a Note and Warrant Purchase Agreement at a
current exercise price of $7.64 per share.
On August 25, 1998, the Company issued Warrants to purchase up to 1,625,000
shares of common stock in connection with the August 1998 Refinancing as
discussed elsewhere in this Prospectus. See "Business -- 1998 Debt
Refinancings."
CONVERTIBLE NOTES
In January 1997, the Company's subsidiary, PerImmune Holdings, issued three
promissory notes that will each be automatically converted into 18,216 shares of
the Company's common stock at the conclusion of this offering. Upon conversion,
the rights of each investor under the promissory notes cease and each investor
will be entitled to rights as holders of common stock.
REGISTRATION RIGHTS
Upon consummation of the offering, certain stockholders who will hold an
aggregate of 11,386,172 shares of common stock (the "Holders"), including
5,774,474 outstanding shares of common stock, 5,109,632 shares of common stock
issuable upon the Preferred Stock Conversion at the consummation of this
offering, and
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<PAGE> 73
502,066 shares of common stock issuable upon exercise of Warrants that will
otherwise expire upon conclusion of this offering, are entitled to certain
registration rights with respect to the common stock under the Securities Act.
Pursuant to the terms of these registration rights, the Company is required to
notify each Holder of each decision of the Company to file a registration
statement. Upon receipt of such notice, a Holder may request to include certain
of the Holder's shares of common stock in the Company's registration, subject to
the determination of the managing underwriters that inclusion will not interfere
with the offering. These rights have been waived by the Holders, other than the
Selling Stockholder, to the extent that such Holders had rights to register
common stock in this offering.
In addition, certain Holders can require the Company to use its best
efforts to prepare and file a registration statement on Form S-3 (or any
successor form) with respect to such Holders' shares of common stock. The right
of the Holders to request the Company to file a registration statement on Form
S-3 is available to the Holders no more than twice during any twelve-month
period.
The Company generally is required to bear the expenses relating to the sale
of shares under registrations contemplated by the registration rights, except
for underwriting fees and discounts. The Company also is obligated to indemnify
the stockholders whose shares are included in any of the Company's registrations
against certain losses and limitations, including certain liabilities under the
Securities Act and state securities laws generally.
Following this offering, the rights of any Holder to cause the Company to
register shares terminates when all of such Holder's securities subject to the
registration rights can be transferred or sold under the provisions of Rule 144.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION, BYLAWS AND
DELAWARE LAW
Classified Board of Directors. The Certificate of Incorporation of the
Company provides for the Board of Directors to be divided into three classes of
directors, as nearly equal in number as is reasonably possible, serving
staggered terms so that the directors' initial terms will expire either at the
1999, 2000 or 2001 annual meeting of the stockholders. Starting with the 1999
annual meeting of the stockholders, one class of directors will be elected each
year for a three-year term.
The Company believes that a classified Board of Directors will help to
assure the continuity and stability of the Board of Directors and the Company's
business strategies and policies as determined by the Board of Directors, since
a majority of the directors at any given time will have had prior experience as
directors of the Company. The Company believes that this, in turn, will permit
the Board of Directors to more effectively represent the interest of
stockholders. With a classified Board of Directors, at least two annual meetings
of stockholders, instead of one, will generally be required to effect a change
in the majority of the Board of Directors. As a result, a provision relating to
a classified Board of Directors may discourage proxy contests for the election
of directors or purchases of a substantial block of the common stock because its
provisions could operate to prevent obtaining control of the Board of Directors
in a relatively short period of time. The classification provision could also
have the effect of discouraging a third party from making a tender offer or
otherwise attempting to obtain control of the Company. Under the Delaware
General Corporation Law (the "DGCL"), a director on a classified board may be
removed by the stockholders of the corporation only for cause.
Advance Notice Provisions for Stockholder Nominations of Directors and
Stockholder Proposals. The Bylaws of the Company establish an advance notice
procedure with regard to the nomination, other than by or at the direction of
the Board of Directors or a committee thereof, of candidates for election as
directors (the "Nomination Procedure") and with regard to other matters to be
brought by stockholders before an annual meeting of stockholders of the Company
(the "Business Procedure").
The Nomination Procedure requires that a stockholder give prior written
notice, in proper form, of a planned nomination for the Board of Directors to
the Secretary of the Company. The requirements as to the form and timing of that
notice are specified in the Bylaws of the Company. If the Chairman of the Board
of
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<PAGE> 74
Directors determines that the other business was not properly brought before
such meeting in accordance with the Business Procedure, such business will not
be conducted at such meeting.
Although the Bylaws of the Company do not give the Board of Directors any
power to approve or disapprove stockholder nominations for the election of
directors or of any business desired by stockholders to be conducted at an
annual meeting, the Bylaws of the Company (i) may have the effect of precluding
a nomination for the election of directors or precluding the conduct of business
at a particular annual meeting if the proper procedures are not followed or (ii)
may discourage or deter a third party from conducting a solicitation of proxies
to elect its own slate of directors or otherwise attempting to obtain control of
the Company, even if the conduct of such solicitation or such attempt might be
beneficial to the Company and its stockholders.
Business Combinations. The Company is subject to the provisions of Section
203 of the DGCL, an anti-takeover law. In general, the statute prohibits a
publicly held Delaware corporation from engaging in certain transactions and
"business combinations" with an "Interested Stockholder" (as defined in Section
203) for a period of three years after the date of the transaction in which the
person became an interested stockholder, unless either (i) prior to the date
such person becomes an interested stockholder, the Board approves either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder, (ii) upon the consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time of the consummation of such
transaction, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to the date such person becomes an interested stockholder, the business
combination is approved by the Board and authorized at an annual or special
meeting of stockholders, not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger, asset sale,
or other transaction resulting in a financial benefit to the stockholder. For
purposes of section 203, an "interested stockholder" is a person who, together
with affiliates and associates, owns (or within three years prior, did own) 15%
or more of the corporation's voting stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate of Incorporation contains certain provisions
permitted under DGCL relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty. This provision in the Certificate of Incorporation
does not eliminate the duty of care, and in appropriate circumstances equitable
remedies such as an injunction or other forms of non-monetary relief would
remain available under the DGCL. Each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company, for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, or for any transaction from which the director
derived an improper personal benefit. These provisions will not alter a
director's liability under federal securities laws. The Bylaws of the Company
provide for full indemnification of officers and directors to the full extent
permitted under the DGCL, as it now exists or may in the future by amendment
(but, in the case of such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than permitted
prior thereto), or by other applicable law as then in effect, against all
expenses, liabilities and losses actually and reasonably incurred or suffered in
connection with service for or on behalf of the Company, including payment of
expenses in defending an action or proceeding upon receipt of any undertaking by
the person indemnified to repay such payment if it is ultimately determined that
such person is not entitled to indemnification. Such indemnification will
continue to an indemnified person who has ceased to be a director, officer,
employee or agent and will inure to the benefit of the indemnified person's
heirs, executors and administrators.
The Company's Bylaws provide that the Company may maintain insurance, at
its expense, to protect itself and any indemnified party against any expense,
liability or loss, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under the DGCL. The Company,
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<PAGE> 75
without further stockholder approval, may enter into contracts with any
indemnified person in furtherance of the indemnification provisions contained in
the Bylaws and may create a trust fund, grant a security interest or use other
means (including without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in the
Bylaws.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock of the Company is
American Stock Transfer & Trust Company.
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<PAGE> 76
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the common
stock of the Company. Future sales of substantial amounts of shares of common
stock in the public market following this offering could adversely affect the
market price of the common stock. Such sales also might make it more difficult
for the Company to sell equity securities or equity-related securities in the
future at a time and price that the Company deems appropriate or at all.
Upon consummation of this offering, the Company will have shares
of common stock outstanding, assuming no exercise of the Underwriters'
over-allotment option granted by the Company and no exercise of outstanding
options. Of these shares, all of the shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by affiliates of the Company.
The remaining 16,826,914 shares of common stock will be restricted securities
("Restricted Shares") within the meaning of the Securities Act. Restricted
Shares may be sold in the public market only if registered or if they qualify
for an exemption from registration under Rules 144, 144(k) or 701 promulgated
under the Securities Act, which rules are summarized below. Holders of
substantially all of those shares will have the right to request the
registration of their shares under the Securities Act following completion of a
period of one year, in the case of directors and executive officers, and 180
days, in the case of such other stockholders, after the date of this Prospectus,
which, upon the effectiveness of such registration, would permit the free
transferability of such shares.
In general, under Rule 144, beginning 90 days after the date of this
Prospectus, an affiliate of the Company, or person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least one year,
will be entitled to sell in any three-month period a number of shares that does
not exceed the greater of (i) one percent of the then outstanding shares of the
Company's common stock or (ii) the average weekly trading volume of the
Company's common stock on the Nasdaq Stock Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or person whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned
Restricted Shares for at least two years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
The Company's directors, executive officers and certain stockholders, who
in the aggregate hold 7,017,559 shares of common stock of the Company
outstanding immediately prior to the consummation of this offering have entered
into or are subject to lock-up agreements under which they have agreed not to
sell, directly or indirectly, any shares owned by them for a period of one year,
in the case of directors and executive officers, and 180 days, in the case of
such other stockholders, after the date of this Prospectus without the prior
written consent of the Underwriters. See "Underwriting." Upon expiration of the
lock-up agreements, approximately shares of common stock (including
approximately shares subject to outstanding vested options) will
become eligible for immediate public resale, subject in some cases to vesting
provisions and volume limitations pursuant to Rule 144. The remaining
approximately shares held by existing stockholders will become
eligible for public resale at various times over a period of less than two years
following the consummation of this offering, subject in some cases to vesting
provisions and volume limitations. of the shares outstanding
immediately following the consummation of this offering will be entitled to
registration rights with respect to such shares upon termination of lock-up
agreements. The number of shares sold in the public market could increase if
registration rights are exercised. Dr. Hanna has agreed with the Company not to
sell, other than pursuant to the over-allot option granted to the Underwriters
in this offering, more than 10% of the shares of common stock held by him during
each of the twelve-month periods commencing on the date of this Prospectus and
the first and second anniversary thereof. In addition, the Company intends to
file a registration statement on Form S-8 for the shares held pursuant to its
stock option plans, which may make these shares freely tradeable. Such
registration statement will become effective immediately upon filing and shares
covered by that registration statement will thereupon be eligible for sale in
the public markets, subject to the applicable lock-up agreements and Rule 144
limitations applicable to affiliates. See "Description of Capital
Stock -- Registration Rights."
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UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below
(collectively, the "Underwriters"), for whom Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") and NationsBanc Montgomery Securities LLC are
acting as representatives (the "Representatives"), have severally agreed to
purchase the number of shares of common stock from the Company set forth
opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.........
NationsBanc Montgomery Securities LLC.......................
------
Total.............................................
======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of common stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of common stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of common stock (other than the shares
of common stock covered by the over-allotment option described below) must be so
purchased.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of common stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other Underwriter
and certain other dealers.
The Company and the Selling Stockholder have granted to the Underwriters an
option to purchase up to additional shares of common stock at the initial
public offering price less underwriting discounts and commissions solely to
cover over-allotments. Such option may be exercised in whole or in part from
time to time during the 30-day period after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Company, certain stockholders of the Company and the executive officers
and directors of the Company have agreed not to directly or indirectly offer,
pledge, sell, contract to sell, sell any option or contract to purchase or grant
any option, right or warrant to purchase or otherwise transfer or dispose of any
shares of common stock or any securities convertible into or exercisable or
exchangeable for common stock, or enter into any swap or other arrangement that
transfers all or a portion of the economic consequences associated with the
ownership of such common stock, or to cause a registration statement covering
any shares of common stock to be filed, for a period of one year, in the case of
directors and executive officers, and for a period of 180 days, in the case of
such other stockholders, after the closing of this offering without the prior
written consent of the Underwriters, subject to certain limited exceptions, and
provided that the Company may issue shares of common stock upon vesting of
rights under the Company Stock Option Plan and the PerImmune Stock Option Plan.
See "Shares Eligible for Future Sale."
Prior to this offering, there has been no established trading market for
the common stock. The initial price to the public for the common stock offered
hereby has been determined by negotiation among the Company and the
Representatives. The factors considered in determining the initial price to the
public include the history of and the prospects for the industry in which the
Company competes, the ability of the Company's management, the past and present
operations of the Company, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of this offering and the
recent market prices of securities of generally comparable companies. The
Company has been approved for listing of the common stock on the Nasdaq National
Market.
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<PAGE> 78
The Underwriters do not intend to make sales to accounts over which they
exercise discretionary authority in excess of 5% of the number of shares of
common stock offered hereby.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
common stock. Specifically, the Underwriters may over-allot this offering,
creating a syndicate short position. Underwriters may bid for and purchase
shares of common stock in the open market to cover syndicate short positions. In
addition, the Underwriters may bid for and purchase shares of common stock in
the open market to stabilize the price of the common stock. These activities may
stabilize or maintain the market price of the common stock above independent
market levels. The Underwriters are not required to engage in these activities
and may end these activities at any time.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the shares offered hereby is being passed upon for the
Company by Morrison & Foerster LLP, New York, New York. Certain legal matters
will be passed upon for the Underwriters by Brown & Wood LLP, New York, New
York.
EXPERTS
The consolidated financial statements of the Company at December 31, 1997,
and for the year then ended, included in this Prospectus have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
The consolidated financial statements of the Company at December 31, 1996
and for the year ended December 31, 1996, the six months ended December 31,
1995, and for the year ended June 30, 1995, appearing in this Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements of PerImmune Holdings, Inc. and
Subsidiary at December 31, 1997 and for the year then ended, included in this
Prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of PerImmune Holdings, Inc. and
Subsidiary as of December 31, 1996 and the related consolidated statements of
operations, stockholders' deficit and cash flows for the period from August 3,
1996 through December 31, 1996 and the statements of operations, stockholders'
equity and cash flows of the Predecessor company for the period from January 1,
1996 through August 2, 1996 and for the year ended December 31, 1995 appearing
in this Prospectus have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
In February 1998, the Company's Board of Directors dismissed Ernst & Young
LLP and appointed PricewaterhouseCoopers LLP as the Company's independent
accountants to report on the Company's consolidated balance sheet as of December
31, 1997, and the related consolidated statements of operations, stockholders'
deficit, and cash flows for the year then ended. The report of Ernst & Young LLP
for the year ended December 31, 1996 and June 30, 1995 and for the six months
ended December 31, 1995 did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles.
In February 1998, in conjunction with the acquisition of PerImmune
Holdings, the Company's Board of Directors dismissed KPMG Peat Marwick LLP and
appointed PricewaterhouseCoopers LLP as PerImmune Holdings independent
accountants to report on its consolidated balance sheet as of December 31, 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year
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<PAGE> 79
then ended. The report of KPMG Peat Marwick at December 31, 1996 and the period
from August 3, 1996 through December 31, 1996 did not contain any adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles.
In connection with the audits for the periods presented within this
Prospectus and Registration Statement, there were no disagreements with Ernst &
Young LLP or KPMG Peat Marwick LLP on any matter of accounting principles or
practices, financial disclosure or auditor scope of procedure, which
disagreements if not resolved to the satisfaction of Ernst & Young LLP or KPMG
Peat Marwick LLP would have caused them to make reference thereto in their
report on the financial statements for such years. Prior to retaining
PricewaterhouseCoopers LLP, the Company had not consulted with
PricewaterhouseCoopers LLP regarding the application of accounting principles or
the type of audit opinion that might be rendered on the Company's financial
statements.
During the course of Ernst & Young LLP's audit of the consolidated
financial statements of the Company for the year ended December 31, 1996, Ernst
& Young LLP notified the Company that it had identified two material weaknesses
considered reportable conditions as defined under standards of the American
Institute of Certified Public Accountants. The first of these was failure to
maintain accurate information to monitor financial position, results of
operations and liquidity. The second of these related to the method of
accounting, monitoring and valuation of the Company's "Research Use Only"
inventory. Ernst & Young LLP attributed the cause for these two material
weaknesses to inadequate accounting resources, lack of technical accounting
expertise at the Company and the lack of adequate systems to maintain and
account for "Research Use Only" inventory. In order to remedy these weaknesses,
the Company hired several accounting personnel with technical experience and
expertise in financial management and reporting and has performed an extensive
analysis of the "Research Use Only" inventory as of December 31, 1997 to assure
a consistent and accurate valuation. In connection with the audit of the
consolidated financial statements of the Company for the year ended December 31,
1997, the Company's current auditors did not identify any material weaknesses
considered reportable conditions.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the common stock offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement, certain
items of which are contained in the schedules and exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
As a result of this offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and its regional offices located at Seven World
Trade Center, 13th Floor, New York, New York 10048 and Northwestern Atrium
Center, 500 West Madison Avenue, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material may be obtained by mail from the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission also maintains a
World Wide Web site on the Internet at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. Upon approval of the common stock
for quotation on the Nasdaq National Market, such reports, proxy and information
statements and other information can be inspected at the office of Nasdaq
Operations, 1735 K Street, N.W., Washington, D.C. 20006.
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<PAGE> 80
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
INTRACEL CORPORATION
Report of PricewaterhouseCoopers LLP, independent
accountants............................................ F-2
Report of Ernst & Young LLP, independent auditors......... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1997 and June 30, 1998 (unaudited)..................... F-4
Consolidated Statements of Operations for the year ended
June 30, 1995, the six months ended December 31, 1995,
the years ended December 31, 1996 and 1997 and the six
months ended June 30, 1997(unaudited) and 1998
(unaudited)............................................ F-5
Consolidated Statements of Stockholders' Deficit for the
year ended June 30, 1995, the six months ended December
31, 1995, the years ended December 31, 1996 and 1997
and the six months ended 1998 (unaudited).............. F-6
Consolidated Statements of Cash Flows for the year ended
June 30, 1995, the six months ended December 31, 1995,
the years ended December 31, 1996 and 1997 and the six
months ended June 30, 1997 (unaudited) and 1998
(unaudited)............................................ F-7
Notes to Consolidated Financial Statements................ F-8
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
Report of PricewaterhouseCoopers LLP, independent
accountants............................................ F-29
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-30
Consolidated Statements of Operations for the year ended
December 31, 1997 and the period from August 3, 1996
through December 31, 1996.............................. F-31
Consolidated Statements of Stockholders' Equity (Deficit)
for the year ended December 31, 1997 and the period
from August 3, 1996 through December 31, 1996.......... F-32
Consolidated Statements of Cash Flows for the year ended
December 31, 1997 and the period from August 3, 1996
through December 31, 1996.............................. F-33
Notes to Consolidated Financial Statements................ F-34
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY; AND PREDECESSOR
COMPANY
Report of KPMG Peat Marwick LLP, independent certified
public accountants..................................... F-47
Consolidated Balance Sheet as of December 31, 1996........ F-48
Statements of Operations for the period from August 3,
1996 through December 31, 1996, the period from January
1, 1996 through August 2, 1996 and the year ended
December 31, 1995...................................... F-49
Statements of Stockholders' Equity (Deficit) for the
period from August 3, 1996 through December 31, 1996,
the period from January 1, 1996 through August 2, 1996
and the year ended December 31, 1995................... F-50
Statements of Cash Flows for the period from August 3,
1996 through December 31, 1996, the period from January
1, 1996 through August 2, 1996 and the year ended
December 31, 1995...................................... F-51
Notes to Financial Statements............................. F-52
</TABLE>
F-1
<PAGE> 81
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Intracel Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' deficit and of cash flows
present fairly, in all material respects, the consolidated financial position of
Intracel Corporation (the "Company") at December 31, 1997, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles. 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 audit. We conducted our audit of the 1997 financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Seattle, Washington
April 24, 1998, except for the
second paragraph of Note 12
as to which the date is May 14, 1998
and Note 14 as to which the date is
August 25, 1998.
F-2
<PAGE> 82
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Intracel Corporation and Subsidiary
We have audited the accompanying consolidated balance sheet of Intracel
Corporation and subsidiary as of December 31, 1996, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the year
ended June 30, 1995, the six months ended December 31, 1995, and the year ended
December 31, 1996. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Intracel
Corporation and subsidiary at December 31, 1996, and the consolidated results of
their operations and their cash flows for the year ended June 30, 1995, the six
months ended December 31, 1995, and the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Seattle, Washington
December 3, 1997, except for
paragraph 3 of Note 6 and
paragraph 9 of Note 10, as to
which the date is January 2,
1998.
F-3
<PAGE> 83
INTRACEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- JUNE 30,
1996 1997 1998
ASSETS ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 3,145,231 $ 1,974,629 $ 725,428
Restricted cash............................................. 2,000,000
Accounts receivable, net.................................... 2,383,828 2,003,249 2,947,948
Inventories, net............................................ 3,945,187 1,821,013 2,337,926
Other assets................................................ 404,679 398,494 784,293
------------ ------------ ------------
Total current assets............................... 9,878,925 8,197,385 6,795,595
Property and equipment, net................................. 3,247,333 3,178,959 4,879,812
Restricted cash............................................. 433,000
Cost in excess of net assets acquired, net.................. 12,563,052 11,654,880 13,322,252
Deferred acquisition costs.................................. 2,862,513
Other assets................................................ 1,665,417 2,147,858 17,340,930
------------ ------------ ------------
Total assets....................................... $ 27,354,727 $ 28,041,595 $ 42,771,589
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current portion of long-term debt........................... $ 3,505,122 $ 2,144,729 $ 410,470
Accounts payable............................................ 2,206,033 2,096,995 7,092,883
Accrued liabilities......................................... 1,941,669 4,356,999 5,001,553
------------ ------------ ------------
Total current liabilities.......................... 7,652,824 8,598,723 12,504,906
Line of credit.............................................. 500,000 500,000
Long-term debt, less current portion........................ 18,551,945 17,027,320 33,417,767
Pension liability........................................... 380,652
------------ ------------ ------------
Total liabilities.................................. 26,704,769 26,126,043 46,303,325
------------ ------------ ------------
Commitments and contingencies
Redeemable and convertible preferred stock, $0.0001 par
value;
5,000,000 shares authorized:
Series A preferred stock, 730,000 shares authorized,
557,656, 603,622, and 627,977 shares issued and
outstanding at December 31, 1996 and 1997, and June 30,
1998, respectively...................................... 4,461,248 4,828,976 5,023,800
Series A-1 preferred stock, 850,000 shares authorized,
738,235, 651,168 and 677,443 shares issued and
outstanding at December 31, 1996 and 1997, and June 30,
1998, respectively...................................... 5,905,880 5,209,340 5,419,516
Series A-3 preferred stock, 200,000 shares authorized,
147,923 and 153,890 shares issued and outstanding at
December 31, 1997, and June 30, 1998, respectively...... 1,183,384 1,231,128
Series B-1 preferred stock, 100 shares authorized, 100
shares issued and outstanding at June 30, 1998.......... 4,098,744
Series B-2 preferred stock, 120 shares authorized, 120
shares issued and outstanding at June 30, 1998.......... 4,918,493
------------ ------------ ------------
10,367,128 11,221,700 20,691,681
------------ ------------ ------------
Stockholders' deficit:
Series A-2 preferred stock; $0.0001 par value; 155,000
shares authorized; 44,063 and 47,030 shares issued and
outstanding, $4,406,300 and $4,703,000 aggregate
preference in liquidation at December 31, 1997 and June
30, 1998, respectively.................................. 4 5
Common stock, $0.0001 par value; 25,000,000 shares
authorized; 3,967,786, 5,368,578 and 11,025,768 shares
issued and outstanding at December 31, 1996 and 1997 and
June 30, 1998, respectively............................. 397 537 1,103
Additional paid-in capital................................ 2,403,906 11,401,583 46,203,996
Accumulated deficit....................................... (12,021,473) (20,708,272) (70,428,521)
Note receivable due from stockholder...................... (100,000)
------------ ------------ ------------
Total stockholders' deficit........................ (9,717,170) (9,306,148) (24,223,417)
------------ ------------ ------------
Total liabilities and stockholders' deficit........ $ 27,354,727 $ 28,041,595 $ 42,771,589
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 84
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30,
YEAR ENDED DECEMBER 31, ------------------------- -------------------------
JUNE 30, 1995 1995 1996 1997 1997 1998
------------- ---------------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
REVENUE
Product........................... $1,565,795 $ 2,426,158 $14,718,421 $13,452,204 $7,073,386 $ 7,744,158
Contract.......................... 2,072,308
---------- ----------- ----------- ----------- ---------- -----------
Total revenue.............. 1,565,795 2,426,158 14,718,421 13,452,204 7,073,386 9,816,466
COST OF REVENUE
Product........................... 823,988 1,779,172 7,432,679 9,493,058 4,478,281 5,222,686
Contract.......................... 1,629,104
---------- ----------- ----------- ----------- ---------- -----------
Total cost of revenue...... 823,988 1,779,172 7,432,679 9,493,058 4,478,281 6,851,790
Selling, general and
administrative.................... 1,580,336 2,592,940 5,739,937 8,478,175 3,602,131 8,024,964
Research and development............ 1,173,754 1,118,020 1,042,668 555,840 339,674 5,465,197
Acquired research and development... 2,100,000 37,718,000
Amortization of cost in excess of
net assets acquired............... 151,362 908,172 908,172 454,086 496,536
Reorganization expense.............. 917,442
---------- ----------- ----------- ----------- ---------- -----------
Total operating expense......... 3,578,078 7,741,494 16,040,898 19,435,245 8,874,172 58,556,487
---------- ----------- ----------- ----------- ---------- -----------
Loss from operations............ 2,012,283 5,315,336 1,322,477 5,983,041 1,800,786 48,740,021
Interest expense (income), net...... (68,329) 134,400 2,179,496 2,496,418 1,210,000 1,780,228
Gain on pension curtailment......... (800,000)
---------- ----------- ----------- ----------- ---------- -----------
Loss before extraordinary
item.......................... 1,943,954 5,449,736 3,501,973 8,479,459 3,010,786 49,720,249
Extraordinary gain on early
extinguishment of debt............ (1,367,000)
---------- ----------- ----------- ----------- ---------- -----------
Net loss................... $1,943,954 $ 4,082,736 $ 3,501,973 $ 8,479,459 $3,010,786 $49,720,249
========== =========== =========== =========== ========== ===========
Basic and diluted net loss per
share............................. $ 0.54 $ 1.12 $ 1.10 $ 2.39 $ 0.91 $ 4.70
========== =========== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 85
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A-2
PREFERRED
STOCK COMMON STOCK NOTE
------------- ------------------- ADDITIONAL RECEIVABLE
PAR PAR PAID-IN ACCUMULATED DUE FROM
SHARES VALUE SHARES VALUE CAPITAL DEFICIT STOCKHOLDERS TOTAL
------ ----- ---------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994.......... 3,961,676 $ 396 $ 2,197,898 $ (1,225,674) $(100,000) $ 872,620
Sale of common stock, net........ 2,000 8,000 8,000
Preferred stock dividends........ (211,448) (211,448)
Net loss......................... (1,943,954) (1,943,954)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT JUNE 30, 1995......... 3,963,676 396 2,205,898 (3,381,076) (100,000) (1,274,782)
Preferred stock dividends........ (266,136) (266,136)
Net loss......................... (4,082,736) (4,082,736)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1995..... 3,963,676 396 2,205,898 (7,729,948) (100,000) (5,623,654)
Repurchase of common stock....... (175,114) (17) (326,795) (326,812)
Sale of common stock, net........ 176,000 18 339,712 339,730
Exercise of common stock
options........................ 3,224 8,061 8,061
Other............................ 177,030 177,030
Preferred stock dividends........ (789,552) (789,552)
Net loss......................... (3,501,973) (3,501,973)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1996..... 3,967,786 397 2,403,906 (12,021,473) (100,000) (9,717,170)
Sale of Series A-2 preferred
stock.......................... 40,000 $4 3,999,996 4,000,000
Preferred stock dividends........ 4,063 (647,288) (207,340) (854,628)
Repurchase of common stock....... (103,096) (10) (208,740) (208,750)
Sale of common stock, net........ 1,467,142 146 5,760,778 5,760,924
Exercise of common stock
warrants....................... 36,746 4 146,980 146,984
Other............................ (54,049) (54,049)
Repayment of stockholder note
receivable..................... 100,000 100,000
Net loss......................... (8,479,459) (8,479,459)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT DECEMBER 31, 1997..... 44,063 4 5,368,578 537 11,401,583 (20,708,272) (9,306,148)
Common stock issued and stock
options granted in conjunction
with the acquisition of
PerImmune Holdings Inc.
(unaudited).................... 5,478,654 548 35,421,466 35,422,014
Common stock issued in exchange
for 1997 placement costs
(unaudited).................... 70,024 7 315,102 315,109
Preferred stock dividends
(unaudited).................... 2,967 1 (452,745) (452,744)
Cash dividends accrued for Series
B-1 and B-2 preferred stock
(unaudited).................... (567,192) (567,192)
Stock options exercised
(unaudited).................... 108,512 11 120,982 120,993
Other (unaudited)................ (35,200) (35,200)
Net loss (unaudited)............. (49,720,249) (49,720,249)
------ -- ---------- ------ ----------- ------------ --------- ------------
BALANCE AT JUNE 30, 1998
(UNAUDITED).................... 47,030 $5 11,025,768 $1,103 $46,203,996 $(70,428,521) $ $(24,223,417)
====== == ========== ====== =========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 86
INTRACEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
YEAR ENDED SIX MONTHS ENDED ------------------------- --------------------------
JUNE 30, 1995 DECEMBER 31, 1995 1996 1997 1997 1998
------------- ----------------- ----------- ----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Operating activities:
Net loss........................... $(1,943,954) $ (4,082,736) $(3,501,973) $(8,479,459) $(3,010,786) $(49,720,249)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Extraordinary gain on early
extinguishment of debt......... (1,367,000)
Amortization and depreciation.... 124,363 414,933 2,190,808 2,262,103 1,102,369 2,396,597
Gain on pension curtailment...... (800,000)
Acquired research and development
charge......................... 2,100,000 37,718,000
Noncash investment charge........ 339,408
Noncash interest expense......... 1,011,392 1,577,341 922,167 1,216,824
Noncash inventory charge......... 1,147,831
Noncash charge on fixed assets... 600,618 532,921
Other............................ 58,030 (23,658) 56,990
Changes in operating assets and
liabilities:
Accounts receivable, net....... 19,027 29,390 (1,396,363) 380,579 (41,157) (138,614)
Inventories, net............... (21,640) 18,357 (1,826,698) 821,568 341,791 (154,073)
Other assets................... 4,954 (61,950) (323,181) (48,486) 30,129
Accounts payable............... 103,232 886,963 1,764,048 (109,038) (985,827) 4,379,748
Accrued liabilities............ 267,278 666,231 (1,636,458) (387,292) (776,689) (1,672,777)
----------- ------------ ----------- ----------- ----------- ------------
Net cash used in operating
activities......................... (1,451,694) (1,328,908) (3,059,756) (2,508,930) (1,987,355) (6,687,425)
----------- ------------ ----------- ----------- ----------- ------------
Investing activities:
Release of (investment in)
restricted cash.................. (2,000,000) 2,000,000
Investment in other assets......... (82,129) (143,942) (368,968)
Purchase of Bartels, Inc........... (13,000,000)
Purchase of assets from Zynaxis,
Inc.............................. (519,000)
Purchase of property and
equipment........................ (106,560) (288,391) (1,587,193) (1,360,209) (689,808) (429,093)
Capitalized patent costs........... (183,995) (25,000) (105,869)
Investment in GAIFAR............... (283,220)
Investment in and advances to
Bartels Prognostics.............. (348,198) (795,299) (375,000)
Cash acquired in conjunction with
purchase of PerImmune Holdings,
Inc.............................. 2,504,064
----------- ------------ ----------- ----------- ----------- ------------
Net cash provided by (used in)
investing activities............... (188,689) (13,807,391) (2,402,606) (4,180,508) (1,208,750) 3,600,134
----------- ------------ ----------- ----------- ----------- ------------
Financing activities:
Proceeds from sale of preferred
stock............................ 3,750,000 5,350,000 1,732,740 1,773,733
Repurchase of common stock......... (326,812) (208,750)
Proceeds from sale of common stock
and exercise of common stock
options.......................... 8,000 347,791 6,248,201 44,000 120,993
Stock issue costs.................. (245,968) (140,933) (388,709)
Exercise of common stock
warrants......................... 146,984
Repayment of stockholder note
receivable....................... 100,000 100,000
Proceeds from the issuance of
long-term obligations............ 54,226 14,845,744 5,960,000 713,339 8,805,557
Debt issue costs................... (668,351) (78,967) (73,506)
Payments of long-term
obligations...................... (223,413) (3,356,853) (896,345) (2,908,494) (1,100,004) (6,091,045)
Payment of line of credit.......... (500,000)
Other.............................. 119,000 19,751 70,898 (35,200)
----------- ------------ ----------- ----------- ----------- ------------
Net cash provided by financing
activities......................... 3,588,813 16,838,891 4,535,283 5,518,836 747,694 1,838,090
----------- ------------ ----------- ----------- ----------- ------------
Net increase (decrease) in cash and
cash equivalents................... 1,948,430 1,702,592 (927,079) (1,170,602) (2,448,411) (1,249,201)
Cash and cash equivalents at
beginning of period................ 421,288 2,369,718 4,072,310 3,145,231 3,145,231 1,974,629
----------- ------------ ----------- ----------- ----------- ------------
Cash and cash equivalents at end of
period............................. $ 2,369,718 $ 4,072,310 $ 3,145,231 $ 1,974,629 $ 696,820 $ 725,428
=========== ============ =========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 87
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY:
Intracel Corporation (the "Company") develops and manufactures therapeutic
prognostic and diagnostic products for the treatment of cancers and serious
viral diseases. The Company's current and future products are based on several
proprietary platform technologies, including the development of totally human
antibodies, INSTI (a rapid diagnostic format), and ZYMMUNE (a cell counting
technology). These technologies allow the Company to leverage its core
competencies into large, global clinical markets. In 1995, the Company changed
its fiscal year end from June 30 to December 31.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany accounts and transactions. Corporate joint ventures are accounted
for under the equity method.
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits in banks and
money market funds carried at cost, which approximates market.
Trade accounts receivable
Accounts receivable are presented net of allowances for doubtful accounts
of $60,000, $50,000 and $95,000 at December 31, 1997, 1996 and June 30, 1998
(unaudited), respectively. The Company recorded provisions for doubtful accounts
of approximately $99,000, $11,000 and $52,000 for the periods ended December 31,
1997, 1996 and June 30, 1998 (unaudited), respectively.
Inventories
Inventories consist of raw materials used in the production process and
diagnostic products, research reagents and antibodies held for sale. Inventories
are valued at the lower of first-in, first-out cost or market.
Property and equipment and depreciation
Property and equipment are stated at cost less accumulated depreciation.
Maintenance and repairs are charged to expense as incurred. Significant
betterments are capitalized. Upon retirement or sale the cost of assets disposed
of and the related accumulated depreciation and amortization are removed from
the accounts and any resulting gain or loss is reflected in the consolidated
statements of operations. Depreciation of property and equipment is provided
using primarily the straight-line method over the estimated useful lives of
three to seven years. Leasehold improvements are amortized on a straight-line
method over the shorter of the useful life or the lease term.
Construction in progress includes the costs of constructed machinery.
Construction in progress costs are transferred to other property and equipment
categories when the construction/installation is completed and the asset is
ready for its intended use.
Cost in excess of net assets acquired
Cost in excess of net assets acquired represents the excess of the cost of
purchased subsidiaries over the estimated fair value of the net assets acquired
as of the date of acquisition and is being amortized by the straight-line
method. The weighted average amortization period for cost in excess of net
assets acquired is 14 years.
F-8
<PAGE> 88
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Other assets
Other assets consist primarily of patent and technology costs and an
investment (see Note 11). Patent and technology costs are amortized on a
straight-line basis over the estimated useful lives. The weighted average
amortization period for patent and technology cost is 10 years. The investment
is accounted for using the equity method.
Valuation of long lived assets
The Company periodically evaluates the carrying value of long-lived assets
to be held and used, including, but not limited to, property and equipment, cost
in excess of net assets acquired, and other assets, when events and
circumstances warrant such a review. The carrying value of a long-lived asset is
considered impaired when the anticipated undiscounted cash flow from such asset
is separately identifiable and is less than its carrying value. In that event, a
loss is recognized based on the amount by which the carrying value exceeds the
fair market value of the long-lived asset. Fair market value is determined
primarily using the anticipated cash flows discounted at a rate commensurate
with the risk involved. Losses on long-lived assets to be disposed of are
determined in a similar manner, except that fair market values are reduced for
the cost to dispose.
Income taxes
The Company follows the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes." Under SFAS No. 109, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The Company provides a valuation allowance, if necessary, to reduce deferred tax
assets to their estimated realizable value.
Stock issuance costs
Proceeds from issuances of capital stock are presented net of specific
incremental costs directly attributable to the related offering.
Revenue recognition
Revenue from sales of products is recognized on the date of delivery to
customers or upon shipment, based on the contractual terms of applicable
agreements.
The Company has entered into various research and development and licensing
agreements. Research and development revenue from cost reimbursement agreements
is recorded as the related expenses are incurred, up to contractual limits and
when the Company meets its performance obligations under the respective
agreements. Contract revenue is recognized under other agreements when
milestones are met and the Company's performance obligations have been satisfied
in accordance with the terms of the respective agreements. Cash received that is
related to future performance under such contracts is deferred and recognized as
revenue when earned. After performance obligations have been satisfied, the
related amounts received are not reimbursable in the event the research is
unsuccessful.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institute of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contract is recognized based on the ratio of total
direct and indirect costs incurred during the period to total estimated costs
using the percentage-of-completion method. Estimates to complete are reviewed
periodically and revised as required in the period the revision is determined.
Provisions are made for the full amount of anticipated losses, if any, on
all contracts in the period in which they are first known and estimable.
Contracts with the U.S. government are subject to government
F-9
<PAGE> 89
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
audit upon contract completion and therefore, all contract costs are potentially
subject to adjustment, even after reimbursement. Management believes adequate
provisions for such adjustments, if any, have been made in the consolidated
financial statements. Expense recovery rates have been audited through 1996.
Research and development
The Company makes significant investments in research for the development
of new products. Research and development costs are charged to expense as
incurred.
Reorganization expense
The Company recognized reorganization expense of $917,442 in 1996 in
connection with the Company's relocation from Cambridge, Massachusetts to
Issaquah, Washington.
Net loss per share
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 (SFAS No. 128), "Earnings Per Share." SFAS No. 128
requires the presentation of basic and diluted earnings (loss) per share for all
periods presented.
In accordance with SFAS No. 128, basic net loss per share has been computed
using the weighted-average number of shares of common stock outstanding during
the period, except that pursuant to Securities and Exchange Commission Staff
Accounting Bulletin No. 98, if applicable, common shares issued in each of the
periods presented for nominal consideration have been included in the
calculation as if they were outstanding for all periods presented.
Pro forma basic and diluted net loss per share as presented in the
consolidated statements of operations has been computed as described above and
also gives effect to the conversion of the convertible instruments that will
occur upon completion of the Company's initial public offering (as if converted
from the original date of issuance) (See Note 14).
A reconciliation of shares used in the calculation of basic and diluted and
pro forma basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS ENDED
ENDED YEAR ENDED DECEMBER 31, JUNE 30,
YEAR ENDED DECEMBER 31, ----------------------- -------------------------------
JUNE 30, 1995 1995 1996 1997 1997 1998
------------- ------------ ---------- ---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net loss.......................... $1,943,954 $4,082,736 $3,501,973 $8,479,459 $3,010,786 $49,720,249
Preferred stock dividends......... 211,448 266,136 789,552 1,260,928 537,128 1,316,636
---------- ---------- ---------- ---------- ---------- -----------
Net loss for common stock......... $2,155,402 $4,348,872 $4,291,525 $9,740,387 $3,547,914 $51,036,885
========== ========== ========== ========== ========== ===========
Weighted average shares of common
stock outstanding (shares used
in computing basic and diluted
net loss per share)............. 3,962,676 3,886,242 3,895,325 4,073,398 3,908,052 10,863,109
========== ========== ========== ========== ========== ===========
Basic and diluted net loss per
share before extraordinary
item............................ $ 0.54 $ 1.47 $ 1.10 $ 2.39 $ 0.91 $ 4.70
Extraordinary item................ (0.35)
---------- ---------- ---------- ---------- ---------- -----------
Basic and diluted net loss per
share........................... $ 0.54 $ 1.12 $ 1.10 $ 2.39 $ 0.91 $ 4.70
========== ========== ========== ========== ========== ===========
Shares used in computing basic and
diluted net loss per share...... 4,073,398 10,863,109
Adjustment to reflect the effect
of the assumed conversion of
convertible instruments......... 3,734,122 5,666,346
---------- -----------
Shares used in computing pro forma
basic and diluted net loss per
share........................... 7,807,520 16,529,455
========== ===========
Pro forma basic and diluted net
loss per share.................. $ 1.25 $ 3.09
========== ===========
</TABLE>
F-10
<PAGE> 90
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
Had the Company been in a net income position, diluted earnings per share
would have included the shares used in the computation of basic net loss per
share as well as additional potential common shares related to outstanding
options and warrants which were excluded because they are anti-dilutive.
Supplemental disclosure of cash flow information
Noncash investing and financing activities consisted of:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED DECEMBER 31, SIX MONTHS
JUNE 30, DECEMBER 31, ----------------------- ENDED
1995 1995 1996 1997 JUNE 30, 1998
---------- ----------------- ---------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Preferred stock dividends paid with
stock................................ $211,448 $ 266,136 $ 789,552 $1,260,928 $ 749,444
Acquisition of Zymmune................. 1,500,000
Property and equipment acquired under
capital lease........................ 96,705
Accrued stock issuance costs........... 315,109
Deferred acquisition costs............. 2,862,513
Conversion of note payable into Series
A-2 preferred stock.................. 2,000,000
Conversion of accrued interest into
Series A-2 preferred stock........... 267,260
Conversion of Series A-1 preferred
stock into Series A-3 preferred
stock................................ 1,115,128
Common stock issued in exchange for
1997 stock issuance costs............ 315,109
Cash dividends accrued on Series B-1
and B-2 preferred stock.............. 567,192
Accrued interest added to note
principal............................ 332,110
Acquisition of Perimmune Holdings, Inc.
("Holdings" -- See note 11)
Fair value of assets acquired........ 19,249,000
Acquired research and development.... 37,718,000
Issuance of Intracel Corporation
common stock....................... 24,654,000
Assumption of long term debt......... 11,778,000
Grant of options to purchase Intracel
Corporation common stock........... 10,534,000
Issuance of Series B-1 preferred
stock.............................. 4,098,744
Issuance of Series B-2 preferred
stock.............................. 4,918,493
Assumption of acquisition costs...... 3,488,000
Other.................................. 73,800
</TABLE>
Net cash paid for interest during 1997, 1996, the six months ended December
31, 1995, the year ended June 30, 1995 and the six months ended June 30, 1998
totalled $1,506,390, $1,094,350, $59,071, $22,154 and $205,771 (unaudited),
respectively.
Concentrations of credit risk
The Company's customers are predominantly comprised of government research
organizations and companies in the biomedical research, pharmaceutical and
diagnostic industries throughout the world. No single customer accounted for a
significant amount of the Company's revenues and there were no significant
F-11
<PAGE> 91
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
accounts receivable from a single customer. The Company reviews the credit
histories of potential customers prior to extending credit and maintains
allowances for potential credit losses. The Company maintains cash and cash
equivalents in high credit quality financial institutions. The Company believes
that its risk from concentration of credit is limited.
Use of estimates and assumptions
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair value of financial instruments
For certain financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities, recorded amounts
approximate market value.
The Company believes it is not practicable to estimate a fair market value
different from the preferred stock's carrying value as these securities have
numerous unique features (as described in Note 10) and there is no quoted market
price at December 31, 1997.
The carrying amount of the senior note payable and the line of credit
approximate market value because they have interest rates that vary with market
interest rates. The Company believes it is not practicable to estimate the fair
value for the residual of the long term debt as these securities have numerous
unique features such as detachable warrants and contingent interest rates, as
described in Note 6, and there is no quoted market price at December 31, 1997.
Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 presentation. The reclassifications had no
effect on previously reported net loss, stockholders' deficit or cash flows.
Unaudited interim financial statements
In the opinion of the Company's management, the June 30, 1998 and 1997
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the financial
statements except for those pertaining to the acquisition of Holdings as
discussed further in Note 11. All references hereinafter to June 30, 1998 and
1997 amounts are based on unaudited information.
New accounting pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income." This statement requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. The statement is effective for fiscal years beginning
after December 15, 1997. Reclassification for earlier periods is required for
comparative purposes. The Company does not have any items of comprehensive
income, other than net loss, and accordingly, the statement does not have any
impact on reported financial position or results of operations.
F-12
<PAGE> 92
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information."
This statement supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise." This statement
includes requirements to report selected segment information quarterly and
entity-wide disclosures about products and services, major customers, and the
material countries in which the entity holds assets and reports revenues. The
statement will be effective for fiscal years beginning after December 15, 1997.
Reclassification for earlier periods is required, unless impracticable, for
comparative purposes. The Company is currently evaluating the impact this
statement will have on its financial statements; however, because the statement
requires only additional disclosure, the Company does not expect the statement
to have a material impact on its reported financial position or results of
operations.
3. INVENTORIES:
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.......................... $ 909,198 $1,100,325 $1,468,777
Work in process........................ 265,712 160,886 89,330
Finished goods......................... 2,770,277 559,802 779,819
---------- ---------- ----------
$3,945,187 $1,821,013 $2,337,926
========== ========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Laboratory equipment................ $ 4,173,856 $ 4,183,788 $ 8,327,023
Computer equipment.................. 473,483 550,260 1,272,298
Leasehold improvements.............. 392,786 477,177 506,997
Furniture........................... 337,830 365,532 378,863
Construction in progress............ 1,005,316
----------- ----------- -----------
5,377,955 5,576,757 11,490,497
Accumulated depreciation............ (2,130,622) (2,397,798) (6,610,685)
----------- ----------- -----------
$ 3,247,333 $ 3,178,959 $ 4,879,812
=========== =========== ===========
</TABLE>
Depreciation expense for the periods ended December 31, 1997, 1996, the six
months ended December 31, 1995, the year ended June 30, 1995 and the six months
ended June 30, 1998 was $982,740, $861,546, $414,933, $124,363 and $768,938
(unaudited), respectively.
F-13
<PAGE> 93
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES:
Accrued liabilities consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Acquisition costs...................... $ 375,000 $2,862,513 $ 564,076
Taxes payable.......................... 291,055 828,594 1,160,397
Interest payable....................... 492,752 407,532
Accrued stock issuance costs........... 315,109
Accrued payroll........................ 420,544 304,690 1,059,576
Professional services.................. 500,000
Building maintenance................... 393,000
Accrued dividends...................... 567,192
Other.................................. 362,318 46,093 349,780
---------- ---------- ----------
$1,941,669 $4,356,999 $5,001,553
========== ========== ==========
</TABLE>
6. LONG-TERM DEBT:
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Senior note payable to bank, collateralized by
substantially all of the assets of the Company, interest
at the higher of prime plus 1.5% or the federal funds rate
plus 0.5% (10% and 9.75% at December 31, 1997 and 1996,
respectively). If the interest payments are not made on a
timely basis, the stated interest rate will be increased
by a penalty amount. Quarterly principal payments of
$250,000 plus interest payable through December 31, 1996
at which time the payments increase to $500,000 plus
interest through November 16, 2000. The senior note
payable to bank must be repaid to the extent of any net
proceeds from the issuance and sale of equity securities
by the Company. The note was issued with 182,354
detachable warrants to purchase common stock at $4.50 per
share expiring November 16, 2002. The warrants were
estimated to have an immaterial fair value for financial
reporting purposes. During April 1998, the Company repaid
all of the senior note payable with the proceeds from the
issuance of $8,000,000 of notes payable to an existing
note holder (the "April 1998 Notes"). The April 1998 Notes
were issued with 98,132 detachable warrants at an exercise
price of $7.64 per share expiring April 17, 2003. The
warrants were estimated to have an immaterial fair value
for financial reporting purposes. During August 1998, the
Company repaid all of the April 1998 Notes with proceeds
from the issuance of $41,000,000 of notes payable to an
existing note holder (the "August 1998 Notes"). See note
14 for discussion of the August 1998 notes................ $ 8,250,000 $ 6,000,000
</TABLE>
F-14
<PAGE> 94
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Subordinated note payable, collateralized by substantially
all of the assets of the Company, interest at 8% per year
through November 30, 1997, increasing to 11% thereafter.
Principal is due December 31, 2000. The maturity date may
accelerate under certain circumstances, as disclosed and
defined in the terms of the agreement, including a "change
in control." The note was issued with 188,020 detachable
warrants to purchase common stock at $7.00 per share
expiring December 28, 2000. The warrants were estimated to
have an immaterial fair value for financial reporting
purposes. The note was issued at an original discount of
$1,565,000 which is being amortized over the term of the
note. The unamortized discount equaled $819,000 and
$1,252,000 at December 31, 1997 and 1996, respectively.
The proceeds were used to retire a note payable, resulting
in an extraordinary gain of $1,367,000 during the period
ended December 31, 1995. The Company is required to make
quarterly interest payments and has the option under
certain conditions to add required interest payments to
principal in lieu of paying in cash. Interest payments of
$507,106 and $395,061 were made "in kind" by issuing
additional promissory notes during 1997 and 1996,
respectively. During August 1998, the Company repaid all
of the subordinated note payable with proceeds from the
issuance of the August 1998 notes. See note 14 for
discussion of the August 1998 notes....................... 5,402,060 6,342,166
Subordinated note payable, collateralized by substantially
all of the assets of the Company, interest at 12% per year
through June 21, 1998, increasing to 13% thereafter.
Principal is due June 30, 2001. The note was issued with
159,074 detachable warrants to purchase common stock at
$7.00 per share expiring on April 1, 2003. The warrants
were estimated to have an immaterial fair value for
financial reporting purposes. In November 1997, the note
and warrant holder purchased 159,074 shares of the
Company's common stock for $4.50 per share, and
simultaneously relinquished to the Company the warrants to
purchase 159,074 shares of common stock at $7.00 per
share. The note was converted to Series A-2 preferred
stock during 1997 (see Note 10)........................... 2,000,000
</TABLE>
F-15
<PAGE> 95
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Subordinated note payable to bank, collateralized by
substantially all of the assets of the Company, interest
at 12% through June 11, 1998, increasing to 13%
thereafter. Principal is due June 30, 2001. The maturity
date may accelerate under certain circumstances, as
disclosed and defined in the terms of the agreement,
including a "change in control." The note was issued with
318,146 detachable warrants to purchase common stock at
$7.00 per share expiring on April 1, 2003. Warrants were
estimated to have an immaterial fair value for financial
reporting purposes. The note includes a provision
guaranteeing the issuer a 20% compounded annual return
through any combination of warrant appreciation or
interest payments. The Company is required to make
quarterly interest payments and has the option under
certain conditions to add required interest payments to
principal in lieu of paying in cash. Interest payments of
$366,666 and $269,333 were made "in kind" by issuing
additional promissory notes during 1997 and 1996,
respectively. During August 1998, the Company repaid all
of the subordinated note payable with proceeds from the
issuance of the August 1998 notes. See note 14 for
discussion of the August 1998 notes....................... 4,269,333 4,635,999
Subordinated note payable to the Massachusetts Business
Development Corporation in conjunction with a loan
agreement issued by the United States Small Business
Administration, collateralized by equipment purchased with
the proceeds, interest at prime plus 2.75% (11% at
December 31, 1996). Principal of $8,334 plus interest
payable monthly through April 1, 2002. This note was paid
in full by the Company during 1997........................ 566,656
Note payable, in the amount of $450,000, issued in
conjunction with the purchase of certain assets of Zymmune
Diagnostic Systems and collateralized by the related
equipment, inventory, and intellectual property purchased
with the proceeds. Principal plus accrued interest at 6%
due on October 24, 1999. The note requires contingent
payments of up to $1,050,000 based on attaining certain
FDA clinical trial milestones. Zymmune Diagnostic Systems
believes the milestones been achieved and, accordingly,
the Company has accrued the additional amount. The
Company, however, is disputing these amounts (see Note
11)....................................................... 1,500,000 1,500,000
Note payable collateralized by the equipment purchased
with the proceeds, payments of principal plus interest at
11% totaling $15,208 due monthly through August 1, 2002.
Note allows for additional borrowings of up to $1,500,000
for the purchase of manufacturing equipment. Guaranteed by
a bond posted by the State of Washington Economic
Development Council....................................... 664,588
Other..................................................... 69,018 29,296
----------- -----------
22,057,067 19,172,049
Less current portion...................................... (3,505,122) (2,144,729)
----------- -----------
$18,551,945 $17,027,320
=========== ===========
</TABLE>
The various debt agreements contain restrictive covenants relating to
quarterly profitability, minimum levels of net worth and liquidity, limitations
on additional debt and dividends, and other nonfinancial covenants including
certain subjective clauses.
F-16
<PAGE> 96
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT: (CONTINUED)
The Company received certain amendments and waivers to its debt agreement
and covenants contained therein, retroactive to January 1, 1997 which remain in
effect to June 30, 1998. The amendments and waivers became effective upon the
closing of the merger agreement with PerImmune Holdings, Inc. on January 2, 1998
(see Note 11).
Future minimum debt payments at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998............................................ $ 2,144,729
1999............................................ 3,628,722
2000............................................ 8,485,707
2001............................................ 4,796,064
2002............................................ 116,827
-----------
$19,172,049
===========
</TABLE>
As of June 30, 1998, the Company's debt increased by approximately
$14,656,000 of which approximately $10,393,000 is related to the merger, (see
Note 11 for additional discussion of the merger), $1,549,000 is related to
additional interest payments made "in kind," and approximately $2,714,000 is
related to the April 1998 refinancing. See Note 14 for additional discussion of
the Company's refinancing.
7. LINE OF CREDIT:
Under the terms of the senior note payable to bank (Note 6), the Company
has a line of credit with an aggregate borrowing capacity of $1.0 million at
prime plus 1.5%. The agreement includes various restrictive covenants which,
among other things, require the Company to maintain certain minimum working
capital and net worth amounts. The line of credit facility has a maturity date
of November 16, 2000.
At December 31, 1997 and 1996, there were $500,000 of borrowings on the
line of credit facility. During April 1998, the Company repaid the line of
credit with the proceeds from the issuance of the April 1998 notes. See Note 14
for additional discussion of the Company's refinancing.
8. INCOME TAXES:
The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception.
At December 31, 1997 the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17 million which expire through
2012. Utilization of net operating loss carryforwards will be subject to certain
limitations under Section 382 of the Internal Revenue Code.
The following is a reconciliation of the income tax benefit to the amount
based on the statutory Federal rate of 34%:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
YEAR ENDED ENDED DECEMBER 31,
JUNE 30, DECEMBER 31, ---------------
1995 1995 1996 1997
---------- ------------ ----- -----
<S> <C> <C> <C> <C>
Federal income tax benefit at statutory
rate..................................... (34)% (34)% (34)% (34)%
Change in valuation allowance.............. 34 % 34 % 34 % 34 %
----- ----- ----- -----
===== ===== ===== =====
</TABLE>
F-17
<PAGE> 97
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES: (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are approximately as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Tax loss carryforwards............................ $3,392,000 $5,770,000
Tax credit carryforwards.......................... 96,000 96,000
Property, plant and equipment..................... 171,000
Inventories....................................... 548,000
Other............................................. 333,000 438,000
---------- ----------
3,992,000 6,852,000
Deferred income tax liabilities:
Other............................................. (65,000) (61,000)
---------- ----------
3,927,000 6,791,000
Valuation allowance................................. (3,927,000) (6,791,000)
---------- ----------
Net deferred taxes assets........................... $ $
========== ==========
</TABLE>
A full valuation allowance has been recorded at December 31, 1997, 1996,
and June 30, 1998 (unaudited) based on management's determination that the
recognition criteria for realization has not been met.
9. COMMITMENTS AND CONTINGENCIES:
The Company is involved in various lawsuits arising in the normal course of
business, none of which, in the opinion of management, is expected to have a
material adverse effect on the Company's financial position, cash flows,
liquidity or results of operations.
In the ordinary course of business, the Company is subject to extensive and
changing federal regulations within the United States and by other foreign
countries with regard to the manufacturing and marketing of products. To date
the Company has not identified any potential liabilities arising from the
manufacturing and marketing of its products.
The Company has operating leases for its facilities with remaining fixed
terms ranging up to six years. Rental expense was approximately $783,000,
$1,466,000, $200,000, and $192,000 for the years ended December 31, 1997 and
1996, the six months ended December 31, 1995 and the twelve months ended June
30, 1995, respectively.
Future approximate minimum operating lease payments are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1998................................................... $ 681,347
1999................................................... 335,761
2000................................................... 46,802
2001................................................... 43,491
2002................................................... 43,491
----------
Total minimum lease payments............................. $1,150,892
==========
</TABLE>
Refer to Note 12 for discussion of a contingent liability related to a
joint venture investment.
F-18
<PAGE> 98
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT:
Preferred stock
The Company is authorized to issue 5 million shares of $0.0001 par value
serial preferred stock. Each series of the preferred stock is a separate class
and, as a class, has a liquidation preference equal to the aggregate purchase
price paid for such class.
The historical share information regarding the Company's preferred stock
activity follows:
<TABLE>
<CAPTION>
SERIES SERIES SERIES SERIES SERIES SERIES
A A-1 A-2 A-3 B-1 B-2
------- -------- ------ ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JULY 1, 1994
Issuance of preferred stock............. 468,755
Dividend payments in kind............... 26,431
------- -------- ------ ------- --- ---
BALANCES AT JUNE 30, 1995............... 495,186
Issuance of preferred stock............. 668,750
Dividend payments in kind............... 20,000 13,261
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1995........... 515,186 682,011
Dividend payments in kind............... 42,470 56,224
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1996........... 557,656 738,235
Issuance of preferred stock............. 40,000
Conversion of Series A-1 into Series
A-3................................... (139,390) 139,390
Dividend payments in kind............... 45,966 52,323 4,063 8,533
------- -------- ------ ------- --- ---
BALANCES AT DECEMBER 31, 1997........... 603,622 651,168 44,063 147,923
Issuance of preferred stock
(unaudited)........................... 100 120
Dividend payments in kind (unaudited)... 24,355 26,275 2,967 5,967
------- -------- ------ ------- --- ---
BALANCES AT JUNE 30, 1998 (UNAUDITED)... 627,977 677,443 47,030 153,890 100 120
======= ======== ====== ======= === ===
</TABLE>
Series A, Series A-1, and Series A-3 redeemable and convertible preferred
stock
The Series A, Series A-1, and Series A-3 redeemable and convertible
preferred stocks were issued for net proceeds of $8.00 per share and are
convertible into common stock of the Company at a conversion ratio of two shares
of common stock per one share of preferred stock, which is equivalent to a
conversion price of $4.00 per share. Holders of these preferred shares are
entitled to receive a cumulative 8% annual dividend. Dividends may be paid in
cash or in additional shares ("in kind") at the option of the Company until
January 1, 1999 after which time dividends are payable only in cash. The Company
is required to redeem all outstanding shares at $8.00 per share, plus accrued
dividends, on July 1, 2001 (Series A) and September 22, 2002 (Series A-1 and
Series A-3). Each preferred share has voting rights equivalent to two shares of
common stock except for the Series A-3 which does not have voting rights unless
converted to common stock. The stockholders have a liquidation preference of
$8.00 per share upon the dissolution of the Company. The Company covenants that
it will not amend the articles of incorporation, recapitalize, pay or declare
dividends on junior stock, merge or consolidate, liquidate, dissolve or change
the principal business of the Company as long as 25% of the authorized shares
are outstanding of each series of preferred stock, unless 51% or more of the
preferred stockholders approve the change.
The Series A, Series A-1 and Series A-3 preferred stock is mandatorily
convertible into common stock at a ratio of two shares of common stock per one
share of preferred stock upon the closing of an underwritten public offering
pursuant to an effective registration statement on Form S-1 for the sale of
common stock at a per share price of at least $4.00 per share with aggregate
proceeds of at least $10,000,000.
F-19
<PAGE> 99
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
Series A-2 preferred stock
The Series A-2 preferred stock is non-convertible, non-voting and were
issued in conjunction with the exchange of $2,267,260 of subordinated debt and
accrued interest in addition to the receipt of $1,732,740 in cash, resulting in
net proceeds of $100 per share. Holders of these preferred shares are entitled
to receive a cumulative 13.5% dividend in cash or in kind, at the option of the
Company, until February 28, 2007 at which time the dividend rate increases to
19% and is payable only in cash. The Company has the option to redeem these
shares at any time prior to February 28, 2000 for $100 per share. The
stockholders also have the right to elect directors and exchange their shares
for notes if dividend payments are in arrears for a specified period of time.
The stockholders have a liquidation preference of $100 per share upon the
dissolution of the Company. The Company covenants that it will not amend the
Articles of Incorporation, recapitalize, pay or declare dividends on junior
stock, merge or consolidate, liquidate, dissolve or change the principal
business of the Company without prior approval from at least 51% of the A-2
preferred stockholders.
Series B-1 and B-2 preferred stock
The Series B-1 and B-2 redeemable and convertible preferred stock were
issued in conjunction with the merger with Holdings. The stockholders have a
liquidation preference of $45,000 and $50,000 per share, respectively, upon
dissolution of the Company. Holders of these preferred shares are entitled to
receive a cumulative 7% per annum dividend based on the liquidation preference
amount per share. Holders of these preferred shares are entitled to receive
annual dividends in cash, commencing on April 24, 1998 and June 16, 1998,
respectively, and continuing, thereafter, on each subsequent anniversary date.
Each preferred share has voting rights equivalent to 9,108.32 shares of common
stock. The Company covenants that it will not amend certain portions of it's
articles of incorporation, dissolve, merge or consolidate the Company, unless
51% or more of the Series B-1 preferred stockholders and 51% of the Series B-2
preferred stockholders approve the change.
On the fifth anniversary of the Series B-1 and B-2 assumed initial issue
date, the Company shall redeem all of the then outstanding shares at the Series
B-1 and B-2 liquidation preference amount. Each share of Series B-1 and B-2
preferred stock may be converted into common stock, at any time prior to the
respective redemption dates, at the option of the stockholder. The Series B-1
and B-2 shares will automatically convert to common stock immediately prior to
the first registered, underwritten public offering of shares of common stock by
the Company. Theses preferred shares are convertible into 9,108.32 shares of
common stock per one share of Series B-1 preferred stock or Series B-2 preferred
stock.
Common stock
The Company is authorized to issue 25,000,000 shares of $0.0001 par value
voting common stock. Upon liquidation or dissolution, holders of common stock
will be paid only after preferred stock preferences have been satisfied.
On December 31, 1997, all outstanding shares of common stock were split two
for one. All common stock shares and per share amounts have been restated to
reflect this stock split.
In November 1997, the Company issued 1,368,046 shares of common stock for
proceeds of $5,687,124, net of issuance costs of approximately $561,077 and
other noncash transactions of $73,800. In conjunction with this transaction,
36,746 warrants to purchase common shares for $4.00 per share were exercised for
proceeds of $146,980.
F-20
<PAGE> 100
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
In January 1998, the Company issued 5,478,654 shares of common stock in
connection with the acquisition of Holdings. The Company also assumed the
outstanding stock options granted to Holdings employees equivalent to 2,340,831
shares of Intracel common stock (Note 11).
Stock options
The Company's 1989 Stock Option Plan (the "Plan"), provides for the
issuance of incentive and nonqualified stock options to employees, directors,
and consultants. There are 800,000 shares of common stock reserved under the
Plan. The Company's Board of Directors establishes the option price per share,
vesting period, and option term at the date of grant. Generally, options are
granted by the Company's Board of Directors at an exercise price of not less
than the fair market value of the Company's common stock at the date of grant.
For stockholders possessing at least a 10% ownership interest, the option price
shall not be less than 110% of the fair market value at the date of grant. The
vesting period of options generally ranges from immediately to ratably over four
years. Option terms generally are five or ten years.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting for
Stock-Based Compensation." The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
cost for stock options is measured as the excess, if any, of the fair value of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
Under APB No. 25, because the exercise price of the Company's stock options
generally equals the fair value, as determined by the Board of Directors, of the
underlying stock on the date of grant, no compensation expense is recognized in
the Company's consolidated financial statements.
Information regarding activities in the option plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding, July 1, 1994........................... 503,034 $2.00
---------
Options outstanding, June 30, 1995.......................... 503,034 2.00
---------
Options outstanding, December 31, 1995...................... 503,034 2.00
Options granted........................................... 328,000 2.69
Options canceled.......................................... (10,000) 2.50
---------
Options outstanding, December 31, 1996...................... 821,034 2.27
Options granted........................................... 130,000 4.50
Options expired........................................... (82,000) 2.50
---------
Options outstanding, December 31, 1997...................... 869,034 2.58
Options assumed in merger with Holdings, Inc.
(unaudited)............................................ 2,340,831 0.34
Options granted (unaudited)............................... 432,500 8.00
Options canceled (unaudited).............................. (248,625) 1.45
Options exercised (unaudited)............................. (108,512) 1.11
---------
Options outstanding, June 30, 1998 (unaudited).............. 3,285,228 1.81
=========
</TABLE>
At December 31, 1996, 1997 and June 30, 1998 the Company granted stock
options in excess of the authorized Plan amount by 124,258, 172,258 and 492,758
(unaudited) shares, respectively. The Company
F-21
<PAGE> 101
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
intends to submit for shareholder approval an amendment to its stock option plan
to increase the number of options authorized for issuance.
The following table summarizes information about options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
- ---------------------------- ----------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.00 - $2.50............... 699,034 $2.14 1.81 years 627,034 $2.09
$4.00 - $4.50............... 170,000 4.38 5.81 years 26,249 4.25
------- --------
869,034 2.58 2.59 years 653,283 2.18
======= ========
</TABLE>
Pro forma information regarding net income (loss) is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options granted after January 1, 1996 under the fair value method of that
statement. The fair values of options granted in 1997 and 1996 (no options were
granted during the six months ended December 31, 1995 or the year ended June 30,
1995) were estimated at the date of grant using the minimum value method and the
following weighted-average assumptions:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Risk free interest rate................................. 6.41% 6.28%
Expected holding period................................. 4 years 6 years
Dividend yield.......................................... 0.0% 0.0%
</TABLE>
The minimum value method was developed for use in estimating the fair value
of options granted by nonpublic entities and, accordingly, excludes
consideration of volatility. In addition, option valuation models require the
input of highly subjective assumptions. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the minimum value
method does not necessarily provide a reliable single measure of the fair value
of its stock options.
The weighted average fair values per share at the date of grant for options
granted were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1996 1997
----- -----
<S> <C> <C>
Options granted whose exercise price was equal to the fair
value of the stock on the date of grant................... $0.75 $1.39
===== =====
</TABLE>
The following table presents net loss and per share amounts as if the
Company accounted for compensation expense related to stock options under the
fair value method prescribed by SFAS No. 123:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
PRO FORMA PRO FORMA
----------- -----------
<S> <C> <C>
Net loss -- as reported........................... $(3,501,973) $(8,479,459)
Net loss -- pro forma............................. (3,532,723) (8,520,920)
Loss per share -- as reported..................... (1.10) (2.39)
Loss per share -- pro forma....................... (1.10) (2.40)
</TABLE>
F-22
<PAGE> 102
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CAPITAL STOCK AND STOCKHOLDERS' DEFICIT: (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option's vesting period.
At December 31, 1997, the following warrants to purchase common stock were
outstanding:
<TABLE>
<CAPTION>
PRICE PER
SHARE,
NUMBER OF SUBJECT TO
SHARES ADJUSTMENT EXPIRATION DATE
- --------- ---------- ------------------
<C> <C> <S>
67,252 $4.00 July 22, 1999
172,924 4.00 September 22, 2000
182,354 4.50 November 16, 2002
188,020 7.00 December 28, 2000
318,146 7.00 April 1, 2003
-------
928,696
=======
</TABLE>
The outstanding warrants carry registration rights, certain anti-dilutive
rights, and certain adjustments to the number of shares obtainable under the
warrants, as provided in the warrant agreements. The expiration dates of the
warrants may accelerate under certain circumstances, including the closing of an
initial public offering of common stock at a minimum purchase price per share of
$8 to $9 and minimum aggregate proceeds of $10,000,000.
On January 2, 1998, the Company issued Warrants to purchase 679,341 shares
of common stock in connection with an employment agreement between Simon R.
McKenzie, the Company's Chief Executive Officer, and the Company. The Warrants
carry an exercise price of $4.50 per share and expire 5 years from the date of
issue. On April 1, 1998, the Company issued Warrants to purchase 98,132 shares
of common stock in connection with a Note and Warrant Purchase Agreement at an
exercise price of $7.64 per share.
On August 25, 1998, the Company issued Warrants to purchase 1,625,000
shares of Common Stock in connection with a note and Warrant Purchase Agreement
at an exercise price per share equal to the price to the public per share upon
the consummation of an initial public offering. In the event the Company does
not consummate an initial public offering on or prior to December 31, 1998 all
1,625,000 Warrants are exercisable at $10.00 per share.
11. ACQUISITIONS:
In April 1996, the Company entered into an agreement with Bartels
Prognostics acquiring certain manufacturing equipment for $360,000. The
agreement also granted the Company exclusive manufacturing and marketing rights
subject to the full payment of $1,000,000 for 644,696 shares, or 23.443%, of
common stock of Bartels Prognostics. The Company accrued $375,000 and paid
$250,000 in 1996 and made the residual payments of $750,000 in 1997, comprising
the total consideration of $1,000,000. Additionally, the Company made advances
to Bartels Prognostics of $45,299 and $98,198 during 1997 and 1996,
respectively. At December 31, 1997 and 1996, advances to Bartels Prognostics are
included in other current assets and the investment in Bartels Prognostics is
included in other assets. The agreement allows for further discussion regarding
the potential future merger of the two entities.
In November 1995, the Company purchased certain assets and assumed certain
liabilities of Bartels, a biotechnology company in the business of developing,
manufacturing, selling, and distributing reagents and cell culture media from
Dade International for an aggregate purchase price of approximately $17,667,000.
The acquisition was financed primarily via a $9,000,000 term loan and a
$1,000,000 revolving credit note from a commercial bank, and a $4,667,000 note
payable to the seller (the note payable to the seller was paid in December 1995
primarily from the proceeds of the December 1995 Subordinated Secured Promissory
Note). The purchase price was allocated to the assets acquired based upon fair
market values. The excess of the purchase price over the fair market value of
the assets acquired in the amount of $13,622,586, has been allocated to cost in
excess of net assets acquired and is being amortized over 15 years. Acquired
in-process
F-23
<PAGE> 103
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITIONS: (CONTINUED)
research and development approximating $1,300,000 was expensed in 1995 as the
technological feasibility of the acquired technology had not been established
and the technology had no future alternative use as of the date of acquisition.
This acquisition was accounted for as a purchase and, accordingly, the results
of operations of the acquired business is included in the accompanying
consolidated statement of operations from the date of acquisition.
In September 1995, the Company purchased certain assets of Zymmune
Diagnostic Systems from Zynaxis, Inc., a developer of drug delivery systems, for
an aggregate purchase price of approximately $2,019,000. The financing consisted
of a note payable to Zynaxis and a series of contingent payments. The contingent
payment liability of $1,050,000 was recorded as a long-term liability due to the
Company's view that the milestones underlying the payments are probable of being
achieved. The note payable and the contingent payments to Zynaxis resulted in a
noncash transaction for the purchase of the assets in the amount of
approximately $1,500,000. Assets purchased included technology, patents,
equipment, and inventory. The purchase price was allocated to the assets
acquired based upon their fair market values. Acquired in-process research and
development approximating $800,000 was expensed in 1995 as the technological
feasibility of the acquired technology had not been established and the
technology had no future alternative use as of the date of the acquisition.
Although the manufacturing milestone was achieved during fiscal year 1996, the
Company has alleged a number of breaches of the agreement by Zynaxis and has
accordingly withheld all payments pending resolution of the dispute. The Company
is currently in settlement negotiations with the assignee of this agreement
(Vaxcel, Inc.) and, in management's opinion, expects to settle the dispute and
all claims for an amount substantially less than the value of the note and
contingent payments.
On January 2, 1998, the Company acquired in a tax-free merger all the
capital stock of PerImmune Holdings ("Holdings") which conducts operations
through PerImmune, Inc., its wholly owned subsidiary ("PerImmune"). As a result
of this transaction, Holdings and PerImmune have become subsidiaries of the
Company. In anticipation of this acquisition, the Company placed $2,000,000 of
cash in a restricted escrow account on December 31, 1997 to satisfy requirements
of the holder of the senior note payable. At December 31, 1997, the Company has
deferred certain acquisition costs related to this transaction, including legal,
accounting and other fees. PerImmune is a research oriented healthcare company
that applies biotechnology and other life sciences technologies to develop and
provide products and services. PerImmune's focus is on the development of human
monoclonal antibodies for cancer and infectious disease applications, as well as
cancer vaccines, specific and nonspecific immunotherapy and cardiovascular
disease test products. The aggregate purchase price was approximately
$59,471,000, payable in 5,478,654 shares of Intracel common stock, 2,340,831
options to purchase Intracel common stock, 220 shares of Intracel Series B-1 and
B-2 preferred stock, the assumption of obligations of approximately $11,532,000
and the assumption of other certain liabilities. The acquisition has been
accounted for using the purchase method of accounting and the June 30, 1998
financial statements reflect valuation of all assets, including identifiable
intangibles, at their estimated fair market values. Perimmune's operating
results are included in Intracel's consolidated operating results from the date
of acquisition. The Company recognized a one time expense of $37,718,000 in the
first quarter of 1998 related to acquired in process research and development as
the technological feasibility of the acquired technology had not been
established and the technology had no future alternative use as of the date of
acquisition. The remaining $21,742,000 of the total purchase price was allocated
among the acquired assets including patents, current product technology and long
term assets including $849,000 recorded as cost in excess of net assets
acquired, which is being amortized over 10 years.
F-24
<PAGE> 104
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. ACQUISITIONS: (CONTINUED)
The following unaudited pro forma information has been prepared assuming
Holdings had been acquired as of the beginning of the periods presented. The pro
forma information is presented for information purposes only and is not
necessarily indicative of what would have occurred if the acquisition had been
made as of those dates. In addition, the pro forma information is not intended
to be a projection of future results.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
PRO FORMA INFORMATION DECEMBER 31, -------------------
(IN THOUSANDS, EXCEPT PER SHARE) 1997 1997 1998
-------------------------------- ------------ ------- --------
(ACTUAL)
<S> <C> <C> <C>
Revenue.................................... $21,341 $11,459 $ 9,816
Net loss................................... 58,703 46,101 49,720
Loss per common share basic and diluted.... 6.28 4.97 4.70
</TABLE>
12. JOINT VENTURE:
During 1995, the Company made a 45% investment in the German American
Institute for AIDS Research (GAIFAR), a German limited liability Company. The
purpose of the entity was to develop and distribute the Company's products
within the Eastern European market. The investment is accounted for under the
equity method. Also during 1995, GAIFAR obtained a 1,000,000 Deustche mark (DM)
unsecured loan through the German government. During 1996, the Company made an
additional contribution of capital approximating $283,000 in accordance with the
loan agreement with the German government. No further capital contributions were
required based on the terms of the financing. As of December 31, 1996, the
Company had written off the entire investment in the joint venture because the
amount was deemed not to be recoverable, which resulted in a charge to
operations of $339,408.
In July of 1997, the Company entered into a termination and sale agreement
which resulted in the transfer of all joint venture shares back to GAIFAR on May
14, 1998, releasing the Company from its guarantee of the 1,000,000 DM loan. In
September 1998, the Company received approximately $225,000 (unaudited) which
the Company considers a recovery of an investment that was previously written
off. While not guaranteed, GAIFAR has notified the Company of its intent to
remit an additional 150,000 DM at a future date as settlement in full for the
transfer of all joint venture shares.
13. EMPLOYEE BENEFIT PLAN:
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute amounts through payroll deductions.
The Company matches employees' contributions at the discretion of the Company's
Board of Directors. The Company did not match employee contributions to the
401(k) savings plan in the 1997, 1996 and 1995 periods. The Company does not
provide other post-retirement benefits.
In connection with the Company's merger with Holdings, the Company assumed
Holdings' employee pension plan. The Company froze the benefits under the Plan
in February 1998, and determined that the remaining Plan assets and recorded
pension liability exceeded the obligation relating to the participants. As a
result of the curtailment of the plan benefits, the Company recorded a gain in
the quarter ended March 31, 1998 of $800,000 and reduced the related pension
liability in accordance with Statement of Financial Accounting Standards No. 88,
"Employers Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans."
F-25
<PAGE> 105
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS:
Refinancing
On April 1, 1998, the Company issued 12.5% notes ("April 1998 Notes") in
the original principal amount of $8.0 million including warrants to purchase
98,132 shares of the Company's common stock. The Company applied the proceeds
from the April 1998 Notes to retire the Company's senior note payable to bank
issued November of 1995 in the principal amount of $6.1 million, including
accrued interest, and the line of credit in the amount of $0.5 million (See
Notes 6 and 7). The remaining $1.4 million was used primarily for working
capital purposes.
In June of 1998 the Company amended its April 1998 Notes whereby the lender
agreed to advance an additional $2.0 million to the Company for working capital
purposes. The first advance of $1.0 million occurred in June 1998 while the
second advance of $1.0 million occurred in July 1998. Both April 1998 Notes as
amended, were repaid with proceeds from the "August 1998 Notes" discussed below.
On July 31, 1998 the Company's subsidiary, PerImmune holdings, entered into
an agreement with one of its lenders whereby the agreement extended the maturity
date of approximately $10.4 million of debt incurred by PerImmune Holdings to
January 15, 2000, increased the rate of interest from 8% to 10%, and made the
Company a guarantor of the related debt. The terms of scheduled repayment are
variable depending on the Company's cash position on December 31, 1999. The note
is convertible at the option of the lender into common stock at any time prior
to the repayment of the note in full at a conversion price equal to the price to
the public if and when the Company was to complete an initial public offering.
On August 25, 1998 the Company completed a comprehensive refinancing of its
outstanding debt. The August 1998 Notes are (i) a 12% Guaranteed Senior Secured
Primary Note due August 1, 2003 in the amount of $35 million and (ii) a 12%
Guaranteed Senior Secured Escrow Note due August 1, 2003 in the amount of $6
million and (iii) common stock warrants to purchase up to 1,625,000 shares of
the Company's common stock. The net proceeds from the August 1998 Notes were
used to (i) discharge the Company's subordinated note payable to bank issued
June of 1996 in the amount of $5.1 million, including accrued interest, (ii)
discharge the Company's subordinated note payable issued in December of 1995 in
the principal amount of $7.2 million including accrued interest, (iii) discharge
the Company's Amended April 1998 notes in the principal amount of $10.1 million
including accrued interest, and (iv) redeem an aggregate of 47,030 shares of the
Company's Series A-II Preferred Stock, $.0001 par value per share in the amount
of $4.9 million.
Of the remaining $13.7 million $6.0 million from the Guaranteed Senior
Secured Escrow Note was deposited into a segregated bank account from which the
Company is permitted to obtain funds upon request to the lender, $4.9 million
was deposited into a escrow account which is equivalent to four scheduled
interest payments on the August 1998 notes, $0.5 million was used to comply with
a Company milestone obligation, and the remaining $2.3 million will be used for
working capital purposes.
The August 1998 Notes are collateralized by (i) a first priority security
interest in all the existing and future assets of the Company, other than the
PerImmune Patents and certain equipment financed pursuant to the Loan and
Authority Agreement, dated September 30, 1997, between the Company and the
Washington Economic Development Finance Authority, and a second security
interest in certain of the PerImmune Patents and (ii) a pledge of all the issued
and outstanding capital stock of the existing and future subsidiaries of the
Company.
The Company is permitted to obtain funds upon request from such Segregated
Account, provided that no event of default (as defined) occurs. The Company may
draw out of the escrow account to make scheduled interest payments on the August
1998 Notes, provided that, after giving effect to any such withdrawal, the
Company, subject to certain conditions, is required to maintain the balance in
the escrow account at an
F-26
<PAGE> 106
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS: (CONTINUED)
amount sufficient to pay the next four scheduled interest payments, and after
the first two successive full payments of interest hereafter, at a level
sufficient to pay the next two successive full payments of interest on the
outstanding August 1998 Notes. The noteholders will have a collateralized
interest in the escrow account. The escrow account will be terminated after
payment in full of all interest accrued through and including the twelfth
successive interest payment due on the August 1998 Notes, with any balance
remaining in the escrow account to be retained by the Company. The August 1998
Notes are guaranteed by all the existing subsidiaries of the Company and will be
guaranteed by all future subsidiaries of the Company.
The August 1998 Notes, among other things, require that the Company comply
with certain financial covenants beginning in the year 2000 including, without
limitation, maintaining an adjusted debt to EBITDA (as defined) ratio, minimum
levels of tangible net worth and interest coverage, and maximum levels of
leverage for certain periods. In addition, the August 1998 Notes impose certain
limitations on the ability of the Company to, among other things, (i) incur
additional indebtedness, (ii) pay dividends or make certain other restricted
payments, (iii) consummate certain asset sales, (iv) enter into certain
transactions with affiliates, (v) incur liens, (vi) merge or consolidate with
any other person or sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of its assets, (vii) enter into certain restrictive
arrangements relating to the Company's subsidiaries, (viii) extend credit and
(ix) make investments.
Pursuant to the terms of the August 1998 Primary Notes, up to $5.0 million
aggregate principal amount of the August 1998 Primary Notes must be redeemed
upon the closing of an initial public offering. Pursuant to the terms of the
August 1998 Escrow Notes, the Company must notify the noteholders of its sale of
common stock upon the closing of an initial public offering and, if requested,
up to $6.0 million aggregate principal amount of the August 1998 Escrow Notes
must be redeemed, in whole or in part.
The noteholders may require the Company to repurchase an aggregate of up to
$7.5 million aggregate principal of the August 1998 Notes at a price equal to
100% of their principal amount plus accrued and unpaid interest, upon the
failure of Intracel to satisfy certain ratios of EBITDA to interest expense as
measured at the end of each of three successive fiscal quarters of the Company
commencing March 31, 2000.
The noteholders may require the Company to prepay the August 1998 Notes, in
whole or in part, at a price equal to 101% of the principal amount so prepaid,
plus accrued interest to the date of prepayment, if there is a Change of Control
(as defined) of the Company, or if Simon R. McKenzie shall cease to be the
principal executive officer of the Company in charge of the Company's management
and policies for a period of 30 days or more.
The August 1998 Primary Notes may be prepaid, in whole or in part, at the
option of the Company initially at a redemption price of 112% of the principal
amount thereof, and declining to 100% of the principal amount thereof after July
31, 2002, plus accrued and unpaid interest, if any, to the date of redemption.
The August 1998 Escrow Notes may be prepaid, in whole or in part, at the option
of the Company, provided that certain notice requirements are met.
Events of default under the August 1998 Notes include, among other things,
(i) failure to pay principal or interest on the August 1998 Notes when due, (ii)
breaches of representations, warranties and covenants, (iii) defaults under
other indebtedness of the Company or its subsidiaries, (iv) failure to
consummate an equity offering on or prior to December 31, 1999, with an
aggregate offering price of not less than $40.0 million and aggregate proceeds
to the Company (net of selling expenses and underwriters' discounts or selling
agent's commission) of not less than $35.0 million, (v) the occurrence of
certain events of bankruptcy, (vi) certain adverse judgments against the Company
or its subsidiaries, (vii) certain ERISA events and (viii) other customary
defaults, in certain cases after the expiration of a grace period.
F-27
<PAGE> 107
INTRACEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SUBSEQUENT EVENTS: (CONTINUED)
The 1,625,000 warrants issued in connection with the August 1998 Notes are
exercisable until August 25, 2003 at an exercise price per share equal to the
price to the public per share upon the consummation of an initial public
offering. In the event the Company does not consummate an initial public
offering on or prior to December 31, 1998 all 1,625,000 warrants are exercisable
at $10.00 per share. The Company has determined the warrants to have a fair
value of $4.6 million which will be accounted for as a note issuance discount
and amortized using the effective interest method over the life of the note.
Management believes the proceeds from these debt-related transactions and
the successful launch of OncoVAX(CL) will provide sufficient funding to meet the
Company's continued operations and its research and development of other
products through at least December 31, 1999.
Initial Public Offering
In March 1998, the Company's Board of Directors authorized the Company to
file a Registration Statement with the Securities and Exchange Commission to
permit the Company to proceed with an initial public offering of its common
stock. Upon consummation of such offering, all of the outstanding Series A, A-1,
A-3, B-1, B-2 preferred stock will be converted in common stock and it is
anticipated that certain convertible notes and warrants outstanding immediately
prior to such offering will be converted into or exercised for common stock.
Consequently, the Company anticipates 5,666,346 shares of common stock will be
issued upon conversion or exercise of such preferred stock, convertible notes
and warrants.
F-28
<PAGE> 108
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Perimmune Holdings, Inc. and Subsidiary
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Perimmune Holdings, Inc. and Subsidiary (the "Company") at December 31, 1997,
and the results of their operations and their cash flows for the year then
ended, in conformity with generally accepted accounting principles. 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 audit. We conducted our audit of the 1997 financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
McLean, Virginia
April 2, 1998, except for the
second paragraph of Note 14
as to which the date is June 8, 1998.
F-29
<PAGE> 109
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,504,064 $ 2,423,910
Accounts receivable, net.................................. 646,524 1,260,719
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................. 159,561 749,039
Inventories............................................... 362,840 375,488
Prepaid expenses.......................................... 415,928 293,699
------------ -----------
Total current assets.............................. 4,088,917 5,102,855
Property and equipment, net................................. 2,040,698 7,283,715
Restricted cash............................................. 433,000
Cost in excess of assets acquired, including acquisition
costs, net of accumulated amortization of $383,000 in 1997
and $113,000 in 1996...................................... 1,467,500 1,237,500
------------ -----------
Total assets...................................... $ 8,030,115 $13,624,070
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current portion of notes payable.......................... $ 10,220,505 $ 5,600,000
Current portion of capitalized lease obligations.......... 44,896
Accounts payable.......................................... 616,140 1,950,427
Accrued liabilities....................................... 2,078,283 1,387,334
------------ -----------
Total current liabilities......................... 12,959,824 8,937,761
Capitalized lease obligations, less current portion......... 127,342
Pension liability........................................... 1,183,902 935,879
Notes payable, less current portion......................... 9,234,935
------------ -----------
Total liabilities................................. 14,271,068 19,108,575
------------ -----------
Commitments and contingencies
Series A redeemable and convertible preferred stock -- $0.01
par value; 1,000 shares authorized; 100 shares issued and
outstanding at December 31, 1997 (aggregate liquidation
preference of $4,500,000)................................. 4,280,165
Series B redeemable and convertible preferred stock -- $0.01
par value; 1,000 shares authorized; 120 shares issued and
outstanding at December 31, 1997 (aggregate liquidation
preference of $6,000,000)................................. 5,505,952
------------ -----------
9,786,117
------------ -----------
Stockholders' equity (deficit):
Common stock -- $0.01 par value; 3,000 and 1,000 shares
authorized, respectively; 601.5 and 593.5 shares issued
and outstanding at December 31, 1997 and 1996,
respectively........................................... 6 6
Additional paid-in capital............................. 282,668
Accumulated deficit.................................... (16,309,744) (5,484,511)
------------ -----------
Total stockholders' equity (deficit).............. (16,027,070) (5,484,505)
------------ -----------
Total liabilities and stockholders' equity
(deficit)....................................... $ 8,030,115 $13,624,070
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 110
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 3, 1996
YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------------
<S> <C> <C>
REVENUE:
Contract research and development revenue:
Government............................................. $ 1,869,301 $ 2,750,942
Commercial............................................. 3,909,239 1,105,515
Product sales............................................. 2,110,695 594,157
------------ -----------
Total revenue..................................... 7,889,235 4,450,614
------------ -----------
COST OF CONTRACTS AND SALES:
Contract research and development costs:
Government............................................. 1,584,922 1,968,098
Commercial............................................. 3,431,181 885,942
Cost of products sold..................................... 1,600,054 324,886
------------ -----------
Total costs of contracts and sales................ 6,616,157 3,178,926
------------ -----------
GROSS PROFIT................................................ 1,273,078 1,271,688
------------ -----------
OPERATING EXPENSES:
Research and development.................................. 8,077,491 4,683,020
General and administrative................................ 1,685,880 708,247
Marketing................................................. 554,720
Other..................................................... 607,521 10,151
------------ -----------
Total operating expenses.......................... 10,925,612 5,401,418
------------ -----------
LOSS FROM OPERATIONS........................................ (9,652,534) (4,129,730)
Other income (expense):
Interest income........................................... 200,958
Interest expense.......................................... (1,038,467) (445,590)
Loss on sale-leaseback transaction........................ (335,190)
------------ -----------
LOSS BEFORE INCOME TAXES.................................... (10,825,233) (4,575,320)
Income taxes................................................
------------ -----------
NET LOSS.................................................... (10,825,233) (4,575,320)
Preferred stock accretion................................... 32,332
------------ -----------
Net loss applicable to common stockholders.................. $(10,857,565) $(4,575,320)
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 111
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------ ------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock................. 585 $6 $ 5,844 $ 5,850
Acquisition costs paid through issuance
of common stock........................ 9 100,000 100,000
Consideration paid in excess of net
assets acquired........................ (105,844) $ (909,191) (1,015,035)
Net loss for the period from August 3,
1996 through December 31, 1996......... (4,575,320) (4,575,320)
--- -- --------- ------------ ------------
Balance at December 31, 1996............. 594 6 (5,484,511) (5,484,505)
Issuance of common stock on December 12,
1997................................... 7 315,000 315,000
Issuance of additional common stock to
investment advisor (note 2)............ 1
Preferred stock accretion................ (32,332) (32,332)
Net loss for the year.................... (10,825,233) (10,825,233)
--- -- --------- ------------ ------------
Balance at December 31, 1997............. 602 $6 $ 282,668 $(16,309,744) $(16,027,070)
=== == ========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 112
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
AUGUST 3, 1996 THROUGH DECEMBER 31, 1996
<TABLE>
<CAPTION>
PERIOD FROM
AUGUST 3,
YEAR ENDED 1996 THROUGH
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(10,825,233) $(4,575,320)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation........................................... 268,688 185,834
Amortization........................................... 270,000 113,000
Loss on sale-leaseback and disposal of equipment....... 365,985 1,330
Changes in assets and liabilities:
Decrease in accounts receivable...................... 614,195 230,393
Decrease in costs and estimated earnings in excess of
billings.......................................... 589,478 237,825
Decrease (increase) in inventories................... 12,648 (4,840)
Increase in prepaid expenses......................... (122,229) (162,592)
Increase in accounts payable and accrued
liabilities....................................... 329,685 2,170,210
------------ -----------
Net cash used in operating activities............. (8,496,783) (1,804,160)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (314,601) (129,280)
Acquisition costs......................................... (1,250,000)
Proceeds from sale-leaseback and disposal of equipment.... 5,135,564
Payment to investment advisor............................. (1,225,000)
------------ -----------
Net cash provided by (used in) investing
activities...................................... 3,595,963 (1,379,280)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 315,000 5,850
Proceeds from issuance of convertible preferred stock (net
of transaction costs of $746,215)...................... 9,753,785
Repayment of capital lease obligations.................... (40,381)
Proceeds from issuance of notes payable................... 985,570 5,600,000
Payments of notes payable................................. (5,600,000)
Increase in restricted cash............................... (433,000)
------------ -----------
Net cash provided by financing activities......... 4,980,974 5,605,850
------------ -----------
Net increase in cash and cash equivalents................... 80,154 2,422,410
Cash and cash equivalents at beginning of period............ 2,423,910 1,500
------------ -----------
Cash and cash equivalents at end of period.................. $ 2,504,064 $ 2,423,910
============ ===========
Supplemental cash flow information:
Cash paid for:
Interest............................................... $ 1,013,347 $ 138,600
Supplemental disclosure of non-cash financing activities:
Purchase of common stock of PerImmune, Inc. with a note
payable................................................ $ 9,234,935
Acquisition costs paid through issuance of common stock... 100,000
Consideration paid in excess of net assets acquired....... 1,015,035
Preferred stock accretion................................. $ 32,332
Cost in excess of assets acquired included in accrued
liabilities............................................ 500,000
Equipment acquired under capital lease obligations........ 212,619
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 113
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
PerImmune Holdings, Inc. (Holdings) was incorporated on June 28, 1996 for
the purpose of acquiring PerImmune, Inc. (PerImmune) in a leveraged buyout
transaction.
Between 1985 and 1996, PerImmune was owned by Organon Teknika Corporation
(OTC), a subsidiary of Akzo Nobel, Inc., which is wholly owned by Akzo Nobel, NV
(Netherlands). Prior to December 20, 1994, PerImmune operated as a division of
OTC, and was known as Biotechnology Research Institute (BRI). On December 20,
1994, PerImmune, Inc., was formed as a wholly owned subsidiary of OTC with the
issuance of 1,000 shares of common stock in exchange for all the assets and
liabilities related to PerImmune. Effective August 3, 1996, PerImmune was
acquired by Holdings through a leveraged buyout (see note 2). Holdings has no
substantive operations.
The Company is a research oriented healthcare company that applies
biotechnology and other life sciences technologies to develop and provide
products and services. The Company's focus is on the development of human
monoclonal antibodies for cancer and infectious disease applications, as well
as, cancer vaccines, specific and nonspecific immunotherapy and cardiovascular
disease test products. Most of PerImmune's products are intended for human use
and are, therefore, regulated by the United States Food and Drug Administration.
Historically, the Company's primary sources of revenue have been research and
development contracts with affiliated companies, revenues generated from
government contracts and sales of products and services. PerImmune markets its
products in the United States, Europe and other geographic regions.
Basis of Presentation
The consolidated financial statements include the accounts of Holdings and
PerImmune. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the date of investment.
Inventories
Inventories are stated at the lower of cost (as determined by the first-in,
first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets of 3 to 7 years. Expenditures for maintenance, repairs and
renewals of relatively minor items are generally charged to expense as incurred.
F-34
<PAGE> 114
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Construction in progress includes the costs of constructed machinery.
Construction in progress costs are transferred to other property and equipment
categories when the construction/installation is completed and the asset is
ready for its intended use.
Cost in Excess of Assets Acquired
Cost in excess of assets acquired represents the excess of cost of an
acquired business over the fair value of the identifiable net tangible and
intangible assets acquired. Cost in excess of assets acquired is amortized using
the straight-line method over 15 years. The Company periodically evaluates the
life and the recoverability of cost in excess of assets acquired by comparing
the estimated future undiscounted operational cash flows to the carrying value
of cost in excess of assets acquired.
Acquisition Costs
Acquisition costs represent costs incurred related to the leveraged buyout
transaction (see note 2). Amortization of acquisition costs is computed using
the straight-line method over five years.
Income Taxes
Income taxes are accounted for using the asset and liability method
pursuant to Statement of Financial Accounting Standard No. 109 (SFAS No. 109),
Accounting for Income Taxes. Deferred taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes for a change in tax rates is recognized in income in
the period that includes the enactment date. The Company establishes valuation
allowances in accordance with the provisions of SFAS No. 109. The Company
continually reviews the adequacy of the valuation allowances and will recognize
deferred tax benefits only when it is more likely than not that the benefits
will be realized. Holdings and its subsidiary file a consolidated U.S. federal
income tax return.
Fair Value of Financial Instruments
The Company has notes payable related to the leveraged buy-out and other
notes payable obligations for which it is not practicable to estimate the fair
value since they are not traded, and no quoted values are readily available for
similar financial instruments.
Stock-based Compensation
The Company accounts for stock option issuances in accordance with the
provisions of APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, deferred compensation is recorded to the extent that
the fair value of the underlying stock exceeds the exercise price on the date of
grant. Such deferred compensation is amortized over the respective vesting
periods of related option grants. Transactions with non-employees, in which
goods or services are the consideration received for the issuance of equity
instruments, are accounted for under the fair-value based method defined in
Statement of Financial Accounting Standard No. 123 (SFAS No. 123) Accounting for
Stock-Based Compensation (see note 11).
Revenue Recognition
Revenue from sales of products is recognized on the date of delivery to
customers or upon shipment, based upon the contractual terms of applicable
agreements.
The Company has entered into various research and development and licensing
agreements (see note 3). Research and development revenue from cost
reimbursement agreements is recorded as the related expenses are incurred, up to
contractual limits and when the Company meets its performance obligations under
the respective agreements. Contract revenue is recognized under other agreements
when milestones are met and the Company's performance obligations have been
satisfied in accordance with the terms of the respective
F-35
<PAGE> 115
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
agreements. Cash received that is related to future performance under such
contracts is deferred and recognized as revenue when earned.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institute of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contracts is recognized based on the ratio of total
direct and indirect costs incurred during the period to total estimated costs
using the percentage-of-completion method. Estimates to complete are reviewed
periodically and revised as required in the period the revision is determined.
Provisions are made for the full amount of anticipated losses, if any, on all
contracts in the period in which they are first known and estimable. Contracts
with the U.S. government are subject to government audit upon contract
completion and therefore, all contract costs are potentially subject to
adjustment, even after reimbursement. Management believes adequate provisions
for such adjustments, if any, have been made in the financial statements.
Expense recovery rates have been audited through 1996.
Research and Development Costs
Research and development costs are expensed as incurred.
Concentration of Credit Risk
The Company performs research and development services for nonaffiliated
entities. The Company generally does not require collateral or other security in
extending credit to its customers. Additionally, the U.S. federal government and
Baxter Healthcare Corporation contributed 24% and 34% of total revenue for the
year ended December 31, 1997, respectively and 62% and 14% for the period from
August 3, 1996 through December 31, 1996, respectively.
Reclassifications
Certain reclassifications have been made to the 1996 financial statements
to conform with the 1997 presentation. The reclassifications had no effect on
previously reported net loss, stockholders' equity (deficit) or cash flows.
(2) LEVERAGED BUYOUT
In 1996, Holdings engaged an investment advisor with regards to the
purchase of PerImmune from Akzo Nobel, Inc. for which the investment advisor's
fee totalled $1,250,000. As of December 31, 1996, $1,225,000 of the advisor's
fee was included in accounts payable and the entire amount was paid in full
during 1997. During 1996, the investment advisor also received 8.5 shares of the
Company's common stock in exchange for funding certain related legal expenses on
behalf of the Company totaling $100,000. The shares are protected from dilution
through certain third-party financings. During the year ended December 31, 1997,
the investment advisor was issued one additional share of the Company's common
stock.
Effective August 3, 1996, 100% of PerImmune's common stock was acquired by
Holdings from OTC in exchange for a $9,234,935 note payable (see note 8). The
transaction was accounted for in accordance with Emerging Issues Task Force
Abstracts No. 88-16 (EITF No. 88-16), Basis in Leveraged Buyout Transactions.
Because the transaction was wholly financed by OTC, all such consideration was
determined to be nonmonetary and, under the provisions of EITF 88-16, the assets
and liabilities of PerImmune were carried over at historical cost.
Concurrent with the leveraged buyout, the ownership rights of certain
patents and other technology rights developed under the research and development
contracts with affiliates, which pertain to the business of PerImmune, were
transferred to Holdings. Under the terms of the transfer, Holdings is required
to make
F-36
<PAGE> 116
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(2) LEVERAGED BUYOUT (CONTINUED)
certain milestone payments of up to $10 million if specific future conditions
are met, and will make payments of between 5% and 7.5% of net product sales and
50% of license revenue. The milestone and royalty payments will continue until
the expiration or termination of the related patents covering the products
defined in the agreement. As of December 31, 1997, $500,000 of milestone
payments were included in accrued liabilities for amounts payable to OTC. No
royalty payments have been accrued or are due to OTC.
(3) CONTRACTS AND AGREEMENTS
Agreement with Baxter
On January 1, 1996, PerImmune entered into a research collaboration and
license agreement with Baxter Healthcare Corporation (Baxter) whereby the
Company agreed to provide certain research, development and pilot manufacturing
services for Baxter in exchange for reimbursement of research and development
costs, milestone payments and certain royalty payments. The Company received a
non-refundable milestone payment of $1,500,000 in January 1996 and is reimbursed
for actual costs incurred plus a fee of 16% during the term of the agreement.
Baxter is also obligated to make up to $3,000,000 in additional milestone
payments, if the Company achieves certain stages of U.S. and European regulatory
approvals for the serotherapy products for infectious and autoimmune diseases
under development. In addition, the Company earns a royalty ranging between 4%
and 8% of gross profit with a minimum royalty ranging between 2% and 4% of net
sales, as defined in the agreement, on sales of products depending on whether
the product is a result of previously existing technology of the Company or new
technology resulting from this development agreement. As of December 31, 1997,
no royalty or additional milestone payments has been earned. The agreement has a
term of three years with an option for a fourth year. Either party may terminate
this agreement at any time without cause. All patents and technology developed
under this agreement are the property of Baxter.
Agreement with Arch Development Corporation
PerImmune has a license agreement with the Arch Development Corporation
(Arch) to make and sell products under the patent rights for Apotek Lp(a)
developed at the University of Chicago. The agreement requires the Company to
pay Arch a royalty of 4 percent of related product sales. As of December 31,
1997, the Company has not incurred any royalty expense under this agreement.
Distribution Agreement with Syncor International Corporation
On April 1, 1997, the Company entered into an exclusive distribution
agreement with Syncor International Corporation (Syncor) for the HumaSPECT and
antibody conjugated radiotherapeutic products. Under this agreement, Syncor
accepts title of the product upon receipt and pays the Company a specific
purchase price defined by the agreement. Additionally, Syncor will pay the
Company a royalty of 50% of its net sales of the Company's products less the
specific purchased price, as defined, and right of return exists if the product
received by Syncor has less than one year until its expiration. To date, the
Company has not earned any royalties under this agreement. The Company is
obligated to spend 15% of annual sales of products covered by this agreement on
research and development to improve upon existing products or develop new
products. The Company is required to reimburse Syncor for all expenses related
to marketing these products up to $1,500,000, plus 50% of amounts over
$1,500,000, provided the expenditures are in accordance with the annual market
plan as prepared and agreed by the two companies. For the year ended December
31, 1997, the Company has reimbursed Syncor for marketing expenses of $330,000.
This agreement has a term of five years and is renewable for two additional
two-year terms.
F-37
<PAGE> 117
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) CONTRACTS AND AGREEMENTS (CONTINUED)
Agreements with Mentor Corporation
On June 16, 1997, the Company entered into an exclusive distribution
agreement with Mentor Corporation (Mentor) for the AuraTek -- FDP bladder cancer
diagnostic product, which the Company refers to as Accu-D(x), with an initial
term of five years and is automatically renewable for a one year term thereafter
until either party terminates the agreement with 180 days written notice. Under
this agreement, Mentor accepts title of the product shipments upon receipt and
pays the Company a specific purchase price defined by the agreement.
Additionally, Mentor will pay the Company a royalty of 50% of its net sales of
the Company's product, less the specific purchase price as defined in the
agreement. The Company is obligated to provide up to 12,000 units of the product
per year to be used by Mentor for promotional purposes, at no cost to Mentor.
On December 22, 1997, the Company entered into a research, collaboration
and distribution agreement with Mentor whereby the Company agreed to provide
certain research, development and pilot programs for Mentor in exchange for
research and development fees in an aggregate amount of $3,000,000 based on a
milestone payment schedule. As of December 31, 1997, the Company had not earned
any milestone payments. The Company will receive $1,000,000 within five days of
submission of written notice of the completion of each milestone to Mentor. The
Company is required to pay the cost in excess of $3,000,000 for expenditures
within the scope of the project development schedule. The Company is the owner
of all rights to proprietary technical information and the U.S. Patent to which
Mentor was granted exclusive world-wide rights to market, sell and distribute
the program product. This agreement is effective for a ten year period following
the first approval of commercialized use of products under development. Mentor
has the right to terminate this agreement at the expiration of five years from
the date of the first approval of commercialized use of the product based upon
180 days written notice to the Company.
Sigma Agreement
On June 30, 1997, the Company entered into a product development and
license agreement with Sigma Diagnostics, Inc. (SIGMA) for a diagnostic product,
whereby the Company agreed to provide product development and licensing services
for SIGMA in exchange for a product development fee and royalty payment. The
Company is entitled to receive an aggregate amount of $348,000 based on a
milestone payment schedule that requires a payment of $87,000 upon completion of
each respective milestone of which $87,000 was earned in 1997. In addition, the
Company will receive an annual royalty payment ranging between 3.5% and 7% of
the net selling price of the licensed product depending on whether there are any
additional competitors for this product in the marketplace. The Company has sole
and exclusive ownership of the licensed patents, while SIGMA has the exclusive
world-wide right to use and sublicense the project program information. This
agreement has a term of five years and is automatically renewable for a one year
term thereafter until SIGMA terminates the agreement.
Manufacturing/Distribution Agreement with OTC
On August 1, 1997, the Company entered into an exclusive
manufacturing/distribution agreement with OTC for the FDP Dipstick product,
which the Company refers to as Accu-D(x). Under the agreement, the Company paid
OTC $250,000 in exchange for the exclusive right to purchase, at a defined
price, such OTC product for package and resale under trademarks or tradenames
designated by the Company. The Company is obligated to purchase at least 100,000
units of the product annually at $4.00 per unit, starting on August 1, 1998.
This agreement has an initial term of three years and is automatically renewed
in two-year terms until written notice of termination from either the Company or
OTC.
F-38
<PAGE> 118
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(3) CONTRACTS AND AGREEMENTS (CONTINUED)
Other Contracts and Agreements
The Company has entered into various other licensing and research and
development agreements whereby it is committed to participate in research and
development projects, either on a best efforts basis or upon attainment of
certain performance milestones, as defined, or both, for various periods unless
canceled by the respective parties. Such future amounts to be paid to the
Company will primarily be determined on a cost-plus basis, and are subject to
specific performance criteria.
(4) ACCOUNTS RECEIVABLE
Accounts receivable at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- ----------
<S> <C> <C>
Government contracts................................. $123,964 $ 395,952
Product sales and corporate contracts................ 535,560 879,767
-------- ----------
659,524 1,275,719
Allowance for doubtful accounts...................... 13,000 15,000
-------- ----------
$646,524 $1,260,719
======== ==========
</TABLE>
(5) INVENTORIES
Inventories at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Finished goods......................................... $ 92,888 $186,837
Work-in-process........................................ 1,337
Raw materials.......................................... 269,952 187,314
-------- --------
$362,840 $375,488
======== ========
</TABLE>
(6) PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Leasehold improvements............................. $ 990,573
Leased property.................................... $ 212,619
Computers.......................................... 667,557 453,946
Machinery and equipment............................ 3,549,485 3,735,691
Construction in progress........................... 1,005,316 5,935,047
---------- -----------
5,434,977 11,115,257
Accumulated depreciation and amortization.......... 3,394,279 3,831,542
---------- -----------
$2,040,698 $ 7,283,715
========== ===========
</TABLE>
Sale-Leaseback of Facility
On January 15, 1997, PerImmune exercised its option to purchase the land
and building it occupies in Rockville, Maryland, for a pre-established price of
$7,900,000. Concurrent with the purchase, PerImmune sold the property to a
third-party buyer. The sale included the building and improvements, and certain
equipment. The sales price, excluding settlement and transfer costs, was
$14,150,000, and the loss resulting from this transaction was approximately
$335,000, after consideration of estimated costs for repairs described below.
The Company received approximately $5,136,000 in cash at the closing of the
transaction. This
F-39
<PAGE> 119
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(6) PROPERTY AND EQUIPMENT (CONTINUED)
transaction has been treated as a sale-leaseback. As such, the plant and
equipment previously owned by the Company were removed from the balance sheet
and the loss was recognized.
In conjunction with the sale, PerImmune agreed to make certain repairs at
its own expense and to obtain the release of certain liens against the property.
To ensure compliance with these provisions of the agreement, PerImmune deposited
$500,000 (maintenance escrow) and $100,000 (lien escrow) into escrow accounts.
In addition, PerImmune has agreed to deposit, on a monthly basis from February
1997 through January 2002, $3,333 for costs to be used for elevator repairs and
refurbishment (elevator escrow). The Company is entitled to any amounts not
spent for the described purpose. As of December 31, 1997, the balances in the
maintenance escrow and elevator escrow were $393,000 and $40,000, respectively.
Liens against the property have been released and the $100,000 lien escrow was
refunded to the Company in full during 1997.
In connection with the sale leaseback transaction, PerImmune issued the
buyer a warrant for the purchase of 25,000 shares of PerImmune common stock if
PerImmune consummates an initial public offering (IPO) or if certain other
events occur, such as a capital reorganization, recapitalization, dissolution or
liquidation. The warrants are exercisable for three years following the date of
one of the previously described events. The warrants expire in July 1999 if one
of the above events has not occurred. The warrant purchase price in an IPO would
be the offering price and for the other events described above, the price would
be determined by a formula described in the warrant agreement.
(7) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of costs and estimated earnings in excess of
billings on uncompleted contracts as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Costs incurred on uncompleted contracts........... $30,077,868 $28,548,030
Estimated earnings................................ 2,298,118 2,154,438
----------- -----------
Total costs and estimated earnings................ 32,375,986 30,702,468
Less:
Billings to date................................ 32,148,654 29,836,800
Allowance for losses............................ 67,771 116,629
----------- -----------
$ 159,561 $ 749,039
=========== ===========
</TABLE>
(8) NOTES PAYABLE
Notes payable at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
8% promissory notes to OTC........................ $ 9,988,005 $14,834,935
Other notes....................................... 232,500
----------- -----------
10,220,505 14,834,935
Less current portion.............................. 10,220,505 5,600,000
----------- -----------
$ $ 9,234,935
=========== ===========
</TABLE>
In August 1996, in connection with the leveraged buyout, Holdings issued an
8% promissory note to OTC for $9,234,935 to purchase the outstanding common
stock of PerImmune, Inc. Interest accrued on the note is added to the principal
balance on February 1 and August 1 each year. The note matures in August 1998
and is collateralized by the patents, patent applications, trademarks and plant
and equipment acquired in the
F-40
<PAGE> 120
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(8) NOTES PAYABLE (CONTINUED)
leveraged buyout. As of December 31, 1997 and 1996, the principal and accrued
interest amount outstanding was $9,988,005 and $9,234,935, respectively.
Holdings also issued an 8% note for a credit facility permitting draws of
$720,000 per month up to $3,600,000 and a $2,871,532 working capital facility to
provide capital for operations, both with OTC. The Company borrowed $3,600,000
and $2,000,000, respectively, under the facilities as of December 31, 1996.
These notes were collateralized by the patents, patent applications, trademarks
and plant and equipment acquired in the leveraged buyout. These notes matured in
January and August 1997, respectively, and principal and accrued interest were
paid in full.
In January 1997, Holdings issued three uncollateralized, non-interest
bearing promissory notes, for a total face amount of $232,500, to its advisors
on the sale leaseback transaction (see note 6). Each promissory note is
convertible into two shares of Holdings $0.01 par value common stock and have no
specified maturity date. As of December 31, 1997, no conversion had taken place.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Accrued payroll..................................... $ 157,856 $ 166,853
Accrued bonuses..................................... 327,648 313,004
Accrued interest -- OTC promissory note............. 332,110 306,990
Accrued repair costs (see note 6)................... 393,000
Due to OTC.......................................... 500,000
Other............................................... 367,669 600,487
---------- ----------
$2,078,283 $1,387,334
========== ==========
</TABLE>
(10) EMPLOYEE RETIREMENT BENEFIT PLANS
Pension Plan
In December 1996, the Company decided to establish a noncontributory
defined benefit pension plan (the Plan) retroactive to the date of the leveraged
buyout. This plan has terms similar to those of the Akzo Nobel Retirement Plan
(ANRP) and covers substantially all of the Company's employees. Under the terms
of this plan employees are given credit for prior service. Pursuant to the terms
of the purchase agreement, the fair value of plan assets equal to the present
value of the accumulated pension benefit obligation (as determined by an
actuarial valuation as of the date of the leveraged buyout) were transferred
from ANRP to PerImmune's new pension trust in April 1997. In February 1998, the
Company froze the benefit accruals under the plan.
F-41
<PAGE> 121
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(10) EMPLOYEE RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plan at December
31, 1997 and 1996, and the composition of net periodic pension cost and
significant assumptions for the year ended December 31, 1997 and period from
August 3, 1996 through December 31, 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of approximately $1,251,865 in 1997 and $1,133,561 in
1996................................................... $ 1,565,486 $ 1,362,971
Effect of anticipated increase in compensation levels..... 770,256 718,744
------------ ------------
Projected benefit obligation................................ 2,335,742 2,081,715
Plan assets at fair value................................... 1,360,127 1,238,260
------------ ------------
Excess of projected benefit obligation over plan assets..... (975,615) (843,455)
Unrecognized net investment gain............................ (208,287) (92,424)
------------ ------------
Total pension liability accrued................... $ (1,183,902) $ (935,879)
============ ============
Net periodic pension cost includes the following components:
Service cost -- benefits earned during the period......... $ 213,981 $ 93,606
Interest cost on projected benefit obligation............. 151,631 61,916
Actual return on assets................................... (173,965) (135,097)
Net amortization and deferred investment gain............. 56,376 92,424
------------ ------------
Net periodic pension cost......................... $ 248,023 $ 112,849
============ ============
Significant assumptions used were as follows:
Discount rate............................................. 7.5% 7.5%
Rate of increase in compensation levels (graded by age of
participant)........................................... 4.0 to 10.5% 4.0 to 10.5%
Expected rate of return of assets......................... 9.5% 9.5%
============ ============
</TABLE>
Retirement Savings Plan
The Company maintains a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees. Participating employees may defer a portion of their pretax earnings
up to the Internal Revenue Service annual contribution limit. The Company
matches employee contributions according to a specified formula. The Company's
matching contributions totalled $176,098 and $72,779 for the year ended December
31, 1997, and period from August 3, 1996 through December 31, 1996,
respectively.
(11) STOCKHOLDERS' EQUITY
Syncor Agreement
On April 23, 1997, Holdings issued 100 shares of its Series A Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series A) to
Syncor International Corporation (Syncor) for $4,500,000 less transaction costs
of $246,215. Dividends are payable if and when declared by the Board of
Directors at the rate of 7% of the liquidation preference per annum, where the
liquidation preference is initially defined as $45,000 per share, subject to
certain adjustments. Each share of Series A may be converted into one share of
common stock before the redemption date (as defined below) at the option of the
holder, or is automatically converted on the date of a qualifying initial public
offering, as defined in the agreement. The Company shall redeem the Series A
seven years after the issuance date (the redemption date) in the event that all
shares have not been converted by this date. If such redemption occurs, the
redemption price shall
F-42
<PAGE> 122
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(11) STOCKHOLDERS' EQUITY (CONTINUED)
equal the amount of the liquidation preference plus any declared but unpaid
dividends. No dividends on the Company's common stock may be made while any
shares of preferred stock remain outstanding. In the event of liquidation or
dissolution, Syncor shall be entitled to be paid from the assets of Holdings, in
preference to the common stockholders, but on an equal basis with Preferred
Series B stockholders, the liquidation preference plus all declared but unpaid
dividends. Holdings shall also have the right of first refusal to repurchase
these shares should Syncor wish to sell them. In connection with this issuance,
Syncor and the holders of Holding's stock were also granted certain registration
rights as contained in the registration agreement.
Mentor Agreements
On June 16, 1997, the Company issued 20 shares of Series B Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series B) to
Mentor Corporation (Mentor) for $1,000,000. On December 22, 1997, the Company
issued an additional 100 shares of Series B to Mentor for $5,000,000 less
transaction costs of $500,000. Dividends are payable if and when declared by the
Board of Directors at the rate of 7% of the liquidation preference per annum,
where liquidation preferences is defined as $50,000 per share, subject to
certain adjustments. Each share of Series B preferred stock shall have the same
rights, preferences and terms as Series A preferred stock.
Options
On September 27, 1996, Holdings granted 255 stock options to members of
management at an exercise price of $2,725 per option. The options vest over
three years and expire ten years from the date of grant. On May 16, 1997,
Holdings granted an additional 2 stock options to its directors at an exercise
price of $45,000 per option. The options vest over one year and expire ten years
from the date of grant. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at August 3, 1996............................
Granted.................................................. 255 $ 2,725
Exercised................................................
Canceled.................................................
--- -------
Outstanding at December 31, 1996......................... 255 2,725
Granted.................................................. 2 45,000
Exercised................................................
Canceled.................................................
--- -------
Outstanding at December 31, 1997......................... 257 $ 3,054
=== =======
Options exercisable at December 31, 1997................. 85 $ 2,725
=== =======
</TABLE>
The weighted-average remaining contractual life of outstanding options, as
of December 31, 1997 and 1996, was 8.75 and 9.75 years, respectively.
Under APB No. 25, because the exercise price of the Company's stock options
generally equals the fair value, as determined by the Company's management, of
the underlying stock on the date of grant, no compensation expense is recognized
in the Company's consolidated financial statements.
F-43
<PAGE> 123
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(11) STOCKHOLDERS' EQUITY (CONTINUED)
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if the Company had accounted for its stock options under
the fair value method of that statement. The fair value of each option is
estimated at the date of grant using the Black-Scholes option pricing model with
the following weighted-average assumptions used for grants issued during the
year ended December 31, 1997, and period from August 3, 1996 through December
31, 1996:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Risk-free interest rate................................... 6.76% 6.28%
Dividend yield............................................ 0.00% 0.00%
Volatility factor......................................... 70.00% 70.00%
2 3
Expected term of option................................... years years
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
net loss would have been as indicated in the pro forma table below:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 3, 1996
DECEMBER 31, THROUGH
1997 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Net loss -- as reported........................ $10,825,233 $4,575,320
Net loss -- pro forma.......................... 10,963,095 4,604,552
Weighted average fair value of options
granted...................................... 16,654 1,377
</TABLE>
(12) COMMITMENTS
The Company leases certain equipment under agreements which are classified
as capital leases. Assets under capital leases at December 31, 1997 are included
in the consolidated balance sheet as follows:
<TABLE>
<S> <C>
Telephone system and equipment.............................. $180,619
Computer equipment.......................................... 32,000
--------
212,619
Less: accumulated depreciation.............................. 23,652
--------
$188,967
========
</TABLE>
The Company also leases laboratory, office and manufacturing facilities and
equipment under noncancelable operating leases which expire at various times
through January 31, 2007 (including the lease transaction described in note 6
which is also reflected in the amounts below).
F-44
<PAGE> 124
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(12) COMMITMENTS (CONTINUED)
Future minimum lease payments, by year end and in the aggregate, under the
aforementioned capital and operating leases, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- --------
<S> <C> <C>
1998................................................ $ 1,912,291 $ 66,813
1999................................................ 1,766,447 73,976
2000................................................ 1,801,118 69,980
2001................................................ 1,847,568 5,166
2002................................................ 1,902,379
Thereafter.......................................... 8,396,465
----------- --------
$17,626,268 215,935
===========
Less: imputed interest.............................. 43,697
--------
Present value of net minimum obligations............ 172,238
Current portion..................................... 44,896
--------
Long-term obligation................................ $127,342
========
</TABLE>
Rent expense was $1,753,790 and $588,311 for the year ended December 31,
1997, and the period from August 3, 1996 through December 31, 1996,
respectively. Rent expense is included in both selling, general and
administrative expenses and costs of contracts in the consolidated statements of
operations.
In July 1997, the Company entered into a licensing agreement with a
computer system company for the non-exclusive rights to its system software and
maintenance services. The total licensing fee for the eighteen month period
ending December 31, 1998 is $210,095 and the total maintenance fee is $48,120.
As of December 31, 1997, the Company had paid $132,215 of the licensing and
maintenance fees and the remaining commitment is included in the above future
minimum lease payments.
On January 2, 1998, the Company entered into a three year employment
agreement with a key member of management. The agreement establishes a minimum
compensation level and certain other terms.
(13) INCOME TAXES
The amount computed by applying the Federal corporate income tax rate of
34% to loss before income taxes is reconciled to the provision for income taxes
as follows:
<TABLE>
<CAPTION>
PERIOD FROM
YEAR ENDED AUGUST 3, 1996
DECEMBER 31, THROUGH
1997 DECEMBER 31, 1996
------------ -----------------
<S> <C> <C>
Income tax benefit at statutory rates.......... $(3,680,579) $(1,555,609)
State income taxes, net of federal tax
benefit...................................... (486,573) (205,675)
Valuation allowance adjustment................. 4,167,152 1,759,661
Other.......................................... 1,623
----------- -----------
$ $
=========== ===========
</TABLE>
F-45
<PAGE> 125
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1996
(13) INCOME TAXES (CONTINUED)
Deferred income tax (assets) and liabilities as of December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------------
<S> <C> <C>
Net operating loss carryforwards............... $(5,997,028) $(1,802,118)
Excess of tax over book basis of assets........ (95,820) (193,520)
Allowance for doubtful accounts and other
reserves..................................... (32,000) (11,539)
Accrued expenses............................... (604,924) (520,259)
Other.......................................... 23,610 (11,567)
----------- -----------
Deferred tax assets............................ (6,706,162) (2,539,003)
Valuation allowance............................ 6,706,162 2,539,003
----------- -----------
Net deferred tax asset......................... $ -- $ --
=========== ===========
</TABLE>
At December 31, 1997 the Company has a net operating loss carryforward for
both federal and state purposes of approximately $14,992,000 which expire
through the year 2012. This net operating loss carryforward relates to the
period August 3, 1996 through December 31, 1996 and for the year ended December
31, 1997 (periods subsequent to the leverage buyout) and as such, is not limited
under existing tax laws. However, this carryforward will be limited under the
Internal Revenue Code as a result of the changes in ownership of the Company as
discussed in note 14. A valuation allowance has been established to reflect the
uncertainty of future taxable income to utilize available tax loss
carryforwards.
(14) SUBSEQUENT EVENTS
Merger
On January 2, 1998, the stockholders of Holdings sold all outstanding
shares of Holding's capital stock to Intracel Corporation ("Intracel") through a
tax-free merger. With the consummation of the transaction, Holdings and
Perimmune became subsidiaries of Intracel. Intracel is a privately owned
biotechnology company developing products that improve the treatment options for
patients suffering from serious viral diseases and cancers. The aggregate
purchase price was approximately $59,471,000, payable in 5,478,654 shares of
Intracel common stock, 2,340,838 options to purchase Intracel common stock, 220
shares of Intracel Series B-1 and B-2 preferred stock, Intracel's assumption of
Perimmune's debt of approximately $11,532,000 and Intracel's assumption of other
liabilities. The acquisition will be accounted for using the purchase method of
accounting and accordingly, Intracel's financial statements will reflect
valuation of all of Perimmune's assets, including identifiable intangibles, at
their estimated fair market values. Perimmune's operating results will be
included in Intracel's consolidated operating results from the date of
acquisition.
Refinancing
On June 8, 1998 OTC negotiated with Intracel to delay the maturity of the
8% note payable until January 2000.
F-46
<PAGE> 126
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS' REPORT
The Board of Directors and Stockholders
PerImmune Holdings, Inc.:
We have audited the consolidated balance sheet of PerImmune Holdings, Inc. and
subsidiary (the Company) as of December 31, 1996, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the period
from August 3, 1996 through December 31, 1996. We have also audited the
statements of operations, stockholders' equity and cash flows of the Predecessor
Company for the period from January 1, 1996 through August 2, 1996 and for the
year ended December 31, 1995. These financial statements are the responsibility
of the Companies' 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PerImmune
Holdings, Inc. and subsidiary as of December 31, 1996, and the consolidated
results of their operations and their cash flows for the period from August 3,
1996 through December 31, 1996, and the results of operations and cash flows for
the Predecessor Company for the period from January 1, 1996 through August 2,
1996 and for the year ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Baltimore, Maryland
February 28, 1997, except as to
note 14 which is as of April 23, 1997
and June 16, 1997
F-47
<PAGE> 127
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 2,423,910
Accounts receivable:
Affiliates (Note 3).................................... 218,494
Government............................................. 395,952
Other.................................................. 646,273
Inventories (Note 5)...................................... 375,488
Costs and estimated earnings in excess of billings on
uncompleted contracts (Note 7)......................... 749,039
Other current assets...................................... 293,699
-----------
Total current assets........................................ 5,102,855
Plant and equipment, net (Note 6 and 14).................... 7,283,715
Acquisition costs, net (Note 2)............................. 1,237,500
-----------
$13,624,070
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable (Note 8).................................... $ 5,600,000
Accounts payable (Note 2)................................. 1,950,427
Accrued liabilities (Note 9).............................. 1,387,334
-----------
Total current liabilities................................... 8,937,761
Accrued pension liability (Note 10)......................... 935,879
Note payable (Note 8)....................................... 9,234,935
-----------
Total liabilities........................................... 19,108,575
Stockholders' deficit (Notes 2 and 11):
Common stock: $.01 par value; 1,000 shares authorized;
593.5 shares issued and outstanding at December 31,
1996................................................... 6
Accumulated deficit....................................... (5,484,511)
-----------
Total stockholders' deficit................................. (5,484,505)
Commitments and contingencies (Notes 3, 4 and 12)
Subsequent events (Note 14)
-----------
$13,624,070
===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-48
<PAGE> 128
PERIMMUNE HOLDINGS INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF OPERATIONS
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIMMUNE
HOLDINGS PREDECESSOR COMPANY
CONSOLIDATED -----------------------------------
----------------- PERIOD FROM
PERIOD FROM JANUARY 1,
AUGUST 3, 1996 1996
THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 AUGUST 2, 1996 DECEMBER 31, 1995
----------------- -------------- -----------------
<S> <C> <C> <C>
Revenues:
Contract research and development revenue:
Affiliates (Note 3)..................... $ 322,652 $ 5,024,245 $10,537,106
Government.............................. 2,750,942 3,420,549 6,578,019
Commercial.............................. 782,863 2,151,763 775,700
Product sales.............................. 594,157 1,631,918 1,407,274
----------- ----------- -----------
4,450,614 12,228,475 19,298,099
----------- ----------- -----------
Costs of contracts and sales:
Contract research and development costs:
Affiliates (Note 3)..................... 300,066 4,312,638 9,545,830
Government.............................. 1,968,098 3,375,008 5,778,534
Commercial.............................. 585,876 1,985,682 643,224
Costs of products sold..................... 324,886 1,102,374 1,124,239
----------- ----------- -----------
3,178,926 10,775,702 17,091,827
----------- ----------- -----------
Gross profit................................. 1,271,688 1,452,773 2,206,272
Operating expenses:
Research and development (Note 1).......... 4,683,020 189,261 359,998
Selling, general and administrative........ 708,247 740,174 1,283,234
Other...................................... 10,151 14,211 28,862
----------- ----------- -----------
Total operating expenses..................... 5,401,418 943,646 1,672,094
----------- ----------- -----------
Income (loss) from operations................ (4,129,730) 509,127 534,178
Interest expense............................. (445,590) -- --
----------- ----------- -----------
Income (loss) before income taxes............ (4,575,320) 509,127 534,178
Provision for income taxes (Note 13)......... -- 68,259 355,688
----------- ----------- -----------
Net income (loss)............................ $(4,575,320) $ 440,868 $ 178,490
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-49
<PAGE> 129
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------ PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
------ ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
PREDECESSOR COMPANY:
Balance at January 1, 1995.............. 1,000 $ 10 $10,242,309 $ -- $10,242,319
Net contribution from parent............ -- -- 100,596 -- 100,596
Net income.............................. -- -- -- 178,490 178,490
----- ---- ----------- ----------- -----------
Balance at December 31, 1995............ 1,000 10 10,342,905 178,490 10,521,405
Net distribution to parent.............. -- -- (1,801,342) -- (1,801,342)
Net income for the period from January
1, 1996 through August 2, 1996....... -- -- -- 440,868 440,868
----- ---- ----------- ----------- -----------
Balance at August 2, 1996................. 1,000 10 8,541,563 619,358 9,160,931
===== ==== =========== =========== ===========
- ------------------------------------------------------------------------------------------------------
PERIMMUNE HOLDINGS, INC.:
Issuance of common stock of PerImmune
Holdings, Inc. on June 28, 1996...... 585 6 5,844 -- 5,850
Acquisition costs paid through issuance
of common stock (Note 2)............. 8.5 -- 100,000 -- 100,000
Consideration paid in excess of net
assets acquired (Note 2)............. -- -- (105,844) (909,191) (1,015,035)
Net loss for the period from August 3,
1996 through December 31, 1996....... -- -- -- (4,575,320) (4,575,320)
----- ---- ----------- ----------- -----------
Balance at December 31, 1996.............. 593.5 $ 6 $ -- $(5,484,511) $(5,484,505)
===== ==== =========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-50
<PAGE> 130
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
STATEMENTS OF CASH FLOWS
PERIOD FROM AUGUST 3, 1996 THROUGH DECEMBER 31, 1996, PERIOD FROM JANUARY 1,
1996 THROUGH
AUGUST 2, 1996 AND YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PERIMMUNE HOLDINGS PREDECESSOR COMPANY
CONSOLIDATED ------------------------------------
--------------------- PERIOD FROM
PERIOD FROM AUGUST 3, JANUARY 1, 1996
1996 THROUGH THROUGH YEAR ENDED
DECEMBER 31, 1996 AUGUST 2, 1996 DECEMBER 31, 1995
--------------------- --------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(4,575,320) $ 440,868 $ 178,490
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 298,834 270,148 476,186
Loss on disposal of equipment.................. 1,330 -- 44,342
Decrease (increase) in accounts receivable:
Affiliates................................... (156,721) 2,720,401 991,941
Government................................... 317,372 140,254 (375,722)
Other........................................ 69,742 (439,377) (115,311)
Decrease (increase) in costs and estimated
earnings in excess of billings............... 237,825 (125,687) (158,452)
Increase in inventories........................ (4,840) (57,490) (42,852)
Decrease (increase) in other current assets.... (162,592) 102,105 74,058
Increase (decrease) in accounts payable and
accrued liabilities.......................... 2,062,411 (628,419) (276,783)
Increase in accrued pension liability.......... 112,849 -- --
Increase (decrease) in advance contract
billings..................................... (5,050) (516,568) 132,402
----------- ----------- -----------
Net cash provided by (used in) operating
activities........................................ (1,804,160) 1,906,235 928,299
----------- ----------- -----------
Cash flows from investing activities:
Acquisition costs................................. (1,250,000) -- --
Capital expenditures.............................. (129,280) (104,893) (1,029,395)
----------- ----------- -----------
Net cash used in investing activities............... (1,379,280) (104,893) (1,029,395)
----------- ----------- -----------
Cash flows from financing activities:
Net contribution from (distribution to) parent
company........................................ -- (1,801,342) 100,596
Proceeds from issuance of common stock............ 5,850 -- --
Proceeds from issuance of notes payable........... 5,600,000 -- --
----------- ----------- -----------
Net cash provided by (used in) financing
activities........................................ 5,605,850 (1,801,342) 100,596
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents....................................... 2,422,410 -- (500)
Cash and cash equivalents at beginning of year...... 1,500 1,500 2,000
----------- ----------- -----------
Cash and cash equivalents at end of year............ $ 2,423,910 $ 1,500 $ 1,500
=========== =========== ===========
Supplementary disclosure of non-cash financing
activities:
Purchase of common stock of PerImmune, Inc. with a
note payable (Note 2).......................... $ 9,234,935 -- --
Acquisition costs paid through issuance of common
stock.......................................... 100,000 -- --
Consideration paid in excess of net assets
acquired....................................... 1,015,035 -- --
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements.
F-51
<PAGE> 131
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
PerImmune Holdings, Inc. and Subsidiary is composed of PerImmune Holdings,
Inc. (Holdings) and PerImmune, Inc. (the Company or PerImmune). Holdings was
incorporated on June 28, 1996 for the purpose of acquiring the Company in a
leveraged buyout transaction.
Between 1985 and 1996, the Company was owned by Organon Teknika Corporation
(the Parent Company or OTC), a subsidiary of Akzo Nobel, Inc., which is
wholly-owned by Akzo Nobel, NV (Netherlands). Prior to December 20, 1994, the
Company operated as a division of OTC, and was known as Biotechnology Research
Institute (BRI). On December 20, 1994, PerImmune (the Predecessor Company) was
formed as a wholly-owned corporation of OTC with the issuance of 1,000 shares of
common stock in exchange for all the assets and liabilities related to the
PerImmune business. Effective August 3, 1996, the Company was acquired by
Holdings through a leveraged buyout (see Note 2). Holdings has no substantive
operations.
The Company is a research oriented healthcare company that applies
biotechnology and other techniques of modern biology and chemistry to develop,
produce and sell products intended to improve the quality of life by diagnosing,
preventing and treating human disease. The Company's focus is on the development
of human monoclonal antibodies for cancer and infectious disease applications,
as well as, cancer vaccines, specific and non-specific immunotherapy and
cardiovascular disease test products. Historically, the Company's primary
sources of revenue have been research and development contracts with affiliated
companies, revenues generated from government contracts and sales of products
and services. PerImmune markets its products in the United States, Europe and
other geographic regions.
While the Company was held by OTC, it successfully developed a number of
profitable products for the Parent Company including bladder cancer therapeutic,
food pathogen and HIV tests. Most of PerImmune's products are intended for human
use and are, therefore, regulated by the United States Food and Drug
Administration.
Basis of Presentation
The consolidated financial statements as of December 31, 1996 and for the
period from August 3, 1996 through December 31, 1996 include the accounts of
Holdings and the Company. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The financial statements for the year ended December 31, 1995 and for the
period from January 1, 1996 through August 2, 1996 represent the stand-alone
results of operations of PerImmune, Inc., a wholly-owned subsidiary of OTC.
Due to the change in ownership of the Company, the comparability of the
financial statements is affected. In particular, equity has changed
significantly due to the new ownership and debt related to the acquisition. Cash
and cash equivalents is also different as balances are no longer managed by the
former Parent Company. In addition, certain liabilities which were paid for by
the Parent Company and allocated to the division or the subsidiary through the
intercompany accounts have been recognized by the Company subsequent to the LBO
transaction (see Note 3). Also, certain research and development activities
performed prior to the leveraged buyout for affiliates and were reimbursed under
the contractual arrangements described in Note 3, are subsequently performed for
the Company's benefit and are not reimbursed.
F-52
<PAGE> 132
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ materially from those estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with original
maturities of three months or less at the date of investment by the Company.
Inventories
Inventories are stated at the lower of cost or market using the FIFO cost
method.
Plant and Equipment
Plant and equipment are stated at cost. Depreciation on plant and equipment
is computed by the straight-line method over the estimated useful lives of the
assets of 3 to 7 years. Leasehold improvements are amortized on a straight-line
basis over the remaining lease term or asset useful life, whichever is shorter.
Construction in progress represents buildings, leasehold improvements and
other capital expenditures for facilities under construction and machinery
pending installation. This includes the costs of construction, plant and
machinery and costs related to obtaining appropriate regulatory approvals.
Construction in progress costs are transferred to other plant and equipment
categories when the construction/installation is completed, appropriate
regulatory approvals have been obtained and the asset is ready for use.
Acquisition Costs
Acquisition costs represent costs incurred related to the leveraged buyout
transaction (see Note 2). Amortization of acquisition costs is computed on a
straight-line basis over 5 years.
Income Taxes
The Company was included in the Akzo Nobel, Inc. consolidated Federal
income tax return for the year ended December 31, 1995, and for the period
January 1, 1996 through August 2, 1996. The Company will file a separate
consolidated Federal income tax return for the period August 3, 1996 through
December 31, 1996. Prior to August 3, 1996, deferred income taxes were reflected
in stockholders' equity (deficit).
Deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by a valuation allowance for any tax benefits which are
not expected to be realized. The effect on deferred tax assets and liabilities
of changes in tax rates is recognized in the period that such tax rate changes
are enacted.
Fair Value of Financial Instruments
The carrying amount of current financial instruments approximate fair value
because of the short-term nature of these instruments. The Company has notes
payable related to the leveraged buyout for which it is
F-53
<PAGE> 133
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not practicable to estimate the fair value of these notes since they are not
traded, and no quoted values are readily available for similar financial
instruments. However, management believes that there has been no permanent
impairment in the value of these notes.
Stock-based Compensation
The Company accounts for share option issuances in accordance with the
provisions of APB No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, deferred compensation is recorded to the extent that
the market value of the underlying stock exceeds the exercise price on the date
of grant. Such deferred compensation is amortized over the respective vesting
periods of such option grants. On January 1, 1996, the Company adopted the
disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation, which allows entities to continue to apply the provisions of APB
No. 25 for financial statement reporting purposes and provide pro forma net
income (loss) footnote disclosures for employee stock option grants made in 1995
and 1996 as if the fair-value based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the financial statement
reporting provisions of APB No. 25 and to provide the pro forma disclosure
provisions of SFAS No. 123. Transactions with non-employees, in which goods or
services are the consideration received for the issuance of equity instruments,
are accounted for under the fair-value based method defined in SFAS No. 123 (see
Note 11).
Revenue Recognition
Revenue from sales of products is recognized on the date of delivery to
customers or upon shipment, based upon the contractual terms of applicable
agreements.
The Company has entered into various research and development and licensing
agreements (see Notes 3 and 4). Research and development revenue from
cost-reimbursement agreements is recorded as the related expenses are incurred,
up to contractual limits and when the Company meets its performance obligations
under the respective agreements. Contract revenue is recognized under other
agreements when milestones are met and the Company's performance obligations
have been satisfied in accordance with the terms of the respective agreements.
Cash received that is related to future performance under such contracts is
deferred and recognized as revenue when earned.
The Company engages in research and development contracts with Organon
Teknika International (OT BV) and Organon International (OI). Through August 2,
1996, contract revenue is recorded at negotiated rates per direct labor hour
plus material and supplies and a 7% fee. Revenue was recorded as earned as the
contract direct labor hours are incurred and when materials and supplies are
purchased. Subsequent to August 2, 1996, the contract revenue is recorded on a
cost-plus-fixed-fee basis.
The Company also engages in contracts with commercial entities and agencies
of the U.S. government (Department of Defense and the National Institutes of
Health) on either a cost-plus-fixed-fee, fixed price or a
cost-plus-percentage-fee basis. Revenue on cost-plus-fixed-fee, fixed price and
cost-plus-percentage-fee contracts is recognized based on the total direct and
indirect costs incurred during the period to total estimated costs using the
percentage-of-completion method. Estimates to complete are reviewed periodically
and revised as required in the period the revision is determined. Provisions are
made for the full amount of anticipated losses, if any, on all contracts in the
period in which they are first known and estimable. Contracts with the U.S.
government are subject to government audit upon contract completion and
therefore, all contract costs are potentially subject to adjustment, even after
reimbursement. Management believes adequate provisions for such adjustments, if
any, have been made in the financial statements. Expense recovery rates have
been audited through 1995.
F-54
<PAGE> 134
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development, Patent and Royalty Costs
Research and development, patent and royalty costs are expensed as
incurred.
Concentration of Credit Risk
The Company performs research and development services to both affiliated
and non-affiliated entities. The Company generally does not require collateral
or other security in extending credit to its customers. The Company had three
customers which contributed ten percent or more of revenues. OTC contributed 7%,
41% and 55% of total revenues in the period from August 3, 1996 through December
31, 1996, the period from January 1, 1996 through August 2, 1996 and the year
ended 1995, respectively. The U.S. Federal Government contributed 62%, 28% and
34% of total revenues in the period from August 3, 1996 through December 31,
1996, the period from January 1, 1996 through August 2, 1996 and the year ended
1995, respectively. In addition, Baxter Healthcare Corporation contributed 14%
of the Company's revenue for the period from August 3, 1996 through December 31,
1996.
(2) LEVERAGED BUYOUT
In May 1996, Holdings engaged an investment advisor to advise Holdings with
regards to the purchase of PerImmune from Akzo Nobel, Inc., for which the
investment advisor's fee totaled $1,250,000 of which $1,225,000 is included in
accounts payable as of December 31, 1996. The investment advisor also received
8.5 shares of the Company's common stock in exchange for funding certain related
legal expenses on behalf of the Company totaling $100,000. The shares are
protected from dilution through certain future third-party financings.
Effective August 3, 1996, 100% of the Company's common stock was acquired
by Holdings from OTC in exchange for a $9,234,935 note payable (see Note 8). The
transaction was accounted for in accordance with EITF No. 88-16, Basis in
Leveraged Buyout Transactions. Because the transaction was wholly financed by
OTC, all such consideration was determined to be nonmonetary and, under the
provisions of EITF 88-16, the assets and liabilities of PerImmune were carried
over at historical cost.
Concurrent with the leveraged buyout, the ownership rights of certain
patents and other technology rights developed under the research and development
contracts with affiliates, which pertain to the business of PerImmune, were
transferred to Holdings. Under the terms of the transfer, Holdings is required
to make certain milestone payments of up to $10 million if specific future
conditions are met, and will make payments of between 5% and 7.5% of net product
sales and 50% of license revenue. Any future milestone payments will be recorded
as research and development expense when the milestone is achieved.
(3) RELATIONSHIPS WITH RELATED PARTIES
Akzo Nobel, NV
Prior to the leveraged buyout of PerImmune, ownership rights or patents
developed under the research and development contracts with OT BV and OI
belonged to these affiliates. Expenses incurred by the Company in developing and
obtaining these patents plus a fee (Note 1) were charged to Akzo Nobel, NV and
were recorded as contract research and development revenue. These amounts are
shown as accounts receivable from affiliates prior to August 3, 1996.
Organon Teknika Corporation
Prior to the incorporation of PerImmune, Inc., OTC provided certain
accounting, computer and other administrative services to PerImmune for a
management fee which was based on PerImmune's proportionate share of total OTC
expenses using a formula considering revenues, property and equipment and
payroll factors. OTC also paid all payroll taxes, medical claims, pension and
other employee benefit expenses which
F-55
<PAGE> 135
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) RELATIONSHIPS WITH RELATED PARTIES (CONTINUED)
were allocated to PerImmune and other affiliates based on the total wages of the
respective participating entities. In addition, OTC paid PerImmune's payroll,
bonuses, general insurance, relocation and personal property tax expenses, which
were charged to PerImmune on a specific identification basis. OTC also provided
materials at its cost for certain products for resale by PerImmune. Subsequent
to PerImmune, Inc.'s incorporation, the Company was responsible for paying its
own payroll taxes, personal property taxes and certain other items. Amounts
arising from the transactions described above were treated as expenses and
contributions from Parent Company by PerImmune. Product sales to OTC were
$432,645, $605,703 and $643,434 in the period from August 3, 1996 through
December 31, 1996, the period from January 1, 1996 through August 2, 1996 and
the year ended 1995, respectively.
Effective August 3, 1996, Holdings and OTC entered into a services
agreement to provide each party, including PerImmune, with mutually agreed-upon
services. OTC will provide Holdings for varying periods of time with such
services as employee benefit plan administration, administrative regulatory
support, patent and trademark prosecution and computer and other services.
Holdings will provide OTC with various product support and research services.
Each party is compensated for services as defined in the agreement, generally
cost plus a fee. Revenues and costs related to the research activities are
recorded as affiliates revenue and costs in the statement of operations.
(4) CONTRACTS AND AGREEMENTS
PerImmune has a license agreement with the Arch Development Corporation
(Arch) to make and sell products under the patent rights for Apotek Lp(a)
developed at the University of Chicago. The agreement requires the Company to
pay Arch a royalty of 4 percent of product sales. PerImmune is also
collaborating with Stanford University to develop an active-specific
immunotherapy vaccine for low grade B-cell lymphomas.
Agreement with Baxter
On January 1, 1996, PerImmune entered into a research collaboration and
license agreement with Baxter Healthcare Corporation (Baxter) whereby the
Company agreed to provide certain research, development and pilot manufacturing
services for Baxter in exchange for reimbursement of research and development
costs, milestone payments and certain royalty payments. The Company received a
non-refundable milestone payment of $1,500,000 in January 1996 which was
recognized upon receipt as commercial contract research and development revenue.
Furthermore the Company is reimbursed for actual costs incurred plus a fee of
16% during the term of the agreement. Baxter is also obligated to make up to
$3,000,000 in additional milestone payments, if the Company achieves certain
stages of U.S. and European regulatory approvals for the serotherapy products
for infectious and autoimmune diseases under development. In addition, the
Company earns a royalty ranging between 4% and 8% of gross profit with a minimum
royalty ranging between 2% and 4% of net sales, as defined in the agreement, on
sales of products depending on whether the product is a result of previously
existing technology of the Company or new technology resulting from this
development agreement. As of December 31, 1996, no royalty or additional
milestone payments were earned. The agreement has a term of three years with an
option for a fourth year. Either party may terminate this agreement at any time
without cause. All patents and technology developed under this agreement are the
property of Baxter.
Other Contracts and Agreements
The Company has entered into various other licensing and research and
development agreements whereby they are committed to participate in research and
development projects, either on a best efforts basis or upon attainment of
certain performance milestones, as defined, or both, for various periods unless
canceled
F-56
<PAGE> 136
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) CONTRACTS AND AGREEMENTS (CONTINUED)
by the respective parties. Such future amounts to be paid to the Company will
primarily be determined on a cost-plus basis, and are subject to specific
performance criteria.
(5) INVENTORIES
Inventories at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Finished goods............................................ $186,837
Work-in-process........................................... 1,337
Raw materials............................................. 187,314
--------
$375,488
========
</TABLE>
(6) PLANT AND EQUIPMENT
Plant and equipment at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Leasehold improvements.................................. $ 990,573
Computers............................................... 453,946
Machinery and equipment................................. 3,735,691
Construction in progress................................ 5,935,047
-----------
11,115,257
Less accumulated depreciation and amortization.......... 3,831,542
-----------
$ 7,283,715
===========
</TABLE>
(7) COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
The following is a summary of costs and estimated earnings in excess of
billings on uncompleted contracts as of December 31, 1996:
<TABLE>
<S> <C>
Costs incurred on uncompleted contracts..................... $28,548,030
Estimated earnings.......................................... 2,154,438
-----------
Total costs and estimated earnings.......................... 30,702,468
Less:
Billings to date.......................................... 29,836,800
Allowance for losses...................................... 116,629
-----------
$ 749,039
===========
</TABLE>
(8) DEBT OBLIGATIONS
Current notes payable at December 31, 1996 is summarized as follows:
<TABLE>
<S> <C>
Secured promissory note -- OTC, 8% interest, due January
1997...................................................... $3,600,000
Working capital secured note -- OTC, 8% interest, due August
1997...................................................... 2,000,000
----------
$5,600,000
==========
</TABLE>
In August 1996, in connection with the leveraged buyout, Holdings issued an
8% secured promissory note to OTC for $9,234,935 to purchase the outstanding
common stock of PerImmune, Inc. The note matures in
F-57
<PAGE> 137
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) DEBT OBLIGATIONS (CONTINUED)
August 1998. In addition, Holdings issued an 8% secured note for a credit
facility permitting draws of $720,000 per month up to $3,600,000 and a
$2,871,532 working capital facility to provide capital for operations, both with
OTC. The Company has borrowed $3,600,000 and $2,000,000, respectively, against
the facilities as of December 31, 1996. These notes mature on January and August
1997, respectively, when all principal and accrued interest is due. The note
which matured in January 1997 was repaid in full at that time. These notes are
all secured by the patents, patent applications and trademarks acquired in the
leveraged buyout. The secured promissory note is also secured by the plant and
equipment acquired in the leveraged buyout.
(9) ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996, are summarized as follows:
<TABLE>
<S> <C>
Accrued payroll............................................. $ 166,853
Accrued bonuses............................................. 313,004
Accrued interest -- OTC promissory note..................... 306,990
Other....................................................... 600,487
----------
$1,387,334
==========
</TABLE>
(10) EMPLOYEE RETIREMENT BENEFIT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan (the Plan)
covering substantially all of its employees. In December 1996, the Company
decided to establish a noncontributory defined benefit pension plan retroactive
to the date of the leveraged buyout. This plan has terms similar to those of the
Akzo Nobel Retirement Plan (ANRP) and covers substantially all of the Company's
employees. Under the terms of this plan employees are given credit for prior
service. Pursuant to the term of the purchase agreement, the fair value of the
plan assets equal to the present value of the accumulated pension benefit
accrued as determined by an actuarial valuation as of the date of the leveraged
buyout were transferred from the ANRP to PerImmune's new pension trust in April
1997.
F-58
<PAGE> 138
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(10) EMPLOYEE RETIREMENT BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plan at December
31, 1996 and the composition of net periodic pension cost and significant
assumptions for the period from August 3, 1996 through December 31, 1996:
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $1,133,561................................. $1,362,971
Effect of anticipated increase in compensation levels..... 718,744
----------
Projected benefit obligation................................ 2,081,715
Plan assets at fair value................................... 1,238,260
----------
Excess of projected benefit obligation over plan assets..... (843,455)
Unrecognized prior service cost............................. --
Unrecognized net investment gain............................ (92,424)
----------
Total pension liability..................................... $ (935,879)
==========
Net periodic pension cost includes the following components:
Service cost -- benefits earned during the period......... $ 93,606
Interest cost on projected benefit obligation............. 61,916
Actual return on assets................................... (135,097)
Net amortization and deferred investment gain............. 92,424
----------
Net periodic pension cost................................... $ 112,849
==========
</TABLE>
Significant assumptions used were as follows:
<TABLE>
<S> <C>
Discount rate............................................... 7.5%
Rate of increase in compensation levels (graded by age of
participant).............................................. 4.0 to 10.5%
Expected rate of return of assets........................... 9.5%
============
</TABLE>
Retirement Savings Plan
The Company maintains a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code. The plan covers substantially all full-time
employees. Participating employees may defer a portion of their pretax earnings
up to the Internal Revenue Service annual contribution limit. The Company
matches employee contributions according to a specified formula. The Company's
matching contributions totaled $72,779, $101,890 and $168,040 in the period from
August 3, 1996 through December 31, 1996, the period from January 1, 1996
through August 2, 1996, and the year ended 1995, respectively.
(11) STOCKHOLDERS' EQUITY
Common Stock
On December 20, 1994, PerImmune, Inc. was incorporated and authorized
100,000 shares and issued 1,000 shares of common stock.
On June 28, 1996, PerImmune Holdings, Inc. was formed. A total of 1,000
shares of common stock were authorized and 585 shares were issued for $105,850.
Holding's investment advisor was also issued 8.5 shares of common stock in 1996
in connection with the leveraged buyout (see Note 2).
F-59
<PAGE> 139
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(11) STOCKHOLDERS' EQUITY (CONTINUED)
Options
In August 1996, Holdings granted 255 stock options to members of
management. The options vest over three years and expire ten years from the date
of grant. Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding at August 3, 1996....................... -- $ --
Granted............................................. 255 2,725
Exercised........................................... -- --
Canceled............................................ -- --
--- ------
Outstanding at December 31, 1996.................... 255 $2,725
=== ======
Options exercisable at December 31, 1996............ -- --
=== ======
</TABLE>
Options outstanding and exercisable by price range as of December 31, 1996
are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------- -----------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF OUTSTANDING AVERAGE AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF REMAINING EXERCISE AS OF EXERCISE
PRICES DECEMBER 31, 1996 CONTRACTUAL LIFE PRICES DECEMBER 31, 1996 PRICES
-------- ----------------- ---------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C> <C>
$2,725 255 9.75 years $2,725 -- --
====== === ========== ====== === ======
</TABLE>
Pro forma Option Information
The per share weighted average fair value of all stock options granted
during 1996 was $1,377 on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions: expected
dividend yield 0%, risk-free interest rate of 6.28%, volatility of 70% and an
expected life of 3 years.
The Company applies APB No. 25 and related interpretations in accounting
for its stock options granted to employees. Accordingly, the Company has
recognized no compensation expense in connection with its stock option grants
for the period from August 3, 1996 through December 31, 1996, the period from
January 1, 1996 through August 2, 1996, and the year ended 1995. Had
compensation expense been determined based on the fair value at date of grant
for its stock option under SFAS No. 123, net income (loss) would have been
reported as the pro forma amounts indicated below:
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
AUGUST 3, 1996 JANUARY 1, 1996
THROUGH THROUGH YEAR ENDED
NET INCOME (LOSS) DECEMBER 31, 1996 AUGUST 2, 1996 1995
----------------- ----------------- --------------- ----------
<S> <C> <C> <C>
As reported....................................... $(4,575,320) $440,868 $178,490
----------- -------- --------
Pro forma......................................... $(4,604,552) $440,868 $178,490
=========== ======== ========
</TABLE>
Pro forma net income (loss) reflects only options granted from August 31,
1996 through December 31, 1996. The effects of applying SFAS No. 123 in the pro
forma net income (loss) above may not be representative of the effects on such
pro forma information for future years.
F-60
<PAGE> 140
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(12) COMMITMENTS
PerImmune leases laboratory, office and manufacturing facilities and
equipment under noncancellable operating leases which expire at various times
through January 1, 2007 (including the lease transaction described in Note 14
which is also reflected in the amounts below).
Future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1997............................................ $ 1,744,809
1998............................................ 1,797,334
1999............................................ 1,771,120
2000............................................ 1,798,251
2001............................................ 1,849,638
Thereafter...................................... 10,298,844
-----------
$19,259,996
===========
</TABLE>
Rent expense was $588,311 for the period from August 3, 1996 through
December 31, 1996, $782,088 for the period from January 1, 1996 through August
2, 1996 and $1,238,370 for the year ended December 31, 1995. Rent expense is
included in both selling, general and administrative expenses and costs of
contracts in the statements of operations.
(13) INCOME TAXES
The Company was included in the Akzo Nobel, Inc., consolidated Federal
income tax return for the year ended December 31, 1995, and for the period
January 1, 1996 through August 2, 1996. They are presented below, however, on a
separate company basis. The Company will file a separate consolidated Federal
income tax return for the period August 3, 1996 through December 31, 1996. The
provision for income tax expense on earnings before income taxes is summarized
below:
<TABLE>
<CAPTION>
PERIMMUNE HOLDINGS
CONSOLIDATED PREDECESSOR COMPANY
------------------ --------------------------
PERIOD FROM PERIOD FROM
AUGUST 3, JANUARY 1,
1996 THROUGH 1996 THROUGH
DECEMBER 31, AUGUST 2, YEAR ENDED
1996 1996 1995
------------------ ------------ ----------
<S> <C> <C> <C>
Current................................... $ -- $68,259 $355,688
Deferred.................................. -- -- --
------- ------- --------
Total........................... $ -- $68,259 $355,688
======= ======= ========
</TABLE>
F-61
<PAGE> 141
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(13) INCOME TAXES (CONTINUED)
The amount computed by applying the Federal corporate income tax rate of
34% to earnings before income taxes is reconciled to the provision for income
taxes as follows:
<TABLE>
<CAPTION>
PERIMMUNE
HOLDINGS
CONSOLIDATED PREDECESSOR COMPANY
------------ --------------------------
PERIOD FROM PERIOD FROM
AUGUST 3, JANUARY 1,
1996 THROUGH 1996 THROUGH
DECEMBER 31, AUGUST 2, YEAR ENDED
1996 1996 1995
------------ ------------ ----------
<S> <C> <C> <C>
Income tax computed at statutory rates......... $(1,555,609) $ 173,103 $181,621
State income taxes, net of Federal tax
benefit...................................... (205,675) 23,313 25,243
Expenses not deductible for tax purposes....... 1,623 3,036 3,818
Valuation allowance adjustment................. 1,759,661 (131,193) 145,006
----------- --------- --------
$ -- $ 68,259 $355,688
=========== ========= ========
</TABLE>
Deferred income tax (assets)and liabilities as of December 31, 1996 are
summarized as follows:
<TABLE>
<S> <C>
Excess of book over tax (tax over book) basis of assets..... $ (193,529)
Allowance for doubtful accounts and other reserves.......... (11,539)
Accrued expenses............................................ (520,257)
Non-SRLY net operating loss carryovers...................... (1,802,118)
Other....................................................... (11,567)
-----------
(2,539,010)
Valuation allowance......................................... 2,539,010
-----------
$ --
===========
</TABLE>
Prior to the leveraged buyout, the provision for Federal and state income
taxes is recorded using the overall effective tax rate of the consolidated group
applied to the Company's pre-tax earnings before adjustments for permanent
differences. Deferred income tax assets and liabilities are recorded for the
Company's temporary differences using the same effective tax rate. Prior to the
leveraged buyout, the total provision for income taxes represents income taxes
currently payable to the former Parent Company and has been treated as
contributions from parent.
At December 31, 1996, the Company has a net operating loss carryforward for
both Federal and state purposes of $4,681,000 which expires in the year 2011.
This net operating loss carryforward relates to the period August 3, 1996
through December 31, 1996 and as such, is not limited under existing tax laws.
However, this carryforward may be significantly limited under the Internal
Revenue Code as a result of future ownership changes by the Company.
It is more likely than not that the net deferred tax assets reflected above
will not be realized in future years. Therefore, a valuation allowance of
$2,539,010 has been established for the year ended December 31, 1996. The
$478,887 difference between the $2,107,355 net increase in the valuation
allowance from December 31, 1995 to December 31, 1996, and the $1,628,468
increase that reconciles expected to actual tax expense in 1996, is related to
the increase in deferred tax assets which results from the LBO transaction.
Future reductions of the valuation allowance will be reported as reductions of
income tax expense in the period(s) in which it becomes more likely than not
that the tax benefits will be realized.
F-62
<PAGE> 142
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUBSEQUENT EVENTS
Sale Leaseback of Facility
On January 15, 1997, PerImmune exercised its option to purchase the land
and building it occupies in Rockville, Maryland for a pre-established price of
$7.9 million. Concurrent to the purchase, PerImmune sold the property to a
third-party (Buyer). The sale included part of the building, improvements,
certain equipment and other items previously owned by the Company and shown in
Plant and Equipment at December 31, 1996. The sales price excluding settlement
and transfer costs was $14,150,000, and the loss resulting from this transaction
was approximately $350,000, after consideration of estimated costs for repairs
described below. The Company received approximately $5.2 million at the closing
of the transaction. This transaction will be treated as a sale-leaseback. As
such, the plant and equipment previously owned by the Company will be removed
from the balance sheet and the loss will be recognized immediately.
In conjunction with the sale, PerImmune has agreed to make certain repairs
at its own expense and to obtain the release of certain liens against the
property. To ensure compliance with these provisions of the agreement, PerImmune
deposited $500,000 and $100,000 into escrow accounts. In addition, PerImmune has
agreed to deposit, on a monthly basis from February 1997 through January 2002,
$3,333 for costs to be used for elevator repairs and refurbishment. The Company
is entitled to any amounts not spent for the described purpose.
PerImmune also issued to Buyer in connection with the sale leaseback
transaction a warrant for the purchase of 25,000 shares of PerImmune common
stock if the company consummates an initial public offering (IPO) or if certain
other events occur, such as a capital reorganization, recapitalization,
dissolution or liquidation. The warrants are exercisable on or for three years
following the date of one of the previously described events. The warrants
expire in July 1999 if one of the above events has not occurred. The warrant
purchase price in an IPO would be the offering price and in one of the other
events described above, the price would be determined by a formula described in
the warrant agreement.
In January 1997, Holdings issued three uncollateralized, non-interest
bearing promissory notes, for a total face amount of $232,500, to its advisors
on the sale leaseback transaction. Each promissory note is convertible into two
shares of Holdings $0.01 par value common stock and have no specified maturity
date.
Syncor Agreement
On April 23, 1997, Holdings issued 100 shares of its Series A Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series A) to
Syncor International Corporation (Syncor) for $4.5 million. Dividends are
payable if and when declared by the Board of Directors at the rate of 7% of the
Liquidation Preference per annum, where the Liquidation Preference is initially
defined as $45,000, subject to certain adjustments. Each share of Series A may
be converted into common stock before the Redemption Date (as defined below) at
the option of the holder, or is automatically converted on the date of a
qualifying initial public offering, using a conversion rate as defined in the
agreement. The Company shall redeem the Series A five years after the issuance
date (the Redemption Date) in the event that all shares have not been converted
by this date. If such redemption occurs, the redemption price shall equal the
amount of the Liquidation Preference plus any declared but unpaid dividends. In
the event of liquidation or dissolution, Syncor shall be entitled to be paid
from the assets of Holdings, in preference to the common stockholders, but on an
equal basis with Series B stockholders (see below), the Liquidation Preference
plus all declared but unpaid dividends. Holdings shall also have the right of
first refusal to repurchase these shares should Syncor wish to sell them. In
connection with this issuance, Syncor and the holders of Holding's common stock
were also granted certain registration rights as contained in the Registration
Rights Agreement.
F-63
<PAGE> 143
PERIMMUNE HOLDINGS, INC. AND SUBSIDIARY,
AND PREDECESSOR COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUBSEQUENT EVENTS (CONTINUED)
On April 1, 1997, the Company also entered into a distribution agreement
for certain products with Syncor. Under this agreement, Syncor will pay the
Company 50% of net sales, as defined, and right of return exists in certain
situations. The Company is obligated annually to spend 15% of sales of products
covered by this agreement on research and development to improve upon the
existing or develop new products. The Company will also reimburse Syncor for all
expenses related to marketing these products up to $1.5 million, plus 50% of
amounts over $1.5 million provided the expenditures are in accordance with the
annual market plan as prepared by the two companies. This agreement has a term
of five years and is renewable for two additional two-year terms.
Mentor Agreement
On June 16, 1997, the Company issued 20 shares of Series B Mandatorily
Redeemable Convertible Preferred Stock (par value .01/share) (Series B) to
Mentor Corporation (Mentor) for $1 million. Dividends are payable if and when
declared by the Board of Directors at the rate of 7% of the Liquidation
Preference per annum, where Liquidation Preference is defined as $50,000,
subject to certain adjustments. Each share of Series B shall have the same
rights, preferences and terms as Series A described above. Series A and B shall
have equal preference.
On June 16, 1997, the Company also entered into a distribution agreement
for certain products with Mentor with an initial term of 5 years. Under this
agreement, Mentor will pay the Company 50% of net sales, as defined in the
agreement. The Company is obligated to provide up to 12,000 units of products
per year to be used by Mentor for promotional purposes, which will not be
reimbursed by Mentor.
F-64
<PAGE> 144
- ---------------------------------------------------------
- ---------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY
JURISDICTION WHERE SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 8
The Company................................... 20
Use of Proceeds............................... 21
Dividend Policy............................... 21
Capitalization................................ 22
Dilution...................................... 23
Pro Forma Consolidated Financial
Information................................. 24
Selected Financial Data....................... 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 27
Business...................................... 33
Management.................................... 61
Principal and Selling Stockholders............ 68
Description of Capital Stock.................. 70
Shares Eligible for Future Sale............... 75
Underwriting.................................. 76
Legal Matters................................. 77
Experts....................................... 77
Available Information......................... 78
Index to Consolidated Financial Statements.... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
- ---------------------------------------------------------
SHARES
INTRACEL CORPORATION
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
NATIONSBANC MONTGOMERY SECURITIES LLC
, 1998
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Other expenses in connection with the issuance and distribution of the
securities to be registered hereunder, all of which will be paid by the
Registrant, will be substantially as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
<S> <C>
Commission Registration Fee................................. $16,963
*Nasdaq National Market Filing Fee.......................... $ +
*Blue Sky Fees and Expenses (including legal fees).......... $ +
*Accounting Fees and Expenses............................... $ +
*Legal Fees and Expenses.................................... $ +
*Printing and Engraving..................................... $ +
*Registrar and Transfer Agent's Fees........................ $ +
*Underwriters' Expenses..................................... $ +
*Miscellaneous Expenses..................................... $ +
-------
Total............................................. $ +
=======
</TABLE>
- ---------------
* Estimated
+ To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of the fiduciary duty as a director, except for
liability, to the extent imposed by applicable law, for: (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) liability for payments of dividends or stock purchases
or redemptions in violation of Section 174 of the Delaware Law; or (iv) any
transaction from which the director derived an improper personal benefit. The
Bylaws provide for the indemnification of officers and directors to the full
extent permitted by the DGCL, as it now exists or may in the future by amended
(but, in the case of such amendment, only to the extent that such amendment
permits the Company to provide broader indemnification rights than permitted
prior thereto), or by other applicable law as then in effect, against all
expenses, liabilities and losses actually and reasonably incurred or suffered in
connection with service for or on behalf of the Company, including payment of
expenses in defending an action or proceeding upon receipt of any undertaking by
the person indemnified to repay such payment if it is ultimately determined that
such person is not entitled to indemnification. Such indemnification will
continue to an indemnified person who has ceased to be a director, officer,
employee or agent and will inure to the benefit of the indemnified person's
heirs, executors and administrators.
The Company's Bylaws provide that the Company may maintain insurance, at
its expense, to protect itself and any indemnified party against any expense,
liability or loss, whether or not the Company would have the power to indemnify
such person against such expense, liability or loss under the DGCL. The Company,
without further stockholder approval, may enter into contracts with any
indemnified person in furtherance of the indemnification provisions contained in
the Bylaws and may create a trust fund, grant a security interest or use other
means (including without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided in the
Bylaws.
The Company has agreed to indemnify the Underwriters and their controlling
persons, and the Underwriters have agreed to indemnify the Company and its
controlling persons, against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
Exhibit 1 hereto.
II-1
<PAGE> 146
For information regarding the Company's undertaking to submit to
adjudication the issue of indemnification for violation of the securities, see
Item 17 hereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
All references in this Item 15 to common stock reflect a 2-for-1 split
effective December 31, 1997. All sales, unless otherwise noted, were made in
reliance on Section 4(2) of the Securities Act and/or Regulation D or Rule 701
promulgated under the Securities Act and were made without general solicitation
or advertising. The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate these investments, and who
represented to the Registrant that the shares were being acquired for
investment.
COMMON STOCK
<TABLE>
<CAPTION>
DATE OF ISSUANCE SHARES ISSUED CONSIDERATION PAID NAME OF PURCHASER
- ------------------------------ ------------- ------------------ -----------------------------------
<S> <C> <C> <C>
April 8, 1996................. 3,224 $8,050 Walter Kiel
(exercise ($2.50
of warrants) exercise price)
October 18, 1996.............. 886 $3,937 Perry Rosenthal
November 18, 1997............. 318,148 $1,431,657 CoreStates Enterprise Fund
111,332 $500,994 Thomas Ole Dial
122,100 $549,450 Dublind Partners Inc.
1,388 $6,327 John Erdman
58,774 $264,483 Scott Fleming
57,386 $258,237 Mark Lieb
60,224 $271,008 Charles Lindsay (Gales & Co.)
4,444 $19,998 Charles Lindsay C/F Maxwell Lindsay
4,444 $19,998 Charles Lindsay C/F Michael Lindsay
4,444 $19,998 Charles Lindsay C/F Sally Lindsay
4,444 $19,998 Charles Lindsay C/F Susan Lindsay
222,222 $999,999 Northstar Balance Sheet Opportunities
33,332 $149,994 Nestor Olivier
194,488 $875,196 Security Insurance Company of
Hartford
694 $3,123 William Trice
11,110 $715,833 Charles Lindsay (Gales & Co.)
November 18, 1997 (exercise of 1,386 $5,544 John Erdman
warrants)................... ($4 exercise
price)
1,386 $5,544 Mark Lieb
2,774 $11,096 Scott Fleming
31,200 $124,800 Security Insurance Company of
Hartford
December 31, 1997............. 106,192 $60,000 Simon McKenzie
January 2, 1998 (merger)...... 86,529 9.5 shares of Craigie Company
PerImmune
Holdings, Inc.
Common Stock
5,392,125 592 shares of Mike Hanna (voting trust)
PerImmune
Holdings, Inc.
Common Stock
</TABLE>
II-2
<PAGE> 147
<TABLE>
<CAPTION>
DATE OF ISSUANCE SHARES ISSUED CONSIDERATION PAID NAME OF PURCHASER
- ------------------------------ ------------- ------------------ -----------------------------------
<S> <C> <C> <C>
March 11, 1998................ 70,024 $315,108 Dublind Securities
April 29, 1998................ 40,000 $100,000 Alexander Klibanov
(exercise
of option)
May 26, 1998.................. 68,132 $20,438 Janet Hanlon
(exercise
option)
June 9, 1998.................. 200 $500 Stephen Vehslage
(exercise
of option)
</TABLE>
PREFERRED STOCK
Series A-1 Preferred
<TABLE>
<CAPTION>
COMMON SHARES
SHARES CONSIDERATION ISSUABLE UPON
DATE OF ISSUANCE ISSUED PAID CONVERSION NAME OF PURCHASER
---------------- ------- ------------- ------------- --------------------------------------
<S> <C> <C> <C> <C>
September 22, 1995... 6,250 $ 50,000 12,500 Charles J. Lindsay,
IRA Acct
43,750 $ 350,000 87,500 Dublind Partners
6,250 $ 50,000 12,500 Mark Lieb
200,000 $1,600,000 400,000 Northstar Advantage
High Total Return Fund II
12,500 $ 100,000 25,000 Northstar High Yield Fund
12,500 $ 100,000 25,000 Raymond Schuyler
12,500 $ 100,000 25,000 Scott Fleming
125,000 $1,000,000 250,000 Security Insurance Company of Hartford
125,000 $1,000,000 250,000 TD Partners
November 18, 1995.... 125,000 $1,000,000 250,000 Credianstalt American Corporation
</TABLE>
Series A-2 Preferred
<TABLE>
<CAPTION>
COMMON SHARES
SHARES CONSIDERATION ISSUABLE UPON
DATE OF ISSUANCE ISSUED PAID CONVERSION NAME OF PURCHASER
---------------- ------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
March 12, 1997....................... 40,000 $4,000,000 Series A-2 not Northstar High
convertible into Total Return Fund
common stock
</TABLE>
Series A-3 Preferred
<TABLE>
<CAPTION>
COMMON SHARES
SHARES CONSIDERATION ISSUABLE UPON
DATE OF ISSUANCE ISSUED PAID CONVERSION NAME OF PURCHASER
---------------- ------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
June 25, 1997.................... 139,390 Series A-1 278,780 Creditanstalt
Preferred Shares American
exchanged for an Corporation
equal number of
Series A-3
Preferred Shares
</TABLE>
II-3
<PAGE> 148
Series B-1 Preferred
<TABLE>
<CAPTION>
COMMON SHARES
SHARES CONSIDERATION ISSUABLE UPON
DATE OF ISSUANCE ISSUED PAID CONVERSION NAME OF PURCHASER
---------------- ------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
January 2, 1998.................. 100 100 Shares of 910,931 Syncor Corporation
PerImmune
Holdings, Inc.
Series A
Preferred Stock
</TABLE>
Series B-2 Preferred
<TABLE>
<CAPTION>
COMMON SHARES
SHARES CONSIDERATION ISSUABLE UPON
DATE OF ISSUANCE ISSUED PAID CONVERSION NAME OF PURCHASER
---------------- ------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C>
January 2, 1998................. 120 120 Shares of Per- 1,092,896 Mentor Corporation
Immune Holdings,
Inc. Series B
Convertible
Preferred Stock
</TABLE>
OPTIONS
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS EXERCISE
DATE OF GRANT GRANTED PRICE/SHARE NAME OF GRANTEE
------------- --------- ----------- ---------------
<S> <C> <C> <C>
January 8, 1996........................ 20,000 $ 2.50 Scott Bleczinski
July 1, 1996........................... 60,000 $ 2.50 Matthew Root
August 14, 1996........................ 20,000 $ 2.50 Ingo Beck
10,000 $ 2.50 Rebecca Fuller
September 1, 1996...................... 20,000 $ 4.00 Cheryl Cataldo
20,000 $ 4.00 Glenn Pilkington
20,000 $ 2.50 Raymond Schuyler
30,000 $ 2.50 Bruce Jensen
60,000 $ 2.50 William Wong
4,000 $ 2.50 Patricia Walker
December 6, 1996....................... 4,500 $ 2.50 Patricia Harris
September 12, 1997..................... 20,000 $ 4.50 Pete Finlon
December 31, 1997...................... 10,000 $ 4.50 Ingo Beck
20,000 $ 4.50 Larry Bloom
20,000 $ 4.50 Pete Carbonaro
20,000 $ 4.50 Michael Carrcasino
5,000 $ 4.50 Alex Denogean
5,000 $ 4.50 John Kohl
5,000 $ 4.50 Scott Snyder
20,000 $ 4.50 Persis Strong
5,000 $ 4.50 Debbie Zumerling
January 2, 1998........................ 2,340,831 $ 4.50 Holders of PerImmune
Holdings Options
January 12, 1998....................... 20,000 $ 4.50 Peggy McGaw
February 16, 1998...................... 100,000 $ 7.50 Robert Pevenstein
March 9, 1998.......................... 100,000 $ 7.50 Daniel Reale
April 8, 1998.......................... 15,000 $ 7.50 Larry Bloom
15,000 $ 7.50 Persis Strong
2,500 $ 7.50 Roger Sweaney
May 8, 1998............................ 5,000 $ 7.50 Michael Chioti
25,000 $ 7.50 Herbert C. Hoover
5,000 $ 7.50 Ronald Levy
5,000 $ 7.50 Kim H. Lyerly
</TABLE>
II-4
<PAGE> 149
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS EXERCISE
DATE OF GRANT GRANTED PRICE/SHARE NAME OF GRANTEE
------------- --------- ----------- ---------------
<S> <C> <C> <C>
25,000 $ 7.50 H.M. Pinedo
5,000 $ 7.50 Bruce Wolf
June 15, 1998.......................... 100,000 $10.00 Carl Foster
June 22, 1998.......................... 10,000 $10.00 Carrie Mulherin
August 31, 1998........................ 7,500 $10.00 Roger Sweaney
</TABLE>
WARRANTS
<TABLE>
<CAPTION>
NUMBER OF
WARRANTS
DATE OF ISSUANCE ISSUED EXERCISE PRICE NAME OF PURCHASER
---------------- --------- -------------- -----------------
<S> <C> <C> <C>
September 27, 1995................... 172,924 $ 4.00 Dublind Partners
November 21, 1995.................... 182,354 $ 7.00 Creditanstalt American
Corporation
188,020 $ 7.00 Northstar High Yield Fund
June 11, 1996........................ 318,146 $ 7.00 CoreStates Enterprise Fund
June 21, 1996........................ 159,074 $ 7.00 Northstar Advantage High Total
Return Fund
January 2, 1998...................... 679,341 $ 4.50 Simon McKenzie
April 1, 1998........................ 49,066 $ 7.64 Northstar High Total Return
Fund
December 28, 1995.................... 49,066 $ 7.64 Northstar High Yield Fund
August 25, 1998...................... 178,354 $10.00 Northstar High Yield Fund
1,030,488 $10.00 Northstar High Total Return
Fund
356,707 $10.00 Northstar High Total Return
Fund II
59,451 $10.00 Northstar Strategic Income
Fund
</TABLE>
II-5
<PAGE> 150
PROMISSORY NOTES
<TABLE>
<CAPTION>
DATE OF ISSUANCE PRINCIPAL AMOUNT AMOUNT OF DISCOUNT NAME OF PAYEE
---------------- ---------------- ------------------ -------------
<S> <C> <C> <C>
October 1995................. $ 1,500,000 none Zynaxis, Inc.
November 16, 1995............ $ 9,000,000 none Creditanstalt Bankervein
November 15, 1995............ $ 4,667,000 none Dade International, Inc.
December 1995................ $ 6,265,000 $1,565,000 Northstar Advantage High Total
Return Fund
December 6, 1996............. $ 500,000 none Transamerica Business Credit
Corporation
June 11, 1996................ $ 4,000,000 none Corestates Enterprise Fund
June 21, 1996................ $ 2,000,000 $ 140,000 Northstar Advantage High Total
Return Fund
September 30, 1997........... $ 1,500,000 none Washington Economic Development
Finance Authority
April 1, 1998................ $ 4,000,000 none Northstar High Yield Fund
April 1, 1998................ $ 6,000,000 none Northstar High Total Return Fund
II
August 1998.................. $ 3,841,463 none Northstar High Yield
Fund
$22,195,122 none Northstar High Total
Return Fund
$ 7,682,927 none Northstar High Total
Return Fund II
$ 1,280,488 none Northstar Strategic
Income Fund
$ 658,537 none Northstar High Yield
Fund
$ 3,804,878 none Northstar High Total
Return Fund
$ 1,317,073 none Northstar High Total
Return Fund II
$ 219,512 none Northstar Strategic
Income Fund
</TABLE>
II-6
<PAGE> 151
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
I. EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1 Underwriting Agreement by and among the Representatives, the
Selling Stockholder and the Company.+
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.+
3.2 Bylaws of the Company.+
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
4.3 Registration Rights Agreement, dated as of August 25, 1998,
by and among Intracel Corporation and Northstar High Total
Return Fund, Northstar High Total Return Fund II, Northstar
High Yield Fund, Northstar Strategic Income Fund, Northstar
Balance Sheet Opportunities.
5 Opinion of Morrison & Foerster LLP.+
10.1 Lease, dated January 15, 1997, between PW Acquisitions 1,
LLC and PerImmune, Inc.*
10.2 Lease Agreement, dated April 30, 1991, between Ward
Corporation and Organon Teknika Corporation.*
10.3 Commercial Lease Agreement, dated June 1, 1993, between
Rowley Enterprises, Inc. and Polymer Technology
International for the property located at 1871 NW Gilman
Blvd., Issaquah, Washington.*
10.4 Lease Agreement, dated August 22, 1988, between Issaquah #1
Limited Partnership and Baxter Healthcare Corporation for
the premises located at I-90 Lake Place, 2005 N.W. Sammish
Road, Issaquah, Washington.*
10.5 Lease, dated February 1, 1998, between P.K. Projects Ltd.
and Intracel Corporation for the premises located at
Commerce Parkway, Richmond, British Colombia.*
10.6 Agreement and Plan of Reorganization, dated November 26,
1998, among PerImmune Holdings, Inc., Intracel Corporation
and Intracel Acquisition Sub, Inc.*
10.7 Employment Agreement, dated January 2, 1998, between Michael
G. Hanna, Jr. and Intracel Corporation.*
10.8 Employment Agreement, dated January 2, 1998, between Simon
R. McKenzie and Intracel Corporation.*
10.9 Employment Agreement between Daniel Reale and Intracel
Corporation.*
10.10 Employment Agreement between Persis Strong and Intracel
Corporation.+
10.11 Employment Agreement between Lawrence Bloom and Intracel
Corporation.+
10.12 Employment Agreement between Carl Foster and Intracel
Corporation.
10.13 Preferred Stock Purchase Agreement, dated as of March 12,
1997, between Intracel Corporation and Northstar High Total
Return Fund.*
10.14 Note and Series A- Warrant Purchase Agreement, dated as of
June 21, 1996, between Intracel Corporation and Northstar
Advantage High Total Return Fund.*
10.15 Note and Series A-III Warrant Purchase Agreement, dated as
of June 11, 1996, between Intracel Corporation and
CoreStates Enterprise Fund.*
10.16 Note and Warrant Purchase Agreement, dated as of April 1,
1998, between Intracel Corporation and Northstar High Yield
Fund and Northstar High Total Return Fund II.*
10.17 Loan and Authority Agreement, dated September 30, 1997,
between the Washington Economic Development Finance
Authority and Intracel Corporation.*
10.18 Tax Certificate and Regulatory Agreement, dated September
11, 1997 between the Washington Economic Development Finance
Authority and Intracel Corporation.*
10.19 Stock Purchase Agreement, dated July 1, 1996, between
PerImmune Holdings, Inc. and Organon Teknika Corporation.*
</TABLE>
II-7
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.20 Agreements between the Intracel Corporation and Thomas
Jefferson University.*
10.21 Product Development and License Agreement, between
PerImmune, Inc, and Sigma Diagnostics, Inc.*
10.22 Research, Collaboration and Distribution Agreement, dated
December 22, 1997, between PerImmune, Inc. and Mentor
Corporation.*
10.23 Distribution Agreement, dated June 16, 1997, between
PerImmune, Inc. and Mentor Corporation.*
10.24 Intellectual Property Agreement, dated August 2, 1996, by
and among Akzo Nobel Pharma International, B.V. and
PerImmune Holdings, Inc.*
10.25 Intellectual Property Security Agreement, dated August 13,
1996, by and among PerImmune Holdings, Inc., PerImmune,
Inc., Akzo Nobel Pharma International, B.V. and Organon
Teknika Corporation.*
10.26 1989 Stock Option Plan.+
10.27 1996 Stock Option Plan of PerImmune Holdings, Inc.+
10.28 Employment Agreement, dated January 6, 1998, between Peggy
McGaw and Intracel Corporation.+
10.29 Securities Purchase Agreement, dated as of August 25, 1998,
among Intracel Corporation, Bartels, Inc., PerImmune
Holdings, Inc., PerImmune, Inc. and Northstar High Yield
Fund, Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund.
10.30 Interest Escrow Security Agreement, dated as of August 25,
1998, among Northwestern Trust and Investors Advisory
Company, Northstar High Yield Fund, Northstar High Total
Return Fund, Northstar High Total Return Fund II, Northstar
Strategic Income Fund and Intracel Corporation.
10.31 Security Agreement, dated as of August 25, 1998, among
Intracel Corporation, Bartels, Inc., PerImmune Holdings,
Inc., PerImmune, Inc. and Northstar High Yield Fund,
Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund.
10.32 Intellectual Property Security Agreement, dated as of August
25, 1998, among Intracel Corporation, Bartels, Inc.,
PerImmune Holdings, Inc., PerImmune, Inc. and Northstar High
Yield Fund, Northstar High Total Return Fund, Northstar High
Total Return Fund II, Northstar Strategic Income Fund.
10.33 Pledge Agreement, dated as of August 25, 1998, between
Intracel Corporation and PerImmune Holdings, Inc. and
Northstar High Yield Fund, Northstar High Total Return Fund,
Northstar High Total Return Fund II, Northstar Strategic
Income Fund.
10.34 Funded Commitment Facility Escrow Agreement, dated as of
August 24, 1998, by and among Northstar High Yield Fund,
Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund, Intracel
Corporation and Bank of America NT & SA (doing business as
Seattle First National Bank).
10.35 Agreement, dated as of August 20, 1998, by and between
Intracel Corporation and First National Bank.
10.36 Amendment No. 1, dated July 31, 1998, between Organon
Teknika Corporation, PerImmune Holdings, Inc., Akzo Nobel
Pharma International, B.V. and PerImmune, Inc., to (a) the
Promissory Note, dated August 2, 1996, by and among
PerImmune Holdings, Inc. to Organon Teknika Corporation, (b)
the Intellectual Property Security Agreement, dated as of
August 13, 1996, by and among PerImmune Holdings, Inc.,
PerImmune, Inc., Akzo Nobel Pharma International, B.V. and
Organon Teknika Corporation, and (c) the Intellectual
Property Agreement, dated August 2, 1996, by and among
PerImmune Holdings, Inc. and Akzo Nobel International, B.V.
21 List of Subsidiaries of the Company.*
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants -- Intracel Corporation.
</TABLE>
II-8
<PAGE> 153
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants -- PerImmune Holdings, Inc.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
24 Power of Attorney (set forth on signature page to
Registration Statement).*
27.1 Financial Data Schedule for the year ended December 31,
1997.*
27.2 Financial Data Schedule for the three months ended March 31,
1998.*
27.3 Financial Data Schedule for the six months ended June 30,
1998.
</TABLE>
- ---------------
* Previously filed.
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denomination and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered in the Offering, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4), or 497(h) under the Securities Act, shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-9
<PAGE> 154
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Seattle, State of Washington, on October 16,
1998.
INTRACEL CORPORATION
By: /s/ SIMON R. MCKENZIE
--------------------------------------
Simon R. McKenzie
President, Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME AND SIGNATURE TITLE DATE
<S> <C> <C>
* Chairman of the Board and October 16, 1998
- ----------------------------------------------------- Chief Scientific Officer
Michael G. Hanna
/s/ SIMON R. MCKENZIE President, Chief Executive October 16, 1998
- ----------------------------------------------------- Officer and Director
Simon R. McKenzie (principal executive
officer)
/s/ LAWRENCE A. BLOOM Chief Financial Officer October 16, 1998
- ----------------------------------------------------- (principal financial
Lawrence A. Bloom officer)
* Director October 16, 1998
- -----------------------------------------------------
Raymond Schuyler
* Director October 16, 1998
- -----------------------------------------------------
Joseph Caligiuri
* Director October 16, 1998
- -----------------------------------------------------
Steven Gerber
* Director October 16, 1998
- -----------------------------------------------------
Alexander Klibanov
*By: /s/ SIMON R. MCKENZIE
---------------------------------------------------
as Attorney-in-fact
</TABLE>
II-10
<PAGE> 155
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
1 Underwriting Agreement by and among the Representatives, the
Selling Stockholder and the Company.+
3.1 Amended and Restated Certificate of Incorporation of the
Company, as amended.+
3.2 Bylaws of the Company.+
4.1 Reference is made to Exhibits 3.1 and 3.2.
4.2 Specimen Common Stock Certificate.+
4.3 Registration Rights Agreement, dated as of August 25, 1998,
by and among Intracel Corporation and Northstar High Total
Return Fund, Northstar High Total Return Fund II, Northstar
High Yield Fund, Northstar Strategic Income Fund, Northstar
Balance Sheet Opportunities.
5 Opinion of Morrison & Foerster LLP.+
10.1 Lease, dated January 15, 1997, between PW Acquisitions 1,
LLC and PerImmune, Inc.*
10.2 Lease Agreement, dated April 30, 1991, between Ward
Corporation and Organon Teknika Corporation.*
10.3 Commercial Lease Agreement, dated June 1, 1993, between
Rowley Enterprises, Inc. and Polymer Technology
International for the property located at 1871 NW Gilman
Blvd., Issaquah, Washington.*
10.4 Lease Agreement, dated August 22, 1988, between Issaquah #1
Limited Partnership and Baxter Healthcare Corporation for
the premises located at I-90 Lake Place, 2005 N.W. Sammish
Road, Issaquah, Washington.*
10.5 Lease, dated February 1, 1998, between P.K. Projects Ltd.
and Intracel Corporation for the premises located at
Commerce Parkway, Richmond, British Colombia.*
10.6 Agreement and Plan of Reorganization, dated November 26,
1998, among PerImmune Holdings, Inc., Intracel Corporation
and Intracel Acquisition Sub, Inc.*
10.7 Employment Agreement, dated January 2, 1998, between Michael
G. Hanna, Jr. and Intracel Corporation.*
10.8 Employment Agreement, dated January 2, 1998, between Simon
R. McKenzie and Intracel Corporation.*
10.9 Employment Agreement between Daniel Reale and Intracel
Corporation.*
10.10 Employment Agreement between Persis Strong and Intracel
Corporation.+
10.11 Employment Agreement between Lawrence Bloom and Intracel
Corporation.+
10.12 Employment Agreement between Carl Foster and Intracel
Corporation.
10.13 Preferred Stock Purchase Agreement, dated as of March 12,
1997, between Intracel Corporation and Northstar High Total
Return Fund.*
10.14 Note and Series A- Warrant Purchase Agreement, dated as of
June 21, 1996, between Intracel Corporation and Northstar
Advantage High Total Return Fund.*
10.15 Note and Series A-III Warrant Purchase Agreement, dated as
of June 11, 1996, between Intracel Corporation and
CoreStates Enterprise Fund.*
10.16 Note and Warrant Purchase Agreement, dated as of April 1,
1998, between Intracel Corporation and Northstar High Yield
Fund and Northstar High Total Return Fund II.*
10.17 Loan and Authority Agreement, dated September 30, 1997,
between the Washington Economic Development Finance
Authority and Intracel Corporation.*
10.18 Tax Certificate and Regulatory Agreement, dated September
11, 1997 between the Washington Economic Development Finance
Authority and Intracel Corporation.*
10.19 Stock Purchase Agreement, dated July 1, 1996, between
PerImmune Holdings, Inc. and Organon Teknika Corporation.*
10.20 Agreements between the Intracel Corporation and Thomas
Jefferson University.*
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
10.21 Product Development and License Agreement, between
PerImmune, Inc, and Sigma Diagnostics, Inc.*
10.22 Research, Collaboration and Distribution Agreement, dated
December 22, 1997, between PerImmune, Inc. and Mentor
Corporation.*
10.23 Distribution Agreement, dated June 16, 1997, between
PerImmune, Inc. and Mentor Corporation.*
10.24 Intellectual Property Agreement, dated August 2, 1996, by
and among Akzo Nobel Pharma International, B.V. and
PerImmune Holdings, Inc.*
10.25 Intellectual Property Security Agreement, dated August 13,
1996, by and among PerImmune Holdings, Inc., PerImmune,
Inc., Akzo Nobel Pharma International, B.V. and Organon
Teknika Corporation.*
10.26 1989 Stock Option Plan.+
10.27 1996 Stock Option Plan of PerImmune Holdings, Inc.+
10.28 Employment Agreement, dated January 6, 1998, between Peggy
McGaw and Intracel Corporation.+
10.29 Securities Purchase Agreement, dated as of August 25, 1998,
among Intracel Corporation, Bartels, Inc., PerImmune
Holdings, Inc., PerImmune, Inc. and Northstar High Yield
Fund, Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund.
10.30 Interest Escrow Security Agreement, dated as of August 25,
1998, among Northwestern Trust and Investors Advisory
Company, Northstar High Yield Fund, Northstar High Total
Return Fund, Northstar High Total Return Fund II, Northstar
Strategic Income Fund and Intracel Corporation.
10.31 Security Agreement, dated as of August 25, 1998, among
Intracel Corporation, Bartels, Inc., PerImmune Holdings,
Inc., PerImmune, Inc. and Northstar High Yield Fund,
Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund.
10.32 Intellectual Property Security Agreement, dated as of August
25, 1998, among Intracel Corporation, Bartels, Inc.,
PerImmune Holdings, Inc., PerImmune, Inc. and Northstar High
Yield Fund, Northstar High Total Return Fund, Northstar High
Total Return Fund II, Northstar Strategic Income Fund.
10.33 Pledge Agreement, dated as of August 25, 1998, between
Intracel Corporation and PerImmune Holdings, Inc. and
Northstar High Yield Fund, Northstar High Total Return Fund,
Northstar High Total Return Fund II, Northstar Strategic
Income Fund.
10.34 Funded Commitment Facility Escrow Agreement, dated as of
August 24, 1998, by and among Northstar High Yield Fund,
Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar Strategic Income Fund, Intracel
Corporation and Bank of America NT & SA (doing business as
Seattle First National Bank).
10.35 Agreement, dated as of August 20, 1998, by and between
Intracel Corporation and First National Bank.
10.36 Amendment No. 1, dated July 31, 1998, between Organon
Teknika Corporation, PerImmune Holdings, Inc., Akzo Nobel
Pharma International, B.V. and PerImmune, Inc., to (a) the
Promissory Note, dated August 2, 1996, by and among
PerImmune Holdings, Inc. to Organon Teknika Corporation, (b)
the Intellectual Property Security Agreement, dated as of
August 13, 1996, by and among PerImmune Holdings, Inc.,
PerImmune, Inc., Akzo Nobel Pharma International, B.V. and
Organon Teknika Corporation, and (c) the Intellectual
Property Agreement, dated August 2, 1996, by and among
PerImmune Holdings, Inc. and Akzo Nobel International, B.V.
21 List of Subsidiaries of the Company.*
23.1 Consent of PricewaterhouseCoopers LLP, independent
accountants -- Intracel Corporation.
</TABLE>
<PAGE> 157
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
<S> <C>
23.2 Consent of PricewaterhouseCoopers LLP, independent
accountants -- PerImmune Holdings, Inc.
23.3 Consent of Ernst & Young LLP, independent auditors.
23.4 Consent of KPMG Peat Marwick LLP, independent certified
public accountants.
24 Power of Attorney (set forth on signature page to
Registration Statement).*
27.1 Financial Data Schedule for the year ended December 31,
1997*
27.2 Financial Data Schedule for the three months ended March 31,
1998*
27.3 Financial Data Schedule for the six months ended June 30,
1998.
</TABLE>
- ---------------
* Previously filed.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 4.3
INTRACEL CORPORATION
REGISTRATION RIGHTS AGREEMENT
This Agreement is made as of August 25, 1998, by and among Intracel
Corporation, a Delaware corporation (the "Company"), and the persons and
entities listed on the signature pages hereof (the "Holders"), who are (a)
holders of the Company's Series A-VI Common Stock Warrants (the "Series A-VI
Warrants") to purchase the Company's Common Stock, par value $.0001 per share
("Common Stock"); (b) holders of the Company's Amended and Restated Series A-V
Common Stock Warrants (the "Series A-V Warrants"); (c) holders of the Company's
Amended and Restated Series A-II Common Stock Warrants (the "Series A-II
Warrants"); (d) holders of certain Amended and Restated Series A-III Warrants
(the "Series A-III Warrants") and (e) holders of an aggregate of 381,296 shares
of the Company's Common Stock ("Existing Common Stock") and 259,568 shares of
Series A-1 Preferred Stock which is convertible into shares of the Company's
Common Stock. ("Existing Preferred Stock").
PREAMBLE
The Company desires to extend registration rights to the Holders of the
Warrants.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the Company and the Holders agree as follows:
Section 1. Definitions. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the Securities
Act.
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(c) "Holders" shall have the meaning set forth in the
preamble.
(d) "Initiating Holders" shall mean any Holder or Holders who
initiate a registration pursuant to the terms of this Agreement.
(e) "Register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which Holders notify the Company of
their intention to offer Registrable Securities.
<PAGE> 2
(f) "Registrable Securities" shall mean all of the following
to the extent the same have not been sold to the public: (i) any and all shares
of Common Stock of the Company issuable upon exercise of the Series A-II
Warrants, the Series A-V Warrants, the Series A-VI Warrants and the Series A-III
Warrants; (ii) Existing Common Stock and shares issuable upon conversion of
Existing Preferred Stock, or (iii) stock issued in respect of securities
referred to in (i) or (ii) above in any reorganization; or (iv) stock issued in
respect of the securities referred to in (i), (ii) or (iii) as a result of a
stock split, stock dividend, recapitalization or combination or upon the
exercise of any rights, options, warrants or similar rights to purchase any
Common Stock. Notwithstanding the foregoing, Registrable Securities shall not
include otherwise Registrable Securities (i) sold by a person in a transaction
in which his rights under this Agreement are not properly assigned; or (ii) (A)
sold to or through a broker or dealer or underwriter in a public distribution or
a public securities transaction, (B) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions, and restrictive legends
with respect thereto, if any, are removed upon the consummation of such sale or
(C) the registration rights associated with such securities have been terminated
pursuant to Section 12 of this Agreement.
(g) "Rule 144" shall mean Rule 144 under the Securities Act or
any successor or similar rule as may be enacted by the Commission from time to
time, but shall not include Rule 144A.
(h) "Rule 144A" shall mean Rule 144A under the Securities Act
or any successor or similar rule as may be enacted by the Commission from time
to time, but shall not include Rule 144.
(i) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar Federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
(j) "Warrants" shall mean collectively, the Series A-II
Warrants, the Series A-V Warrants, the Series A-VI Warrants and the Series A-III
Warrants.
As used herein, all capitalized terms not otherwise defined herein
shall have the meanings set forth in the Securities Purchase Agreement.
Section 2. Demand Registration.
(a) If the Company shall receive from Initiating Holders a
written request that the Company effect any registration with respect to not
less than 20% of the shares of Common Stock which are Registrable Securities,
the Company shall:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable use its best efforts to
register (including, without limitation, the execution of an
undertaking to file post-effective amendments and
2
<PAGE> 3
any other governmental requirements) all Registrable Securities which
the Initiating Holders request to be registered within twenty (20) days
after receipt of such written notice from the Company; provided, that
the Company shall not be obligated to file a registration statement
pursuant to this Section 2(a):
(A) prior to the date which is 180 days from
the date the Company consummates its initial offering of
Common Stock to the public pursuant to a registration
statement filed under the Securities Act, which offering
requires such Common Stock to become registered under the
Exchange Act; provided however that, in the event the Company
receives a written request pursuant hereto to effect a
registration prior to the date which is six (6) months from
the date of the consummation of the Company's initial public
offering, the Company shall prepare the registration statement
covering the Registrable Securities so that it may be filed as
soon as practicable upon the expiration of such six (6) month
period;
(B) in any particular state in which the
Company would be required to execute a general consent to
service of process in effecting such registration;
(C) within 120 days following the effective
date of any registered offering of the Company's securities to
the general public in which the Holders of Registrable
Securities shall have been able effectively to register all
Registrable Securities as to which registration shall have
been requested;
(D) in any registration having an aggregate
offering price (before deduction of underwriting discounts and
expenses of sale) of less than $5.0 million; or
(E) after the Company has effected one such
registration pursuant to this Section 2(a).
Subject to the foregoing clauses (A) through (E), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders and shall use reasonable best efforts to have such
registration statement promptly declared effective by the Commission whether or
not all Registrable Securities requested to be registered can be included;
provided, however, that if the Company shall furnish to such Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company and its shareholders for such registration statement to be filed
within such ninety-day (90-day) period and it is therefore essential to defer
the filing of such registration statement, the Company shall have an additional
period of not more than ninety (90) days after the expiration of the initial
ninety-day (90-day) period within which to file such registration statement;
provided, that (i) during such time the Company may not file a registration
statement for securities to be issued and sold for its own account and (ii) the
Company shall not utilize this right more than once in any twelve (12) month
period. Notwithstanding anything to the contrary contained herein, the
3
<PAGE> 4
obligation of the Company under this Section 2(a) shall be deemed satisfied only
when a registration statement covering all Registrable Securities specified in
notices received as aforesaid, for sale in accordance with the method of
disposition specified by the Required Holders, shall have become effective and,
if such method of disposition is a firm commitment underwritten public offering,
all such Registrable Securities shall have been sold pursuant thereto.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request. In such event, the
Company shall include such information in the written notice referred to in
subsection 2(a)(i). If so requested in writing by the Company, the Initiating
Holders shall negotiate with an underwriter selected by the Company with regard
to the underwriting of such requested registration. The right of any Holder to
registration pursuant to Section 2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2(a), if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the securities
of the Company held by directors, officers or employees and by shareholders
other than the Initiating Holders shall be excluded from such registration pro
rata (based on the number of securities each wishes to so register) to the
extent so required by such limitation, and if a limitation of the number of
shares is still required, then the managing underwriter may limit the number of
Registrable Securities to be included in the registration, provided that no such
reduction may reduce the securities being offered by the Holders to less than
twenty-five percent (25%) of the total securities requested to be included in
such registration and underwriting, allocated pro rata among the Initiating
Holders based on the number of Registrable Securities otherwise requested to be
included in such registration (and, in event such reduction results in less than
twenty-five percent (25%) of the total securities requested to be included in
such underwriting actually being included, such registration shall be cancelled
and shall not count as a registration request under this Section 2). If any
Holder disapproves of the terms of any such underwriting, he may elect to
withdraw therefrom by written notice to the Company and the managing
underwriter.
(c) In addition to all other rights of the Holders set forth
herein, the Company shall be obligated to, without any prior demand from the
Holders, file a Registration Statement to register the Registrable Securities
and use its best efforts to cause such Registration Statement to become
effective as soon as practicable following 180 days after the Company
consummates its initial offering of Common Stock to the public.
Section 3. Piggyback Registration.
(a) If at any time, or from time to time, the Company shall
determine to register any of its securities for its own account or the account
of any of its shareholders, other than a registration relating solely to
employee benefit plans, or a registration relating solely to an
4
<PAGE> 5
SEC Rule 145 transaction, a transaction relating solely to the sale of debt or
convertible debt instruments or a registration on any form (other than Form S-1,
S-2 or S-3, or their successor forms) which does not include substantially the
same information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) give to each Holder written notice thereof as
soon as practicable prior to filing the registration statement; and
(ii) include in such registration and in any
underwriting involved therein, all the Registrable Securities specified
in a written request or requests, made within fifteen (15) days after
receipt of such written notice from the Company, by any Holder or
Holders, except as set forth in subsection (b) below.
(b) If the registration is for a registered public offering
involving an underwriting, the Company shall so advise the Holders as a part of
the written notice given pursuant to subsection 3(a)(i). In such event, the
right of any Holder to registration pursuant to Section 3 shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting by the Company. Notwithstanding any other provision of this Section
3, if the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing underwriter
may limit the number of Registrable Securities to be included in the
registration and underwriting and the number of Registrable Securities to be
included in such offering shall be reduced to zero before any reduction in any
securities to be offered by the Company on its own behalf. The Company shall so
advise all Holders and the other Holders distributing their securities through
such underwriting pursuant to piggy-back registration rights similar to this
Section 3, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders (and any other selling shareholders), pro rata, as
nearly as practicable, based on the numbers of Registrable Securities and other
shares held by selling shareholders, each such party wishes to register pursuant
to this Section 3. If any Holder disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. If, by the withdrawal of such Registrable
Securities, a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the limit imposed by the underwriters),
the Company shall offer to all Holders who have included Registrable Securities
in the registration the right to include additional Registrable Securities. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
Section 4. Form S-3. The Company shall use its best efforts to qualify
for registration on Form S-3 or its successor form. After the Company has
qualified for the use of Form S-3, Initiating Holders shall have the right at
any time to request registrations on Form S-3
5
<PAGE> 6
(such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of shares by such Initiating Holders), subject to the following:
(a) The Company shall not be required to file a registration
statement pursuant to this Section 4 within ninety (90) days of the effective
date of any registration referred to in Sections 2 and 3 above;
(b) The Company shall not be required to file a registration
statement pursuant to this Section 4 unless the Initiating Holder or Holders
requesting registration propose to dispose of shares of Registrable Securities
having an aggregate disposition price (before deduction of underwriting
discounts and expenses of sale) of at least $250,000; and
(c) The Company shall not be required to file more than two
(2) registration statements pursuant to this Section 4 within any twelve (12)
month period.
The Company shall give written notice to all Holders of Registrable
Securities of the receipt of a request for registration pursuant to this Section
4 and shall provide a reasonable opportunity for other Holders to participate in
the registration; provided, that if the registration is for an underwritten
offering, the right of any Holder to registration pursuant to Section 4 shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other Holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 4, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the number of Registrable
Securities to be included in the registration and underwriting. The Company
shall so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among the Holders and any other selling shareholders pro rata, as
nearly as practicable, based on the number of Registrable Securities and shares
held by selling shareholders, such Holder and any selling shareholders wish to
include in a registration pursuant to this Section 4. If any Holder disapproves
of the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the underwriter. If, by the withdrawal of such
Registrable Securities, a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the limit imposed by the
underwriters), the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the limitation
as set forth above. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration. Registrations effected
pursuant to this Section 4 shall not be counted as requests for registration
pursuant to Section 2.
6
<PAGE> 7
Section 5. Expenses of Registration. In addition to the fees and
expenses contemplated by Section 6 hereof, all expenses incurred in connection
with one registration pursuant to Section 2 hereof, and all registrations
pursuant to Sections 3 and 4 hereof, including without limitation all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits of
the Company's financial statements incidental to or required by such
registration, shall be borne by the Company, except that the Company shall not
be required to pay underwriters' fees, discounts or commissions relating to
Registrable Securities or fees of legal counsel for the Holders.
Section 6. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep each
Holder participating therein advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense the Company will:
(a) keep such registration pursuant to Sections 2, 3 or 4
continuously effective until the date on which the Holder or Holders have
completed the distribution described in the registration statement relating
thereto;
(b) promptly prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to comply with the provisions
of the Securities Act; and to keep such registration statement effective for
that period of time specified in Section 6(a) above;
(c) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;
(d) use reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a registration statement, or the
lifting of any suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction, at the earliest possible moment;
(e) subject to Section 2(a)(ii)(B), register or qualify such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter reasonably requires, and keep
such registration or qualification effective during the period set forth in
Section 6(a) above;
(f) cause all Registrable Securities covered by such
registrations to be listed on each securities exchange, including NASDAQ, on
which similar securities issued by the Company are then listed;
(g) cause its accountants to issue to the underwriter, if any,
or the Holders, if there is no underwriter, comfort letters and updates thereof,
in customary form and covering matters of the type customarily covered in such
letters with respect to underwritten offerings;
7
<PAGE> 8
(h) cause its counsel to issue to the underwriter, if any, or
to the Holders, if there is no underwriter, opinions in customary form and
covering matters of the type customarily covered in such opinions with respect
to underwritten offerings;
(i) enter into such customary agreements (including
underwriting agreements in customary form);
(j) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(k) immediately notify each Holder, at any time a prospectus
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; and
(l) take such other actions as shall be reasonably requested
by any Holder.
For purposes of Sections 2, 6(a) and 6(b) above, the period of
distribution of Registrable Securities in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Registrable Securities in any other registration shall be deemed to extend
until the earlier of the sale of all Registrable Securities covered thereby and
six (6) months after the effective date thereof.
Section 7. Indemnification.
(a) In the event of a registration, qualification or
compliance of any of the Registrable Securities under the Securities Act
pursuant to Sections 2, 3 or 4, the Company will indemnify and hold harmless
each Holder of such Registrable Securities thereunder, each underwriter of such
Registrable Securities thereunder and each other person, if any, who controls
such Holder or underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such Holder,
underwriter or controlling person may become subject under the Securities Act,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such Registrable Securities was registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, any offering circular or other offering document or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
8
<PAGE> 9
statements therein not misleading, or any violation by the Company of any rule
or regulation promulgated under the Securities Act or any state securities law
or rule or regulation promulgated under the Securities Act or any state
securities law applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, that, not withstanding the foregoing, the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder or underwriter specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company and each underwriter within the meaning of the
Securities Act, and each other Holder, each of such other Holder's officers,
directors and partners and each person controlling such other Holder, against
all claims, losses, expenses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other offering document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such Holders, such directors, officers, partners, persons or
underwriters for any reasonable legal or any other expenses incurred in
connection with investigating, defending or settling any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other offering document in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Holder specifically for use therein; provided, however, the total amount for
which any Holder, its officers, directors and partners, and any person
controlling such Holder, shall be liable under this Section 7(b) shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of shares sold
by such Holder under such registration statement bears to the total public
offering price of all securities sold thereunder but not to exceed, in any
event, the aggregate proceeds received by such Holder from the sale of
Registrable Securities sold by such Holder in such registration, qualification
or compliance.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claims as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the
9
<PAGE> 10
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations hereunder, unless such failure resulted in
actual detriment to the Indemnifying Party. The Indemnifying Party shall not be
liable to indemnify any Indemnified Party for any settlement of any such action
effected without the Indemnifying Party's consent. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification contained in the underwriting agreements entered
into among the selling Holders, the Company and the underwriters in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall be controlling as
to the Registrable Securities included in the public offering.
(e) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party thereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other
hand in connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relevant fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder shall be obligated to
contribute pursuant to this Section 7(e) shall be limited to an amount equal to
the proceeds to such Holder of the Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute.
(f) The indemnification provided by this Section 7 shall be a
continuing right to indemnification and shall survive the registration and sale
of any securities by any definition entitled to indemnification hereunder and
the expiration or termination of this Agreement.
Section 8. Lockup Agreement. In consideration for the Company agreeing
to its obligations under this Agreement, each Holder agrees in connection with
any underwritten registration of the Company's securities (whether or not such
Holder is participating in such registration) upon the request of the Company
and the underwriters managing the underwritten
10
<PAGE> 11
offering of the Company's securities, not to publicly sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company and such underwriters for such period
of time (not to exceed 180 days in the case of the Company's initial public
offering) from the effective date of such registration as the Company and the
underwriters may specify.
Section 9. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration' referred to herein.
Section 10. Rule 144 and 144A Reporting. With a view to making
available to Holders of Registrable Securities the benefits of certain rules and
regulations of the Commission which may permit the sale of the Registrable
Securities to the public without registration, the Company agrees at all times
after ninety (90) days after the effective date of the first registration filed
by the Company for an offering of its securities to the general public to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 and Rule 144A;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Holder so long as such Holder owns any
Registrable Securities forthwith, upon written request, a written statement by
the Company that it has complied with the reporting requirements of Rule 144,
the Securities Act and the Exchange Act (to the extent that it is then subject
to any such reporting requirements), a copy of the most recent annual and
quarterly report of the Company, and such other reports and documents filed by
the Company under the Exchange Act as may be reasonably requested by such Holder
in connection with availing the Holder of any rule or regulation of the
Commission permitting the selling of such securities without registration.
Section 11. Transfer of Registration Rights. The rights to cause the
Company to register Registrable Securities of a Holder and keep information
available granted to a Holder by the Company under Sections 2, 3, and 4, may be
assigned by a Holder to any partner or shareholder of such Holder, to one or
more affiliated partnerships managed by such Holder, any other Holder, to any
"Affiliate" of the Holder as that term is defined by the Securities Purchase
Agreement; to any "Qualified Institutional Buyer" as that term is defined by the
Note executed as of the date hereof; or to a transferee or assignee who receives
at least 50% of the shares of Common Stock which are Registrable Securities;
provided, that the Company is given written notice by the Holder at the time of
or within a reasonable time after said transfer, stating the name and address of
said transferee or assignee and identifying the securities with respect to which
such registration rights are being assigned, and that said transferee or
assignee agrees in
11
<PAGE> 12
writing to be bound by the terms and provisions of this Agreement as if an
original signatory thereto.
Section 12. Termination of Rights.
(a) The rights of any particular Holder to cause the Company
to register securities under Sections 2, 3 and 4 shall terminate with respect to
such Holder at such time as such Holder is able to dispose of all of his
Registrable Securities in one twelve-month period pursuant to the provisions of
Rule 144.
(b) Notwithstanding the provisions of paragraph (a) of this
Section 12, all rights of any particular Holder under this Agreement shall
terminate at 5:00 p.m. Eastern time on August 25, 2003.
Section 13. Miscellaneous.
(a) Amendments. This Agreement constitutes the entire
agreement of the parties within respect to the subject matter hereof and may be
amended or modified only by a writing signed by the Company and the Required
Holders of the Registrable Securities (as the term is defined in the Securities
Purchase Agreement), as constituted from time to time. The Holders hereby
consent to future amendments to this Agreement that permit future investors to
be made parties hereto and to become Holders of Registrable Securities.
(b) Counterparts. This Agreement may be executed in any number
of counterparts, all of which shall constitute a single instrument.
(c) Notices, Etc. All notices and other communications
required or permitted hereunder shall be in writing and may be sent initially by
facsimile transmission and shall be mailed by registered or certified mail,
postage prepaid, or otherwise delivered by hand or by messenger, addressed (i)
if to a Holder, at such Holder's address set forth on the books of the Company,
or at such other address as such Holder shall have furnished to the Company in
writing, or (ii) if to any other holder of any Registrable Securities, at such
address as such holder shall have furnished the Company in writing, or, until
any such holder so furnishes an address to the Company, then to and at the
address of the last holder of such securities who has so furnished an address to
the Company, or (iii) if to the Company, one copy should be sent to the
Company's current address at 1871 N.W. Gilman Blvd., Issaquah, Washington, or at
such other address as the Company shall have furnished to the Holders. All such
notices shall be effective and deemed duly given when received or when attempted
delivery is refused.
(d) Non-Public Information. Any other provisions of this
agreement to the contrary notwithstanding, the Company's obligation to file a
registration statement, or cause such registration statement to become and
remain effective, shall be suspended for a period not to exceed 30 days (and for
periods not exceeding, in the aggregate, 60 days in any 24-month period) if
there exists at the time material non-public information relating to the Company
which, in the reasonable opinion of the Company, should not be disclosed.
12
<PAGE> 13
(e) Severability. If any provision of this Agreement shall be
held to be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
13
<PAGE> 14
(f) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of New York without regard to principles
of conflict of law.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first set forth above.
INTRACEL CORPORATION
By: /s/ SIMON R. McKENZIE
------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
Investors
Northstar High Total Return Fund
By: /s/ MICHAEL A. GRAVES
------------------------------
Name: Michael A. Graves
Title: Vice President
Northstar High Total Return Fund II
By: /s/ MICHAEL A. GRAVES
------------------------------
Name: Michael A. Graves
Title: Vice President
Northstar High Yield Fund
By: /s/ MICHAEL A. GRAVES
------------------------------
Name: Michael A. Graves
Title: Vice President
14
<PAGE> 15
Northstar Strategic Income Fund
By: /s/ MICHAEL A. GRAVES
--------------------------------
Name: Michael A. Graves
Title: Vice President
Northstar Balance Sheet Opportunities
By: /s/ MICHAEL A. GRAVES
--------------------------------
Name: Michael A. Graves
Title: Vice President
15
<PAGE> 1
EXHIBIT 10.12
[INTRACEL LETTERHEAD]
19 May 1998
VIA FEDERAL EXPRESS
Mr. Carl Foster
1747 Morgan Lane
Collegeville, PA 19426
Dear Carl:
I am pleased to extend the offer outlined below for you to become the Vice
President, Business Development of Intracel Corporation. The terms of our offer
are as follows:
Title: Vice President, Business Development
Supervision/ Simon R. McKenzie, CEO
Reporting:
Responsibilities: You will be responsible for establishing value-building
relationships with pharmaceutical and biotechnology
companies as well as with academic institutions. You will
lead the company's efforts to conceive, initiate, structure
and negotiate business development agreements that maximize
and complement the company's assets and are in sync with its
strategic mission. These agreements will encompass major
strategic partnerships and collaborations as well as
technology in-licensing, product in and out-licensing,
co-promotion arrangements and manufacturing and supply
arrangements. You will also be intimately involved in
coordinating the company's strategic planning activities.
Furthermore, you will be part of a senior management team
which assesses and, when appropriate, implements the
acquisition of products/businesses that significantly
enhance the realization of the company's vision.
Salary: $200,000/annually
Performance Bonus Substantially all of your bonus for the first two (2) years
Incentives: will be tied directly to the achievement of your individual
objectives.
First year bonus guarantee: to facilitate your transition,
we will effectively guarantee our first year's total
compensation will not be less than $300,000.
<PAGE> 2
Mr. Carl Foster
May 19, 1998
Page Two
Incentive Stock You will receive 100,000 Incentive Stock Options at the
Options: minimum exercise price to vest in accordance with the
following:
At Commencement of
Employment 25%
At 1st Anniversary 25%
At 2nd Anniversary 25%
At 3rd Anniversary 25%
Accelerated Vesting. If you achieve your first year's
objectives, you will also vest 50% of the Year 2
Options. If you achieve your second year's objectives,
you will also vest 50% of the Year 3 Options.
Performance Review: A performance review will be completed six months
following commencement of employment with the Company
and annually, thereafter.
Vacation Three weeks per year.
Other Benefits You will become eligible for participation in the
following benefits following a 90-day waiting period:
[ ] The Company's Health Plan
[ ] The Cafeteria Plan and Trust
[ ] 401K Plan
Relocation Allowance: The Company will reimburse you for all moving expenses
as and when they are incurred up to a maximum of
$40,000. The Company will work with you to provide
reasonable assistance, if necessary, in connection with
your relocation to the Rockville area. The Company will
also reimburse you for reasonable costs relating to
temporary housing in the Rockville area for your first
year of employment with Intracel Corporation.
Severance: Six months, if for no cause.
<PAGE> 3
Mr. Carl Foster
May 19, 1998
Page Three
Change in Control: A Change-In-Control is defined as including a merger of
the Company whereby the Company no longer exists as a
separate entity, the Company survives the merger only as
a subsidiary of another corporation, or for the merger
of another corporation into the Company which survives
if; as a result of such merger less than sixty percent
(60%) of the outstanding voting securities of the
Company shall be owned in the aggregate immediately
after such merger by the owners of the voting shares of
the Company outstanding immediately prior to such
merger. In the event of a Change-In-Control, all of your
stock options will be vested 100% and your salary, bonus
and office allowance for one year will be paid to you in
lump sum immediately after the Change-In-Control occurs.
A letter will be provided that will further describe
additional definitions of a Change-In-Control and any
additional benefits that will become payable.
Start Date: Mutually agreeable date, ASAP.
At the commencement of your employment, you will also be required to sign an
Employment and Confidentiality Agreement under the terms of which you will
agree, amongst other things, that everything you develop at Intracel will be
the sole property of the Company and that you will not disclose any
confidential or proprietary information to third parties.
As a condition of employment, you must meet the requirements of the Immigration
Reform and Control Act of 1986. Employment is also contingent upon submitting
to a drug screening test, for which a negative result is required.
Please review the terms of this offer carefully, call me with any questions,
and if you are in agreement with these terms of employment, please return a
signed duplicate copy of this offer letter to me indicating your acceptance. By
signing this letter, you will agree that this letter contains the entire
agreement between Intracel Corporation and yourself and that you have not been
offered, either verbally or in writing, any additional inducements or been made
any other promises relating to your employment with the Company.
<PAGE> 4
Mr. Carl Foster
May 19, 1998
Page Four
Carl, it has been our pleasure to make your acquaintance during the course of
our recruitment for this position. We have full confidence in your ability to
be a very successful Vice President, Business Development at Intracel and we
look forward to working with you in the near future.
Sincerely yours,
/s/ SIMON R. MCKENZIE
- ------------------------------
Simon R. McKenzie
Chief Executive Officer
SRM:gcm
Agreed to and Accepted:
5-20-98 /s/ CARL FOSTER
- ------- --------------------------
Date Carl Foster
<PAGE> 1
EXHIBIT 10.29
================================================================================
SECURITIES
PURCHASE AGREEMENT
among
INTRACEL CORPORATION,
BARTELS INC.,
PERIMMUNE HOLDINGS, INC.,
PERIMMUNE, INC.
and
NORTHSTAR HIGH YIELD FUND
NORTHSTAR HIGH TOTAL RETURN FUND
NORTHSTAR HIGH TOTAL RETURN FUND II
NORTHSTAR STRATEGIC INCOME FUND
Dated as of August 25, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION...............................2
Section 1.1 Definitions...........................................................................2
Section 1.2 Accounting Terms and Determinations..................................................13
ARTICLE II THE SECURITIES.......................................................................13
Section 2.1 Issuance, Sale and Delivery of the Securities........................................13
Section 2.2 Closing; Purchase Price; Purchase Price Allocation...................................13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SUBSIDIARIES...................15
Section 3.1 Organization, Qualifications and Corporate Power.....................................15
Section 3.2 Authorization of Agreements, etc.....................................................15
Section 3.3 Validity.............................................................................16
Section 3.4 Authorized Capital Stock.............................................................16
Section 3.5 Financial Statements.................................................................17
Section 3.6 Absence of Undisclosed Liabilities and Charges.......................................18
Section 3.7 Events Subsequent to the Date of the Balance Sheet...................................18
Section 3.8 Litigation; Compliance with Law......................................................18
Section 3.9 Title to Properties..................................................................19
Section 3.10 Leasehold Interests..................................................................19
Section 3.11 Taxes................................................................................19
Section 3.12 Other Agreements.....................................................................20
Section 3.13 Patents, Trademarks, etc.............................................................22
Section 3.14 Loans and Advances...................................................................22
Section 3.15 Assumptions, Guaranties, etc. of Debt of Other Persons...............................22
Section 3.16 Significant Customers and Suppliers..................................................23
Section 3.17 Governmental Approvals...............................................................23
Section 3.18 Insurance............................................................................23
Section 3.19 Employment Relations.................................................................23
Section 3.20 Compensation of Key Employees........................................................24
Section 3.21 Environmental Compliance.............................................................24
Section 3.22 Projections..........................................................................24
Section 3.23 Disclosure; Accuracy of Statements...................................................24
Section 3.24 Matters Relating to OncoVAX Products.................................................24
Section 3.25 Subsidiaries.........................................................................24
Section 3.26 Use of Proceeds......................................................................25
Section 3.27 Location of Collateral...............................................................25
</TABLE>
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<TABLE>
<CAPTION>
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.....................................25
Section 4.1 Purchase of Securities...............................................................25
Section 4.2 Authority............................................................................26
Section 4.3 Projections..........................................................................26
Section 4.4 Risk Factors.........................................................................26
ARTICLE V COVENANTS............................................................................26
Section 5.1 Payment of Principal, Premium and Interest...........................................26
Section 5.2 Money for Note Payments to be Held in Trust..........................................26
Section 5.3 Existence............................................................................26
Section 5.4 Maintenance of Assets................................................................27
Section 5.5 Payment of Taxes and Other Claims; Comply with Material Obligations..................27
Section 5.6 Financial Covenants..................................................................27
Section 5.7 Limitation on Restricted Payments....................................................29
Section 5.8 Limitation on Certain Restrictions Affecting any Subsidiary..........................29
Section 5.9 Limitation on Liens..................................................................30
Section 5.10 Maintenance of Insurance.............................................................30
Section 5.11 Waiver of Stay, Extension and Usury Laws.............................................31
Section 5.12 Financial Statements; Other Information..............................................32
Section 5.13 Inspection and Delivery of Property; Books and Records; Discussions..................35
Section 5.14 Further Security Interest............................................................35
Section 5.15 Further Assurances...................................................................36
Section 5.16 Limitation on Debt...................................................................37
Section 5.17 Limitation on Mergers; Etc...........................................................38
Section 5.18 Limitation on Sales of Property......................................................39
Section 5.19 Limitation on Transactions with Affiliates...........................................39
Section 5.20 Limitation on Credit Extensions......................................................39
Section 5.21 Limitation on Certain Amendments.....................................................40
Section 5.22 Limitation on Investments............................................................40
Section 5.23 Use of Proceeds......................................................................40
Section 5.24 Assumption of Company Debt by Subsidiaries...........................................41
Section 5.25 Covenants with respect to OncoVAX Cancer Vaccine.....................................41
Section 5.26 Covenant with respect to Transfer of Certain Patents................................41
Section 5.27 Foreign Currency Liabilities.........................................................42
Section 5.28 Unaudited Financial Statements.......................................................42
Section 5.29 Consent of Transamerica Business Credit Corporation..................................42
Section 5.30 Interest Escrow Security Agreement...................................................42
Section 5.31 Waiver of Certain Covenants..........................................................42
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS......................................42
Section 6.1 Supporting Documents.................................................................42
</TABLE>
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<TABLE>
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Section 6.2 Fees of Purchasers...................................................................43
Section 6.3 Warrants.............................................................................43
Section 6.4 Amended and Restated Warrants........................................................43
Section 6.5 Interest Escrow Security Agreement...................................................43
Section 6.6 Notes................................................................................43
Section 6.7 Security Agreements..................................................................43
Section 6.8 Pledge Agreement.....................................................................43
Section 6.9 Guarantees...........................................................................43
Section 6.10 Pledged Stock........................................................................44
Section 6.11 Escrow Agreement.....................................................................44
Section 6.12 Financing Statements.................................................................44
Section 6.13 First Union Agreement................................................................44
Section 6.14 Principal Executive Officer..........................................................44
Section 6.15 Agreement with Akzo..................................................................44
Section 6.16 Financial Statements.................................................................45
Section 6.17 Letter of Instructions...............................................................45
Section 6.18 Other Actions........................................................................45
Section 6.19 No Adverse Actions...................................................................45
Section 6.20 Opinion of Counsel...................................................................45
ARTICLE VII PAYMENT FOR PURCHASE OF SECURITIES...................................................45
ARTICLE VIII MISCELLANEOUS........................................................................45
Section 8.1 Expenses.............................................................................45
Section 8.2 Brokerage............................................................................46
Section 8.3 Notices..............................................................................46
Section 8.4 Governing Law; Submission to Jurisdiction............................................46
Section 8.5 Entire Agreement.....................................................................47
Section 8.6 Counterparts.........................................................................48
Section 8.7 Amendments...........................................................................48
Section 8.8 Disclosure to Other Persons..........................................................48
Section 8.9 Limitation on Interest...............................................................49
Section 8.10 Severability.........................................................................49
Section 8.11 Titles and Subtitles.................................................................49
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A-1 and A-2 Form of Primary Note and Escrow Note, respectively
Exhibit B-1 Form of Series A-VI Warrant
Exhibit B-2 through B-6 Form of Amended and Restated Warrants
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Interest Escrow Security Agreement
Exhibit E Form of Security Agreement
Exhibit F Form of Intellectual Property Security Agreement
Exhibit G Form of Pledge Agreement
Exhibits H-1 through H-3 Form of Subsidiary Guaranty
Exhibit I Form of Agreement with CoreStates Enterprises Fund
Exhibit J Form of Akzo Agreement
Exhibit K Form of Counsel Opinion
Exhibit L Funded Commitment Facility Escrow Agreement
</TABLE>
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<PAGE> 6
SCHEDULES
<TABLE>
<S> <C>
Schedule 2.1 Issuance of Newly Issued Securities to Purchasers and Stipulated
Contribution Value of Existing Securities
Schedule 2.2 Cash Position of Purchase Price Paid by Purchasers
Schedule 3.4 Subscriptions, Warrants, Options, Convertible Securities and
Commitments Therefor
Schedule 3.5 Material Adverse Changes Since Most Recent Financial Statements
Schedule 3.6 Liabilities and Charges
Schedule 3.7 Events Subsequent to the Date of the Balance Sheet
Schedule 3.9 Title to Properties
Schedule 3.10 Leasehold Interests
Schedule 3.11 Taxes
Schedule 3.12 Other Agreements
Schedule 3.13 Intellectual Property
Schedule 3.14 Loans and Advances
Schedule 3.15 Assumptions or Guaranties of Indebtedness of other Persons
Schedule 3.16 Significant Customers and Suppliers
Schedule 3.18 Insurance
Schedule 3.19(b) Employee Benefit Plans
Schedule 3.20 Compensation of Key Employees
Schedule 3.25 Subsidiaries
Schedule 5.16 Debt Outstanding as of June 30, 1998
Schedule 5.26 Patents to be Acquired
</TABLE>
v
<PAGE> 7
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August
25, 1998, by and among Intracel Corporation, a Delaware corporation (the
"Company"), its wholly-owned subsidiaries (Bartels, Inc. ("Bartels"), PerImmune
Holdings, Inc. ("Holdings") and PerImmune, Inc. ("PerImmune" and, together with
Bartels and Holdings, the "Subsidiaries")) and each of the parties listed on
Schedule 2.1 hereto (each a "Purchaser" and, collectively, the "Purchasers").
PREAMBLE
WHEREAS, the Company wishes to issue and sell to the Purchasers (i)
the Company's 12% Guaranteed Senior Secured Primary Notes, substantially in the
form attached hereto as Exhibit A-1, in the aggregate original principal amount
of $35,000,000 (the "Guaranteed Senior Secured Primary Notes"), (ii) the
Company's 12% Guaranteed Senior Secured Escrow Notes, substantially in the form
attached hereto as Exhibit A-2, in the aggregate original principal amount of
$6,000,000 (the "Guaranteed Senior Secured Escrow Notes" and, together with the
Guaranteed Senior Secured Primary Notes, the "Notes"), (iii) the Series A-VI
Common Stock Warrants, substantially in the form attached hereto as Exhibit B-1
(the "Warrants"), to purchase up to 1,625,000 shares of common stock, $.0001 par
value per share (the "Warrant Shares"), of the Company (the Notes and the
Warrants shall collectively be referred to as the "Securities"); and
WHEREAS, the Company has agreed to amend and restate (i) certain
provisions of the warrants previously granted to certain of the Purchasers (the
"Existing Warrants") and (ii) certain provisions of that portion of a warrant
(the "CoreStates Warrant") previously granted to CoreStates Enterprise Fund, a
division of CoreStates Bank, N.A. ("CoreStates") which is to be assigned and
transferred to the Purchasers pursuant to the CoreStates Agreement, as
hereinafter defined, and will deliver amended and restated warrants in the forms
attached hereto as Exhibits B-2 through B-6 to effect such amendments (the
"Amended and Restated Warrants"); and
WHEREAS, the Company is to enter into an agreement substantially in
the form attached hereto as Exhibit C (the "Registration Rights Agreement"), to
register (i) the Warrant Shares; (ii) the shares issuable upon exercise of the
Existing Warrants (the "Existing Warrant Shares"); (iii) the shares issuable
upon exercise of the CoreStates Warrant (the "CoreStates Warrant Shares"); and
(iv) 381,296 shares of Common Stock owned by the Purchasers and their Affiliates
as of the date hereof and 522,550 shares of Common Stock issuable to the
Purchasers upon conversion of Series A-I Preferred Stock of the Company owned by
the Purchasers as of the date hereof (collectively, the "Existing Shares") (the
Warrant Shares, Existing Warrant Shares, CoreStates Warrant Shares and Existing
Shares are collectively referred to herein as the "Registrable Securities"); and
WHEREAS, each Purchaser is to purchase the Securities set forth
opposite such Purchaser's name in Sections 1 and 2 of Schedule 2.1 hereto, on
the terms and subject to the conditions set forth in this Agreement; and
<PAGE> 8
WHEREAS, the Company has issued to certain of the Purchasers,
severally, (i) a Secured Promissory Note on December 28, 1995 (the "1995 Note")
in the original principal amount of $4,700,000, (ii) $8,000,000 aggregate
original principal amount of Secured Promissory Notes issued on April 1, 1998
(the "April 1998 Notes"), and (iii) an aggregate of 47,030 shares of Series A-2
Preferred Stock (the "Series A-2 Preferred Stock"), $.0001 par value per share
(the 1995 Note, the April 1998 Notes and the Series A-2 Preferred Stock together
with the Existing Warrants are collectively referred to herein as the "Existing
Securities"), all of which are to be contributed to the Company in partial
payment of the purchase price of the Securities; and
WHEREAS, to induce the Purchasers to purchase the Securities, the
Company is to enter into the interest escrow security agreement in substantially
the form attached hereto as Exhibit D (the "Interest Escrow Security Agreement")
relating to the payment of certain interest due on the Notes; and
WHEREAS, to induce the Purchasers to purchase the Securities, the
Company and the Subsidiaries are entering into various agreements that will
create perfected security interests in favor of the Purchasers of the Notes (the
"Security Agreement," the "Intellectual Property Security Agreement," and the
"Pledge Agreement," substantially in the forms attached hereto as Exhibits E, F,
and G, respectively), and the Subsidiaries are to guaranty the Company's
obligations (each, a "Subsidiary Guaranty Agreement" substantially in the form
attached hereto as Exhibits H-1 through H-3) under this Agreement, the Notes and
the Ancillary Agreements (as defined herein) (together with the Warrants, the
Notes, the Interest Escrow Security Agreement, the Registration Rights
Agreement, the Amended and Restated Warrants, the Funded Commitment Facility
Escrow Agreement (substantially in the form attached hereto as Exhibit L), the
Agreement with CoreStates Enterprise Fund substantially in the form attached
hereto as Exhibit I (the "CoreStates Agreement"), the agreement by and among
Akzo Nobel Pharma International, B.V., Organon Teknika Corporation, PerImmune
Holdings, Inc., PerImmune Inc. and the Company, substantially in the form
attached hereto as Exhibit J (the "Akzo Agreement"), the "Ancillary
Agreements"); and
WHEREAS, the Company has agreed to utilize the proceeds from the sale
of the Notes in accordance with the provisions of Section 5.23;
NOW, THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants and agreements, and other consideration
contained and exchanged in this Agreement, and other consideration provided by
the parties hereto, the receipt and sufficiency of which is hereby acknowledged,
the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
Section 1.1 Definitions. For all purposes of this Agreement and the
Ancillary Agreements, except as otherwise expressly provided or unless the
context otherwise requires:
2
<PAGE> 9
(a) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as the singular.
(b) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP; and
(c) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
"Accountant" has the meaning specified in Section 5.12(c).
"Adjusted Debt" shall mean, at any time, the consolidated Debt of the
Company and its Subsidiaries minus the amount of consolidated cash and cash
equivalents owned by the Company and its Subsidiaries that is not (i) at such
time restricted or reserved for purposes other than the repayment or defeasance
of Debt and (ii) within the ninety (90) days following such date, needed to pay
the difference between (a) operating expenses and (b) operating revenues, to the
extent that such operating expenses are not then included in the calculation of
Debt.
"Adjusted Debt to EBITDA Ratio" shall mean the Adjusted Debt of a
Person as of the end of such Person's fiscal quarter divided by the product of
(i) such Person's EBITDA for the quarterly period ending on such date times (ii)
four (4).
"Affiliate" of any specified Person means (i) any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person, (ii) any spouse, child or parent of
any Person described in clause (i) of this paragraph or any other relative of
any Person described in clause (i) who has the same principal residence as such
Person, and (iii) any trust for the sole benefit of any one or more Persons
described in clause (ii) of this paragraph. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Ancillary Agreements" has the meaning specified in the Preamble, as
each of the same may be amended or supplemented from time to time in accordance
with the terms thereof.
"Approved McKenzie Successor" means the person elected by the Board
of Directors, to be Mr. McKenzie's successor as Chief Executive Officer of the
Company, and who shall have been approved by the Required Holders (as such term
is defined in the Notes) within 180 days of such person's election.
"Assets" shall mean with respect to any Person, all property owned by
such person whether tangible, intangible, real, personal or fixtures.
3
<PAGE> 10
"Asset Sale Excess Proceeds" shall mean, with respect to all sales
and other dispositions of assets during any fiscal year of the Company, the
excess of (i) the aggregate Net Cash Proceeds of all such sales or other
dispositions over (ii) $250,000.
"Balance Sheet" has the meaning specified in Section 3.5.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board, empowered to act on its
behalf.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
"By-laws" means the by-laws of the Company, as amended to the date
hereof.
"Capital Lease Obligation" of any Person means the obligations to pay
rent or other amounts under a lease of (or other arrangement conveying the right
to use) real or personal property of such Person which are required to be
classified and accounted for as a capital lease on the face of a Balance Sheet
of such Person, and, for the purposes of this Agreement and the Ancillary
Agreements, the amount of such obligations shall be the capitalized amount
thereof, and the stated maturity thereof shall be the date of the last payment
of rent or any other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations, rights or equivalents (however designated) of corporate stock of
such Person.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company filed with the Secretary of State of
the State of Delaware, as amended to the date hereof.
"Closing" has the meaning specified in Section 2.1.
"Closing Date" has the meaning specified in Section 2.2.
"Common Stock" has the meaning specified in Section 3.4.
"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Agreement and the Ancillary
Agreements and thereafter "Company" shall mean such successor Person.
"Corporation" means a corporation, association, company, joint-stock
company or business trust.
4
<PAGE> 11
"CoreStates Debt" means all obligations under that certain Secured
Promissory Note of the Company (together with all "payment-in-kind" notes issued
pursuant thereto) dated as of June 11, 1996 issued to CoreStates Enterprise
Fund, a division of CoreStates Bank, N.A.
"CoreStates Warrants" means that portion of the Series A-III Common
Stock Warrant originally issued by the Company to CoreStates Enterprise Fund, a
division of CoreStates Bank, N.A. representing the right to purchase 238,610
shares of Common Stock.
"CoreStates Warrant Shares" has the meaning specified in the
Preamble.
"Debt" means (without duplication) with respect to any Person, (i)
every obligation of such Person for money borrowed, (ii) every obligation of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) every obligation of such Person issued or assumed as the deferred purchase
price of property, every conditional sale obligation and every obligation under
any title retention agreement (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business which are not overdue by
more than 90 days or which are being contested in good faith) in each case if on
terms permitting any portion of the purchase price to be paid beyond 90 days
from the date of purchase, (iv) every Capital Lease Obligation of such Person,
(v) every obligation of such Person with respect to any Sale and Leaseback
Transaction to which such Person is a party, (vi) the maximum fixed repurchase
price of any Redeemable Stock, (vii) every obligation of such Person issued or
contracted for as payment in consideration of (A) the purchase by such Person or
an Affiliate of such Person of the Capital Stock or all or substantially all of
the Assets of another Person or (B) a merger or consolidation to which such
Person or an Affiliate of such Person was a party, (viii) every Guaranty of
every obligation of the type referred to in clauses (i) through (vii) of other
Persons and all dividends of other Persons for the payment of which, in either
case, such Person is responsible or liable, directly or indirectly, as obligor,
guarantor or, otherwise (whether or not such items would appear on the Balance
Sheet of such Person) and (ix) every obligation of the type referred to in
clauses (i) through (viii) of other Persons secured by any Lien on any Asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
Assets or the amount of the obligation so secured. For purposes of this
definition, "obligation" of any Person means any obligation of such Person
(whether contingent or otherwise or whether recourse to all or a portion of such
Person's property or assets) to pay principal, interest, penalties,
reimbursement or indemnity amounts, fees or other amounts.
"Default" has the meaning specified in Section 6(a) of the Notes.
"Determination Date" has the meaning specified in paragraph (i) of
the definition of the term "Fair Market Value".
"Domestic Subsidiary" means any Subsidiary that is not a Foreign
Subsidiary.
"EBITDA" shall mean, with reference to any period, the consolidated
operating income of the Company and its Subsidiaries, plus the amount of all
depreciation and amortization
5
<PAGE> 12
deducted in determining the amount of such operating income, all as determined
on a consolidated basis in accordance with GAAP.
"Eligible Institution" means a commercial banking institution in the
United States of America that has combined capital and surplus of not less than
500 million in U.S. dollars whose debt is rated "A" or higher or the equivalent
rating according to Standard & Poor's Corporation ("S&P") or Moody's Investors
Services, Inc. ("Moody's") at the time as of which any investment or rollover
thereof is made.
"Employee Benefit Plan" has the meaning specified in Section 3.19(b).
"EMEA" means the European Medicines Evaluation Agency.
"ERISA" has the meaning specified in Section 3.19(b).
"Event of Default" has the meaning specified in Section 6(a) of the
Notes.
"Existing Securities" has the meaning specified in the Preamble.
"Existing Warrant Shares" has the meaning specified in the Preamble.
"Fair Market Value" means:
(i) in the case of any equity security of the
Company, as of a specific date of determination (the "Determination
Date"):
(A) if the Determination Date is the
date on which any class of equity security of the Company
is first sold to the public pursuant to a Public Offering,
then the initial public offering price (before deducting
commissions, discounts or expenses) at which such security
is sold in such Public Offering;
(B) if the Determination Date is a
date after the date on which any class of equity
securities of the Company are first sold to the public
pursuant to a Public Offering, then the price per security
thereof, equal to the average of the last sale of such
security on each of the ten (10) trading days (or such
lesser number of days as shares shall have been listed or
traded) prior to the Determination Date on the principal
exchange on which such security may at the time be listed;
or, if there shall have been no sales on such exchange on
any such trading day, the average of the closing bid and
asked price on such exchange on such trading day; or, if
there is no such bid and asked price on any such bid
trading day, on the next preceding date when such bid and
asked price occurred; or, if no such equity security shall
so be listed the average of the closing sales price as
reported by NASDAQ at the end of each of the ten (10)
trading days (or such lesser number of days as shares
shall have been traded) prior to the Determination Date in
the over-the-counter market; and
6
<PAGE> 13
(C) if the Determination Date is prior
to the date on which any class of equity securities is
first sold to the public pursuant to a Public Offering (or
the value of such equity securities is not otherwise
determinable under clause (B) above), an amount as
reasonably determined jointly by the Board of Directors of
the Company and the holders representing a majority in
interest of the securities of which the Fair Market Value
is to be determined; provided, however, that if such
parties are unable to reach agreement within a reasonable
time, the Fair Market Value shall be determined, at the
expense of the Company, in good faith by an investment
banking firm that is nationally recognized in the United
States selected jointly by the Board of Directors of the
Company and the holders of a majority in interest of such
securities or, if that selection cannot be made within
fifteen (15) days, by an independent investment banking
firm selected by the American Arbitration Association in
accordance with its rules; it being the intention of the
parties that the value of an equity security of the
Company shall constitute a pro rata portion of the
Company's equity on a fully diluted basis, valuing the
Company as a going concern and without discount in respect
of a minority interest;
(ii) in the case of any equity securities of a
Person other than the Company, an amount determined jointly by the
Board of Directors of the Company and the Purchasers using the rules,
to the extent applicable, set forth in paragraph (i) of this
definition, and subject to the dispute resolution provisions
contained in subsection (C) of said section (i);
(iii) in the case of any Assets, (the fair market
value of which exceeds or could reasonably be expected to exceed
$2,000,000 until the Company has consummated a Qualified Equity
Transaction, as defined in the Interest Escrow Security Agreement
and, thereafter, $5,000,000), an amount as reasonably determined in
good faith by the Company's Board of Directors, at the expense of the
Company, based upon a review of relevant factors and a written
appraisal by an appraiser that (A) had at the time of such appraisal,
and based its appraisal upon, a knowledge of the then-prevailing
methods of valuing such Assets and the then-current valuations of
assets similar to such Assets and (B) is selected by the Company and
approved by the Required Holders, such approval not to be
unreasonably withheld; and
(iv) in case of any other Assets, an amount as
reasonably determined in good faith by the Company's Board of
Directors upon a review of relevant factors.
"FDA" means the United States Food and Drug Administration.
"Foreign Subsidiary" means any Subsidiary or New Subsidiary (i) more
than 80% of the sales, earnings or Assets (determined with respect to such
Foreign Subsidiary on a consolidated basis) of which are or will be located or
derived from operations outside of the United States of America or (ii) which is
or will be a "controlled foreign corporation" within the meaning of Section 952
of the Internal Revenue Code.
7
<PAGE> 14
"Fully Diluted Shares" means, as of the date hereof: (i) that number
of shares of the Company's Common Stock outstanding; plus (ii) that number of
shares of Common Stock into which all other securities of the Company are
convertible, exchangeable or exercisable (including, but not limited to
convertible preferred stock, options, warrants and convertible indebtedness).
For purposes of this Agreement, the parties agree that the number of Fully
Diluted Shares is as of the date hereof 21,666,667, which number was based on
the information set forth in Schedule 3.4 provided, however, that, the parties
hereto acknowledge that this number has not been calculated in accordance with
GAAP.
"Funded Debt" shall mean, with respect to any Person, all Debt
Incurred for borrowed money of such Person which by its terms or by the terms of
any instrument or agreement relating thereto matures, or which is otherwise
payable or unpaid, more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor to a date more than one year
(including an option of the debtor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of more than one
year) from, the date of the creation thereof.
"GAAP" means generally accepted accounting principles in effect in
the United States at the time of application thereof, including those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as have been approved by a majority of the
accounting profession, which are in effect from time to time.
"Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person guaranteeing any Debt of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including,
without limitation, any obligation of such Person, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for the payment
of such Debt, (ii) to purchase property, securities or services for the purpose
of assuring the holder of such Debt of the payment of such Debt, or (iii) to
maintain working capital, equity capital or other financial statement condition
or liquidity of the primary obligor so as to enable the primary obligor to pay
such Debt; provided, however, that the Guaranty by any Person shall not include
endorsements by such Person for collection or deposit, in either case in the
ordinary course of business.
"Guaranty Obligation" has the meaning specified in Section 11 of the
Notes.
"Holder" means a Purchaser of the Note or any Person to whom the Note
is sold, assigned, conveyed or otherwise transferred.
"Incur" means, with respect to any Debt, Lien or Guaranty of any
Person, to create, issue, assume, guarantee, incur or otherwise become liable in
respect of such Debt, Lien or Guaranty, as the case may be (and "Incurrence",
"Incurred" and "Incurring" shall have meanings correlative to the foregoing),
and "Incur" means, with respect to any Lien to create, incur, assume or suffer
to exist such Lien on any Asset.
8
<PAGE> 15
"Intellectual Property" has the meaning specified in Section 3.13.
"Interest Escrow Security Agreement" has the meaning specified in the
Preamble, as it may be amended or supplemented from time to time in accordance
with the terms thereof.
"Interest Expense" shall mean, with respect to any Person, for any
period, the sum, for such Person in accordance with GAAP, of (i) all interest
that is paid, accrued or amortized as an expense during such period (including,
without limitation, imputed interest under Capitalized Lease Obligations), plus
without duplication (ii) all amounts paid, accrued or amortized as an expense
during such period in respect of interest rate protection agreements, minus
(iii) all amounts received or accrued as income during such period in respect of
interest rate protection agreements.
"Investments" means all investments in other Persons in the form of
loans or capital contributions, purchases or other acquisitions for
consideration or evidences of indebtedness, or Capital Stock or other securities
and all other items which are or would be classified as investments on a Balance
Sheet prepared in accordance with GAAP.
"Laws" shall mean, with respect to any Person, all federal, state,
local and foreign laws, ordinances, rules, regulations (including, without
limitation, rules and regulations of the FDA and the EMEA), codes, orders or
zoning requirements and all judicial decisions and other interpretations thereof
applicable to such Person.
"Lien" means with respect to any Assets, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to Assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"McKenzie Policy" has the meaning specified in Section 5.10.
"Net Cash Proceeds" shall mean the cash proceeds of any sale or other
disposition of Assets (including cash proceeds subsequently received (as and
when received) in respect of non-cash consideration initially received, all
insurance settlements and condemnation awards and all reserves referred to in
clause (ii) below, as and when such reserves are no longer required), minus (i)
transaction expenses (including broker's fees or commissions, legal fees,
accounting fees, investment banking fees and other professional fees, transfer
and similar taxes and the Company's good faith estimate of income taxes payable
and the actual amount of taxes paid in connection with the receipt of such cash
proceeds), (ii) amounts provided as a reserve, in accordance with GAAP,
including pursuant to any escrow arrangement, against any liabilities under any
indemnification obligations associated with such sale or disposition, (iii) the
principal amount, premium or penalty, if any, interest and other amounts on any
Debt which is secured by the Assets sold and is defeased or repaid with such
proceeds and (iv) subject to any provisions of any Security Documents between a
Subsidiary and Purchasers, such distributions required to be
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made to holders of interests in Subsidiaries that are not wholly owned by the
Company or any of its Subsidiaries, in each case made pro rata in accordance
with their interests in such Subsidiaries, provided, however, that with respect
to the cash proceeds of any such sale or other disposition, if the Company shall
have delivered an Officer's Certificate to Purchasers, at the time of the
receipt thereof certifying in good faith that the Company has established a cash
reserve for the reinvestment of such proceeds in productive Assets of a kind
then used or useable in the business of the Company within nine months of
receipt of such proceeds, such proceeds shall not constitute Net Cash Proceeds
except to the extent not so used prior to the end of such nine-month period, at
which time such proceeds shall be deemed to be Asset Sale Excess Proceeds.
"New Subsidiary" has the meaning specified in Section 5.14.
"Notes" has the meaning specified in the Preamble.
"Officer's Certificate" shall mean a certificate signed in the name
of the Company by a Responsible Officer of the Company, provided, however, that
if such certificate relates to any Financial Statements, the financial condition
or other financial information of the Company, such Responsible Officer shall be
a senior executive officer responsible for managing the financial affairs of the
Company or, in such officer's absence, the Chief Executive Officer, President or
Chairman of the Company.
"Outstanding", when used with respect to Notes, means, as of any date
of determination, all Notes theretofore issued and delivered under this
Agreement and the Ancillary Agreements, except:
(i) Notes theretofore cancelled by the Company
or delivered to the Company for cancellation;
(ii) Notes for which payment in full has been
made by the Company pursuant to the terms of the Notes; and
(iii) Notes which have been exchanged for other
securities;
provided, however, that in determining whether the Purchasers of the requisite
principal amount of the Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company or any other obligor under the Notes or any Affiliate of the Company
(other than any Purchaser) or of such other obligor shall be disregarded and
deemed not to be Outstanding.
"PBGC" has the meaning specified in Section 3.19(b).
"Permitted Investments" shall mean:
(i) direct obligations of, or obligations the
principal of and interest on which are unconditionally guaranteed by,
the United States of America (or by any agency
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<PAGE> 17
thereof to the extent such obligations are backed by the full faith
and credit of the United States of America), in each case maturing
within 180 days from the date of acquisition thereof.
(ii) investments in commercial paper maturing
within 90 days from the date of acquisition thereof and having, at
such date of acquisition, the highest rating obtainable from S&P or
from Moody's.
(iii) investments in certificates of deposit,
banker's acceptances and time deposits maturing within 90 days from
the date of acquisition thereof issued or guaranteed by or placed
with, and money market deposit accounts issued or offered by any
Eligible Institution.
(iv) shares of funds registered under the
Investment Company Act of 1940, as amended, that have Assets of at
least $100,000,000 and invest substantially all their Assets in
obligations described in clauses (i) through (iii) above;
provided that any investment which, when made, constituted a Permitted
Investment may continue to be held (but not reinvested) notwithstanding that
such investment may thereafter cease to constitute a Permitted Investment.
"Person" means any individual, corporation, partnership, joint
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Preferred Stock" has the meaning specified in Section 3.4.
"Public Offering" means the consummation by the Company of the first
offering of its equity securities to the public pursuant to a registration
statement declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act").
"Purchaser" means the Person listed as "Purchaser" on Schedule 2.1
hereto.
"Receivables Facility" means a revolving line of credit that is
secured by trade receivables of the Company and amounts outstanding under which
shall not exceed 80% of the face amount of trade receivables of the Company that
are not more than 60 days past due.
"Redeemable Stock" means any equity security that by its terms or
otherwise is or may be required to be redeemed prior to the Stated Maturity of
the Notes, or is redeemable at the option of the Purchaser thereof at any time
prior to the Stated Maturity of the Notes.
"Registrable Securities" has the meaning specified in the Preamble.
"Reportable Event" has the meaning specified in Section 5.12(d)(iii).
"Responsible Officer" shall mean the duly elected Secretary, Chief
Financial Officer, Chief Operating Officer, Chief Executive Officer, President
or Chairman of the Company.
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<PAGE> 18
"Restricted Payment" has the meaning specified in Section 5.7.
"Required Holders" means that number of Holders of Notes constituting
not less than 70% of the total amount due under the Outstanding Notes.
"Sale and Leaseback Transaction" means an arrangement by a Person
with any other Person, providing for the leasing from such other Person, on
terms creating a Capital Lease obligation by such Person or any Subsidiary of
such Person of any Asset of such Person or any Subsidiary of such Person which
has been or is being sold or transferred by such Person or such Subsidiary to
such other Person from whom funds have been or are to be advanced by such lender
or investor on the security of such Asset.
"Securities" has the meaning specified in the Preamble.
"Security Documents" means the Security Agreement, the Intellectual
Property Security Agreement, the Pledge Agreement, the Interest Escrow Security
Agreement, the Funded Commitment Facility Escrow Agreement and the Subsidiary
Guaranty.
"Series A Preferred" has the meaning specified in Section 3.4.
"Series A-1 Preferred" has the meaning specified in Section 3.4.
"Series A-2 Preferred" has the meaning specified in Section 3.4.
"Series A-3 Preferred" has the meaning specified in Section 3.4.
"Series B-1 Preferred" has the meaning specified in Section 3.4.
"Series B-2 Preferred" has the meaning specified in Section 3.4.
"Stated Maturity", when used with respect to any Note or any
installment of interest thereon, means August 25, 2003.
"Statement No. 5" has the meaning specified in Section 3.6(b).
"Subsidiary" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company, or by the Company and one or more
other Subsidiaries of the Company. For the purposes of this definition, "voting
stock" means stock which ordinarily has voting power for the election of
directors, whether at all times or only so long as no senior class of stock has
such voting power by reason of any contingency. Unless otherwise specified, the
term "Subsidiary" also includes Foreign Subsidiary and New Subsidiary.
"Warrants" has the meaning specified in the Preamble.
"Warrant Shares" has the meaning specified in the Preamble.
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Section 1.2 Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, any
computation required or permitted hereunder shall be made, and all unaudited
financial statements and certificates and reports as to financial matters
required to be furnished hereunder shall be prepared, in accordance with GAAP,
applied on a basis consistent with the Audited Financial Statements of the
Company delivered pursuant to Section 6.16.
ARTICLE II
THE SECURITIES
Section 2.1 Issuance, Sale and Delivery of the Securities. The
Company hereby agrees to issue, sell and deliver to each Purchaser, and each
Purchaser hereby agrees to purchase from the Company, at the closing (the
"Closing"), a Guaranteed Senior Secured Primary Note and a Guaranteed Senior
Secured Escrow Note, in each case, in the original principal amount set forth
opposite its name in Section 1 on Schedule 2.1 hereto and a Warrant to purchase
such number of Warrant Shares as set forth opposite its name in Section 2 on
Schedule 2.1 hereto. The Guaranteed Senior Secured Primary Note, the Guaranteed
Senior Secured Escrow Note and the Warrants are referred to collectively
hereinafter as the "Newly Issued Securities." In addition, the Company hereby
agrees to deliver, at the Closing, the Amended and Restated Series A-II, Series
A-III and Series A-V Warrants to the Purchasers as set forth in Section 3 on
Schedule 2.1 hereto.
Section 2.2 Closing; Purchase Price; Purchase Price Allocation.
(a) The Closing shall take place at the offices of Morrison
& Foerster LLP, 1290 Avenue of the Americas, New York, NY 10104, at 10:00 a.m.,
New York time, on the date hereof, or at such other place, date and time as may
be otherwise mutually agreed in writing by the parties hereto. The date on which
the Closing actually occurs is referred to herein as the "Closing Date."
(b) At the Closing, the Company shall issue and deliver to
each Purchaser a Guaranteed Senior Secured Primary Note and a Guaranteed Senior
Secured Escrow Note, in each case, in the original principal amount set forth
opposite its name in Section 1 on Schedule 2.1 hereto and a Warrant to purchase
such number of Warrant Shares as set forth opposite its name in Section 2 on
Schedule 2.1 hereto.
(c) At the Closing, and upon receipt of the Newly Issued
Securities, the Purchasers shall deliver to the Company, marked as cancelled,
the Existing Securities set forth opposite its name in Section 4 on Schedule 2.1
hereto as follows:
(i) the senior secured promissory note in the
original principal amount of $4,700,000 issued by the Company to
Northstar High Total Return Fund ("Northstar
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<PAGE> 20
Return") on December 27, 1995 (the "Northstar Return Note"), due and
payable on December 31, 2000;
(ii) the senior secured promissory note in the
original principal amount of $4,000,000 issued by the Company to
Northstar High Total Return Fund II ("Northstar Return II"), on April
1, 1998 (the "Northstar Return II Note"), due and payable on April
17, 1998, as amended on June 10, 1998 to extend the maturity date to
July 10, 1998 and increase the principal amount to $5,000,000, as
further amended on July 10, 1998 to extend the maturity date to July
31, 1998 and increase the principal amount to $6,000,000, and as
further amended on July 31, 1998 to extend the maturity date to
August 24, 1998;
(iii) the senior secured promissory note in the
original principal amount of $4,000,000 issued by the Company to
Northstar High Yield Fund ("Northstar High Yield"), on April 1, 1998
(the "Northstar High Yield Note"), due and payable on April 17, 1998,
as amended on June 10, 1998 to extend the maturity date to July 10,
1998, as further amended on July 10, 1998 to extend the maturity date
to July 31, 1998, and as further amended on July 31, 1998 to extend
the maturity date to August 24, 1998;
(iv) The Series A-V Warrant to purchase 49,066
shares of the Company Common Stock, for an exercise price per share
of $7.64, issued to Northstar Return II on April 1, 1998 (the
"Northstar Return II Warrant");
(v) The Series A-V Warrant to purchase 49,066
shares of the Company Common Stock for an exercise price per share of
$7.64, issued to Northstar High Yield on April 1, 1998 (the "North
Star High Yield warrant");
(vi) The Series A-II Warrant to purchase
initially, 94,010 shares of the Company Common Stock for an exercise
price per share of $14.00 (subject to a two for one split of the
Company Common Stock on December 31, 1997), issued to Northstar
Return on December 27, 1995 (the "Northstar Return Warrant"); and
(vii) The Series A-2 Preferred Stock certificate
evidencing the right to purchase 40,000 shares initially (subject to
the issuance of additional dividend shares) of Series A-2 Preferred
Stock issued by the Company to Northstar Return in March 1997.
(d) At the Closing, the Company shall deliver to the
Purchasers a calculation setting forth in reasonable detail, the stipulated
contribution value of the Northstar Return Note, the Northstar Return II Note,
the Northstar High Yield Note and the Series A-2 Preferred Stock, as set forth
in Section 2.2(c), the aggregate amount of which shall constitute the Company's
allocation of that portion of the Purchase Price payable by the exchange of the
Existing Securities for the Newly Issued Securities. Set forth in Schedule 2.2
is the Company's calculation of the cash portion of the purchase price paid by
such Purchaser.
(e) At the Closing, as payment in full for the Newly Issued
Securities and against delivery of such Newly Issued Securities, each Purchaser
shall deliver, on the Closing
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Date, the Existing Securities as listed opposite its name in Section 4 on
Schedule 2.1 hereto, for cancellation by the Company, and shall transfer the sum
of $18,839,432 by wire transfer of immediately available funds to such account
or accounts as the Company may direct in accordance with its letter of
instruction. The Company and each Purchaser agree that $4,553,050 of the
aggregate consideration for the Guaranteed Senior Secured Primary Notes and the
Warrants shall for all purposes be allocated to the Warrants, and that the
balance of such aggregate consideration shall be allocated to the Guaranteed
Senior Secured Primary Notes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SUBSIDIARIES
The Company represents and warrants, and each Subsidiary represents
and warrants as to itself, to the Purchasers as of the Closing Date that:
Section 3.1 Organization, Qualifications and Corporate Power. The
Company and each Subsidiary is a corporation duly organized, validly existing,
and in good standing under the Laws of the jurisdiction of its respective
incorporation, and the Company and each Subsidiary is duly licensed or qualified
to transact business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification, except where the failure so to qualify will not have a material
adverse effect on the business, operations, property or financial condition of
the Company or such Subsidiary, as applicable. The Company and each Subsidiary
has the power and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, and the Company and
each Subsidiary has the power and authority to execute, deliver and perform this
Agreement and the Ancillary Agreements to which it is a party, and the Company
has the power and authority to issue, sell and deliver the Notes, the Warrants
and the Amended and Restated Series A-II Warrants, Series A-III Warrants and
Series A-V Warrants and to issue and deliver the Warrant Shares upon the
exercise of the Warrants and the Amended and Restated Series A-II Warrants,
Series A-III Warrants and Series A-V Warrants.
Section 3.2 Authorization of Agreements, etc.
(a) The execution and delivery by the Company and each
Subsidiary of this Agreement and the Ancillary Agreements to which it is a party
and the performance by the Company and each Subsidiary of its respective
obligations hereunder and thereunder, and with respect to the Company, the
issuance, sale and delivery of the Notes and the Warrants, and the Amended and
Restated Series A-II Warrants, Series A-III Warrants and Series A-V Warrants and
the issuance, sale and delivery of the Warrant Shares upon the exercise of the
Warrants, and the Amended and Restated Series A-II Warrants, Series A-III
Warrants and Series A-V Warrants have been duly authorized by all requisite
corporate action and will not violate any provision of Law, any order of any
court or other agency of government (except that the issuance of the Warrant
Shares may require filings under one or more state securities laws, all of which
filings
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<PAGE> 22
the Company hereby agrees will be made within the requisite time period), the
Amended and Restated Certificate of Incorporation of the Company (as amended to
date, the "Certificate of Incorporation") or the Certificate of Incorporation of
the respective Subsidiary or the by-laws of the Company, as amended (the
"By-laws") or the by-laws of the respective Subsidiary, or any provision of any
indenture, agreement or other instrument to which the Company or such Subsidiary
is a party or by which either the Company or such Subsidiary or any of its
respective Assets is bound, or conflict with, result in a breach of, give rise
to a right of termination under or constitute (whether with or without notice or
lapse of time or both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien, charge,
restriction, claim or encumbrance of any nature whatsoever upon any of the
Assets of the Company or such Subsidiary.
(b) The Warrants have been authorized and, when issued in
accordance with this Agreement, will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership thereof and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed under or through the Company or any of its Subsidiaries
except as set forth in this Agreement. The Warrant Shares have been duly
authorized and reserved for issuance upon exercise of the Warrants, and, when so
issued, will be duly authorized, validly issued, fully paid and nonassessable
with no personal liability attaching to the ownership thereof and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
under or through the Company or any of its Subsidiaries except as set forth in
this Agreement. Neither the issuance, sale or delivery of the Warrants, nor the
issuance or delivery of the Warrant Shares is subject to any preemptive right of
stockholders of the Company or to any right of first refusal or other right in
favor of any person.
Section 3.3 Validity. This Agreement and each of the Ancillary
Agreements have been duly executed and delivered by the Company and the
Subsidiaries party thereto, as the case may be, and each of the Notes, the
Warrants and the Amended and Restated Series A-II Warrants, Series A-III
Warrants and Series A-V Warrants has been duly executed and delivered by the
Company, and each of the foregoing constitutes the legal, valid and binding
obligation of the Company or the respective Subsidiary, as applicable,
enforceable in accordance with its terms, subject to (a) applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance and moratorium Laws and other
similar Laws of general application affecting enforcement of creditors' rights
generally and (b) the availability of equitable remedies including specific
performance may be limited by equitable principles of general applicability
(regardless of whether enforcement is sought in a proceeding in equity or at
Law).
Section 3.4 Authorized Capital Stock. The authorized Capital Stock of
the Company consists of 25,000,000 shares of common stock, $.0001 par value
("Common Stock"), and 5,000,000 shares of preferred stock ("Preferred Stock").
As of March 30, 1998, 10,917,256 shares of Common Stock were issued and
outstanding, all of which were validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof. The
Company has authorized 730,000 shares of Series A Convertible Preferred Stock,
$.0001 par value per share (the "Series A Preferred"). As of March 30, 1998, a
total of 615,697 shares of Series A Preferred were issued and outstanding. The
Company has authorized 850,000
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shares of Series A-1 Convertible Preferred Stock, $.0001 par value per share
(the "Series A-1 Preferred"). As of March 30, 1998, a total of 664,196 shares of
Series A-1 Preferred were issued and outstanding. The Company has authorized
155,000 shares of Series A-2 Preferred Stock, $.0001 par value per share (the
"Series A-2 Preferred"). As of March 30, 1998, a total of 45,482 shares of
Series A-2 were issued and outstanding. The Company has authorized 200,000
shares of Series A-3 Convertible Preferred Stock, $.0001 par value per share
(the "Series A-3 Preferred"). As of March 30, 1998, 150,881 shares of Series A-3
Preferred were issued and outstanding. The Company has authorized 100 shares of
Series B-1 Convertible Preferred Stock, $.0001 par value per share (the "Series
B-1 Preferred"). As of March 30, 1998, 100 shares of Series B-1 Preferred were
outstanding. The Company has authorized 120 shares of Series B-2 Convertible
Preferred Stock, $.0001 par value per share (the "Series B-2 Preferred"). As of
March 30, 1998, 120 shares of Series B-2 Preferred were outstanding. The
Warrants will be exercisable immediately upon issuance into an aggregate of
1,625,000 shares of Common Stock, representing 7.5% of the number of Fully
Diluted Shares. As of the date hereof and except as otherwise provided in this
Agreement or the Ancillary Agreements, the outstanding shares of Capital Stock
of the Company are not subject to, nor were they issued in violation of, any
preemptive rights of shareholders or any right of first refusal or other similar
right in favor of any shareholder. As of the date hereof and except as otherwise
provided in this Agreement or the Ancillary Agreements or Schedule 3.4 attached
hereto (i) there has been no material change (defined as more than a five
percent (5%) increase or decrease) in the number of shares of outstanding Common
Stock or outstanding Preferred Stock of the Company since March 31, 1998, (ii)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase capital stock of the Company is authorized
or outstanding, (iii) there is no commitment to issue any shares, warrants,
options or other such rights or to distribute to holders of any capital stock of
the Company, in respect thereof, any evidences of indebtedness or Assets, and
(iv) the Company has no obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any capital stock or pay any dividend or make any other
distribution in respect thereof.
Section 3.5 Financial Statements. The Company has furnished to the
Purchasers the audited balance sheet of each of the Company and Holdings for the
fiscal year ended December 31, 1997 and the related audited statements of
income, stockholders' equity and cash flows of each of the Company and Holdings
for the fiscal year ended December 31, 1997 (the "Audited Financial
Statements"). The Company has furnished to the Purchasers the unaudited balance
sheet of the Company for the quarter ended March 31, 1998 (the "Balance Sheet")
and the related unaudited statements of income, stockholders' equity and cash
flows of the Company for the quarter ended March 31, 1998 certified by a
Responsible Officer of the Company (the "Most Recent Financial Statements"). All
such financial statements have been prepared in accordance with GAAP and fairly
present the financial position of the Company and Holdings as of December 31,
1997 and of the Company as of March 31, 1998, respectively, and the results of
the Company's and Holdings' operations and cash flows as of December 31, 1997
and of the Company's operations and cash flows as of March 31, 1998,
respectively. Except as set forth in Schedule 3.5 hereto, since the date of the
Most Recent Financial Statements, (a) there has been no change in the Assets,
liabilities or financial condition of the Company from that reflected in the
Balance Sheet except for changes in the ordinary course of business which in the
aggregate
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<PAGE> 24
have not been materially adverse and (b) none of the business, financial
condition, operations or Assets of the Company have been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
Section 3.6 Absence of Undisclosed Liabilities and Charges. Except as
set forth on Schedule 3.6 attached hereto, as of the date hereof, (a) neither
the Company nor any Subsidiary had any liabilities of any nature (matured or
unmatured, fixed or contingent) which were not provided for on the Balance
Sheet, except for (i) liabilities which, individually and in the aggregate, were
not material to the financial condition of the Company or such Subsidiary or
(ii) liabilities incurred in the ordinary course of the Company's or such
Subsidiary business and not required to be so provided for under generally
accepted accounting principles, and (b) all reserves established by the Company
and set forth on the Balance Sheet were adequate in all material respects. There
are no loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 ("Statement No. 5") issued by the Financial
Accounting Standards Board in March 1975) which are not adequately provided for
on the Balance Sheet as required by Statement No. 5.
Section 3.7 Events Subsequent to the Date of the Balance Sheet.
Except as set forth in the attached Schedule 3.7 or as contemplated by this
Agreement, since the date of the Balance Sheet, neither the Company nor any
Subsidiary has (a) issued any stock, bond or other corporate security, (b)
borrowed any amount or incurred or became subject to any liability (absolute,
accrued or contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business, (c) discharged
or satisfied any Lien or encumbrance or incurred or paid any obligation or
liability (absolute, accrued or contingent) other than current liabilities shown
on the Balance Sheet and current liabilities incurred since the date of the
Balance Sheet in the ordinary course of business, (d) declared or made any
payment or distribution to stockholders or purchased or redeemed any share of
its Capital Stock or other security, (e) mortgaged, pledged or subjected to Lien
any of its Assets, other than liens of current real property taxes not yet due
and payable, (f) sold, assigned or transferred any of its tangible Assets except
in the ordinary course of business, or canceled any Debt or claim, (g) sold,
assigned, transferred or granted any exclusive license with respect to any
material patent, trademark, trade name, service mark, copyright, trade secret or
other intangible Asset other than in the ordinary course of business, (h)
suffered any material loss of property or waived any right of substantial value,
(i) made any change in officer compensation except in the ordinary course of
business and consistent with past practice, (j) made any material change in the
manner of business or operations of the Company or any Subsidiary, (k) entered
into any transaction except in the ordinary course of business or as otherwise
contemplated hereby or (l) entered into any commitment (contingent or otherwise)
to do any of the foregoing.
Section 3.8 Litigation; Compliance with Law. There is no material (a)
action, suit, claim, proceeding or investigation pending or, to the knowledge of
the Company or the respective Subsidiary, threatened against or affecting the
Company or the respective Subsidiary, at Law or in equity, or before or by any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (b) arbitration
proceeding relating to the Company or the respective Subsidiary, pending under a
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<PAGE> 25
collective bargaining agreement or otherwise or (c) governmental inquiry pending
or to the knowledge of the Company or the respective Subsidiary, threatened
against or affecting the Company or the respective Subsidiary, (including,
without limitation, any inquiry as to the qualification of the Company or the
respective Subsidiary, to hold or receive any license or permit). Neither the
Company nor the respective Subsidiary has received any opinion or memorandum or
legal advice from legal counsel to the effect that it is exposed, from a legal
standpoint, to any liability or disadvantage which may be material to its
business, financial condition, operations or Assets. Neither the Company nor the
respective Subsidiary is in default with respect to any order, writ, injunction
or decree known to or served upon the Company or the respective Subsidiary of
any court or of any Federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign. There
is no material action or suit by the Company or the respective Subsidiary
pending or threatened against others. The Company and each Subsidiary has
complied in all material respects with all Laws, applicable to its respective
business, operations, Assets, products and services, and the Company or the
respective Subsidiary has all necessary permits, licenses and other
authorizations required to conduct its business as conducted and as proposed to
be conducted, except where the failure to own or possess such permits, licenses
or authorizations could not, either singly or in the aggregate, have a material
adverse effect on the business, operations, Assets or financial condition of the
Company or the respective Subsidiary.
Section 3.9 Title to Properties. Except as disclosed in Schedule 3.9
hereof, the Company has good and marketable title to its Assets reflected on the
Balance Sheet (other than Assets disposed of in the ordinary course of business
since the date of the Balance Sheet), and all such Assets are free and clear of
mortgages, pledges, security interests, Liens, charges, claims, restrictions and
other encumbrances, except for Liens for current taxes not yet due and payable
and minor imperfections of title, if any, not material in nature or amount and
not materially detracting from the value or materially impairing the use of the
Asset subject thereto or impairing the operations or proposed operations of the
Company.
Section 3.10 Leasehold Interests. Each lease or agreement to which
the Company or any Subsidiary is a party under which it is a lessee of any
Asset, real or personal (a list of all such leases being attached hereto as
Schedule 3.10), is a valid and subsisting agreement without any material Default
of the Company or the respective Subsidiary thereunder and, to the knowledge of
the Company or the respective Subsidiary, without any material default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a Default or
Event of Default by the Company or the respective Subsidiary, under any such
lease or agreement or, to the knowledge of the Company or the respective
Subsidiary, by any other party thereto.
Section 3.11 Taxes. Except as set forth on Schedule 3.11, the Company
and each Subsidiary has filed or will file within the time prescribed by law
(including extensions of time approved by the appropriate taxing authority) all
tax returns, federal, state, county and local, required to be filed by it, and
the Company or the respective Subsidiary has paid all taxes shown to be due by
such returns and extensions as well as all other taxes, assessments and
governmental charges which have become due or payable, including, without
limitation, all taxes which the
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<PAGE> 26
Company or the respective Subsidiary is obligated to withhold from amounts owing
to employees, creditors and third parties. All such taxes with respect to which
the Company or the respective Subsidiary has become obligated have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. No deficiency assessment with respect to or proposed adjustment of the
Company's or the respective Subsidiary's federal, state, county or local taxes
is pending or, to the knowledge of the Company or the respective Subsidiary,
threatened. There is no tax Lien in favor of any federal, state, county or local
taxing authority, outstanding against the Assets, or business of the Company or
the respective Subsidiary.
Section 3.12 Other Agreements. Except as set forth in the attached
Schedule 3.12, neither the Company nor any Subsidiary is a party to or otherwise
bound by any written or oral contract or instrument or other restriction which
individually or in the aggregate could materially adversely affect the business,
financial condition, operations or Assets of the Company or the respective
Subsidiary. Except as set forth in the attached Schedule 3.12, or as a result of
the transactions contemplated in this Agreement, or the Ancillary Agreements,
neither the Company nor any Subsidiary is a party to or otherwise bound by any
written or oral:
(a) distributor, dealer, manufacturer's representative or
sales agency contract or agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company or the
respective Subsidiary;
(b) sales contract which entitles any customer to a rebate
or right of set-off, to return any product to the Company or the respective
Subsidiary after acceptance thereof or to delay the acceptance thereof, or which
varies in any material respect from the Company's or the respective Subsidiary's
standard form contracts;
(c) contract with any labor union (and, to the knowledge of
the Company or the respective Subsidiary, no organizational effort is being made
with respect to any of its employees);
(d) contract or other commitment with any supplier
containing any provision permitting any party other than the Company or the
respective Subsidiary to renegotiate the price or other terms, or containing any
pay-back or other similar provision, upon the occurrence of a failure by the
Company or the respective Subsidiary to meet its obligations under the contract
when due or the occurrence of any other event;
(e) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of informal
understandings), on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company or the respective
Subsidiary except normal severance arrangements and accrued vacation pay;
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<PAGE> 27
(g) agreement or indenture relating to the borrowing of
money or to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any Asset of the Company or the respective Subsidiary;
(h) guaranty of any Obligation for borrowed money or
otherwise;
(i) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or the
respective Subsidiary has advanced or agreed to advance money or has agreed to
lease any Asset as lessee or lessor;
(j) agreement or Obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its Capital Stock or any of its other equity securities;
(k) assignment, license or other agreement with respect to
any form of intangible Assets or Intellectual Property (as defined in Section
3.13) or the development or use thereof;
(l) agreement under which it has granted any person any
registration rights;
(m) agreement under which it has limited or restricted its
right to compete with any person in any respect; or
(n) other contract or group of related contracts with the
same party involving more than $500,000 or continuing over a period of more than
one (1) year from the date or dates thereof (including renewals or extensions
optional with another party), which contract or group of contracts is not
terminable by the Company or the respective Subsidiary without penalty upon
notice of thirty (30) days or less, but excluding any contract or group of
contracts with a customer of the Company or the respective Subsidiary for the
sale, lease or rental of the Company's or the respective Subsidiary's products
or services if such contract or group of contracts was entered into by the
Company or the respective Subsidiary in the ordinary course of business.
Each of the contracts listed on Schedule 3.12 hereof is valid and enforceable.
The Company or its respective Subsidiaries are not in Default nor has an Event
of Default, or event that with the lapse of time or the giving of notice, or
both, would constitute an Event of Default occurred or would result therefore
(and, to the knowledge of the Company or the respective Subsidiaries, no other
party thereto is in Default) under the material terms and conditions of any
contract listed on Schedule 3.12 including, but not limited to (i) the
Promissory Note dated August 2, 1996 by PerImmune to Organon Teknika Corporation
("Organon"), (ii) the Intellectual Property Security Agreement dated as of
August 8, 1996, by and among Holdings, PerImmune, Akzo Nobel Pharmaceutical
International, B.V. ("Akzo") and Organon, and (iii) the Intellectual Property
Agreement dated August 2, 1996, by and among Holdings and Akzo, all as amended
by Amendment No. 1 dated July 31, 1998 by Organon, Holdings and PerImmune.
Section 3.13 Patents, Trademarks, etc. Set forth in Schedule 3.13 is
a list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications,
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<PAGE> 28
service marks, service mark applications, trade names and
copyrights, and all applications for such which are in the process of being
prepared, owned by or registered in the name of the Company or any Subsidiary,
or of which the Company or any Subsidiary is a licensor or licensee or in which
the Company or any Subsidiary has any right, and in each case a brief
description of the nature of such right. Except as set forth in Schedule 3.13,
the Company or the respective Subsidiary owns or possesses adequate licenses or
other rights to use all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade names, copyrights,
manufacturing processes, formulas, trade secrets and know-how (collectively,
"Intellectual Property") necessary to the conduct of its respective business as
conducted, and no claim is pending or, to the best knowledge of the Company or
the respective Subsidiary, threatened to the effect that the operations of the
Company or the respective Subsidiary infringe upon or conflict with the rights
of any other Person with respect to any Intellectual Property, and to the best
knowledge of the Company or the respective Subsidiary there is no basis for any
such claim. No claim is pending or, to the best knowledge of the Company or the
respective Subsidiary, threatened to the effect that any such Intellectual
Property owned or licensed by the Company or the respective Subsidiary, or which
the Company or the respective Subsidiary otherwise has the right to use, is
invalid or unenforceable by the Company or the respective Subsidiary in any
jurisdiction where it currently does or intends to exploit such Intellectual
Property and to the best knowledge of the Company there is no basis for any such
claim. To the best knowledge of the Company or the respective Subsidiary, all
technical information developed by and belonging to the Company or the
respective Subsidiary which has not been patented has been kept confidential.
Except as set forth in Schedule 3.13, neither the Company nor the respective
Subsidiary has granted or assigned to any other Person any right to manufacture
or assemble any products or proposed products of the Company or the respective
Subsidiary, other than to its affiliates, and to the knowledge of the Company or
the respective Subsidiary no other person or entity has asserted any such right.
Section 3.14 Loans and Advances. Except as set forth on Schedule
3.14, neither the Company nor any Subsidiary has any outstanding loans or
advances to any Person and is not obligated to make any such loans or advances,
except, in each case, for advances to employees of the Company or the respective
Subsidiary in respect of reimbursable business expenses anticipated to be
incurred by them in connection with their performance of services for the
Company or the respective Subsidiary.
Section 3.15 Assumptions, Guaranties, etc. of Debt of Other Persons.
Except as set forth on Schedule 3.15, neither the Company nor any Subsidiary has
assumed, guaranteed, endorsed or otherwise become directly or contingently
liable on any indebtedness of any other Person (including, without limitation,
liability by way of agreement, contingent or otherwise, to purchase, to provide
funds for payment, to supply funds to or otherwise invest in a debtor, or
otherwise to assure a creditor against loss), except for guaranties by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business and guaranties by the Subsidiaries of the Obligations of the
Company or another Subsidiary.
Section 3.16 Significant Customers and Suppliers. Except as set forth
on Schedule 3.16, (a) no customer which accounted for 5% or more of the
Company's or any
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<PAGE> 29
Subsidiary's sales or revenues during the periods covered by the financial
statements referred to in Section 3.5 or which has been comparably significant
to the Company or the respective Subsidiary thereafter has terminated,
materially reduced or threatened to terminate or materially reduce its purchases
from the Company and (b) as of the date of this Agreement, there is no supplier
that accounts for more than 5% of the Company's or its Subsidiaries' cost of
goods sold during the periods covered by the Financial Statements in Section
3.5.
Section 3.17 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article IV hereof,
no registration or filing with, or consent or approval of or other action by,
any federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company or
any Subsidiary of this Agreement, or for the valid execution delivery and
performance by the Company of the Notes or the Warrants, or the Amended and
Restated Series A-II, Series A-III and Series A-V Warrants or the issuance, sale
and delivery of the Warrant Shares upon exercise of the Warrants, or the Amended
and Restated Series A-II, Series A-III and Series A-V Warrants other than
filings pursuant to state securities laws in connection with the issuance and
sale of the Warrants.
Section 3.18 Insurance. Schedule 3.18 lists all insurance policies
which the Company or any Subsidiary maintains with respect to its businesses,
Assets and employees. Such policies are in full force and effect and neither the
Company nor the respective Subsidiary has received a notice of termination from
the insurance carriers. Such policies, with respect to their amounts and types
of coverage, are adequate in the reasonable commercial judgment of the Company
or the respective Subsidiary to insure against risks to which the Company or the
respective Subsidiary and its respective businesses are subject. Since the date
of the Balance Sheet, there has been no material adverse change in the Company's
or any Subsidiary's relationship with its insurers or in the premiums payable
pursuant to such policies.
Section 3.19 Employment Relations.
(a) The Company and each Subsidiary is in material
compliance with applicable Laws, respecting employment and employment practices,
safety, terms and conditions of employment and wages and hours.
(b) Except as set forth in Schedule 3.19(b), neither the
Company nor any Subsidiary maintains or contributes to any employee benefit plan
("Employee Benefit Plan") within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), which is subject
to ERISA but which is not in substantial compliance with ERISA, or which has
incurred any material liability to the Pension Benefit Guaranty Company ("PBGC")
in connection with any Employee Benefit Plan covering any employees of the
Company or the respective Subsidiary or ceased operations at any facility or
withdrawn from any such Plan in a manner which could subject it to material
liability under Section 462(f), 4063 or 4064 of ERISA, and knows of no facts or
circumstances which might give rise to any material liability of the Company or
any Subsidiary to the PBGC under Title IV of ERISA.
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<PAGE> 30
Section 3.20 Compensation of Key Employees. Schedule 3.20 sets forth
the aggregate compensation (salaries, wages and bonuses) paid by the Company to
its four most highly compensated employees for the 1997 fiscal year and the
amount of such compensation scheduled to be paid to such employees for the 1998
fiscal year.
Section 3.21 Environmental Compliance. The Company and each
Subsidiary is in compliance with all applicable Laws relating to environmental
matters in each jurisdiction where it is presently engaged in a material
manufacturing business, except for such failures to comply which, in the
aggregate, could reasonably be expected not to have a material adverse effect on
the Company or the respective Subsidiary. Neither the Company nor any Subsidiary
is subject to any liability under any such environmental Laws, that, in the
aggregate for all such liabilities, could be reasonably expected to have a
material adverse effect on the Company or the respective Subsidiary.
Section 3.22 Projections. The projections delivered to the Purchasers
by the Company on August 25, 1998, were prepared by the Company based upon its
experience in the industry and based upon assumptions of fact and opinion which
the Company believes to have been reasonable and accurate both at the time such
projections were delivered and as of the date hereof.
Section 3.23 Disclosure; Accuracy of Statements. Neither this
Agreement nor any Schedule, Exhibit, Ancillary Agreement, statement, list,
certificate or other document including the Registration Statement on Form S-1
filed by the Company on July 9, 1998 (the "Registration Statement") furnished to
the Purchasers by or on behalf of the Company in connection herewith contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading in light of the circumstances under which they were made. There is no
fact peculiar to the Company which materially adversely affects or in the future
may (so far as the Company can now foresee) materially adversely affect the
business operations, Assets, or the financial condition of the Company that has
not been set forth in this Agreement or the Ancillary Agreements, or other
documents (including the Registration Statement) furnished by the Company prior
to the date hereof in connection with the transactions contemplated hereby.
Section 3.24 Matters Relating to OncoVAX Products. The Company's
Registration Statement contains an accurate description of the Company's OncoVAX
cancer vaccine product as of the date of the Registration Statement and does not
omit to state a material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which they
were made, and, to the best of the Company's knowledge, there have been no
material adverse events respecting such product from the date of the filing of
the Registration Statement through the date hereof.
Section 3.25 Subsidiaries. Schedule 3.25 hereto lists all the
Subsidiaries of the Company, all of which are wholly-owned by the Company.
Section 3.26 Use of Proceeds. The Company acknowledges that the
receipt of the proceeds from its sale of the Guaranteed Senior Secured Primary
Notes and the Guaranteed
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<PAGE> 31
Senior Secured Escrow Notes constitutes a financial benefit to the Company and
each of its wholly-owned subsidiaries, PerImmune Holdings, Inc., ("Holdings"),
PerImmune, Inc. ("PerImmune") and Bartels, Inc. ("Bartels"), as described in
Section 5.23.
Section 3.27 Location of Collateral.
The Company has no material amount of Collateral, as that term is defined in the
Security Agreement and the Intellectual Property Security Agreement located, in
the State of Massachusetts valued, in the aggregate at more than $5,000.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser represents and warrants to the Company, as to itself,
as of the Closing Date that:
Section 4.1 Purchase of Securities.
(a) It is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the specific purpose
of acquiring the Notes or the Warrants.
(b) It has sufficient knowledge and experience in investing
in companies in a similar stage of development to the Company and the
Subsidiaries so as to be able to evaluate the risks and merits of its investment
in the Company and the Subsidiaries and it is able financially to bear the risks
thereof.
(c) It has had an opportunity to discuss the Company's and
the Subsidiaries' business, management and financial condition with the
Company's and the Subsidiaries' management.
(d) It is acquiring the Notes and the Warrants for its own
account for the purpose of investment and not with a view to or for sale in
connection with any distribution thereof.
(e) It understands that (i) the Notes, the Warrants and,
upon exercise thereof, the Warrant Shares have not been registered under the
Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof, (ii) the Notes, the Warrants and, upon exercise thereof, the Warrant
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration, (iii)
the Notes, the Warrants and, upon exercise thereof, the Warrant Shares will bear
a legend to such effect and (iv) the Company will make a notation on its
transfer books to such effect.
Section 4.2 Authority. It has all requisite power and authority to
execute, deliver and perform this Agreement, and has taken all necessary action
to authorize the execution, delivery
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<PAGE> 32
and performance of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement on the Closing Date will constitute the
legal, valid and binding obligations of the Purchaser, enforceable in accordance
with their terms, except (a) to the extent that enforceability may be limited by
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization or
other similar laws affecting the enforcement of creditors' rights generally and
(b) that the availability of equitable remedies, including specific performance,
is subject to the discretion of the court before which any proceedings therefor
may be brought.
Section 4.3 Projections. It understands that any and all financial
projections and other estimates delivered to it were based on the Company's
experience in the industry and on assumptions of fact and opinion which the
Company believes to have been, and to be, as of the date hereof, reasonable. It
understands that the Company cannot and does not assure or guarantee the
attainment of such projections or other estimates.
Section 4.4 Risk Factors. It understands that the Notes and the
Warrants are subject to certain risk factors and has fully and independently
evaluated to its satisfaction each risk factor prior to making a decision to
invest in the Notes and Warrants (and, upon exercise of the Warrants, the
Warrant Shares).
ARTICLE V
COVENANTS
Section 5.1 Payment of Principal, Premium and Interest. The Company
will duly and punctually pay the principal of (and premium, if any) and interest
on the Notes in accordance with the terms of the Notes and this Agreement.
Section 5.2 Money for Note Payments to be Held in Trust. The Company
will, on or before each due date of the principal of (and premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal (and premium, if
any) or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided.
Section 5.3 Existence. Neither the Company nor any of its
Subsidiaries shall engage in any business which is materially different from the
business now conducted by the Company and its Subsidiaries as of the date hereof
and as described in the Registration Statement. The Company shall preserve and
keep in full force and effect the respective existence, rights (charter and
statutory) and franchises; provided, however, that the Company shall not be
required to preserve any such right or franchise of the Company or any
Subsidiary if the Board of Directors shall determine that the preservation
thereof is no longer desirable in the conduct of the business of the Company or
such Subsidiary and that the loss thereof is not disadvantageous in any
material respect to the Purchasers. The Company will satisfy all material
contractual obligations to which the Company or any of its Subsidiaries is a
party or by which it or any of its or their Assets are bound and comply in all
material respects with all requirements of law applicable or
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<PAGE> 33
binding upon the Company or any of its Subsidiaries or to which the Company or
any of its Subsidiaries or any of its or their respective Assets are subject.
Section 5.4 Maintenance of Assets. The Company will cause all Assets,
licenses, rights and franchises and those of its Subsidiaries used or useful in
the conduct of its business or the business of any Subsidiary to be maintained
and kept in good condition, repair and working order and supplied with all
necessary equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, or in the case of licenses,
rights and franchises, cause to be preserved, renewed and maintained in full
force and effect, all as required by Law and all as in the judgment of the
Company may be necessary so that the business carried on in connection therewith
may be properly and advantageously conducted at all times; provided, however,
that nothing in this Section shall prevent the Company from discontinuing the
operation or maintenance of any of such Assets if such discontinuance is, in the
judgment of the Company, desirable in the conduct of its business or the
business of any Subsidiary and not disadvantageous in any material respect to
the Purchasers.
Section 5.5 Payment of Taxes and Other Claims; Comply with Material
Obligations. The Company will pay or discharge or cause to be paid or discharge,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or Assets of the Company or any Subsidiary, (b) all
lawful claims for labor, materials and supplies which, if unpaid, might by law
become a Lien upon the Assets of the Company or any Subsidiary and (c) all
obligations of whatever nature material to the Company and its Subsidiaries,
taken as a whole, except where the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of the Company or
its Subsidiaries, as the case may be. The Company will comply with, and cause
each Subsidiary of the Company to comply with, all material obligations under
leases, contracts and other agreements, and all applicable Laws, (including,
without limitation, any of same (hereinafter "Environmental Laws") regulating,
relating to or imposing liability or standards of conduct concerning pollution
or the protection of the environment, as may now or hereafter be in effect),
except to the extent the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a material adverse effect on the
business operations, Assets or financial condition of the Company and its
Subsidiaries, taken as a whole.
Section 5.6 Financial Covenants. The Company shall comply with the
following financial covenants:
(a) Adjusted Debt to EBITDA Ratio. The Company shall not
permit the Adjusted Debt to annualized EBITDA Ratio as of the last day of each
March, June, September and December during each period specified below to be
greater than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
On or after 1/l/2001 but before 1/l/2001 9:1
</TABLE>
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<PAGE> 34
<TABLE>
<CAPTION>
<S> <C>
On or after 1/l/2001 but before 1/l/2002 4:5
After 1/l/2002 2:1
</TABLE>
If the Adjusted Debt to EBITDA Ratio as of a measuring date is
greater than the ratio set forth above for such date, the Company may, on or
prior to forty-five (45) days after such measuring date (or, if earlier, the
date on which such Financial Statements are required to be delivered pursuant to
Section 5.12) including the Balance Sheet as of such date, cure such Default
either by increasing the consolidated amount of cash and cash equivalents owned
by the Company and its Subsidiaries or by making payments to reduce the
consolidated Debt of the Company and its Subsidiaries, and the Adjusted Debt to
EBITDA Ratio shall be recalculated as of such original measuring date, but
giving retroactive effect to such additional cash or cash equivalents or such
reduction in consolidated Debt of the Company and its Subsidiaries.
(b) Minimum Tangible Net Worth Levels. The Company shall
maintain minimum Tangible Net Worth for each quarter as follows;
<TABLE>
<CAPTION>
Minimum Tangible Net
Date Worth Amount
---- --------------------
<S> <C>
On or after 1/l/2000 but before 1/l/2001 $20,000,000
After 1/l/2001 $30,000,000
</TABLE>
provided that the Company may include 75% of GAAP book value of its patents and
25% of GAAP book value of its tradenames and trademarks in such calculations.
(c) EBITDA to Interest Expense Ratio. The Company shall not
permit the ratio of EBITDA to Interest Expense as of the last day of each March,
June, September and December during each period specified below to be greater
than the ratio set forth opposite such period:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
On or after 1/1/2000 but before 1/l/2001 2:1
On or after 1/l/2001 but before 1/l/2002 4:1
</TABLE>
(d) Investment of Proceeds of Guaranteed Senior Secured
Escrow Notes. The proceeds of the issuance of the Guaranteed Senior Secured
Escrow Notes shall be deposited into the Company's account number
20-10-340-4128260 in accordance with the terms of the Funded Commitment Facility
Escrow Agreement. Unless otherwise utilized by the Company in its operations,
such proceeds shall be invested as set forth in the Funded Commitment Facility
Escrow Agreement. If a Default, an Event of Default or any event that with the
lapse of time or the giving of notice, or both, would constitute an Event of
Default shall occur and be continuing, or would result therefrom, the Company
shall not withdraw any funds from the Escrow Account (as defined in the Funded
Commitment Facility Escrow Agreement), which funds shall be held
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<PAGE> 35
thereafter in constructive trust by the Company, as trustee for the benefit of
the Holders who shall be entitled to disbursement of such funds in accordance
with Section 6(b)(v) of the Notes.
Section 5.7 Limitation on Restricted Payments. The Company (a) shall
not declare or pay any dividend or make any distribution in respect of any class
of its Capital Stock or to the holders of any class of its Capital Stock (other
than dividends or distributions payable solely in shares of its Capital Stock or
in options, warrants or other rights to acquire its Capital Stock), (b) shall
not, and will not permit any Subsidiary to, purchase, redeem or otherwise
acquire or retire for value (i) any Capital Stock of the Company or (ii) any
options, warrants or rights to purchase or acquire shares of Capital Stock, (c)
shall not make, or permit any Subsidiary to make, any loan, advance, capital
contribution to or investment in, or payment on a guarantee of any obligation
of, any Person, other than a wholly-owned Subsidiary, (d) shall not, and shall
not permit any Subsidiary to redeem, release, repurchase, retire or otherwise
acquire or retire for value prior to any scheduled maturity, repayment or
sinking fund payment, Debt of the Company which is subordinate in right of
payment to the Notes, and (e) shall not, and shall not permit any Subsidiary to
make any Investments other than Permitted Investments (the transactions
described in clauses (a) through (e) being referred to herein as "Restricted
Payments").
Notwithstanding the foregoing provision, if, at the time thereof no
Default, Event of Default or an event that with the lapse of time or the giving
of notice, or both, would constitute an Event of Default shall have occurred and
is continuing, or would result therefrom the Company may make the following
Restricted Payments:
(a) the redemption or purchase of Capital Stock of the
Company held by an employee or former employee of the Company or its
Subsidiaries who has forfeited the right to own such Capital Stock in accordance
with the terms of an agreement between the Company and such employee entered
into at the time of issuance of such Capital Stock (including pursuant to an
option), in an amount not to exceed $500,000 per employee or $1,000,000 for all
employees, in the aggregate, per annum; or
(b) an investment by the Company or any Subsidiary in any
Foreign Subsidiaries; or
(c) an investment by the Company or any Subsidiary in any
Subsidiary.
Nothing in this Section 5.7 shall be construed to prohibit a merger of the
Company or any Subsidiary in accordance with Section 5.17.
Section 5.8 Limitation on Certain Restrictions Affecting any
Subsidiary. The Company will not, and will not permit any Subsidiary to, create
or otherwise suffer to become effective or exist any consensual encumbrance or
restriction on the ability of any Subsidiary to (a) pay dividends, directly or
indirectly, or make any other distributions on its Capital Stock or pay any Debt
or any other obligation owed to the Company or any Subsidiary, (b) make loans or
advances to the Company or any Subsidiary, or (c) transfer any of its Assets to
the Company or any Subsidiary, provided, however, that this Section shall not
restrict or prohibit any restriction
29
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existing under this Agreement or under agreements in effect at the date of
execution of this Agreement.
Section 5.9 Limitation on Liens. The Company will not, and will not
permit any Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien upon any of its Assets or revenues, whether now owned
or hereafter acquired except for:
(a) Liens on Assets existing at the time of acquisition
thereof, provided the principal amount of the Debt secured by such Lien does not
exceed 100% of the Fair Market Value of the Assets acquired at the time it was
acquired;
(b) Liens on Assets of a corporation existing at the time
such corporation becomes a Subsidiary or is merged into or consolidated with the
Company or any Subsidiary, provided such Liens were not created within 180 days
prior thereto;
(c) Liens on Assets of the Company or any Subsidiary
resulting from Debt secured by the bond issued or to be issued by the Washington
Economic Development Finance Authority in the aggregate principal amount of
$1,500,000;
(d) Liens to secure Debt Incurred for the purpose of
financing all or any part of the purchase price or the cost of construction or
improvement of the Assets subject to such Liens, so long as such Liens are
incurred prior to or within 180 days after such Assets is acquired or such
construction or improvement is completed;
(e) any extension, renewal or refinancing (or successive
extensions, renewals or refinancings), in whole or in part, of any Lien referred
to in the foregoing clauses (a) through (d) and Liens existing as of the date of
this Agreement, so long as in each case such extension, renewal or refinancing
does not extend to any other Assets and the Debt so secured is not increased;
(f) any Lien securing Debt owing by the Company to one or
more wholly owned Subsidiaries, but only if such Debt cannot be transferred by
such Subsidiaries;
(g) any Lien securing the Receivable Facility; and
(h) Liens created by the Security Documents.
Section 5.10 Maintenance of Insurance. The Company will at all times
obtain and maintain (or cause to be obtained and maintained) for itself and each
of its Subsidiaries insurance policies for all of their Assets which are of an
insurable nature insured against loss or damage with insurers believed by the
Company to be responsible (but in no event, with insurers having a claims paying
ability of less than "A" or better by S&P's or Moody's), ("Insurance Carriers")
to the extent that Assets of similar character is usually so insured by
corporations similarly situated and owning like properties in accordance with
good business practice, provided, however, that the Company shall maintain at
least (a) business interruption insurance covering all locations, and (b) "all
risk" and general public liability insurance against loss, damage or claims of
the kind
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that, in the reasonable good faith opinion of the Company, is adequate
and appropriate for the conduct of the business of the Company and, its
Subsidiaries, all of which insurance shall be in such amounts, with such
deductibles and amounts of self-insurance and by such methods as shall be
customary for entities similarly situated in its industry. Where applicable,
each such insurance policy shall name the Holders of the Notes as additional
insureds, beneficiaries, assignees and loan payees. The Company will, and will
cause its Subsidiaries to, use the proceeds from any such insurance policy to
repair, replace or otherwise restore the Assets to which such proceeds relate.
The Company may elect not to make such repair, replacement or restoration if the
Board of Directors, in its reasonable discretion, determines that such repair,
replacement or restoration is not in the best interests of the Company. Within
sixty (60) days of the date hereof, the Company shall obtain and the Company
shall thereafter, maintain one or more life insurance policies (the "McKenzie
Policies") on the life of Simon McKenzie from one or more Insurance Carriers
selected by the Company in an aggregate face amount of at least $5,000,000. Each
McKenzie Policy shall provide that such insurance cannot be terminated unless
thirty (30) days' advance notice has been provided to the Purchasers of the
Notes, during which time such Purchasers shall have the right to pay any premium
due, and shall be promptly reimbursed by the Company for any amounts so paid.
Each McKenzie Policy shall be for a minimum of a five year term, and premiums in
respect of the first three years of the term shall have been prepaid as of the
date on which the first premium is due. The Purchasers shall be named as a
co-owners and beneficiaries of the McKenzie Policies, and the Company shall
assign, in form and substance satisfactory to the Purchasers their ownership
interest to the Purchasers with the consent and acknowledgment of the Insurance
Carrier thereof, free and clear of any Lien or encumbrance (other than any Lien
or encumbrance created pursuant to the Security Documents), to be applied as
follows: (i) first for the benefit of the Purchasers of Notes, to the extent of
the aggregate outstanding principal balance of the Outstanding Notes plus
accrued but unpaid interest thereon, and any other amounts due under any of the
Ancillary Agreements and then (ii) for the benefit of the Company. Upon the
indefeasible payment in full of the Notes, the Purchasers shall re-assign each
McKenzie Policy to the Company.
Section 5.11 Waiver of Stay, Extension and Usury Laws. The Company
and Subsidiaries covenant (to the extent that they may lawfully do so) that they
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury Law or other Law
which would prohibit or forgive the Company or such Subsidiary from paying all
or any portion of the principal and/or interest on the Notes wherever such Law
is or may be enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Agreement and the Notes; and the
Company and each of the Subsidiaries (to the extent that they may lawfully do
so) hereby expressly waive all benefit or advantage of any such Law, and
covenant that they will not, by resort to any such Law, hinder, delay or impede
the execution of any power herein granted to the Holders, but will suffer and
permit the execution of every such power as though no such law had been enacted.
Section 5.12 Financial Statements; Other Information. The Company
will deliver in duplicate to Northstar Return, which agrees to accept, on behalf
of each Purchaser:
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(a) if the Company is not subject to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as soon as practicable and in any event within 30 days after
the end of each month commencing with the month of September 1998, internally
prepared consolidated statements of income, stockholders' equity, and cash flows
of the Company and its Subsidiaries for such month, and a consolidated Balance
Sheet of the Company any and its Subsidiaries as at the end of such month,
together with a summary of significant facts and developments occurring within
such month of which it is aware affecting its and/or their operations, financial
condition or prospects;
(b) as soon as practicable and in any event within 45 days
after the end of each of the first three quarterly periods in each fiscal year
if the Company is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, and, if the Company is not subject to such requirements, after the
end of each quarterly period in each fiscal year, internally prepared
consolidated statements of income, stockholders' equity, and cash flows of the
Company and its Subsidiaries for the quarterly period and for the period from
the beginning of the current fiscal year to the end of such quarterly period,
and a consolidated Balance Sheet of the Company and its Subsidiaries as at the
end of such quarterly period, setting forth in each case in comparative form
figures for the corresponding periods in the preceding fiscal year, all in
reasonable detail and satisfactory in form to the Purchasers, certified by a
Responsible Officer as having been prepared in accordance with GAAP and as
fairly presenting the consolidated financial condition and consolidated results
of operations of the Company and its Subsidiaries (subject to normal year-end
audit adjustments and the absence of footnotes); provided, however, that
delivery within the aforesaid 45-day period, pursuant to subsection (d)(i)
below, of copies of the Quarterly Report on Form 10-Q of the Company for such
quarterly period filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this subsection (b) with respect to the
consolidated financial statements;
(c) as soon as practicable and in any event within 90 days
after the end of each fiscal year, consolidating and consolidated statements of
income and cash flows and a consolidated statement of stockholders' equity of
the Company and its Subsidiaries for such year, and a consolidating and
consolidated Balance Sheet of the Company and its Subsidiaries as at the end of
such year, setting forth in each case in comparative form the corresponding
consolidated figures from the preceding annual audit, all in reasonable detail
and satisfactory in form to the Purchasers and, as to the consolidated
statements, a report by independent public accountants of recognized national
standing (an "Accountant") selected by the Company whose report shall be without
limitation as to the scope of the audit, and satisfactory in substance to the
Purchasers along with an opinion of such Accountant to the effect that such
consolidated financial statements present fairly in all material respects the
financial condition and results of operations of the Company and its
Subsidiaries on a consolidated basis in accordance with GAAP without any
going-concern or other qualification expressed in such opinion; provided,
however, that delivery within the aforesaid 90-day period, pursuant to
subsection (d)(i) below, of copies of the Annual Report Form 10-K of the Company
for such fiscal year filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this clause (c) with respect to
consolidated financial statements.
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(d) The Company will also deliver:
(i) from and after the date the Company becomes
subject to the requirements of Section 13 or 15(d) of the Exchange
Act, promptly upon transmission thereof, copies of all such financial
statements, proxy statements, notices and reports as it shall send to
its stockholders and copies of all registration statements (without
exhibits) and all reports which it files with the Securities and
Exchange Commission (or any governmental body or agency succeeding to
the functions of the Securities and Exchange Commission);
(ii) promptly upon receipt thereof, a copy of
each other report submitted to the Company or any Subsidiary by its
Accountant in connection with any annual, interim or special audit
made by such Accountant of the books of the Company or any
Subsidiary;
(iii) as soon as practicable and in any event
within 10 days after obtaining knowledge of (A) any Person giving any
written notice to the Company or any of its Subsidiaries with respect
to a claimed Default, or event or condition which would result in the
acceleration of Debt in an amount in excess of $1,000,000, (B) the
institution of any litigation or other proceeding involving claims
against the Company or any of its Subsidiaries equal to or greater
than $1,000,000 or any adverse determination in any proceeding
against the Company equal or greater than $1,000,000 with respect to
a single cause of action, (C) any of the events set forth in Section
4043(b) of ERISA (a "Reportable Event"), or (D) any regulatory
proceeding directly involving the Company or any Subsidiary which, in
the opinion of the Company, would, if adversely determined, have a
material adverse effect on the Company and its Subsidiaries taken as
a whole, an officer's certificate specifying the nature and period of
existence of any such condition or event, specifying the notice given
or action taken by such Person and the nature of any such claimed
Default, event or condition, and specifying the details of such
proceeding, litigation or dispute and what action the Company or any
of its Subsidiaries has taken, is taking or proposes to take with
respect thereto; provided, however, that, with respect to any event
set forth in (A) and (B) above, if the amount involves does not
exceed $3,500,000 the Company shall have 30 days to notify the
Holders after obtaining knowledge thereof;
(iv) promptly after the occurrence thereof (A) a
summary of any material dispute between the Company and its
Accountant and (B) a decision by the Company to change its
Accountant;
(v) with reasonable promptness after request from
any Holder, such information respecting the condition or operations,
financial or otherwise, of the Company or any of its Subsidiaries as
such Purchaser may reasonably request;
(vi) promptly after the filing or receiving
thereof, copies of all reports and notices which the Company or any
Subsidiary files under ERISA with the Internal
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Revenue Service or the PBGC or the U.S. Department of Labor or which
the Company or any Subsidiary received from such corporation;
(vii) within forty-five (45) days after each of
March 31, June 30 and September 30, 2000, a certificate of a
Responsible Officer certifying whether the Company is in compliance
with Section 1(f) of the Note and setting forth in reasonable detail
the information required for the calculations thereof;
(viii) within five (5) business days prior to the
closing of any proposed sale (public or private) by the Company of
its debt or equity securities, a report from a Responsible Officer
setting forth in reasonable detail the amount of securities proposed
for sale; the proceeds expected to be received by the Company
therefrom; and the proposed date for receipt of the funds by the
Company;
(ix) within 45 days after the end of each
quarterly period in each fiscal year, the Company will deliver to the
Purchasers an Officer's Certificate certified by a Responsible
Officer (with such financial information with computations in
reasonable detail) to demonstrate compliance by the Company and its
Subsidiaries with the financial covenants set forth in Section 5.6
and any computations required by the Notes and stating that there
exists no Event of Default or Default, or an event that with the
lapse of time or the giving of notice, or both, could constitute an
Event of Default or, if any Event of Default or Default or an event
that with the lapse of time or the giving of notice, or both, could
constitute an Event of Default exists, specifying the nature and
period of existence thereof and what action the Company proposes to
take with respect thereto;
(x) promptly after the occurrence of a Change of
Control or the cessation of employment for any reason of Simon R.
McKenzie as the Company' Chief Executive Officer for a period of
thirty (30) days (the "McKenzie Termination"), a summary of the
event(s) constituting the Change of Control or McKenzie Termination
and the date of such occurrence;
(xi) The Company will, upon the request of the
Holder of any Note, provide such Holder, and any qualified
institutional buyer or accredited investor designated by such Holder,
such financial and other information as such Holder may reasonably
determine to be necessary in order to permit compliance with the
information requirements of Rule 144A under the Securities Act in
connection with the resale of Notes, except at such times as the
Company is subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act. For the purpose of this paragraph
5.12(d)(xi), the term "qualified institutional buyer" and "accredited
investor" shall have the meanings specified in Rule 144A and Rule 501
of Regulation D, respectively, under the Securities Act; and
(xii) Along with the quarterly Financial
Statements delivered pursuant to Section 5.12(b) hereof when they are
due (A) a report analyzing changes in the Company's gross revenues
and in its net revenues in such fiscal quarter compared to the
comparable quarter in the prior fiscal year, and (B) when and to the
extent practicable, a
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report of the number of people treated and the quantity of doses of
all therapeutic products sold in such fiscal quarter, provided
however, that the gross revenue and net revenue data required
hereunder need not be compared to the prior fiscal year for the first
four quarterly reports under this clause, and provided, further, that
the obligation to provide information pursuant to (B) above, shall
not commence until the earlier to occur of (I) January 1, 2000, (II)
FDA approval for commercial use by the Company of OncoVAX cancer
vaccine or HumaSPECT or HumaRAD (as those products are described in
the Registration Statement), or (III) the approval of a Marketing
Authorization Application (as defined in the Registration Statement)
or a reimbursement agreement for the commercial use by the Company of
OncoVAX cancer vaccine or HumaSPECT or HumaRAD (as those products are
described in the Registration Statement) by a member country of the
European Union or the United Kingdom.
Section 5.13 Inspection and Delivery of Property; Books and Records;
Discussions. The Company hereby agrees that, so long as any Obligations under
this Agreement or any Ancillary Agreements are Outstanding, the Company shall
provide, and shall cause each of its Subsidiaries to provide, within ten (10)
days after request therefore, in writing, such business, financial and other
information as the Holders may from time to time reasonably request. The Company
also agrees that it shall keep proper books of records and accounts in which
full, true and correct entries in conformity with GAAP and all requirements of
Law shall be made of all dealings and transactions in relation to its business
and activities, and permit representatives of the Holders to visit and inspect
any of its properties and examine and make abstracts from any of its books and
corporate, financial and other records at any reasonable time and as often as
may reasonably be desired and to discuss the business, operations, Assets and
financial and other condition of the Company with officers and employees of the
Company and with its Accountants; provided that the Holders shall bear their own
expenses if any such inspection, examination or discussion occurs at a time when
no Default or Event of Default shall have occurred and be continuing.
Section 5.14 Further Security Interest. In the event that the Company
or any Subsidiary of the Company at any time or from time to time after the date
hereof shall form or acquire any Subsidiary (a "New Subsidiary") as may be
permitted hereby, (a) the Company or, as the case may be, such Subsidiary, as
beneficial owner of the capital stock of the New Subsidiary, shall promptly
execute and deliver to the Holders of the Notes a supplemental agreement
pursuant to which the Company or such Subsidiary will pledge shares of Capital
Stock or other equity interests to the Holders of the Notes, pursuant to which
supplemental agreement 100% of the issued and outstanding shares of Capital
Stock or other equity interests in or of the New Subsidiary held beneficially by
the Company or such Subsidiary, as the case may be, shall be pledged under and
in accordance with such supplemental agreement, (b) the Company or such
Subsidiary, as the case may be, shall promptly take all actions necessary and
appropriate to perfect the Liens of such pledge (including without limitation,
the delivery of stock or other certificates evidencing the shares of Capital
Stock or other equity interest so pledged (if, any), accompanied by duly
executed and undated stock powers in blank) and (c) the Company and
such Subsidiary shall promptly deliver to the Holders of the Notes such legal
opinions respecting
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such supplemental agreement, and the pledge granted thereby, as the Holders of
the Notes shall reasonably request.
The Company or, as the case may be, any of its Subsidiaries as the
record or beneficial owners of the Capital Stock of any New Subsidiary shall
promptly cause such New Subsidiary to become a party to the Security Documents
and such New Subsidiary shall promptly take all actions necessary and
appropriate to perfect the Liens of such Security Interests as are granted by
such Security Documents which such New Subsidiary shall have entered into as
aforesaid (including, without limitation, the delivery to the Holders of the
Notes of financing statements, executed by such New Subsidiary), and otherwise
in form and substance appropriate for filing in all appropriate jurisdictions)
and such New Subsidiary shall promptly deliver to the Holders of the Notes such
legal opinions in form and substance respecting such Security Documents and the
Security Interests granted thereby as the Holders of the Notes shall reasonably
request. The Company, or as the case may be, any of its Subsidiaries as the
record or beneficial owners of the capital stock of any New Subsidiary shall
promptly cause such New Subsidiary to become a party to a Guaranty Agreement
substantially in the form of Exhibits H-1 through H-3 attached hereto and such
New Subsidiary shall promptly take all actions necessary and appropriate to
guaranty the obligations of the Company and its Subsidiaries hereunder.
Section 5.15 Further Assurances.
(a) The Company, at its own cost and expense, will cause to
be promptly duly taken, executed, acknowledged and delivered all such further
acts, documents and issuances as the Holders of the Notes may from time to time
reasonably request in order to more effectively carry out the intent and
purposes of this Agreement and the Ancillary Agreements and the transactions
contemplated hereby and thereby. In furtherance, but not in limitation of the
foregoing, the Company agrees to deliver and to cause its Subsidiaries to
deliver all further instruments and documents that may be necessary or desirable
in order to grant, confirm, protect and perfect first and prior Liens in any
real or personal property which is at such time Collateral or which was intended
to be Collateral pursuant to the Security Documents.
(b) The Company further agrees to take all actions
requested by the Holders of the Notes to name the Holders of the Notes as the
beneficiaries of the McKenzie Policy delivered on the Closing Date, or as
co-owners, assignees or additional insureds, as applicable.
(c) The Company further agrees, at its own cost and
expense, to take all actions necessary to (i) file for patent protection in any
and all jurisdictions in which the Company intends to operate its business with
respect to patents reasonably expected to generate, directly, or indirectly
(through product sales or licensing of products related to such patents), more
than 10% of the Company's annual revenues in such jurisdiction (the "Material
Patents"); (ii) cause the Holders' Security Interests in the Company's existing
or future Material Patents to be perfected, protected and maintained as a first
priority security interest (except with respect to certain Collateral in which
Akzo Nobel Pharma International, B.V., as Collateral Agent under the
Intellectual Property Security Agreement dated August 8, 1996 (the "Collateral
Agent") has a first priority security interest (the "Akzo Security Interest
Collateral") and with respect to the
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Akzo Security Interest Collateral, a second priority perfected security
interest until such time as payment in full of the Debt underlying the Akzo
Security Interest Collateral has been made and at such time, a first priority
perfected security interest in the Akzo Security Interest Collateral) to the
fullest extent permitted by the laws of the jurisdiction in which the Company is
operating its business utilizing Material Patents; and (iii) to comply with the
obligations of Section 5.26 to assure that the patents and patent applications
set forth on Schedule 5.26 have been assigned and transferred into the name of
Holdings in the United States, the Netherlands, Belgium and the United Kingdom
and to cause the Holders' Security Interests in such patents to be perfected,
protected and maintained in such jurisdictions as a second priority Security
Interest (until such time as the Debt underlying the Akzo Security Interest
Collateral shall have been repaid and in such case, as a first priority
perfected security interest).
(d) The Company further agrees to make prompt payment of
all fees, costs and expenses of the Holders and their counsel arising out of the
transactions contemplated hereby which have not been paid in full at the
Closing.
Section 5.16 Limitation on Debt. The Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Debt, except:
(a) Debt of the Company in respect of the Notes.
(b) Debt of the Company to any Subsidiary of the Company
that has executed and delivered Security Documents and of any such Subsidiary to
the Company or any other such Subsidiary.
(c) Debt outstanding as of June 30, 1998 as set forth on
Schedule 5.16 hereto and any amendments or modifications thereof (but excluding
any increase in the principal amount or interest on such Debt).
(d) Debt of the Company or any of its Subsidiaries that was
incurred by such Person on customary commercial trade terms to vendors,
suppliers or other Persons providing services for use by such Person in the
ordinary course of its business, unless and until such Debt is outstanding more
than 60 days past the original due date therefor.
(e) Debt of the Company or any of its Subsidiaries for any
deposit received by the Company or such Subsidiary from any customer or client
for services to be performed or goods sold by the Company or such Subsidiary,
unless the Company or such Subsidiary for any reason becomes obligated to refund
such deposit and the reimbursement obligation has been outstanding for more than
60 days from the date such reimbursement obligation occurred.
(f) So long as (i) no Default or Event of Default or event
that with the lapse of time or the giving of notice, or both, would constitute
an Event of Default, then exists or is continuing or would result therefrom and
(ii) no Default or Event of Default or event that with the lapse of time or the
giving of notice, or both, would constitute an Event of Default, would
exist after giving pro forma effect to the Debt to be incurred (including,
without limitation, Defaults or Events of Default or under Section 5.6).
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(A) Debt outstanding under the Company's
Receivables Facility;
(B) Unsecured Debt of the Company and its
Subsidiaries which, by its terms, is made expressly
subordinate to the Debt of the Company under the Notes,
provided that the Company may incur unsecured Debt which
is subordinate to the Debt of the Notes without regard to
any Default, Event of Default or event that with the lapse
of time or the giving of notice, or both, would constitute
an Event of Default, under Section 5.6, in an amount equal
to the difference between $11,000,000 and the amount of
the Notes that have been prepaid before the date on which
such unsecured Debt is incurred under this provision;
(C) Debt of the Company and its Subsidiaries
incurred to finance the acquisition of tangible Assets
(whether pursuant to a loan, a lease financing or
otherwise) after the date hereof provided that such Debt
shall be limited to 100% of the cost of such Assets at the
time such Assets were acquired.
(D) Debt of a corporation, limited liability
company, partnership or other entity which becomes a
Subsidiary of the Company after the date hereof as
permitted hereunder, provided that such Debt existed at
the time at the same time such entity became a Subsidiary
and was not created within 180 days prior thereto or
otherwise in anticipation thereof; and
(E) Debt of the Company with respect to letters
of credit or applications or reimbursements therefor to
support payment or performance obligations of the Company.
Section 5.17 Limitation on Mergers; Etc. The Company shall not, and
shall not permit any of its Subsidiaries to, directly or indirectly, enter into
any merger, consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
assign, transfer or otherwise dispose of, all or substantially all of its
business or Assets, or make any material change in its present method of
conducting business, except so long as no Default, Event of Default or event
that with the lapse of time or the giving of notice, or both, would constitute
an Event of Default, has occurred and is continuing or would result therefrom:
(a) any wholly-owned Subsidiary may be merged or
consolidated with or into the Company (provided that the Company shall be
continuing or surviving corporation) or with or into any one or more
wholly-owned Subsidiaries (provided that a wholly-owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation);
(b) any wholly-owned Subsidiary may sell, lease, transfer
or otherwise dispose of any or all of its Assets (upon voluntary liquidation or
otherwise) to the Company or any other wholly-owned Subsidiary; and
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(c) the Company or any Subsidiary may be merged or
consolidated with one or more entities provided that (i) the Company or any such
Subsidiary shall be the continuing or surviving corporation, (ii) the Required
Holders shall have consented to such merger or consolidation and (iii)
immediately after giving effect thereto, no Default or Event of Default or event
that with the lapse of time or them giving notice, would constitute an Event of
Default shall have occurred and be continuing or would result therefrom.
Section 5.18 Limitation on Sales of Property. The Company shall not,
and shall not permit any Subsidiaries to, directly or indirectly, convey, sell,
lease, assign, transfer or otherwise dispose of any of its Assets or business
(including, without limitation receivables and leasehold interests) or any
product line, whether owned or hereafter acquired, or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any
Person other than the Company or any wholly-owned Subsidiary, except:
(a) the sale, lease or other disposition of any product,
inventory or equipment in the ordinary course of business in bona fide
commercial transactions;
(b) as permitted by Section 5.16(a), (b) or (f) (A); or
(c) a sale or other disposition where the consideration
received is at least equal to the Fair Market Value of such Assets; provided
that the Asset Sale Excess Proceeds must be used to prepay the Notes.
Section 5.19 Limitation on Transactions with Affiliates. The Company
shall not, and shall not permit any of its Subsidiaries, directly or indirectly,
to enter into any transaction (including, without limitation, any purchase,
sale, lease or exchange of Assets or the rendering of any service) with any
Affiliate that is not a wholly-owned Subsidiary, unless such transaction (a) is
otherwise permitted hereunder, (b) is in the ordinary course of the Company or
such Subsidiary's business, and (c) is on terms no less favorable to the Company
or such Subsidiary, as the case may be, than it would obtain in an arm's-length
transaction; provided, that the Company may pay customary directors' fees and
reimburse reasonable out-of-pocket expenses directly related to meetings of the
Board of Directors.
Section 5.20 Limitation on Credit Extensions. The Company shall not,
and shall not permit any of its Subsidiaries to, extend credit, make advances or
make loans other than (a) normal and prudent extensions of credit to customers
buying goods and services in the ordinary course or business, which extensions
shall not be for longer periods than those extended by similar businesses
operated in a normal and prudent manner, (b) loans or other advances, however,
characterized, to the Company or to any of its wholly-owned Subsidiaries to the
extent otherwise permitted hereunder, and (c) loans to employees in the
furtherance of the Company's business as shall not exceed at any one time
outstanding $500,000 in the aggregate.
Section 5.21 Limitation on Certain Amendments. The Company shall not
amend or otherwise modify or waive any provision of its Certificate of
Incorporation without the prior written consent of the Required Holders, which
consent shall not unreasonably withheld.
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Section 5.22 Limitation on Investments. The Company shall not, and
shall not permit any of its Subsidiaries to, purchase, hold or acquire
beneficially any stock, bond, notes, debentures or other securities or any
Assets constituting a business unit of, or make any other investment in, any
Person, except (a) as expressly permitted by Section 5.20 hereof, (b)
investments in Capital Stock of any of the wholly owned Subsidiaries of the
Company that have executed and delivered Security Documents, (c) investments in
joint ventures, partnerships and other entities in the biopharmaceutical
business that have, for all such investments taken together, an aggregate cost
basis not greater than $1,000,000, so long as no Default or Event of Default or
event that with the lapse of time or the giving of notice, or both, would
constitute an Event of Default exists at the time of and after giving effect to
any such investment, (d) investments in any entity for which the only
consideration paid therefor by the Company or any of its Subsidiaries is the
Common Stock of the Company or such Subsidiary, valued at its Fair Market Value
and (e) Permitted Investments.
Section 5.23 Use of Proceeds. The Company and its Subsidiaries will
utilize the proceeds from the sale of the Guaranteed Senior Secured Primary
Notes and the Guaranteed Senior Secured Escrow Notes as follows:
(a) $7,171,131 will be applied at the Closing to repay the
1995 Note owed by the Company to Northstar High Total Return Fund;
(b) $10,113,014 will be applied at the Closing to repay the
April 1998 Notes owed by the Company to Northstar High Total Return Fund II and
Northstar High Yield Fund;
(c) $4,876,423 will be applied at the Closing to the
redemption of the Company's Series A-II Preferred Stock held by Northstar High
Total Return Fund;
(d) $5,097,568.91 will be applied at the Closing to
discharge in full the Company's Debt to CoreStates Enterprise Fund, a division
of CoreStates Bank, N.A. ("CoreStates");
(e) $500,000 will be applied at the Closing to the payment
by Holdings of amounts owed by it to Organon pursuant to the Intellectual
Property Agreement dated August 2, 1996 by and among Holdings, and Akzo Nobel
Pharma International, B.V. ("Akzo"); and
(f) $2,165,365.09 will be advanced by the Company to its
Subsidiaries, Holdings, PerImmune and Bartels for capital (including, without
limitation, working capital) required by such Subsidiaries.
The Company agrees that the funds utilized to make payments pursuant to Section
5.23(a) through and including (f) will be disbursed directly to the
corresponding payees from the Purchasers at the Closing.
Section 5.24 Assumption of Company Debt by Subsidiaries. Upon the
request of any Holder after the Closing Date, the Company shall cause each of
its Subsidiaries, Holdings, PerImmune and Bartels, and any New Subsidiaries to
execute Notes (the "Subsidiary Notes"), on
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<PAGE> 47
terms and conditions identical to the Guaranteed Senior Secured Primary Notes
and the Guaranteed Senior Secured Escrow Notes, evidencing the aggregate
principal amount of Outstanding Notes held by such Holder pursuant to this
Purchase Agreement, provided that in the event there shall be any amounts owed
to the Collateral Agent at the time of such request, the Company shall use its
best efforts to obtain, within twenty (20) business days after delivery of the
request, the consent of the Collateral Agent to the execution and delivery of
the Subsidiary Notes. The Company shall not be required to deliver the
Subsidiary Notes pursuant to this provision if the Collateral Agent refuses to
consent thereto provided that the Company has used its best efforts to obtain
the Collateral Agent's consent. If there shall be no amounts owing to the
Collateral Agent at the time of the request for Subsidiary Notes, the Company
shall deliver the Subsidiary Notes to the requesting Holder within seven (7)
business days after delivery of the request by such Holder to the Company.
Section 5.25 Covenants with respect to OncoVAX Cancer Vaccine. The
Company will use its commercially reasonable best efforts (a) to file its
Biological License Application with respect to the OncoVAX cancer vaccine not
later than December 31, 1998, (b) to obtain FDA approval expeditiously of the
Company's therapeutic products currently utilized in its clinical trials and to
initiate Phase III clinical trials for OncoVAX in combination with chemotherapy
for Stage III colon cancer and (c) to obtain not later than December 31, 1998,
regulatory and/or reimbursement approvals required for the commercial use of its
OncoVAX cancer vaccine in the Netherlands.
Section 5.26 Covenant with respect to Transfer of Certain Patents.
The Company at its own cost and expense, within 60 days after the date hereof,
will take all actions necessary to record the assignment and transfer of patents
and patent applications listed on Schedule 5.26 hereto into the name of Holdings
with the appropriate authorities in the United States, Netherlands, Belgium, and
the United Kingdom and to cause the Holders' Security Interests in such patents
to be perfected, protected and maintained in such jurisdictions as a second
priority perfected security interest until such time as the Debt underlying the
Akzo Security Interest has been repaid in full, and in such case, a first
priority perfected security interest in the Akzo Security Interest Collateral.
In the event that the Company shall fail to have caused the Holders'
Security Interests in such patents to be perfected, protected and maintained in
such jurisdictions as a second priority perfected security interest (or, in the
event that the Debt underlying the Akzo Security Interest Collateral shall have
been repaid in full, and in such case, a first priority perfected security
interest in the Akzo Security Interest Collateral) within 60 days after the date
hereof, the rate of interest payable with respect to the principal amount of
Outstanding Notes shall be increased to 15% per annum in accordance with Section
2(c) of the Guaranteed Senior Secured Primary Note and Section 2(c) of the
Guaranteed Senior Secured Escrow Note until such time as the Company has
fulfilled its obligations under this Section 5.26; provided however, that
failure of the Company to fulfill its obligations under this Section 5.26 within
180 days after the date hereof shall be deemed an "Event of Default" in
accordance with Section 6(a)(iv) of the Guaranteed Senior Secured Primary Note
and Section 6(a)(iv) of the Senior Secured Escrow Note.
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<PAGE> 48
Section 5.27 Foreign Currency Liabilities. The Company will manage
its foreign currencies, Assets, liabilities and expenses in a manner that will
protect and promote its ability to pay its U.S. Dollar liabilities and related
costs and expenses.
Section 5.28 Unaudited Financial Statements. The Company shall
furnish to the Purchasers, on or prior to September 15, 1998, the unaudited
balance sheet of the Company for the quarter and six months ended June 30, 1998
and the related unaudited statements of income, stockholders' equity and cash
flows of the Company for the quarter ended June 30, 1998, each certified by a
Responsible Officer of the Company. Such financial statements shall be prepared
in accordance with GAAP and shall fairly present the financial position of the
Company as of June 30, 1998.
Section 5.29 Consent of Transamerica Business Credit Corporation. The
Company shall use its best efforts to obtain the consent of the Transamerica
Business Credit Corporation to the grant of a second lien on the Excluded
Equipment.
Section 5.30 Interest Escrow Security Agreement. The Company will
provide information reasonably requested by the Holders respecting the
Depositary appointed under the Interest Escrow Security Agreement and will
change the Depositary, if requested by the Holders.
Section 5.31 Waiver of Certain Covenants. The Company may omit in any
particular instance to comply with any covenant or condition set forth in
Sections 5.1 to 5.30, inclusive, if before the time for such compliance the
Required Holders shall, by act of such Required Holders, either waive such
compliance in such instance or generally waive compliance with such covenant or
condition, but no such waiver shall extend to or affect such covenant or
condition except to the extent and for the time so expressly waived, and, until
such waiver shall become effective, the obligations of the Company in respect of
any such covenant or condition shall remain in full force and effect.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligations of each Purchaser to purchase and pay for the Newly
Issued Securities being purchased by it on the Closing Date are subject, at the
option of such Purchaser, to the satisfaction of the following conditions on or
before such Closing Date:
Section 6.1 Supporting Documents. At the Closing, the Purchasers
shall have received copies of the following documents:
(a) (i) the Charter, certified as of a recent date by the
Secretary of State of the State of Delaware and (ii) a certificate of said
Secretary dated as of a recent date as to the due incorporation and subsistence
of the Company, and listing all documents of the Company on file with said
Secretary; and
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<PAGE> 49
(b) a certificate of the Secretary or an Assistant
Secretary of the Company dated the Closing Date and certifying: (i) that
attached thereto is a true and complete copy of all resolutions adopted by the
Board of Directors (the "Company Board") or the stockholders of the Company
authorizing the execution, delivery and performance of this Agreement, the
issuance, sale, delivery, and performance of the Notes and the Warrants, and the
reservation, issuance and delivery of the Warrant Shares upon the exercise of
the Warrants, and that all such resolutions are in full force and effect and are
all the resolutions adopted in connection with the transactions contemplated by
this Agreement; (ii) that the Charter has not been amended since the date of the
last amendment referred to in the certificate delivered pursuant to clause
(a)(ii) above; and (iii) the incumbency and specimen signature of each officer
of the Company executing this Agreement, the Notes, and the Warrants and any
certificate or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (b);
Section 6.2 Fees of Purchasers. The Company shall have paid, in
accordance with Article VII, the reasonable legal and other fees and
disbursements of the Purchasers, as invoiced.
Section 6.3 Warrants. The Company shall have issued and duly executed
the Warrants to the Purchasers and shall have executed a registration rights
agreement, substantially in the form set forth as Exhibit B-1 hereto.
Section 6.4 Amended and Restated Warrants. The Company shall have
duly executed and delivered the Amended and Restated Warrants, substantially in
the form of Exhibits B-2 through B-6 hereto.
Section 6.5 Interest Escrow Security Agreement. The Company shall
have duly executed the Interest Escrow Security Agreement, substantially in the
form set forth as Exhibit D hereto.
Section 6.6 Notes. Each Purchaser shall have received the Guaranteed
Senior Secured Primary Note and the Guaranteed Senior Secured Escrow Note it is
purchasing duly executed and delivered by a duly authorized officer of the
Company.
Section 6.7 Security Agreements. The Company and its Subsidiaries and
the Holders shall have duly executed and delivered the Global Security Agreement
in substantially the form of Exhibit E hereto and the Intellectual Property
Security Agreement in substantially the form of Exhibit F hereto.
Section 6.8 Pledge Agreement. The Company and its Subsidiaries shall
have duly executed and delivered a pledge agreement in substantially the form of
Exhibit G hereto.
Section 6.9 Guarantees. Each of the Subsidiaries shall have duly
executed and delivered their respective guaranty in substantially the form of
Exhibits H-1 through H-3 hereof.
Section 6.10 Pledged Stock. The Company shall have delivered to the
Holders certificates representing all issued and outstanding shares of Capital
Stock of each of the existing
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Subsidiaries, together with stock powers duly executed in blank, to be held
pursuant to the terms of the Pledge Agreement.
Section 6.11 Escrow Agreement. The Company shall have duly executed
the Funded Commitment Facility Escrow Agreement, substantially in the form of
Exhibit L annexed hereto.
Section 6.12 Financing Statements. The Company and each Subsidiary
shall have duly executed such financing statements (Form UCC-1) as shall be
requested by the Holders to perfect the security interest provided by the Global
Security Agreement and shall have taken all action reasonably requested by
Purchasers to perfect and protect the security interests created by such Form
UCC-1s.
Section 6.13 First Union Agreement. The Company shall have executed
an agreement with First Union National Bank (as successor-in-interest to
CoreStates), as amended through the date hereof containing, among other things,
a waiver of any defaults under the agreements between the Company and
Corestates, substantially in the form of Exhibit I hereto and shall have caused
CoreStates to deliver (a) an assignment of the CoreStates Warrants to the
Purchasers and (b) such UCC-3 termination notices and other releases in form and
substance satisfactory to the Purchasers terminating CoreStates' interest in the
Company's Assets.
Section 6.14 Principal Executive Officer. Simon McKenzie Successor
shall be the principal executive of the Company in charge of the Company's
management and policies. The Company shall obtain a "McKenzie Policy" in
accordance with Section 5.10, with premiums prepaid for a period of not less
than three years from the Closing Date and shall execute and deliver an
Assignment of Life Insurance as Collateral in a form reasonably acceptable to
the Purchasers within sixty (60) days of the date hereof.
Section 6.15 Agreement with Akzo. The Company shall have duly
executed an agreement with Akzo, Organon, Holdings and PerImmune substantially
in the form of Exhibit J attached hereto amending certain terms of the
Intellectual Property Security Agreement by and among PerImmune, Organon, and
Akzo as Collateral Agent pursuant to which the Collateral Agent consents to the
granting of a second priority security interest to the Purchasers on all assets
of PerImmune in which the Collateral Agent maintains a first priority security
interest. The Company shall have delivered to the Purchasers, a confirmation
signed by the Collateral Agent that it has received the guaranty duly executed
by the Company on August 21, 1998 and that the provisions of Amendment No. 1
executed by and among Holdings, PerImmune, Akzo and Organon dated July 31, 1998
to the Akzo Agreement are of full legal force and effect as of the date hereof.
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Section 6.16 Financial Statements. The Company shall have delivered
its (a) audited consolidated financial statements as of and for the year ended
December 31, 1997, together with the notes thereto, the auditor's unqualified
report thereon and any accompanying management letter and (b) unaudited
consolidated financial statements as of and for the three months ended March 31,
1998, together with the notes thereto.
Section 6.17 Letter of Instructions. Purchasers shall have received
irrevocable instructions from the Company to direct funds to accounts maintained
pursuant to the Interest Escrow Security Agreement and the Funded Commitment
Facility Agreement.
Section 6.18 Other Actions. The Company and each Subsidiary shall
have taken all other action reasonably requested by the Purchasers desirable to
perfect and protect the security interests created by the Security Documents.
Section 6.19 No Adverse Actions. There shall be no action, suit,
complaint, investigation or proceeding pending or, to the knowledge of the
Company, threatened against the Company, or any properties or rights of the
Company, by or before any court, arbitrator or administrative or governmental
body which could reasonably be expected to result in any material adverse change
in the business, financial condition or operations of the Company taken as a
whole. There shall be no action, suit, investigation or proceeding pending or
threatened against the Company which purports to affect the validity or
enforceability of this Agreement or the Ancillary Agreements.
Section 6.20 Opinion of Counsel. The Purchasers shall have received
from Morrison & Foerster LLP, counsel for the Company, opinions dated the
Closing Date, in the form attached hereto as Exhibit K-1 and Exhibit K-2.
ARTICLE VII
PAYMENT FOR PURCHASE OF SECURITIES
Contemporaneously with the satisfaction of the obligations of the
Company as set forth in Article VI, each Purchaser shall transfer to the Company
such sum, and deliver the Existing Securities, as set forth opposite its name in
Column 2 and Column 3, respectively, of Schedule 2.1 hereto, as specified in
Section 2.2 of this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Expenses. The Company will pay its own expenses and the
Purchasers' expenses in connection with the transactions contemplated hereby
whether or not such transactions shall be consummated and the Company shall pay
for all out-of-pocket costs of the Purchasers, including, without limitation (a)
legal fees incurred by Purchasers in connection with
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<PAGE> 52
due diligence, documentation and closing of this transaction, and (b) the costs
of appraisals, financial reports and other documents requested by Purchasers in
connection with this transaction.
Section 8.2 Brokerage. Each party hereto will indemnify and hold
harmless any other party hereto against and in respect of any claim for
brokerage or other commissions relative to this Agreement or to the transactions
contemplated hereby, based in any way on agreements, arrangements or
understandings made or claimed to have been made by such party with any third
party.
Section 8.3 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person,
or mailed by certified or registered mail, return receipt requested, or
nationwide overnight delivery service (with charges prepaid) as follows:
(a) if to the Company or any Subsidiary, at Intracel
Corporation, 2005 NW Sammamish Road, Suite 107, Issaquah Washington 98027, Attn:
Chief Executive Officer, with a copy to Joseph W. Bartlett, Esq., Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York, NY 10104; and
(b) if to the Purchasers, at their respective addresses set
forth on Schedule 2.1 hereto with a copy to Karen Weidemann, Esq., Reboul,
MacMurry, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York
10111.
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the other. Any notice given hereunder
shall be deemed given and delivered when delivered in person, or three days
after mailing by mail or one day after delivery to an overnight express service
for next day delivery, as the case may be.
Section 8.4 Governing Law; Submission to Jurisdiction. This Agreement
shall be construed in accordance with, and governed by, the internal laws of the
State of New York as permitted by Section 5-401 of the New York General
Obligations Law (or any similar successor provision) without giving effect to
any choice of law rule that would cause the application of the Laws of any
jurisdiction other than the State of New York. The Company and each existing
Subsidiary of the Company hereby irrevocably and unconditionally:
(a) submit itself and its Subsidiaries and their respective
Assets in any legal action or proceeding relating to this Agreement and the
Ancillary Agreements to which it is a party, or for recognition and enforcement
of any judgment in respect thereof, to the general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts of any thereof;
(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
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(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to it at its
address set forth in or determined pursuant to Section 8.3 or at such other
address of which the Purchasers shall have been notified pursuant thereto; and
(d) waives, to the maximum extent not prohibited by Law,
any right it may have to claim or recover in any legal action or proceeding
referred to in this Section 8.4 any punitive or exemplary damages and any
damages which are not proximately caused by or the reasonably foreseeable result
of the breach which is the subject of such action or proceeding.
The Company hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the Ancillary Agreements;
(b) the Purchasers do not have any fiduciary relationship
with or duty to the Company arising out of or in connection with this Agreement,
or the Ancillary Agreements; and
(c) no joint venture or partnership exists between the
Purchasers, on the one hand, and the Company, on the other hand, and the
relationship of the Company and the Purchasers is that of, inter alia, debtor
and creditor.
THE COMPANY, EACH SUBSIDIARY OF THE COMPANY AND THE PURCHASERS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY, ANY OBJECTION BASED ON
FORUM NON CONVENIENS OR VENUE IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT, THE ANCILLARY AGREEMENTS AND FOR ANY COUNTERCLAIM THEREIN.
THIS AGREEMENT AND THE ANCILLARY AGREEMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS OF THE PARTIES.
THE COMPANY WILL CAUSE EACH NEW SUBSIDIARY TO TAKE SUCH ACTION AS IS
REQUIRED TO CONSENT TO, AND BE BOUND BY, THE PROVISIONS OF THIS SECTION 8.4 IN
ITS ENTIRETY.
Section 8.5 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto and the Ancillary Agreements, constitutes the sole and
entire agreement of the parties with respect to the subject matter hereof. All
Schedules and Exhibits hereto are hereby incorporated herein by reference.
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<PAGE> 54
Section 8.6 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall not
be effective unto duly executed by each and every party hereto.
Section 8.7 Amendments. This Agreement may not be amended or modified
and no provisions hereof may be waived, without the written consent of the
Company, each Subsidiary and each Purchaser. However, this Agreement may be
amended, and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, if the Company shall
obtain the written consent to such amendment, action or omission to act, of the
Required Holders, except that, without the prior written consent of one hundred
percent (100%) of the Purchasers, no amendment to this Agreement shall change
the maturity of any Note, or change the principal of, or the rate or time of
payment of interest on any Note, or affect the time, amount or allocation of any
prepayments, change the proportion of the principal amount of the Notes required
with respect to any consent, amendment, waiver or declaration, amend, modify or
waive any provision of this Section 8.7, change the percentage specified in the
definition of Required Holders or consent to the assignment or transfer by the
Company or any of its Subsidiaries of their respective rights and obligations
under this Agreement or the Ancillary Agreements. Each Purchaser of the Notes
shall be bound by any consent authorized by this Section 8.7 whether or not such
Note shall have been marked to indicate such consent, but any Notes issued
thereafter may bear notation referring to any such consent. Any amendment or
waiver of any provision of any Note shall be effective only for the purposes and
period of time expressly set forth therein and shall not entitle the Company to
any other waiver or amendment in similar or other circumstances. No course of
dealing between the Company and any Purchaser of any Note, nor any failure to
exercise or any delay in exercising on the part of the holder of any Note any
right, remedy, power or privilege under any Note shall or operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege under any Note preclude any other right, remedy, power or privilege.
The rights, remedies, powers and privileges under the Notes are cumulative and
not exclusive of any rights, remedies, powers and privileges provided by Law. As
used herein and in the Notes, the term "this Agreement and the Ancillary
Agreements" and references thereto shall mean this Agreement and the Ancillary
Agreements as they may from time to time be amended or supplemented.
Section 8.8 Disclosure to Other Persons. The Company hereby
authorizes any of the Purchasers of the Notes to deliver copies of any financial
statements and other documents delivered to such Purchaser, and disclose any
other information disclosed to such Purchaser, by or on behalf of the Company or
any Subsidiary in connection with or pursuant to this Agreement or the Ancillary
Agreements to (a) such Purchaser's directors, officers, employees, agents and
professional consultants, (b) any other Purchaser of any Note, (c) any Person to
which such Purchaser offers to sell such Note or any part thereof, (d) any
Person to which such Purchaser sells or offers to sell a participation in all or
any part of such Note, (e) any Person from which such Purchaser offers to
purchase any security of the Company, (f) any federal or state regulatory
authority having jurisdiction over such Purchaser, or (g) any other Person to
which such delivery or disclosure may be necessary or appropriate (i) in
compliance with any Law applicable to such Purchaser, (ii) in response to any
subpoena or other legal process or informal investigative
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<PAGE> 55
demand or (iii) in connection with any litigation to which such Purchaser is a
party. Notwithstanding the foregoing, except as provided in clauses (f) and (g)
above, the Purchasers agree that they shall not disclose any information learned
or received by them in connection with the negotiation, execution, delivery and
performance of this Agreement or the Ancillary Agreements to any Person that
directly competes or may reasonably be expected to directly compete with any
business of the Company.
Section 8.9 Limitation on Interest. The Company and each Purchaser
intends to comply with applicable usury Laws from time to time in effect. At no
time shall the interest rate payable on the Notes exceed the maximum rate of
interest, if any, that at any time or from time to time may be contracted for,
taken, charged or received on the Notes or on any amount which may be owing to
the Purchasers of the Notes under the Laws applicable to such Purchasers of
Notes and this transaction. In the event that the interest rate payable on the
Notes shall exceed the maximum rate of interest allowable under applicable usury
Laws, then the rate of interest shall automatically be reduced to the maximum
rate permitted by Law.
Section 8.10 Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or administrative authority,
the validity of any other provision and of the entire Agreement shall not be
affected thereby.
Section 8.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
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<PAGE> 56
IN WITNESS WHEREOF, the Company, the Subsidiaries and the Purchasers
have executed this Agreement as of the day and year first above written.
INTRACEL CORPORATION
By: /s/ SIMON R. McKENZIE
--------------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
BARTELS, INC.
By: /s/ SIMON R. McKENZIE
--------------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
PERIMMUNE HOLDINGS, INC.
By: /s/ SIMON R. McKENZIE
--------------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
PERIMMUNE, INC.
By: /s/ SIMON R. McKENZIE
--------------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
--------------------------------------
Name: Michael A. Graves
Title: Vice President
50
<PAGE> 57
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
--------------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ MICHAEL A. GRAVES
--------------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
--------------------------------------
Name: Michael A. Graves
Title: Vice President
51
<PAGE> 1
EXHIBIT 10.30
INTEREST ESCROW SECURITY AGREEMENT
This INTEREST ESCROW SECURITY AGREEMENT (the "Agreement"),
dated as of August 25, 1998, among Northwestern Trust and Investors Advisory
Company, as Depositary (in such capacity, the "Depositary"), the holders set
forth on Schedule A attached hereto (the "Holders") of the certain promissory
notes (the "Notes") dated the date hereof, of Intracel Corporation, a Delaware
corporation (the "Company"), and the Company. All references herein to the "UCC"
shall mean the Uniform Commercial Code as in effect on the date hereof in the
State of New York, and all references herein to the "Revised UCC" shall mean the
1994 Official Text of Article 8 of the Uniform Commercial Code with conforming
amendments to Article 9.
RECITALS
A. Pursuant to that certain Securities Purchase Agreement
dated as of August 25, 1998 (the "Securities Purchase Agreement"), between the
Company, its Subsidiaries and the Holders, the Company is issuing the Notes (as
that term is defined in the Securities Purchase Agreement).
B. Pursuant to the Securities Purchase Agreement, the Company
shall initially deposit in the Securities Account (as defined in Section 2(a)
hereof) Four Million Nine Hundred and Twenty Thousand Dollars ($4,920,000) in
cash (which amount will be sufficient to pay, together with the proceeds from
the investment thereof, a minimum of twelve months interest on the Notes) to be
held in the Securities Account subject to the terms and conditions of this
Agreement.
C. Pursuant to the Securities Purchase Agreement, the Company
shall be required to deposit certain additional amounts in the Securities
Account in cash.
D. As security for its Obligations (as such term is defined in
the Security Agreement, dated as of the date hereof among the Company and the
Holders (the "Securities Agreement")) under the Securities Purchase Agreement,
the Notes and the Ancillary Agreements, the Company hereby grants to the
Holders, a first priority perfected Security Interest in and Lien upon the
Securities Account.
E. The parties have entered into this Agreement in order to
(i) create the Security Interest in favor of the Holders of the Securities
Account, (ii) obtain certain assurances herein from the Depositary, including,
without limitation, establishing the Holders' control (within the meaning of the
Revised UCC) over the Securities Account, and (iii) set forth the manner in
which funds will be disbursed from the Securities Account and released from the
Security Interest and Lien described above.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties, covenants, agreements and other consideration
contained and
<PAGE> 2
exchanged herein, the receipt and sufficiency of which are hereby acknowledged
and intending to be legally bound, the parties hereto covenant and otherwise
agree as follows:
1. Defined Terms. For all purposes of this Agreement, all
capitalized terms not otherwise defined below, shall have the same meaning set
forth in the Securities Purchase Agreement.
"Affiliate" has the meaning specified in Section 1.1 of the
Securities Purchase Agreement.
"Available Funds" means (A) the sum of (i) the cash equal to
the Initial Deposit Amount, (ii) subsequent cash amounts deposited, if any, into
the Securities Account, (iii) cash interest or dividends paid into the
Securities Account with respect to the funds in the Securities Account from time
to time and (iv) the Fair Market Value of holdings of Marketable Securities in
the Securities Account, less (B) the aggregate cash disbursements previously
made pursuant to this Agreement.
"Business Day" means any day of the week other than Saturday,
Sunday and days on which banking institutions in Seattle, Washington are closed.
"Collateral" shall have the meaning given in Section 5(a)
hereof.
"Default" shall have the meaning ascribed to it in the Notes.
"Eligible Institution" has the meaning specified in Section
1.1 of the Securities Purchase Agreement.
"Event of Default" shall have the meaning ascribed to it in
the Notes.
"Initial Deposit Amount" shall mean $4,920,000
"Interest Payment Date" means, for any year, November 25,
February 25, May 25 and August 25, beginning with the Interest Payment Date of
November 25, 1998.
"Issue Date" means August 25, 1998.
"Marketable Securities" means the following securities or
financial Assets maturing not later than 180 days after their acquisition: (i)
U.S. Treasury Bills, notes and bonds payable thereby and agreements to
repurchase such instruments; (ii) any certificate of deposit issued by, or time
deposit of, an Eligible Institution; (iii) commercial paper issued by a
corporation (other than an Affiliate of the Company) with a rating, at the time
as of which any investment therein is made, of "A-1" (or higher) according to
S&P or "P-1" (or higher) according to Moody's; (iv) any banker's acceptances or
money market deposit accounts issued or offered by an Eligible Institution; and
(v) any Investment Company (as such term is defined by the Investment Company
Act of 1940) fund investing exclusively in investments of the types described in
clauses (i) through (iv) above.
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<PAGE> 3
"Payment Notice and Disbursement Request" means a notice sent
by the Required Holders to the Depositary, which may be in the form of Exhibit A
hereto.
"Qualified Equity Transaction" means the sale by the Company
of its securities, whether in a public offering registered under the Securities
Act of 1933, as amended, or otherwise, which sale has an aggregate offering
price of not less than $40,000,000 and results in aggregate proceeds to the
Company (net of selling expenses and underwriters' discount or selling agent's
commission) of not less than $35,000,000.
"Required Holders" has the meaning specified in Section 1.1 of
the Securities Purchase Agreement.
"Securities Account" shall have the meaning given in Section
2(a).
"Security Interest" has the meaning specified in Section 1(a)
of the Security Agreement.
2. Securities Account.
(a) Establishment of Securities Account. The Depositary hereby
confirms and agrees that (i) the Depositary has established account number
"000398" under the name "Escrow A/C" (such account and any successor account,
the "Securities Account"), (ii) the Securities Account is a "securities account"
as such term is defined in Section 8-501(a) of the Revised UCC, (iii) the
Depositary shall, subject to the terms of this Agreement, treat the Holders as
the parties entitled to exercise the rights that comprise any financial Asset
credited to the Securities Account, (iv) all Assets delivered to, and actually
received by, the Depositary pursuant, to this Agreement will be promptly
credited to the Securities Account, and (v) all securities or other Assets
underlying any financial Assets credited to the Securities Account shall be
registered in the name of the Depositary or one of its agents or nominees,
indorsed to the Depositary or in blank or credited to another securities account
maintained in the name of the Depositary and in no case will any financial Asset
credited to the Securities Account be registered in the name of the Company,
payable to the order of the Company or specially indorsed to the Company except
to the extent the foregoing have been specially indorsed to the Depositary or in
blank.
(b) Investment of Funds in Securities Account. Funds deposited
in the Securities Account shall be invested and reinvested only upon the
following terms and conditions:
(i) Acceptable Investments. All funds deposited or
held in the Securities Account at any time shall be invested
in cash or Marketable Securities. Unless a Default or Event of
Default or any event that with the lapse of time or the giving
of notice, or both, would constitute an Event of Default has
occurred or would result therefrom or the Required Holders
have otherwise notified the Depositary, the Company may
instruct the Depositary in writing with respect to the
Marketable Securities in which the funds will be invested. The
Depositary shall have the right with acquittance and without
liability to rely on any such instructions from the Company
unless the Depositary shall have been notified otherwise in
writing by the Required Holders.
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<PAGE> 4
(ii) Security Interest in Investments. No investment
of funds in the Securities Account shall be made unless the
Company has certified to the Required Holders, with a copy of
the certification being sent to the Depositary, that, upon
such investment, the Holders will have a first priority
perfected security interest in the applicable investment.
(iii) Interest and Dividends. All interest earned and
dividends paid on funds invested in cash or Marketable
Securities shall be deposited in the Securities Account as
additional Collateral for the exclusive benefit of the Holders
of the Notes and shall be reinvested in accordance with the
terms hereof at the Company's direction, unless a Default or
Event of Default or an event that with the lapse of time or
the giving of a notice or both, would constitute an Event of
Default has occurred and the Required Holders have notified
the Depositary in writing that it should only take direction
from the Required Holders or should no longer take further
written direction from the Company.
3. Funding Requirements. The Company shall direct the
Purchasers to and the Purchasers shall deposit by wire transfer in accordance
with the written instruction received from the Depositary on the Closing Date in
the Securities Account the Initial Deposit Amount. Thereafter, the Company shall
be required to replenish the funds in the Securities Account to the extent
necessary on each Interest Payment Date at such times when the Available Funds
in the Securities Account are less than the appropriate amounts as specified in
clauses (A) and (B) of this Section 3 (the "Shortfall"), and such replenishment
shall be made in the amount of such Shortfall within five (5) Business Days
after such notification of the Shortfall has been provided. The Company shall be
entitled to rely conclusively in making the foregoing determination on
information provided to it by the Depositary. The balance in the Securities
Account shall be maintained, as of each Interest Payment Date, at an amount
sufficient to provide (A) for the period prior to the date on which the Company
notifies the Depositary in writing of the consummation of a Qualified Equity
Transaction (the "Effective Date") (and thereafter if the Effective Date is not
on or before July 1, 1999), for the next four successive payments of interest on
the then Outstanding Notes on the applicable Interest Payment Dates, and, if
necessary, (B) provided the Effective Date is on or before July 1, 1999,
thereafter, the funds in the Securities Account shall be replenished to an
amount sufficient to pay the next four successive payments of interest, and,
after two successive full payments of interest thereafter, the funds shall
thereafter be maintained at a level sufficient to pay the next two successive
payments of interest on the then Outstanding Notes on the applicable Interest
Payment Dates. The Company's obligation to provide such funds and to maintain
such balance as described in either clause (A) or (B) above shall, in all
respects, terminate on the date on which the Company shall have fully paid all
interest accrued through and including the twelfth successive Interest Payment
Date (the "Termination Date"). The Depositary agrees to send a statement not
less frequently than quarterly by the fifteenth day of each month in which the
Depositary provides such statement, a statement of the balance and activity in
the Securities Account for the period covered by such statement.
4. Disbursements.
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<PAGE> 5
(a) Payment Notice and Disbursement Requests; Disbursements.
Prior to the disbursement of any funds from the Securities Account by the
Depositary, the Company must deliver to the Depositary the written consent of
the Holders to such disbursement. The Company shall obtain such written consent
by delivering notice (the "Disbursement Notice") to the Holders of a proposed
disbursement five (5) Business Days prior to such date on which such
disbursement is to be made (the "Disbursement Date"), which Disbursement Notice
shall contain the time period to which such payment applies and the amount of
the disbursement. Promptly after receipt of the Disbursement Notice from the
Company, the Holders shall notify the Depositary of their consent, if any, to
the disbursement of funds on the Disbursement Date by delivery of a Payment
Notice and Disbursement Request substantially in the form of Exhibit A attached
hereto. No disbursements of funds from the Securities Account shall be made by
the Depositary without receipt of the Payment Notice and Disbursement Request
from the Holders authorizing such disbursement.
(b) All disbursements from the Securities Account must be made
in cash and shall apply solely to the payment of interest due under the Notes,
except in the event of a Default, an Event of Default, or an event that with the
lapse of time or the giving of notice, or both, would constitute an Event of
Default, or termination of this Agreement in accordance with the provisions of
Section 6 hereof, in which case written notice thereof shall be provided to the
Depositary by the Required Holders and disbursements of amounts from the
Securities Account shall be made in accordance with the provisions of Section
6(b)(v) of the Notes.
(c) Notwithstanding the provisions contained in Section 4(a)
above, the Holders may, at any time or from time to time, issue a written
payment demand to the Depositary without any prior notice to or from the Company
if: (i) there shall be interest due under the Notes which is five (5) or more
days past due; or (ii) in their reasonable judgment, the Required Holders have
concluded that a Default, Event of Default or event that with the lapse of time
or the giving of notice, or both, would constitute an Event of Default has
occurred and is continuing, or would result therefrom under Section 6(a)(vi) of
the Notes and written notice thereof shall be provided to the Depositary by the
Required Holders. The Depositary shall pay to the Holders promptly after receipt
of their payment demand, the sums specified therein with respect to any payments
due pursuant to the provisions of this Section 4(c).
(d) Retired Notes. In the event that the funds held in the
Securities Account exceed the respective amounts provided for in Section 3
hereof (or, in the event an interest payment or payments have been made, an
amount sufficient to provide for payment in full of any interest payment
remaining, up to and including such scheduled interest payments), the Required
Holders will be permitted to release to the Company any such excess amount if no
Default or Event of Default or event that with the lapse of time, or the giving
of notice, or both, would constitute an Event of Default, then exists under the
Notes.
5. Grant of Security Interest.
(a) The Company hereby irrevocably grants a first priority
perfected security interest in and pledges, assigns and sets over to the Holders
all of the Company's right, title and interest in the Securities Account, and
all Assets now or hereafter placed or deposited in, or delivered to the
Depositary for placement or deposit in, the Securities Account, including,
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<PAGE> 6
without limitation, all cash and other funds held therein, all Marketable
Securities in the Securities Account established by (or otherwise maintained in
the name of) the Depositary pursuant to Section 2 and security entitlements
credited to or held in the Securities Account, and all proceeds thereof as well
as all rights of the Company under this Agreement (collectively, the
"Collateral"), in order to secure all Obligations (as defined in the Security
Agreement) of the Company under the Securities Purchase Agreement, the Notes and
the Ancillary Agreements.
The Depositary and the Company hereby acknowledge the Holders' security
interest as set forth above. The Company shall take all actions necessary on its
part to perfect, protect, maintain and insure the continuance of a first
priority perfected Security Interest in the Collateral in favor of the Holders
in order to secure all Obligations.
The rights and powers granted herein to the Holders have been granted
in order to perfect their Security Interest in the Securities Account, are
powers coupled with an interest and shall neither be affected by the bankruptcy
of the Company nor by the lapse of time.
(b) Upon demand, the Company will execute and deliver to the
Holders such instruments and documents as the Holders may reasonably deem
necessary or advisable to confirm or perfect their rights under this Agreement
and their interest in the Collateral. The Holders shall be entitled to take all
necessary action to preserve and protect the Security Interest created hereby as
a Lien and encumbrance upon the Collateral.
(c) The Company hereby appoints the Holders as its
attorney-in-fact with full power of substitution to do any act which the Company
is obligated hereunder to do, and the Holders may exercise such rights as the
Company might exercise with respect to the Collateral and take any action in the
Company's name to protect the Holders' Security Interest hereunder.
(d) In addition to the rights provided in this Agreement upon
a Default or an Event of Default, and for so long as such Default or Event of
Default or event that with the lapse of time or the giving of notice, or both,
would constitute an Event of Default continues or would result therefrom, the
Holders may exercise in respect of the Collateral, in addition to other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party under the UCC, the Revised UCC (if applicable)
or other applicable Law, including, without limitation, collecting payment from
the Company of any attorney fees incurred by the Holders in exercising such
rights and remedies. The Holders may also, upon a Default or an Event of Default
or event that with the lapse of time or the giving of notice, or both, would
constitute an Event of Default, without notice to the Company except as
specified below, sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange, broker's board or at any of the
Holders' offices or elsewhere, for cash, on credit or for future delivery, and
upon such other terms as the Required Holders may deem commercially reasonable.
The Company acknowledges and agrees that any such private sale may result in
prices and other terms less favorable to the seller than if such sale were a
public sale. The Company agrees that, to the extent notice of sale shall be
required by law, ten (10) days' notice to the Company of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification within the meaning of the UCC, the Revised
UCC, or any other applicable law. The Required Holders shall not be obligated to
make any sale
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<PAGE> 7
regardless of notice of sale having been given. The Required Holders may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned.
6. Termination. (a) On the Termination Date, all funds remaining in the
Securities Account shall be disbursed by wire transfer as follows:
(i) to the Holders, in an amount equal to all accrued unpaid
past due interest on the Notes;
(ii) to the Holders in an amount equal to all accrued unpaid
interest due on the Notes;
(iii) to the Holders in an amount equal to all accrued unpaid
and past due amounts under the Securities Purchase Agreement, the Notes
and any of the Ancillary Agreements;
(iv) to the Holders in an amount equal to all other accrued
unpaid amounts under the Securities Purchase Agreement, the Notes and
any of the Ancillary Agreements;
(v) to the Holders in an amount equal to the aggregate
principal amount Outstanding under the Notes; and
(vi) any surplus of such cash or cash proceeds held by the
Holders through the Depositary and remaining on or after the
Termination Date shall be paid over to the Company or to whosoever may
be lawfully entitled to receive such surplus or as a court of competent
jurisdiction may direct.
(b) The Company and the Required Holders shall provide the
Depositary with written instructions regarding the disbursements to be made
pursuant to Section 6(a) on the Termination Date at least five (5) Business Days
prior to the Termination Date.
(c) This Agreement shall terminate automatically ten (10) days
following disbursement of all funds remaining in the Securities Account
(including proceeds from the sale of Marketable Securities), unless sooner
terminated by agreement of the parties hereto (in accordance with the terms
hereof, not in violation of the Notes, and provided that the Holders may not
agree to such earlier termination unless they have received the consent of all
Holders of all of the Notes then outstanding); provided, however, that until
such tenth day, the Company will cause this Agreement (or any permitted
successor agreement) to remain in effect and will cause the Depositary
(including any permitted successor thereto) to continue to act hereunder (or
under any such permitted successor agreement).
7. "Financial Assets" Election. The Depositary hereby agrees that each
item of property (whether investment property, financial Asset, security,
instrument or cash) comprising the Initial Deposit Amount, Available Funds,
Collateral, or any other property otherwise credited to the Securities Account
shall be treated as a "financial asset" within the meaning of Section
8-102(a)(9) of the Revised UCC.
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<PAGE> 8
8. Entitlement Orders. If at any time the Depositary shall receive an
"entitlement order" (within the meaning of Section 8-102(a)(8) of the Revised
UCC) issued by the Holders and relating to the Securities Account, the
Depositary shall comply with such entitlement order without further consent by
the Company or any other person.
9. Subordination of Lien; Waiver of Setoff. In the event that the
Depositary has or subsequently obtains by agreement, operation of law or
otherwise a security interest in the Securities Account or any security
entitlement credited thereto, the Depositary hereby agrees that such security
interest shall be subordinate to the Security Interest of the Holders. The
financial Assets and other items deposited to the Securities Account shall not
be subject to deduction, set-off, banker's Lien, or any other right in favor of
any person other than the Holders (except that the Depositary may set off (a)
all amounts due to the Depositary in respect of the Depositary's customary fees
and expenses for the routine maintenance and operation of the Securities Account
and (b) the face amount of any checks which have been credited to the Securities
Account but are subsequently returned unpaid because of uncollected or
insufficient funds).
10. Representations, Warranties and Covenants of the Company. The
Company hereby represents and warrants that this Agreement has been duly
authorized, executed and delivered on its behalf and constitutes the legal,
valid and binding obligation of the Company. The execution, delivery and
performance of this Agreement by the Company does not violate any applicable Law
to which the Company is subject and does not require the consent of any
governmental or other regulatory body to which the Company is subject, except
for such consents and approvals as have been obtained and are in full force and
effect.
11. Representations, Warranties and Covenants of the Depositary. The
Depositary hereby makes the following representations, warranties and covenants:
(a) The Securities Account has been established as set forth
in Sections 2 through 4 above and shall be maintained in the manner set forth
herein until termination of this Agreement. The Depositary shall not change the
name or account number of the Securities Account without the prior written
consent of the Required Holders.
(b) No financial Asset is or shall be registered in the name
of the Company, payable to the Company's order, or specially endorsed to the
Company, except to the extent such financial asset has been endorsed to the
Depositary or in blank.
(c) This Agreement is the valid and legally binding obligation
of the Depositary duly authorized, executed and enforceable in accordance with
its terms.
(d) The Depositary has not entered into, and until the
termination of this Agreement shall not enter into, any agreement with any other
Person relating to any of the Securities Account and/or any financial Assets
credited thereto pursuant to which it has agreed to comply with entitlement
orders (as defined in Section 8-102(a)(8) of the Revised UCC) of such person.
The Depositary has not entered into any other agreement with the Company or the
Holders purporting to limit or condition the obligation of the Depositary to
comply with entitlement orders as set forth in Section 8 hereof.
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<PAGE> 9
(e) The Depositary shall at all times act as a "financial
intermediary" (within the meaning of Section 8-313(4) of the UCC) or as a
"securities intermediary" (within the meaning of Section 8-102(a)(14) of the
Revised UCC), and as a custodian of funds, as applicable, and will comply with
all applicable regulations.
12. Automatic Stay. If the Company becomes the subject of a bankruptcy
or a reorganization case under the United States Bankruptcy Code, the automatic
stay imposed by section 362 of the United States Bankruptcy Code will be deemed
lifted (or, in the event that a court does not recognize the validity of such
deemed lifting of the automatic stay, the parties will use their best efforts to
seek relief from the stay), insofar as such stay affects enforcement of the
security interest in the Securities Account granted thereby.
13. Fees and Expenses. The Company agrees to pay the Depositary
reasonable compensation for its basic services rendered pursuant to this
Agreement. The fees shall be paid within 30 days after the Company has been
billed by the Depositary, except for the document review and set-up fee of $1000
plus out-of-pocket legal review expenses which shall be paid by the Company upon
establishment of the Securities Account. In the event the Depositary renders any
material service not contemplated in this Agreement, or there is any assignment
of interest in the subject matter of this Agreement, or any material
modification hereof, or if any material controversy arises hereunder, or the
Depositary is made a party to any litigation pertaining to this Agreement, or
the subject matter hereof, then the Depositary shall also be reasonably
compensated by the Company for such extraordinary services and reimbursed by the
Company for all costs and expenses, including reasonable attorneys' fees,
occasioned by any controversy, litigation or event.
14. Resignation or Removal of the Depositary. The Depositary may resign
upon 30 days' advance written notice of resignation to the Company and the
Holders. The Company and the Holders may also jointly at any time remove the
Depositary by giving written notice to the Depositary. If the Depositary shall
resign or be removed, a successor Depositary, which shall be either a bank,
trust company or other financial institution constituting an Eligible
Institution (as that term is defined in Section 1.1 of the Securities Purchase
Agreement) having an office in the State of Washington and satisfactory to the
Company and the Holders, shall be appointed by written instrument executed and
delivered by the Company and the Holders to the Depositary and to such successor
depositary, and upon the resignation or removal of the predecessor Depositary,
the successor depositary shall, without any further act, deed or conveyance,
become vested with all the right, title and interest to all property held
hereunder, of such predecessor Depositary; provided that such predecessor
Depositary shall, on the written request of the Company and the Holders, execute
and deliver to such successor depositary an instrument transferring to such
successor depositary all right, title and interest hereunder in and to the
Securities Account and all other rights hereunder, of such predecessor
Depositary. If no successor depositary has been appointed at the end of 30 days
after notice of resignation by the Depositary, the Depositary hereunder may
petition any court of competent jurisdiction to name a successor depositary.
15. Depositary Not a Party to Other Agreement. By entering into this
Agreement, the Depositary is a party only to this Agreement and the Depositary
does not become a party to any other agreement, including, but not limited to,
the Securities Purchase Agreement.
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16. Reliance. The Depositary may act upon any instrument or other
writing believed by it in good faith to be genuine and to be signed or presented
by the proper person or persons and shall not be liable in connection with the
performance by it of its duties pursuant to the previsions hereof, except for
its own willful default or gross negligence. The Company and the Holders shall,
jointly and severally, indemnify and save harmless the Depositary for all
claims, losses, costs, damages, liabilities and expenses which may be incurred
on the part of the Depositary, arising out of or in connection with its entering
into this Agreement and carrying out its duties hereunder due to:
(a) The Depositary's failure to ascertain or comply with the
terms of any document, other than this Agreement, and all Exhibits and Schedules
attached hereto, unless that document is filed and the Depositary is expressly
instructed by this Agreement to comply with a specified paragraph or provision
of that document. The Company agrees to indemnify and pay the Holders for any of
the Holders' losses, costs, damages, liabilities and expenses ("Holders'
Losses") which may be incurred by the Holders as a result of the indemnity
provided to the Depositary under this Section 16 except for any Holders' Losses
paid to the Depositary by the Holders as a result of the Holders' gross
negligence or willful misconduct.
(b) Forgeries or false impersonations.
(c) Exercise of the Depositary's discretion in any particular
manner in any situation in which the Depositary is authorized by this Agreement
to exercise its discretion.
(d) Any reason other than the Depositary's gross negligence or
willful misconduct in following this Agreement and acting as Depositary
hereunder.
17. Miscellaneous.
(a) Waiver. Any party hereto may specifically waive any breach
of this Agreement by any other party (provided, in the case of any such waiver
by a Holder, that it shall first have obtained the written consent of the
Required Holders, but no such waiver shall be deemed to have been given unless
such waiver is in writing, signed by the waiving party and specifically
designating the breach waived, nor shall any such waiver constitute a continuing
waiver of similar or other breaches.
(b) Invalidity. If for any reason whatsoever any one or more
of the provisions of this Agreement shall be held or deemed to be inoperative,
unenforceable or invalid in a particular case or in all cases, such
circumstances shall not have the effect of rendering any of the other provisions
of this Agreement inoperative, unenforceable or invalid, and the inoperative,
unenforceable or invalid provision shall be construed as if it were written so
as to effectuate, to the maximum extent possible, the parties' intent.
(c) Assignment. This Agreement is personal to the parties
hereto, and the rights and duties of any party hereunder shall not be assignable
except with the prior written consent of the Company and the Holders.
Notwithstanding the foregoing, this Agreement shall inure to and be binding upon
the parties and their successors and permitted assigns.
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<PAGE> 11
(d) Benefit. The parties hereto and their successors and
permitted assigns, but no others, shall be bound hereby and entitled to the
benefits hereof and to enforce this Agreement.
(e) Time. Time is of the essence with respect to each
provision of this Agreement.
(f) Entire Agreement; Amendments. This Agreement, the
Securities Purchase Agreement, the Notes and the other Ancillary Agreements
identified in the Securities Purchase Agreement contain the entire agreement
among the parties with respect to the subject matter hereof and supersede any
and all prior agreements, understandings and commitments, whether oral or
written. This Agreement may be amended only with the consent of the Company and
the Required Holders, and in the case of any provision referring to the rights
and duties of the Depositary, the Depositary.
(g) Notices. All notices and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall
be deemed to have been duly given and received, regardless of when and whether
received, either: (a) on the day of hand delivery; (b) three Business Days
following the day sent, when sent by United States certified mail, postage and
certification fee prepaid, return receipt requested, addressed as set forth
below; or (c) one Business Day following the day timely delivered to a next-day
air courier addressed as set forth below:
To the Company:
Intracel Corporation
2005 NW Sammamish Road, Suite 107
Issaquah, Washington 98027
Attention: Simon R. McKenzie
Telecopy: 425-392-2992
Telephone: 425-557-1894
To the Holders:
300 Stamford Place
Stamford, Connecticut 06902
Attention: Michael Graves
Telecopy: 203-862-8601
Telephone:203-863-6224
To the Depositary:
1201 Third Avenue, 20th Floor
Seattle, Washington 98101
Attention: Robert T. Leighton
Telecopy: (206) 442-6401
Telephone: (206) 442-6409
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<PAGE> 12
or at such other address as the specified entity most recently may have
designated in writing in accordance with this Section.
(h) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(i) Captions. Captions in this Agreement are for convenience
only and shall not be considered or referred to in resolving questions of
interpretation of this Agreement.
(j) Choice of Law. The existence, validity, construction,
operation and effect of any and all terms and provisions of this Agreement shall
be determined in accordance with and governed by the Laws of the State of New
York, without regard to principles of conflicts of Laws that would result in the
application of the Law of any jurisdiction other than the State of New York.
Regardless of any provision in any other agreement, for purposes of the UCC or
the Revised UCC, New York shall be deemed to be the Depositary's location and
the Securities Account (as well as the securities entitlements related thereto)
shall be governed by the Laws of the State of New York. The parties to this
Agreement hereby agree that jurisdiction over such parties and over the subject
matter of any action or proceeding arising under this Agreement may be exercised
by a competent Court of the State of New York, or by a United States Court,
sitting in New York City. The Company hereby submits to the personal
jurisdiction of such courts, hereby waives personal service of process upon it
and consents that any such service of process may be made by certified or
registered mail, return-receipt requested, directed to the Company at its
address last specified for notices hereunder, and service so made shall be
deemed completed five (5) days after the same shall have been so mailed, and
hereby waives the right to a trial by jury in any action or proceeding with the
Depositary.
(k) Each of the Depositary and the Holders hereby represents
and warrants that this Agreement has been duly authorized, executed and
delivered on its behalf and constitutes its legal, valid and binding obligation.
(l) Conflict With Other Agreements. There are no other
agreements entered into between the Depositary and the Company with respect to
the Securities Account. In the event of any conflict between this Agreement (or
any portion thereof) and any other agreement now existing or hereafter entered
into, the terms of this Agreement shall prevail.
(m) Notice of Adverse Claims. Except for the claims and
interest of the Holders and of the Company in the Securities Account, the
Depositary does not know of any claim to, or interest in, the Securities Account
or in any "financial Asset" (as defined in Section 8-102(a) of the Revised UCC)
credited thereto. If any Person asserts any Lien, encumbrance or adverse claim
(including any writ, garnishment, judgment, warrant of attachment, execution or
similar process) against the Securities Account or in any financial Asset
carried therein, the Depositary shall promptly notify the Holders and the
Company thereof.
(n) Execution of Agreement. The execution of this Agreement by
the Depositary shall conclusively evidence its acceptance and agreement to the
terms hereof.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed and delivered
this Interest Escrow Security Agreement as of the day first above written.
COMPANY: Intracel Corporation
By: /s/ SIMON McKENZIE
------------------------------------
Name: Simon McKenzie
Title: President and Chief
Executive Officer
HOLDERS: NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
------------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
------------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ MICHAEL A. GRAVES
------------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
------------------------------------
Name: Michael A. Graves
Title: Vice President
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<PAGE> 14
DEPOSITARY: NORTHWESTERN TRUST AND INVESTORS
ADVISORY COMPANY, as Depositary
By: /s/ DAVID C. WILLIAMS
----------------------------------
Name: David C. Williams
Title: President & CEO
14
<PAGE> 1
EXHIBIT 10.31
- --------------------------------------------------------------------------------
SECURITY AGREEMENT
among
Intracel Corporation,
Bartels, Inc.,
PerImmune Holdings, Inc.,
PerImmune, Inc.
and
the holders of the 12%
Guaranteed Senior Secured Primary Promissory Notes
due August 25, 2003 of
Intracel Corporation
and
the holders of the 12%
Guaranteed Senior Secured Escrow Promissory Notes
due August 25, 2003 of
Intracel Corporation
-----------------
Dated as of August 25, 1998
-----------------
- --------------------------------------------------------------------------------
<PAGE> 2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of August 25, 1998, among
Intracel Corporation, a Delaware corporation (together with its successors and
assigns, the "Company"), the Company's wholly-owned subsidiaries Bartels, Inc.
("Bartels"), PerImmune Holdings, Inc. ("Holdings") and PerImmune, Inc.
("PerImmune" and, together with Bartels and Holdings, the "Subsidiaries") and
the holders (collectively, the "Holders") of the 12% Guaranteed Senior Secured
Primary Promissory Notes (the "Guaranteed Senior Secured Primary Notes") of the
Company and the holders of the 12% Guaranteed Senior Secured Escrow Promissory
Notes (the "Guaranteed Senior Secured Escrow Notes") of the Company
(collectively, the "Notes") issued pursuant to that certain Securities Purchase
Agreement, dated as of the date hereof, by and among the Company and the other
parties thereto (the "Purchase Agreement"). As used herein, all capitalized
terms not otherwise defined herein shall have the meanings set forth in the
Purchase Agreement.
W I T N E S S E T H:
WHEREAS, the Company is to issue 12% Guaranteed Senior Secured
Primary Promissory Notes in the aggregate original principal amount of
$35,000,000 and 12% Guaranteed Senior Secured Escrow Promissory Notes in the
aggregate original principal amount of $6,000,000; and
WHEREAS, in order to secure the performance of the obligations
of the Company under the Purchase Agreement, the Notes and the Ancillary
Agreements (the "Obligations") and the guaranties relating to the Obligations
executed on the date hereof by each of the Subsidiaries, the parties hereto are
entering into this Security Agreement regarding the terms and conditions of the
Company's and Subsidiaries' (together, the "Company Parties") grant of a
security interest in the Collateral (as defined below) to the holders of the
Notes (the "Holders"); and
WHEREAS, the Company and the Holders of the Notes have entered
into the Intellectual Property Security Agreement as of the date hereof (the
"Intellectual Property Security Agreement") to secure the performance of the
Obligations, the representations, warranties, covenants, terms and provisions of
which are hereby incorporated by reference and made a part hereof; and
WHEREAS, the Company and the Holders of the Notes have entered
into an Interest Escrow Security Agreement as of the date hereof relating to the
payment of certain interest due on the Notes (the "Interest Escrow Security
Agreement"), the terms and provisions of which are hereby incorporated herein by
reference and made a part hereof, and the Company has agreed to grant to the
Holders a first priority perfected security interest in the accounts established
pursuant to the Interest Escrow Security Agreement (the "Interest Escrow
Accounts") which comprise a portion of the Collateral (as defined below); and
<PAGE> 3
WHEREAS, the Company and the Holders of the Notes have entered
into a Funded Commitment Facility Escrow Agreement as of the date hereof
relating to certain segregated escrowed funds in connection with the issuance of
the Guaranteed Senior Secured Escrow Notes (the "Funded Commitment Facility
Escrow Agreement"), the terms and provisions of which are hereby incorporated
herein by reference and made a part hereof, and the Company has agreed to grant
the Holders a first priority perfected security interest in the accounts
established pursuant to the Funded Commitment Facility Escrow Agreement (the
"Funded Commitment Facility Escrow Accounts") which comprise a portion of the
Collateral (as defined below).
NOW, THEREFORE, in consideration of the premises and other
benefits to the Company Parties, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. Security Interest.
(a) Grant of Security Interest.
As collateral security for the payment and performance in full
of the Obligations in accordance with their respective terms, the Company
Parties hereby pledge, assign, transfer and grant to the Holders as to all
Collateral, a first priority perfected continuing security interest (except with
respect to certain Collateral listed on Schedule A hereto in which Akzo Nobel
Pharma International, B.V., as Collateral Agent under the Intellectual Property
Security Agreement dated August 8, 1996 (the "Collateral Agent") has a first
priority security interest (the "Akzo Security Interest Collateral") and with
respect to the Akzo Security Interest Collateral, a second priority perfected
security interest until such time as payment in full of the Debt underlying the
Akzo Security Interest Collateral has been made and at such time, a first
priority perfected security interest in the Akzo Security Interest Collateral)
(collectively, the "Security Interests") in all of the right, title and interest
of the Company Parties in and to all of the Assets, real or personal, tangible
or intangible of the Company Parties, now owned or hereafter acquired (the
"After Acquired Collateral"), wherever located, including, without limitation,
the following:
(i) All equipment in all of its forms, wherever
located, now or hereafter existing, and all
parts thereof and all accessions thereto,
with the exception of the Excluded Equipment
(any and all such equipment, parts and
accessions being the "Equipment");
(ii) All inventory in all of its forms, wherever
located, now or hereafter existing,
(including, but not limited to (i) raw
materials and work in process therefor,
finished goods thereof, and materials used
or consumed in the manufacture or
production, (ii) goods in which the Company
has an interest in mass or a joint or other
interest or right of any kind and (iii)
goods which are returned to or repossessed
by the Company, and all accessions thereto
and products thereof (any and all such
inventory, accessions and products being the
"Inventory");
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<PAGE> 4
(iii) All accounts, accounts receivable, contract
rights, chattel paper, instruments,
securities (including, without limitation,
all Investment Property (as such term is
defined in the Uniform Commercial Code (the
"UCC")), general intangibles (as such term
is defined in the UCC) and other obligations
of any kind now or hereafter existing
whether or not arising out of or in
connection with the sale or lease of goods
or the rendering of services, and all rights
now or hereafter existing in and to all
options to acquire real or personal property
("Property Options"), security agreements,
leases and other contracts securing or
otherwise relating to any such accounts,
contract rights, chattel paper, instruments,
general intangibles or obligations (any and
all such accounts, contract rights, chattel
paper, instruments, general intangibles and
obligations being the "Receivables," and any
and all such options, leases, security
agreements and other contracts being the
"Related Contracts");
(iv) All real Assets and interests in real
property, now or hereafter existing wherever
located, together with all buildings,
towers, structures and other improvements
erected, situated or placed thereon and all
attachments used in connection therewith
(collectively, the "Real Property
Collateral");
(v) All Financial Accounts, including, but not
limited to the Interest Escrow Accounts, the
Funded Commitment Facility Escrow Accounts
and the Collateral Account (collectively,
the "Financial Accounts") and all sums of
money, from any source whatsoever, now or
hereafter transferred to and comprising the
Financial Accounts, including, without
limitation, all proceeds of the Collateral
paid into the Financial Accounts and any and
all interest and dividends and other income
dividend from any such moneys and all
certificates and instruments in or
representing the Financial Accounts now or
hereafter existing;
(vi) All documents (as such term is defined in
the UCC) or other receipts covering,
evidencing or representing goods, now owned
or hereafter acquired by the Company; and
(vii) All patents, patent applications and
patentable inventions now or hereafter
existing, including, without limitation,
each patent and patent application
identified in Schedule I to the Intellectual
Property Security Agreement and made a part
hereof, and including without limitation (A)
all inventions and improvements described
and claimed therein, (B) the right to sue or
otherwise recover for any and all past,
present and future infringements and
misappropriations thereof, (C) all income,
royalties, damages and other payments now
and hereafter due and/or payable with
respect
3
<PAGE> 5
thereto (including, without limitation,
payments under all licenses entered into in
connection therewith, and damages and
payments for the past and future
infringements thereof), and (D) all rights
corresponding thereto throughout the world
and all reissues, divisions, continuations,
continuations-in-part, provisionals,
substitutes, renewals, and extensions
thereof, all improvements thereon and all
other rights of any kind whatsoever of the
Company accruing thereunder or pertaining
thereto (the "Patents");
(viii) All trademarks, service marks, trade names,
trade dress or other indicia of trade
origin, trademark and service mark
registrations, and applications for
trademark or service mark registrations and
any renewals thereof now or hereafter
existing, including, without limitation,
each registration and application identified
in Schedule II to the Intellectual Property
Security Agreement and made a part hereof,
and including without limitation (A) the
right to sue or otherwise recover for any
and all past, present and future
infringements and misappropriations thereof
(B) all income, royalties, damages and other
payments now and hereafter due and/or
payable with respect thereto (including,
without limitation, payments under all
licenses entered into in connection
therewith, and damages and payments for past
or future infringements thereof), and (C)
all rights corresponding thereto throughout
the world and all other rights of any kind
whatsoever of the Company or accruing
thereunder or pertaining thereto, together
in each cash with the good will of the
business connected with the use of, and
symbolized by, each such trademark, service
mark, trade name, trade dress or other
indicia of trade origin (the "Trademarks");
(ix) All copyrights, whether statutory or common
law, and whether or not the underlying works
of authorship have been published, and all
works of authorship and other intellectual
property rights therein, all copyrights of
works based on, incorporated in, derived
from or relating to works covered by such
copyrights, all right, title and interest to
make and exploit all derivative works based
on or adopted from works covered by such
copyrights, and all copyright registrations
and copyright applications, and any renewals
or extensions thereof, including, without
limitation, each copyright registration and
copyright application, if any, identified in
Schedule I to the Intellectual Property
Security Agreement and made a part hereof,
and including now or hereafter existing,
without limitation, (A) the right to print,
publish and distribute any of the foregoing,
(B) the right to sue or otherwise recover
for any and all past, present and future
infringements and misappropriations thereof,
(C) all income, royalties, damages and other
payments now and hereafter due and/or
payable with respect thereto (including,
without limitation, payments under all
licenses
4
<PAGE> 6
entered into in connection therewith, and
damages and payments for past or future
infringements thereof), and (D) all rights
corresponding thereto throughout the world
and all other rights and any kind whatsoever
of the Company accruing thereunder or
pertaining thereto (the "Copyrights");
(x) All license agreements with any other person
in connection with any of the Patents,
Trademarks or Copyrights, or such other
person's patents, trade names, trademarks,
service marks or copyrights, whether the
Company is a licensor or licensee under any
such license agreement, including now or
hereafter existing, without limitation, the
license agreements listed on Schedule II to
the Intellectual Property Agreement Security
attached hereto and made a part hereof,
subject, in each case to the terms of such
license agreements, including, without
limitation, terms requiring consent to a
grant of security interest, and any right to
prepare for sale, sell and advertise for
sale, all Inventory (as defined in the
Security Agreement) now or hereafter owned
by the Company and now or hereafter covered
by such licenses (the "Intangible
Licenses"); and
(xi) All products and proceeds of any and all of
the foregoing Collateral now or hereafter
existing including without limitation,
proceeds which constitute Assets of the type
described in clauses (i) through and
including (x) and to the extent not
otherwise included, all (A) payments under
insurance (whether or not the Secured Party
is the loss payee thereof), or any
indemnity, warranty or guaranty, payable by
reason of loss or damage to or otherwise
with respect to any of the foregoing
Collateral, license royalties and (B) cash.
(b) The Security Interests and Liens granted hereunder shall
be treated as (i) a first priority perfected security interest in all the
existing and future Assets of the Company, and its Subsidiaries (including but
not limited to the Collateral set forth in Section 1(a) and any Assets or After
Acquired Collateral), other than (A) the Akzo Security Interest Collateral set
forth on Schedule A attached hereto and with respect thereto, a second priority
perfected security interest until such time as payment in full of the Debt
underlying the Akzo Security Interest Collateral has been made and at such time,
a first priority perfected security interest in the Akzo Security Interest
Collateral, (B) the Excluded Equipment subject to (y) the receipt of the consent
(which the Company shall use its best efforts to obtain) of Transamerica
Business Credit Corporation ("Transamerica") to the grant of a second priority
perfected Security Interest therein and (z) upon termination of any Security
Interest by Transamerica, in which case the Holders shall automatically retain a
first priority perfected Security Interest in the Excluded Equipment,, and (C)
the Receivables secured by the Receivables Facility, but only during such time
as the Receivables Facility is existing, and a second priority perfected
Security Interest in all such Receivables, and a first priority perfected
security interest in all other Receivables; and (ii) a pledge of all the issued
and outstanding Capital Stock of the Subsidiaries of the Company. For
5
<PAGE> 7
purposes of this Section 1(b) the "Receivables Facility" and "Subsidiaries"
shall have the meanings set forth in the Purchase Agreement.
(c) Until the Obligations shall have been satisfied in full
and this Agreement shall have been terminated, the Company and its Subsidiaries
(as defined in the Purchase Agreement), shall not, without the Holders' prior
written consent, which consent will not be unreasonably withheld, create, incur
or assume any pledge, sale, license or assignment of any of the Collateral or
the After Acquired Collateral, or grant, convey or hypothecate any interest in
the Collateral or the After Acquired Collateral, or take any action the effect
of which is to have created any Lien, encumbrance, claim, charge, preference,
priority or other restriction on the Collateral or the After Acquired
Collateral.
(d) Certain Definitions.
All terms not otherwise defined in this Section 1 or the
Purchase Agreement, or the Notes or any Ancillary Agreement shall have their
respective meanings, if any, in the UCC as in effect in the State of New York.
"Accounts Receivable" has the meaning specified in Section
1(a)(iii) and, to the extent not otherwise described therein, (i) all accounts
(other than accounts generated from the sale or other disposition of any
Collateral of the type described in Section 1(a) clauses (i), (iv), (vi), (vii),
(viii), (ix) and (x)), (ii) all of the rights of the Company Parties to payment
for any goods or services sold by it, whether now in existence or arising from
time to time hereafter, including, without limitation, rights evidenced by an
account, note, contract, security agreement, chattel paper or other evidence of
indebtedness or security (in each case in respect of such goods or services) and
rights to payment of any interest, finance charges or other obligations with
respect thereto (all of the foregoing payments for the purposes of this
paragraph, "Payments"), in each case together with (A) all security pledged,
assigned, hypothecated or granted to or held by the Company Parties (in each
case in respect of such goods or services) to secure Payments, (B) all of the
right, title and interest of the Company Parties in and to any goods, the sale
of which gave rise to Payments to the extent of the Company Parties' interest in
such goods after such sale, (C) all proceeds thereof, (D) all insurance and
claims for insurance effected or held for the Company Parties in respect of
Payments or such goods, (E) all guarantees of any of the foregoing, (F) all
records, ledger cards and invoices of the Company Parties relating to any of the
foregoing, and (G) all credit information, reports and memoranda relating to any
of the foregoing) and (iii) all documents, books, log books, records, ledger
cards, invoices, correspondence, files, tapes, cards, and computer programs,
computer runs, computer stored data, computer print-outs, disks, data processing
software and relating to all Assets and rights of the type described above in
this definition.
"Assets" has the meaning specified in the Purchase Agreement.
"Collateral Account" means a separate custodial account or
accounts maintained by the Holders of the Notes pursuant to this Agreement.
6
<PAGE> 8
"Contracts" has the meaning specified in Section 1(a)(iii) and
(vi), and to the extent not otherwise described therein, all those contracts and
agreements (including, without limitation, insurance policies, franchise,
management and employment agreements) to which any Company Party is a party or
is bound or from which any Company Party is a party or is bound or from which
such Company Party derives a benefit, and shall include, without limitation, all
rights to terminate, perform, compel performance, exercise remedies and all
rights to receive Inventory, Equipment, services and proceeds of any insurance,
indemnity, warranty or guaranty.
"Copyrights" has the meaning specified in Section 1(a)(ix) and
includes the items listed under "Copyrights" on Schedule I to the Intellectual
Property Security Agreement.
"Equipment" has the meaning specified in Section 1(a)(i), and
to the extent not otherwise described therein, all goods, other than Inventory,
and, in any event, shall include, but shall not be limited to, all equipment,
machinery, furniture, furnishings, fixtures, aircraft, computer equipment,
computer hardware, tools and vehicles, together with all attachments,
components, parts, accessories and accessions installed thereon or affixed
thereto, but excluding all Excluded Equipment.
"Excluded Equipment" means the equipment listed on Schedule B,
together with all attachments, components, parts, accessories and accessions
installed thereon or affixed thereto.
"Financial Accounts" has the meaning specified in Section
1(a)(v), and to the extent not otherwise described therein, all right, title and
interest of Company Parties in all deposit, investment or other accounts
maintained with any bank, savings and loan association, broker, brokerage, or
any other financial institution, together with all monies and other Assets
deposited or held therein, including, without limitation, any checking account,
NOW account, savings account, escrow account, savings certificate and margin
account, the Interest Escrow Accounts, the Funded Commitment Facility Escrow
Accounts and the Collateral Accounts. The Company Parties hereby grant a lien on
and assigns to the Holders each such Financial Account, whether or not such lien
or assignment is subject to the UCC.
"Funded Commitment Facility Escrow Accounts" means a separate
custodial escrow account or accounts maintained by the Company for the benefit
of the Holders of the Notes pursuant to the Funded Commitment Facility Escrow
Agreement.
"General Intangibles" has the meaning specified in Section
1(a)(iii), (vii), (viii), (ix) and (x) and to the extent not otherwise described
therein, all general intangibles, and, in any event, shall include, but not be
limited to, all rights to receive Inventory or goods that will become Inventory,
all general intangibles arising from the sale, loan, exchange or other
disposition of goods or general intangibles and all general intangibles arising
from the furnishing of services, all rights under or to any franchises, Patents,
Patent applications, know-how, inventions (whether or not patentable), Marks and
the goodwill of the business symbolized thereby, copyrights and any registration
or application relating thereto, all licenses (whether any Company Party is
licensee or licensor thereunder) but only to the extent that such licenses do
not
7
<PAGE> 9
prohibit the Company Parties' granting of a security interest therein or a valid
written consent to assignment or pledge has been obtained from the licensor
thereunder, all tax refunds, tax refund claims, guaranty claims, all judgments,
chooses in action and all computer software, computer programs and all general
intangibles which represent the right to receive money and all interests of the
Company Parties in any partnerships in which any of them is a general or limited
partner.
"Interest Escrow Accounts" mean a separate custodial escrow
account or accounts maintained by the Company, for the benefit of the Holders of
the Notes pursuant to the Interest Escrow Security Agreement.
"Inventory" has the meaning specified in Section 1(a)(ii) and
to the extent not otherwise described therein, all inventory of every type or
description (other than inventory subject to purchase money security interests)
and all documents covering such inventory, including, but not limited to, all
goods, merchandise and other personal Assets, held for sale, lease or exchange,
or which are furnished or are to be furnished under contracts of service, in
each case whether such goods, merchandise or other personal Assets are on
consignment, or which constitute raw materials, work in process or materials
used or consumed or to be used or consumed in the Company Parties' businesses,
or in the processing, packaging or shipping of the same, and all finished goods.
"Leases" has the meaning specified in Section 1(a) (iv) and to
the extent not otherwise described therein, any and all leasehold interests of
the Company Parties in real or personal Assets, whether any Company Party is
lessor or lessee thereunder, and any other such leasehold interests created
hereafter.
"Patents" has the meaning specified in Section 1(a)(vii) and
includes the items listed under the heading "patents" on Schedule I to the
Intellectual Property Security Agreement.
"Permitted Lien" means (i) Liens for taxes, assessments or
governmental charges or levies not delinquent or which any Company Party is in
good faith and by appropriate proceedings contesting and for which an adequate
reserve has been established in accordance with GAAP, (ii) deposits, pledges or
other items to secure obligations under workers' compensation, social security
or similar laws, or under employment insurance, (iii) indemnity, performance or
other similar bonds or deposits, pledges or other items to secure bids, tenders,
contracts (other than contracts for the payment of money), statutory
obligations, surety and appeal bonds and other obligations of like nature, in
each case arising in the ordinary course of business, (iv) interests of
landlords or other lessors under leases of real or personal Assets, (v)
statutory Liens of landlords and mechanics', workmen's, materialmen's, carrier's
or warehousemen's or other like Liens arising in the ordinary course of business
with respect to obligations which are not due or which any Company Party is in
good faith and by appropriate proceedings contesting and for which an adequate
reserve has been established in accordance with GAAP, (vi) Liens securing
purchase money Debt incurred to finance the acquisition of the Assets encumbered
by such Liens, (vii) rights of tenants, subtenants, franchisees or parties in
possession (other than a debtor-in-possession, trustee in bankruptcy or
receiver) if such rights were granted in the ordinary course of business and
vested on or before the date hereof or created
8
<PAGE> 10
thereafter in the ordinary course of business, (viii) interests of any customer
who has purchased goods that are held by any Company Party until delivery is
requested by such customer, (ix) Liens of any third party in insurance premiums
returned to any Company Party, which Liens secure loans by such third party to
the Company for the purpose of purchasing the insurance to which such premium
relates, (x) extensions, renewals or replacements of any Lien referred to in
paragraphs (i) through (ix) above, provided that any such extension, renewal or
replacement is granted in the ordinary course of business and limited to the
Assets originally encumbered thereby and (xi) Laws with respect to any Company
Parties' Assets and any amendments thereto now or at any time hereafter adopted
by any governmental or quasi-governmental authority having jurisdiction.
"Real Property" has the meaning specified in Section 1(a)(iv).
"Required Holders" has the meaning specified in the Purchase
Agreement.
"Trademarks" has the meaning specified in Section 1(a)(viii),
and to the extent not otherwise described therein, all trademarks, tradenames
and service marks, including, without limitation, those listed on Schedule II to
the Intellectual Property Security Agreement, which are registered in the United
States Patent and Trademark Office, any office of any state or any other
governmental authority, or in any country and all licenses of trademarks,
tradenames and service marks, as well as any unregistered marks used by any
Company Party in the United States and elsewhere, including any logos and/or
designs used in connection with any such trademarks, tradenames or service marks
and all registrations, recordings and applications for registration thereof;
Section 2. Representations, Warranties and Covenants. Each Company
Party hereby represents and warrants, covenants and agrees, with respect to
itself, that:
(a) Each Company Party owns each item of Collateral pledged by
it hereunder, and such Collateral is and shall at all times be free and clear of
any security interest, mortgage, hypothecation, pledge, lien or encumbrance or
restriction on the transfer thereof, except for (i) the Security Interests
created under this Security Agreement and the other Security Documents, (ii) the
Liens and encumbrances listed on Schedule C attached hereto (the "Existing
Liens") and (iii) Permitted Liens. Each Company Party shall pay and discharge,
or cause to be paid and discharged, when due and payable, all amounts secured by
any of the Existing Liens or Permitted Liens. Each Company Party shall maintain,
preserve and protect the security interests granted by it hereunder for as long
as this Security Agreement shall remain in full force and effect.
(b) Schedule D hereto sets forth as of the date hereof each
city, state and county where each Company Party has a place of business
(including each Company Party's chief executive office and principal place of
business) and each additional county and state where any Asset of each Company
Party is located.
(c) The information set forth in Schedules C and D attached
hereto is true, complete and correct as of the date hereof.
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<PAGE> 11
(d) Each Company Party will not (i) keep Collateral or After
Acquired Collateral in any State in which financing statements have not
theretofore been filed in a manner sufficient to perfect under the UCC of such
State the Security Interests in the Collateral and the After Acquired Collateral
granted hereby, or (ii) change its name or change its chief executive office or
places of business from that shown in Schedule D, unless the Company Party (A)
gives notice to the Required Holders of such event, (B) does the appropriate
filing or other action necessary to perfect the Liens of the Holders on the
Collateral and the After Acquired Collateral and (C) delivers an Officers'
Certificate to the Required Holders stating that its obligations under Section
2(d)(B) have been fulfilled and setting forth the actions taken to comply with
such section.
(e) Each Company Party will maintain or cause to be maintained
at its expense, with financially sound and reputable insurers having a claims
paying ability of "A" or better by Standard & Poor's ("S&P") or Moody's Investor
Service, Inc. ("Moody's") insurance with respect to the Collateral and After
Acquired Collateral against loss or damage of the kinds customarily insured
against by corporations of established reputations engaged in the same or
similar business and similarly situated as such Company Party, of such types and
in such amounts as are customarily carried under similar circumstances by such
other corporations and with such deductible amounts as are customary for
companies in similar businesses similarly situated. Each Company Party will
cause the Holders to be named as an additional insured and loss payee, as its
interests may appear, under all present or future policies of insurance that
insure any of the Collateral or After Acquired Collateral. Each Company Party
will cause all policies of insurance to (i) provide that insurance proceeds with
respect to the Collateral or After Acquired Collateral shall be adjusted with
such Company Party (which shall give notice of any such loss to the Holders)
prior to a Default in payment of any Note or an Event of Default, other than an
Event of Default related to the failure to pay principal of any Note, and, on
and after a Default in payment of principal of any Note or an Event of Default,
other than an Event of Default related to the failure to pay principal of any
Note, shall be adjusted with, and payable to, the Holders and (ii) include
waivers by the insurer of all claims for insurance premiums against the Holders.
Each Company Party shall use its best efforts to obtain insurance that provides
that any losses shall be payable to the Holders, notwithstanding any act,
failure to act or negligence of, or violation of warranties, declarations or
conditions contained in such policy by, such Company Party or Holders. Insurance
policies required to be obtained hereunder shall contain an agreement by the
insurer that it will not cancel such policy except after 30 days' prior notice
to the Required Holders. Each Company Party shall deliver to the Holders
originals of such policies of insurance or certificates evidencing such
policies, together with the evidence of payment (which evidence may be an
Officers' Certificate of such Company) of all premiums then due thereon and such
Company Party shall, at least five days prior to the expiration of any such
insurance, deliver other original policies or other certificates of the insurers
evidencing the renewal of such insurances. Should any Company Party fail to
effect, maintain or renew any insurance provided for in this Section, or to pay
the premium therefor, or to deliver to the Holders any of such policies or
certificates, then in any of said events each Holder, at its option, but without
obligation so to do, may, upon 10 days' notice to such Company Party procure
such insurance. Any sums expended by the Holders to procure such insurance shall
be repaid by such Company Party within 10 days following the date on which such
expenditure shall be made by the Holders. Each Company Party annually will
deliver to the Holders a letter from an insurance broker with whom such Company
Party regularly conducts its business with respect to insurance
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setting forth the insurance obtained pursuant to this Section 2(e) and then in
effect and stating whether, as to amounts, coverage and provisions, such
insurance protects such Company Party against any and all risks that are
customarily insured against by companies in similar businesses similarly
situated. Such letter shall also set forth any recommendation of such
independent insurance broker as to additional insurance, if any, required in
order to make insurance coverage of the Collateral consistent with practice
regarding insurance coverage in the Company Party's industry. Upon notice of a
Default in payment of principal of any Note or an Event of Default, other than
an Event of Default in payment of principal of any Note, the Holders, (i) may,
(ii) upon notice from the Required Holders shall and (iii) shall, in any event,
upon acceleration of the Obligations in accordance with Section 6 of the Notes,
send written notice to all insurers for which it has received policies of
insurance or certificates evidencing such policies informing them of the
occurrence of such Default or Event of Default and instructing them to adjust
all claims as set forth above until such insurers are notified to the contrary
by the Required Holders. If such Event of Default is cured or waived prior to
acceleration of any Obligations, the Required Holders shall advise such insurers
to adjust claims with the Company Party.
(f) Each Company Party, at its own expense: (i) will do all
acts and things, and will make, execute, acknowledge and deliver, and file and
record in the proper filing and recording places all such instruments
(including, without limitation, mortgages, assignments, security agreements,
financing statements and continuation statements), required (and any that are
reasonably requested by the Holders) to establish, perfect, maintain and
continue the perfection and priority of the Security Interests of the Holders in
the Collateral and the After Acquired Collateral, in the order of priority as
described in Section 1(b), and, in addition, authorizes the Holders to execute
and file in the name of the Holders any financing or continuation statements
that the Holders may determine to be necessary or advisable to protect their
security interests with respect to the Collateral and the After Acquired
Collateral; (ii) will make all searches necessary (and any deemed necessary by
the Holders) to establish and determine the validity and priority of such
Security Interests of the Holders; provided, however, that, so long as no Event
of Default has occurred and is continuing, the Company Party shall not be
required to make any search in any location more frequently than once a year;
and (iii) will satisfy all claims and charges, other than Permitted Liens and
Existing Liens, that might reasonably be expected to materially prejudice,
imperil or otherwise adversely affect the Collateral or the After Acquired
Collateral or affect the existence, perfection or priority of such Security
Interests. A carbon, photographic or other reproduction of this Security
Agreement or a financing statement shall be sufficient as a financing statement
and may be filed in lieu of the original in any or all jurisdictions which
accept such reproductions. Each Company Party, at its own expense, will cause
any New Subsidiaries (as defined in the Purchase Agreement), to do all acts and
things required to comply with the protection and perfection of the Holders'
Security Interest under this Section 2(f), in accordance with the provisions of
Section 1(b).
(g) Neither the execution and delivery of this Security
Agreement by the Company Party, the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof violate the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease, instrument or
other document to which any Company Party is a party, or conflict with any Law,
applicable to such Company Party of any court or any government, regulatory body
or administrative agency or other governmental body having jurisdiction over
such Company Party or its Assets, to the extent that such violation or conflict
would have a
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material adverse effect on the financial condition, business, assets,
liabilities or prospects of such Company Party, or on the value of the
Collateral, the After Acquired Collateral or the Security Interests.
(h) No consent or approval that has not been obtained prior to
the date hereof of any governmental body, regulatory authority or securities
exchange was or is necessary as a condition to the validity of the Security
Interests granted hereunder in the Collateral and the After Acquired Collateral
and this Security Agreement is effective to vest in the Holders the rights of
the Holders in the Collateral and the After Acquired Collateral as set forth
herein.
(i) For so long as any of the Notes shall remain outstanding,
the Company Party shall not take any action discharging, canceling,
extinguishing or otherwise impairing the Company Party's right, title and
interest in and to any of the Collateral in contravention of the terms of the
Purchase Agreement, the Notes or any of the Ancillary Agreements.
(j) The Company Party shall pay and discharge any taxes,
assessments and governmental charges and levies against any Collateral and the
After Acquired Collateral prior to delinquency thereof and shall keep all
Collateral and the After Acquired Collateral free of any unpaid charges
whatsoever, unless such charges are being contested in.
Section 3. Administration of the Collateral. The Holders shall
administer the Collateral and the After Acquired Collateral in accordance with
the provisions hereof.
Section 4. Release and Substitution of Collateral. The Collateral and
the After Acquired Collateral shall not be released from the Security Interests
created hereunder and no Assets shall be substituted for any of the Collateral
except in accordance with the provisions of Article V of the Purchase Agreement,
which provisions are hereby incorporated herein by reference.
Section 5. Default; Remedies.
(a) Defined. For purposes of this Security Agreement, the
terms "Default" and "Event of Default" shall have the respective meanings
provided in the Notes and shall include an event that with the lapse of time or
the giving of notice, or both, would constitute an Event of Default.
(b) Exercise of Remedies Under the Security Agreement. If a
Default in payment of any Obligations shall have occurred or any Event of
Default shall have occurred and be continuing, or would result therefrom, the
Holders may commence the taking of such actions (or refrain from taking actions)
toward collection or enforcement of this Security Agreement and the Collateral
or After Acquired Collateral (or any portion thereof), including, without
limitation, action toward foreclosure upon any Collateral or After Acquired
Collateral, as it deems appropriate in its sole discretion or as instructed by
the Required Holders. If any such Default or Event of Default that was the basis
for the commencement of such action shall have been cured or waived, and, in the
case where there has been an acceleration, recession of such acceleration shall
have occurred, in each case in accordance with the terms of the Purchase
Agreement, the Notes, or any of the Ancillary Agreements, as applicable, any
direction to the Holders to take
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<PAGE> 14
any action in connection with the aforementioned notice shall be deemed
rescinded upon notification by the Holders of such cure, waiver or rescission of
acceleration, as the case may be.
(c) Remedies Generally. If a Default in the payment of any Obligations shall
have occurred or any Event of Default shall have occurred and be continuing or
would result therefrom, the Holders or by agents or attorneys may exercise in
respect of the Collateral or After Acquired Collateral all of the rights and
remedies set forth herein or otherwise available to a secured party upon Default
under any applicable provision of the UCC or any other applicable jurisdiction
and, in conjunction with or in addition to such rights and remedies, may
themselves or by agents or attorneys retain the Collateral or the After Acquired
Collateral or sell, assign, transfer, or dispose of, endorse and deliver the
whole or, from time to time, any part of the Collateral or the After Acquired
Collateral at public or private sale, for cash, upon credit or for other Assets,
for immediate or future delivery, and for such price or prices and on such other
terms as are satisfactory to the Holders (in their discretion) without liability
for loss or damage. Upon consummation of any such sale, the Holders shall have
the right to assign, transfer, endorse and deliver to the purchaser or
purchasers thereof the Collateral or After Acquired Collateral so sold. Each
such purchaser at any such sale shall hold the Assets sold absolutely free from
any claim or right on the part of any Company Party, and each Company Party
hereby waives (to the full extent permitted by law) all rights of redemption,
stay or appraisal which such Company Party now has or may at any time in the
future have under any rule of law or statute now existing or hereafter enacted.
The Holders shall give such Company Party ten days' written notice (which each
Company Party agrees shall be deemed to be reasonable notification within the
meaning of Section 9-504(3) of the relevant UCC) of the Holder's intention to
make any such public or private sale. Any such sale shall be held at such time
or times and at such place or places as the Holders may fix. At any such sale,
the Collateral or After Acquired Collateral, or portion thereof to be sold, may
be sold as an entirety or in separate portions, as the Holders may, in their
discretion, determine. The Holders shall not be obligated to make any sale of
the Collateral or After Acquired Collateral if it shall determine not to do so,
regardless of the fact that notice of sale of the Collateral or After Acquired
Collateral may have been given. The Holders may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. In case sale of all or any part of the Collateral or After Acquired
Collateral is made on credit or for future delivery, the Collateral or After
Acquired Collateral so sold may be retained by the Holders until the sale price
is paid by the purchaser or purchasers thereof, but the Holders shall not incur
any liability in case any such purchaser or purchasers shall fail to take up and
pay for the Collateral or After Acquired Collateral so sold and, in case of any
such failure, such Collateral may or After Acquired Collateral be sold again
upon like notice. As an alternative to exercising the power of sale herein
conferred upon it, the Holders may proceed by suit or suits at law or in equity
to foreclose this Security Agreement and sell the Collateral or After Acquired
Collateral or any portion thereof pursuant to judgment or decree of a court or
courts having competent jurisdiction. Any of the Collateral or After Acquired
Collateral may be sold, leased or otherwise disposed of, in the condition in
which the same existed when taken by the Holders or after any overhaul or repair
that the Holders shall determine to be commercially reasonable. If, under
mandatory requirements of applicable law, the Holders shall be required to make
disposition of the Collateral or After Acquired Collateral within a period of
time that does not permit the giving of notice to a Company Party as provided
herein, the Holders need give
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<PAGE> 15
such Company Party only such notice of disposition as shall be reasonably
practicable in view of such mandatory requirements of law.
(d) Remedies; Obtaining the Collateral Upon Default. Each
Company Party agrees that, if a Default or Event of Default shall have occurred
and be continuing, or would result therefrom then and in every such case, and in
addition to the rights and remedies available to a secured party under any
applicable provisions of the Uniform Commercial Code, or any other applicable
law, the Holders, may:
(i) personally, or by agents or attorneys,
immediately take possession of the
Collateral or After Acquired Collateral or
any part thereof from such Company Party or
any other person who then has possession of
any part thereof, with or without notice or
process of law, and for that purpose may
enter upon such Company Party's premises
where any of the Collateral or After
Acquired Collateral is located and remove
the same and use in connection with such
removal any and all services, supplies, aids
and other facilities of such Company Party;
(ii) instruct the obligor or obligors on any
agreement, instrument or other obligation
constituting Collateral or After Acquired
Collateral to make any payment or render any
performance required by the terms of such
agreement, instrument or obligation directly
to the Holders or their designee;
(iii) withdraw all monies, securities and
instruments held by the Holders in any
Financial Account (including but not limited
to the Collateral Account, the Interest
Escrow Accounts or the Funded Commitment
Facility Escrow Accounts), or otherwise for
application to the Obligations;
(iv) sell or otherwise liquidate, or direct such
Company Party to sell or otherwise
liquidate, any or all investments made in
whole or in part with the Collateral or
After Acquired Collateral or any part
thereof, and take possession of the proceeds
of any such sale or liquidation; and
(v) take possession of the Collateral or After
Acquired Collateral or any part thereof by
directing such Company Party in writing to
deliver the same to the Holders at any place
or places designated by the Required
Holders, in which event such Company Party
shall at its own expense:
(A) forthwith cause the same to be
moved to the place or places so
designated by the Agent and there
delivered to the Holders;
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(B) store and keep any Collateral or
After Acquired Collateral so
delivered to the Holders at such
place or places pending further
action by the Required Holders as
provided in this Section 5(d); and
(C) while any such Collateral or After
Acquired Collateral shall be so
stored and kept, provide such guard
and maintenance services as shall
be necessary to protect the same
and to preserve and maintain such
Collateral or After Acquired
Collateral in good condition;
it being understood that such Company Party's obligation so to deliver
the Collateral or the After Acquired Collateral is of the essence of
this Security Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Holders shall be entitled to a
decree requiring specific performance by such Company Party of such
obligation.
(e) Collateral Account. The Required Holders shall deposit the
proceeds of any Collateral or the After Acquired Collateral obtained or disposed
of pursuant to this Section 5 in the Collateral Account.
(f) Intellectual Property Collateral. The Holders may exercise
in respect of the Intellectual Property Collateral (as that term is defined in
the Intellectual Property Security Agreement), in addition to other rights and
remedies provided for herein or otherwise available to it, all the rights and
remedies of a secured party upon Default under the N.Y. Uniform Commercial Code,
and may also (i) require the Company or any of its Subsidiaries to, and the
Company and each of its Subsidiaries hereby agree that they will, at their
expense, and upon the request of any Holder forthwith, assemble all or part of
the documents and things embodying all or any part of the Intellectual Property
Collateral as directed by the Holders and make them available to the Holders at
a place and time to be designated by the Holders which is reasonably convenient
to the parties and (ii) without notice, except as specified below, sell the
Intellectual Property Collateral or any part thereof in one or more parcels at
public or private sale, at any of the Holder's offices or elsewhere, for cash,
on credit or for future delivery, and upon such other terms as the Holders may
deem commercially reasonably. In the event of any sale, assignment, or other
disposition of any of the Intellectual Property Collateral of the Companies or
any of its Subsidiaries, the goodwill of the business connected with and
symbolized by any Trademarks subject to such disposition shall be included and
the Company and its Subsidiaries, as the case may be, shall supply to the
Holders the Company's and its Subsidiaries', as the case may be, know-how and
expertise, and documents and things embodying the same, relating to the
manufacture, distribution, advertising and sale of the products or the provision
of services relating to any Intellectual Property Collateral subject to such
disposition, and the Company's and its Subsidiaries', as the case may be,
customer lists and other records and documents relating to the Intellectual
Property Collateral and to the manufacture, distribution, advertising and sale
of such products and services. The Company and its Subsidiaries agree that, to
the extent notice of sale shall be required by law, at least ten days' notice to
the Company and its Subsidiaries, as the case may be, of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. The Holders shall not be obligated to make
any
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<PAGE> 17
sale of the Intellectual Property Collateral regardless of notice having been
given. The Holders may adjourn the public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
(g) Preventing Impairment of the Collateral. Regardless of
whether there shall have occurred any Default or Event of Default, the Holders
may institute and maintain or cause in the name of each Company Party or of the
Required Holders, or both, to be instituted or maintained, such suits and
proceedings as the Required Holders may be advised by counsel shall be necessary
or expedient to prevent any impairment of the Collateral or After Acquired
Collateral in contravention of the terms hereof or of the Purchase Agreement,
the Notes or any Ancillary Agreements.
Section 6. Holders Appointed Attorney-in-Fact. Each Company Party
hereby constitutes and appoints the Holders their attorney-in-fact for all
Collateral for the purpose of carrying out the provisions, but subject to the
terms and conditions, of this Security Agreement and taking any action and
executing any instrument, including, without limitation, any financing
statements or continuation statements, and taking any other action to maintain
the validity, perfection and enforcement of the Security Interests intended to
be created hereunder, that the Holders may deem necessary or advisable to
accomplish the purposes hereof, which appointment is irrevocable and coupled
with an interest.
Section 7. Purchase of Collateral by Required Holders. At any sale of
the Collateral or After Acquired Collateral, whether pursuant to power of sale
or otherwise hereunder, any Holder of the Notes may, to the extent permitted by
applicable law, bid for and purchase, free from any right of redemption, stay or
appraisal (all such rights being hereby waived and released by each Company
Party to the extent permitted by law), the Collateral or After Acquired
Collateral or any party thereof or any interest therein and upon compliance with
the terms of such sale may hold, retain, exploit, resell or otherwise dispose of
such Assets without further accountability to the Company Party for the proceeds
of such sale. Each Company Party will execute and deliver, or cause to be
executed and delivered, such instruments, endorsements, assignments, waivers,
certificates and other documents and take such further action as the Holder of
the Notes shall reasonably request in connection with any such sale.
Section 8. Disposition of Proceeds. The proceeds of any sale or other
disposition of the whole or any part of the Collateral or After Acquired
Collateral by the Holders pursuant to this Security Agreement, together with any
other monies held by the Holders pursuant to this Security Agreement, shall be
applied by the Holders in accordance with the provisions of the Notes.
Section 9. Waiver of Claims. Except as otherwise provided in this
Security Agreement, EACH COMPANY PARTY HEREBY WAIVES, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH THE REQUIRED
HOLDERS' TAKING POSSESSION OR THE REQUIRED HOLDERS' DISPOSITION OF ANY OF THE
COLLATERAL IN ACCORDANCE WITH THE TERMS HEREOF. THE PURCHASE AGREEMENT, THE
NOTES, AND ANY ANCILLARY AGREEMENTS INCLUDING, WITHOUT LIMITATION, ANY AND ALL
PRIOR NOTICES
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<PAGE> 18
AND HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE
COMPANY PARTY WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, and, to the fullest extent permitted by
applicable law, each Company Party hereby further waives:
(a) all damages occasioned by such taking of possession except
any damages that are the direct result of the Holders' gross negligence, bad
faith or willful misconduct; and
(b) all other requirements as to the time, place and terms of
sale or other requirements with respect to the enforcement of the Holders'
rights and powers hereunder.
Any sale of, or the exercise of any options to purchase, or
any other realization upon, any Collateral or After Acquired Collateral shall
operate to divest all right, title, interest, claim and demand, at law or in
equity, of the Company Party therein and thereto, and shall be a perpetual bar
both at law and in equity against the Company Party and against any and all
persons claiming or attempting to claim the Collateral or After Acquired
Collateral so sold, optioned or realized upon, or any part thereof, through and
under such Company Party.
Section 10. Remedies Cumulative; No Waiver. Each right, power and
remedy of the Holders provided for herein, in the Purchase Agreement, the Notes
and any Ancillary Agreement or in another agreement pursuant to which a Lien is
created in favor of any Holder, or now or hereafter existing at Law or in
equity, by statute or otherwise, shall be cumulative and concurrent and shall be
in addition to every other right, power or remedy of any Holder provided for
herein, in the Purchase Agreement, the Note or in any other Ancillary Agreement
or in another agreement pursuant to which a Lien is created in favor of any
Holder or now or hereafter existing at Law or in equity, by statute or
otherwise. No failure on the part of any Holder to exercise, and no delay in
exercising, any right, power or remedy hereunder or under any such other
agreement or now or hereafter existing at Law or in equity, by statute or
otherwise, shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on any Company Party hereunder shall, of itself, entitle it to any
other or further notice or demand in the same, similar or other circumstances.
Section 11. Additional Collateral. Without notice or consent of any
Company Party and without impairment of the Security Interests and rights
created by this Security Agreement, the Holders may accept from any person or
persons additional Collateral or other security for the Obligations. The
creation of the security interest created hereunder shall not prevent the
Holders from resorting to such additional Collateral or security without
affecting the Holders' rights hereunder. The Holders' acceptance of any such
additional Collateral or security shall not prevent the Holders from resorting
to the Collateral without affecting the Holders' rights in and to such
additional Collateral or the After Acquired Collateral or security.
Section 12. Further Assurances. Each Company Party agrees (a) that it
shall, at its own expense, file or record such notices, financing statements,
continuation statements or other documents as may be necessary to perfect the
Security Interests, and as the Holders may reasonably request, such instruments
to be in form and substance satisfactory to the Holders and (b) that each
Company Party shall, and shall cause all new Subsidiaries (as that term is
defined in
17
<PAGE> 19
the Purchase Agreement), at its own expense, do such further acts and things and
execute and deliver to the Holders such additional conveyances, assignments,
agreements and instruments as the Holders may at any time reasonably request in
connection with the administration and enforcement of this Security Agreement or
relative to the Collateral or the After Acquired Collateral or any part thereof
or in order to assure and confirm unto the Holders, their rights, powers and
remedies hereunder.
Section 13. Expenses and Indemnification.
(a) Expenses. The Company Parties agree to pay to the Holders
from time to time upon demand, all reasonable fees, costs and expenses of the
Holders (including, without limitation, the reasonable fees and disbursements of
counsel) (i) arising in connection with the preparation, execution, delivery,
modification or termination of this Security Agreement or the enforcement of any
of the provisions hereof or (ii) incurred or required to be advanced in
connection with the sale or other disposition of any Collateral or After
Acquired Collateral pursuant to this Security Agreement and the preservation,
protection or defense of the Holders' rights under this Security Agreement or in
and to the Collateral or After Acquired Collateral.
(b) Stamp and Other Taxes. The Company Parties hereby agree to
indemnify each Holder for, and hold each of them harmless against, any present
or future claim for liability for any stamp or other similar tax and any
penalties or interest with respect thereto, which may be assessed, levied or
collected by any jurisdiction in connection with this Security Agreement or any
Collateral or After Acquired Collateral.
(c) Filing Fees, Excise Taxes, Etc. The Company Parties hereby
agree to pay or to reimburse the Holders for any and all amounts in respect of
all search, filing, recording and registration fees, taxes, excise taxes and
other similar imposts which may be payable or determined to be payable in
respect of the execution, delivery, performance and enforcement of this Security
Agreement.
(d) Survival of Obligations. The Obligations of the Company
Parties set forth in this Section 13 shall survive the execution, delivery and
termination of this Security Agreement and the payment of all other Obligations.
Section 14. Obligations Absolute. The liability of the Company Parties
under this Security Agreement shall remain in full force and effect without
regard to, and shall not be released, suspended, discharged, terminated or
otherwise affected by (a) any change in the time, place or manner of payment of
all or any of the Obligations, or in any other term of this Agreement or the
Purchase Agreement, any Ancillary Agreement or the Notes, any waiver,
indulgence, renewal, extension, amendment or modification of or addition,
consent or supplement to or deletion from or any other action or inaction under
or in respect of this Agreement or the Purchase Agreement, the Notes or any
Ancillary Agreement or any assignment or transfer thereof; (b) any lack of
validity or enforceability, in whole or in part, of this Agreement or the
Purchase Agreement, any Ancillary Agreement or the Notes; (c) any furnishing of
any additional security for the Obligations or any acceptance thereof or any
release or non-perfection of any Security Interests in the Assets other than the
Collateral or After Acquired Collateral; (d) any limitation on any party's
liability or obligations under this
18
<PAGE> 20
Agreement or the Purchase Agreement, any Ancillary Agreement or the Notes; (e)
any bankruptcy, insolvency, reorganization, composition, adjustment,
dissolution, liquidation or other like proceeding relating to any Company Party,
or any action taken with respect to this Security Agreement by any trustee or
receiver, or by any court, in any such proceeding, whether or not the Company
Party shall have notice or knowledge of any of the foregoing; (f) any exchange,
release or amendment or waiver of or consent to departure from this Agreement,
the Purchase Agreement, the Notes, any Ancillary Agreement or any other
agreement pursuant to which a Lien is created in favor of any Holder, pursuant
to which a person other than the respective Company Party has granted a security
interest; or (g) any other circumstance that might otherwise constitute a
defense available to, or discharge of, any Company Party.
Section 15. Waiver. To the extent permitted by applicable law, each
Company Party hereby waives promptness, diligence, notice of acceptance and any
other notice with respect to any of the Obligations and this Security Agreement
and any requirement that the Holders protect, secure, perfect or insure any
security interest or any Assets subject thereto or exhaust any right or take any
action against the Company Party or any other person or entity; provided,
however, that the Holders shall in any event take such care in the handling of
any Collateral or After Acquired Collateral in its possession as it takes with
respect to the Assets of a similar nature in its possession.
Section 16. Termination. Upon payment in full and satisfaction of all
of the Obligations, this Security Agreement shall terminate and the Holders
shall reassign and redeliver to each Company Party all Collateral and After
Acquired Collateral hereunder that has not been sold, disposed of, retained or
applied by the Holders in accordance with the terms hereof and the Notes. Such
reassignment and redelivery shall be without warranty by or recourse to the
Holders, and shall be at the expense of such Company Party. At such time, this
Security Agreement shall no longer constitute a Lien upon or grant any Security
Interest in any of the Collateral and After Acquired Collateral; and the Holders
shall, at such Company Party's expense, deliver to the Company Party written
acknowledgment thereof and of cancellation of this Security Agreement in a form
as reasonably requested by the Company Party and adequate for proper filing or
recording in such offices and such jurisdictions as the Company Party reasonably
deems necessary to release the Security Interests granted hereby. This Security
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned upon the insolvency, bankruptcy or reorganization of any
Company Party, all as though such payment had not been made.
Section 17. Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery or by registered or certified mail, postage prepaid, return
receipt requested or by nationwide overnight delivery service (with charges
prepaid) addressed as follows:
If to any Company Party:
Intracel Corporation
2005 NW Sammamish Road, Suite 107
Issaquah, Washington 98027
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Attention: Chief Executive Officer
Fax Number: (425) 392-2992
Confirm Number: (425) 557-1894
cc: Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
If to the Holders:
Northstar High Yield Fund
Northstar High Total Return Fund
Northstar High Total Return Fund II
Northstar Strategic Income Fund
300 First Stamford Place
Stamford, Connecticut 06902
Attention: Mr. Michael A. Graves
Fax Number: (203) 862-8601
Confirm Number: (203) 863-6224
cc: Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Karen C. Wiedemann, Esq.
Each party hereto may by notice to the other party designate such additional or
different addresses as shall be furnished in writing by such party. Any notice
or communication to any party shall be deemed to have been given or made as of
the date so delivered, if personally delivered; and three calendar days after
mailing if sent by registered or certified mail (except that a notice of change
of address shall not be deemed to have been given until actually received by the
addressee) or one day after delivery to an overnight express service for next
day delivery, as the case may be. The Company Parties may give notice to the
Holders at the address set forth above, or any different address as shall be
specified for them in the Company's records.
Section 18. Binding Agreement; Assignment. This Security Agreement
shall be binding upon and inure to the benefit of the Company Parties and the
Holders and their respective successors and permitted assigns. Neither this
Security Agreement nor any Interest herein or in the Collateral or After
Acquired Collateral, or any part thereof, may be assigned by the Company
Parties; provided, however, that this Security Agreement may be assigned by a
Company Party and shall be deemed to be automatically assigned by a Company
Party to any person who succeeds to the Company Party, provided however, that
the Company Parties shall not as a result of such assignment be relieved of any
Obligations hereunder or under the Purchase Agreement, the Notes or any
Ancillary Agreements. This Security Agreement shall be deemed to be
automatically assigned by the Holders to any person who succeeds to or replaces
the
20
<PAGE> 22
Holders in accordance with the terms hereof, and its assignee shall have all
rights and powers of, and act as, the Holder hereunder.
Section 19. Governing Law. THE PARTIES HERETO EXPRESSLY ACKNOWLEDGE AND
AGREE THAT, IN ACCORDANCE WITH THE PROVISIONS OF NEW YORK GENERAL OBLIGATIONS
LAW SECTION 5-1401 GOVERNING AGREEMENTS RELATING TO ANY OBLIGATION ARISING OUT
OF A TRANSACTION COVERING IN THE AGGREGATE NOT LESS THAN $250,000, THIS SECURITY
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR THE PERFECTION OF
THE SECURITY INTERESTS HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY
PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN NEW
YORK. TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, THE
PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK
STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY OR ANY FEDERAL
COURT SITTING IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY IN RESPECT OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS SECURITY
AGREEMENT, AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT,
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE PARTIES
HERETO IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, TRIAL BY JURY AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT
IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 20. Amendments. This Security Agreement may not be amended or
modified except by a written agreement signed by the Company and the required
Holders.
Section 21. Severability. In the event that any provision contained in
this Security Agreement shall for any reason be held to be illegal or invalid
under the Laws of any jurisdiction, such illegality or invalidity shall in no
way impair the effectiveness of any other provision hereof, or of such provision
under the laws of any other jurisdiction; provided, that in the construction and
enforcement of such provision under the laws of the jurisdiction in which such
holding of illegality or invalidity exists, and to the extent only of such
illegality or invalidity, this Security Agreement shall be construed and
enforced as though such illegal or invalid provision had not been contained
herein.
Section 22. Headings. Section headings used herein are inserted for
convenience only and shall not in any way affect the meaning or construction of
this Security Agreement.
Section 23. Counterparts. This Security Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of
21
<PAGE> 23
which shall together constitute but one and the same instrument. A complete set
of counterparts shall be lodged with the Holders.
22
<PAGE> 24
IN WITNESS WHEREOF, the Company Parties and the Holders have caused
this Security Agreement to be executed and delivered by their respective
officers thereunto duly authorized as of the date first above written.
INTRACEL CORPORATION
By: /s/ SIMON R. McKENZIE
----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
BARTELS, INC.
By: /s/ SIMON R. McKENZIE
----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
PERIMMUNE HOLDINGS, INC.
By: /s/ SIMON R. McKENZIE
----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
PERIMMUNE, INC.
By: /s/ SIMON R. McKENZIE
----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
----------------------------------
Name: Michael A. Graves
Title: Vice President
23
<PAGE> 25
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
----------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ MICHAEL A. GRAVES
----------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
----------------------------------
Name: Michael A. Graves
Title: Vice President
24
<PAGE> 1
EXHIBIT 10.32
INTELLECTUAL PROPERTY SECURITY AGREEMENT
Among
Intracel Corporation,
Bartels, Inc.,
PerImmune Holdings, Inc. and
PerImmune, Inc.
and
the holders of the 12%
Guaranteed Senior Secured Primary Notes
due August 1, 2003 of
Intracel Corporation
and
the holders of the 12%
Guaranteed Senior Escrow Notes
due August 1, 2003 of
Intracel Corporation
Dated August 25, 1998
<PAGE> 2
INTELLECTUAL PROPERTY SECURITY AGREEMENT
INTELLECTUAL PROPERTY SECURITY AGREEMENT dated August 25, 1998,
among Intracel Corporation, a Delaware corporation (together with its successors
and assigns, the "Company"), the Company's wholly-owned subsidiaries, Bartels,
Inc. ("Bartels"), PerImmune Holdings, Inc. ("Holdings") and PerImmune, Inc.
("PerImmune" and, together with Bartels and Holdings, the "Subsidiaries") and
the holders of the 12% Guaranteed Senior Secured Promissory Notes of the Company
(the "Guaranteed Senior Secured Primary Notes") and the holders of the 12%
Guaranteed Senior Secured Escrow Promissory Notes ("Guaranteed Senior Secured
Escrow Notes") of the Company (collectively, the "Notes") issued pursuant to
that certain Securities Purchase Agreement, dated as of the date hereof, by and
among the Company and the other parties thereto (the "Purchase Agreement"). As
used herein, all capitalized terms not otherwise defined herein shall have the
meanings set forth in the Purchase Agreement.
WITNESSETH:
WHEREAS, the Company is to issue 12% Guaranteed Senior Secured
Primary Promissory Notes in the aggregate original principal amount of
$35,000,000 and 12% Guaranteed Senior Secured Escrow Promissory Notes in the
aggregate original principal amount of $6,000,000;
WHEREAS, in order to secure the performance of the obligations of
the Company under the Purchase Agreement, the Notes and the Ancillary Agreements
(the "Obligations") and the guaranties relating to the Obligations executed on
the date hereof by each of the Subsidiaries, the parties hereto entered into a
Security Agreement as of the date hereof ("Security Agreement") regarding the
terms and conditions of the Company's and Subsidiaries' (together the "Company
Parties") grant of a security interest in the certain Collateral (as defined
therein), including the Intellectual Property Collateral (as defined below) to
the Holders;
WHEREAS, pursuant to and in connection with the Security
Agreement, and also in order to secure the performance of the Obligations and
the guaranties relating to the Obligations, the parties hereto are entering into
this Intellectual Property Security Agreement to confirm and supplement the
terms and conditions of the Company Parties' grant of security interest, as set
forth in the Security Agreement, in the Intellectual Property Collateral (as
defined below) to the Holders;
WHEREAS, unless otherwise defined in this Agreement or in the
Credit Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code
in effect in the State of New York ("N.Y. Uniform Commercial Code") are used in
this Agreement as such terms are defined in such Article 8 or 9.
<PAGE> 3
NOW, THEREFORE, in consideration of the premises and other
benefits to the Company Parties, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Grant of Security. As collateral security for the
payment and performance in full of the Obligations in accordance with their
respective terms, the Company Parties hereby pledge, assign, transfer and grant
to the Holders as to all Intellectual Property Collateral (defined below), a
first priority perfected continuing security interest, except with respect to
certain Intellectual Property Collateral listed on Exhibit A-1 to the Security
Agreement in which Akzo Nobel Pharma International, B.V., as Collateral Agent
under the Intellectual Property Security Agreement dated August 13, 1996 (the
"Collateral Agent"), has a first priority security interest (the "Akzo Security
Interest Collateral"), and with respect to the Akzo Security Interest
Collateral, a second priority perfected security interest until such time as
payment in full of the Debt underlying the Akzo Security Interest Collateral has
been made and, at such time, a first priority perfected security interest in the
Akzo Security Interest Collateral, in all of such Company Party's right, title
and interest in and to the following, whether now owned or hereafter acquired by
such Company Party and whether now or hereafter existing (collectively, the
"Intellectual Property Collateral"):
(a) all patents, patent applications and patentable inventions,
including, without limitation, each patent and patent application
identified in Schedule I attached hereto and made a part hereof, and
including without limitation (i) all inventions and improvements
described and claimed therein, (ii) the right to sue or otherwise
recover for any and all past, present and future infringements and
misappropriations thereof, (iii) all income, royalties, damages and
other payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into
in connection therewith, and damages and payments for past and future
infringements thereof), and (iv) all rights corresponding thereto
throughout the world and all reissues, divisions, continuations,
continuations-in-part, provisionals, substitutes, renewals, and
extensions thereof, all improvements thereon and all other rights of any
kind whatsoever of such Company Party accruing thereunder or pertaining
thereto (the "Patents");
(b) all trademarks, service marks, trade names, trade dress or
other indicia of trade origin, trademark and service mark registrations,
and applications for trademark or service mark registrations and any
renewals thereof, including, without limitation, each registration and
application identified in Schedule II attached hereto and made a part
hereof, and including without limitation (i) the right to sue or
otherwise recover for any and all past, present and future infringements
and misappropriations thereof, (ii) all income, royalties, damages and
other payments now and hereafter due and/or payable with respect thereto
(including, without limitation, payments under all licenses entered into
in connection therewith, and damages and payments for past or future
infringements thereof), and (iii) all rights corresponding thereto
throughout the
-2-
<PAGE> 4
world and all other rights of any kind whatsoever of such Company Party
accruing thereunder or pertaining thereto, together in each case with
the goodwill of the business connected with the use of, and symbolized
by, each such trademark, service mark, trade name, trade dress or other
indicia of trade origin (the "Trademarks");
(c) all copyrights, whether statutory or common law, and whether
or not the underlying works of authorship have been published, and all
works of authorship and other intellectual property rights therein, all
copyrights of works based on, incorporated in, derived from or relating
to works covered by such copyrights, all right, title and interest to
make and exploit all derivative works based on or adopted from works
covered by such copyrights, and all copyright registrations and
copyright applications, and any renewals or extensions thereof,
including, without limitation, each copyright registration and copyright
application, if any, identified in Schedule III attached hereto and made
a part hereof, and including, without limitation, (i) the right to
print, publish and distribute any of the foregoing, (ii) the right to
sue or otherwise recover for any and all past, present and future
infringements and misappropriations thereof, (iii) all income,
royalties, damages and other payments now and hereafter due and/or
payable with respect thereto (including, without limitation, payments
under all licenses entered into in connection therewith, and damages and
payments for past or future infringements thereof), and (iv) all rights
corresponding thereto throughout the world and all other rights of any
kind whatsoever of such Company Party accruing thereunder or pertaining
thereto (the "Copyrights");
(d) all license agreements with any other person in connection
with any of the Patents, Trademarks or Copyrights, or such other
person's patents, trade names, trademarks, service marks or copyrights,
whether such Company Party is a licensor or licensee under any such
license agreement, including, without limitation, the license agreements
listed on Schedule IV attached hereto and made a part hereof, subject,
in each case, to the terms of such license agreements, including,
without limitation, terms requiring consent to a grant of a security
interest, and any right to prepare for sale, sell and advertise for
sale, all Inventory (as defined in the Security Agreement) now or
hereafter owned by such Company Party and now or hereafter covered by
such licenses (the "Licenses"); and
(e) all proceeds of any and all of the foregoing Intellectual
Property Collateral (including, without limitation, proceeds that
constitute property of the types described in clauses (a) - (d) of this
Section 1) and, to the extent not otherwise included, all (i) payments
under insurance (whether or not the Holders are the loss payees
thereof), or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the foregoing
Intellectual Property Collateral, and (ii) cash.
Until the Obligations shall have been satisfied in full and this Agreement shall
have been terminated, the Company and its Subsidiaries (as defined in the
Purchase Agreement), shall
-3-
<PAGE> 5
not, without the Holders' prior written consent, which consent will not be
unreasonably withheld, create, incur or assume any pledge, sale, license or
assignment of any of the Intellectual Property Collateral, or grant, convey or
hypothecate any interest in the Intellectual Property Collateral, or take any
action the effect of which is to have created any Lien, encumbrance, claim,
charge, preference, priority or other restriction on the Intellectual Property
Collateral.
SECTION 2. Security Agreement. The security interest granted
hereby has been granted in conjunction with the security interest granted to the
Holders under the Security Agreement, which this Intellectual Property Security
Agreement supplements. Except as supplemented hereby, the Security Agreement
shall remain in full force and effect in accordance with its terms.
SECTION 3. Confirmation of Security Interest. The Company Parties
hereby confirm that pursuant to the Security Agreement, for good and valuable
consideration, the Company Parties have granted to the Holders a continuing
security interest in and to the Company Parties' entire right, title and
interest in all of the Collateral, including the Intellectual Property
Collateral, that the Company Parties' right, title and interest in the
Collateral is subject to such interest of the Holders and that such security
interest therein shall continue unimpaired by the security interest of the
Collateral granted hereby which serves as evidence of the continuing nature of
such interest in favor of the Holders.
SECTION 4. Representations and Warranties. Each Company Party
represents and warrants as to itself and its Intellectual Property Collateral as
follows:
(a) Such Company Party is the legal and beneficial owner of the
entire right, title and interest in and to the Intellectual Property
Collateral of such Company Party free and clear of any Lien, claim,
option or right of others, except for the liens and security interests
created by this Agreement and the lien created in favor of the
Collateral Agent. No effective financing statement or other instrument
similar in effect covering all or any part of such Intellectual Property
Collateral or listing such Company Party or any trade name of such
Company Party as debtor is on file in any recording office (including,
without limitation, the United States Patent and Trademark Office and
the United States Copyright Office), except such as may have been filed
in favor of the Holders relating to the Loan Documents and such as have
been filed in favor of the Collateral Agent.
(b) Set forth in Schedule I is a complete and accurate list of
all patents and all patent applications owned by the Company Parties.
Set forth in Schedule II is a complete and accurate list of all
trademark and service mark registrations and all trademark and service
mark applications owned by the Company Parties. Set forth in Schedule
III is a complete and accurate list of all copyright registrations and
copyright applications owned by the Company Parties. Set forth in
Schedule IV is a complete and accurate list of all Licenses owned by the
Company Parties in which a Company
-4-
<PAGE> 6
Party is (i) a licensor with respect to any of the Patents, Trademarks
or Copyrights, or (ii) a licensee of any other person's patents, trade
names, trademarks, service marks or copyrights. Except as set forth in
Schedule II, all necessary filings and recordations have been made to
protect and maintain the patents, patent applications, trademark and
service mark registrations, trademark and service mark applications,
copyright registrations, copyright applications and Licenses set forth
in Schedules I, II, III and IV.
(c) Each patent, patent application, trademark or service mark
registration, trademark or service mark application, copyright
registration and copyright application of such Company Party set forth
in Schedules I, II and III is subsisting and has not been adjudged
invalid, unregistrable or unenforceable, in whole or in part. Each
License of such Company Party identified in Schedule IV is validly
subsisting and has not been adjudged invalid or unenforceable, in whole
or in part, and is valid and enforceable. Such Company Party is not
aware of any uses of any item of Intellectual Property Collateral which
could be expected to lead to such item becoming invalid or
unenforceable, including unauthorized uses by third parties and uses
which were not supported by the goodwill of the business connected with
such Intellectual Property Collateral.
(d) Such Company Party has not made a previous assignment,
transfer or agreement constituting a present or future assignment,
transfer or encumbrance of any of the Intellectual Property Collateral
other than the Intellectual Property Security Agreement dated August 13,
1996 with respect to the Akzo Security Interest Collateral. Such Company
Party has not granted any license (other than those listed on Schedule
IV hereto), release, covenant not to sue, or non-assertion assurance to
any person with respect to any part of the Intellectual Property
Collateral.
(e) Such Company Party has used proper statutory notice in
connection with its use of each patent, each registered trademark and
service mark and each copyright contained in Schedules I, II and III.
(f) This Agreement creates in favor of the Holders a valid first
priority security interest in the Intellectual Property Collateral of
the Company Parties, except with respect to the Akzo Security Interest
Collateral and, with respect thereto, a second priority continuing
security interest until such time as payment in full of the Debt
underlying the Akzo Security Interest Collateral has been made and, at
such time, a first priority security interest in the Akzo Security
Interest Collateral, securing the payment of the Obligations, and all
filings and other actions necessary or desirable to perfect and protect
such security interest have been duly taken.
(g) With the exception of the consent of the Collateral Agent,
no consent of any other Person and no authorization, approval or other
action by, and no notice to or filing with, any governmental authority
or regulatory body or other Person is
-5-
<PAGE> 7
required (i) for the assignment and grant by such Company Party of the
security interest assigned and granted hereby or for the execution,
delivery or performance of this Agreement by such Company Party, (ii)
for the perfection or maintenance of the security interest created
hereunder (including the first priority nature of such security
interest), except for the filing of financing and continuation
statements under the Uniform Commercial Code, which financing statements
have been duly filed, and the filing and recordal of this Agreement
with the United States Patent and Trademark Office and the United States
Copyright Office or (iii) for the exercise by the Holders of their
rights provided for in this Agreement or the remedies in respect of the
Intellectual Property Collateral pursuant to this Agreement.
(h) Except for the Licenses set forth in Schedule IV, the
Company Parties are not aware of any claims that are likely to be made
by any third party relating to any item of Intellectual Property
Collateral.
(i) Except as set forth in Schedule 3.13 of the Securities
Purchase Agreement, no claim has been made and is continuing or
threatened that any item of Intellectual Property Collateral is invalid
or unenforceable or that the use by such Company Party of any
Intellectual Property Collateral does or may violate the rights of any
Person. The Company Parties are not aware of any infringement of any
item of Intellectual Property Collateral.
(j) Such Company Party has taken all necessary steps to use
consistent standards of quality in the manufacture, distribution and
sale of all products sold and the provision of all services provided
under or in connection with any of the Trademarks and has taken all
reasonably necessary steps to ensure that all licensed users of any of
the Trademarks use such consistent standards of quality.
SECTION 5. Further Assurances. (a) Each Company Party agrees that
from time to time, at the expense of such Company Party, such Company Party will
promptly execute and deliver, and use its best efforts to cause to be executed
and delivered, all further instruments and documents, and take all further
action, that may be necessary or desirable, or that the Holders may request, in
order to perfect and protect any security interest assigned and granted or
purported to be assigned and granted hereby or to enable the Holders to exercise
and enforce its rights and remedies hereunder with respect to any part of the
Intellectual Property Collateral. Without limiting the generality of the
foregoing, each Company Party will execute and file such financing or
continuation statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Holders may request, in
order to perfect and preserve the security interest assigned and granted or
purported to be assigned and granted hereunder.
(b) Each Company Party hereby authorizes the Holders to file one
or more financing or continuation statements, and amendments thereto, relating
to all or any part of
-6-
<PAGE> 8
the Intellectual Property Collateral without the signature of such Company Party
where permitted by law. A photocopy or other reproduction of this Agreement or
any financing statement covering the Intellectual Property Collateral or any
part thereof shall be sufficient as a financing statement where permitted by
law.
(c) Each Company Party will furnish to the Holders from time to
time statements and schedules further identifying and describing the
Intellectual Property Collateral and such other reports in connection with the
Intellectual Property Collateral as the Holders may reasonably request, all in
reasonable detail.
(d) Each Company Party agrees that, should it obtain an ownership
interest in any patent, patent application, patentable invention, trademark,
service mark, trade name, trade dress, other indicia of trade origin, trademark
or service mark registration, trademark or service mark application, copyright,
work of authorship, copyright registration, copyright application or license,
which is not now a part of the Intellectual Property Collateral, (i) the
provisions of Section 1 shall automatically apply thereto, (ii) any such patent,
patent application, patentable invention, trademark, service mark, trade name,
trade dress, indicia of trade origin, trademark or service mark registration or
trademark or service mark application (together with the goodwill of the
business connected with the use of same and symbolized by same), copyright, work
of authorship, copyright registration, copyright application or license shall
automatically become part of the Intellectual Property Collateral, and (iii)
with respect to any ownership interest in any patent, patent application,
trademark or service mark registration, trademark or service mark application,
copyright registration, copyright application or license that such Company Party
should obtain, it shall give prompt written notice thereof to the Holders in
accordance with the provisions of the Security Agreement. Each Company Party
authorizes the Holders to modify this Agreement by amending Schedules I, II, III
and IV (and will cooperate with the Holders in effecting any such amendment) to
include any patent, patent application, trademark or service mark registration,
trademark or service mark application, copyright registration, copyright
application or license which becomes part of the Intellectual Property
Collateral under this Section.
(e) With respect to each patent, patent application, trademark or
service mark registration, trademark or service mark application, copyright
registration, copyright application and License, such Company Party agrees to
take all necessary steps, including, without limitation, in the United States
Patent and Trademark Office, the United States Copyright Office or in any court,
to (i) maintain each such patent, trademark or service mark registration,
copyright registration and License of such Company Party, and (ii) pursue each
such patent application, trademark or service mark application, and copyright
application now or hereafter included in the Intellectual Property Collateral of
such Company Party, including, without limitation, the filing of responses to
office actions issued by the United States Patent and Trademark Office and the
United States Copyright Office, the filing of applications for renewal or
extension, the filing of affidavits under Sections 8 and 15 of the United States
Trademark Act, the filing of divisional, continuation, continuation-in-part and
-7-
<PAGE> 9
substitute applications, the filing of applications for re-issue, renewal or
extensions, the payment of maintenance fees, and the participation in
interference, reexamination, opposition, cancellation, infringement and
misappropriation proceedings. Each Company Party agrees to take corresponding
steps with respect to each new or acquired patent, patent application, trademark
or service mark registration, trademark or service mark application, copyright
registration, copyright application or License to which it is now or later
becomes entitled. Any expenses incurred in connection with such activities shall
be borne by such Company Party. No Company Party shall, without the written
consent of the Holders, which consent will not be unreasonably withheld,
discontinue use of or otherwise abandon any patent or patentable invention,
trademark or service mark, or copyright identified in Schedules I, II and III,
or abandon any right to file an application for letters patent, trademark or
service mark registration, or copyright registration, or abandon any pending
application for a letters patent, trademark or service mark registration, or
copyright registration identified in Schedules I, II and III.
(f) Each Company Party agrees to notify the Holders promptly and
in writing if it learns (i) that any item of the Intellectual Property
Collateral may be determined to have become abandoned or dedicated or (ii) of
any adverse determination or the institution of any proceeding (including,
without limitation, the institution of any proceeding in the United States
Patent and Trademark Office or any court) regarding any item of the Intellectual
Property Collateral.
(g) In the event that any Company Party becomes aware that any
item of the Intellectual Property Collateral is infringed or misappropriated by
a third party, such Company Party shall promptly notify the Holders and shall
take such actions as such Company Party or the Holders deems reasonable and
appropriate under the circumstances to protect such Intellectual Property
Collateral, including, without limitation, suing for infringement or
misappropriation and for an injunction against such infringement or
misappropriation. Any expense incurred in connection with such activities shall
be borne by such Company Party.
(h) Each Company Party shall continue to use proper statutory
notice in connection with its use of each of its patents, registered trademarks
and service marks, and copyrights contained in Schedules I, II and III.
(i) Each Company Party shall take all steps which it or the
Holders deem reasonable and appropriate under the circumstances to preserve and
protect each item of its Intellectual Property Collateral, including, without
limitation, maintaining the quality of any and all products or services used or
provided in connection with any of the Trademarks, consistent with the quality
of the products and services as of the date hereof, and taking all steps
necessary to ensure that all licensed users of any of the Trademarks use such
consistent standards of quality.
-8-
<PAGE> 10
IN WITNESS WHEREOF, each Grantor has caused this Agreement to be
duly executed and delivered by its officer thereunto duly authorized as of the
date first above written.
INTRACEL CORPORATION
By: /s/ SIMON R. MCKENZIE
------------------------------------------
Name: Simon R. McKenzie
Title: President & Chief Executive Officer
BARTELS, INC.
By: /s/ SIMON R. MCKENZIE
------------------------------------------
Name: Simon R. McKenzie
Title: President & Chief Executive Officer
PERIMMUNE HOLDINGS, INC.
By: /s/ SIMON R. MCKENZIE
-----------------------------------------
Name: Simon R. McKenzie
Tide: President & Chief Executive Officer
PERIMMUNE, INC.
By: /s/ SIMON R. MCKENZIE
-----------------------------------------
Name: Simon R. McKenzie
Tide: President & Chief Executive officer
-9-
<PAGE> 11
NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
-10-
<PAGE> 12
STATE OF WA )
) ss.:
COUNTY OF KING )
On the 20th day of August, 1998, before me personally came Simon McKenzie
to me known, who, being by me duly sworn, did depose and say he resides at 1411
1st St. North, Seattle, WA and that he is the Pres/CEO of INTRACEL CORPORATION,
the corporation described in and which executed the above instrument; that he
has been authorized to execute said instrument on behalf of said corporation;
and that he signed said instrument on behalf of said corporation pursuant to
said authority.
/s/ GWENDOLYN C. MCCLURE-DOUGLAS
--------------------------------
Notary Public
------------------------------------
Notary Public
State of Washington
[Notarial Seal] GWENDOLYN C. MCCLURE-DOUGLAS
My Appointment Expires Jan. 15, 2002
------------------------------------
STATE OF WA )
) ss.:
COUNTY OF KING )
On the 20th day of August, 1998, before me personally came Simon McKenzie
to me known, who, being by me duly sworn, did depose and say he resides at 1411
1st St. North, Seattle, WA and that he is the Pres/CEO of BARTELS, INC., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
/s/ GWENDOLYN C. MCCLURE-DOUGLAS
--------------------------------
Notary Public
------------------------------------
Notary Public
State of Washington
[Notarial Seal] GWENDOLYN C. MCCLURE-DOUGLAS
My Appointment Expires Jan. 15, 2002
------------------------------------
<PAGE> 13
STATE OF WA )
) ss.:
COUNTY OF KING )
On the 20th day of August, 1998, before me personally came Simon McKenzie
to me known, who, being by me duly sworn, did depose and say he resides at 1411
1st St. North, Seattle, WA and that he is the Pres/CEO of PERIMMUNE HOLDINGS,
INC., the corporation described in and which executed the above instrument; that
he has been authorized to execute said instrument on behalf of said corporation;
and that he signed said instrument on behalf of said corporation pursuant to
said authority.
/s/ GWENDOLYN C. MCCLURE-DOUGLAS
--------------------------------
Notary Public
------------------------------------
Notary Public
State of Washington
[Notarial Seal] GWENDOLYN C. MCCLURE-DOUGLAS
My Appointment Expires Jan. 15, 2002
------------------------------------
STATE OF WA )
) ss.:
COUNTY OF KING )
On the 20th day of August, 1998, before me personally came Simon McKenzie
to me known, who, being by me duly sworn, did depose and say he resides at 1411
1st St. North, Seattle, WA and that he is the Pres/CEO of PERIMMUNE, INC., the
corporation described in and which executed the above instrument; that he has
been authorized to execute said instrument on behalf of said corporation; and
that he signed said instrument on behalf of said corporation pursuant to said
authority.
/s/ GWENDOLYN C. MCCLURE-DOUGLAS
--------------------------------
Notary Public
------------------------------------
Notary Public
State of Washington
[Notarial Seal] GWENDOLYN C. MCCLURE-DOUGLAS
My Appointment Expires Jan. 15, 2002
------------------------------------
<PAGE> 14
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of August, 1998, before me personally came Michael Graves
to me known, who, being by me duly sworn, did depose and say he resides at
Fairfield County, CT and that he is the Vice President of NORTHSTAR HIGH YIELD
FUND, the institution described in and which executed the above instrument; that
he has been authorized to execute said instrument on behalf of said institution;
and that he signed said instrument on behalf of said institution pursuant to
said authority.
/s/ MARY FRANCES ENNIS
----------------------
Notary Public
MARY FRANCES ENNIS
[Notarial Seal] NOTARY PUBLIC
MY COMMISSION EXPIRES FEB. 23, 2003
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of August, 1998, before me personally came Michael Graves
to me known, who, being by me duly sworn, did depose and say he resides at
Fairfield County, CT and that he is the Vice President of NORTHSTAR HIGH TOTAL
RETURN FUND, the institution described in and which executed the above
instrument; that he has been authorized to execute said instrument on behalf of
said institution; and that he signed said instrument on behalf of said
institution pursuant to said authority.
/s/ MARY FRANCES ENNIS
----------------------
Notary Public
MARY FRANCES ENNIS
[Notarial Seal] NOTARY PUBLIC
MY COMMISSION EXPIRES FEB. 23, 2003
<PAGE> 15
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of August, 1998, before me personally came Michael Graves
to me known, who, being by me duly sworn, did depose and say he resides at
Fairfield County, CT and that he is the Vice President of NORTHSTAR HIGH TOTAL
REFUND FUND II, the institution described in and which executed the above
instrument; that he has been authorized to execute said instrument on behalf of
said institution; and that he signed said instrument on behalf of said
institution pursuant to said authority.
/s/ MARY FRANCES ENNIS
----------------------
Notary Public
MARY FRANCES ENNIS
[Notarial Seal] NOTARY PUBLIC
MY COMMISSION EXPIRES FEB. 23, 2003
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 25th day of August, 1998, before me personally came Michael Graves
to me known, who, being by me duly sworn, did depose and say he resides at
Fairfield County, CT and that he is the Vice President of NORTHSTAR STRATEGIC
INCOME FUND, the institution described in and which executed the above
instrument; that he has been authorized to execute said instrument on behalf of
said institution; and that he signed said instrument on behalf of said
institution pursuant to said authority.
/s/ MARY FRANCES ENNIS
----------------------
Notary Public
MARY FRANCES ENNIS
[Notarial Seal] NOTARY PUBLIC
MY COMMISSION EXPIRES FEB. 23, 2003
<PAGE> 1
EXHIBIT 10.33
================================================================================
PLEDGE AGREEMENT
Intracel Corporation and PerImmune Holdings, Inc.
as Pledgors
to
Holders of the 12% Guaranteed
Senior Secured Primary Promissory Notes
due August 25, 2003 of
Intracel Corporation
and
Holders of the 12%
Guaranteed Senior Secured
Escrow Promissory Notes
due August 25, 2003 of
Intracel Corporation
-----------
Dated as of August 25, 1998
-----------
================================================================================
<PAGE> 2
PLEDGE AGREEMENT
PLEDGE AGREEMENT (the "Pledge Agreement"), dated August 25, 1998,
between Intracel Corporation and PerImmune Holdings, Inc., a wholly-owned
subsidiary of Intracel Corporation (together with their successors and assigns,
the "Pledgors") and Northstar High Total Return Fund, Northstar High Total
Return Fund II, Northstar High Yield Fund, and Northstar Strategic Income Fund
(collectively, the "Holders"), the holders of 12% Guaranteed Senior Secured
Primary Promissory Notes of the Company and the holders of 12% Guaranteed Senior
Secured Escrow Promissory Notes of the Company (collectively, the "Notes")
issued pursuant to that certain Securities Purchase Agreement, dated as of the
date hereof, by and among the Company and the other parties thereto (the
"Purchase Agreement"). As used herein, all capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement.
W I T N E S S E T H:
WHEREAS, the Pledgors have entered into the Securities Purchase
Agreement, the Notes and the Ancillary Agreements as of the date hereof,
pursuant to which the Pledgors are subject to the Obligations (as defined
herein);
WHEREAS, in order to secure the performance of such Obligations of
the Company and its Subsidiaries under the Securities Purchase Agreement, the
Notes and the Ancillary Agreements (the "Obligations"), the parties hereto
desire to set forth their mutual understanding and certain agreement regarding
the terms and conditions of the pledge of the Pledged Collateral (as defined
below) made by the Pledgors to the Holders of the Notes (the "Holders").
NOW, THEREFORE, in consideration of the premises and other benefits
to the Pledgors, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
Section 1. Pledge. As collateral security for the payment and
performance in full of the Obligations, the Pledgors hereby pledge, assign,
transfer and set over unto the Holders and hereby grant upon the Holders and
unto their respective successors and assigns, a continuing security interest
(the "Security Interests") in all of the right, title and interest of the
Pledgors in, to and under any and all of the following described property,
rights and interests (collectively, the "Pledged Collateral"):
(a) all issued and outstanding shares of Capital Stock now
or hereafter owned by the Pledgors of (i) the companies identified on Schedule A
(the "Identified Companies"), including, without limitation, the shares of
Capital Stock set forth on Schedule A, and (ii) any New Subsidiary of the
Pledgors or any other company (the "Additional Companies");
<PAGE> 3
(b) all securities of the Identified Companies and the
Additional Companies now or hereafter owned or acquired by the Pledgors; any
present or future options, warrants or other rights to subscribe for or purchase
any shares of Capital Stock of any of the Identified Companies or the Additional
Companies now or hereafter owned by the Pledgors; and any notes bonds,
debentures or other evidences of Debt now or hereafter owned by the Pledgors
that (i) are at any time convertible into Capital Stock of any of the Identified
Companies or the Additional Companies, or (ii) have or at any time could by
their terms have voting rights with respect to any matter affecting any of the
Identifying Companies or the Additional Companies; and all securities,
certificates and instruments representing or evidencing ownership or any of the
property described in subsections 1(a) and (b) hereof (the property described in
subsections 1(a) and (b) being referred to herein collectively as the "Pledged
Securities");
(c) all proceeds and products of the Pledged Securities,
including, without limitation, dividends and distributions payable in cash,
Assets or securities, now or hereafter at any time or from time to time received
or receivable or otherwise distributed or distributable in respect of or in
exchange for any or all of the Pledged Securities; and
(d) any additional property of the kind or type described
in this Section 1 required to be supplied under the terms of this Pledge
Agreement;
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, powers, privileges and preferences pertaining or incidental
thereto, unto the Holders and unto their respective successors and assigns;
subject, however, to the terms, covenants and conditions hereinafter set forth.
Section 2. Representations, Warranties and Covenants of Pledgors. The
Pledgors hereby represent and warrant, covenant and agree that:
(a) As of the date hereof, and except for the Security
Interests granted hereunder to the Holders, the Pledgors are the legal and
equitable owners of the Pledged Collateral, hold the Pledged Collateral free and
clear of all Liens, charges, claims, encumbrances and Security Interests of
every kind and nature. Until the Obligations under this Agreement, the
Securities Purchase Agreement, the Notes and any Ancillary Agreement shall have
been satisfied in full and this Agreement shall have been terminated, the
Pledgors will not, without the prior written consent of the Required Holders,
make any other pledge, assignment, sale, mortgage, hypothecation or transfer of,
or create, or permit to exist any Lien, Security Interest or other charge or
encumbrance on, the Pledged Collateral.
(b) The Pledgors have the valid right and legal authority
to pledge or cause to be pledged the Pledged Collateral in the manner hereby
done or contemplated and will defend its title thereto against the claims of all
persons whomsoever and shall maintain and preserve the Security Interests
granted hereunder with respect to the Pledged Collateral as long as this Pledge
Agreement shall remain in full force and effect.
(c) Neither the execution and delivery of this Pledge
Agreement by Pledgors, nor the consummation of the transactions herein
contemplated nor the fulfillment of the terms hereof violate the terms of any
agreement, indenture, mortgage, deed of trust, equipment lease,
2
<PAGE> 4
instrument or other document to which Pledgors are parties, or conflict with any
Law, applicable to the Pledgors of any court or any government, regulatory body
or administrative agency or other governmental body having jurisdiction over
Pledgors or their Assets, to the extent that such violation or conflict would
have a material adverse effect on the financial condition, business, Assets,
liabilities or prospects of Pledgors or on the value of the Pledged Collateral
or on the Security Interests.
(d) The Pledged Collateral as described in Schedule A
attached hereto includes all of the issued and outstanding shares of Capital
Stock of the Identified Companies and Additional Companies beneficially owned by
the Pledgors on the date hereof; and all outstanding options, warrants or other
rights to subscribe for or purchase shares of the Capital Stock of the
Identified Companies and the Additional Companies beneficially owned by Pledgors
on the date hereof; and all notes, bonds, debentures or other evidences of Debt
beneficially owned by the Pledgors on the date hereof that (i) are at any time
convertible into Capital Stock of the Identified Companies or the Additional
Companies or (ii) have or at any time could by their terms have voting rights
with respect to any matters affecting the Identified Companies or the Additional
Companies.
(e) No consent or approval that has not been obtained prior
to the date hereof of any governmental body, regulatory authority or securities
exchange was or is necessary as a condition to the validity of the pledge
hereunder of the Pledged Collateral, and such pledge is effective to vest in the
Holders the rights of the Holders in the Pledged Collateral as set forth herein.
(f) If, while this Pledge Agreement is in effect, any
securities of the type described in Section 1 are hereafter acquired by
Pledgors, or any stock dividend, stock split, reclassification, readjustment,
reorganization, merger, consolidation, exchange offer, tender offer or other
change in the capital structure, including the creation of any subscription or
other rights or other Pledged Collateral, is declared or made, or proposed to be
declared or made, by the Identified Companies or any Additional Companies, all
substituted and additional securities or interests, if evidenced by
certificates, shall be endorsed in blank by Pledgors promptly upon receipt
thereof and, if not so evidenced, shall be otherwise appropriately transferred
to the Holders in negotiable form, and all certificates or instruments
evidencing such securities shall be delivered to the Holders to be held under
the terms of this Pledge Agreement in the same manner as, and as part of, the
Pledged Collateral. The Pledgors shall use best efforts to ensure that all
Pledged Securities shall be evidenced by one or more certificates. Any
securities that may be issued upon exercise of any subscription or other rights
relating to the Pledged Securities shall be endorsed in blank and delivered to
the Holders.
(g) Pledgors shall pay and discharge all taxes, assessments
and governmental charges or levies against any Pledged Collateral prior to
delinquency thereof and shall keep all Pledged Collateral free of all unpaid
charges whatsoever, unless such charges are being contested in good faith and
appropriate reserves have been set aside in accordance with GAAP.
Section 3. Administration of the Pledged Collateral. The Holders
shall administer the Pledged Collateral in accordance with the provisions
hereof.
3
<PAGE> 5
Section 4. Release and Substitution of Pledged Collateral. The
Pledged Collateral shall not be released from the Security Interests created
hereunder and no Assets shall be substituted for any of the Pledged Collateral,
except in accordance with the provisions of Article V of the Purchase Agreement,
which provisions are hereby incorporated herein by reference.
Section 5. Voting Rights, Dividends, Etc.
(a) So long as no Default or Event of Default or event that
with the lapse of time or the giving of notice or both, would constitute an
Event of Default (as defined below) shall have occurred and be continuing or
would result therefrom:
(i) except as otherwise provided in this Pledge
Agreement, Pledgors shall be entitled to exercise any and
all voting or consensual rights and powers, including
subscription rights, accruing to an owner of the Pledged
Collateral or any part thereof for any purpose not
inconsistent with, or otherwise impair any rights of the
Holders arising under, the terms of this Pledge Agreement
or any agreement giving rise to any of the Obligations;
(ii) Pledgors shall be entitled to retain and use
any and all dividends or distributions which are permitted
by the Purchase Agreement and paid on the Pledged
Collateral in cash or property (other than securities);
(iii) the Required Holders shall execute and
deliver to Pledgors or cause to be executed and delivered
to Pledgors, all such proxies, powers of attorney, dividend
orders and other instruments as Pledgors may reasonably
request for the purpose of enabling it to exercise the
voting or consensual rights and powers which Pledgors are
entitled to exercise pursuant to the foregoing subparagraph
(i) or to receive the dividends or cash or other Assets
which Pledgors are authorized to retain pursuant to the
foregoing subparagraph (ii).
(b) Upon the occurrence and during the continuance of a
Default, an Event of Default, or event that with the lapse of time or the giving
of notice or both, would constitute an Event of Default, all rights of Pledgors
to exercise the voting or consensual rights and powers which the Pledgors would
otherwise be entitled to exercise pursuant to subparagraph (i) of Section 5(a)
hereof and to receive the dividends and distributions which Pledgors would
otherwise be authorized to receive and retain pursuant to subparagraph (ii) of
Section 5(a) hereof shall cease, and all such rights shall thereupon become
vested in the Holders, which shall then have the sole and exclusive right and
authority to exercise all such voting or consensual rights and powers and to
receive and retain all such dividends and distributions. Any and all money and
other Assets paid over to or received by the Holders pursuant to the provisions
of this Section 5(b) shall be retained by the Holders in the account established
pursuant to that certain Interest Escrow Security Agreement, dated as of the
date hereof, by and among the Company and the other parties thereto (the
"Collateral Account") as additional Pledged Collateral hereunder and shall be
administered and applied in accordance with the provisions of the Notes.
4
<PAGE> 6
Section 6. Default; Remedies.
(a) Defined. For purposes of this Pledge Agreement, the
terms "Default" and "Event of Default" shall have the respective meanings
provided in the Notes and shall include any event that with the lapse of time or
the giving of notice or both, would constitute an Event of Default.
(b) Exercise of Remedies Under the Security Agreement. If a
Default or Event of Default or event that with the lapse of time or the giving
of notice or both, shall constitute an Event of Default in the payment of any
Obligations shall have occurred and be continuing or would result therefrom the
Holders may commence the taking of such actions (or refrain from taking actions)
toward collection or enforcement of this Pledge Agreement and the Pledged
Collateral (or any portion thereof), including, without limitation, action
toward foreclosure upon any Pledged Collateral, as it deems appropriate in their
sole discretion. If any Default or Event of Default or event that with the lapse
of time or the giving of notice or both, shall constitute an Event of Default
that was the basis for the commencement of such action shall have been cured or
waived, and, in the case where there has been an acceleration, rescission of
such acceleration shall have occurred, in each case in accordance with the terms
of the Securities Purchase Agreement, the Notes, or any of the Ancillary
Agreements, any direction by the Holders to take any action in connection with
the aforementioned notice shall be deemed rescinded upon notification by the
Required Holders of such cure, waiver or rescission of acceleration, as the case
may be.
(c) Remedies Generally. If a Default or Event of Default or
event that with the lapse of time or the giving of notice or both, in the
payment of any Obligation shall constitute an Event of Default shall have
occurred and be continuing or would result therefrom, the Required Holders or
their agents or attorneys may retain the Pledged Collateral or sell, assign,
transfer, or dispose of, endorse and deliver the whole or, from time to time,
any part of the Pledged Collateral at public or private sale, for cash, upon
credit or for other property, for immediate or future delivery, and for such
price or prices and on such other terms as are satisfactory to the Holders (in
their discretion) without liability for loss or damage. Pledgors agree that the
private sale or other private disposition of Pledged Collateral shall be deemed
commercially reasonable notwithstanding the possibility that a substantially
higher price might be realized if such sale or other disposition were public and
deferred until after registration under the Securities Act of 1933, as amended,
or after compliance with any other applicable securities laws. Upon consummation
of any such sale, the Holders shall have the right to assign, transfer, endorse
and deliver to the purchaser or purchasers thereof the Pledged Collateral so
sold. Each such purchaser at any such sale shall hold the property sold
absolutely free from any claim or right on the part of the Pledgors, and
Pledgors hereby waive (to the full extent permitted by Law) all rights of
redemption, stay or appraisal which Pledgors now have or may have at any time in
the future have under any Law. The Holders shall give Pledgors five days'
written notice (which Pledgors agree shall be deemed to be reasonable
notification within the meaning of Section 9-504(3) of the relevant Uniform
Commercial Code) of the their intention to make any such public or private sale.
Any such sale shall be held at such time or times and at such place or places as
the Holders may fix. At any such sale, the Pledged Collateral, or portion
thereof to be sold, may be sold as an entirety or in separate portions, as the
Required Holders may, in their discretion, determine. The Holders shall not be
obligated to make any sale of the Pledged
5
<PAGE> 7
Collateral if they shall determine not to do so, regardless of the fact that
notice of sale of the Pledged Collateral may have been given. The Holders may,
without notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned. In case sale of all or any part of
the Pledged Collateral is made on credit or for future delivery, the Pledged
Collateral so sold may be retained by the Holders until the sale price is paid
by the purchaser or purchasers thereof, but the Holders shall not incur any
liability in case any such purchaser or purchasers shall fail to take up and pay
for the Pledged Collateral so sold and, in case of any such failure, such
Pledged Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Holders may proceed
by suit or suits at Law or in equity to foreclose this Pledge Agreement and sell
the Pledged Collateral or any portion thereof pursuant to judgment or decree of
a court or courts having competent jurisdiction. If, under mandatory
requirements of Law, the Holders shall be required to make disposition of the
Pledged Collateral within a period of time that does not permit the giving of
notice to Pledgors as provided herein, the Holders need give Pledgors only such
notice of disposition as shall be reasonably practicable in view of such Law.
(d) Remedies; Obtaining the Collateral Upon Default. The
Pledgors agrees that, if a Default, Event of Default or any event that with the
lapse of time or the giving of notice, or both, shall constitute an Event of
Default, in the payment of any Obligations shall have occurred and be
continuing, or would result therefrom, then and in every such case, and in
addition to the rights and remedies available to a secured party under any
applicable provisions of the Uniform Commercial Code, or any other Law, the
Holders may:
(i) personally or by Holders or attorneys,
immediately take possession of the Pledged Collateral or
any part thereof from Pledgors or any other person who then
has possession of any part thereof, with or without notice
or process of Law, and for that purpose may enter upon a
Pledgors' premises where any of the Pledged Collateral is
located and remove the same and use in connection with such
removal any and all services, supplies, aids and other
facilities of Pledgors;
(ii) instruct the obligor or obligors on any
agreement, instrument or other obligation constituting
Pledged Collateral to make any payment or render any
performance required by the terms of such agreement,
instrument or obligation directly to the Holders or their
designee;
(iii) withdraw all monies, securities and
instruments held by the Holders in the Financial Accounts
(as that term is defined in the Security Agreement) or
otherwise for application to the Obligations;
(iv) sell or otherwise liquidate or direct the
Pledgors to sell or otherwise liquidate, any or all
investments made in whole or in part with the Pledged
Collateral or any part thereof, and take possession of the
proceeds of any such sale or liquidation; and
6
<PAGE> 8
(v) take possession of the Pledged Collateral or
any part thereof by directing Pledgors in writing to
deliver the same to the Holders at any place or places
designated by the Holders, in which event the Pledgors
shall at its own expense:
(A) forthwith cause the same to be
moved to the place or places so designated by the
Holders and there delivered to the Holders;
(B) store and keep any Pledged
Collateral so delivered to the Holders at such
place or places pending further action by the
Holders as provided in this Section 6(d); and
(C) while any such Pledged Collateral
shall be so stored and kept, provide such guard
and maintenance services as shall be necessary to
protect the same and to preserve and maintain
such Pledged Collateral in good condition;
it being understood that the Pledgors' obligation so to deliver the
Pledged Collateral is of the essence of this Pledge Agreement and
that, accordingly, upon application to a court of equity having
jurisdiction, the Holders shall be entitled to a decree requiring
specific performance by Pledgors of such obligation.
(e) Collateral Account. The Required Holders shall deposit
the proceeds of any Pledged Collateral obtained or disposed of pursuant to this
Section 6 in the Collateral Account (as defined in the Security Agreement).
(f) Preventing Impairment of the Pledged Collateral.
Regardless of whether or not there shall have occurred any Default or Event of
Default, the Holders may institute or maintain or cause in the name of Pledgors
or of the Holders, or both, to be instituted and maintained, such suits and
proceedings as the Holders may be advised by counsel shall be necessary or
expedient to prevent any impairment of the Security Interests in or perfection
of, the Pledged Collateral in contravention of the terms hereof or of the
Securities Purchase Agreement, the Notes or any of the Ancillary Agreements.
Section 7. Holders Appointed Attorney-in-Fact. Pledgors hereby
constitute and appoint the Holders their attorney-in-fact for the purpose of
carrying out the provisions, but subject to the terms and conditions, of this
Pledge Agreement and taking any action and executing any instrument, including,
without limitation, any financing statement or continuation statements, and
taking any other action to maintain validity, perfection and enforcement of the
Security Interests intended to be created hereunder, that the Holders may deem
necessary or advisable to accomplish the purposes hereof, which appointment is
irrevocable and coupled with an interest.
Section 8. Purchase of Pledged Collateral by Holder. At any sale of
the Pledged Collateral, whether pursuant to power of sale or otherwise
hereunder, any Holders may, to the extent permitted by Law, bid for and
purchase, free from any right or redemption, stay or
7
<PAGE> 9
appraisal (all such rights being hereby waived and released by Pledgors to the
extent permitted by Law), the Pledged Collateral or any part thereof or any
interest therein and upon compliance with the terms of such sale may hold,
retain, exploit, resell or otherwise dispose of such Pledged Collateral without
further accountability to Pledgors for the proceeds of such sale. Pledgors will
execute and deliver, or cause to be executed and delivered, such instruments,
endorsements, assignments, waivers, certificates and other documents and take
such further action as the Holders shall reasonably request in connection with
any such sale.
Section 9. Disposition of Proceeds. The proceeds of any sale or other
disposition of the whole or any part of the Pledged Collateral by the Holders,
together with any other monies held by the Holders pursuant to this Pledge
Agreement, shall be applied by the Holders in accordance with the provisions of
the Notes.
Section 10. Waiver of Claims. Except as otherwise provided in the
Securities Purchase Agreement or this Pledge Agreement, THE PLEDGORS HEREBY
WAIVE, TO THE EXTENT PERMITTED BY LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION
WITH THE HOLDERS' TAKING POSSESSION OR THE HOLDERS' DISPOSITION OF ANY OF THE
PLEDGED COLLATERAL BY THE HOLDERS IN ACCORDANCE WITH THE TERMS HEREOF,
INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES AND HEARINGS FROM ANY
PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT THE PLEDGORS WOULD
OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF
ANY STATE, and, to the fullest extent permitted by applicable Law, Pledgors
hereby further waive:
(a) all damages occasioned by such taking of possession
except any damages that are the direct result of the Holders' gross negligence,
bad faith or willful misconduct; and
(b) all other requirements as to the time, place and terms
of sale or other requirements with respect to the enforcement of the Holders'
rights and powers hereunder.
Any sale of, or the exercise of any options to purchase, or any other
realization upon, any Pledged Collateral shall operate to divest all right,
title, interest, claim and demand, at Law or in equity, of the Pledgors therein
and thereto, and shall be perpetual bar both at Law and in equity against the
Pledgors and against any and all Persons claiming or attempting to claim the
Pledged Collateral so sold, optioned or realized upon, or any part thereof,
through and under Pledgors.
Section 11. Remedies Cumulative; No Waiver. Each right, power and
remedy of the Holders provided for herein, in the Securities Purchase Agreement,
the Notes and any other Ancillary Agreement pursuant to which a Lien is created
in favor of any Holder, or now or hereafter existing at Law, shall be cumulative
and concurrent and shall be in addition to every other right, power or remedy of
any Holder provided for herein, in the Securities Purchase Agreement, the Notes
and any other Ancillary Agreement pursuant to which a Lien is created in favor
of any Holder or now or hereafter existing at Law. No failure on the part of any
Holder to exercise, and no delay in exercising, any right, power or remedy
hereunder, or under the Securities Purchase Agreement, the Notes and any other
Ancillary Agreement pursuant to
8
<PAGE> 10
which a Lien is created in favor of any Holder or now or hereafter existing at
Law, shall operate as a waiver thereof, nor shall any single or partial exercise
of any such right, power or remedy preclude any other or further exercise
thereof or the exercise of any other right, power or remedy. No notice to or
demand on Pledgors hereunder shall, of itself, entitle Pledgors to any other or
further notice or demand in the same, similar or other circumstances.
Section 12. Additional Collateral. Without notice or consent of
Pledgors and without impairment of the Security Interests and rights created by
this Pledge Agreement, the Holders may accept from any Person additional
Collateral or other security for the Obligations. Neither the creation of the
Security Interests created hereunder nor the acceptance of any such additional
Collateral or Security shall prevent the Holders from resorting to such
additional Collateral or Security or to the Pledged Collateral, in any order,
without affecting the Holders' rights hereunder.
Section 13. Further Assurances. The Pledgors agree (i) that they
shall, at their own expense, (and will cause their Subsidiaries and New
Subsidiaries to), file or record such notices, financing statements,
continuation statements or other documents as may be necessary to perfect the
Security Interests, and as the Holders may reasonably request, such instruments
to be in form and substance satisfactory to the Holders and (ii) Pledgors shall,
at their own expense, (and will cause their Subsidiaries and New Subsidiaries
to), do such further acts and things and execute and deliver to the Holders such
additional conveyances, assignments, agreements and instruments as the Holders
may at any time reasonably request in connection with the administration and
enforcement of this Pledge Agreement or relative to the Pledged Collateral or
any part thereof or in order to assure and confirm unto the Holders the Holders'
rights, powers and remedies hereunder.
Section 14. Pledgors' Obligations Absolute. The liability of the
Pledgors under this Pledge Agreement shall remain in full force and effect
without regard to, and shall not be released, suspended, discharged, terminated
or otherwise affected by (a) any change in the time, place or manner of payment
of all or any of the Obligations, or in any other term of the Securities
Purchase Agreement, any Ancillary Agreement or the Notes, any waiver,
indulgence, renewal, extension, amendment or modification of or addition,
consent or supplement to or deletion from or any other action or inaction under
or in respect of the Securities Purchase Agreement, the Notes or any Ancillary
Agreement or any assignment or transfer thereof; (b) any lack of validity or
enforceability, in whole or in part, of the Securities Purchase Agreement, any
Ancillary Agreement or the Notes; (c) any furnishing of any additional security
for the Obligations or any acceptance thereof or any release or non-perfection
of any security interests in the property other than the Pledged Collateral; (d)
any limitation on any party's liability or Obligations under the Securities
Purchase Agreement, any Ancillary Agreement or the Notes; (e) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceeding relating to the Pledgors, or any action taken with respect
to this Pledge Agreement by any trustee or receiver, or by any court, in any
such proceeding, whether or not the Pledgors shall have notice or knowledge of
any of the foregoing; (f) any exchange, release or amendment or waiver of or
consent to departure from the Securities Purchase Agreement, the Notes and any
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<PAGE> 11
Ancillary Agreement, or any other agreement pursuant to which a Lien is created
in favor of the Holders for the benefit of any Holder, pursuant to which a
person other than the Pledgors have been granted a Security Interest; or (g) any
other circumstance that might otherwise constitute a defense available to, or a
discharge of, the Pledgors.
Section 15. Waiver. To the extent permitted by Law, Pledgors hereby
waive promptness, diligence, notice of acceptance and any other notice with
respect to any of the Obligations and this Pledge Agreement and any requirement
that the Holders protect, secure, perfect or insure any security interest or any
property subject thereto or exhaust any right or take any action against the
Pledgors or any other Person; provided, however, that the Holders shall in any
event take such care in the handling of any Pledged Securities in their
possession as they take with respect to the property of a similar nature in its
possession.
Section 16. Termination. Upon payment in full and satisfaction of all
of the Obligations under the Securities Purchase Agreement, the Notes, and any
Ancillary Agreements, this Pledge Agreement shall terminate and the Holders
shall reassign and redeliver to Pledgors all of the Pledged Collateral hereunder
that has not been sold, disposed of, retained or applied by the Holders in
accordance with the terms hereof and the Securities Purchase Agreement, the
Notes and any Ancillary Agreements. Such reassignment and redelivery shall be
without warranty by or recourse to the Holders, and shall be at the expense of
the Pledgors. At such time, this Pledge Agreement shall no longer constitute a
Lien upon or grant of any Security Interests in any of the Pledged Collateral,
and the Holders shall, at the Pledgors' expense, deliver to the Pledgors written
acknowledgement thereof and of cancellation of this Pledge Agreement in a form
as reasonably requested by the Pledgors and adequate for proper filing or
recording in such offices and such jurisdictions as the Pledgors reasonably deem
necessary to release the Security Interests granted hereby. This Pledge
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Obligations is rescinded or must
otherwise be returned upon the insolvency, bankruptcy or reorganization of the
Pledgors, all as though such payment had not been made.
Section 17. Notices. Any notices or other communications required or
permitted hereunder shall be in writing, and shall be sufficiently given if made
by hand delivery, or registered or certified mail, postage prepaid, return
receipt requested, addressed as follows:
To the Pledgors:
Intracel Corporation
2005 NW Sammamish Road
Suite 107
Issaquah, Washington 98027
Attention: Chief Executive Officer
Fax Number: (425) 392-2992
Confirm Number: (425) 557-1894
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<PAGE> 12
To the Holders:
300 First Stamford Place
Stamford, Connecticut 06902
Attention: Mr. Michael Graves
Fax Number: (203) 862-8601
Confirm Number: (203) 863-6224
Either party hereto may by notice to the other party designate such
additional or different addresses as shall be furnished in writing by such
party. Any notice or communication to either party shall be deemed to have been
given or made as of the date so delivered, if personally delivered; and three
calendar days after mailing if sent by registered or certified mail (except that
a notice of change of address shall not be deemed to have been given until
actually received by the addressee). The Pledgors will give notice to the
Holders at the addresses set forth above or, if the Company has been notified of
a change of address of Holders, to such address as set forth in the Company's
records.
Section 18. Binding Agreement; Assignment. This Pledge Agreement
shall be binding upon and inure to the benefit of the Pledgors, the Holders and
their respective successors and permitted assigns. Neither this Pledge Agreement
nor any interest herein or in the Pledged Collateral, or any part thereof, may
be assigned by the Pledgors; provided, however, that this Pledge Agreement may
be assigned by Pledgors and shall be deemed to be automatically assigned by the
Pledgors to any person who succeeds to the Pledgors, but nothing shall relieve
Pledgors of their Obligations hereunder. This Pledge Agreement shall be deemed
to be automatically assigned by the Holders to any person who succeeds to or
replaces any Holder in accordance with the terms hereof, and its assignee shall
have all rights and powers of, and act as, the Holders hereunder.
Section 19. Governing Law. THE PARTIES HERETO EXPRESSLY ACKNOWLEDGE
AND AGREE THAT, IN ACCORDANCE WITH THE PROVISIONS OF NEW YORK GENERAL
OBLIGATIONS LAW SECTION 5-1401 GOVERNING AGREEMENTS RELATING TO ANY OBLIGATION
ARISING OUT OF A TRANSACTION COVERING IN THE AGGREGATE NOT LESS THAN $250,000,
THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT THE VALIDITY OR THE
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN NEW YORK. TO THE FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE
LAW, THE PARTIES HERETO HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW
YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY OR ANY
FEDERAL COURT SITTING IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY IN RESPECT OF
ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS PLEDGE
AGREEMENT, AND IRREVOCABLY AGREE
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<PAGE> 13
THAT ALL CLAIMS IN RESPECT OF ANY SUCH SUIT, ACTION OR PROCEEDING MAY BE HEARD
AND DETERMINED IN ANY SUCH COURT. THE PARTIES HERETO IRREVOCABLY WAIVE, TO THE
FULLEST EXTENT THEY MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, TRIAL BY JURY
AND ANY OBJECTION WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 20. Amendments. This Pledge Agreement may not be amended or
modified except by a written agreement signed by the Company and the Holders.
Section 21. Severability. In the event that any provision contained
in this Pledge Agreement shall for any reason be held to be illegal or invalid
under the Laws of any jurisdiction, such illegality or invalidity shall in no
way impair the effectiveness of any other provision hereof, or of such provision
under the Laws of any other jurisdiction; provided, that in the construction and
enforcement of such provision under the Laws of the jurisdiction in which such
holding of illegality or invalidity exists, and to the extent only of such
illegality or invalidity, this Pledge Agreement shall be construed and enforced
as though such illegal or invalid provision had not been contained herein.
Section 22. Headings. Section headings used herein are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Pledge Agreement.
Section 23. Counterparts. This Pledge Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be an original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with the Holders.
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<PAGE> 14
IN WITNESS WHEREOF, the Pledgors and the Holders have caused this
Pledge Agreement to be executed and delivered by their respective officers
thereunto duly authorized as of the day and year first written above.
INTRACEL CORPORATION
as Pledgor
By: /s/ SIMON R. MCKENZIE
-----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
PERIMMUNE HOLDINGS, INC.
as Pledgor
By: /s/ SIMON R. MCKENZIE
-----------------------------------
Name: Simon R. McKenzie
Title: President and Chief
Executive Officer
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
-----------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN
FUND II
By: /s/ MICHAEL A. GRAVES
-----------------------------------
Name: Michael A. Graves
Title: Vice President
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<PAGE> 15
NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
-----------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
-----------------------------------
Name: Michael A. Graves
Title: Vice President
14
<PAGE> 1
Exhibit 10.34
FUNDED COMMITMENT FACILITY ESCROW AGREEMENT
THIS FUNDED COMMITMENT FACILITY ESCROW AGREEMENT (this "Escrow
Agreement"), dated as of August 24, 1998 by and among Northstar High Total
Return Fund ("Northstar Return"), Northstar High Total Return Fund II
("Northstar Return III"), Northstar High Yield Fund ("Northstar Yield"),
Northstar Strategic Income Fund ("Northstar Income," together with Northstar
Return, Northstar Return II and Northstar Yield, the "Purchasers"), Intracel
Corporation, a Delaware corporation (the "Company"), and Bank of America NT &
SA, doing business as Seattle First National Bank, (together with its successors
and assigns, the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, the Company has sold to the Purchasers and the
Purchasers have purchased on the date hereof, certain Guaranteed Senior Secured
Primary Promissory Notes (the "Primary Notes") in the aggregate amount of
$35,000,000 in accordance with the terms of the Securities Purchase Agreement
dated the date hereof among the Purchasers and the Company (the "Securities
Purchase Agreement"); and
WHEREAS, the Company has sold to the Purchasers and the
Purchasers have purchased on the date hereof, certain Guaranteed Senior Secured
Escrow Promissory Notes (the "Escrow Notes") in the aggregate amount of
$6,000,000 in accordance with the terms of the Securities Purchase Agreement
(the Primary Notes and the Escrow Notes are collectively referred to herein as
the "Notes"), and
WHEREAS, the obligations of the Company under the Securities
Purchase Agreement, the Notes and the Ancillary Agreements (the "Obligations"),
are secured on the terms and conditions contained in the Securities Documents
(as that term is defined in the Securities Purchase Agreement; and
WHEREAS, the Obligations of the Company are guaranteed by the
Company's Subsidiaries in accordance with the Guaranty Agreement dated the date
hereof among the Purchasers and the Company (the "Guaranty Agreement"); and
WHEREAS, in connection with the purchase and sale of the Notes,
the Company is obligated to deposit into escrow with the Escrow Agent Six
Million Dollars ($6,000,000), which sum represents all of the cash proceeds from
the sale of the Escrow Notes, to be held and disbursed by the Escrow Agent on
the terms and conditions hereinafter set forth;
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<PAGE> 2
NOW THEREFORE, in consideration of the promises and the mutual
representations, warranties, covenants, agreements and other consideration
contained and exchanged in this Escrow Agreement, the receipt and sufficiency
of which are hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:
1. Definitions. Capitalized terms defined in the Securities
Purchase Agreement, the Notes and the Ancillary
Agreements, when used herein without definition, shall
have the respective meanings set forth therein.
2. Appointment of Escrow Agent. The Purchasers and the
Company hereby designate and appoint the Escrow Agent to
serve in accordance with the terms, conditions and
provisions of this Escrow Agreement, and the Escrow
Agent hereby agrees to act as such upon the terms,
conditions and provisions provided in this Escrow
Agreement.
3. Escrow. On the date hereof, the Company has instructed
the Purchasers to deliver and the Purchasers have
delivered to the Escrow Agent the sum of Six Million
Dollars ($6,000,000) (the "Escrow Fund"), the receipt of
which the Escrow Agent hereby acknowledges. The Escrow
Fund shall be deposited in the account described on
Annex I hereto for receipt of such amount (the "Escrow
Account") and shall be held in such Escrow Account and
distributed in accordance with the terms and provisions
of this Escrow Agreement.
4. Investment of Escrow Fund. The Escrow Fund shall be held
and invested or reinvested by the Escrow Agent solely in
cash or three-month or six-month U.S. treasury bills,
and otherwise upon and in accordance with the written
instructions of the Company and the Purchasers.
Investments of monies in the Escrow Fund shall be made
in the foregoing securities in a manner that will ensure
that such investments mature or may be redeemed or may
be subject to liquidation by sale or otherwise at the
option of the Escrow Agent at such time as may be
necessary to make timely disbursements from said Escrow
Fund. The Escrow Agent may from time to time sell such
investments and reinvest the proceeds therefrom in other
investments of the type described in this Section 4. The
Escrow Fund shall be credited with all proceeds of sale
and income from such investment.
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<PAGE> 3
5. Term. Subject to claims against the Escrow Fund as
hereinafter provided, the term of this Escrow Agreement
shall terminate upon the earlier of (a) the date on
which the Escrow Fund shall have been reduced to zero;
(b) the date on which the Company shall have repaid all
of the Escrow Notes from any source of funds whatsoever;
and (c) August 25, 2003 (the "Escrow Expiration Date").
6. Disbursement of Monies in the Escrow Fund Prior to
Escrow Termination Date. On each occasion that the
Company shall execute and deliver a written notice
substantially in the form of Exhibit A hereto (each, a
"Disbursement Notice") to the Escrow Agent providing the
Escrow Agent with disbursement instructions for all or
any part of the Escrow Fund, the Escrow Agent shall
disburse the portion of the Escrow Fund referred to in
such notice in accordance with the instructions
contained in such notice.
7. Disbursement of Monies in the Escrow Fund on Default or
on the Escrow Termination Date. On the earlier of (A)
any date on which there shall occur a Default, an Event
of Default, or an event that with the lapse of time or
the giving of notice or both, shall constitute an Event
of Default with respect to the Securities Purchase
Agreement, the Notes or any of the Ancillary Agreements
(the "Default Date") and unless the Purchasers shall
have waived the provisions of this Section 7 with
respect to a particular Default Date within five (5)
Business Days after such Default Date, or (B) the Escrow
Expiration Date, the Escrow Agent shall apply any
remaining amounts in the Escrow Fund in the following
order of priority: (A) to the Purchasers, an amount
equal to all accrued unpaid past due interest on the
Notes; (B) to the Purchasers, an amount equal to all
accrued unpaid interest due on the Notes; (C) to the
Purchasers, all accrued unpaid and past due amounts
under the Securities Purchase Agreement, the Notes and
any of the Ancillary Agreements; (D) to the Purchasers,
all other accrued unpaid amounts under the Securities
Purchase Agreement, the Notes and any of the Ancillary
Agreements;(E) the aggregate principal amount
outstanding under the Notes; and (F) to the Company;
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<PAGE> 4
provided however, that the Escrow Agent shall not be required to make any
disbursements with respect to a Default Date until it shall have received a
notice from the Purchasers under this Section 7 in substantially the form set
forth in Exhibit B attached hereto, and further provided that it shall make such
disbursement as set forth above promptly after receipt of such notice from the
Purchasers.
8. Escrow Agent. The Escrow Agent shall be an Eligible
Institution as that term is defined in the Securities
Purchase Agreement. The duties of the Escrow Agent,
hereunder shall be entirely administrative and not
discretionary. The Escrow Agent shall be obligated to
act only in accordance with written instructions
received by it as provided in this Escrow Agreement and
is authorized hereby to comply with such written
instructions, any orders, judgments or decrees of any
court with proper jurisdiction and shall not be liable
as a result of its compliance with the same.
a. As to any legal questions arising in connection
with the administration of this Escrow
Agreement, the Escrow Agent may rely absolutely
upon the opinions given to it by its counsel and
shall be free of liability (except for liability
arising from its own gross negligence or wilful
misconduct), for acting in reliance on such
opinions.
b. The Escrow Agent may rely absolutely upon the
genuineness and authorization of the signature
and purported signature of any party upon any
instruction, notice, release, receipt or other
document delivered to it pursuant to this Escrow
Agreement.
c. The Escrow Agent may, as a condition to the
disbursement of monies or disposition of
securities as provided herein, require from the
payee or recipient a receipt therefor and, upon
final payment or disposition, a release of the
Escrow Agent from any liability arising out of
its execution or performance of this Escrow
Agreement, such release to be in a form
satisfactory to the Escrow Agent.
d. The parties agree that any compensation due to
the Escrow Agent for its services
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<PAGE> 5
hereunder shall be paid entirely by the Company.
9. Indemnity.
a. The Purchasers and the Company agree to and
hereby waive any suit, claim, demand or cause of
action of any kind which they or it may have or
may assert against the Escrow Agent arising out
of or relating to the execution or performance
by the Escrow Agent of this Escrow Agreement,
unless such suit, claim, demand or cause of
action is based upon the wilful misconduct,
gross negligence or bad faith of the Escrow
Agent. The Purchasers and the Company further
agree, jointly and severally, to indemnify the
Escrow Agent against and from any and all
claims, demands, costs, liabilities and
expenses, including reasonable counsel fees,
which may be asserted against it or to which it
may be exposed or which it may incur by reason
of its execution or performance of this Escrow
Agreement, except such claims, demands, costs,
liabilities and expenses that are based upon or
the result of the wilful misconduct, gross
negligence or bad faith of the Escrow Agent.
Such agreement to indemnify shall survive the
termination of this Escrow Agreement until
extinguished by any applicable statute of
limitations.
b. In case any litigation is brought against the
Escrow Agent in respect of which indemnity may
be sought hereunder, the Escrow Agent shall give
prompt notice of that litigation to the
Purchasers and the Company and the Purchasers
and the Company upon receipt of that notice
shall have the obligation and the right to
assume the defense of such litigation, provided
that failure of the Escrow Agent to give that
notice shall not relieve the Purchasers or the
Company from any of their obligations under this
Section 9 unless that failure prejudices the
defense of such litigation by said parties. At
its own expense, the Escrow Agent may employ
separate counsel and participate in the defense.
The Purchasers and the Company shall not be
liable hereunder pursuant to any settlement
without their respective consents.
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<PAGE> 6
10. Acknowledgment by the Escrow Agent. By execution and
delivery of this Escrow Agreement, the Escrow Agent
acknowledges that the terms and provisions of this
Escrow Agreement are acceptable to it and it agrees to
carry out the provisions of this Escrow Agreement on its
part.
11. Resignation or Removal of Escrow Agent; Successors.
a. The Escrow Agent may resign as such following
the giving of ten (10) days' prior written
notice to the other parties hereto. Similarly,
the Escrow Agent may be removed and replaced
following the giving of ten (10) days' prior
written notice to the Escrow Agent by the
Purchasers and the Company. In either event,
subject to subsection 11(b), the duties of the
Escrow Agent shall terminate ten (10) days after
the date of such notice (or as of such earlier
date as may be mutually agreeable among the
parties hereto); and the Escrow Agent shall then
deliver the balance of the Escrow Fund then in
its possession to a successor Escrow Agent as
shall be appointed by the other parties hereto
as evidenced by a written notice filed with the
Escrow Agent. Any successor Escrow Agent
appointed hereunder shall be an Eligible
Institution (as that term is defined in the
Securities Purchase Agreement), that is
appointed by the Purchasers and the Company.
b. If for any reason any bank or trust company is
unwilling to serve as successor Escrow Agent and
if the other parties hereto are unable to agree
upon a successor or shall have failed to appoint
a successor prior to the expiration of ten (10)
days following the date of the notice of
resignation or removal, the then acting Escrow
Agent may petition any court of competent
jurisdiction for the appointment of a successor
Escrow Agent or other appropriate relief and
until any such appointment is made or
appropriate relief granted, the then acting
Escrow Agent shall continue as the Escrow Agent;
and any such resulting appointment shall be
binding upon all of the Parties hereto.
C. Every successor appointed hereunder shall
execute, acknowledge and deliver to its
predecessor and also to the Purchasers and the
Company, an instrument in writing accepting such
appointment hereunder, and thereupon such
successor, without
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<PAGE> 7
any further act, shall become fully vested with
all the duties, responsibilities and obligations
of its predecessor; but such predecessor shall,
nevertheless, on the written request of its
successor or any of the parties hereto, execute
and deliver an instrument or instruments
transferring to such successor all the rights of
such predecessor hereunder, and shall duly
assign, transfer and deliver all property,
securities and monies held by it pursuant to
this Escrow Agreement to its successor. Should
any instrument be required by any successor for
more fully vesting in such successor the duties,
responsibilities and obligations hereby vested
or intended to be vested in the predecessor, any
and all such instruments in writing shall, on
the request of any of the parties hereto, be
executed, acknowledged and delivered by the
predecessor or any other party so requested.
d. In the event of an appointment of a successor,
the predecessor shall cease to be custodian of
any funds, securities or other assets and
records it may hold pursuant to this Escrow
Agreement, and the successor shall become such
custodian.
e. Upon acknowledgment by any successor Escrow
Agent of the receipt of the then remaining
balance of the Escrow Fund, which acknowledgment
shall be given promptly after such receipt, the
then acting Escrow Agent shall be fully released
and relieved of all duties, responsibilities and
obligations under this Escrow Agreement.
12. Entire Agreement, Amendments and Waivers. This Escrow
Agreement contains the entire agreement (including
representations, warranties and covenants) among the
parties hereto pertaining to the subject matter hereof
and supersedes all prior and contemporaneous agreements,
negotiations, discussions, arrangements or
understandings with respect thereto. No amendment,
supplement, modification or waiver of this Escrow
Agreement shall be binding unless executed in writing by
the Escrow Agent, the Required Holders (as that term is
defined in the Securities Purchase Agreement) and the
Company, provided however that, except with the prior
written consent of one hundred percent (100%) of the
Purchasers, no amendment to this Agreement can affect
the time, amount or allocation of any payments, change
the percentage
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<PAGE> 8
specified in the definition of Required Holders as
contained in the Securities Purchase Agreement or
consent to the assignment or transfer by the Company or
any of its Subsidiaries of their respective obligations
under this Agreement. Any amendment or waiver of any
provision herein shall be effective only for the
purposes and period of time expressly set forth therein
and shall not entitle the Company to any other waiver or
amendment in similar or other circumstances. No course
of dealing between the Company and any Purchaser, nor
any failure to exercise or any delay in exercising on
the part of the Purchasers, any right, remedy, power or
privilege herein shall operate as a waiver thereof; nor
shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other
right, remedy, power or privilege. The rights, remedies,
powers and privileges hereunder are cumulative and not
exclusive of any rights remedies, powers and privileges
provided by law. In addition to the remedies provided in
this Escrow Agreement, any party may pursue any and all
remedies now or hereafter existing at Law or in equity.
13. Execution in Counterparts. This Escrow Agreement may be
executed in one or more counterparts each of which shall
be regarded as an original and all of which shall
constitute but one and the same instrument.
14. Severability. If any provision of this Escrow Agreement,
or any covenant, obligation or agreement contained
herein is determined by a court of competent
jurisdiction to be invalid or unenforceable, such
determination shall not affect any other provision,
covenant, obligation or agreement contained herein, each
of which shall be construed and enforced as if such
invalid or unenforceable portion were not contained
herein. Such invalidity or unenforceability shall not
affect any valid and enforceable application thereof,
and each such provision, covenant, obligation or
agreement shall be deemed to be effective, operative,
made, entered into or taken in the manner and to the
full extent permitted by law.
15. Captions. The captions and headings in this Escrow
Agreement shall be solely for convenience of reference
and shall in no way define, limit or
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<PAGE> 9
describe the scope or intent of any provisions or
sections of this Escrow Agreement.
16. Notices. All notices, requests, consents or other
communications which are required or permitted hereunder
shall be in writing and shall be deemed to be
sufficiently given when delivered personally, mailed by
registered or certified mail, postage prepaid, or
nationwide overnight delivery service (with charges
prepaid) and addressed as follows:
if to the Purchasers:
Northstar High Total Return
Northstar High Total Return II
Northstar High Yield Fund
Northstar Strategic Income Fund
300 First Stamford Place
Stamford, Connecticut 06902
Attention: Mr. Michael A. Graves
With a copy to:
Reboul, MacMurray, Hewitt, Maynard
& Kristol
45 Rockefeller Plaza
New York, New York 10111
Attention: Karen C. Wiedemann
a. if to the Company:
Intracel Corporation
2005 N.W. Sammamish Road
Issaqua, Washington 98027
Attention: Simon R. McKenzie
Chief Executive Officer
b. if to the Escrow Agent:
c. Bank of America NT & SA
doing business as
Seattle First National Bank
10500 Northeast 8th Street
Floor 5
Bellevue, Washington 98004
or, in any such case, at such other addresses or addresses as shall have been
furnished in writing by such party to the other. Any notice given hereunder
shall be deemed given and delivered three (3) Business Days after mailing by
mail, or one day after
9
<PAGE> 10
delivery to an overnight express service for next day delivery, or upon
delivery, if personally delivered, as the case may be.
17. Expenses. The Company shall pay its own expenses and the
expenses of the Purchasers in connection with the
transactions contemplated hereby, including, but not
limited to, the execution and enforcement of this
Agreement and any indemnity payments by Purchasers to
the Escrow Agent in accordance with Section 9 hereto.
18. Successors. This Escrow Agreement shall be binding
upon, and inure to the benefit of the successors and
assignees of the parties hereto (including without
limitation, in the case of Purchaser and Seller, by
merger), and no other person shall have any right,
benefit or obligation hereunder.
19. Applicable Law. This Escrow Agreement shall be governed
by and construed and enforced in accordance with the
internal laws (and not the laws of conflicts) of the
State of New York as permitted by Section 5-401 of the
New York General Obligations Law (or any similar
successor provision) without giving effect to any
choice of law rule that would cause the application of
the Laws of any jurisdiction other than New York. Each
of the parties hereto hereby (i) submits for itself and
its respective Assets to the nonexclusive general
jurisdiction of the Courts of the State of New York,
County of New York and the Courts of the United States
of America for the Southern District of New York, (ii)
irrevocably agrees that, at the Purchasers' election,
all actions or proceedings arising out of or relating to
this Escrow Agreement may be litigated in such courts,
(iii) waives any objection that it may have to the venue
of any such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the
same, and (iv) agrees that service of process in any
such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail, postage
prepaid, to it at its address set forth in or determined
pursuant Section 16 of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Escrow Agreement to be executed on its behalf as of the day and year first above
written.
10
<PAGE> 11
NORTHSTAR HIGH TOTAL RETURN FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH TOTAL RETURN FUND II
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR HIGH YIELD FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
NORTHSTAR STRATEGIC INCOME FUND
By: /s/ MICHAEL A. GRAVES
-------------------------------
Name: Michael A. Graves
Title: Vice President
11
<PAGE> 12
INTRACEL CORPORATION
By /s/ SIMON R. MCKENZIE
-------------------------------
Name: Simon R. McKenzie
Title: Chief Executive Officer
Bank of America NT & SA
doing business as
Seattle First National Bank
By:
-------------------------------
Name:
Title:
12
<PAGE> 13
INTRACEL CORPORATION
By /s/ SIMON R. MCKENZIE
-------------------------------
Name: Simon R. McKenzie
Title: Chief Executive Officer
Bank of America NT & SA
doing business as
Seattle First National Bank
By: /s/ C. TAYLOR
-------------------------------
Name: Christopher J. Taylor
Title: Assistant Vice-President and Relationship Officer
Seafirst Investment Management
and Trust Services
12
<PAGE> 1
Exhibit 10.35
AGREEMENT
AGREEMENT dated as of August 20, 1998 by and between Intracel
Corporation, a Delaware corporation (the "Company") and First Union National
Bank (the successor-in-interest to CoreStates Enterprise Fund, a division of
CoreStates Bank, N.A.) (the "Noteholder").
WHEREAS, the Noteholder currently owns beneficially and of record (i) a
secured promissory note of the Company, dated June 11, 1996, in the original
principal amount of $4,000,000 (together with any "payment-in-kind" notes issued
pursuant thereto, in the aggregate, the "Note"), (ii) the Company's Series A-III
Common Stock Warrant, dated June 11, 1996 (the "Warrant"), to purchase up to
318,148 shares of the Company's Common Stock, $.0001 par value per share (the
"Common Stock"); and (iii) 318,148 shares of Common Stock.
WHEREAS, the Company is in the process of negotiating the terms of a
proposed financing transaction (the "Northstar Financing") with Northstar
Advantage High Total Return Fund and/or affiliates thereof ("Northstar"); and
WHEREAS, simultaneously with the closing of the Northstar Financing (the
"Northstar Closing"), the Company desires to repay the Note, to direct the
transfer of a portion of the Warrant representing the right to acquire 238,610
shares of Common Stock which may be acquired under the Warrant (the portion of
the Warrant to be transferred is hereinafter referred to as the "Securities") to
Northstar and to terminate all of the liens, pledges and security interests (the
"Security Interests") granted to the Noteholder in the assets and securities of
the Company in furtherance of the Security Documents (as defined under the Note)
in consideration for payment to the Noteholder of the amount specified herein to
be paid therefor (the "Purchase Price"), and the Noteholder desires that the
Note be so repaid, that the Securities be transferred and that the Security
Interests be so terminated, all on the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual agreements contained herein, intending to be legally bound hereby, the
parties hereto agree as follows:
1. Cancellation of the Securities; Payment of Purchase Price;
Termination of Security Interests.
1.1 Notice of Northstar Closing and Note Payoff Amount. The Company
hereby notifies the Noteholder that the closing (the "Closing") of the
transactions contemplated hereby shall occur (the "Closing Date") on August 21,
1998. The Noteholder has calculated the amount of principal and accrued interest
that will be due and owing under the Note and all other amounts due and payable
under the Note and the Note and Series A-III Warrant Purchase Agreement dated as
of June 11, 1996 between the Company and the Noteholder, as amended to date (the
"Original Agreement") as of the Closing Date (the "Purchase Price") and a copy
of the pay-off letter setting forth such calculation is attached hereto as
Exhibit A.
1
<PAGE> 2
1.2 Cancellation of the Note and Security Interests and Transfer of
Securities. Upon receipt in immediately available funds of the Purchase Price,
subject to Paragraph 1.5 hereof: (a) the Noteholder shall, and hereby agrees to,
cancel the Note (subject to Paragraph 4.4 hereof), terminate the Security
Interests and sell and transfer all of its right, title and interest, legal and
equitable, in and to the Securities to Northstar, and the Company hereby agrees
to the foregoing; and
(b) all of the Noteholder's right, title and interest in, and lien on, the
property and assets of the Company and each of its Subsidiaries in which it was
granted a security interest pursuant to the Note shall be released and
terminated and all of the Company's obligations under the Note, including any
obligation under Section 15 of the Note, shall be deemed satisfied in full.
1.3 Deliveries at the Closing. (a) On the Closing Date, the Noteholder
shall deliver to counsel to Northstar in escrow pending the receipt of the
Purchase Price, (i) the certificate representing the Warrant to the Company,
together with such assignment documents attached thereto as shall be necessary
to transfer the Securities to Northstar; and (ii) the Note, and (B) such
executed releases and UCC-3 and other termination statements (collectively, the
"Termination Statements") as the Company reasonably deems sufficient to
terminate the Security Interests under the Uniform Commercial Code and
otherwise.
(b) On the Closing Date, the Company shall deliver (i) payment of the
Purchase Price by delivery of immediately available funds to Noteholder in the
amount of the Purchase Price and (ii) a new warrant certificate (the
"Replacement Warrant") registered in the name of the Noteholder evidencing the
right, which is not being purchased in connection with this Agreement, to
acquire 79,538 shares of the Company's Common Stock. The Replacement Warrant
shall embody the same terms and conditions of the Warrant other than the number
of shares of Common Stock with which it is exercisable.
1.4 Closing. The Closing with respect to the transactions provided for in
this Agreement shall be held at the offices of Morrison & Foerster LLP, 1290
Avenue of the Americas, New York, New York 10104 on the Closing Date.
1.5 Closing Date. The Noteholder and the Company hereby acknowledge and
agree that the obligation of the Noteholder to accept the Purchase Price and
perform its obligations under this agreement is contingent upon the Closing Date
taking place on or before August 21, 1998. The parties hereby agree that time is
of the essence hereunder. If the Noteholder shall not have received the Purchase
Price on or before August 21, 1998, the Noteholder shall be under no obligation
to perform its obligations hereunder.
2. Representations and Warranties of the Noteholder. The Noteholder hereby
represents and warrants as follows:
2.1 Ownership of Securities. The Noteholder has good and marketable title
to the Securities and the Note. Upon the consummation of the transactions
contemplated hereby, the Noteholder will have transferred to the Company, and
the Company will have acquired good and valid title to the Securities, free and
clear of all liens, claims and encumbrances.
2
<PAGE> 3
2.2. Authorization, etc. The Noteholder has full corporate power and
authority to execute and deliver this Agreement and to carry out the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Noteholder. This Agreement constitutes a valid and binding
agreement of the Noteholder, enforceable against the Noteholder in accordance
with its terms.
2.3. No Conflict. The execution and delivery of this Agreement by the
Noteholder and the consummation of the transactions contemplated hereby will not
conflict with, violate or constitute a breach or default under any of its
material agreements.
3. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
3.1. Authorization, etc. The Company has full corporate power and
authority to execute and deliver this Agreement and the Replacement Warrant and
to carry out the transactions contemplated hereby. This Agreement and the
Replacement Warrant have been duly executed and delivered by the Company. This
Agreement and the Replacement Warrant constitute valid and binding agreements of
the Company, enforceable against the Company in accordance with their
respective terms.
3.2. No Conflict. The execution and delivery of this Agreement and the
Replacement Warrant by the Company and the consummation of the transactions
contemplated hereby will not conflict with, violate or constitute a breach or
default under any of its material agreements.
4. Miscellaneous.
4.1. Counterparts. This Agreement may be executed in one or more
counterparts, but all such counterparts shall constitute one and the same
instrument.
4.2 Amendments; Non-assignability of Rights. This Agreement may not be
amended or assigned without the prior written consent of the parties hereto.
4.3. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to the
conflicts of laws and rules thereof would result in the application of the laws
of a jurisdiction other than the State of New York.
4.4. Integration and Severability. The covenants and agreements of the
parties hereto (or their predecessor) set forth in the following agreements are
incorporated by reference as if set forth in full herein: (i) Section 5.1
through 5.4, Article VI and Sections 8.1 through 8.3 of the Original Agreement,
(ii) Section 14 of that certain Secured Promissory Note by the Company dated
June 11, 1996 (as amended to date, the "Note"). This Agreement (including such
incorporation by reference of the Original Agreement and the Notes set forth in
this Section 4.4) embodies the entire agreement and understanding among the
parties hereto, and supersedes all prior agreements and understandings,
relating to the subject matter hereof. In case any one or
3
<PAGE> 4
more of the provisions contained in this Agreement or in any instrument
contemplated hereby, or any application thereof, shall be invalid, illegal or
unenforceable in any respect, under the laws of any jurisdiction, the validity,
legality and enforceability of the remaining provisions contained herein and
therein, and any other application thereof, shall not in any way be affected or
impaired thereby or under the laws of any other jurisdiction.
4.5 Headings. The headings of the articles, sections and subsections of
this Agreement are inserted for convenience only and shall not be deemed to
constitute a part of this Agreement.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above stated.
INTRACEL CORPORATION
By:
-------------------------------
FIRST UNION NATIONAL BANK
By: [SIG]
-------------------------------
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above stated.
INTRACEL CORPORATION
By: [SIG]
-------------------------------
FIRST UNION NATIONAL BANK
By:
-------------------------------
5
<PAGE> 1
Exhibit 10.36
[AKZO NOBEL LETTERHEAD]
July 31, 1998
Perimmune Holdings, Inc.
c/o Intracel Corporation
1871 N.W. Gillman Blvd.
Issaquah, Washington 98027
Re: Amendment No. 1
Dear Sirs:
The purpose of this letter is to effect an amendment (this "Amendment No. 1")
to each of the agreements set forth below relating to certain debts owed to the
Undersigned, including a note referred to below, in the original principal
amount of $9,234,935 (each such agreement, an "Agreement", and all terms used
herein as defined which are not otherwise defined herein shall be used as
defined in the respective Agreement), as follows:
A. Promissory Note of Perimmune Holdings, Inc. ("Holdings") to the order of
Organon Teknika Corporation ("Teknika") dated August 2, 1996 in the original
principal amount of $9,234,935 (the "Note").
1. The first sentence of the third paragraph of the Note is hereby
amended by deleting "paid in full" and inserting "the Public Date (as
defined below)".
2. The second sentence of the third paragraph of the Note is hereby
amended by adding the following clause at the end thereof: ":provided that
upon the consummation by Intracel Corporation, which is the sole
shareholder of Holdings ("Intracel") of an offering of its equity
securities which is registered pursuant to the Securities Act of 1933 (the
"Public Offering"), the principal amount of this Promissory Note shall be
calculated and all interest which has accrued on this Promissory Note but
has not been paid shall at such time be added to the principal amount of
this Promissory Note (the "IPO Principal Amount"), and from and after the
date of the consummation of the Public Offering (the "Public Date") until
paid in full, interest shall accrue on the IPO Principal Amount at the rate
of ten percent (10%) per annum, and shall be due and payable quarterly on
each November 1, February 1, May 1 and August 1 thereafter."
<PAGE> 2
July 31, 1998
Page 2
3. The first three sentences of the fourth paragraph of the Note are
hereby deleted in their entirety and replaced with the following:
"The maturity date of this Promissory Note is January 15, 2000 ("Maturity
Date") subject to Payee's right to accelerate final maturity as set forth
herein. On the Maturity Date, the principal amount shall be calculated and
all interest which has accrued on this Promissory Note but has not been
paid shall at such time be added to the principal amount of this Promissory
Note (the "Final Principal Amount"). Intracel shall as of December 31,
1999, but prior to the Maturity Date, calculate its cash and cash
equivalent balances (including any voluntary payments of amounts not yet
due or any payments classified as extraordinary transactions under
generally accepted accounting principles) as of such date in the same
manner that will be used for purposes of its audited financial statements
(the "Cash Position"). In the event that the Cash Position as determined
above does not exceed $15,000,000, the Final Principal Amount shall not be
payable at the Maturity Date, but shall be payable over the next twelve
month period, in equal quarterly payments (together with interest on the
unpaid amount of the Final Principal Amount on each such quarterly payment
date at a rate of ten percent (10%) per annum) designed to amortize the
Final Principal Amount in full at the end of such 12-month period. The
quarterly installments shall be due on April 15, 2000; July 15, 2000;
October 15, 2000 and January 15, 2001. In the event the Cash Position is
greater than $15,000,000 (such excess, the "Excess Cash Position"), an
amount of the Final Principal Amount equal to the Excess Cash Position (up
to an amount equal to the Final Principal Amount) shall be payable to the
Payee on the Maturity Date. In the event that the payment required by the
immediately preceding sentence is insufficient to pay the Final Principal
Amount in full on the Maturity date, any remainder (the "Remaining
Principal Amount") shall be payable in three equal quarterly payments
(together with interest on the unpaid amount of the Remaining Principal
Amount on each such quarterly payment date at a rate of ten percent (10%)
per annum), commencing on April 15, 2000 designed to amortize the Remaining
Principal Amount in full at the last payment on October 15, 2000. In
addition to the foregoing, from and after the Public Date, this Note shall
be convertible, at the option of the Payee, into that number of shares of
Intracel Common Stock, par value $.0001 per share, obtained by dividing the
sum of the then outstanding principal amount and all then accrued and
unpaid interest (if any) under this Promissory Note by the price set forth
as the per share price to the public on the final prospectus utilized in
the Public Offering."
<PAGE> 3
July 31, 1998
Page 3
B. Intellectual Property Security Agreement dated as of August 8, 1996 by and
among Holdings, Perlmmune, Inc. ("Perlmmune"), Akza Nobel Pharma International,
B.V. ("Pharma") and Teknika (the "Security Agreement"):
1. Upon representation by Holdings and its sole shareholder, Intracel
Corporation ("Intracel"), that a financing arrangement has been reached
between Intracel and Northstar High Yield Fund and its affiliates
(collectively "Northstar"), pursuant to the Commitment Letter entered into
by Intracel and Northstar as of June 8, 1998, it is agreed that Section 6
of the Security Agreement is hereby amended by adding the following to the
end of Section 6:
Notwithstanding anything in this Agreement to the contrary, the
Collateral Agent hereby consents to the granting of a security
interest in the Collateral in connection with the transactions
contemplated by the Commitment Letter dated as of June 8, 1998
between Intracel Corporation which is the sole shareholder of
Holdings, and Northstar High Yield Fund and its affiliates
(collectively, "Northstar") on the condition that Northstar's
security interest shall be subject to and secondary to the
Interests of the Secured Parties hereunder. The Collateral Agent
hereby agrees to provide Northstar with 45 days prior written
notice of the Collateral Agent's intent to take any action with
respect to the Collateral due to a default specified in this
Section 6; provided, however, that nothing herein shall prevent
the Collateral Agent from taking such action during the 45 day
notice period as it deems necessary to prevent a sale, pledge,
transfer or assignment of the Collateral prohibited under Section
5 hereof or, after the expiration of the 45 days prior, from
exercising any and all of its rights set forth in this Agreement
with respect to the Collateral including, within limitation, its
rights to sell, pledge, transfer, license or assign the
Collateral.
2. Section 9 of the Security Agreement is hereby amended by deleting the
first sentence and replacing it with the following: "This Security
Agreement shall terminate upon full and final payment of the Purchase Price
Note, as amended through the date hereof."
<PAGE> 4
July 31, 1998
Page 4
C. Intellectual Property Agreement dated August 2, 1996 by and among Holdings
and Akzo Nobel Pharma International B.V. ("Pharma") (the "Intellectual Property
Agreement").
1. Subsection 2.2(b) of the Intellectual Property Agreement is hereby
amended by adding the following paragraphs at the end thereof;
All Installment payments provided for under this Subsection 2.2(b)
shall be due no later than 30 days following the date on which the
required product approval is received (or the date on which first
commercial sale occurs in the second country outside the U.S.A., if
no product approval is required). All installment payments shall
accrue interest at the rate of eight percent (8%) per annum from the
date approval is granted by the FDA or the date of approval in the
second country as specified above outside the U.S.A., as applicable.
Holdings hereby agrees to promptly notify Pharma in writing of the
regulatory approval and first commercial sale of any Product in any
of the countries mentioned above, but in any event within seven (7)
days after the occurrence of each of such approval and first
commercial sale.
With respect to any notice, payment or other action becoming due
under this Subsection 2.2(b) upon or in response to regulatory
approval of a Product (including approval by FDA), if regulatory
approval is not required for commercial use of the Product, then
regulatory approval shall be deemed to have been given upon the date
of first commercial use of the Product.
2. Section 2.2 of the Intellectual Property Agreement is hereby amended
by adding a new subsection (g) at the end thereof, as follows: "(g)
Notwithstanding anything in this Section 2.2 to the contrary: (i) all
payments which are due and payable on July 21, 1998, or which would
otherwise become due and payable under the terms hereof from and after
such date (other than the $500,000 milestone payment currently payable
thereunder with respect to the United States introduction of ApoTek Lp(a)
(the "ApoTek Payment"), which shall be paid the day following the closing
of the transactions contemplated by the Commitment Letter dated as of
June 8, 1998 between Intracel Corporation ("Intracel"), which is the sole
shareholder of Holdings, and Northstar High Yield Fund and its
<PAGE> 5
July 31, 1998
Page 5
affiliates signatories thereto) and prior to the consummation of the
initial public offering by Intracel of its common stock, par value $.0001
per share, pursuant to a registration statement on Form S-1 filed pursuant
to the provisions of the Securities Act of 1933, as amended (the "IPO"),
shall be due and payable upon the consummation of the IPO and (ii) all
other payments which become due and payable after the IPO shall be paid
when due under the terms of this Agreement.
3. Schedule 2(a)(i) and Schedule 2(a)(ii) to the Intellectual Property
Agreement are hereby amended to read as "Schedule 2.2(a)(i)" and "Schedule
2.2(a)(ii)", respectively.
Except as amended by this Amendment No. 1, the remainder of each Agreement shall
remain in full force and effect.
This Amendment No. 1 shall cease to be effective and shall be deemed null and
void, ab initio, if the guaranty set forth below has not been agreed to and
executed by Intracel on or before August 21, 1998, or on the "closing date"
referred to in the Commitment Letter between Intracel and Northstar, as
described hereinabove, whichever is earlier.
Please indicate your acceptance of and agreement to this Amendment No. 1 by
executing the copy of this letter enclosed herewith and returning it to the
undersigned.
Very truly yours,
Organon Teknika Corporation
By: /s/ [SIG]
------------------------
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST SET FORTH ABOVE:
Perlmmune Holdings, Inc.
By: /s/ [SIG]
------------------------
<PAGE> 6
July 31, 1998
Page 6
SO ACCEPTED AND AGREED FOR PURPOSES
OF THE AMENDMENT TO THE INTELLECTUAL
PROPERTY SECURITY AGREEMENT AND THE
INTELLECTUAL PROPERTY AGREEMENT:
Akzo Nobel Pharma International, B.V.
By: /s/ [SIG]
- ------------------------------------
Perlmmune, Inc.
By: /s/ SIMON R. MCKENZIE
- ------------------------------------
Guaranty
As an inducement to Organon Teknika Corporation and Akzo Nobel Pharma
International, B.V. to enter into this Amendment of the Agreements, as
described hereinabove, Intracel Corporation hereby agrees to guarantee payment
of the Promissory Note, and payment of milestone payments due under the
Intellectual Property Agreement through the IPO Date, as specified above.
Intracel Corporation
By: /s/ SIMON R. MCKENZIE
-------------------------------
Title: President and CEO
----------------------------
Date:
------------------------------
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Intracel Corporation's registration statement on
Form S-1 (File No. 333-58819) of our report dated April 24, 1998, except for
the second paragraph of Note 12 as to which the date is May 14, 1998 and Note
14 as to which the date is August 25, 1998, on our audit of the 1997 financial
statements of Intracel Corporation. We also consent to the reference to our
firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Seattle, Washington
October 13, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Intracel Corporation's registration statement on
Form S-1 (File No. 333-58819) of our report dated April 2, 1998, except for the
second paragraph of Note 14 as to which the date is June 8, 1998, on our audit
of the 1997 financial statements of Perimmune Holdings, Inc. and Subsidiary. We
also consent to the reference to our firm under the caption "Experts".
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
McLean, Virginia
October 13, 1998
<PAGE> 1
Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and to the use of our report dated
December 3, 1997, except for paragraph 3 of Note 6 and paragraph 9 of Note 10,
as to which the date is January 2, 1998, included in Amendment No. 1 to the
Registration Statement (Form S-1 No. 333-58819) and related Prospectus of
Intracel Corporation for the registration of shares of its common stock.
/s/ ERNST & YOUNG LLP
Seattle, Washington
October 13, 1998
<PAGE> 1
EXHIBIT 23.4
The Board of Directors
Intracel Corporation:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Financial Data for PerImmune Holdings and
Predecessor Companies" and "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
Baltimore, Maryland
October 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 725,428
<SECURITIES> 0
<RECEIVABLES> 3,042,948
<ALLOWANCES> 95,000
<INVENTORY> 2,337,926
<CURRENT-ASSETS> 6,795,595
<PP&E> 11,490,497
<DEPRECIATION> 6,610,685
<TOTAL-ASSETS> 42,771,589
<CURRENT-LIABILITIES> 12,504,906
<BONDS> 33,828,327
20,691,681
5
<COMMON> 1,103
<OTHER-SE> (24,223,417)
<TOTAL-LIABILITY-AND-EQUITY> 42,771,589
<SALES> 7,744,158
<TOTAL-REVENUES> 9,816,466
<CGS> 5,222,686
<TOTAL-COSTS> 6,851,790
<OTHER-EXPENSES> 51,652,697
<LOSS-PROVISION> 52,000
<INTEREST-EXPENSE> 1,780,228
<INCOME-PRETAX> (49,720,249)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,720,249)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,720,249)
<EPS-PRIMARY> (4.70)
<EPS-DILUTED> (4.70)
</TABLE>
