<PAGE>
As filed with the Securities and Exchange Commission on November 22, 1996
Registration Statement No. ______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
______________________________
VIROLOGIX CORPORATION
(Name of Small Business Issuer in its Charter)
DELAWARE 2834 13-3864869
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
______________________________
666 Third Avenue, 30th Floor
New York, NY 10017
(212) 681-9195
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
________________
JOSHUA D. SCHEIN, PRESIDENT
VIROLOGIX CORPORATION
666 Third Avenue, 30th Floor
New York, NY 10017
(212) 681-9195
(Name, Address and Telephone
Number of Agent For Service)
______________________________
COPIES TO:
FELICE F. MISCHEL, ESQ.
ADAM D. EILENBERG, ESQ. THOMAS A. ROSE, ESQ.
EILENBERG & ZIVIAN SCHNECK WELTMAN HASHMALL & MISCHEL LLP
666 Third Avenue, 30th Floor 1285 Avenue of the Americas
New York, NY 10017 New York, NY 10019
(212) 986-2468 (212) 956-1500
Facsimile (212) 986-2399 Facsimile (212) 956-3252
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective. 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, check
the following box: [X]
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 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
<PAGE>
offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.[ ]
Calculation of Registration Fee
<TABLE>
<CAPTION>
Title of Each Class Amount Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered to be Offering Price Aggregate Offering Registration Fee
Registered Per Unit(1) Price(1)
<S> <C> <C> <C> <C>
Common Stock, par value $.0001(2)........ 1,322,500 $ 6.00 $ 7,935,000 $ 2,404
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001(3)......... 135,000 6.00 810,000 245
- ---------------------------------------------------------------------------------------------------------------------
Underwriter's Warrants, each to purchase
one share of Common Stock(4)............. 115,000 .00012 14 -(5)
- ---------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.0001 per share(6) 115,000 7.20 828,000 251
- ---------------------------------------------------------------------------------------------------------------------
Total: $ 2,900
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Includes an aggregate 172,500 shares of Common Stock to cover over-
allotments, if any, pursuant to an over-allotment option granted to the
Underwriter.
(3) Shares of Common Stock issued by the Company pursuant to a bridge
financing completed on August 2, 1996.
(4) To be issued to the Underwriter at the time of delivery and acceptance of
the securities to be sold to the public hereunder.
(5) No fee due pursuant to Rule 457(g) under the Securities Act of 1933, as
amended (the "Securities Act").
(6) Issuable upon exercise of the Underwriter's Warrants.
Also registered hereunder pursuant to Rule 416 are an indeterminate number of
shares of Common Stock which may be issued pursuant to the anti-dilution
provisions applicable to the Underwriter's Warrants.
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 the Registration Statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
EXPLANATORY NOTE
Two forms of Prospectus are included in this Registration Statement. The
first Prospectus will be used in connection with an underwritten offering of
Common Stock by the Company (the "Company Prospectus"). The second Prospectus
will be used in connection with the sale of Common Stock by certain persons from
time to time in open market transactions (the "Bridge Investors Prospectus").
The Company Prospectus and the Bridge Investors Prospectus are substantially
identical, except for the alternate pages for the Bridge Investors Prospectus
included herein which are labeled "Alternate Page for Bridge Investors
Prospectus." In addition, what is referred to as "the Offering" in the Company
Prospectus will be changed to "the Company Offering" throughout the Bridge
Investors Prospectus.
After this Registration Statement becomes effective, both Prospectuses
will be used in their entirety in connection with the offer and sale of the
respective securities referenced therein.
<PAGE>
VIROLOGIX CORPORATION
Cross-Reference Sheet Showing Location in Prospectus of
Information Required by Items required by Part 1 of Form SB-2
Item Title of Item Caption in Prospectus
- ------ --------------------------- -------------------------------------------
1. Front of Registration
Statement and Outside
Front Cover of
Prospectus................. Front Cover Page
2. Inside Front and Outside
Back Cover Pages of
Prospectus................. Inside Front Cover Page
3. Summary Information and
Risk Factors............... Prospectus Summary; Risk Factors
4. Use of Proceeds............ Use of Proceeds
5. Determination of Offering
Price...................... Underwriting
6. Dilution................... Dilution
7. Selling Security Holders... Concurrent Registration of Common Stock
8. Plan of Distribution....... Front Cover Page; Underwriting
9. Legal Proceedings.......... Business
10. Directors, Executive
Officers, Promoters and
Control Persons............ Management
11. Security Ownership of
Certain Beneficial Owners
and Management............. Principal Stockholders
12. Description of Securities.. Description of Securities; Dividend Policy
13. Interest of Named Experts
and Counsel................ Legal Matters; Experts
14. Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities................ Description of Securities
15. Organization Within Last
Five Years................. Certain Transactions
16. Description of Business.... Business
17. Management's Discussion
and Analysis or Plan of
Operation.................. Plan of Operation
18. Description of Property.... Business
19. Certain Relationships and
Related Transactions....... Certain Transactions
20. Market for Common Equity
and Related Stockholder
Matters.................... Description of Securities; Shares Eligible
for Future Sale
21. Executive Compensation..... Management
22. Financial Statements....... Financial Statements
23. Changes In and Disagreements
With Accountants on
Accounting and Financial
Disclosure................. Not Applicable
<PAGE>
Preliminary Prospectus, Subject to Completion, Dated November 22, 1996
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.
VIROLOGIX CORPORATION
1,150,000 Shares of Common Stock
This Prospectus relates to an offering (the "Offering") by Virologix
Corporation (the "Company") of 1,150,000 shares of common stock, par value
$.0001 per share (the "Common Stock"), through Rickel & Associates, Inc. (the
"Underwriter").
The Company has applied for quotation of the Common Stock on The Nasdaq
SmallCap Market ("Nasdaq") under the trading symbol "____" and has also applied
for listing of the Common Stock on the Boston Stock Exchange ("BSE") under the
trading symbol "____."
Concurrent with this Offering, the Company has registered the offering of
135,000 shares of Common Stock under the Securities Act of 1933, as amended (the
"Securities Act"), on behalf of certain persons (the "Bridge Investors")
pursuant to a Bridge Investors Prospectus included within the Registration
Statement of which this Prospectus forms a part. The Bridge Investors' shares
are not part of this Offering, however, and, without the prior written consent
of the Underwriter, may not be sold prior to the expiration of 12 months after
the date of this Prospectus. The Company will not receive any of the proceeds
from the sale of the shares by the Bridge Investors. See "Concurrent
Registration of Common Stock."
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING
AN INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE
"RISK FACTORS" (PAGE 5) AND "DILUTION" (PAGE 15).
_____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Underwriting
Discounts
Price to and Proceeds to
public Commissions(1) Company(2)
- -------------------------------------------------------------------------------
Per Share....................... $6.00(3) $.60 $5.40
- -------------------------------------------------------------------------------
Total(4)........................ $ 6,900,000 $ 690,000 $ 6,210,000
- --------------------------------------------------------------------------------
(footnotes on following page)
-----------------------------
Rickel & Associates, Inc.
----------------------------
The date of this Prospectus is ___________________________, 1996
<PAGE>
[Inside Front Cover Page]
[Picture]
[Text]
<PAGE>
(1) Does not include additional compensation to the Underwriter consisting of
(i) a non-accountable expense allowance equal to 3% of the gross proceeds
of the Offering, of which $50,000 has been paid by the Company to date,
(ii) warrants (the "Underwriter's Warrants") entitling the Underwriter to
purchase up to 115,000 shares of the Common Stock and (iii) a financial
consulting agreement with the Underwriter for 36 months from the closing
of the Offering at an annual fee of $36,000, all of which ($108,000) is
payable at the closing of the Offering. The Company has also agreed to
indemnify the Underwriter against certain civil liabilities, including
those arising under the Securities Act. See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance
($207,000, or $238,050 if the Underwriter's Over-allotment Option (as
defined below) is exercised in full), the other expenses of the Offering
payable by the Company (estimated at $250,000) and the Underwriter's
consulting fee ($108,000). See "Underwriting."
(3) Represents the estimated initial public offering price per share.
(4) The Company has granted the Underwriter an option, exercisable for a
period of 45 days after the closing of the Offering, to purchase up to an
additional 172,500 shares of Common Stock, upon the same terms and
conditions solely for the purpose of covering over-allotments, if any (the
"Underwriter's Over-allotment Option"). If the Underwriter's
Over-allotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$7,935,000, $793,500, and $7,141,500 respectively. See "Underwriting."
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that any such market for the Common Stock
will develop after the closing of the Offering or that, if developed, it will be
sustained. Pursuant to Section 2720 of the National Association of Securities
Dealers, Inc. ("NASD") Rules of Conduct, the Common Stock is being offered at a
price no greater than the maximum price recommended by ______________, a
qualified independent underwriter. The offering price of the shares of Common
Stock was established by negotiation between the Company and the Underwriter and
does not necessarily bear any direct relationship to the Company's assets,
earnings, book value per share or other generally accepted criteria of value.
See "Underwriting."
The Common Stock is being offered by the Underwriter on a firm
commitment basis, subject to prior sale, when, as and if delivered to the
Underwriter and subject to certain conditions. Subject to the provisions of the
underwriting agreement between the Underwriter and the Company, the Underwriter
reserves the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of certificates will be
made against payment therefor at the office of the Underwriter, 875 Third
Avenue, New York, New York 10022, on or about ________________, 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
No dealer, salesperson or other person is authorized to give any
information or to make any representation other than as contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any Underwriter or the
Selling Stockholder. This Prospectus does not constitute an offer to sell, or a
solicitation of an offer to buy, by any person in any jurisdiction in which it
is unlawful to make such an offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create an
implication that the information contained herein is correct as of any time
subsequent to the date hereof.
________________
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................ 1
Risk Factors.................................................................. 5
Use of Proceeds.............................................................. 13
Capitalization............................................................... 14
Dilution..................................................................... 15
Dividend Policy...............................................................16
Selected Financial Data.......................................................17
Plan of Operation............................................................ 18
Business..................................................................... 20
Management................................................................... 30
Principal Stockholders....................................................... 33
Certain Transactions......................................................... 34
Description of Securities.................................................... 35
Shares Eligible for Future Sale.............................................. 36
Concurrent Registration of Common Stock...................................... 38
Underwriting................................................................. 38
Legal Matters................................................................ 40
Experts...................................................................... 40
Available Information........................................................ 41
Index to Financial Statements............................................... F-1
________________
Until ______________, 1996 (25 days from the date of this Prospectus), all
dealers effecting transactions in the registered securities, 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 with
respect to their solicitations to purchase the securities offered hereby.
As of the date of this Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information can be inspected and copied at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: New York Regional
Office, Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material may also be obtained from the Public
Reference Section of the Commission at prescribed rates. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file such information electronically. The Company's Common Stock will be
quoted on Nasdaq and such reports and other information can also be inspected at
the offices of Nasdaq Operations, 1735 K Street N.W., Washington, D.C., 20006.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other reports as the Company deems
appropriate or as may be required by law.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, the information in this
Prospectus does not give effect to the exercise of (a) the Underwriter's
Over-allotment Option, (b) the Underwriter's Warrants and (c) other outstanding
options and warrants to purchase an aggregate of 198,750 shares of Common Stock.
The Company
The Company is a development stage, biopharmaceutical company engaged in
the research and development of vaccines and therapeutics for viral diseases and
the development of animal models of human viral diseases for use in
pharmaceutical discovery. The Company's technologies are licensed from The
Rockefeller University ("Rockefeller").
The Company's vaccine program is focused on human T cell leukemia virus
types I and II (HTLV-I and -II), mammalian viruses that infect the T lymphocytes
of the human immune system and are associated with a number of severe clinical
disorders. An estimated 10 - 20 million people are infected with HTLV-I or
HTLV-II worldwide, and all blood donated in the United States, Europe and Japan
is screened for contamination with HTLV-I and HTLV-II.
High rates of HTLV-I infection occur in a number of geographic regions,
including parts of Japan, the Caribbean, South America and Africa. Although the
lifetime risk of an infected individual developing a related clinical disorder
is small, when disease does develop it is chronic, severe, and sometimes fatal.
HTLV-I infection has been linked to adult T cell leukemia, an often fatal
malignancy of CD4+ lymphocytes, and to HTLV-associated myelopathy, a severe and
incurable neurological disorder resembling multiple sclerosis. HTLV-I infection
is endemic in certain areas, where up to 30% of the population may be infected.
In Japan alone, as many as two million individuals are thought to be infected,
and HTLV-I is the most common cause of fatal leukemia.
HTLV-II infection has also been linked to serious disease, including HTLV-
associated myelopathy. Like HTLV-I, HTLV-II is endemic in certain regions, but
with a geographic distribution distinct from HTLV-I. Infection with HTLV-II is
considered a significant public health problem in Brazil, Spain, southern Italy,
and among intravenous drug users in the United States.
The Company's vaccine candidates for HTLV-I and HTLV-II have been shown in
animal studies to protect against viral infection. The Company expects to begin
human clinical trials of its two vaccine candidates in Brazil in the first half
of 1997.
The Company's Human Immunodeficiency Virus (HIV) program is focused on
identifying human factors required for viral replication. Like the viral
proteins that are the targets of currently-used HIV therapeutics, the Company
believes that certain molecules within human cells could also represent
important molecular targets for the treatment of HIV infection. More
immediately, the Company believes such molecules could make possible the
development of an animal model of HIV infection.
The Company has identified one such human factor required for HIV
replication. When introduced into mouse cells in tissue culture, this factor
allows the virus to replicate and partially complete its life cycle. The Company
believes that this is the first demonstration of partial HIV viral replication
in a non-human cell line, and is utilizing this factor to develop a transgenic
(containing human genes) mouse model of HIV infections. The Company believes
that this model, if successful, will make possible for the first time the large
scale screening of HIV vaccines and therapeutics in an animal system. Moreover,
this model will permit researchers to analyze in fine detail the life cycle of
the virus, making possible the development of new and novel agents to treat HIV
infection. It is the business strategy of the Company to sell or license its
transgenic mice to pharmaceutical and biotechnology companies engaged in the
development of HIV vaccines and therapeutics and to basic researchers engaged in
studying the virus.
The Company evaluates and selects product commercialization strategies on
a product-by-product basis. For certain product candidates, the Company intends
to
<PAGE>
independently pursue commercialization opportunities to the fullest extent
practicable. To date, the Company has not sought a strategic partnership for its
HTLV-I or HTLV-II vaccine candidates and retains all commercial rights. The
Company currently intends to develop these vaccine candidates independently
through the early stages of clinical testing. The Company is continuing to
evaluate the most effective commercialization strategy for its animal model of
HIV infection. Depending on the future circumstances of this product development
program, the Company may grant product development rights to an established
supplier of animals for medical research or may grant rights to the technology,
on an exclusive or non-exclusive basis, to established pharmaceutical companies
for use in their internal drug and vaccine development efforts. The Company does
not currently intend to independently produce or sell animals for use in medical
research. The Company sponsors research and development activities at University
College, Dublin and does not maintain its own research and development
facilities.
The Company was incorporated in Delaware in December 1995. The Company's
executive offices are located at 666 Third Avenue, New York, New York, 10017,
and its telephone number is (212) 681-9195.
The Offering
Securities Offered......... 1,150,000 shares of Common Stock. See "Description
of Securities" and "Underwriting."
Offering Price............. $6.00 per share of Common Stock.
Common Stock Outstanding:
Prior to the Offering(1). 2,385,000 shares of Common Stock.
After the Offering(2).... 3,535,000 shares of Common Stock.
Use of Proceeds............ The net proceeds to the Company, aggregating
approximately $5,645,000, will be used to (i)
repay short-term indebtedness of $750,000 (plus
accrued interest) incurred in the Bridge Financing
(as defined herein) and (ii) research and
development activities, and the balance used for
working capital and general corporate purposes.
See "Use of Proceeds."
Risk Factors............... The securities offered hereby involve a high
degree of risk and substantial immediate dilution
to new investors. Only investors who can bear the
risk of their entire investment should invest. See
"Risk Factors" and "Dilution."
Proposed Nasdaq symbol..... "____"
Proposed BSE symbol........ "____"
- ----------
(1) Excludes (i) 375,000 shares of Common Stock reserved for issuance upon the
exercise of stock options which may be granted pursuant to the Company's
1996 Incentive and Non-Qualified Stock Option Plan (the "Plan") (options
to purchase 30,000 shares of Common Stock at an exercise price of $1.67
per share have been granted and are outstanding under the Plan) and (ii)
168,750 shares of Common Stock reserved for issuance upon the exercise of
warrants granted to Dr. William Hall, the principal founding scientist of
the Company's technologies, at an exercise price of $1.67 per share (the
"Hall Warrants"). See "Management--1996 Incentive and Non-Qualified Stock
Option Plan" and "Certain Transactions."
(2) Includes 1,150,000 shares of Common Stock offered hereby. Excludes (i)
172,500 shares of Common Stock issuable by the Company upon exercise of
the Underwriter's Over-allotment Option in full; (ii) 115,000 shares of
Common Stock reserved for issuance upon exercise of the Underwriter's
Warrants; (iii) 375,000 shares of Common Stock reserved for issuance upon
the exercise of options granted pursuant to the Plan (options to purchase
30,000 shares of Common Stock at an exercise price of $1.67 per share have
been granted and are outstanding under the Plan); and (iv) 168,750 shares
of Common Stock reserved for issuance
2
<PAGE>
upon the exercise of the Hall Warrants. See "Management--1996 Incentive
and Non-Qualified Stock Option Plan," "Certain Transactions," and
"Underwriting."
3
<PAGE>
Summary Financial Information
The summary financial data set forth below is derived from and should be read in
conjunction with the audited financial statements, including the notes thereto,
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 28, December 28,
1995 (Date of Nine Months 1995 (Date of
Inception) to Ended Inception) to
December 31, 1995 September 30, 1996 September 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Statement of Operations Data:
Costs and Expenses:
General and administrative........ $ 1,000 $ 499,631 $ 500,631
Research and development.......... -- 270,500 270,500
-------- ---------- ---------
Loss from operations........... (1,000) (770,131) (771,131)
Interest expense, net............. - (72,537) (72,537)
----- ---------- ---------
Net loss ...................... (1,000) (842,668) (843,668)
======== ========== =========
Net loss per share(1).......... $ -- $ 0.35
======== ==========
</TABLE>
September 30, 1996
------------------
Actual As Adjusted(3)
------ --------------
Balance Sheet Data:
Working capital.......... $ 668,567 $ 5,537,845
Total assets............. 727,685 5,627,363
Total liabilities(2)..... 335,709 16,909
Stockholders' equity..... 371,976 5,610,454
- ----------
(1) For information concerning the computation of net loss per share, see Note
2 of Notes to Financial Statements.
(2) Includes the Bridge Notes in the principal amount of $750,000 net of
unamortized debt discount of $421,200.
(3) As adjusted to give effect to (i) the sale of securities offered hereby,
net of expenses, at an assumed initial offering price of $6.00 per share
of Common Stock, (ii) repayment of the Bridge Notes in the principal
amount of $750,000 and accrued but unpaid interest thereon, and (iii) the
recognition of the unamortized portion of the debt discount and debt
issuance costs associated with the Bridge Notes as an extraordinary
expense.
4
<PAGE>
RISK FACTORS
THE PURCHASE OF COMMON STOCK IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK
INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED BELOW.
COMMON STOCK SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW AND
CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS.
1. Limited Operating History; Accumulated Deficit; Operating Losses; Potential
for Future Losses
The Company, a development stage, biopharmaceutical company, was
incorporated in December 1995 and accordingly has a limited operating history.
As of September 30, 1996, the Company had an accumulated deficit of $843,668.
The Company expects to incur substantial operating losses over the next several
years and expects cumulative losses to increase as the Company's research and
development and clinical efforts expand. Revenues, if any, that the Company may
receive in the next few years will be limited to payments under research or
product development relationships that the Company may establish and payments
under license agreements that the Company may enter into. There can be no
assurance that the Company will be able to establish any such relationships,
enter into any such license agreements or generate revenues. To achieve
profitable operations, the Company, alone or with others, must successfully
identify and develop pharmaceutical products, conduct clinical trials, obtain
regulatory approvals and manufacture and market its pharmaceutical products or
enter into license agreements with third parties on acceptable terms. The
Company may never achieve significant revenues or profitable operations. See
"Plan of Operation."
2. Going Concern Explanatory Paragraph in Report of Independent Accountants
The report of independent accountants on the Company's financial
statements included herein contains an explanatory paragraph stating that the
Company's financial statements have been prepared assuming that the Company will
continue as a going concern while expressing substantial doubt as to the
Company's ability to do so. The Company has suffered operating losses since
inception and expects to incur substantial additional operating losses in
completing the commercialization of its technologies. These and other factors
discussed in Note 1 to the financial statements raise substantial doubt about
the Company's ability to continue as a going concern.
3. Early Stage of Development; Absence of Products
The Company's product candidates are in an early stage of development. The
Company has not completed the development of any products and, accordingly, has
not received any regulatory approvals, commenced marketing activities or
generated revenues from the sale of products. The Company's product candidates
will require significant additional development, pre-clinical and clinical
trials, regulatory approval and additional investment prior to
commercialization. The Company does not expect to market any products for
several years. In addition, the Company's product candidates are subject to the
risks of failure inherent in the development of products based on innovative
technologies. Accordingly, there can be no assurance that the Company's research
and development efforts will be successful, that any of the Company's product
candidates will prove to be safe, effective and non-toxic in clinical trials,
that any commercially successful products will be developed, that the
proprietary or patent rights of others will not preclude the Company from
marketing its product candidates or that others will not develop competitive or
superior products. As a result of the early stage of development of product
candidates and the extensive testing and regulatory review process that such
product candidates must undergo, the Company cannot predict with certainty when
it will be able to market any of its products, if at all. The Company's product
development efforts are based on novel scientific approaches. There is,
therefore, substantial risk that these approaches may not prove to be
successful. See "Business."
5
<PAGE>
4. Future Capital Needs; Uncertainty Of Availability Of Additional Funding
The Company will require substantial additional funds to conduct and
sponsor research and development activities, to conduct preclinical and clinical
testing, and to market its products. The Company's future capital requirements
will depend on many factors, including continued scientific progress, progress
with pre-clinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
ability of the Company to establish collaborative arrangements, effective
commercialization activities and arrangements and the purchase or development of
additional equipment and facilities. The Company expects the net proceeds of the
Offering and the interest earned thereon will be sufficient to fund the
Company's activities for at least 12 months. There can be no assurance, however,
that changes in the Company's research and development plans or other events
affecting the Company's operating expenses will not result in the utilization of
such proceeds prior to that time. The Company has no other current sources of
funding. As a result, the Company will need to raise substantial additional
funds before any of the Company's product candidates achieves regulatory
approvals, if at all. The Company intends to seek such additional funding
through collaborative arrangements and through public or private financings.
There can be no assurance that additional financing will be available, or, if
available, that such additional financing will be available on terms acceptable
to the Company. If additional funds are raised by issuing debt, the Company will
incur fixed payment obligations, which could delay the time, if any, when the
Company may achieve profitability. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of its
principal product candidates 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 not otherwise relinquish. See "Use of Proceeds."
5. No Assurance of Regulatory Approval; Need for Extensive Clinical Trials
The production and marketing of the Company's vaccine and drug candidates,
as well as certain of its research and development activities, are subject to
regulation by governmental agencies in the United States and other countries.
Any vaccine or drug developed by the Company will be subject to a rigorous
approval process pursuant to regulations administered by the United States Food
and Drug Administration (the "FDA"), comparable agencies in other countries and,
to a lesser extent, state regulatory authorities. The approval process for any
one of the Company's vaccine or drug candidates is likely to take several years
or more depending upon the type, complexity and novelty of the pharmaceutical
product and will involve significant expenditures by the Company for which
additional financing will be required. The cost to the Company of conducting
clinical trials for any potential product can vary dramatically based on a
number of factors, including the order and timing of clinical indications
pursued and the extent of development and financial support, if any, from
collaborators. Because of the intense competition in the biopharmaceutical
market and concern over the safety of participating in clinical trials, the
Company may have difficulty obtaining sufficient patient populations or the
support of clinicians to conduct its clinical trials as planned and may have to
expend substantial additional funds to obtain access to such resources, or delay
or modify its plans significantly. There can be no assurance that the Company
will be able to obtain necessary clearances for clinical trials or approvals for
the manufacturing or marketing of any of its vaccine or drug candidates, that
the Company will have sufficient resources to complete the required regulatory
review process or that the Company can survive the inability to obtain, or
delays in obtaining, such approvals. Even if regulatory approvals are obtained,
they may provide for significant limitations on the indicated uses for which a
product may be marketed. As with all investigational products, additional
government regulations may be promulgated requiring that additional research
data be submitted that could delay marketing approval of any of the Company's
product candidates. The subsequent discovery of previously unknown complications
or the failure to comply with applicable regulatory requirements may result in
restrictions on the marketing, or the withdrawal, of products or possible civil
or criminal liabilities. In addition, the Company cannot predict whether any
adverse government regulation might arise from future administrative actions.
See "Business--Government Regulation."
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As part of the regulatory review process, the Company must sponsor and
file, or obtain through others, an Investigational New Drug Application ("IND")
for each of its vaccine or drug candidates before the Company will be able to
initiate the clinical trials necessary to generate safety and efficacy data for
inclusion in an application for FDA marketing approval. The Company has not
filed any INDs to date. The Company cannot predict with certainty when it might
first submit any application for any product candidates for FDA or other
regulatory review. There can be no assurance that clinical data from studies
performed by the Company or others will be acceptable to the FDA or other
regulatory agencies in support of any applications that may be submitted for
regulatory approval and the FDA may, among other things, require the Company to
collect additional data and conduct additional clinical studies prior to
acceptance of any such applications.
6. Dependence on Others; Collaborations
The Company's strategy for the research, development and commercialization
of its product candidates will require the Company to enter into various
arrangements with corporate and academic collaborators, researchers, licensors,
licensees and others, and may therefore be dependent upon the subsequent success
of these outside parties in performing their responsibilities. In addition,
there can be no assurance that the Company will be able to establish other
collaborative arrangements or license agreements that the Company deems
necessary or acceptable to develop and commercialize its product candidates or
that such collaborative arrangements or license agreements will be successful.
Moreover, certain of the collaborative arrangements that the Company may enter
into in the future may place responsibility for pre-clinical testing and
clinical trials and for preparing and submitting applications for regulatory
approval for product candidates on the collaborative partner. Should a
collaborative partner fail to develop or commercialize successfully any product
candidate to which the Company has rights, the Company's business may be
adversely affected.
7. Lack of Manufacturing, Marketing or Sales Capabilities
The Company has not invested in the development of commercial
manufacturing, marketing, distribution or sales capabilities for any of its
product candidates. The Company currently lacks the facilities to manufacture
its vaccine and drug product candidates in accordance with current Good
Manufacturing Practices as prescribed by the FDA or to produce an adequate
supply of compounds to meet future requirements for clinical trials. If the
Company is unable to develop or contract for manufacturing capabilities on
acceptable terms, the Company's ability to conduct preclinical and human
clinical testing will be adversely affected, resulting in delays in the
submission of products for regulatory approval and in the initiation or new
development programs, which in turn could materially impair the Company's
competitive position and the possibility of achieving profitability.
The Company is continuing to evaluate the most effective commercialization
strategy for its animal model of HIV infection. The Company does not currently
intend to independently produce or sell animals for use in medical research. The
Company does not have facilities for the commercial production of animals for
use in medical research and has not yet sought to contract with third parties
for their production. If the Company is unable to develop or contract for
manufacturing capabilities on acceptable terms, the Company's ability to
commercialize animals for use in medical research will be adversely affected,
which in turn could materially impair the Company's competitive position and the
possibility of achieving profitability. See "Business--Business Strategy."
The Company will need to hire additional personnel skilled in clinical
testing, regulatory compliance, marketing and sales as it develops products with
commercial potential. There can be no assurance that the Company will be able to
acquire, or establish third-party relationships to provide any or all of these
resources.
8. Technologies Subject to Licenses
As a licensee of certain research technologies, the Company has a license
agreement with Rockefeller wherein the Company has acquired exclusive rights to
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<PAGE>
develop and commercialize such research technologies. Dr. Hidehiro Takahashi, a
research scientist at the National Institute of Health, Tokyo, Japan, is a
co-inventor of certain of such technologies and joined in the license grant to
the Company. The agreement generally requires the Company to pay royalties on
sales of products developed from the licensed technologies and fees on revenues
from sublicensees, where applicable, and the Company is responsible for certain
milestone payments and for the costs of filing and prosecuting patent
applications. Should the Company default on its obligations to Rockefeller under
the license agreement, its license would terminate, which would have a material
adverse on the Company's operations and prospects. See "Business--Licenses and
Collaborative Research."
9. Uncertainty Regarding Patents and Proprietary Information
The Company's commercial success will depend, in part, on its ability, and
the ability of any licensor(s) to obtain protection for its products and
technologies, both in the United States and in other countries. The patent
positions of pharmaceutical and biotechnology firms can be highly uncertain and
involve complex legal and factual issues, making it difficult to predict the
breadth of claims which would be found allowable in any particular case. At the
present time, the Company is licensed under two United State patent
applications, one relating to its animal model for HIV infection, and another
relating to its vaccine candidates for HTLV-I and -II. There can be no assurance
that either of these patent applications, or any patent applications which the
Company may acquire in the future, will issue as patents, that any such issued
patents will afford adequate protection to the Company or not be challenged,
invalidated, circumvented, or infringed, or that any rights granted under any
such patents will afford competitive advantages to the Company. To protect
its rights to its patent applications and/or patents, the Company may be
required to
participate in interference proceedings before the United States Patent and
Trademark Office to determine the priority of invention and the right to a
patent, which could result in substantial cost to the Company.
The Company will also rely on trade secrets, know-how and continuing
technological advancement in seeking to achieve a competitive position. No
assurance can be given that the Company's trade secrets will not otherwise
become known, or be independently discovered by, competitors.
The Company's success further will depend, in part, on its ability to
operate without infringing the proprietary rights of others. There can be no
assurance that the Company's activities will not infringe patents owned by
others. The Company could incur substantial costs in defending itself in suits
brought against it or any licensor. Should the Company's products or
technologies be found to infringe patents issued to third parties, the
manufacture, use and sale of the Company's products could be enjoined and the
Company could be required to pay substantial damages. In addition, the Company,
in connection with the development and use of its products and technologies, may
be required to obtain licenses to patents and other proprietary rights of third
parties. No assurance can be given that any licenses required under any such
patents or proprietary rights would be made on terms acceptable to the Company,
if at all. Failure to obtain such licenses may have a material adverse effect on
the Company. See "Business--Patents and Proprietary Rights."
10. Technological Change; Competition and Market Risk
The biopharmaceutical industry is characterized by rapid and significant
technological change. The Company's success will depend on its ability to
develop and apply its multiple technologies in the design and development of its
product candidates and to establish and maintain a market for its product
candidates. There also are many companies, both public and private, including
major pharmaceutical and chemical companies, specialized biotechnology firms,
universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, research and development, and human
resources than the Company. Competitors may develop products or other
technologies that are more effective than any that are being developed by the
Company or may obtain FDA approval for products more rapidly than the Company.
If the Company commences commercial sales of products, it still must compete in
the manufacture and marketing of such products, areas in which the Company has
no
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<PAGE>
experience. Many of these companies also have manufacturing facilities and
established marketing capabilities that would enable such Companies to market
competing products through existing channels of distribution. As a result, there
can be no assurance that the Company's product candidates will be successfully
developed into drugs that can be administered to humans or that any such drugs
or therapies will prove to be safe and effective in clinical trials or
cost-effective to manufacture. Further, any product candidates developed by the
Company may prove to have adverse side effects. See "Business--Competition."
11. Uncertainty of Pharmaceutical Pricing; Healthcare and Related Matters
The levels of revenues and profitability of pharmaceutical companies may
be affected by the continuing efforts of governmental and third party payors to
contain or reduce the costs of healthcare through various means. For example, in
certain foreign markets, pricing of prescription pharmaceuticals is subject to
governmental control. In the United States, there have been, and the Company
expects that there will continue to be, a number of federal and state proposals
to implement similar government control. It is uncertain what legislative
proposals will be adopted or what actions federal, state or private payors for
healthcare goods and services may take in response to any healthcare reform or
legislation.
The Company cannot predict the effect that healthcare reforms may have on
its business, and there can be no assurance that any such reforms will not have
a material adverse effect on the Company. Further, to the extent that such
proposals or reforms have a material adverse effect on the business, financial
condition and profitability of other pharmaceutical companies that are
prospective collaborators for certain of the Company's potential products, the
Company's ability to commercialize its product candidates may be adversely
affected. In addition, in both the United States and elsewhere, sales of
prescription medical products are dependent in part on the availability of
reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors can indirectly affect the pricing or
the relative attractiveness of the Company's product candidates by regulating
the maximum amount of reimbursement that they will provide for the Company's
product candidates or by denying reimbursement. There can be no assurance that,
if and when marketed, the Company's product candidates will be considered
cost-effective by third party payors, that reimbursement will be available or,
if available, that such third party payors' reimbursement policies will not
adversely affect the Company's ability to sell its product candidates on a
profitable basis. Limitations on, or failure to obtain, reimbursement for use of
the Company's product candidates and changes in government and private third
party payors' policies toward reimbursement could have a material adverse effect
on the Company's ability to market its product candidates.
12. Dependence on Qualified Personnel and Consultants; Need for Additional
Personnel
The Company's success is highly dependent on its ability to attract and
retain qualified scientific and management personnel. The Company is highly
dependent on its management and consultants, including Dr. William W. Hall. The
loss of the services of Dr. Hall or other personnel or consultants could have a
material adverse effect on the Company's operations. Both of the Company's
officers, Dr. Joshua Schein and Judson Cooper, are also officers of SIGA
Pharmaceuticals, Inc., a privately held development stage pharmaceutical
company, and devote substantial amounts of their time to both companies on a
substantially equal basis. Although the Company has entered into employment
agreements with Dr. Schein and Mr. Cooper and a consulting agreement with Dr.
Hall, any of such persons may terminate his employment or consulting arrangement
with the Company at any time and on short notice. Accordingly, there can be no
assurance that these employees and consultants will remain associated with the
Company. The loss of the services of the principal members of the Company's
personnel or consultants may impede the Company's ability to commercialize its
product candidates.
The Company's planned activities may require additional expertise in areas
such as pre-clinical testing, clinical trial management, regulatory affairs,
manufacturing and marketing. Such activities may require the addition of new
personnel and the development of additional expertise by existing management
personnel. The Company
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<PAGE>
faces intense competition for such personnel from other companies, academic
institutions, government entities and other organizations, and there can be no
assurance that the Company will be successful in hiring or retaining qualified
personnel. The inability of the Company to develop additional expertise or to
hire and retain such qualified personnel could have a material adverse effect on
the Company's operations.
13. No Prior Public Market; Possible Volatility of Stock Price
Prior to this Offering, there has been no public market for the Company's
Common Stock. Accordingly, there can be no assurance that an active trading
market will develop or be sustained subsequent to this Offering. The initial
public offering price of the Common Stock will be determined by negotiations
among the Company and the Underwriter and may not be indicative of the prices
that may prevail in the public market. The Company has applied to have the
Common Stock quoted on the Nasdaq, but there is no assurance that the Company's
future operating results will enable it to remain eligible for quotation on the
Nasdaq. If the Company is unable to satisfy such listing criteria in the future,
the Common Stock may be delisted from trading on the Nasdaq and/or the BSE, as
the case may be, and consequently an investor could find it more difficult to
dispose of, or to obtain accurate quotations as to the price of, the Common
Stock. The stock market generally, and the biotechnology sector in particular,
have experienced and are likely in the future to experience significant price
and volume fluctuations which could adversely affect the market price of the
Common Stock without regard to the significant fluctuations in response to
variations in quarterly operating results, shortfalls in sales or earnings below
analyst estimates, stock market conditions and other factors. There can be no
assurance that the market price of the Common Stock will not experience
significant fluctuations or decline below the initial public offering price.
14. Control by Management and Existing Stockholders
Upon consummation of the Offering, the Company's management and existing
holders of the Company's stock will, in the aggregate, own beneficially shares
having approximately 67.4% of the total voting power of the Company's
outstanding stock (without giving effect to the possible exercise of the
Underwriter's Over-allotment Option, the Underwriter's Warrants, options granted
under the Plan, or the Hall Warrants). As a result, these stockholders, acting
together, would be able to effectively control most matters requiring approval
by the stockholders of the Company, including the election of all of the
directors. See "Principal Stockholders."
15. Lack of Dividends
The Company has not paid any dividends and does not contemplate paying
dividends in the forseeable future. It is currently anticipated that earnings,
if any, will be retained by the Company to finance the development and expansion
of the Company's business. See "Dividend Policy."
16. Shares Eligible for Future Sale
Upon completion of this Offering, the Company will have outstanding
3,535,000 shares of Common Stock, without giving effect to shares of Common
Stock issuable upon exercise of (i) the Underwriter's Warrants, (ii) the
Underwriter's Over-allotment Option, (iii) options granted under the Plan, or
(iv) the Hall Warrants. Of such 3,535,000 shares of Common Stock, 1,285,000
shares, consisting of 1,150,000 shares to be sold by the Company in this
Offering and the 135,000 shares issued to the Bridge Investors (the "Bridge
Shares") (plus any additional shares sold upon the exercise of the Underwriter's
Over-allotment Option), will be freely tradeable without restriction or further
registration under the Act, except for any shares held by "affiliates" of the
Company within the meaning of the Act which shares will be subject to the resale
limitations of Rule 144 promulgated under the Act. The Bridge Investors have
agreed with the Underwriter not to sell or otherwise dispose of any of the
Bridge Shares for a period of twelve months after the date of the consummation
of the Offering. The Underwriter may, in its sole discretion, and at any time
without notice, release all
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<PAGE>
or any portion of the shares owned by the Bridge Investors from such
restrictions.
The remaining 2,250,000 shares (the "Restricted Shares") were issued by
the Company in private transactions in reliance upon one or more exemptions
contained in the Act. 450,000 of the Restricted Shares were issued in connection
with a private placement transaction completed in April 1996 and 1,800,000 of
the Restricted Shares were issued to the founders of the Company in December
1995 (the "Founders' Shares"). The Restricted Shares are deemed to be
"restricted securities" within the meaning of Rule 144 promulgated pursuant to
the Act and may be publicly sold only if registered under the Act or sold
pursuant to exemptions therefrom. Because none of the Restricted Shares will
have been held for more than two years as of the date of this Prospectus, none
of such shares are eligible for public sale in accordance with the requirements
of Rule 144. In addition, the holders of the Founders' Shares have agreed with
the Underwriter not to sell or otherwise dispose of such shares for a period of
eighteen months after the date of the consummation of the Offering. See "Shares
Eligible for Future Sale" and "Underwriting."
17. Dilution
This Offering involves immediate dilution of $4.41 (74%) per share between
the adjusted net tangible book value per share after the Offering and the per
share public offering price of $6.00 attributable to the Common Stock. See
"Dilution."
18. Antitakeover Effect of Certificate of Incorporation
The Company's Certificate of Incorporation authorizes the Board to
determine the rights, preferences, privileges and restrictions of unissued
series of preferred stock, $.0001 par value per share (the "Preferred Stock")
and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, without any vote or action by the Company's
stockholders. Thus, the Board can authorize and issue up to 10,000,000 shares of
Preferred Stock with voting or conversion rights that could adversely affect the
voting or other rights of holders of the Company's Common Stock. In addition,
the issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company, since the terms of the Preferred
Stock that might be issued could potentially prohibit the Company's consummation
of any merger, reorganization, sale of substantially all of its assets,
liquidation or other extraordinary corporate transaction without the approval of
the holders of the outstanding shares of the Common Stock. See "Description of
Securities--Preferred Stock."
19. Possible Delisting of Securities from Nasdaq
Following the Offering, the Company's Common Stock will meet the current
Nasdaq listing requirements and is expected to be initially included on Nasdaq.
There can be no assurance, however, that the Company will meet the criteria for
continued listing. Continued inclusion on Nasdaq generally requires that (i) the
Company maintain at least $2,000,000 in total assets and $1,000,000 in capital
and surplus, (ii) the minimum bid price of the Common Stock be $1.00 per share,
(iii) there be at least 100,000 shares in the public float valued at $200,000 or
more, (iv) the Common Stock have at least two active market makers, and (v) the
Common Stock be held by at least 300 holders. The Nasdaq Stock Market has
recently announced proposals which would increase the listing standards for
inclusion on Nasdaq. If the listing standards are increased, the Company may be
unable to satisfy the listing requirements for inclusion on Nasdaq.
If the Company is unable to satisfy Nasdaq's listing standards, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market on the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysts' and the news media's
coverage of the Company and lower prices for the Company's securities than might
otherwise be attained.
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20. Risks of Low-Priced Stock
If the Company's securities were delisted from Nasdaq (See "--Possible
Delisting of Securities from Nasdaq"), they could become subject to Rule 15g-9
under the Exchange Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in the Offering to
sell in the secondary market any of the securities acquired hereby.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
21. Broad Discretion in Application of Proceeds
The Company intends to use approximately $760,000 of the net proceeds of
the Offering to repay outstanding indebtedness and the balance for the other
purposes described under "Use of Proceeds." Although the Company's current
estimate as to the amount of such net proceeds that will be used for each such
other purpose is set forth under "Use of Proceeds," the Company reserves the
right to change the amount of such net proceeds that will be used for any
purpose to the extent that management determines that such change is advisable.
Accordingly, management of the Company will have broad discretion as to the
application of the net proceeds of the Offering. See "Use of Proceeds."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $5,645,000 ($6,545,450 if the Underwriter's
Over-allotment Option is exercised in full), after deducting the underwriting
discount, estimated offering expenses payable by the Company, and prepayment of
the Underwriter's consulting fee. The Company will not receive any of the
proceeds from any sale of shares by the Bridge Investors. See "Principal
Stockholders" and "Concurrent Registration of Common Stock."
The Company expects to use the net proceeds as follows:
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
----------------------- ------------- ----------------
Repayment of Bridge Notes
and accrued interest thereon(1).............. $ 760,000 13.5%
Research and development...................... 1,550,000 27.4%
General and Administrative.................... 825,000 14.6%
Working capital............................... 2,510,000 44.5%
---------- ------
TOTAL............................... $5,645,000 100.0%
========== ======
- ----------
(1) Represents the repayment of the outstanding principal amount of $750,000,
plus estimated accrued interest thereon at the rate of 8% per annum as of
September 30, 1996, on indebtedness incurred in the Bridge Financing. The
net proceeds of the Bridge Financing, approximately $646,000, were used
for research and development, working capital and other general corporate
purposes.
___________________________
If the Underwriter exercises its Over-allotment Option in full, the
Company will realize additional net proceeds of approximately $900,450, which
amount will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this Offering will be
sufficient to satisfy the Company's cash requirements for at least 12 months
following the consummation of the Offering. In the event the Company's plans
change or its assumptions change or prove to be inaccurate or the proceeds of
the Offering prove to be insufficient to fund operations (due to unanticipated
expenses, delays, problems or otherwise), the Company may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portion thereof for other purposes and could be required to
seek additional financing sooner than currently anticipated. Depending on the
Company's progress in the development of its products and technology, their
acceptance by third parties, and the state of the capital markets, the Company
may also determine that it is advisable to raise additional equity capital,
possibly within the next 12 months. The Company has no current arrangements with
respect to, or sources of, additional financing and there can be no assurance
that additional financing will be available to the Company when needed on
commercially reasonable terms or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
Proceeds not immediately required for the purposes described above will be
invested in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, as adjusted to give effect to the receipt and anticipated
use of the estimated net proceeds of this Offering. This table should be read in
conjunction with the Company's Financial Statements and Notes thereto, "Selected
Financial Data" and "Plan of Operation" included elsewhere in this Prospectus.
September 30, 1996
----------------------------------------
Actual As Adjusted(1)
------------ --------------
Bridge Notes(2)..................... $ 328,800 $ 0
------------ --------------
Stockholders' equity:
Preferred Stock, $0.0001 par
value per share, 10,000,000
shares authorized, none issued
or outstanding................. -- --
Common Stock, $0.0001 par value
per share, 25,000,000 shares
authorized, 2,385,000 shares
issued and outstanding; 3,535,000
shares issued and outstanding,
as adjusted(3)................ 239 354
Additional paid-in capital.... 1,215,405 6,906,568
Accumulated deficit(4)........ (843,668) (1,296,468)
------------ ---------------
Total stockholders' equity......... 371,976 5,610,454
------------ ---------------
Total capitalization............... $ 700,776 $ 5,610,454
============ ===============
- ----------
(1) Adjusted to reflect the sale of 1,150,000 shares of Common Stock offered
hereby. See "Use of Proceeds."
(2) Represents principal amount of $750,000, net of unamortized debt discount
of $421,200 as of September 30, 1996.
(3) Assumes (i) no exercise of the Underwriter's Over-allotment Option; (ii)
no exercise of the Underwriter's Warrants; (iii) no exercise of options
granted under the Plan; and (iv) no exercise of the Hall Warrants. See
"Management--1996 Incentive and Non-Qualified Stock Option Plan,"
"Description of Securities," "Certain Transactions" and "Underwriting."
(4) As adjusted to give effect to the recognition of the unamortized portion
of debt discount and debt issuance costs associated with the Bridge
Financing as an extraordinary expense.
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DILUTION
As of September 30, 1996, the Company had a net tangible book value equal
to $371,976. See "Selected Financial Data." After giving effect to the sale of
the 1,150,000 shares of Common Stock offered by the Company pursuant to this
Prospectus at an initial public offering price of $6.00 per share, net of
underwriting discounts and commissions and estimated expenses of the Offering
payable by the Company, and application of a portion of the estimated net
proceeds to repay the Bridge Notes as set forth under "Use of Proceeds," the pro
forma net tangible book value at such date would have been $5,610,454 or $1.59
per share. This represents an immediate increase in net tangible book value of
$1.43 per share to the existing stockholders and immediate dilution of $4.41 per
share (or 74%) to purchasers of the Common Stock offered hereby ("New
Investors"). If the initial public offering price is higher or lower, the
dilution to New Investors will be, respectively, greater or less. The following
table illustrates the dilution per share:
Assumed public offering price(1)........................ $ 6.00
Net tangible book value per share at
September 30, 1996(2)............................ $ .16
Increase per share attributable to
New Investors.................................... $ 1.43
Pro forma net tangible book value per
share after Offering.................................. $ 1.59
-----
Dilution per share to New Investors(3).................. $ 4.41
======
- ----------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share represents the Company's total tangible
assets less its total liabilities divided by the number of shares of
Common Stock outstanding.
(3) The dilution of net tangible book value per share to New Investors
assuming the Underwriter's Over-allotment Option is exercised in full
would be $4.24 (or 71%).
The following table sets forth, with respect to existing stockholders and
New Investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
------------------- --------------------------------------
Average Price
Number Percent Amount Percent Per Share
--------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 2,250,000 63.6% $ 751,200 9.2% $0.33
Bridge Investors....... 135,000 3.8% $ 486,000 6.0% $3.60
New Investors.......... 1,150,000 32.6% $6,900,000 84.8% $6.00
------- --- ---------- --- -----
Total............... 3,535,000 100.0% $8,137,200 100.0% $2.30
========= ===== ========== ===== =====
</TABLE>
The information contained in the above table does not give effect to the
exercise of (i) any of the Underwriter's Warrants, (ii) options granted and
outstanding under the Plan to purchase 30,000 shares of Common Stock at $1.67
per share, or (iii) the Hall Warrants. Exercise of the options and/or warrants
would result in further dilution to New Investors in this Offering.
15
<PAGE>
DIVIDEND POLICY
The Company currently anticipates that it will retain any future earnings
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future. The payment of any future dividends will be at the
discretion of the Company's Board of Directors and will depend, among other
things, upon the Company's future earnings, operations, capital requirements and
financial condition, general business conditions and contractual restrictions on
payment of dividends, if any.
16
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the periods shown have been
derived from the Company's audited financial statements. Results of operations
for the nine month interim period are not necessarily indicative of results to
be expected for the full year. This data should be read in conjunction with the
"Plan of Operation" and with the Company's Financial Statements and the Notes
thereto included elsewhere in this Prospectus.
December 28, Nine December 28,
1995 (Date of Months 1995 (Date of
Inception) to Ended Inception) to
December 31, September September 30,
1995 30, 1996 1996
------------- ---------- -------------
Statement of Operations Data:
Costs and Expenses:
General and administrative...... $ 1,000 $ 499,631 $ 500,631
Research and development........ - 270,500 270,500
-------- ---------- ----------
Loss from operations...... (1,000) (770,131) (771,131)
Interest expense, net............. - (72,537) (72,537)
-------- ---------- ----------
Net loss.................. (1,000) (842,668) (843,668)
======== ========== ==========
Net loss per share (1).... $ - $0.35
======== ==========
December 31, 1995 September 30, 1996
----------------- ------------------
Balance Sheet Data:
Working capital (deficit)........ $ (2,455) $ 668,567
Total assets..................... 1,455 727,685
Total liabilities(2)............. 2,455 355,709
Stockholders' equity............. (1,000) 371,976
- ----------
(1) For information concerning the computation of net loss per share, see Note
2 of Notes to Financial Statements.
(2) Includes the Bridge Notes in the principal amount of $750,000, net of
unamortized debt discount of $421,200.
17
<PAGE>
PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
The Company is a development stage biopharmaceutical company. Since its
inception in December 1995, the Company's efforts have been principally devoted
to research and development, securing patent protection and raising capital.
From inception through September 30, 1996, the Company has sustained cumulative
losses of $843,668. These losses have resulted from expenditures incurred in
connection with research and development and general and administrative
activities. From inception through September 30, 1996, research and development
expenses amounted to $270,500 and general and administrative expenses amounted
to $500,631.
The Company expects to continue to incur substantial research and
development costs in the future resulting from ongoing research and development
programs, manufacturing of products for use in clinical trials, patent and
regulatory related expenses, and preclinical and clinical testing of the
Company's products. The Company also expects that general and administrative
costs necessary to support clinical trials, research and development,
manufacturing and the creation of a marketing and sales organization, if
warranted, will increase in the future. Accordingly, the Company expects to
incur increasing operating losses for the foreseeable future. There can be no
assurance that the Company will ever achieve profitable operations.
General and administrative expenses from inception through September 30,
1996, were $500,631, primarily due to personnel costs and associated operating
costs. The Company anticipates that general and administrative expenses will
increase substantially during the next 12 months.
Research and development expenditures consist primarily of payments for
sponsored research, and to its scientific consultant. Research and development
expenses from inception through September 30, 1996 were $270,500. The Company
anticipates that its research and development expenses will increase during the
next 12 months as the Company continues to fund research programs and
pre-clinical and clinical testing for its product candidates and technologies
under development. See " - Product Research and Development Plan."
The Company incurred interest expense of $74,800 through September 30,
1996 which is attributable to interest on, and the amortization of the debt
discount associated with, the Bridge Notes as described below.
Liquidity and Capital Resources
In April 1996 the Company completed a private placement transaction in
which it sold 450,000 shares of Common Stock for an aggregate consideration of
$750,000. On August 2, 1996, the Company consummated the Bridge Financing
pursuant to which the Company issued Bridge Notes in the aggregate principal
amount of $750,000 and 135,000 shares of the Company's Common Stock. The Bridge
Notes bear interest at the rate of 8% per annum and are due on the earlier of
October 31, 1997 or the closing of the Offering. The Company intends to use a
portion of the proceeds of the Offering to repay the Bridge Notes and the
interest accrued thereon and will recognize an extraordinary expense upon
completion of the Offering relating to the unamortized portion of the original
issue discount and debt issuance costs associated with the Bridge Financing. As
of September 30, 1996, the unamortized debt discount and debt issuance costs
amounted to $452,800. See "Use of Proceeds."
The Company anticipates that its current resources, together with the net
proceeds of the Offering, will be sufficient to finance the Company's currently
anticipated needs for operating and capital expenditures for at least 12 months
from the consummation of this Offering. In addition, the Company will attempt to
generate additional capital through a combination of collaborative agreements,
strategic alliances and equity and debt financings. However, no assurance can be
provided that additional capital will be obtained through these sources. If the
Company is not able to obtain continued financing the Company may cease
operation and purchasers of the
18
<PAGE>
Common Stock will, in all likelihood, lose their entire investment.
The Company's working capital and capital requirements will depend upon
numerous factors, including progress of the Company's research and development
programs; preclinical and clinical testing; timing and cost of obtaining
regulatory approvals; levels of resources that the Company devotes to the
development of manufacturing and marketing capabilities; technological advances;
status of competitors; and ability of the Company to establish collaborative
arrangements with other organizations.
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
At September 30, 1996, the Company had $562,004 in cash and cash
equivalents, and working capital of $668,567. In accordance with the terms of
the Bridge Notes, the Company will utilize approximately $760,000 (as of
September 30, 1996) upon completion of the Offering to repay the principal of,
and accrued interest through consummation of the Offering on, the Bridge Notes.
See "Use of Proceeds" and Note 3 of Notes to Financial Statements.
Product Research and Development Plan
The Company's plan of operation for the 12 months following completion of
this Offering will consist primarily of research and development and related
activities aimed at:
o formulation and further preclinical development of the Company's
vaccine candidates for HTLV-I and HTLV-II, and if successful, the
initiation of clinical trials. See "Business--The Company's Vaccine
Candidates for HTLV-I and HTLV-II."
o further development of the Company's animal model of HIV infection
for use in pharmaceutical discovery. See "Business--The Company's
Transgenic Mouse Model."
o the identification of additional human factors required for HIV
replication as potential molecular targets for HIV drug development.
See "Business--Antiviral Compounds for HIV."
o funding of the research on HTLV-I, HTLV-II and HIV currently being
conducted at University College, Dublin. See "Business--Licenses and
Collaborative Research."
o continuing the prosecution and filing of patent applications. See
"Business--Patents and Proprietary Rights."
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, and other factors.
19
<PAGE>
BUSINESS
The Company is a development stage, biopharmaceutical company engaged in
the research and development of vaccines and therapeutics for viral diseases and
the development of animal models of human viral diseases for use in
pharmaceutical discovery. The Company's technologies are licensed from
Rockefeller.
The Company's vaccine program is focused on human T cell leukemia virus
types I and II (HTLV-I and -II), mammalian viruses that infect the T lymphocytes
of the human immune system and are associated with a number of severe clinical
disorders. An estimated 10-20 million people are infected with HTLV-I or HTLV-II
worldwide, and all blood donated in the United States, Europe and Japan is
screened for contamination with HTLV-I and HTLV-II.
High rates of HTLV-I infection occur in a number of geographic regions,
including parts of Japan, the Caribbean, South America and Africa. Although the
lifetime risk of an infected individual developing a related clinical disorder
is small, when disease does develop it is chronic, severe, and sometimes fatal.
HTLV-I infection has been linked to adult T cell leukemia, an often fatal
malignancy of CD4+ lymphocytes, and to HTLV-associated myelopathy, a severe and
incurable neurological disorder resembling multiple sclerosis. HTLV-I infection
is endemic in certain areas, where up to 30% of the population may be infected.
In Japan alone, as many as two million individuals are thought to be infected,
and HTLV-I is a common cause of fatal leukemia.
HTLV-II infection has also been linked to serious disease, including HTLV-
associated myelopathy. Like HTLV-I, HTLV-II is endemic in certain regions, but
with a geographic distribution distinct from HTLV-I. Infection with HTLV-II is
considered a significant public health problem in Brazil, Spain, southern Italy,
and among intravenous drug users in the United States.
The Company's vaccine candidates for HTLV-I and HTLV-II have been shown in
animal studies to protect against viral infection. The Company expects to begin
human clinical trials of its two vaccine candidates in Brazil in the first half
of 1997.
The Company's HIV program is focused on identifying human factors required
for viral replication. Like the viral proteins that are the targets of
currently-used HIV therapeutics, the Company believes that certain molecules
within human cells could also represent important molecular targets for the
treatment of HIV infection. More immediately, the Company believes such
molecules could make possible the development of an animal model of HIV
infection.
The Company has identified one such human factor required for HIV
replication. When introduced into mouse cells in tissue culture, this factor
allows the virus to replicate and partially complete its life cycle. The Company
believes that this is the first demonstration of partial HIV viral replication
in a non-human cell line, and is utilizing this factor to develop a transgenic
(containing human genes) mouse model of HIV infections. The Company believes
that this model, if successful, will make possible for the first time the large
scale screening of HIV vaccines and therapeutics in an animal system. Moreover,
this model will permit researchers to analyze in fine detail the life cycle of
the virus, making possible the development of new and novel agents to treat HIV
infection. It is the business strategy of the Company to sell or license its
transgenic mice to pharmaceutical and biotechnology companies engaged in the
development of HIV vaccines and therapeutics and to basic researchers engaged in
studying the virus.
The Company evaluates and selects product commercialization strategies on
a product-by-product basis. For certain product candidates, the Company intends
to independently pursue commercialization opportunities to the fullest extent
practicable. To date, the Company has not sought a strategic partnership for its
HTLV-I or HTLV-II vaccine candidates and retains all commercial rights. The
Company currently intends to develop these vaccine candidates independently
through the early stages of clinical testing. The Company is continuing to
evaluate the most effective commercialization strategy for its animal model of
HIV infection. Depending on the future circumstances of this product development
program, the Company may grant product development rights to an established
supplier of animals for medical research or may grant rights to the technology,
on an exclusive or non-exclusive basis, to
20
<PAGE>
established pharmaceutical companies for use in their internal drug and vaccine
development efforts. The Company does not currently intend to independently
produce or sell animals for use in medical research. The Company sponsors
research and development activities at University College, Dublin and does not
maintain its own research and development facilities.
TECHNOLOGY
Emerging Infectious Diseases Background
The advent of the antibiotic era in the 1940's has greatly diminished the
occurrence of infectious diseases in the last half of this century. In addition,
effective vaccines for a number of infectious diseases, such as polio, smallpox,
diphtheria, pertussis (whooping cough), and tetanus, have been instrumental in
the dramatic reduction or eradication of many of these afflictions. However,
despite these efforts, infectious diseases remain the principal cause of
mortality throughout the world. In recent years, this burden has increased
substantially with the emergence of drug-resistant pathogens (disease-causing
organisms), as well as many previously unknown pathogens.
Another relatively recent development has also contributed greatly to the
emergence of several infectious diseases: immunosuppression (i.e. the
suppression of the immune response). One reason for this phenomenon is the use
of immunosuppressive drugs for transplant (to prevent rejection) and cancer
patients (agents designed to kill tumor cells which also attack cells of the
immune system). The immunosuppression caused by some pathogens, most notably
HIV, has also been instrumental in the emergence of infections. Some of these
organisms, under non-immunosuppressive circumstances, would not cause disease
(opportunistic infections); others, under similar conditions, would have a
better chance of being cleared by the immune response or, at least, less life
threatening.
Prevention of Infectious Diseases
Vaccines
Vaccines prevent disease by stimulating the body to produce a protective
immune response to a particular pathogen. Since Edward Jenner's first
experiences with the smallpox vaccine, it has been repeatedly demonstrated that
vaccines are, by far, the most cost-effective means of combating infectious
diseases that are available. Conventional vaccines generally consist of killed
microorganisms (e.g. pertussis vaccine), live attenuated (i.e. reduced
virulence) microorganisms (e.g. smallpox and polio), or components of
microorganisms (subunit vaccines; e.g. hepatitis B or tetanus vaccines). These
types of vaccines have been very successful, as evidenced by the eradication of
smallpox through comprehensive immunization programs. Despite their
effectiveness and attractive cost:benefit ratio, there remain some limitations
with certain conventional vaccines. Specifically, killed bacterial organisms,
when administered as vaccines may have adverse side effects. In addition,
vaccines consisting of attenuated live organisms, while extremely effective,
have the potential to revert to their virulent, or infectious, state. The
preferred route for vaccine formulation is to use the subunit approach, whereby
a single protein or carbohydrate isolated from the infectious agent, or
combinations thereof, is used as the vaccine. Vaccines presented in this manner
generally result in far fewer adverse reactions and have no potential to cause
infection.
Anti-Infectives Background
Since the 1940's, antibiotics have served as the first line of defense
against bacterial infections for which vaccines do not exist. Antiviral agents
were first described in the 1950's with the discovery of idoxuridine for the
topical treatment of herpes simplex conjunctivitis. As with bacteria, however,
viruses have, over the years, demonstrated increasing amounts of antiviral
resistance. As cases of antibiotic or antiviral resistant pathogens increase,
organisms so endowed will be an ever increasing burden on the healthcare
industry.
All current classes of antibiotics function by interfering with either the
structure or metabolism of a bacterial cell, affecting its ability to survive
and to reproduce. For example, penicillin prevents production of new bacterial
cell walls,
21
<PAGE>
tetracycline inhibits the synthesis of new bacterial proteins, and polymyxin B
disrupts the integrity of bacterial membranes. Agents which may be of use for
viral infection are generally among these types: virocides, which inactivate
viruses; antiviral agents, which inhibit the replication of the virus; and
immunomodulators, which modify the host's immune response to the invading virus.
Virocidal compounds have thus far been impractical, since they are toxic to the
host as well as the virus. Antiviral agents generally act by preventing the
entry of the virus into the human cell or by preventing its replication (viral
reproduction) there. However, unlike antibiotics, which, in many cases are very
effective in killing the bacteria, the antiviral agents currently available are
generally only able to incompletely suppress replication. As a result, the
effectiveness of antiviral agents has not met with the same success as
antibiotics in the therapy of their respective illnesses. In addition, the
incomplete eradication of the virus from the infected individual allows the
remaining virus to replicate thereby increasing the opportunity for the
development of antiviral resistance. Ultimately, eradication of infectious virus
will depend on the host's ability to mount an effective immune response.
The Company's Approach to the Prevention of Infectious Diseases
The Company's approach to the prevention of infectious diseases approaches
the problem from two sides: a novel approach to provide an avenue for the
potential discovery of several antiviral or vaccine candidates and a modern
approach to a conventional style subunit vaccine. The former application
involves the development of a mouse model to assist in studying the life cycle
of HIV. The latter focuses on the genetic engineering of viral surface proteins
of HTLV-I and HTLV-II to be used as a subunit vaccines.
Animal models have provided a necessary and valuable component in the
development of therapeutic agents and vaccines for years. Virtually all such
products, other than, perhaps, Jenner's initial smallpox vaccine, have first
been tested in animals for safety and efficacy. The Company believes that, if
successful, its proprietary technology will lead to the development of the first
useful non-primate animal model for the study of HIV infection. Transgenic mice
(i.e. carrying genes from other sources) have been engineered, by the Company's
founding scientists, with human genes which allow for the replication of HIV
within the mouse. These "humanized" mice should provide an economical means for
the testing of a variety of antiviral agents developed by others to prevent the
entry of HIV into the host's cells or halt the replication of HIV. The Company
has also identified specific sites within the replicative cycle of HIV which
will serve as targets for antiviral agents to be tested in this model. These
mice will also prove useful in testing potential vaccine candidates developed by
others for their efficacy in preventing infection by HIV.
To combat disease caused by HTLV-I and HTLV-II, the Company has licensed
additional technology from Rockefeller involving a surface protein of the virus
which has shown promise as a vaccine candidate. Researchers at Rockefeller have
genetically engineered a microorganism to produce this protein in quantities
which previously were unattainable. In addition, work has proceeded to produce a
version of this protein which is completely analogous to that produced in the
virus, thereby enhancing the efficacy of the resultant vaccine formulation.
Initial studies with a first generation construction of this vaccine have
demonstrated protection in an animal model and provide hope for the prevention
of this disease in humans. However, there can be no assurance that this vaccine
candidate will prove to be safe or effective in human studies.
PRODUCT CANDIDATES AND RESEARCH AND DISCOVERY PROGRAMS
The following table lists the status of the Company's product candidates
and research and discovery programs. A more detailed description of these
product candidates and research and discovery programs follows this table. The
Company's product candidates are subject to risks of failure inherent in the
development of products based on innovative technologies. See "Risk Factors -
Early Stage Development; Absence of Products".
22
<PAGE>
Product Candidates Program Disease Status of Development
HTLV-I Vaccine HTLV-I infection Preclinical
HTLV-II Vaccine HTLV-II infection Preclinical
HIV Animal Model HIV infection Research
Antiviral Compounds HIV infection Discovery
"Research" activities include initial research and development related to
the specific vaccine or formulations and their delivery.
"Discovery" imputes that the Company is conducting studies to validate
proof of concept and identify potential lead compounds.
"Preclinical" indicates that the Company is conducting pharmacology
testing, toxicity testing, formulation process development, and/or
development of the manufacturing process prior to possible submissions of
an IND.
Vaccines for Human T Cell Leukemia Virus Type I and II
HTLV-I and HTLV-II, like HIV, are mammalian retroviruses that infect
mature T lymphocytes and are associated with a number of severe clinical
disorders. An estimated 10 to 20 million people are infected with HTLV-I or
HTLV-II worldwide. Since most diagnostic tests do not distinguish between HTLV-I
and HTLV-II, the actual breakdown between the two viral infections is unclear.
Infection is endemic in certain geographic regions where up to 30 percent of the
population may be infected, and the two viruses have distinct geographic
distributions. Since 1988, all donations of whole blood and blood components in
the United States have been screened for HTLV-I and HTLV-II. Currently, all
blood donations in the United States, Europe and Japan are screened for HTLV-I
and HTLV-II contamination.
HTLV-I
High rates of HTLV-I infection occur in a number of geographic regions
which include parts of Japan, the Caribbean, South America, and Africa. In Japan
alone, as many as two million individuals are thought to be infected. Carriage
of the virus tends to increase with age after the age of 20 and generally peaks
between the ages of 40 and 60. Despite very high rates of infection in endemic
areas, few infected individuals develop disease. It has been estimated that the
lifetime risk of developing HTLV-I-related clinical disorders in infected
individuals is approximately 2-5 percent.
The modes of transmission of HTLV-I consist principally of three routes:
maternal transmission, primarily through breast feeding; homosexual
transmission; and transmission through contaminated blood products, including
blood transfusions, transplants, and sharing of contaminated needles in
intravenous drug users (IVDUs).
Despite the relatively low risk of developing disease, HTLV-I infection is
associated with a number of diverse and severe clinical disorders. These
include: an extremely aggressive and often fatal malignancy of the immune system
known as adult T cell leukemia (ATL); a severe and incurable neurological
disorder resembling multiple sclerosis, which is known as HTLV-associated
myelopathy; and a severe eye disease, known as HTLV-I-associated uveitis (HUV).
In addition, research suggests that HTLV-I may be associated with other
inflammatory processes, including T cell alveolitis, polymyositis, arthritis,
infective dermatitis, and Sjogren's syndrome. Other investigations provide
evidence that co-infection with both HIV and HTLV-I can accelerate the
progression of AIDS up to threefold.
HTLV-II
HTLV-I shares many characteristics with the closely related virus HTLV-II.
Like HTLV-I, HTLV-II is a retrovirus that binds to mature human T lymphocytes,
although there is evidence that it may infect B lymphocytes as well. HTLV-II has
a worldwide distribution due to its modes of transmission, but there are several
areas where it appears to be endemic. These areas principally appear to be
isolated populations of Amerindians of Central and South America, where the
incidence of seropositive individuals may reach 80%. More generally, however,
the prevalence ranges between 2-9% of Amerindians, including native Americans
of the southwest United States. One of
23
<PAGE>
the leading reservoirs of HTLV-II in the United States and Europe appears to be
IVDUs, where, in one study, the incidence of HTLV-II was 16%. HTLV-II
predominates over HTLV-I in IVDUs, with HTLV-II responsible for 89-98% of all
HTLV infections in this group. In North America, HTLV-II appears to be at least
as common as HTLV-I.
Like HTLV-I, the modes of transmission of HTLV-II consist principally of
maternal transmission, primarily through breast feeding, homosexual
transmission, and transmission through contaminated blood products, including
blood transfusions, transplants, and sharing of contaminated needles in IVDUs.
While it is less well characterized than HTLV-I, infection with HTLV-II
has also recently been associated with HTLV-associated myelopathy. HTLV-II has
also been linked to large granular lymphocytic leukemia, the cutaneous T
lymphocyte neoplasm mycosis fungoides, and certain autoimmune diseases. In
addition, HIV-positive individuals carrying HTLV-II have a significantly
increased incidence of AIDS-associated non-Hodgkin's lymphoma and acquired
ichthyosis (scaling of the skin) than do HIV-positive patients without HTLV-II.
Prevention of Infection and the Role of Vaccination
Current knowledge of the modes of transmission of HTLV-I have permitted
the use of public health measures to reduce the rates of infection in some
areas, e.g. by elimination of breast feeding and safe sex practices. However,
this is not feasible in some instances and such interventions are unlikely to
succeed in the long term, particularly in developing countries.
Effective vaccines against HTLV-I and HTLV-II would be of significant
clinical value. The viruses are widespread; HTLV-associated diseases can be
life-threatening, debilitating and incurable; and the risk of developing a
serious clinical disease (about 2-5%) is comparable to other viruses for which
vaccines are widely used. Furthermore, the development of such vaccines is
scientifically and technically feasible.
The feasibility of such a vaccine is rooted in several findings. Perhaps
most importantly, there appears to be natural immunity to HTLV-I infection in
humans, as evidenced by the placental transmission of maternal antibodies to the
fetus with subsequent protection of the newborn from viral transmission in the
mother's breast milk. Preliminary studies in animals have also demonstrated that
protection can be achieved by appropriate immunization strategies. Another
critical point is that the viral components which appear to be the leading
vaccine candidates remain genetically and serologically stable in the
population, unlike those on HIV. Indeed, the genomes of all the strains of
HTLV-I isolated thus far in Japan, Africa, the Caribbean, and Central and South
America are 98 percent identical. Hence, a vaccine generated against one strain
of HTLV-I will likely protect against the majority of strains, although there
can be no such assurance. The Company believes that the similarity between
HTLV-I and HTLV-II make the development of an effective HTLV-II vaccine equally
feasible.
The Company's Vaccine Candidates for HTLV-I and HTLV-II
On the basis of the information described above, investigators at
Rockefeller have developed vaccine candidates for HTLV-I and HTLV-II using
recombinant DNA techniques. The leading candidates for vaccine formulation
against HTLV-I infection are the surface glycoproteins. These proteins are so
named because of the carbohydrates, or sugars, which the virus has attached to
the proteins in strategic places. The Company has genetically engineered a novel
version of one of these glycoproteins in a manner which produces large,
previously unattainable quantities of the desired protein in either a
glycosylated (with sugars) or non-glycosylated form.
Both forms are easily purified for use as a vaccine.
Initial studies with rabbits immunized with a modified non-glycosylated
form of the HTLV-I glycoprotein have demonstrated 100 percent protection against
challenge with HTLV-I-infected cells. While the glycosylated forms more closely
resemble the glycoproteins naturally produced by the virus, these results
indicate that glycosylation is not required to confer protection. Nevertheless,
the Company is continuing to evaluate both glycosylated and non-glycosylated
vaccine candidates for HTLV-I.
24
<PAGE>
The Company's vaccine candidate for HTLV-II is based on a modified
glycosylated form of the HTLV-II glycoprotein. This subunit vaccine was recently
tested in a rabbit model of HTLV-II infection. In the studies, 22 rabbits were
immunized at 0, 4, 8 and 16 weeks and were challenged with virus at 18 weeks or
6 months. In all 22 animals, the vaccine elicited high antibody titers and
protection against viral infection.
Following further animal studies to optimize both vaccines and determine
routes of administration, the Company intends to begin human trials in Rio de
Janeiro, Brazil. The Company believes it has identified a suitable population
for Phase I safety and immunogenicity trials and expects that these Phase I
trials will begin in Brazil in the first half of 1997.
Development of Animal Models for HIV Replication
HIV
Human immunodeficiency virus ("HIV") is the causative agent of the
multisymptom condition known as acquired immunodeficiency syndrome ("AIDS"). By
mid 1993, greater than 13 million people were estimated to be infected with HIV
worldwide, more than one million of whom were in North America.
Once HIV enters the new host, the virus targets a specific population of
white blood cells (T lymphocytes and mononuclear cells) which carry a receptor
known as CD4 (i.e. CD4+ T cells). The CD4+ T cells perform a crucial role as
"helper" cells in the immune response to foreign intruders. By means as yet
undetermined (either direct killing or by using other intermediaries including
the CD4+ T cells, themselves), HIV drastically depletes the number of these
cells. Over a period of 10 or more years, CD4+ T cell levels fall to dangerously
low numbers with a resultant suppression of the immune system, i.e. the
individual cannot mount an adequate immune response to deal with infections.
This immunosuppressed state leads to a variety of diseases which have become
characteristic manifestations of AIDS. Among these are neurological dementia;
HIV-associated nephropathy; cancers, such as Kaposi's sarcoma and lymphoma;
opportunistic infections, such as candidiasis, Pneumocystis carinii pneumonia,
cryptosporidiosis, and microsporidiosis; and infections, such as tuberculosis,
which under the best of circumstances need an intact immune system. Death from
these secondary complications of HIV, except in rare instances, has proven to be
unpredictable in timing, but inevitable in outcome.
Animal Models for HIV Studies
A major limitation in studying HIV and developing effective interventions,
both therapeutic and vaccine-related, for treatment of this infection is the
lack of a suitable animal model which permits virus replication. At present,
animal studies are limited to a small number of non-human primate species and to
the SCID-human mouse model. Primates, such as chimpanzees, baboons, and rhesus
macaques, have shown some promise, but have certain limitations. These primates,
although capable of infection with HIV, do not display the normal progression of
the disease as seen in humans. As a result, researchers have turned to a closely
related virus, simian immunodeficiency virus (SIV), which does cause disease in
primates. Although closely related to HIV, SIV does exhibit differences which
makes extrapolation from one to the other difficult. In addition to these
limitations, continued use of primates has the potential of endangering some
species, and the expense is prohibitive. SCID (severe combined immunodeficiency)
mice are deficient in the cells responsible for both arms of the normal immune
system, cellular and humoral (antibody). As a result, these mice are not only
incapable of fighting infection, they also are unable to mount a transplant
rejection reaction. In the context of HIV, which involves the introduction of
human cells into these mice, this model has proved to be of only limited use. In
addition, it is also expensive and labor intensive.
The inability to develop a non-primate animal model reflects the fact that
certain human cellular factors are necessary for HIV to enter the host target
cell, replicate, and complete its life cycle. As an alternative, researchers at
academic institutions and pharmaceutical companies have attempted to engineer
mice which will produce the factors necessary for HIV entry and replication. Two
primary avenues have been followed to construct these "transgenic mice": 1)
introduction of the human CD4 receptor for the virus into cells of the mouse's
immune system and 2) introduction of
25
<PAGE>
infectious "proviral" DNA into the mice. While the human CD4+ mice have shown
some promise in the infection of host cells with HIV and HIV genes transferred
into the mice have resulted in the production of certain clinical manifestations
similar to those in AIDS, a full replicative cycle producing the ensuing
syndrome has not been forthcoming.
The Company's Transgenic Mouse Model
The Company's approach has been and will continue to be to identify the
genes for the human factors responsible for HIV replication and to
systematically introduce these into mice. Effectively, this will allow the
"humanization" of the mouse blood cells to the point where HIV will efficiently
replicate. In preliminary studies, collaborators at Rockefeller and the National
Institute of Health in Japan have identified a human factor which, when
introduced into mouse cells growing in tissue culture, will allow the virus to
replicate and nearly complete its life cycle. The Company intends to identify
the additional factor(s) required for high efficiency replication. The Company
has already produced transgenic mice expressing both CD4 and this human factor
in their peripheral blood cells.
The development of such transgenic mice will allow for permanent breeding
where literally thousands of animals could be produced inexpensively. If
transgenic mice can be used for HIV replication, these animals will permit the
rapid screening of large numbers of candidate drugs and allow testing of
potential vaccines. Moreover, this model will be of use to all of those involved
in basic HIV research, allowing investigators to analyze in fine detail the life
cycle of this virus. This, in time, will permit the development of new and novel
agents which are intended to specifically interfere at different points in the
virus life cycle.
Antiviral Compounds for HIV
The life cycle of HIV, while still not fully understood, has been
deciphered to a level where a number of targets for potential antiviral activity
have been identified. An enzyme crucial to the replication of HIV, reverse
transcriptase, has been the focus of intense study by many groups and has lead
to the development of several reverse transcriptase inhibitors as antiviral
therapies, the best known of which and most widely used is azidothymidine (AZT).
More recently, inhibitors of a second enzyme required for viral replication, HIV
protease, have been approved as treatments for HIV infection. Combinations of
two or more of these inhibitors have produced important clinical benefits,
including prolonged survival and dramatic reductions in viral levels (load).
In spite of these advances in the treatment of HIV, there is a large need
for new therapies. The disease remains incurable, the therapeutic benefits of
current drugs are short-lived and serious side effects are common. In addition,
the emergence of strains of HIV that are resistant to currently available drugs
remains a major obstacle to effective treatment.
The Company believes that more effective therapies for HIV infection will
require the identification of additional molecular targets in the HIV
replication process. The collaboration which has produced the transgenic model
has identified a new, highly specific target within the replicative cycle of
HIV. With the use of its transgenic model, the Company intends to find or
synthesize compounds that will compete for these sites, thereby halting
replication of the virus. Due to the continuing potential for antiviral
resistance to newly introduced compounds, the Company will continue to focus on
the discovery of new targets within the replicative cycle and new antiviral
agents for successful therapy of HIV infection. At present, the Company has not
developed any such therapy.
Licenses and Collaborative Research
The Company and Rockefeller have entered into a license agreement whereby
the Company has obtained the right to make, use and sell products for the
treatment of human viral diseases and animal models for pharmaceutical
development. Dr. Hidehiro Takahashi, a research scientist at the National
Institute of Health, Tokyo, Japan, is a co-inventor of certain of the licensed
technologies and joined in the license grant to the Company. The license grants
an exclusive world-wide license. The agreement
26
<PAGE>
generally requires the Company to pay royalties on sales of products developed
from the licensed technologies and fees on revenues from sublicensees, where
applicable, and the Company is responsible for certain milestone payments and
for the costs of filing and prosecuting patent applications. In addition, the
Company sponsors research and development related to the licensed technologies
at Dr. Hall's laboratory at University College, Dublin. The Company has
exclusive rights to all inventions and discoveries resulting from this research.
Business Strategy
The Company evaluates and selects product commercialization strategies on
a product-by-product basis. For certain product candidates, the Company intends
to independently pursue commercialization opportunities to the fullest extent
practicable. To date, the Company has not sought a strategic partnership for its
HTLV-I or HTLV-II vaccine candidates and retains all commercial rights. The
Company currently intends to develop these vaccine candidates independently
through the early stages of clinical testing. The Company is continuing to
evaluate the most effective commercialization strategy for its animal model of
HIV infection. Depending on the future circumstances of this product development
program, the Company may grant product development rights to an established
supplier of animals for medical research or may grant rights to the technology,
on an exclusive or non-exclusive basis, to established pharmaceutical companies
for use in their internal drug and vaccine development efforts. The Company does
not currently intend to independently produce or sell animals for use in medical
research. The Company sponsors research and development activities at Dr. Hall's
laboratory at University College, Dublin and does not maintain its own
research and development facilities.
Manufacturing
The Company does not intend to invest in large scale manufacturing
facilities unless and until its product candidates pass significant development
hurdles. The Company believes that all of its existing products under
development can be made using well understood manufacturing methods.
Nevertheless, the Company has no manufacturing experience and it may not be able
to develop reproducible and effective manufacturing processes at a reasonable
cost. In such event, the Company will have to rely on third-party manufacturers
whose availability and cost is presently unclear.
Patents and Proprietary Rights
The Company believes that patents and other proprietary rights are
important to its business. The Company's policy is to file, and to have any
licensor(s) file, patent applications to protect technology, inventions and
improvements to technologies that are considered important to the development of
its business. At the present time, the Company is licensed under two United
States patent applications, one relating to its animal model for HIV infection,
and the other relating to its vaccine candidates for HTLV-I and HTLV-II.
The Company also relies upon trade secret protection for its confidential
and proprietary information. No assurance can be given that other companies will
not independently develop substantially equivalent proprietary information and
techniques or otherwise gain access to the Company's trade secrets or that the
Company can meaningfully protect its trade secrets.
It is the Company's intention to require its employees, consultants,
outside scientific collaborators and sponsored researchers and certain other
advisors to enter into confidentiality agreements with the Company. It is the
Company's intention that these agreements will provide that all confidential
information developed or made known to the individual during the course of the
individual's relationship with the Company will be kept confidential and not
disclosed to third parties except in specific circumstances. In the case of
employees, the Company intends that such agreements will provide that all
inventions conceived by the employee are the exclusive property of the Company.
There can be no assurance, however, that these agreements will provide
meaningful protection or adequate remedies for the Company's trade secrets in
the event of unauthorized use or disclosure of such information,
27
<PAGE>
licenses and collaborative research.
Government Regulation
Regulation by governmental authorities in the United States and other
countries will be a significant factor in the production and marketing of any
products that may be developed by the Company. The nature and the extent to
which such regulation may apply to the Company will vary depending on the nature
of any such products. Virtually all of the Company's potential vaccine and drug
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures by the
FDA and similar health authorities in foreign countries. Various federal
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The process of
obtaining these approvals and the subsequent compliance with appropriate federal
and foreign statutes and regulations requires the expenditure of substantial
resources.
In order to test clinically, produce and market products for diagnostic or
therapeutic use, a company must comply with mandatory procedures and safety
standards established by the FDA and comparable agencies in foreign countries.
Before beginning human clinical testing of a potential new drug, a company must
file an Investigational New Drug Application ("IND") and receive clearance from
the FDA. This application is a summary of the preclinical studies that were
conducted to characterize the drug, including toxicity and safety studies, as
well as an in-depth discussion of the human clinical studies that are being
proposed.
The pre-marketing program required for approval of a new drug typically
involves a time-consuming and costly three-phase process. In Phase I, trials are
conducted with a small number of patients to determine the early safety profile,
the pattern of drug distribution and metabolism. In Phase II, trials are
conducted with small groups of patients afflicted with a target disease in order
to determine preliminary efficacy, optimal dosages and expanded evidence of
safety. In Phase III, large scale, multi-center comparative trials are
conducted with patients afflicted with a target disease in order to provide
enough data for statistical proof of efficacy and safety required by the FDA and
others.
The FDA closely monitors the progress of each of the three phases of
clinical testing and may, in its discretion, reevaluate, alter, suspend or
terminate the testing based on the data that have been accumulated to that point
and its assessment of the risk/benefit ratio to the patient. Estimates of the
total time required for carrying out such clinical testing vary between two and
ten years, but there can be no assurance that any phase of clinical testing will
be completed successfully within any specific time period, if at all, with
respect to any of the Company's product candidates. Upon completion of such
clinical testing, a company typically submits a New Drug Application ("NDA") or
Product License Application ("PLA") to the FDA that summarizes the results and
observations of the drug during the clinical testing. Based on its review of the
NDA or PLA, the FDA will decide whether or not to approve the drug. This review
process can be quite lengthy, and approval for the production and marketing of a
new pharmaceutical product can require a number of years and substantial
funding, and there can be no assurance that any approvals will be granted on a
timely basis, if at all.
Once the product is approved for sale, FDA regulations govern the
production process and marketing activities, and a post-marketing testing and
surveillance program may be required to monitor continuously a product's usage
and effects. Product approvals may be withdrawn if compliance with regulatory
standards is not maintained. Other countries in which any products developed by
the Company may be marketed impose a similar regulatory process.
Competition
The biotechnology and pharmaceutical industries are characterized by
rapidly evolving technology and intense competition. The Company's competitors
include major pharmaceutical and biotechnology companies, most of which have
financial, technical
28
<PAGE>
and marketing resources significantly greater than those of the Company.
Academic institutions, governmental agencies and other public and private
research organizations are also conducting research activities and seeking
patent protection and may commercialize products on their own or through joint
venture. The Company is aware of certain development projects for products to
prevent or treat certain diseases targeted by the Company. The existence of
these potential products or other products or treatments of which the Company is
not aware, or products or treatments that may be developed in the future, may
adversely affect the marketability of products developed by the Company.
Human Resources and Facilities
The Company has three employees at its executive offices in New York, New
York. The Company also has a consulting agreement with Dr. William Hall, the
principal founding scientist of the Company's technologies and Professor of
Medical Microbiology and Director of the Virus Reference Laboratory at
University College, Dublin.
The Company sponsors research and development activities at Dr. Hall's
laboratory at University College, Dublin. The Company does not maintain its own
research and development facilities. The Company leases office space at 666
Third Avenue, New York, New York, 10017.
29
<PAGE>
MANAGEMENT
Directors, Executive Officers, and Consultants
The following table sets forth information concerning each of the
directors, executive officers, and consultants of the Company.
Name Age Position
- ---------------------------- ---- ----------------------------
Joshua D. Schein, Ph.D. 36 President, Secretary and Director
Judson A. Cooper 37 Chief Financial Officer and Director
William W. Hall, M.D., Ph.D. 46 Consultant
All Directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Directors receive no
cash compensation for serving on the Board of Directors other than reimbursement
of reasonable expenses incurred in attending meetings. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board,
subject to the provisions of certain employment and consulting agreements. See
"Employment and Consulting Agreements."
Joshua D. Schein, Ph.D.
Dr. Schein has served as President and Director of the Company since
December 1995. Dr. Schein has served as Chief Financial Officer and a Director
of SIGA Pharmaceuticals, Inc., a privately held development stage pharmaceutical
company ("SIGA"), since December 1995. Dr. Schein devotes substantial amounts of
his time to the Company and SIGA on a substantially equal basis. Dr. Schein has
served as a Director of DepoMed, Inc. since January 1996. From October 1994 to
December 1995, Dr. Schein served as a Vice President of Investment Banking at
Josephthal, Lyon and Ross, Incorporated. From June 1991 to September 1994, Dr.
Schein was a Vice President at D. Blech & Company, Incorporated, a merchant bank
that invested in the biopharmaceutical industry. Dr. Schein received a Ph.D. in
neuroscience from the Albert Einstein College of Medicine and an MBA from the
Columbia Graduate School of Business. Dr. Schein is a principal of CSO Ventures
LLC ("CSO"), a privately held limited liability company and the largest
stockholder of the Company.
Judson A. Cooper
Mr. Cooper has served as Chief Financial Officer and Director of the
Company since December 1995. Mr. Cooper has served as President and Director of
SIGA since December 1995. Mr. Cooper devotes substantial amounts of his time to
the Company and SIGA on a substantially equal basis. Mr. Cooper has also served
as a Director of DepoMed, Inc. since November, 1995. Mr. Cooper had been a
private investor from September 1993 to December 1995. From 1991 to 1993, Mr.
Cooper served as a Vice President of D. Blech & Company, Incorporated. Mr.
Cooper is a graduate of the Kellogg School of Management. Mr. Cooper is a
principal of CSO.
William W. Hall, M.D., Ph.D.
Dr. Hall has served as a consultant to the Company since January 1996. Dr.
Hall is Professor of Medical Microbiology and Director of the Virus Reference
Laboratory at University College, Dublin. From 1993 to April 1996, Dr. Hall was
Senior Physician and Head of the Laboratory of Medical Virology at The
Rockefeller University. From 1988 to 1993, Dr. Hall was Director of Virology and
Attending Physician in the Department of Medicine at North Shore University
Hospital, Cornell University Medical College.
Board of Directors
The number of directors on the Board of Directors is determined from time
to time by the Board of Directors and is currently fixed at two. Directors are
elected at each annual meeting of stockholders by the holders of the Common
Stock and hold office until their successors have been duly elected and
qualified or until their resignation, removal from office or death. Officers of
the Company are appointed by
30
<PAGE>
and may be removed by the Board of Directors. Upon the consummation of the
Offering, the Company plans to appoint two individuals not otherwise affiliated
with the Company as directors.
Committees of the Board of Directors
Upon the consummation of the Offering, the Company will form an Audit
Committee and a Compensation Committee. The Audit Committee will be responsible
for reviewing audit functions, including accounting and financial reporting
practices of the Company, the adequacy of the Company's system of internal
accounting control, the quality and integrity of the Company's financial
statements and relations with its independent auditors. It is anticipated that
the Audit Committee will consist of both of the two new directors. The
Compensation Committee is responsible for establishing the compensation of the
Company's directors, officers and employees, including salaries, bonuses,
commission, and benefit plans, administering the Plan, and other forms of or
matters relating to compensation. It is anticipated that the Compensation
Committee will consist of one or both of such new directors.
Executive Compensation
The following table sets forth certain information with respect to annual
and long-term compensation paid by the Company to the Chief Executive Officer
and to the Chief Financial Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation through 9/30/96 Long Term Compensation
-------------------------------------------- ---------------------------
Stock
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonuses Compensation Options Compensation
- --------------------------- ---- --------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joshua D. Schein, Ph.D., 1996 $ 118,500(1) $ -0- $ --(3) 15,000 $ -0-
President and Director
Judson A. Cooper, Chief Financial 1996 $ 118,500(2) $ -0- $ --(3) 15,000 $ -0-
Officer and Director
</TABLE>
- ----------
(1) Dr. Schein receives an annual salary of $150,000.
(2) Mr. Cooper receives an annual salary of $150,000.
(3) Aggregate amount does not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus for the named officer.
The following table sets forth certain information concerning all stock
option grants to the Company's executive officers to date.
Option Grants
<TABLE>
<CAPTION>
Common Stock % of Total
Underlying Options Granted Exercise Expiration
Name Options Granted(1) to Employees Price Per Share Date
- ---- ------------------ --------------- --------------- ----------
<S> <C> <C> <C> <C>
Joshua D. Schein... 15,000 50% $1.67 1/1/01
Judson A. Cooper... 15,000 50% $1.67 1/1/01
</TABLE>
- ----------
(1) All options were granted pursuant to the Plan.
The following table sets forth certain information concerning option
exercises and option holdings under the Plan as of the date of this Prospectus
with respect to each of the Company's executive officers.
Aggregated Option Exercises and Values as of 9/30/96
<TABLE>
<CAPTION>
Number of Shares of Stock Value of Unexercised
Sharesed Underlying Unexercised Options In-the-Money Options(1)
Acquired Value ------------------------------ -----------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joshua D.
Schein, Ph.D... 0 0 15,000 0 $64,950 0
Judson A.
Cooper......... 0 0 15,000 0 $64,950 0
</TABLE>
- ----------
(1) Based upon the estimated initial public offering price of $6.00 per share.
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<PAGE>
Employment Agreements
Dr. Joshua Schein, President of the Company, has an employment agreement
with the Company which expires in December 1998 and is cancellable by the
Company only for cause, as defined in the agreement. Dr. Schein currently
receives an annual base salary of $150,000 and 15,000 stock options per year,
exerciseable at the fair market value on the date of grant, and is eligible to
receive additional stock options and bonuses at the discretion of the Board of
Directors. In addition, Dr. Schein will receive a cash payment equal to 1.5% of
the total consideration received by the Company in a transaction resulting in a
change of ownership of at least 50% of the outstanding Common Stock of the
Company.
Judson Cooper, Chief Financial Officer of the Company, has an employment
agreement with the Company which expires in December 1998 and is cancellable by
the Company only for cause as defined in the agreement. Mr. Cooper currently
receives an annual base salary of $150,000 and 15,000 stock options per year,
exerciseable at the fair market value on the date of grant, and is eligible to
receive additional stock options and bonuses at the discretion of the Board of
Directors. In addition, Mr. Cooper will receive a cash payment equal to 1.5% of
the total consideration received by the Company in a transaction resulting in a
change of ownership of at least 50% of the outstanding Common Stock of the
Company.
1996 Incentive and Non-Qualified Stock Option Plan
As of January 1, 1996, the Company adopted its 1996 Incentive and
Non-Qualified Stock Option Plan (the "Plan"), pursuant to which stock options
may be granted to key employees, consultants and outside directors (the
"Participants").
Following the completion of the Offering, the Plan will be administered by
a committee (the "Committee") comprised of disinterested directors. The
Committee will determine persons to be granted stock options, the amount of
stock options to be granted to each such person, and the terms and conditions of
any stock options as permitted under the Plan. The members of the Committee have
not yet been appointed.
Both Incentive Options and Nonqualified Options may be granted under the
Plan. An Incentive Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code. Any Incentive Option granted
under the Plan will have an exercise price of not less than 100% of the fair
market value of the shares on the date on which such option is granted. With
respect to an Incentive Option granted to an employee who owns more than 10% of
the total combined voting stock of the Company or of any parent or Subsidiary of
the Company, the exercise price for such option must be at least 110% of the
fair market value of the shares subject to the option on the date the option is
granted. A Nonqualified Option (i.e., an option to purchase Common Stock that
does not meet the Code's requirements for Incentive Options) granted to a
director must have an exercise price of at least the fair market value of the
stock at the date of grant.
There are 375,000 options available pursuant to the Plan, of which 30,000
options are outstanding at an exercise price of $1.67 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus
and, as adjusted, assumes the sale of all of the Common Stock offered pursuant
to this Prospectus. The table also assumes, with respect to each individual
shareholder, the exercise of all warrants, options or conversion of all
convertible securities held by such shareholder. It does not assume the exercise
or conversion of securities held by any other shareholder. The table is based on
information obtained from the persons named below with respect to the beneficial
ownership of shares of Common and Preferred Stock by (i) each person known by
the Company to be the owner of more than 5% of the aggregate outstanding shares
of Common Stock and Preferred Stock, (ii) each director and (iii) all officers
and directors as a group.
Amount and
Nature of Percentage
Names and addresses of Beneficial of Outstanding
Beneficial Owner(1) Ownership Shares Owned
- --------------------- ---------------- --------------------------------
Prior to After
Offering Offering(2)
-------- -----------
CSO Ventures LLC(3) 1,211,250 50.16% 33.98%
Richard B. Stone(4)
135 East 57th St.
New York, NY 10022 365,625 15.33% 10.34%
William W. Hall, M.D.,
Ph.D.(5) 303,750 11.89% 8.20%
Nathan Low(6)
135 East 57th St.
New York, NY 10022 159,375 6.68% 4.51%
Gross Foundation Inc.
1660 49th St.
Brooklyn, NY 11204 120,000 5.03% 3.39%
Joshua D. Schein, Ph.D.(7) 1,196,250 49.84% 33.70%
Judson A. Cooper(8) 1,196,250 49.84% 33.70%
All Officers and Directors
as a Group (2 persons)(9) 1,211,250 50.16% 33.98%
- ----------
(1) Unless otherwise indicated the address of each beneficial owner identified
is 666 Third Avenue, 30th Floor, New York, NY 10017. Unless otherwise
noted, the Company believes that all persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Excludes (i) 172,500 shares of Common Stock issuable by the Company upon
exercise of the Underwriter's Over-allotment Option in full; (ii) 115,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants; (iii) 375,000 shares reserved for issuance under
the Plan, pursuant to which options to purchase 30,000 of such reserved
shares have been granted; and (iv) 168,750 shares of Common Stock issuable
upon the exercise of the Hall Warrants.
(3) Includes 15,000 options held by Dr. Schein and 15,000 options held by Mr.
Cooper.
(4) Includes 11,250 of 45,000 shares held by a family trust of which Mr. Stone
is one of four equal beneficiaries. The trustee of the trust is David
Stone, Mr. Stone's brother.
(5) Includes the 168,750 Hall Warrants.
(6) Mr. Low is a principal of Sunrise Securities Corp. See "Certain
Transactions."
(7) Includes shares owned by CSO Ventures LLC, a limited liability company in
which Dr. Schein has a substantial interest and 15,000 options held by Dr.
Schein.
(8) Includes shares owned by CSO Ventures LLC, a limited liability
company in which
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<PAGE>
Mr. Cooper has a substantial interest and 15,000 options held by Mr.
Cooper.
(9) Includes shares owned by CSO Ventures LLC. (See footnotes 7 and 8 above.)
CERTAIN TRANSACTIONS
The Company and CSO have entered into a consulting agreement under which
CSO has agreed to provide certain business services to the Company, including
business development, licensing, strategic alliances and administrative support.
Pursuant to the terms of the agreement, CSO receives an annual fee of $120,000
and will be reimbursed for certain expenses. The agreement, as amended, expires
January 1, 2000 and is cancellable by the Company only for cause as defined in
the agreement. Mr. Cooper, Dr. Schein and Steven Oliveira are members of CSO.
Mr. Oliveira is also an employee of the Underwriter. See "Underwriting."
The Company and Dr. Hall have entered into a consulting agreement under
which Dr. Hall has agreed to provide certain research and development services
to the Company. Pursuant to the terms of the agreement, Dr. Hall receives an
annual fee of $75,000. The agreement expires December 31, 1998 and is
cancellable by the Company only for cause as defined in the agreement. Dr. Hall
received options to purchase 168,750 shares of Common Stock at an exercise price
of $1.67 per share on May 1, 1996. On September 15, 1996, such option grant
was cancelled by the Company and warrants to purchase 168,750 shares of Common
Stock at $1.67 per share were issued to Dr. Hall.
Richard Stone has served as a financial consultant to the Company since
January 1996 pursuant to a consulting agreement which expires in February 1998.
For services rendered pursuant to this agreement, Mr Stone received $120,000 in
1996. Mr. Stone has notified the Company that he is terminating his consulting
agreement as of December 31, 1996. Mr. Stone is also a managing director of
Sunrise Securities Corp., which is acting as underwriter in connection with a
"best efforts" public offering of securities of SIGA, a corporation in which Mr.
Stone, Mr. Cooper, Dr. Schein and Steven M. Oliveira (a principal of CSO as well
as an employee of the Underwriter (See "Underwriting")) each own more than ten
percent of the outstanding shares of common stock.
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<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue 25,000,000 shares of Common Stock, par
value $.0001 per share, and 10,000,000 shares of Preferred Stock, par value
$.0001 per share. As of the date of this Prospectus, there are 2,385,000 shares
of Common Stock outstanding and no shares of Preferred Stock outstanding.
The following summary description of the Company's Common Stock and
Preferred Stock is qualified in its entirety by reference to the Articles and
Bylaws, copies of which are included as exhibits to the Registration Statement
of which this Prospectus is a part.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in this Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue in the future.
Preferred Stock
The Board of Directors has the authority, without further action of the
stockholders of the Company, to issue up to an aggregate of 10,000,000 shares of
Preferred Stock in one or more series and to fix or alter the designations,
preferences, rights and any qualifications, limitations or restrictions of the
shares of each such series thereof, including the dividend rights, dividend
rates, conversion rights, voting rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and the
number of shares constituting any series or the designation of such series.
The Board of Directors, without stockholder approval, can issue Preferred
Stock with voting and conversion rights that could adversely affect the voting
power of holders of Common Stock. The issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of the Company.
The Company has no present plans to issue any shares of Preferred Stock.
Transfer Agent
The Company's transfer agent and registrar for the Common Stock is
American Stock Transfer & Trust Company.
Indemnification
The Certificate of Incorporation (the "Certificate") of the Company
provides that, to the fullest extent permitted by applicable law, as amended
from time to time, the Company will indemnify any person who was or is a party
or is threatened to be made a party to an action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was director, officer, employee or agent of the Company or
serves or served any other enterprise at the request of the Company.
35
<PAGE>
In addition, the Certificate 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 director's fiduciary duty. However, the Certificate does not
eliminate or limit the liability of a director for any of the following reasons:
(i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; or (iii) a transaction from
which the director derived an improper personal benefit.
The Company will purchase and maintain Directors' and Officers' Insurance
as soon as the Board of Directors determines practicable, in amounts which they
consider appropriate, insuring the directors against any liability arising out
of the director's status as a director of the Company regardless of whether the
Company has the power to indemnify the director against such liability under
applicable law.
Certain Certificate of Incorporation and Bylaw Provisions
In addition, certain provisions of the Company's Certificate and Bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
Special Meeting of Stockholders
The Company's Bylaws provide that special meetings of stockholders of the
Company may be called only by the President of the Company, the Board of
Directors or holders of not less than 10% of the votes entitled to be cast at
the special meeting.
Authorized But Unissued Shares
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock may enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender, offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
3,535,000 shares of Common Stock, without giving effect to shares of Common
Stock issuable upon exercise of (i) the Underwriter's Warrants, (ii) the
Underwriter's Over-allotment Option, (iii) options granted under the Plan, or
(iv) the Hall Warrants. Of such 3,535,000 shares of Common Stock, 1,285,000
shares, consisting of 1,150,000 shares to be sold by the Company in this
Offering and the 135,000 Bridge Shares (plus any additional shares sold upon the
exercise of the Underwriter's Over-allotment Option), will be freely tradeable
without restriction or further registration under the Act, except for any shares
held by "affiliates" of the Company within the meaning of the Act which shares
will be subject to the resale limitations of Rule 144 promulgated under the Act.
The Bridge Investors have agreed with the Underwriter not to sell or otherwise
dispose of any of the Bridge Shares for a period of twelve months after the date
of the consummation of the Offering. The Underwriter may, in its sole
discretion, and at any time without notice, release all or any portion of the
shares owned by the Bridge Investors from such restrictions.
The remaining 2,250,000 Restricted Shares were issued by the Company in
private transactions in reliance upon one or more exemptions contained in the
Act. 450,000 of the Restricted Shares were issued in connection with a private
placement transaction completed in April 1996 and the 1,800,000 Founders' Shares
were issued to the founders of the Company in December 1995. The Restricted
Shares are deemed to be "restricted securities" within the meaning of Rule 144
promulgated pursuant to the Act and may be publicly sold only if registered
under the Act or sold pursuant to exemptions therefrom.
36
<PAGE>
Because none of the Restricted Shares will have been held for more than two
years as of the date of this Prospectus, none of such shares are eligible for
public sale in accordance with the requirements of Rule 144, as described below.
In addition, the holders of the Founders' Shares have agreed with the
Underwriter not to sell or otherwise dispose of such shares for a period of
eighteen months after the date of the consummation of the Offering.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on Nasdaq, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of the Company for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above. The Commission is currently
considering a proposal to reduce the Rule 144 holding period for restricted
securities to one year.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Plan,
thereby permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. The Company has reserved up
to 375,000 shares of Common Stock for issuance under the Plan. As of the date of
this Prospectus, options to purchase 30,000 of such reserved shares of Common
Stock were outstanding under the Plan. See "Management--1996 Incentive and
Non-Qualified Stock Option Plan."
Prior to this Offering, there has been no public market for the Common
Stock, and no predictions can be made as to the effect, if any, that sales of
the Common Stock will have on the market price of such securities from time to
time. Sales of substantial amounts of the Company's securities in the public
market could have a significant adverse effect on prevailing market prices and
could impair the Company's future ability to raise capital through the sale of
its equity securities. See "Risk Factors--Shares Eligible for Future Sale."
37
<PAGE>
CONCURRENT REGISTRATION OF COMMON STOCK
The 135,000 Bridge Shares are also being registered in connection with
this Offering and are covered by a Bridge Investors Prospectus included in the
Registration Statement of which this Prospectus forms a part. Such shares have
been included in the Registration Statement of which this Prospectus forms a
part. The Bridge Shares were issued to the Bridge Investors in connection with
the Company's Bridge Financing completed in August 1996, in which the Company
agreed to register the underlying shares concurrently with this Offering and pay
all expenses in connection therewith (other than brokerage commissions and fees
and expenses of counsel). The Company also agreed to maintain an effective
registration statement and current prospectus covering the issuance and public
sale of the Bridge Shares for a period of 18 months from the consummation of
this Offering. None of the Bridge Investors holding the Bridge Shares has ever
held any position or office with the Company or had any other material
relationship with the Company. The Company will not receive any proceeds from
the sale of shares by the Bridge Investors.
The Bridge Shares may, commencing twelve months from the date of this
Prospectus or earlier with the consent of the Underwriter, be offered and sold
from time to time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. Such shares offered
hereby may be sold by one or more of the following methods, without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (d) face-to-face transactions between sellers
and purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Bridge Investors may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
Bridge Investors in amounts to be negotiated. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act, in connection with such sales.
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 1,150,000 shares of Common Stock. The underwriting agreement
between the Company and the Underwriter (the "Underwriting Agreement") provides
that the obligations of the Underwriter are subject to certain conditions
precedent. The Underwriter is committed to purchase all of the Common Stock
offered hereby if any are purchased (other than those covered by the
Underwriter's Over-allotment Option described below) at the offering price less
an underwriting discount or comission equal to ten percent (10%).
The Underwriter has advised that it proposes initially to offer the
1,150,000 shares of Common Stock to the public at the initial public offering
prices set forth on the cover page of this Prospectus and that it may allow to
selected dealers who are members of the NASD concessions not in excess of
$______ per share of Common Stock, of which not more than $_______ per share of
Common Stock may be re-allowed to certain other dealers.
After the initial public offering, the offering price and other selling
terms may be changed by the Underwriter. The Underwriter has advised the Company
that the Underwriter does not intend to confirm sales to any accounts over which
it exercises discretionary authority.
The Underwriting Agreement provides further that the Underwriter will
receive from the Company a non-accountable expense allowance of 3% of the gross
proceeds of the Offering (including all securities sold by the Company upon
exercise of the Underwriter's Over-allotment Option), of which $50,000 has been
paid by the Company to date. The Company has also agreed to pay all expenses in
connection with qualifying the shares of Common Stock offered hereby for sale
under the laws of such states as the Underwriter may designate, including
expenses of counsel retained for such purpose by the Underwriter.
38
<PAGE>
Pursuant to the Underwriter's Over-allotment Option, which is exercisable
for a period of 45 days after the closing of the Offering, the Underwriter may
purchase up to 172,500 shares of Common Stock solely to cover over-allotments.
The Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants to purchase 115,000 shares of Common
Stock. The Underwriter's Warrants will be nonexercisable for one year after the
date of this Prospectus. Thereafter, for a period of four years, the
Underwriter's Warrants will be exercisable at an amount equal to 120% of the
offering price of the Common Stock sold in this Offering. The Underwriter's
Warrants are not transferable for a period of one year after the date of this
Prospectus, except to officers of the Underwriter, members of the selling group
and their officers and partners. The Company has also granted certain demand and
"piggyback" registration rights to the holders of the Underwriter's Warrants.
For the life of the Underwriter's Warrants, the holders thereof are given,
at a nominal cost, the opportunity to profit from a rise in the market price of
the Common Stock with a resulting dilution in the interest of other
stockholders. Further, such holders may be expected to exercise the
Underwriter's Warrants at a time the Company would in all likelihood be able to
obtain equity capital on terms more favorable than those provided in the
Underwriter's Warrants.
The Company has agreed, for a period of 18 months after the date of this
Prospectus, not to issue any shares of Common Stock or preferred stock, or any
warrants, options or other rights to purchase Common Stock or preferred stock,
without the prior written consent of the Underwriter. Notwithstanding the
foregoing, the Company may issue shares of Common Stock (i) upon exercise of any
stock options issued pursuant to the Plan, (ii) upon exercise of any warrants or
convertible securities outstanding on the date hereof or to be outstanding upon
closing of the Offering as described herein, or (iii) in connection with the
hiring or retention of key employees, consultants or outside directors.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with the
Offering, including liabilities under the Securities Act.
The Company has agreed that upon closing of the Offering it will, for a
period of not less than two years, engage a designee of the Underwriter as
advisor to the Board. In addition and in lieu of the Underwriter's right to
designate an advisor, the Company has agreed, if requested by the Underwriter
during such two-year period, to nominate and use its best efforts to cause the
election of a designee of the Underwriter as a director of the Company. The
Underwriter has not yet designated any such person.
The Underwriter intends to act as a market maker for the Common Stock
after the closing of the Offering.
The Company has agreed to retain the Underwriter as a consultant at an
annual fee of $36,000 for a three-year period commencing on the closing of the
Offering. The entire fee ($108,000) is payable at the closing of the Offering.
Pursuant to this agreement, the Underwriter will be obligated to provide general
financial advisory services to the Company on an as-needed basis with respect to
possible future financing or acquisitions by the Company and related matters.
The agreement does not require the Underwriter to provide any minimum number of
hours of consulting services to the Company.
The Underwriter acted as placement agent for the Company pursuant to the
Bridge Financing and received a commission of $60,000 for its services and a
non-accountable expense allowance of $22,500.
Steven Oliveira, an employee of the Underwriter, is a member of, and has a
substantial interest in, CSO which beneficially owns an aggregate of 1,211,250
shares of Common Stock (representing 50.16% of the outstanding Common Stock) of
the Company. As a result, this Offering is being conducted in accordance with
the applicable provisions of Section 2720 of the NASD Rules of Conduct.
Accordingly, the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
______________ served as qualified independent underwriter in connection with
this Offering. ______________ has assumed the responsibilities of acting
39
<PAGE>
as qualified independent underwriter in pricing the Offering, has performed due
diligence with respect to the information contained herein and has participated
in preparing the Registration Statement. In its role as qualified independent
underwriter, __________________ will receive an aggregate fee from the
Underwriter of __________, ___________ of which has been paid and _________ of
which is to be paid upon consummation of the Offering.
The initial public offering price of the shares of Common Stock offered
hereby and was established by negotiation between the Company and the
Underwriter and does not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value. Factors considered in determining the offering price of the
shares of Common Stock included the business in which the Company is engaged,
the Company's financial condition, an assessment of the Company's management,
the general condition of the securities markets and the demand for similar
securities of comparable companies.
The foregoing includes a summary of the principal terms of the
Underwriting Agreement and does not purport to be complete. Reference is made to
the copy of the Underwriting Agreement filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
LEGAL MATTERS
The validity of the securities offered by this Prospectus will be passed
upon for the Company by Eilenberg & Zivian, New York, New York. Eilenberg &
Zivian has represented CSO Ventures LLC, a principal stockholder of the Company,
in connection with certain legal matters. Schneck Weltman Hashmall & Mischel
LLP, New York, New York, has acted as counsel to the Underwriter with respect to
certain legal matters related to this Offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and
September 30, 1996, for the period from inception (December 28, 1995) through
December 31, 1995, for the nine months ended September 30, 1996, and for the
period from inception through September 30, 1996 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to such financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
40
<PAGE>
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form SB-2 under the Act
with the Securities and Exchange Commission with respect to the Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits thereto: certain portions
have been omitted pursuant to rules and regulations of the Commission.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge, at the Public Reference Facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
1400 Citicorp Center, 500 West Madison, Chicago, Illinois 60661; and 7 World
Trade Center, New York, New York 10048 and copies of all or any part thereof may
be obtained upon payment of the fees prescribed by the Commission. Electronic
registration statements made through the Electronic Data Gathering, Analysis and
Retrieval System are publicly available through the Commissions's World Wide Web
site at http://www.sec.gov.
41
<PAGE>
VIROLOGIX CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Balance Sheet as of December 31, 1995 and September 30, 1996 F-3
Statement of Operations for the period from December 28, 1995
(inception) through December 31, 1995, for the nine months
ended September 30, 1996 and for the period from inception
through September 30, 1996 F-4
Statement of Changes in Stockholders' Equity for the period from
inception through September 30, 1996 F-5
Statement of Cash Flows for the period from inception through
December 31, 1995, for the nine months ended September 30,
1996 and for the period from inception through September 30,
1996 F-6
Notes to Financial Statements F-7
<PAGE>
Report of Independent Accountants
November 6, 1996
To the Board of Directors and Stockholders
of Virologix Corporation
In our opinion, the accompanying balance sheet and related statements of
operations, of cash flows and of changes in stockholders' equity present fairly,
in all material respects, the financial position of Virologix Corporation (a
development stage company) at December 31, 1995 and September 30, 1996, and the
results of its operations for the period from inception (December 28, 1995)
through December 31, 1995, for the nine months ended September 30, 1996 and for
the period from inception through September 30, 1996, 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 these 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is a development stage company and has
suffered operating losses since inception. These and other factors, as discussed
in Note 1, raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
F-2
<PAGE>
Virologix Corporation
(A development stage company)
Balance Sheet
- ------------------------------------------------------------------------------
December 31, September 30,
1995 1996
----------- -----------
Assets
Current assets
Cash and cash equivalents $ -- $ 562,004
Prepaid sponsored research -- 35,750
Deferred offering costs (Note 2) -- 61,722
Prepaid expenses and other current
assets (including
amounts to related parties of $30,000
at September 30, 1996) (Note 6) -- 36,000
----------- -----------
Total current assets -- 695,476
Deferred debt issuance costs, net of
accumulated amortization of $4,862
at September 30, 1996 (Note 3) -- 31,600
Other assets 1,455 609
----------- -----------
Total assets $ 1,455 $ 727,685
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 2,455 $ 16,909
Accrued interest -- 10,000
----------- -----------
Total current liabilities 2,455 26,909
----------- -----------
Bridge notes, net of unamortized debt
discount of $421,200 (Note 3) -- 328,800
----------- -----------
Total liabilities 2,455 355,709
----------- -----------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock ($.0001 par value, 10,000,000
shares authorized, none issued and
outstanding) -- --
Common stock ($.0001 par value, 25,000,000
shares authorized, 1,800,000 and 2,385,000
shares issued and outstanding at
December 31, 1995 and September 30, 1996,
respectively)(Note 4) 180 239
Additional paid-in capital 1,020 1,215,405
Stock subscriptions outstanding (1,200) --
Deficit accumulated during the development stage (1,000) (843,668)
----------- -----------
Total stockholders' equity (deficit) (1,000) 371,976
----------- -----------
Total liabilities and stockholders' equity $ 1,455 $ 727,685
=========== ============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
Virologix Corporation
(A development stage company)
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 28, Nine Months December 28,
1995 (inception) Ended 1995 (inception)
to December September to September
31, 1995 30, 1996 30, 1996
---------------- ----------- ----------------
<S> <C> <C> <C>
Operating expenses
General and administrative (including
amounts to related parties of $426,000
for the period ended September 30, 1996) $ 1,000 $ 499,631 $ 500,631
Research and development (including amounts
to related parties of $103,550 for the
period ended September 30, 1996) -- 270,500 270,500
----------- ----------- -----------
Total operating expenses 1,000 770,131 771,131
----------- ----------- -----------
Other income (expense)
Interest income -- 2,263 2,263
Interest expense -- (74,800) (74,800)
----------- ----------- -----------
Total other income (expense) -- (72,537) (72,537)
----------- ----------- -----------
Net loss $ (1,000) $ (842,668) $ (843,668)
=========== =========== ===========
Net loss per common share $ -- $ (.35)
=========== ===========
Weighted average number of shares
outstanding 2,322,531 2,408,859
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Virologix Corporation
(A development stage company)
Statement of Changes in Stockholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock Additional Stock during the Total
------------------- paid-in subscriptions development stockholders'
Shares Par value capital outstanding stage equity (deficit)
------ --------- --------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock at
inception 1,800,000 $ 180 $ 1,020 $ (1,200)
Net loss $ (1,000) $ (1,000)
--------- ---------- ---------- ---------- ---------- ---------
Balances at December 31, 1995 1,800,000 180 1,020 (1,200) (1,000) (1,000)
Net proceeds from issuance
and sale of common stock 450,000 45 748,221 -- -- 748,266
Issuance of compensatory warrants -- -- 47,300 -- -- 47,300
Net proceeds from issuance of
common stock in conjunction with
Bridge Notes 135,000 14 418,864 -- -- 418,878
Receipt of stock subscriptions outstanding -- -- -- 1,200 -- 1,200
Net loss -- -- -- -- (842,668) (842,668)
--------- ---------- ---------- ---------- ---------- ---------
Balances at September 30, 1996 2,385,000 $ 239 $1,215,405 $ -- $ (843,668) $ 371,976
========= ========== ========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
Virologix Corporation
(A development stage company)
Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 28, Nine Months December 28,
1995 (inception) Ended 1995 (inception)
to December September to September
31, 1995 30, 1996 30, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,000) $ (842,668) $ (843,668)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Amortization of debt issuance costs -- 4,862 4,862
Amortization of debt discount -- 64,800 64,800
Non-cash compensation expense -- 47,300 47,300
Changes in assets and liabilities:
Prepaid sponsored research -- (35,750) (35,750)
Prepaid expenses and other
current assets -- (36,000) (36,000)
Other assets (1,455) 846 (609)
Accounts payable and accrued expenses 2,455 14,454 16,909
Accrued interest -- 10,000 10,000
----------- ----------- -----------
Net cash used in operating activities -- (772,156) (772,156)
----------- ----------- -----------
Cash flows from financing activities:
Net proceeds from issuance
of common stock -- 748,266 748,266
Net proceeds from issuance
of bridge notes
and common stock -- 646,416 646,416
Receipt of stock subscriptions
outstanding -- 1,200 1,200
Deferred offering costs -- (61,722) (61,722)
----------- ----------- -----------
Net cash provided from financing
activities -- 1,334,160 1,334,160
----------- ----------- -----------
Net increase in cash and
cash equivalents -- 562,004 562,004
Cash and cash equivalents,
beginning of period -- -- --
----------- ----------- -----------
Cash and cash equivalents, end of period $ -- $ 562,004 $ 562,004
=========== =========== ===========
</TABLE>
There were no cash payments for interest or income taxes for the periods ended
December 31, 1995 and September 30, 1996.
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
1. Organization and Basis of Presentation
Organization
Virologix Corporation (the "Company") was incorporated in the State of
Delaware on December 28, 1995. The Company is engaged in the research and
development of vaccines and therapeutics for viral diseases and the
development of animal models of human viral diseases for use in
pharmaceutical discovery. The Company's technologies are licensed from third
parties and the Company depends on third parties to conduct research on its
behalf pursuant to research and consulting agreements.
Basis of presentation
The Company's activities since inception have consisted primarily of
sponsoring research and development, performing business and financial
planning, preparing and filing patent applications, and raising capital.
Accordingly, the Company is considered to be a development stage company and
will require additional financing to achieve commercialization of its
technologies.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. Since inception, the Company has incurred
cumulative net operating losses of $843,668 and expects to incur substantial
additional losses in completing the commercialization of its technologies.
These conditions raise substantial doubt about the Company's ability to
continue as a going concern. The Company's ability to continue as a going
concern is dependant upon its ability to generate sufficient cash flow to
meet its obligations as they come due. Management is actively pursuing
various options which include securing additional equity financing through an
initial public offering and believes that sufficient funding will be
available to meet its planned business objectives. In June 1996, the Company
entered into a non-binding letter of intent with an underwriter to sell
shares of the Company's common stock in an initial public offering (the
"IPO") pursuant to the Securities Act of 1933. The financial statements do
not include any adjustments relating to the recoverability of the carrying
amount of recorded assets or the amount of liabilities that might result from
the outcome of these uncertainties.
2. Summary of Significant Accounting Policies
Cash equivalents
Cash equivalents consist of short term, highly liquid investments, with
original maturities of less than three months when purchased and are stated
at cost. Interest is accrued as earned.
F-7
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
Deferred offering costs
In connection with the Company's proposed IPO, the Company has incurred
certain costs which have been deferred. In the event the proposed IPO is not
consummated the deferred offering costs will be expensed.
Deferred debt issuance costs
Deferred debt issuance costs consist of costs associated with the issuance of
the bridge notes (see Note 3). These costs are amortized on a straight-line
basis over the term of the underlying debt instrument.
Research and development
Research and development costs are expensed as incurred and include costs of
third parties who conduct research and development, pursuant to development
and consulting agreements, on behalf of the Company.
Income taxes
Income taxes are accounted for under the asset and liability method
prescribed by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Deferred income taxes are recorded for
temporary differences between financial statement carrying amounts and the
tax basis of assets and liabilities. Deferred tax assets and liabilities
reflect the tax rates expected to be in effect for the years in which the
differences are expected to reverse. A valuation allowance is provided if it
is more likely than not that some or all of the deferred tax asset will not
be realized.
Net loss per common share
Net loss per common share is computed using the weighted average number of
common shares and common share equivalents assumed to be outstanding during
the period. Common share equivalents consist of the Company's common shares
issuable upon exercise of stock options and outstanding warrants. Pursuant to
the requirements of the Securities and Exchange Commission, stock options
granted and warrants and shares issued by the Company within one year of the
date of the initial public offering at prices below the proposed offering
price have been included in the calculation of weighted average shares
outstanding as if they were outstanding for all periods presented using the
treasury stock method.
Accounting 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 the disclosure
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of expenses during the reporting period. Actual
results could differ from those estimates.
F-8
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
Fair value of financial instruments
The carrying value of cash and cash equivalents, and accounts payable and
accrued expenses approximates fair value due to the relatively short maturity
of these instruments. The carrying value of the bridge notes, net of debt
discount, approximates fair value due to the risk associated with the bridge
notes and terms currently available to the Company for similar transactions.
3. Bridge Financing
In August 1996, in contemplation of its proposed initial public offering, the
Company issued bridge notes in the principal amount of $750,000 for which the
Company received proceeds, net of offering costs, of $646,416. The bridge
notes bear interest at a rate of 8% per annum and are due and payable,
together with accrued but unpaid interest, upon the earliest of (a) October
31, 1997, (b) the closing of an initial public offering of the Company's
common stock pursuant to the Securities Act of 1933, or (c) the closing of
any transaction in which any of the Company's securities are exchanged for
securities of an issuer required to file reports pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. In conjunction with the
issuance of the bridge notes, the Company granted the purchasers of such
notes 135,000 shares of common stock. The Company has valued the shares at
$486,000 ($3.60 per share), which is being accounted for as a debt discount
and amortized on a straight-line basis over the fifteen month term of the
notes.
The offering costs, in the amount of $103,584, incurred by the Company in
connection with the bridge financing, have been allocated to the bridge notes
and common stock based upon their respective fair values. Offering costs of
$67,122 have been allocated to common stock and recorded as a reduction in
paid-in capital. Offering costs of $36,462 have been allocated to the bridge
notes and recorded as deferred debt issuance costs and are being amortized
over the fifteen month term of the bridge notes. Upon completion of the
Company's planned IPO and repayment of the bridge notes from the net proceeds
of the offering, the unamortized portion of the debt discount and deferred
debt issuance costs will be recognized as an extraordinary loss.
4. Stockholders' Equity
In April 1996, the Company completed a private offering of 450,000 shares of
its common stock at a price of $1.667 per share, providing gross proceeds of
$750,000, and net proceeds, after deducting expenses, of $748,266.
F-9
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
Stock split
Effective July 31, 1996, the Company implemented a one for 6.67 reverse stock
split (without changing the par value thereof) applicable to all issued and
outstanding shares of the Company's common stock. All common shares, stock
options and related per share data, reflected in the accompanying financial
statements and notes thereto, have been presented as if such change had
occurred at December 28, 1995.
Stock Option Plan and warrants
In January 1996, the Company implemented its 1996 Incentive and Non-Qualified
Stock Option Plan (the "Plan") whereby options to purchase up to 375,000
shares of the Company's common stock may be granted to employees, consultants
and outside directors of the Company. The exercise period for options granted
under the plan, except those granted to outside directors, is determined by a
committee of the Board of Directors. Stock options granted to outside
directors pursuant to the Plan must have an exercise price equal to or in
excess of the fair market value of the Company's common stock at the date of
grant and become exercisable over a period of three years with a third of the
grant being exercisable at the completion of each year of service subsequent
to the grant. The fair market value of the Company's common stock is
determined by a committee of the Board of Directors. During the nine months
ended September 30, 1996, the Company granted options under the Plan, to
employees, to purchase 30,000 shares of its common stock, at an exercise
price of $1.667 per share. All such grants were outstanding at September 30,
1996 and were eligible for exercise. There were no grants to outside
directors during the nine months ended September 30, 1996.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its plan. During the period ended September 30, 1996 no compensation expense
has been recognized for 30,000 options issued to employees pursuant to the
Plan. Had compensation cost for option grants to employees pursuant to the
Company's stock option plans been determined based upon the fair value at the
grant date for awards under the plan consistent with the methodology
prescribed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net loss and net
loss per share would have been increased by approximately $7,200 or less than
$.01 per share.
In May 1996, the Company granted options, which were exercisable upon grant,
to purchase 168,750 shares of its common stock, at an exercise price of
$1.667 per share, to a consultant who is a shareholder. In September 1996,
such option grant was terminated and the consultant was issued warrants to
purchase 168,750 shares of the Company's stock at an exercise price of $1.667
per share. The warrants were exercisable upon issuance. The Company
recognized expense of $47,300 for the nine months ended September 30,
F-10
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
1996, based on the fair value of the options at the date of grant of such
options, as the terms of warrants are essentially the same as those of the
options.
The fair value of the options granted to employees and the warrants granted
to the consultant during 1996 ranged from $.24 to $.28 on the date of
respective grant using the Black-Scholes option-pricing model assuming (a) no
dividend yield, (b) a risk free interest rate between 5.26% and 6.19% based
on the respective date of grant, (c) no forfeitures, and (d) an expected life
of three years. As permitted under the provisions of FAS 123, and based on
the historical lack of a public market for the Company's common stock, no
factor for volatility has been reflected in the option pricing calculation.
5. Income Taxes
The Company has incurred losses since inception which have generated net
operating loss carryforwards of approximately $730,000 for federal and state
income tax purposes. These carryforwards are available to offset future
taxable income and expire in 2011 for federal income tax purposes.
The net operating loss carryforwards result in a noncurrent deferred tax
benefit at September 30, 1996 of $292,000. In consideration of the Company's
accumulated losses and the uncertainty of its ability to utilize this
deferred tax benefit in the future, the Company has recorded a valuation
allowance of an equal amount on such date to fully offset the deferred tax
benefit amount.
For the nine months ended September 30, 1996, the Company's effective tax
rate differs from the federal statutory rate principally due to net operating
losses and other temporary differences for which no benefit was recorded,
state taxes and other permanent differences.
6. Related Parties
Consulting agreements
The Company has entered into a consulting agreement, expiring January 1,
2000, with CSO Ventures LLC (CSO) under which CSO provides the Company with
business development, operations and other advisory services. Pursuant to the
agreement CSO is paid an annual consulting fee of $120,000. At December 31,
1995 and September 30, 1996, CSO owned approximately 49% and 47% of the
outstanding common stock of the Company. The President and Chief Financial
Officer of the Company are principals of CSO. The agreement is only
cancelable by the Company for cause as defined in the agreement. In addition,
an employee of the underwriter of the Company's planned IPO is a principal of
CSO. During the nine month period ended September 30, 1996, the Company
incurred expense of $90,000 pursuant to the agreement.
F-11
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
In January 1996, the Company entered into a consulting agreement expiring in
February of 1998, with a principal shareholder under which the shareholder
will provide financial and other advisory services to the Company. Pursuant
to the agreement the shareholder is paid an annual consulting fee of
$120,000. During the nine month period ended September 30, 1996, the Company
incurred $90,000 of expense related to the agreement. The agreement is only
cancelable by the Company for cause as defined in the agreement. At September
30, 1996, the Company had prepaid $30,000 pursuant to this agreement. The
shareholder has notified the Company that the shareholder will terminate the
agreement effective December 31, 1996.
In connection with the development of its licensed technologies the Company
has entered into a consulting agreement with the scientist who developed such
technologies under which the scientist serves as the Company's Chief
Scientific Advisor. The scientist, who is a stockholder, shall be paid an
annual consulting fee of $75,000. The agreement, which commenced in January
1996 and is cancellable by the Company only for cause, as defined in the
agreement, has an initial term of two years and provides for automatic
renewal of three additional one year periods unless either party notifies the
other of its intention not to renew. Research and development expense
incurred pursuant to the agreement amounted to $56,250 for the nine months
ended September 30, 1996. During the period ended September 30, 1996, the
scientist was issued warrants to purchase 168,750 shares of the Company's
common stock, at an exercise price of $1.667 per share.
Employment agreements
The Company has an employment agreement, expiring in December 1998, with its
President, who is a principal of CSO, under which the President is to be paid
minimum annual compensation of $150,000. In addition, the Company granted the
President options to purchase 15,000 shares of the Company's common stock, at
an exercise price of $1.667 per share, upon execution of the agreement.
During the term of the agreement, the President is to receive annual stock
option grants to purchase 15,000 common shares, exercisable at the then
current fair market value. Under the provisions of the agreement, the
President will receive a cash payment equal to 1.5% of the total
consideration received by the Company in a transaction resulting in a greater
than 50% change in ownership of the outstanding common stock of the Company.
The agreement is only cancelable by the Company for cause as defined by the
agreement. The Company incurred $123,000 of expense for the nine months ended
September 30, 1996 pursuant to the agreement.
The Company also has an employment agreement with its Chief Financial
Officer, who is a principal of CSO. The terms of the agreement with the Chief
Financial Officer are identical to those of the Company's employment
agreement with the President. The Company incurred $123,000 of expense for
the nine months ended September 30, 1996 pursuant to the agreement.
F-12
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and September 30, 1996
- --------------------------------------------------------------------------------
7. License Agreement
In February 1996, the Company entered into a license and research support
agreement with a third party. Under the terms of the agreement, the Company
has been granted an exclusive world-wide license to make, use and sell
products derived from the licensed technologies. In consideration of the
license grant, the Company is obligated to pay royalties equal to a specified
percentage of net sales of products incorporating the licensed technologies.
In the event the Company sublicenses any technologies covered by the
agreement, the third party would be entitled to a significant percentage of
the sublicense revenue received by the Company. In addition, the Company is
required to make milestone payments, up to $225,000 per product, for each
product developed from the licensed technologies.
F-13
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
Preliminary Prospectus, Subject to Completion, Dated November 22, 1996
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.
VIROLOGIX CORPORATION
135,000 Shares of Common Stock
This Prospectus relates to an offering (the "Offering") by certain
investors (the "Bridge Investors") of up to 135,000 shares of common stock, par
value $.0001 per share (the "Common Stock") of Virologix Corporation (the
"Company"). It is anticipated that the Common Stock offered hereby will be
offered and sold from time to time in the over-the-counter market or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions. See "Bridge Investors and Plan of
Distribution."
Prior to the Offering, there has been no public market for the Common
Stock and there can be no assurance that any such market will develop. The
Company has applied for quotation of the Common Stock on The Nasdaq SmallCap
Market ("Nasdaq") under the trading symbol "____" and has also applied for
listing of the Common Stock on the Boston Stock Exchange ("BSE") under the
trading symbol "____."
Concurrent with this Offering, the Company is offering (the "Company
Offering") by separate prospectus (the "Company Prospectus") 1,150,000 shares of
Common Stock (the"Company Offered Shares"). See "Concurrent Registration of
Common Stock."
The Company has agreed to pay all of the expenses in connection with the
registration and sale of the shares being offered by the Bridge Investors (other
than brokerage commissions and fees and expenses of counsel). The Company has
also agreed to indemnify the Bridge Investors against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK. ONLY INVESTORS WHO CAN BEAR THE RISK OF LOSS OF THEIR ENTIRE
INVESTMENT SHOULD INVEST. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING
AN INVESTMENT IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE
"RISK FACTORS."
_____________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESEN-
TATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is ___________________________, 1996
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
No underwriter, dealer, salesperson or other person has been
authorized to give any information or to make any representation other than as
contained in this Prospectus in connection with this Offering and, if given or
made, such information or representation must not be relied upon as having been
authorized by the Company. The delivery of this Prospectus at any time does not
imply that there has not been any change in the information set forth herein or
in the affairs of the Company since the date hereof. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy any security
other than the securities offered hereby, or an offer to sell or solicitation of
an offer to buy such securities in any jurisdiction in which 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 such offer or
solicitation would be unlawful.
________________
TABLE OF CONTENTS
Page
----
Prospectus Summary..............................................................
Risk Factors....................................................................
Use of Proceeds.................................................................
Capitalization..................................................................
Dilution........................................................................
Dividend Policy.................................................................
Selected Financial Data.........................................................
Plan of Operation...............................................................
Business........................................................................
Management......................................................................
Principal Stockholders..........................................................
Certain Transactions............................................................
Description of Securities.......................................................
Shares Eligible for Future Sale.................................................
Bridge Investors and Plan of Distribution.......................................
Concurrent Registration of Common Stock.........................................
Legal Matters...................................................................
Experts.........................................................................
Available Information...........................................................
Index to Financial Statements............................................... F-1
________________
As of the date of the Company Prospectus, the Company will become subject
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information statements
and other information can be inspected and copied at the Public Reference
Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices: New York Regional
Office, Suite 1300, 7 World Trade Center, New York, New York 10048, and Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and copies of such material may also be obtained from the Public
Reference Section of the Commission at prescribed rates. The Commission
maintains a World Wide Web site (http://www.sec.gov) that contains reports,
proxy and information statements and other information regarding registrants
that file such information electronically. The Company's Common Stock will be
quoted on Nasdaq and such reports and other information can also be inspected at
the offices of Nasdaq Operations, 1735 K Street N.W., Washington, D.C., 20006.
The Company intends to furnish its stockholders with annual reports containing
audited financial statements and such other reports as the Company deems
appropriate or as may be required by law.
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Each prospective investor is urged to read this
Prospectus in its entirety. Unless otherwise indicated, the information in this
Prospectus does not give effect to the exercise of (a) an over-allotment option
granted to Rickel & Associates, Inc. (the "Underwriter") pursuant to the Company
Offering (the "Underwriter's Over-allotment Option"), (b) warrants entitling the
Underwriter to purchase up to 115,000 shares of Common Stock (the "Underwriter's
Warrants") and (c) other outstanding options and warrants to purchase an
aggregate of 198,750 shares of Common Stock.
The Company
The Company is a development stage, biopharmaceutical company engaged in
the research and development of vaccines and therapeutics for viral diseases and
the development of animal models of human viral diseases for use in
pharmaceutical discovery. The Company's technologies are licensed from The
Rockefeller University ("Rockefeller").
The Company's vaccine program is focused on human T cell leukemia virus
types I and II (HTLV-I and -II), mammalian viruses that infect the T lymphocytes
of the human immune system and are associated with a number of severe clinical
disorders. An estimated 10 - 20 million people are infected with HTLV-I or
HTLV-II worldwide, and all blood donated in the United States, Europe and Japan
is screened for contamination with HTLV-I and HTLV-II.
High rates of HTLV-I infection occur in a number of geographic regions,
including parts of Japan, the Caribbean, South America and Africa. Although the
lifetime risk of an infected individual developing a related clinical disorder
is small, when disease does develop it is chronic, severe, and sometimes fatal.
HTLV-I infection has been linked to adult T cell leukemia, an often fatal
malignancy of CD4+ lymphocytes, and to HTLV-associated myelopathy, a severe and
incurable neurological disorder resembling multiple sclerosis. HTLV-I infection
is endemic in certain areas, where up to 30% of the population may be infected.
In Japan alone, as many as two million individuals are thought to be infected,
and HTLV-I is the most common cause of fatal leukemia.
HTLV-II infection has also been linked to serious disease, including HTLV-
associated myelopathy. Like HTLV-I, HTLV-II is endemic in certain regions, but
with a geographic distribution distinct from HTLV-I. Infection with HTLV-II is
considered a significant public health problem in Brazil, Spain, southern Italy,
and among intravenous drug users in the United States.
The Company's vaccine candidates for HTLV-I and HTLV-II have been shown in
animal studies to protect against viral infection. The Company expects to begin
human clinical trials of its two vaccine candidates in Brazil in the first half
of 1997.
The Company's Human Immunodeficiency Virus (HIV) program is focused on
identifying human factors required for viral replication. Like the viral
proteins that are the targets of currently-used HIV therapeutics, the Company
believes that certain molecules within human cells could also represent
important molecular targets for the treatment of HIV infection. More
immediately, the Company believes such molecules could make possible the
development of an animal model of HIV infection.
The Company has identified one such human factor required for HIV
replication. When introduced into mouse cells in tissue culture, this factor
allows the virus to replicate and partially complete its life cycle. The Company
believes that this is the first demonstration of partial HIV viral replication
in a non-human cell line, and is utilizing this factor to develop a transgenic
(containing human genes) mouse model of HIV infections. The Company believes
that this model, if successful, will make possible for the first time the large
scale screening of HIV vaccines and therapeutics in an animal system. Moreover,
this model will permit researchers to analyze in fine detail the life cycle of
the virus, making possible the development of new and novel agents to treat HIV
infection. It is the business strategy of the Company to sell or license its
transgenic mice to pharmaceutical and biotechnology companies engaged in
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
the development of HIV vaccines and therapeutics and to basic researchers
engaged in studying the virus.
The Company evaluates and selects product commercialization strategies on
a product-by-product basis. For certain product candidates, the Company intends
to independently pursue commercialization opportunities to the fullest extent
practicable. To date, the Company has not sought a strategic partnership for its
HTLV-I or HTLV-II vaccine candidates and retains all commercial rights. The
Company currently intends to develop these vaccine candidates independently
through the early stages of clinical testing. The Company is continuing to
evaluate the most effective commercialization strategy for its animal model of
HIV infection. Depending on the future circumstances of this product development
program, the Company may grant product development rights to an established
supplier of animals for medical research or may grant rights to the technology,
on an exclusive or non-exclusive basis, to established pharmaceutical companies
for use in their internal drug and vaccine development efforts. The Company does
not currently intend to independently produce or sell animals for use in medical
research. The Company sponsors research and development activities at University
College, Dublin and does not maintain its own research and development
facilities.
The Company was incorporated in Delaware in December 1995. The Company's
executive offices are located at 666 Third Avenue, New York, New York, 10017,
and its telephone number is (212) 681-9195.
The Offering
Securities Offered......... 135,000 shares of Common Stock. See "Description
of Securities".
Common Stock Outstanding:
After the Offering(1).... 3,535,000 shares of Common Stock.
Risk Factors............... The securities offered hereby involve a high
degree of risk and substantial immediate dilution
to new investors. Only investors who can bear the
risk of their entire investment should invest. See
"Risk Factors" and "Dilution."
Proposed Nasdaq symbol..... "____"
Proposed BSE symbol........ "____"
- ----------
(1) Includes 135,000 shares of Common Stock offered hereby and the Company
Offered Shares. Excludes (i) 172,500 shares of Common Stock issuable by
the Company upon exercise of the Underwriter's Over-allotment Option in
full; (ii) 115,000 shares of Common Stock reserved for issuance upon
exercise of the Underwriter's Warrants; (iii) 375,000 shares of Common
Stock reserved for issuance upon the exercise of options granted pursuant
to the Plan (options to purchase 30,000 shares of Common Stock at an
exercise price of $1.67 per share have been granted and are outstanding
under the Plan); and (iv) 168,750 shares of Common Stock reserved for
issuance upon the exercise of warrants granted to Dr. William Hall, the
principal founding scientist of the Company's technologies, at an exercise
price of $1.67 per share (the "Hall Warrants"). See "Management--1996
Incentive and Non-Qualified Stock Option Plan," "Certain Transactions,"
and "Underwriting."
2
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
Summary Financial Information
The summary financial data set forth below is derived from and should be read in
conjunction with the audited financial statements, including the notes thereto,
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 28, December 28,
1995 (Date of Nine Months 1995 (Date of
Inception) to Ended Inception) to
December 31, 1995 September 30, 1996 September 30, 1996
----------------- ------------------ ------------------
<S> <C> <C> <C>
Statement of Operations Data:
Costs and Expenses:
General and administrative........ $ 1,000 $ 499,631 $ 500,631
Research and development.......... - 270,500 270,500
-------- ---------- ---------
Loss from operations........... (1,000) (770,131) (771,131)
Interest expense, net............. - (72,537) (72,537)
-------- ---------- ---------
Net loss ...................... (1,000) (842,668) (843,668)
======== ========== =========
Net loss per share(1).......... $ - $ 0.35
======== ==========
</TABLE>
September 30, 1996
------------------
Actual As Adjusted(3)
------ --------------
Balance Sheet Data:
Working capital.......... $ 668,567 $ 5,537,845
Total assets............. 727,685 5,627,363
Total liabilities(2)..... 335,709 16,909
Stockholders' equity..... 371,976 5,610,454
- ----------
(1) For information concerning the computation of net loss per share, see Note
2 of Notes to Financial Statements.
(2) Includes the Bridge Notes in the principal amount of $750,000 net of
unamortized debt discount of $421,200.
(3) As adjusted to give effect to (i) the sale of the Company Offered Shares,
net of expenses, at an assumed initial offering price of $6.00 per share
of Common Stock, (ii) repayment of the Bridge Notes in the principal
amount of $750,000 and accrued but unpaid interest thereon, and (iii) the
recognition of the unamortized portion of the debt discount and debt
issuance costs associated with the Bridge Notes as an extraordinary
expense.
4
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
RISK FACTORS
THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK INCLUDING, BUT NOT NECESSARILY LIMITED TO, THE RISK FACTORS DESCRIBED
BELOW. COMMON STOCK SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE
LOSS OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD CAREFULLY REVIEW
AND CONSIDER THE FOLLOWING RISKS AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS.
1. Limited Operating History; Accumulated Deficit; Operating Losses; Potential
for Future Losses
The Company, a development stage, biopharmaceutical company, was
incorporated in December 1995 and accordingly has a limited operating history.
As of September 30, 1996, the Company had an accumulated deficit of $843,668.
The Company expects to incur substantial operating losses over the next several
years and expects cumulative losses to increase as the Company's research and
development and clinical efforts expand. Revenues, if any, that the Company may
receive in the next few years will be limited to payments under research or
product development relationships that the Company may establish and payments
under license agreements that the Company may enter into. There can be no
assurance that the Company will be able to establish any such relationships,
enter into any such license agreements or generate revenues. To achieve
profitable operations, the Company, alone or with others, must successfully
identify and develop pharmaceutical products, conduct clinical trials, obtain
regulatory approvals and manufacture and market its pharmaceutical products or
enter into license agreements with third parties on acceptable terms. The
Company may never achieve significant revenues or profitable operations. See
"Plan of Operation."
2. Going Concern Explanatory Paragraph in Report of Independent Accountants
The report of independent accountants on the Company's financial
statements included herein contains an explanatory paragraph stating that the
Company's financial statements have been prepared assuming that the Company will
continue as a going concern while expressing substantial doubt as to the
Company's ability to do so. The Company has suffered operating losses since
inception and expects to incur substantial additional operating losses in
completing the commercialization of its technologies. These and other factors
discussed in Note 1 to the financial statements raise substantial doubt about
the Company's ability to continue as a going concern.
3. Early Stage of Development; Absence of Products
The Company's product candidates are in an early stage of development. The
Company has not completed the development of any products and, accordingly, has
not received any regulatory approvals, commenced marketing activities or
generated revenues from the sale of products. The Company's product candidates
will require significant additional development, pre-clinical and clinical
trials, regulatory approval and additional investment prior to
commercialization. The Company does not expect to market any products for
several years. In addition, the Company's product candidates are subject to the
risks of failure inherent in the development of products based on innovative
technologies. Accordingly, there can be no assurance that the Company's research
and development efforts will be successful, that any of the Company's product
candidates will prove to be safe, effective and non-toxic in clinical trials,
that any commercially successful products will be developed, that the
proprietary or patent rights of others will not preclude the Company from
marketing its product candidates or that others will not develop competitive or
superior products. As a result of the early stage of development of product
candidates and the extensive testing and regulatory review process that such
product candidates must undergo, the Company cannot predict with certainty when
it will be able to market any of its products, if at all. The Company's product
development efforts are based on novel scientific approaches. There is,
therefore, substantial risk that these approaches may not prove to be
successful. See "Business."
5
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[Alternate Page for Bridge Investors Prospectus]
4. Future Capital Needs; Uncertainty Of Availability Of Additional Funding
The Company will require substantial additional funds to conduct and
sponsor research and development activities, to conduct preclinical and clinical
testing, and to market its products. The Company's future capital requirements
will depend on many factors, including continued scientific progress, progress
with pre-clinical testing and clinical trials, the time and costs involved in
obtaining regulatory approvals, the costs involved in filing, prosecuting and
enforcing patent claims, competing technological and market developments, the
ability of the Company to establish collaborative arrangements, effective
commercialization activities and arrangements and the purchase or development of
additional equipment and facilities. The Company expects the net proceeds of the
Company Offering and the interest earned thereon will be sufficient to fund the
Company's activities for at least 12 months. There can be no assurance, however,
that changes in the Company's research and development plans or other events
affecting the Company's operating expenses will not result in the utilization of
such proceeds prior to that time. The Company has no other current sources of
funding. As a result, the Company will need to raise substantial additional
funds before any of the Company's product candidates achieves regulatory
approvals, if at all. The Company intends to seek such additional funding
through collaborative arrangements and through public or private financings.
There can be no assurance that additional financing will be available, or, if
available, that such additional financing will be available on terms acceptable
to the Company. If additional funds are raised by issuing debt, the Company will
incur fixed payment obligations, which could delay the time , if any, when the
Company may achieve profitability. If adequate funds are not available, the
Company may be required to delay, scale back or eliminate one or more of its
principal product candidates 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 not otherwise relinquish. See "Use of Proceeds."
5. No Assurance of Regulatory Approval; Need for Extensive Clinical Trials
The production and marketing of the Company's vaccine and drug candidates,
as well as certain of its research and development activities, are subject to
regulation by governmental agencies in the United States and other countries.
Any vaccine or drug developed by the Company will be subject to a rigorous
approval process pursuant to regulations administered by the United States Food
and Drug Administration (the "FDA"), comparable agencies in other countries and,
to a lesser extent, state regulatory authorities. The approval process for any
one of the Company's vaccine or drug candidates is likely to take several years
or more depending upon the type, complexity and novelty of the pharmaceutical
product and will involve significant expenditures by the Company for which
additional financing will be required. The cost to the Company of conducting
clinical trials for any potential product can vary dramatically based on a
number of factors, including the order and timing of clinical indications
pursued and the extent of development and financial support, if any, from
collaborators. Because of the intense competition in the biopharmaceutical
market and concern over the safety of participating in clinical trials, the
Company may have difficulty obtaining sufficient patient populations or the
support of clinicians to conduct its clinical trials as planned and may have to
expend substantial additional funds to obtain access to such resources, or delay
or modify its plans significantly. There can be no assurance that the Company
will be able to obtain necessary clearances for clinical trials or approvals for
the manufacturing or marketing of any of its vaccine or drug candidates, that
the Company will have sufficient resources to complete the required regulatory
review process or that the Company can survive the inability to obtain, or
delays in obtaining, such approvals. Even if regulatory approvals are obtained,
they may provide for significant limitations on the indicated uses for which a
product may be marketed. As with all investigational products, additional
government regulations may be promulgated requiring that additional research
data be submitted that could delay marketing approval of any of the Company's
product candidates. The subsequent discovery of previously unknown complications
or the failure to comply with applicable regulatory requirements may result in
restrictions on the marketing, or the withdrawal, of products or possible civil
or criminal liabilities. In addition, the Company cannot predict whether any
adverse government regulation might arise from future administrative actions.
See "Business--Government Regulation."
6
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[Alternate Page for Bridge Investors Prospectus]
faces intense competition for such personnel from other companies, academic
institutions, government entities and other organizations, and there can be no
assurance that the Company will be successful in hiring or retaining qualified
personnel. The inability of the Company to develop additional expertise or to
hire and retain such qualified personnel could have a material adverse effect on
the Company's operations.
13. No Prior Public Market; Possible Volatility of Stock Price
Prior to the Company Offering, there has been no public market for the
Company's Common Stock. Accordingly, there can be no assurance that an active
trading market will develop or be sustained subsequent to the Company Offering.
The initial public offering price of the Common Stock will be determined by
negotiations among the Company and the Underwriter and may not be indicative of
the prices that may prevail in the public market. The Company has applied to
have the Common Stock quoted on the Nasdaq, but there is no assurance that the
Company's future operating results will enable it to remain eligible for
quotation on the Nasdaq. If the Company is unable to satisfy such listing
criteria in the future, the Common Stock may be delisted from trading on the
Nasdaq and/or the BSE, as the case may be, and consequently an investor could
find it more difficult to dispose of, or to obtain accurate quotations as to the
price of, the Common Stock. The stock market generally, and the biotechnology
sector in particular, have experienced and are likely in the future to
experience significant price and volume fluctuations which could adversely
affect the market price of the Common Stock without regard to the significant
fluctuations in response to variations in quarterly operating results,
shortfalls in sales or earnings below analyst estimates, stock market conditions
and other factors. There can be no assurance that the market price of the Common
Stock will not experience significant fluctuations or decline below the initial
public offering price.
14. Control by Management and Existing Stockholders
Upon consummation of the Company Offering, the Company's management and
existing holders of the Company's stock will, in the aggregate, own beneficially
shares having approximately 67.4% of the total voting power of the Company's
outstanding stock (without giving effect to the possible exercise of the
Underwriter's Over-allotment Option, the Underwriter's Warrants, options granted
under the Plan, or the Hall Warrants). As a result, these stockholders, acting
together, would be able to effectively control most matters requiring approval
by the stockholders of the Company, including the election of all of the
directors. See "Principal Stockholders."
15. Lack of Dividends
The Company has not paid any dividends and does not contemplate paying
dividends in the forseeable future. It is currently anticipated that earnings,
if any, will be retained by the Company to finance the development and expansion
of the Company's business. See "Dividend Policy."
16. Shares Eligible for Future Sale
Upon completion of the Company Offering, the Company will have outstanding
3,535,000 shares of Common Stock, without giving effect to shares of Common
Stock issuable upon exercise of (i) the Underwriter's Warrants, (ii) the
Underwriter's Over-allotment Option, (iii) options granted under the Plan, or
(iv) the Hall Warrants. Of such 3,535,000 shares of Common Stock, 1,285,000
shares, consisting of the Company Offered Shares and the 135,000 shares offered
pursuant to this Offering by the Bridge Investors (the "Bridge Shares") (plus
any additional shares sold upon the exercise of the Underwriter's Over-allotment
Option), will be freely tradeable without restriction or further registration
under the Act, except for any shares held by "affiliates" of the Company within
the meaning of the Act which shares will be subject to the resale limitations of
Rule 144 promulgated under the Act. The Bridge Investors have agreed with the
Underwriter not to sell or otherwise dispose of any of the Bridge Shares for a
period of twelve months after the date of the consummation of the
10
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[Alternate Page for Bridge Investors Prospectus]
Offering. The Underwriter may, in its sole discretion, and at any time without
notice, release all or any portion of the shares owned by the Bridge Investors
from such restrictions.
The remaining 2,250,000 shares (the "Restricted Shares") were issued by
the Company in private transactions in reliance upon one or more exemptions
contained in the Act. 450,000 of the Restricted Shares were issued in connection
with a private placement transaction completed in April 1996 and 1,800,000 of
the Restricted Shares were issued to the founders of the Company in December
1995 (the "Founders' Shares"). The Restricted Shares are deemed to be
"restricted securities" within the meaning of Rule 144 promulgated pursuant to
the Act and may be publicly sold only if registered under the Act or sold
pursuant to exemptions therefrom. Because none of the Restricted Shares will
have been held for more than two years as of the date of this Prospectus, none
of such shares are eligible for public sale in accordance with the requirements
of Rule 144. In addition, the holders of the Founders' Shares have agreed with
the Underwriter not to sell or otherwise dispose of such shares for a period of
eighteen months after the date of the consummation of the Offering. See "Shares
Eligible for Future Sale."
17. Antitakeover Effect of Certificate of Incorporation
The Company's Certificate of Incorporation authorizes the Board to
determine the rights, preferences, privileges and restrictions of unissued
series of preferred stock, $.0001 par value per share (the "Preferred Stock")
and to fix the number of shares of any series of Preferred Stock and the
designation of any such series, without any vote or action by the Company's
stockholders. Thus, the Board can authorize and issue up to 10,000,000 shares of
Preferred Stock with voting or conversion rights that could adversely affect the
voting or other rights of holders of the Company's Common Stock. In addition,
the issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change of control of the Company, since the terms of the Preferred
Stock that might be issued could potentially prohibit the Company's consummation
of any merger, reorganization, sale of substantially all of its assets,
liquidation or other extraordinary corporate transaction without the approval of
the holders of the outstanding shares of the Common Stock. See "Description of
Securities--Preferred Stock."
18. Possible Delisting of Securities from Nasdaq
Following the Offering, the Company's Common Stock will meet the current
Nasdaq listing requirements and is expected to be initially included on Nasdaq.
There can be no assurance, however, that the Company will meet the criteria for
continued listing. Continued inclusion on Nasdaq generally requires that (i) the
Company maintain at least $2,000,000 in total assets and $1,000,000 in capital
and surplus, (ii) the minimum bid price of the Common Stock be $1.00 per share,
(iii) there be at least 100,000 shares in the public float valued at $200,000 or
more, (iv) the Common Stock have at least two active market makers, and (v) the
Common Stock be held by at least 300 holders. The Nasdaq Stock Market has
recently announced proposals which would increase the listing standards for
inclusion on Nasdaq. If the listing standards are are increased, the Company may
be unable to satisfy the listing requirements for inclusion on Nasdaq.
If the Company is unable to satisfy Nasdaq's listing requirements, its
securities may be delisted from Nasdaq. In such event, trading, if any, in the
Common Stock would thereafter be conducted in the over-the-counter market on the
so-called "pink sheets" or the NASD's "Electronic Bulletin Board." Consequently,
the liquidity of the Company's securities could be impaired, not only in the
number of securities which could be bought and sold, but also through delays in
the timing of transactions, reduction in security analysts' and the news media's
coverage of the Company and lower prices for the Company's securities than might
otherwise be attained.
19. Risks of Low-Priced Stock
If the Company's securities were delisted from Nasdaq (See "--Possible
Delisting of Securities from Nasdaq"), they could become subject to Rule 15g-9
under the
11
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[Alternate Page for Bridge Investors Prospectus]
Exchange Act, which imposes additional sales practice requirements on
broker-dealers which sell such securities to persons other than established
customers and "accredited investors" (generally, individuals with net worths in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by this rule, a broker-dealer must
make a special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, such
rule may adversely affect the ability of broker-dealers to sell the Company's
securities and may adversely affect the ability of purchasers in the Offering to
sell in the secondary market any of the securities acquired hereby.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
20. Broad Discretion in Application of Proceeds
The Company intends to use approximately $760,000 of the net proceeds of
the Company Offering to repay outstanding indebtedness and the balance for the
other purposes described under "Use of Proceeds." Although the Company's current
estimate as to the amount of such net proceeds that will be used for each such
other purpose is set forth under "Use of Proceeds," the Company reserves the
right to change the amount of such net proceeds that will be used for any
purpose to the extent that management determines that such change is advisable.
Accordingly, management of the Company will have broad discretion as to the
application of the net proceeds of the Company Offering. See "Use of Proceeds."
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[Alternate Page for Bridge Investors Prospectus]
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby are estimated to be $5,645,000 ($6,545,450 if the Underwriter's
Over-allotment Option is exercised in full), after deducting the underwriting
discount, estimated offering expenses payable by the Company, and prepayment of
the Underwriter's consulting fee. The Company will not receive any of the
proceeds from any sale of shares by the Bridge Investors. See "Principal
Stockholders" and "Concurrent Registration of Common Stock."
The Company expects to use the net proceeds as follows:
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
----------------------- -------------- --------------
Repayment of Bridge Notes
and accrued interest thereon(1).............. $ 760,000 13.5%
Research and development...................... 1,550,000 27.4%
General and Administrative.................... 825,000 14.6%
Working capital............................... 2,510,000 44.5%
---------- -----
TOTAL............................... $5,645,000 100.0%
========== =====
- ----------
(1) Represents the repayment of the outstanding principal amount of $750,000,
plus estimated accrued interest thereon at the rate of 8% per annum as of
September 30, 1996, on indebtedness incurred in the Bridge Financing. The
net proceeds of the Bridge Financing, approximately $646,000, were used
for research and development, working capital and other general corporate
purposes.
___________________________
If the Underwriter exercises its Over-allotment Option in full, the
Company will realize additional net proceeds of approximately $900,450, which
amount will be added to the Company's working capital.
The Company anticipates, based on currently proposed plans and assumptions
relating to its operations, that the proceeds of this Offering will be
sufficient to satisfy the Company's cash requirements for at least 12 months
following the consummation of the Offering. In the event the Company's plans
change or its assumptions change or prove to be inaccurate or the proceeds of
the Offering prove to be insufficient to fund operations (due to unanticipated
expenses, delays, problems or otherwise), the Company may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portion thereof for other purposes and could be required to
seek additional financing sooner than currently anticipated. Depending on the
Company's progress in the development of its products and technology, their
acceptance by third parties, and the state of the capital markets, the Company
may also determine that it is advisable to raise additional equity capital,
possibly within the next 12 months. The Company has no current arrangements with
respect to, or sources of, additional financing and there can be no assurance
that additional financing will be available to the Company when needed on
commercially reasonable terms or at all. Any inability to obtain additional
financing when needed would have a material adverse effect on the Company,
including possibly requiring the Company to significantly curtail or cease its
operations.
Proceeds not immediately required for the purposes described above will be
invested in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
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[Alternate Page for Bridge Investors Prospectus]
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996, as adjusted to give effect to the receipt and anticipated
use of the estimated net proceeds of the Company Offering. This table should be
read in conjunction with the Company's Financial Statements and Notes thereto,
"Selected Financial Data" and "Plan of Operation" included elsewhere in this
Prospectus.
September 30, 1996
------------------------------------------
Actual As Adjusted(1)
------------ ---------------
Bridge Notes(2)..................... $ 328,800 $ 0
------------ --------------
Stockholders' equity:
Preferred Stock, $0.0001 par
value per share, 10,000,000
shares authorized, none issued
or outstanding................. -- --
Common Stock, $0.0001 par value
per share, 25,000,000 shares
authorized, 2,385,000 shares
issued and outstanding; 3,535,000
shares issued and outstanding,
as adjusted(3)................. 239 354
Additional paid-in capital.... 1,215,405 6,906,568
Accumulated deficit(4)........ (843,668) (1,296,468)
------------ ---------------
Total stockholders' equity......... 371,976 5,610,454
------------ --------------
Total capitalization............... $ 700,776 $ 5,610,454
============ ===============
- ----------
(1) Adjusted to reflect the sale of the Company Offered Shares. See "Use of
Proceeds."
(2) Represents principal amount of $750,000, net of unamortized debt discount
of $421,200 as of September 30, 1996.
(3) Assumes (i) no exercise of the Underwriter's Over-allotment Option; (ii)
no exercise of the Underwriter's Warrants; (iii) no exercise of options
granted under the Plan; and (iv) no exercise of the Hall warrants. See
"Management--1996 Incentive and Non-Qualified Stock Option Plan,"
"Description of Securities," "Certain Transactions" and "Underwriting."
(4) As adjusted to give effect to the recognition of the unamortized portion
of debt discount and debt issuance costs associated with the Bridge
Financing as an extraordinary expense.
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[Alternate Page for Bridge Investors Prospectus]
DILUTION
As of September 30, 1996, the Company had a net tangible book value equal
to $371,976. See "Selected Financial Data." After giving effect to the sale of
the Company Offered Shares and application of the estimated net proceeds as set
forth under "Use of Proceeds," the pro forma net tangible book value at such
date would have been $5,610,454 or $1.59 per share. This represents an immediate
increase in net tangible book value of $1.43 per share to the existing
stockholders and immediate dilution of $4.41 per share (or 74%) to purchasers of
the Common Stock offered hereby ("New Investors"). If the initial public
offering price is higher or lower, the dilution to New Investors will be,
respectively, greater or less. The following table illustrates the dilution per
share:
Assumed public offering price(1)........................ $ 6.00
Net tangible book value per share at
September 30, 1996(2)............................ $ .16
Increase per share attributable to
New Investors.................................... $ 1.43
Pro forma net tangible book value per
share after Offering.................................. $ 1.59
-----
Dilution per share to New Investors(3).................. $ 4.41
======
- ----------
(1) Before deduction of underwriting discounts and commissions and estimated
offering expenses payable by the Company.
(2) Net tangible book value per share represents the Company's total tangible
assets less its total liabilities divided by the number of shares of
Common Stock outstanding.
(3) The dilution of net tangible book value per share to New Investors
assuming the Underwriter's Over-allotment Option is exercised in full
would be $4.24 (or 71%).
The following table sets forth, with respect to existing stockholders and
New Investors, a comparison of the number of shares of Common Stock acquired
from the Company, the percentage ownership of such shares, the total
consideration paid and the average price per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Paid
------------------- --------------------------------------
Average Price
Number Percent Amount Percent Per Share
--------- -------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.. 2,250,000 63.6% $ 751,200 9.2% $0.33
Bridge Investors....... 135,000 3.8% $ 486,000 6.0% $3.60
New Investors.......... 1,150,000 32.6% $6,900,000 84.8% $6.00
--------- ----- ---------- ----- -----
Total............... 3,535,000 100.0% $8,137,200 100.0% $2.30
========= ===== ========== ===== =====
</TABLE>
The information contained in the above table does not give effect to the
exercise of (i) any of the Underwriter's Warrants, (ii) options granted under
the Plan to purchase 30,000 shares of Common Stock at $1.67 per share, or (iii)
the Hall Warrants. Exercise of the options and/or warrants would result in
further dilution to New Investors in this Offering.
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[Alternate Page for Bridge Investors Prospectus]
PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
Prospectus.
Results of Operations
The Company is a development stage biopharmaceutical company. Since its
inception in December 1995, the Company's efforts have been principally devoted
to research and development, securing patent protection and raising capital.
From inception through September 30, 1996, the Company has sustained cumulative
losses of $843,668. These losses have resulted from expenditures incurred in
connection with research and development and general and administrative
activities. From inception through September 30, 1996, research and development
expenses amounted to $270,500 and general and administrative expenses amounted
to $500,631.
The Company expects to continue to incur substantial research and
development costs in the future resulting from ongoing research and development
programs, manufacturing of products for use in clinical trials, patent and
regulatory related expenses, and preclinical and clinical testing of the
Company's products. The Company also expects that general and administrative
costs necessary to support clinical trials, research and development,
manufacturing and the creation of a marketing and sales organization, if
warranted, will increase in the future. Accordingly, the Company expects to
incur increasing operating losses for the foreseeable future. There can be no
assurance that the Company will ever achieve profitable operations.
General and administrative expenses from inception through September 30,
1996, were $500,631, primarily due to personnel costs and associated operating
costs. The Company anticipates that general and administrative expenses will
increase substantially during the next 12 months.
Research and development expenditures consist primarily of payments for
sponsored research, and to its scientific consultant. Research and development
expenses from inception through September 30, 1996 were $270,500. The Company
anticipates that its research and development expenses will increase during the
next 12 months as the Company continues to fund research programs and
pre-clinical and clinical testing for its product candidates and technologies
under development. See "--Product Research and Development Plan."
The Company incurred interest expense of $74,800 through September 30,
1996 which is attributable to interest on, and the amortization of the debt
discount associated with, the Bridge Notes as described below.
Liquidity and Capital Resources
In April 1996 the Company completed a private placement transaction in
which it sold 450,000 shares of Common Stock for an aggregate consideration of
$750,000. On August 2, 1996, the Company consummated the Bridge Financing
pursuant to which the Company issued Bridge Notes in the aggregate principal
amount of $750,000 and 135,000 shares of the Company's Common Stock. The Bridge
Notes bear interest at the rate of 8% per annum and are due on the earlier of
October 31, 1997 or the closing of the Company Offering. The Company intends to
use a portion of the proceeds of the Company Offering to repay the Bridge Notes
and the interest accrued thereon and will recognize an extraordinary expense
upon completion of the Company Offering relating to the unamortized portion of
the original issue discount and debt issuance costs associated with the Bridge
Financing. As of September 30, 1996, the unamortized debt discount and debt
issuance costs amounted to $452,800. See "Use of Proceeds."
The Company anticipates that its current resources, together with the net
proceeds of the Company Offering, will be sufficient to finance the Company's
currently anticipated needs for operating and capital expenditures for at least
12 months from the consummation of the Company Offering. In addition, the
Company will attempt to generate additional capital through a combination of
collaborative agreements, strategic alliances and equity and debt financings.
However, no assurance can be provided that additional capital will be obtained
through these sources. If
18
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[Alternate Page for Bridge Investors Prospectus]
the Company is not able to obtain continued financing the Company may cease
operation and purchasers of the Common Stock will, in all likelihood, lose their
entire investment.
The Company's working capital and capital requirements will depend upon
numerous factors, including progress of the Company's research and development
programs; preclinical and clinical testing; timing and cost of obtaining
regulatory approvals; levels of resources that the Company devotes to the
development of manufacturing and marketing capabilities; technological advances;
status of competitors; and ability of the Company to establish collaborative
arrangements with other organizations.
Until required for operations, the Company's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
At September 30, 1996, the Company had $562,004 in cash and cash
equivalents, and working capital of $668,567. In accordance with the terms of
the Bridge Notes, the Company will utilize approximately $760,000 (as of
September 30, 1996) upon completion of the Company Offering to repay the
principal of, and accrued interest through consummation of the Company Offering
on, the Bridge Notes. See "Use of Proceeds" and Note 3 of Notes to Financial
Statements.
Product Research and Development Plan
The Company's plan of operation for the 12 months following completion of
this Offering will consist primarily of research and development and related
activities aimed at:
o formulation and further preclinical development of the Company's
vaccine candidates for HTLV-I and HTLV-II, and if successful, the
initiation of clinical trials. See "Business--The Company's Vaccine
Candidates for HTLV-I and HTLV-II."
o further development of the Company's animal model of HIV infection
for use in pharmaceutical discovery. See "Business--The Company's
Transgenic Mouse Model."
o the identification of additional human factors required for HIV
replication as potential molecular targets for HIV drug development.
See "Business-- Antiviral Compounds for HIV."
o funding of the research on HTLV-I, HTLV-II and HIV currently being
conducted at University College, Dublin. See "Business--Licenses and
Collaborative Research."
o continuing the prosecution and filing of patent applications. See
"Business--Patents and Proprietary Rights."
The actual research and development and related activities of the Company
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of the Company's research and development programs, the results of
clinical studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential and the status of competitive
products. The focus and direction of the Company's operations will also be
dependent upon the establishment of collaborative arrangements with other
companies, and other factors.
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and may be removed by the Board of Directors. Upon the consummation of the
Company Offering, the Company plans to appoint two individuals not otherwise
affiliated with the Company as directors.
Committees of the Board of Directors
Upon the consummation of the Company Offering, the Company will form an
Audit Committee and a Compensation Committee. The Audit Committee will be
responsible for reviewing audit functions, including accounting and financial
reporting practices of the Company, the adequacy of the Company's system of
internal accounting control, the quality and integrity of the Company's
financial statements and relations with independent auditors. It is anticipated
that the Audit Committee will consist of both of the two new directors. The
Compensation Committee is responsible for establishing the compensation of the
Company's directors, officers and employees, including salaries, bonuses,
commission, and benefit plans, administering the Plan, and other forms of or
matters relating to compensation. It is anticipated that the Compensation
Committee will consist of one or both of such new directors.
Executive Compensation
The following table sets forth certain information with respect to annual
and long-term compensation paid by the Company to the Chief Executive Officer
and to the Chief Financial Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation through 9/30/96 Long Term Compensation
-------------------------------------------- ---------------------------
Stock
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonuses Compensation Options Compensation
- --------------------------- ---- --------- ------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joshua D. Schein, Ph.D., 1996 $ 118,500(1) $ -0- $ --(3) 15,000 $ -0-
President and Director
Judson A. Cooper, Chief Financial 1996 $ 118,500(2) $ -0- $ --(3) 15,000 $ -0-
Officer and Director
</TABLE>
- ----------
(1) Dr. Schein receives an annual salary of $150,000.
(2) Mr. Cooper receives an annual salary of $150,000.
(3) Aggregate amount does not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus for the named officer.
The following table sets forth certain information concerning all stock
option grants to the Company's executive officers to date.
Option Grants
<TABLE>
<CAPTION>
Common Stock % of Total
Underlying Options Granted Exercise Expiration
Name Options Granted(1) to Employees Price Per Share Date
- ---- ------------------ --------------- --------------- ----------
<S> <C> <C> <C> <C>
Joshua D. Schein... 15,000 50% $1.67 1/1/01
Judson A. Cooper... 15,000 50% $1.67 1/1/01
</TABLE>
- ----------
(1) All options were granted pursuant to the Plan.
The following table sets forth certain information concerning option
exercises and option holdings under the Plan as of the date of this Prospectus
with respect to each of the Company's executive officers.
Aggregated Option Exercises and Values as of 9/30/96
<TABLE>
<CAPTION>
Number of Shares of Stock Value of Unexercised
Sharesed Underlying Unexercised Options In-the-Money Options(1)
Acquired Value ------------------------------ -----------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joshua D.
Schein, Ph.D... 0 0 15,000 0 $64,950 0
</TABLE>
31
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
PRINCIPAL STOCKHOLDERS
The table below sets forth information as of the date of this Prospectus
and, as adjusted, assumes the sale of all of the Common Stock offered pursuant
to the Company Prospectus. The table also assumes, with respect to each
individual shareholder, the exercise of all warrants, options or conversion of
all convertible securities held by such shareholder. It does not assume the
exercise or conversion of securities held by any other shareholder. The table is
based on information obtained from the persons named below with respect to the
beneficial ownership of shares of Common and Preferred Stock by (i) each person
known by the Company to be the owner of more than 5% of the aggregate
outstanding shares of Common Stock and Preferred Stock, (ii) each director and
(iii) all officers and directors as a group.
Amount and
Nature of Percentage
Names and addresses of Beneficial of Outstanding
Beneficial Owner(1) Ownership Shares Owned
- --------------------- ---------------- --------------------------------
Prior to After
Offering Offering(2)
-------- -----------
CSO Ventures LLC(3) 1,211,250 50.16% 33.98%
Richard B. Stone(4)
135 East 57th St.
New York, NY 10022 365,625 15.33% 10.34%
William W. Hall, M.D.,
Ph.D.(5) 303,750 11.89% 8.20%
Nathan Low(6)
135 East 57th St.
New York, NY 10022 159,375 6.68% 4.51%
Gross Foundation Inc.
1660 49th St.
Brooklyn, NY 11204 120,000 5.03% 3.39%
Joshua D. Schein, Ph.D.(7) 1,196,250 49.84% 33.70%
Judson A. Cooper(8) 1,196,250 49.84% 33.70%
All Officers and Directors
as a Group (2 persons)(9) 1,211,250 50.16% 33.98%
- ----------
(1) Unless otherwise indicated the address of each beneficial owner identified
is 666 Third Avenue, 30th Floor, New York, NY 10017. Unless otherwise
noted, the Company believes that all persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
beneficially owned by them.
(2) Excludes (i) 172,500 shares of Common Stock issuable by the Company upon
exercise of the Underwriter's Over-allotment Option in full; (ii) 115,000
shares of Common Stock reserved for issuance upon exercise of the
Underwriter's Warrants; (iii) 375,000 shares reserved for issuance under
the Plan, pursuant to which options to purchase 30,000 of such reserved
shares have been granted; and (iv) 168,750 shares of Common Stock issuable
upon the exercise of the warrants held by Dr. Hall.
(3) Includes 15,000 options held by Dr. Schein and 15,000 options held by Mr.
Cooper.
(4) Includes 11,250 of 45,000 shares held by a family trust of which Mr. Stone
is one of four equal beneficiaries. The trustee of the trust is David
Stone, Mr. Stone's brother.
(5) Includes 168,750 warrants held by Dr. Hall.
(6) Mr. Low is a principal of Sunrise Securities Corp. See "Certain
Transactions."
(7) Includes shares owned by CSO Ventures LLC, a limited liability company in
which
33
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
In addition, the Certificate 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 director's fiduciary duty. However, the Certificate does not
eliminate or limit the liability of a director for any of the following reasons:
(i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; or (iii) a transaction from
which the director derived an improper personal benefit.
The Company will purchase and maintain Directors' and Officers' Insurance
as soon as the Board of Directors determines practicable, in amounts which they
consider appropriate, insuring the directors against any liability arising out
of the director's status as a director of the Company regardless of whether the
Company has the power to indemnify the director against such liability under
applicable law.
Certain Certificate of Incorporation and Bylaw Provisions
In addition, certain provisions of the Company's Certificate and Bylaws
summarized in the following paragraphs may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in its best interest, including those attempts that
might result in a premium over the market price for the shares held by
stockholders.
Special Meeting of Stockholders
The Company's Bylaws provide that special meetings of stockholders of the
Company may be called only by the President of the Company, the Board of
Directors or holders of not less than 10% of the votes entitled to be cast at
the special meeting.
Authorized But Unissued Shares
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without stockholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefit plans. The existence of authorized but unissued and unreserved
Common Stock and Preferred Stock may enable the Board of Directors to issue
shares to persons friendly to current management which could render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender, offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Company Offering, the Company will have outstanding
3,535,000 shares of Common Stock, without giving effect to shares of Common
Stock issuable upon exercise of (i) the Underwriter's Warrants, (ii) the
Underwriter's Over-allotment Option, (iii) options granted under the Plan, or
(iv) the Hall Warrants. Of such 3,535,000 shares of Common Stock, 1,285,000
shares, consisting of the Company Offered Shares and the 135,000 Bridge Shares
(plus any additional shares sold upon the exercise of the Underwriter's
Over-allotment Option), will be freely tradeable without restriction or further
registration under the Act, except for any shares held by "affiliates" of the
Company within the meaning of the Act which shares will be subject to the resale
limitations of Rule 144 promulgated under the Act. The Bridge Investors have
agreed with the Underwriter not to sell or otherwise dispose of any of the
Bridge Shares for a period of twelve months after the date of the consummation
of the Company Offering. The Underwriter may, in its sole discretion, and at any
time without notice, release all or any portion of the shares owned by the
Bridge Investors from such restrictions.
The remaining 2,250,000 Restricted Shares were issued by the Company in
private transactions in reliance upon one or more exemptions contained in the
Act. 450,000 of the Restricted Shares were issued in connection with a private
placement transaction completed in April 1996 and the 1,800,000 Founders' Shares
were issued to the founders of the Company in December 1995. The Restricted
Shares are deemed to be "restricted
36
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
securities" within the meaning of Rule 144 promulgated pursuant to the Act and
may be publicly sold only if registered under the Act or sold pursuant to
exemptions therefrom. Because none of the Restricted Shares will have been held
for more than two years as of the date of this Prospectus, none of such shares
are eligible for public sale in accordance with the requirements of Rule 144, as
described below. In addition, the holders of the Founders' Shares have agreed
with the Underwriter not to sell or otherwise dispose of such shares for a
period of eighteen months after the date of the consummation of the Company
Offering.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company (or persons whose shares are aggregated with an affiliate), who has
owned restricted shares of Common Stock beneficially for at least two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the total number of outstanding shares of the
same class or, if the common stock is quoted on Nasdaq, the average weekly
trading volume during the four calendar weeks preceding the sale. A person who
has not been an affiliate of the Company for at least three months immediately
preceding the sale and who has beneficially owned shares of the Company for at
least three years is entitled to sell such shares under Rule 144 without regard
to any of the limitations described above. The Commission is currently
considering a proposal to reduce the Rule 144 holding period for restricted
securities to one year.
The Company intends to file a registration statement under the Securities
Act to register shares of Common Stock reserved for issuance under the Plan,
thereby permitting the resale of such shares by non-affiliates in the public
market without restriction under the Securities Act. The Company has reserved up
to 375,000 shares of Common Stock for issuance under the Plan. As of the date of
this Prospectus, options to purchase 30,000 of such reserved shares of Common
Stock were outstanding under the Plan. See "Management--1996 Incentive and
Non-Qualified Stock Option Plan."
Prior to the Company Offering, there has been no public market for the
Common Stock, and no predictions can be made as to the effect, if any, that
sales of the Common Stock will have on the market price of such securities from
time to time. Sales of substantial amounts of the Company's securities in the
public market could have a significant adverse effect on prevailing market
prices and could impair the Company's future ability to raise capital through
the sale of its equity securities. See "Risk Factors--Shares Eligible for Future
Sale."
37
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
BRIDGE INVESTORS AND PLAN OF DISTRIBUTION
An aggregate of up to 135,000 shares of Common Stock may be offered and
sold pursuant to this Prospectus by the Bridge Investors. The shares sold
hereunder were issued to the Bridge Investors in connection with the Company's
Bridge Financing completed in August 1996, in which the Company agreed to
register the underlying shares concurrently with the Company Offering and pay
all expenses in connection therewith (other than brokerage commissions and fees
and expenses of counsel). The Company also agreed to maintain an effective
registration statement and current prospectus covering the issuance and public
sale of the Bridge Shares for a period of 18 months from the consummation of the
Company Offering. Such shares have been included in the Registration Statement
of which this Prospectus forms a part. None of the Bridge Investors has ever
held any position or office with the Company or had any other material
relationship with the Company.
The following table sets forth certain information with respect to the
number of shares of Common Stock owned by each Bridge Investor. The Company will
not receive any proceeds from the sale of shares by the Bridge Investors.
Beneficial Ownership Beneficial Ownership
Bridge Investor Prior to Sale(1) After Sale(1)(2)
- --------------- -------------------- --------------------
Amore Perpetuo, Inc.............. 6,750 -0-
David P. & Meredith C. Ash....... 31,500 -0-
Douglas C. Carroll............... 4,500 -0-
Chelsey Capital.................. 4,500 -0-
Frank Chiarulli.................. 4,500 -0-
Peter & Nancy Chidyllo........... 4,500 -0-
Charles J. Corbin................ 4,500 -0-
Kenneth D. Gold, M.D............. 2,250 -0-
Herbert L. & Marlene C. Goldblatt 2,250 -0-
Gabriel B. & Ellen G. Herman..... 2,250 -0-
Thomas F. Hudak.................. 9,000 -0-
Jeffrey Markowitz................ 4,500 -0-
David J. McCooey................. 4,500 -0-
Albert Milstein.................. 4,500 -0-
Muzinich & Co.................... 9,000 -0-
Barton & Alice Peck.............. 4,500 -0-
Robert R. Praschil, Jr........... 4,500 -0-
Robert Rickel.................... 9,000 -0-
Stuart G. Stanley................ 4,500 -0-
Joseph L. Stanley................ 4,500 -0-
Rita M. Stanley.................. 4,500 -0-
Glenn S. Stanley................. 4,500 -0-
- ----------
(1) Assumes no additional shares are acquired.
(2) Assumes all of the shares are sold by each Bridge Investor.
The Bridge Shares may, commencing twelve months from the date of this
Prospectus or earlier with the consent of the Underwriter, be offered and sold
from time to time as market conditions permit in the over-the-counter market, or
otherwise, at prices and terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. Such shares offered
hereby may be sold by one or more of the following methods, without limitation:
(a) a block trade in which a broker or dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (d) face-to-face transactions between sellers
and purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Bridge Investors may arrange for other brokers or dealers to
participate. Such brokers or dealers may receive commissions or discounts from
Bridge Investors in amounts to be negotiated. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters" within
the meaning of the Securities Act, in connection with such sales.
38
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
CONCURRENT REGISTRATION OF COMMON STOCK
Concurrently with this Offering, the Company has registered the
offering of 1,150,000 Company Offered Shares in the Company Offering
underwritten by Rickel & Associates, Inc. The Company Offered Shares have been
registered by the Company pursuant to a Company Prospectus included within the
Registration Statement of which this Prospectus forms a part.
LEGAL MATTERS
The validity of the securities offered by this Prospectus will be passed
upon for the Company by Eilenberg & Zivian, New York, New York. Eilenberg &
Zivian has represented CSO Ventures LLC, a principal stockholder of the Company,
in connection with certain legal matters. Schneck Weltman Hashmall & Mischel
LLP, New York, New York, has acted as counsel to the Underwriter with respect to
certain legal matters related to this Offering.
EXPERTS
The financial statements of the Company as of December 31, 1995 and
September 30, 1996, for the period from inception (December 28, 1995) through
December 31, 1995, for the nine months ended September 30, 1996, and for the
period from inception through September 30, 1996 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to the Company's ability to continue as a going concern as
described in Note 1 to such financial statements) of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
39
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Certificate of Incorporation (the "Certificate") of the Company
provides that, to the fullest extent permitted by applicable law, as amended
from time to time, the Company will indemnify any person who was or is a party
or is threatened to be made a party to an action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was director, officer, employee or agent of the Company or
serves or served any other enterprise at the request of the Company.
In addition, the Certificate 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 director's fiduciary duty. However, the Certificate does not
eliminate or limit the liability of a director for any of the following reasons:
(i) a breach of the director's duty of loyalty to the Company or its
stockholders; (ii) acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law; or (iii) a transaction from
which the director derived an improper personal benefit.
The Company will purchase and maintain Directors' and Officers' Insurance
as soon as the Board of Directors determines practicable, in amounts which they
consider appropriate, insuring the directors against any liability arising out
of the director's status as a director of the Company regardless of whether the
Company has the power to indemnify the director against such liability under
applicable law.
Item 25. Other Expenses of Issuance and Distribution.
SEC Registration Fee $ 2,900
Nasdaq-SCM and Boston Stock Exchange Listing Fees $ 13,900
NASD Filing Fee $ 1,190
Accounting Fees and Expenses* $ 50,000
Printing and Engraving* $ 50,000
Legal Fees and Expenses* $ 75,000
Blue Sky Fees and Expenses $ 46,000
Transfer Agent and Registrar Fees* $ 2,000
Miscellaneous Expenses* $ 9,010
--------
Total $250,000
========
- ----------
* Estimated.
Item 26. Recent Sales of Unregistered Securities.
The following discussion gives retroactive effect to the one for 6.67
reverse stock split effected on July 31, 1996. Since its organization in
December 1995, the Company has sold and issued the following unregistered
securities:
In December 1995, the Company issued 1,800,000 shares of Common Stock to
CSO Ventures, LLC, Richard B. Stone, William W. Hall, Ph.D., and Hidero
Takahashi, M.D. for nominal consideration in connection with the formation of
the Company.
In April 1996, the Company sold 450,000 shares of Common Stock to nine
accredited investors for $750,000 in cash.
II-1
<PAGE>
In August 1996, the Company issued 135,000 shares of Common Stock to
twenty two accredited investors in connection with the Bridge Financing.
Item 27. Exhibits.
Exhibit
Number Description of Exhibits
- -------- -----------------------
1 Underwriting Agreement
1(a) Form of Underwriting Agreement
1(b) Form of Underwriter's Warrant
3 Articles of Incorporation and By-Laws
3(a) Articles of Incorporation of the Company, in effect as of the date
hereof
3(b) Bylaws of the Company, in effect as of the date hereof
4 Instruments defining the rights of holders
4(a) Form of Common Stock Certificate
4(b) 1996 Incentive and Non-Qualified Stock Option Plan
4(c) Warrant Agreement dated as of September 15, 1996 between the Company
and Dr. William Hall
5 Opinion re: legality
5(a) Opinion of Eilenberg & Zivian
10 Material Contracts
10(a) License and Research Support Agreement between the Company and the
Rockefeller University, dated February 27, 1996(1)
10(b) Employment Agreement between the Company and Dr. Joshua D. Schein,
dated as of January 1, 1996
10(c) Employment Agreement between the Company and Judson A. Cooper, dated as
of January 1, 1996
10(d) Consulting Agreement between the Company and CSO Ventures LLC, dated as
of January 1, 1996
10(e) Consulting Agreement between the Company and Dr. William W. Hall, dated
as of January 1, 1996
10(f) Consulting Agreement between the Company and Richard B. Stone dated as
of January 1, 1996
11 Statement re: Computation of per share earnings
11(a) Statement re: Computation of per share earnings
24 Consents of experts and counsel
24(a) Consent of Eilenberg & Zivian
24(b) Consent of Price Waterhouse LLP
- ----------
(1) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
Item 28. Undertakings.
- The undersigned Registrant in all instances will provide to the
Underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
- Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the undersigned Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the undersigned Registrant of expenses incurred or paid by a director, officer
or controlling person of the undersigned 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, the
undersigned Registrant will, unless in the opinion of
II-2
<PAGE>
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 Act and will be governed by the
final adjudication of such issue.
- The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed
as part of a registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the undersigned
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act of 1933 shall be deemed to be part of the
registration statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities
Act of 1933, 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.
- The undersigned Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
undersigned Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, on the 21st day of November, 1996.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
-------------------------------
Dr. Joshua D. Schein
President and Secretary
By: /s/ Judson A. Cooper
-------------------------------
Judson A. Cooper
Chief Financial Officer
II-4
<PAGE>
Graphics Appendix
Inside front cover
II-5
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Page
- ------- ----
1(a) Form of Underwriting Agreement.................................. E-1
1(b) Form of Underwriter's Warrant................................... E-25
3(a) Articles of Incorporation of the Company, in effect as
of the date hereof.............................................. E-40
3(b) Bylaws of the Company, in effect as of the date hereof.......... E-48
4(a) Form of Common Stock Certificate................................ E-59
4(b) 1996 Incentive and Non-Qualified Stock Option Plan.............. E-62
4(c) Warrant Agreement dated as of September 15, 1996 between
the Company and Dr. William Hall................................ E-73
5(a) Opinion of Eilenberg & Zivian................................... E-85
10(a) License and Research Support Agreement between the
Company and the Rockefeller University, dated February
27, 1996(1)..................................................... E-87
10(b) Employment Agreement between the Company and Dr. Joshua
D. Schein, dated as of January 1, 1996.......................... E-110
10(c) Employment Agreement between the Company and Judson A.
Cooper, dated as of January 1, 1996............................. E-117
10(d) Consulting Agreement between the Company and CSO
Ventures LLC, dated as of January 1, 1996....................... E-124
10(e) Consulting Agreement between the Company and Dr. William
W. Hall, dated as of January 1, 1996............................ E-128
10(f) Consulting Agreement between the Company and Richard B.
Stone dated as of January 1, 1996............................... E-137
11 Statment re: Computation of per share earnings.................. E-141
24(a) Consent of Eilenberg & Zivian................................... E-143
24(b) Consent of Price Waterhouse LLP................................. E-145
- --------
(1) Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
II-6
<PAGE>
EXHIBIT 1(a)
E-1
<PAGE>
FORM OF UNDERWRITING AGREEMENT
_________ , 1996
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Dear Sirs:
Virologix Corporation, a Delaware corporation (the "Company"), hereby
confirms its agreement with Rickel & Associates, Inc. ("you" or the
"Underwriter"), as follows:
1. Description of the Securities.
The Company proposes to issue and sell to the Underwriter 1,150,000 shares
(the "Shares") of common stock, $.0001 par value per share ("Common Stock"), of
the Company (the Shares being sometimes referred to as the "Securities"). The
Company proposes to grant to the Underwriter an option to purchase up to 172,500
additional shares of Common Stock (the "Additional Securities"). The offering of
Securities and Additional Securities contemplated hereby may sometimes be
referred to as the "Offering."
(a) Underwriter's Securities.
The Company will sell to the Underwriter, for nominal consideration,
warrants to purchase up to one share of Common Stock for each ten shares of
Common Stock sold in the Offering excluding the Additional Securities (a maximum
of 115,000 shares of Common Stock) at a price equal to $_______ per share of
Common Stock (the "Underwriter's Warrants"). The Underwriter's Warrants and
shares of Common Stock underlying the Underwriter's Warrants are hereinafter
referred to collectively as the "Underwriter's Securities." The Underwriter's
Warrants shall be non-exercisable and non-transferable (other than to officers
and partners of the Underwriter and to members of the selling group and their
officers or partners) for a period of 12 months following the Effective Date.
Thereafter, the Underwriter's Warrants shall be exercisable and transferable for
a period of four years (provided such transfer is in accordance with the
Securities Act and any other applicable securities laws). If the Underwriter's
Warrants are not exercised during their term, they shall, by their terms,
automatically expire. The Underwriter's Securities shall be registered for sale
to the public and shall be included in the Registration Statement filed in
connection with the Offering.
2. Representations and Warranties of the Company.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement, and one or more
amendments thereto, on Form SB-2 (File No. 333-________), including in each such
registration statement and each such amendment any related preliminary
prospectus ("Preliminary Prospectus"), for the registration of the Securities
under the Securities Act of 1933 (the "Act"). The Company will, if required,
file a further amendment to said registration statement in the form to be
delivered to you and will not, before the registration statement becomes
E-2
<PAGE>
effective, file any other amendment thereto to which you shall have reasonably
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time such registration statement becomes
effective (including the prospectus, financial statements, exhibits and all
other documents, as amended, filed as a part thereof), is hereinafter called the
"Registration Statement," and the prospectus, in the form filed with the
Commission pursuant to Rule 424(b) of the General Rules and Regulations of the
Commission under the Act (the "Regulations") or, if no such filing is made, the
definitive prospectus used in the Offering, is hereinafter called the
"Prospectus." The Company has delivered to you copies of each Preliminary
Prospectus as filed with the Commission and has consented to the use of such
copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and, as of the date filed with
the Commission, each Preliminary Prospectus conformed in all material respects
with the requirements of the Act and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by or on your behalf for use in such Preliminary Prospectus and except
that this representation and warranty does not apply to statements or omissions
that have been cured in a subsequent preliminary prospectus or in the
Prospectus.
(c) When the Registration Statement becomes effective under the Act
and at all times subsequent thereto to and including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and for
such longer periods as a Prospectus is required to be delivered in connection
with the sale of the Securities by the Underwriter, the Registration Statement
and Prospectus, and any amendment thereof or supplement thereto, will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations, and will in all material respects conform to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty does not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company by you for use in the Registration
Statement or Prospectus, or in any amendment thereof or supplement thereto. It
is understood that the statements set forth in the Prospectus with respect to
(i) the amounts of the selling concession and reallowance; (ii) the identity of
counsel to the Underwriter under the heading "Legal Matters"; (iii) information
under the heading "Underwriting," including the information concerning the
National Association of Securities Dealers, Inc. ("NASD") affiliation of the
Underwriter; and (iv) the stabilization legend in the Prospectus constitute the
only information supplied by you for use in the Registration Statement or
Prospectus.
(d) The Company is, and at the Closing Date and the Option Closing
Date will be, a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company has no
subsidiaries. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification,
except those jurisdictions in which the failure to so qualify would not have a
material adverse effect on the business or operations of the Company ("Material
Adverse Effect"). The Company has all requisite corporate powers and authority,
and all necessary authorizations, approvals, orders, licenses, certificates and
permits of and from all governmental regulatory officials and bodies to own or
lease its properties and conduct its business as described in the Prospectus
except where the failure to have any such authorizations, approvals, orders,
licenses, certificates or permits would not have a Material Adverse Effect, and
the Company is doing business and has been doing business
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during the period described in the Registration Statement in compliance with all
such material authorizations, approvals, orders, licenses, certificates and
permits and all material federal, state and local laws, rules and regulations
concerning the business in which the Company is engaged, except where the
failure to comply with any such authorizations, approvals, orders, licenses,
certificates or permits or any such laws, rules or regulations would not have a
Material Adverse Effect. The disclosures in the Registration Statement
concerning the effects of federal, state and local regulation on the Company's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a material fact required to be stated therein
in light of the circumstances under which such disclosures were made. The
Company has all corporate power and authority to enter into this Agreement and
carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and executed
by the Company. The Securities and the Underwriter's Securities have been duly
authorized (and, in the case of the Shares, have been duly reserved for
issuance) and, when issued and paid for in accordance with this Agreement, the
Shares will be validly issued, fully paid and non-assessable; the Securities,
and Underwriter's Securities are not and will not be subject to the preemptive
rights of any stockholder of the Company and conform and at all times up to and
including their issuance will conform in all material respects to all statements
with regard thereto contained in the Registration Statement and Prospectus; and
all corporate action required to be taken for the authorization, issuance and
sale of the Securities, the Additional Securities, and Underwriter's Securities
has been taken, and this Agreement constitutes a valid and binding obligation of
the Company, enforceable in accordance with its terms, to issue and sell, upon
exercise in accordance with the terms thereof, the number and kind of securities
called for thereby except insofar as enforceability of indemnification and
contribution provisions may be limited by applicable law or policy or equitable
principles, and except as enforceability may be limited by bankruptcy,
reorganization, moratorium, insolvency or other laws affecting the
enforceability of creditors' rights generally and rules of law governing
specific performance, injunctive relief and other equitable remedies.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or by-laws, in each case as amended, of the
Company or of any evidence of indebtedness, lease, contract or other agreement
or instrument to which the Company is a party or by which the Company or any of
its properties is bound, or under any applicable law, rule, regulation,
judgment, order or decree of any government, professional advisory body,
administrative agency or court, domestic or foreign, having jurisdiction over
the Company or its properties, in each case except for any breach, violation or
default that would not have a Material Adverse Effect, or result in the creation
or imposition of any material lien, charge or encumbrance upon any of the
properties or assets of the Company; and no consent, approval, authorization or
order of any court or governmental or other regulatory agency or body is
required for the consummation by the Company of the transactions on its part
herein contemplated, except such as may be required under the Act or under state
securities or blue sky laws or under the rules and regulations of the NASD, and
except where the breach, violation or failure to obtain such consent, approval,
authorization or order would not have a Material Adverse Effect.
(g) Subsequent to the date hereof, and prior to the Closing Date and
the Option Closing Date, except as otherwise described in or contemplated by the
Prospectus, the Company will not issue or acquire any equity securities.
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(h) The financial statements and notes thereto included in the
Registration Statement and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved.
(i) Except as set forth in the Registration Statement, the Company
is not, and at the Closing Date and at the Option Closing Date the Company will
not be, in violation or breach of, or default in, the due performance and
observance of any term, covenant or condition of any indenture, mortgage, deed
of trust, note, loan or credit agreement, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject, which
violations, breaches, default or defaults, singularly or in the aggregate, would
have a Material Adverse Effect. The Company has not and at the Closing Date or
Option Closing Date the Company will not have taken any action in violation of
the provisions of the Certificate of Incorporation or by-laws, in each case as
amended, of the Company, or any statute or any order, rule or regulation of any
court or regulatory authority or governmental body having jurisdiction over or
application to the Company or its business or properties, except for any
violations that, singularly or in the aggregate, would not have a Material
Adverse Effect.
(j) The Company has, and at the Closing Date and at the Option
Closing Date will have, good and marketable title to all properties and assets
described in the Prospectus as owned by it, free and clear of all liens,
charges, encumbrances, claims, security interests, restrictions and defects of
any material nature whatsoever, except such as are described or referred to in
the Prospectus and liens for taxes not yet due and payable or such as in the
aggregate will not have a Material Adverse Effect. All of the material leases
and subleases under which the Company is the lessor or sublessor of properties
or assets or under which the Company holds properties or assets as lessee as
described in the Prospectus are, and will on the Closing Date and the Option
Closing Date be, in full force and effect, and except as described in the
Prospectus, the Company is not and will not be in default in respect of any of
the terms or provisions of any of such leases or subleases (except for defaults
which would not have a Material Adverse Effect), and no claim has been asserted
by anyone adverse to rights of the Company as lessor, sublessor, lessee or
sublessee under any of the leases or subleases mentioned above, or affecting or
questioning the right of the Company to continue possession of the leased or
subleased premises or assets under any such lease or sublease, except as
described or referred to in the Prospectus or such as in the aggregate would not
have a Material Adverse Effect, and the Company owns or leases all such
properties as are necessary to its operations as now conducted and, except as
otherwise stated in the Prospectus, as proposed to be conducted as set forth in
the Prospectus (except where the failure to own or lease such properties would
not have a Material Adverse Effect).
(k) The authorized, issued and outstanding capital stock of the
Company as of the date referenced in the Prospectus is, and the authorized,
issued and outstanding capital stock of the Company on the Closing Date will be,
as set forth in the Prospectus under "Capitalization" (in each case based on the
assumptions set forth therein and except that issuance and sale of the
Additional Securities will not be reflected therein); the shares of issued and
outstanding capital stock of the Company set forth thereunder have been (or as
of the Closing Date will be) duly authorized and validly issued and are (or as
of the Closing Date will be) fully paid and non-assessable; except as set forth
in the Prospectus, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company;
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and the Common Stock and all such options and warrants conform in all material
respects, to all statements relating thereto contained in the Registration
Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not own
or control any capital stock or securities of, or have any proprietary interest
in, or otherwise participates in any other corporation, partnership, joint
venture, firm, association or business organization (other than those direct or
indirect subsidiaries of the Company disclosed in Exhibit 22 to the Registration
Statement); provided, however, that this provision shall not be applicable to
the investment, if any, of the net proceeds from the sale of the Securities sold
by the Company or other funds thereof in interest-bearing savings accounts,
certificates of deposit, money market accounts, United States government
obligations or other short-term obligations.
(m) Price Waterhouse LLP, who have reported on the financial
statements of the Company which have been filed with the Commission as a part of
the Registration Statement, are independent accountants with respect to the
Company as required by the Act and the Regulations.
(n) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money; or (ii) entered into any transaction other than in the
ordinary course of business; or (iii) declared or paid any dividend or made any
other distribution on or in respect of its capital stock; provided, however,
that this provision shall not be applicable to any transaction between or among
the Company and its subsidiaries.
(o) There is no litigation or governmental proceeding pending or to
the knowledge of the Company threatened against, or involving the properties or
business of the Company which might have a Material Adverse Effect, except as
referred to in the Prospectus. Further, except as referred to in the Prospectus,
there are no pending actions, suits or proceedings related to environmental
matters or related to discrimination on the basis of age, sex, religion or race,
nor is the Company charged with or, to its knowledge, under investigation with
respect to any violation of any statutes or regulations of any regulatory
authority having jurisdiction over its business or operations, which violations
might have a Material Adverse Effect, and no labor disturbances by the employees
of the Company exist or, to the knowledge of the Company, have been threatened.
(p) The Company has, and at the Closing Date and at the Option
Closing Date will have, filed all necessary federal, state and foreign income
and franchise tax returns or has requested extensions thereof (except in any
case where the failure so to file would not have a Material Adverse Effect), and
has paid all taxes which it believes in good faith were required to be paid by
it except for any such taxes that currently, or on the Closing Date or Option
Closing Date, as the case may be, are being contested in good faith or as
described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to any
candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
(r) Except as set forth in the Registration Statement, to the
knowledge of the Company, neither the Company nor any officer, director,
employee or agent of the Company has made any payment or transfer of any funds
or assets of the Company or conferred any personal benefit by use of the
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<PAGE>
Company's assets or received any funds, assets or personal benefit in violation
of any law, rule or regulation, which is required to be stated in the
Registration Statement or necessary to make the statements therein not
misleading.
(s) On the Closing Date and on the Option Closing Date, all transfer
or other taxes, if any (other than income tax), which are required to be paid,
and are due and payable, in connection with the sale and transfer of the
Securities by the Company to the Underwriter will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company which
are of a character required to be described in the Registration Statement or
Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(v) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (1) transactions are executed in
accordance with management's general or specified authorizations; (2)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; and (3) access to assets is permitted only
in accordance with management's general or specific authorizations.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right (which has not been effectively waived
or terminated) to require registration of any securities because of the filing
or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not have
taken, directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of the Common Stock or the Warrants
to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services in
the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by the
Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriter was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. Covenants of the Company.
The Company covenants and agrees with the Underwriter that:
(a) It will deliver to the Underwriter, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, and each of the
Selected Dealers (as hereinafter defined) without charge, as many copies as have
been reasonably requested of each Preliminary Prospectus heretofore filed with
the Commission in accordance with and pursuant to the Commission's Rule 430
under the Act and will deliver to the Underwriter and to others whose names and
addresses are furnished by the Underwriter or a Selected Dealer, without charge,
on the Effective Date, and thereafter from
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<PAGE>
time to time during such reasonable period as you may request if, in the
reasonable opinion of counsel for the Underwriter, the Prospectus is required by
law to be delivered in connection with sales by the Underwriter or a dealer, as
many copies of the Prospectus (and, in the event of any amendment of or
supplement to the Prospectus, of such amended or supplemented Prospectus) as the
Underwriter may reasonably request for the purposes contemplated by the Act. The
Company will take all necessary actions to furnish to whomever directed by the
Underwriter, when and as requested by the Underwriter, all necessary documents,
exhibits, information, applications, instruments and papers as may be reasonably
required in order to permit or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriter and all dealers to whom any of such Securities may be sold by the
Underwriter or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the Securities
and for such longer period as you may reasonably request if the Prospectus is
required under the Act, the applicable Regulations or applicable state law to be
delivered in connection with sales of the Securities by the Underwriter or the
Selected Dealers.
(d) The Company will use its best efforts to cause the Registration
Statement to become effective and will notify the Underwriter immediately, and
confirm the notice in writing: (i) when the Registration Statement or any
post-effective amendment thereto becomes effective; (ii) of the receipt of any
comments from the Commission regarding the Registration Statement or of the
receipt of any stop order or of the initiation, or to the best of the Company's
knowledge, the threatening, of any proceedings for that purpose; (iii) the
suspension of the qualification of the Securities and the Underwriter's
Warrants, or underlying securities, for offering or sale in any jurisdiction or
of the initiating, or to the best of the Company's knowledge the threatening, of
any proceeding for that purpose; and (iv) of the receipt of any comments from
the Commission. If the Commission shall enter a stop order at any time, the
Company will make every reasonable effort to obtain the lifting of such order as
promptly as practicable.
(e) During the time when a prospectus relating to the Securities is
required to be delivered under the Act, the Company will use its best efforts to
comply with all requirements imposed upon it by the Act and the Securities
Exchange Act of 1934 (the "Exchange Act"), as now and hereafter amended and by
the Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus and the Company shall use its best efforts
to keep the Registration Statement effective so long as a Prospectus is required
to be delivered in connection with the sale of the Securities or Additional
Securities by the Underwriter or by dealers effecting transactions therein in
connection with the initial public offering thereof. If at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriter, the Prospectus as then
amended or supplemented (or the prospectus contained in a new registration
statement filed by the Company pursuant to Paragraph 3(q)), includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if, in the
reasonable opinion of either such counsel, it is necessary at any time to amend
the Prospectus (or the prospectus contained in such new registration statement)
to comply with the Act, the Company will notify you promptly and prepare and
file with the Commission an
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appropriate amendment or supplement in accordance with Section 10 of the Act and
will furnish to you copies thereof.
(f) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time the Registration Statement becomes effective, to
qualify the Securities for offering and sale under the securities laws or blue
sky laws of such jurisdictions as you may reasonably designate; provided,
however, that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction or to make any changes in its capital structure or
certificate of incorporation or in any other material aspects of its business or
to enter into any material agreement with any Blue Sky commissioner. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable, use
it best efforts to file and make such statements or reports at such times as are
or may reasonably be required by the laws of such jurisdiction to continue such
qualification until none of the Warrants are outstanding.
(g) The Company will make generally available (within the meaning of
Section 11(a) of the Act and the Regulations) to its security holders, as soon
as practicable, but in no event later than the first day of the eighteenth full
calendar month following the Effective Date, an earnings statement of the
Company, which will be in reasonable detail but which need not be audited,
covering a period of at least twelve months beginning after the Effective Date,
which earnings statements shall satisfy the requirements of Section 11(a) of the
Act and the Regulations as then in effect. The Company may discharge this
obligation in accordance with Rule 158 of the Regulations.
(h) During the period of five years commencing on the Effective Date
(unless the Company shall no longer have a class of equity securities registered
under Section 12(b) or 12(g) of the Exchange Act), the Company will furnish to
its stockholders an annual report (including financial statements audited by its
independent public accountants), in accordance with Rule 14a-3 under the
Exchange Act, and, at its expense, furnish to the Underwriter (i) within 90 days
after the end of each fiscal year of the Company, a consolidated balance sheet
of the Company and its consolidated subsidiaries and a separate balance sheet of
each subsidiary of the Company the accounts of which are not included in such
consolidated balance sheet as of the end of such fiscal year, and consolidated
statements of operations, stockholder's equity and cash flows of the Company and
its consolidated subsidiaries and separate statements of operations,
stockholder's equity and cash flows of each of the subsidiaries of the Company
the accounts of which are not included in such consolidated statements, for the
fiscal year then ended all in reasonable detail and all certified by independent
accountants (within the meaning of the Act and the Regulations), (ii) within 45
days after the end of each of the first three fiscal quarters of each fiscal
year, similar balance sheets as of the end of such fiscal quarter and similar
statements of operations, stockholder's equity and cash flows for the fiscal
quarter then ended, all in reasonable detail, and subject to year end
adjustment, all certified by the Company's principal financial officer or the
Company's principal accounting officer as having been prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
(iii) as soon as available, each report furnished to or filed with the
Commission or any securities exchange and each report and financial statement
furnished to the Company's stockholders generally, and (iv) as soon as
available, such other material as the Underwriter may from time to time
reasonably request regarding the financial condition and operations of the
Company; provided, however, that the Underwriter shall use such other material
only in connection with its activities as Underwriter hereunder and shall
otherwise keep such other material confidential.
(i) For a period of twelve months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent
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certified public accountants to review (but not audit), the Company's financial
statements for each of the first three quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing,if any, of quarterly financial information to
stockholders.
(j) Prior to the Closing Date or the Option Closing Date (if any),
the Company will not, directly or indirectly, without your prior written
consent, which shall not be unreasonably withheld or delayed, issue any press
release or other public announcement or hold any press conference with respect
to the Company or its activities with respect to the Offering (other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations or otherwise required by
law).
(k) The Company will deliver to you prior to filing, any amendment
or supplement to the Registration Statement or Prospectus proposed to be filed
after the Effective Date and will not file any such amendment or supplement to
which you shall reasonably object after being furnished such copy.
(l) During the period of 120 days commencing on the date hereof, the
Company will not at any time take, directly or indirectly, any action designed
to, or which will constitute or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of the Securities to
facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering
received by it substantially in the manner set forth under "Use of Proceeds" in
the Prospectus.
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, if the Company shall file any amendment to the Registration
Statement relating to the offering of the Securities or any amendment or
supplement to the Prospectus relating to the offering of the Securities
subsequent to the Effective Date, such counsel, such accountants, and such
officers and directors, respectively, will, at the time of such filing or at
such subsequent time as you shall specify, so long as Securities being
registered by such amendment or supplement are being underwritten by the
Underwriter, furnish to you such opinions, letters and certificates, each dated
the date of its delivery, of the same nature as the opinions, the letters and
the certificates referred to in said Paragraph 9, as you may reasonably request,
or, if any such opinion or letter or certificate cannot be furnished by reason
of the fact that such counsel or such accountants or any such officer or
director believes that the same would be inaccurate, such counsel or such
accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(o) The Company will comply in all material respects with all of the
provisions of any undertakings contained in the Registration Statement.
(p) The Company will reserve and keep available for issuance that
maximum number of its authorized but unissued shares of Common Stock which are
issuable upon exercise of the Underwriter's Warrants (including the underlying
securities) outstanding from time to time.
(q) The Company will timely prepare and file at its sole cost and
expense one or more post-effective amendments to the Registration Statement or a
new registration statement as required by law as will permit Underwriter's
Warrant holders to be furnished with a current prospectus in the event and at
such time as the Underwriter's Warrants are exercised, and the
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Company will use its best efforts and due diligence to have the same be declared
effective (with the intent that the same be declared effective as soon as the
Underwriter's Warrants become exercisable) and to keep the same effective so
long as the Underwriter's Warrants are outstanding. The Company will deliver a
draft of each such post-effective amendment or new registration statement to the
Underwriter at least ten days prior to the filing of such post-effective
amendment or registration statement.
(r) So long as any of the Underwriter's Warrants remain outstanding,
the Company will timely deliver and supply to its Warrant agent sufficient
copies of the Company's current Prospectus, as will enable such Warrant agent to
deliver a copy of such Prospectus to any Underwriter's Warrant or other holder
where such Prospectus delivery is by law required to be made.
(s) For a period of three years from the Effective Date, the Company
shall continue to employ the services of a firm of independent certified public
accountants reasonably acceptable to the Underwriter in connection with the
preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto. During the same period, the Company shall employ the services of a law
firm(s) reasonably acceptable to the Underwriter in connection with all legal
work of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
(t) The Company agrees that it will, upon the Effective Date, for a
period of no less than two years, engage a designee of the Underwriter as an
advisor (the "Advisor") to its Board of Directors where such Advisor shall
attend meetings of the Board, receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors. In
addition, such Advisor shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to (if reasonably required in connection with any meeting held outside the New
York City metropolitan area), reimbursement for food, lodging and
transportation. The Company further agrees that, during said two year period, it
shall schedule no less than four (4) formal meetings (at least one of which
shall be held "in person" and the others which may be held telephonically) of
its Board of Directors in each such year and such meetings shall be held
quarterly each year and advance notice of such meetings identical to the notice
given to directors shall be given to the Advisor. Further, during such two year
period, the Company shall give notice to the Underwriter with respect to any
proposed acquisitions, mergers, reorganizations or other similar transactions;
provided, however, that the Underwriter agrees to keep all such information
confidential and not to use such information in any way in violation of
applicable securities laws. In lieu of the Underwriter's right to designate an
Advisor, the Underwriter shall have the right during such two-year period, in
its sole discretion, to designate one person for election as a Director of the
Company and the Company will utilize its best efforts to obtain the election of
such person who shall be entitled to receive the same compensation, expense
reimbursements and other benefits as other non-officer Directors, including, but
not limited to (if reasonably required in connection with any meeting held
outside the New York City metropolitan area), reimbursement for food, lodging
and transportation, but excluding any warrants, options or shares of equity
securities issued to any other Directors as an inducement for joining the Board
or for continuing membership on the Board. It is currently anticipated that
Directors shall receive $500 for each board meeting attended in person.
The Company agrees to indemnify and hold the Underwriter and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising solely out of the attendance and
participation of your designee at any such meeting described herein. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it agrees, if
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possible, to include the Underwriter's designee as an insured under such policy.
(u) Upon the Closing Date, the Company shall have entered into an
agreement with the Underwriter in form reasonably satisfactory to the
Underwriter (the "Consulting Agreement"), pursuant to which the Underwriter will
be retained as a management and financial consultant for a three-year period
commencing as of the Closing Date, and will be paid a fee of $3,000 a month for
a term of three years, all of which ($108,000) shall be paid upon the Closing
Date.
(v) The Common Stock shall be quoted on the Nasdaq SmallCap Market
("Nasdaq"), not later than the Closing Date. Thereafter, (unless the Company is
acquired) the Company will effect and use its best efforts to maintain such
listing or cause such securities to be listed on a national securities exchange
or in a comparable inter-dealer quotation system for at least five years from
the date of this Agreement (or until such earlier date on which no Warrants
remain outstanding).
(w) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date (unless the Common Stock is listed on the New York Stock Exchange
or the American Stock Exchange or unless the Company shall no longer have a
class of equity securities registered under Section 12(b) or 12(g) of the
Exchange Act).
(x) The Company has obtained from each person who is currently an
officer or director of the Company or a stockholder of the Company who holds
(after taking into account the issuance of the Securities in the Offering)
greater than 5% of the Company's outstanding securities, a written agreement, in
form and substance reasonably satisfactory to you and your counsel, to the
effect that such person shall not offer, sell or contract to sell, or otherwise
dispose of, directly or indirectly, without your prior written consent (or
pursuant to such other agreement with respect to the sale of capital stock as
may be required by state "Blue Sky" laws in order to qualify the Offering in any
such State), any shares of the Common Stock owned by such person or any
securities convertible into, or exchangeable for, or warrants to purchase or
acquire, shares of Common Stock, for a period of eighteen months from the
Effective Date. For a period of eighteen months from the Effective Date, the
Company shall not issue any shares of Common Stock or preferred stock or any
warrants, options or other rights to purchase Common Stock or preferred stock
without the consent of the Underwriter, except for (i) the Securities and the
Additional Securities, (ii) the Underwriter's Securities, (iii) securities
issuable upon the exercise of other options or warrants outstanding as of the
Closing Date, (iv) options to purchase up to 375,000 shares of Common Stock
pursuant to the Company's existing stock option plan and shares of Common Stock
issuable upon the exercise of such options, (v) up to 250,000 options or
warrants issuable in connection with the hiring or retention of senior
executives who are not currently affiliated or associated with the Company, and
(vi) shares of Common Stock or preferred stock or any warrants, options or other
rights to purchase Common Stock or preferred stock in connection with strategic
alliances, partnerships, mergers, acquisitions or joint ventures, with the
consent of the Underwriter which shall not be unreasonably withheld or delayed;
provided, however, that the Underwriter will bear its own expenses incurred in
connection with the granting of such consent (including, but not limited to any
independent due diligence and reimbursement to the Company for any costs
associated with obtaining a fairness opinion at the request of the Underwriter).
(y) The Company will use its best efforts to obtain, as soon after
the Closing Date as is reasonably possible, liability insurance covering its
officers and directors.
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(z) The Company agrees that it will employ the services of a
financial public relations firm reasonably acceptable to the Underwriter for a
period of at least twelve months following the Effective Date.
4. Sale, Purchase and Delivery of Securities; Closing Date; Public
Offering.
(a) On the basis of the warranties, representations and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the
Securities at a price of $6.00 per share of Common Stock, less, in the case of
each such Security, an underwriting discount of ten percent (10%) of the price
for such Security. The Underwriter may allow a concession not exceeding $. per
share of Common Stock to Selected Dealers who are members of the NASD, and to
certain foreign dealers, and such dealers may reallow to NASD members and to
certain foreign dealers a concession not exceeding $. per share of Common Stock.
(b) Delivery of the Securities and payment therefor shall be made at
10:00 A.M., New York time on the Closing Date, as hereinafter defined, at the
offices of the Underwriter or such other location as may be agreed upon by you
and the Company. Delivery of certificates for the Common Stock (in definitive
form and registered in such names and in such denominations as you shall request
by written notice to the Company delivered at least four business days' prior to
the Closing Date), shall be made to you for the account of the Underwriter
against payment of the purchase price therefor by certified or bank check or
wire transfer payable in New York Clearing House funds to the order of the
Company. The Company will make such certificates available for inspection at
least one business day prior to the Closing Date at such place as you shall
designate.
(c) The "Closing Date" shall be , 1997, or such other date not later
than the fourth business day following the effective date of the Registration
Statement as you shall determine and advise the Company by at least three full
business days' notice.
(d) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Securities by the Company to the
Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of the Securities, harmless from any and
all liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which are payable in connection with the
original issuance or sale to the Underwriter of the Securities or any portions
thereof.
(e) As soon, on or after the Effective Date, as the Underwriter
deems advisable, the Underwriter shall make a public offering of the Securities
(other than to residents of or in any jurisdiction in which qualification of the
Securities is required and has not become effective) at the initial public
offering prices and upon the other terms set forth in the Prospectus. The
Underwriter may from time to time increase or decrease the public offering
prices of the Securities after the distribution thereof has been completed to
such extent as the Underwriter, in its sole discretion, deems advisable.
5. Sale, Purchase and Delivery of Additional Securities; Option Closing
Date.
(a) Upon the basis of the representations, warranties and agreements
herein contained, and subject to the satisfaction of all the terms and
conditions of this Agreement, the Company agrees to sell to the Underwriter, and
the Underwriter shall have the option (the "Option") to purchase from the
Company, the Additional Securities at the same price per Security as set forth
in Paragraph 4(a) above. Additional Securities may be
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purchased solely for the purpose of covering over-allotments made in connection
with the distribution and sale of the Securities as contemplated by the
Prospectus.
(b) The Option to purchase all or part of the Additional Securities
covered thereby is exercisable by you at any time and from time to time before
the expiration of a period of 45 calendar days from the date of the Effective
Date (the "Option Period") by written notice to the Company setting forth the
number of Additional Securities for which the Option is being exercised, the
name or names in which the certificates for such Additional Securities are to be
registered and the denominations of such certificates. Upon each exercise of the
Option, the Company shall sell to the Underwriter the aggregate number of
Additional Securities specified in the notice exercising such Option.
(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at 10:00
A.M., New York time on the Option Closing Date, as hereinafter defined, at the
offices of the Underwriter or at such other locations as may be agreed upon by
you and the Company. Delivery of certificates for Additional Securities shall be
made to you for the account of the Underwriter against payment of the purchase
price therefor by certified or bank check or wire transfer in New York Clearing
House Funds to the order of the Company. The Company will make certificates for
Additional Securities to be purchased at the Option Closing Date available for
inspection at least one business day prior to such Option Closing Date at such
place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than three
business days after the end of the Option Period as you shall determine and
advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Underwriter to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 9 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Additional Securities by the Company to
the Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of Additional Securities, harmless from
any and all liabilities with respect to or resulting from any failure or delay
in paying federal and state stamp taxes, if any, which are payable in connection
with the original issuance or sale to the Underwriter of the Additional
Securities or any portion thereof.
6. Intentionally Omitted
7. Representations and Warranties of the Underwriter.
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the NASD, and
has complied with all NASD requirements concerning net capital and compensation
to be received in connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for services
in the nature of a finder's or origination fee with respect to the sale of the
Securities hereunder, which the Company is, or may become, obligated to pay.
8. Payment of Expenses.
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(a) The Company will pay and bear all costs, fees and expenses
incident to and in connection with: (i) the preparation, printing and filing of
the offering documents and amendments thereto, including NASD, SEC and filing
fees, preliminary and final Prospectus and the printing of the Underwriting
Agreement, the Agreement Among Underwriters and the Selected Dealer's Agreement,
a Blue Sky Memorandum, material to be circulated to any underwriter by the
Underwriter and other incidental material; (ii) the mailing and distribution
costs for the preliminary and final Prospectus; (iii) the issuance and delivery
of certificates representing the Securities, including original issue and
transfer taxes, if any; (iv) the qualification of the Securities and any shares
of Company's Common Stock underlying the Securities under state securities or
Blue Sky Laws, including counsel fees of the Underwriter relating thereto, not
to exceed $30,000 ($10,000 of which shall be due and payable upon the
commencement of Blue Sky filings together with appropriate state filing fees),
plus disbursements relating to, but not limited to, long-distance telephone
calls, photocopying, messengers, excess postage, overnight mail and courier
services; (v) the fees and disbursements of counsel for the Company and the
accountants for the Company; and (vi) advertising costs and expenses, including,
but not limited to, the costs and expenses in connection with the "road show,"
memorabilia and "tombstones" in publications selected by the Underwriter.
(b) In addition to the expenses to be paid and borne by the Company
referred to in Paragraph 8(a) above, the Company shall reimburse you at closing
for expenses incurred by you in connection with the Offering (for which you need
not make any accounting), in the amount of 3% of the price to the public of the
Securities and Additional Securities sold in the Offering. This 3%
non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters.
9. Conditions of Underwriter's Obligations.
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy in
all material respects of the representations and warranties of the Company
contained herein (except those representations and warranties that speak as of a
specific date) and the accuracy in all material respects of the statements of
the Company and its officers and directors made pursuant to the provisions
hereof, as of the date hereof and as of the Closing Date, and to the performance
by the Company in all material respects of its covenants and agreements
hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 p.m., New York time, on the date following the date of this Agreement,
or such later date and time as shall be consented to in writing by you and, on
or prior to the Closing Date, no stop order suspending the effectiveness of the
Registration Statement and no proceedings for that purpose shall have been
instituted or to your knowledge or the knowledge of the Company, shall be
pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of counsel to the Underwriter and after the date hereof
no amendment or supplement shall have been filed to the Registration Statement
or Prospectus without your prior consent, which shall not have been unreasonably
withheld or delayed.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto contains an untrue statement of a fact which, in the Underwriter's
reasonable opinion, is material, or omits to state a fact which, in the
Underwriter's reasonable opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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(c) Between the time of the execution and delivery of this Agreement
and the Closing Date, there shall be no litigation instituted against the
Company or any of its officers or directors and between such dates there shall
be no proceeding instituted or, to the Company's knowledge, threatened against
the Company or any of its officers or directors before or by any federal, state
or county commission, regulatory body, administrative agency or other
governmental body, domestic or foreign, in which litigation or proceeding an
unfavorable ruling, decision or finding would have a Material Adverse Effect.
(d) The representations and warranties of the Company contained
herein and in each certificate and document contemplated under this Agreement to
be delivered to you shall be true and correct in all material respects at the
Closing Date as if made at the Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company, and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date shall be fulfilled or complied with in all material respects.
(e) At the Closing Date, you shall have received the opinion of
Eilenberg & Zivian, counsel to the Company, dated as of such Closing Date,
addressed to the Underwriter and in form and substance satisfactory to counsel
to the Underwriter, to the effect that:
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with all
requisite corporate power and authority to own its properties and to conduct its
business as described in the Registration Statement. The Company is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where its ownership, leasing, licensing or use of property and
assets or the conduct of its business makes such qualification necessary, except
where failure to be so qualified or in good standing will not have a Material
Adverse Effect;
(ii) The Company has all requisite corporate power and
authority to execute, deliver and perform the Underwriting Agreement, the
Consulting Agreement (to be entered into as of the Closing Date), and the
Underwriter's Warrants and to consummate the transactions contemplated thereby.
The execution, delivery and performance of the Underwriting Agreement, the
Consulting Agreement, and the Underwriter's Warrants by the Company, the
consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement, the
Consulting Agreement, and the Underwriter's Warrants have been duly authorized
by all necessary corporate action, the Underwriting Agreement has been duly
executed and delivered by the Company, and each of the Consulting Agreement, and
the Underwriter's Warrants will have been duly executed and delivered by the
Company as of the Closing Date. The Underwriting Agreement is, and, as of the
Closing Date each of the Consulting Agreement and the Underwriter's Warrants
will be, a valid and binding obligation of the Company, enforceable in
accordance with its terms, except insofar as enforceability of indemnification
and contribution provisions may be limited by applicable law or policy or
equitable principles, and except as enforceability may be limited by bankruptcy,
reorganization, moratorium, insolvency or other laws affecting the
enforceability of creditors' rights generally and rules of law governing
specific performance, injunctive relief and other equitable remedies.
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement and the Underwriter's Warrants
by the Company, and the consummation by the Company of the transactions therein
or herein contemplated will not, with or without the giving of notice or the
lapse of time, or both, (A) result in a violation of the Certificate of
Incorporation or by-laws of the Company, in each case as the same may be
amended, (B) to the best of such counsel's knowledge, result in a breach of, or
conflict with, any terms or provisions of or constitute a
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default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company pursuant to, any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
known to such counsel to which the Company is a party or by which the Company or
any of its properties or assets are bound or affected, except where any of the
foregoing would not have a Material Adverse Effect; (C) to the best of such
counsel's knowledge, violate any existing applicable law, rule or regulation or
judgment, order or decree known to such counsel of any governmental agency or
court, domestic or foreign, having jurisdiction over the Company or any of its
properties or business, which judgment, order or decree is binding on the
Company or to which any of its business or operations is subject, except where
any such violation would not have a Material Adverse Effect; or (D) to the best
of such counsel's knowledge, have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate its properties and to conduct its
business or the ability of the Company to make use thereof, in each case in the
State of New York;
(iv) To the best of such counsel's knowledge, no
authorization, approval, consent, order, registration, license or permit of any
court or governmental agency or body (other than under the Act, the Regulations
and applicable state securities or Blue Sky laws) is required for the
authorization, issuance, sale and delivery of the Securities, the Additional
Securities, or the Underwriter's Warrants, and the consummation by the Company
of the transactions contemplated by the Underwriting Agreement, the Consulting
Agreement, or the Underwriter's Warrants;
(v) Such counsel has been advised by the staff of the
Commission that the Registration Statement was declared effective under the Act
by the Commission on , 1997; to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement has been issued
by the Commission, and no proceedings for that purpose have been instituted or
are pending or threatened under the Act;
(vi) The Registration Statement and the Prospectus, as of the
Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which such counsel need express no
opinion), comply as to form in all material respects with the requirements of
the Act and Regulations and, to the best of such counsel's knowledge, the
conditions for use of a registration statement on Form SB-2 have been satisfied
by the Company;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate summaries of such
statutes, regulations, contracts and other documents in all material respects
and, to the best of such counsel's knowledge, there are no material contracts or
documents of a character required to be described in the Registration Statement
or the Prospectus or to be filed as exhibits to the Registration Statement,
which are not so described or filed as required.
(viii) Each share of Common Stock outstanding as of the date
of the Prospectus or immediately prior to the Closing Date has been duly
authorized and validly issued and is fully paid and nonassessable. To the best
of such counsel's knowledge, none of the Common Stock outstanding as of either
such date or time has been issued in violation of the preemptive rights of any
stockholder of the Company. The authorized Common Stock conforms in all material
respects to the description thereof contained in the Registration Statement and
Prospectus. To the best of such counsel's knowledge, except as set forth in the
Prospectus, no holders of any of the Company's securities has any rights,
"demand," "piggyback" or otherwise (which has not been waived or terminated), to
have such securities registered under the Act;
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(ix) The issuance and sale of the Securities, the Additional
Securities and the Underwriter's Warrants have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof and thereof,
the Common Stock comprising the Securities will be validly issued, fully paid
and nonassessable. Neither the Securities nor the Additional Securities are
subject to statutory preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(x) The Underwriter's Warrants will constitute valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, to issue and sell, upon exercise thereof and payment pursuant
to the terms thereof, the numbers and types of securities of the Company called
for thereby. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. The
Underwriter's Warrants conform in all material respects to the descriptions
thereof contained in the Registration Statement and Prospectus;
(xi) Good title to the Securities, free and clear of all
liens, encumbrances, equities, security interests and claims (except those that
may arise from actions or inactions of the Underwriter), has been transferred to
the Underwriter, provided that the Underwriter purchased the Securities in good
faith and without notice of any such lien, encumbrance, equity, security or
claim or any other adverse claim within the meaning of the New York Uniform
Commercial Code;
(xii) Assuming that the Underwriter exercises the Option to
purchase the Additional Securities and makes payments therefor in accordance
with the terms of the Underwriting Agreement, upon issuance of the Additional
Securities to the Underwriter pursuant hereto, good title to the Additional
Securities, free and clear of any liens, encumbrances, equities, security
interests and claims (except those that may arise from actions or inactions of
the Underwriter), will have been transferred to the Underwriter, provided that
the Underwriter purchased the Additional Securities in good faith and without
notice of any such lien, encumbrance, equity, security or claim or any other
adverse claim within the meaning of the New York Uniform Commercial Code;
(xiii) To the best of such counsel's knowledge, other than as
set forth or contemplated in the Prospectus, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, or before any private arbitration
tribunal, pending or threatened against the Company or to which its properties
or business is subject, which, individually or in the aggregate, would have a
Material Adverse Effect.
In addition, such counsel shall state that during the course
of the preparation of the Registration Statement and the Prospectus, such
counsel participated in conferences with officers of the Company, and, while
such counsel are not passing upon, has not verified or independently
investigated, and does not assume any responsibility for the accuracy,
completeness or fairness of the statements or documents contained in the
Registration Statement or the Prospectus, during the course of such preparation
and the foregoing conferences, no facts came to such counsel's attention which
caused such counsel to believe that (A) the Registration Statement (except as to
the financial statements and other financial data contained therein, as to which
such counsel need express no opinion), as of the Effective Date, contained any
untrue statement of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
such counsel need express no opinion), as of its date, contained any untrue
statement or a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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In rendering such opinions, such counsel may limit their
opinions to matters governed by the federal laws of the United States, the laws
of the State of New York and the general corporation laws of the State of
Delaware, and may rely as to matters of fact, to the extent they deem proper, on
certificates and written statements of officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to counsel to the Underwriter.
(f) On or prior to the Closing Date, counsel for the Underwriter
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraph (e) of this Paragraph 9, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained.
(g) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is (x) required
to be disclosed in the Prospectus or Registration Statement and is not so
disclosed, and (y) likely to have a Material Adverse Effect;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness, except as
described in the Prospectus and except such as will not have a Material Adverse
Effect;
(iv) No material amount of the assets of the Company shall
have been pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity, shall
have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect, except as set
forth in the Registration Statement and Prospectus;
(vi) No stop order shall have been issued under the Act and no
proceedings therefor shall have been initiated or, to the Company's knowledge,
threatened by the Commission; and
(vii) Each of the representations and warranties of the
Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when originally
made and is at the time such certificate is dated, true and correct in all
material respects.
(h) Concurrently with the execution and delivery of this Agreement
and at the Closing Date, you shall have received a certificate of the Company
signed by the Chief Executive Officer of the Company and the principal financial
officer of the Company, dated as of the Closing Date, to the effect that the
conditions set forth in subparagraph (g) above have been satisfied in all
material respects and that, as of the Closing Date, the representations and
warranties of the Company set forth in Paragraph 2 herein
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are true and correct, as if made on and as of the Closing Date, in all material
respects. Any certificate signed by any officer of the Company and delivered to
you or to counsel for the Underwriter shall be deemed a representation and
warranty by the Company to the Underwriter as to the statements made therein.
(i) At the time this Agreement is executed, and at the Closing Date,
you shall have received a letter, addressed to the Underwriter and in form and
substance reasonably satisfactory in all material respects to you and counsel
for the Underwriter, from Price Waterhouse LLP dated as of the date of this
Agreement and as of the Closing Date, substantially in the form of Exhibit A
hereto.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Securities, Additional Securities and the Underwriter's
Securities as herein contemplated shall be reasonably satisfactory in form and
substance to you and to counsel to the Underwriter, and the Underwriter shall
have received from such counsel an opinion, dated as the Closing Date with
respect to such of these proceedings as you may reasonably require.
(l) The obligation of the Underwriter to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
in all material respects and to the satisfaction on and as of the Option Closing
Date of the conditions set forth herein in all material respects.
(m) On the Closing Date there shall have been duly tendered to you
for your account the appropriate number of shares of Common Stock constituting
the Securities.
10. Indemnification and Contribution.
(a) Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriter, each of its agents and counsel and
each person, if any, who controls the Underwriter ("controlling person") within
the meaning of either Section 15 of the Act or Section 20 of the Exchange Act,
against any and all losses, liabilities, claims, damages, actions and expenses
or liability, joint or several, whatsoever (including but not limited to any and
all expense whatsoever reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any claim
whatsoever), joint or several, to which it or such controlling persons may
become subject under the Act, the Exchange Act or under any other statute or at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any Preliminary Prospectus or the Prospectus (as from time to time
amended and supplemented); in any post-effective amendment or amendments or any
new registration statement and prospectus in which is included the Warrant
Shares of the Company issued or issuable upon exercise of the Underwriter's
Warrants; or in any application or other document or written communication (in
this Paragraph 10 collectively called "application") executed by the Company or
based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Securities, Additional Securities,
Underwriter's Warrants and Underwriter's Securities under the securities laws
thereof or filed with the Commission or any securities exchange; or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon or in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or supplement thereof, or in any application, as
the case may be. Notwithstanding the foregoing, the Company shall have no
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liability under this Paragraph 10(a) if any such untrue statement or omission
made in a Preliminary Prospectus, is corrected in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement, each of its agents and counsel, and each other
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Underwriter in Paragraph 10(a), but only with
respect to any untrue statement or alleged untrue statement of any material fact
contained in or any omission or alleged omission to state a material fact
required to be stated in any Preliminary Prospectus, the Registration Statement
or Prospectus or any amendment or supplement thereof or necessary to make the
statements therein not misleading or in any application made in reliance upon,
and in conformity with, written information furnished to the Company by you
expressly for use in the preparation of such Preliminary Prospectus, the
Registration Statement or Prospectus with respect to the Underwriter or directly
relating to the transactions effected or to be effected by the Underwriter in
connection with the Offering. This indemnity agreement will be in addition to
any liability which the Underwriter may otherwise have.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings or any other action against
the Indemnitee in respect of which indemnification is to be sought.
(d) In order to provide for just and equitable contribution under
the Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others) in such proportion so that the
Underwriter is responsible for the portion represented by dividing the total
compensation received by the Underwriter herein or in connection with the
Offering by the total purchase price of all Securities sold in the public
offering and the Company is responsible for the remaining portion; provided,
that in any such case, no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. As used in this Paragraph 10,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any officer, director or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent in writing to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability it may have to any
other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any party,
and such party notifies a contributing party or his or its representative of the
commencement thereof within the aforesaid fifteen (15) days, the contributing
party will be entitled to participate therein with the notifying party and any
other contributing party similarly notified. Any such contributing party shall
not be liable to any party seeking contribution on account of any settlement of
any claim, action or proceeding effected by such party seeking contribution
without the written consent of such contributing party. The indemnification
provisions contained in this Paragraph 11 are in addition to any other rights or
remedies which either party hereto may have with respect to the other or
hereunder.
11. Representations, Warranties, Agreements to Survive Delivery.
The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company and the Underwriter set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriter or on its behalf or by or on
behalf of any person who controls the Underwriter, or by the Company or any
controlling person of the Company or any director or any officer of the Company,
(ii) acceptance of any of the Securities and payment therefor, or (iii) any
termination of this Agreement, and shall survive the delivery of the Securities;
and any successor of the Underwriter or the Company, or of any person who
controls you or the Company or any other indemnified party, as the case may be,
shall be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 above shall be in addition
to any liability which the Underwriter and the Company may otherwise have.
12. Effective Date of This Agreement and Termination Thereof.
(a) This Agreement shall become effective at 10:00 A.M., New York
time, on the first full business day following the day on which you and the
Company receive notification that the Registration Statement became effective.
(b) This Agreement may be terminated by the Underwriter by notifying
the Company at any time on or before the Closing Date, if any domestic or
international event or act or occurrence has materially disrupted, or in your
reasonable opinion will in the immediate future materially disrupt, securities
markets in the United States; or if trading in securities generally on the New
York Stock Exchange, the American Stock Exchange, or in the over-
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<PAGE>
the-counter market in the United States shall have been suspended, or minimum or
maximum prices for trading in securities generally shall have been fixed, or
maximum ranges for prices for securities shall have been required, on the
over-the-counter market by the NASD or NASDAQ or by order of the Commission or
any other governmental authority having jurisdiction; or if a moratorium in
foreign exchange trading by major international banks or persons has been
declared in the United States; or if the Company shall have sustained a loss
material or substantial to the Company taken as a whole by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not such loss shall have been insured, will, in your
reasonable opinion, make it inadvisable to proceed with the offering, sale and
delivery of the Securities; or if there shall have been a material adverse
change in the conditions of the United States securities market in general, as
in your reasonable judgment would make it inadvisable to proceed with the
offering, sale and delivery of the Securities.
(c) If you elect to terminate this Agreement as provided in this
Paragraph 12, the Company shall be notified promptly by you by telephone or
facsimile, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding, if
this Agreement shall terminate or shall not be carried out within the time
specified herein by reason of any failure on the part of the Company to perform
any undertaking, or to satisfy any condition of this Agreement by it to be
performed or satisfied, the sole liability of the Company to the Underwriter, in
addition to the obligations assumed by the Company pursuant to Paragraph 8
herein, will be to reimburse the Underwriter on an accountable basis for the
following: (i) reasonable Blue Sky counsel fees and expenses to the extent set
forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees to that same extent; and
(iii) such other reasonable out-of-pocket expenses actually incurred by the
Underwriter (including the reasonable fees and disbursements of their counsel),
to the extent set forth in Paragraph 8(a), in connection with this Agreement and
the proposed offering of the Securities, but in no event to exceed the sum of
$100,000 less such amounts as shall have already been paid pursuant to Section
8(b) or otherwise. The Company shall not in any event be liable to the
Underwriter for the loss of anticipated profits from the transactions covered by
this Agreement.
Anything in this Agreement to the contrary notwithstanding, if this
Agreement shall be terminated by you because you have exercised your rights
pursuant to Paragraph 12(b) above, the Company shall not be under any liability
to you except, on an accountable basis, for the portion of the non-accountable
expense allowance referred to in Paragraph 8(b) for which expenses have actually
been paid or incurred by you, and any balance will be returned by you to the
Company.
13. Notices.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to the Underwriter at Rickel &
Associates, Inc., 875 Third Avenue, New York, New York 10022, Attention: Elliot
J. Smith, with a copy thereof to Felice F. Mischel, Esq., Schneck Weltman
Hashmall & Mischel LLP, 1285 Avenue of the Americas, New York, New York 10019,
and, if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed to the Company at 666 Third Avenue, New York, New York 10017,
Attention: Joshua D. Schein, President, with a copy thereof to Adam D.
Eilenberg, Esq., Eilenberg & Zivian, 666 Third Avenue, New York, New York 10017.
14. Parties.
This Agreement shall inure solely to the benefit of and shall be binding
upon, the Underwriter, the Company and the controlling persons, directors and
officers referred to in Paragraph 10 hereof, and their
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respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained. No purchaser of any of the Securities or Additional Securities from
the Underwriter shall be deemed a successor or assign by reason merely of such
purchase.
15. Construction.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to the
rules governing conflict of laws, and shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company and
you relating to the sale of any of the Securities.
16. Jurisdiction and Venue.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. Counterparts.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between you and
the Company, please so indicate in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between us.
Very truly yours,
VIROLOGIX CORPORATION
By:___________________________
Joshua D. Schein, President
Accepted as of the date first above
written:
RICKEL & ASSOCIATES, INC.
By:_________________________________
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EXHIBIT 1(b)
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<PAGE>
FORM OF UNDERWRITER'S WARRANT
NO SALE OR TRANSFER OF THIS WARRANT OR THE SECURITIES
UNDERLYING THIS WARRANT MAY BE MADE UNTIL
THE EFFECTIVENESS OF A REGISTRATION STATEMENT
OR OF A POST-EFFECTIVE AMENDMENT THERETO
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"),
COVERING THIS WARRANT OR THE SECURITIES UNDERLYING
THIS WARRANT, OR UNTIL THE COMPANY IS IN RECEIPT OF AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE ACT. TRANSFER OF
THIS WARRANT IS RESTRICTED UNDER PARAGRAPH 2 BELOW.
UNDERWRITER'S WARRANT TO PURCHASE
COMMON STOCK
VIROLOGIX CORPORATION
(a Delaware corporation)
Dated: _________________, 1997
THIS CERTIFIES THAT, for value received, Rickel & Associates, Inc. (the
"Underwriter") or its registered assigns (the "Holder") is the owner of options
(the "Underwriter's Option") to purchase from Virologix Corporation, a Delaware
corporation (the "Company"), during the period and at the prices hereinafter
specified, up to 115,000 shares of the Company's common stock, par value $.0001
per share (the "Common Stock" or the "Securities").
This Underwriter's Option is issued pursuant to an Underwriting Agreement
dated _____, 1997, between the Company and the Underwriter in connection with a
public offering through the Underwriter (the "Public Offering"), of 1,150,000
shares of Common Stock, and, pursuant to the Underwriter's overallotment option,
an additional 172,000 shares of Common Stock.
1. Exercise of the Underwriter's Option.
(a) The rights represented by this Underwriter's Option shall be
exercisable at the prices and during the period specified below, upon the terms
and subject to the conditions as set forth herein:
(i) During the period from _____, 1997 to _____, 1998, inclusive,
the Holder shall have no right to purchase any Securities hereunder.
(ii) Between _____, 1998 and _____, 2002, inclusive, the Holder
shall have the option to purchase shares of Common Stock and Warrants hereunder
at a price of $ per share, the purchase price of the Common Stock being
____% of the public offering price for the Securities set forth in the
Prospectus forming a part of the registration statement on Form SB-2 (File No.
333-________) of the Company, as amended (the "Registration Statement").
(iii) After _____, 2002, the Holder shall have no right to purchase
any Securities hereunder and this Underwriter's Option shall expire effective at
5:00 p.m., New York time on such date.
(b) The rights represented by this Underwriter's Option
may be exercised at any time within the period above specified, in whole or in
part, by (i) the surrender of this Underwriter's Option (with the purchase form
at the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price then in
effect for the number of shares of Common Stock specified in the above-mentioned
purchase form together with applicable stock
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<PAGE>
transfer taxes, if any; and (iii) delivery to the Company of a duly executed
agreement signed by the person(s) designated in the purchase form to the effect
that such person(s) agree(s) to be bound by the provisions of Paragraph 5 and
subparagraphs (b), (c) and (d) of Paragraph 6 hereof. This Underwriter's Option
shall be deemed to have been exercised, in whole or in part to the extent
specified, immediately prior to the close of business on the date this
Underwriter's Option is surrendered and payment is made in accordance with the
foregoing provisions of this Paragraph 1, and the person or persons in whose
name or names the certificates for the Securities shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock at
that time and date. The Common Stock so purchased shall be delivered to the
Holder within a reasonable time, not exceeding ten (10) business days, after the
rights represented by this Underwriter's Option shall have been so exercised.
2. Restrictions on Transfer.
This Underwriter's Option shall not be transferred, sold, assigned or
hypothecated for a period of one year commencing _____, 1997, except that it may
be transferred to successors of the Holder, and may be assigned in whole or in
part to any person who is an officer of the Underwriter or an officer or partner
of any other member of the selling group during such period. Any such assignment
shall be effected by the Holder by (i) completing and executing the transfer
form at the end hereof and (ii) surrendering this Underwriter's Option with such
duly completed and executed transfer form for cancellation, accompanied by funds
sufficient to pay any transfer tax, at the office or agency of the Company
referred to in Paragraph 1 hereof, accompanied by a certificate (signed by a
duly authorized representative of the Holder), stating that each transferee is a
permitted transferee under this Paragraph 2; whereupon the Company shall issue,
in the name or names specified by the Holder (including the Holder), a new
Underwriter's Option or Underwriter's Options of like tenor and representing in
the aggregate rights to purchase the same number of Securities as are then
purchasable hereunder. The Holder acknowledges that this Underwriter's Option
may not be offered or sold except pursuant to an effective registration
statement under the Act or an opinion of counsel satisfactory to the Company
that an exemption from registration under the Act is available.
3. Covenants of the Company
(a) The Company covenants and agrees that all Common Stock issuable upon
the exercise of this Underwriter's Option will, upon issuance thereof and
payment therefor in accordance with the terms hereof be duly and validly issued,
fully paid and nonassessable and no personal liability will attach to the holder
thereof by reason of being such a holder, other than as set forth herein.
(b) The Company covenants and agrees that during the period within which
this Underwriter's Option may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to provide
for the exercise of this Underwriter's Option.
(c) The Company covenants and agrees that for so long as the Securities
shall be outstanding (unless the Securities shall no longer be registered under
Paragraph 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended) the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Underwriter's Option to be quoted by the Nasdaq Stock
Market or listed on a national securities exchange.
4. No Rights of Stockholder.
This Underwriter's Option shall not entitle the Holder to any voting
rights or other rights as a stockholder of the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Underwriter's Option and are not enforceable against the Company except to the
extent set forth herein.
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<PAGE>
5. Registration Rights.
(a) During the period of four years from _____, 1998, the Company
shall advise the Holder, whether the Holder holds this Underwriter's Option or
has exercised this Underwriter's Option and holds Common Stock, by written
notice at least 30 days prior to the filing of any post-effective amendment to
the Registration Statement or of any new registration statement or
post-effective amendment thereto under the Act, covering any securities of the
Company, for its own account or for the account of others, and upon the request
of the Holder made during such four-year period, include in any such
post-effective amendment or registration statement such information as may be
required to permit a public offering of any of the Common Stock (the
"Registerable Securities"); provided, that this Paragraph 5(a) shall not apply
to any registration statement filed pursuant to Paragraph 5(b) hereof or to
registrations of shares in connection with an employee benefit plan or a merger,
consolidation or other comparable acquisition or solely for registration of
non-convertible debt or preferred equity securities of the Company; and
provided, further, that, notwithstanding the foregoing, the Holder shall have no
right to include any Registrable Securities in any new registration statement or
post-effective amendment thereto unless as of the effective date thereof the
Registration Statement (as it may hereafter be amended or supplemented) or any
new registration statement under which the Registrable Securities are registered
shall have ceased to be effective or the prospectus contained in such
Registration Statement shall have ceased to be current. The Company shall supply
prospectuses in order to facilitate the public sale or other disposition of the
Registerable Securities, use its best efforts to register and qualify any of the
Registerable Securities for sale in such states in which the Common Stock is
offered and sold in the Public Offering as such Holder reasonably designates and
do any and all other acts and things which may be necessary to enable such
Holder to consummate the public sale of the Registerable Securities, provided
that, without limiting the foregoing, the Company shall not be obligated to
execute or file any general consent to service of process or to qualify as a
foreign corporation to do business under the laws of any such jurisdiction, and
furnish indemnification in the manner provided in Paragraph 6 hereof. The Holder
shall furnish information reasonably requested by the Company in accordance with
such post-effective amendments or registration statements, including its
intentions with respect thereto, and shall furnish indemnification as set forth
in Paragraph 6. The Company shall continue to advise the Holders of the
Registerable Securities of its intention to file a registration statement or
amendment pursuant to this Paragraph 5(a) until the earliest of (i) _____, 2002;
or (ii) such time as all of the Registerable Securities have been registered and
sold under the Act; or (iii) all of the Registrable Securities have been
otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent public distribution of them shall not require registration or
qualification of them under the Act, or (iv) in the opinion of legal counsel for
the Company, the Registrable Securities may be offered and sold by the holders
thereof without being registered under the Act and such securities, upon receipt
by the purchasers thereof pursuant to such sale, will not constitute "restricted
securities" as such term is defined in Rule 144 under the Act.
(b) If any fifty-one (51%) percent holder (as defined below) shall
give notice to the Company at any time during the four (4) year period beginning
one (1) year from _____, 1998 to the effect that such holder desires to register
under the Act any Registerable Securities, under such circumstances that a
public distribution (within the meaning of the Act) of any such Registerable
Securities will be involved (and the Registration Statement or any new
registration statement under which such Registerable Securities are registered
shall have ceased to be effective or the Prospectus contained therein shall have
ceased to be current), then the Company will as promptly as practicable after
receipt of such notice, but not later than thirty (30) days after receipt of
such notice, at the Company's option, file a post-effective amendment to the
current Registration Statement or a new registration statement pursuant to the
Act to the end that the Registerable Securities may be publicly sold under the
Act as promptly as practicable thereafter and the Company will use its best
efforts to cause such registration to become and remain effective as provided
herein (including the taking of such steps as are reasonably necessary to
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<PAGE>
obtain the removal of any stop order); provided, that such fifty-one (51%)
percent holder shall furnish the Company with appropriate information in
connection therewith as the Company may reasonably request; and provided,
further, that the Company shall not be required to file such a post-effective
amendment or registration statement pursuant to this Paragraph 5(b) on more than
one occasion; and provided, further, that, the registration rights of the 51%
holder under this Paragraph 5(b) shall be subject to the "piggyback"
registration rights of other holders of securities of the Company to include
such securities in any registration statement or post-effective amendment filed
pursuant to this Paragraph 5(b). The Company will maintain such registration
statement or post-effective amendment current under the Act for a period of at
least nine months from the effective date thereof. The Company shall supply
prospectuses in order to facilitate the public sale of the Registerable
Securities, use its best efforts to register and qualify any of the Registerable
Securities for sale in such states in which the Common Stock is offered and sold
in the Public Offering as such holder reasonably designates and furnish
indemnification in the manner provided in Paragraph 6 hereof, provided that,
without limiting the foregoing, the Company shall not be obligated to execute or
file any general consent to service of process or to qualify as a foreign
corporation to do business under the laws of any such jurisdiction.
(c) The Holder may, in accordance with Paragraphs 5(a) or (b), at his or
its option, and subject to the limitations set forth in Paragraph 1(a) hereof,
request the registration of any of the Registerable Securities in a filing made
by the Company prior to the acquisition of the Securities upon exercise of this
Underwriter's Option. The Holder may thereafter exercise this Underwriter's
Option at any time or from time to time subsequent to the effectiveness under
the Act of the registration statement in which the Common Stock underlying the
Underwriter's Options were included.
(d) The term "51% holder," as used in this Paragraph 5, shall include any
owner or combination of owners of Underwriter's Options or Registerable
Securities if the aggregate number of shares of Common Stock underlying the
Underwriter's Options and Registerable Securities held of record by it or them,
would constitute a majority of the aggregate of such shares of Common Stock
underlying the Underwriter's Option and Registrable Securities as of the date of
the initial issuance of the Underwriter's Option.
(e) The following provisions of this Paragraph 5 shall also be applicable:
(i) Within ten (10) days after receiving any notice pursuant to
Paragraph 5(b), the Company shall give notice to the other Holders of
Underwriter's Options or Registerable Securities, advising that the Company is
proceeding with such post-effective amendment or registration and offering to
include therein the Registerable Securities of such other Holders, provided that
they shall furnish the Company with all information in connection therewith as
shall be necessary or appropriate and as the Company shall reasonably request in
writing. Following the effective date of such post-effective amendment or
registration, the Company shall, upon the request of any Holder of Registerable
Securities, forthwith supply such number of prospectuses meeting the
requirements of the Act, as shall be reasonably requested by such Holder. The
Company shall use its best efforts to qualify the Registerable Securities for
sale in such states in which the Common Stock is offered and sold in the Public
Offering as the 51% holder shall reasonably designate at such times as the
registration statement is effective under the Act, provided that, without
limiting the foregoing, the Company shall not be obligated to execute or file
any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction.
(ii) The Company shall bear the entire cost and expense of any
registration of securities initiated by it under Paragraph 5(a) hereof
notwithstanding that the Registerable Securities subject to this Underwriter's
Option may be included in any such registration. The Company shall also comply
with the one request for registration made by the 51% holder pursuant to
Paragraph 5(b) hereof at the Company's
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<PAGE>
own expense and without charge to any holder of the Registerable Securities.
Notwithstanding the foregoing, any Holder whose Registerable Securities are
included in any such registration statement pursuant to this Paragraph 5 shall,
however, bear the fees of any counsel retained by him and any transfer taxes or
underwriting discounts or commissions applicable to the Registerable Securities
sold by him pursuant thereto and, in the case of a registration pursuant to
Paragraph 5(a) hereof, any additional registration or "blue sky" or state
securities fees attributable to the registration or qualification of such
Holder's Registerable Securities.
(iii) If the underwriter or managing underwriter in any underwritten
offering made pursuant to Paragraph 5(a) hereof shall advise the Company that it
declines to include a portion or all of the Registerable Securities requested by
the Holders to be included in the registration statement, then distribution of
all or a specified portion of the Registerable Securities shall be excluded from
such registration statement (in case of an exclusion as to a portion of such
Registerable Securities, such portion to be allocated among such Holders in
proportion to the respective numbers of Registerable Securities requested to be
registered by each such Holder). In such event the Company shall give the Holder
prompt notice of the number of Registerable Securities excluded. Further, in
such event the Company shall, commencing six (6) months after the completion of
such underwritten offering, file and use its best efforts to have declared
effective, at its sole expense (subject to the last sentence of Paragraph
5(a)(ii)), a registration statement relating to such excluded securities.
(iv) Notwithstanding anything to the contrary contained herein, the
Company shall have the right at any time after it shall have given written
notice pursuant to Paragraph 5(a) or 5(b) (irrespective of whether a written
request for inclusion of any Registerable Securities shall have been made) to
elect not to file or to delay any such proposed registration statement or
post-effective amendment thereto, or to withdraw the same after the filing but
prior to the effective date thereof. In addition, the Company may delay the
filing of any registration statement or post-effective amendment requested
pursuant to Paragraph 5(b) hereof by not more than 120 days if the Company,
prior to the time it would otherwise have been required to file such
registration statement or post-effective amendment thereto, determines in good
faith that the filing of the registration statement would require the disclosure
of non-public material information that, in its judgment, would be detrimental
to the Company if so disclosed or would otherwise adversely affect a financing,
acquisition, disposition, merger or other material transaction.
(v) If a registration pursuant to Paragraph 5(a) hereof involves an
underwritten offering, the Company shall have the right to select the investment
banker or investment bankers and manager or managers that will serve as
underwriter with respect to the underwritten offering. No Holder of Registerable
Securities may participate in any underwritten offering under this Agreement
unless such holder completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwritten offering, in each case, in the form and
upon terms reasonably acceptable to the Company and the underwriters. The
requested registration pursuant to Paragraph 5(b) hereof shall not involve an
underwritten offering unless the Company shall first give its written approval
of each underwriter that participates in the offering, such approval not to be
unreasonably withheld.
6. Indemnification.
(a) Whenever pursuant to Paragraph 5, a registration statement relating to
any Registerable Securities is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each Holder of the Registerable
Securities covered by such registration statement, amendment or supplement (such
holder hereinafter referred to as the "Distributing Holder"), each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each officer, employee, partner or agent of the Distributing Holder, if the
Distributing Holder is a broker or dealer, and each underwriter (within the
meaning of the Act) of such
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securities and each person, if any, who controls (within the meaning of the Act)
any such underwriter and each officer, employee, agent or partner of such
underwriter against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such underwriter or any other
person may become subject under the Act or otherwise, 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 such registration statement or any preliminary prospectus
or final prospectus constituting a part thereof or any amendment or supplement
thereto, or arise out of or are based upon the omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading; and will reimburse the Distributing Holder and each such
underwriter or such other person for any legal or other expenses reasonably
incurred by the Distributing Holder, or underwriter or such other person, in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case (i) to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in said registration statement, said
preliminary prospectus, said final prospectus or said amendment or supplement in
reliance upon and in conformity with written information furnished by such
Distributing Holder, any other Distributing Holder or any such underwriter for
use in the preparation thereof, or (ii) such losses, claims, damages or
liabilities arise out of or are based upon any actual or alleged untrue
statement or omission made in or from any preliminary prospectus, but corrected
in the final prospectus, as amended or supplemented.
(b) Whenever pursuant to Paragraph 5 a registration statement relating to
the Registerable Securities is filed under the Act, or is amended or
supplemented, the Distributing Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed said
registration statement and such amendments and supplements thereto, and each
person, if any, who controls the Company (within the meaning of the Act) against
any losses, claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in any such registration statement or
any preliminary prospectus or final prospectus constituting a part thereof, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Distributing Holder for use in the preparation
thereof; and will reimburse the Company or any such director, officer or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action.
(c) Promptly after receipt by an indemnified party under this Paragraph 6
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission to so
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Paragraph 6.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election to so assume the
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defense thereof, the indemnifying party will not be liable to such indemnified
party under this Paragraph 6 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof other
than reasonable costs of investigation.
7. Adjustments of Price and Number of Shares of Common Stock.
(a) Computation of Adjusted Price. Except as hereinafter provided,
in case the Company shall, at any time after the date of closing of the sale of
securities pursuant to the Public Offering (the "Closing Date"), issue or sell
any shares of Common Stock (other than the issuances or sales referred to in
Paragraph 7(f) hereof), including shares held in the Company's treasury and
shares of Common Stock issued upon the exercise of any options, rights or
warrants to subscribe for shares of Common Stock (other than the issuances or
sales of Common Stock pursuant to rights to subscribe for such Common Stock
distributed pursuant to Paragraph 7(j) hereof) and shares of Common Stock issued
upon the direct or indirect conversion or exchange of securities for shares of
Common Stock, for a consideration per share less than both the "Market Price"
(as defined in Paragraph 7(a)(vi) hereof) per share of Common Stock on the
trading day immediately preceding such issuance or sale and the Warrant Price in
effect immediately prior to such issuance or sale, or without consideration,
then forthwith upon such issuance or sale, the Warrant Price in respect of the
Common Stock issuable upon exercise of the Underwriter's Option shall (until
another such issuance or sale) be reduced to the price (calculated to the
nearest full cent) determined by multiplying the Warrant Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the Warrant Price
immediately prior to such issuance or sale plus (2) the consideration received
by the Company upon such issuance or sale, and the denominator of which shall be
the product of (x) the total number of shares of Common Stock outstanding
immediately after such issuance or sale, multiplied by (y) the Warrant Price
immediately prior to such issuance or sale; provided, however, that in no event
shall the Warrant Price be adjusted pursuant to this computation to an amount in
excess of the Warrant Price in effect immediately prior to such computation,
except in the case of a combination of outstanding shares of Common Stock, as
provided by Paragraph 7(c) hereof. For the purposes of this Paragraph 7, the
term "Warrant Price" shall mean the exercise price per share of Common Stock
issuable upon exercise of the Underwriter's Option (initially $_____ per share),
as adjusted from time to time pursuant to the provisions of this Paragraph 7.
For the purposes of any computation to be made in accordance with this
Paragraph 7(a), the following provisions shall be applicable:
(i) In case of the issuance or sale of shares of Common Stock
for a consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if such securities shall
be sold to underwriters or dealers for public offering without a subscription
offering, the public offering price) before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith.
(ii) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company) of shares of Common
Stock for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash shall be deemed to be the
value of such consideration as determined in good faith by the Board of
Directors of the Company.
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(iii) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the record
date for the determination of shareholders entitled to receive such dividend or
other distribution and shall be deemed to have been issued without
consideration.
(iv) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common Stock
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subparagraph (ii) of this Paragraph
7(a).
(v) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares issued or issuable upon
the exercise of options, rights, warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(vi) As used herein, the phrase "Market Price" at any date
shall be deemed to be the average of the last reported sale price, or, in case
no such reported sale takes place on such day, the average of the last reported
sale prices for the last three trading days, in either case as officially
reported by the principal securities exchange on which the Common Stock is
listed or admitted to trading or as reported in the NASDAQ Stock Market, or, if
the Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ Stock Market, the closing bid quotation as
furnished by the National Association of Securities Dealers, Inc. through NASDAQ
or a similar organization if NASDAQ is no longer reporting such information, or
if the Common Stock is not quoted on NASDAQ, as determined in good faith by
resolution of the Board of Directors of the Company, based on the best
information available to it for the day immediately preceding such issuance or
sale, the day of such issuance or sale and the day immediately after such
issuance or sale. If the Common Stock is listed or admitted to trading on a
national securities exchange and also quoted on the NASDAQ Stock Market, the
Market Price shall be determined as hereinabove provided by reference to the
prices reported in the NASDAQ Stock Market; provided that if the Common Stock is
listed or admitted to trading on the New York Stock Exchange, the Market Price
shall be determined as hereinabove provided by reference to the prices reported
by such exchange.
(b) Options, Rights, Warrants and Convertible and Exchangeable
Securities. Except in the case of the Company issuing rights to subscribe for
shares of Common Stock distributed pursuant to Paragraph 7(j) hereof, if the
Company shall at any time after the Closing Date issue options, rights or
warrants to subscribe for shares of Common Stock, or issue any securities
convertible into or exchangeable for shares of Common Stock, in each case other
than the issuances or sales referred to in Paragraph 7(f) hereof, (i) for a
consideration per share less than the lesser of (a) the Warrant Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, or (b) the Market Price on the trading
day immediately preceding such issuance, or (ii) without consideration, the
Warrant Price in effect immediately prior to the issuance of such options,
rights or warrants, or such convertible or exchangeable securities, as the case
may be, shall be reduced to a price determined by making a computation in
accordance with the provisions of Paragraph 7(a) hereof, provided that:
(i) The aggregate maximum number of shares of Common Stock, as
the case may be, issuable under all the outstanding options, rights or warrants
shall be deemed to be issued and outstanding at the time all the outstanding
options, rights or warrants were issued, and for a consideration equal to the
minimum purchase price per share provided for in the options, rights or warrants
at the time of issuance, plus the consideration (determined in the same manner
as consideration received on the issue or sale of shares in accordance with the
terms of Paragraph 7(a) hereof), if any, received by the Company for the
options, rights or warrants, and if no minimum price is provided in the options,
rights or warrants, then the
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<PAGE>
consideration shall be equal to zero; provided, however, that upon the
expiration or other termination of the options, rights or warrants, if any
thereof shall not have been exercised, the number of shares of Common Stock
deemed to be issued and outstanding pursuant to this subparagraph (b) (and for
the purposes of subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by
such number of shares as to which options, warrants and/or rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Warrant Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of shares actually issued
or issuable upon the exercise of those options, rights or warrants as to which
the exercise rights shall not have expired or terminated unexercised.
(ii) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities, and for a consideration equal to the consideration
(determined in the same manner as consideration received on the issue or sale of
shares of Common Stock in accordance with the terms of Paragraph 7(a) hereof)
received by the Company for such securities, plus the minimum consideration, if
any, receivable by the Company upon the conversion or exchange thereof;
provided, however, that upon the expiration or other termination of the right to
convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares deemed to be issued and
outstanding pursuant to this subparagraph (ii) (and for the purpose of
subparagraph (v) of Paragraph 7(a) hereof) shall be reduced by such number of
shares as to which the conversion or exchange rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed to
be issued and outstanding, and the Warrant Price then in effect shall forthwith
be readjusted and thereafter be the price which it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued or issuable upon the conversion or exchange of those convertible or
exchangeable securities as to which the conversion or exchange rights shall not
have expired or terminated unexercised. No adjustment will be made pursuant to
this subparagraph (ii) upon the issuance by the Company of any convertible or
exchangeable securities pursuant to the exercise of any option, right or warrant
exercisable therefor, to the extent that adjustments in respect of such options,
rights or warrants were previously made pursuant to the provisions of
subparagraph (i) of this subparagraph 7(b).
(iii) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7(b), or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, or if any such option, rights or warrants are
exercised at a price greater than the minimum purchase price provided for in
such options, rights or warrants, or any such securities are converted or
exercised for more than the minimum consideration receivable by the Company upon
such conversion or exchange, the options, rights or warrants or conversion or
exchange rights, as the case may be, shall be deemed to have expired or
terminated on the date when such price change became effective in respect of
shares not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at the new
price in respect of the number of shares issuable upon the exercise of such
options, rights or warrants or the conversion or exchange of such convertible or
exchangeable securities; provided, however, that no adjustment shall be made
pursuant to this subparagraph (iii) with respect to any change in the price per
share provided for in any of the options, rights or warrants referred to in
subparagraph (i) of this Paragraph 7, or in the price per share at which the
securities referred to in subparagraph (ii) of this Paragraph 7(b) are
convertible or exchangeable, which change results from the application of the
anti-dilution provisions thereof in connection with an event for which, subject
to subparagraph (iv) of Paragraph 7(f), an adjustment to the Warrant Price and
the number of securities issuable will be required to be made pursuant to this
Paragraph 7.
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<PAGE>
(c) Subdivision and Combination. In case the Company shall at any
time after the Closing Date subdivide or combine the outstanding shares of
Common Stock, the Warrant Price shall forthwith be proportionately decreased in
the case of subdivision or increased in the case of combination.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Warrant Price pursuant to the provisions of this Paragraph 7, the number of
shares of Common Stock issuable upon the exercise of the Underwriter's Option
shall be adjusted to the nearest full whole number by multiplying a number equal
to the Warrant Price in effect immediately prior to such adjustment by the
number of shares of Common Stock issuable upon exercise of the Underwriter's
Option immediately prior to such adjustment and dividing the product so obtained
by the adjusted Warrant Price.
(e) Reclassification, Consolidation, Merger, etc. In case of any
reclassification or change of the outstanding shares of Common Stock (other than
a change in par value to no par value, or from no par value to par value, or as
a result of a subdivision or combination), or in the case of any consolidation
of the Company with, or merger of the Company into, another corporation (other
than a consolidation or merger which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property of the Company as an entirety, the Holder shall thereafter have the
right to purchase the kind and number of shares of stock and other securities
and property receivable upon such reclassification, change, consolidation,
merger, sale or conveyance as if the Holder were the owner of the shares of
Common Stock underlying the Underwriter's Option immediately prior to any such
events at a price equal to the product of (x) the number of shares issuable upon
exercise of the Underwriter's Option and (y) the Warrant Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance as if such Holder had exercised the
Underwriter's Option.
(f) No Adjustment of Warrant Price in Certain Cases. Notwithstanding
anything herein to the contrary, no adjustment of the Warrant Price shall be
made:
(i) Upon the issuance or sale of the Underwriter's Option, the
shares of Common Stock issuable upon the exercise of the
Underwriter's Option; or
(ii) Upon the issuance or sale of the shares of Common Stock
issued by the Company in the Public Offering (including pursuant to
the Underwriter's overallotment option) or other shares of Common
Stock or warrants issued by the Company upon consummation of the
Public Offering; or
(iii) Upon (i) the issuance of options pursuant to the
Company's employee stock option plan in effect on the date hereof or
as hereafter amended in accordance with the terms thereof or any
other employee or executive stock option plan approved by
stockholders of the Company or the sale by the Company of any shares
of Common Stock pursuant to the exercise of any such options, or
(ii) the sale by the Company of any shares of Common Stock pursuant
to the exercise of any options or warrants issued and outstanding on
the date of closing of the sale of Common Stock pursuant to the
Public Offering or (iii) the issuance of options to purchase up to
375,000 shares of Common Stock pursuant to the Company's existing
stock option plan and shares of Common Stock issuable upon the
exercise of such options, (iv) the issuance of up to 250,000 options
or warrants issuable in connection with the hiring or retention of
senior executives who are not currently affiliated or associated
with the Company, and (v) the issuance of shares of Common Stock or
preferred stock or any warrants, options or other rights to purchase
Common Stock or preferred stock in connection with strategic
alliances, partnerships, mergers, acquisitions or joint ventures,
with the consent of the
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<PAGE>
Underwriter which shall not be unreasonably withheld or delayed;
provided, however, that the Underwriter will bear its own expenses
incurred in connection with the granting of such consent (including,
but not limited to any independent due diligence and reimbursement
to the Company for any costs associated with obtaining a fairness
opinion at the request of the Underwriter); or
(iv) If the amount of said adjustment shall be less than two
cents (24) per share of Common Stock.
(g) Redemption of Underwriter's Option. Notwithstanding anything to
the contrary contained in this Agreement or elsewhere, the Underwriters Option
cannot be redeemed by the Company under any circumstances.
(h) Other Notices. If at any time prior to the exercise of the
Underwriter's Option in full:
(a) the Company shall declare any cash dividend upon its Common Stock;
(b) the Company shall declare any dividend upon its Common Stock payable
in stock (other than a dividend payable solely in shares of Common Stock) or
make any special dividend or other distribution to the holders of its Common
Stock;
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of the Company; or
(d) the Company or an affiliate of the Company shall issue any rights to
subscribe for shares of Common Stock or any other securities of the Company or
of such affiliate to all the holders of Common Stock of the Company,
then, in any one or more of said cases, the Company shall give, by certified or
registered mail, postage prepaid, addressed to the registered holder hereof at
the address of such holder as shown on the books of the Company, at least 15
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such dissolution,
liquidation or winding-up and at least 15 days' written notice of the date when
the same shall take place. Any such notice shall also specify, in the case of
any such dividend, distribution or subscription rights, the date on which the
holders of Stock shall be entitled thereto. If the holder does not exercise this
Underwriter's Option prior to the occurrence of an event described above, the
Holder shall not be entitled to receive the benefits accruing to existing
holders of the Common Stock in such event.
(i) Computations. The Company may retain a firm of independent
public accountants (who may be any such firm regularly employed by the Company)
to make any computation required under this Paragraph, and any certificate
setting forth such computation signed by such firm shall be conclusive evidence
of the correctness of any computation made under this Paragraph 7.
8. Fractional Shares.
(a) The Company shall not be required to issue fractions of shares of
Common Stock on the exercise of this Underwriter's Option, provided, however,
that if the Holder exercises the Underwriter's Option in full, any fractional
shares of Common Stock shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock.
(b) The Holder of this Underwriter's Option, by acceptance hereof,
expressly waives his right to receive any fractional share of Common Stock upon
exercise of this Underwriter's Option.
9. Miscellaneous.
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<PAGE>
(a) This Underwriter's Option shall be governed by and in accordance with
the laws of the State of New York without regard to the conflicts of law
principles thereof.
(b) All notices, requests, consents and other communications hereunder
shall be made in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested
or by recognized overnight courier: (i) if to a Holder, to the address of such
Holder as shown on the books of the Company, or (ii) if to the Company, 666
Third Avenue, New York, New York 10017.
(c) The Company and the Underwriter may from time to time supplement or
amend this Underwriter's Option without the approval of any other Holders in
order to cure any ambiguity, to correct or supplement any provision contained
herein which may be defective or inconsistent with any provisions herein, or to
make any other provisions in regard to matters or questions arising hereunder
which the Company and the Underwriter may deem necessary or desirable and which
the Company and the Underwriter deem not to materially adversely affect the
interest of the Holders.
(d) All the covenants and provisions of this Underwriter's Option by or
for the benefit of the Company and the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder.
(e) Nothing in this Underwriter's Option shall be construed to give to any
person or corporation other than the Company and the Underwriter and any other
registered Holder or Holders, any legal or equitable right, and this
Underwriter's Option shall be for the sole and exclusive benefit of the Company
and the Underwriter and any other Holder or Holders.
(f) This Underwriter's Option may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Company has caused this Underwriter's Warrant to
be signed by its duly authorized officer and this Underwriter's Option to be
dated , 1997.
VIROLOGIX CORPORATION
By:_____________________________________
Joshua D. Schein, President
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PURCHASE FORM
(To be signed only upon exercise of the Underwriter's Option)
The undersigned, the Holder of the foregoing Underwriter's Option, hereby
irrevocably elects to exercise the purchase rights represented by such
Underwriter's Option for, and to purchase thereunder, ______ shares of Common
Stock of Virologix Corporation and herewith makes payment of $________ therefor,
and requests that the certificates for Common Stock be issued in the name(s) of,
and delivered to ________________________________ whose address(es) is (are)
___________________________________________________________ and whose social
security or taxpayer identification number is __________________.
Dated: __________________
_________________________*
_________________________
Address
* Signature must conform in all respects to name of registered Holder.
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TRANSFER FORM
(To be signed only upon transfer of the Underwriter's Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _____________________ the right to purchase shares of Common Stock of
Virologix Corporation represented by the foregoing Underwriter's Option to the
extent of __________ shares of Common Stock, and appoints ________________,
attorney to transfer such rights on the books of Peach Collision Corporation
with full power of substitution in the premises.
Dated: __________________
_________________________
(name of holder)
_________________________
Address
_________________________
In the presence of:
_________________________
_________________________
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EXHIBIT 3(a)
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ARTICLES OF INCORPORATION OF THE COMPANY,
IN EFFECT AS OF THE DATE HEREOF
CERTIFICATE OF INCORPORATION
OF
VIROLOGIX CORPORATION
THE UNDERSIGNED, in order to form a corporation for the purpose
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, as amended from time to time (the
"Law"), hereby certifies as follows:
Article 7. The name of the corporation is Virologix Corporation (the
"Corporation").
Article 8. The address of the Corporation's registered office in the State
of Delaware is 1013 Centre Road, Wilmington, New Castle County. The name of the
registered agent of the Corporation at such address is The Prentice-Hall
Corporation System, Inc.
Article 9. The purpose of the Corporation is to engage in any lawful act
or activity for which a Corporation may be organized under the Law.
Article 10. The total number of shares of stock which the Corporation
shall have authority to issue is twenty million (20,000,000), of which stock
fifteen million (15,000,000) shares of the par value of One Cent ($0.01) each,
amounting in the aggregate to One Hundred Fifty Thousand Dollars ($150,000),
shall be Common Stock, and of which five million (5,000,000) shares of the par
value of One Cent ($0.01) each, amounting in the aggregate to Fifty Thousand
Dollars ($50,000), shall be Preferred Stock.
The Board of Directors shall have the authority to fix by Resolution
the voting powers (full, limited, multiple, fractional or none), designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of the Preferred Stock or
any class or series thereof prior to or concurrently with the issuance of such
shares.
There shall be no cumulative voting rights for the Common Stock.
The holders of the Common Stock and the Preferred Stock shall be
entitled to dividends, when, as and if declared by the Board of Directors of the
Corporation, payable at such time or times as the Board of Directors may
determine.
Subject to the determination of the Board of Directors with regard
to the Preferred Stock, in the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, all
remaining assets and funds of the Corporation available for distribution to its
stockholders shall be distributed in equal amounts per share and without
preference or priority of one class of common stock over the other.
Any action may be taken by the stockholders of the Corporation by
their written consent without a stockholders' meeting.
No stockholder of this Corporation shall by reason of his holding
shares of any class have any preemptive or preferential right to purchase or
subscribe to any shares of any class of this Corporation, now or hereafter to
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be authorized, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, now or
hereafter to be authorized, whether or not the issuance of any such shares, or
such notes, debentures, bonds or other securities, would adversely affect the
dividend or voting rights of such stockholder, other than such rights, if any,
as the board of directors, in its discretion from time to time may grant, and at
such price as the Board of Directors in its discretion may fix; and the Board of
Directors may issue shares of any class of this Corporation, or any notes,
debentures, bonds, or other securities convertible into or carrying options or
warrants to purchase shares of any class, without offering any such shares of
any class, either in whole or in part, to the existing stockholders of any
class.
Article 11. The name and mailing address of the Sole Incorporator is as
follows:
William J. Ward
20 North Wacker Drive
Suite 2200
Chicago, Illinois 60606
Article 12. The number of directors of the Corporation shall be such as
from time to time shall be fixed by, or in the manner provided in, the by-laws
of the Corporation. No election of directors need be by ballot unless the
by-laws so provide.
Article 13. The Corporation hereby expressly elects not to be governed by
Section 203 of the Law.
Article 14. No director of the Corporation shall be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided, however, that this provision shall not eliminate
or limit the liability of a director (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of the Law, or (iv) from any transaction from
which the director derived an improper personal benefit.
Article 15. The Corporation shall indemnify, in accordance with and to the
full extent now or hereafter permitted by law, any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or in the right of
the Corporation), by reason of his acting as a director of the Corporation (and
the Corporation, in the discretion of the Board, may so indemnify a person by
reason of the fact that he is or was an officer or employee of the Corporation
or is or was serving at the request of the Corporation in any other capacity for
or on behalf of the Corporation) against any liability or expense actually and
reasonably incurred by such person in respect thereof; provided, however, that,
the Corporation shall not be obligated to indemnify any such person (i) with
respect to proceedings, claims or actions initiated or brought voluntarily by
such person and not by way of defense, or (ii) for any amounts paid in
settlement of an action effected without the prior written consent of the
Corporation to such settlement. Such indemnification is not exclusive of any
other right to indemnification provided by law, agreement or otherwise.
Article 16. No amendment to or repeal of Article 8 or Article 9 of this
Certificate of InCorporation shall apply to or have any effect on the rights of
any individual referred to in Article 8 or Article 9 for or with respect to acts
or omissions of such individual occurring prior to such amendment or repeal.
Article 17. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any
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receiver or receivers appointed for this Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting
of the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
Article 18. The Board of Directors shall have power without the assent or
vote of the stockholders to make, alter, amend, change, add to or repeal the
by-laws of the Corporation.
Article 19. The Corporation shall have perpetual existence.
IN WITNESS WHEREOF, I have hereunto set my hand this 28th day of December,
1995.
/s/ William J. Ward
------------------------------
William J. Ward
Sole Incorporator
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<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
VIROLOGIX CORPORATION
(Original Certificate of Incorporation
filed December 28, 1995)
Virologix Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (as
amended from time to time, the "Law"), does hereby certify:
I. That, by a written consent executed in accordance with Section 141(f)
of the Law and effective December 28, 1995, the Board of Directors of the
Corporation adopted a resolution setting forth the Amendment to Certificate of
Incorporation set forth below (referred to therein as the "Amendment"),
declaring its advisability, and submitting it to the stockholders entitled to
vote in respect thereof.
II. That, by written consent executed in accordance with Section 228 of
the Law, the Stockholders of the Corporation have approved the adoption of the
Certificate of Amendment to the Certificate of Incorporation set forth below.
RESOLVED, that Article 4 of the certificate of incorporation of the
Corporation is hereby amended in its entirety to read as follows:
"Article 4. The total number of shares of stock which the Corporation
shall have authority to issue is thirty-five million (35,000,000), of which
twenty-five million (25,000,000) shares of the par value of One Cent ($0.01)
each, amounting in the aggregate to Two Hundred Fifty Thousand Dollars
($250,000), shall be Common Stock, and of which ten million (10,000,000) shares
of the par value of One Cent ($0.01) each, amounting in the aggregate to One
Hundred Thousand Dollars ($100,000), shall be Preferred Stock.
The Board of Directors shall have the authority to fix by Resolution
the voting powers (full, limited, multiple, fractional or none), designations,
preferences, qualifications, privileges, limitations, restrictions, options,
conversion rights and other special or relative rights of the Preferred Stock or
any class or series thereof prior to or concurrently with the issuance of such
shares.
There shall be no cumulative voting rights for the Common
Stock.
The holders of the Common Stock and the Preferred Stock shall
be entitled to dividends, when, as and if declared by the Board of Directors of
the Corporation, payable at such time or times as the Board of Directors may
determine.
Subject to the determination of the Board of Directors with
regard to the Preferred Stock, in the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary or involuntary,
all remaining assets and funds of the Corporation available for distribution to
its stockholders shall be distributed in equal amounts per share and without
preference or priority of one class of common stock over the other.
Any action may be taken by the stockholders of the Corporation
by their written consent without a stockholders' meeting.
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No stockholder of this Corporation shall by reason of his
holding shares of any class have any preemptive or preferential right to
purchase or subscribe to any shares of any class of this Corporation, now or
hereafter to be authorized, or any notes, debentures, bonds, or other securities
convertible into or carrying options or warrants to purchase shares of any
class, now or hereafter to be authorized, whether or not the issuance of any
such shares, or such notes, debentures, bonds or other securities, would
adversely affect the dividend or voting rights of such stockholder, other than
such rights, if any, as the board of directors, in its discretion from time to
time may grant, and at such price as the Board of Directors in its discretion
may fix; and the Board of Directors may issue shares of any class of this
Corporation, or any notes, debentures, bonds, or other securities convertible
into or carrying options or warrants to purchase shares of any class, without
offering any such shares of any class, either in whole or in part, to the
existing stockholders of any class."
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to Certificate of Incorporation to be signed by its President and
Secretary on December 28, 1995.
VIROLOGIX CORPORATION
By: /s/ Joshua Schein
--------------------------------------
Joshua Schein, President and Secretary
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<PAGE>
CERTIFICATE OF CORRECTION OF
AMENDMENT TO CERTIFICATE OF INCORPORATION
OF
VIROLOGIX CORPORATION
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is
Virologix Corporation.
2. The Amendment to Certificate of Incorporation, which was filed by the
Secretary of State of Delaware on December 29, 1995, is hereby corrected.
3. The inaccuracy to be corrected in said instrument is as follows:
par value of One Cent ($0.01) each, amounting in the aggregate to
Two Hundred Fifty Thousand Dollars ($250,000.00), shall be Common
Stock, and of which ten million (10,000,000) shares of the par
value of One Cent ($0.01) each, amounting in the aggregate to One
Hundred Thousand Dollars ($100,000.00), shall be Preferred Stock.
4. The portion of the instrument in corrected form is as follows:
par value of One Hundredth of One Cent ($.0001) each, amounting in
the aggregate to Two Thousand Five Hundred Dollars ($2500.00), shall
be Common Stock, and of which ten million (10,000,000) shares of the
par value of One Hundredth of One Cent ($.0001) each, amounting in
the aggregate to One Thousand Dollars ($1000.00), shall be Preferred
Stock.
Signed on February 6, 1996
Virologix Corporation
By:/s/ Joshua Schein
--------------------------
Joshua Schein
Vice President and Secretary
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<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
VIROLOGIX CORPORATION
(Original Certificate of Incorporation
filed December 28, 1995)
Virologix Corporation (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware (as
amended from time to time, the "Law"), does hereby certify:
I. That, by a written consent executed in accordance with Section 141(f)
of the Law and effective July 31, 1996 the Board of Directors of the Corporation
adopted a resolution setting forth the Amendment to Certificate of Incorporation
set forth below (referred to therein as the "Amendment"), declaring its
advisability, and submitting it to the stockholders entitled to vote in respect
thereof.
II. That, by written consent executed in accordance with Section 228 of
the Law, the Stockholders of the Corporation have approved the adoption of the
Certificate of Amendment to the Certificate of Incorporation set forth below.
The following paragraph shall be added to the end of Article 4 of the
Certificate of Incorporation of the Corporation:
"As of July 31, 1996, each 6.67 shares of the Corporation's Common Stock
outstanding on the record date set by the Board, shall be split and
changed (without changing the par value thereof), into one share of the
Corporation's Common Stock. Any fractional shares resulting from this
reverse stock split will be rounded up to the next highest whole share."
IN WITNESS WHEREOF, the Corporation has caused this Amendment to the
Certificate of Incorporation to be signed by its President on July 31, 1996.
VIROLOGIX CORPORATION
By: /s/ Joshua Schein
------------------
Joshua Schein, President
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EXHIBIT 3(b)
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<PAGE>
BY-LAWS
OF
VIROLOGIX CORPORATION
a Delaware corporation
ARTICLE I
OFFICES
The registered office shall be in the City of Dover, County of Kent, State
of Delaware.
The corporation may also have offices at such other places both within and
without the State of Delaware as the board of directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 All meetings of the stockholders for the election of directors shall
be held in New York, NY, at such place as may be fixed from time to time by the
board of directors, or at such other place either within or without the State of
Delaware as shall be designated from time to time by the board of directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
2.2 Annual Meetings. Annual meetings of stockholders, commencing with the
year 1996, shall be held on the First Thursday in November if not a legal
holiday, and if a legal holiday, then on the next business day following, at
10:00 a.m., or at such other date and time as shall be designated from time to
time by the board of directors and stated in the notice of the meeting, at which
they shall elect by a plurality vote a board of directors, and transact such
other business as may properly be brought before the meeting.
2.3 Annual Meeting Notices. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten or more than sixty days
before the date of meeting.
2.4 Voting Lists. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of meeting during
the whole time thereof, and may be inspected by any stockholder who is present.
2.5 Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be called
by the president or the secretary at the request in writing of a majority of the
board of directors, or at the request in writing of stockholders owning capital
stock of the corporation representing at least ten percent (10%) of the total
votes entitled to be cast by stockholders of the corporation. Such request shall
state the purpose or purposes of the proposed meeting.
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2.6 Special Meeting Notices. Written notice of a special meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be given not less than ten nor more than sixty days
before the date of the meeting, to each stockholder entitled to vote at such
meeting.
2.7 Quorum. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the certificate of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any questions brought before such meeting, unless the
question is one upon which by express provision of the statutes or of the
certificate of incorporation, a different vote is required in which case such
express provision shall govern and control the decision of such questions.
2.8 Voting of Shares. Unless otherwise specifically provided by statute or
the certificate of incorporation, each stockholder shall at every meeting of the
stockholders be entitled to one vote for each share of the capital stock having
voting power held by such stockholder.
2.9 Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
2.10 Informal Action by Stockholders. Except as otherwise provided in the
certificate of incorporation and subject to the requirements of statute, any
action required or permitted to be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of any corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
3.1 Number, Tenure and Qualifications. The number of directors which shall
constitute the whole board shall be such number of members, not less than One
(1) nor more than Seven (7), as the board of directors may from time to time
determine by resolution. The directors shall be elected at the annual meeting of
the stockholders, except as provided in section 3.2 of this Article, and each
director elected shall hold office until his or her successor is elected and
qualified, or until his or her earlier resignation or removal. Directors need
not be stockholders.
3.2 Vacancies. Vacancies and newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by a sole
remaining director, and any director so chosen shall hold office until the next
annual election and until his or her successor is duly
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elected and shall qualify, or until his or her earlier resignation or removal.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute. If, at the time of filling any vacancy or
newly created directorship, the directors then in office shall constitute less
than a majority of the whole board (as constituted immediately prior to any such
increase), the Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten per cent of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
3.3 General Powers. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the corporation and
do all such lawful acts and things as are not by statute or by certificate of
incorporation or by these by-laws directed or required to be exercised or done
by the stockholders.
3.4 Meetings. The board of directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
3.5 First Meeting. The first meeting of each newly elected board of
directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of the
stockholders to fix that time or place of such first meeting of the newly
elected board of directors, or in event such meeting is not held at the time and
place so fixed by the stockholders, the meeting may be held at such time and
place as shall be specified in a notice given as hereinafter provided for
special meetings of the board of directors, or as shall be specified in a
written waiver signed by all of the directors.
3.6 Regular Meetings. Regular meetings of the board of directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 Special Meetings. Special meetings of the board of directors may be
called by the president on two days' notice to each director, either personally
or by mail or by telegram; special meetings shall be called by the president or
the secretary in a like manner and on like notice on the written request of two
directors.
3.8 Quorum. At all meetings of the board a majority of the directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board of directors, except as may be otherwise specifically provided by
statute or by the certificate of incorporation. If a quorum shall not be present
at any meeting of the board of directors the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present.
3.9 Informal Action by Directors. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
3.10 Participation by Conference Telephone. Unless otherwise restricted by
the certificate of incorporation or these by-laws, members of the board of
directors, or any committee designated by the board, may participate in a
meeting of the board or such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
section shall constitute presence in person at such meeting.
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3.11 Committees. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee;
provided, however, that, if the resolution of the board of directors so
provides, in the absence or disqualification of any such member or alternate
member of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he, she or they
constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such absent or disqualified
member or alternate member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the powers
and authority of the board of directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all the papers which may require it, but no such committee shall have
the power or authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution or amending the
by-laws of the corporation; and, unless the resolution expressly so provides, no
such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
3.12 Meeting Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
3.13 Compensation of Directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allow like compensation for attending
committee meetings.
ARTICLE IV
NOTICES
4.1 Written Notice. Whenever, under the provisions of the statutes or of
the certificate of incorporation or of these by-laws, notice is required to be
given to any director or stockholder, such notice shall be in writing and shall
be given in person or by mail to such director or stockholder. If mailed, such
notice shall be addressed to such director or stockholder at his or her address
as it appears on the records of the corporation, with postage thereon prepaid,
and shall be deemed to be given at the time when the same shall be deposited in
the United States mail. Notice to directors may also be given by telegram. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegraph company.
4.2 Waiver of Notice. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these by-laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
5.1 Number. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a treasurer and a secretary. The board of
directors may also choose vice-presidents, and one or more assistant treasurers
and assistant secretaries. The board of directors may appoint such other
officers and agents as it shall deem desirable who shall
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hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the board. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these by-laws otherwise provide.
5.2 Election and Term of Office. The board of directors at its first
meeting after each annual meeting of stockholders shall choose a president, a
treasurer and a secretary. The officers of the corporation shall hold office
until their successors are chosen and qualify.
5.3 Removal. Any officer elected or appointed by the board of directors
may be removed at any time by the affirmative vote of a majority of the board of
directors.
5.4 Vacancies. Any vacancy occurring in any office of the corporation
shall be filled by the board of directors.
5.5 Salaries. The salaries of all officers of the corporation shall be
fixed by the board of directors.
5.6 The President. The president shall be the chief executive officer of
the corporation, shall preside at all meetings of the stockholders and the board
of directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect. The President shall execute bonds, mortgages,
and other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the board of directors to some other officer or agent of the corporation; the
president shall vote all shares of stock of any other corporation standing in
the name of this corporation except where the voting thereof shall be expressly
delegated by the board of directors to some other officer or agent of the
corporation; and in general shall perform all duties incident to the office of
the president and such other duties as may be prescribed by the board of
directors from time to time.
5.6 The Vice-Presidents. In the absence of the president or in the event
of his or her inability or refusal to act, the vice-president, if one shall be
elected (or in the event there be more than one vice-president, the
vice-presidents in the order designated, or in the absence of any designation,
then in the order of their election) shall perform the duties of the president,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the president. The vice-presidents shall perform such other
duties and have such other powers as the board of directors may from time to
time prescribe.
5.7 The Treasurer. If required by the board of directors, the treasurer
shall give a bond for the faithful discharge of his or her duties in such sum
and with such surety or sureties as the board of directors shall determine. The
treasurer shall: (a) have charge and custody of and be responsible for all funds
and securities of the corporation; receive and give receipts for moneys due and
payable to the corporation from any source whatsoever, and deposit all such
moneys in the name of the corporation in such banks, trust companies or other
depositaries as shall be selected in accordance with the provisions of Article
VII of these by-laws; (b) in general perform all the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him or her by the president or by the board of directors.
5.8 The Secretary. The secretary shall: (a) keep the minutes of the
stockholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; (c) be custodian of
the corporate records and of the seal of the corporation and see that the seal
of the corporation is affixed to all certificates for shares prior to the issue
thereof and to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized in accordance with the provisions
of these by-laws; (d) keep a register of the post office address of each
stockholder which shall be furnished to the secretary by such stockholder; (e)
have general charge of the stock transfer books of the corporation; (f) in
general perform all duties incident to the office of secretary and such other
duties as from time to
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time may be assigned to him or her by the president or by the board of
directors.
5.9 The Assistant Treasurers and Assistant Secretaries. The assistant
treasurers shall respectively, if required by the board of directors, give bonds
for the faithful discharge of their duties in such sums and with such surety or
sureties as the board of directors shall determine. The assistant treasurers and
assistant secretaries, in general, shall perform such duties as shall be
assigned to them by the treasurer or the secretary, respectively, or by the
president or the board of directors, and in the event of the absence, inability
or refusal to act of the treasurer or the secretary, the assistant treasurers
and assistant secretaries (in the order designated, or in the absence of any
designation, then in the order of their election) shall perform the duties of
the treasurer or the secretary, respectively.
ARTICLE VI
INTERESTED DIRECTORS AND OFFICERS
No contract or transaction between the corporation and one or more of its
directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the board of
directors or a committee thereof which authorizes the contract or transaction,
or solely because his, her or their votes are counted for such purpose, if:
(a) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the board
of directors or the committee, and the board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(b) The material facts as to his or her relationship or interest and
as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders without
counting the vote of any stockholder who is an interested director; or
(c) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of
directors, a committee thereof, or the stockholders.
The common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
7.1 Right to Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in or called as a witness in any
Proceeding because he or she is an Indemnified Person, shall be indemnified and
held harmless by the corporation to the fullest extent permitted under the
Delaware General Corporation Law (the "DGCL"), as the same now exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than the DGCL permitted the corporation to provide prior to such
amendment). Such indemnification shall cover all expenses incurred by an
Indemnified Person (including, but not limited to, attorneys' fees and other
expenses of litigation) and all liabilities and losses (including, but not
limited to, judgments, fines, ERISA or other excise taxes or penalties and
amounts paid
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or to be paid in settlement) incurred by such person in connection therewith.
Notwithstanding the foregoing, except with respect to indemnification
specified in section 7.3 of this Article, the corporation shall indemnify an
Indemnified Person in connection with a Proceeding (or part thereof) initiated
by such person only if such Proceeding (or part thereof) was authorized by the
board of directors of the corporation.
For purposes of this Article:
(a) a "Proceeding" is an action, suit or proceeding, whether civil,
criminal, administrative or investigative, and any appeal therefrom;
(b) an "Indemnified Person" is a person who is, was, or had agreed
to become a director or an officer or a Delegate, as defined herein, of
the corporation or the legal representative of any of the foregoing; and
(c) a "Delegate" is a person serving at the request of the
corporation or a subsidiary of the corporation as a director, trustee,
fiduciary, or officer of such subsidiary or of another corporation,
partnership, joint venture, trust or other enterprise.
7.2 Expenses. Expenses, including attorneys' fees, incurred by a person
indemnified pursuant to section 7.1 of this Article in defending or otherwise
being involved in a Proceeding shall be paid by the corporation in advance of
the final disposition of such Proceeding, including any appeal therefrom, upon
receipt of an undertaking (the "Undertaking") by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation; provided, that in connection with
a Proceeding (or part thereof) initiated by such person, except a Proceeding
authorized by section 7.3 of this Article, the corporation shall pay said
expenses in advance of final disposition only if such Proceeding (or part
thereof) was authorized by the board of directors. A person to whom expenses are
advanced pursuant hereto shall not be obligated to repay pursuant to the
Undertaking until the final determination of any pending Proceeding in a court
of competent jurisdiction concerning the right of such person to be indemnified
or the obligation of such person to repay pursuant to the Undertaking.
7.3 Protection of Rights. If a claim under section 7.1 of this Article is
not promptly paid in full by the corporation after a written claim has been
received by the corporation or if expenses pursuant to section 7.2 of this
Article have not been promptly advanced after a written request for such
advancement accompanied by the Undertaking has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim or the advancement of expenses. If
successful, in whole or in part, in such suit, such claimant shall also be
entitled to be paid the reasonable expense thereof. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any Proceeding in advance of its final disposition where
the required Undertaking has been tendered to the corporation) that
indemnification of the claimant is prohibited by law, but the burden of proving
such defense shall be on the corporation. Neither the failure of the corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination, if required, prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances, nor an actual determination by the corporation (including its
board of directors, independent legal counsel, or its stockholders) that
indemnification of the claimant is prohibited, shall be a defense to the action
or create a presumption that indemnification of the claimant is prohibited.
7.4 Miscellaneous.
(a) Non-Exclusivity of Rights. The rights conferred on any person by this
Article shall not be exclusive of any other rights which such person may have or
hereafter acquire under any statute, provision of the
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certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise. The board of directors shall have the
authority, by resolution, to provide for such indemnification of employees or
agents of the corporation or others and for such other indemnification of
directors, officers or Delegates as it shall deem appropriate.
(b) Insurance, Contracts and Funding. The corporation may maintain
insurance, at its expense, to protect itself and any director, officer,
employee, or agent of, or person serving in any other capacity with, the
corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expenses, liabilities or losses, whether or not the
corporation would have the power to indemnify such person against such expenses,
liabilities or losses under the DGCL. The corporation may enter into contracts
with any director, officer or Delegate of the corporation in furtherance of the
provisions of this Article 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 the
advancing of expenses and indemnification as provided in this Article.
(c) Contractual Nature. The provisions of this Article shall be applicable
to all Proceedings commenced or continuing after its adoption, whether such
arise out of events, acts or omissions which occurred prior or subsequent to
such adoption, and shall continue as to a person who has ceased to be a
director, officer or Delegate and shall inure to the benefit of the heirs,
executors and administrators of such person. This Article shall be deemed to be
a contract between the corporation and each person who, at any time that this
Article is in effect, serves or agrees to serve in any capacity which entitles
him or her to indemnification hereunder and any repeal or other modification of
this Article or any repeal or modification of the DGCL or any other applicable
law shall not limit any Indemnified Person's entitlement to the advancement of
expenses or indemnification under this Article for Proceedings then existing or
later arising out of events, acts or omissions occurring prior to such repeal or
modification, including, without limitation, the right to indemnification for
Proceedings commenced after such repeal or modification to enforce this Article
with regard to Proceedings arising out of acts, omissions or events occurring
prior to such repeal or modification.
(d) Severability. If this Article or any portion hereof shall be
invalidated or held to be unenforceable on any ground by any court of competent
jurisdiction, the decision of which shall not have been reversed on appeal, such
invalidity or unenforceability shall not affect the other provisions hereof, and
this Article shall be construed in all respects as if such invalid or
unenforceable provisions had been omitted therefrom.
ARTICLE VIII
CERTIFICATES OF STOCK
8.1 Certificates of Stock. Every holder of stock in the corporation shall
be entitled to have a certificate, signed by, or in the name of the corporation
by the president or a vice-president and by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by him or her in the corporation. Any of
or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent or register who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the corporation with the same effect as if he or she were such officer,
transfer agent or registrar at the date of issue.
8.2 Lost Certificates. The board of directors may direct a new certificate
or certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such
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lost, stolen or destroyed certificate or certificates, or his or her legal
representative, to advertise the same in such manner it shall require and/or to
give the corporation a bond in such sum as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificates alleged to have been lost, stolen or destroyed.
8.3 Transfers of Stock. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its book.
8.4 Fixing Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
8.5 Registered Stockholders. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware.
ARTICLE IX
GENERAL PROVISIONS
9.1 Dividends. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation. Before
payment of any dividend, there may be set aside out of any funds of the
corporation available for dividends such sum or sums as the directors from time
to time, in their absolute discretion, think proper as a reserve or reserves to
meet contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the directors
shall think conducive to the interest of the corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
9.2 Checks. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
9.3 Fiscal Year. The fiscal year of the corporation shall end on the last
day of December in each year.
9.4 Seal. The corporate seal shall have inscribed thereon the name of the
corporation and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE X
AMENDMENTS
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These by-laws may be altered, amended or repealed and new by-laws may be
adopted by the board of directors at any meeting of the board.
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EXHIBIT 4(a)
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FORM OF COMMON STOCK CERTIFICATE
[Front]
Number Shares
*** ***
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
VIROLOGIX CORPORATION
COMMON STOCK 25,000,000 SHARES PAR VALUE $.0001 EACH
PREFERRED STOCK 10,0000 SHARES PAR VALUE $.01 (ONCE CENT EACH)
This Certifies that *********** is the owner of *********** full paid and
non-assessable
SHARES OF THE COMMON STOCK OF VIROLOGIX CORPORATION,
transferable only on the books of the Corporation by the holder hereof in
person or by duly authorized Attorney upon the surrender of this Certificate
properly endorsed.
The corporation will furnish without charge to each shareholder who so
requests, the powers, designations, preferences and relative, participating
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and to be sealed with the Seal of the
Corporation, this *** day of ***** A.D. 19**.
/s/ Joshua D. Schein [Corporate Seal] /s/ Joshua D. Schein
- -------------------- --------------------
Secretary President
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[Back]
For Value Received, ___ hereby sell, assign and transfer unto _________
__________ Shares represented by the written Certificate, and do hereby
irrevocably constitute and appoint __________ Attorney to transfer the said
Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ______________ 19__
In presence of
________________________ ______________________
THIS SPACE IS NOT TO BE COVERED IN ANY WAY
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EXHIBIT 4(b)
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1996 INCENTIVE AND NON-QUALIFIED STOCK OPTION PLAN
VIROLOGIX CORPORATION
a Delaware corporation
1996 Incentive and Non-Qualified Stock Option Plan
1. Purpose. The purposes of this 1996 Incentive and Non-Qualified Stock
Option Plan are to attract and retain the best available personnel, to provide
additional incentive to the Employees, Consultants and Outside Directors of
Virologix Corporation, a Delaware corporation (the "Company"), and to promote
the success of the Company's business.
Options granted hereunder may, consistent with the terms of this Plan, be
either Incentive Stock Options or Nonstatutory Stock Options, at the discretion
of the Committee and as reflected in the terms of the written option agreement.
2. Definitions. As used in this Plan, the following definitions shall
apply:
(a) "Board" means the Board of Directors of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder.
(c) "Commission" means the United States Securities and Exchange
Commission.
(d) "Committee" means the Committee appointed by the Board or otherwise
determined in accordance with Section 4(a) of this Plan.
(e) "Common Stock" means the common stock of the Company, par value
$0.0001 per share.
(f) "Consultant" means any person who is engaged by the Company or any
Parent or Subsidiary to render consulting services and is compensated for such
consulting services; provided that the term Consultant shall not include
directors who are not compensated for their services or are paid only a
director's fee by the Company.
(g) "Continuous Status as an Employee, Consultant or Outside Director"
means the absence of any interruption or termination of service as an Employee,
Consultant or Outside Director, as applicable. Continuous Status as an Employee,
Consultant or Outside Director shall not be considered interrupted in the case
of sick leave or military leave, any other leave provided pursuant to a written
policy of the Company in effect at the time of determination, or any other leave
of absence approved by the Board or the Committee; provided that such leave is
for a period of not more than the greatest of (i) 90 days, (ii) the date of the
resumption of such service upon the expiration of such leave which is guaranteed
by contract or statute or is provided in a written policy of the Company which
was in effect upon the commencement of such leave, or (iii) such period of leave
as may be determined by the Board or the Committee in its sole discretion.
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3(d)(3), or any successor definition adopted by the Commission, provided the
person is also an "outside director" under Section 162(m) of the Code.
(i) "Employee" means any person employed by the Company or any Parent or
Subsidiary of the Company, including employees who are also officers or
directors or both of the Company or any Parent or Subsidiary of the Company. The
payment of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
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(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations promulgated thereunder.
(k) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, and the
rules and regulations promulgated thereunder.
(l) "Nonstatutory Stock Option" means an Option not intended to qualify as
an Incentive Stock Option.
(m) "Option" means a stock option granted pursuant to this Plan.
(n) "Optioned Stock" means the Common Stock subject to an Option.
(o) "Optionee" means an Employee, Consultant or Outside Director who
receives an Option.
(p) "Outside Director" means any member of the Board of Directors of the
Company who is not an Employee or Consultant.
(q) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this Virologix Corporation 1996 Stock Option Plan, as
amended from time to time.
(s) "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as such rule is amended from time to time and
as interpreted by the Commission.
(t) "Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
(u) "Share" means a share of the Common Stock, as adjusted in accordance
with Section 10 of this Plan.
(v) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. Scope of Plan. Subject to the provisions of Section 10 of this Plan,
and unless otherwise amended by the Board and approved by the stockholders of
the Company as required by law, the maximum aggregate number of Shares issuable
under this Plan is 2,501,250, and such Shares are hereby made available and
shall be reserved for issuance under this Plan. The Shares may be authorized but
unissued, or reacquired, Common Stock.
If an Option shall expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares subject thereto shall
(unless this Plan shall have terminated) become available for grants of other
Options under this Plan.
4. Administration of Plan.
(a) Procedure. This Plan shall be administered by the Committee appointed
pursuant to this Section 4(a). The Committee shall consist of two or more
Outside Directors appointed by the Board, but all Committee members must be
Disinterested Persons. If the Board fails to appoint such persons, the Committee
shall consist of all Outside Directors who are Disinterested Persons.
(b) Powers of Committee. Subject to Section 5(b) below and otherwise
subject to the provisions of this Plan, the Committee shall have full and final
authority in its discretion to: (i) grant Incentive Stock Options and
Nonstatutory Stock Options, (ii) determine, upon review of relevant information
and in accordance with Section 7 below, the Fair Market Value of the Common
Stock; (iii) determine the exercise price per share of Options to be granted, in
accordance with this Plan, (iv) determine the Employees and Consultants to whom,
and the time or times at which, Options shall be granted, and the number of
shares to be represented by each Option; (v) cancel, with the consent of the
Optionee, outstanding Options and grant new Options in substitution therefor;
(vi) interpret this Plan; (vii) accelerate or defer (with the consent of
Optionee) the exercise
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date of any Option; (viii) prescribe, amend and rescind rules and regulations
relating to this Plan; (ix) determine the terms and provisions of each Option
granted (which need not be identical) by which Options shall be evidenced and,
with the consent of the holder thereof, modify or amend any provisions
(including without limitation provisions relating to the exercise price and the
obligation of any Optionee to sell purchased Shares to the Company upon
specified terms and conditions) of any Option; (x) require withholding from or
payment by an Optionee of any federal, state or local taxes; (xi) appoint and
compensate agents, counsel, auditors or other specialists as the Committee deems
necessary or advisable; (xii) correct any defect or supply any omission or
reconcile any inconsistency in this Plan and any agreement relating to any
Option, in such manner and to such extent the Committee determines to carry out
the purposes of this Plan, and; (xiii) construe and interpret this Plan, any
agreement relating to any Option, and make all other determinations deemed by
the Committee to be necessary or advisable for the administration of this Plan.
A majority of the Committee shall constitute a quorum at any meeting, and
the acts of a majority of the members present, or acts unanimously approved in
writing by the entire Committee without a meeting, shall be the acts of the
Committee. A member of the Committee shall not participate in any decisions with
respect to himself under this Plan.
(c) Effect of Committee's Decision. All decisions, determinations and
interpretations of the Committee shall be final and binding on all Optionees and
any other holders of any Options granted under this Plan.
5. Eligibility.
(a) Options may be granted to any Employee, Consultant or Outside Director
as the Committee may from time to time designate, provided that (i) Incentive
Stock Options may be granted only to Employees, and (ii) Options may be granted
to Outside Directors only in accordance with the provisions of Section 5(b)
below. In selecting the individuals to whom Options shall be granted, as well as
in determining the number of Options granted, the Committee shall take into
consideration such factors as it deems relevant in connection with accomplishing
the purpose of this Plan. Subject to the provisions of Section 3 above, an
Optionee may, if he or she is otherwise eligible, be granted an additional
Option or Options if the Committee shall so determine.
(b) All grants of Options to Outside Directors under this Plan shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside Directors
shall be granted options or to determine the number of Shares to be covered by
options granted to Outside Directors; provided, that nothing in this Plan shall
be construed to prevent an Outside Director from declining to receive an Option
under this Plan.
(ii) The terms of each Option granted pursuant to this Section 5(b) shall
be as follows:
(A) the term of the option shall be ten (10) years;
(B) the Option shall become exercisable cumulatively with respect to
one-third of the Shares on each of the first, second and third
anniversaries of the date of grant; provided, however, that in no
event shall any option be exercisable prior to obtaining stockholder
approval of this Plan; and
(C) the exercise price per share of Common Stock shall be 100% of
the "Fair Market Value" (as defined in Section 7(b) below) on the
date of grant of the Option.
(c) Each Option granted pursuant to Section 5(b) above shall be a
Nonstatutory Stock Option. Each other Option shall be designated in the written
option agreement as either an Incentive Stock Option or a Nonstatutory Stock
Option. Notwithstanding such designations, if and to the extent that the
aggregate Fair Market Value of the Shares with respect to which Options
designated as Incentive Stock Options are exercisable for
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for the first time by any Optionee during any calendar year (under all plans of
the Company) exceeds $100,000, such options shall be treated as Nonstatutory
Stock Options. For purposes of this Section 5(c), Options shall be taken into
account in the order in which they are granted, and the Fair Market Value of the
Shares shall be determined as of the time the Option with respect to such Shares
is granted.
(d) This Plan shall not confer upon any Optionee any right with respect to
continuation of employment by or the rendition of services to the Company or any
Parent or Subsidiary, nor shall it interfere in any way with his or her right or
the right of the Company or any Parent or Subsidiary to terminate his or her
employment or services at any time, with or without cause. The terms of this
Plan or any Options granted hereunder shall not be construed to give any
Optionee the right to any benefits not specifically provided by this Plan or in
any manner modify the Company's right to modify, amend or terminate any of its
pension or retirement plans.
6. Term of Plan. This Plan shall become effective upon its adoption by the
Board of Directors of the Company subject to the approval thereof by vote of the
holders of a majority of the outstanding shares of the Company present, or
represented, and entitled to vote at a meeting to be duly held in accordance
with the applicable laws of the State of Delaware. Such meeting shall be held
within twelve months of the adoption of the Plan by the Board of Directors. The
Plan shall terminate no later than January 1, 2006. No grants shall be made
under this Plan after the date of termination of this Plan. Any termination,
either partially or wholly, shall not affect any Options then outstanding under
this Plan.
7. Exercise Price and Consideration.
(a) Exercise Price. The per Share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the Committee as
follows:
(i) In the case of an Incentive Stock Option granted to any Employee, the
per Share exercise price shall be no less than 100% of the Fair Market Value per
Share on the date of grant, but if granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the per Share exercise price shall be no less than 110% of
the Fair Market Value per Share on the date of grant.
(ii) With respect to (i) above, the per Share exercise price is subject to
adjustment as provided in Section 10 below. For purposes of this Section 7(a),
if an Option is amended to reduce the exercise price, the date of grant of such
option shall thereafter be considered to be the date of such amendment.
(b) Fair Market Value. The "Fair Market Value" of the Common Stock shall
be determined by the Committee in its discretion; provided, that if the Common
Stock is listed on a stock exchange, the Fair Market Value per Share shall be
the closing price on such exchange on the date of grant of the Option as
reported in the Wall Street Journal (or, (i) if not so reported, as otherwise
reported by the exchange, and (ii) if not reported on the date of grant, then on
the last prior date on which a sale of the Common Stock was reported); or if not
listed on an exchange but traded on the National Association of Securities
Dealers Automated Quotation National Market System ("NASDAQ"), the Fair Market
Value per Share shall be the closing price per share of the Common Stock for the
date of grant, as reported in the Wall Street Journal (or, (i) if not so
reported, as otherwise reported by NASDAQ, and (ii) if not reported on the date
of grant, then on the last prior date on which a sale of the Common Stock was
reported); or, if the Common Stock is otherwise publicly traded, the mean of the
closing bid price and asked price for the last known sale.
(c) Consideration. The consideration to be paid for the Shares to be
issued upon exercise of an Option, including the method of payment, shall be
determined by the Committee (and in the case of an Incentive Stock Option, shall
be determined at the time of grant) and may consist entirely of (i) cash; (ii)
check; (iii) the Optionee's personal interest bearing full recourse promissory
note with such terms and provisions as the Committee may authorize (provided
that no person who is not an Employee of
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the Company may purchase Shares with a promissory note); (iv) other Shares of
Common Stock which (X) either have been owned by the Optionee for more than six
(6) months on the date of surrender or were not acquired directly or indirectly
from the Company, and (Y) have a Fair Market Value on the date of surrender
(determined without regard to any limitations on transferability imposed by
securities laws) equal to the aggregate exercise price of the Shares as to which
said Option shall be exercised; (v) any combination of such methods of payment;
or (vi) such other consideration and method of payment for the issuance of
Shares to the extent permitted under applicable laws.
(d) Withholding. No later than the date as of which an amount first
becomes includable in the gross income of the Optionee for federal income tax
purposes with respect to an option, the Optionee shall pay to the Company (or
other entity identified by the Committee), or make arrangements satisfactory to
the Company or other entity identified by the Committee regarding the payment
of, any federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount required in order for the Company to obtain
a current deduction. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock underlying
the subject option, provided that any applicable requirements under Section 16
of the Exchange Act are satisfied so as to avoid liability thereunder. The
obligations of the Company under this Plan shall be conditional upon such
payment or arrangements, and the Company shall, to the extent permitted by law,
have the right to deduct any such taxes from any payment otherwise due to the
Optionee.
8. Options.
(a) Term of Option. The term of each Option granted (other than an Option
granted under Section 5(b) above) shall be for a period of no more than ten (10)
years from the date of grant thereof or such shorter term as may be provided in
the Option agreement. However, in the case of an Option granted to an Optionee
who, at the time the Option is granted, owns stock representing more than ten
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Option shall be five (5) years from the
date of grant thereof or such shorter time as may be provided in the Option
Agreement.
(b) Exercise of Options.
(i) Procedure for Exercise; Rights as a Stockholder. Any Option granted
under this Plan (other than an Option granted pursuant to Section 5(b) above)
shall be exercisable at such times and under such conditions as determined by
the Committee, including performance criteria with respect to the Company and/or
the Optionee, and as shall otherwise be permissible under the terms of this
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Committee, consist of any
consideration and method of payment allowable under Section 7 of this Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a stockholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. If the
exercise of an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonstatutory Stock Option pursuant to
Section 5(b) above, the Company shall issue a separate stock certificate
evidencing the Shares treated as acquired upon exercise of an Incentive Stock
Option and a separate stock certificate evidencing the Shares treated as
acquired upon exercise of a Nonstatutory Stock Option and shall identify each
such certificate accordingly in its stock transfer records. No adjustment will
be made for a dividend or other right for which the record date is prior to
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the date the stock certificate is issued, except as provided in Section 10 of
this Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of this
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(ii) Method of Exercise. An Optionee may exercise an Option, in whole or
in part, at any time during the option period by the Optionee's giving written
notice of exercise on a form provided by the Committee (if available) to the
Company specifying the number of shares of Common Stock subject to the Option to
be purchased. Such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the Company may
accept. If approved by the Committee, payment in full or in part may also be
made (A) by delivering Common Stock already owned by the Optionee having a total
Fair Market Value on the date of such delivery equal to the exercise price of
the subject Option; (B) by the execution and delivery of a note or other
evidence of indebtedness (and any security agreement thereunder) satisfactory to
the Committee; (C) by authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Option having a total
Fair Market Value on the date of delivery equal to the exercise price of the
subject Option; (D) by the delivery of cash by a broker-dealer to whom the
Optionee has submitted an irrevocable notice of exercise (in accordance with
Part 220, Chapter II, Title 12 of the Code of Federal Regulations, so-called
"cashless" exercise); or (E) by any combination of the foregoing. In the case of
an Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject to
the Option may be authorized only at the time the Option is granted. No shares
of Common Stock shall be issued until full payment therefor has been made. An
Optionee shall have all of the rights of a stockholder of the Company holding
the class of Common Stock that is subject to such Option (including, if
applicable, the right to vote the shares and the right to receive dividends),
when the Optionee has given written notice of exercise, has paid in full for
such shares and such shares have been recorded on the Company's official
stockholder records as having been issued or transferred.
(iii) Termination of Status as an Employee, Consultant or Outside
Director. If an Optionee's Continuous Status as an Employee, Consultant or
Outside Director (as the case may be) is terminated for any reason whatever,
such Optionee may, but only within such period of time as provided in the Option
agreement, after the date of such termination (but in no event later than the
date of expiration of the term of such Option as set forth in the Option
agreement and determined by the Committee), exercise the Option to the extent
that such Employee, Consultant or Outside Director was entitled to exercise it
at the date of such termination pursuant to the terms of the Option agreement.
To the extent that such Employee, Consultant or Outside Director was not
entitled to exercise the Option at the date of such termination, or if such
Employee, Consultant or Outside Director does not exercise such Option (which
such Employee, Consultant or Outside Director was entitled to exercise) within
the time specified in the Option agreement, the Option shall terminate.
(iv) Company Loan or Guarantee. Upon the exercise of any Option and
subject to the pertinent Option agreement and the discretion of the Committee,
the Company may at the request of the Optionee; (A) lend to the Optionee, with
recourse, an amount equal to such portion of the option exercise price as the
Committee may determine; or (B) guarantee a loan obtained by the Optionee from a
third-party for the purpose of tendering the option exercise price.
9. Non-transferability of Options. An Option granted hereunder shall by
its terms not be sold, pledged, assigned, hypothecated, transferred, or disposed
of in any manner other than by will or the laws of descent and distribution. An
Option may be exercised during the Optionee's lifetime only by the Optionee.
10. Adjustments Upon Changes in Capitalization or Merger.
(a) Capitalization. Subject to any required action by the stockholders of
the Company, the number of shares of Common Stock which
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have been authorized for issuance under this Plan but as to which no Options
have yet been granted or which have been returned to this Plan upon cancellation
or expiration of an Option, and the number of shares of Common Stock subject to
each outstanding Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock of the Company or the payment of a stock
dividend with respect to the Common Stock. Except as expressly provided herein,
no issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each Option will terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the
Committee. The Committee may, in the exercise of its sole discretion in such
instances, declare that any Option shall terminate as of a date fixed by the
Committee and give each Optionee the right to exercise his or her Option as to
all or any part of the Optioned Stock, including Shares as to which the Option
would not otherwise be exercisable.
(c) Sale or Merger. "Sale" means: (i) sale (other than a sale by the
Company) of securities entitled to more than 75% of the voting power of the
Company in a single transaction or a related series of transactions; or (ii)
sale of substantially all of the assets of the Company; or (iii) approval by the
stockholders of the Company of a reorganization, merger or consolidation of the
Company, as a result of which the persons who were the stockholders of the
Company immediately prior to such reorganization, merger or consolidation do not
own securities immediately after the reorganization, merger or consolidation
entitled to more than 50% of the voting power of the reorganized, merged or
consolidated company. Immediately prior to a Sale, each Optionee may exercise
his or her Option as to all Shares then subject to the Option, regardless of any
vesting conditions otherwise expressed in the Option. Voting power, as used in
this Section 10(c), shall refer to those securities entitled to vote generally
in the election of directors, and securities of the Company not entitled to vote
but which are convertible into, or exercisable for, securities of the Company
entitled to vote generally in the election of directors shall be counted as if
converted or exercised, and each unit of voting securities shall be counted in
proportion to the number of votes such unit is entitled to cast.
(d) Purchased Shares. No adjustment under this Section 10 shall apply to
any purchased Shares already deemed issued at the time any adjustment would
occur.
(e) Notice of Adjustments. Whenever the purchase price or the number or
kind of securities issuable upon the exercise of the Option shall be adjusted
pursuant to Section 10, the Company shall give each Optionee written notice
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, and the method by which such adjustment was
calculated.
(f) Certain Cash Payments. If an Optionee would not be permitted to
exercise an Option or any portion thereof (for purposes of this subsection (f)
only, each such Option being referred to as a "Subject Option") or dispose of
the Shares received upon the exercise thereof without loss or liability (other
than a loss or liability for the exercise price, applicable withholding or any
associated transactional cost), or if the Board determines that the Optionee may
not be permitted to exercise the same rights or receive the same consideration
with respect to the Sale of the Company as a stockholder of the Company with
respect to any Subject Options or portion thereof or the Shares received upon
the exercise thereof, then notwithstanding any other provision of this Plan and
unless the Committee shall provide otherwise in an agreement with such Optionee
with respect to any Subject Options, such Optionee shall have the right, whether
or not the Subject Option is fully exercisable or may be otherwise realized by
the Optionee, by giving notice during the 60-day period from and after a Sale to
the Company, to elect to surrender all or part of any
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Subject Options to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the "Sale Price" (as defined
herein) per share of Common Stock on the date of such election shall exceed the
amount which the Optionee must pay to exercise the Subject Options per share of
Common Stock under such Subject Options (the "Spread") multiplied by the number
of shares of Common Stock granted under the Subject Options as to which the
right granted hereunder shall be applicable and shall have been exercised;
provided, however, that if the end of such 60-day period from and after a Sale
is within six months of the date of grant of a Subject Option held by an
Optionee (except an Optionee who has deceased during such six month period) who
is an officer or director of the Company (within the meaning of Section 16(b) of
the Exchange Act), such Subject Option shall be canceled in exchange for a
payment to the Optionee, effective on the day which is six months and one day
after the date of grant of such Subject Option, equal to the Spread multiplied
by the number of shares of Common Stock granted under the Subject Option. With
respect to any Optionee who is an officer or director of the Company (within the
meaning of Section 16(b) of the Exchange Act), the 60-day period shall be
extended, if necessary, to include the "window period" of Rule 16(b)-3 which
first commences on or after the date of the Sale, and the Committee shall have
sole discretion, if necessary, to approve the Optionee's exercise hereunder and
the date on which the Spread is calculated may be adjusted, if necessary, to a
later date if necessary to avoid liability to such Optionee under Section 16(b).
For purposes of the Plan, "Sale Price" means the higher of (a) the highest
reported sales price of a share of Common Stock in any transaction reported on
the principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Sale or (b) if the Sale is
the result of a tender or exchange offer or a corporate transaction, the highest
price per share of Common Stock paid in such tender or exchange offer or a
corporate transaction, except that, in the case of Incentive Stock Options, such
price shall be based only on the Fair Market Value of the Common Stock on the
date such Incentive Stock Option is exercised. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Committee.
(g) Mitigation of Excise Tax. If any payment or right accruing to an
Optionee under this Plan (without the application of this Section), either alone
or together with other payments or rights accruing to the Optionee from the
Company or an affiliate ("Total Payments") would constitute a "parachute
payment" (as defined in Section 280G of the Code and regulations thereunder),
the Committee may in each particular instance determine to (i) reduce such
payment or right to the largest amount or greatest right that will result in no
portion of the amount payable or right accruing under the Plan being subject to
an excise tax under Section 4999 of the Code or being disallowed as a deduction
under Section 280G of the Code, or (ii) take such other actions, or make such
other arrangements or payments with respect to any such payment or right as the
Committee may determine in the circumstances. Any such determination shall be
made by the Committee in the exercise of its sole discretion, and such
determination shall be conclusive and binding on the Optionee. The Optionee
shall cooperate as may be requested by the Committee in connection with the
Committee's determination, including providing the Committee with such
information concerning such Optionee as the Committee may deem relevant to its
determination.
11. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Committee makes the determination
granting such Option. Notice of the determination shall be given to each
Employee, Consultant or Outside Director to whom an Option is so granted within
a reasonable time after the date of such grant. If the Committee cancels, with
the consent of Optionee, any Option granted under this Plan, and a new Option is
substituted therefor, the date that the canceled Option was originally granted
shall be the date used to determine the earliest date for exercising the new
substituted Option under Section 7 so that the Optionee may exercise the
substituted Option at the same time as if the Optionee had held the substituted
Option since the date the canceled Option was granted.
12. Amendment and Termination of Plan.
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(a) Amendment and Termination. The Board or the Committee may amend, waive
or terminate this Plan from time to time in such respects as it shall deem
advisable; provided that, to the extent necessary to comply with Rule 16b-3 or
with Section 422 of the Code (or any other successor or applicable law or
regulation), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as is required by the applicable law, rule
or regulation. Notwithstanding the foregoing, neither the provisions of Section
5(b) of this Plan, nor any other provisions pertaining to the automatic option
grants to Outside Directors, shall be amended more than once every six months,
other than to comport with changes in the Code or other applicable laws or any
rules or regulations promulgated thereunder.
(b) Effect of Amendment or Termination. Any such amendment or termination
of this Plan shall not affect Options already granted and such Options shall
remain in full force and effect as if this Plan had not been amended or
terminated, unless mutually agreed otherwise between the Optionee and the
Committee, which agreement must be in writing and signed by the Optionee and the
Company.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, and the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned relevant provisions of law.
14. Restrictions on Shares. Shares of Common Stock issued upon exercise of
an Option shall be subject to the terms and conditions specified herein and to
such other terms, conditions and restrictions as the Committee in its discretion
may determine or provide in the grant. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock, cash or other
property prior to (a) the listing of such shares on any stock exchange (or other
public market) on which the Common Stock may then be listed (or regularly
traded), (b) the completion of any registration or qualification of such shares
under federal or state law, or any ruling or regulation of any government body
which the Committee determines to be necessary or advisable, and (c) the
satisfaction of any applicable withholding obligation in order for the Company
or an affiliate to obtain a deduction with respect to the exercise of an Option.
The Company may cause any certificate for any share of Common Stock to be
delivered to be properly marked with a legend or other notation reflecting the
limitations on transfer of such Common Stock as provided in this Plan or as the
Committee may otherwise require. The Committee may require any person exercising
an Option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
15. Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Option until, after proper exercise
of the Option or other action required, such shares shall have been recorded on
the Company's official stockholder records as having been issued or transferred.
Subject to the preceding Section and upon exercise of the Option or any portion
thereof, the Company will have thirty (30) days in which to issue the shares,
and the Optionee will not be treated as a stockholder for any purpose whatsoever
prior to such issuance. No adjustment shall be made for cash dividends or other
rights for which the record date is prior to the date such shares are recorded
as issued or transferred in the Company's official stockholder records, except
as provided herein or in an agreement.
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16. Best Efforts To Register. If there has been a public offering, the
Company may register under the Securities Act the Common Stock delivered or
deliverable pursuant to Options on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, as soon as such forms are available for registration to the Company for
this purpose. The Company will, if it so determines, use its good faith efforts
to cause the registration statement to become effective as soon as possible and
will file such supplements and amendments to the registration statement as may
be necessary to keep the registration statement in effect until the earliest of
(a) one year following the expiration of the option period of the last Option
outstanding, (b) the date the Company is no longer a reporting company under the
Exchange Act and (c) the date all Optionees have disposed of all shares
delivered pursuant to any Option. The Company may delay the foregoing actions at
any time and from time to time if the Committee determines in its discretion
that any such registration would materially and adversely affect the Company's
interests or if there is no material benefit to Optionees.
17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to permit the exercise of all Options outstanding under this Plan.
The inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is deemed by the Company's counsel to be necessary
to the lawful issuance and sale of any Shares hereunder, shall relieve the
Company of any liability in respect of the failure to issue or sell such Shares
as to which such requisite authority shall not have been obtained for any
reason.
18. Option Agreements. Options shall be evidenced by written Option
agreements in such form as the Committee shall approve.
19. Information to Optionees. To the extent required by applicable law,
the Company shall provide to each Optionee, during the period for which such
Optionee has one or more Options outstanding, copies of all annual reports and
other information which are provided to all stockholders of the Company. Except
as otherwise noted in the foregoing sentence, the Company shall have no
obligation or duty to affirmatively disclose to any Optionee, and no Optionee
shall have any right to be advised of, any material information regarding the
Company or any Parent or Subsidiary at any time prior to, upon or otherwise in
connection with, the exercise of an Option.
20. Funding. Benefits payable under this Plan to any person shall be paid
directly by the Company. The Company shall not be required to fund or otherwise
segregate assets to be used for payment of benefits under this Plan.
21. Indemnification. In addition to such other rights of indemnification
as they may have as directors or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable expenses,
including attorneys' fees, actually and necessarily incurred in connection with
the defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with this Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit or proceeding; provided that within 60 days after institution of any such
action, suit or proceeding a Committee member shall in writing offer the Company
the opportunity, at its own expense, to handle and defend the same. The
foregoing right of indemnification shall not be exclusive and shall be
independent of any other rights of indemnification to which such persons may be
entitled under the Company's Certificate of Incorporation or by-laws, by
contract, as a matter of law, or otherwise.
22. Controlling Law. This Plan shall be governed by the laws of the State
of Delaware applicable to contracts made and performed wholly in Delaware
between Delaware residents.
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EXHIBIT 4(c)
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WARRANT AGREEMENT, dated as of September 15, 1996, between VIROLOGIX
CORPORATION, a Delaware corporation (the "Company"), and DR. WILLIAM HALL
("Holder").
W I T N E S S E T H:
WHEREAS, Holder, in consideration for his work as on behalf of the Company
shall be issued an aggregate of 168,750 warrants to purchase 168,750 shares of
Common Stock of the Company ("Common Stock") at an exercise price of $1.67 per
share.
NOW, THEREFORE, in consideration of the premises herein set forth and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Issue. The Company hereby issues to Holder a certificate (the "Warrant
Certificate") dated as of the date hereof providing Holder with the right to
purchase, at any time from the date hereof until 5:30 p.m., New York time, on
the twentieth anniversary of the date hereof, 168,750 shares of Common Stock
(the "Warrant Shares") (subject to adjustment as provided in Section 8 hereof)
at an initial exercise price (subject to adjustment as provided in Section 8
hereof) equal to $1.67 per share.
2. Warrant Certificate. The Warrant Certificate to be delivered pursuant
to this Agreement shall be in the form set forth in Exhibit X, attached hereto
and made a part hereof, with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Agreement.
3. Exercise of Warrant. The Warrants, when initially exercisable, are
exercisable at an aggregate initial exercise price per share set forth in
Section 6 hereof payable by certified check or official bank check in New York
Clearing House funds. Upon surrender of a Warrant Certificate with the annexed
Form of Election to Purchase duly executed, together with payment of the
Exercise Price (as hereinafter defined) for the Warrant Shares purchased, at the
Company's principal offices in New York (presently located at 666 Third Avenue,
30th Floor, New York, NY 10017) Holder shall be entitled to receive a
certificate for the Warrant Shares so purchased. The purchase rights represented
by the Warrant Certificate are exercisable at the option of the Holder thereof,
in whole or in part (but not as to fractional shares of the Common Stock
underlying the Warrants). In the case of the purchase of less than all the
Warrant Shares purchasable under the Warrant Certificate, the Company shall
cancel said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Warrant
Shares purchasable thereunder.
4. Issuance of Certificate. Upon the exercise of the Warrants, the
issuance of a certificate for Warrant Shares or other securities, properties or
rights underlying such Warrants shall be made forthwith (and in any event within
five (5) business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificate shall (subject to the provisions of
Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificate unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificate and the certificate representing the Warrant
Shares (and/or other securities, property or rights issuable upon exercise of
the Warrants) shall be executed on behalf of the Company by the manual or
facsimile signature of the then present Chairman or Vice Chairman of the Board
of Directors or President or any Vice President of the Company under its
corporate seal reproduced thereon, attested to by the manual or facsimile
signature of the then present Secretary or any Assistant Secretary of the
Company. The Warrant Certificate shall be dated the date
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of execution by the Company upon initial issuance, division, exchange,
substitution or transfer.
5. Transfer of Warrants. The Holder of the Warrant Certificate, by its
acceptance thereof, covenants and agrees that the Warrants are being acquired as
an investment and not with a view to the distribution thereof. The Warrants may
be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole
or in part, without restriction, subject to compliance with applicable
securities laws.
6. Exercise Price.
Section .6.1 Initial and Adjusted Exercise Price. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant shall
be the price set forth in Section 1 hereof per Warrant Share issued thereunder.
The adjusted exercise price shall be the price which shall result from time to
time from any and all adjustments of the initial exercise price in accordance
with the provisions of Section 8 hereof.
Section 6.2 Exercise Price. The term "Exercise Price" herein shall mean
the initial exercise price or the adjusted exercise price, depending upon the
context.
7. Registration Under the Securities Act of 1933. The Warrants, the
Warrant Shares and any of the other securities issuable upon exercise of the
Warrants have not been registered under the Securities Act of 1933, as amended
(the "Act"). Upon exercise, in whole or in part, of the Warrants, a certificate
representing the Warrant Shares underlying the Warrants, and any of the other
securities issuable upon exercise of the Warrants (collectively, the "Warrant
Securities") shall bear the following legend unless such Warrant Shares
previously have been registered under the Act in accordance with the terms
hereof:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), AND MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR
ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES),
OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
8. Adjustments to Exercise Price and Number of Securities.
Section 8.1 Subdivision and Combination. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
Section 8.2 Adjustment in Number of Securities. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to
the nearest full amount by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Warrant Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
Section 8.3 Merger or Consolidation. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
property receivable upon such consolidation or merger, by a holder of the number
of shares of Common Stock of the Company for which such Warrant might have been
exercised immediately prior to such
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consolidation, merger, sale or transfer. Such supplemental warrant agreement
shall provide for adjustments which shall be identical to the adjustments
provided in this Section 8. The above provision of this subsection shall
similarly apply to successive consolidations or mergers.
Section 8.4 No Adjustment of Exercise Price in Certain Cases. No
adjustment of the Exercise Price shall be made:
(a) Upon the issuance or sale of the Warrants or the shares of
Common Stock issuable upon the exercise of the Warrants.
(b) If the amount of said adjustment shall be less than two cents
(2 cents) per Warrant Share, provided, however, that in such case any
adjustment that would otherwise be required then to be made shall be
carried forward and shall be made at the time of and together with the
next subsequent adjustment which, together with any adjustment so carried
forward, shall amount to at least two cents (2 cents) per Warrant Share.
(c) Upon the issuance or sale of Common Stock or warrants, options
or convertible securities, to be issued and/or sold to employees,
advisors, directors or officers of, or consultants to, the Company or any
of its subsidiaries pursuant to a stock grant, stock option plan, stock
purchase plan, pension or profit sharing plan or other stock agreement or
arrangement currently existing or approved by the Company's Board of
Directors.
(d) Upon the issuance of shares of Common Stock, warrants, options
and convertible securities pursuant to warrants, options and convertible
securities outstanding as of the date hereof.
(e) Upon the issuance of shares of Common Stock, warrants, options
and convertible securities in connection with strategic partnerships or
other business and/or product consolidations or joint ventures.
9. Exchange and Replacement of Warrant Certificate. The Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of the Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of shares of Common Stock upon the
exercise of the Warrants, nor shall it be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. Reservation and Listing of Securities. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number of
shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrants and payment of the Exercise Price therefor, all shares
of Common Stock and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrants to be listed (subject to
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official notice of issuance) on all securities exchanges on which the Common
Stock may then be listed and/or quoted on NASDAQ.
12. Notices to Warrant Holder. Nothing contained in this Agreement shall
be construed as conferring upon the Holder by virtue of his holding the Warrant
the right to vote or to consent or to receive notice as a stockholder in respect
of any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company. If,
however, at any time prior to the expiration of the Warrants and their exercise,
any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings,
as indicated by the accounting treatment of such dividend or distribution
on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale or any such earlier date
that notice of such event is given to stockholders of the Company. Such notice
shall specify such record date or the date of closing the transfer books, as the
case may be. Failure to give such notice or any defect therein shall not affect
the validity of any action taken in connection with the declaration or payment
of any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. Notices.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holder.
14. Supplements and Amendments. The Company and Holder may from time to
time supplement or amend this Agreement in order to cure any ambiguity, to
correct or supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and Holder
may deem necessary or desirable.
15. Successors. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holder and their
respective successors and assigns hereunder.
16. Termination. This Agreement shall terminate at the close of business
on the twentieth anniversary of the issuance of the Warrants.
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17. Governing Law. This Agreement and the Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the laws of
the State of New York without giving effect to the rules of the State of New
York governing the conflicts of laws.
18. Entire Agreement; Modification. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and may not be modified or amended except by a writing duly signed by the
party against whom enforcement of the modification or amendment is sought.
19. Severability. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. Captions. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. Benefits of this Agreement. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and Holder
any legal or equitable right, remedy or claim under this Agreement; and this
Agreement shall be for the sole and exclusive benefit of the Company and Holder.
22. Counterparts. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the day and year first above written.
VIROLOGIX CORPORATION
By:/s/ Joshua D. Schein
--------------------
Name: Joshua D. Schein
Title:
/s/ William Hall
----------------
Dr. William Hall
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EXHIBIT X
TO
WARRANT AGREEMENT
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT") (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii)
AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO
COUNSEL FOR THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
EXERCISABLE FROM SEPTEMBER 15, 1996 UNTIL
5:30 P.M., NEW YORK TIME, SEPTEMBER 15, 2016
No. W-96A-1 168,750 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Dr. William Hall or his registered
assigns, is the registered holder of 168,750 Warrants to purchase initially, at
any time from September 15, 1996 until 5:30 p.m. New York time on September 15,
2016 ("Expiration Date"), up to 168,750 fully-paid and non-assessable shares of
common stock, par value $.03 per share ("Common Stock") of VIROLOGIX
CORPORATION., a Delaware corporation (the "Company"), at the initial exercise
price, subject to adjustment in certain events (the "Exercise Price"), equal to
$1.67 per share upon surrender of this Warrant Certificate and payment of the
Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Warrant Agreement dated as of September
15, 1996 between the Company and Dr. William Hall (the "Warrant Agreement").
Payment of the Exercise Price shall be made by certified check or official bank
check in New York Clearing House funds payable to the order of the Company.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holder (the word "holder" meaning the registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events
the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificate
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
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The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
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IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed.
Dated as of September 15, 1996.
VIROLOGIX CORPORATION
By:_____________________________
Name: Joshua D. Schein
Title: President
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[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _________ shares of Common
Stock and herewith tenders in payment for such securities a certified check or
official bank check payable in New York Clearing House Funds to the order of
VIROLOGIX CORPORATION in the amount of $________, all in accordance with the
terms of Section 3 of the Warrant Agreement dated as of September 15, 1996
between Virologix Corporation and Dr. William Hall. The undersigned requests
that a certificate for such securities be registered in the name of ____________
whose address is ____________ and that such Certificate be delivered to
__________________________ whose address is ______________.
Dated:
Signature__________________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant Certificate.)
___________________________________________
(Insert Social Security or Other Identifying Number of Holder)
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[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED ___________________ hereby sells, assigns and transfers
unto
________________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: ________________________ Signature:__________________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________________
(Insert Social Security or Other Identifying
Number of Assignee)
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EXHIBIT 5(a)
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OPINION OF EILENBERG & ZIVIAN
November 21, 1996
Virologix Corporation
666 Third Avenue, 30th Floor
New York, NY 10017
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 (the "Registration
Statement") to be filed by you with the Securities and Exchange Commission in
connection with an offering (the "Public Offering") of 1,322,500 shares of
common stock, par value $.0001 per share (the "Common Stock"), of Virologix
Corporation (the "Company"), and up to 115,000 shares of the Company's Common
Stock issuable upon exercise of a certain Underwriter's Warrant (the "Warrant
Shares"; the Offering shares and the Warrant Shares collectively referred to as
the "Shares"). As your counsel in connection with the Public Offering and the
offer and sale of the Common Stock, we have examined the originals, or
photostatic or certified copies, of such records of the Company, certificates of
the Company and of public officials and such other matters and documents as we
have deemed necessary or relevant as a basis for this opinion.
Based on these examinations, it is our opinion that the Shares, when issued upon
payment therefor, will be validly issued, fully paid and non-assessable shares
of Common Stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Eilenberg & Zivian
---------------------------
EILENBERG & ZIVIAN
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EXHIBIT 10(a)
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LICENSE AND RESEARCH SUPPORT AGREEMENT BETWEEN THE COMPANY
AND THE ROCKEFELLER UNIVERSITY, DATED FEBRUARY 27, 1996
LICENSE AND RESEARCH SUPPORT AGREEMENT
AGREEMENT made as of the 27th day of February, 1996 by and between
VIROLOGIX CORPORATION ("Licensee"), a corporation organized and existing under
the laws of the State of Delaware, having an office at 666 Third Avenue, 30th
Floor, New York, New York, 10017 and THE ROCKEFELLER UNIVERSITY (" University"),
a nonprofit education corporation organized and existing under the laws of the
State of New York, having an office at 1230 York Avenue, New York, New York
10021.
W I T N E S E T H:
WHEREAS, Dr. William Hall has developed certain technology relating
to the prevention and treatment of retroviral infections, which technology is
more fully described in Exhibit "A" of this Agreement ("Core Technology");
WHEREAS, Licensee wishes to obtain the exclusive license rights from
the University to exploit the Core Technology;
WHEREAS, Licensee further wishes to sponsor continuing research by
Dr. Hall and his colleagues at the University in the area of the Core
Technology;
WHEREAS, the University is willing to grant such license rights as
provided for herein in return for the research support, patent reimbursements
and Licensee's other undertakings herein provided, all in the manner described
herein; and
WHEREAS, the research support herein described is of the essence of
this Agreement and any default in the prompt and full payment thereof in
accordance with the payment schedule herein provided shall be deemed a material
breach of this Agreement;
NOW, THEREFORE, in consideration of the mutual benefits to be
derived hereunder, the parties hereto agree as follows:
1. Definitions
The following terms will have the meanings assigned to them below when
used in this Agreement:
1.1 "Affiliate" means, as to any person or entity, any other person
or entity which directly or indirectly controls, is controlled by, or is under
common control with such person or entity. For purposes of the
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preceding definition, "control" means the right to control, or actual control
of, the management of such other entity, whether by ownership of voting
securities, by agreement, or otherwise.
1.2 "Combination Product" means any product that is comprised in
part of a Product and in part of one or more other biologically active
diagnostic, preventive or therapeutic agents which are not themselves Products
(the "Other Agents"). "Other Agents" excludes diluents and vehicles of Products.
1.3 "Commercial Sale" means any transfer to another person or entity
(including a distributor, wholesaler or sales agent), for value, after which
transfer the seller has no right, power or authority to determine the
transferee's resale price, if any. A transfer by Licensee to an Affiliate or
Sublicensee, or a transfer among or between Affiliates and/or Sublicensees,
shall not constitute a Commercial Sale. "Commercial Sale" does not include
distribution of free promotional samples of any Product or Combination Product
by Licensee or any of its Affiliates or Sublicensees in amounts determined to be
commercially reasonable by Licensee in the exercise of its reasonable
discretion.
1.4 "Party" shall mean either Licensee or University and "Parties"
shall mean both Licensee and University.
1.5 "Licensed Patent Rights" shall mean
(a) the patent applications currently being prepared and based
on invention disclosures described in Exhibit "A," and all patents which may
issue thereon;
(b) any patent(s) and/or patent application(s) covering any
Invention or Improvement (as defined below) made in the course of research
sponsored by Licensee pursuant to Paragraph 5 hereof; and
(c) all patent applications and/or patents (including patents
which may be issued) which are divisionals, continuations,
continuations-in-part, reissues, renewals, reexaminations, substitutions,
foreign counterparts, extensions or additions of or to the patents and/or
applications or are based upon the invention disclosures described in (a) and
(b) of this Paragraph 1.5.
1.6 "Core Technology" shall mean the technology described in the
patent applications currently being prepared and based on invention disclosures
set forth in Exhibit "A," as the same may be expanded by
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Invention(s) or Improvement(s) added thereto by operation of this Agreement.
1.7 "Invention(s)" or "Improvement(s)" shall mean any and all
discoveries, methods, processes, compositions of matter and uses, whether or not
patentable, made by Dr. William Hall and/or his laboratory colleagues, conceived
and reduced to practice during the one-year term of research which is sponsored
by Licensee pursuant to the provisions of Paragraph 5 of this Agreement, or any
extension of such term of research sponsored by Licensee, which is agreed to by
the Parties.
1.8 "Technical Information" shall mean any and all technical data,
information, materials, trade secrets, methods, protocols, procedures,
formulations, arts and know-how, whether or not patentable, owned by or subject
to the rights of the University relating to the Core Technology during the term
of this Agreement which are determined by Licensee to be useful in the practice
of Licensed Patent Rights.
1.9 "Product(s)" shall mean any product that is covered by a Valid
Claim of the Licensed Patent Rights. "Valid Claim", with respect to each
country, means an issued claim of any unexpired patent, or a claim of any
pending patent application that has not been held unenforceable, unpatentable or
invalid by a decision of a court or governmental body of competent jurisdiction,
unappealable or unappealed within the time allowed for appeal, which has not
been rendered unenforceable through disclaimer or otherwise, and which has not
been lost through an interference proceeding, in such country.
1.10 "Net Sales" shall mean:
(a) with respect to Products, the gross sales price actually charged
by Licensee or an Affiliate or Sublicensee in the Commercial Sale of such
Licensed Product, less:
(i) trade, prompt payment, quantity or cash discounts,
rebates, and non-affiliated brokers' or agents' commissions, each as actually
and customarily allowed and taken;
(ii) amounts actually repaid or credited to customers on
account of rejections or returns of specified products on which Royalties have
been paid hereunder or on account of retroactive price reductions affecting such
products;
(iii) customary freight and other transportation costs,
including insurance charges, and duties, tariffs, sales, use and excise
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taxes and other governmental charges based directly on sales, turnover or
delivery of the specified products and actually paid or allowed by Licensee, an
Affiliate of Licensee or a Sublicensee; and
(iv) commercially reasonable allowances for bad debts incurred
with respect to the Products during the first full year of Commercial Sales of
any such Product, provided that such bad debt reserve shall be deemed
extinguished within 180 days of the end of such first full year, and any amount
of such reserve not actually debited in accordance with commercially reasonable
practices during that period shall be deemed to be receipts of Net Sales for all
purposes of this Agreement; and
(b) with respect to Combination Products, the gross sales price
actually charged by Licensee or an Affiliate or Sublicensee in the Commercial
Sale of such Combination Product, less the deductions set forth in subsections
(a)(i) - (iv) above, multiplied by a fraction having (i) a numerator of the
gross sales price of the Product(s) included in such Combination Product as if
sold separately or, if such sales price is not available, the fair market value
of such Product(s), and (ii) a denominator of the gross sales price of such
Combination Product, or if such sales price is not available, the sum of the
fair market values of the Other Agents and the Product(s) contained in such
Combination Product. The "fair market value" for any Product or Other Agent
shall be determined for a quantity comparable to that included in the
Combination Product and of substantially comparable class, purity and potency,
and shall be mutually agreed to by University and Licensee. When no fair market
value is available, the fraction set forth above shall be changed to a fraction
having (x) a numerator of the cost to Licensee, its Affiliates or Sublicensees,
of the Product(s) included in such Combination Product, and (y) a denominator of
the sum of such cost plus the cost to Licensee, its Affiliates or Sublicensees
of the Other Agents contained in such Combination Product, provided that in no
event shall the fraction be less than (A) one-half (1/2), if only one Other
Agent is included with a Product(s) in such Combination Product, (B) one-third
(1/3), if two Other Agents are included with a Product(s) in such Combination
Product, and (C) one-quarter (1/4), if three or more Other Agents are included
with a Product(s) in such Combination Product. "Cost" as used above means the
actual cost paid by Licensee, and/or it Affiliates or Sublicensees in an arm's
length transaction, if purchased, or if not purchased but actually
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manufactured by any such entity, the sum of the direct manufacturing cost as
determined by such entity's internal cost accounting system consistently
applied.
1.11 "Royalty" means for any given fiscal year of Licensee any sum
payable to the University with respect to Net Sales in such fiscal year of
Products or Combination Products by Licensee, its Affiliates or Sublicensees,
and shall exclude without limitation any research or development support
payments, marketing or licensing fees received by Licensee or any Affiliate from
any third party, any equity investments received from any person or entity
whatsoever, and all other reimbursements, advances, prepayments or other
payments received from third parties not specifically made with respect to sales
of Products or Combination Products.
1.12 "Sublicense" means any agreement pursuant to which Licensee or
an Affiliate of Licensee expressly grants to any third party the right to
practise the Inventions or Improvements included within the Licensed Patent
Rights for the purpose of manufacturing a Product which has not been produced by
Licensee or any of its Affiliates or provided to such third party by Licensee or
any of its Affiliates, and specifically excludes any marketing, sales,
distribution or similar arrangement with a third party; "Sublicensee" means any
person or entity which is not an Affiliate of Licensee and to whom a Sublicense
has been granted.
1.13 "Territory" shall mean the entire world.
1.14 "Effective Date shall mean the day and year first above
written.
2. Licensed Rights Granted
2.1 The University hereby grants to Licensee and its Affiliates a
sole and exclusive license, including the right to grant Royalty bearing
Sublicenses under terms consistent with this Agreement, subject only to the
University's prior approval of Sublicensee selected by Licensee which approval
shall not be unreasonably withheld or delayed, under Licensed Patent Rights and
Technical Information, to make, have made, use, have used, sell, have sold and
import Products and Combination Products in the Territory, and to enter into
marketing, sales, distribution and similar agreements with third parties, except
to the extent that the University's right to do so may be limited
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(a) under the provisions of 35 United States Code, Section
201, et seq., and regulations and rules promulgated thereunder and implementing
agreements thereof.
2.2 The University agrees that any Invention(s) or Improvement(s)
made in the course of the research sponsored by Licensee, pursuant to Paragraph
5 hereof, shall be disclosed promptly to Licensee. The University agrees that
Dr. Hall shall provide Licensee with a quarterly research progress report within
thirty (30) days of the end of each calendar quarter after the date hereof,
which reports shall disclose any such Invention(s) or Improvement(s) to
Licensee, and a final research report containing customary detail and summaries
within sixty (60) days following the end of the research. Any such Invention(s)
or Improvement(s) shall automatically be added to Licensee's existing license
grant under Section 2.1 hereof without the payment of any additional
consideration. The existing license shall automatically be expanded to cover the
new Invention(s) or Improvement(s) without any further action by either of the
Parties hereto, and said Invention(s) or Improvement(s) shall thereupon be
deemed an addition to the Core Technology under this Agreement.
2.3 If Licensee
(a) chooses not to practice any Licensed Patent Rights
licensed to it hereunder, or
(b) notifies the University of its intent not to add a
particular new Invention or Improvement to the existing license, the University
shall be free to license the same to a third party or parties of its choosing.
Licensee agrees to give the University prompt Notice of any
decision not to practice Licensed Patent Rights or not to add a new Invention or
Improvement to the existing license.
2.4 The University shall have the right to terminate this Agreement
at any time after four (4) years of the Effective Date if, in the University's
reasonable judgment, Licensee is not demonstrably engaged in research,
development, manufacturing, marketing or licensing, as appropriate, directed
toward putting a Product toward a commercial use either directly or through a
sublicense; provided, however, that annual expenditures of at least *****
[Confidential Information omitted and filed separately with the SEC] by Licensee
toward such commercial use, including,
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but not limited to, expenditures on research, development, manufacturing,
marketing, licensing, finance and administration, shall constitute satisfaction
of this requirement. In making this determination, the University shall take
into account the normal course of such programs conducted with sound and
reasonable business practices and judgment and shall take into account the
reports provided hereunder by Licensee.
2.5 The University agrees to provide Licensee with Technical
Information developed in Dr. Hall's laboratory at the University from time to
time during the term of this Agreement. Licensee shall be entitled to use (and
shall be entitled to allow its Affiliates and Sublicensees to use) such
Technical Information internally in support of development, discovery,
manufacturing and marketing efforts for sales of Licensed Products. The
University further agrees to use its good faith efforts to cause Dr. Hall to
promptly deliver clones or copies of the molecules, compounds, reagents or other
materials in his possession included in the Core Technology to Licensee promptly
from time to time upon Licensee's request.
3. Royalties and Other License Consideration
3.1 As further consideration for the license grant provided in
Paragraph 2.1, Licensee agrees to pay the University the following amounts in
the nature of Royalties:
(a) Royalties on Net Sales of Products, as follows:
(I) For Products or Combination Products sold, leased
or otherwise disposed of by Licensee, or any of
its Affiliates, Royalties equal to *****
[Confidential Information omitted and filed
separately with the SEC] of Net Sales.
(II) For Products or Combination Products sold, leased
or otherwise disposed of pursuant to a Sublicense
by a Sublicensee, Royalties equal to *****
[Confidential Information omitted and filed
separately with the SEC] of the above percentage.
In addition, University shall receive *****
[Confidential Information omitted and filed
separately with the SEC] of any non-royalty
consideration received by
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Licensee for sublicensing of technology
licensed hereunder.
The obligation to pay Royalties hereunder is imposed only once
with respect to the sale, lease or disposition of any Product or Combination
Product regardless of the number of Valid Claims which cover such Product or
Combination Product. Additionally, there shall be no obligation to pay Royalties
on the sale, lease or disposition of Products by Licensee or its Affiliates to
any Sublicensees for resale, but in such instances, the obligation to pay
Royalties shall arise upon the sale by any such Sublicensee to unrelated third
parties. (b) Milestone payments (which shall be paid only once per Product) as
follows:
(i) ***** [Confidential Information omitted and
filed separately with the SEC] within sixty (60)
days of the first approved submission of an IND
in any country of the Territory on a Product,
(ii) ***** [Confidential Information omitted and
filed separately with the SEC] within sixty (60)
days of the start of a Phase II clinical trial in
any country of the Territory,
(iii) ***** [Confidential Information omitted and filed
separately with the SEC] within sixty (60) days
of the first FDA approval or its equivalent in
any country of the Territory on a Product.
3.2 Upon commencement of Net Sales of Products or Combination
Products which generate a Royalty to the University pursuant to this Agreement,
Licensee shall, within sixty (60) days of the close of the calendar quarter in
which such Net Sales begin, make quarterly reports to the University indicating
the total Net Sales of Products and Combination Products in the quarter and the
calculation of Royalties due thereon. Any Royalty then due and payable shall be
included with such report.
Licensee's records shall be open to inspection by the University or
a certified public accountant designated by the University, at reasonable times,
and from time to time, for the sole purpose of verifying the accuracy of the
reports and the Royalty payments. The University shall bear the reasonable costs
of such inspection unless the inspection establishes an error in the
University's favor of *****
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[Confidential Information omitted and filed separately with the SEC] or more of
the amount payable for the period of inspection. The University shall keep all
reports, information, documents and other materials received from Licensee under
this Agreement, including the reports made pursuant to the preceding paragraph,
confidential and the use of such reports and information by the University is
strictly limited to the enforcement of the University's rights under this
Agreement.
3.3 Licensee shall provide written reports within sixty (60) days
after the University requests in writing such report, but no more frequently
than annually, which shall include the following information: reports of
progress on research and development, regulatory approvals, manufacturing and
sublicensing, including the terms of any Sublicense.
4. Patents
4.1 Future Patent Expenses: Licensee shall select qualified
independent patent counsel reasonably satisfactory to the University to file,
prosecute and maintain all patent applications included in Licensed Patent
Rights, at the expense of Licensee, including divisionals, continuations.
continuations-in-part, reissues, renewals, foreign counterparts or extensions.
Licensee shall be entitled to determine the countries in which it wishes to
obtain and maintain patent protection under this Agreement and shall be free, at
any time and at its sole option and upon Notice to the University, to abandon
patent prosecution or maintenance in any country of the Territory.
4.2 Should Licensee decide not to finance the preparation, filing,
prosecution, or maintenance of any patent application or patent licensed
hereunder, Licensee will give Notice to the University of such decision in
writing in adequate time to allow the University, at its own cost, to effectuate
such preparation, filing, prosecution, or maintenance if it desires to do so.
Nothing herein is intended or shall be construed as obligating
the University to file or maintain any U.S. or foreign patents at its own
expense, or to defend, enforce, or support any patent or patent applications
which may be included in Licensed Patents Rights to which it has granted license
rights to Licensee; provided, however, that the University will cooperate with
Licensee in its activity in applying for
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U.S. or foreign patents or in the defense or enforcement of Licensed Patent
Rights.
Nothing herein is intended or shall be construed as obligating
Licensee to maintain its license with respect to any patent or application
licensed hereunder and to finance the preparation, filing, prosecution or
maintenance of any patent application in any country or jurisdiction in which it
believes it is not in the best business interest of Licensee to do so.
4.3 Licensee, or any Affiliate or Sublicensee of Licensee, shall
have the right but not the obligation to institute patent infringement
proceedings against third parties based on any Licensed Patent Rights licensed
hereunder. The University agrees to give Notice to Licensee promptly, in
writing, of each infringement of Licensed Patent Rights of which the University
is or becomes aware during the term of this Agreement. If Licensee does not
institute infringement proceedings against such third parties, the University
shall have the right, but not the obligation, to institute such proceedings
within thirty (30) days after Notice of its intention to commence such
proceedings shall have been given to Licensee, in writing, and provided that
Licensee does not, within such thirty (30) day period, institute its own
proceedings. The expenses of such proceedings, including lawyers' fees, shall be
borne by the Party instituting suit. The Party instituting suit shall have the
right to select counsel to conduct the suit. Each Party shall execute all
necessary and proper documents and take all other appropriate action, including
but not limited to being named as a participating party, to allow the other
Party to institute and prosecute such proceedings. Any award paid by third
parties as a result of such proceedings (whether by way of settlement or
otherwise) shall first be applied toward reimbursement for the legal fees and
expenses incurred, and the excess, if any, shall be shared on a pro rata basis
based on the expenses incurred by each Party.
5. Sponsored Research
Licensee agrees to sponsor further research as described in Exhibit
"B" on the Core Technology by Dr. William Hall and his colleagues at the
University for a minimum period of one (1) year at the budget level provided for
in Exhibit "C", attached hereto. Sponsorship at this level shall continue for a
second and subsequent years thereafter unless Licensee
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gives the University a minimum of four (4) months' notice that it does not wish
to fund research for such second or subsequent years. Dr. Hall will provide to
Licensee an annual budget, similar to the budget set forth in Exhibit "C", for
such second year, and for each subsequent year, at least six (6) months prior to
the beginning of each such year.
Licensee shall pay the budgeted amounts to the University
quarterly in advance over the one (1) year period of guaranteed support, the
first quarterly payment therefor, in the amount of ***** [Confidential
Information omitted and filed separately with the SEC] being payable within five
(5) business days following the execution of this Agreement.
6. Academic Freedom
The Parties recognize the traditional freedom of all
scientists to publish and present promptly the results of their research. The
Parties also recognize that patent rights can be jeopardized by public
disclosure prior to the filing of suitable patent applications. Therefore, the
University will assure that each proposed publication concerning any technology
described in Licensed Patent Rights or Technical Information or which may
constitute an Invention or Improvement hereunder, before submission to a
publisher, will be submitted to Licensee for review in connection with
preservation of patent rights. Licensee shall have thirty (30) days in which to
review the publication, which may be extended for an additional thirty (30) days
when Licensee provides substantial and reasonable need for such extension. By
mutual agreement, this period may be further extended for not more than an
additional three (3) months. Licensee will allow for simultaneous submission of
the publication to the publisher and Licensee, where appropriate. Scientists
acting on behalf of both the University and Licensee will be expected to treat
matters of authorship in a proper collaborative spirit, giving credit where it
is due and proceeding in a manner which fosters cooperation and communication.
7. Publicity
Licensee will not use the University's name or the name of any
member of its faculty or its staff for any public, commercial or advertising
purposes without the prior written approval of the University and faculty or
staff member involved; provided, however, that it is expressly agreed that
Licensee may reveal or identify the University or any
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member of its faculty or staff as the inventor, source or origin of any Core
Technology, Technical Information or any Product or Process for the purpose of
soliciting third parties to invest or enter into other commercial arrangements
with Licensee, or to acquire a Sublicense, assignment or other transfer of
rights in such Core Technology from Licensee and provided further that Licensee
may use and disclose the University's name and the name of any member of its
faculty or its staff in its internal communications or, upon prior disclosure
and consultation with the University, in making any required governmental
reports and filings.
It is recognized by the Parties that at some future date, a
public offering of securities may be contemplated by Licensee. The University
intends to cooperate with Licensee in expeditiously reviewing any Licensee
registration statements and/or prospectuses, but wishes to reserve its rights
with respect to how its name will be used.
8. Product Liability
Licensee agrees to indemnify and hold harmless the University
and its trustees, officers, agents, faculty, employees, and students from any
and all liability arising from injury or damage to person or property resulting
directly or indirectly from Licensee's use, manufacture, or sale of any product
covered by any Licensed Patent Rights or Technical Information. This obligation
may be delegated by the Licensee to assignees and/or Sublicensees of the
Licensee's rights under this Agreement and may be satisfied by the Licensee's
and/or its Sublicensees or assignees obtaining and maintaining until the
expiration of all licenses granted hereunder, appropriate and available product
liability insurance for a conventional amount of coverage generally deemed
appropriate in the biotechnology or pharmaceutical industry, under which
insurance the University is named as an additional insured.
The University shall promptly give the Licensee Notice of any
claim asserted or threatened on the basis of which the Party giving such Notice
intends to seek indemnification from Licensee as herein provided.
9. Termination
9.1 The licenses herein granted shall continue for the full term of
any patents licensed hereunder as the same or the effectiveness
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thereof may be extended by any governmental authority, rule or regulation
applicable thereto; it being understood, however, that the Licensee's right to
continue the practice of then existing Technical Information shall continue as a
fully paid, perpetual license.
9.2 The Licensee shall have the right to terminate any license
granted herein at any time upon ninety (90) days' prior written notice to the
University.
9.3 Either Party may terminate this Agreement in the event of a
material breach by the other Party, provided only that the breaching Party is
given Notice of the breach and a reasonable time, not to exceed thirty (30)
days, in which to cure such breach.
9.4 The University agrees that in the event of the termination of
this Agreement and of any option and/or license granted hereunder it will
continue any applicable Sublicense on the terms and conditions of such
Sublicense in effect at the time of any such termination.
10. Disclaimer
EXCEPT AS EXPRESSLY SET FORTH HEREIN AND WITH RESPECT TO THE
OWNERSHIP OF THE LICENSED PATENT RIGHTS, INVENTIONS, IMPROVEMENTS, AND TECHNICAL
INFORMATION, THE UNIVERSITY MAKES NO WARRANTIES, EXPRESS OR IMPLIED, IN RESPECT
OF THE CORE TECHNOLOGY, TECHNICAL INFORMATION, LICENSED PATENT RIGHT, PRODUCT OR
PROCESSES AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE.
11. Notices
Any Notice required to be given pursuant to this Agreement
shall be made by personal delivery or, if by mail, then by registered or
certified mail, return receipt requested, with postage and fees prepaid, by one
Party to the other Party at the addresses noted below, or to such other address
as such Party may designate in writing from time to time to the other Party.
In the case of the Licensee, Notice should be sent to:
Virologix Corporation
666 Third Avenue, 30th Floor
New York, NY 10017
In the case of the University, Notice should be sent to:
The Rockefeller University
1230 York Avenue
New York, New York 10021
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Attention: Office of the General Counsel
12. Representation and Warranties
The University hereby represents and warrants to the Licensee
that
(i) the University has the right to grant the license herein
provided under the terms and conditions set forth herein;
(ii) there are no encumbrances or restrictions not set forth
herein on its right to grant the licenses herein provided; and
(iii) this Agreement does not conflict with or breach any
other agreement or understanding to which the University is a
party.
Licensee hereby represents and warrants to the University that
(i) Licensee is a corporation duly organized and validly
existing under the laws of the State of Delaware, and
(ii) Licensee will deliver to the University, on an on-going
confidential basis, any reports or other materials provided to
its shareholders.
13. Assignment
No Party hereto may assign any of its rights or obligations
under this Agreement to any third party, without the express prior written
consent of the other Party to this Agreement, which consent will not be
unreasonably withheld or delayed; provided, however, that no consent shall be
necessary in the event of (i) the sale, merger, acquisition or other business
combination, or sale of substantially all the assets, of Licensee or (ii) the
sale of all of Licensee's rights with respect to any Product line or lines.
14. Governing Law
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
15. Further Action
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At any time and from time to time, each Party agrees, without
further consideration, to take such actions and to execute and deliver such
documents as may be reasonable necessary to effectuate the purposes of this
Agreement.
16. Waiver
Any Waiver by any Party of a breach of any provision of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of this provision or of any breach of any other provision of this
Agreement. The failure of a Party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
17. Severability
If any provision of this Agreement is invalid, illegal, or
unenforceable, the balance of this Agreement shall remain in effect, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.
18. Counterparts
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
19. Force Majeure
The Parties shall not be liable in any manner for failure or
delay in fulfillment of all or part of this Agreement, directly or indirectly
caused by acts of God, governmental order or restrictions, war, war-like
condition, revolution, riot, looting, strike, lockout, fire, flood or other
similar or dissimilar causes or circumstances beyond the non-performing Party's
control. The non-performing Party shall promptly notify the other Party of the
cause or circumstance and shall recommence its performance of its obligations as
soon as practicable after the cause or circumstance ceases.
20. Arbitration.
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In the event of any dispute under this Agreement, such dispute
shall be submitted to arbitration in accordance with the terms of this Section.
The party who is alleging that a dispute exists shall send a notice of such
dispute to all other parties, which notice shall set forth in detail the
dispute, the parties involved and the position of such party with respect
thereto. Within ten (10) business days after the delivery of such a notice,
counsel for the parties shall mutually select as an arbitrator an attorney
practicing in New York, New York, who is experienced in commercial arbitration.
If counsel for the parties are unable to agree upon the selection of the
arbitrator, an arbitrator residing in or about New York, New York shall be
selected by the New York office of the American Arbitration Association. The
arbitrator so selected shall schedule a hearing in New York, New York on the
disputed issues within forty-five (45) days after his/her appointment and the
arbitrator shall render a decision after the hearing, in writing, as
expeditiously as is possible, which shall be delivered to the parties. The
arbitrator shall render a decision based on written materials supplied by the
parties to the arbitration in support of their respective oral presentations at
the hearing, and no party shall be entitled to discovery in such matter. The
parties shall supply a copy of any written materials to be submitted to the
arbitrator at least fifteen (15) days prior to the scheduled hearing. A default
judgment may be entered against a party who fails to appear at the arbitration
hearing. Such decision and determination shall be final and unappealable and
shall be filed as a judgment of record in any jurisdiction designated by the
successful party. The parties to this Agreement agree that this paragraph has
been included to rapidly and inexpensively resolve any disputes between them
with respect to the matters described above, and that this paragraph shall be
grounds for dismissal of any court action commenced by any party with respect to
a dispute arising out of such matters. For purposes of this Section, Licensors
may participate in any arbitration either jointly or severally, in their sole
discretion.
21. Entire Understanding
This Agreement, together with the Exhibits hereto and the
concurrently executed Agreement constitute the entire agreement between the
Parties with respect to the subject matter hereof, supersedes all prior
understanding and agreement by the Parties with respect to the subject
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matter hereof and may be modified only by written instrument duly executed by
each Party.
22. Heading
The headings contained herein are for the purpose of
convenience only and are not intended to define or limit the contents of such
sections.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
duly executed as of the day and year first above written.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
--------------------------------
Its:
THE ROCKEFELLER UNIVERSITY
By: /s/ William Greisar
--------------------------------
Its:
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The undersigned, Dr. Hidehiro Takahashi, to the extent that he may have
rights in the attached Agreement between The Rockefeller University and the
Licensee therein named, hereby consents and joins in the license grant to the
Licensee and agrees to be bound by the terms of the license grant with respect
to its interest in the Licensed Patent Rights described in Exhibit "A" attached
to said Agreement subject only to the agreement of The Rockefeller University to
pay to the undersigned ***** [Confidential Information omitted and filed
separately with the SEC] of the net monies received by The Rockefeller
University pursuant to Paragraph 3 thereof.
/s/ Hidehiro Takahashi
--------------------------------
Dr. Hidehiro Takahashi
February 27, 1996
---------------------
Date
In consideration of Dr. Takahashi's joining in the license grant as above
provided, The Rockefeller University agrees to pay to Dr. Takahashi ******
[Confidential Information omitted and filed separately with the SEC] of the net
monies received by The Rockefeller University pursuant to Paragraph 3 thereof.
THE ROCKEFELLER UNIVERSITY
By:/s/ William Griesar
February 15, 1996
---------------------
Date
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EXHIBIT A
Core Technology
Patent applications directed to the following invention disclosures from
Dr. William Hall being prepared:
1. Transgenic Animals Permissive for HIV infection
2. Inhibitor of HIV Activator of Topoisomerase/Transcription
3. High Efficiency Retrovirus-Mediated Gene Therapy
4. Vaccine for HTLV-I and II
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EXHIBIT "B"
HUMAN RETROVIROLOGY: WILLIAM W. HALL, M.D. Ph.D.
(A) HIV-I: Development of Mouse Models for HIV-I Replication.
Preliminary studies from our laboratory have shown that in addition to the
virus receptor (CD4 molecule) HIV replication requires specific interactions
with several cellular proteins and these interactions appear to be
species-specific. In particular the studies have shown that HIV requires the
involvement of the human enzyme topoisomerase I (topo I). Importantly the
interaction of the virus with topo I of other species is extremely inefficient.
With this information we have begun to investigate if this enzyme may be
involved in the host restriction of virus replication, and in fact this would
appear to be the case. In recent studies we have shown that HIV infection of
mouse fibroblasts is possible if both the CD4 molecule and human topo I are
expressed in these cells. As part of our plans to develop a mouse model for
HIV-replication: 1) we intend to produce transgenic mice with expression of both
of these molecules in peripheral blood mononuclear cells. If these can
successfully support HIV replication, they will be extremely useful for studies
of virus replication, drug inhibition studies and possibly tests of vaccine
efficacy. 2) To further optimize the mouse model for HIV replication we also
intend to produce chimeric or pseudotype retroviruses containing the HIV core
and the surface molecules (receptor binding molecules) of mouse retroviruses.
These will then be tested for their ability to infect transgenic mice only
expressing human topo I. Preliminary in vitro studies have indicated a high
probability of success with the latter approach.
Research Plan
1. Transgenic Mice: The studies to produce transgenic mice are underway and
this involves the introduction of human CD4 and human topo I genes. The
latter are prepared by a combination of PCR and cloning methods, and the
fidelity of the constructs are analyzed by nucleotide sequencing analysis.
It is hoped to establish a line of double transgenic males and use these
to mate normal females. The offspring are checked for double gene
expression by Southern hybridization methods. To determine if they can be
infected with HIV initial studies will involve the establishment of spleen
cell cultures in vitro and assaying the ability of virus (both laboratory
and wild type strains) to replicate in these cells and to compare the
efficiencies of replication.
If efficient replication can be demonstrated conditions will be
established for in vivo infection. It should be appreciated that this project is
extremely labor-intensive and very expensive as this will involve the
maintenance and care of a large number of animals.
As noted above to optimize virus replication in the mouse we are also
intending to prepare chimeric murine/HIV retroviruses as this will overcome what
we feel is the rate limiting step of infection, namely virus entry. Using murine
retrovirus glycoproteins to permit virus entry we will not need to include human
CD4 in our system. Chimeric virus production will require sophisticated
molecular biological manipulation of infectious clones of HIV and murine
leukemia virus and at least one year will be required to produce a chimeric
clone. This will require the expertise of an individual with extensive
experience in molecular biology. Once established this Avirus@ should be able to
repliate very effectively in vivo in the mouse and will permit an analysis of
almost all stages of HIV repliation.
(A) HTLV-I Vaccine Produciton
Previous studies in our laboratory have resulted in the successful cloning
and expression of a truncated form of the precursor glycoproteins (gp 63) of
HTLV-I and HTLV-II. Initial studies in a rabbit model have shown that when used
as a vaccine (employing complete Freund's as adjuvant), these can effectively
prevent infection in a rabbit model. We now intend to continue these studies and
(a) analyze the effectiveness of the vaccine in rabbits using alum and other
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adjuvants which would be more suitable for human use. (b) Establish a phase I
(safety) trial of the HTLV-I vaccine in humans. This will be carried out in
Brazil where a suitable population has been identified.
The studies planned will involve vaccine production under conditions
approved by the FDA in terms of product safety and lack of toxicity. The trial
which will be carried out in Brazil should begin within one year. The rabbit
studies will take approximately 12 months to study different dosages and
adjuvant conditions. These will be also expensive due to high maintenance and
procedure cost. Immunological studies will also be carried out on certain
animals to determine the mechanisms of vaccine protection.
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EXHIBIT "C"
Budget: (Year 1)
Personnel: Two individuals (a) a postdoctoral level molecular biologist will be
hired to prepare the molecular constructs and carry out the HIV infection
studies (100 % effort) and (b) a research technician with direct responsibility
for the animal studies both transgenic and vaccine studies (75% effort) will be
required. (c) The vaccine trial will involve a 50% effort position of a
Brazilian researcher.
Salary with benefits ***** + ****** = ***** (1)
Brazilian researcher ***** = ***** (1)
TOTAL: $****** (1)
Supplies:
Animals: mice maintenance and breeding will be expensive (At LARC mouse
@*****) for 1 year will require $***** (1)
Rabbits vaccine studies $****** (1)
TOTAL $****** (1)
Molecular Biologicals: (plasmids, restriciton enzymes, DNA sequencing reagents,
PCR related products, tissue culture reagents) $****** (1)
Other Expenses: Travel to coordinate Brazilian studies $****** (1)
Equipment: (microfuge; power supply, gel drier, vacuum pump) $****** (1)
TOTAL: Direct Costs $****** (1)
Indirect Costs (30%): $****** (1)
-------
Total Costs: $****** (1)
- ----------
(1) Confidential Information omitted and filed separately with the SEC.
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EXHIBIT 10(b)
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EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
DR. JOSHUA D. SCHEIN, DATED AS OF JANUARY 1, 1996
EMPLOYMENT AGREEMENT
Employment Agreement effective as of January 1, 1996 between VIROLOGIX
CORPORATION, a Delaware corporation (with its successors and assigns, referred
to as the "Corporation"), and Dr. Joshua D. Schein (referred to as "Schein").
Preliminary Statement
Schein is now employed as the President of the Corporation.
The Corporation desires to continue to employ Schein, and Schein wishes to
continue to be employed by the Corporation, upon the terms and subject to the
conditions set forth in this Agreement. The Corporation and Schein also wish to
enter into the other agreements set forth in this Agreement, all of which are
related to Schein's employment under this Agreement.
Agreement
Schein and the Corporation therefore agree as follows:
1. Employment for Term. The Corporation hereby employs Schein and Schein
hereby accepts employment with the Corporation for the period (the "Term")
beginning on the date of this Agreement and ending on December 31, 1997, or upon
the earlier termination of the Term pursuant to Section 6. The Term will
automatically be extended for an additional year upon the completion of
additional private financing(s) of at least an aggregate of $500,000 following
the completion of the Corporation's initial private financing. The termination
of the Term for any reason shall end Schein's employment under this Agreement,
but shall not terminate Schein's or the Corporation's other agreements in this
Agreement.
2. Position and Duties. During the Term, Schein shall serve as the
President of the Corporation. During the Term, Schein shall also hold such
additional positions and titles as the Board of Directors of the Corporation
(the "Board") may determine from time to time. During the Term, Schein shall
devote as much time as necessary to satisfactorily perform his duties as an
employee of the Corporation.
3. Compensation.
(a) Base Salary and Stock. The Corporation shall pay Schein a base
salary, beginning on the first day of the Term and ending on the last day of the
Term, of not less than $150,000 per annum, payable at least monthly on the
Corporation's regular pay cycle for professional employees. Additionally, the
Corporation shall pay Schein $6,000 as a one time payment in consideration for
certain work on behalf of the Corporation. The Corporation shall grant to Schein
100,000 options to purchase Common Stock of the Corporation at an exercise price
of $0.25. The Corporation shall thereafter grant 100,000 stock options per annum
to Schein exercisable at the then current market price. The Corporation shall
pay Schein a monthly car allowance of $500.
(b) Other and Additional Compensation. Section 3(a) establishes the
minimum compensation during the Term and shall not preclude the Board from
awarding Schein a higher salary or any bonuses or stock options in the
discretion of the Board during the Term at any time.
4. Employee Benefits. During the Term, Schein shall be entitled to the
employee benefits, including vacation, health and other insurance benefits made
available by the Corporation to any other officers or key employees of the
Corporation.
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5. Expenses. The Corporation shall reimburse Schein for actual
out-of-pocket expenses incurred by him in the performance of his services for
the Corporation upon the receipt of appropriate documentation of such expenses.
6. Termination.
(a) General. The Term shall end immediately upon Schein's death, and
upon a change of ownership of at least fifty percent (50%) of the outstanding
Common Stock of the Corporation (on a fully converted basis) by sale, merger,
consolidation or other means (a "Change in Ownership"). The Term may also end
for Cause or Disability, as defined in Section 7.
(b) Notice of Termination. Promptly after it ends the Term, the
Corporation shall give Schein notice of the termination, including a statement
of whether the termination was for Cause or Disability (as defined in Section
7(a) and 7(b) below). The Corporation's failure to give notice under this
Section 6(b) shall not, however, affect the validity of the Corporation's
termination of the Term.
(c) Termination upon Change in Ownership. Upon a Change in Ownership
of the Corporation, the Term shall end and all compensation due Schein under
this Agreement will become immediately due and payable.
7. Severance Benefits.
(a) "Cause" Defined. "Cause" means (i) willful malfeasance or
willful misconduct by Schein in connection with his employment; (ii) Schein's
gross negligence in performing any of his duties under this Agreement; (iii)
Schein's conviction of, or entry of a plea of guilty to, or entry of a plea of
nolo contendere with respect to, any crime other than a traffic violation or
infraction which is a misdemeanor; (iv) Schein's material breach of any written
policy applicable to all employees adopted by the Corporation; or (v) material
breach by Schein of any of his agreements in this Agreement.
(b) Disability Defined. "Disability" shall mean Schein's incapacity
due to physical or mental illness that results in his being unable to
substantially perform his duties hereunder for six consecutive months (or for
six months out of any nine month period). During a period of Disability, Schein
shall continue to receive his base salary hereunder, provided that if the
Corporation provides Schein with disability insurance coverage, payments of
Schein's base salary shall be reduced by the amount of any disability insurance
payments received by Schein due to such coverage. The Corporation shall give
Schein written notice of termination which shall take effect thirty (30) days
after the date it is sent to Schein unless Schein shall have returned to the
performance of his duties hereunder during such thirty (30) day period
(whereupon such notice shall become void).
8. Confidentiality.
(a) "Corporation Information" Defined. "Corporation Information"
means all information, knowledge or data of or pertaining to (i) the
Corporation, its employees and all work undertaken on behalf of the Corporation,
and (ii) any other person, firm, corporation or business organization with which
the Corporation may do business during the Term, that is not in the public
domain (and whether relating to methods, processes, techniques, discoveries,
pricing, marketing or any other matters).
(b) Confidentiality. Schein hereby recognizes that the value of all
trade secrets and other proprietary data and all other
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information of the Corporation not in the public domain disclosed by the
Corporation in the course of his employment with the Corporation is attributable
substantially to the fact that such confidential information is maintained by
the Corporation in strict confidentiality and secrecy and would be unavailable
to others without the expenditure of substantial time, effort or money. Schein
therefore, except as provided in the next two sentences, covenants and agrees
that all Corporation Information shall be kept secret and confidential at all
times during and after the end of the Term and shall not be used or divulged by
him outside the scope of his employment as contemplated by this Agreement,
except as the Corporation may otherwise expressly authorize by action of the
Board. In the event that Schein is requested in a judicial, administrative or
governmental proceeding to disclose any of the Corporation Information, Schein
will promptly so notify the Corporation so that the Corporation may seek a
protective order or other appropriate remedy and/or waive compliance with this
Agreement. If disclosure of any of the Corporation Information is required,
Schein may furnish the material so required to be furnished, but Schein will
furnish only that portion of the Corporation Information that legally is
required.
9. Successors and Assigns.
(a) Schein. This Agreement is a personal contract, and the rights
and interests that the Agreement accords to Schein may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him. All rights and benefits
of Schein shall be for the sole personal benefit of Schein, and no other person
shall acquire any right, title or interest under this Agreement by reason of any
sale, assignment, transfer, claim or judgment or bankruptcy proceedings against
Schein. Except as so provided, this Agreement shall inure to the benefit of and
be binding upon Schein and his personal representatives, distributees and
legatees.
(b) The Corporation. Subject to Section 6(c), this Agreement shall
be binding upon the Corporation and inure to the benefit of the Corporation and
of its successors and assigns.
10. Success Fee. Upon the successful completion of a transaction resulting
in a Change in Ownership of the Corporation, the Corporation shall pay to
Schein, in consideration of his work on behalf of the Corporation, a one time
cash payment equal to one and one-half percent (1.5%) of the total consideration
received by the Corporation.
11. Entire Agreement. This Agreement represents the entire agreement
between the parties concerning Schein's employment with the Corporation and
supersedes all prior negotiations, discussions, understandings and agreements,
whether written or oral, between Schein and the Corporation relating to the
subject matter of this Agreement.
12. Amendment or Modification, Waiver. No provision of this Agreement may
be amended or waived unless such amendment or waiver is agreed to in writing
signed by Schein and by a duly authorized officer of the Corporation. No waiver
by any party to this Agreement of any breach by another party of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of a similar or dissimilar condition or provision at the same
time, any prior time or any subsequent time.
13. Notices. Any notice to be given under this Agreement shall be in
writing and delivered personally or sent by overnight courier or registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party concerned at the address indicated below, or to such other address of
which such party subsequently may give notice in writing:
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If to Schein: Dr. Joshua D. Schein
666 Third Avenue
30th Floor
New York, NY 10017
If to the Corporation: VIROLOGIX CORPORATION
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Dr. Joshua D. Schein
with a copy to: Fitzpatrick Eilenberg & Zivian
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Jeffrey D. Abbey, Esq.
Any notice delivered personally or by overnight courier shall be deemed given on
the date delivered and any notice sent by registered or certified mail, postage
prepaid, return receipt requested, shall be deemed given on the date mailed.
14. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable shall not be affected, and each provision of this
Agreement shall be validated and shall be enforced to the fullest extent
permitted by law. If for any reason any provision of this Agreement containing
restrictions is held to cover an area or to be for a length of time that is
unreasonable or in any other way is construed to be too broad or to any extent
invalid, such provision shall not be determined to be entirely null, void and of
no effect; instead, it is the intention and desire of both the Corporation and
Schein that, to the extent that the provision is or would be valid or
enforceable under applicable law, any court of competent jurisdiction shall
construe and interpret or reform this Agreement to provide for a restriction
having the maximum enforceable area, time period and such other constraints or
conditions (although not greater than those contained currently contained in
this Agreement) as shall be valid and enforceable under the applicable law.
15. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16. Headings. All descriptive headings of sections and paragraphs in this
Agreement are intended solely for convenience of reference, and no provision of
this Agreement is to be construed by reference to the heading of any section or
paragraph.
17. Withholding Taxes. All salary, benefits, reimbursements and any other
payments to Schein under this Agreement shall be subject to all applicable
payroll and withholding taxes and deductions required by any law, rule or
regulation of and federal, state or local authority.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together constitute one and same instrument.
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19. Applicable Law: Jurisdiction. The laws of the State of New York shall
govern the interpretation, validity and performance of the terms of this
Agreement, without reference to rules relating to conflicts of law. Any suit,
action or proceeding against Schein with respect to this Agreement, or any
judgment entered by any court in respect thereof, may be brought in any court of
competent jurisdiction in the State of New York, as the Corporation may elect in
its sole discretion, and Schein hereby submits to the nonexclusive jurisdiction
of such courts for the purpose of any such suit, action, proceeding or judgment.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
/s/ Joshua D. Schein
----------------------------
Dr. Joshua D. Schein
VIROLOGIX CORPORATION
By: /s/ Judson A. Cooper
----------------------------
Judson A. Cooper, Vice President
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EXHIBIT 10(c)
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EMPLOYMENT AGREEMENT BETWEEN THE COMPANY AND
JUDSON A. COOPER, DATED AS OF JANUARY 1, 1996
EMPLOYMENT AGREEMENT
Employment Agreement effective as of January 1, 1996 between VIROLOGIX
CORPORATION, a Delaware corporation (with its successors and assigns, referred
to as the "Corporation"), and Judson A. Cooper (referred to as "Cooper").
Preliminary Statement
Cooper is now employed as the Vice President of the Corporation.
The Corporation desires to continue to employ Cooper, and Cooper wishes to
continue to be employed by the Corporation, upon the terms and subject to the
conditions set forth in this Agreement. The Corporation and Cooper also wish to
enter into the other agreements set forth in this Agreement, all of which are
related to Cooper's employment under this Agreement.
Agreement
Cooper and the Corporation therefore agree as follows:
1. Employment for Term. The Corporation hereby employs Cooper and Cooper
hereby accepts employment with the Corporation for the period (the "Term")
beginning on the date of this Agreement and ending on December 31, 1997, or upon
the earlier termination of the Term pursuant to Section 6. The Term will
automatically be extended for an additional year upon the completion of
additional private financing(s) of at least an aggregate of $500,000 following
the completion of the Corporation's initial private financing. The termination
of the Term for any reason shall end Cooper's employment under this Agreement,
but shall not terminate Cooper's or the Corporation's other agreements in this
Agreement.
2. Position and Duties. During the Term, Cooper shall serve as the Vice
President of the Corporation. During the Term, Cooper shall also hold such
additional positions and titles as the Board of Directors of the Corporation
(the "Board") may determine from time to time. During the Term, Cooper shall
devote as much time as necessary to satisfactorily perform his duties as an
employee of the Corporation.
3. Compensation.
(a) Base Salary and Stock. The Corporation shall pay Cooper a base
salary, beginning on the first day of the Term and ending on the last day of the
Term, of not less than $150,000 per annum, payable at least monthly on the
Corporation's regular pay cycle for professional employees. Additionally, the
Corporation shall pay Cooper $6,000 as a one time payment in consideration for
certain work on behalf of the Corporation. The Corporation shall grant to Cooper
100,000 options to purchase Common Stock of the Corporation at an exercise price
of $0.25. The Corporation shall thereafter grant 100,000 stock options per annum
to Cooper exercisable at the then current market price. The Corporation shall
pay Cooper a monthly car allowance of $500.
(b) Other and Additional Compensation. Section 3(a) establishes the
minimum compensation during the Term and shall not
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preclude the Board from awarding Cooper a higher salary or any bonuses or stock
options in the discretion of the Board during the Term at any time.
4. Employee Benefits. During the Term, Cooper shall be entitled to the
employee benefits, including vacation, health and other insurance benefits made
available by the Corporation to any other officers or key employees of the
Corporation.
5. Expenses. The Corporation shall reimburse Cooper for actual
out-of-pocket expenses incurred by him in the performance of his services for
the Corporation upon the receipt of appropriate documentation of such expenses.
6. Termination.
(a) General. The Term shall end immediately upon Cooper's death, and
upon a change of ownership of at least fifty percent (50%) of the outstanding
Common Stock of the Corporation (on a fully converted basis) by sale, merger,
consolidation or other means (a "Change in Ownership"). The Term may also end
for Cause or Disability, as defined in Section 7.
(b) Notice of Termination. Promptly after it ends the Term, the
Corporation shall give Cooper notice of the termination, including a statement
of whether the termination was for Cause or Disability (as defined in Section
7(a) and 7(b) below). The Corporation's failure to give notice under this
Section 6(b) shall not, however, affect the validity of the Corporation's
termination of the Term.
(c) Termination upon Change in Ownership. Upon a Change in Ownership
of the Corporation, the Term shall end and all compensation due Cooper under
this Agreement will become immediately due and payable.
7. Severance Benefits.
(a) "Cause" Defined. "Cause" means (i) willful malfeasance or
willful misconduct by Cooper in connection with his employment; (ii) Cooper's
gross negligence in performing any of his duties under this Agreement; (iii)
Cooper's conviction of, or entry of a plea of guilty to, or entry of a plea of
nolo contendere with respect to, any crime other than a traffic violation or
infraction which is a misdemeanor; (iv) Cooper's material breach of any written
policy applicable to all employees adopted by the Corporation; or (v) material
breach by Cooper of any of his agreements in this Agreement.
(b) Disability Defined. "Disability" shall mean Cooper's incapacity
due to physical or mental illness that results in his being unable to
substantially perform his duties hereunder for six consecutive months (or for
six months out of any nine month period). During a period of Disability, Cooper
shall continue to receive his base salary hereunder, provided that if the
Corporation provides Cooper with disability insurance coverage, payments of
Cooper's base salary shall be reduced by the amount of any disability insurance
payments received by Cooper due to such coverage. The Corporation shall give
Cooper written notice of termination which shall take effect thirty (30) days
after the date it is sent to Cooper unless Cooper shall have returned to the
performance of his duties hereunder during such thirty (30) day period
(whereupon such notice shall become void).
8. Confidentiality.
(a) "Corporation Information" Defined. "Corporation Information"
means all information, knowledge or data of or pertaining
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to (i) the Corporation, its employees and all work undertaken on behalf of the
Corporation, and (ii) any other person, firm, corporation or business
organization with which the Corporation may do business during the Term, that is
not in the public domain (and whether relating to methods, processes,
techniques, discoveries, pricing, marketing or any other matters).
(b) Confidentiality. Cooper hereby recognizes that the value of all
trade secrets and other proprietary data and all other information of the
Corporation not in the public domain disclosed by the Corporation in the course
of his employment with the Corporation is attributable substantially to the fact
that such confidential information is maintained by the Corporation in strict
confidentiality and secrecy and would be unavailable to others without the
expenditure of substantial time, effort or money. Cooper therefore, except as
provided in the next two sentences, covenants and agrees that all Corporation
Information shall be kept secret and confidential at all times during and after
the end of the Term and shall not be used or divulged by him outside the scope
of his employment as contemplated by this Agreement, except as the Corporation
may otherwise expressly authorize by action of the Board. In the event that
Cooper is requested in a judicial, administrative or governmental proceeding to
disclose any of the Corporation Information, Cooper will promptly so notify the
Corporation so that the Corporation may seek a protective order or other
appropriate remedy and/or waive compliance with this Agreement. If disclosure of
any of the Corporation Information is required, Cooper may furnish the material
so required to be furnished, but Cooper will furnish only that portion of the
Corporation Information that legally is required.
9. Successors and Assigns.
(a) Cooper. This Agreement is a personal contract, and the rights
and interests that the Agreement accords to Cooper may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him. All rights and benefits
of Cooper shall be for the sole personal benefit of Cooper, and no other person
shall acquire any right, title or interest under this Agreement by reason of any
sale, assignment, transfer, claim or judgment or bankruptcy proceedings against
Cooper. Except as so provided, this Agreement shall inure to the benefit of and
be binding upon Cooper and his personal representatives, distributees and
legatees.
(b) The Corporation. Subject to Section 6(c), this Agreement shall
be binding upon the Corporation and inure to the benefit of the Corporation and
of its successors and assigns.
10. Success Fee. Upon the successful completion of a transaction resulting
in a Change in Ownership of the Corporation, the Corporation shall pay to
Cooper, in consideration of his work on behalf of the Corporation, a one time
cash payment equal to one and one-half percent (1.5%) of the total consideration
received by the Corporation.
11. Entire Agreement. This Agreement represents the entire agreement
between the parties concerning Cooper's employment with the Corporation and
supersedes all prior negotiations, discussions, understandings and agreements,
whether written or oral, between Cooper and the Corporation relating to the
subject matter of this Agreement.
12. Amendment or Modification, Waiver. No provision of this Agreement may
be amended or waived unless such amendment or waiver is agreed to in writing
signed by Cooper and by a duly authorized officer of the Corporation. No waiver
by any party to this Agreement of any breach by another party of any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of a
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similar or dissimilar condition or provision at the same time, any prior time or
any subsequent time.
13. Notices. Any notice to be given under this Agreement shall be in
writing and delivered personally or sent by overnight courier or registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party concerned at the address indicated below, or to such other address of
which such party subsequently may give notice in writing:
If to Cooper: Judson A. Cooper
666 Third Avenue
30th Floor
New York, NY 10017
If to the Corporation: VIROLOGIX CORPORATION
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Joshua D. Schein
with a copy to: Fitzpatrick Eilenberg & Zivian
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Jeffrey D. Abbey, Esq.
Any notice delivered personally or by overnight courier shall be deemed given on
the date delivered and any notice sent by registered or certified mail, postage
prepaid, return receipt requested, shall be deemed given on the date mailed.
14. Severability. If any provision of this Agreement or the application of
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable shall not be affected, and each provision of this
Agreement shall be validated and shall be enforced to the fullest extent
permitted by law. If for any reason any provision of this Agreement containing
restrictions is held to cover an area or to be for a length of time that is
unreasonable or in any other way is construed to be too broad or to any extent
invalid, such provision shall not be determined to be entirely null, void and of
no effect; instead, it is the intention and desire of both the Corporation and
Cooper that, to the extent that the provision is or would be valid or
enforceable under applicable law, any court of competent jurisdiction shall
construe and interpret or reform this Agreement to provide for a restriction
having the maximum enforceable area, time period and such other constraints or
conditions (although not greater than those contained currently contained in
this Agreement) as shall be valid and enforceable under the applicable law.
15. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16. Headings. All descriptive headings of sections and paragraphs in this
Agreement are intended solely for convenience of reference, and no provision of
this Agreement is to be construed by reference to the heading of any section or
paragraph.
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17. Withholding Taxes. All salary, benefits, reimbursements and any other
payments to Cooper under this Agreement shall be subject to all applicable
payroll and withholding taxes and deductions required by any law, rule or
regulation of and federal, state or local authority.
18. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together constitute one and same instrument.
19. Applicable Law: Jurisdiction. The laws of the State of New York shall
govern the interpretation, validity and performance of the terms of this
Agreement, without reference to rules relating to conflicts of law. Any suit,
action or proceeding against Cooper with respect to this Agreement, or any
judgment entered by any court in respect thereof, may be brought in any court of
competent jurisdiction in the State of New York, as the Corporation may elect in
its sole discretion, and Cooper hereby submits to the nonexclusive jurisdiction
of such courts for the purpose of any such suit, action, proceeding or judgment.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
/s/ Judson A. Cooper
------------------------------
Judson A. Cooper
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
------------------------------
Joshua D. Schein, President
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EXHIBIT 10(d)
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CONSULTING AGREEMENT BETWEEN THE COMPANY AND
CSO VENTURES LLC, DATED AS OF JANUARY 1, 1996
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement"), dated as of January 1, 1996, between
Virologix Corporation, a Delaware corporation (the "Company"), and CSO Ventures
LLC (the "Consultant").
WHEREAS, the Company desires to retain Consultant, and Consultant desires
to be retained pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. Duties. The Company hereby retains the Consultant to provide
business development, operations and other advisory services, and the Consultant
hereby accepts such retention and shall perform for the Company the duties
described herein, faithfully and to the best of its ability.
2. Term. The Consultant's retention hereunder shall commence upon
the initial funding of the company and shall terminate on January 1, 2000,
unless within 90 days of that date, the parties elect by signed agreement to
renew or extend the term.
3. Compensation and Expenses.
(a) In consideration for Consultant's performing the Consulting
Services for the Company, the Company shall pay to Consultant a consulting fee
of $120,000 per year, payable monthly.
(b) In addition to its consulting fees, Consultant may also be paid
annual bonuses, and other compensation, including stock options, as may be
determined by the Board of Directors of the Company.
(c) The Company will reimburse Consultant for actual out-of-pocket
expenses incurred in connection with the performance of the Consulting Services,
provided that Consultant submits receipts or other expense records to the
Company in accordance with the Company's general reimbursement policy then in
effect.
4. Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the Company and its affiliates, successors and assigns and is
binding upon and inures to the benefit of Consultant and its successors and
assigns; provided that in no event shall Consultant's obligations to perform the
Consulting Services be delegated or transferred by Consultant without the prior
written consent of the Company.
5. Termination.
(a) This Agreement may only be terminated by the Company for Cause.
(b) The Company shall have "Cause" to terminate this Agreement upon
any material breach by Consultant of any provision of this Agreement.
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(c) In the event of a termination of this Agreement for Cause,
Consultant shall receive consulting fees only to the Date of Termination. If the
Company shall terminate Consultant other than for Cause, the Company shall be
obligated to pay Consultant the full amount of compensation due Consultant
hereunder through the completion of the term.
6. Confidentiality.
Consultant hereby recognizes that the value of all trade secrets and
other proprietary data and all other information of the Company not in the
public domain ("Confidential Information") disclosed by the Company in the
course of performing Consulting Services with the Company is attributable
substantially to the fact that such Confidential Information is maintained by
the Company in the strict confidentiality and secrecy and would be unavailable
to others without the expenditure of substantial time, effort or money.
Consultant, therefore, covenants and agrees to keep strictly secret and
confidential the Confidential Information of the Company in accordance with the
following provisions of this Section 6. Consultant covenants and agrees to
safeguard the Confidential Information of the Company disclosed to or otherwise
acquired by Consultant in the course of performing Consulting Services and to
prevent the disclosure or other dissemination thereof to any third party, or the
use thereof by any competitor. In implementation of the foregoing, Consultant
shall not disclose any of the Confidential Information of the Company to any
employee or consultant except those for whom disclosure is necessary for the
effective performance of their responsibilities as employees or consultants and,
in each case, only to the extent required for such effective performance of
responsibilities by employees or consultants to whom such disclosure is made
pursuant to this Section 6. The obligations undertaken by Consultant pursuant to
this Section 6 shall not apply to any Confidential Information which hereafter
shall become published or otherwise generally available to the public, except in
consequence of a willful or negligent act or admission by Consultant, or its
employees or consultants, in contravention of the obligations hereinabove set
forth in this Section 6, and such obligations shall, as so limited, survive
expiration or termination of this Agreement.
7. Representations and Warranties. Consultant represents and
warrants that it is not under any obligation, contractual or otherwise to any
person or entity which would prevent it from entering into this Agreement or
prevent, impede or hinder it from fully faithfully performing any of its duties
and services hereunder.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
9. Severability. If in any jurisdiction, any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability, without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reduction it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
IN WITNESS WHEREOF, this Consulting Agreement has been executed by the
Company and Consultant as of the date first written above.
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VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
---------------------
Authorized Officer
CSO VENTURES LLC
By: /s/ Judson. A. Cooper
----------------------
Authorized Officer
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EXHIBIT 10(e)
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CONSULTING AGREEMENT BETWEEN THE COMPANY AND
DR. WILLIAM W. HALL, DATED AS OF JANUARY 1, 1996
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement"), dated as of January 1, 1996, between
Virologix Corporation, a Delaware corporation having offices at 666 Third
Avenue, 30th Floor, New York, NY 10017 and Dr. William W. Hall, c/o The
Rockefeller University, 1230 York Avenue, New York, NY 10021 ("Consultant").
WHEREAS, the Company has entered into a License and Research Support
Agreement, dated as of February 27, 1996 ("the "License Agreement") with
Consultant's current employer The Rockefeller University ("Rockefeller")
covering certain technology relating to vaccines and therapeutics, and the
development of animal models for use in pharmaceutical discovery.
WHEREAS, in connection with the License Agreement and the Company's
support of scientific research to be engaged in by Rockefeller thereunder, the
Company desires to retain Consultant, and Consultant desires to be retained, as
a part-time Chief Scientific Advisor, all pursuant to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. Duties. The Company hereby retains the Consultant as its
part-time Chief Scientific Advisor, to assist in the administration of the
License Agreement and in the performance of scientific research thereunder in
research laboratories at Rockefeller (the "Consulting Services"), and the
Consultant hereby accepts such retention and shall perform for the Company the
duties described herein, faithfully and to the best of his ability. In this
regard, Consultant shall devote an average of 19% of his business time and
attention to matters on which the Company shall request his services, subject to
the direction of senior management of the Company.
2. Term. The Consultant's retention hereunder shall be for a term of
two (2) years (the "Initial Term") commencing as of the date hereof, and shall
be automatically renewed for up to three additional one (1) year periods (each
period a "Renewal Term"; together with the Initial Term, the "Consultancy
Period") unless either party notifies the other in writing of its intention not
to so renew this Agreement no less than 90 days prior to the expiration of the
Initial Term or any Renewal Term.
3. Place of Performance. In connection with rendering Consulting
Services to the Company, Consultant shall be based in New York, NY, where the
Company currently has its executive offices and where Rockefeller's research
laboratories currently are located. Consultant acknowledges that the Company may
require that from time to time Consultant travel on behalf of the Company in
connection with scientific conferences or meetings with potential strategic or
financial partners or advisors, or in connection with potential financing
transactions, and the Company shall give Consultant reasonable prior notice of
such requirements and an approximation of the number of days that Consultant's
services will be required.
4. Compensation and Expenses.
(a) In consideration for Consultant's performing the Consulting
Services for the Company, the Company shall pay to Consultant a consulting fee
of $75,000 per year, payable quarterly in advance.
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(b) In addition to its consulting fees, Consultant may also be paid
annual bonuses and other compensation, including stock options, as may be
determined by the Board of Directors of the Company.
(c) The Company will reimburse Consultant for actual out-of-pocket
expenses incurred in connection with the performance of the Consulting Services,
provided that Consultant submits receipts or other expense records to the
Company in accordance with the Company's general reimbursement policy then in
effect.
5. Employee Benefit Plans. Because Consultant is a consultant to and
not an employee of the Company, Consultant shall not be entitled to participate
in any employee benefit plans in effect for employees of the Company.
6. Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the Company and its affiliates, successors and assigns and is
binding upon and inures to the benefit of Consultant and his successors and
assigns; provided that in no event shall Consultant's obligations to perform the
Consulting Services be delegated or transferred by Consultant without the prior
written consent of the Company.
7. Termination.
(a) This Agreement may only be terminated by the Company for Cause,
or upon Consultant's death or Disability.
(b) The Company shall have "Cause" to terminate this Agreement upon
(i) Consultant's conviction of, or plea of "no contest" to, any felony; or (ii)
any material breach by Consultant of any provision of this Agreement.
(c) "Disability" shall mean Consultant's incapacity due to physical
or mental illness that results in his being unable to substantially perform his
duties hereunder for six consecutive months (or for six months out of any nine
month period). The Company shall give Consultant written notice of termination
which shall take effect thirty (30) days after the date it is sent to Consultant
unless Consultant shall have returned to the performance of his duties hereunder
during such thirty (30) day period (whereupon such notice shall become void).
(d) In the event of a termination of this Agreement for Cause, or
Consultant's death or Disability, Consultant shall receive consulting fees only
to the Date of Termination. If the Company shall terminate Consultant other than
for Cause or his death or Disability, the Company shall be obligated to pay
Consultant the full amount of compensation due Consultant hereunder through the
completion of the Initial Term, or the Renewal Term, as the case may be, then in
effect at the time of termination.
8. Inventions, Patents and Technology. Consultant shall promptly and
fully disclose to the Company any and all inventions, methods, improvements,
discoveries, original works of authorship, trade secrets, or other intellectual
property conceived, developed or reduced to practice by Consultant or any of his
employees, consultants or research assistants, during the performance of the
Consulting Services hereunder or derived from Confidential Information, as
hereinafter defined, including without limitation, as relates to the Core
Technology, as defined in the License Agreement (collectively, "Work Product").
Consultant shall treat all Work Product as the Confidential Information of the
Company. Consultant agrees and does hereby assign to the Company and its
successors and assigns, without further consideration, his entire right, title
and interest in and to all Work Product developed during the performance of
Consulting Services hereunder or derived from any Confidential Information,
whether or not
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patentable or copyrightable, subject only to the provisions of the License
Agreement and Rockefeller's rights thereunder and any other existing written
agreement Consultant may have with Rockefeller. Consultant further agrees to
execute all applications for patents and/or copyrights, domestic or foreign,
assignments and other papers necessary to secure and enforce rights relating to
the Work Product. The parties acknowledge that all original works of authorship
that are made by Consultant within the scope of the Consulting Services and that
may be protected by copyrighted are "works made for hire," as that time is
defined in the United States Copyright Act (17 USC Section 101).
9. Covenants.
(a) Consultant hereby recognizes that the value of all trade secrets
and other proprietary data and all other information of the Company not in the
public domain ("Confidential Information") disclosed by the Company in the
course of performing Consulting Services with the Company is attributable
substantially to the fact that such Confidential Information is maintained by
the Company in the strict confidentiality and secrecy and would be unavailable
to others without the expenditure of substantial time, effort or money.
Consultant, therefore, covenants and agrees to keep strictly secret and
confidential the Confidential Information of the Company in accordance with the
following provisions of this Section 9(a), subject only to the provisions of the
License Agreement and Rockefeller's rights thereunder. Consultant covenants and
agrees to safeguard the Confidential Information of the Company disclosed to or
otherwise acquired by Consultant in the course of performing Consulting Services
and to prevent the disclosure or other dissemination thereof to any third party,
or the use thereof by any competitor. In implementation of the foregoing,
Consultant shall not disclose any of the Confidential Information of the Company
to any employee, consultant or research assistant except those for whom
disclosure is necessary for the effective performance of their responsibilities
as employees, consultants or research assistants and, in each case, only to the
extent required for such effective performance of responsibilities by employees,
consultants or research assistants to whom such disclosure is made pursuant to
this Section 9(a). The obligations undertaken by Consultant pursuant to this
Section 9(a) shall not apply to any Confidential Information which hereafter
shall become published or otherwise generally available to the public, except in
consequence of a willful or negligent act or admission by Consultant, or his
employees, consultants or research assistants, in contravention of the
obligations hereinabove set forth in this Section 9(a), and such obligations
shall, as so limited, survive expiration or termination of this Agreement.
(b) Consultant shall not, during or after the term of this
Agreement, make any statement or do any act which will disparage or injure the
goodwill or reputation of the Company.
(c) Consultant acknowledges and agrees that (i) the principal
business of the Company is development of the Core Technology, as defined in the
License Agreement; (ii) he is one of the limited number of persons who has
developed such business; (iii) the business of the Company is conducted
primarily throughout the United States but also internationally; (iv) his work
for the Company has included the identification and solicitation of present and
prospective strategic partners; (v) his work for the Company has provided him,
and his consulting services for the Company will continue to provide him, with
confidential information. To induce the Company to enter into this Agreement,
Consultant covenants and agrees that:
(i) From the date hereof and until the date that is two (2)
years from the expiration of the Consultancy Period (the "Restricted Period"),
Consultant shall not unless with written consent of the Company:
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(A) engage in the business of research and development of the Core
Technology, or, (I) during the Consultancy Period, engage in the
business of research and development of any other products or
processes in which the Company is engaged during the term of this
Agreement or in any other business presently being conducted or
which may from time to time be conducted by the Company, or, (II)
during the two year period after the end of the Consultancy Period,
engage in the business of research and development of any other
products or processes in which the Company had been engaged at the
end of the Consultancy Period or for the six (6) months prior
thereto or in any other business conducted by the Company at the end
of the Consultancy Period or for the six (6) months prior thereto
(collectively the "Prohibited Activity") in the United States or
elsewhere for his own account;
(B) directly or indirectly, enter the employ of, or render any
services to, any individual, corporation, partnership or other
business entity (a "Person") engaged in any Prohibited Activity in
the United States or elsewhere; or
(C) become interested in any Person engaged in any Prohibited
Activity in the United States, directly or indirectly, as an
individual, partner, shareholder, officer, director, principal,
agent, employee, trustee, consultant or in any other relationship or
capacity; provided, however, that Consultant may own directly or
indirectly, solely as an investment, securities of any Person which
are traded on any national securities exchange if Consultant (x) is
not a controlling person of, or a member of a group which controls,
such person or (y) does not, directly or indirectly, own 5% or more
of any class of securities of such person;
(ii) directly or indirectly hire, engage or retain any person
which at any time during the Restricted Period or for the two year period prior
thereto was a supplier, client or customer of the Company, or directly or
indirectly solicit, entice or induce any such person to become, a supplier,
client or customer of any other person engaged in any Prohibited Activity; or
(iii) directly or indirectly hire, employ or retain any person
who at any time was an employee of the Company or directly or indirectly
solicit, entice, induce or encourage any such person to become employed by any
other person.
(d) The restrictions of Section 9(c) shall continue to apply in the
event that the Consultant elects not to renew this Agreement in accordance with
the provisions of Section 2.
(e) Notwithstanding the foregoing, the restrictions of Section 9(c)
shall not apply in the event Consultant is terminated without Cause by the
Company or if the rights to the Core Technology revert back to The Rockefeller
University.
(f) Consultant hereby acknowledges that the covenants and agreements
contained in Sections 8 and 9 (the "Restrictive Covenants") are reasonable and
valid in all respects and that the Company is entering into this Agreement,
inter alia, on such acknowledgment. If Consultant breaches, or threatens to
commit a breach, of any of the Restrictive Covenants, the Company shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity: (i) the right and
remedy to have the Restrictive Covenants specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to the Company and
that money damages will not provide an adequate remedy to the Company; (ii) the
right and remedy to require Consultant
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to account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively, "Benefits") derived or
received by Consultant as the result of any transactions constituting a breach
of any of the Restrictive Covenants, and Consultant shall account for and pay
over such Benefits to the Company; (iii) if any court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions; and (iv) if any
court construes any of the Restrictive Covenants, or any part thereof, to be
unenforceable because of the duration of such provision or the area covered
thereby, such court shall have the power to reduce the duration or area of such
provision and, in its reduced form, such provision shall then be enforceable and
shall be enforced.
(g) The parties intend to and hereby confer jurisdiction to enforce
the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Covenants. If the courts of any one or more such
jurisdictions hold the Restrictive Covenants wholly unenforceable by reason of
the breadth of such scope or otherwise, it is the intention of the parties that
such determination not bar or in any way affect the Company's right to the
relief provided above in the courts of any other jurisdiction, within the
geographical scope of such Covenants, as to breaches of such Covenants in such
other respective jurisdictions such Covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
10. Representations and Warranties. Consultant represents and
warrants that he is not under any obligation, contractual or otherwise, to
Rockefeller or to any other person, which would prevent his entering into this
Agreement or prevent, impede or hinder his fully faithfully performing any of
his duties and services hereunder.
11. Notice. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given (i) when delivered, if personally delivered, (ii) when sent
by facsimile transmission, when receipt therefor has been duly received, or
(iii) when mailed by United States registered mail, return receipt requested,
postage prepaid, or by recognized overnight courier, addressed as follows:
If, to Consultant:
Dr. William W. Hall
c/o Rockefeller University
1230 York Avenue
New York, NY 10021
Fax: 212-327-7584
If, to the Company:
Virologix Corporation
666 Third Avenue, 30th Floor
New York, NY 10017
Attention: President
Fax: 212-986-2399
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by authorized officers of each party. No waiver by either
party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No
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<PAGE>
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the internal
laws of the State of New York. Any controversy arising under or in relation to
this Agreement shall be settled by binding arbitration in New York, New York in
accordance with the laws of the State of New York and the rules of the American
Arbitration Association.
13. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Severability. If in any jurisdiction, any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability, without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reduction it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
IN WITNESS WHEREOF, this Consulting Agreement has been executed by the
Company and Consultant as of the date first written above.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
----------------------------
Authorized Officer
/s/ William E. Hall
-------------------------------
Dr. William W. Hall
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AMENDMENT TO CONSULTING AGREEMENT
WHEREAS, Virologix Corporation, a Delaware corporation having
offices at 666 Third Avenue, 30th Floor, New York, NY 10017 (the "Company") and
Dr. William W. Hall, c/o University College Dublin, Department of Microbiology,
Belfield, Dublin 4, Ireland (the "Consultant") have entered into a consulting
agreement dated as of January 1, 1996 (the "Agreement").
WHEREAS, the Consultant has relocated from The Rockefeller
University to University College, Dublin ("Dublin"), the parties hereby amend
the Agreement as follows:
Paragraph 1 is amended to read:
1. Duties. The Company hereby retains the Consultant as its
part-time Chief Scientific Advisor, to assist in the administration of the
License Agreement and in the performance of scientific research thereunder in
research laboratories at Dublin (the "Consulting Services"), and the Consultant
hereby accepts such retention and shall perform for the Company the duties
described herein, faithfully and to the best of his ability. In this regard,
Consultant shall devote an average of 19% of his business time and attention to
matters on which the Company shall request his services, subject to the
direction of senior management of the Company.
Paragraph 3 is amended to read:
3. Place of Performance. In connection with rendering Consulting
Services to the Company, Consultant shall be based in Dublin, Ireland, where
Dublin's research laboratories currently are located. Consultant acknowledges
that the Company may require that from time to time Consultant travel on behalf
of the Company in connection with scientific conferences or meetings with
potential strategic or financial partners or advisors, or in connection with
potential financing transactions, and the Company shall give Consultant
reasonable prior notice of such requirements and an approximation of the number
of days that Consultant's services will be required.
Paragraph 5 is amended to read:
5. Inventions, Patents and Technology. Consultant shall promptly and
fully disclose to the Company any and all inventions, methods, improvements,
discoveries, original works of authorship, trade secrets, or other intellectual
property conceived, developed or reduced to practice by Consultant or any of his
employees, consultants or research assistants, during the performance of the
Consulting Services hereunder or derived from Confidential Information, as
hereinafter defined, including without limitation, as relates to the Core
Technology, as defined in the License Agreement (collectively, "Work Product").
Consultant shall treat all Work Product as the Confidential Information of the
Company. Consultant agrees and does hereby assign to the Company and its
successors and assigns, without further consideration, his entire right, title
and interest in and to all Work Product developed during the performance of
Consulting Services hereunder or derived from any Confidential Information,
whether or not patentable or copyrightable, including all Work Product developed
at Dublin, subject only to the provisions of the License Agreement and
Rockefeller's rights thereunder and any other existing written agreement
Consultant may have with Rockefeller. Consultant further agrees to execute all
applications for patents and/or copyrights, domestic or foreign, assignments and
other papers necessary to secure and enforce rights relating to the Work
Product. The parties acknowledge that all
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<PAGE>
original works of authorship that are made by Consultant within the scope of the
Consulting Services and that may be protected by copyrighted are "works made for
hire," as that time is defined in the United States Copyright Act (17 USC
Section 101).
Paragraph 10 is amended to read:
10. Representations and Warranties. Consultant represents and
warrants that he is not under any obligation, contractual or otherwise, to
Rockefeller, Dublin, or to any other person, which would prevent his entering
into this Agreement or prevent, impede or hinder his fully faithfully performing
any of his duties and services hereunder.
Paragraph 11 is amended to read:
11. Notice. For the purpose of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given (i) when delivered, if personally delivered, (ii) when sent
by facsimile transmission, when receipt therefor has been duly received, or
(iii) when mailed by United States registered mail, return receipt requested,
postage prepaid, or by recognized overnight courier, addressed as follows:
If, to Consultant:
Dr. William W. Hall
c/o University College Dublin
Department of Microbiology
Belfield, Dublin 4
Ireland
Fax: 011-353-1-269-7611
If, to the Company:
Virologix Corporation
666 Third Avenue, 30th Floor
New York, NY 10017
Attention: President
Fax: 212-986-2399
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
IN WITNESS WHEREOF, this Amendment to Consulting Agreement has been
executed by the Company and Consultant as of June 21, 1996.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
-------------------------
Authorized Officer
/s/ William W. Hall
-----------------------------
Dr. William W. Hall
E-136
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EXHIBIT 10(f)
E-137
<PAGE>
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement"), dated as of January 1, 1996, between
Virologix Corporation, a Delaware corporation (the "Company"), and Richard B.
Stone (the "Consultant").
WHEREAS, the Company desires to retain Consultant, and Consultant desires
to be retained pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
and covenants herein contained, it is agreed as follows:
1. Duties. The Company hereby retains the Consultant to provide
business development, operations and other advisory services, and the Consultant
hereby accepts such retention and shall perform for the Company the duties
described herein, faithfully and to the best of its ability.
2. Term. The Consultant's retention hereunder shall commence upon
the initial funding of the Company and shall terminate on February 15, 1998,
unless within 90 days of that date, the parties elect by signed agreement to
renew or extend the term.
3. Compensation and Expenses.
(a) In consideration for Consultant's performing the Consulting
Services for the Company, the Company shall pay to Consultant a consulting fee
of $120,000 per year, payable monthly.
(b) In addition to its consulting fees, Consultant may also be paid
annual bonuses, and other compensation, including stock options, as may be
determined by the Board of Directors of the Company.
(c) The Company will reimburse Consultant for actual out-of-pocket
expenses incurred in connection with the performance of the Consulting Services,
provided that Consultant submits receipts or other expense records to the
Company in accordance with the Company's general reimbursement policy then in
effect.
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<PAGE>
4. Successors and Assigns. This Agreement is binding upon and inures
to the benefit of the Company and its affiliates, successors and assigns and is
binding upon and inures to the benefit of Consultant and its successors and
assigns; provided that in no event shall Consultant's obligations to perform the
Consulting Services be delegated or transferred by Consultant without the prior
written consent of the Company.
5. Termination.
(a) This Agreement may only be terminated by the Company for Cause.
(b) The Company shall have "Cause" to terminate this Agreement upon
any material breach by Consultant of any provision of this Agreement.
(c) In the event of a termination of this Agreement for Cause,
Consultant shall receive consulting fees only to the Date of Termination. If the
Company shall terminate Consultant other than for Cause, the Company shall be
obligated to pay Consultant the full amount of compensation due Consultant
hereunder through the completion of the term.
6. Confidentiality.
Consultant hereby recognizes that the value of all trade secrets and
other proprietary data and all other information of the Company not in the
public domain ("Confidential Information") disclosed by the Company in the
course of performing Consulting Services with the Company is attributable
substantially to the fact that such Confidential Information is maintained by
the Company in the strict confidentiality and secrecy and would be unavailable
to others without the expenditure of substantial time, effort or money.
Consultant, therefore, covenants and agrees to keep strictly secret and
confidential the Confidential Information of the Company in accordance with the
following provisions of this Section 6. Consultant covenants and agrees to
safeguard the Confidential Information of the Company disclosed to or otherwise
acquired by Consultant in the course of performing Consulting Services and to
prevent the disclosure or other dissemination thereof to any third party, or the
use thereof by any competitor. In implementation of the foregoing, Consultant
shall not disclose any of the Confidential Information of the Company to any
employee or consultant except those for whom disclosure is necessary for the
effective performance of their responsibilities as employees or consultants and,
in each case, only to the extent required for such effective performance of
responsibilities by employees or consultants to whom such disclosure is made
pursuant to this Section 6. The obligations undertaken by Consultant pursuant to
this Section 6 shall not apply to any Confidential Information which hereafter
shall become published or otherwise generally available to the public, except in
consequence of a willful or negligent act or admission by Consultant, or its
employees or consultants, in contravention of the obligations hereinabove set
forth in this Section 6, and such obligations shall, as so limited, survive
expiration or termination of this Agreement.
7. Representations and Warranties. Consultant represents and
warrants that it is not under any obligation, contractual or otherwise to any
person or entity which would prevent it from entering into this Agreement or
prevent, impede or hinder it from fully faithfully performing any of its duties
and services hereunder.
8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
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<PAGE>
9. Severability. If in any jurisdiction, any provision of this
Agreement or its application to any party or circumstance is restricted,
prohibited or unenforceable, such provision shall, as to such jurisdiction, be
ineffective only to the extent of such restriction, prohibition or
unenforceability, without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reduction it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
IN WITNESS WHEREOF, this Consulting Agreement has been executed by the
Company and Consultant as of the date first written above.
VIROLOGIX CORPORATION
By:/s/ Joshua D. Schein
-----------------------------
Authorized Officer
/s/ Richard B. Stone
-----------------------------
RICHARD B. STONE
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<PAGE>
EXHIBIT 11(a)
E-141
<PAGE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
September 30,1996 December 31, 1995
-------------------------------- ------------------------------
Days Weighted Avg. Days Weighted Avg.
Shares Outstanding Shares 0utstanding Outstanding Shares Outstanding
------ ----------- ------------------ ------------------------------
<S> <C> <C> <C> <C> <C>
Shares to founders 1,800,000 274 1,800,000 4 1,800,000
Shares issued in April
1996 private placement 450,000 151 247,993 -- --
Cheap stock consideration
for shares issued in April
1996 private placement 325,000 123 145,894 4 325,000
Shares issued in connection
with Bridge Financing 135,000 59 29,069 -- --
Cheap stock consideration for
shares issued in connection
with Bridge Financing 54,000 215 42,372 4 54,000
Cheap stock consideration for
stock options and warrants
issued during 1996 143,531 274 143,531 4 143,531
----------- -----------
Weighted average
shares outstanding 2,408,859 2,322,531
Net loss for period $ (842,668) $ (1,000)
----------- -----------
Net loss per common share $ (0.35) --
=========== ==========
</TABLE>
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EXHIBIT 24(a)
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<PAGE>
CONSENT OF EILENBERG & ZIVIAN
November 21, 1996
Virologix Corporation
666 Third Avenue, 30th Floor
New York, NY 10017
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 (the "Registration
Statement") to be filed by you with the Securities and Exchange Commission in
connection with an offering (the "Public Offering") of 1,322,500 shares of
common stock, par value $.0001 per share (the "Common Stock"), of Virologix
Corporation (the "Company"), and up to 115,000 shares of the Company's Common
Stock issuable upon exercise of a certain Underwriter's Warrant (the "Warrant
Shares"; the Offering shares and the Warrant Shares collectively referred to as
the "Shares"). As your counsel in connection with the Public Offering and the
offer and sale of the Common Stock, we have examined the originals, or
photostatic or certified copies, of such records of the Company, certificates of
the Company and of public officials and such other matters and documents as we
have deemed necessary or relevant as a basis for this opinion.
Based on these examinations, it is our opinion that the Shares, when issued upon
payment therefor, will be validly issued, fully paid and non-assessable shares
of Common Stock of the Company.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Eilenberg & Zivian
----------------------
EILENBERG & ZIVIAN
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EXHIBIT 24(b)
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated November 6, 1996
relating to the financial statements of Virologix Corporation, which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ----------------------------
PRICE WATERHOUSE LLP
New York, New York
November 21, 1996
E-146
