<PAGE>
As filed with the Securities and Exchange Commission on February 21, 1997
Registration Statement No. 333-16677
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1 TO
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)
----------------
PETER V. GOLIKOV, 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
<PAGE>
statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
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 9.30 1,069,500 325
- ---------------------------------------------------------------------------------------------------------------------
Total: $ 2,974
</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 February 21, 1997
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"). It is currently anticipated that the initial offering price will
be $6.00 per share.
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 Company is a development stage, biopharmaceutical company which has
suffered operating losses since its inception and which has received a going
concern opinion from its independent accountants. As of December 31, 1996, the
Company had an accumulated deficit of $1,199,608 and a working capital deficit
of $197,433. The Company expects to incur substantial additional operating
losses in completing the commercialization of its technologies.
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 16).
-----------------------------
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 __________ , 1997
<PAGE>
[Inside Front Cover 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 $280,000) 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 Other Expenses 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 GKN Securities Corp., 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."
Upon the consummation of the Offering, the Company's management and its
existing stockholders will, in the aggregate, own beneficially shares having
approximately 67% of the total voting power of the Company's outstanding stock.
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 _______________________________________, 1997.
TO INVEST IN THESE SECURITIES, A CALIFORNIA RESIDENT MUST HAVE, AS A
MINIMUM, EITHER (i) A NET WORTH OF $250,000, EXCLUSIVE OF HOME, HOME FURNISHINGS
AND AUTOMOBILES, AND $65,000 OF GROSS INCOME DURING THE LAST TAX YEAR AND
ESTIMATED GROSS INCOME OF $65,000 FOR THE CURRENT TAX YEAR OR (ii) A NET WORTH
OF $500,000, EXCLUSIVE OF HOME, HOME FURNISHINGS AND AUTOMOBILES.
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>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary......................................................... 1
Risk Factors............................................................... 5
Use of Proceeds............................................................ 14
Capitalization............................................................. 15
Dilution................................................................... 16
Dividend Policy............................................................ 17
Selected Financial Data.................................................... 18
Plan of Operation.......................................................... 19
Business................................................................... 21
Management................................................................. 31
Principal Stockholders..................................................... 36
Certain Transactions....................................................... 37
Description of Securities.................................................. 38
Shares Eligible for Future Sale............................................ 39
Concurrent Registration of Common Stock.................................... 40
Underwriting............................................................... 41
Legal Matters.............................................................. 43
Experts.................................................................... 43
Available Information...................................................... 43
Glossary................................................................... 44
Index to Financial Statements.............................................. F-1
</TABLE>
----------------
Until ______________, 1997 (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 273,750 shares of Common Stock.
For a definition of certain terms used in this Prospectus, see the Glossary
commencing on page 44.
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. All blood donated in the United States, Europe and Japan is
screened for HTLV-I and HTLV-II contamination.
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 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 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
<PAGE>
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 ("University College") 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 $5,615,000, 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 95,000 shares of Common Stock, at exercise prices ranging from
$1.67 to $6.00 per share, have been granted and are outstanding under the
Plan); (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") and (iii) 10,000 shares of Common Stock
reserved for issuance upon exercise of warrants granted to Dr. Hilary
Koprowski, a member of the Company's Scientific Advisory Board, at an
exercise price of $3.00 per share (the "Koprowski Warrants"). See
"Management--1996 Incentive and Non-Qualified Stock Option Plan,"
"Management--Scientific Advisors" 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
2
<PAGE>
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
95,000 shares of Common Stock, at exercise prices ranging from $1.67 to
$6.00 per share, have been granted and are outstanding under the Plan);
and (iv) 178,750 shares of Common Stock reserved for issuance upon the
exercise of the Hall and Koprowski Warrants. See "Management--1996
Incentive and Non-Qualified Stock Option Plan," "Management--
Scientific Advisors," "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 Year 1995 (Date of
Inception) to Ended Inception) to
December 31, 1995 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Statement of Operations Data:
Operating Expenses:
General and administrative........ $ 1,000 $ 699,662 $ 670,662
Research and development.......... - 349,715 349,715
-------- ----------- -----------
Total operating expenses....... 1,000 1,019,377 1,020,377
Interest expense, net............. - (179,231) (179,231)
-------- ----------- -----------
Net loss ...................... $ (1,000) $(1,198,608) $(1,199,608)
======== =========== ===========
Net loss per common share(1)... - $(0.49)
===== =====
<CAPTION>
December 31, 1996
-----------------
Actual As Adjusted(3)
------ --------------
<S> <C> <C>
Balance Sheet Data:
Working capital.......... $(197,433) $ 5,318,119
Total assets............. 536,033 5,459,725
Total liabilities(2)..... 519,997 68,997
Stockholders' equity..... 16,036 5,390,728
</TABLE>
- ----------
(1) For information concerning the computation of net loss per common 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 $324,000.
(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; Working Capital 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 December 31, 1996, the Company had an accumulated deficit of $1,199,608
and a working capital deficit of $197,433. 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's ability to continue as a going concern
is dependent on its ability to generate sufficient cash flow to meet its
obligations as they become due. 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. See Financial Statements
and Notes thereto.
3. Early Stage of Development; Absence of Products; No Commercialization of
Products Expected in Near Future
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 unproven scientific approaches. There is,
therefore, substantial risk that these approaches may not prove to be
successful. See "Business."
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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. In addition, for a period of 18 months after the date of this
Prospectus, the Underwriter's prior written consent is required if the Company
raises additional funds through the issuance of equity. This may result in the
Company being required to raise needed funding through the issuance of debt. 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" and "Underwriting."
5. Management's Broad Discretion in Application of Proceeds
The Company intends to use approximately $775,000, or 13.8%, 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."
6. 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
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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."
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.
7. 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. The Company
currently has a license agreement with Rockefeller and an employment agreement
with Dr. Hall. 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. See "Business--Licenses and Collaborative Research" and
"Certain Transactions."
8. 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.
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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.
9. 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
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."
10. 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."
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11. 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 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."
12. 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.
13. 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. Two of the Company's
officers, Dr. Joshua Schein and Judson Cooper, are also officers of SIGA
Pharmaceuticals, Inc. and Callisto Pharmaceuticals, Inc., privately held
development stage pharmaceutical companies, and devote
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substantial amounts of their time to the three companies on a substantially
equal basis. Although the Company has entered into employment agreements with
Mr. Golikov, Dr. Schein, Mr. Cooper and Dr. Hall, any of such persons may
terminate his employment arrangement with the Company at any time and on short
notice. Accordingly, there can be no assurance that these employees 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 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.
14. Potential Product Liability and Availability of Insurance
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
The use of the Company's drug candidates in clinical trials may expose the
Company to product liability claims and possible adverse publicity. These risks
will expand with respect to the Company's drug candidates, if any, that receive
regulatory approval for commercial sale. Product liability insurance for the
biotechnology industry is generally expensive, if available at all. The Company
does not have product liability insurance but intends to obtain such coverage if
and when its drug candidates are tested in clinical trials. There can be no
assurance, however, that the Company will be able to obtain insurance coverage
at acceptable costs or in a sufficient amount, if at all, or that a product
liability claim would not adversely affect the Company's business, operating
results or financial condition.
15. Lack of Research and Development Facilities
The Company does not maintain its own research and development facilities
and does not intend to construct such facilities in the future. The Company
sponsors research and development activities at Dr. Hall's laboratory at
University College. The Company's research and development efforts, therefore,
are dependent upon its continued relationship with Dr. Hall and University
College. In the absence of such relationship, the Company would need to develop
a new research and development arrangement with a third party, the availability
of which there can be no assurance. Any delay in finding suitable research and
development facilities would postpone commercialization of the Company's
products. See "Business--Business Strategy" and "--Human Resources and
Facilities."
16. 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
between 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
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of the Common Stock will not experience significant
fluctuations or decline below the initial public offering price.
17. 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 and Koprowski 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."
18. Potential Conflicts of Interest
Certain persons who are principal stockholders and executive officers of
the Company are involved in various relationships that could result in conflicts
between their interests and those of other stockholders of the Company. Dr.
Schein and Mr. Cooper have employment arrangements with two other operating
companies, one of which is also in the process of making its initial public
offering of securities, which could force one or both of them to compromise or
divert their business attention from the concerns of the Company from time to
time. Additionally, Dr. Schein and Mr. Cooper, together with Steven Oliveira, an
employee of the Underwriter, are the principals of CSO Ventures LLC ("CSO"), a
privately held limited liability company which is the largest stockholder of the
Company. Under the terms of Dr. Schein and Mr. Cooper's employment agreements
with the Company, they are each entitled to the payment of certain fees in
connection with any sale of the Company. This provision, together with lower
prices paid by them for their shares of Common Stock relative to the prices paid
by investors in this Offering, could result in a situation in which the purchase
price paid in connection with any sale of the Company represents a gain on
their investment in the Company while simultaneously representing a loss to
investors in this Offering. See "Certain Transactions" and "Principal
Stockholders."
19. Lack of Dividends
The Company has not paid any dividends and does not contemplate paying
dividends in the foreseeable 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."
20. 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 and Koprowski 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 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
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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."
21. Dilution
This Offering involves immediate dilution of $4.47 (75%) 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. Investors
in the Offering will contribute approximately 85% of the aggregate consideration
received for the aggregate number of shares of Common Stock outstanding after
the Offering, but will only own approximately 33% of the aggregate number of
shares of Common Stock outstanding after the Offering. See "Dilution."
22. 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. The Company, however,
has no intention of adopting a stockholder rights plan ("poison pill") in the
foreseeable future. See "Description of Securities--Preferred Stock."
23. 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.
24. Risks of Low-Priced Stock; "Penny Stock" Restrictions
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
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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.
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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 $5,615,000 ($6,515,450 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:
<TABLE>
<C>
Approximate
Approximate Percentage
Application of Proceeds Dollar Amount of Net Proceeds
----------------------- ------------- ----------------
<S> <C> <C>
Repayment of Bridge Notes
and accrued interest thereon(1).............. $ 775,000 13.8%
Research and development...................... 1,550,000 27.6%
General and Administrative.................... 825,000 14.7%
Working capital............................... 2,465,000 43.9%
----------- -----
TOTAL............................... $5,615,000 100.0%
=========== ======
</TABLE>
- ----------
(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
December 31, 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.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 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.
December 31, 1996
------------------------------------------
Actual As Adjusted(1)
------------ --------------
Bridge Notes(2)..................... $ 426,000 --
------------ --------------
Stockholders' equity:
Preferred Stock, $0.0001 par
value, 10,000,000 shares
authorized, none issued
or outstanding................. -- --
Common Stock, $0.0001 par value
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 6,938,290
Accumulated deficit(4)........ (1,199,608) (1,547,916)
------------- ----------------
Total stockholders' equity......... 16,036 5,390,728
------------- ---------------
Total capitalization............... $ 442,036 $ 5,390,728
============= ===============
- ---------------------
(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 $324,000 as of December 31, 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 and Koprowski
Warrants. See "Management--1996 Incentive and Non-Qualified Stock Option
Plan," "Management--Scientific Advisors," "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.
15
<PAGE>
DILUTION
As of December 31, 1996, the Company had a net tangible book value equal
to $16,036. 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 $5,390,728 or $1.53
per share. This represents an immediate increase in net tangible book value of
$1.52 per share to the existing stockholders and immediate dilution of $4.47 per
share (or 75%) to purchasers of the Company offered shares of 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:
<TABLE>
<S> <C> <C>
Assumed public offering price(1).................................. $ 6.00
Net tangible book value per share at December 31, 1996(2)... $ .01
Increase per share attributable to New Investors............. $ 1.52
Pro forma net tangible book value per share after Offering........ $ 1.53
------
Dilution per share to New Investors(3)............................ $ 4.47
======
</TABLE>
- --------------------
(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 $4.30 (or 72%).
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) the Underwriter's Over-allotment Option; (ii) any of the
Underwriter's Warrants, (iii) options granted and outstanding under the Plan to
purchase 95,000 shares of Common Stock, at exercise prices ranging from $1.67 to
$6.00 per share, or (iv) the Hall and Koprowski Warrants. Exercise of the
options and/or warrants would result in further dilution to New Investors in
this Offering.
16
<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.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the periods shown have been
derived from the Company's audited financial statements. 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.
<TABLE>
<CAPTION>
December 28, December 28,
1995 (Date of Year 1995 (Date of
Inception) to Ended Inception) to
December 31, December December 31,
1995 31, 1996 1996
------------ --------- -------------
<S> <C> <C> <C>
Statement of Operations Data:
Operating Expenses:
General and administrative...... $ 1,000 $ 669,662 $ 670,662
Research and development........ - 349,715 349,715
----- ------- -------
Total operating expenses.. 1,000 1,019,377 1,020,377
Interest expense, net............. - (179,231) (179,231)
----- --------- ---------
Net loss.................. $ (1,000) $ (1,198,608) $ (1,199,608)
======= =========== ===========
Net loss per common share (1) - $ (0.49)
====== ========
<CAPTION>
December 31, 1995 December 31, 1996
----------------- -----------------
<S> <C> <C>
Balance Sheet Data:
Working capital (deficit)........ $ (2,455) $ (197,433)
Total assets..................... 1,455 536,033
Total liabilities(2)............. 2,455 519,997
Stockholders' equity............. (1,000) 16,036
</TABLE>
- ----------
(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 $324,000.
18
<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 December 31, 1996, the Company has sustained cumulative
losses of $1,199,608. These losses have resulted from expenditures incurred in
connection with research and development and general and administrative
activities. From inception through December 31, 1996, research and development
expenses amounted to $349,715 and general and administrative expenses amounted
to $670,662.
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, and preclinical
and clinical testing of the Company's products. The Company also expects that
general and administrative costs, including patent and regulatory 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. No commercialization of the Company's products is
expected for several years. 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 December 31,
1996, were $670,662, 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 as the Company increases its
staffing levels.
Research and development expenditures consist primarily of payments for
sponsored research, and payments by the Company to its scientific consultant,
who became the Company's Chief Scientific Officer in February 1997. Research and
development expenses from inception through December 31, 1996 were $349,715. 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 $187,000 through December 31,
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
April 1996 Private Placement
In April 1996 the Company completed a private placement transaction in
which it sold 450,000 shares of Common Stock for an aggregate gross
consideration of $750,000.
Bridge Financing
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 135,000 shares of Common Stock were
issued to the Bridge Investors because the interest rate on the Bridge Notes did
not provide the Bridge Investors with a sufficient rate of return given the
risks associated with their investment in the Bridge Notes. None of the Bridge
Investors are affiliates of the Company. 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 December 31,
1996, the unamortized debt discount and debt issuance costs amounted to
19
<PAGE>
$348,308. See "Use of Proceeds."
Current Resources
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. In
addition, for a period of 18 months after the date of this Prospectus, the
Underwriter's prior written consent is required if the Company raises additional
funds through the issuance of equity. If 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. See "Underwriting."
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 December 31, 1996, the Company had $286,814 in cash and cash
equivalents, and a working capital deficit of $197,433. In accordance with the
terms of the Bridge Notes, the Company will utilize proceeds of approximately
$775,000 (as of December 31, 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. 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.
20
<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. All blood donated in the United States, Europe and Japan is screened
for HTLV-I and HTLV-II contamination.
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 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 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
21
<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 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,
22
<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".
23
<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
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<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.
25
<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 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
26
<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 generally requires the Company to
pay royalties on sales of products developed from
27
<PAGE>
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. 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 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, licenses and
collaborative research.
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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 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
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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 five employees at its executive offices in New York, New
York and in Dublin, Ireland. Of the Company's five employees, three hold M.D. or
Ph.D. degrees. In addition, 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. See "Certain Transactions."
The Company sponsors research and development activities at Dr. Hall's
laboratory at University College. 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.
Product Liability Insurance
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
The Company does not have product liability insurance but intends to obtain such
coverage if and when its drug candidates are tested in clinical trials. There
can be no assurance, however, that the Company will be able to obtain insurance
coverage at acceptable costs or in a sufficient amount, if at all, or that a
product liability claim would not adversely affect the Company's business,
operating results or financial condition.
Legal Proceedings
The Company is not a party to any material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth information concerning each of the
directors, executive officers and key employees of the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------- --- ---------------------------------------
<S> <C> <C>
Peter V. Golikov 39 President
Joshua D. Schein, Ph.D. 36 Executive Vice President, Secretary and
Director
Judson A. Cooper 37 Chief Financial Officer and Director
Steven H. Rouhandeh 39 Director
William W. Hall, M.D., Ph.D. 47 Chief Scientific Officer
Elizabeth S. Song, Ph. D. 37 Director of Viral Research
</TABLE>
All Directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board,
subject to the provisions of certain employment agreements. See "Employment
Agreements."
Peter V. Golikov has served as President of the Company since February
1997. Prior to joining the Company, from September 1996 to February 1997, Mr.
Golikov was Vice President Business Development to a Life Sciences Technology
Management Company organized by Muzinich & Co., Inc., an investment banking firm
in New York, where he also served as Consulting Director. From 1988 to 1996, Mr.
Golikov held various positions with Berlex Laboratories, Inc. where most
recently, he served as Manager, New Business and Technology Development. From
1982 to 1988, Mr. Golikov served in various positions in clinical research at
Ortho Pharmaceutical Corp., a Johnson & Johnson company, and Bristol Myers
Products. Mr. Golikov received an MBA degree in General Management and an M.S.
in Microbiology from Rutgers University.
Dr. Joshua D. Schein has served as Executive Vice President since February
1997, as Director since December 1995 and as President of the Company from
December 1995 to February 1997. 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 has also served
as Chief Financial Officer and a Director of Callisto Pharmaceuticals, Inc., a
privately held development stage pharmaceutical company ("Callisto"), since
November 1996. Dr. Schein devotes substantial amounts of his time to the
Company, SIGA and Callisto 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.
Judson A. Cooper has served as Chief Financial Officer and Director of the
Company since December 1995. Mr. Cooper has served as Director of SIGA since
December 1995 and Executive Vice President of SIGA since November 1996. Mr.
Cooper was President of SIGA from December 1995 to November 1996. Mr. Cooper has
served as President and Director of Callisto since November 1996. Mr. Cooper
devotes substantial amounts of his time to the Company, SIGA and Callisto 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.
Steven H. Rouhandeh has served as a Director of the Company since February
1997. Mr. Rouhandeh has served as Chief Executive Officer of HemaSure Inc., a
manufacturer and marketer of medical devices used in the separation and
purification of blood, blood products, and blood components, since December 1996
and as its President since April 1996. From April 1995 to April 1996, Mr.
Rouhandeh held positions of Senior Vice President and Chief Financial Officer at
HemaSure, Inc. From October 1994 to
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March 1995, he was an independent business consultant. From 1993 to 1994, he
was a Managing Director of D. Blech & Company, Inc. Prior to that, Mr. Rouhandeh
was an investment banker at Metzler Corporation and Deutsche Bank and a lawyer
at Cravath Swaine & Moore.
Dr. William W. Hall has served as Chief Scientific Officer of the Company
since February 1997. He was a consultant of the Company from January 1996 to
February 1997. Dr. Hall is Professor of Medical Microbiology and Director of the
Virus Reference Laboratory at University College. 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.
Dr. Elizabeth S. Song has entered into an employment agreement with the
Company and will begin serving as the Company's Director of Viral Research in
June 1997. Dr. Song has served as a Research Scientist with Chiron Technologies
since October 1993. From 1988 to 1993, Dr. Song was a Postdoctoral Research
Fellow in the Department of Immunology at The Scripps Research Institute. Dr.
Song received a Ph.D. in genetics from the University of California at Berkeley.
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 three. 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 and may be removed by the Board of Directors. Upon
the consummation of the Offering, the Company plans to appoint at least one
additional individual not otherwise affiliated with the Company to the Board. In
addition, the Company has agreed, if requested by the Underwriter during the
two-year period following the closing of the Offering, to nominate and use its
best efforts to cause the election of a designee of the Underwriter as a
director of the Company.
Board Compensation
Directors who are employees of the Company receive no cash compensation
for serving on the Board of Directors other than reimbursement of reasonable
expenses incurred in attending meetings. Mr. Rouhandeh has been granted options
to purchase 15,000 shares of Common Stock of the Company at an exercise price of
$6.00 per share. The level of cash compensation to be paid for Mr. Rouhandeh's
and other non-employee directors' service on the Board and attendance at
meetings has not yet been determined.
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 accountants. It is anticipated
that the Audit Committee will consist of both of the non-employee 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 non-employee directors.
Scientific Advisors
The Company's Scientific Advisory Board currently consists of officers of
and advisors to the Company with experience in infectious disease, microbiology,
clinical virology and immunology. At the Company's request, the scientific
advisors review and evaluate the Company's research programs and advise the
Company with respect to technical matters in fields in which the Company is
involved.
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<PAGE>
The table below sets forth the name and current position of each member of
the Scientific Advisory Board:
<TABLE>
<CAPTION>
Name Position
- ---- --------
<S> <C>
William W. Hall, M.D., Ph.D. Chief Scientific Officer; Professor of
Medical Microbiology and Director of the
Virus Reference Laboratory at University
College
Anders Vahlne, M.D., Ph.D. Advisor; Professor of Clinical Virology at
the Karolinska Institutet
Hilary Koprowski, M.D. Advisor; Professor, Department of
Microbiology and Immunology at Thomas
Jefferson University
</TABLE>
Each of the scientific advisors are employed by other entities and may
have consulting agreements with entities other than the Company. The Company
has, or expects to, enter into written agreements with each of its scientific
advisors.
Dr. William W. Hall has served as Chief Scientific Officer of the Company
since February 1997. He was a consultant to the Company from January 1996 to
February 1997. Dr. Hall is Professor of Medical Microbiology and Director of the
Virus Reference Laboratory at University College. 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. For information regarding Dr.
Hall's employment agreement and the Hall Warrants, see "Employment Agreements."
Dr. Anders Vahlne has served as an unpaid advisor to the Company since
January 1997. Dr. Vahlne is Professor of Clinical Virology at the Karolinska
Institutet in Stockholm and Chief Physician (Director) of the Laboratory of
Virology at Huddings University Hospital. Dr. Vahlne is a member of the Swedish
Medical Society. The Company is negotiating a consulting agreement with Dr.
Vahlne for additional services.
Dr. Hilary Koprowski has served as an advisor to the Company since January
1997. Dr. Koprowski was a founder of Centocor, Inc., a publicly traded
biotechnology company. Dr. Koprowski is Professor, Department of Microbiology
and Immunology at Thomas Jefferson University and Professor Laureate at the
Wistar Institute of Anatomy and Biology. Dr. Koprowski is a member of the
American Academy of Arts and Sciences. Dr. Koprowski receives an annual advisory
fee of $10,000 and received warrants to purchase 10,000 shares of Common Stock
at an exercise price of $3.00 per share.
Executive Compensation
The following table sets forth certain information with respect to annual
and long-term compensation paid by the Company to the President, the Chief
Financial Officer and the Executive Vice President.
33
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation 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> <C>
Peter V. Golikov(1) 1996 $ -0- $ -0- $ -0- -0- $ -0-
Joshua D. Schein, Ph.D., 1996 $ 153,115 $ -0- $ --(2) 15,000 $ -0-
Executive Vice President
and Director
Judson A. Cooper, Chief Financial 1996 $ 153,115 $ -0- $ --(2) 15,000 $ -0-
Officer and Director
</TABLE>
- ----------
(1) Peter V. Golikov began serving as the Company's President in February 1997
at an annual salary of $100,000. Mr. Golikov received a grant of 50,000
options upon commencement of his employment.
(2) 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
Common Stock % of Total
Underlying Options Granted Exercise Expiration
Name Options Granted(1) to Employees Price Per Share Date
- ---- ----------------- ------------- --------------- ----
Peter V. Golikov... 50,000 62.5% $6.00 2/10/07
Joshua D. Schein... 15,000 18.75% $1.67 1/1/01
Judson A. Cooper... 15,000 18.75% $1.67 1/1/01
- ----------
(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 12/31/96
<TABLE>
<CAPTION>
Number of Shares of Stock Value of Unexercised
Shares Underlying Unexercised Options In-the-Money Options(1)
Acquired Value ---------- ------------------- -----------------------
Name(2) 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.
(2) Excludes a grant of 50,000 options, exercisable at $6.00 per share, to Peter
V. Golikov, who received such grant upon commencement of his employment as
the Company's President in February 1997.
Employment Agreements
Peter V. Golikov, President of the Company, has an employment agreement
with the Company which expires in February 1999 and is cancelable by the Company
only for cause, as defined in the agreement. Mr. Golikov currently receives an
annual base salary of $100,000 and was granted 50,000 stock options, exercisable
at $6.00 per share. Mr. Golikov is eligible to receive additional stock options
and bonuses at the discretion of the Board of Directors.
Dr. Joshua Schein, Executive Vice President of the Company, has an
employment agreement with the Company which expires in December 1998 and is
cancelable 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, exercisable 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. Dr. Schein's employment agreement does not prohibit his
ability to devote time to other ventures in which he is involved, provided his
duties to the Company are satisfactorily performed. 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.
34
<PAGE>
Judson Cooper, Chief Financial Officer of the Company, has an employment
agreement with the Company which expires in December 1998 and is cancelable 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,
exercisable 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. Mr. Cooper's employment agreement does not prohibit his ability to
devote time to other ventures in which he is involved, provided his duties to
the Company are satisfactorily performed. 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.
Dr. William Hall, Chief Scientific Officer of the Company, has an
employment agreement with the Company 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 salary of $75,000. The agreement
expires December 31, 1997 and is cancelable 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. Although Dr. Hall is limited by regulations of University College to
devote no more than 20% of his professional time to non-University matters (as
is reflected in his employment agreement), substantially all of his activities
at University College relate to his laboratory research funded by the Company,
and, therefore, the foregoing restriction will not, in the Company's view,
affect his performance. See also "Certain Transactions."
Dr. Elizabeth S. Song has entered into an employment agreement with the
Company and will begin serving as Director of Viral Research of the Company in
June 1997. She will perform her duties for the Company at University College.
The employment agreement expires in June 1999 and is cancelable by the Company
only for cause, as defined in the agreement. Dr. Song will receive an annual
base salary of $60,000 and will be granted 5,000 stock options, exercisable at
$6.00 per share. Dr. Song will be eligible to receive additional stock options
and bonuses at the discretion of the Board of Directors.
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 and 65,000
options are outstanding at a price of $6.00 per share.
35
<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 officer, and (iii)
all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage
Names and addresses of Beneficial of Outstanding
Beneficial Owner(1) Ownership Shares Owned
- ------------------- --------- ------------
- -----------------------------------------------------------------------
Prior to After
Offering Offering(2)
-------- -----------
<S> <C> <C> <C>
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%
Peter V. Golikov(7) -0- -0- -0-
Joshua D. Schein, Ph.D.(8) 1,196,250 49.84% 33.70%
Judson A. Cooper(9) 1,196,250 49.84% 33.70%
Steven H. Rouhandeh(10) -0- -0- -0-
All Officers and Directors
as a Group (4 persons)(11)(12) 1,211,250 50.16% 33.98%
</TABLE>
- ----------
(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 95,000 of such reserved
shares have been granted; and (iv) 178,750 shares of Common Stock issuable
upon the exercise of the Hall and Koprowski 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."
36
<PAGE>
(7) Excludes 50,000 options held by Mr. Golikov which are not currently
exercisable.
(8) 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.
(9) Includes shares owned by CSO Ventures LLC, a limited liability company in
which Mr. Cooper has a substantial interest and 15,000 options held by Mr.
Cooper.
(10) Excludes 15,000 options held by Mr. Rouhandeh which are not currently
exercisable.
(11) Includes shares owned by CSO Ventures LLC. (See footnotes 7 and 8 above.)
(12) Excludes 50,000 options held by Mr. Golikov and 15,000 options held by Mr.
Rouhandeh which are not currently exercisable.
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 cancelable 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."
Dr. Hall, Chief Scientific Officer of the Company, has an employment
agreement with the Company 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 salary of $75,000. The agreement expires
December 31, 1997 and is cancelable 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.
Although Dr. Hall is limited by regulations of University College to devote no
more than 20% of his professional time to non-University matters (as is
reflected in his employment agreement), substantially all of his activities at
University College relate to his laboratory research funded by the Company, and,
therefore, the foregoing restriction will not, in the Company's view, affect his
performance.
Richard Stone served as a financial consultant to the Company from January
through December 1996, for which he received $120,000. 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.
The Company believes that the terms of the transactions described above
were no less favorable than the Company could have obtained from unaffiliated
third parties. The Company has adopted a policy, effective following the
consummation of this Offering, that all future transactions between the Company
and its officers, directors and affiliates must (i) be approved by a majority of
those members of the Company's Board of Directors that are not parties, directly
or indirectly through affiliates, to such transactions and (ii) be on terms no
less favorable to the Company than could be obtained from unrelated third
parties.
37
<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.
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
38
<PAGE>
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.
The Company has been advised that it is the position of the Commission
that insofar as the foregoing provisions may be invoked to disclaim liability
for damages arising under the Securities Act, such provisions are against public
policy as expressed in the Securities Act and are, therefore, unenforceable.
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 and Koprowski 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
39
<PAGE>
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 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 95,000 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."
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
40
<PAGE>
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 commission 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.
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 155% 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,
41
<PAGE>
or (iii) in connection with the hiring or retention of key employees,
consultants or outside directors. The holders of the Founders' Shares and the
Bridge Shares have agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of eighteen months (twelve months in the case of the
Bridge Shares) after the date of the consummation of the Offering, without the
consent of the Underwriter. The Underwriter may grant permission to sell Bridge
Shares prior to twelve months, upon the request of a Bridge Investor, in the
event the Underwriter determines such sale would not have an adverse effect upon
the overall market or price for the Common Stock. The Underwriter has
occasionally granted such relief in its prior offerings. At the present time, no
Bridge Investor has requested such relief.
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.
GKN Securities Corp. ("GKN") served as qualified independent underwriter in
connection with this Offering. GKN has assumed the responsibilities of acting 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, GKN will receive an aggregate fee from the Underwriter of $65,000,
$15,000 of which has been paid and $50,000 of which is to be paid upon
consummation of the Offering. GKN will also be reimbursed $20,000 for its
expenses incurred in connection with its participation in 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.
42
<PAGE>
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 1996,
for the period from inception (December 28, 1995) through December 31, 1995, for
the year ended December 31, 1996, and for the period from inception through
December 31, 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.
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.
43
<PAGE>
GLOSSARY
antibiotic - a substance, such as penicillin or streptomycin, produced by or
derived from certain fungi, bacteria, and other organisms, that can destroy or
inhibit the growth of other microorganisms. Antibiotics are widely used in the
prevention and treatment of infectious diseases.
antigen - a substance that when introduced into the body stimulates the
production of an antibody. Antigens include toxins, bacteria, foreign blood
cells, and the cells of transplanted organs.
antiviral - destroying or inhibiting the growth and reproduction of viruses: an
antiviral drug.
B cell - a type of lymphocyte that plays a major role in the body's humoral
immune response. When stimulated by a particular foreign antigen, these
lymphocytes differentiate into plasma cells that synthesize the antibodies that
circulate in the blood and react with the specific antigens. Also called B
lymphocyte.
glycoprotein - any of a group of conjugated proteins that contain a carbohydrate
as the nonprotein component.
HIV - a retrovirus that causes AIDS. HIV was formerly known as HTLV-III.
HTLV-I - human T-cell leukemia virus type 1 belongs to the oncovirus subfamily
of human retrovirus and has been associated with leukemia, neurologic disease
and certain other clinical disorders.
HTLV-2 - human T-cell leukemia virus type 2 belongs to the oncovirus subfamily
of human retrovirus and has been associated with a neurological disorder
resembling multiple sclerosis.
immune response - an integrated bodily response to an antigen, especially one
mediated by lymphocytes and involving recognition of antigens by specific
antibodies or previously sensitized lymphocytes.
immunogenic - producing an immune response; antigenic.
immunomodulator - a compound capable of altering the immune response, by either
enhancement or suppression.
immunosuppression - suppression of the immune response, as by drugs or
radiation, in order to prevent the rejection of grafts or transplants or control
autoimmune diseases. Also called immunodepression.
leukemia - any of various acute or chronic neoplastic diseases of the bone
marrow in which unrestrained proliferation of white blood cells occurs, usually
accompanied by anemia, impaired blood clotting, and enlargement of the lymph
nodes, liver, and spleen.
lymphocyte - any of the nearly colorless cells formed in lymphoid tissue, as in
the lymph nodes, spleen, thymus, and tonsils, constituting between 22 and 28
percent of all white blood cells in the blood of a normal adult human being.
They function in the development of immunity and include two specific types, B
cells and T cells.
pathogen - an agent that causes disease, especially a living microorganism such
as a bacterium or fungus.
penicillin - any of a group of broad-spectrum antibiotic drugs obtained from
penicillium molds or produced synthetically, most active against gram-positive
bacteria and used in the treatment of various infections and diseases.
polymyxin - any of various mainly toxic antibiotics derived from strains of the
soil bacterium Bacillus polymyxa and used to treat various infections with
gram-negative bacteria.
protease - any of various enzymes, including the proteinases and peptides, that
catalyze
44
<PAGE>
the hydrolytic breakdown of proteins.
provirus - the precursor or latent form of a virus that is capable of being
integrated into the genetic material of a host cell and being replicated with
it.
recombinant DNA - genetically engineered DNA prepared by transplanting or
splicing genes from one species into the cells of a host organism of a different
species. Such DNA becomes part of the host's genetic makeup and is replicated.
retrovirus - any of a group of viruses, many of which produce tumors, that
contain RNA and reverse transcriptase, including the virus that causes AIDS.
reverse transcriptase - a polymerase that catalyzes the formation of DNA on an
RNA template, found in oncogenic viruses containing RNA, especially the
retroviruses.
SCID - severe combined immunodeficiency.
SIV - simian immunodeficiency virus; like HIV, belongs to the lentivirus
subfamily of human retroviruses and causes an aids-like illness in various
species of monkeys.
seropositive - showing a positive reaction to a test on blood serum for a
disease; exhibiting seroconversion.
subunit vaccine - a vaccine consisting of purified or semi-purified components
of an infectious organism for which protection is desired.
T cell - a principal type of white blood cell that completes maturation in the
thymus and that has various roles in the immune system, including the
identification of specific foreign antigens in the body and the activation and
deactivation of other immune cells. Also called T lymphocyte.
tetracycline - a yellow crystalline compound, C22H24N2O8, synthesized or derived
from certain microorganisms of the genus Streptomyces and used as a
broad-spectrum antibiotic.
transgenic - carrying genes transferred from another species or breed: a
transgenic animal; transgenic chickens.
vaccine - a preparation of a weakened or killed pathogen, such as a bacterium or
virus, or of a portion of the pathogen's structure that upon administration
stimulates antibody production against the pathogen but is incapable of causing
severe infection.
virocide - a compound, either natural or synthetic, designed to kill a virus.
45
VIROLOGIX CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Balance Sheet as of December 31, 1995 and 1996 F-3
Statementof Operations for the period from December 28, 1995
(inception) through December 31, 1995, for the year ended
December 31, 1996 and for the period from inception
through December 31, 1996 F-4
Statement of Changes in Stockholders' Equity for the period from
inception through December 31, 1996 F-5
Statement of Cash Flows for the period from inception through
December 31, 1995, for the year ended December 31, 1996
and for the period from inception through December 31, 1996 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
Report of Independent Accountants
February 14, 1997
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 1996, and
the results of its operations for the period from inception (December 28, 1995)
through December 31, 1995, for the year ended December 31, 1996 and for the
period from inception through December 31, 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.
/s/ Price Waterhouse LLP
- ------------------------
PRICE WATERHOUSE LLP
F-2
<PAGE>
Virologix Corporation
(A development stage company)
Balance Sheet
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1995 1996
----------- -----------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ -- $ 286,814
Deferred offering costs (Note 2) -- 188,552
Prepaid sponsored research -- 35,750
Deferred debt issuance costs, net of
accumulated amortization of $12,154
at December 31, 1996 (Note 3) -- 24,308
----------- -----------
Total current assets -- 535,424
Other assets 1,455 609
----------- -----------
Total assets $ 1,455 $ 536,033
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities
Bridge notes, net of unamortized debt
discount of $324,000 (Note 3) $ -- $ 426,000
Accounts payable and accrued expenses 2,455 68,997
Accrued interest -- 25,000
----------- -----------
Total current liabilities 2,455 519,997
----------- -----------
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 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) (1,199,608)
----------- -----------
Total stockholders' equity (deficit) (1,000) 16,036
----------- -----------
Total liabilities and stockholders' equity $ 1,455 $ 536,033
=========== ===========
</TABLE>
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, Year December 28,
1995 (inception) Ended 1995 (inception)
to December December to December
31, 1995 31, 1996 31, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating expenses
General and administrative (including
amounts to related parties of $558,231
for the year ended December 31, 1996) $ 1,000 $ 669,662 $ 670,662
Research and development (including amounts
to related parties of $124,815 for the
year ended December 31, 1996) -- 349,715 349,715
----------- ----------- -----------
Total operating expenses 1,000 1,019,377 1,020,377
----------- ----------- -----------
Other income (expense)
Interest income 7,769 7,769
Interest expense -- (187,000) (187,000)
----------- ----------- -----------
Total other income (expense) -- (179,231) (179,231)
----------- ----------- -----------
Net loss $ (1,000) $(1,198,608) $(1,199,608)
=========== =========== ===========
Net loss per common share -- $ (.49)
=========== ===========
Weighted average number of shares
outstanding 2,322,531 2,438,695
=========== ===========
</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
Additional Stock during the Total
Common Stock 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 -- -- -- -- (1,198,608) (1,198,608)
----------- ----------- ----------- ----------- ----------- -----------
Balances at December 31, 1996 2,385,000 $ 239 $ 1,215,405 $ -- $(1,199,608) $ 16,036
=========== =========== =========== =========== =========== ===========
</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, Year December 28,
1995 (inception) Ended 1995 (inception)
to December December to December
31, 1995 31, 1996 31, 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,000) $(1,198,608) $(1,199,608)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of debt issuance costs -- 12,154 12,154
Amortization of debt discount -- 162,000 162,000
Non-cash compensation expense -- 47,300 47,300
Changes in assets and liabilities:
Prepaid sponsored research -- (35,750) (35,750)
Other assets (1,455) 846 (609)
Accounts payable and accrued expenses 2,455 66,542 68,997
Accrued interest -- 25,000 25,000
----------- ----------- -----------
Net cash used in operating activities -- (920,516) (920,516)
----------- ----------- -----------
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 -- (188,552) (188,552)
----------- ----------- -----------
Net cash provided from financing
activities -- 1,207,330 1,207,330
----------- ----------- -----------
Net increase in cash and cash equivalents -- 286,814 286,814
Cash and cash equivalents, beginning of period -- -- --
----------- ----------- -----------
Cash and cash equivalents, end of period $ -- $ 286,814 $ 286,814
=========== =========== ===========
</TABLE>
There were no cash payments for interest or income taxes for the periods ended
December 31, 1995 and 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 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 $1,199,608 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 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 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.
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
F-9
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and 1996
- -------------------------------------------------------------------------------
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 year ended December 31, 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 December 31, 1996 and were eligible for
exercise. There were no grants to outside directors during the year ended
December 31, 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 year ended December 31, 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
February 1997, the consultant became an employee of the Company. 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 year ended
December 31 , 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 (See Note 6).
F-10
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and 1996
- -------------------------------------------------------------------------------
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 $1,151,000 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.
These losses are subject to limitation on future years utilization should
certain ownership changes occur.
The net operating loss carryforwards result in a noncurrent deferred tax
benefit at December 31, 1996 of $460,000. 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 year ended December 31, 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 1996, CSO owned approximately 49% and
47% of the outstanding common stock of the Company. An Executive Vice
President and the 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 year ended
December 31, 1996, the Company incurred expense of $120,000 pursuant to
the agreement.
In January 1996, the Company entered into a consulting agreement with a
principal shareholder under which the shareholder would provide financial
and other advisory
F-11
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and 1996
- -------------------------------------------------------------------------------
services to the Company. The agreement was terminated effective
December 31, 1996. During the year ended December 31, 1996, the
Company incurred $120,000 of expense related to the agreement.
In connection with the development of its licensed technologies the
Company entered into a consulting agreement with the scientist who
developed such technologies under which the scientist served 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 cancelable by the Company only for cause,
as defined in the agreement, had 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 $75,000
for the year ended December 31, 1996. During the year ended December 31,
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 (See Note
4). In February 1997, the Company executed an employment agreement with
the scientist with terms identical to those of the consulting agreement.
Employment agreements
The Company has an employment agreement, expiring in December 1998, with
an Executive Vice President (EVP), who is a principal of CSO, under which
the EVP is to be paid minimum annual compensation of $150,000. In
addition, the Company granted the EVP 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 EVP 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 EVP 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 $159,000 of expense for the
year ended December 31, 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 EVP. The Company incurred $159,000 of expense for the
year ended December 31, 1996 pursuant to the agreement.
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
F-12
<PAGE>
Virologix Corporation
(A development stage company)
Notes to Financial Statements
December 31, 1995 and 1996
- -------------------------------------------------------------------------------
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.
8. Subsequent Events
In January 1997, the Company entered into a three year agreement with a
scientific advisor under which the advisor will be paid an annual fee of
$10,000 and be issued warrants to purchase 10,000 shares of the Company's
Common Stock at an exercise price of $3.00 per share. Warrants to purchase
25% of such shares are exercisable upon issuance and the remaining
warrants are exercisable on a pro rate basis on the first, second and
third anniversaries of the date of grant.
Effective February 1997, the Company entered into an employment agreement
with its President, under which the President is to be paid minimum annual
compensation of $100,000. The agreement, which is cancelable by the
Company only for cause, as defined in the agreement, has an initial term
of two years and provides for automatic renewal for an additional two
years unless either party notifies the other of its intention not to
renew. In addition, the Company granted the President options to purchase
50,000 shares of the Company's common stock at an exercise price of $6.00
per share. The options vest and are exercisable on a pro rata basis on the
first, second, third and fourth anniversaries of the agreement. In the
event that the Company elects not to renew the agreement for the two year
renewal period, the President will immediately vest in 50% (12,500
options) of the options that would have vested on the third and fourth
anniversaries of the agreement.
In February 1997, the Company granted a member of its Board of Directors
options to purchase 15,000 shares of the Company's common stock at an
exercise price of $6.00 per share. The options vest and are exercisable on
a pro rata basis on the first, second and third anniversaries of the date
of grant.
F-13
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
Preliminary Prospectus, Subject to Completion, February 21, 1997
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 Company is a development stage, biopharmaceutical company which has
suffered operating losses since its inception and which has received a going
concern opinion from its independent accountants. As of December 31, 1996, the
Company had an accumulated deficit of $1,199,608 and a working capital deficit
of $197,433. The Company expects to incur substantial additional operating
losses in completing the commercialization of its technologies.
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 16)
-----------------------------
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 _______, 1997
<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
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Dividend Policy........................................................... 17
Selected Financial Data................................................... 18
Plan of Operation......................................................... 19
Business.................................................................. 21
Management................................................................ 31
Principal Stockholders.................................................... 36
Certain Transactions...................................................... 37
Description of Securities................................................. 38
Shares Eligible for Future Sale........................................... 39
Bridge Investors and Plan of Distribution................................. 40
Concurrent Registration of Common Stock................................... 41
Legal Matters............................................................. 43
Experts................................................................... 43
Available Information..................................................... 43
Glossary.................................................................. 44
Index to Financial Statements............................................. F-1
</TABLE>
----------------
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 273,750 shares of Common Stock. For a definition of certain terms
used in this Prospectus, see the Glossary commencing on page 44.
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. All blood donated in the United States, Europe and Japan is
screened for HTLV-I and HTLV-II contamination.
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 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 its transgenic
mice to pharmaceutical and biotechnology companies engaged in the development of
HIV vaccines and therapeutics and to basic researchers engaged in
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
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 ("University College") 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.
[Intentionally Left Blank]
2
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
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 95,000 shares of Common Stock, at average
exercise prices ranging from $1.67 to $6.00 per share, have been granted
and are outstanding under the Plan); (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"); and (v) 10,000
shares of Common Stock reserved for issuance upon exercise of warrants
granted to Dr. Hilary Koprowski, a member of the Company's Scientific
Advisory Board, at an exercise price of $3.00 per share (the "Koprowski
Warrants"). See "Management--1996 Incentive and Non-Qualified Stock Option
Plan," "Management--Scientific Advisors," "Certain Transactions," and
"Underwriting."
3
<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 Year 1995 (Date of
Inception) to Ended Inception) to
December 31, 1995 December 31, 1996 December 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Statement of Operations Data:
Operating Expenses:
General and administrative........ $ 1,000 $ 699,662 $ 670,662
Research and development.......... - 349,715 349,715
----- ------- -------
Total operating expenses....... 1,000 1,019,377 1,020,377
Interest expense, net............. - (179,231) (179,231)
----- --------- ---------
Net loss ...................... $ (1,000) $ (1,198,608) $(1,199,608)
======= =========== ===========
Net loss per common share(1)... - $(0.49)
===== ======
December 31, 1996
-----------------
Actual As Adjusted(3)
------ --------------
Balance Sheet Data:
Working capital.......... $(197,433) $ 5,318,119
Total assets............. 536,033 5,459,725
Total liabilities(2)..... 519,997 68,997
Stockholders' equity..... 16,036 5,390,728
</TABLE>
- ----------
(1) For information concerning the computation of net loss per common 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 $324,000.
(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>
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."
7. 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. The Company
currently has a license agreement with Rockefeller and an employment agreement
with Dr. Hall. 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. See "Business--Licenses and Collaborative Research" and
"Certain Transactions."
8. 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.
7
<PAGE>
9. 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
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."
10. 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."
11. 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
8
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
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 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."
12. 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.
13. 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. Two of the Company's
officers, Dr. Joshua Schein and Judson Cooper, are also officers of SIGA
Pharmaceuticals, Inc. and Callisto Pharmaceuticals, Inc., privately held
development stage pharmaceutical companies, and devote substantial amounts of
their time to the three companies on a substantially equal basis. Although the
Company has entered into employment agreements with Mr. Golikov, President of
the Company, Dr. Schein, Mr. Cooper and Dr. Hall, any of such persons may
terminate his employment arrangement with the Company at any time and on short
notice. Accordingly, there can be no assurance that these employees 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.
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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 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.
14. Potential Product Liability and Availability of Insurance
The Company's business exposes it to potential liability risks that are
inherent in the testing, manufacturing and marketing of pharmaceutical products.
The use of the Company's drug candidates in clinical trials may expose the
Company to product liability claims and possible adverse publicity. These risks
will expand with respect to the Company's drug candidates, if any, that receive
regulatory approval for commercial sale. Product liability insurance for the
biotechnology industry is generally expensive, if available at all. The Company
does not have product liability insurance but intends to obtain such coverage
if and when its drug candidates are tested in clinical trials. There can be no
assurance, however, that the Company will be able to obtain insurance coverage
at acceptable costs or in a sufficient amount, if at all, or that a product
liability claim would not adversely affect the Company's business, operating
results or financial condition.
15. Lack of Research and Development Facilities
The Company does not maintain its own research and development facilities
and does not intend to construct such facilities in the future. The Company
sponsors research and development activities at Dr. Hall's laboratory at
University College. The Company's research and development efforts, therefore,
are dependent upon its continued relationship with Dr. Hall and University
College. In the absence of such relationship, the Company would need to develop
a new research and development arrangement with a third party, the availability
of which there can be no assurance. Any delay in finding suitable research and
development facilities would postpone commercialization of the Company's
products. See "Business--Business Strategy" and "--Human Resources and
Facilities."
16 . 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 between 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.
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17. 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."
18. Potential Conflicts of Interest
Certain persons who are principal stockholders and executive officers of
the Company are involved in various relationships that could result in conflicts
between their interests and those of other stockholders of the Company. Dr.
Schein and Mr. Cooper have employment arrangements with two other operating
companies, one of which is also in the process of making its initial public
offering of securities, which could force one or both of them to compromise or
divert their business attention from the concerns of the Company from time to
time. Additionally, Dr. Schein and Mr. Cooper, together with Steven Oliveira, an
employee of the Underwriter, are the principals of CSO Ventures LLC ("CSO"), a
privately held limited liability company which is the largest stockholder of the
Company. Under the terms of Dr. Schein and Mr. Cooper's employment agreements
with the Company, they are each entitled to the payment of certain fees in
connection with any sale of the Company. This provision, together with lower
prices paid by them for their shares of Common Stock relative to the prices paid
by investors in the Company Offering, could result in a situation in which the
purchase price paid in connection with any sale of the Company represents in a
gain on their investment in the Company while simultaneously representing a loss
to investors in the Company Offering. See "Certain Transactions" and "Principal
Stockholders."
19 . Lack of Dividends
The Company has not paid any dividends and does not contemplate paying
dividends in the foreseeable 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."
20. Shares Eligible for Future Sale
Upon completion of the Company Offering and the offering of shares
hereby, 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 and Koprowski 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 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
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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."
21. 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. The Company, however,
has no intention of adopting a stockholder rights plan ("poison pill") in the
foreseeable future. See "Description of Securities--Preferred Stock."
22. 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 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.
23. Risks of Low-Priced Stock; "Penny Stock" Restrictions
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
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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.
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CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 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.
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------
Actual As Adjusted(1)
----------- -------------
<S> <C> <C>
Bridge Notes(2)........................... $ 426,000 --
----------- -----------
Stockholders' equity:
Preferred Stock, $0.0001 par
value, 10,000,000
shares authorized, none issued
or outstanding....................... -- --
Common Stock, $0.0001 par value
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 6,938,290
Accumulated deficit(4)............... (1,199,608) (1,547,916)
----------- -----------
Total stockholders' equity................ 16,036 5,390,728
----------- -----------
Total capitalization...................... $ 442,036 $ 5,390,728
=========== ===========
</TABLE>
- ----------
(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 $324,000 as of December 31, 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 and Koprowski
warrants. See "Management--1996 Incentive and Non-Qualified Stock Option
Plan," "Management--Scientific Advisors," "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 December 31, 1996, the Company had a net tangible book value equal
to $16,036. See "Selected Financial Data." After giving effect to the sale of
Company Offered Shares 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 $5,390,728 or $1.53
per share. This represents an immediate increase in net tangible book value of
$1.52 per share to the existing stockholders and immediate dilution of $4.47 per
share (or 75%) to purchasers of the Company offered shares of 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:
<TABLE>
<S> <C> <C>
Assumed public offering price(1) ......................... $ 6.00
Net tangible book value per share at December 31, 1996(2) $ .01
Increase per share attributable to New Investors ......... $ 1.52
Pro forma net tangible book value per share after Offering $ 1.53
--------
Dilution per share to New Investors(3)................... $ 4.47
========
</TABLE>
- ----------
(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 $4.30 (or 72%).
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.
Shares Purchased Total Consideration Paid
------------------- ----------------------------------
Average Price
Number Percent Amount Percent Per Share
------- ------- ---------- ------- -------------
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
========= ===== ========== ===== ========
The information contained in the above table does not give effect to the
exercise of (i) the Underwriter's Overallotment Option; (ii) any of the
Underwriter's Warrants, (iii) options granted and outstanding under the Plan to
purchase 95,000 shares of Common Stock at exercise prices ranging from $1.67 to
$6.00 per share, or (iv) the Hall and Koprowski Warrants. Exercise of the
options and/or warrants would result in further dilution to New Investors in the
Company Offering.
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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 December 31, 1996, the Company has sustained cumulative
losses of $1,199,608. These losses have resulted from expenditures incurred in
connection with research and development and general and administrative
activities. From inception through December 31, 1996, research and development
expenses amounted to $349,715 and general and administrative expenses amounted
to $670,662.
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, and preclinical
and clinical testing of the Company's products. The Company also expects that
general and administrative costs, including patent and regulatory 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. No commercialization of the Company's products is
expected for several years. 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 December 31,
1996, were $670,662, 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 as the Company increases its
staffing levels.
Research and development expenditures consist primarily of payments for
sponsored research, and payments to its scientific consultant, who became the
Company's Chief Scientific Officer in February 1997. Research and development
expenses from inception through December 31, 1996 were $349,715. 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 $187,000 through December 31,
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
April 1996 Private Placement
In April 1996 the Company completed a private placement transaction in
which it sold 450,000 shares of Common Stock for an aggregate gross
consideration of $750,000.
Bridge Financing
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 135,000 shares of Common Stock
were issued to the Bridge Investors because the interest rate on the Bridge
Notes did not provide the Bridge Investors with a sufficient rate of return
given the risks associated with their investment in the Bridge Notes. None of
the Bridge Investors are affiliates of the Company. 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 December 31, 1996, the unamortized debt discount and
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debt issuance costs amounted to $348,308. See "Use of Proceeds."
Current Resources
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. In addition, for a period of 18 months after the date of
the Company Prospectus, the Underwriter's prior written consent is required if
the Company raises additional funds through the issuance of equity. If 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. See "Underwriting."
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 December 31, 1996, the Company had $286,814 in cash and cash
equivalents, and a working capital deficit of $197,433. In accordance with the
terms of the Bridge Notes, the Company will utilize proceeds of approximately
$775,000 (as of December 31, 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. 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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March 1995, he was an independent business consultant. From 1993 to 1994, he was
a Managing Director of D. Blech & Company, Inc. Prior to that, Mr. Rouhandeh was
an investment banker at Metzler Corporation and Deutsche Bank and a lawyer at
Cravath Swaine & Moore.
Dr. William W. Hall has served as Chief Scientific Officer of the Company
since February 1997. He was a consultant of the Company from January 1996 to
February 1997. Dr. Hall is Professor of Medical Microbiology and Director of the
Virus Reference Laboratory at University College. 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.
Dr. Elizabeth S. Song has entered into an employment agreement with the
Company and will begin serving as the Company's Director of Viral Research in
June 1997. Dr. Song has served as a Research Scientist with Chiron Technologies
since October 1993. From 1988 to 1993, Dr. Song was a Postdoctoral Research
Fellow in the Department of Immunology at The Scripps Research Institute. Dr.
Song received a Ph.D. in genetics from the University of California at Berkeley.
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 three. 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 and may be removed by the Board of Directors. Upon
the consummation of the Offering, the Company plans to appoint at least one
additional individual not otherwise affiliated with the Company to the Board. In
addition, the Company has agreed, if requested by the Underwriter during the
two-year period following the closing of the Offering, to nominate and use its
best efforts to cause the election of a designee of the Underwriter as a
director of the Company.
Board Compensation
Directors who are employees of the Company receive no cash compensation
for serving on the Board of Directors other than reimbursement of reasonable
expenses incurred in attending meetings. Mr. Rouhandeh has been granted options
to purchase 15,000 shares of Common Stock of the Company at an exercise price of
$6.00 per share. The level of cash compensation to be paid for Mr. Rouhandeh's
and other non-employee directors' service on the Board and attendance at
meetings has not yet been determined.
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 accountants. It is anticipated
that the Audit Committee will consist of both of the non-employee 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 non-employee directors.
Scientific Advisors
The Company's Scientific Advisory Board currently consists of officers of
and advisors to the Company with experience in infectious disease, microbiology,
clinical virology and immunology. At the Company's request, the scientific
advisors review and evaluate the Company's research programs and advise the
Company with respect to technical matters in fields in which the Company is
involved.
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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
officer, and (iii) all officers and directors as a group.
<TABLE>
<CAPTION>
Amount and
Nature of Percentage
Names and addresses of Beneficial of Outstanding
Beneficial Owner(1) Ownership Shares Owned
- ----------------------- ----------- ------------------
Prior to After
Offering Offering(2)
-------- -----------
<S> <C> <C> <C>
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%
Peter V. Golikov(7) -0- -0- -0-
Joshua D. Schein,Ph.D.(8) 1,196,250 49.84% 33.70%
Judson A. Cooper(9) 1,196,250 49.84% 33.70%
Steven H. Rouhandeh(10) -0- -0- -0-
All Officers and Directors
as a Group (4 persons)(11)(12) 1,211,250 50.16% 33.98%
</TABLE>
- ----------
(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 95,000 of such reserved
shares have been granted; and (iv) 178,750 shares of Common Stock issuable
upon the exercise of the Hall and Koprowski 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."
36
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
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 and Koprowski 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 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
the Company Prospectus, none of such shares are eligible for public sale in
accordance with the requirements of Rule 144, as described below.
39
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
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
the Company Prospectus, options to purchase 95,000 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."
40
<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.
<TABLE>
<CAPTION>
Ownership Beneficial Ownership Beneficial
Bridge Investor Prior to Sale(1) After Sale(1)(2)
- --------------- -------------------- -----------------
<S> <C> <C>
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-
Gary Kaufman 4,500 -0-
Thomas Lanier 1,800 -0-
Jeffrey Markowitz 4,500 -0-
David J. McCooey 4,500 -0-
Albert Milstein 4,500 -0-
Barton & Alice Peck 4,500 -0-
Robert R. Praschil, Jr. 4,500 -0-
Robert Rickel 9,000 -0-
Howard L. Spitz 2,700 -0-
Stuart G. Stanley 4,500 -0-
Joseph L. Stanley 4,500 -0-
</TABLE>
41
<PAGE>
[Alternate Page for Bridge Investors Prospectus]
<TABLE>
<S> <C> <C>
Rita M. Stanley 4,500 -0-
Glenn S. Stanley 4,500 -0-
</TABLE>
- ----------
(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.
42
<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 1996,
for the period from inception (December 28, 1995) through December 31, 1995, for
the year ended December 31, 1996, and for the period from inception through
December 31, 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.
43
<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 $ 2,974
Nasdaq-SCM and Boston Stock Exchange Listing Fees $ 13,900
NASD Filing Fee $ 1,190
Accounting Fees and Expenses* $ 60,000
Printing and Engraving* $ 50,000
Legal Fees and Expenses* $ 90,000
Blue Sky Fees and Expenses $ 46,000
Transfer Agent and Registrar Fees* $ 2,000
Miscellaneous Expenses* $ 13,936
--------
Total $280,000
========
- ----------
* 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.
II-1
<PAGE>
In April 1996, the Company sold 450,000 shares of Common Stock to nine
accredited investors for $750,000 in cash.
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.
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibits
- -------- -----------------------
<S> <C>
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(b)(i) Amendment No. 1 to Employment Agreement between the Company and
Dr. Joshua D. Schein, dated as of February 10, 1997
*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(e)(i) Employment Agreement between the Company and Dr. William W. Hall,
dated as of February 12, 1997
*10(f) Consulting Agreement between the Company and Richard B. Stone
dated as of January 1, 1996
**10(g) Employment Agreement between the Company and Peter V. Golikov,
dated as of February 10, 1997
**10(h) Employment Agreement between the Company and Dr. Elizabeth S.
Song, dated as of June 1, 1997
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
</TABLE>
- ----------
1 Confidential information is omitted and identified by a * and filed
separately with the SEC pursuant to a request for Confidential Treatment.
* Filed with original SB-2 Registration Statement filed on November 22,
1996.
** Filed herewith.
Item 28. Undertakings.
- The undersigned Registrant in all instances will provide to the
II-2
<PAGE>
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 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 February, 1997.
VIROLOGIX CORPORATION
By: /s/ Peter V. Golikov
-------------------------------
Peter V. Golikov
President
By: /s/ Judson A. Cooper
-------------------------------
Judson A. Cooper
Chief Financial Officer
II-4
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Page
- ------- ----
10(b)(i) Amendment No. 1 to Employment Agreement between the
Company and Dr. Joshua D. Schein, dated as of
February 10, 1997............................................. E-1
10(e)(i) Employment Agreement between the Company and Dr.
William W. Hall, dated as of February 12, 1997................ E-3
10(g) Employment Agreement between the Company and Peter V.
Golikov, dated as of February 10, 1997........................ E-10
10(h) Employment Agreement between the Company and Dr.
Elizabeth S. Song, dated as of June 1, 1997................... E-18
11(a) Statement re: Computation of per share earnings.............,. E-25
24(b) Consent of Price Waterhouse, LLP.............................. E-27
II-5
<PAGE>
<PAGE>
EXHIBIT 10(b)(i)
E-1
<PAGE>
AMENDMENT NO. 1
TO
EMPLOYMENT AGREEMENT
This AMENDMENT, dated as of February 10, 1997, is between VIROLOGIX
CORPORATION, a Delaware corporation (with its successors and assigns, referred
to as the "Corporation"), and Joshua D. Schein (referred to as "Schein").
The Employment Agreement between the Corporation and Schein, dated as of
January 1, 1996 (the "Agreement"), is hereby amended as follows:
1. The first sentence of the Preliminary Statement shall be replaced
with the following sentence:
"Schein is now employed as an Executive Vice President of the
Corporation."
2. The first sentence of Section 2 of the Agreement shall be
replaced with the following sentence:
"During the Term, Schein shall serve as an Executive President
of the Corporation."
The Agreement shall remain the same in all other respects.
IN WITNESS WHEREOF, the parties hereto have executed this AMENDMENT 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, Chief Financial Officer
E-2
<PAGE>
<PAGE>
EXHIBIT 10(e)(i)
E-3
<PAGE>
EMPLOYMENT AGREEMENT
WHEREAS, VIROLOGIX CORPORATION, a Delaware corporation having offices at
666 Third Avenue, 30th Floor, New York, NY 10017 and DR. WILLIAM W. HALL, c/o
University College Dublin, Department of Microbiology, Belfield, Dublin 4,
Ireland (referred to as "Hall") have entered into a consulting agreement dated
as of January 1, 1996, as amended (the "Consulting Agreement").
WHEREAS, the Company has entered into a License and Research Support
Agreement, dated as of February 27, 1996 ("the "License Agreement") with The
Rockefeller University, 1230 York Avenue, New York, NY 10021 ("Rockefeller"),
with whom Hall was formerly affiliated, covering certain technology relating to
vaccines and therapeutics, and the development of animal models for use in
pharmaceutical discovery.
WHEREAS, in connection with the Company's License Agreement with
Rockefeller and the Company's support of scientific research engaged by
University College Dublin ("University College") thereunder, the Company desires
to retain Hall, and Hall desires to be retained, as Chief Scientific Officer.
NOW, THEREFORE, the parties hereby further supersede the Consulting
Agreement with this Employment Agreement (the "Agreement").
1. Duties. The Company hereby retains Hall as its Chief Scientific
Officer, to assist in the administration of the License Agreement and in the
performance of scientific research thereunder in research laboratories at
University College (the "Services"), and Hall 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, Hall 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. Hall's is hereby retained through December 31, 1997 (the
"Initial Term"), and his term hereunder shall be automatically renewed for up to
three additional one (1) year periods (each period a "Renewal Term"; together
with the Initial Term, the "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 Services to
the Company, Hall shall be based in Dublin, Ireland, where University College's
research laboratories are located. Hall acknowledges that the Company may
require that from time to time Hall 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 Hall reasonable prior notice of such
requirements and an approximation of the number of days that Hall's services
will be required.
4. Compensation and Expenses.
(a) In consideration for Hall's performing the Services for the
Company, the Company shall pay to Hall a base salary of $75,000 per year,
payable quarterly in advance.
(b) In addition to his base salary, Hall 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 Hall for actual out-of-pocket
expenses incurred in connection with the performance of the Services, provided
E-4
<PAGE>
that Hall 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. During the Term, Hall shall be entitled
to the employee benefits, including vacation, health and other insurance
benefits made available by the Company to any other employee 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 Hall and his successors and assigns;
provided that in no event shall Hall's obligations to perform the Services be
delegated or transferred by Hall without the prior written consent of the
Company.
7. Termination.
(a) This Agreement may only be terminated by the Company for Cause,
or upon Hall's death or Disability.
(b) The Company shall have "Cause" to terminate this Agreement upon
(i) Hall's conviction of, or plea of "no contest" to, any felony; or (ii) any
material breach by Hall of any provision of this Agreement.
(c) "Disability" shall mean Hall'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 Hall written notice of termination which
shall take effect thirty (30) days after the date it is sent to Hall unless Hall
shall have returned to the performance of his duties hereunder during such
thirty (30) day period (whereupon such notice shall become void).
(d) If the Company ends the Term for Cause or Disability, or if Hall
resigns as an employee of the Company, or if Hall dies, then the Company shall
have no obligation to pay Hall any amount, whether for salary, benefits,
bonuses, or other compensation or expense reimbursements of any kind, accruing
after the end of the Term, and such rights shall, except as otherwise required
by law, be forfeited immediately upon the end of the Term.
8. Inventions, Patents and Technology. Hall 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 Hall or any of his
employees, consultants or research assistants, during the performance of the
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"). Hall shall
treat all Work Product as the Confidential Information of the Company. Hall
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 Services hereunder or
derived from any Confidential Information, whether or not patentable or
copyrightable, including all Work Product developed at University College,
subject only to the provisions of the License Agreement and Rockefeller's rights
thereunder and any other existing written agreement Hall may have with
Rockefeller. Hall 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 Hall within the scope of
the 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) Hall hereby recognizes that the value of all trade secrets and
other proprietary data and all other information of the Company not in the
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public domain ("Confidential Information") disclosed by the Company in the
course of performing the 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. Hall, 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. Hall covenants and agrees to safeguard the
Confidential Information of the Company disclosed to or otherwise acquired by
Hall in the course of performing the 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, Hall 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 Hall 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 Hall, 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) Hall 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) Hall 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 services for the Company will continue to provide him, with confidential
information. To induce the Company to enter into this Agreement, Hall covenants
and agrees that:
(i) From the date hereof and until the date that is two
(2) years from the expiration of the Period (the "Restricted Period"), Hall
shall not unless with written consent of the Company:
(A) engage in the business of research and development of the Core
Technology, or, (I) during the 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
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 Period or for the six (6) months prior thereto or in any other
business conducted by the Company at the end of the 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,
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shareholder, officer, director, principal, agent, employee, trustee,
consultant or in any other relationship or capacity; provided, however,
that Hall may own directly or indirectly, solely as an investment,
securities of any Person which are traded on any national securities
exchange if Hall (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 Hall 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 Hall is terminated without Cause by the Company or
if the rights to the Core Technology revert back to The Rockefeller University.
(f) Hall 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 Hall 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 Hall to account for and pay over to the Company all
compensation, profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by Hall as the result of any
transactions constituting a breach of any of the Restrictive Covenants, and Hall
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.
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10. Representations and Warranties. Hall represents and warrants
that he is not under any obligation, contractual or otherwise, to Rockefeller,
University College, 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 Hall:
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.
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 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.
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IN WITNESS WHEREOF, this Employment Agreement has been executed by the
Company and Hall as of February 12, 1997.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
----------------------------
Authorized Officer
/s/ William W. Hall
---------------------------
Dr. William W. Hall
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EXHIBIT 10(g)
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EMPLOYMENT AGREEMENT
Employment Agreement effective as of February 10, 1997 between VIROLOGIX
CORPORATION, a Delaware corporation (with its successors and assigns, referred
to as the "Corporation"), and Peter V. Golikov (referred to as "Golikov").
Preliminary Statement
The Corporation desires to employ Golikov, and Golikov wishes to be
employed by the Corporation, as President of the Corporation upon the terms and
subject to the conditions set forth in this Agreement. The Corporation and
Golikov also wish to enter into the other agreements set forth in this
Agreement, all of which are related to Golikov's employment under this
Agreement.
Agreement
Golikov and the Corporation therefore agree as follows:
1. Employment for Term. The Corporation hereby employs Golikov and Golikov
hereby accepts employment with the Corporation for the period beginning on the
date of this Agreement and ending on February 10, 1999 (the "Initial Term"), or
upon the earlier termination of the Initial Term pursuant to Section 7. This
Agreement shall be automatically renewed for an additional two-year period (the
"Renewal Term"; together with the Initial Term, the "Term") unless either party
notifies the other in writing of its intention not to so renew this Agreement no
less than 60 days prior to the expiration of the Initial Term. The end of the
Term for any reason shall end Golikov's employment under this Agreement, but
shall not terminate Golikov's or the Corporation's other agreements in this
Agreement.
2. Position and Duties. During the Term, Golikov shall serve as the
President of the Corporation or any other or additional positions and titles as
the Board of Directors of the Corporation (the "Board") may determine from time
to time. Golikov agrees that the Board may, in its discretion, change Golikov's
title and position from President to any other title or position as the Board
may determine. During the Term, Golikov shall devote all of his business time
and best efforts to his duties as an employee of the Corporation, provided,
however, that during a period of 60 days from the beginning of the Term, Golikov
may spend reasonable time, but no more than 5 hours per week, to wind up his
business affairs related to (i) Data-Stream Pharmaceuticals, Inc. and (ii)
Muzinich & Company, Inc.
3. Compensation.
(a) Base Salary. The Corporation shall pay Golikov a base salary,
beginning on the first day of the Term and ending on the last day of the Term,
of not less than $100,000 per annum, payable at least monthly on the
Corporation's regular pay cycle for professional employees.
(b) Stock Options. Pursuant to the Corporation's stock option plan,
the Corporation shall grant to Golikov 50,000 options to purchase 50,000 shares
of the Corporation's Common Stock at an exercise price of $6.00. The options
shall vest on a pro rata basis on the first, second, third and fourth
anniversaries of this Agreement. If Golikov elects not to renew this Agreement
for the Renewal Term, the remaining 25,000 "un-vested" options shall be
forfeited. If the Corporation elects not to renew this Agreement for the Renewal
Term, 50% of the remaining 25,000 "un-vested" options shall immediately vest and
50% of such options shall be forfeited.
(c) Other and Additional Compensation. Section establishes the
minimum compensation during the Term and shall not preclude the Board from
awarding Golikov a higher salary or any bonuses or stock options in the
discretion of the Board during the Term at any time.
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<PAGE>
4. Sale of Common Stock. During the Term, Golikov agrees that his shares
of the Corporation's Common Stock will be subject to the same "lock-up" (18
months from the date of the closing of initial public offering) as the other
officers of the Corporation.
5. Employee Benefits. During the Term, Golikov shall be entitled to the
employee benefits, including vacation, health and other insurance benefits made
available by the Corporation to any other employee of the Corporation.
6. Expenses. The Corporation shall reimburse Golikov 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.
7. Termination.
(a) General. The Term shall end immediately upon Golikov's death.
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 Golikov notice of the termination, including a statement
of whether the termination was for Cause or Disability (as defined in Section
and 7(b) below). The Corporation's failure to give notice under this Section
shall not, however, affect the validity of the Corporation's termination of the
Term.
8. Severance Benefits.
(a) "Cause" Defined. "Cause" means (i) willful malfeasance or
willful misconduct by Golikov in connection with his employment; (ii) Golikov's
gross negligence in performing any of his duties under this Agreement; (iii)
Golikov'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) Golikov's material breach of any written
policy applicable to all employees adopted by the Corporation; or (v) material
breach by Golikov of any of his agreements in this Agreement.
(b) Disability Defined. "Disability" shall mean Golikov'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, Golikov
shall continue to receive his base salary hereunder, provided that if the
Corporation provides Golikov with disability insurance coverage, payments of
Golikov's base salary shall be reduced by the amount of any disability insurance
payments received by Golikov due to such coverage. The Corporation shall give
Golikov written notice of termination which shall take effect thirty (30) days
after the date it is sent to Golikov unless Golikov shall have returned to the
performance of his duties hereunder during such thirty (30) day period
(whereupon such notice shall become void).
(c) Termination Upon Death, Disability, Golikov's Resignation or For
Cause. If the Corporation ends the Term for Cause or Disability, or if Golikov
resigns as an employee of the Corporation, or if Golikov dies, then the
Corporation shall have no obligation to pay Golikov any amount, whether for
salary, benefits, bonuses, or other compensation or expense reimbursements of
any kind, accruing after the end of the Term, and such rights shall, except as
otherwise required by law, be forfeited immediately upon the end of the Term.
(d) Termination for Other Reasons. If the Corporation ends the Term
for reasons other than for cause, Disability, Death or Golikov's resignation,
the Corporation shall continue to be bound to the terms of this Agreement.
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9. Confidentiality, Ownership, and Covenants.
(a) "Corporation Information" and "Inventions" 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). "Inventions"
collectively refers to any and all inventions, trade secrets, ideas, processes,
formulas, source and object codes, data, programs, other works of authorship,
know-how, improvements, research, discoveries, developments, designs, and
techniques regarding any of the foregoing.
(b) Confidentiality. (i) Golikov 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. Golikov 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
Golikov is requested in a judicial, administrative or governmental proceeding to
disclose any of the Corporation Information, Golikov 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, Golikov may furnish the material
so required to be furnished, but Golikov will furnish only that portion of the
Corporation Information that legally is required.
(ii) Golikov also hereby agrees to keep the terms of this Agreement
confidential.
(c) Ownership. Golikov hereby assigns to the Corporation all of
Golikov's right (including patent rights, copyrights, trade secret rights, and
all other rights throughout the world), title and interest in and to Inventions,
whether or not patentable or registrable under copyright or similar statutes,
made or conceived or reduced to practice or learned by Golikov, either alone or
jointly with others, during the course of the performance of services for the
Corporation. Golikov shall also assign to, or as directed by, the Corporation,
all of Golikov's right, title and interest in and to any and all Inventions, the
full title to which is required to be in the United States government by a
contract between the Corporation and the United States government or any of its
agencies. The Corporation shall have all right, title and interest in all
research and work product produced by Golikov as an employee of the Corporation,
including, but not limited to, all research materials and lab books. The
provisions of Sections 8(a), 8(b) and this Section 8(c) are not intended to
supersede or limit the effect of any prior confidentiality or proprietary rights
agreements previously executed by Golikov.
(d) Non-Competition Period Defined. "Non-Competition Period" means
the period beginning at the end of the Term and ending one (1) year after the
end of the Term.
(e) Covenants Regarding the Term and Non-Competition Period. Golikov
acknowledges and agrees that his services pursuant to this Agreement are unique
and extraordinary; that the Corporation will be dependent upon Golikov for the
research and development of antibiotics, vaccines and anti-infectives; and that
he will have access to and control of confidential
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information of the Corporation. Golikov further acknowledges that the business
of the Corporation is national in scope and cannot be confined to any particular
geographic area of the United States. For the foregoing reasons and to induce
the Corporation to enter this Agreement, Golikov covenants and agrees that
during the Term and the Non-Competition Period Golikov shall not unless with
written consent of the Corporation:
(i) engage in the business of research and development of the Core
Technology, as defined in the License and Research Support Agreement
between the Corporation and The Rockefeller University, or any other
products or processes in which the Corporation is engaged in during the
Term or in any other business conducted by the Corporation during the Term
(collectively the "Prohibited Activity") in the United States or elsewhere
for his own account;
(ii) become interested in any individual, corporation, partnership or
other business entity (a "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 Golikov may own directly or indirectly, solely as an investment,
securities of any Person which are traded on any national securities
exchange if Golikov (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;
(iii) directly or indirectly hire, engage or retain any person which at
any time during the Term or Non-Competition Period was a supplier, client
or customer of the Corporation, 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
(iv) directly or indirectly hire, employ or retain any person who
at any time was an employee of the Corporation or directly or
indirectly solicit, entice, induce or encourage any such person to
become employed by any other person.
(f) Remedies. Golikov hereby acknowledges that the covenants and
agreements contained in Section 8 are reasonable and valid in all respects and
that the Corporation is entering into this Agreement, inter alia, on such
acknowledgment. If Golikov breaches, or threatens to commit a breach, of any of
the Restrictive Covenants, the Corporation 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
Corporation 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 Corporation and that
money damages will not provide an adequate remedy to the Corporation; (ii) the
right and remedy to require Golikov to account for and pay over to the
Corporation all compensation, profits, monies, accruals, increments or other
benefits (collectively, "Benefits") derived or received by Golikov as the result
of any transactions constituting a breach of any of the Restrictive Covenants,
and Golikov shall account for and pay over such Benefits to the Corporation;
(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.
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<PAGE>
(g) Jurisdiction. 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 Corporation'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. Successors and Assigns.
(a) Golikov. This Agreement is a personal contract, and the rights
and interests that the Agreement accords to Golikov may not be sold,
transferred, assigned, pledged, encumbered, or hypothecated by him. All rights
and benefits of Golikov shall be for the sole personal benefit of Golikov, 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 Golikov. Except as so provided, this Agreement shall inure
to the benefit of and be binding upon Golikov and his personal representatives,
distributees and legatees.
(b) The Corporation. This Agreement shall be binding upon the
Corporation and inure to the benefit of the Corporation and of its successors
and assigns, including (but not limited to) any corporation that may acquire all
or substantially all of the Corporation's assets or business or into or with
which the Corporation may be consolidated or merged. This Agreement shall
continue in full force and effect in the event that the Corporation sells all or
substantially all of its assets, merges or consolidates, otherwise combines or
affiliates with another business, dissolves and liquidates, or otherwise sells
or disposes of substantially all of its assets. The Corporation's obligations
under this Agreement shall cease, however, if the successor to, the purchaser or
acquiror either of the Corporation or of all or substantially all of its assets,
or the entity with which the Corporation has affiliated, shall assume in writing
the Corporation's obligations under this Agreement (and deliver an executed copy
of such assumption to Golikov), in which case such successor or purchaser, but
not the Corporation, shall thereafter be the only party obligated to perform the
obligations that remain to be performed on the part of the Corporation under
this Agreement.
11. Entire Agreement. This Agreement represents the entire agreement
between the parties concerning Golikov's employment with the Corporation and
supersedes all prior negotiations, discussions, understandings and agreements,
whether written or oral, between Golikov 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 Golikov 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 Golikov: Peter V. Golikov
1855 Portsmouth Way
Union, NJ 07083
If to the Corporation: Virologix Corporation
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Dr. Joshua D. Schein
with a copy to: 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
Golikov 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 Golikov 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 Golikov 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
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<PAGE>
elect in its sole discretion, and Golikov hereby submits to the nonexclusive
jurisdiction of such courts for the purpose of any such suit, action, proceeding
or judgment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
VIROLOGIX CORPORATION
By: /s/ Joshua Schein
---------------------------
Joshua Schein, President
/s/ Peter V. Golikov
---------------------------
Peter V. Golikov
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<PAGE>
EXHIBIT 10(h)
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<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement effective as of June 1, 1997 (the "Effective Date")
between VIROLOGIX CORPORATION, a Delaware corporation (with its successors and
assigns, referred to as the "Corporation"), and Elizabeth S. Song, Ph.D.
(referred to as "Song").
Preliminary Statement
The Corporation desires to employ Song, and Song wishes to be employed by
the Corporation, as Director of Viral Research of the Corporation upon the terms
and subject to the conditions set forth in this Agreement. The Corporation and
Song also wish to enter into the other agreements set forth in this Agreement,
all of which are related to Song's employment under this Agreement.
Agreement
Song and the Corporation therefore agree as follows:
1. Employment for Term. The Corporation hereby employs Song and Song
hereby accepts employment with the Corporation for the period beginning on the
date of this Agreement and ending on the second anniversary of the Effective
Date (the "Initial Term"), or upon the earlier termination of the Initial Term
pursuant to Section 7. This Agreement shall be automatically renewed for an
additional two-year period (the "Renewal Term"; together with the Initial Term,
the "Term") unless either party notifies the other in writing of its intention
not to so renew this Agreement no less than 60 days prior to the expiration of
the Initial Term. The end of the Term for any reason shall end Song's employment
under this Agreement, but shall not terminate Song's or the Corporation's other
agreements in this Agreement.
2. Position and Duties. During the Term, Song shall serve as the Director
of Viral Research of the Corporation. During the Term, Song shall devote all of
her business time and best efforts to her duties as an employee of the
Corporation, provided, however, Song will be permitted to hold the position of
Visiting Scientist at University College Dublin, Belfield, Dublin 4, Ireland.
3. Place of Performance. In connection with rendering employment services
to the Corporation, Song shall be based in Dublin, Ireland.
4. Compensation.
(a) Base Salary. The Corporation shall pay Song a base salary,
beginning on the first day of the Term and ending on the last day of the Term,
of not less than $60,000 per annum, payable in the United States at least
monthly on the Corporation's regular pay cycle for professional employees.
(b) Stock Options. Pursuant to the Corporation's stock option plan,
the Corporation shall grant to Song 5,000 options to purchase 5,000 shares of
the Corporation's Common Stock at an exercise price of $6.00. The options shall
vest on a pro rata basis on the first and second anniversaries of this
Agreement.
(c) Other and Additional Compensation. Section establishes the
minimum compensation during the Term and shall not preclude the Board from
awarding Song a higher salary or any bonuses or stock options in the discretion
of the Board during the Term at any time.
5. Employee Benefits. During the Term, Song shall be entitled to the
employee benefits, including vacation, health and other insurance benefits made
available by the Corporation to any other employee of the Corporation.
<PAGE>
6. Expenses. The Corporation shall reimburse Song for actual out-of-
pocket expenses incurred by her in the performance of her services for the
Corporation upon the receipt of appropriate documentation of such expenses.
7. Termination.
(a) General. The Term shall end immediately upon Song's death. 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 Song notice of the termination, including a statement of
whether the termination was for Cause or Disability (as defined in Section and
7(b) below). The Corporation's failure to give notice under this Section shall
not, however, affect the validity of the Corporation's termination of the Term.
8. Severance Benefits.
(a) "Cause" Defined. "Cause" means (i) willful malfeasance or
willful misconduct by Song in connection with her employment; (ii) Song's gross
negligence in performing any of her duties under this Agreement; (iii) Song'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) Song's material breach of any written
policy applicable to all employees adopted by the Corporation; or (v) material
breach by Song of any of her agreements in this Agreement.
(b) Disability Defined. "Disability" shall mean Song's incapacity
due to physical or mental illness that results in her being unable to
substantially perform her duties hereunder for six consecutive months (or for
six months out of any nine month period). During a period of Disability, Song
shall continue to receive her base salary hereunder, provided that if the
Corporation provides Song with disability insurance coverage, payments of Song's
base salary shall be reduced by the amount of any disability insurance payments
received by Song due to such coverage. The Corporation shall give Song written
notice of termination which shall take effect thirty (30) days after the date it
is sent to Song unless Song shall have returned to the performance of her duties
hereunder during such thirty (30) day period (whereupon such notice shall become
void).
(c) Termination. If the Corporation ends the Term for Cause or
Disability, or if Song resigns as an employee of the Corporation, or if Song
dies, then the Corporation shall have no obligation to pay Song any amount,
whether for salary, benefits, bonuses, or other compensation or expense
reimbursements of any kind, accruing after the end of the Term, and such rights
shall, except as otherwise required by law, be forfeited immediately upon the
end of the Term.
9. Confidentiality, Ownership, and Covenants.
(a) "Corporation Information" and "Inventions" 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). "Inventions"
collectively refers to any and all inventions, trade secrets, ideas, processes,
formulas, source and object codes, data, programs, other works of authorship,
know-how, improvements, research, discoveries, developments, designs, and
techniques regarding any of the foregoing.
(b) Confidentiality. (i) Song 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
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<PAGE>
course of her 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. Song 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 her outside the scope
of her employment as contemplated by this Agreement, except as the Corporation
may otherwise expressly authorize by action of the Board. In the event that Song
is requested in a judicial, administrative or governmental proceeding to
disclose any of the Corporation Information, Song 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, Song may furnish the material so
required to be furnished, but Song will furnish only that portion of the
Corporation Information that legally is required.
(ii) Song also hereby agrees to keep the terms of this Agreement
confidential.
(c) Ownership. Song hereby assigns to the Corporation all of Song's
right (including patent rights, copyrights, trade secret rights, and all other
rights throughout the world), title and interest in and to Inventions, whether
or not patentable or registrable under copyright or similar statutes, made or
conceived or reduced to practice or learned by Song, either alone or jointly
with others, during the course of the performance of services for the
Corporation. Song shall also assign to, or as directed by, the Corporation, all
of Song's right, title and interest in and to any and all Inventions, the full
title to which is required to be in the United States government by a contract
between the Corporation and the United States government or any of its agencies.
The Corporation shall have all right, title and interest in all research and
work product produced by Song as an employee of the Corporation, including, but
not limited to, all research materials and lab books. The provisions of Sections
8(a), 8(b) and this Section 8(c) are not intended to supersede or limit the
effect of any prior confidentiality or proprietary rights agreements previously
executed by Song.
(d) Non-Competition Period Defined. "Non-Competition Period" means
the period beginning at the end of the Term and ending one (1) year after the
end of the Term.
(e) Covenants Regarding the Term and Non-Competition Period. Song
acknowledges and agrees that her services pursuant to this Agreement are unique
and extraordinary; that the Corporation will be dependent upon Song for the
research and development of antibiotics, vaccines and anti-infectives; and that
she will have access to and control of confidential information of the
Corporation. Song further acknowledges that the business of the Corporation is
national in scope and cannot be confined to any particular geographic area of
the United States. For the foregoing reasons and to induce the Corporation to
enter this Agreement, Song covenants and agrees that during the Term and the
Non-Competition Period Song shall not unless with written consent of the
Corporation:
(i) engage in the business of research and development of the Core
Technology, as defined in the License and Research Support Agreement
between the Corporation and The Rockefeller University, or any other
products or processes in which the Corporation is engaged in during the
Term or in any other business conducted by the Corporation during the Term
(collectively the "Prohibited Activity") in the United States or elsewhere
for her own account;
(ii) become interested in any individual, corporation, partnership or
other business entity (a "Person") engaged in any Prohibited Activity in
E-21
<PAGE>
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 Song may own directly or indirectly, solely as an investment,
securities of any Person which are traded on any national securities
exchange if Song (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;
(iii) directly or indirectly hire, engage or retain any person which at
any time during the Term or Non-Competition Period was a supplier, client
or customer of the Corporation, 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
(iv) directly or indirectly hire, employ or retain any person who
at any time was an employee of the Corporation or directly or
indirectly solicit, entice, induce or encourage any such person to
become employed by any other person.
(f) Remedies. Song hereby acknowledges that the covenants and
agreements contained in Section 8 are reasonable and valid in all respects and
that the Corporation is entering into this Agreement, inter alia, on such
acknowledgment. If Song breaches, or threatens to commit a breach, of any of the
Restrictive Covenants, the Corporation 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
Corporation 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 Corporation and that
money damages will not provide an adequate remedy to the Corporation; (ii) the
right and remedy to require Song to account for and pay over to the Corporation
all compensation, profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by Song as the result of any
transactions constituting a breach of any of the Restrictive Covenants, and Song
shall account for and pay over such Benefits to the Corporation; (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) Jurisdiction. 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 Corporation'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. Successors and Assigns.
(a) Song. This Agreement is a personal contract, and the rights and
interests that the Agreement accords to Song may not be sold, transferred,
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<PAGE>
assigned, pledged, encumbered, or hypothecated by her. All rights and benefits
of Song shall be for the sole personal benefit of Song, 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
Song. Except as so provided, this Agreement shall inure to the benefit of and be
binding upon Song and her personal representatives, distributees and legatees.
(b) The Corporation. This Agreement shall be binding upon the
Corporation and inure to the benefit of the Corporation and of its successors
and assigns, including (but not limited to) any corporation that may acquire all
or substantially all of the Corporation's assets or business or into or with
which the Corporation may be consolidated or merged. This Agreement shall
continue in full force and effect in the event that the Corporation sells all or
substantially all of its assets, merges or consolidates, otherwise combines or
affiliates with another business, dissolves and liquidates, or otherwise sells
or disposes of substantially all of its assets. The Corporation's obligations
under this Agreement shall cease, however, if the successor to, the purchaser or
acquiror either of the Corporation or of all or substantially all of its assets,
or the entity with which the Corporation has affiliated, shall assume in writing
the Corporation's obligations under this Agreement (and deliver an executed copy
of such assumption to Song), in which case such successor or purchaser, but not
the Corporation, shall thereafter be the only party obligated to perform the
obligations that remain to be performed on the part of the Corporation under
this Agreement.
11. Entire Agreement. This Agreement represents the entire agreement
between the parties concerning Song's employment with the Corporation and
supersedes all prior negotiations, discussions, understandings and agreements,
whether written or oral, between Song 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 Song 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:
If to Song: Elizabeth S. Song, Ph.D.
16073 Cross Fox Court
(619) 451-9832
If to the Corporation: Virologix Corporation
666 Third Avenue
30th Floor
New York, NY 10017
Attention: Dr. Joshua D. Schein
with a copy to: 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,
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<PAGE>
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
Song 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 Song 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 Song 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 Song hereby submits to the nonexclusive jurisdiction of
such courts for the purpose of any such suit, action, proceeding or judgment.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
VIROLOGIX CORPORATION
By: /s/ Joshua D. Schein
-------------------------------
Joshua D. Schein, Ph.D.,
Executive Vice President
/s/ Elizabeth S. Song
-------------------------------
Elizabeth S. Song, Ph.D.
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<PAGE>
EXHIBIT 11(a)
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<PAGE>
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------------- ------------------------------
Days Weighted Avg. Days Weighted Avg.
Shares Outstanding Shares Outstanding Outstanding Shares Outstanding
------ ----------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C> <C>
Shares to founders 1,800,000 365 1,800,000 4 1,800,000
Shares issued in April
1996 private placement 450,000 242 298,356 - -
Cheap stock consideration
for shares issued in April
1996 private placement 325,000 123 109,521 4 325,000
Shares issued in connection
with Bridge Financing 135,000 150 55,479 - -
Cheap stock consideration for
shares issued in connection
with Bridge Financing 54,000 215 31,808 4 54,000
Cheap stock consideration for
stock options and warrants
issued during 1996 143,531 365 143,531 4 143,531
----------- ---------
Weighted average
shares outstanding 2,438,695 2,322,531
Net loss for period $(1,198,608) $(1,000)
----------- ---------
Net loss per common share $ (0.49) -
=========== =========
</TABLE>
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<PAGE>
EXHIBIT 24(b)
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<PAGE>
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 February 14, 1997
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
February 21, 1997
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