AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1996
Registration No. 333-09349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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AVAX TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
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<TABLE>
<CAPTION>
DELAWARE 8731 13-3575874
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4520 MAIN
Suite 930
Kansas City, MO 64111
(816) 960-1333
(Address and telephone number of Small Business Issuer's principal
executive offices and principal place of business)
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JEFFREY M. JONAS, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4520 MAIN
Suite 930
Kansas City, MO 64111
(816) 960-1333
(Name, address and telephone number of agent for service)
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COPY TO:
IRA L. KOTEL
ROBERTS, SHERIDAN & KOTEL
A PROFESSIONAL CORPORATION
640 FIFTH AVENUE, 15TH FLOOR
NEW YORK, NEW YORK 10019
(212) 262-5700
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APPROXIMATE DATE OF PROPOSED SALE TO THE
PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
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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, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
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<PAGE>
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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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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AVAX TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
<S> <C> <C>
FORM SB-2 REGISTRATION STATEMENT AND HEADING HEADING OR LOCATION IN PROSPECTUS
1. Front of Registration Statement and Outside Front Front of Registration Statement and Outside Front
Cover of Prospectus .................................. Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page of Prospectus; Additional
Information
3. Summary Information and Risk Factors.................. Prospectus Summary; Risk Factors
4. Use of Proceeds....................................... Use of Proceeds
5. Determination of Offering Price....................... Inapplicable
6. Dilution.............................................. Inapplicable
7. Selling Security Holders.............................. Selling Securityholders
8. Plan of Distribution.................................. Plan of Distribution
9. Legal Proceedings..................................... Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Management
Persons...............................................
11. Security Ownership of Certain Beneficial Owners
and Principal Stockholders
Management............................................
12. Description of Securities............................. Description of Securities
13. Interest of Named Experts and Counsel................. Legal Counsel
14. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities........ Management
15. Organization Within Last Five Years................... Certain Transactions
16. Description of Business............................... Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and Plan of
Operations; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of
Operation............................................. Financial Condition and Plan of Operations
18. Description of Property............................... Business - Facilities
19. Certain Relationships and Related Transactions........ Certain Transactions
20. Market for Common Equity and Related Prospectus Summary; Description of Securities;
Stockholder Selling Securityholders; Shares Eligible for Future
Matters............................................... Sales; Plan of Distribution
21. Executive Compensation................................ Management--Executive Compensation
22. Financial Statements.................................. Financial Statements
23. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure................ Inapplicable
</TABLE>
<PAGE>
PROSPECTUS
Subject to Completion, Dated SEPTEMBER 23, 1996
AVAX TECHNOLOGIES, INC.
14,885,088 SHARES OF COMMON STOCK
This Prospectus relates to the offer (the "Offering") by the securityholders
named herein under the caption "Selling Securityholders" (collectively, the
"Selling Securityholders") for sale to the public of the following securities of
AVAX Technologies, Inc. (the "Company"): (i) 571,698 shares of the Company's
common stock, par value $.002 per share (the "Common Stock"); (ii) 12,959,900
shares of Common Stock issuable upon conversion of currently outstanding shares
of Series B Convertible Preferred Stock, par value $.01 per share, of the
Company ("Series B Preferred Stock"); and (iii) 1,353,490 shares of Common Stock
issuable upon (a) the conversion of shares of Series B Preferred Stock of the
Company issuable upon exercise of the warrants issued to the placement agent of
the Series B Offering described herein (the "Series B Placement Warrants") and
(b) exercise of warrants issued to the placement agent for certain bridge
financing transactions of the Company described herein (the "Bridge Placement
Warrants," and together with the Series B Placement Warrants, the "Placement
Warrants"). The number of shares of Common Stock issuable upon conversion of the
Series B Preferred Stock and upon exercise of the Placement Warrants is subject
to adjustment in certain events.
The Company will not receive any proceeds from the sale of shares of Common
Stock. The Company is not expected to receive any proceeds from the exercise of
the Placement Warrants since the Placement Warrants may be exercised pursuant to
a cashless exercise provision. In the event that the Placement Warrants are
exercised for cash, the Company intends to use such net cash proceeds (after
estimated offering expenses of this Offering of approximately $300,000) for
general working capital purposes. Proceeds, if any, from the exercise for cash
of all the Placement Warrants, before deduction of estimated expenses of this
Offering, would be approximately $2,850,000. Whether, how and to what extent any
of the Placement Warrants will be exercised, and whether the Placement Warrants
are exercised for cash or not, cannot be predicted by the Company.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company WILL INFORM the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company WILL ADVISE
the Selling Securityholders of the requirement for delivery of this Prospectus
in connection with any sale of the shares offered hereby.
The Company is in the research and development stage, has not had any operating
revenues, and at June 30, 1996, had an accumulated deficit of approximately
$2,222,257. The Company is continuing to incur losses and expects to incur
significantly increasing additional losses for the foreseeable future.
Prior to the Offering, there has been no public market for the Common Stock and
there can be no assurance that such a market will develop or, if developed, that
it will be sustained. The Company intends to apply for listing of the Common
Stock on the National Association of Securities Dealers Automated Quotation
National Market(R) ("Nasdaq National Market") with the symbol "AVXT," however,
there can be no assurance that the Common Stock will be listed thereon. IF
LISTING ON THE NASDAQ NATIONAL MARKET IS NOT AVAILABLE, THE COMPANY INTENDS TO
LIST THE COMMON STOCK ON THE OTC BULLETIN BOARD(R) (THE "OTC BULLETIN BOARD")
AND SUBSEQUENTLY MAY REAPPLY FOR LISTING ON THE NASDAQ NATIONAL MARKET. The
prices of the Common Stock which may be obtained are noT necessarily related to
the Company's assets, book value, results of operations or any other
established criteria of value, and should not be regarded as any indication of
future market price of the Common Stock. See "Risk Factors," "Description of
Securities" and "Plan of Distribution."
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS."
THE COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 23, 1996
<PAGE>
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.
<PAGE>
AVAILABLE INFORMATION
Before the Offering, the Company was not a reporting company. The Company
intends to furnish to registered holders of Common Stock, annual reports
containing financial statements examined by an independent accounting firm and
quarterly reports for the first three quarters of each fiscal year containing
interim unaudited financial information.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (together with all
amendments and exhibits thereto being herein referred to as the "Registration
Statement") under the Securities Act of 1933. The Registration Statement, as
well as other reports and other information filed by the Company, can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048. Copies of such material can be obtained upon written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and other
information statements regarding registrants that file electronically with the
Commission.
BLUE SKY LEGENDS
NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE
SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS
DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION
OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO
BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
2
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PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by reference to the more detailed information and the financial
statements and notes thereto appearing elsewhere in this Prospectus, including,
without limitation, the information under "Risk Factors," or incorporated herein
by reference, and, accordingly, should be read in conjunction therewith.
COMPANY SUMMARY
AVAX Technologies, Inc. ("AVAX" or the "Company"), is a development stage
biopharmaceutical company which intends to acquire rights to, and to develop,
technologies and products for the treatment of cancer. The Company initially
intends to focus its efforts primarily on the development of immunotherapies for
cancer, which is a rapidly developing segment of the cancer therapeutic market.
The Company has licensed (the "TJU License") from Thomas Jefferson University
("TJU") an issued U.S. patent and certain patent applications covering a process
for the modification of a patient's own TUMOR cells into a cancer vaccine. This
process allows the Company to produce an autologous cell vaccine (an "AC
Vaccine") that attempts to stimulate the patient's own immune system to
eliminate the cancer. This technology has emerged from research conducted
at the Jefferson Cancer Center of TJU. The technology primarily involves the
removal of a patient's own tumor cells, conjugating them to a small molecule
known as a hapten, and reintroducing the product back into the patient. The
approach is based on the premise that a patient's immune response to a strongly
immunogenic, hapten conjugated tumor antigen may be followed by the development
of an immune response to the unmodified tumor antigen, somewhat analogous to the
phenomenon of drug- induced autoimmune disease. The Company's initial AC
Vaccine, AC MelaVax(TM), is currently undergoing a physician- sponsored human
clinical trial based on an experimental protocol at TJU Hospital as an
outpatient, post-surgical, adjunct therapy for the treatment of malignant
melanoma, and is believed by the Company to be the first therapeutic cancer
vaccine to show a substantial increase in the survival rate for patients with
melanoma. In such ongoing clinical trial at the Thomas Jefferson Medical Center,
150 malignant melanoma patients have been treated post-surgically on an
outpatient basis with AC MelaVaxTM. In 62 patients with stage 3 melanoma for
whom there has been sufficient time for long-term follow-up, the four-year
survival rate is approximately 60%. This compares with the historical and
control group survival rate of approximately 20%, and the survival rate for
treatment with high dose alpha interferon of approximately 32%. The Company
believes that the results to date of the ongoing clinical trial represent the
first substantial increase in survival for malignant melanoma patients treated
by immunotherapy. In the 150 patients treated in the study, the Company believes
that only relatively minor side effects, such as soreness and swelling at the
site of the application of the AC MelaVaxTM vaccine, have been witnessed to
date.
Although TJU and Dr. David Berd, a clinical oncologist at the Jefferson Cancer
Center of TJU and inventor of the Company's AC Vaccine technology, have
conducted the ongoing clinical trial at TJU Hospital pursuant to an
FDA-approved, physician-sponsored Investigational New Drug Application ("IND"),
to date, the Company has not had any direct contact with the FDA concerning the
clinical results obtained with AC MelaVax(TM). However, it is the Company's
intention to use the results of the TJU clinical trial to support the submission
of a Company-sponsored IND to the FDA. The purpose of the IND submission will be
to seek FDA approval to enter AC MelaVax(TM) into Phase II/III or Phase III
multi-center clinical trials. Although there can be no assurance of such FDA
approval, if successful in obtaining clearance to commence such
Company-sponsored IND, it is the Company's intention to use the results of these
Company-sponsored clinical trials along with the results of the clinical trial
conducted at TJU, as the basis for the filing of a New Drug Application ("NDA")
for FDA approval to market AC MelaVax(TM). The Company also may pursue a similar
regulatory approval and commercialization strategy for AC MelaVax(TM) in
Australia and certain countries in Europe through corporate partnering
strategies, although such strategies have not yet been finalized or initiated.
Denial of any regulatory approvals or any significant delays in obtaining any of
the same, would have a material adverse effect on the Company.
AC MelaVax(TM) is a trademark of the Company. This Prospectus also includes
trademarks of other companies.
3
<PAGE>
The Company also believes that the AC Vaccine technology possibly may have
applications in the treatment of other cancers such as lung, breast, colon and
prostate cancers. Accordingly, in addition to continuing the clinical work on
the AC MelaVax(TM) for melanoma, the Company also has entered into a sponsored
research agreement with TJU relating to the development of additional
immunotherapies based on the AC Vaccine technology. If appropriate, the Company
intends to fund the preclinical and initial clinical development of these
technologies. In order to contain costs, the Company may use sponsored research
agreements and contract research organizations to help it develop its
technologies. At the appropriate time the Company may seek corporate partners to
provide the necessary resources and expertise for clinical development and to
market and distribute products. In addition, the Company may seek to explore the
acquisition and subsequent development and commercialization of additional
commercially promising immunotherapy and adjuvant technologies. No assurance can
be given that the Company will have the requisite resources or that any such
projects will be identified on terms favorable to the Company, if at all.
The Company was incorporated in the State of New York on January 12, 1990, under
the name Nehoc, Inc. On May 29, 1992, it changed its name to Appex Technologies,
Inc. On October 22, 1992, the Company merged into Walden Laboratories, Inc.
("Walden"), a Delaware corporation, which was incorporated on September 18,
1992. On December 27, 1995, Walden sold its former leading product under
development, an over-the-counter nutritional dietary, medicinal and/or
elixorative food supplement or drug and related patents and intellectual
property to a subsidiary of Interneuron Pharmaceuticals, Inc. The Company
changed its name from Walden Laboratories, Inc., to AVAX Technologies, Inc.,
effective March 26, 1996.
The Company's office is located at 4520 MAIN, Suite 930 Kansas City, Missouri
64111. Its telephone number at that address is (816) 960-1333.
4
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OFFERING SUMMARY
<TABLE>
<S> <C>
Common Stock Outstanding
as of July 31, 1996: 6,222,316 shares of Common Stock, including 571,698 shares of currently outstanding
shares of Common Stock directly held by the Selling Securityholders.1
Common Stock Offered
by Selling Securityholders: 14,885,088 shares of Common Stock.
Risk Factors: The securities offered hereby involve a high degree of risk. See "Risk Factors."
Proposed Nasdaq AVXT.
National Market Symbol:
Use of Proceeds: The Company will not receive any proceeds from the sale of shares of Common Stock. The
Company is not expected to receive any proceeds from the exercise of the Placement
Warrants since the Placement Warrants may be exercised pursuant to a cashless exercise
provision. In the event that the Placement Warrants are exercised for cash, the Company
intends to use such net cash proceeds (after estimated offering expenses of this Offering of
approximately $300,000) for general working capital purposes. Proceeds, if any, from the
exercise for cash of all the Placement Warrants, before deduction of estimated expenses of
this Offering, would be approximately $2,850,000. Whether, how and to what extent any
of the Placement Warrants will be exercised, and whether the Placement Warrants are
exercised for cash or not, cannot be predicted by the Company. See "Use of Proceeds,"
"Certain Transactions," "Selling Securityholders" and "Description of Securities."
</TABLE>
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1 Does not include (i) 12,959,900 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series B Preferred Stock,
(ii) 1,353,490 shares of Common Stock issuable upon conversion of
Series B Preferred Stock issuable upon exercise of the Placement
Warrants, (iii) 60,000 shares of Common Stock issuable upon exercise of
outstanding stock options at an exercise price of $0.60 per share UNDER
THE COMPANY'S 1992 STOCK OPTION PLAN, (iv) 815,000 shares of Common
Stock reserved for issuance of future options under the Company's 1992
Stock Option Plan, (v) 1,097,745 shares of Common Stock reserved for
issuance pursuant to the employment ARRANGEMENTS AMONG the COMPANY and
CERTAIN OF ITS FULL-TIME EMPLOYEES AND OFFICERS, AND (VI) 125,981
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THE SHEAR KERSHMAN
WARRANTS, THE CASTELLI WARRANTS, THE SERIES A PLACEMENT WARRANTS AND
THE BRIDGE FINANCING WARRANTS AS DESCRIBED BELOW. See "Executive
Compensation" and "Description of Securities."
5
<PAGE>
SUMMARY OF FINANCIAL DATA
The following table presents historical financial information derived from the
financial statements of the Company.
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31 June 30
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1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gain from sale of product........................ $ --- $1,951,000 $ --- $ ---
Total operating income (loss).................... (720,815) 1,521,243 (161,546) (460,259)
Net income (loss)................................ (781,221) 1,380,751 (200,140) (505,077)
Net income (loss) per common share............... (.12) (.10) (.03) (.27)
Net income (loss) attributable to common
stockholders.................................. (781,221) 642,283 (200,140) (1,636,821)
Weighted average number of shares outstanding 6,502,042 6,746,364 6,315,020 5,953,359
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
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Actual Actual
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 503 $20,968,831
Current Assets................................... 908,503 21,952,624
Total assets..................................... 1,973,568 23,084,002
Loan and notes payable........................... (857,000) -----
Total current liabilities........................ 1,569,717 1,209,231
Deficit accumulated during development stage..... (1,717,180) (2,222,257)
Stockholders equity.............................. 22,568 20,743,698
</TABLE>
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(1) See Note 1 to Financial Statements for an explanation of the
determination of shares used in computing Net income (loss) per share.
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS HIGHLY SPECULATIVE
IN NATURE, INVOLVES A HIGH DEGREE OF RISK AND SHOULD NOT BE PURCHASED BY PERSONS
WHO CANNOT AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR
SHOULD CONSIDER CAREFULLY THE RISKS INHERENT IN AND AFFECTING BOTH THE BUSINESS
OF THE COMPANY AND THE VALUE OF THE COMMON STOCK AND SPECULATIVE FACTORS
INCLUDING, WITHOUT LIMITATION, THE FOLLOWING RISK FACTORS, AS WELL AS OTHER
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS BEFORE MAKING AN INVESTMENT
IN THE COMMON STOCK.
HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY
The Company has incurred substantial operating losses since its inception. As of
June 30, 1996, the Company's accumulated deficit was approximately $2,222,257.
The Company expects to incur significant increasing operating losses over the
next several years, primarily due to the expansion of its research and
development programs, including preclinical studies and clinical trials for the
AC MelaVaxTM product and other products that it may acquire or develop. The
Company's ability to achieve profitability depends upon, among other things, its
ability to discover and develop products, obtain regulatory approval for its
proposed products, and enter into agreements for product development,
manufacturing and commercialization. The Company's AC MelaVaxTM product does not
currently generate revenue and the Company does not expect to achieve revenues
from this or other products for the foreseeable future. Moreover, there can be
no assurance that the Company will ever achieve significant revenues or
profitable operations from the sale of AC MelaVaxTM or any other products that
it may develop.
NEED FOR ADDITIONAL FINANCING; ISSUANCE OF SECURITIES; FUTURE DILUTION
In the future, the Company may require substantial additional financing to
continue research, undertake product development and to pursue the manufacturing
and marketing of any products that it may develop. The Company anticipates that
further funds may be raised through additional debt or equity financings
conducted by the Company, or through collaborative ventures entered into between
the Company and potential corporate partners. However, there can be no assurance
that any such offering will be consummated or that the Company will otherwise be
able to obtain additional financing or that such financing, if available, can be
obtained on terms favorable or acceptable to the Company. If such offerings are
not consummated or additional financing is not otherwise available, the Company
will be required to modify its business development plans or reduce or cease
certain or all of its operations.
While the Company may seek to enter into collaborative ventures with corporate
sponsors to fund some or all of its research and development activities, as well
as to manufacture or market any products which may be successfully developed,
the Company currently does not have any such arrangements with corporate
sponsors, and there can be no assurance that the Company will be able to enter
into such ventures on favorable or acceptable terms, if at all. In addition, no
assurance can be given that the Company will be able to complete a subsequent
public offering or private placement of its securities. Failure by the Company
to enter into such collaborative ventures or to receive additional funding to
complete its proposed product development programs either through a private
placement or a public offering could have a material adverse effect on the
Company. In the event that the Company obtains any additional funding, such
financings may have a dilutive effect on the holders of the Common Stock. See
"Risk Factors--Dependence on Third Parties for Additional Funds and for
Manufacturing, Marketing and Selling".
In addition, the Company currently has an employee stock option plan under which
its officers and directors will be eligible to receive stock options exercisable
for Common Stock at exercise prices which may be lower than the current market
price of the Common Stock. Similarly, under EMPLOYMENT ARRANGEMENTS WITH CERTAIN
FULL-TIME EMPLOYEES AND OFFICERS OF THE COMPANY, the Company has granted SUCH
EMPLOYEES AND OFFICERS options for Common Stock at exercise prices that may be
lower than the prevailing market price of the Common Stock from time to time.
Such stock option grants under the employee stock option plan if any, and to
CERTAIN OF THE FULL-TIME EMPLOYEES AND OFFICERS OF THE COMPANY, may dilute the
value of the Common Stock. See "Management" and "Description of Securities-1992
Stock Option Plan; Other Options."
7
<PAGE>
DEVELOPMENT STAGE COMPANY
Although the Company was organized in January 1990, it has only conducted
limited research and development activities and has not generated any
significant revenues to date from operations. Accordingly, the Company must be
evaluated in light of the expenses, delays, uncertainties and complications
typically encountered by newly established biopharmaceutical businesses, many of
which uncertainties and complications may be beyond the Company's control. These
include, but are not limited to, unanticipated problems relating to product
development, testing, regulatory compliance, manufacturing, marketing and
competition, and additional costs and expenses that may exceed current
estimates. There can be no assurance that the Company will successfully develop
and commercialize any products, generate any revenues or ever achieve profitable
operations. See "Business."
TECHNOLOGICAL UNCERTAINTY AND EARLY STAGE OF PRODUCT DEVELOPMENT
The technologies and products which the Company intends to develop are in early
the stages of research and development, require significant further research,
development and testing and are subject to the risks of failure inherent in the
development of products based on innovative or novel technologies. These risks
include, but are not limited to, the possibility that any or all of the
Company's proposed products will be found to be ineffective or unsafe, that the
products once developed, although effective, are uneconomical to market, that
third parties hold proprietary rights that preclude the Company from marketing
such products or that third parties market a superior or equivalent product.
The Company's agreement with TJU, its licensor for the AC Vaccine technology,
does not contain any representations by the licensor as to the safety or
efficacy of the inventions or discoveries covered thereby. The Company is unable
to predict whether the research and development activities it is funding will
result in any commercially viable products or applications. Further, due to the
extended testing required before marketing clearance can be obtained from the
United States Food and Drug Administration (the "FDA") or other similar
agencies, the Company is not able to predict with any certainty, when, if ever,
it will be able to commercialize any of its proposed products.
The market for biotechnology in general, and for cancer immunotherapies such as
the AC Vaccine technology and its possible future products, in particular, are
characterized by rapidly changing technology, evolving industry standards and
frequent new product introductions. The Company's future success will depend
upon its ability to develop and commercialize its existing product and to
develop new products and features. There can be no assurance that the Company
will successfully complete the development of its existing product or of any
future product or that the Company's current or future products will achieve
market acceptance. Any delay or failure of AC MelaVaxTM or of any future product
which the Company may develop in achieving market acceptance would materially
and adversely affect the Company's business. In addition, there can be no
assurance that products or technologies developed by others will not materially
render the Company's existing or future products or technologies non-competitive
or obsolete.
This Prospectus includes estimates by the Company of the number of patients with
a particular type of cancer or other diseases, the number of patients who were
administered a particular vaccine or drug and the number of patients who
received or might have been candidates for a particular type of treatment. There
can be no assurance that such estimates accurately reflect the true market or
the extent to which any of the Company's products, if successfully developed,
will actually be used by patients. Furthermore, even if patient use occurs,
there can be no assurance that the Company's sales of its products for such uses
will be profitable. Failure of the Company to successfully develop, obtain
regulatory approval for, introduce and market AC MelaVax(TM) and any possible
future products would have a material adverse effect on the Company.
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GOVERNMENT REGULATION; NO ASSURANCE OF PRODUCT APPROVAL
The proposed products of the Company will be subject to very stringent federal,
state and local government regulations, including, without limitation, the
Federal Food, Drug and Cosmetic Act, and their state and local counterparts.
Similar regulatory frameworks exist in other countries where the Company may
consider marketing its products. To date, while TJU has conducted its clinical
trials pursuant to an FDA-approved physician sponsored Investigational New Drug
Application ("IND"), the Company has not had any direct contact with the FDA
concerning AC MelaVax(TM). However, prior to marketing AC MelaVax(TM) or any
other possible product the Company may develop, such product must undergo an
extensive regulatory approval process. Any denials or delays in obtaining
requisite approvals would be likely to have a material adverse effect on the
Company.
The regulatory process includes preclinical and clinical testing of any product
to establish its safety and efficacy. This testing can take many years and
require the expenditure of substantial capital and other resources. Delays or
denials of marketing approval are encountered regularly due to the submission of
unacceptable or incomplete data as deemed by the FDA or other similar regulatory
agency, or due to regulatory policy for product approvals. These delays may be
encountered both domestically and abroad. There is no assurance that even after
clinical testing, regulatory approval will ever be obtained. If obtained,
regulatory approval may provide limitations on the indicated uses for which any
products may be marketed. Following regulatory approval, if any, a marketed
product and its manufacturer are subject to continual regulatory review.
Later discovery of problems with a product or manufacturer may result in
restrictions on such product or manufacturer. These restrictions may include
withdrawal of the marketing approval for the product. In addition, new
government regulations may be established that could delay or prevent regulatory
approval of the Company's products under development. Failure of the Company to
obtain and maintain regulatory approval of its proposed products, processes or
facilities would have a material adverse effect on the business, financial
condition and results of operations of the Company. In addition, many academic
institutions and companies doing research in the field of cancer immunotherapy
are using a variety of approaches and technologies. Any adverse results obtained
by such researchers in preclinical or clinical studies, even if not directly or
indirectly related to the Company's potential products or approaches, could
adversely affect the regulatory environment for gene immunotherapy products
generally, and possibly lead to delays in the approval process for the Company's
potential products. See "Business--Government Regulation."
DEPENDENCE ON OTHERS FOR CLINICAL DEVELOPMENT OF, REGULATORY APPROVALS FOR, AND
MARKETING OF PHARMACEUTICAL PRODUCTS
The Company anticipates that it may in the future seek to enter into
collaborative agreements with pharmaceutical or other biotechnology companies
for the development of, clinical testing of, seeking of regulatory approval for,
and manufacturing, marketing and commercialization of, certain of its products.
The Company may in the future grant to its collaborative partners, if any,
rights to license and commercialize any pharmaceutical products developed under
these collaborative agreements and such rights would limit the Company's
flexibility in considering alternatives for the commercialization of such
products. Under such agreements, the Company may rely on its collaborative
partners to conduct research efforts and clinical trials on, obtain regulatory
approvals for, manufacture, market and commercialize certain of the Company's
products. Although the Company believes that its collaborative partners may have
an economic motivation to commercialize the pharmaceutical products which they
may license, the amount and timing of resources devoted to these activities
generally will be controlled by each such individual partner. There can be no
assurance that the Company will be successful in establishing any collaborative
arrangements, or that, if established, such future partners will be successful
in commercializing products or that the Company will derive any revenues from
such arrangements. ALTHOUGH THE COMPANY INTENDS TO PURSUE SUCH COLLABORATIVE
ARRANGEMENTS IN THE FUTURE, THERE ARE NO SPECIFIC ARRANGEMENTS, PROPOSALS, PLANS
OR UNDERSTANDINGS WITH RESPECT TO ANY SUCH COLLABORATIVE ARRANGEMENTS.
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DEPENDENCE ON THIRD PARTIES FOR ADDITIONAL FUNDS AND FOR MANUFACTURING,
MARKETING AND SELLING
The Company currently does not have the resources to directly manufacture,
market or sell AC MelaVax(TM) or any products it may develop in the future.
Accordingly, the Company may be dependent on corporate partners or other
entities for, and may have only limited control over, commercial scale
manufacturing, marketing and selling of its products. The
inability of the Company to acquire such third party manufacturing,
distribution, marketing and selling arrangements for the Company's anticipated
products will have a material adverse effect on the Company's business. There
can be no assurance that the Company will be able to enter into any arrangements
for the manufacturing, marketing and selling of its products. In the event the
Company determines to establish a manufacturing facility, it will require
substantial additional funds, the hiring and retention of significant additional
personnel and compliance with extensive regulations applicable to such a
facility. There can be no assurance that the Company will be able to
successfully establish such a facility and if established, that it will be able
to successfully manufacture products for sale at competitive prices. See
"Business--Manufacturing and Marketing."
DEPENDENCE ON LICENSE AND SPONSORED RESEARCH AGREEMENTS
The Company is dependent upon the TJU License as the basis of its proprietary
technology and is dependent upon a sponsored research agreement with TJU for its
research and development efforts. The TJU License requires the payment of an
up-front license fee, the use of due diligence in developing and bringing
products to market and to make certain milestone payments. The Company is also
obligated to make royalty payments on the sales, if any, of products resulting
from such licensed technology and, is responsible for the costs of filing and
prosecuting patent applications and maintaining issued patents. In addition, the
Company is required to invest a minimum amount per year in the AC Vaccine
technology as well as sponsored research at TJU. As the Company currently does
not have laboratory facilities, certain research and development activities are
intended to be conducted by universities or other institutions pursuant to
sponsored research agreements. The sponsored research agreement entered into by
the Company, TJU and Dr. Berd generally requires periodic payments by the
Company to TJU on a quarterly basis. If the Company does not meet its financial
obligations under either its license agreement or its sponsored research
agreement in a timely manner, the Company could lose the rights to its
proprietary technology or the right to have TJU conduct its research and
development efforts.
UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS
The biotechnology industry places considerable importance on obtaining patent
and trade secret protection for new technologies, products and processes. The
success of the Company will depend in large part on its ability, on the ability
of its current licensor, TJU, and on the ability of its potential future
licensors, if any, to obtain patents, defend such patents, maintain trade
secrets and operate without infringing upon the proprietary rights of others,
both in the United States and in foreign countries. The patent position of firms
relying upon biotechnology is highly uncertain and involves complex legal and
factual questions. To date there has emerged no consistent policy regarding the
breadth of claims allowed in biotechnology patents or the degree of protection
afforded under such patents. The Company relies on TJU's issued patent for the
AC Vaccine technology and may rely on certain United States patents and pending
PATENT APPLICATIONS, AS WELL AS A PENDING FOREIGN PATENT COOPERATION TREATY
("PCT") APPLICATION, relating to various aspects of its present and future
products and processes. The patent application and issuance process can be
expected to take several years and could entail considerable expense to the
Company, as it may be responsible for such costs under the terms of any
technology agreements. ADDITIONALLY, THE FOREIGN PCT APPLICATION MAY BE MORE
DIFFICULT TO OBTAIN AND MAY TAKE A LONGER AMOUNT OF TIME AND ENTAIL MORE COSTS
BECAUSE THIS FOREIGN PCT APPLICATION WAS FIRST FILED ON JUNE 7, 1995 AND MAY BE
CONSIDERED FILED LATE. There can be no assurance that patents will issue as a
result of any applications or that the existing patents and any patents
resulting from such applications, will be sufficiently broad to afford
protection against competitors with similar technology. In addition, there can
be no assurance that such patents will not be challenged, invalidated,
circumvented, or that the rights granted thereunder will provide competitive
advantages to the Company. The commercial success of the Company will also
depend upon avoiding infringement of patents issued to competitors. A United
States patent application is maintained under
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conditions of confidentiality while the application is pending, so the Company
cannot determine the inventions being claimed in pending patent applications
filed by third parties. Litigation may be necessary to defend or enforce the
Company's patent and license rights or to determine the scope and validity of
others' proprietary rights. Defense and enforcement of patent claims can be
expensive and time consuming, even in those instances in which the outcome is
favorable to the Company, and can result in the diversion of substantial
resources from the Company's other activities. An adverse outcome could subject
the Company to significant liabilities to third parties, require the Company to
obtain licenses from third parties, or require the Company to alter its products
or processes, or cease altogether any related research and development
activities or product sales, any of which may have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Patents and Proprietary Technology."
To the extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to any of
the proposed projects of the Company, disputes may arise as to the proprietary
rights to such information which may not be resolved in favor of the Company.
LACK OF MANAGEMENT AND EMPLOYEES
The Company has only FOUR full time EMPLOYEES, WHICH INCLUDES its President and
Chief Executive Officer, Jeffrey M. Jonas, M.D., ITS CHIEF FINANCIAL OFFICER,
DAVID L. TOUSLEY, AND ITS EXECUTIVE VICE PRESIDENT, ERNEST W. YANKEE, PH.D. The
Company's other officers, directors and scientific advisors work for the Company
on a part-time basis only and for the most part are involved with other
substantially full-time activities.
DEPENDENCE UPON KEY PERSONNEL AND CONSULTANTS
The Company will be highly dependent upon its officers and directors, as well
as its Scientific Advisory Board members, consultants and collaborating
scientists. Except for its FOUR FULL-TIME EMPLOYEES, each of the Company's
officers, directors, advisors and consultants devotes only a portion of his or
her time to the Company's business. The loss of certain of these individuals,
including, without limitation, Dr. Jonas, the Company's President and Chief
Executive Officer, would have a material adverse effect on the Company. The
Company does not maintain key-man life insurance policies on any of such
personnel. In addition, EACH OF the Company's FULL-TIME EMPLOYEES and OFFICERS
have only recently joined the Company. Although the Company has entered into a
letter of employment with THE FULL-TIME EMPLOYEES AND OFFICERS, such letter of
employment does not contain provisions which would prevent him from resigning
at any time. See "Management".
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense, and the loss of any of such persons, or an inability to
attract, retain and motivate any additional highly skilled employees required
for the expansion of the Company's activities, could have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to retain its existing personnel or to attract additional qualified employees
and such failure likely would have a material adverse effect on the Company.
Currently, the Company does not have "key-man" insurance for Dr. Jonas.
LACK OF FACILITIES
The Company currently has no permanent laboratories. With the exception of a
sponsored research program currently being conducted at TJU, it is currently
anticipated that the Company's research and product development activities will
require that the Company equip and maintain a laboratory facility for use by the
Company's scientists, if and when such persons are hired by the Company.
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COMPETITION
The Company's proposed cancer immunotherapy business is characterized by
intensive research efforts and intense competition. Many companies, research
institutes, hospitals and universities are working to develop products and
processes in the Company's fields of research. Most of these entities have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company. Certain of such companies
have experience in undertaking testing and clinical trials of new or improved
products similar in nature to that which the Company is developing. In addition,
certain competitors have already begun testing similar compounds or processes
and may introduce such products or processes before the Company. Accordingly,
other companies may succeed in developing products earlier than the Company or
that are more effective than those proposed to be developed by the Company.
Further, it is expected that competition in the Company's field will intensify.
There can be no assurance that the Company will be able to compete successfully
in the future. See "Business--Competition."
RISK OF PRODUCT LIABILITY; NO INSURANCE
Should the Company develop and market any products, the marketing of such
products, through third-party arrangements or otherwise, may expose the Company
to product liability claims. The Company does not presently carry product
liability insurance. PRIOR TO THE FIRST clinical testing BY THE COMPANY OF AC
MELAVAX, the Company's licensor requires that the Company obtain product
liability insurance. There can be no assurance that the Company will be able to
obtain such insurance or, if obtained, that such insurance can be acquired in
sufficient amounts to protect the Company against such liability or at a
reasonable cost. IN THE EVENT THAT THE COMPANY IS UNABLE TO OBTAIN SUCH
INSURANCE, THERE CAN BE NO ASSURANCE THAT THE COMPANY WILL HAVE SUFFICIENT
RESOURCES TO SATISFY ANY LIABILITY RESULTING FROM SUCH PRODUCT LIABILITY CLAIMS
OR WOULD BE ABLE TO HAVE ITS CUSTOMERS INDEMNIFY OR INSURE THE COMPANY AGAINST
SUCH CLAIMS. The Company is required to indemnify TJU against any product
liability claims incurred by them as a result of the products developed by the
Company. TJU has not made, and is not expected to make, any representations as
to the safety or efficacy of the inventions covered by the license or as to any
products which may be made or used under rights granted therein or thereunder.
UNCERTAINTY OF PRODUCT PRICING AND REIMBURSEMENT; HEALTH CARE REFORM AND RELATED
MEASURES
The levels of revenues and profitability of pharmaceutical and/or biotechnology
products and companies may be affected by efforts of governmental and third
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government 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.
Presently, the United States Congress is considering a number of legislative and
regulatory reforms that may effect companies engaged in the health care industry
in the United States. Pricing constraints on the Company's products, if
approved, could have a material adverse effect on the Company. Although the
Company cannot predict whether these proposals will be adopted or what effects
such proposals may have on its business, the existence and pendency of such
proposals could have a material adverse effect on the Company in general. In
addition, the Company's ability to commercialize potential pharmaceutical and/or
biotechnology products may be adversely affected to the extent that such
proposals have a material adverse effect on other companies that are prospective
collaborators with respect to any of the Company's product candidates.
In addition, in the United States and elsewhere, sales of medical products and
services 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 are increasingly challenging the prices charged for
medical products and services. If the Company succeeds in bringing one or more
products to the market, there can be no assurance that these products will be
considered cost effective and that reimbursement to the consumer will be
available or will be sufficient to allow the Company to sell their products on a
competitive basis. See "Risk Factors--Government Regulation; No Assurance of
Product Approval."
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NO ASSURANCE OF IDENTIFICATION OF ADDITIONAL PROJECTS; CERTAIN INTERLOCKING
RELATIONSHIPS; POTENTIAL CONFLICTS OF INTEREST
The Company initially intends to be engaged primarily in the development and
commercialization of the AC Vaccine technology described in this Prospectus. See
"Business." From time to time, if and when the Company's resources allow, the
Company may explore the acquisition and subsequent development and
commercialization of additional biomedical and pharmaceutical products and
technologies. However, there can be no assurance that the Company will be able
to identify any additional products or technologies and, even if suitable
products or technologies are identified, the Company does not expect to have
sufficient resources to pursue any such products or technologies in the
foreseeable future.
Currently the Company's management and officers other than Dr. Jeffrey M. Jonas,
its President and Chief Executive Officer, devote only a portion of their time
to the business of the Company. In addition, certain of the directors and
part-time officers of the Company are full-time officers of Paramount Capital
Investments, LLC. See "Management." Paramount Capital Investments, LLC, is a
merchant bank specializing in biotechnology companies. In the regular course of
its business, Paramount Capital Investments, LLC identifies, evaluates and
pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither Paramount Capital Investments,
LLC, nor any other person is obligated pursuant to any agreement or
understanding with the Company to make any additional products or technologies
available to the Company, and there can be no assurance, and purchasers of the
Common Stock should not expect, that any biomedical or pharmaceutical product or
technology identified by Paramount Capital Investments, LLC, or any other person
in the future will be made available to the Company. In addition, certain of the
officers, directors, consultants and advisors to the Company may from time to
time serve as officers, directors, consultants or advisors to other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not in the future have interests in conflict with
those of the Company.
CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 64.21% of the outstanding shares of Common Stock.
Accordingly, the Company's executive officers, directors, principal stockholders
and certain of their affiliates have the ability to exert substantial influence
over the election of the Company's Board of Directors and the outcome of issues
submitted to the Company's stockholders. See "Principal Stockholders."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock like that of many other development-stage
public pharmaceutical or biotechnology companies, may be highly volatile.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of any products developed by the
Company and general conditions may have a significant or adverse effect on the
market price of the Common Stock. Also, the trading price of the Common Stock
may respond to quarterly variations in operating results, announcements of
innovations or new products by the Company or its competitors and other events
or factors, including, but not limited to, the sale or attempted sale of a large
amount of such securities into the market. In addition, market fluctuations may
adversely affect the market prices of such securities. See "Description of
Securities."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
As of June 30, 1996, 6,222,316 shares of Common Stock were issued and
outstanding of which the Company believes that
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4,386,409 shares of Common Stock are "restricted securities" and under certain
circumstances may, in the future, be sold in compliance with Rule 144 (including
987,776 shares owned by persons who may be the affiliates of the Company, but as
to which there can be no assurance, and whose shares therefore may not be
restricted). Assuming the availability of Rule 144, including the requirement
that there is adequate current public information with respect to the Company as
contemplated by Rule 144, the Company believes that of the 4,386,409
"restricted" shares of Common Stock, 987,776 shares of Common Stock are
presently eligible for sale and an additional 4,386,409 shares of Common Stock
will be eligible for sale in 1997 pursuant to Rule 144, in each case subject to
certain volume limitations and manner of sale requirements imposed by Rule 144.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who beneficially
owned restricted shares of Common Stock 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 one percent of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on the Nasdaq National Market , any
other national securities exchange OR THE OTC BULLETIN BOARD, the average weekly
trading volume during the four calendar weeks immediately preceding the sale. A
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least three years is entitled to sell
such shares under Rule 144 without regard to the volume limitations described
above.
CONDUCTING BUSINESS ABROAD
To the extent the Company conducts business outside the United States, it
intends to do so through licenses, joint ventures or other contractual
arrangements for the development, manufacturing and marketing of its products.
No assurance can be given that the Company will be able to establish foreign
operations successfully through such a plan, that THE FOREIGN PCT APPLICATION
WILL BE APPROVED, THAT THE FOREIGN PCT coverage will be available or that the
manufacturing and marketing of its products
through such licenses, joint ventures other arrangements will be commercially
successful. The Company might also have greater difficulty obtaining proprietary
protection for its products and technologies outside the United States and
enforcing its rights in foreign courts.
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
There is no public market for the Common Stock, and assuming the Common Stock's
approval for initial listing on the Nasdaq National Market, there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The absence of an active trading market would reduce the liquidity of
an investment in the Common Stock. The Company believes that certain brokerage
firms intend to act as market makers and otherwise effect transactions in the
Common Stock. To the extent these firms participate, they may be a dominating
influence in any market that might develop, and the degree of participation by
the firms may significantly affect the price and liquidity of the Common Stock.
These firms may discontinue such activities at any time or from time to time.
The prices at which the Common Stock may be offered in the market will be
determined by these firms and the purchasers and sellers of the Common Stock,
based in part on market factors, and may not necessarily relate to the Company's
assets, book value, results of operations or other established and quantifiable
criteria of value. The trading price of the Common Stock, including without
limitation, any Common Stock to be offered by the Selling Shareholders, could be
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of technological innovations or new products by the
Company or its competitors and other events or factors. In addition, the stock
market has experienced volatility
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that has particularly affected the market prices of equity securities of many
biotechnology companies and that often has been unrelated to the operating
performance of such companies. These broad market fluctuations may adversely
affect the market price of the Common Stock. See "Plan of Distribution."
UNCERTAINTY OF LISTING ON NASDAQ NATIONAL MARKET; POSSIBLE DELISTING FROM NASDAQ
NATIONAL MARKET; MARKET ILLIQUIDITY
The Company HAS APPLIED to have its Common Stock listed on the Nasdaq National
Market AND BELIEVES THAT IT MEETS THE CRITERIA FOR SUCH LISTING ON SUCH MARKET,
INCLUDING, WITHOUT LIMITATION: (I) TOTAL ASSETS OF AT LEAST $4 MILLION; (II)
TOTAL STOCKHOLDER EQUITY OF $2 MILLION; (III) a market value of its publicly
held shares of at least $1 million; (IV) THE COMMON STOCK BE HELD BY AT LEAST
300 SHAREHOLDERS; (V) AT LEAST TWO MARKET MAKERS; (VI) AND AN INITIAL MINIMUM
BID PRICE OF AT LEAST $3.00. BECAUSE OF THE ABSENCE OF ANY PRIOR TRADING HISTORY
FOR THE COMMON STOCK, NASDAQ HAS REQUESTED THAT THE COMPANY CAUSE ITS PROPOSED
MARKET-MAKERS TO SUBMIT LETTERS AND/OR REPORTS (I) SETTING FORTH THE PROPOSED
MARKET MAKERS' BELIEF THAT THE COMMON STOCK WILL MEET THE INITIAL MINIMUM BID
PRICE REQUIREMENT AND (II) SUBSTANTIATING SUCH BELIEF. THE COMPANY MAY REQUEST
THAT THE PROPOSED MARKET MAKERS PROVIDE SUCH LETTERS AND/OR REPORTS.
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NOTWITHSTANDING THE SUBMISSION OF SUCH LETTERS AND/OR REPORTS, NASDAQ HAS
ADVISED COUNSEL TO THE COMPANY THAT IT MAY REQUIRE THE COMPANY TO LIST THE
COMMON STOCK ON THE OTC BULLETIN BOARD AND THAT IT WOULD ADMIT THE COMMON STOCK
FOR LISTING ON THE NASDAQ NATIONAL MARKET ONLY WHEN THE MINIMUM BID PRICE FOR
THE COMMON STOCK IS CONSISTENTLY QUOTED AT $3.00 OR MORE FOR A 20- TO 30-DAY
PERIOD. IF SUCH TRADING OF THE COMMON STOCK ON THE OTC BULLETION BOARD WERE
TO OCCUR, THE COMPANY WOULD REAPPLY FOR LISTING ON THE NASDAQ NATIONAL MARKET.
THERE CAN BE NO ASSURANCE THAT THE COMMON STOCK WILL BE ADMITTED FOR
LISTING ON THE NASDAQ NATIONAL MARKET, AND THAT IF AND WHEN THE COMMON STOCK IS
LISTED ON THE OTC BULLETIN BOARD THAT IT WILL TRADE AT OR ABOVE THE MINIMUM
REQUIRED TRADING PRICE NECESSARY FOR THE COMMON STOCK TO BE LISTED SUBSEQUENTLY
ON THE NASDAQ NATIONAL MARKET.
ASSUMING THE NASDAQ NATIONAL MARKET LISTING OF THE COMMON STOCK IS APPROVED,
CONTINUED INCLUSION OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET REQUIRES
THAT: (I) THE COMPANY MAINTAIN AT LEAST $4,000,000 IN NET TANGIBLE ASSETS IF IT
HAS SUSTAINED LOSSES FROM CONTINUING OPERATIONS AND/OR NET LOSSES IN THREE OF
ITS FOUR MOST RECENT FISCAL YEARS; (II) A MARKET VALUE OF ITS PUBLICLY HELD
SHARES OF AT LEAST $1 MILLION; (iii) the minimum bid price for the Common Stock
be at least $1.00 per share or, in the alternative, the market VALUE of the
Company's publicly held shares must be at least $3 million and the Company have
at least $4 million of net tangible assets; (iv) the public float of the Common
Stock consist of at least 200,000 shares ; (v) the Common Stock have at least
two active market makers and (vi) the Common Stock be held by at least 400
holders or 300 round lots. If the Company is unable to satisfy such maintenance
requirements, the Common Stock may be delisted from the Nasdaq National Market.
In such event, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter market in the "pink sheets" or the OTC
Bulletin Board. Consequently, the liquidity of the Common Stock could be
materially and adversely impaired, not only in the number of securities that
can be bought and sold at a given price, but also through delays in the timing
of transactions and reduction in security analysts' and the media's coverage of
the Company, which could result in lower prices for the Common Stock than might
otherwise be attained and could also result in a larger spread between the bid
and asked prices for the Common Stock. See "Risks of Low Price Stock; Possible
Effect of "Penny Stock" Rules on Liquidity for the Common Stock."
RISKS OF LOW-PRICED STOCK; POSSIBLE EFFECT OF "PENNY STOCK" RULES ON LIQUIDITY
FOR THE COMMON STOCK
The Securities Exchange Act of 1934 (the "Exchange Act") requires additional
disclosure relating to the market for penny stocks in connection with trades in
any stock defined as a penny stock. The Commission's regulations generally
define a penny stock to be any equity security that has a market price of less
than $5.00 per share, subject to certain exceptions. Such exceptions include any
equity security listed on the Nasdaq National Market, subject to certain trade
reporting requirements, and any equity security issued by an issuer that has (i)
net tangible assets of at least $2 million, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least $5
million, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6 million, if such issuer
has been in continuous operation for less than three years. There can be no
assurance that the Company will meet the requirements of the foregoing financial
exceptions. Failure to qualify under one of these exceptions, will 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 sales 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. In any event, even if the Common Stock
were exempt from such restrictions, they would remain subject to Section
15(b)(6) of the Exchange Act, which gives the Commission the authority to
prohibit any person that engages in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. Accordingly, if the Common
Stock is subject to the rules on penny stocks, the market liquidity for such
securities could be materially and adversely affected.
In addition, if the Common Stock fails to meet the minimum market price, the net
tangible asset or the annual revenue tests set forth above, but are quoted on
the OTC Bulletin Board (as to which there can be no assurance), then trading in
the Common Stock would be regulated pursuant to Rules 15-g-1 through 15-g-6 and
15-g-9 promulgated under the Exchange Act for non-National Association of
Securities Dealers Automotive Quotation System and non-exchange listed
securities. Under
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such rules, broker-dealers who recommend such securities to persons other than
established customers and "accredited investors" must make a special written
suitability determination that the penny stock is a suitable investment for the
purchaser and receive the purchaser's written agreement to this transaction.
Securities are exempt from these rules if the market price of the Common Stock
is at least $5.00 per share. Consequently, such Exchange Act rules may affect
the ability of broker-dealers to make a market in such shares and may affect the
ability of holders of Common Stock to sell in the secondary market.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
DELAWARE LAW
The Company's Articles of Incorporation, as amended, authorize the issuance of
up to 5,000,000 shares of preferred stock, par value $.01 per share, of which
300,000 shares are authorized for issuance as Series B Preferred Stock, of which
approximately 286,000 have been issued or reserved for issuance upon the
exercise of Series B Placement Warrants. The Company's Certificate of
Incorporation authorizes the issuance of "blank check" preferred stock with such
designation, rights and preferences as may be determined from time to time by
the Board of Directors. Accordingly, the Board of Directors is empowered,
without stockholder approval, to issue a new series of preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Common Stock. In
the event of issuance, the new series of preferred stock could be utilized,
under certain circumstances, as a method of discouraging, delaying or preventing
a change in control of the Company. Although the Company has no present
intention to issue any additional shares of its preferred stock, other than
those already authorized for issuance upon exercise of the Placement Warrants,
there can be no assurance that the Company will not do so in the future. See
"Description of Securities."
The Company is subject to Section 203 of the General Corporation Law of the
State of Delaware which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder. In general, Section 203 defines an interested
stockholder as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by such entity or person. The foregoing
provisions could have the effect of discouraging others from making tender
offers for the Company's shares and, as a consequence, they also may inhibit
fluctuations in the market price of the Company's shares that could result from
actual or rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company.
FORWARD LOOKING STATEMENTS
Certain of the statements set forth in this Prospectus, including, without
limitation, the Company's research and development programs, the anticipated
filing of an IND for AC MelaVax(TM), the seeking of joint development or
licensing arrangements with pharmaceutical companies, the research and
development of particular compounds and technologies for particular indications
and the period of time for which the Company's existing resources will enable
the Company to fund its operations and to meet the initial listing requirements
for the quotation of its securities on the Nasdaq National Market and the
possibility of contracting with other parties additional licenses to develop,
manufacture and market commercially viable products, are forward-looking and
based upon the Company's current belief as to the outcome, occurrence and timing
of future events or current expectations and plans. All such statements involve
significant risks and uncertainties. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates, including, among other things, the ability
to obtain substantial additional funds, obtain and maintain all necessary
patents or licenses, to demonstrate the safety and efficacy of product
candidates at each state of development, to meet applicable regulatory standards
and receive required regulatory approvals, to meet obligations and required
milestones under its license agreements, to be capable of producing drug
candidates in commercial quantities at reasonable costs, to compete successfully
against other products and to market products in a profitable manner. As a
result, there also can be no assurance that these statements included in the
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in these statements included herein,
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the inclusion of such information should not be regarded as a representation by
the Company or any other person that the objectives and plans of the Company
will be achieved.
NO DIVIDENDS
The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends for the foreseeable future. See "Dividend
Policy."
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale of shares of Common
Stock. The Company is not expected to receive any proceeds from the exercise of
the Placement Warrants since the Placement Warrants may be exercised pursuant to
a cashless exercise provision. In the event that the Placement Warrants are
exercised for cash, the Company intends to use such net cash proceeds (after
estimated offering expenses of this Offering of approximately $300,000) for
general working capital purposes. Proceeds, if any, from the exercise for cash
of all the Placement Warrants, before deduction of estimated expenses of this
Offering, would be approximately $2,850,000. Whether, how and to what extent any
of the Placement Warrants will be exercised, and whether the Placement Warrants
are exercised for cash or not, cannot be predicted by the Company.
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock since its
formation. The payment of dividends, if any, in the future, with respect to the
Common Stock, is within the discretion of the Board of Directors of the Company
and will depend on the Company's earnings, capital requirements, financial
condition and other relevant factors. The Board of Directors of the Company does
not presently intend to declare any dividends on the Common Stock in the
foreseeable future. The Company anticipates that all earnings and other
resources of the Company, if any, will be retained by the Company for investment
in its business.
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of (a)
December 31, 1995 and (b) as of June 30, 1996:
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
----------- -----------
(Unaudited)
<S> <C> <C>
Stockholders' equity (deficit) Preferred Stock:
Authorized - 5,000,000 shares (including Series B- 300,000 shares) Series A
convertible preferred stock, $.01 par value;
1,287,500 shares issued and outstanding in 1995 $12,875 -----
Series B convertible preferred stock, $.01 par value;
259,198 shares issued and outstanding in 1996 ----- $2,592
Common Stock:
Authorized - 10,000,000 shares at December 31, 1995 and 50,000,000 at June 30,
1996, $.002 par value;
5,162,671 and 5,928,567 shares issued and outstanding in 1994, 1995 and 1996
Additional paid-in capital 10,325 11,857
Subscription receivable 1,723,657 23,267,003
Deficit accumulated during the developmental stage (7,109) (6,589)
Deferred Compensation ----- (308,908)
Total stockholders' equity (deficit) (1,717,180) (2,222,257)
----------- -----------
Total liabilities and stockholder's equity (deficit) 22,568 20,743,698
------ ----------
$1,973,568 $23,084,002
========== ===========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
Since its inception, the Company has concentrated its efforts and resources in
the development and commercialization of biotechnology and pharmaceutical
products and technologies. The Company has been unprofitable since its founding
and has incurred a cumulative net loss of approximately $2,212,292 as of June
30, 1996. The Company expects to incur significantly increasing operating losses
over the next several years, primarily due to the expansion of its research and
development programs, including preclinical studies and clinical trials for the
AC MelaVaxTM product and other products that it may acquire or develop. The
Company's ability to achieve profitability depends upon, among other things, its
ability to discover and develop products, obtain regulatory approval for its
proposed products, and enter into agreements for product development,
manufacturing and commercialization. The Company's AC MelaVaxTM product does not
currently generate revenue and the Company does not expect to achieve revenues
from this or other products for the foreseeable future. Moreover, there can be
no assurance that the Company will ever achieve significant revenues or
profitable operations from the sale of AC MelaVaxTM or any other products that
it may develop.
The Company's independent auditors have included an explanatory paragraph in its
report on the Company's financial statements at December 31, 1995, as to the
uncertainty relating to its ability to continue as a going concern.
PLAN OF OPERATION
The Company is currently engaged in the development and commercialization of
biotechnology and pharmaceutical products and technologies. On November 20,
1995, the Company acquired the rights to the AC Vaccine technology pursuant to
the TJU License. The Company initially intends to focus its efforts primarily on
the development of immunotherapies for cancer pursuant to the TJU License. The
Company anticipates that during the next 12 months that it will conduct
substantial research and development of the AC Vaccine technology, including,
without limitation, Phase II/III or Phase III clinical trials on AC MelaVaxTM,
the Company's lead AC Vaccine for metastic melanoma. See "Business -- Technology
Applications and Product Candidates," "Research and Development." The Company
also anticipates that it will expend resources on the research and development
of additional AC Vaccines. While there can be no assurance, the Company intends
to acquire additional products and technologies during the next 12 months, which
may or may not be in the cancer immunotherapy field. Should the Company acquire
such additional products or technologies, it is anticipated that such additional
products or technologies will require substantial resources for research,
development and clinical evaluation. However, there can be no assurance that the
Company will be able to obtain the additional financing necessary to acquire and
develop such additional products and technologies. In addition, there can be no
assurance, that changes in the Company's research and development plans or other
changes which would or could alter the Company's operating expenses will not
require the Company to reallocate funds among its planned activities and curtail
certain planned expenditures. In such event, the Company may need additional
financing. There can be no assurance as to the availability or the terms of any
required additional financing, when and if needed. In the event that the Company
fails to raise any funds it requires, it may be necessary for the Company to
significantly curtail its activities or cease operations.
The Company RECENTLY HAS HIRED THREE NEW EMPLOYEES AND anticipates that over the
next 12 months it MAY hire approximately THREE MORE new employees, and may
establish lab facilities for the research and development of the AC Vaccine
technology or any other technologies which may be acquired. The
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timing and cost of hiring any additional employees or the establishment of any
such facility may vary depending on need and cannot currently be predicted with
any certainty.
LIQUIDITY AND CERTAINTY
The Company currently anticipates that its current resources will permit the
Company to meet its business objectives for approximately the next 24-36 months
and the Company does not currently expect to be required to raise additional
capital in the next 12 months. However, since the Company's working capital
requirements will depend upon numerous factors, including, without limitation,
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
abilities of the Company to establish collaborative arrangements with other
organizations, there can be no assurance that the Company will be able to meets
its business objectives and/or not need to raise additional capital.
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BUSINESS
GENERAL
AVAX Technologies, Inc. ("AVAX" or the "Company"), is a development stage
biopharmaceutical company which intends to acquire rights to, and to develop,
technologies and products for the treatment of cancer. The Company initially
intends to focus its efforts primarily on the development of immunotherapies for
cancer, which is a rapidly developing segment of the cancer therapeutic market.
The Company has licensed (the "TJU License") from Thomas Jefferson University
("TJU") an issued U.S. patent and certain patent applications covering a process
for the modification of a patient's own TUMOR cells into a cancer vaccine. This
process allows the Company to produce an autologous cell vaccine (an "AC
Vaccine") that attempts to stimulate the patient's own immune system to
eliminate the cancer. This technology has emerged from research conducted
at the Jefferson Cancer Center of TJU. The technology primarily involves the
removal of a patient's own tumor cells, conjugating them to a small molecule
known as a hapten, and reintroducing the product back into the patient . The
approach is based on the premise that a patient's immune response to a strongly
immunogenic, hapten conjugated tumor antigen may be followed by the development
of an immune response to the unmodified tumor antigen, somewhat analogous to the
phenomenon of drug-induced autoimmune disease. The Company's initial AC Vaccine,
AC MelaVax(TM), is currently undergoing a physician-sponsored human clinical
trial based on an experimental protocol at TJU Hospital as an outpatient,
post-surgical, adjunct therapy for the treatment of malignant melanoma, and is
believed by the Company to be the first therapeutic cancer vaccine to show a
substantial increase in the survival rate for patients with melanoma. In such
ongoing clinical trial at the Thomas Jefferson Medical Center, 150 malignant
melanoma patients have been treated post-surgically on an outpatient basis with
AC MelaVaxTM. In 62 patients with stage 3 melanoma for whom there has been
sufficient time for long-term follow-up, the four-year survival rate is
approximately 60%. This compares with the historical and control group survival
rate of approximately 20%, and the survival rate for treatment with high dose
alpha interferon of approximately 32%. The Company believes that the results to
date of the ongoing clinical trial represent the first substantial increase in
survival for malignant melanoma patients treated by immunotherapy. In the 150
patients treated in the study, the Company believes that only relatively minor
side effects, such as soreness and swelling at the site of the application of
the AC MelaVaxTM vaccine, have been witnessed to date.
The Company also believes that the AC Vaccine technology possibly may have
applications in the treatment of other cancers such as lung, breast, colon and
prostate cancers. Accordingly, in addition to continuing the clinical work on
the AC MelaVax(TM) for melanoma, the Company also has entered into a sponsored
research agreement with TJU relating to the development of additional
immunotherapies based on the AC Vaccine technology. If appropriate, the Company
intends to fund the preclinical and initial clinical development of these
technologies. In order to contain costs, the Company may use sponsored research
agreements and contract research organizations to help it develop its
technologies. At the appropriate time the Company may seek corporate partners to
provide the necessary resources and expertise for clinical development and to
market and distribute products. In addition, the Company may seek to explore the
acquisition and subsequent development and commercialization of additional
commercially promising immunotherapy and adjuvant technologies. No assurance can
be given that the Company will have the requisite resources or that any such
projects will be identified on terms favorable to the Company, if at all.
BACKGROUND AND SCIENTIFIC RATIONALE
Cancer is characterized by the uncontrolled growth and spread of abnormal cells
which escape the body's protective immune surveillance system, invade healthy
tissues and destroy normal tissue function and ultimately lead to a person's
death if untreated. Cancers, composed of either solid tumors or blood-borne
cancerous cells, over time tend to spread to other tissues and organs in the
body (metastasis). Cancer may be diagnosed at any stage of the disease, from
very early (best
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prognosis) to very late (worst prognosis). When cancer is detected early and has
not yet metastasized (spread) to other organs and tissues, surgical removal of
the tumor is often effective. Unfortunately, many cancers are not discovered
until metastatic cancer cells from the primary tumor have already entered the
blood or lymphatic system and established new tumors at distant sites. These
cells, and the tumors they form, are difficult to diagnose and treat with
current technology.
In 1994, approximately 1,250,000 people in the United States were diagnosed as
having cancer. The incidence of cancer continues to increase. The cost to the
health care system of treating these patients is believed to exceed
approximately $104 billion. The Company is aware of estimates that deaths from
cancer will surpass cardiovascular mortality worldwide by the end of the
century.
Although some progress has been made, few effective treatments are available for
most adult solid tumors, which often metastasize and invade other organs before
they are detected. The standard treatment for solid tumors is surgery. While in
many types of cancers this treatment is effective, in cases in which not all of
the tumor was removed or the tumor has metastasized the patient's prognosis is
poor. Chemotherapy and radiation therapy are rather crude treatments. These
treatments kill cells indiscriminately, destroying normal as well as malignant
cells thus leading to toxic side-effects that limit the usefulness of these
therapies. A safe, effective treatment for residual and metastatic disease is
clearly needed. Such a treatment, if effective and safe, would increase patient
survival and therefore may be widely adopted.
Although, many different types of drugs are used to treat a variety of cancers,
no one drug has been found to be a cure for the disease. Given the need for new
effective treatments for cancer, a drug which may effectively treat cancer could
have a large market potential. Although there can be no assurance, the Company
believes that an AC Vaccine which is developed to effectively treat the
recurrence of cancer after surgery is likely to have a sizable market share
since surgery in many cases is the first treatment performed on cancer patients,
and if such a treatment were to be broadly applicable and safe, its market
potential could be significant and the health care system would likely realize
significant cost savings due to a reduction in the number of cases of recurrent
disease requiring hospitalization and ongoing clinical and home care.
Immunotherapy is an emerging cancer treatment modality that the Company believes
shows promise for utilizing a patient's own immune system to recognize and
eliminate cancer cells. There are a number of different types of immunotherapies
such as cytokines, antibodies, activated cell therapy and vaccines currently
under development by third parties. See "Business--Competition." In all cases,
immunotherapies attempt to modulate the body's immune system to contain and
eliminate cancer cells. In concept, immunotherapies should have fewer
side-effects than chemotherapies and should be relatively well-tolerated by the
patient. Thus, although there can be no assurance of success, the Company
believes immunotherapeutics have the potential to be effective and by reason of
their selectivity, relatively safe anticancer therapeutic agents.
TECHNOLOGY APPLICATIONS AND PRODUCT CANDIDATES
The AC Vaccine Technology
The Company's proprietary technology is a patented process that allows the
Company to produce an autologous cell vaccine (an "AC Vaccine") that attempts to
stimulate the patient's own immune system to recognize, contain and eliminate
cancer cells. The technology primarily involves the removal of a patient's own
tumor cells, conjugating them to a small molecule known as a hapten-dinitro
phenyl (DNP), and reintroducing the product back into the patient with an
adjuvant, which is an immunological agent that increases the immune response.
Haptenization is the process of conjugating a small molecule to a larger
molecule. The small molecule known as a hapten, is recognized by the immune
system and elicits an immune response against the larger molecule. The approach
is based on the premise that a patient's immune response to a strongly
immunogenic, hapten conjugated tumor antigen may be followed by the development
of an immune response to the unmodified tumor antigen, somewhat analogous to the
phenomenon of drug-induced autoimmune disease. Therefore, the process of
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<PAGE>
haptenizing a patient's TUMOR cells may allow the unhaptenized cancer cells to
be recognized by the body's immune system leading to an immune response against
the patient's TUMOR cells and their potential elimination from the body.
In practice, the Company's initial therapy would be used as an adjunct to
surgical treatment of tumors. The surgeon would remove the patient's tumor and
send the cells to the Company where they would be processed into an AC Vaccine.
The vaccine would then be sent to the patient's oncologist, who would administer
the vaccine on an outpatient basis. The patient's response to the treatment then
will be monitored using standard protocols.
The Company is initially developing this technology for the treatment of
metastatic melanoma but believes that it possibly could have applications in the
treatment of a variety of solid tumors such as lung, breast, colon and prostate
cancers.
AC MelaVax(TM)
GENERAL. The Company's lead product, AC MelaVax(TM), is a post-surgical
treatment for malignant melanoma. Melanoma is a highly malignant tumor that can
spread so rapidly that it can be fatal within months of diagnosis. The incidence
of malignant melanoma is increasing at a faster rate than most other cancers in
the United States, Australia, northern Europe and Canada. Although there are
several causative factors, rising exposure by the general population to UV
radiation in sunlight appears to be the most significant factor behind this
increase. With the incidence growing over 6% annually, melanoma effects over
200,000 people in the United States, with approximately 32,000 new cases
diagnosed in 1994. Surgical excision of the tumor mass remains the generally
accepted treatment to date. However, in many cases survival is restricted by the
inability of surgery to guarantee removal of all the tumor cells. It is highly
possible for the patient to remain with undetected metastasis. Due to its
limited efficacy and highly toxic side-effects, chemotherapy and radiation have
not been widely used in the treatment of these patients. Recently the FDA
approved the use of high doses of interferon [alpha] for the post-surgical
treatment of melanoma patients. In clinical studies interferon [alpha] has
demonstrated a five-year survival rate that the Company believes to be
approximately only 30%.
Generally, the first line of treatment for patients with malignant melanoma is
usually the surgical removal of the primary tumor and any of the nearby lymph
nodes into which it has metastasized. Because malignant melanoma usually does
not respond to conventional cancer treatments, these patients generally receive
no chemotherapy or radiation therapy. The five-year survival rate for these
patients is believed by the Company to be approximately 20%. The Company
believes that there is a clear need for an effective post-surgical treatment of
malignant melanoma patients, one that would contain metastasis and prevent
recurrent disease.
CLINICAL TRIALS. Dr. David Berd, the inventor of the patented technology
licensed to the Company by TJU, is a clinical oncologist at TJU's Jefferson
Cancer Center (recently renamed Kimmel Cancer Center). Dr. Berd has been
conducting a physician- sponsored clinical trial for the treatment of malignant
melanoma using AC MelaVaxTM for approximately the past seven years.
In such ongoing clinical trial at the Thomas Jefferson Medical Center, 150
malignant melanoma patients have been treated post-
surgically on an outpatient basis with AC MelaVaxTM. In 62 patients with stage 3
melanoma for whom there has been sufficient time for long-term follow-up, the
four-year survival rate is approximately 60%. This compares with the historical
and control group survival rates of about 20%, and the survival rate for
treatment with high dose alpha interferon of approximately 32%.
The Company believes that the results to date of the ongoing clinical trial
represent the first substantial increase in survival for malignant melanoma
patients, treated by immunotherapy. In the 150 patients treated in the study,
the Company believes that only relatively minor side effects, such as soreness
and swelling at the site of the application of the AC MelaVaxTM vaccine, have
been witnessed to date.
Although TJU and Dr. Berd have conducted the ongoing clinical trial pursuant to
a FDA-approved, physician-sponsored
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Investigational New Drug Application ("IND"), to date, the Company has not had
any direct contact with the FDA concerning the clinical results obtained with AC
MelaVax(TM). However, it is the Company's intention to use the results of the
TJU clinical trial to support the submission of a Company-sponsored IND to the
FDA. The purpose of the IND submission will be to seek FDA approval to enter AC
MelaVax(TM)into Phase II/III or Phase III multi-center clinical trials. Although
there can be no assurance of such FDA approval, if successful in obtaining
clearance to commence such Company-sponsored IND, it is the Company's intention
to use the results of these Company-sponsored clinical trials along with the
results of the clinical trial conducted at TJU, as the basis for the filing of a
New Drug Application ("NDA") for FDA approval to market AC MelaVax(TM). The
Company also may pursue a similar regulatory approval and commercialization
strategy for AC MelaVax(TM)in Australia and certain countries in Europe through
corporate partnering strategies, although such strategies have not yet been
finalized or initiated. Denial of any regulatory approvals or any significant
delays in obtaining any of the same, would have a material adverse effect on the
Company.
IN CONNECTION WITH THE COMPANY'S DEVELOPMENT OF ITS REGULATORY STRATEGY, THE
COMPANY HAS ENTERED INTO A CONSULTING AGREEMENT WITH BIOMETRIC RESEARCH
INSTITUTE ("BRI") PURSUANT TO WHICH BRI WILL ADVISE AND ASSIST THE COMPANY IN
ITS PURSUIT OF FDA REGULATORY APPROVALS. THE COMPANY'S AGREEMENT WITH BRI
TERMINATES ON DECEMBER 31, 1996, SUBJECT TO EXTENSION BY MUTUAL CONSENT OF THE
PARTIES.
RESEARCH AND DEVELOPMENT
In connection with the TJU License, TJU, Dr. Berd, as TJU's principal
investigator, and the Company entered into a Clinical Study and Research
Agreement pursuant to which TJU and Dr. Berd undertook to conduct a research and
clinical study program for the further development of the AC Vaccine technology
for additional cancer targets. In turn, the Company undertook to fund such
research as follows: $220,094 for the first year of the agreement, $220,381 for
the second year of the agreement and at least $100,000 for the third year of the
agreement. Following the third year, the Company is obligated to spend a minimum
of $500,000 per year on the development of the AC Vaccine technology until
commercialized in the United States. If following the third year, the Company
files for FDA approval of a Company-sponsored NDA for the right to market a
product arising from such technology, the Company may elect to spend less than
$500,000 per year on the development of the AC Vaccine technology during the
period of time the NDA is under review by the FDA. If the Company fails to make
such payments in accordance with the terms of the Clinical Study and Research
Agreement, TJU may terminate the agreement and no further research would be
performed thereunder. See "Risk Factors--Dependence on License and Sponsored
Research Agreements."
For fiscal years 1994 and 1995, the Company spent approximately $398,622 and
$126,957, respectively, for research and development. See "Financial Statements"
PROPRIETARY RIGHTS
Pursuant to the TJU License, the Company has licensed an issued U.S. patent and
certain patent applications covering a process for the modification of a
patient's own TUMOR cells into a cancer vaccine. The TJU License is a
royalty-bearing license for the rights to such patented vaccine technology, and
provides for certain payments upon the occurrence of certain milestones. The
Company has paid $10,000 to TJU as consideration for the TJU License. In
addition, the Company sold 458,243 shares of Common Stock at a price of $.002
per share to each of TJU and Dr. Berd, representing 7.5% (15% in the aggregate)
of the Company's total outstanding voting securities at the time of issuance.
The Company is obligated to make certain milestone payments to TJU as follows:
$10,000 upon initiation of the first clinical trial that is approved by the FDA
(or comparable international agency), $10,000 upon the first filing of an NDA
with the FDA (or comparable filing with a comparable international agency), and
$25,000 upon receipt by the Company of approval from the FDA (or comparable
international agency) to market products relating to the AC Vaccine technology.
In addition, the
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Company is obligated to pay royalties on its net sales revenue and a percentage
of all revenues received from sublicenses relating to the AC Vaccine technology.
Failure to comply with the terms of the TJU License may cause its termination,
which would have a material adverse effect on the Company. See "Risk
Factors--Dependence on License and Sponsored Research Agreements."
In the future, the Company may require additional licenses from other parties to
develop, manufacture and market commercially viable products effectively. The
Company's commercial success will depend in part on obtaining and maintaining
such licenses. There can be no assurance that such licenses can be obtained or
maintained on commercially reasonable terms, if at all, that the patents
underlying such licenses will be valid and enforceable or that the proprietary
nature of the patented technology underlying such licenses will remain
proprietary. The Company presently intends to pursue aggressively the broadest
patent coverage possible for all of its intellectual property. See "Risk
Factors--Uncertainty Regarding Patents and Proprietary Rights."
COMPETITION
The Company is aware of estimates that more than 300 companies are reported to
have approximately 1,250 cancer drugs under development worldwide, of which a
substantial number are under development in the United States. Many of such
drugs or other substances under development involve chemotherapeutic agents and
cancer immunotherapies and, thus, are, or maybe, in direct competition with the
Company's AC Vaccine and its future products and such drugs may perform more
effectively or safely than the Company's product candidates. Many of the
companies engaged in anticancer research and development and in acquiring rights
to the products of such research and development, including biotechnology
companies, have substantially greater financial, technical, scientific,
manufacturing, marketing and other resources than the Company and have more
experience in developing, marketing and manufacturing therapeutics, including
performing the preclinical testing and clinical trials that are required for
obtaining FDA and other regulatory approvals. Included among the Company's
competitors are: (i) large established pharmaceutical companies with commitments
to oncology or antiviral research, development and marketing; (ii) smaller
biotechnology companies with similar strategies; and (iii) many development
stage companies licensing and/or developing oncology therapeutics. In addition,
many research institutes, hospitals and universities are working to develop
products and processes in the same field of cancer that may in the future be in
direct competition with the Company's present and future products.
Several companies or research institutions are developing cancer vaccines to
treat malignant melanoma, including several which are in Phase III clinical
trials. The principal competitive factors in the area of cancer immunotherapies
are (i) the efficacy of the product and (ii) the timing of the entry of the
product into the market. Although there is significant competition, to date, the
Company believes that none of such immunotherapies have demonstrated the
increase in survival over the same period of
time that the Company's technology has shown. Although there can be no
assurance, the Company also believes that its AC Vaccine technology may be
applicable to a variety of solid tumors and therefore may not be as limited as
certain other approaches. With respect to the timing of the entry of the
product, the Company is unable to estimate, when, if at all, its product will be
approved.
MANUFACTURING AND MARKETING
The Company does not have the resources to manufacture or directly market any
products that it may develop. In connection with its research and development
activities, the Company may seek to enter into collaborative arrangements with
pharmaceutical, medical device, health care, chemical or other companies to
assist in further funding as well as in development, manufacturing and/or
marketing of its products if such activities are commercially feasible. These
partners may also be responsible for commercial scale manufacturing, which may
be subject to compliance with applicable FDA regulations. The
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Company anticipates that such arrangements may involve the grant of exclusive or
semi-exclusive rights to sell specific products to specified market segments or
particular geographic territories in exchange for a royalty, joint venture,
future co-marketing or other financial interests.
To date, the Company has not entered into any collaborative commercial
manufacturing or marketing agreements for any of its proposed products. There
can be no assurance that the Company will be able to enter into any such
arrangements on favorable terms, if at all. Such collaborative marketing
arrangements, whether licenses, joint ventures or otherwise, may result in lower
revenues than would otherwise be generated if the Company conducted the
marketing of their own products. See "Risk Factors--Dependence on Third Parties
for Additional Funds and for Manufacturing, Marketing and Selling."
GOVERNMENT REGULATION
The research, preclinical development, clinical trials, product manufacturing
and marketing which may be conducted by the Company is subject to regulation by
the FDA and similar health authorities in foreign countries. The proposed
products and technologies of the Company also may be subject to certain other
federal, state and local government regulations, including, without limitation,
the Federal Food, Drug and Cosmetic Act, and their state, local and foreign
counterparts. Although there can be no such assurance, the Company does not
believe that compliance with such laws and regulations has, nor is presently
expected to have, a material adverse effect on the business of the Company.
However, the Company cannot predict the extent of the adverse effect on its
business or the financial and other cost that might result from any government
regulations arising out of future legislative, administrative or judicial
action. See "Risk Factors--Government Regulation; No Assurance of Product
Approval."
Generally, the steps required before a pharmaceutical or therapeutic biological
agent may be marketed in the United States include: (i) preclinical laboratory
tests, in vivo preclinical studies in animals, toxicity studies and formulation
studies; (ii) the submission to the FDA of an IND application for human clinical
testing of an IND, which must become effective before human clinical trials
commence; (iii) adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug; (iv) the submission of an NDA to the FDA;
and (v) the FDA approval of the NDA prior to any commercial sale or shipment of
the drug. In addition to obtaining FDA approval for each product, each domestic
drug manufacturing establishment must be registered with, and approved by, the
FDA. Domestic manufacturing establishments are subject to biennial inspections
by the FDA and must comply with Good Manufacturing Practices ("GMP") for both
drugs and devices. To supply products for use in the United States, foreign
manufacturing establishments must comply with GMP and are subject to periodic
inspection by the FDA or by corresponding regulatory agencies in such countries
under reciprocal agreements with the FDA. As permitted by FDA regulations, the
AC MelaVax(TM) human clinical trials are being conducted by TJU under the
supervision of Dr. David Berd. If considered successful or sufficiently positive
by the Company, data from such clinical trials may be used to support the filing
of a Company sponsored IND with the FDA to permit the Company to conduct its own
Phase II and/or III clinical trial.
For clinical investigation and marketing outside the United States, the Company
also is subject to foreign regulatory requirements governing human clinical
trials and marketing approval for drugs. The requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursement vary widely for
European countries both within and outside the European Community ("EC").
Outside the United States, the Company's ability to market a product is
contingent upon receiving a marketing authorization from the appropriate
regulatory authority. At present, foreign marketing authorizations are applied
for at a national level, although within the EC certain registration procedures
are available to companies wishing to market their products in more than one EC
member state. If the regulatory authority is satisfied that adequate evidence of
safety, quality and efficacy has been presented, a marketing authorization will
be granted. The system for obtaining marketing authorizations within the EC
registration system is a dual one in which certain products, such as
biotechnology and high technology products and those containing new active
substances, will have access to a central regulatory system that provides
registration throughout the entire EC. Other products will be registered by
national authorities in individual EC member states,
28
<PAGE>
operating on a principle of mutual recognition. This foreign regulatory approval
process includes, at least, all of the risks associated with FDA approval set
forth above. The Company could possibly have greater difficulty in obtaining any
such approvals and also might find it more difficult to protect its intellectual
property abroad.
SOURCES AND AVAILABILITY OF RAW MATERIALS AND THE NAMES OF PRINCIPAL SUPPLIERS
The Company does not expect to encounter significant difficulties in obtaining
raw materials for AC MelaVax(TM) since it is
primarily composed of a readily available chemical reagent, DNP, and the
patient's own tumor cells. Should the supply of DNP significantly decrease, the
Company may encounter problems preparing AC MelaVax(TM).
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Company's business may be subject to regulation under federal, state, local,
and foreign laws regarding environmental protection and hazardous substance
control. The Company believes that its compliance with these laws will have no
adverse impact upon its capital expenditures, earnings or competitive position.
Federal, state and foreign agencies and legislative bodies have expressed
interest in the further environmental regulation of the biotechnology industry.
The Company is unable to estimate the extent and impact of such, if any, future
federal, state, local legislation or administrative environmental action.
EMPLOYEES
As of SEPTEMBER 20, 1996, the Company has FOUR full-time EMPLOYEES, INCLUDING
Dr. Jeffrey M. Jonas, its President and Chief Executive Officer, DAVID L.
TOUSLEY, C.P.A., ITS CHIEF FINANCIAL OFFICER, AND ERNEST W. YANKEE, PH.D., ITS
EXECUTIVE VICE PRESIDENT. It has seven other employees, consultants, scientific
advisors, part-time officers and directors who devote only a portion of their
time to the business of the Company. The Company believes that it maintains good
relations with Dr. Jonas and its EMPLOYEES, consultants, scientific advisors,
part-time officers and directors. See "Risk Factors--Lack of Management and
Employees" and "--Dependence Upon Key Personnel and Consultants."
FACILITIES
The Company's executive offices are located at 4520 MAIN, Suite 930 Kansas
City, Missouri 64111. The Company anticipates that in the future it may own or
lease its own research facility, although no such lease or ownership interest
is under current consideration. The research and development work of the
Company is currently being conducted on a contract basis at TJU. In addition,
the Company may maintain shared office space in New York subleased from
Paramount Capital, Inc. ("Paramount"), at a cost of approximately
$36,000 - $48,000 per annum depending on the level of services required by the
Company. Paramount may be deemed an affiliate of the Company. See "Risk
Factors--Lack of Facilities,""--Dependence on Third Parties for Additional
Funds and for Manufacturing, Marketing and Selling," and "--Dependence on
Others for Clinical Development of, Regulatory Approvals for, and Marketing of
Pharmaceutical Products" and "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal actions which may
have a material adverse affect on the Company's business.
29
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Jeffrey M. Jonas, M.D. 43 Chief Executive Officer, President and
Director
Edson D. de Castro 57 Director
John K.A. Prendergast, Ph.D. 41 Director
Carl Spana, Ph.D. 33 Director
Michael S. Weiss 30 Secretary and Director
DAVID L. TOUSLEY, C.P.A. 41 CHIEF FINANCIAL OFFICER
ERNEST W. YANKEE, PH.D. 52 EXECUTIVE VICE PRESIDENT
</TABLE>
JEFFREY M. JONAS, M.D., has been the Chief Executive Officer, President and
Director of the Company since June 1, 1996. Prior to joining the Company, from
1994 TO 1996, Dr. Jonas was the Vice President of Clinical Development III and
the Chief Medical Officer of Upjohn Laboratories. From 1991 to 1994, he was the
Vice President of Worldwide Pharmaceutical Regulatory Affairs, the Director of
Psychopharmacology and the Director of Clinical Development III for Upjohn
Company. Prior thereto, Dr. Jonas was in private practice as a psychiatrist in
the Boston area. Dr. Jonas has authored a book on Prozac(TM), and over 60
scientific articles and book chapters. Dr. Jonas received his M.D. from Harvard
Medical School in 1979 and a B.A. in Biology and English from Amherst College in
1975.
MR. EDSON D. DE CASTRO has been a member of the Board of Directors of the
Company since October 1993. Since May 1995, Mr. de Castro has been Chairman of
the Board of Directors and Chief Executive Officer of Xenometrix, Inc., a
biotechnology company for which he had previously served as Chief Executive
Officer from June to November 1992 and as a Director since June 1992. From 1990
through 1995, Mr. de Castro has been consulting for companies and participating
as a member of certain Boards of Directors. Mr. de Castro was one of five
co-founders of Data General Corporation in 1968 for which, from 1968 to 1989, he
served as its President and Chief Executive Officer, and from 1989 to 1990, he
served as its Chairman of the Board of Directors. Mr. de Castro was a founder
and Executive Committee Member of the Massachusetts High Tech Council. Mr. de
Castro is a Trustee of Boston University. In addition, Mr. de Castro serves on
the Board of Directors of two other biotechnology companies, Boston Life
Sciences, Inc., and Binary Therapeutics, Inc. Mr. de Castro received his B.S. in
Electrical Engineering from the University of Lowell in 1960.
JOHN K.A. PRENDERGAST, PH.D., has been a director of the Company since July
1996. He is a co-founder AND/OR a member of the Board of Ingenex, Inc., Atlantic
Pharmaceuticals, Inc., Optex Ophthamologics, Inc., Genesis Gene Therapies, Inc.,
and Channel THERAPEUTICS, INC., XENOMETRIX, INC., AVIGEN, INC. AND PALATIN
TECHNOLOGIES. Dr. Prendergast is a Managing Director of Paramount Capital
Investments, LLC. Prior to joining Paramount Capital Investments, LLC, Dr.
Prendergast worked as an investment banker in the Corporate Finance division of
the firm D.H. Blair & Co., Inc., a New York investment bank. Dr. Prendergast
received his M.Sc. and Ph.D. from the University of New South Wales, Sydney,
Australia and a CSS in Administration and Management from Harvard University.
30
<PAGE>
CARL SPANA, PH.D., has been a Director of the Company since September 1995 and
was its Interim President from August 1995 to June 15, 1996. Dr. Spana is
currently THE EXECUTIVE VICE PRESIDENT OF BUSINESS DEVELOPMENT AND CHIEF
SCIENTIFIC OFFICER OF PALATIN TECHNOLOGIES, INC. PRIOR TO JOINING PALATIN
TECHNOLOGIES, INC. ON JULY 1,1996, DR. SPANA WAS responsible for discovering,
evaluating, and commercializing new biotechnologies THROUGH his work at
Paramount Capital Investments, LLC WHERE HE WAS A VICE PRESIDENT. Dr. Spana has
been a co-founder of several private biotechnology firms. Prior to working at
Paramount Capital Investments, LLC, from 1991 TO 1993 Dr. Spana was a Research
Associate at Bristol-Myers Squibb where he was involved in scientific research
in the field of immunology that lead to the initiation of several new drug
discovery programs. Dr. Spana currently is a member of the Board of Directors of
Palatin Technologies Inc. Dr. Spana received his Ph.D. in Molecular Biology from
The Johns Hopkins University and a B.S. in Biochemistry from Rutgers University.
MICHAEL S. WEISS, ESQ., has been a Director of the Company since March 1996 and
Secretary of the Company since September 1995. Since November 1993, Mr. Weiss
has been Vice President and then Senior Managing Director of Paramount Capital,
Inc., and since 1995 he has been General Counsel of Paramount Capital
Investments, LLC. From 1991 TO 1993, Mr. Weiss was an attorney with Cravath,
Swaine & Moore. Mr. Weiss is a Director of INNOVIR LABORATORIES, INC., Xytronyx,
Inc., Palatin Technologies, Inc., and Secretary of Atlantic Pharmaceuticals,
Inc., each of which is a publicly traded biotechnology company. In addition, Mr.
Weiss is a Director of several privately-held biotechnology companies. Mr. Weiss
received his J.D. from Columbia University School of Law and a B.S. in Finance
from the State University of New York at Albany.
DAVID L. TOUSLEY, C.P.A., has been the CHIEF FINANCIAL OFFICER of the Company
since September 15, 1996. PRIOR TO JOINING THE COMPANY, FROM 1989 TO 1996, MR.
TOUSLEY WAS THE CONTROLLER AND THEN THE VICE PRESIDENT FOR FINANCE AND
ADMINISTRATION FOR CONNAUGHT LABORATORIES, INC. MR. TOUSLEY RECEIVED HIS M.B.A.
in Accounting from RUTGERS UNIVERSITY GRADUATE SCHOOL OF BUSINESS IN 1978 AND
HIS B.A. IN ENGLISH FROM RUTGERS COLLEGE IN 1977.
ERNEST W. YANKEE, PH.D., HAS BEEN AN EXECUTIVE VICE PRESIDENT OF THE COMPANY
SINCE SEPTEMBER 15, 1996. PRIOR TO JOINING THE COMPANY, HE SERVED AS THE
DIRECTOR OF CLINICAL DEVELOPMENT I OF THE UPJOHN COMPANY FROM 1994 TO 1996. FROM
1990 TO 1994, HE WAS THE DIRECTOR OF PRECLINICAL DEVELOPMENT-SCIENTIFIC AFFAIRS
OF THE UPJOHN COMPANY. DR. YANKEE RECEIVED HIS PH.D. FROM THE UNIVERSITY OF
CALIFORNIA AT LOS ANGELES IN 1970 AND HIS B.A. IN CHEMISTRY FROM LA SIERRA
UNIVERSITY IN 1965.
All directors hold office until the next annual meeting of stockholders of the
Company and until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. The Company's bylaws provide
that directors and officers shall be indemnified against liabilities arising
from their service as directors or officers to the fullest extent permitted by
the laws of the State of Delaware, which generally requires that the individual
act in good faith and in a manner he or she reasonably believes to be in or not
opposed to the Company's best interests.
THE COMPANY HAS ONLY FOUR full time EMPLOYEES. MR. Weiss currently DEVOTES only
a portion of HIS time to the Company and DOES not currently receive compensation
from the Company. Certain of the officers and directors of the Company currently
do and may from time to time in the future serve as officers or directors of
other biopharmaceutical or biotechnical companies. There can be no assurance
that such other companies will not in the future have interest in conflict with
those of the Company. See "Risk Factors -- No Assurance of Identification of
Additional Projects," and "--Certain Interlocking Relationships; Potential
Conflicts of Interest."
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<PAGE>
BOARD COMMITTEES
The Company's Board of Directors has a Compensation Committee. The Compensation
Committee sets the compensation for certain of the Company's personnel and
administers the Company's 1992 Stock Option Plan. The Compensation Committee
consists of Dr. Spana and Mr. Weiss.
The Company's Board of Directors also has an Audit Committee. The Audit
Committee reviews the professional services provided by the Company's
independent accountants and monitor the scope and the results of the annual
audit, reviews proposed changes in the Company's financial and accounting
standards and principles, and the Company's policies and procedures with respect
to its internal accounting, auditing and financial controls and make
recommendations to the Board of Directors on the engagement of the independent
accountants, as well as other matters that may come before it or as directed by
the Board of Directors. The Audit Committee is composed of Dr. Jonas and Mr. de
Castro.
SCIENTIFIC ADVISORY BOARDS
The Company has a Scientific Advisory Board that consists of individuals with
extensive experience in the Company's fields of interest. It is expected that
the Scientific Advisory Board members will meet as a board with management and
key scientific employees of the Company on a semi-annual basis and in smaller
groups or individually on an informal basis. The Company anticipates that the
Scientific Advisory Board members will assist the Company in identifying
scientific and product development opportunities, in reviewing and evaluating
scientists and other employees. Presently, the Scientific Advisory Board members
consists of:
<TABLE>
<S> <C>
David Berd, M.D. -- Chairman Clinical Oncologist at the Jefferson Cancer Center of TJU and
Inventor of the Company's AC Vaccine technology.
Jerry A. Weisbach, Ph.D. Chief Executive Officer and Chairman of the Board of the Company
from September 1995 to March 1996. Former Director of
Technology Transfer and Adjunct Professor at the Rockefeller
University. Vice President of Warner-Lambert Company from 1981
to 1987, and President of its Pharmaceutical Research Division,
where he was responsible for all pharmaceutical research and
development activities, from 1979 to 1987.
</TABLE>
Drs. Berd and Weisbach are compensated pursuant to their consulting agreements
with the Company. See "Employment Agreements, Termination and Severance
Arrangements." It is expected that future scientific advisors will be
compensated on a per meeting basis and through the granting of stock options.
Members of the Scientific Advisory Board may be employed by or have consulting
agreements with entities other than the Company, some of which may conflict or
compete with the Company, or which may, limit a particular member's availability
to the Company. Certain of the institutions with which the Scientific Advisory
Board members are affiliated may have regulations or policies which are unclear
with respect to the ability of such personnel to act as part-time consultants or
in other capacities for a commercial enterprise. Regulations or policies now in
effect or adopted in the future might limit the ability of the Scientific
Advisory Board members to consult with the Company. The loss of the services of
certain of the Scientific Advisory Board members could have a material adverse
effect on the Company.
32
<PAGE>
Although each of the members of the Scientific Advisory Board has the customary
contractual obligation to keep confidential and not to disclose nor use any
confidential or proprietary information of the Company's, inventions or
processes discovered by any Scientific Advisory Board member, in certain
instances or unless otherwise agreed, will not become the property of the
Company but will remain the property of such person or of such person's
full-time employers. In addition, the institutions with which the Scientific
Advisory Board members are affiliate may make available the research services of
their scientific and other skilled personnel, including the Scientific Advisory
Board members to entities other than the Company. In rendering such services,
such institutions may be obligated to assign or license to a competitor of the
Company patents and other proprietary information which may result from such
services, including research performed by an advisor or consultant for a
competitor of the Company.
BOARD COMPENSATION
Currently, directors of the Company do not receive compensation for service on
the Board of Directors or any committee thereof but are reimbursed for travel
expenses incurred in attending board and committee meetings. The Company may
retain additional board members in the future. The Company expects that in the
future it will compensate its directors on a per meeting basis and through the
granting of stock options. Certain of the directors may have consulting
agreements and/or received stock grants in consideration for services rendered
to the Company, other than services rendered as members of the Board. See
"Executive Compensation" and "Certain Transactions."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned by
the persons serving as the Company's chief executive officer during 1995.
<TABLE>
Summary Compensation Table
--------------------------
Annual Compensation
-------------------
<CAPTION>
Name and Principal Year Salary Restricted Stock Award(s) All Other Compensation
Position
- ------------------------- ------------------ ----------------- -------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Dayne R. Myers -- 1/1/95- $25,000 -0- $79,3411
President and 4/24/95
Chief Executive 1994 $73,437.50 -0- -0-
Officer
1993 $65,625 -0- -0-
Jerry Weisbach -- Starting -0- $5,193.422 $75,0003
Chief Executive 9/13/95
Officer
1994 -0- -0- $31,2503
1993 -0- -0- -0-
</TABLE>
1 Represents amounts paid to Mr. Myers pursuant to his severance agreement
with the Company dated April 24, 1995 constituting (i) $75,000 as severance
payment, (ii) $3,894 as reimbursement for moving expenses, and
33
<PAGE>
(iii) $447 for continued medical coverage. Pursuant to such agreement he is
also entitled in the future to receive 4.15% (approximately $99,600 in
value) of the aggregate consideration received by the Company from
Interneuron Pharmaceuticals, Inc. ("IPI") on account of the sale of the
NutriFem PMS product within 30 days of receipt by the Company of each
payment of such compensation as received from IPI. See "Employment
Agreements; Termination and Severance Arrangements" and "Certain
Transactions."
2 Represents 259,671 shares of Common Stock granted and purchased at a price
of $.002 per share in September 13, 1995, which shares were valued at
December 31, 1995 at $.002 per share. Pursuant to the exercise by the
Company of its repurchase rights under the stock purchase agreement for
such granted shares, the Company repurchased 155,802 shares at a price of
$.002 on March 25, 1996. See "Employment Agreements; Termination and
Severance Arrangements."
3 Represents fees received per consulting agreement with the Company.
EMPLOYMENT AGREEMENTS; TERMINATION AND SEVERANCE ARRANGEMENTS
From April 1994 to September 1995, Dr. Jerry Weisbach was a consultant for the
Company and, pursuant to his consulting agreement with the Company, he was to be
paid $25,000 per annum. Upon his appointment as Chief Executive Officer of the
Company, Dr. Weisbach's compensation was increased to $75,000 per annum and he
was granted and sold 259,671 shares of Common Stock, which shares were valued at
December 31, 1995 at $.002 per share. Dr. Weisbach's consultancy fees and salary
were accrued until the consummation of the Series B Offering. On June 10, 1996,
the Company paid Dr. Weisbach $49,663.98 in satisfaction of such payment
obligations.
On March 24, 1996, Dr. Weisbach resigned as Chief Executive Officer of the
Company. Pursuant to the stock purchase agreement between him and the Company,
the Company repurchased 155,802 shares of Common Stock previously issued to Dr.
Weisbach at a price of $.002 per share. Effective March 25, 1996, Dr. Weisbach
entered into a Scientific Advisory Board Agreement (the "Weisbach SAB
Agreement") with the Company. Dr. Weisbach will serve as a member of the
Scientific Advisory Board for an initial term of three years. The agreement is
renewable for one year terms thereafter at the discretion of both parties.
Pursuant to the Weisbach SAB Agreement, Dr. Weisbach will receive $2,500 per
meeting but no less than $5,000 in any year and will be entitled to stock
options in the discretion of the Board of Directors. Either party may terminate
such agreement upon 30 days' prior written notice.
On May 17, 1996, the Company entered into a letter of employment (the "JONAS
Employment Letter") with Dr. Jeffrey M. Jonas, pursuant to which Dr. Jonas
became the President, Chief Executive Officer and a Director of the Company
effective as of June 1, 1996. Pursuant to the terms of the JONAS Employment
Letter, Dr. Jonas will receive an annual salary of $200,000, in addition to a
signing bonus of $12,500. Dr. Jonas will also receive a minimum annual bonus of
$25,000 at the end of the first year of his employment and an additional
discretionary bonus of up to $175,000. Dr. Jonas also received options to
acquire 637,745 shares of Common Stock at an exercise price of $.50. Such
options will vest at a rate of 1/16 per quarter over a four-year period, and are
exercisable for a period of seven years. The JONAS Employment Letter also
provides that the Company and Dr. Jonas intend to enter into a more formal
employment agreement which will contain, among other things, severance
arrangements and non-compete provisions. Dr. Jonas will also be eligible for
additional stock options bonuses based upon outstanding performance.
ON SEPTEMBER 13, 1996, THE COMPANY ENTERED INTO A LETTER OF EMPLOYMENT (THE
"TOUSLEY EMPLOYMENT LETTER") WITH DAVID L. TOUSLEY, PURSUANT TO WHICH MR.
TOUSLEY BECAME THE CHIEF FINANCIAL OFFICER OF THE COMPANY. PURSUANT TO THE TERMS
OF THE TOUSLEY EMPLOYMENT LETTER, MR. TOUSLEY WILL RECEIVE AN ANNUAL SALARY OF
$150,000. MR. TOUSLEY WILL ALSO RECEIVE A MINIMUM ANNUAL BONUS OF $25,000 AT THE
END OF THE FIRST YEAR OF HIS EMPLOYMENT
34
<PAGE>
AND AN ADDITIONAL DISCRETIONARY BONUS OF UP TO $125,000. MR. TOUSLEY ALSO
RECEIVED OPTIONS TO ACQUIRE 250,000 SHARES OF COMMON STOCK AT AN EXERCISE PRICE
OF $.50 PER SHARE. SUCH OPTIONS WILL VEST AT A RATE OF 1/16 PER QUARTER OVER A
FOUR-YEAR PERIOD, AND ARE EXERCISABLE FOR A PERIOD OF SEVEN YEARS. THE TOUSLEY
EMPLOYMENT LETTER ALSO PROVIDES THAT THE COMPANY AND MR. TOUSLEY INTEND TO ENTER
INTO A MORE FORMAL EMPLOYMENT AGREEMENT WHICH WILL CONTAIN, AMONG OTHER THINGS,
SEVERANCE ARRANGEMENTS AND NON-COMPETE PROVISIONS. MR. TOUSLEY SHALL ALSO BE
ENTITLED TO SUCH ADDITIONAL COMPENSATION IN THE FORM OF BONUSES, RAISES OR
OTHERWISE AS THE BOARD OF DIRECTORS OF THE COMPANY MAY DETERMINE.
ON SEPTEMBER 13, 1996, THE COMPANY ENTERED INTO A LETTER OF EMPLOYMENT (THE
"YANKEE EMPLOYMENT LETTER") WITH ERNEST W. YANKEE, PH.D., PURSUANT TO WHICH DR.
YANKEE BECAME AN EXECUTIVE VICE PRESIDENT OF THE COMPANY. PURSUANT TO THE TERMS
OF THE YANKEE EMPLOYMENT LETTER, DR. YANKEE WILL RECEIVE AN ANNUAL SALARY OF
$145,000. DR. YANKEE WILL ALSO RECEIVE A MINIMUM ANNUAL BONUS OF $25,000 AT THE
END OF THE FIRST YEAR OF HIS EMPLOYMENT AND AN ADDITIONAL DISCRETIONARY BONUS OF
UP TO $83,750. DR. YANKEE ALSO RECEIVED OPTIONS TO ACQUIRE 200,000 SHARES OF
COMMON STOCK AT AN EXERCISE PRICE OF $.50 PER SHARE. SUCH OPTIONS WILL VEST AT A
RATE OF 1/16 PER QUARTER OVER A FOUR-YEAR PERIOD, AND ARE EXERCISABLE FOR A
PERIOD OF SEVEN YEARS. THE YANKEE EMPLOYMENT LETTER ALSO PROVIDES THAT THE
COMPANY AND DR. YANKEE INTEND TO ENTER INTO A MORE FORMAL EMPLOYMENT AGREEMENT
WHICH WILL CONTAIN, AMONG OTHER THINGS, SEVERANCE ARRANGEMENTS AND NON-COMPETE
PROVISIONS. DR. YANKEE SHALL ALSO BE ENTITLED TO SUCH ADDITIONAL COMPENSATION IN
THE FORM OF BONUSES, RAISES OR OTHERWISE AS THE BOARD OF DIRECTORS OF THE
COMPANY MAY DETERMINE.
On February 22, 1996, the Company entered into a consulting agreement (the
"Spana Consulting Agreement") with Dr. Carl Spana, a Director and the then
Interim President of the Company. Pursuant to the Spana Consulting Agreement,
Dr. Spana is entitled to a consulting fee of $25,000 per annum payable on a
monthly basis, commencing upon the consummation of the Series B Offering. The
Spana Consulting Agreement is for an initial term of three years, and is
renewable for one year terms thereafter at the discretion of both parties and
may be terminated upon 30 days' notice by either party. See "Certain
Transactions." In connection with Dr. Jonas' appointment as the President and
Chief Executive Officer of the Company, Dr. Spana has resigned from his position
as Interim President.
In May 1996, the Company entered into a consulting agreement with Dr. David Berd
(the "Berd Consulting Agreement"). Pursuant to such consulting agreement, Dr.
Berd is entitled to a $36,000 per year consulting fee payable on a monthly basis
accruing from January 1, 1996, the payment of which commenced upon the
consummation of the Series B Offering. The Berd Consulting Agreement is for a
term of three years subject to early termination upon the happening of certain
events. If Dr. Berd's consulting agreement is terminated without cause, Dr. Berd
will be entitled to six months' severance pay. In addition, Dr. Berd has agreed
to serve as Chairman of the Company's Scientific Advisory Board.
From August 1991 to April 1995, Dayne R. Myers was the President and the Chief
Executive Officer of the Company and received a salary of $75,000 per annum. In
April 1995, he resigned these positions and pursuant to his severance agreement
with the Company, Mr. Myers was paid: (i) $75,000; (ii) $3,000 for reimbursable
moving expenses; and (iii) $447 for continued medical coverage. He also was
given the right to receive 4.15% (approximately $99,600 in value) of the
aggregate consideration to be received by the Company from Interneuron
Pharmaceuticals, Inc. ("IPI") on account of the sale of the NutriFem PMS product
within 30 days of receipt by the Company of each payment of such compensation is
received from IPI. See "Employment Agreements; Termination and Severance
Arrangements" and "Certain Transactions." Pursuant to the severance agreement,
Mr. Myers entered into various agreements with the Company relating to, without
limitation, (i) the returning of all shares of and options for capital stock of
the Company ever received by him, (ii) the waiver and release by him of all
claims that he may have had, if any, against the Company and (iii) his
obligation to keep confidential all of the Company's trade secrets and
proprietary information.
35
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a private offering held in May and June 1996, the Company
consummated an offering of Series B Preferred Stock (the "Series B Offering")
pursuant to which the Company raised aggregate gross proceeds of approximately
$25,900,000. In connection with services rendered by Paramount Capital, Inc., as
placement agent ("Paramount" or the "Placement Agent") for the Series B
Offering, and pursuant to a placement agency agreement entered into by the
Company and the Placement Agent, the Company paid the Placement Agent cash
commissions of approximately $2,330,000, a non-accountable expense allowance of
approximately $1,036,000 and placement warrants to acquire 25,919 shares of
Series B Preferred Stock, exercisable until June 15, 2006 at an exercise price
of $110 per share of Series B Preferred Stock. See "Description of Securities."
Pursuant to such placement agency agreement, on June 11, 1996, the Company and
the Placement Agent entered into a Financial Advisory Agreement, pursuant to
which the Placement Agent will act as the Company's financial advisor. Such
engagement provides that the Placement Agent will receive a monthly retainer of
$4,000 per month for a minimum of 24 months, plus expenses and success fees.
On October 20, 1995, the Company entered into an Engagement & Technology
Acquisition Agreement with The Castle Group, LLC ("The Castle Group"), which may
be deemed an affiliate of both the Company and the Placement Agent, pursuant to
which The Castle Group identified, negotiated and acquired for the Company the
TJU License. In consideration for the conveyance of the license, TJU and Dr.
Berd were both granted and sold 458,243 shares of Common Stock at a price of
$.002 per share. In connection therewith, The Castle Group and/or its designees
were granted and sold 916,486 shares of Common Stock of the Company at a price
of $.002 per share. Prior to the acquisition of the TJU License, the Company had
no technological assets other than that discussed below.
On December 27, 1995, the Company sold its former leading product under
development (the "Former Lead Product"), an over-the-counter nutritional
dietary, medicinal and/or elixorative food supplement or drug and related
patents and intellectual property to a subsidiary of Interneuron
Pharmaceuticals, Inc. ("Interneuron"). In consideration for the Former Lead
Product, Interneuron agreed to pay in two installments, in December 1996 and
December 1997, $2.4 million of its Common Stock ("IPI Stock") to the Company or
its designees. In the Company's Stockholder Information Statement dated June
15,1995, the IPI Stock was designated, under certain circumstances, to be paid
approximately at the time of each installment to the holders of shares of the
Company's Series A Preferred Stock which were issued and outstanding on December
27, 1995. All shares of Series A Preferred Stock were automatically converted in
accordance with their terms into shares of Common Stock effective June 11, 1996,
the final closing of the Series B Offering. The IPI Stock is still payable to
those persons who were recorded holders of shares of the Company's Series A
Preferred Stock on December 27, 1995. The transactions relating to the sale of
Former Lead Product and the rights of the former holders of the shares of Series
A Preferred Stock to the IPI Stock were approved by action by written consent of
the Board of Directors of the Company and the holders of a majority of the
shares of both the Common Stock and the Series A Preferred Stock, voting
separately as a class in July 1995. Based upon publicly available information,
Interneuron is a diversified biopharmaceutical company engaged in the
development and commercialization of a portfolio of products primarily for the
treatment or management of central nervous system disorders. Interneuron's
Common Stock is traded on the Nasdaq National Market. The market price of
Interneuron's common stock at December 31, 1995, and June 30, 1996, was $12.50
and $30.00, respectively.
Dr. Lindsay A. Rosenwald, a substantial shareholder of the Company, is the
Chairman and sole shareholder of each of the Placement Agent and Paramount
Capital Investments, LLC. Dr. Rosenwald is also Chairman of the Board and a
principal stockholder of Interneuron. Dr. Rosenwald personally collateralized
loans to the Company from NatWest Bank N.A., pursuant to which the Company
incurred principal and interest indebtedness of approximately $55,000. Such
indebtedness was paid in full as of June 30, 1996. Dr. Rosenwald also extended a
line of credit to the Company. As of June 30, 1996, the Company paid the
outstanding principal amount and accrued interest under such line of credit,
which was approximately $246,500. In addition, in 1995 and 1996, Paramount acted
as placement agent, pursuant to a placement agency agreement, for a bridge
financing for the Company as to which Paramount was paid $90,000 in commissions
and received warrants to purchase 62,500 shares of Common Stock. Two of the
investors in these bridge
36
<PAGE>
Financings were private investment funds managed by a company for which Dr.
Rosenwald is President. Also, Michael S. Weiss, Director and Secretary of the
Company, is a Senior Managing Director of Paramount and General Counsel of
Paramount Capital Investments, LLC. Wayne Rubin, Treasurer of the Company, is
Chief Financial Officer of Paramount and Paramount Capital Investments, LLC. Dr.
Carl Spana and Dr. John K. A. Prendedgast, Directors of the Company, are Vice
President and Managing Director of Paramount Capital Investments, LLC,
respectively.
37
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of July 31, 1996, certain information
regarding the ownership of the Common Stock (i) by each person known by the
Company to be the beneficial owner of more than five percent of the outstanding
shares of the Common Stock, (ii) by each of the named executive officers and
directors of the Company and (iii) by all officers and directors of the Company
as a group.
<TABLE><CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENTAGE OF CLASS
BENEFICIAL OWNER (1) TITLE OF STOCK SHARES BENEFICIALLY OWNED
<S> <C> <C> <C>
Lindsay A. Rosenwald, M.D. (2)
375 Park Avenue, Suite 1501 Common Stock 1,433,526 23.04%
New York, NY 10152
VentureTek, L.P. (3)
c/o C. David Selengut
40 Exchange Place Common Stock 853,985 13.72%
New York, NY 10006
Thomas Jefferson University
Office of Technology Transfer
1020 Locust Street Common Stock 458,243 7.36%
Philadelphia, PA 19107
David Berd, M.D.
c/o Thomas Jefferson University
Office of Technology Transfer Common Stock 458,243 7.36%
1020 Locust Street
Philadelphia, PA 19107
Jeffrey M. Jonas, M.D. (4) Common Stock 79,718 1.27%
John Pappajohn (5) Common Stock 377,000 6.06%
2116 Financial Center
Des Moines, IA 50309 Series B Preferred 2,000 *
Carl Spana, Ph.D. Common Stock 129,835 2.09%
Edson D. de Castro (6) Common Stock 47,778 *
Michael S. Weiss (7) Common Stock 202,835 3.26%
DAVID L. TOUSLEY (8) Common Stock 15,625 *
Ernest W. Yankee (9) Common Stock 12,500 *
All officers and directors as a Common Stock 488,291 7.65%
group (4 persons)
Series B Preferred -0- *
</TABLE>
- ----------------------------------------------------
* Represents less than 1%.
38
<PAGE>
(1) Beneficial ownership is determined in accordance with rules promulgated by
the Securities and Exchange Commission, and include voting and investment power
with respect to shares of Common Stock. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days of July
31, 1996, are deemed outstanding for computing the percentage ownership of the
person holding such options or warrants, but are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
(2) Includes 213,040 shares of Common Stock owned by Dr. Rosenwald's wife and
trusts in favor of his minor children. Dr. Rosenwald disclaims beneficial
ownership of such shares. Excludes 625,000 shares of Common Stock issuable upon
exercise of Bridge Financing Placement Warrants, and excludes 1,290,990 shares
of Common Stock issuable upon conversion of shares of Series B Preferred Stock
issuable upon exercise of the Series B Placement Warrants both of which are not
exercisable within 60 days. Dr. Rosenwald is the Chairman and sole shareholder
of the holder of the Bridge Financing Placement Warrants and the Series B
Placement Warrant and, as such, may be deemed to be the beneficial owner of such
shares. Dr. Rosenwald disclaims beneficial ownership of such shares which are
not issued to him. See "Certain Transactions." Includes 112,500 shares of Common
Stock issued to the Aries Trust and the Aries Domestic Fund, L.P., two private
investment funds that are managed by a company of which Dr. Rosenwald is
President but excludes 5,000 shares of Series B Preferred Stock held by the two
entities. Dr. Rosenwald disclaims beneficial ownership of such shares, except to
the extent of his pecuniary interest, if any.
(3) The general partner of VentureTek, L.P., is Mr. C. David Selengut. Mr.
Selengut may be considered a beneficial owner of the shares of Common Stock
owned by VentureTek, L.P., by virtue of his authority as general partner to vote
and/or dispose of such shares. VentureTek, L.P., is a limited partnership, the
limited partners of which include Dr. Rosenwald's wife, and children, and
sisters of Dr. Rosenwald's wife and their husbands and children.
(4) Represents shares that Dr. Jonas may acquire within 60 days of SEPTEMBER 20,
1996, upon the exercise of options granted pursuant to his letter of employment.
Excludes 597,885 shares of Common Stock which are not exercisable within 60 days
of July 31, 1996.
(5) Includes 100,000 shares of Common Stock held by a sole proprietorship owned
by Mr. Pappajohn. Also includes 100,000 shares of Common Stock held by Mr.
Pappajohn's spouse and 100,000 shares held by a sole proprietorship owned by Mr.
Pappajohn's spouse. Mr. Pappajohn disclaims beneficial ownership of the 200,000
shares of Common Stock owned by his spouse and her sole proprietorship.
(6) Includes 47,778 shares of Common Stock issuable upon exercise of options
which become exercisable within 60 days of SEPTEMBER 20, 1996.
(7) EXCLUDES SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF (I) BRIDGE
PLACEMENT WARRANTS AND (II) UPON CONVERSION OF SHARES OF SERIES B PREFERRED
STOCK ISSUED UPON EXERCISE OF SERIES B PLACEMENT WARRANTS, IN EACH CASE THAT MAY
BE ALLOCATED TO MR. WEISS BUT HAVE YET TO BE ALLOCATED AND ARE NOT EXERCISABLE
WITHIN 60 DAYS.
(8) REPRESENTS SHARES THAT MR. TOUSLEY MAY ACQUIRE WITHIN 60 DAYS OF SEPTEMBER
30, 1996, UPON THE EXERCISE OF OPTIONS GRANTED PURSUANT TO HIS LETTER OF
EMPLOYMENT. EXCLUDES 234,375 SHARES OF COMMON STOCK WHICH ARE NOT EXERCISABLE
WITHIN 60 DAYS OF SEPTEMBER 20, 1996. FOR PURPOSES OF COMPUTING MR. TOUSLEY'S
VESTING PERIOD, IT HAS BEEN ASSUMED THAT MR. TOUSLEY WILL COMMENCE VESTING ON
OCTOBER 1, 1996.
39
<PAGE>
(9) REPRESENTS SHARES THAT DR. YANKEE MAY ACQUIRE WITHIN 60 DAYS OF SEPTEMBER
20, 1996, UPON THE EXERCISE OF OPTIONS GRANTED PURSUANT TO HIS LETTER OF
EMPLOYMENT. EXCLUDES 187,500 SHARES OF COMMON STOCK WHICH ARE NOT EXERCISABLE
WITHIN 30 DAYS OF SEPTEMBER 30, 1996. FOR PURPOSES OF COMPUTING DR. YANKEE'S
VESTING PERIOD, IT HAS BEEN ASSUMED THAT DR. YANKEE WILL COMMENCE VESTING ON
OCTOBER 1, 1996.
40
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 50,000,000 shares of Common Stock, par
value $.002 per share, and 5,000,000 shares of preferred stock, par value, $.01
per share, of the Company. As of July 31, 1996, 6,222,316 shares of Common Stock
and 259,198 shares of Series B Preferred Stock were issued and outstanding.
COMMON STOCK
Each holder of Common Stock of the Company is entitled to one vote for each
share held of record. There is no right to cumulative voting of shares for the
election of directors. The shares of Common Stock are not entitled to preemptive
rights and are not subject to redemption or assessment. Each share of Common
Stock is entitled to share ratably in distributions to shareholders and to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. Upon liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive, pro-rata,
the assets of the Company which are legally available for distribution to
shareholders. The issued and outstanding shares of Common Stock are validly
issued, fully paid and non-assessable.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred stock,
par value $.01 per share (of which 259,198 are issued and outstanding). The
preferred stock of the Company can be issued in one or more series as may be
determined from time-to-time by the Board of Directors. In establishing a series
the Board of Directors shall give to it a distinctive designation so as to
distinguish it from the shares of all other series and classes, shall fix the
number of shares in such series, and the preferences, rights and restrictions
thereof. All shares of any one series shall be alike in every particular. The
Board of Directors has the authority, without shareholder approval, to fix the
rights, preferences, privileges and restrictions of any series of preferred
stock including, without limitation: (a) the rate of distribution, (b) the price
at and the terms and conditions on which shares shall be redeemed, (c) the
amount payable upon shares for distributions of any kind, (d) the terms and
conditions on which shares may be converted if the shares of any series are
issued with the privilege of conversion and (e) voting rights except as limited
by law.
Although the Company currently does not have any plans to issue additional
shares of preferred stock or to designate a new series of preferred stock, there
can be no assurance that the Company will not do so in the future. As a result,
the Company could authorize the issuance of a series of preferred stock which
would grant to holders preferred rights to the assets of the Company upon
liquidation, the right to receive dividend coupons before dividends would be
declared to holders of Common Stock, and the right to the redemption of such
shares, together with a premium, prior to the redemption to Common Stock. The
current shareholders of the Company have no redemption rights. In addition, the
Board could issue large blocks of voting stock to fend off unwanted tender
offers or hostile takeovers without further shareholder approval.
SERIES A PREFERRED STOCK
At one time, the Company had designated and issued 1,287,500 shares of Series A
Preferred Stock, par value $.01 per share ("Series A Preferred Stock"). Pursuant
to an automatic conversion provision in the Certificate of Designations
therefor, all outstanding shares of Series A Preferred Stock were converted into
an aggregate of 643,750 shares of Common Stock effective as of June 11, 1996, in
connection with the second closing of the Series B Offering.
41
<PAGE>
Notwithstanding such conversion, holders of the Series A Preferred Stock at the
time of such conversion, will receive, pro rata, $2.4 million of shares of
common stock of IPI. See "Certain Transactions."
SERIES B PREFERRED STOCK
The Board of Directors of the Company has authorized the issuance of up to
300,000, of which 259,198 are outstanding, shares of Series B Preferred Stock,
par value $.01 per share, the rights, preferences and characteristics of which
are as follows:
DIVIDENDS
The holders of Series B Preferred Stock are entitled to receive dividends as,
when and if declared by the Board of Directors of the Company out of funds
legally available therefor. No dividend or distribution, as the case may be,
will be declared or paid on any junior stock unless the dividend also is paid to
holders of the Series B Preferred Stock. The Company does not intend to pay cash
dividends on the Series B Preferred Stock or the underlying Common Stock for the
foreseeable future.
CONVERSION
Each share of Series B Preferred Stock may be converted, in whole or part, at
the option of the holder at any time after the initial issuance date into 50
SHARES OF COMMON STOCK BASED UPON Common Stock at an initial conversion price OF
$2.00 PER SHARE OF COMMON STOCK (the "Initial Conversion Price"). The Initial
Conversion Price is subject to adjustment upon the occurrence of certain
mergers, reorganizations, consolidations, reclassifications, stock dividends or
stock splits which will result in an increase or decrease in the number of
shares of Common Stock outstanding. In addition, the Initial Conversion Price is
subject to adjustment on July 11, 1997 (the "Reset Date"), if the average daily
trading price of the Common Stock for the 30 consecutive trading days
immediately preceding the Reset Date (the "Twelve Month Trading Price") is less
than 135% of the then applicable Initial Conversion Price ("Reset Event"). Upon
a Reset Event, the then applicable Initial Conversion Price will be reduced to
equal the greater of (i) the Twelve Month Trading Price divided by 1.35 and (ii)
50% of the then applicable Initial Conversion Price.
MANDATORY CONVERSION
The Company has the right at any time after the Reset Date to cause the
Preferred Stock to be converted in whole or
in part, on a pro rata basis, into shares of Common Stock if the closing price
of the Common Stock exceeds 150% of the then applicable Preferred Conversion
Price for at least 20 trading days in any 30 consecutive trading day period.
LIQUIDATION
Upon (i) a liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary, (ii) a sale or other disposition of all or
substantially all of the assets of the Company or (iii) merger or consolidation
(a "Merger Transaction") in which the Company is not the surviving entity and
shares of Common Stock consisting in excess of 50% of the voting power of the
Company are exchanged (subparagraphs (i), (ii), and (iii) being collectively
referred to as a "Liquidation Event"), after payment or provision for payment of
the debts and other liabilities of the Company, the holders of the Preferred
Stock then outstanding will first be entitled to receive, pro rata (on the basis
of the number of shares of the preferred stock then outstanding), and in
preference to the holders of the Common Stock and any other series of Preferred
Stock of the Company, an amount per share equal to $135.00 plus accrued but
unpaid dividends, if any; provided, however, that in the case of a Merger
Transaction, such $135.00 per share may be paid in cash and/or securities of the
surviving entity in such Merger Transaction.
42
<PAGE>
VOTING RIGHTS
The holders of the Series B Preferred Stock have the right at all meetings of
stockholders to the number of votes equal to the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock at the record
date for determination of the stockholders entitled to vote. So long as 50% of
the shares of Series B Preferred Stock remain outstanding, the holders of 66.67%
of the Series B Preferred Stock are entitled to approve (i) the issuance of any
securities of the Company senior to or on parity with the Series B Preferred
Stock, (ii) any alteration or change in the rights or preferences or privileges
of the Series B Preferred Stock and (iii) the declaration or payment of any
dividend on any junior stock or the repurchase of any securities of the Company.
Except as provided above or as required by applicable law, the holders of the
Series B Preferred Stock will be entitled to vote together with the holders of
the Common Stock and not as a separate class.
LOCK-UP AGREEMENTS
The holders of SHARES OF Common Stock issuable UPON conversion OF SHARES of
Series B Preferred Stock (THE "CONVERSION SHARES") have agreed pursuant to their
subscription agreements with the Company not to offer, pledge, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of, directly or
indirectly, any CONVERSION SHARES, without the prior written consent of the
placement agent in the Series B Offering. Such restrictions apply UNTIL (I)
DECEMBER 11, 1996 with respect to 50% of EACH OF THE HOLDERS' CONVERSION SHARES,
(II) MARCH 11, 1997 WITH RESPECT TO THE REMAINING 25% OF EACH OF THE HOLDERS'
CONVERSION SHARES.
THE HOLDERS OF SERIES B PREFERRED STOCK ISSUABLE UPON EXERCISE of Series B
Placement Warrants AND THE COMMON STOCK ISSUABLE UPON CONVERSION THEREOF
(COLLECTIVELY, THE "PLACEMENT CONVERSION SHARES") are bound, pursuant to
the terms of such SERIES B PLACEMENT WARRANTS, NOT TO OFFER, PLEDGE, SELL,
CONTRACT TO SELL, GRANT ANY OPTION FOR THE SALE OF, OR OTHERWISE DISPOSE OF,
DIRECTLY OR INDIRECTLY, ANY OF THE PLACEMENT CONVERSION SHARES PRIOR TO JUNE 11,
1997.
1992 STOCK OPTION PLAN
A total of 875,000 shares of Common Stock has been reserved for issuance under
the Company's 1992 Stock Option Plan (the "AVAX Option Plan"). The AVAX Option
Plan was adopted by the Board of Directors in April 1992 and approved by
stockholders of the Company in April 1992. The AVAX Option Plan expires by its
own terms in 2002.
The AVAX Option Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options to employees, directors and consultants of the
Company. Incentive stock options may be granted only to employees. The AVAX
Option Plan is administered by the Board of Directors of the Company (or a
Committee thereof) which determines the terms of the options granted, including
the exercise price, the number of shares subject to the option, and the schedule
on which the option becomes exercisable.
The AVAX Option Plan requires that the exercise price of incentive stock options
must be at least equal to the fair market value of such shares on the date of
grant and that the exercise price of nonqualified stock options, after the
Common Stock becomes publicly traded, must be at least equal to the fair market
value of such shares on the date of grant. The maximum terms of options granted
under the AVAX Option Plan is 10 years. With respect to any
43
<PAGE>
participant who owns stock possessing more than 10% of the voting rights of
outstanding capital stock, the exercise price of any option must be at least
equal to 110% of fair market value on the date of grant and the term may be no
longer than five years. No incentive stock option may be granted under the AVAX
Option Plan to any individual if the aggregate fair market value of the shares
(determined as of the time of the option is granted) which would become
exercisable during any calendar year, under all incentive stock options held by
such individual, exceeds $100,000, unless such excess options shall be treated
as nonstatutory stock options.
Generally, any option held by an individual who ceases to be employed or
retained by the Company may be exercised by such individual within three months
after such individual ceases to be employed or retained by the Company or within
one year after such individual ceases to be employed or retained in the case of
disability. Generally, any option held by an individual who dies while still
employed or retained by the Company or dies within three months after the date
he or she is no longer employed or retained by the Company may be exercised by
such individual's representative within six months following the date of death.
At July 31, 1996, options to purchase 60,000 shares of Common Stock were
outstanding (of which 45,556 were vested) at a weighted average price of $0.60
per share, and no options had been exercised.
Such options do not confer upon holders thereof any voting or any other rights
of a stockholder of the Company. The shares of Common Stock issuable upon
exercise of the options and warrants in accordance with the terms thereof, will
be fully paid and nonassessable.
OTHER OPTIONS
Pursuant to THEIR LETTERS of employment with the Company, Dr. Jonas, MR.
TOUSLEY, AND DR. YANKEE AND ANOTHER EMPLOYEE OF THE COMPANY received share
options to acquire 637,745 , 250,000, 200,000 AND 5,000 SHARES, RESPECTIVELY, of
Common Stock at an exercise price of $.50 PER SHARE. ALL SUCH share options will
vest at a rate of 1/16 per quarter over a four-year period and are exercisable
for a period of seven years.
WARRANTS
The following summaries are qualified in their entirety by the text of the
warrants, copies of which have been filed as exhibits to the Registration
Statement.
In connection with services rendered by Paramount, as placement agent in the
Series B Offering, and pursuant to a placement agency agreement entered into by
the Company and Paramount, the Company granted Paramount and/or its designees
warrants ("Series B Placement Warrants") to acquire 25,819 newly issued shares
of Series B Preferred Stock. Each Series B Placement Warrant entitles the
registered holder thereof to purchase Series B Preferred Stock at a price of
$110 per share, at any time until June 11, 2006. The Series B Placement Warrant
may be exercised, in whole or in part and may be exercised pursuant to a
cashless exercise provision. The Series B Placement Warrants are subject to
certain lock-up restrictions. See "Lock-up Agreements.
In connection with services rendered by Paramount, as bridge financing agent in
a certain bridge financing loan availed of by the Company from August 1995 to
February 1996, the Company granted Paramount and/or its designees warrants
("Bridge Financing Warrants") to acquire 62,500 newly issued shares of Common
Stock. Each Bridge Financing Warrant entitles the registered holder thereof to
purchase Common Stock at a price of $.01 per share, at any time until five years
from the date of this Prospectus. The Bridge Financing Warrant may be exercised,
in whole or in part and may be exercised pursuant to a cashless exercise
provision.
44
<PAGE>
In connection with services rendered by Ladenberg, Thalmann & Co., Inc.
("Ladenburg") and D. H. Blair Investment Banking Corp. ("D. H. Blair"), as
placement agents in the offering of Series A Preferred Stock conducted from June
1992 to September 1992, the Company granted Ladenburg and D. H. Blair and/or
their respective designees warrants ("Series A Placement Warrants") to acquire
47,981 newly issued shares of Common Stock. Each Series A Placement Warrants
entitle the registered holders, thereof to purchase Common Stock at a price of
$2.40 per share, at any time until June 26, 1997. The Series A Placement
Warrants may be exercised, in whole or in part, and may be exercised pursuant to
a cashless exercise provision.
In connection with services rendered by Castelli Associates, Inc. and
Shear/Kershman Laboratories, Inc., the Company granted Castelli Associates, Inc.
and Shear/Kershman Laboratories, Inc. and/or their designees warrants ("Castelli
and Shear/Kershman Warrants") to acquire 15,500 newly issued shares of Common
Stock. Each Castelli and Shear/Kershman Warrant entitles the registered holder
thereof to purchase Common Stock at a price of $5.50 per share , at any time
until April 30, 1998. The Castelli and Shear/Kershman Warrants may be exercised,
in whole or in part.
Each of the foregoing warrants contain provisions that generally provide the
holders thereof certain antidilution protections in certain events (such as, but
not limited to, the occurrence of stock dividends, stock splits, mergers, sales
of all or substantially all of the Company's assets and sales of other preferred
stock at below market price) by adjustment of the applicable exercise price
and/or the number of shares issuable upon exercise of such warrants.
The Company is not required to issue fractional shares of Common Stock upon
exercise of any such warrants. In lieu thereof, an amount of cash equal to the
same fraction of the then current market value of a share of Common Stock will
be paid. No adjustment as to dividends will be made upon any exercise of any
such warrants. The holder of any such warrant will not have any rights as a
holder of Common Stock unless and until the applicable warrant is exercised.
REGISTRATION RIGHTS
The Company has agreed under certain circumstances to register the shares of
Common Stock owned by TJU, Dr. Berd, VentureTek, L.P. and, Dr. Rosenwald. Under
terms of the agreements between the Company and the holders of such registrable
securities, generally, if the Company proposes to register any of its securities
under the Securities Act, either for its own account or for the account of other
securityholders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include such shares of Common
Stock therein. Holders of the Castelli and Shear/Kershman Warrants are entitled
under certain circumstances 18 months after the Company's initial public
offering also to require the Company to file a registration statement under the
Securities Act at the Company's expense with respect to their shares of Common
Stock and the Company is required to use its reasonable best efforts to effect
such registration. Such rights are subject to certain conditions and
limitations, including the right of the underwriter of an offering of the Common
Stock to limit the number of shares included in such registration in certain
circumstances.
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is the Continental Stock
Transfer & Trust Company of New York.
45
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth (i) the name of each Selling
Securityholder, (ii) the amount of shares of Common Stock owned, whether
outstanding or issuable, by such holder before the Offering, (iii) the amount of
shares of Common Stock which may be offered by each Selling Securityholder and
(iv) the amount and percentage of shares of Common Stock to be owned by each
such holder following the completion of the Offering. The amounts of Common
Stock set forth above under the caption "Number of Shares Offered" represents
the aggregate number of shares of (A) Common Stock owned by each Selling
Stockholder, (B) Common Stock issuable upon conversion of the Series B Preferred
Stock owned by each Selling Securityholder, (C) Common Stock issuable upon
conversion of the Series B Placement Warrants and (D) Common Stock issuable upon
exercise of conversion of the Bridge Placement Warrants (assuming for (B) - (D)
the initial conversion/exercise rates under the terms of the Series B Preferred
Stock, the Series B Placement Warrants and the Bridge Placement Warrants,
respectively).
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
The 1992 Houston Partnership, L.P. 25,500 25,500 0 *
The A.M. Group L.L.C. 63,750 63,750 0 *
Todd D. Aaron, M.D. 12,750 12,750 0 *
Leonard J. Adams 51,000 51,000 0 *
Ross D. Ain 5,100 5,100 0 *
Meir Aliakim 197,115 197,115 0 *
Amram Kass P.C. Defined Benefit Pension 25,500 25,500 0 *
Plan
George Anagnos 12,750 12,750 0 *
Josephine G. Anagnos 12,750 12,750 0 *
Steven Anagnos 12,750 12,750 0 *
Ansec Corp. 102,000 102,000 0 *
Aries Domestic Fund, LP 215,500 215,500 0 *
The Aries Trust 407,000 407,000 0 *
Rajiv Bahl 12,750 12,750 0 *
BAM of NY, Inc. Defined Benefit Pension 63,750 63,750 0 *
Plan
Martin Bandier 25,500 25,500 0 *
Banque SCS Alliance 51,000 51,000 0 *
Banque Franck S.A. 51,000 51,000 0 *
Banque Unigestion 153,000 153,000 0 *
Banque Unigestion 76,500 76,500 0 *
Amnon Barness & Caren H. Barness, 12,750 12,750 0 *
JTWROS
Alan R. Batkin 25,500 25,500 0 *
Laurie and Steven Beane 12,750 12,750 0 *
Mark Berg 127,500 127,500 0 *
David J. Bershad 102,000 102,000 0 *
Biowave Investment Partners 25,500 25,500 0 *
Bishops Merchant Group Limited 51,000 51,000 0 *
John V. Bivona 22,950 22,950 0 *
Marcy Blender, Alan Blender 7,650 7,650 0 *
JTWOS
Elliott Broidy 51,000 51,000 0 *
Seymour Buehler 12,500 12,500 0 *
Patrick J. Callahan 12,750 12,750 0 *
46
<PAGE>
<CAPTION>
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
M. Rafael Gonzalez Calvillo 5,100 5,100 0 *
Carlos Plancarte Garcia N., Leonor P. De 12,750 12,750 0 *
Morian, JTWROS
Gabriel M. Cerrone 102,000 102,000 0 *
Chana Sasha Foundation 51,000 51,000 0 *
Andrew and Barbara Cichelli 12,750 12,750 0 *
Cinco de Mayo, Ltd. 25,500 25,500 0 *
Roger and Margaret Coleman 12,750 12,750 0 *
Colony Partners, A California General 25,500 25,500 0 *
Partnership
Robert J. Conrads 25,500 25,500 0 *
Cook & CIE SA 204,000 204,000 0 *
Lilia Cordero de Adame, Lilia M.A. Olvera, 25,500 25,500 0 *
JTWROS
Archibald Cox, Jr. 102,000 102,000 0 *
Credit Lyonnais Suisse (SA) 153,000 153,000 0 *
David Trust 5,100 5,100 0 *
DBRN Securities Inc. 51,000 51,000 0 *
Elke R. de Ramirez 5,100 5,100 0 *
Nathan P. Diamond 12,750 12,750 0 *
Donald G. Drapkin 127,500 127,500 0 *
M. Robert Dussler 2,550 2,550 0 *
Eastside Investment Partners 25,500 25,500 0 *
Joseph E. Edelman 15,300 15,300 0 *
Elena Edelstein and Marcus Edelstein 12,750 12,750 0 *
Edgewater Private Equity Fund, LP 190,000 127,500 62,500 *
EDN Equities 102,000 102,000 0 *
Ariel Elia 12,750 12,750 0 *
Howard Ellis 5,100 5,100 0 *
Etablissement Occramis 25,500 25,500 0 *
Europa International, Inc. 25,500 25,500 0 *
Joseph A. Fabiani 50,750 38,250 12,500 *
Faisal Finance 102,000 102,000 0 *
Laurence D. Fink 102,000 102,000 0 *
Steven B. Fink 12,750 12,750 0 *
Finterbank Zuerich 51,000 51,000 0 *
Firebird Overseas, Ltd. 25,500 25,500 0 *
Alan Fisher 22,950 22,950 0 *
Norman J. Fisher 25,500 25,500 0 *
Joseph H. Flom 25,500 25,500 0 *
Hans-Wolfgang Frick 51,000 51,000 0 *
James P. Frickleton and James R. Bartimus 51,000 51,000 0 *
Michael J. Garnick 101,500 76,500 25,000 *
Marc Gelman 153,000 153,000 0 *
Joseph Giamanco 102,000 102,000 0 *
Richard Goldberg 25,500 25,500 0 *
Harold S. Goldstein 12,750 12,750 0 *
Golex Holding 102,000 102,000 0 *
Ofelia Anton Gomez 10,200 10,200 0 *
Michael J. Gordon 6,375 6,375 0 *
Robert P. Gordon 25,500 25,500 0 *
Peter Grabler 6,375 6,375 0 *
Robert J. Granovsky 25,500 25,500 0 *
Greenwood Partners 127,500 127,500 0 *
James & Nancy Grosfeld, tenants by 102,000 102,000 0 *
entireties
Peter Grossman 12,750 12,750 0 *
Stuart Gruber 51,000 51,000 0 *
Erez & Elyse Halevah 25,500 25,500 0 *
47
<PAGE>
<CAPTION>
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Yonah J. Hamlet, MD Trustee FBO Yonah 19,000 19,000 0 *
J. Hamlet, MD Profit Sharing Plan Dtd.
1/1/86
Harpel Family Partnership 127,500 127,500 0 *
Thomas O. Hecht 25,500 25,500 0 *
Chaim Herman and Denise Herman 5,100 5,100 0 *
Gary Herman 25,500 25,500 0 *
William J. Vanden Heuvel 12,500 12,500 0 *
Jack Hirschfield 6,375 6,375 0 *
The Holding Company 51,000 51,000 0 *
Jeffrey C. Hoos 12,750 12,750 0 *
Irving Huber and Charlotte Huber 12,750 12,750 0 *
IASD Health Services Corp. 102,000 102,000 0 *
Mark & Rebecca Ingerman 25,500 25,500 0 *
J.F. Shea Co., Inc. as Nominee 1996-21 102,000 102,000 0 *
Jackson Hole Investments Acquisitions, 51,000 51,000 0 *
L.P.
Peter L. Jensen 25,500 25,500 0 *
John Osterweis TTEE Osterweis Revocable 12,750 12,750 0 *
Trust dtd 9-13-93
James D. Judd 31,750 25,500 6,250 *
Hyman R. Kahn 51,000 51,000 0 *
Patrick M. Kane 12,750 12,750 0 *
Robert S. Kapito 51,000 51,000 0 *
Peter and Donna Kash (JTRS) 25,500 25,500 0 *
Donald R. Kendall, Jr. 15,300 15,300 0 *
Daniel Kessel, M.D. 57,250 51,000 6,250 *
Ida Kessel 19,000 12,750 6,250 *
Lawrence J. Kessel 57,250 51,000 6,250 *
Keys Foundation, Curacao, Netherlands, 51,000 51,000 0 *
Antilles
Robert Klein, M.D. 51,000 51,000 0 *
Robert Knox 25,500 25,500 0 *
Arthur or Sean Kohn 25,500 25,500 0 *
Charles Koppelman 51,000 51,000 0 *
Ira L. Kotel 17,034 17,034 0 *
Ted Koutsoubos 51,000 51,000 0 *
Martin S. Kratchman 25,500 25,500 0 *
Michael and Nicole Kubin 51,000 51,000 0 *
Vincent P. Lambriola 12,750 12,750 0 *
Larich Associates 76,500 76,500 0 *
Legong Investments N.V. 204,000 204,000 0 *
Albert Lemer 12,750 12,750 0 *
Susan Tauber Lemor 12,750 12,750 0 *
Gregory Lenchner 32,900 20,400 12,500 *
Gregory S. Lenchner and Donna Lenchner, 17,850 17,850 0 *
Jointly
Harvey Lenchner 10,200 10,200 0 *
Michael Lenchner 2,550 2,550 0 *
Henry N. Lieberman 25,500 25,500 0 *
Lifelines Care, Inc. 17,850 17,850 0 *
Frank T. Lincoln, Jr. 25,500 25,500 0 *
The Lincoln Tax Advantaged, L.P. 51,000 51,000 0 *
Armand A. Lindenbaum 12,750 12,750 0 *
Lion Tower Corporation 25,500 25,500 0 *
Beverly O. Lobell 25,500 25,500 0 *
J. Jay Lobell 51,000 51,000 0 *
John L. Loeb, Jr. 12,750 12,750 0 *
Luxembrella - All Around Int'l 102,000 102,000 0 *
Herbert M. Lyman 17,750 12,750 5,000 *
48
<PAGE>
<CAPTION>
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
The M.L. Lawrence Trust 153,000 153,000 0 *
Marathon Agents Profit Sharing 12,750 12,750 0 *
Michael P. Marcus 102,000 102,000 0 *
Alfons Melohn 153,000 153,000 0 *
Arden Merback 6,375 6,375 0 *
Josef Mermelstein 51,000 51,000 0 *
Albert Milstein 25,500 25,500 0 *
Mary Y.Y. Mo 12,750 12,750 0 *
Michael Y.Q. Mo 12,750 12,750 0 *
Zhong-Liang Mo 25,500 25,500 0 *
Richard Molinsky 25,500 25,500 0 *
The Monument Trust Company Limited 51,000 51,000 0 *
Roberto Gonzalez Moreno 51,000 51,000 0 *
Alfred D. Morgan, Trust Administrator 12,750 12,750 0 *
(Trustee) / Margaret Goldwater, Trustee
Robert Mosberg 12,750 12,750 0 *
Eli Moshen 6,375 6,375 0 *
Mova Investments Limited 51,000 51,000 0 *
Arnold Mullen 25,500 25,500 0 *
Arthur J. Nagle 12,750 12,750 0 *
Mechie Nebenzahl 25,500 25,500 0 *
P. Sherrill Neff 12,750 12,750 0 *
New Jersey Wolfson Trust 663,000 663,000 0 *
Kevin P. Newman 6,375 6,375 0 *
Nikki Establishment For Fashion & 25,500 25,500 0 *
Marketing Research
Old Oly, J.V. 25,500 25,500 0 *
Paul D. and Rebecca L. Ostrovsky 12,750 12,750 0 *
Steven N. Ostrovsky 12,750 12,750 0 *
P.A.W. Offshore Fund, Ltd. 51,000 51,000 0 *
Palmetto Partners, Ltd. 76,500 76,500 0 *
John Pappajohn (3) 477,000 102,000 375,000 1.82%
Paramount Capital, Inc. (4) 1,353,490 1,353,490 0 *
Mark D. Pesonen 25,500 25,500 0 *
Maria Pierce 12,750 12,750 0 *
Porter Partners, L.P. 102,000 102,000 0 *
Charles Potter 12,750 12,750 0 *
Tis Prager 12,750 12,750 0 *
Privat Kredit Bank, Lugano 306,000 306,000 0 *
Propp & Company, Inc. 12,750 12,750 0 *
Abel Quezada Rueda, Mercedes P. Quezada 7,650 7,650 0 *
JTWRS
Michael S. Resnick 12,750 12,750 0 *
Rick Steiner Productions, Inc. 15,300 15,300 0 *
Todd M. Roberts 16,983 16,983 0 *
Linda Gosden Robinson 76,500 76,500 0 *
Rosemary Cass Ltd. Pension Plan 10,200 10,200 0 *
J. Philip Rosen 25,500 25,500 0 *
Paul H. Rosen 5,100 5,100 0 *
Ervin Rosenfeld 51,000 51,000 0 *
Martine Rothblatt 12,750 12,750 0 *
Jeffrey Rothenberg DDS 15,300 15,300 0 *
David W. Ruttenberg 12,750 12,750 0 *
S&M Investments 12,750 12,750 0 *
Leeor Sabbah 153,000 153,000 0 *
M.D. Sabbah 255,000 255,000 0 *
Sagres Group Ltd. 408,000 408,000 0 *
Wayne Saker 51,000 51,000 0 *
Scott G. Sandler 38,250 38,250 0 *
Sarah Trust 5,100 5,100 0 *
49
<PAGE>
<CAPTION>
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Roy and Marlena Schaeffer 25,500 25,500 0 *
Howard Schain 25,500 25,500 0 *
Carl M. Schechter 12,750 12,750 0 *
Robin Schlaff 12,750 12,750 0 *
Ralph Schlosstein 51,000 51,000 0 *
Andrew W. Schonzeit 12,750 12,750 0 *
Schwendiman Global Sector Fund L.P. 25,500 25,500 0 *
Scoggin Capital Management, L.P. 76,500 76,500 0 *
Roberto Segovia 10,200 10,200 0 *
Lori Shapero 25,500 25,500 0 *
Leonard P. Shaykin 25,500 25,500 0 *
The Sheila Davis Lawrence Revocable 51,000 51,000 0 *
Trust
L. Kevin Sheridan 16,983 16,983 0 *
Martin Sirotkin 31,750 25,500 6,250 *
Bruce Slovin 127,500 127,500 0 *
South Ferry #2, L.P. 585,000 585,000 0 *
Aaron Speisman 12,750 12,750 0 *
Aaron Speisman custodian for Jennifer 12,750 12,750 0 *
Speisman
Aaron Speisman custodian for Joshua 12,750 12,750 0 *
Speisman
William M. Spencer III 51,000 51,000 0 *
Neil and Laurie Spindel 25,500 25,500 0 *
John L. Steffens 51,000 51,000 0 *
Dr. Edward L. Steinberg 12,750 12,750 0 *
Catherine Steinmann 12,750 12,750 0 *
Gabriel Steinmann 12,750 12,750 0 *
Jennifer Steinmann 12,750 12,750 0 *
Joshua Steinmann 12,750 12,750 0 *
Gary J. Strauss 25,500 25,500 0 *
Stome Partners, L.P. 510,000 510,000 0 *
Kaveh Taleghani 12,750 12,750 0 *
Hindy H. Taub 12,750 12,750 0 *
Herman Tauber 88,500 76,000 12,500 *
Myron M. Teitelbaum, M.D. 31,500 31,500 0 *
Termtec, Ltd. 25,500 25,500 0 *
Patricia & Erich Theissen 5,100 5,100 0 *
Mitchell Troyetsky 12,750 12,750 0 *
Thomas R. Ulie 25,500 25,500 0 *
Joseph A. Umbach 25,500 25,500 0 *
United Congregations Mesora 51,000 51,000 0 *
Dan Valahu 12,750 12,750 0 *
Valor Capital Management, L.P. 25,500 25,500 0 *
Andre Visser 51,000 51,000 0 *
Vivaldi, Ltd. 102,000 102,000 0 *
W & P Bank & Trust Company Ltd. 102,000 102,000 0 *
Allan Warshawsky 12,750 12,750 0 *
Michael Weiner, M.D. 5,100 5,100 0 *
Mark E. Weiss 12,750 12,750 0 *
Melvyn I. Weiss 102,000 102,000 0 *
Robert J. Whetten 51,000 51,000 0 *
Whitcome Family Trust 51,000 51,000 0 *
Tim Winans 12,750 12,750 0 *
Wisdom Tree Associates, LP 76,500 76,500 0 *
Alan Wise/Teri Wise, Jointly 12,750 12,750 0 *
Andrew B. Woldow 12,750 12,750 0 *
James D. Wolfensohn 50,000 50,000 0 *
Aaron Wolfson 51,000 51,000 0 *
Abraham Wolfson 51,000 51,000 0 *
50
<PAGE>
<CAPTION>
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
Wolfson Descendents' 1983 Trust 255,000 255,000 0 *
Worldwide Consultants and Finance Ltd. 51,000 51,000 0 *
Peter Young 9,333 9,333 0 *
Richard A. Young 12,750 12,750 0 *
Robert J. Young 12,750 12,750 0 *
Zapco Holdings Settlement 12,750 12,750 0 *
Uzi Zucker 25,500 25,500 0 *
TOTAL 15,421,338 14,885,088 536,250 2.61%
</TABLE>
* Represents less than 1.0 %.
(1) Unless otherwise indicated, includes all shares of Common Stock issuable
upon conversion of the Series B Preferred Stock at the initial conversion
rate of $2.00 per share. See "Description of Securities--Series B Preferred
Stock.".
(2) Includes Common Stock issuable upon conversion of the shares of Series B
Preferred Stock issuable upon exercise of the Series B Placement Warrants.
(3) See also footnote 5 to the table set forth under "Principal Stockholders."
(4) Includes 625,000 shares of Common Stock issuable upon exercise of the
Bridge Placement Warrants and 1,290,950 shares of Common Stock issuable
upon conversion of the Series B Preferred Stock issuable upon exercise of
the Series B Placement Warrants.
Each Selling Securityholder may, but is not required to, sell all of the shares
of Common Stock shown in the column entitled "Amount of Shares to be Offered"
subject, in certain instances, to lock-up provisions. See "Description of
Securities --Lock-Up Agreements." The Selling Securityholders and any
broker-dealers that act in connection with the sale of the Common Stock as
principals may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of such securities as principals might be deemed to be
underwriting discounts and commissions under the Act. The Selling
Securityholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of such securities certain
liabilities, including liabilities arising under the Securities Act. The Company
will not receive any proceeds from the sales of the Common Stock by the Selling
Securityholders, although the Company may receive proceeds from the exercise of
the Placement Warrants. Sales of the Selling Securityholder or even the
potential shares of Common Stock by of such sales, would likely have an adverse
effect on the market price of the Common Stock.
At the time a particular offer for Common Stock is made, except as herein
contemplated, by or on behalf of the Selling Securityholder, to the extent
required, a Prospectus will be distributed by the Selling Securityholder which
will set forth the number of shares of Common Stock being offered and the terms
of the Offering, including the name or names of any underwriters, dealers or
agents, if any, the purchase price paid by any underwriter for shares purchased
from the Selling Securityholder and any discounts, commissions or concessions
allowed or reallowed or paid to dealers.
Except as noted below, none of the Selling Securityholders named in the
preceding table has had any position, office or other material relationship with
the Company or any of its affiliates within the past three years. Aries Domestic
Fund, L.P. and The Aries Trust are private investment funds managed by Dr.
Lindsay A. Rosenwald, a substantial shareholder of the Company and the sole
owner of Paramount Capital, Inc., the placement agent for the Series B Offering
("Paramount"). See "Certain Transactions." Peter Kash is a Senior Managing
Director of Paramount. Martin S. Kratchman is a Managing Director of Paramount.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 21,296,932 shares of
Common Stock outstanding or issuable upon the conversion of the Series B
Preferred Stock, the exercise of all outstanding options and warrants as of July
31, 1996. Of these shares, the 14,885,088 shares registered in the Offering will
be freely tradeable without restriction or further registration under the
Securities Act, except that (i) any shares purchase by "affiliates" of the
Company, as the term is defined under the Securities Act ("Affiliates"), may
generally only be sold in compliance with the limitations of Rule 144 described
below and (ii) that such registered shares may be subject to certain lock-up
provisions discussed below. In addition, the Company believes that the 987,776
shares of Common Stock may be eligible for sale without restriction or further
registration under the Securities Act, subject to certain requirements. See
"Risk Factors--Potential Adverse Effect of Shares Eligible For Future Sales".
The Company has a Stock Option Plan under which 875,000 shares of Common Stock
have been reserved for issuance, and has also reserved 637,745 shares of Common
Stock for issuance pursuant to the letter of employment with Dr. Jeffrey M.
Jonas, the Company's President and Chief Executive Officer.
SALES OF RESTRICTED SHARES
The Company believes that 4,386,409 shares of Common Stock are "restricted
securities" and under certain circumstances may, in the future, be sold in
compliance with Rule 144 (including 987,776 shares owned by persons whom the
Company believes may be affiliates of the Company, but as to which there can be
no assurance, and whose shares therefore may not be restricted). Assuming the
availability of Rule 144, the Company believes that of the 4,386,409
"restricted" shares of Common Stock, 987,776 shares of Common Stock is eligible
for sale and an additional 3,398,632 shares of Common Stock will be eligible for
sale in 1997 pursuant to Rule 144, in each case so long as there is adequate
current public information with respect to the Company as contemplated by Rule
144, as well as, certain volume limitations and manner of sale requirements
imposed by Rule 144.
In general, under Rule 144, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who beneficially
owned restricted shares of Common Stock 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 one percent of the total number of outstanding shares of the same
class, or if the Common Stock is quoted on the Nasdaq National Market or a
national securities exchange, the average weekly trading volume during the four
calendar weeks immediately preceding the sale. A person who presently is not and
who has not been an affiliate of the Company for at least three months
immediately preceding the sale and who has beneficially owned the shares of
Common Stock for at least three years is entitled to sell such shares under Rule
144 without regard to the volume limitations described above.
Prior to the Offering, there has been no public market for the Common Stock and
no predictions can be made of the effect, if any, that the sale or availability
for sale of Restricted Shares of locked-up shares will have on the market price
of the Common Stock. Nevertheless, sales of substantial amounts of such shares
in the public market, or the perception that such sales could occur, could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
For a description of the Company's outstanding warrants and options, see
"Description of Securities--1992 Stock Option Plan," "Other Options," and
"Warrants."
52
<PAGE>
PLAN OF DISTRIBUTION
A total of 14,885,088 shares of Common Stock are being directly offered for sale
by the Selling Securityholders to the public. The Selling Securityholders may,
but are not required to, sell, directly or through brokers, the shares of Common
Stock in negotiated transactions or in one or more transactions in the market at
the price prevailing at the time of sale. (Certain of the Common Stock may be
subject to a lock-up agreement. See "Description of Securities -- LockUp
Agreements"). In connection with such sales, the Selling Securityholders and any
participating broker may be deemed to be "underwriters" of the shares of Common
Stock within the meaning of the Securities Act, although the offering of these
securities will not be underwritten by a broker-dealer firm. Sales in the market
may be made to broker-dealers making a market in the Common Stock or other
broker-dealers, and such broker-dealer, upon their resale of such securities,
may be deemed to be "Selling Securityholders" in this offering. The Company will
not receive any of the proceeds from the sale of the Common Stock by the Selling
Securityholders. Pursuant to the terms under which the Preferred Stock and
Placement Warrants were issued and sold, the Company has agreed to indemnify the
Selling Securityholders against such liabilities as they may incur as a result
of any untrue statement of a material fact in the Registration Statement of
which this Prospectus forms a part, or any omission herein or therein to state a
material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading. Such
indemnification includes liabilities that the Selling Securityholders may incur
under the Securities Act.
The Company will bear all costs and expenses of the registration under the
Securities Act and certain state securities laws of the Common Stock and any
discounts or commissions payable with respect to sales of such securities.
From time to time, this Prospectus will be supplemented and amended as required
by the Securities Act. During any time when a supplement or amendment is so
required, after notice from the Company, the Selling Securityholders are
required to cease sales until the Prospectus has been supplemented or amended.
The Selling Securityholders have advised the Company that they may sell,
directly or through brokers, all or a portion of the securities offered hereby
in negotiated transactions or in one or more transactions in the market at the
price prevailing at the time of sale. In connection with such sales, the Selling
Securityholders and any participating broker may be deemed to be "underwriters"
of the Common Stock within the meaning of the Securities Act of 1933. It is
anticipated that usual and customary brokerage fees will be paid by the Selling
Securityholders in all open market transactions. The Company will pay all other
expenses of this Offering. See "Plan of Distribution."
The Company WILL inform the Selling Securityholders that the anti-manipulation
provisions of Rules 10b-6 and 10b-7 under the Securities Exchange Act of 1934
may apply to the sales of their shares offered hereby. The Company WILL advise
the Selling Securityholders of the requirement for delivery of this Prospectus
in connection with any sale of the Common Stock offered hereby.
53
<PAGE>
EXPERTS
The financial statements of AVAX Technologies, Inc. (formerly Walden
Laboratories, Inc.), as of December 31, 1995 and for the years ended December
31, 1994 and 1995 and for the period from January 12, 1990 (incorporation ) to
December 31, 1995 appearing in this Prospectus and Registration Statement, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
LEGAL COUNSEL
Legal matters relating to the Offering will be passed upon for the Company by
Roberts, Sheridan & Kotel, a Professional Corporation, New York, New York,
counsel to the Company. Members of such firm beneficially own an aggregate of
51,000 shares of Common Stock assuming the conversion of all shares of Series B
Preferred Stock owned by them at the INITIAL CONVERSION PRICE. All of such
shares of Common Stock owned directly or issuable upon conversion of shares of
Series B Preferred Stock are included in this Registration Statement.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. 20549, a Registration Statement on Form SB-2 under the Securities Act 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 and
schedules to the Registration Statement. For further information with respect to
the Company and such Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete; reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Company has
filed with the Securities and Exchange Commission (the "Commission") a
Registration Statement on Form SB-2 (together with all amendments and exhibits
thereto being herein referred to as the "Registration Statement") under the
Securities Act of 1933. The Registration Statement, as well as other reports and
other information filed by the Company, can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, New York, New York 10048. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a site on the World Wide Web at http://www.sec.gov that
contains reports, proxy and other information statements regarding registrants
that file electronically with the Commission. Prior to the effective date of the
Registration Statement, the Company was not a reporting company under the
Exchange Act.
54
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Index to Financial Statements
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets as of December 31, 1995 and June 30, 1996 (Unaudited) F-2
Statements of Operations for the years ended December 31, 1994 and 1995;
for the six months ended June 30, 1995 and 1996 (Unaudited); and
for the period from January 12, 1990 (incorporation) to
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1994 and 1995; for the six months ended
June 30, 1995 and 1996 (Unaudited); and for the period from
January 12, 1990 (incorporation) to December 31, 1995 and to
June 30, 1996 (Unaudited) . . . . . . . . . . . . . . . . . . . . . F-4
Statements of Cash Flows for the years ended December 31, 1994
and 1995; for the six months ended June 30, 1995 and 1996
(Unaudited); and for the period from January 12, 1990
(incorporation) to June 30, 1996 (Unaudited) . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . F-8
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
We have audited the accompanying balance sheets of AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.) (a development stage company) as of
December 31,1995, and the related statements of operations, stockholders' equity
(deficit), and cash flows for year then ended and for the period from January
12, 1990 (incorporation) to December 31, 1995 (not presented herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Since the date of completion of our audit of the accompanying financial
statements and initial issuance of our report thereon dated March 20, 1996,
which report contained an explanatory paragraph regarding the Company's ability
to continue as a going concern, the Company, as discussed in Note 9, has
completed an issuance of its Series B preferred stock resulting in net proceeds
of approximately $22,347,000. Therefore, the conditions that raised substantial
doubt about whether the Company will continue as a going concern no longer
exist.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.) at December 31, 1995, and the results of
its operations and its cash flows for the years then ended and for the period
from January 12, 1990 (incorporation) to December 31, 1995 in conformity with
generally accepted accounting principles.
/s/Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
March 20, 1996,
except for Note 9, as to which
the date is June 11, 1996.
F-1
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Balance Sheets
<TABLE>
<CAPTION>
December 31 June 30
1995 1996
---------------------------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 503 $ 20,968,831
Current portion of common stock receivable from a related party (Note 2) 908,000 971,000
Other current assets -- 12,793
----------------------------------
Total current assets 908,503 21,952,624
Furniture and equipment, at cost 15,753 --
Less accumulated depreciation 6,789 --
---------------------------------
8,964 --
Common stock receivable from a related party, less current portion (Note 2) 1,043,000 1,130,975
Deferred costs, less accumulated amortization of $42,257 and $950 in 1995 and
1996, respectively (Note 8) 13,101 403
==================================
Total assets $ 1,973,568 $ 23,084,002
==================================
Liabilities and stockholders' equity
Current liabilities:
Loans payable (including $150,000 payable to related party) (Note 8) $ 650,000 $ --
Notes payable to related party (Note 8) 207,000 --
Accounts payable and accrued liabilities (Notes 2, 5 and 7) 274,744 238,329
Current portion of amount payable to preferred stockholders' (Note 2 ) 394,688 930,610
Current portion of amount payable to Former Officer (Note 2) 43,285 40,292
----------------------------------
Total current liabilities 1,569,717 1,209,231
Amount payable to preferred stockholders, less current portion (Note 2 ) 343,601 1,084,133
Amount payable to Former Officer, less current portion (Note 2) 37,682 46,940
Commitments and contingencies (Notes 2, 3 and 7)
Stockholders' equity (Notes 2, 3, 4, 8 and 9):
Preferred Stock:
Authorized -5,000,000 shares (including Series B-300,000 shares)
Series A convertible preferred stock, $.01 par value; 1,287,500 shares
issued and outstanding in 1995 (liquidation preference $1,836,711) 12,875 --
Series B convertible preferred stock, $.01 par value; 259,198 shares
issued and outstanding in 1996 (liquidation preference $34,991,730) -- 2,592
Common stock:
Authorized - 10,000,000 shares at December 31, 1995 and 50,000,000 at
June 30, 1996
$.002 par value; 5,162,671 and 5,928,567 shares issued and outstanding
at December 31, 1995 and June 30, 1996 10,325 11,857
Additional paid-in capital 1,723,657 23,267,003
Subscription receivable (7,109) (6,589)
Deferred compensation -- (308,908)
Deficit accumulated during the development stage (1,717,180) (2,222,257)
----------------------------------
Total stockholders' equity 22,568 20,743,698
==================================
Total liabilities and stockholder's equity $ 1,973,568 $ 23,084,002
==================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
January 12,
1990
(Incorporation)
Year ended Six months ended To
December 31 June 30 June 30,
1994 1995 1995 1996 1996)
-------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Gain from sale of the Product
(Note 2) $ -- $ 1,951,000 $ -- $ -- $ 1,951,000
Costs and expenses:
Research and development
398,622 126,957 36,749 177,378 1,790,696
Marketing and selling -- -- -- -- 543,646
General and administrative 322,193 302,800 124,797 282,881 1,867,622
-------------------------------------------------------------------------------------------------
Total operating income
(loss) (720,815) 1,521,243 (161,546) (460,259) (2,250,964)
Other income (expense):
Interest income 949 -- -- 171,238 230,907
Interest expense (30,804) (96,962) (37,338) (206,222) (348,047)
Other, net (30,551) (43,710) (1,256) (9,834) 145,847
-------------------------------------------------------------------------------------------------
Total other income
(expense) (60,406) (140,672) (38,594) (44,818) 28,707
-------------------------------------------------------------------------------------------------
Net income (loss) (781,221) 1,380,571 (200,140) (505,077) (2,222,257)
Amount payable for liquidation
preference -- (738,289) -- (1,131,744) (1,870,033)
-------------------------------------------------------------------------------------------------
Net income (loss) attributable
to common stockholders $ (781,221) $ 642,282 $ (200,140) $ (1,636,821) $ (4,092,290)
===============================================================================================
Net income (loss) per common
share $ (.12) $ .10 $ (.03) $ (.27)
============================================================================
Weighted average number of
shares outstanding 6,502,042 6,746,364 6,315,020 5,953,359
============================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Stockholders' Equity (Deficit)
Series A Series B
Convertible Convertible
Preferred Stock Preferred Stock Common Stock
------------------------ ------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for services in -- $ -- -- $ -- 1,165,000 $ 2,330
January 1990
Net loss -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Balance at December 31, 1990 -- -- -- -- 1,165,000 2,330
Issuance of common stock for services in
August 1991 -- -- -- -- 460,000 920
Net loss -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Balance at December 31, 1991 -- -- -- -- 1,625,000 3,250
Conversion of note payable to related
party to common stock in June 1992 -- -- -- -- 45,826 92
Issuance of common stock for services in
May and June 1992 -- -- -- -- 528,369 1,056
Issuance of Series A convertible
preferred stock, net of issuance cost
in June, July and September 1992 1,287,500 12,875 -- -- -- --
Net loss -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Balance at December 31, 1992 1,287,500 12,875 -- -- 2,199,195 4,398
Issuance of common stock for services in
July and November 1993 -- -- -- -- 17,435 35
Net loss -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
Balances at December 31, 1993 1,287,500 12,875 -- -- 2,216,630 4,433
Issuance of common stock for services in
July 1994 -- -- -- -- 7,500 15
Net loss -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
Balances at December 31, 1994 1,287,500 12,875 -- -- 2,224,130 4,448
Common stock returned and canceled in
April and May 1995 -- -- -- -- (615,895) (1,232)
Shares issued in September and November -- -- -- -- 3,554,436 7,109
1995
Amount payable for liquidation preference -- -- -- -- -- --
Net income -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
Balances at December 31, 1995 1,287,500 12,875 -- -- 5,162,671 10,325
<CAPTION>
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-In Subscription Development Equity
Capital Receivable Stage (Deficit)
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Issuance of common stock for services in $ $ -- $ $
January 1990 920 -- 3,250
Net loss -- -- (889) (889)
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
Balance at December 31, 1990 920 -- (889) 2,361
Issuance of common stock for services in
August 1991 5,830 -- -- 6,750
Net loss -- -- (97,804) (97,804)
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
Balance at December 31, 1991 6,750 -- (98,693) (88,693)
Conversion of note payable to related
party to common stock in June 1992 160,465 -- -- 160,557
Issuance of common stock for services in
May and June 1992 6,444 -- -- 7,500
Issuance of Series A convertible
preferred stock, net of issuance cost
in June, July and September 1992 2,258,837 -- -- 2,271,712
Net loss -- -- (607,683) (607,683)
------------- -------------- -------------- ---------------
------------- -------------- -------------- ---------------
Balance at December 31, 1992 2,432,496 -- (706,376) 1,743,393
Issuance of common stock for services in
July and November 1993 24,965 -- -- 25,000
Net loss -- -- (1,610,154) (1,610,154)
------------- -------------- -------------- ---------------
Balances at December 31, 1993 2,457,461 -- (2,316,530) 158,239
Issuance of common stock for services in
July 1994 4,485 -- -- 4,500
Net loss -- -- (781,221) (781,221)
------------- -------------- -------------- ---------------
Balances at December 31, 1994 2,461,946 -- (3,097,751) (618,482)
Common stock returned and canceled in
April and May 1995 -- -- -- (1,232)
Shares issued in September and November -- (7,109) -- --
1995
Amount payable for liquidation preference (738,289) -- -- (738,289)
Net income -- -- 1,380,571 1,380,571
------------- -------------- -------------- ---------------
Balances at December 31, 1995 1,723,657 (7,109) (1,717,180) 22,568
</TABLE>
F-4
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Series A Series B
Convertible Convertible
Preferred Stocks Preferred Stock Common Stock
------------------------ ------------------------- ---------------------------
Shares Amount Shares Amount Shares Amount
------------- ---------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase of common stock in March 1996
(Unaudited) -- $ -- -- $ -- (155,802) $ 312
Payment of subscription receivable -- -- -- -- -- --
(Unaudited)
Conversion of Series A preferred in June
1996 (Unaudited) (1,287,500) (12,875) -- -- 643,750 1,288
Issuance of common stock and Series B
preferred
stock in a private placement in May -- -- 258,198 2,582 258,198 516
and June 1996
Issuance of common stock and Series B
preferred -- -- 1,000 10 1,000 2
stock for services in June 1996
(Unaudited)
Exercise of warrants in June 1996 -- -- -- -- 18,750 38
(Unaudited)
Amount payable for liquidation
preference (Unaudited) -- -- -- -- -- --
Compensation related to stock options
granted in May 1966 (Unaudited) -- -- -- -- -- --
Amortization of deferred compensation -- -- -- -- -- --
(Unaudited)
Net loss (Unaudited) -- -- -- -- -- --
------------- ---------- ------------ ------------ ------------- -------------
Balance at June 30, 1996 (Unaudited) -- $ -- 259,198 $ 2,592 5,928,567 $ 11,857
============= ========== ============ ============ ============= =============
<CAPTION>
Deficit
Accumulated Total
Additional During the Stockholders'
Paid-In Subscription Deferred Development Equity
Capital Receivable Compensation Stage (Deficit)
------------- -------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Repurchase of common stock in March 1996
(Unaudited) $ -- $ (312) $ -- $ -- $ --
Payment of subscription receivable -- 208 -- -- 208
(Unaudited)
Conversion of Series A preferred in June
1996 (Unaudited) 11,587 -- -- -- --
Issuance of common stock and Series B
preferred
stock in a private placement in May 22,244,305 -- -- -- 22,247,403
and June 1996
Issuance of common stock and Series B
preferred 99,988 -- -- -- 100,000
stock for services in June 1996
(Unaudited)
Exercise of warrants in June 1996 337 -- -- -- 375
(Unaudited)
Amount payable for liquidation
preference (Unaudited) (1,131,744) -- -- -- (1,131,744)
Compensation related to stock options
granted in May 1966 (Unaudited) 318,873 -- (318,873) -- --
Amortization of deferred compensation -- -- 9,965 -- 9,965
(Unaudited)
Net loss (Unaudited) -- -- -- (505,077) 505,077
------------- -------------- ---------------- -------------- --------------
Balance at June 30, 1996 (Unaudited) $ 22,267,003 $ (6,589) $ (308,908) $ (2,222,257) $ 20,743,698
============= ============== ================ ============== ==============
</TABLE>
See accompanying notes.
F-5
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
Period from
January 12, 1990
(Incorporation) To
Year ended December 31 Six months ended June 30 June 30,
1994 1995 1995 1996 1996
------------------ ------------------- ------------------ ------------------ --------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Operating activities
Net income (loss) $ (781,221) $ 1,380,571 $ (200,140) $ (505,077) $ (2,222,257)
Adjustments to reconcile net
income (loss) to net cash
used in operating
activities:
Depreciation and
amortization 8,447 44,942 18,764 59,471 124,867
Gain from sale of the
Product -- (1,951,000) -- -- (1,951,000)
Gain on sale of
intellectual property -- (787) -- -- (787)
Accretion of interest on
common stock receivable -- -- -- (150,975) (150,975)
Accretion of interest
on amount payable to
preferred stockholders
and Former Officer -- -- -- 150,975 150,975
Loss on sale or
abandonment of
furniture and equipment 29,231 -- -- 8,156 37,387
Issuance of common stock
for services 4,500 -- -- -- 47,000
Changes in operating assets and liabilities:
Prepaid expenses 26,120 -- -- -- --
Other assets 3,598 -- -- (12,793) (12,793)
Accounts payable and
accrued liabilities (28,154) 231,756 62,377 (36,415) 238,329
Amount payable to Former Officer
-- 80,522 -- -- 80,522
------------------ ------------------- ------------------ ------------------ --------------------
Net cash used in operating
activities (737,479) (213,996) (118,999) (486,658) (3,658,732)
Investing activities
Purchase of short-term
investments -- -- -- -- (979,582)
Sale of short-term investments -- -- -- -- 979,582
Purchases of furniture and
equipment -- -- -- -- (65,934)
Proceeds from sale of
furniture and equipment 4,600 -- -- -- 4,600
Organization costs -- -- -- -- (1,358)
------------------ ------------------- ------------------ ------------------ --------------------
Net cash provided by (used
in) investing activities 4,600 -- -- -- (62,692)
</TABLE>
F-6
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
Period from January
12, 1990
(Incorporation) To
Year ended December 31 Six months ended June 30 June 30,
1994 1995 1995 1996 1996
------------------ ------------------- ------------------ ------------------ ---------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Financing activities
Proceeds from notes payable
to related party $ 397,000 $ -- $ -- $ -- $ 957,557
Repayments on notes payable
to related party (190,000) -- -- (207,000) (797,000)
Proceeds from loans payable 389,000 600,000 450,000 400,000 1,389,000
Repayments of loans payable -- (339,000) (289,000) (1,050,000) (1,389,000)
Financing costs -- (54,000) (40,500) (36,000) (90,000)
Payment of subscription
receivable -- -- -- 208 208
Exercise of warrants -- -- -- 375 375
Issuance of preferred and
common stock, net of
issuance cost -- -- -- 22,347,403 24,619,115
------------------ ------------------- ------------------ ------------------ ---------------------
Net cash provided by
financing activities 596,000 207,000 120,500 21,454,986 24,690,255
------------------ ------------------- ------------------ ------------------ ---------------------
Net (decrease) increase in (136,879) (6,996) 1,501 20,968,328 20,968,831
cash
Cash and cash equivalents,
beginning of period 144,378 7,499 7,499 503 --
================== =================== ================== ================== =====================
Cash and cash equivalents,
end of period $ 7,499 $ 503 $ 9,000 $ 20,968,831 $ 20,968,831
================== =================== ================== ================== =====================
Supplemental Disclosure of
Cash Flow Information:
Interest paid $ 16,954 $ 8,338 $ 8,338 $ 157,721 $ 197,072
================== =================== ================== ================== =====================
</TABLE>
See accompanying notes
F-7
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
1. Description of Business and Significant Accounting Policies
Description of Business
AVAX Technologies, Inc. (formerly Walden Laboratories, Inc.) (the "Company") is
a development stage biopharmaceutical company. The Company changed its name to
AVAX Technologies, Inc. effective March 26, 1996.
In November 1995, the Company sold its leading product under development, an
over-the-counter nutritional, dietary, medicinal and/or elixorative food
supplement or drug and all of the related patents and other intellectual
property (the "Product") (see Note 2).
In November 1995, the Company entered into a license agreement with the Thomas
Jefferson University (the "University") to develop, commercially manufacture and
sell products embodying immunotherapeutic vaccines for the treatment of
malignant melanoma and other carcinomas (the "Invention") (see Note 3).
The Company's business is subject to significant risks consistent with
biotechnology companies that are developing products for human therapeutic use.
These risks include, but are not limited to, uncertainties regarding research
and development, access to capital, obtaining and enforcing patents, receiving
regulatory approval and competition with other biotechnology and pharmaceutical
companies. The Company plans to continue to finance its operations with a
combination of equity and debt financing and, in the longer term, revenues from
product sales, if any. However, there can be no assurance that it will
successfully develop any product or, if it does, that the product will generate
any or sufficient revenues.
Interim Financial Statements
The interim financial statements at June 30, 1996 and for the six months ended
June 30, 1995 and 1996 and for the period from January 12, 1990 (incorporation)
to June 30, 1996 are unaudited; however, in the opinion of management, all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation have been included. Results of interim periods are not necessarily
indicative of results to be expected for the entire year.
F-8
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
1. Description of Business, Basis of Presentation and Significant Accounting
Policies (continued)
Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles require management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid financial instruments with a maturity of
three months or less when purchased to be cash equivalents. At June 30, 1996,
substantially all cash and cash equivalents were held in one financial
institution.
Depreciation
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from 3 to 5 years.
Research and Development Costs
Research and development costs, including payments related to patents and
license agreements, are expensed when incurred.
Deferred Costs
Financing costs are deferred and amortized over the period of the related debt.
Organizations costs are amortized over sixty months.
F-9
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
1. Description of Business, Basis of Presentation and Significant Accounting
Policies (continued)
Share Information
Prior to the first closing of a private placement on May 15, 1996 (see Note 9),
the Company effected a 1-for-2 reverse stock split of the Company's common
stock. All outstanding share amounts included in the accompanying financial
statements have been adjusted to reflect the 1-for-2 reverse stock split
disclosed in Note 9.
Net Income (Loss) Per Share
Net income (loss) per share is based upon net income (loss) divided by weighted
average number of shares of common stock outstanding during the respective
periods, retroactively adjusted to reflect the reverse stock split. The weighted
average number of common shares outstanding have been calculated in accordance
with Staff Accounting Bulletin 83 ("SAB 83") of the Securities and Exchange
Commission. SAB 83 requires that shares of common stock, warrants and options
issued one-year prior to the initial filing of a registration statement relating
to an initial public offering at amounts below the public offering price be
considered outstanding for all periods presented in the Company's registration
statement. For purposes of calculating the net income (loss) per share, the
private placement of Series B convertible preferred stock (see Note 9) has been
considered to be the equivalent of an initial public offering and the initial
public offering price was determined to be $1.96 per share by assuming that the
preferred stock issued was immediately converted into common stock. All options
and warrants issued prior to one year from the private placement were
antidilutive or immaterial and, accordingly, excluded from the calculation of
weighted average shares. Series A convertible preferred stock was included in
the calculation of the weighted average number of shares for the year ended
December 31, 1995. Such stock was antidilutive for all other periods.
Supplementary net income (loss) per share include the conversion of Series A
preferred stock and the estimated number of shares assumed to be sold by the
Company (641,327 at $1.96 per share) to repay certain debt of $1,257,000. Net
income (loss) per share would have been $.10 for the year ended
December 31, 1995 and $(.02) and $(.22) for the six months ended June 30, 1995
and 1996, respectively, if the said shares had been converted/issued at the
beginning of the respective periods.
F-10
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
1. Description of Business, Basis of Presentation and Significant Accounting
Policies (continued)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 is effective for fiscal years beginning
after December 31, 1995 and prescribes accounting and reporting standards for
all stock-based compensation plans, including employee stock options, restricted
stock, employee stock purchase plans and stock appreciation rights. SFAS 123
requires compensation expense to be recorded (i) using the new fair value method
or (ii) using existing accounting rules prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related interpretations with pro forma disclosure of what net income and
earnings per share would have been had the Company adopted the new fair value
method. The Company intends to continue to account for its stock based
compensation plans in accordance with the provisions of APB 25.
2. Sale of the Product
The company entered into an agreement to sell the Product for $2.4 million
in shares of Common Stock of Interneuron Pharmaceuticals, Inc. ("IPI") (a
public company), the parent of the purchaser of the Product (the "Stock").
Certain common stockholders of the Company are also common stockholders of IPI.
The purchase price, payable in two equal installments in December 1996 and
1997, respectively, is fixed and the number of shares of Stock will vary
depending on the quoted market price of the Stock at such time.
The sale of the Product was approved by the Company's common and preferred
stockholders subject to the following conditions:
F-11
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
2. Sale of the Product (Continued)
- - At approximately the same time each installment is received by the Company,
95.85% of the Stock will be distributed by the Company to its preferred
stockholders of record at the time the sale of the Product closed, on a
pro-rata basis, to reduce their liquidation preference; provided, however,
that if at the time of each installment, any of the Company's indebtedness
which had been outstanding at the time of the closing of the agreement to
sell the Product (December 27, 1995) is then due and payable, the Company
will cause such indebtedness to be paid or provided for, whether by use of
available cash, refinancing, redirecting a portion of the Stock to satisfy
such indebtedness or otherwise as the Company shall determine in its best
interest.
- - The remaining 4.15% of the Stock (or a cash payment equal to the value
thereof) will be distributed to the Company's former President and Chief
Executive Officer (the "Former Officer") in partial consideration for his
resignation from the Company and the return to the Company of all common stock
of the Company and cancellation of options to purchase 250,000 shares of
common stock that was ever owned by him (see Note 8).
Other than for the Former Officer, none of the other Common Stockholders were
entitled to any of the Stock.
Because the Stock is receivable in two equal annual installments, the gain from
the sale of the Product, $1,951,000, was calculated by discounting the value of
the Stock receivable using a discount rate of 15%. The Company also recorded the
difference between 95.85% of the discounted net present value of the Stock to be
received and the Company's indebtedness, $1,131,744 at December 31, 1995, as a
payable to the preferred stockholders of $738,289 to reduce their liquidation
preference. The total amount payable to the preferred stockholders could be
$2,300,400 if all of the Company's indebtedness outstanding as of the date of
the sale of the Product is satisfied through sources other than the Stock to be
received. However, to the extent such amount of indebtedness remains outstanding
as of the date of receipt of the Stock and, the repayment of such indebtedness
is not otherwise provided for, the amount paid to the preferred stockholders
will be satisfied from the proceeds of the Stock receivable (see Note 9).
F-12
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
2. Sale of the Product (Continued)
The discounted net present value of the Stock distributable to the Former
Officer, $80,967, was allocated between common stock ($445) and severance
expense ($80,522) based on the fair value of the Company's common stock ($.002
per share).
3. License and Research Agreements
In November 1995, the Company entered into an agreement with the University for
the exclusive worldwide license to develop, manufacture and sell the Invention.
The Company paid cash of $10,000 as consideration for the license agreement. In
addition, the Company sold an aggregate of 916,486 shares of common stock at
$.002 per share (the fair value of the Company's common stock) to the
University and the scientific founder (the "Scientist"). These shares have
anti-dilution rights prior to the first equity financing, as defined in the
license agreement, in excess of $1,000,000 by the Company.
Under terms of the license agreement, the Company is required to raise a minimum
of $500,000 of net operating capital by December 1996. Also under the terms of
the license agreement, (i) the Company is obligated to pay certain milestone
payments as follows: $10,000 upon initiation of the first clinical trial that is
approved by the Food and Drug Administration ("FDA") or comparable international
agency, $10,000 upon the first filing of a New Drug Application ("NDA") with the
FDA or comparable international agency, and $25,000 upon receipt by the Company
of approval from the FDA or comparable international agency to market products.
In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue and a percentage of all revenues received from sublicensees.
F-13
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
3. License and Research Agreements (Continued)
The Company also entered into a research agreement with the University to fund a
study to be performed by the University for the development of the technology
related to the Invention (the "Study") at approximately $220,000 per annum for
the first three years. The Company, at its discretion may reduce the funding in
the third year to no less than $100,000. Following the third year, the Company
is obligated to spend a minimum of $500,000 per year on the development of the
Invention until commercialized in the United States. If following the third
year, the Company files for United States marketing approval through a Company
sponsored NDA, the Company may elect to spend less than $500,000 per year on the
development of the Invention during the period of time the NDA is under review
by the FDA. The Research Agreement will continue until completion of the Study.
4. Equity Transactions
Common and Preferred Stock
Common stock issued for services in the years 1990 through 1994 were valued
based on the value of the services provided.
In April 1995, in accordance with the terms of his resignation and related
severance arrangements (see Note 8), the Former Officer returned 222,659 shares
of common stock and options to purchase 125,000 shares of common stock. The
common stock returned was valued at $.002 per share. The common stock and
options returned were canceled.
In May 1995, in accordance with the terms of a settlement agreement (see Note
8), with a former officer and director of the Company, the Company agreed to
release and relinquish any claim it may have on certain intellectual property,
excluding the Product, in exchange for 393,236 shares of the Company's common
stock owned by her and her family. The common stock was valued at $.002 per
share and was canceled.
On September 13, 1995, the Company issued 804,979 shares of common stock to
officers of the Company at $.002 per share.
F-14
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
4. Equity Transactions (Continued)
Common and Preferred Stock (Continued)
On November 20, 1995, the Company issued an aggregate of 916,486 shares of
common stock at $.002 per share to the University and the Scientist (see Note
3). In addition, on November 20, 1995, the Company issued, in aggregate, an
additional 1,832,971 shares to a principal stockholder, a third party designated
by the principal stockholder and an officer at $.002 per share.
At December 31, 1995, the Company was authorized to issue 5,000,000 shares of
preferred of which 2,500,000 were designated as Series A preferred stock. In the
event of a liquidation, dissolution or winding up of the Company, the Series A
preferred stockholders were entitled to receive, in preference to the holders of
common stock, an amount per share of $1.43 (after deducting the amount payable
pursuant to the sale of the Product amounting to $738,289) plus any declared but
unpaid dividends (see Note 9).
In May 1996, the Company's authorized capital was increased to 50,000,000 shares
of common stock, par value $.002 and 5,000,000 (of which 300,000 relates to
Series B preferred stock ) shares of preferred stock $.01 par value.
Each share of Series B preferred stock is convertible at the option of the
holder into common stock at an initial conversion price of $2. The initial
conversion price is subject to adjustment, as defined. The Company has the right
to require mandatory conversion if the closing price of the Company's common
stock exceeds certain defined amounts. The Series B preferred stockholders are
entitled to voting rights equivalent to the number of common shares into which
their shares are convertible. The Series B preferred stockholders also are
entitled to receive, in preference to the holders of common stock, an amount per
share of $135 plus any declared but unpaid dividends
On March 24, 1996, the Company repurchased 155,802 shares of common stock
previously issued to an officer at $.002 per share. The repurchased shares were
canceled.
F-15
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
4. Equity Transactions (Continued)
Stock Option Plan
In April 1992, the Board of Directors approved the 1992 Stock Option Plan (the
"Plan"), which as amended, authorizes up to 875,000 shares of common stock for
granting both incentive and nonqualified stock options to employees, directors,
consultants, and members of the scientific advisory board of the Company. The
exercise price and vesting period of the options are determined by the Board of
Directors at the date of grant. Options may be granted up to ten years after the
Plan's adoption date.
The following summarizes activity in the Plan:
Options
---------
Balances at December 31, 1993 592,750
Canceled (40,000)
---------
Balances at December 31, 1994 552,750
Canceled (492,750)
---------
Balances at December 31, 1995 60,000
========
All outstanding options were issued at an exercise price of $.60 per share. At
December 31, 1995, options to purchase 35,556 shares of common stock were vested
and exercisable and options to purchase 815,000 shares of common stock were
available for grant.
Warrants
The Company has issued warrants to purchase 47,982 (June 1992), 15,500 (May
1993), and 180,000 (January, February and August 1995) shares of the Company's
common stock at a price of $4.80, $5.50, and $.02 per share, respectively. These
warrants are exercisable at any time, and expire in 1997, 1998 and 2006,
respectively. In January and February 1996, the Company issued warrants to
purchase 195,000 shares of the Company's common stock at a price of $.02 per
share. Such warrants are exercisable at any time and expire in 2007. In
June 1996, warrants to purchase 18,750 shares of common stock at $.02 per share
were exercised.
F-16
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
4. Equity Transactions (Continued)
Authorized but unissued shares of common stock were reserved for issuance at
June 30, 1996 as follows:
Convertible Series B preferred stock 12,959,900
(Note 9)
Stock option plan 875,000
Options issued to President (Note 7) 637,745
Warrants to purchase common stock 419,732
Warrants to purchase convertible Series 1,290,990
B preferred stock (Note 9)
------------
16,183,367
============
5. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
December 31 June 30
1995 1996
(Unaudited)
Professional fees $ 55,238 $ 166,438
Interest payable 102,474 -
Other 117,032 71,891
------- ------
$ 274,744 $ 238,329
========= =========
6. Income Taxes
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $3,400,000, for federal income tax purposes that expire in varying
amounts through the year 2010, if not utilized.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities for federal income tax
purposess are as follows:
F-17
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
6. Income Taxes (Continued)
December 31 June 30
1995 1996
---- ----
(Unaudited)
Deferred tax assets:
Net operating losses $1,350,000 $ 1,430,000
Capitalized start-up costs 50,000 35,000
------ ------
Total deferred tax assets 1,400,000 1,465,000
Deferred tax liabilities:
Gain on sale of Product treated as
an installment sale for income tax
purposes (753,000) (753,000)
--------- ---------
Net deferred tax asset 647,000 712,000
Valuation allowance (647,000) (712,000)
--------- ---------
Net deferred tax assets $ -- $ --
======== =======
The valuation allowance at December 31, 1993 and 1994 was $850,000 and
$1,161,000, respectively.
Under Section 382 of the Tax Reform Act of 1986, the Company's net operating
loss carryforward could be subject to an annual limitation if it should be
determined that a change in ownership of more than 50% of the value of the
Company's stock occurred over a three-year period.
F-18
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
6. Income Taxes (Continued)
The following summary reconciles the federal statutory rate with the actual
income tax provision (benefit):
<TABLE><CAPTION>
December 31 June 30
1994 1995 1995 1996
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Income taxes (benefit) at statutory
rate $(266,000) $ 469,000 $ (68,000) $ (168,000)
Loss for which no benefit was
provided 266,000 -- 68,000 168,000
Reduction in the valuation allowance
primarily related to the utilization
net operating loss carryforwards
-- (469,000) -- --
------- --------- ---------- ----------
Provision for income tax (benefit) $ -- $ -- $ -- $ --
======= ========= ========== ==========
</TABLE>
7. Commitments
Leases
The Company leased office facilities on a month-to-month basis through April
1995. Rent expense amounted to approximately $34,000 and $10,000 for the years
ended December 31, 1994 and 1995, respectively ($10,000 for the six months
ended June 30, 1995).
Employment and Consulting Agreements
In May 1996, the Company entered into a letter agreement with its President and
Chief Executive Officer (the "President") pursuant to which the President will
receive an annual salary of $200,000 and a minimum annual bonus of $25,000 and
an additional discretionary bonus of up to $175,000. In addition, the President
received options to purchase 637,745 shares of common stock at $.50 per share.
Such options vest at a rate of 1/16 per quarter over four years and are
exercisable for a period of seven years. Because the fair value of the Company's
common stock at the date of grant was determined to be $1 per share, the Company
recorded $318,873 as deferred compensation. Such deferred compensation is being
amortized over four years.
F-19
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
7. Commitments (Continued)
Employment and Consulting Agreements (Continued)
Effective in June 1996, the Company entered into consulting agreements with the
Scientist, a Director and a former officer. These agreements are for an initial
term of three years through June 1999. Annual consulting fees payable pursuant
to these agreements approximate $126,000.
8. Loans Payable and Related Party Transactions
On March 1, 1994, the Company entered into a line of credit agreement with a
major stockholder. During 1994, the Company received $397,000 and repaid
$190,000. There were no borrowings or repayments during 1995. Borrowings under
this line of credit amounted to $207,000 at December 31, 1995 and bore interest
at 2% above the prime rate. Borrowings under this line of credit were repaid in
full in June 1996 (10.5% at December 31, 1995).
On November 16, 1994, the Company entered into a term loan with a financial
institution and borrowed $389,000. The outstanding balance at December 31, 1995
was $50,000. The above major stockholder had assigned certain bank deposits as
collateral for this borrowing. This borrowing which bore interest at the prime
rate (8.5% at December 31, 1995) was repaid in June 1996.
F-20
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
8. Loans Payable and Related Party Transactions (Continued)
In 1995, the Company obtained four separate bridge loans totaling $600,000
($150,000 from related parties). The lenders also were granted warrants to
purchase 150,000 shares of common stock at $.02 per share. In connection with
these loans, the Company paid financing costs totaling $54,000 and, issued
warrants to purchase 30,000 shares of common stock at $.02 per share, to the
placement agent (the "Placement Agent"), a related party. The warrants were
considered to have a de minimus value. These loans bore interest at 13% per
annum and are payable in 12 months. Loans totaling $200,000 were paid in January
and February 1996 and loans totaling $250,000 that were due in February 1996
were rolled over for another year through February 1997. However, all bridge
loans were payable in full upon the closing of an initial public offering or
private placement of the Company's stock, with gross proceeds in excess of
$2,500,000. In addition, in January and February 1996, the Company obtained
additional bridge loans totaling $400,000 ($300,000 from related parties) with
interest payable at 13% per annum and, issued additional warrants to purchase
195,000 (32,500 to the Placement Agent) shares of common stock at $.02 per share
in connection with the new bridge loans and the rollover of bridge loans. All
bridge loans were repaid in June 1996.
In April 1995, in connection with his resignation, the Former Officer also
received $75,000 (payable over a twelve-month period) and reimbursement of
certain expenses. In May 1995, the Company entered into an agreement with an
officer, director and principal stockholder of the Company upon her resignation
from the Company. Under the terms of the agreement, the Company agreed to
release and relinquish any claim the Company may have on intellectual property
created by the former director prior to or during her term of employment with
the Company, other than for the Product and, the former director returned all
shares of common stock of the Company owned by her and her family.
On June 11, 1996, the Company entered into a financial advisory agreement with
the Placement Agent, pursuant to which the Company will pay a monthly retainer
of $4,000 for a minimum of twenty four-months, plus expenses and success fees.
F-21
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
(Unaudited with respect to the six months ended June 30, 1995 and 1996 and for
the period from January 12, 1990 (incorporation) to June 30, 1996)
9. Private Placement
Pursuant to the private placement in May and June 1996, the Company issued
258,198 shares of Series B convertible preferred stock. The preferred
stockholders also received 258,198 shares of common stock. The total
consideration was $25,819,800. The per share price allocated to common stock
and Series B Preffered Stock was $1 and $99, respectively. The series B
preferred stock is convertible into 12,959,900 shares of common stock. In
connection with the private placement, the Company paid $3,357,000 as commission
and non-accountable expenses to the placement agent, a related party and, issued
1,000 shares of common stock and 1,000 shares of Series B convertible preferred
stock as consideration for legal services valued at $100,000. In addition, the
placement agent received warrants to purchase 25,819.8 shares of convertible
Series B preferred stock at an exercise price of $110 per share. Such warrants
are exercisable until June 15, 2006. Other share issuance expenses amounted to
$115,397.
At the second closing of the private placement on June 11, 1996, the 643,750
shares of Series A preferred stock were automatically converted to 643,750
shares of common stock. Notwithstanding such conversion, holders of the Series A
preferred stock will receive pro-rata, 95.85% of shares of common stock of IPI
valued at $2,400,000 receivable by the Company (See Note 2). Because the Company
will be able to pay its indebtedness from the proceeds of the private placement,
the amount payable to the Series A preferred stockholders was increased to
$2,014,743 (95.85% of the discounted net present value of the Stock receivable)
at June 30, 1996.
F-22
<PAGE>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
No dealer, salesman or any other 14,885,088 Shares of Common Stock
person has been authorized to give
information or to make any
representations not contained in this
Prospectus and, if given or made, such
information or representations must not AVAX TECHNOLOGIES, INC.
be relied upon as having been authorized
by the Company. This Prospectus does not
constitute an offer of any securities
other than those to which it related or
an offer to sell, or a solicitation of Common Stock
an offer or solicitation would be
unlawful. Neither the delivery of this
Prospectus nor any sales made hereunder
shall, under any circumstances, create
any implication that the information
contained herein is correct as of any
time subsequent to the date hereof. --------------------
PROSPECTUS
_______, 1996
-------------------- --------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY.................... 3
COMPANY SUMMARY....................... 3
OFFERING SUMMARY...................... 5
SUMMARY OF FINANCIAL DATA............. 6
RISK FACTORS.......................... 7
USE OF PROCEEDS...................... 18
DIVIDEND POLICY...................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF
OPERATIONS........................... 19
BUSINESS............................. 21
MANAGEMENT........................... 28
CERTAIN TRANSACTIONS................. 34
PRINCIPAL STOCKHOLDERS............... 36
DESCRIPTION OF SECURITIES............ 38
SELLING SECURITYHOLDERS.............. 43
SHARES ELIGIBLE FOR FUTURE SALES.... 49
PLAN OF DISTRIBUTION................. 50
EXPERTS.............................. 51
LEGAL COUNSEL........................ 51
ADDITIONAL INFORMATION............... 51
FINANCIAL STATEMENTS.................F-1
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Section 145") authorizes a
court to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article Seven of the Company's Certificate of
Incorporation provides that the Corporation shall indemnify and advance expenses
to its directors ands officers to the fullest extent permitted by Section 145 of
the Delaware General Corporation Law. Article Nine of the Company's Certificate
of Incorporation provides that the liability of its directors is eliminated to
the fullest extent permitted by Section 102(b)(7) of the Delaware General
Corporation Law. Article V, Section 1 of the Company's By-Laws provides for
mandatory indemnification of its directors to the fullest extent authorized by
the Delaware General Corporation Law. Article V, Section 2 of the Company's
By-Laws provides for prepayment of expenses incurred by its directors to the
fullest extent permitted by, and only in compliance with, the Delaware General
Corporate Law. Article V, Section 6 of the Company's By-Laws provides for
permissive indemnification of its officers, employees and agents if and to the
extent authorized by the Board of Directors in compliance with the Delaware
General Corporation Law. These provisions in the Certificate of Incorporation
and the By-Laws do not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to the Company for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provisions also do not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. Reference is made to the Subscription
Agreements of the Series B Offering, the Series B Placement Warrants and the
Bridge Placement Warrants, Sections 5.7, 5(a) and 6(e) respectively, regarding
indemnification contained in Exhibits 4.6, 4.12 and 4.7 respectively,
indemnifying against certain liabilities certain of the Company's stockholders
or Paramount Capital, Inc., a company wholly owned by a substantial shareholder
of the Company, Lindsay A. Rosenwald, M.D. In addition, the Company has obtained
liability insurance for its directors and officers.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of securities being registered. The following table includes costs
and expenses relating to securities being registered for resale by certain
securityholders, all which amounts will be paid by the Company. All amounts are
estimates except the SEC registration fee and the Nasdaq filing fees.
SEC Registration fee............................................. $15,398.36
Nasdaq filing fee................................................ 10,000
Printing and engraving........................................... *
Legal fees and expenses of the Company........................... *
Accounting fees and expenses..................................... *
Blue sky fees and expenses....................................... *
Transfer agent fees and expenses................................. 5,000
Miscellaneous.................................................... *
------------
Total...................................................... $300,000
------------
-----------
- -------------------------------------------------------------
*To be filed by amendment.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In the last three years, the Company has issued and sold the following
securities (as adjusted to reflect a two-for one reverse stock split effected on
March 26, 1996):
1. On MAY 11, 1996 AND June 15, 1996 (THE "CLOSING DATES"), the Company
consummated a private placement OF AN AGGREGATE of approximately
$25,900,000 of shares ("UNITS") of Series B Preferred Stock
and Common Stock (the "Series B Offering"). The issuance of the above
referenced securities was deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) thereof and RULE 506 OF
Regulation D promulgated thereunder.
THE OFFER AND SALE OF UNITS WERE CONDUCTED THROUGH THE PLACEMENT AGENT
(AS DEFINED BELOW). IN OFFERING THE UNITS, THE PLACEMENT AGENT
CONFINED ITS ACTIONS TO ACTIVITIES SANCTIONED BY REGULATION D AND DID
NOT ENGAGE IN ANY FORM OF GENERAL ADVERTISING OR GENERAL SOLICITATION
IN OFFERING THE UNITS. ALL PURCHASERS OF THE UNITS REPRESENTED TO THE
COMPANY THAT THEY WERE ACCREDITED INVESTORS AND THE COMPANY HAD NO
REASON TO BELIEVE THAT SUCH INVESTORS WERE NOT ACCREDITED INVESTORS.
THE CLOSING DATES WERE THE ONLY DATES THAT THE COMPANY SOLD UNITS, AND
THE COMPANY TIMELY FILED WITH THE COMMISSION A FORM D (OR AMENDED FORM
D, AS THE CASE MAY BE) IN RESPECT OF EACH OF THE CLOSING DATES. EACH
OF THE PURCHASERS OF THE UNITS REPRESENTED THEIR INTENTIONS TO ACQUIRE
THE SECURITIES FOR INVESTMENT ONLY AND NOT WITH A VIEW TO, OR FOR SALE
IN CONNECTION WITH, ANY DISTRIBUTION THEREOF AND APPROPRIATE LEGENDS
WERE AFFIXED TO THE SHARE CERTIFICATES ISSUED IN SUCH TRANSACTIONS.
THE PURCHASERS IN SUCH OFFERING OF UNITS WERE ALL THE SELLING
SECURITYHOLDERS LISTED AS SUCH IN THE REGISTRATION STATEMENT EXCEPT
FOR JAMES D. WOLFENSOHN, SEYMOUR BUEHLER AND WILLIAM J. VANDEN HEUVEL,
WHO DID NOT PARTICIPATE IN SUCH OFFERING.
II-2
<PAGE>
2. In connection with services rendered by Paramount Capital, Inc., as
placement agent in the offering (the "Placement Agent"), the Company
issued to the Placement Agent or its designees warrants to purchase an
aggregate of 25,819.8 shares of Series B Preferred Stock. The issuance
of the above referenced securities was deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2)
thereof and Regulation D promulgated thereunder. The recipients of
securities in each such transaction represented their intentions to
acquire the securities for investment only and not with a view to or
for sale in connection with any distribution thereof and appropriate
legends were affixed to the certificates issued in such transactions.
3. On November 20, 1995, the Company entered into a License Agreement (the
"TJU License Agreement') with Thomas Jefferson University ("TJU")
pursuant to which TJU licensed to the Company certain patent and patent
applications relating to a process for the modification of a patient's
own TUMOR cells into a cancer vaccine (the "TJU License") for $.002 per
share. Pursuant to the TJU License Agreement, the Company issued
458,243 shares of Common Stock to each of TJU and Dr. David Berd. The
issuances of the above referenced securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2)
thereof because such issuances were transactions not involving a public
offering. All recipients had adequate access, through their
relationships with the Company, to information about the Company.
4. The Castle Group, LLC ("The Castle Group") which may be deemed an
affiliate of both the Company and the Placement Agent, identified,
negotiated and acquired for the Company the TJU License. In connection
therewith, The Castle Group and/or its designees were granted 916,486
of Common Stock of the Company at a price of $.002 per share pursuant
to an Engagement & Technology Acquisition Agreement dated
October 20, 1995 between The Castle Group and the Company. The
issuances of the above referenced securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2)
thereof because such issuances were transactions not involving a public
offering. In addition, each of the recipients of securities in such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof and conform to appropriate legends were
affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the
Company, to information about the Company.
5. In 1995 and 1996, the Company pursuant to certain bridge financing
transactions issued to nine persons or entities (i) bridge notes
aggregating $1,000,000 and (ii) warrants to purchase an aggregate of
312,500 shares of Common Stock at an exercise price of $.002 per share.
In June 1996, such bridge notes were paid by the Company and
all the warrants were exercised by the holders thereof. In connection
with services rendered as the placement agent of the bridge financing,
Paramount Capital, Inc. was issued warrants to purchase 62,500
shares of Common Stock at an exercise price of $.002 per share. The
issuances of the above referenced securities was deemed to be exempt
from registration under the Securities Act in reliance on Section 4(2)
thereof because such issuances were transactions not involving a public
offering. In addition, the recipients of securities in such
transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with
any distribution thereof and appropriate legends were affixed to the
share certificates issued in such transactions. All recipients had
adequate access, through their relationships with the Company, to
information about the Company.
II-3
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE><CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant,
InterNuria, Inc. and Interneuron Pharmaceuticals, Inc.
* 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
4.5 Certificate of Elimination of the Series A Preferred Stock
** 4.6 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred Stock
and Common Stock.
* 4.7 Form of Placement Warrant Relating to the Bridge Financing.
* 4.8 Warrant for the Purchase of Shares of Common Stock No. 1 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.9 Warrant for the Purchase of Shares of Common Stock No. 2 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.10 Warrant for the Purchase of Shares of Common Stock No. 3 dated July 23, 1992, by and
between the Registrant and certain investors.
* 4.11 Warrant for the Purchase of Shares of Common Stock No. 4 dated September 2, 1992, by
and between the Registrant and certain investors.
* 4.12 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
5.1 FORM OF Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
* 10.1 Reference is made to Exhibit 2.1.
*+ 10.2 Clinical Study and Research Agreement dated November 20,
1995, by and between the Registrant and Thomas Jefferson
University.
* 10.3 The Registrant's 1992 Stock Option Plan.
* 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
* 10.5 Employment Agreement dated August 19, 1991, between the Registrant and Dayne R.
Myers, as amended.
* 10.6 Consulting Agreement dated February 22, 1996, between the Registrant and Dr. Carl Spana.
* 10.7 Scientific Advisory Board Agreement dated March 25, 1996, between the Registrant and Dr.
Jerry Weisbach.
* 10.8 Consulting Agreement dated May 9,1996, between the Registrant and Dr. David Berd.
* 10.9 Financial Advisory Agreement dated June 12, 1996, by and between the Registrant and
Paramount Capital, Inc.
*+ 10.10 License Agreement dated November 20, 1995, by and
between the Registrant and Thomas Jefferson University.
10.11 Letter of Employment dated September 13, 1996, between the Registrant and David L.
Tousley.
10.12 Letter of Employment dated September 13, 1996, between the Registrant and Ernest W.
Yankee, Ph.D.
11.1 Statement Concerning Computation of Per Share Earnings.
* 20.1 Stockholder Information Statement of the Registrant dated June 15, 1995.
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
* 24.1 Power of Attorney. Reference is made to the Signature Page to the Registration Statement.
27.1 Financial Data Schedule.
</TABLE>
* PREVIOUSLY FILED WITH THE REGISTRATION STATEMENT ON FORM SB-2 FILED WITH THE
COMMISSION ON AUGUST 1, 1996.
** SUPERSEDES EXHIBIT PREVIOUSLY FILED WITH THE REGISTRATION STATEMENT ON FORM
SB-2 FILED WITH THE COMMISSION ON AUGUST 1, 1996.
+ Confidential treatment requested as to certain portions of these exhibits.
Such portions have been redacted.
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
The Company 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 notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the By-Laws of the Company, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer, or controlling person of the Company 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 hereunder, the Company 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 of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The Company hereby undertakes that it will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
II-6
<PAGE>
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of such securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Company 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, State of New York, on this 23rd day of
SEPTEMBER, 1996.
AVAX TECHNOLOGIES, INC.
By: /s/ Michael S. Weiss
------------------------
Michael S. Weiss
Secretary and Director
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE><CAPTION>
SIGNATURE Name & Title Date
--------- ------------ ----
<S> <C> <C>
/s/ Jeffrey Jonas, M.D.* Jeffery Jonas, M.D. September 23,
President, Chief Executive Officer and Director 1996
/s/ DAVID L. TOUSLEY DAVID L. TOUSLEY September 23,
CHIEF FINANCIAL OFFICER 1996
(PRINCIPAL FINANCIAL OFFICER)
/s/ Edson D. de Castro* Edson D. de Castro September 23,
Director
/s/ John K. A. PRENDERGAST, John K. A. Prendergast, Ph.D. September 23,
Ph.D.* Director 1996
/s/ Carl Spana, Ph.D.* Carl Spana, Ph.D. September 23,
Director 1996
/s/ Michael S. Weiss Michael S. Weiss September 23,
Secretary and Director 1996
</TABLE>
* BY: /s/ MICHAEL S. WEISS
-------------------------------
MICHAEL S. WEISS
ATTORNEY-IN-FACT
II-7
<PAGE>
EXHIBIT INDEX
<TABLE><CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant,
InterNuria, Inc. and Interneuron Pharmaceuticals, Inc.
* 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
4.5 Certificate of Elimination of the Series A Preferred Stock
** 4.6 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred Stock
and Common Stock.
* 4.7 Form of Placement Warrant Relating to the Bridge Financing.
* 4.8 Warrant for the Purchase of Shares of Common Stock No. 1 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.9 Warrant for the Purchase of Shares of Common Stock No. 2 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.10 Warrant for the Purchase of Shares of Common Stock No. 3 dated July 23, 1992, by and
between the Registrant and certain investors.
* 4.11 Warrant for the Purchase of Shares of Common Stock No. 4 dated September 2, 1992, by
and between the Registrant and certain investors.
* 4.12 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
5.1 Form of Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
* 10.1 Reference is made to Exhibit 2.1.
*+ 10.2 Clinical Study and Research Agreement dated November 20,
1995, by and between the Registrant and Thomas Jefferson
University.
* 10.3 The Registrant's 1992 Stock Option Plan.
* 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
* 10.5 Employment Agreement dated August 19, 1991, between the Registrant and Dayne R.
Myers, as amended.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
* 10.6 Consulting Agreement dated February 22, 1996, between the Registrant and Dr. Carl Spana.
* 10.7 Scientific Advisory Board Agreement dated March 25, 1996, between the Registrant and Dr.
Jerry Weisbach.
* 10.8 Consulting Agreement dated May 9,1996, between the Registrant and Dr. David Berd.
* 10.9 Financial Advisory Agreement dated June 12, 1996, by and between the Registrant and
Paramount Capital, Inc.
*+10.10 License Agreement dated November 20, 1995, by and
between the Registrant and Thomas Jefferson University.
10.11 Letter of Employment dated September 13, 1996,between the Registrant and David L.
Tousley.
10.12 Letter of Employment dated September 13, 1996,between the Registrant and Ernest W.
Yankee, Ph.D.
11.1 Statement Concerning Computation of Per Share Earnings.
* 20.1 Stockholder Information Statement of the Registrant dated June 15, 1995.
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
* 24.1 Power of Attorney. Reference is made to the Signature Page to the Registration Statement.
27.1 Financial Data Schedule.
</TABLE>
* PREVIOUSLY FILED WITH THE REGISTRATION STATEMENT ON FORM SB-2 FILED
WITH THE COMMISION ON AUGUST 1, 1996.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
** SUPERSEDES EXHIBIT PREVIOUSLY FILED WITH THE REGISTRATION STATEMENT ON
FORM SB-2 FILED WITH THE COMMISSION.
EXHIBIT 4.5
CERTIFICATE SETTING FORTH A RESOLUTION
ADOPTED BY THE BOARD OF DIRECTORS WITH
RESPECT TO SERIES A CONVERTIBLE
PREFERRED STOCK
OF
AVAX TECHNOLOGIES, INC.
Pursuant to Section 151 of the General
--------------------------------------
Corporation Law of the State of Delaware
----------------------------------------
------------------------------------
AVAX Technologies, Inc., a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that the following resolution was duly
adopted by action by unanimous written consent of the Board of Directors of the
Corporation on July 12, 1996:
"RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors hereby states
that none of the authorized shares of Series A Convertible Preferred Stock of
the Corporation are outstanding and that none will be issued.
When this certificate becomes effective in accordance with the
provisions of Sections 103 and 151 of the General Corporation Law of the State
of Delaware, all references in the Corporation's Certificate of Incorporation,
as amended through the date hereof, to the Series A Convertible Preferred Stock
will be eliminated and the number of shares of capital stock previously
authorized as Series A Convertible Preferred Stock shall become authorized but
unissued shares of undesignated Preferred Stock of the Corporation."
<PAGE>
2
IN WITNESS WHEREOF, the undersigned has signed his name, this 20th day
of September, 1996, and by such act affirms under penalties of perjury, that
this instrument constitutes the act and deed of the Corporation and that the
facts stated herein are true".
AVAX TECHNOLOGIES, INC.
By /s/ Jeffrey M. Jonas, M.D.
-------------------------------------------------
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief Executive Officer
Exhibit 4.6
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement") made as of the date set forth on
the signature page hereof between AVAX Technologies, Inc., a Delaware
corporation (the "Company") and the undersigned (the "Subscriber").
W I T N E S S E T H:
WHEREAS, the Company desires to issue a minimum (the "Minimum Offering") of
$1,000,000 of units (the "Units") and a maximum (the "Maximum Offering") of
$9,000,000 of Units, with an over-allotment option in favor of the Placement
Agent to offer for sale an additional $9,000,000 of Units, in a private
placement offering (the "Offering"), each Unit consisting of (a) 1,000 shares of
Premium Preferred Stock, par value $.01 per share, of the Company, with a stated
value of $100.00 per share (the "Preferred Stock"), convertible into shares of
common stock, par value $.001 per share, of the Company (the "Common Stock")
and (b) 1,000 shares of Common Stock (the "Offering shares") (the Preferred
Stock and the shares of Common Stock issuable upon conversion of the Preferred
Stock (the "Conversion Shares") are hereinafter sometimes referred to
collectively as the "Securities");
WHEREAS, the Subscriber desires to purchase that number of Units set forth
on the signature page hereof on the terms and conditions hereinafter set forth;
WHEREAS, the Company has engaged Paramount Capital, Inc. (the "Placement
Agent") as Placement Agent for the Offering on a "best-efforts," "all-or-none"
basis as to the Minimum Offering and thereafter on a "best efforts" basis as to
the Maximum Offering.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and covenants hereinafter set forth, the parties hereto do
hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units or fractions thereof as is set forth upon the signature page
hereof at a price equal to $100,000 per Unit and the Company agrees to sell such
Units to the Subscriber for said purchase price. The purchase price is payable
by personal or business check, wire transfer of immediately available funds or
money order made payable to "American Stock Transfer & Trust Company, Escrow
Agent, F/B/O AVAX Technologies, Inc." contemporaneously with the execution and
delivery of this Agreement by the Subscriber. The Units will be delivered by the
Company to the
<PAGE>
Subscriber within ten (10) days of the Closing of the Offering applicable to the
Subscriber as set forth in Article III hereof.
1.2 The Subscriber recognizes that the purchase of Units involves a high
degree of risk in that (i) the Company remains a development stage business with
limited operating history and requires substantial funds in addition to the
proceeds of the Offering; (ii) an investment in the Company is highly
speculative, and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (iii) the
Subscriber may not be able to liquidate his investment; (iv) transferability of
the Units and the Securities is extremely limited; and (v) in the event of a
disposition, the Subscriber could sustain the loss of his or its entire
investment. Such risks are more fully set forth in the Memorandum (as defined
below) furnished by the Company to the Subscriber.
1.3 The Subscriber represents that the Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933, as amended (the "Act"), as indicated by his
responses to the questions contained in Article VIII hereof, and that the
Subscriber is able to bear the economic risk of an investment in the Units.
1.4 The Subscriber hereby acknowledges and represents that (i) the
Subscriber has prior investment experience, including investment in non-listed
and unregistered securities, or the Subscriber has employed the services of an
investment advisor, attorney and/or accountant to read all of the documents
furnished or made available by the Company both to the Subscriber and to all
other prospective investors in the Units and to evaluate the merits and risks of
such an investment on the Subscriber's behalf; (ii) the Subscriber recognizes
the highly speculative nature of this investment; and (iii) the Subscriber is
able to bear the economic risk which the Subscriber hereby assumes.
1.5 The Subscriber hereby acknowledges receipt and careful review of the
Confidential Private Placement Memorandum dated March 27, 1996, as supplemented
and amended, and the attachments and exhibits thereto, all of which constitute
an integral part thereof (the "Memorandum") and hereby represents that the
Subscriber has been furnished by the Company during the course of this
transaction with all information regarding the Company which the Subscriber has
requested or desired to know, has been afforded the opportunity to ask questions
of and receive answers from duly authorized officers or other representatives of
the Company concerning the terms and conditions of the Offering and has received
any additional information which Subscriber has requested.
1.6(a) The Subscriber has relied solely upon the information provided by
the Company in the Memorandum in making the decision to invest in the Units. To
the extent necessary, the Subscriber has retained, at the expense of the
Subscriber, and relied upon appropriate professional advice regarding the
investment, tax and legal merits and consequences of this Agreement and its
purchase of the Units hereunder. The Subscriber acknowledges and agrees that the
Placement Agent has not supplied any information for inclusion in the Memorandum
other than information furnished in writing to the Company by the Placement
2
<PAGE>
Agent specifically for inclusion in the Memorandum relating to the Placement
Agent, that the Placement Agent has no responsibility for the accuracy or
completeness of the Memorandum and that the Subscriber has not relied upon the
independent investigation or verification, if any, which may have been
undertaken by the Placement Agent.
(b) The Subscriber covenants that (i) the Subscriber was contacted
regarding the sale of the Units by the Placement Agent, (or an authorized agent
or representative thereof) with whom the Subscriber had a prior substantial
pre-existing relationship and (ii) no Units were offered or sold to it by means
of any form of general solicitation or general advertising, and in connection
therewith the Subscriber: did not (A) receive or review any advertisement,
article, notice or other communication published in a newspaper or magazine or
similar media or broadcast over television or radio whether closed circuit, or
generally available; or (B) attend any seminar meeting or industry investor
conference whose attendees were invited by any general solicitation or general
advertising.
1.7 The Subscriber hereby acknowledges that the Offering has not been
reviewed by the United States Securities and Exchange Commission (the "SEC")
because of the Company's representations that this Offering is intended to be
exempt from the registration requirements of Section 5 of the Act pursuant to
Sections 4(2) and 3(b) of the Act. The Subscriber agrees that the Subscriber
will not sell or otherwise transfer the Units or the Securities unless they are
registered under the Act or unless an exemption from such registration is
available.
1.8 The Subscriber understands that the Securities have not been registered
under the Act by reason of a claimed exemption under the provisions of the Act
which depends, in part, upon the Subscriber's investment intention. In this
connection, the Subscriber hereby represents that the Subscriber is purchasing
the Securities for the Subscriber's own account for investment and not with a
view toward the resale or distribution to others. The Subscriber, if an entity,
was not formed for the purpose of purchasing the Units. The Subscriber
understands that Rule 144 promulgated under the Act requires, among other
conditions, a two-year holding period prior to the resale (in limited amounts)
of securities acquired in a non-public offering without having to satisfy the
registration requirements under the Act.
1.9 The Subscriber understands and hereby acknowledges that the Company is
under no obligation to register the Units or any of the Securities under the Act
or any state securities or "blue sky" laws other than as set forth in Article V.
The Subscriber consents that the Company may, if it desires, permit the transfer
of the Securities under or issuable upon exercise thereof out of the
Subscriber's name only when the Subscriber's request for transfer is accompanied
by an opinion of counsel reasonably satisfactory to the Company that neither the
sale nor the proposed transfer results in a violation of the Act or any
applicable state "blue sky" laws (collectively, "Securities Laws"). The
Subscriber agrees to hold the Company and its directors, officers, agents
(including the Placement Agent) and controlling persons and their respective
heirs, representatives, successors and assigns harmless and to indemnify them
against all liabilities, costs and expenses incurred by them as a result of any
misrepresentation made by
3
<PAGE>
the Subscriber contained in this Agreement (including the Confidential Investor
Questionnaire contained in Article VIII herein) or any sale or distribution by
the Subscriber in violation of the Securities Laws.
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Securities that such Securities
have not been registered under the Act or any state securities or "blue sky"
laws and setting forth or referred to the restrictions on transferability and
sale thereof contained in this Agreement. The Subscriber is aware that the
Company will make a notation in its appropriate records with respect to the
restrictions on the transferability of such Securities.
1.11 The Subscriber understands that the Company will review this Agreement
and is hereby given authority by the Subscriber to call Subscriber's bank or
place of employment or otherwise review the financial standing of the
Subscriber; and it is further agreed that the Company reserves the unrestricted
right, without further documentation or agreement on the part of the Subscriber,
to reject or limit any subscription, to accept subscriptions for fractional
Units and to close the Offering to the Subscriber at any time.
1.12 The Subscriber hereby represents that the address of the Subscriber
furnished by the Subscriber on the signature page hereof is the Subscriber's
principal residence if the Subscriber is an individual or its principal business
address if it is a corporation or other entity.
1.13 The Subscriber represents that he or it has full power and authority
(corporate, statutory and otherwise) to execute and deliver this Agreement and
to purchase the Units. This Agreement constitutes the legal, valid and binding
obligation of the Subscriber, enforceable against the Subscriber in accordance
with its terms.
1.14 If the Subscriber is a corporation, company, trust, employee benefit
plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it
is authorized and qualified to become an investor in the Company and the person
signing this Agreement on behalf of such entity has been duly authorized by such
entity to do so.
1.15 The Subscriber acknowledges that if he is a Registered Representative
of an NASD member firm, he must give such firm the notice required by the Rules
of Fair Practice promulgated by the NASD, receipt of which must be acknowledged
by such firm in Section 8.4 below.
1.16 The Subscriber acknowledges that at such time, if ever, as the
Securities are registered, sales of the such Securities will be subject to state
securities laws, including those of the State of New Jersey which requires any
securities sold in New Jersey to be sold through a registered broker-dealer or
in reliance upon an exemption from registration.
4
<PAGE>
1.17 The Subscriber hereby agrees that from the date hereof and continuing
for a period (the "Lock-Up Period") of: (a) three (3) months from the Final
Closing Date with respect to seventy-five percent (75%) of the Conversion
Shares; (b) six (6) months from the Final Closing Date with respect to fifty
percent (50%) of the Conversion Shares; and (d) nine (9) months from the Final
Closing Date with respect to the remaining twenty-five percent (25%) of the
Conversion Shares, Subscriber will not, without the prior written consent of
Placement Agent, offer, pledge, sell, contract to sell, grant any option for the
sale of, or otherwise dispose of, directly or indirectly, any Conversion Shares.
For the avoidance of doubt, there shall be no Lock-Up Period with respect to
twenty-five percent (25%) of the Conversion Shares. In addition, the Subscriber
agrees that while it holds any Securities, the Subscriber will not directly or
indirectly, through related parties, affiliates or otherwise sell "short" or
"short against the box" (as those terms are generally understood) any equity
security of the Company; provided, however, that it shall not be a violation of
this Section 1.17, if the Subscriber places a sell order for Registrable
Securities (as defined herein) prior to the conversion of the Conversion Shares,
relies on the Company to deliver such Registrable Securities in accordance with
Section 5.4(h) and completes the sale of such Registrable Securities before the
Company delivers the Registrable Securities to the Subscriber.
II. REPRESENTATIONS BY AND COVENANTS OF THE COMPANY
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit A, the Company hereby represents and warrants to the Subscriber that:
2.1 Organization, Good Standing and Qualifications. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as described in the Memorandum.
2.2 Capitalization and Voting Rights. Except as disclosed in Schedule 2.2,
the authorized, issued and outstanding capital stock of the Company is as set
forth in the Memorandum under "Capitalization"; all issued and outstanding
shares of the Company are validly issued, fully paid and nonassessable. The
Securities have been duly and validly authorized and, when issued and paid for
pursuant to this Agreement, will be validly issued, fully paid and
nonassessable. Except as set forth in the Memorandum, there are no outstanding
options, warrants, agreements, convertible securities, preemptive rights or
other rights to subscribe for or to purchase any shares of capital stock of the
Company. Except as set forth in the Memorandum and in this Agreement and as
otherwise required by law, there are no restrictions upon the voting or transfer
of the Securities pursuant to the Company's Certificate of Incorporation, Bylaws
or other governing documents or any agreement or other instruments to which the
Company is a party or by which the Company is bound.
5
<PAGE>
2.3 Authorization; Enforceability. This Agreement has been duly and validly
authorized by the Company and is enforceable against the Company in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law). The Company has full power and lawful authority to authorize, issue and
sell the Units to be sold by it hereunder on the terms and conditions set forth
herein.
2.4 Certificate of Designating of Preferred Stock. The Preferred Stock has
the rights, preferences and privileges substantially as set forth in the Form of
Certificate of Designations attached as Exhibit A to the Memorandum and the Form
of Certificate of Designations.
2.5 No Conflict; Governmental Consents.
(i) The execution and delivery by the Company of this Agreement and
the consummation of the transactions contemplated hereby will not result in
the violation of any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority to or
by which the Company is bound, or of any provision of the Certificate of
Incorporation or Bylaws of the Company, and will not conflict with, or
result in a breach or violation of, any of the terms or provisions of, or
constitute (with due notice or lapse of time or both) a default under, any
lease, loan agreement, mortgage, security agreement, trust indenture or
other agreement or instrument to which the Company is a party or by which
it is bound or to which any of its properties or assets is subject, nor
result in the creation or imposition of any lien upon any of the properties
or assets of the Company.
(ii) No consent, approval, authorization or other order of any
governmental authority is required to be obtained by the Company in
connection with the authorization, execution and delivery of this Agreement
or with the authorization, issue and sale of the Units or the Securities,
except such filings as may be required to be made with, the SEC, any state
or foreign blue sky or securities regulatory authority, and possibly Nasdaq
(as defined below).
2.6 Licenses. Except as set forth in the Memorandum, the Company has
sufficient licenses, permits and other governmental authorizations currently
required for the conduct of its business or ownership of properties and is in
all material respects complying therewith.
6
<PAGE>
2.7 Litigation. Except as set forth in the Memorandum, the Company knows of
no pending or threatened legal or governmental proceedings against the Company
which could materially adversely affect the business, property, financial
condition or operations of the Company.
2.8 Memorandum; Disclosure. No information set forth in the Memorandum
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
2.9 Investment Company. Giving effect to the expected use of proceeds as
set forth in the Memorandum, the Company is not an "investment company" within
the meaning of such term under the Investment Company Act of 1940 and the rules
and regulations of the SEC thereunder.
2.10 Open Market Purchases. The Company shall not, directly or indirectly,
through related parties or otherwise, purchase any equity securities of the
Company (other than off-market privately negotiated purchases) during the thirty
(30) trading days prior to the Reset Date or any date of mandatory conversion
(as more fully described in the Certificate of Designations).
III. TERMS OF SUBSCRIPTION
3.1 The Company shall issue a minimum of ten (10) Units and a maximum of
ninety (90) Units. The Placement Agent, at its sole option, may offer for sale
by the Company up to an additional ninety (90) Units to cover over-allotments.
3.2 The Offering Period shall begin March 27, 1996. Upon receipt of the
Minimum Offering amount, the Placement Agent may conduct a closing (the "Initial
Closing Date") and may conduct subsequent closings (each a "Closing") on an
interim basis until the Maximum Offering amount (including any over-allotment
amount) has been reached (the "Final Closing Date"). The Offering Period shall
terminate at 11:59 p.m. New York City time on or about May 26, 1996, subject to
an extension, at the sole option of the Placement Agent, for an additional sixty
(60) days. The Units will be offered on a "best-efforts," "all-or-none" basis as
to the Minimum Offering and thereafter on a "best efforts" basis as the Maximum
Offering. The purchase price is payable by personal or business check, wire
transfer of immediately available funds or money order made payable to "American
Stock Transfer & Trust Company, Escrow Agent, AVAX Technologies, Inc."
3.3 Placement of the Units will be made by the Placement Agent, who will
receive (i) a placement fee in the amount of 9% of the purchase price of the
Units placed and (ii) a non-accountable expense allowance equal to 4% of the
purchase price of the Units placed. The Placement Agent shall also receive
warrants (the "Placement Agent Warrants") to purchase a number of newly issued
shares of Preferred Stock equal to 10% of the Preferred Stock sold
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in the Offering, exercisable for a period of ten (10) years from the Final
Closing Date at an exercise price equal to 110% of the price per share of
Preferred Stock paid by investors in the Offering. The Placement Agent Warrants
will contain a cashless exercise feature and the right to be registered on the
Shelf Registration Statement (described in Section 5.2).
3.4 Pending the sale of the Units, all funds paid hereunder shall be
deposited by the Company in escrow with the American Stock Transfer & Trust
Company, 40 Wall Street, New York, New York, 10005. If the Company shall not
have obtained subscriptions (including this subscription) for purchases of
$1,000,000 of Units on or before the Final Closing Date, then this subscription
shall be void and all funds paid hereunder by the Subscriber shall be promptly
returned to the Subscriber, without interest, in accordance with Section 3.6
hereof.
3.5 The Subscriber hereby authorizes and directs the Company to deliver the
Securities to be issued to the Subscriber pursuant to this Agreement directly to
the Subscriber's account maintained by the Placement Agent or, if no such
account exists, to the residential or business address indicated on the
signature page hereto.
3.6 The Subscriber hereby authorizes and directs the Company to return any
funds for unaccepted subscriptions to the same account from which the funds were
drawn, including any customer account maintained with the Placement Agent.
IV. CONDITIONS TO OBLIGATIONS OF THE SUBSCRIBERS
4.1 The Subscribers' obligations to purchase the Units at the Closing is
subject to the fulfillment on or prior to the date of such Closing of the
following conditions, which conditions may be waived at the option of each
Subscriber to the extent permitted by law:
(a) Representations and Warranties Correct. The representations and
warranties made by the Company in Article III hereof shall be true and
correct in all material respects when made, and shall be true and correct
in all material respects on the date of such Closing with the same force
and effect as if they had been made on and as of said date.
(b) Covenants. All covenants, agreements and conditions contained in
this Agreement to be performed by the Company on or prior to such purchase
shall have been performed or complied with in all material respects.
(c) No Legal Order Pending. There shall not then be in effect any
legal or other order enjoining or restraining the transactions contemplated
by this Agreement.
(d) No Law Prohibiting or Restricting Such Sale. There shall not be in
effect any law, rule or regulation prohibiting or restricting such sale or
requiring any consent or approval of any person which shall not have been
obtained to issue the Units (except as otherwise provided in this
Agreement).
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(e) Minimum Subscriptions. With respect to the Initial Closing, the
Company shall have received binding subscriptions for at least $1,000,000.
(f) Legal Opinion. Upon each Closing, counsel to the Company shall
have delivered to the Placement Agent for the benefit of the Placement
Agent and the Subscribers, purchasing on such date, a legal opinion with
respect to such legal matters relating to this Agreement and the Memorandum
as the Placement Agent may reasonably require.
V. REGISTRATION RIGHTS
5.1 As used in this Agreement, the following terms shall have the following
meanings:
(a) "Affiliate" shall mean, with respect to any person, any other
person controlling, controlled by or under direct or indirect common
control with such person (for the purposes of this definition "control,"
when used with respect to any specified person, shall mean the power to
direct management and policies of such person, directly or indirectly,
whether through ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings
correlative to the foregoing).
(b) "Business Day" shall mean a day Monday through Friday on which
banks are generally open for business in New York.
(c) "Holders" shall mean the Subscribers and any person holding
Registrable Securities to whom the rights under Section 5 have been
transferred in accordance with Section 5.10 hereof.
(d) "Person" shall mean any person, individual, corporation,
partnership, trust or other nongovernmental entity or any governmental
agency, court, authority or other body (whether foreign, federal, state,
local or otherwise).
(e) The terms "register," "registered" and "registration" refer to the
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(f) "Registrable Securities" shall mean (A) the Conversion Shares and
the Offering Shares and (B) any shares of Common Stock issued as (or
issuable upon the conversion of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to or in
replacement of the Conversion Shares or the Offering Shares; provided,
however, that securities shall only be treated as Registrable Securities if
and only for so long as they (I) have not been disposed of pursuant to a
registration statement declared effective by the SEC, (II) have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the
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consummation of such sale or (III) are held by a Holder or a permitted
transferee pursuant to Section 5.10.
(g) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Section 5.2 hereof, including, without
limitation, all registration, qualification and filing fees, printing
expenses, escrow fees, fees and expenses of counsel for the Company, blue
sky fees and expenses (for a reasonable number of states) and the expense
of any special audits incident to or required by such registration (but
excluding the fees of legal counsel for any Holder).
(h) "Registration Statement" shall have the meaning ascribed to such
term in Section 5.2.
(i) "Registration Period" shall have the meaning ascribed to such term
in Section 5.4.
(j) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and expenses of legal counsel for any Holder.
5.2 The Company will, as soon as practicable, but not later than sixty (60)
days after the Final Closing Date, (i) file a shelf registration statement (the
"Shelf Registration Statement") with respect to the Registrable Securities with
the SEC (the "Filing Date") and (ii) use its reasonable efforts to effect the
registration, qualifications or compliances (including, without limitation, the
execution of any required undertaking to file post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws and appropriate compliance with applicable securities laws, requirements or
regulations) as may be so reasonably requested and as would permit or facilitate
the sale and distribution of all Registrable Securities. Notwithstanding the
foregoing, the Company will not be obligated to enter into any underwriting
agreement for the sale of any of the Securities.
5.3 All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 5.2 shall be borne by the
Company. All Selling Expenses relating to the sale of securities registered by
or on behalf of Holders shall be borne by such Holders pro rata on the basis of
the number of securities so registered.
5.4 In the case of the registration, qualification or compliance effected
by the Company pursuant to this Agreement, the Company will, upon reasonable
request, inform each Holder as to the status of such registrants, qualification
and compliance. At its expense the Company will:
(a) use its reasonable best efforts to keep such registration, and any
qualification or compliance under state securities laws which the Company
determines to obtain, continuously effective until the Holders have
completed the distribution described in the
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Registration Statement relating thereto. The period of time during which
the Company is required hereunder to keep the Registration Statement
effective is referred to herein as "the Registration Period."
Notwithstanding the foregoing at the Company's election, the Company may
cease to keep such registration, qualification or compliance effective with
respect to any Registrable Securities, and the registration rights of a
Holder shall expire, at such time as the Holder may sell under Rule 144
under the Securities Act (or other exemption from registration acceptable
to the Company) in a three-month period all Registrable Securities then
held by such Holder; and
(b) advise the Holders:
(i) when the Registration Statement or any amendment thereto has
been filed with the Commission and when the registration statement or
any post-effective amendment thereto has become effective;
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the prospectus included
therein or for additional information.
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for such purpose;
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares included
therein for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose; and
(v) of the happening of any event that requires the making of any
changes in the Registration Statement or the prospectus so that, as of
such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the prospectus, in the
light of the circumstances under which they were made) not misleading;
(c) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of any Registration Statement at the earliest
possible time;
(d) furnish to each Holder, without charge, at least one copy of such
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and, if the Holder so requests in
writing, all exhibits (including those incorporated by reference) in the
form filed with the Commission;
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(e) during the Registration Period, deliver to each Holder, without
charge, as many copies of the prospectus included in such Registration
Statement and any amendment or supplement thereto as such Holder may
reasonably request; and the Company consents to the use, consistent with
the provisions hereof, of the prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in
connection with the offering and sale of the Registrable Securities covered
by the prospectus or any amendment or supplement thereto. In addition, upon
the reasonable request of the Subscriber and subject in all cases to
confidentiality protections reasonably acceptable to the Company, the
Company will meet with a Subscriber or a representative thereof at the
Company's headquarters to discuss all information relevant for disclosure
in the Registration Statement covering the Registrable Securities, and will
otherwise cooperate with any Subscriber conducting an investigation for the
purpose of reducing or eliminating such Subscriber's exposure to liability
under the Securities Act, including the reasonable production of
information at the Company's headquarters;
(f) during the Registration Period, deliver to each Holder, without
charge, (i) as soon as practicable (but in the case of the annual report of
the Company to its stockholders, within 120 days after the end of each
fiscal year of the Company one copy of: (A) its annual report to its
stockholders (which annual report shall contain financial statements
audited in accordance with generally accepted accounting principles in the
United States of America by a firm of certified public accountants of
recognized standing); (B) if not included in substance in its annual report
to stockholders, its annual report on Form 10-K (or similar form); (C) each
of its quarterly reports to its stockholders, and, if not included in
substance in its quarterly reports to stockholders, its quarterly report on
Form 10-Q (or similar form), and (D) a copy of the full Registration
Statement (the foregoing, in each case, excluding exhibits); and (ii) upon
reasonable request, all exhibits excluded by the parenthetical to the
immediately preceding clause (D), and all other information that is
generally available to the public;
(g) prior to any public offering of Registrable Securities pursuant to
any Registration Statement, register or qualify for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holders
reasonably request in writing, provided that the Company shall not for any
such purpose by required to qualify generally to transact business as a
foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the offer and
sale in such jurisdictions of the Registrable Securities covered by such
Registration Statement;
(h) cooperate with the Holders and use its reasonable best efforts to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to any Registration Statement
free of any restrictive legends to the extent not required at such time and
in such denomination and registered in such names as Holders may request
within three business days of any such request by the Holder in connection
with the sales of Registrable Securities pursuant to such Registration
Statement;
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(i) upon the occurrence of any event contemplated by Section 5.4(b)(v)
above, the Company shall promptly prepare a post-effective amendment to the
Registration Statement or a supplement to the related prospectus, or file
any other required document so that, as thereafter delivered to purchasers
of the Registrable Securities included therein, the prospectus will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(j) use its reasonable efforts to comply with all applicable rules and
regulations of the Commission, and will make generally available to the
Holders not later than 45 days (or 90 days if the fiscal quarter is the
fourth fiscal quarter) after the end of its fiscal quarter in which the
first anniversary date of the effective date of the Registration Statement
occurs, an earnings statement satisfying the provisions of Section 11(a) of
the Act; and
5.5 As soon as reasonably practicable following the Final Closing Date, the
Company shall use its reasonable efforts to apply for the listing of the Common
Stock (including the Conversion Shares, as well as those underlying the
Placement Agent Warrants) on the automated quotation system of the Nasdaq
SmallCap Market ("Nasdaq") if the Company meets the initial listing criteria for
Nasdaq.
5.6 The Holders shall have no right to take any action to restrain, enjoin
or otherwise delay any registration pursuant to Section 5.2 hereof as a result
of any controversy that may arise with respect to the interpretation or
implementation of this Agreement.
5.7
(a) To the extent permitted by law, the Company will indemnify each Holder,
each underwriter of the Registrable Securities, if any, and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
with respect to which any registration, qualification or compliance has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or action in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened (subject to
Section 5.7(c) below), arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus or offering circular, or any amendment or supplement
thereof, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in light of the circumstances in which they were made, and will
reimburse each Holder, each underwriter of the Shares and each person
controlling such Holder, for reasonable legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action as incurred, provided that the Company will not be
liable in any such case to the extent that any untrue statement or omission or
allegation thereof is made in reliance upon and in conformity with written
information furnished to the Company by or on behalf of such Holder and stated
to be specifically for use in preparation of such registration statement,
prospectus or offering circular; provided that the Company will not be liable in
any such case
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where the claim, loss, damage or liability arises out of or is related to the
failure of the Holder to comply with the covenants and agreements contained in
this Agreement respecting sales of Registrable Securities, and except that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any such untrue statement or alleged untrue statement or omission or
alleged omission made in the preliminary prospectus but eliminated or remedied
in the amended prospectus on file with the SEC at the time the registration
statement becomes effective or in the amended prospectus filed with the SEC
pursuant to Rule 424(b) or in the prospectus subject to completion and term
sheet under Rule 434 of the Securities Act, which together meet the requirements
of Section 10(a) of the Securities Act (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any such Holder, any such
underwriter or any such controlling person, if a copy of the Final Prospectus
was not furnished to the person or entity asserting the loss, liability, claim
or damage at or prior the time such furnishing is required by the Securities
Act.
(b) Each Holder will severally, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter of the Shares and each person who
controls the Company within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened (subject to Section 5.7(c) below), arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus or offering
circular, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in light of the
circumstances in which they were made, and will reimburse the Company, such
directors and officers, each underwriter of the Shares and each person
controlling the Company for reasonable legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action as incurred, in each case to the extent, but only to
the extent, that such untrue statement or omission or allegation thereof is made
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Holder and stated to be specifically for use in
preparation of such registration statement, prospectus or offering circular;
provided that the indemnity shall not apply to the extent that such claim, loss,
damage or liability results from the fact that a current copy of the prospectus
that was made available to the Holder was not sent or given to the person
asserting any such claim, loss, damage or liability at or prior to the written
confirmation of the sale of the Registrable Securities confirmed to such person
if such current copy of the prospectus would have cured the defect giving rise
to such loss, claim, damage or liability. Notwithstanding the foregoing, in no
event shall a Holder be liable for any such claims, losses, damages or
liabilities in excess of the proceeds received by such Holder in the offering,
except in the event of fraud by such Holder.
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(c) Each party entitled to indemnification under this Section 5.7 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
Indemnified Party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless such failure
is materially prejudicial to the Indemnifying Party in defending such claim or
litigation. An Indemnifying Party shall not be liable for any settlement of an
action or claim effected without its written consent (which consent will not be
unreasonably withheld).
(d) If the indemnification provided for in this Section 5.7 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
5.8
(a) Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event requiring the preparation of a supplement or
amendment to a prospectus relating to Registrable Securities so that, as
thereafter delivered to the Holders, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, each
Holder will forthwith discontinue disposition of Registrable Securities pursuant
to the registration statement contemplated by Section 5.2 until its receipt of
copies of the supplemented or amended prospectus from the Company and, if so
directed by the Company, each Holder shall deliver to the Company all copies,
other than permanent file copies then in such Holder's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice.
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(b) Each Holder agrees to suspend, upon request of the Company, any
disposition of Registrable Securities pursuant to the registration statement and
prospectus contemplated by Section 5.2 during (A) any period not to exceed two
30-day periods within any one 12-month period the Company requires in connection
with a primary underwritten offering of equity securities and (B) any period,
not to exceed one 60-day period per circumstance or development, when the
Company determines in good faith that offers and sales pursuant thereto should
not be made by reason of the presence of material undisclosed circumstances or
developments with respect to which the disclosure that would be required in such
a prospectus is premature, would have an adverse effect on the Company or is
otherwise inadvisable.
(c) As a condition to the inclusion of its Registrable Securities, each
Holder shall furnish to the Company such information regarding such Holder and
the distribution proposed by such Holder as the Company may request in writing
or as shall be required in connection with any registration, qualification or
compliance referred to in this Article V.
(d) Each Holder hereby covenants with the Company (1) not to make any sale
of the Registrable Securities without effectively causing the prospectus
delivery requirements under the Securities Act to be satisfied, and (2) if such
Registrable Securities are to be sold by any method or in any transaction other
than on Nasdaq (or other national securities exchange), in the over-the-counter
market, in privately negotiated transactions, or in a combination of such
methods, to notify the Company at least five business days prior to the date on
which the Holder first offers to sell any such Shares.
(e) Each Holder acknowledges and agrees that the Registrable Securities
sold pursuant to the registration statement described in this Section are not
transferable on the books of the Company unless the stock certificate submitted
to the transfer agent evidencing such Shares is accompanied by a certificate
reasonably satisfactory to the Company to the effect that (A) the Registrable
Securities have been sold in accordance with such registration statement and (B)
the requirement of delivering a current prospectus has been satisfied.
(f) Each Holder agrees not to take any action with respect to any
distribution deemed to be made pursuant to such registration statement, that
constitutes a violation of Rule 10(b)-6 under the Exchange Act or any other
applicable rule, regulation or law.
(g) At the end of the period during which the Company is obligated to keep
the registration statement current and effective as described above, the Holders
of Registrable Securities included in the registration statement shall
discontinue sales of shares pursuant to such registration statement upon receipt
of notice from the Company of its intention to remove from registration the
shares covered by such registration statement which remain unsold, and such
Holders shall notify the Company of the number of shares registered which remain
unsold immediately upon receipt of such notice from the Company.
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5.9 With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which at any time permit the sale of the
Registrable Securities to the public without registration commencing the
effective date of the Registration Statement, the Company agrees to use its
reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
following the effectiveness of its initial registration statement under the
Exchange Act;
(b) file with the SEC in a timely manner all reports and other documents
required of the Company under the Exchange Act following the effectiveness of
its initial registration statement under the Exchange Act; and
(c) so long as a Holder owns any unregistered Registrable Securities,
furnish to such Holder upon any reasonable request a written statement by the
Company as to its compliance with Rule 144 under the Securities Act, and of the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as such Holder may
reasonably request in availing itself of any rule or regulation of the SEC
allowing a Holder to sell any such securities without registration.
5.10 The rights to cause the Company to register Registrable Securities
granted to the Holders by the Company under Section 5.2 may be assigned in full
by a Holder, provided, that: (i) such transfer may otherwise be effected in
accordance with applicable securities laws; (ii) such transfer involves not less
than the lesser of all of such Holder's Securities or the equivalent of
one-quarter of one Unit; (iii) such Holder gives prior written notice to the
Company; and (iv) such transferee agrees to comply with the terms and provisions
of this Agreement, including, without limitation, the restrictions in Section
1.17, and such transfer is otherwise in compliance with this Agreement. Except
as specifically permitted by this Section 5.10, the rights of a Holder with
respect to Registrable Securities as set out herein shall not be transferable to
any other Person, and any attempted transfer shall cause all rights of such
Holder therein to be forfeited.
5.11 With the written consent of the Company and the Holders holding at
least a majority of the Registrable Securities that are then outstanding, any
provision of this Article V may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) or amended. Upon the effectuation of each such
waiver or amendment, the Company shall promptly give written notice thereof to
the Holders, if any, who have not previously received notice thereof or
consented thereto in writing.
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VI. MISCELLANEOUS
6.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by (a) telecopy or facsimile at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received); or (b) registered or certified mail,
return receipt requested, or delivered by hand against written receipt therefor,
addressed to AVAX Technologies, Inc., 375 Park Avenue, Suite 1501, New York, New
York, 10152, Attn: Carl Spana, Ph.D., Interim President, telecopy: (212) 832-
4389, and to the Subscriber at his address indicated on the signature page of
this Agreement. Notices shall be deemed to have been given or delivered on the
date of mailing, except notices of change of address, which shall be deemed to
have been given or delivered when received.
6.2 This Agreement shall not be changed, modified or amended except by a
writing signed by the parties to be charged, and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by the party to be charged.
6.3 Subject to the provisions of Section 5.10, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and to their
respective heirs, legal representatives, successors and assigns. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
6.4 Upon the execution and delivery of this Agreement by the Subscriber,
this Agreement shall become a binding obligation of the Subscriber with respect
to the purchase of Units as herein provided; subject, however, to the right
hereby reserved to the Company to enter into the same agreements with other
subscribers and to add and/or delete other persons as subscribers.
6.5 NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY
OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND
PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
6.6 In order to discourage frivolous claims the parties agree that unless a
claimant in any proceeding arising out of this Agreement succeeds in
establishing his claim and recovering a judgment against another party
(regardless of whether such claimant succeeds against one of the other parties
to the action), then the other party shall be entitled to recover from such
claimant all of its/their reasonable legal costs and expenses relating to such
proceeding and/or incurred in preparation therefor.
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6.7 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect. If any
provision of this Agreement shall be declared by a court of competent
jurisdiction to be invalid, illegal or incapable of being enforced in whole or
in part, such provision shall be interpreted so as to remain enforceable to the
maximum extent permissible consistent with applicable law and the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provisions shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
6.8 It is agreed that a waiver by either party of a breach of any provision
of this Agreement shall not operate, or be construed, as a waiver of any
subsequent breach by that same party.
6.9 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further action as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.
6.10 This Agreement may be executed in two or more counterparts each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
6.11 (a) The Subscribers severally agree not to issue any public statement
with respect to the Subscribers' investment or proposed investment in the
Company or the terms of any agreement or covenant between them and the Company
without the Company's prior written consent, except such disclosures as may be
required under applicable law or under any applicable order, rule or regulation.
(b) The Company agrees not to disclose the names, addresses or any other
information about the Subscribers, except as required by law; provided, that the
Company may use the name (but not the address) of the Subscriber in the Shelf
Registration Statement.
6.12 (a) Each Subscriber severally represents and warrants that it has not
engaged, consented to or authorized any broker, finder or intermediary to act on
its behalf, directly or indirectly, as a broker, finder or intermediary in
connection with the transactions contemplated by this Agreement. Each Subscriber
hereby severally agrees to indemnify and hold harmless the Company from and
against all fees, commissions or other payments owing to any such person or firm
acting on behalf of such Subscriber hereunder.
(b) The Company has engaged, consented to and authorized the Placement
Agent in connection with the transactions contemplated by this Agreement. The
Company hereby agrees to pay the Placement Agent a commission and to reimburse
expenses in accordance with the Placement Agency Agreement dated March 25, 1996,
and the Company agrees to indemnify and hold harmless the Subscribers from and
against all fees, commissions
19
<PAGE>
or other payments owing by the Company to any other person or firm acting on
behalf of the Company hereunder.
6.13 Nothing in this Agreement shall create or be deemed to create any
rights in any person or entity not a party to this Agreement, except (a) for the
holders of Registrable Securities and (b) for the Placement Agent pursuant to
Sections 1.6(a) and 6.12(b) hereof.
VII. NOTICE TO, AND REPRESENTATIONS AND COVENANTS OF CERTAIN STATE RESIDENTS
7.1 Connecticut Residents: The undersigned acknowledges that the Securities
have not been registered under the Connecticut Uniform Securities Act, as
amended, and are subject to restrictions on transferability and sale of
securities as set forth herein. The undersigned hereby agrees that such
Securities will not be transferred or sold without registration under the
Connecticut Uniform Securities Act, as amended, or exemption therefrom.
7.2 Maine Residents: These Securities are being sold pursuant to an
exemption from registration with the bank superintendent of the State of Maine
under Section 10502(2)(r) of Title 32 of the Maine revised statutes. These
Securities may be deemed restricted securities and as such the holder may not be
able to resell the Securities unless pursuant to registration under state or
federal securities laws or unless an exemption under such laws exists.
7.3 Missouri Residents: The undersigned acknowledges that the Securities
have not been registered under the Missouri Uniform Securities Act, as amended,
and are subject to restrictions on transferability and the sale of securities as
forth herein. The undersigned hereby acknowledges that such Securities may be
disposed of only through a licensed broker-dealer. It is a felony to sell
securities in violation of the Missouri Uniform Securities Act.
7.4 Pennsylvania Residents: The undersigned hereby acknowledges that the
Issuer is relying upon the exemption from registration of securities set forth
in Section 203(d) of the Pennsylvania Securities Act of 1972, as amended (the
"Pennsylvania Act") in connection with the sale of the securities to the
undersigned.
In accordance with the requirements of Section 203(d) of the Pennsylvania
Act, the undersigned hereby agrees not to sell the securities within twelve
months from the date of purchase except pursuant to Section 204.01 of the Blue
Sky Regulations of the Pennsylvania Act. Additionally, the undersigned is aware
of the right of withdrawal under Section 207(m) of the Pennsylvania Act
described in the cover pages of the Memorandum.
7.5 Texas Residents: The undersigned hereby acknowledges that the
Securities cannot be sold unless they are subsequently registered under the
Securities Act of 1933, as amended, and the Texas Securities Act, or an
exemption from registration is available. The undersigned further acknowledges
that because the Securities are not readily transferable, they must bear the
entire risk of the investment for an indefinite period of time.
20
<PAGE>
VIII. CONFIDENTIAL INVESTOR QUESTIONNAIRE.
8.1 The Subscriber represents and warrants that he, she or it comes within
one category marked below, and that for any category marked, he or she has
truthfully set forth, where applicable, the factual basis or reason the
Subscriber comes within that category. ALL INFORMATION IN RESPONSE TO THIS
SECTION WILL BE KEPT STRICTLY CONFIDENTIAL. The undersigned agrees to furnish
any additional information which the Company deems necessary in order to verify
the answers set forth below.
Category A ____ The undersigned is an individual (not a partnership,
corporation, etc.) whose individual net worth, or joint
net worth with his or her spouse, presently exceeds
$1,000,000.
Explanation. In calculating net worth you
may include equity in personal property and
real estate, including your principal
residence, cash, short-term investments,
stock and securities. Equity in personal
property and real estate should be based on
the fair market value of such property less
debt secured by such property.
Category B ____ The undersigned is an individual (not a partnership,
corporation, etc.) who had an income in excess of
$200,000 in each of the two most recent years, or joint
income with his or her spouse in excess of $300,000 in
each of those years (in each case including foreign
income, tax exempt income and full amount of capital
gains and loses but excluding any income or other
family members and any unrealized capital appreciation)
and has a reasonable expectation of reaching the same
income level in the current year.
Category C ____ The undersigned is a director or executive officer of
the Company which is issuing and selling the Units.
Category D ____ The undersigned is a bank; a savings and loan
association, insurance company, registered investment
company; registered business development company;
licensed small business investment company ("SBIC"); or
employee benefit plan within the meaning of Title 1 of
ERISA and (a) the investment decision is made by a plan
fiduciary which is either a bank, savings and loan
association, insurance company or registered investment
advisor, or (b) the plan has total assets in excess of
$5,000,000 or is a self directed
21
<PAGE>
plan with investment decisions made solely
by persons that are accredited investors.
______________________________
______________________________
(describe entity)
Category E ____ The undersigned is a private business development
company as defined in Section 202(a)(22) of the
Investment Advisors Act of 1940.
______________________________
______________________________
(describe entity)
Category F ____ The undersigned is a corporation, partnership,
Massachusetts business trust, or non-profit
organization within the meaning of Section 501(c)(3) of
the Internal Revenue Code, in each case not formed for
the specific purpose of acquiring the Units and with
total assets in excess of $5,000,000.
______________________________
______________________________
(describe entity)
Category G ____ The undersigned is a trust with total assets in excess
of $5,000,000 not formed for the specific purpose of
acquiring the Units, where the purchase is directed by
a "sophisticated person" as defined in Regulation
506(b)(2)(ii).
Category H ____ The undersigned is an entity all the equity owners of
which are "accredited investors" within one or more of
the above categories. If relying upon this Category
alone, each equity owner must complete a separate copy
of this Agreement.
______________________________
______________________________
(describe entity)
22
<PAGE>
Category I ____ The undersigned is not within any of the categories
above and is therefore not an accredited investor.
The undersigned is informed of the significance to you of the foregoing
representations, and they are made with the intention that you will rely on
them.
8.2 SUITABILITY (please answer each question)
(a) For an individual Subscriber, please describe your current employment,
including the Company by which you are employed and its principal business:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) For an individual Subscriber, please describe any college or graduate
degrees held by you:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(c) For all Subscribers, please list the types of prior investments:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(d) For all Subscribers, please state whether you have participated in
other private placements before:
YES_______ NO______
(e) For all Subscribers, please indicate frequency of such prior
participation in private placements of:
Public Private Public or Private
Companies Companies Biotechnology Companies
--------- --------- -----------------------
Frequently _________ _________ _______________________
Occasionally _________ _________ _______________________
Never _________ _________ _______________________
23
<PAGE>
(f) For individual Subscribers, do you expect your current level of income
to significantly decrease in the foreseeable future:
YES_______ NO______
(g) For individual Subscribers, do you expect your total net worth to
significantly decrease in the foreseeable future:
YES_______ NO______
(h) For trust, corporate, partnership and other institutional Subscribers,
do you expect your total assets to significantly decrease in the foreseeable
future:
YES_______ NO______
(i) For all Subscribers, do you have any other investments or contingent
liabilities which you reasonably anticipate could cause you to need sudden cash
requirements in excess of cash readily available to you:
YES_______ NO______
(j) For all Subscribers, are you familiar with the risk aspects and the
non-liquidity of investments such as the securities for which you seek to
subscribe?
YES_______ NO______
(k) For all Subscribers, do you understand that there is no guarantee of
financial return on this investment and that you run the risk of losing your
entire investment?
YES_______ NO______
24
<PAGE>
8.3 MANNER IN WHICH TITLE TO BE HELD (circle one)
(a) Individual Ownership
(b) Community Property
(c) Joint Tenant with Right of Survivorship (both parties must sign)
(d) Partnership*
(e) Tenants in Common
(f) Corporation*
(g) Trust*
(h) Other
*If Units are being subscribed for by an entity, the attached
Certificate of Signatory must also be completed.
25
<PAGE>
8.4 NASD Affiliation
Are you affiliated or associated with an NASD member firm (please check one):
YES_______ NO______
If Yes, please describe:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
*If Subscriber is a Registered Representative with an NASD member firm, have the
following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of the notice required by
Article 3, Sections 28(a) and (b) of the Rules of Fair Practice.
______________________________
Name of NASD Member Firm
By:___________________________
Authorized Officer
Date:_________________________
26
<PAGE>
8.5 REPRESENTATIONS AND WARRANTIES
The Undersigned hereby represents and warrants to the Company as follows:
The Undersigned has been informed of the significance to the Company of the
foregoing representations and answers contained in this Agreement.
The answers to the foregoing questions are true, complete and correct and
have been provided under the assumption that the Company will rely upon them for
all purposes, including but not limited to the purpose of determining whether
the offering in which the Undersigned proposes to participate is exempt from
registration under federal and state securities laws.
The Undersigned will notify the Company immediately, at any time on or
prior to the Final Closing Date, in the event that the representations and
warranties in this Agreement shall cease to be true, accurate and complete.
The Undersigned is able to bear the economic risk of the investment and, at
the present time, can afford a complete loss of such investment.
27
<PAGE>
Signature Page
NUMBER OF UNITS ________ X 100,000 = ____________ (the "Purchase Price")
______________________________ ______________________________
Signature Signature (if purchasing jointly)
______________________________ ______________________________
Name Typed or Printed Name Typed or Printed
______________________________ ______________________________
Address Address
______________________________ ______________________________
City, State and Zip Code City, State and Zip Code
______________________________ ______________________________
Telephone-Business Telephone-Business
______________________________ ______________________________
Telephone-Residence Telephone-Residence
______________________________ ______________________________
Facsimile-Business Facsimile-Business
______________________________ ______________________________
Facsimile-Residence Facsimile-Residence
______________________________ ______________________________
Tax ID # or Social Security # Tax ID # or Social Security #
Name in which securities should be issued: ________________________
Dated: ____________________, 1996
This Subscription Agreement is agreed to and accepted as of ___________, 1996.
AVAX TECHNOLOGIES, INC.
By: __________________________
Name: Carl Spana, Ph.D.
Title: Interim President
28
<PAGE>
CERTIFICATE OF SIGNATORY
(To be Completed if Units are
being subscribed for by an entity)
I, ______________________, am the _________________________ of
_______________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Subscription Agreement and to purchase
and hold the Units, and certify further that the Subscription Agreement has been
duly and validly executed on behalf of the Entity and constitutes a legal and
binding obligation of the Entity.
IN WITNESS WHEREOF, I have set my hand this _____ day of __________,
1996.
________________________
(Signature)
29
<PAGE>
EXHIBIT A
SCHEDULE OF EXCEPTIONS
Section 2.2
o As of March 25, 1996, the Company has Stock Subscription Receivables of $7,109
and hence, not all capital stock was fully paid and nonassessable.
o Pursuant to a License Agreement dated November 20, 1995 between Thomas
Jefferson University ("TJU") and the Company, in the event that the Company
elects to finance the Company prior to an initial public offering or at any time
prior to the Company's shares being publicly traded by issuing additional shares
of the Company or securities convertible to shares of the Company, TJU and Dr.
Berd shall each have the right, exercised by notice to the Company no later than
thirty (30) days after receipt of such prior notice from the Company, to
participate in this Company financing under the same terms offered to other
investors in the Company at such financing to maintain their percentage
ownership in the Company at a level of up to seven and one-half percent (7.5%)
each.
EXHIBIT 5.1
[FORM OF OPINION OF ROBERTS, SHERIDAN & KOTEL]
September __, 1996
AVAX Technologies, Inc.
5353 Sunset Drive
Kansas City, MO 64112
AVAX Technologies, Inc.
-----------------------
Registration on Form SB-2
-------------------------
Dear Sirs:
We have acted as counsel for AVAX Technologies, Inc., a Delaware
corporation (the "Issuer"), in connection with the preparation of the
registration statement on Form SB-2 (the "Registration Statement") filed with
the Securities and Exchange Commission (the "Commission") on August 1, 1996,
Registration Number 333-09349, as amended by Amendment No. 1 thereto filed with
the Commission on September 23, 1996, under the Securities Act of 1933 (the
"Act") for the registration under the Act of the following securities of the
Issuer:
(i) 571,698 shares of common stock, par value $.002 per share
("Common Stock");
(ii) 12,959,900 shares of Common Stock issuable upon conversion
of currently outstanding shares of Series B Convertible Preferred
Stock, par value of $.01 per share (the "Series B Preferred Stock");
and
(iii) up to 1,353,490 shares of Common Stock issuable upon (a) the
conversion of shares of Series B Preferred Stock of the Company
issuable upon exercise of the warrants issued to the placement agent
and/or its designees relating to the offering of the Series B
Preferred Stock (the "Series B Placement Warrants") and (b) exercise
of warrants issued to the placement agent and/or its designees for
certain bridge financing transactions of the Company (the "Bridge
Placement Warrants," and together with the Series B Placement
Warrants, the "Placement Warrants").
In that connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of certificates of public officials
and corporate
<PAGE>
2
records, instruments and documents of or affecting the Issuer, including,
without limitation, (i) the Certificate of Incorporation of the Issuer, as
amended to date; (ii) the Bylaws of the Issuer, as amended to date; (iii)
resolutions adopted by the Board of Directors and Stockholders of the Issuer;
(iv) the Certificate of Designations for the Series B Preferred Stock; (v) a
form of specimen stock certificate for the Common Stock; (vi) a form of specimen
stock certificate for the Series B Preferred Stock; (vii) a form of the Series B
Placement Warrant; and (viii) a form of the Bridge Placement Warrant. We have
also examined originals or copies, certified or otherwise identified to our
satisfaction, of certificates of officers of the Issuer, and have reviewed such
questions of law and made such other inquiries, as we have deemed necessary or
appropriate for the purpose of rendering this opinion.
In rendering our opinion, we have relied, as to matters of fact, upon
representations and warranties of the Issuer and upon such certificates and
other instruments of officers of the Issuer and public officials as we have
deemed necessary or appropriate for the purpose of rendering this opinion, in
each case without independent investigation or verification. Additionally,
without any independent investigation or verification, we have assumed (i) the
genuineness of all signatures, (ii) the authenticity of all documents submitted
to us as originals and the conformity with the original documents of all
documents submitted to us as certified, conformed or photostatic copies, (iii)
the authority of all persons signing any document other than the officers of the
Issuer, where applicable, signing in their capacity as such, (iv) the
enforceability of all the agreements we have reviewed in accordance with their
respective terms against the parties thereto, and (v) the truth and accuracy of
all matters of fact set forth in all certificates and other instruments
furnished to us.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. The 571,698 shares of Common Stock which may be sold in
accordance with the provisions of the Registration Statement will be, when
issued and sold, validly issued, fully paid and nonassessable.
2. The 12,959,900 shares of Common Stock issuable upon conversion of
currently outstanding shares of Series B Preferred Stock have been duly
authorized for issuance, and when issued upon conversion of the Series B
Preferred Stock will be validly issued, fully paid and nonassessable.
3. The aggregate of up to 1,290,990 shares of Common Stock issuable
upon conversion of the Series B Preferred Stock after exercise of the Series B
Placement Warrants have been duly authorized for issuance, and when issued upon
conversion of the Series B Preferred Stock after exercise of the Series B
Placement Warrants, and the payment of the applicable exercise price thereof or
the use of the
<PAGE>
3
cashless exercise provision thereof will be valdily issued, fully paid and
nonassessable.
4. The aggregate of up to 62,500 shares of Common Stock issuable
upon exercise of the Bridge Placement Warrants have been duly authorized for
issuance, and when issued upon exercise of the Bridge Placement Warrants, and
the payment of the applicable exercise price thereof or the use of the cashless
exercise provision thereof will be validly issued, fully paid and nonassessable.
Members of this Firm are admitted to practice law only in the State of
New York and do not purport to be experts on, and are not expressing any opinion
with respect to, any laws other than the laws of the State of New York, the
General Corporation Law of the State of Delaware and the Federal laws of the
United States of America.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and the reference to us under the heading "Legal Counsel"
in the Prospectus included in Part I of the Registration Statement. In giving
such consent, we do not thereby admit that we are in the category of persons
whose consent is required under Section 7 of the Act.
Very truly yours,
EXHIBIT 10.11
AVAX TECHNOLOGIES, INC.
5353 SUNSET DRIVE
KANSAS CITY, MO 64112
(816) 444-7778
September 13, 1996
Mr. David L. Tousley
51 Fairview Drive
Hackettstown, NJ 07840
Dear David:
It was a pleasure speaking with you again about the possibility of your
joining AVAX Technologies, Inc., a Delaware corporation (the "Corporation").
Accordingly, I would like to extend to you the following offer of employment:
1. You shall be employed as the Chief Financial Officer of the
Corporation, and as such you will perform such tasks and have such
responsibilities as the President and Chief Executive Officer of the
Corporation shall determine in his discretion. Initially, you will
report to the President and Chief Executive Officer of the
Corporation; provided that as the Corporation employs additional
personnel your responsibilities and reporting may be adjusted in the
discretion of the President and Chief Executive Officer of the
Corporation. Your employment hereunder shall be for a term of four
years from the Effective Date (as defined in Section 6) unless sooner
terminated pursuant hereto. From and after the fourth anniversary of
the Effective Date, such employment shall be renewable each year by
the Corporation at its option on or prior to each annual anniversary.
If the Company does not wish to continue your employment for the
period following the fourth anniversary of the Effective Date, the
Corporation will either provide you with notice of its intention not
to continue your employment at least six-months prior to the fourth
anniversary of the Effective Date, or continue your employment for six
months after the date on which it provides such notice.
2. Commencing on the Effective Date, you shall be employed by the
Corporation at a rate of $150,000 per year, payable in accordance with
the Corporation's normal payroll and withholding practices. In
addition, at the end of the first year of employment hereunder you
shall, at the discretion of the Board of Directors of the
<PAGE>
2
Corporation, be eligible for a bonus of up to 100% of your base salary
(on the basis of the Board's determination of your performance and the
performance of the Corporation), with a minimum payment of $25,000,
which minimum payment shall not be subject to the discretion of such
Board. You may also be entitled to such additional compensation in
the form of bonuses, raises or otherwise as the Board of Directors of
the Corporation shall in its discretion determine.
3. You will be entitled to nontransferable options to purchase 250,000
shares of Common Stock, par value $.002 per share, of the Corporation
("Common Stock"), exercisable for seven years at an exercise price
equal to $.50 per share of Common Stock. Your options shall vest and
be exercisable (subject to resale restrictions for a period of up to
18 months in connection with and following any public offering, which
may be imposed by the Corporation or the managing underwriter(s) of
such offering), provided you are still employed by the Corporation on
such dates, at the rate of one-sixteenth of such amount of options per
quarter until the fourth anniversary of the Effective Date at which
point all remaining options shall be vested. Upon termination of
employment, such vested options shall be exercisable for up to 30 days
thereafter; provided, however, that if such termination is "for cause"
pursuant to Section 7(iv)-(vii) below, all options hereunder,
including vested options, shall be forfeited and of no force and
effect. The tax consequences to you of the grant, vesting or exercise
of any such options or the sale of any shares of Common Stock issuable
pursuant to such options shall be your personal responsibility and not
that of the Corporation.
4. During the term of your employment, you shall be entitled to vacation
of not less than two weeks per annum but no more than four weeks per
annum, at such time and in such amount as may be agreed by you and the
President and Chief Executive Officer of the Corporation.
5. The Corporation may make available to you such paid medical,
disability, life insurance, pension and such other health benefits as
the President and Chief Executive Officer of the Corporation shall
determine; provided that during the term of Executive's employment
pursuant to this letter, you shall be entitled to participate in all
employee benefit plans of the Company (including, without limitation,
any pension, retirement or other plans) subject to the eligibility,
enrollment and other requirements of such plans, and you shall be
entitled to maintain the same type and amount of benefits thereunder
as are generally available to other senior executives of the Company
under such plans. Until such time as the Corporation implements its
own medical insurance plan, the Corporation shall reimburse you for
COBRA premiums paid by or through your former employer upon
presentation of reasonable documentation therefor.
<PAGE>
3
6. Your employment start date shall be October 1, 1996, or such earlier
date as may be agreed by you and the President and Chief Executive
Officer of the Corporation (the "Effective Date").
7. Your employment hereunder may be terminated at any time and for any or
no reason by the Corporation for cause or without cause to do so. If
you are terminated without cause you shall be entitled to your base
salary and benefits pursuant to Section 2 and Section 5 until the
earlier of (x) the six month anniversary of the date of such
termination and (y) the date on which you obtain alternate employment.
You agree to use your best efforts in any such case to obtain
alternate employment as promptly as practicable.
Termination of your employment by the Corporation shall constitute a
termination "for cause" for any of the following reasons: (i)
conviction of any felony, or of any misdemeanor involving moral
turpitude; (ii) habitual use of drugs without a prescription; (iii)
habitual or excessive use of alcohol; (iv) acts or omissions
involving willful or intentional malfeasance or misconduct that is
injurious to the Corporation, monetarily, reputationally or
otherwise; (v) commission of an act of fraud against the
Corporation; (vi) breach of the fiduciary duty you would owe toward
the Corporation and its shareholders as if you were a director of the
Corporation; or (vii) acts or omissions constituting a material
breach of your obligations under this letter or the agreement or
agreements to be entered into pursuant to Section 9 below. In the
event of any termination for cause, the Corporation shall pay your
base salary under Section 2 hereof through the date of termination
and all other compensation including, without limitation, bonuses and
option grants shall not be payable, except that if such termination
for cause is pursuant to only Section 7(i)-(iii), you will be
entitled to exercise your vested options in accordance with Section 3
above. Except as otherwise specifically set forth herein, all rights
of yours, and all obligations of the Corporation under this letter
agreement, shall cease and terminate on, and as of, the date of
termination of employment.
8. Upon four weeks' prior written notice to the Corporation (or such
shorter period of time as the Corporation in its discretion shall
designate), you shall have the right to terminate your employment, in
which event you shall be entitled to no further compensation or other
benefits in respect of any period subsequent to the effective date of
such termination.
9. The parties intend that an employment agreement and possibly related
agreements will be signed within a reasonable time after the Effective
Date and will contain the foregoing provisions and additional
provisions relating to, without limitation, the matters set forth in
Section 3, confidentiality and ownership of certain information
<PAGE>
4
and intellectual property, nonsolicitation of Corporation employees
and restrictions on activities in competition with the Corporation, in
form and substance reasonably acceptable to the Corporation and its
counsel.
10. You represent and warrant to the Corporation that neither the
execution and delivery of this letter of employment nor the
consummation of the transactions contemplated hereby nor the
compliance by the parties with the provisions hereof will violate or
result in any conflict with or constitute a breach of default (with or
without notice or the passage of time or both) under any agreement or
instrument or other obligation (including, without limitation, as to
noncompetition) to which you are a party or by which you are bound.
11. The Corporation shall reimburse you for all reasonable expenses
incurred by you in moving you and your family from Hackettstown, New
Jersey to Kansas City, Missouri, upon presentation of reasonable
documentation therefor. The Corporation shall also reimburse you for
the reasonable and necessary closing costs incurred by you in
connection with the sale of your current home in Hackettstown, New
Jersey, as well as up to 50% of your realtor's fee in connection
therewith, in each case upon presentation of reasonable documentation
therefor, up to a maximum aggregate reimbursement of $10,000 for such
closing costs and realtor's fee. In addition, the Corporation shall,
upon presentation of reasonable documentation therefor, reimburse you
for all reasonable temporary lodging expenses incurred by you and your
family until the earlier of (a) such time as you acquire permanent
residence in the Kansas City, Missouri area and (b) March 30, 1997.
You agree to use reasonable efforts to find such permanent residence
as promptly as practicable following the Effective Date; it being
acknowledged that your ability to do so will be impacted by your need
to sell your existing residence in Hackettstown, New Jersey at or
prior to the time of your purchase of a residence in the Kansas City,
Missouri area.
12. (a) This agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to such State's
principles of conflict of laws.
(b) This agreement contains the entire understanding of the parties
with respect to your employment by the Corporation. There are no
other restrictions, agreements, promises, representations, warranties,
covenants or undertakings (written or oral) between the parties with
respect to the subject matter hereof other than those expressly set
forth herein. This agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.
(c) The failure of a party to insist upon strict adherence to any term
of this agreement on any occasion shall not be considered a waiver of
such party's rights or deprive
<PAGE>
5
such party of the right thereafter to insist upon strict adherence to
that term or any other term of this agreement.
(d) In the event that any one or more of the provisions of this
agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions of this agreement shall not be affected thereby.
(e) Any dispute between the parties to this agreement arising from or
relating to the terms of this agreement or your employment, including
the terms and conditions of such employment, shall be submitted to
binding arbitration in either New York City or Kansas City, Missouri,
under the auspices of the American Arbitration Association.
(f) This agreement shall inure to the benefit of, and be binding upon,
the parties hereto and their respective heirs, representatives,
successors and assigns, whether by contract or operation of law or
otherwise.
(g) This agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This agreement shall become
effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
If this letter agreement meets with your approval and you desire to accept
this offer of employment on the terms and conditions set forth herein, please
execute the enclosed copy of this letter and return it to me as soon as
possible. We look forward to having you join our team.
Sincerely,
AVAX TECHNOLOGIES, INC.
by: /s/ Jeffrey M. Jonas, M.D.
---------------------------------
Jeffrey M. Jonas, M.D.
President and Chief Executive Officer
AGREED AND ACCEPTED
AS OF SEPTEMBER 13, 1996:
/s/ David L. Tousley
- -------------------------
David L. Tousley
EXHIBIT 10.12
AVAX TECHNOLOGIES, INC.
5353 SUNSET DRIVE
KANSAS CITY, MO 64112
(816) 444-7778
September 13, 1996
Ernest W. Yankee, Ph.D.
9033 West R Avenue
Kalamazoo, MI 49009
Dear Ernie:
It was a pleasure speaking with you again about the possibility of your
joining AVAX Technologies, Inc., a Delaware corporation (the "Corporation").
Accordingly, I would like to extend to you the following offer of employment:
1. You shall be employed as an Executive Vice President of the
Corporation, and as such you will perform such tasks and have such
responsibilities as the President and Chief Executive Officer of the
Corporation shall determine in his discretion. Initially, you will
report to the President and Chief Executive Officer of the Corporation
and it is anticipated that you will initially oversee the medical and
regulatory aspects of the Corporation's business; provided that as the
Corporation employs additional personnel your responsibilities and
reporting may be adjusted in the discretion of the President and Chief
Executive Officer of the Corporation. Your employment hereunder shall
be for a term of four years from the Effective Date (as defined in
Section 6) unless sooner terminated pursuant hereto. From and after
the fourth anniversary of the Effective Date, such employment shall be
renewable each year by the Corporation at its option on or prior to
each annual anniversary.
2. Commencing on the Effective Date, you shall be employed by the
Corporation at a rate of $145,000 per year, payable in accordance with
the Corporation's normal payroll and withholding practices. In
addition, at the end of the first year of employment hereunder you
shall, at the discretion of the Board of Directors of the Corporation,
be eligible for a bonus of up to 75% of your base salary (on the basis
of the Board's determination of your performance and the performance
of the Corporation), with a minimum payment of $25,000, which minimum
payment shall not be subject to the discretion of such Board. You may
also be entitled to such
<PAGE>
2
additional compensation in the form of bonuses, raises or otherwise as
the Board of Directors of the Corporation shall in its discretion
determine.
3. You will be entitled to nontransferable options to purchase 200,000
shares of Common Stock, par value $.002 per share, of the Corporation
("Common Stock"), exercisable for seven years at an exercise price
equal to $.50 per share of Common Stock. Your options shall vest and
be exercisable (subject to resale restrictions for a period of up to
18 months in connection with and following any public offering, which
may be imposed by the Corporation or the managing underwriter(s) of
such offering), provided you are still employed by the Corporation on
such dates, at the rate of one-sixteenth of such amount of options per
quarter until the fourth anniversary of the Effective Date at which
point all remaining options shall be vested. Upon termination of
employment, such vested options shall be exercisable for up to 30 days
thereafter; provided, however, that if such termination is "for cause"
pursuant to Section 7(iv)-(vii) below, all options hereunder,
including vested options, shall be forfeited and of no force and
effect. The tax consequences to you of the grant, vesting or exercise
of any such options or the sale of any shares of Common Stock issuable
pursuant to such options shall be your personal responsibility and not
that of the Corporation.
4. During the term of your employment, you shall be entitled to vacation
of not less than two weeks per annum but no more than four weeks per
annum, at such time and in such amount as may be agreed by you and the
President and Chief Executive Officer of the Corporation.
5. The Corporation may make available to you such paid medical,
disability, life insurance, pension and such other health benefits as
the President and Chief Executive Officer of the Corporation shall
determine. Until such time as the Corporation implements its own
medical insurance plan, the Corporation shall reimburse you for COBRA
premiums paid by or through your former employer upon presentation of
reasonable documentation therefor.
6. Your employment start date shall be October 1, 1996, or such earlier
date as may be agreed by you and the President and Chief Executive
Officer of the Corporation (the "Effective Date").
7. Your employment hereunder may be terminated at any time and for any or
no reason by the Corporation for cause or without cause to do so. If
you are terminated without cause you shall be entitled to your base
salary and benefits pursuant to Section 2 and Section 5 until the
earlier of (x) the six month anniversary of the date of such
termination and (y) the date on which you obtain alternate employment.
You agree to
<PAGE>
3
use your best efforts in any such case to obtain alternate employment
as promptly as practicable.
Termination of your employment by the Corporation shall constitute a
termination "for cause" for any of the following reasons:
(i) conviction of any felony, or of any misdemeanor involving moral
turpitude; (ii) habitual use of drugs without a prescription; (iii)
habitual or excessive use of alcohol; (iv) acts or omissions involving
willful or intentional malfeasance or misconduct that is injurious to
the Corporation, monetarily, reputationally or otherwise;
(v) commission of an act of fraud against the Corporation; (vi) breach
of the fiduciary duty you would owe toward the Corporation and its
shareholders as if you were a director of the Corporation; or
(vii) acts or omissions constituting a material breach of your
obligations under this letter or the agreement or agreements to be
entered into pursuant to Section 9 below. In the event of any
termination for cause, the Corporation shall pay your base salary
under Section 2 hereof through the date of termination and all other
compensation including, without limitation, bonuses and option grants
shall not be payable, except that if such termination for cause is
pursuant to only Section 7(i)-(iii), you will be entitled to exercise
your vested options in accordance with Section 3 above. Except as
otherwise specifically set forth herein, all rights of yours, and all
obligations of the Corporation under this letter agreement, shall
cease and terminate on, and as of, the date of termination of
employment.
8. Upon four weeks' prior written notice to the Corporation (or such
shorter period of time as the Corporation in its discretion shall
designate), you shall have the right to terminate your employment, in
which event you shall be entitled to no further compensation or other
benefits in respect of any period subsequent to the effective date of
such termination.
9. The parties intend that an employment agreement and possibly related
agreements will be signed within a reasonable time after the Effective
Date and will contain the foregoing provisions and additional
provisions relating to, without limitation, the matters set forth in
Section 3, confidentiality and ownership of certain information and
intellectual property, nonsolicitation of Corporation employees and
restrictions on activities in competition with the Corporation, in
form and substance acceptable to the Corporation and its counsel.
10. You represent and warrant to the Corporation that neither the
execution and delivery of this letter of employment nor the
consummation of the transactions contemplated hereby nor the
compliance by the parties with the provisions hereof will violate or
result in any conflict with or constitute a breach of default (with or
without notice or the passage of time or both) under any agreement or
instrument or other obligation
<PAGE>
4
(including, without limitation, as to noncompetition) to which you
are a party or by which you are bound.
11. The Corporation shall reimburse you for all reasonable expenses
incurred by you in moving you and your family from Kalamazoo, Michigan
to Kansas City, Missouri, upon presentation of reasonable
documentation therefor. The Corporation shall also reimburse you for
the reasonable and necessary closing costs incurred by you in
connection with the sale of your current home in Kalamazoo, Michigan,
as well as up to 50% of your realtor's fee in connection therewith, in
each case upon presentation of reasonable documentation therefor, up
to a maximum aggregate reimbursement of $10,000 for such closing costs
and realtor's fee. In addition, the Corporation shall, upon
presentation of reasonable documentation therefor, reimburse you for
all reasonable temporary lodging expenses incurred by you and your
family until the earlier of (a) such time as you acquire permanent
residence in the Kansas City, Missouri area and (b) March 30, 1997.
You agree to use reasonable efforts to find such permanent residence
as promptly as practicable following the Effective Date; it being
acknowledged that your ability to do so will be impacted by your need
to sell your existing residence in Kalamazoo, Michigan at or prior to
the time of your purchase of a residence in the Kansas City, Missouri
area.
12. (a) This agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to such State's
principles of conflict of laws.
(b) This agreement contains the entire understanding of the parties
with respect to your employment by the Corporation. There are no
other restrictions, agreements, promises, representations, warranties,
covenants or undertakings (written or oral) between the parties with
respect to the subject matter hereof other than those expressly set
forth herein. This agreement may not be altered, modified, or amended
except by written instrument signed by the parties hereto.
(c) The failure of a party to insist upon strict adherence to any term
of this agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to
insist upon strict adherence to that term or any other term of this
agreement.
(d) In the event that any one or more of the provisions of this
agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining
provisions of this agreement shall not be affected thereby.
<PAGE>
5
(e) Any dispute between the parties to this agreement arising from or
relating to the terms of this agreement or your employment, including
the terms and conditions of such employment, shall be submitted to
binding arbitration in either New York City or Kansas City, Missouri,
under the auspices of the American Arbitration Association.
(f) This agreement shall inure to the benefit of, and be binding upon,
the parties hereto and their respective heirs, representatives,
successors and assigns, whether by contract or operation of law or
otherwise.
(g) This agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and
hereto were upon the same instrument. This agreement shall become
effective when each party hereto shall have received a counterpart
hereof signed by the other party hereto.
If this letter agreement meets with your approval and you desire to accept
this offer of employment on the terms and conditions set forth herein, please
execute the enclosed copy of this letter and return it to me as soon as
possible. We look forward to having you join our team.
Sincerely,
AVAX TECHNOLOGIES, INC.
By: /s/ Jeffrey M. Jonas, M.D.
-------------------------------
Jeffrey M. Jonas, M.D.
President and Chief Executive Officer
AGREED AND ACCEPTED
AS OF SEPTEMBER 13, 1996:
/s/ Ernest W. Yankee, Ph.D.
- ---------------------------------
Ernest W. Yankee, Ph.D.
EXHIBIT 11
<TABLE><CAPTION>
AVAX Technologies, Inc. EXHIBIT 11
(formerly Walden Laboratories, Inc.)
Computation of Earnings (Loss) Per Share
Six Six
Months Months
Month of Months o/s Weighted year year ended ended
Issuance For Number of each given Average ended ended June 30, June 30,
F/S Purposes Shares year shares 1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
January '90 1,165,000 1,165,000 1,165,000 1,165,000 1,165,000
August '91 460,000 460,000 460,000 460,000 460,000
June '92 574,195 574,195 574,195 574,195 574,195
Series A Pref:
June '92 518,750
July '92 118,750
Sep '92 6,250
----------
643,750 (a) 643,750 (a) (a)
----------
July '93 14,718
November '93 2,717
----------
17,435 17,435 17,435 17,435 17,435
----------
July '94 7,500 5.5 3,438 3,438 7,500 7,500 7,500
April '95 (222,659) 8.5 (157,717) (157,717) (92,775)
May '95 (393,236) 7.5 (245,773) (245,773) (98,309)
September '95 804,979 3.5 234,786 (b)
November '95 2,749,457 2.5 572,804 (b)
---------- ---------
2,938,641 404,100 2,938,541
---------
March '96 (155,802) 3.5 (90,885)
May & June '96 643,750 1 107,292
May & June '96 258,198 1 43,033
June '96 1,000 0.5 83
---------- ---------
747,146 59,523 59,523
---------- ---------
Cheap shares:
September and
November '95 3,554,436
Treasury shares (3,627)
----------
3,550,809 3,550,809 3,550,809 3,550,809
----------
June '96 18,750
Treasury shares (191)
----------
18,559 18,559 18,559 18,559 18,559
----------
Cheap warrants (c):
January and
February '96
and August 1995 240,000
Treasury shares (2,449)
----------
237,551 237,551 237,551 237,551 237,551
----------
Cheap Options:
May 1996 637,745
Treasury shares (162,690)
----------
475,055 475,055 475,055 475,055 475,055
----------
Weighted Average shares -----------------------------------------------------------
6,502,042 6,746,364 6,315,020 5,953,359
===========================================================
Net income (loss) attributable to common stockholders (781,221) 642,282 (200,140) (1,636,821)
Net income (loss per share) (0.12) 0.10 (0.03) (0.27)
(a) - Not included because it would be dilutive.
(b) - See cheap shares.
(c) - Warrants issued in connection with private placement not included.
</TABLE>
<PAGE>
<TABLE><CAPTION>
AVAX Technologies, Inc. Exhibit 11
(formerly Walden Laboratories, Inc.)
ComputaUon of Earnings (Loss) Per Share
Six Six
Months Months
Month of Months o/s Weighted year year ended ended
Issuance For Number of each given Average ended ended June 30, June 30,
F/S Purposes Shares year shares 1994 1995 1995 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVAX Technologies, Inc.
(formerly Walden Laboratories. Inc.)
Computation of Supplementary Earnings (Loss) Per Share
Net income (loss) attributable to common stockholders 642,282 (200,140) (1,636,821)
Interest on debt repaid 96962 37338 55247
Deferred financing cost related to debt repaid 12562 24164
--------------------------------------------
Supplementary net income (loss) 751,806 (138,638) (1,581,574)
--------------------------------------------
Weighted average shares 6,746,364 6,315,020 5,953,359
Additional shares:
Conversion of Series A Preferred (d) 643,750 643,750
Less: Sedes A Preferred included in primary calculation (107,292)
Common stock equivalents sold to retire debt 641,327 641,327 641,327
--------------------------------------------
Supplementary weighted average shares 7,387,691 7,600,097 7,131,144
--------------------------------------------
Supplementary net income (loss per share) 0.10 (0.02) (0.22)
(d) - Included in weighted average shares for primary calculation.
</TABLE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 20, 1996, except for Note 9, as to which the date
is June 11, 1996, in Amendment No. 1 to the Registration Statement (Form SB-2
No. 333-09349) and related Prospectus of AVAX Technologies, Inc. (formerly
Walden Laboratories, Inc.) for the registration of 14,885,088 shares of common
stock.
ERNST & YOUNG LLP
New York, New York
September 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 JUN-30-1996
<CASH> 503 20,968,831
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 908,503 21,952,624
<PP&E> 15,753 0
<DEPRECIATION> 6,789 0
<TOTAL-ASSETS> 1,973,568 23,084,002
<CURRENT-LIABILITIES> 1,569,717 1,209,231
<BONDS> 0 0
0 0
12,875 2,592
<COMMON> 10,325 11,857
<OTHER-SE> (632) 20,729,249
<TOTAL-LIABILITY-AND-EQUITY> 22,568 20,743,698
<SALES> 0 0
<TOTAL-REVENUES> 1,951,000 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 1,521,243 460,259
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 96,962 206,222
<INCOME-PRETAX> 1,380,571 (505,077)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,380,571 (505,077)
<EPS-PRIMARY> 0.10 (0.27)
<EPS-DILUTED> 0 0
</TABLE>
