As filed with the Securities and Exchange Commission on November 6, 1996
Registration No. 333-09349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 2
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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Delaware 8731 13-3575874
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification
incorporation or organization) Classification Code Number) Number)
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>
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.
<PAGE>
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AVAX TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of Information
Required by Items of Form SB-2
<TABLE>
<CAPTION>
Form SB-2 Registration Statement and Heading Heading or Location in Prospectus
-------------------------------------------- ---------------------------------
<S> <C>
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 November 6, 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 also 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. Certain market makers who have expressed an interest in
making a market in the Common Stock have applied for unlisted trading of the
Common Stock on the OTC Bulletin Board(R) Service (the "OTC Bulletin Board")
under the symbol "AVAX," and it is expected that such trading will be approved
by the OTC Bulletin Board shortly after the date of this Prospectus. The Company
also has applied for listing of the Common Stock on the National Association of
Securities Dealers Automated Quotation National Market(R) ("Nasdaq National
Market"). However, because of the absence of any prior trading history for the
Common Stock, Nasdaq has advised the Company that if and when the minimum bid
price for the Common Stock is quoted consistently on the OTC Bulletin Board for
$3.00 or more for a 20- to 30-trading day period, Nasdaq will consider the
Company's application. There can be no assurance that the minimum bid price will
be consistently quoted at $3.00 or more for a 20- to 30-trading day period on
the OTC Bulletin Board , or, if such trading occurs, that the Common Stock will
be listed subsequently on the Nasdaq National Market. The prices of the Common
Stock which may be obtained on any such market 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."
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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.
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The date of this Prospectus is November 6, 1996
<PAGE>
AVAILABLE INFORMATION
The Company currently is not a reporting company, and, accordingly, it is not
subject to the informational requirements of the Securities Exchange Act of
1934, as amended. However, 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.
2
<PAGE>
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 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
<PAGE>
OFFERING SUMMARY
Common Stock Outstanding
as of September 30, 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."
OTC Bulletin Board AVAX.
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."
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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 (a) exercise of Bridge
Placement Warrants and (b) conversion of Series B Preferred Stock issuable
upon exercise of Series B 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) 1,092,745 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)
approximately 294,317 shares of Common Stock issuable upon exercise of the
Shear Kershman Warrants, the Castelli Warrants, the Series A Placement
Warrants, the Bridge Financing Warrants and the Meyerson 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
----------------------- -----------------------
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) .09 (.03) (.27)
Net income (loss) attributable to common
stockholders ............................. (781,221) 642,283 (200,140) (1,636,821)
Weighted average number of shares outstanding 6,526,807 6,771,129 6,339,785 5,978,124
</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.
8
<PAGE>
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 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.
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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, Jeffrey M. Jonas, M.D., 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
letters of employment with its full-time employees and officers, such letters of
employment do not contain provisions which would prevent any of them 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.
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
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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(TM), 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."
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
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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 Jeffrey M. Jonas,
M.D., 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 63.80% 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 September 30, 1996, 6,222,316 shares of Common Stock were issued and
outstanding of which 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
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
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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 OTC Bulletin Board and/or 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 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
affect adversely 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
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. Certain market makers who have expressed an interest in
making a market in the Common Stock have applied for unlisted trading of the
Common Stock on the OTC Bulletin Board(R) Service (the "OTC Bulletin Board")
under the symbol "AVAX," and it is expected that such trading will be approved
by the OTC Bulletin Board shortly after the date of this Prospectus, although
there can be no such assurance. The Company also has applied for listing of the
Common Stock on the National Association of Securities Dealers Automated
Quotation National Market(R) ("Nasdaq National Market"). The Company 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; and
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(vi) and an initial minimum bid price of at least $3.00. However, because of the
absence of any prior trading history for the Common Stock, Nasdaq has advised
the Company that if and when the minimum bid price for the Common Stock is
quoted consistently on the OTC Bulletin Board for $3.00 or more for a 20- to
30-trading day period, Nasdaq will consider the Company's application. There can
be no assurance that the minimum bid price will be consistently quoted at $3.00
or more for a 20- to 30-trading day period on the OTC Bulletin Board , or, if
such trading occurs, that the Common Stock will be listed subsequently on the
Nasdaq National Market. The prices of the Common Stock which may be obtained on
the OTC Bulletin Board or the Nasdaq National Market or any such market 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.
Assuming the Nasdaq National Market listing of the Common Stock is approved
subsequently, 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 vale
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
impaired materially and adversely, 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
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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
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 shares of Series B Preferred
Stock, of which approximately 25,820 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
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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, 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 10,325 11,857
Additional paid-in capital 1,723,657 23,267,003
Subscription receivable (7,109) (6,589)
Deficit accumulated during the developmental stage (1,717,180) (2,222,257)
----------- ------------
Deferred Compensation -- (308,908)
Total stockholders' equity (deficit) 22,568 20,743,698
----------- ------------
Total liabilities and stockholder's equity (deficit) $ 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 $2,222,257 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 MelaVax(TM) 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 MelaVax(TM) 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 MelaVax(TM) or any other products that
it may develop.
The Company's independent auditors 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 MelaVax(TM),
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 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.
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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 MelaVax(TM). 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 MelaVax(TM) 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 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 prognosis) to very late (worst prognosis). When cancer is
detected early and has not yet metastasized (spread) to other
22
<PAGE>
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 immunotherapeutic 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
haptenizing a patient's tumor cells may allow the unhaptenized cancer cells to
be recognized by the body's immune system
23
<PAGE>
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 MelaVax(TM) 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 MelaVax(TM). 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 MelaVax(TM) vaccine, have been witnessed to date.
Although TJU and Dr. Berd have conducted the ongoing clinical trial pursuant to
a 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
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<PAGE>
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 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
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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 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.
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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, 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.
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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 November 6, 1996, the Company has four full-time employees, including
Jeffrey M. Jonas, M.D., 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.
28
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names and positions of the executive officers
and directors of the Company:
Name Age Position
- ---- --- --------
Jeffrey M. Jonas, M.D. 43 Chief Executive Officer, President and
Director
Edson D. de Castro 58 Director
John K.A. Prendergast, Ph.D. 41 Director
Carl Spana, Ph.D. 34 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
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.,
Channel Therapeutics, Inc., Xenometrix, Inc., Avigen, Inc., and Palatin
Technologies, Inc. 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.
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
29
<PAGE>
of Palatin Technologies, Inc. Since June 1993, Dr. Spana has been responsible
for discovering, evaluating, and commercializing new biotechnologies through his
work at Paramount Capital Investments, LLC where he is currently an Associate
Director. 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 of 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."
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
30
<PAGE>
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:
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.
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.
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.
31
<PAGE>
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.
Summary Compensation Table
Annual Compensation
<TABLE>
<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- $79,341(1)
President and 4/24/95
Chief Executive
Officer 1994 $73,437.50 -0- -0-
1993 $65,625 -0- -0-
Jerry Weisbach -- Starting -0- $5,193.42(2) $75,000(3)
Chief Executive 9/13/95
Officer
1994 -0- -0- $31,250(3)
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 (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.
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<PAGE>
EMPLOYMENT AGREEMENTS; TERMINATION AND SEVERANCE ARRANGEMENTS
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 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
33
<PAGE>
to six months' severance pay. In addition, Dr. Berd has agreed to serve as
Chairman of the Company's Scientific Advisory Board.
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.
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.
34
<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 approximately 25,820
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 date of 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 systems 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 October 30, 1996 was $12.50
and $24.375 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,
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<PAGE>
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 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.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of September 30, 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)
787 Seventh Avenue,
44th Floor Common Stock 1,433,526 23.04%
New York, NY 10019 Series B Preferred 10,000 (3) *
VentureTek, L.P. (4)
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. (5) Common Stock 79,718 1.27%
John Pappajohn (6) 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 (7) Common Stock 48,889 *
Michael S. Weiss (8) Common Stock 201,435 3.24%
David L. Tousley (9) Common Stock 15,625 *
Ernest W. Yankee (10) Common Stock 12,500 *
All officers and directors as a Common Stock 490,802 7.63%
group (4 persons)
Series B Preferred -0- *
</TABLE>
37
<PAGE>
- ----------
* Represents less than 1%.
(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
November 6, 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 (i) 34,000 shares of Common Stock issuable
upon exercise of Bridge Placement Warrants and (ii) approximately 615,140 shares
of Common Stock issuable upon conversion of shares of Series B Preferred Stock
issuable upon exercise of Series B Placement Warrants; which warrants are not
exercisable within 60 days of November 6, 1996. Includes 112,500 shares of
Common Stock owned by The Aries Fund, A Cayman Island Trust and The Aries
Domestic Fund, L.P. (collectively, the "Funds"), two private investment funds
that are managed by a company of which Dr. Rosenwald is President, but excludes
an aggregate of 583,400 shares of Common Stock issuable upon conversion of
shares of Series B Preferred Stock held directly by such entities or issuable
upon exercise of Series B Placement Warrants held by such entities. Dr.
Rosenwald disclaims beneficial ownership of such shares owned by the Funds,
except to the extent of his pecuniary interest, if any.
(3) Represents shares of Series B Preferred Stock owned by the Funds. Dr.
Rosenwald disclaims beneficial ownership of such shares owned by the Funds,
except to the extent of his pecuniary interest, if any.
(4) 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.
(5) Represents shares that Dr. Jonas may acquire within 60 days of November 6,
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 November 6, 1996.
(6) 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.
(7) Includes 48,889 shares of Common Stock issuable upon exercise of options
which become exercisable within 60 days of November 6, 1996.
(8) Excludes (i) 3,000 shares of Common Stock issuable upon exercise of Bridge
Financing Placement Warrants and (ii) approximately 86,593 shares of Common
Stock issuable upon conversion of shares of Series B Preferred Stock issuable
upon exercise of Series B Placement Warrants; which warrants are not exercisable
within 60 days of November 6, 1996.
(9) Represents shares that Mr. Tousley may acquire within 60 days of November 6,
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 November 6, 1996.
(10) Represents shares that Dr. Yankee may acquire within 60 days of November 6,
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 November 6, 1996.
38
<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 September 30, 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. 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."
39
<PAGE>
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 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.
40
<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 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
41
<PAGE>
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.
Pursuant to the AVAX Option Plan, as of November 6, 1996, options to purchase
60,000 shares of Common Stock were outstanding (of which 48,889 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 approximately 25,820 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 Placement Warrants") to acquire 62,500 newly issued shares of Common
Stock. Each Bridge Placement 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 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 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
42
<PAGE>
1992 to September 1992, the Company granted Ladenburg and D. H. Blair and/or
their respective designees certain warrants ("Series A Placement Warrants") to
purchase Common Stock at any time until June 26, 1997. Based upon the occurrence
of certain past events and the effect of the applicable antidilution provisions,
approximately 178,817 shares of Common Stock are issuable pursuant to the Series
A Placement Warrants at $1.29 per share. 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.
In consideration for certain investment banking and financial advisory services
that may be rendered on a non-exclusive basis by M.H. Meyerson & Co., Inc.
("Meyerson"), the Company granted Meyerson warrants (the "Meyerson Warrants") to
acquire 100,000 shares of Common Stock, which shares shall vest from time to
time through October 24, 1997. The Meyerson Warrants entitle the registered
holder to purchase Common Stock at a price of $3.00 per share, at any time from
October 24, 1996 until April 30, 1998. The Meyerson 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. The holders of the Meyerson Warrants and holders of any shares of
Common Stock issued upon exercise of the Meyerson Warrants ("Meyerson Shares")
are entitled, during the period commencing October 24, 1998, and ending October
24, 2001, upon the request of at least 51% of the collective holders of the
unexercised Meyerson Warrants and the Meyerson Shares, to require the Company to
file a registration statement under the Securities Act at the Company's expense
with respect to the shares of Common Stock issuable upon exercise of the
Meyerson Warrants. Holders of the Meyerson Warrants and Meyerson Shares are also
entitled to certain piggyback registration rights during the same period.
43
<PAGE>
TRANSFER AGENT
The Transfer Agent for the shares of Common Stock is the Continental Stock
Transfer & Trust Company of New York.
44
<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 "Amount to be Offered" represents the aggregate number
of shares of (A) Common Stock owned by each Selling Stockholder and which are
being offered hereby, (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. 25,500.00 25,500.00 0.00 *
The A.M. Group L.L.C. 63,750.00 63,750.00 0.00 *
Todd D. Aaron, M.D. 12,750.00 12,750.00 0.00 *
Mark Abeshouse (2) 32,262.50 32,362.50 0.00 *
Leonard J. Adams 51,000.00 51,000.00 0.00 *
Ross D. Ain 5,100.00 5,100.00 0.00 *
Meir Aliakim 197,115.00 197,115.00 0.00 *
Amram Kass P.C. Defined Benefit Pension 25,500.00 25,500.00 0.00 *
Plan
George Anagnos 12,750.00 12,750.00 0.00 *
Josephine G. Anagnos 12,750.00 12,750.00 0.00 *
Steven Anagnos 12,750.00 12,750.00 0.00 *
Ansec Corp. 102,000.00 102,000.00 0.00 *
The Aries Domestic Fund, L.P. (2) 230,500.00 230,500.00 0.00 *
The Aries Fund, A Cayman Island Trust (2) 442,000.00 442,000.00 0.00 *
Rajiv Bahl 12,750.00 12,750.00 0.00 *
BAM of NY, Inc. Defined Benefit Pension 63,750.00 63,750.00 0.00 *
Plan
Martin Bandier 25,500.00 25,500.00 0.00 *
Banque SCS Alliance (2) 52,000.00 52,000.00 0.00 *
Banque Franck S.A. 51,000.00 51,000.00 0.00 *
Banque Unigestion 153,000.00 153,000.00 0.00 *
Banque Unigestion 76,500.00 76,500.00 0.00 *
Amnon Barness & Caren H. Barness, 12,750.00 12,750.00 0.00 *
JTWROS
Alan R. Batkin 25,500.00 25,500.00 0.00 *
Laurie and Steven Beane 12,750.00 12,750.00 0.00 *
Mark Berg 127,500.00 127,500.00 0.00 *
David J. Bershad 102,000.00 102,000.00 0.00 *
Biowave Investment Partners 25,500.00 25,500.00 0.00 *
Bishops Merchant Group Limited 51,000.00 51,000.00 0.00 *
John V. Bivona 22,950.00 22,950.00 0.00 *
Marcy Blender, Alan Blender 7,650.00 7,650.00 0.00 *
JTWROS
Blair Foster & Co., Inc. 1,850.00 1,850.00 0.00 *
Elliott Broidy (2) 51,000.00 51,000.00 0.00 *
</TABLE>
45
<PAGE>
<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>
Seymour Buehler 12,500.00 12,500.00 0.00 *
Patrick J. Callahan 12,750.00 12,750.00 0.00 *
M. Rafael Gonzalez Calvillo 5,100.00 5,100.00 0.00 *
Carlos Plancarte Garcia N., Leonor P. De 12,750.00 12,750.00 0.00 *
Morian, JTWROS
Gabriel M. Cerrone 102,000.00 102,000.00 0.00 *
Chana Sasha Foundation 51,000.00 51,000.00 0.00 *
Andrew and Barbara Cichelli 12,750.00 12,750.00 0.00 *
Cinco de Mayo, Ltd. 25,500.00 25,500.00 0.00 *
Roger and Margaret Coleman 12,750.00 12,750.00 0.00 *
Colony Partners, A California General 25,500.00 25,500.00 0.00 *
Partnership
Robert J. Conrads 25,500.00 25,500.00 0.00 *
Cook & CIE SA 204,000.00 204,000.00 0.00 *
Lilia Cordero de Adame, Lilia M.A. Olvera, 25,500.00 25,500.00 0.00 *
JTWROS
Archibald Cox, Jr. 102,000.00 102,000.00 0.00 *
Credit Lyonnais Suisse (SA) 153,000.00 153,000.00 0.00 *
David Trust 5,100.00 5,100.00 0.00 *
DBRN Securities Inc. 51,000.00 51,000.00 0.00 *
Elke R. de Ramirez 5,100.00 5,100.00 0.00 *
Nathan P. Diamond 12,750.00 12,750.00 0.00 *
Donald G. Drapkin 127,500.00 127,500.00 0.00 *
M. Robert Dussler 2,550.00 2,550.00 0.00 *
Eastside Investment Partners 25,500.00 25,500.00 0.00 *
Joseph E. Edelman (2) 31,562.44 31,562.44 0.00 *
Elena Edelstein and Marcus Edelstein 12,750.00 12,750.00 0.00 *
Edgewater Private Equity Fund, LP 190,000.00 127,500.00 62,500.00 *
EDN Equities 102,000.00 102,000.00 0.00 *
Ariel Elia 12,750.00 12,750.00 0.00 *
Howard Ellis 5,100.00 5,100.00 0.00 *
Etablissement Occramis 25,500.00 25,500.00 0.00 *
Europa International, Inc. 25,500.00 25,500.00 0.00 *
Joseph A. Fabiani, M.D. 50,750.00 38,250.00 12,500.00 *
Joseph Fabiani, Jr. (2) 4,375.00 4,375.00 0.00 *
Faisal Finance 102,000.00 102,000.00 0.00 *
Laurence D. Fink 102,000.00 102,000.00 0.00 *
Steven B. Fink 12,750.00 12,750.00 0.00 *
Finterbank Zuerich 51,000.00 51,000.00 0.00 *
Firebird Overseas, Ltd. 25,500.00 25,500.00 0.00 *
Alan Fisher 22,950.00 22,950.00 0.00 *
Norman J. Fisher 25,500.00 25,500.00 0.00 *
Joseph H. Flom 25,500.00 25,500.00 0.00 *
Hans-Wolfgang Frick 51,000.00 51,000.00 0.00 *
James P. Frickleton and James R. Bartimus 51,000.00 51,000.00 0.00 *
Michael J. Garnick 101,500.00 76,500.00 25,000.00 *
Marc Gelman 153,000.00 153,000.00 0.00 *
Joseph Giamanco 102,000.00 102,000.00 0.00 *
Richard Goldberg 25,500.00 25,500.00 0.00 *
Harold S. Goldstein 12,750.00 12,750.00 0.00 *
Golex Holding 102,000.00 102,000.00 0.00 *
Ofelia Anton Gomez 10,200.00 10,200.00 0.00 *
Michael J. Gordon 6,375.00 6,375.00 0.00 *
Robert P. Gordon 25,500.00 25,500.00 0.00 *
Peter Grabler 6,375.00 6,375.00 0.00 *
Robert J. Granovsky 25,500.00 25,500.00 0.00 *
Greenwood Partners 127,500.00 127,500.00 0.00 *
James & Nancy Grosfeld, tenants by 102,000.00 102,000.00 0.00 *
entireties
Bernard Gross (2) 25,209.24 25,209.24 0.00 *
</TABLE>
46
<PAGE>
<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>
Peter Grossman 12,750.00 12,750.00 0.00 *
Stuart Gruber 51,000.00 51,000.00 0.00 *
Erez & Elyse Halevah 25,500.00 25,500.00 0.00 *
Yonah J. Hamlet, MD Trustee FBO Yonah 19,000.00 19,000.00 0.00 *
J. Hamlet, MD Profit Sharing Plan Dtd.
1/1/86
Harpel Family Partnership 127,500.00 127,500.00 0.00 *
Thomas O. Hecht 25,500.00 25,500.00 0.00 *
Chaim Herman and Denise Herman 5,100.00 5,100.00 0.00 *
Gary Herman 25,500.00 25,500.00 0.00 *
William J. Vanden Heuvel 12,500.00 12,500.00 0.00 *
Jack Hirschfield 6,375.00 6,375.00 0.00 *
The Holding Company 51,000.00 51,000.00 0.00 *
Jeffrey C. Hoos 12,750.00 12,750.00 0.00 *
Irving Huber and Charlotte Huber 12,750.00 12,750.00 0.00 *
IASD Health Services Corp. 102,000.00 102,000.00 0.00 *
Mark & Rebecca Ingerman 25,500.00 25,500.00 0.00 *
J.F. Shea Co., Inc. as Nominee 1996-21 102,000.00 102,000.00 0.00 *
Jackson Hole Investments Acquisitions, 51,000.00 51,000.00 0.00 *
L.P.
Peter L. Jensen 25,500.00 25,500.00 0.00 *
John Osterweis TTEE Osterweis Revocable 12,750.00 12,750.00 0.00 *
Trust dtd 9-13-93
James D. Judd 31,750.00 25,500.00 6,250.00 *
Hyman R. Kahn 51,000.00 51,000.00 0.00 *
Patrick M. Kane 12,750.00 12,750.00 0.00 *
Robert S. Kapito 51,000.00 51,000.00 0.00 *
Peter and Donna Kash (JTRS) (2) 181,373.10 176,373.10 5,000.00 *
Scott Katzmann (2) 63,362.50 63,362.50 0.00 *
Donald R. Kendall, Jr. 15,300.00 15,300.00 0.00 *
Daniel Kessel, M.D. 57,250.00 51,000.00 6,250.00 *
Ida Kessel 19,000.00 12,750.00 6,250.00 *
Lawrence J. Kessel 57,250.00 51,000.00 6,250.00 *
Keys Foundation, Curacao, Netherlands, 51,000.00 51,000.00 0.00 *
Antilles
Robert Klein, M.D. 51,000.00 51,000.00 0.00 *
Robert Knox 25,500.00 25,500.00 0.00 *
Arthur or Sean Kohn 25,500.00 25,500.00 0.00 *
Charles Koppelman 51,000.00 51,000.00 0.00 *
Ira L. Kotel 17,034.00 17,034.00 0.00 *
Ted Koutsoubos 51,000.00 51,000.00 0.00 *
Martin S. Kratchman (2) 105,750.00 105,750.00 0.00 *
Michael and Nicole Kubin 51,000.00 51,000.00 0.00 *
Vincent P. Lambriola 12,750.00 12,750.00 0.00 *
Larich Associates 76,500.00 76,500.00 0.00 *
Legong Investments N.V. 204,000.00 204,000.00 0.00 *
Albert Lemer 12,750.00 12,750.00 0.00 *
Susan Tauber Lemor 12,750.00 12,750.00 0.00 *
Gregory Lenchner 32,900.00 20,400.00 12,500.00 *
Gregory S. Lenchner and Donna Lenchner, 17,850.00 17,850.00 0.00 *
Jointly
Harvey Lenchner 10,200.00 10,200.00 0.00 *
Michael Lenchner 2,550.00 2,550.00 0.00 *
Jeffrey Levine (2) 23,038.47 23,038.47 0.00 *
Henry N. Lieberman 25,500.00 25,500.00 0.00 *
Lifelines Care, Inc. 17,850.00 17,850.00 0.00 *
Frank T. Lincoln, Jr. 25,500.00 25,500.00 0.00 *
The Lincoln Tax Advantaged, L.P. 51,000.00 51,000.00 0.00 *
Armand A. Lindenbaum 12,750.00 12,750.00 0.00 *
Lion Tower Corporation 25,500.00 25,500.00 0.00 *
</TABLE>
47
<PAGE>
<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>
Beverly O. Lobell 25,500.00 25,500.00 0.00 *
J. Jay Lobell 51,000.00 51,000.00 0.00 *
John L. Loeb, Jr. 12,750.00 12,750.00 0.00 *
Luxembrella - All Around Int'l 102,000.00 102,000.00 0.00 *
Herbert M. Lyman 17,750.00 12,750.00 5,000.00 *
The M.L. Lawrence Trust 153,000.00 153,000.00 0.00 *
Marathon Agents Profit Sharing 12,750.00 12,750.00 0.00 *
Michael P. Marcus 102,000.00 102,000.00 0.00 *
Stephen McDermott (2) 1,250.00 1,250.00 0.00 *
Tim McInerney (2) 16,678.85 16,678.85 0.00 *
Alfons Melohn 153,000.00 153,000.00 0.00 *
Arden Merback 6,375.00 6,375.00 0.00 *
Joseph Merback (2) 7,400.00 7,400.00 0.00 *
Josef Mermelstein 51,000.00 51,000.00 0.00 *
Albert Milstein 25,500.00 25,500.00 0.00 *
Mary Y.Y. Mo 12,750.00 12,750.00 0.00 *
Michael Y.Q. Mo 12,750.00 12,750.00 0.00 *
Zhong-Liang Mo 25,500.00 25,500.00 0.00 *
Richard Molinsky 25,500.00 25,500.00 0.00 *
The Monument Trust Company Limited 51,000.00 51,000.00 0.00 *
Roberto Gonzalez Moreno 51,000.00 51,000.00 0.00 *
Alfred D. Morgan, Trust Administrator 12,750.00 12,750.00 0.00 *
(Trustee) / Margaret Goldwater, Trustee
Robert Mosberg 12,750.00 12,750.00 0.00 *
Eli Moshen 6,375.00 6,375.00 0.00 *
Mova Investments Limited 51,000.00 51,000.00 0.00 *
Arnold Mullen 25,500.00 25,500.00 0.00 *
Arthur J. Nagle 12,750.00 12,750.00 0.00 *
Mechie Nebenzahl 25,500.00 25,500.00 0.00 *
P. Sherrill Neff 12,750.00 12,750.00 0.00 *
New Jersey Wolfson Trust 663,000.00 663,000.00 0.00 *
Kevin P. Newman 6,375.00 6,375.00 0.00 *
Nikki Establishment For Fashion & 25,500.00 25,500.00 0.00 *
Marketing Research
Old Oly, J.V. 25,500.00 25,500.00 0.00 *
Paul D. and Rebecca L. Ostrovsky 12,750.00 12,750.00 0.00 *
Steven N. Ostrovsky 12,750.00 12,750.00 0.00 *
P.A.W. Offshore Fund, Ltd. 51,000.00 51,000.00 0.00 *
Palmetto Partners, Ltd. 76,500.00 76,500.00 0.00 *
John Pappajohn (3) 477,000.00 102,000.00 375,000.00 1.82%
Mark D. Pesonen 25,500.00 25,500.00 0.00 *
Maria Pierce 12,750.00 12,750.00 0.00 *
Porter Partners, L.P. 102,000.00 102,000.00 0.00 *
Charles Potter 12,750.00 12,750.00 0.00 *
Tis Prager 12,750.00 12,750.00 0.00 *
Privat Kredit Bank, Lugano 306,000.00 306,000.00 0.00 *
Propp & Company, Inc. (2) 13,050.00 13,050.00 0.00 *
Abel Quezada Rueda, Mercedes P. Quezada 7,650.00 7,650.00 0.00 *
JTWRS
Michael S. Resnick 12,750.00 12,750.00 0.00 *
Rick Steiner Productions, Inc. 15,300.00 15,300.00 0.00 *
Todd M. Roberts 16,983.00 16,983.00 0.00 *
Linda Gosden Robinson 76,500.00 76,500.00 0.00 *
Rosemary Cass Ltd. Pension Plan 10,200.00 10,200.00 0.00 *
J. Philip Rosen 25,500.00 25,500.00 0.00 *
Paul H. Rosen 5,100.00 5,100.00 0.00 *
Ervin Rosenfeld 51,000.00 51,000.00 0.00 *
Lindsay A. Rosenwald (2) 1,723,126.20 615,140.20 1,107,986.00 5.40%
Martine Rothblatt 12,750.00 12,750.00 0.00 *
Wayne L. Rubin (2) 136,002.43 86,568.43 49,434.00 *
</TABLE>
48
<PAGE>
<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>
A. Joseph Rudick (2) 2,500.00 2,500.00 0.00 *
Karl Ruggeberg (2) 12,700.00 12,700.00 0.00 *
Jeffrey Rothenberg DDS 15,300.00 15,300.00 0.00 *
David W. Ruttenberg 12,750.00 12,750.00 0.00 *
S&M Investments 12,750.00 12,750.00 0.00 *
Leeor Sabbah 153,000.00 153,000.00 0.00 *
M.D. Sabbah 255,000.00 255,000.00 0.00 *
Sagres Group Ltd. 408,000.00 408,000.00 0.00 *
Wayne Saker 51,000.00 51,000.00 0.00 *
Scott G. Sandler 38,250.00 38,250.00 0.00 *
Sarah Trust 5,100.00 5,100.00 0.00 *
Savenna Consultants, Inc. 7,031.25 7,031.25 0.00 *
Roy and Marlena Schaeffer (2) 25,500.00 25,500.00 0.00 *
Howard Schain 25,500.00 25,500.00 0.00 *
Carl M. Schechter 12,750.00 12,750.00 0.00 *
Robin Schlaff 12,750.00 12,750.00 0.00 *
Ralph Schlosstein 51,000.00 51,000.00 0.00 *
Andrew W. Schonzeit 12,750.00 12,750.00 0.00 *
Schwendiman Global Sector Fund L.P. 25,500.00 25,500.00 0.00 *
Scoggin Capital Management, L.P. 76,500.00 76,500.00 0.00 *
Roberto Segovia 10,200.00 10,200.00 0.00 *
Lori Shapero 25,500.00 25,500.00 0.00 *
Leonard P. Shaykin 25,500.00 25,500.00 0.00 *
The Sheila Davis Lawrence Revocable 51,000.00 51,000.00 0.00 *
Trust
L. Kevin Sheridan 16,983.00 16,983.00 0.00 *
Martin Sirotkin 31,750.00 25,500.00 6,250.00 *
Bruce Slovin 127,500.00 127,500.00 0.00 *
Deborah Soloman (2) 1,250.00 1,250.00 0.00 *
South Ferry #2, L.P. 585,000.00 585,000.00 0.00 *
Aaron Speisman 12,750.00 12,750.00 0.00 *
Aaron Speisman custodian for Jennifer 12,750.00 12,750.00 0.00 *
Speisman
Aaron Speisman custodian for Joshua 12,750.00 12,750.00 0.00 *
Speisman
William M. Spencer III 51,000.00 51,000.00 0.00 *
Neil and Laurie Spindel 25,500.00 25,500.00 0.00 *
John L. Steffens 51,000.00 51,000.00 0.00 *
Dr. Edward L. Steinberg 12,750.00 12,750.00 0.00 *
Catherine Steinmann 12,750.00 12,750.00 0.00 *
Gabriel Steinmann 12,750.00 12,750.00 0.00 *
Jennifer Steinmann 12,750.00 12,750.00 0.00 *
Joshua Steinmann 12,750.00 12,750.00 0.00 *
Gary J. Strauss 25,500.00 25,500.00 0.00 *
Stome Partners, L.P. 510,000.00 510,000.00 0.00 *
Kaveh Taleghani 12,750.00 12,750.00 0.00 *
Hindy H. Taub 12,750.00 12,750.00 0.00 *
Herman Tauber 88,500.00 76,000.00 12,500.00 *
Myron M. Teitelbaum, M.D. 31,500.00 31,500.00 0.00 *
Termtec, Ltd. 25,500.00 25,500.00 0.00 *
Patricia & Erich Theissen 5,100.00 5,100.00 0.00 *
Mitchell Troyetsky 12,750.00 12,750.00 0.00 *
Thomas R. Ulie (2) 27,000.00 27,000.00 0.00 *
Joseph A. Umbach 25,500.00 25,500.00 0.00 *
United Congregations Mesora 51,000.00 51,000.00 0.00 *
Dan Valahu 12,750.00 12,750.00 0.00 *
Valor Capital Management, L.P. 25,500.00 25,500.00 0.00 *
Andre Visser (2) 54,000.00 54,000.00 0.00 *
Vivaldi, Ltd. 102,000.00 102,000.00 0.00 *
W & P Bank & Trust Company Ltd. 102,000.00 102,000.00 0.00 *
</TABLE>
49
<PAGE>
<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>
David Walner (2) 2,800.00 2,800.00 0.00 *
Allan Warshawsky 12,750.00 12,750.00 0.00 *
Michael Weiner, M.D. 5,100.00 5,100.00 0.00 *
Mark E. Weiss 12,750.00 12,750.00 0.00 *
Melvyn I. Weiss 102,000.00 102,000.00 0.00 *
Michael Weiss (2) 288,028.43 86,593.45 201,435.00 *
Robert J. Whetten 51,000.00 51,000.00 0.00 *
Whitcome Family Trust 51,000.00 51,000.00 0.00 *
Tim Winans 12,750.00 12,750.00 0.00 *
Wisdom Tree Associates, LP 76,500.00 76,500.00 0.00 *
Alan Wise/Teri Wise, Jointly 12,750.00 12,750.00 0.00 *
Andrew B. Woldow 12,750.00 12,750.00 0.00 *
James D. Wolfensohn 50,000.00 50,000.00 0.00 *
Aaron Wolfson 51,000.00 51,000.00 0.00 *
Abraham Wolfson 51,000.00 51,000.00 0.00 *
Wolfson Descendents' 1983 Trust 255,000.00 255,000.00 0.00 *
Worldwide Consultants and Finance Ltd. 51,000.00 51,000.00 0.00 *
Lauren Youner (2) 19,297.00 2,797.00 16,500.00 *
Peter Young 9,333.00 9,333.00 0.00 *
Richard A. Young 12,750.00 12,750.00 0.00 *
Robert J. Young 12,750.00 12,750.00 0.00 *
Zapco Holdings Settlement 12,750.00 12,750.00 0.00 *
Uzi Zucker 25,500.00 25,500.00 0.00 *
TOTAL 15,421,338.00 14,885,088.00 536,250.00 8.01%
</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."
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, 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, and to the extent that an underwriter is involved, 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.
50
<PAGE>
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. The Aries
Domestic Fund, L.P. and The Aries Fund, A Cayman Island Trust are private
investment funds managed by Dr. Lindsay A. Rosenwald, a substantial shareholder
and former director of the Company and the sole owner of Paramount Capital,
Inc., the placement agent for the Series B Offering ("Paramount"). See "Certain
Transactions." Michael S. Weiss is the Secretary and a Director of the Company
and a Senior Managing Director of Paramount. Wayne L. Rubin is the former
Treasurer of the Company and the Chief Financial Officer of Paramount. The
following persons are also registered representatives of Paramount: Peter Kash;
Martin S. Kratchman; Joseph Edelman; Jeffrey Levine; Tim McInerney ; Karl
Ruggeberg; Scott Katzmann; LaurenYouner; David Walner; Joseph Fabiani, Jr.;
Deborah Soloman; A. Joseph Rudick, Jr.; Mark Abeshouse; Bernard Gross; and
Stephen McDermott.
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
September 30, 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 1,092,745 shares of
Common Stock for issuance pursuant to the employment arrangements among the
Company and Dr. Jonas, Mr. Tousley, Dr. Yankee and one other non-executive
employee.
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. The Company currently is not a
reporting company under the Exchange Act, provided that if, and when, the
Company's application for listing on the Nasdaq National Market is approved, the
Company intends to file a registration statement with respect to Common Stock
under the Exchange Act, whereupon the Company would become a reporting company
subject to the informational requirements of the Exchange Act.
54
<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 the years ended December 31, 1995 and 1994 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 ended December 31, 1995 and 1994
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) $ .09 $ (.03) $ (.27)
============================================================================
Weighted average number of
shares outstanding 6,526,807 6,771,129 6,339,785 5,978,124
============================================================================
</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
At June 30, 1996, the Company has issued warrants to purchase 161,469 (after
adjusting for anti-dilution provisions) (June, July and September 1992), 15,500
(May 1993), and 180,000 (January, February and August 1995) shares of the
Company's common stock at a price of $1.43, $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 533,219
Warrants to purchase convertible Series 1,290,990
B preferred stock (Note 9)
------------
16,296,854
============
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.
In September 1996, the Company entered into letter agreements with its Chief
Financial Officer (the "CFO") and Executive Vice President (the "Executive
V.P.") pursuant to which these officers will receive annual salaries of $150,000
and $145,000, respectively, minimum annual bonuses of $25,000 each and
additional discretionary bonuses of up to $125,000 and $83,750, respectively. In
addition, these officers and an employee received options to purchase 455,000
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.
In October 1996, the Company entered into an agreement with an investment banker
pursuant to which the investment bankers may, at the Company's request, perform
certain investment banking and financial advisory services for the Company. In
connection with this agreement, the investment bankers were granted warrants to
purchase 100,000 shares of common stock at $3 per share.
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 person has been authorized to give
information or to make nay representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company. 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 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.
--------------------
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..........20
BUSINESS............................................22
MANAGEMENT..........................................29
CERTAIN TRANSACTIONS................................35
PRINCIPAL STOCKHOLDERS..............................37
DESCRIPTION OF SECURITIES...........................39
SELLING SECURITYHOLDERS.............................45
SHARES ELIGIBLE FOR FUTURE SALES....................52
PLAN OF DISTRIBUTION................................53
EXPERTS.............................................54
LEGAL COUNSEL.......................................54
ADDITIONAL INFORMATION..............................54
FINANCIAL STATEMENTS ..............................F-1
================================================================================
14,885,088 Shares of Common Stock
AVAX TECHNOLOGIES, INC.
Common Stock
----------------
PROSPECTUS
November 6, 1996
----------------
<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 Section 5.7 of the
Subscription Agreements of the Series B Offering (Exhibit 4.6), Section 5(a) of
the Series B Placement Warrants (Exhibit 4.12), Section 6(e) of the Bridge
Placement Warrants (Exhibit 4.7) and Section 11 of the Meyerson Warrants
(Exhibit 4.13) indemnifying against certain liabilities of 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.................................. 10,000.00
Printing and engraving............................. 25,000.00
Legal fees and expenses of the Company............. 150,000.00
Accounting fees and expenses....................... 20,000.00
Blue sky fees and expenses......................... 20,000.00
Transfer agent fees and expenses................... 15,000.00
Miscellaneous...................................... 44,601.64
-----------
Total........................................ $300,000.00
===========
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 Company's
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 investors 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 a Form D (or amended
Form D, as the case may be) on 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.
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 approximately 25,820 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)
II-2
<PAGE>
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").
Pursuant to the TJU License Agreement, the Company issued 458,243
shares of Common Stock at a price of $.002 per share to each of TJU
and Dr. David Berd, TJU's chief oncologist and the inventor of its
cancer vaccine. In the stock subscription agreements ("Subscription
Agreements") entered into by the Company, TJU and Dr. Berd on November
20, 1995, relating to the issuance of Common Stock to each of TJU and
Dr. Berd, each of TJU and Dr. Berd represented, among other things, to
the Company the following: that (i) it acquired the Common Stock for
investment purposes only and not for resale for an indefinite period
of time for its own account; (ii) it had such knowledge and experience
in financial and business matters as to be capable of evaluating the
merits and risks of its investment in the Company; (iii) it had the
ability to bear the economic risks of its investment for an indefinite
period of time and could afford a complete loss of its investment; and
(iv) it had the opportunity prior to its purchase of the Common Stock
to ask questions of and receive answers from representatives of the
Company concerning the finances, operations and business of the
Company. Also, as stated in the Subscription Agreements, the share
certificates issued in connection with the above issuance of Common
Stock had endorsed thereon legends regarding restrictions on the
transfer of the Common Stock. Because of, among other things, the
foregoing, 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.
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. In the stock
subscription agreements ("Castle Subscription Agreements") entered
into by the Company, The Castle Group and its designees in September,
1995, relating to the Common Shares issued to each of The Castle Group
and its designees, each of them represented, among other things, to
the Company the following: that (i) it acquired the Common Stock for
investment purposes only and not for resale for an indefinite period
of time for its own account; (ii) that each of The Castle Group and
its designees had such knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks
of its investment in the Company; (iii) it had the ability to bear the
economic risks of its investment for an indefinite period of time and
could afford a complete loss of its investment; and (iv) it had the
opportunity prior to its purchase of the Common Stock to ask questions
of and receive answers from representatives of the Company concerning
the finances, operations and business of the Company. Also, as stated
in the Subscription Agreements, the share certificates issued in
connection with the above issuance of Common Stock had endorsed
thereon legends regarding restrictions on the transfer of the Common
Stock. Because of the foregoing, 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
II-3
<PAGE>
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 ("Warrant Holders")
(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.
In connection with the issuances of the Warrants and the Placement
Warrants, it represented, among other things, the following: that (i)
it acquired the Common Stock for investment only and not for resale
for an indefinite period for its own account; (ii) it had such
knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment in the
Company; (iii) it had the ability to bear the economic risks of its
investment for an indefinite period of time and could afford a
complete loss of its investment; and (iv) it had the opportunity prior
to its purchase of the Common Stock to ask questions of and receive
answers from representatives of the Company concerning the finances,
operations and business of the Company. Also, as stated in the
Subscription Agreements, the share certificates issued in connection
with the above issuance of Common Stock had endorsed thereon legends
regarding restrictions on the transfer of the Common Stock. 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.
6. On October 24, 1996, the Company entered into an agreement with M. H.
Meyerson & Co., Inc. ("Meyerson"), pursuant to which Meyerson may
perform certain investment banking and financial advisory services on
a non- exclusive basis for the Company (the "Investment Banking
Agreement"). Pursuant to the Investment Banking Agreement, the Company
granted to Meyerson warrants to purchase an aggregate of 100,000
shares of Common Stock of the Company at an exercise price of $3.00
per share. The issuance of the Meyerson Warrants were 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, Meyerson represented its
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. Meyerson had adequate access, through its
negotiations with the Company of the terms of the Investment Banking
Agreement, to information about the Company.
II-4
<PAGE>
Item 27. Exhibits and Financial Statement Schedules
Exhibit No. Description
----------- -----------
*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.
4.13 Meyerson Investment Banking Agreement and Common Stock Warrants
dated October 24, 1996, by and between the Registrant and M.H.
Meyerson & Co., Inc.
5.1 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.
II-5
<PAGE>
Exhibit No. Description
----------- -----------
*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.
* Previously filed with the Registration Statement on Form SB-2 filed with
the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of Form
SB-2 filed with the commission in September 23, 1996 and which superseded
such exhibit as previously filed with the Registration Statement on Form
SB-2 filed with the Commission on August 1, 1996.
*** Previously filed with Amendment No. 1 to the Registration Statement of Form
SB-2 filed with the commission on September 23, 1996.
+ Confidential treatment requested as to certain portions of these exhibits.
Such portions have been redacted.
II-6
<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.
(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.
II-7
<PAGE>
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 6th day of
November, 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:
Signature Name & Title Date
--------- ------------ ----
/s/ Jeffrey Jonas, M.D.* Jeffery Jonas, M.D. November 6, 1996
President, Chief
Executive
Officer and Director
/s/ David L. Tousley* David L. Tousley November 6, 1996
Chief Financial Officer
(Principal Financial
Officer)
/s/ Edson D. de Castro* Edson D. de Castro November 6, 1996
Director
/s/ John K. A. Prendergast, Ph.D.* John K. A. Prendergast, November 6, 1996
Ph.D. Director
/s/ Carl Spana, Ph.D.* Carl Spana, Ph.D. November 6, 1996
Director
/s/ Michael S. Weiss Michael S. Weiss November 6, 1996
Secretary and Director
By: /s/ Michael S. Weiss
---------------------
Michael S. Weiss
Attorney-in-Fact
II-8
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
*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.
4.13 Meyerson Investment Banking Agreement and Common Stock Warrants
dated October 24, 1996, by and between the Registrant and M.H.
Meyerson & Co., Inc.
5.1 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.
<PAGE>
Exhibit No. Description
----------- -----------
*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.
* Previously filed with the Registration Statement on Form SB-2 filed with
the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of Form
SB-2 filed with the commission in September 23, 1996 which superseded such
exhibit as previously filed with the Registration Statement on Form SB-2
filed with the Commission on August 1, 1996.
*** Previously filed with Amendment No. 1 to the Registration Statement of Form
SB-2 filed with the commission on September 23, 1996.
+ Confidential treatment requested as to certain portions of these exhibits.
Such portions have been redacted.
EXHIBIT 4.13
M.H. MEYERSON & CO, INC.
FOUNDED 1960
BROKERS & DEALERS IN SECURITIES
UNDERWRITERS
NEWPORT OFFICE TOWER
525 WASHINGTON BLVD. P.O. BOX 260 JERSEY CITY, NJ 07303-0260
201-459-9500 800-888-8118 FAX 201-459-9510 www.mhmeyerson.com
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER ANY STATE SECURITIES OR "BLUE SKY" LAWS, ACCORDINGLY, NO
TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AMENDMENT THERETO UNDER THE ACT OR (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND UNDER ANY APPLICABLE STATE
SECURITIES OR "BLUE SKY" LAWS.
Dr. Jeffrey Jonas
AVAX Technologies, Inc.
4520 Main, 9th Floor
Kansas City, MO 64112
Dear Dr. Jonas:
THIS AGREEMENT (the "AGREEMENT") is made as of October 24, 1996 between
AVAX Technologies, Inc. ("AVAX") and M.H. Meyerson & Co., Inc. ("MEYERSON").
In consideration of the mutual covenants contained herein and intending to
be legally bound thereby, AVAX and MEYERSON hereby agree as follows:
1. MEYERSON will perform investment banking services for AVAX on the terms
set forth below for a period of five years from the date hereof. Such
services will be performed on a best efforts basis, only as requested, and
will include, without limitation, assistance to AVAX in mergers,
acquisitions, and internal capital structuring and the placement of new
debt and equity issues of AVAX, all with the objective of accomplishing
AVAX's business and financial goals. In each instance, MEYERSON shall
endeavor, subject to market conditions, to assist AVAX in identifying
corporate candidates for mergers and acquisitions and sources of private
and institutional funds; to provide planning, structuring, strategic and
other advisory
<PAGE>
2
services to AVAX; and to assist in negotiations on behalf of AVAX. In each
instance, MEYERSON will render such services as to which AVAX and MEYERSON
mutually agree and MEYERSON will exert its best efforts to accomplish the
goals agreed to by MEYERSON and AVAX. No provision in this AGREEMENT shall
be construed as to require AVAX to pay any fee or other compensation (other
than as set forth in paragraphs 3 and 10) to MEYERSON on account of the
services to be provided by MEYERSON as set forth in this paragraph 1 or as
otherwise contemplated by this AGREEMENT unless such fee or compensation is
set forth in a separate written agreement between AVAX and MEYERSON as
contemplated by paragraph 10. In addition, nothing contained herein shall
require AVAX to request or utilize the services of MEYERSON as set forth
herein and AVAX may without restriction retain others to perform the same
or similar services without incurring any obligation (financial or
otherwise) to MEYERSON.
2. In connection with the performance of this AGREEMENT, MEYERSON and AVAX
shall comply with all applicable laws and regulations, including, without
limitation, those of the National Association of Securities Dealers, Inc.
and the Securities and Exchange Commission.
3. In consideration of the services previously rendered and to be rendered
by MEYERSON hereunder, MEYERSON is hereby granted Warrants to purchase, at
a price of $3.00 per Share, a total of 100,000 Shares of Common Stock of
AVAX, with demand and piggyback registration rights as set forth in
paragraph 5 below. Such Warrants ("MEYERSON Warrants") may be exercised at
any time from October 24, 1996 to and including October 24, 2001. The
MEYERSON Warrants shall vest and become irrevocable as follows: 50,000
Warrants 60 days after the date of this AGREEMENT; 25,000 Warrants 180 days
after the date of this AGREEMENT, and an additional 25,000 Warrants 365
days after the date of this AGREEMENT. The shares issuable upon exercise of
the Warrants may contain a legend satisfactory to AVAX and its counsel.
MEYERSON understands that the MEYERSON Securities have not been registered
under the Securities Act of 1933 (the Act") by reason of a claimed
exemption under the provisions of the act which depends, in part, upon the
MEYERSON investment intention. In this connection, MEYERSON hereby
represents that (a) MEYERSON is acquiring the MEYERSON Securities for
MEYERSON's own account for investment and not with a view toward the resale
or distribution to others and (b) MEYERSON was not formed for the purpose
of acquiring the MEYERSON Securities. MEYERSON 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.
<PAGE>
3
4. If AVAX should, at any time, or from time to time hereafter, effect a
stock split, a reverse stock split, or a recapitalization, the terms of the
MEYERSON Warrants shall be proportionately adjusted to prevent the dilution
or enlargement of the rights of the holders.
5. During the period from October 24, 1998 to October 24, 2001, the holders
of at least 51% of: (i) the MEYERSON Warrants not then exercised; and (ii)
the shares previously issued upon exercise of any of the MEYERSON Warrants
(hereinafter, collectively, the "MEYERSON EQUITY") may demand, on one
occasion only, AVAX at AVAX's expense, promptly, and in any event within 30
days or such longer period of time as the parties shall agree, file a
Registration Statement under the Act to permit a public resale of the
shares of Common Stock issued and issuable pursuant to exercise of the
MEYERSON Warrants (the "MEYERSON SHARES"). Additionally, if AVAX, during
the period from October 24, 1998 to October 24, 2001, files a Registration
Statement covering the sale of any of AVAX's common stock, then AVAX, on
each such occasion, at the request of the holders of at least 51% of the
shares and warrants constituting the MEYERSON EQUITY, shall include in any
such Registration Statement, at AVAX's expense, the MEYERSON SHARES,
provided that, if the sale of securities by AVAX is being made through an
underwriter and the underwriter objects to inclusion of the MEYERSON SHARES
in the Registration Statement, the MEYERSON SHARES shall not be so included
in the Registration Statement or in any registration statement filed within
90 days after the effective date of the underwritten Registration
Statement.
6. The obligation of AVAX to register the MEYERSON SHARES, including the
shares issuable upon exercise of the MEYERSON Warrants, pursuant to the
demand or the piggyback registration rights set forth in paragraph 5,
above, shall be without regard to whether the MEYERSON Warrants have been
or will be exercised.
7. AVAX agrees that, for a period of three (3) years from the date of this
AGREEMENT, AVAX will not utilize the registration exemption set forth in
Regulation S under the ACT, nor register any security under form S-8
(except for securities held by or issued to officers, directors or
employees of AVAX) without the consent of MEYERSON, which consent will not
be unreasonably withheld.
8. This AGREEMENT constitutes the entire Warrant Agreement between the
parties and when a copy hereof is presented to AVAX's transfer agent,
together with a certified check in the proper amount and a request that all
or part of the MEYERSON Warrant be exercised, the certificates for the
appropriate number of shares of Common Stock shall be promptly issued.
<PAGE>
4
9. Upon the execution of this AGREEMENT, AVAX shall include in their next
annual report a copy of this investment banking AGREEMENT as an exhibit
thereto.
10. Upon the signing of this AGREEMENT, AVAX shall pay MEYERSON $15,000.00
as a non-accountable and non-refundable expense allowance for due diligence
and general compliance review. MEYERSON shall be entitled to additional
normal and ordinary compensation, to be negotiated and set forth in a
separate written agreement between MEYERSON and AVAX, arising out of any
transactions that are proposed or executed by MEYERSON and consummated by
AVAX, or are executed by MEYERSON at AVAX's request, during the term of
this AGREEMENT. In addition, MEYERSON shall be reimbursed by AVAX for any
reasonable out-of-pocket expenses that MEYERSON may incur in connection
with rendering any service to or on behalf of AVAX that is approved, in
writing, in advance by AVAX's Chief Executive Officer.
11. AVAX agrees to indemnify and hold MEYERSON and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses arising out of any action or cause
of action brought against MEYERSON in connection with its rendering
services under this AGREEMENT except for any losses, claims, damages,
liabilities, costs or expenses resulting from any violation by MEYERSON of
applicable laws and regulations including, without limitation, those of the
National Association of Securities Dealers, Inc. and the Securities and
Exchange Commission or any state securities commission or from any act of
MEYERSON involving gross negligence or willful misconduct and except that
AVAX shall not be liable for any amount paid in settlement of any claim
that is settled without its prior written consent.
12. MEYERSON agrees to indemnify and hold AVAX and its directors, officers
and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses resulting from any violation by
MEYERSON of applicable laws and regulations including, without limitation,
those of the National Association of Securities Dealers, Inc., the
Securities and Exchange Commission, any state securities commission or from
any act of MEYERSON involving gross negligence or willful misconduct.
13. Within 30 days of the date of this AGREEMENT, a representative of
MEYERSON will visit the scientific facilities of AVAX located at Thomas
Jefferson University, Walnut Street, Philadelphia, Pennsylvania. In
connection therewith, MEYERSON will execute a confidentiality agreement
satisfactory in form and substance to AVAX and its counsel.
<PAGE>
5
14. Nothing contained in this AGREEMENT shall be construed to constitute
MEYERSON as a partner, employee, or agent of AVAX; nor shall either party
have any authority to bind the other in any respect, it being intended that
MEYERSON is, and shall remain an independent contractor.
15. This AGREEMENT may not be assigned by either party hereto, shall be
interpreted in accordance with the laws of the State of New York, and shall
be binding upon the successors of the parties. Either party may terminate
this investment banking contract at any time, however, Warrants legally
vested in accordance with paragraph 3 will remain with MEYERSON. All
unvested Warrants will be cancelled.
16. If any paragraph, sentence, clause or phrase of this AGREEMENT is for
any reason declared to be illegal, invalid, unconstitutional, void or
unenforceable, all other paragraphs, sentences, clauses or phrases hereof
not so held shall be and remain in full force and effect.
17. None of the terms of this AGREEMENT shall be deemed to be waived or
modified except by an express agreement in writing signed by the party
against whom enforcement of such waiver or modification is sought. The
failure of either party at any time to require performance by the other
party of any provision hereof shall, in no way, affect the full right to
require such performance at any time thereafter. Nor shall the waiver by
either party of a breach of any provision hereof be taken or held to be a
waiver of any succeeding breach of such provision or as a waiver of the
provision itself.
18. Any dispute, claim or controversy arising out of or relating to this
AGREEMENT, or the breach thereof, shall be settled by arbitration in New
York City, New York, in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. The parties hereto agree that they
will abide by and perform any award rendered by the arbitrator(s) and that
judgment upon any such award may be entered in any Court, state or federal,
having jurisdiction over the party against whom the judgment is being
entered. Any arbitration demand, summons, complaint, other process, notice
of motion, or other application to an arbitration panel, Court or Judge,
and any arbitration award or judgment may be served upon any party hereto
by registered or certified mail, or by personal service, provided a
reasonable time for appearance or answer is allowed.
19. For purposes of compliance with laws pertaining to potential inside
information being distributed unauthorized to anyone, all communications
regarding
<PAGE>
6
AVAX confidential information should only be directed to Martin H.
Meyerson, Chairman, Michael Silvestri, President, or Linda Antosiewicz,
Senior Vice President, Compliance. If information is being faxed, our
confidential compliance fax number is (201) 459-9534 for communication use.
IN WITNESS WHEREOF, the parties hereto have executed this AGREEMENT as of
the day and year set forth above.
M.H. MEYERSON & CO., INC. AVAX TECHNOLOGIES, INC.
By: /s/ Michael Silvestri By: /s/ Jeffrey M. Jonas
-------------------------- ----------------------------
Michael Silvestri Dr. Jeffrey M. Jonas
President President and Chief Executive Officer
ROBERTS, SHERIDAN & KOTEL
A PROFESSIONAL CORPORATION
640 FIFTH AVENUE
NEW YORK, N.Y. 10019
-------------------------
TELEPHONE (212) 262-5700
FACSIMILE (212) 262-0404
EXHIBIT 5.1
November 6, 1996
AVAX Technologies, Inc.
4520 Main, Suite 930
Kansas, MO 64111
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 September 20, 1996,
Registration Number 33- 09349, as amended by Amendment No. 1 thereto filed with
the Commission on September 23, 1996, as further amended by Amendment No. 2
thereto filed with the Commission on November 6, 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").
<PAGE>
2
In that connection, we have examined originals or copies, certified or
otherwise identified to our satisfaction, of certificates of public officials
and corporate 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 Issuer is a corporation duly incorporated and is in good standing
under the laws of the State of Delaware.
2. The 571,698 shares of Common Stock which may be issued and sold in
accordance with the provisions of the Registration Statement will be, when
issued and sold, legally issued, fully paid and nonassessable.
3. 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 legally issued, fully paid and nonassessable.
<PAGE>
3
4. 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 cashless exercise provision thereof will be legally issued, fully
paid and nonassessable.
5. 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 legally issued, fully paid and
non-assessable.
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,
/s/ROBERTS, SHERIDAN & KOTEL
EXHIBIT 11.1
<TABLE>
<CAPTION>
AVAX Technologies, Inc. EXHIBIT 11.1
(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)
----------
June, July and
September '92 Warrants,
shares of Common Stock
issued under
anti-dilution provisions
within one year of IPO 110,832
Treasury Shares (86,067)
----------
24,765 24,765 24,765 24,765 24,765
----------
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 -----------------------------------------------------------
6,526,807 6,771,129 6,339,785 5,978,124
===========================================================
Net income (loss) attributable to common stockholders (781,221) 642,282 (200,140) (1,636,821)
Net income (loss per share) (0.12) 0.09 (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 11.1
(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 6,771,129 6,339,785 5,978,124
Additional shares:
Conversion of Series A Preferred (d) 643,750 643,750
Less: Series 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 7,412,456 7,624,862 7,155,909
--------------------------------------------
Supplementary net income (loss per share) 0.10 (0.02) (0.22)
(d) - Included in weighted average shares for primary calculation.
</TABLE>
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. 2 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
November 5, 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> 0.09 (0.27)
<EPS-DILUTED> 0 0
</TABLE>
