<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1997
Registration No. 333-09349
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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AVAX TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
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<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 8731 13-3575874
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4520 Main
Suite 930
Kansas City, MO 64111
(816) 960-1333
(Address and telephone number of Small Business Issuer's principal
executive offices and principal place of business)
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JEFFREY M. JONAS, M.D.
President and Chief Executive Officer
4520 Main
Suite 930
Kansas City, MO 64111
(816) 960-1333
(Name, address and telephone number of agent for service)
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Copy to:
IRA L. KOTEL
Roberts, Sheridan & Kotel
A Professional Corporation
12 East 49th Street, 30th floor
New York, New York 10017
(212) 299-8600
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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> <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 Securityholders............................. Selling Securityholders
8. Plan of Distribution.................................. Plan of Distribution
9. Legal Proceedings..................................... Business - Legal Proceedings
10. Directors, Executive Officers, Promoters and
Control Persons....................................... Management
11. Security Ownership of Certain Beneficial Owners
and Management........................................ Principal Stockholders
12. Description of Securities............................. Description of Securities
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; Market for Common Equity
Stockholder and Related Stockholder Matters; Description of
Matters............................................... Securities; Selling Securityholders; Shares Eligible
for Future 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
(A redherring appears on the left-hand side of this page, rotated 90 degrees.
Text follows.)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED THE WITH
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
Subject to Completion, Dated February 26, 1997
13,560,598 Shares
AVAX Technologies, Inc.
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) 570,698 shares of the Company's
common stock, par value $.002 per share (the "Common Stock"); (ii) 12,909,900
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) 80,000 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 designees of the
placement agent of the Series B Offering described herein (the "Series B
Placement Warrants") and (b) exercise of warrants issued to the designees of 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 $160,000. 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 December 31, 1996, had an accumulated deficit of
$3,254,022. The Company is continuing to incur losses and expects to incur
significantly increasing additional losses for the foreseeable future.
Shares of Common Stock that are freely tradeable pursuant to Rule 144(k) under
the Securities Act of 1933 traded on the OTC Bulletin Board(R) Service (the "OTC
Bulletin Board") under the symbol "AVAX". The last reported sale price of the
Common Stock on the OTC Bulletin Board on February 20, 1997, was $3.25 per
share. The Company also has applied for listing on the National Association of
Securities Dealers Automated Quotation National Market(R) ("Nasdaq National
Market") of the shares of Common Stock being offered hereby. The Company's
application for listing was not granted at the Nasdaq staff level. The Company
is continuing to seek such listing in an oral hearing to be held before a Nasdaq
Listing Qualification Panel. However, there can be no assurance that the Common
Stock will ultimately be approved for listing on the Nasdaq National Market.
In such event, trading of the Common Stock should continue to be conducted on
the OTC Bulletin Board or in the over-the-counter market in the "pink sheets".
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."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THE COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is February 26, 1997
<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 and other life-
threatening diseases. The Company initially intends to focus its efforts
primarily on the development of immunotherapies and chemotherapies for cancer.
Immunotheropy 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 immune system to eliminate
the cancer. This technology has emerged from research conducted at TJU and
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, MelanoVax(TM), is currently undergoing
physician-sponsored human clinical trials based on an experimental protocol at
TJU as an outpatient, post-surgical, adjunct therapy for the treatment of
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
stage 3 melanoma. In such ongoing clinical trials at TJU, over 275 melanoma
patients have been treated post-surgically on an outpatient basis with
MelanoVax(TM). In 62 patients with stage 3 melanoma in protocols in which
there has been sufficient time for long-term follow-up, the five-year survival
rate is approximately 60%. This compares with the historical and control group
stage 3 survival rate of approximately 20%, and the survival rate for treatment
with high dose alpha interferon of approximately 32% in stage 3 patients whom
the Company believes to be comparable to those treated with MelanoVax(TM). The
Company believes that the results to date of the ongoing clinical trial
represent the first substantial increase in survival for stage 3 melanoma
patients treated by immunotherapy. In the over 275 patients treated in
studies, the Company believes that only relatively minor side effects, such as
soreness and swelling at the site of the application of the MelanoVax(TM)
vaccine, have been witnessed to date.
Although TJU and Dr. Berd have conducted the ongoing clinical trials at TJU
pursuant to an FDA-approved, physician-sponsored Investigational New Drug
Application ("IND"), to date the Company has not had any meetings with the
FDA. However, the Company has scheduled a meeting with the FDA to discuss the
clinical results obtained with MelanoVax(TM), the use of such results in
support of the submission of a Company-sponsored IND to the FDA, and to review
its proposed Phase III program for MelanoVax(TM). The purpose of the IND
submission will be to seek FDA approval to enter MelanoVax(TM) into Phase
III 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 MelanoVax(TM). The Company also may pursue a similar regulatory
approval and commercialization strategy for MelanoVax(TM) in Australia,
Canada, Mexico and certain other countries through corporate partnering
strategies, although such strategies have not yet been finalized or initiated.
Denial
3
<PAGE>
of any regulatory approvals or any significant delays in obtaining any of the
same, would have a material adverse effect on the Company.
The Company also believes that the AC Vaccine technology may have
applications in the treatment of other cancers, which may include ovarian,
breast, prostate, lung and colorectal cancers and acute myologenous leukemia
(AML). The Company intends to fund the preclinical and initial clinical
development of this technology for at least some of these indications.
Accordingly, in addition to continuing the clinical work on MelanoVax(TM), the
Company has also entered into a sponsored research agreement with TJU relating
to the development of additional immunotherapies based on the AC Vaccine
technology. For example, the Company is in the preliminary stages of
enrolling patients for its Phase II clinical trial of OVax(TM), its AC
Vaccine for ovarian cancer. This trial will be conducted at TJU under the
direction of Dr. David Berd, the inventor of the AC Vaccine technology.
In order to contain costs, the Company may continue to 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, chemotherapy 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.
In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, the Company recently
licensed from Rutgers University and the University of Medicine and Dentistry
of New Jersey (collectively, "Rutgers"), certain patent applications relating to
a series of compounds for the potential treatment of cancer and infectious
diseases (the "Rutgers License"). The Company also has licensed from The Texas
A&M University System ("Texas A&M"), an issued U.S. patent and certain patent
applications relating to a series of compounds for the potential treatment of
cancer (the "Texas A&M License"). Pursuant to the Rutgers License and the Texas
A&M License, the Company intends to expend substantial resources on the research
and development of these compounds.
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.
MelanoVax(TM) is a trademark of the Company. This Prospectus also includes
trademarks of other companies.
4
<PAGE>
OFFERING SUMMARY
Common Stock Outstanding
as of December 31, 1996: 6,222,316 shares of Common Stock, including
570,698 shares of currently outstanding
shares of Common Stock directly held by the
Selling Securityholders.1
Common Stock Offered
by Selling Securityholders: 13,560,598 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 $160,000. 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) 1,142,745 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
594,038 shares of Common Stock issuable upon exercise of the Shear
Kershman Warrants, the Castelli Warrants, the Series A Placement
Warrants, the Rutgers Warrants, the Meyerson Warrants and warrants
issued to two individuals in connection with the Rutgers License and
the Texas A&M License as described below. See "Executive Compensation"
and "Description of Securities."
5
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SUMMARY OF FINANCIAL DATA
The following table presents historical financial information derived from the
financial statements of the Company.
<TABLE>
<CAPTION>
Year Ended December 31
1995 1996
<S> <C> <C>
Statement of Operations Data:
Gain from sale of the Product........................... $ 1,951,000 $ -
Total operating income (loss)............................. 1,521,243 (1,992,386)
Net income (loss)......................................... 1,380,571 (1,536,842)
Net income (loss) attributable to common
stockholders........................................ 642,282 (2,668,586)
Net income (loss) per common share (1).................... .09 (.42)
Weighted average number of shares
outstanding......................................... 6,774,053 6,370,407
December 31,1996
Balance Sheet Data:
Cash and cash equivalents................................. $ 13,832,179
Marketable securities..................................... 6,134,853
Total current assets .................................... 22,277,776
Total assets.............................................. 22,321,546
Amount payable to preferred stockholders.................. 2,156,106
Amount payable to former officer.......................... 93,353
Total current liabilities................................. 2,527,136
Deficit accumulated during development stage.............. (3,254,022)
Stockholders' equity...................................... 19,794,410
</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
December 31, 1996, the Company's accumulated deficit was $3,254,022. 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 clinical trials for
MelanoVax(TM) and preclinical studies and clinical trials for other products
that it may acquire or develop. The Company's ability to achieve profitability
depends upon, among other things, its ability to develop products, obtain
regulatory approval for its proposed products, and enter into agreements for
product development, manufacturing and commercialization. The Company's
MelanoVax(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 MelanoVax(TM) 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 the
early 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 and that the Company will be unable to secure a meaningful
patent position for such products. See "Uncertainty Regarding Patents and
Proprietary Rights."
The Company's agreements with (i) TJU, its licensor for the AC Vaccine
technology, (ii) Rutgers, its licensor for certain anti-cancer and
anti-infective technology and (iii) Texas A&M, its licensor for certain
anti-cancer technology, do not contain any representations by the licensors 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 other 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 MelanoVax(TM), 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 MelanoVax(TM) and any possible
future products would have a material adverse effect on the Company.
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Government Regulation; No Assurance of Product Approval
The proposed products of the Company will be subject to very stringent federal,
state and local government regulations, including, without limitation, the
Federal Food, Drug and Cosmetic Act, and its 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 meetings with the FDA
concerning MelanoVax(TM). However, the Company has requested and been granted a
meeting with the FDA to discuss the clinical results obtained with
MelanoVax(TM), the use of such results in support of the submission of a
Company-sponsored IND to the FDA, and to review its proposed Phase III program
for MelanoVax(TM). Prior to marketing MelanoVax(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,
Manufacturing 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 MelanoVax(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, such endeavor 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, hire such personnel or successfully manufacture products for sale
at competitive prices. See "Business--Manufacturing and Marketing."
Dependence on Licenses and Sponsored Research Agreements
The Company relies heavily on third parties for a variety of functions,
including certain functions relating to research and development. As of February
15, 1997, the Company had only four full-time employees. The Company is party to
several license and research agreements which place substantial responsibility
on the Company's licensors for research and clinical development of its products
and technologies.
In particular, the Company is dependent upon the TJU License as the basis of its
proprietary AC Vaccine technology and is dependent upon a sponsored research
agreement with TJU for research and development efforts in connection
therewith. Pursuant to the TJU License, the Company is obligated to pay an
up-front license fee, to use due diligence in developing and bringing
products to market and to make certain payments upon the achievement of
certain milestones. 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. The Company is similarly dependent upon the Rutgers License and
Texas A&M License for certain of its technology, and has financial and other
obligations thereunder which are similar to those under the TJU agreements.
As the Company currently does not have laboratory facilities, the Company's
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. There are
similar types of obligations under the Rutgers License and Texas A&M License.
If the Company does not meet its financial and other obligations in a timely
manner under its license agreements or related sponsored research agreements,
the Company could lose the rights to its proprietary technology or the right to
have its licensors and others conduct its research and development efforts,
any of which could have a material adverse effect on the Company.
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 substantial part on its ability, on the
ability of its current licensors 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.
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More specifically, 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. 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. As a
result, the Company cannot be certain that its scientists were the first to make
inventions covered by its patents and patent applications.
In the event a third party has also filed a patent application relating to an
invention claimed in a Company patent application, the Company or its licensor
may be required to participate in an interference proceeding in the United
States Patent and Trademark Office to determine priority of the invention, which
could result in substantial uncertainties and cost for the Company, even if the
eventual outcome is favorable to the Company. An adverse outcome could subject
the Company to significant liabilities to third parties and require the Company
to license disputed rights from third parties at an undeterminable cost or to
cease using the technology. There can be no assurance that the validity or
enforceability of the Company's patents, if issued, would be upheld by a court.
While no patent that could be potentially infringed by manufacture, use or sale
of the Company's product candidates has come to the attention of the Company,
the Company's product candidates are still in the development stage, and neither
their formulations nor their method of manufacture have been finalized. Thus,
there can be no assurance that the manufacture, use or sale of the Company's
product candidates will not infringe patent rights of others. The Company may be
unable to avoid infringement of any such patents and may have to seek a license,
defend an infringement action, or challenge the validity of the patents in
court. There can be no assurance that a license will be available to the
Company, if at all, upon terms and conditions acceptable to the Company or that
the Company will prevail in any patent litigation. 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. There can be no
assurance that the Company will have sufficient resources to pursue such
litigation. If the Company does not obtain a license under any such patents,
is found liable for infringement, or is not able to have them declared invalid,
the Company may be liable for significant money damages, may encounter
significant delays in bringing products to market, or may be precluded from
participating in the manufacture, use or sale of products or methods of
treatment covered by such patents, any of which could have a material adverse
effect on the Company's business, results of operation and financial
condition. See "Business--Proprietary Technology."
In its product development activities, the Company relies substantially on
certain technologies which are not patentable or proprietary and are therefore
available to the Company's competitors. The Company also relies on certain
proprietary trade secrets and know-how which are not patentable. Although the
Company has taken steps to protect its unpatented trade secrets and know-how, in
part through the use of confidentiality agreements with its employees,
consultants and certain of its contractors, there can be no assurance that these
agreements will not be breached, that the Company would have adequate remedies
for any breach or that the Company's trade secrets will not otherwise become
known or be independently developed or discovered by competitors. If the
Company's employees, scientific consultants or collaborators develop inventions
or processes independently that may be applicable to the Company's product
candidates, disputes may arise about ownership of propriety rights to those
inventions and processes. Such inventions and processes will not necessarily
become the Company's property, but may remain the property of those persons or
their employers. Protracted and costly litigation could be necessary to enforce
and determine the scope of the Company's proprietary rights. Failure to obtain
or maintain patent and trade
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secret protection, for any reason, could have a material adverse effect on the
Company. Certain of the Company's patents are directed to inventions developed
within academic institutions (from which the Company earlier acquired rights to
such patents) with funds from United States government agencies. As a result of
these arrangements, the United States government may have rights in certain
inventions developed during the course of the performance of federally funded
projects as required by law or agreements with the funding agency. Several bills
affecting patent rights have been introduced in the United States Congress.
These bills address various aspects of patent law, including publication, patent
term, reexamination, subject matter and enforceability. It is not certain
whether any of these bills will be enacted into law or what form new laws may
take. Accordingly, the effect of legislative change on the Company's
intellectual property rights is uncertain.
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.
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 with 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.
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 and for the most part are involved with other
substantially full-time activities. The loss of certain of these individuals,
including, without limitation, Jeffrey M. Jonas, M.D., the Company's President
and Chief Executive Officer, could have a material adverse effect on the
Company unless the Company could promptly hire qualified replacements. The
Company maintains a key-man life insurance policy on Dr. Jonas in the amount
of only $3 million. 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
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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.
Lack of Manufacturing Facilities
In order to successfully commercialize its product candidates, the Company
must be able to manufacture its products in commercial quantities, in compliance
with regulatory requirements, at acceptable costs and in a timely manner. The
manufacture of the types of biopharmaceutical products that are likely to be
developed by the Company present several risks and difficulties. For example,
the manufacture of MelanoVax(TM) and other compounds the Company may develop for
use in the Company's current and future products and technologies is complex,
can be difficult to accomplish even in small quantities, can be difficult to
scale-up when large scale production is required and can be subject to delays,
inefficiencies and poor or low yields of quality products. The Company may also
be subject to risks relating to the expense, or unavailability of, products and
compounds manufactured or sold by third parties which are required for use on a
comparative basis in clinical trials and studies for the Company's products.
There can be no assurance that the Company will be able to procure such products
and compounds at an acceptable cost or in sufficient quantities without delays
or other adverse effects upon the Company's development programs.
The Company does not currently have any manufacturing facilities or employees
with experience in manufacturing. Accordingly, the Company expects to expand its
manufacturing staff and facilities and to establish such a facility or
facilities or to contract with third parties to assist it with production. In
employing third party manufacturers, the Company would not control all aspects
of the manufacturing process. There can be no assurance that the Company will be
able to obtain from third party manufacturers adequate supplies in a timely
fashion for commercialization, or that commercial quantities of any such
products, if approved for marketing, will be available from contract
manufacturers at acceptable costs. In the event the Company decides to establish
a full-scale commercial manufacturing facility, the Company will require
substantial additional funds and will be required to hire and train significant
numbers of employees and comply with the extensive regulations applicable to
such a facility. There is no assurance that AVAX will be able to develop a
current Good Manufacturing Practices ("cGMP") manufacturing facility sufficient
for all clinical trials or commercial-scale manufacturing. The cost of
manufacturing certain products may make them prohibitively expensive. In
addition, in order to successfully commercialize its product candidates, the
Company may be required to reduce the cost of production, and there can be no
assurance that the Company will be able to do so. See "Business--Manufacturing
and Marketing."
Competition
The Company's proposed cancer immunotherapy business is characterized by
intensive research efforts and intense competition. Many companies, research
institutes, hospitals and universities are working to develop products and
processes in the Company's fields of research. Most of these entities have
substantially greater financial, technical, manufacturing, marketing,
distribution and other resources than the Company. Certain of such companies
have experience in undertaking testing and clinical trials of new or improved
products similar in nature to that which the Company is developing. In addition,
certain competitors have already begun testing similar compounds or processes
and may introduce such products or processes before the Company. Accordingly,
other companies may succeed in developing products earlier than the Company or
that are more effective than those proposed to be developed by the Company.
Further, it is expected that competition in the Company's field will intensify.
There can be no assurance that the Company will be able to compete successfully
in the future. See "Business--Competition."
Risk of Product Liability
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. Though the Company presently carries product
liability insurance, there can be no assurance that such insurance will
protect the Company against all claims of
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product liability. The Company may be required to indemnify its licensor
against certain product liability claims incurred as a result of the
products developed by the Company. The Company's licensors have not made, and
are 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. In addition, it is possible
that license and collaborative agreements which the Company may enter into in
the future may also include similar insurance requirements. There can be no
assurance that in the future adequate insurance coverage will be available in
sufficient amounts or at a reasonable cost, or that a product liability claim or
recall would not have a material adverse effect on the Company.
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 affect 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. In connection therewith, the Company has entered into the Rutgers
License for the development of certain potential anti-cancer and anti-infective
technology and the Texas A&M License for the development of certain potential
anti-cancer technology. However, there can be no assurance that the Company will
be able to identify any additional products or technologies and, even if
suitable products or technologies are identified, there can be no assurance that
the Company will have sufficient resources to pursue any such products or
technologies in the foreseeable future.
Certain of the directors and the Secretary 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
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person in the future will be made available to the Company. In addition, certain
of the officers, directors, consultants and advisors to the Company may from
time to time serve as officers, directors, consultants or advisors to other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not in the future have interests in conflict with
those of the Company.
Control by Current Officers, Directors and Principal Stockholders
The Company's directors, executive officers and principal stockholders
beneficially own approximately 64.96% 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 February 15, 1997, 6,222,316 shares of Common Stock were issued and
outstanding of which the Company believes that 4,101,358 shares of Common
Stock are "restricted securities" and under certain circumstances may, in the
future, be sold in compliance with Rule 144 under the Securities Act, unless
they are held by "affiliates" of the Company as that term is used under the
Securities Act. 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 4,101,358
"restricted" shares of Common Stock, 701,726 shares of Common Stock are
presently eligible for sale and an additional (i) 208,501 shares of Common
Stock will be eligible for sale in the latter part of 1997 and (ii) 3,190,131
shares of Common Stock will be eligible in 1998, in each case pursuant to
Rule 144 and subject to certain volume limitations and manner of sale
requirements imposed by Rule 144. In general, under Rule 144 as currently in
effect, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, 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(k) without regard to the volume limitations described
above. In addition, the Commission has recently adopted revisions to Rule 144
and Rule 144(k), the effect of which will be to shorten the holding period
under rule 144 from two years to one year and to shorten the holding period
under 144(k) from three years to two years.
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In addition, the Company has issued and outstanding or issuable warrants and
options to purchase an aggregate of 1,796,783 shares of Common Stock (excluding
shares of Common Stock underlying Series B Placement Warrants and Bridge
Placement Warrants that are being registered in this Offering). Any employee,
officer or director of the Company who acquired his or her shares prior to the
effective date of the Registration Statement at a time when the Company was not
subject the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") or who holds vested options as of the
effective date of the Registration Statement, pursuant to a written compensatory
plan or contract is entitled to rely on the resale provisions of Rule 701. Rule
701 permits non-affiliates to sell their Rule 701 shares without having to
comply with the public information, holding period, volume limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the effective date of the Registration Statement.
No prediction can be made as to the effect, if any, that sales of shares of
Common Stock or the availability of such shares for sale will have on the market
prices that may be quoted from time to time on the OTC Bulletin Board, or Nasdaq
National Market if quoted thereon. Nevertheless, the possibility that
substantial amounts of Common Stock may be sold in the public market may
adversely effect the prevailing market prices for the Common Stock and could
impair the Company's ability to raise capital in the future through the sale of
equity securities. Actual sales of Common Stock under Rule 144 or otherwise may
also have a depressive effect upon the price of the Common Stock and the market
therefor.
Limited Public Market; Possible Volatility of Stock Price
Prior to this Offering, the public market for the Common Stock has been
limited to shares eligible for trading under Rule 144(k) under the Securities
Act on the OTC Bulletin Board. However, 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. To the extent that brokerage firms act as market
makers, they may be a dominating influence in any market that might develop,
and the degree of participation by such 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
Shares of Common Stock that are freely tradeable pursuant to Rule 144(k) under
the Securities Act currently are traded on the OTC Bulletin Board. The Company
also has applied for listing on the Nasdaq National Market of the shares of
Common Stock being offered hereby. The Company's application for listing was not
granted at the Nasdaq staff level due to the following purported factors as
expressed by the staff: (i) the Company's lack of three year operating history;
(ii) the lack of regulatory approval for commercial distribution and marketing
of any of the Company's products; (iii) the excessive discount afforded to the
private placement participants to the detriment of potential Nasdaq
shareholders; and (iv) the Company's ability to comply and to continue to
comply with Nasdaq's minimum bid price requirements. The Company is continuing
to seek such listing in an oral hearing to be held before a Nasdaq Listing
Qualification Panel. However, there can be no assurance that the Common Stock
will ultimately be approved for listing on the Nasdaq National Market. In such
event, trading of the Common Stock
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<PAGE>
should continue to be conducted on the OTC Bulletin Board or in the
over-the-counter market in the "pink sheets". The prices of the Common Stock
which currently may be obtained on the OTC Bulletin Board 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 currently requires that: (i) the Company maintain at least $4,000,000 in
net tangible assets if it has sustained losses from continuing operations and/or
net losses in three of its four most recent fiscal years; (ii) a market value of
its publicly held shares of at least $1 million; (iii) the minimum bid price for
the Common Stock be at least $1.00 per share or, in the alternative, the market
value of the Company's publicly held shares must be at least $3 million and
the Company have at least $4 million of net tangible assets; (iv) the public
float of the Common Stock consist of at least 200,000 shares; (v) the Common
Stock have at least two active market makers; and (vi) the Common Stock be held
by at least 400 holders or 300 round lots. Recently, the Nasdaq National Market
proposed changes to the quantitative and qualitative standards for continued
listing on the Nasdaq National Market. If the Company is unable to satisfy the
maintenance requirements as they may be in effect from time to time, the Common
Stock may be delisted from the Nasdaq National Market. In such event, trading,
if any, in the Common Stock would thereafter probably be conducted on the OTC
Bulletin Board or in the over-the-counter market in the "pink sheets."
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 media 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 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. Though the Company believes that it currently meets the net
tangible assets test, there can be no assurance that the Company will meet the
requirements of the foregoing financial exceptions. Failure to qualify under one
of these exceptions, will require delivery, prior to any transaction in a penny
stock, of a disclosure schedule prepared by the Commission relating to the penny
stock market. Disclosure is also required to be made about sales commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks. In any event, even if the
Common Stock were exempt from such restrictions, they would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that engages in unlawful conduct while participating in a
distribution of penny stock from associating with a broker-dealer or
participating in a distribution of penny stock, if the Commission finds that
such a restriction would be in the public interest. Accordingly, if the Common
Stock is subject to the rules on penny stocks, the market liquidity for such
securities could be materially and adversely affected.
In addition, if the Common Stock fails to meet the minimum market price, the net
tangible asset or the annual revenue tests set forth above, but are quoted on
the OTC Bulletin Board (as to which there can be no assurance), then trading in
the Common Stock would be regulated pursuant to Rules 15-g-1 through 15-g-6 and
15-g-9 promulgated under the Exchange Act for non-National Association of
Securities Dealers Automotive Quotation System and non-exchange listed
securities. Under 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
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<PAGE>
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.
Potential Conversion Price Reset of Series B Preferred Stock
In 1996, the Company consummated an offering of units consisting of shares of
Series B Preferred Stock and Common Stock. The 259,198 shares of Series B
Preferred Stock sold in such offering are convertible at the option of the
holders thereof into shares of Common Stock, at an initial conversion rate of 50
shares of Common Stock per share of Series B Preferred Stock, corresponding to a
conversion price equal to $2.00 per share. The conversion price (and,
consequently the number of shares of Common Stock issuable upon conversion) is
subject to a reset upon the happening of certain events. See "Description of
Securities--Conversion." Any such reset of the conversion price applicable to
the Series B Preferred Stock would result in the issuance of additional shares
of Common Stock upon conversion of the Series B Preferred Stock, and would have
a dilutive effect on purchasers of the Common Stock offered hereby.
In addition, in consideration for their agreement to extend the "lock-up"
provisions described below which are applicable to the shares of Common Stock
issuable upon conversion of the Series B Preferred Stock, certain holders of
shares of Series B Preferred Stock are entitled to be issued additional shares
of Common Stock upon the happening of certain events. See "Description of
Securities--Lock-Up." The occurrence of such an event and the issuance of the
additional shares of Common Stock would have a dilutive effect on purchasers of
the Common Stock offered hereby.
Forward Looking Statements
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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 MelanoVax(TM), the seeking of joint development or
licensing arrangements with pharmaceutical companies, the research and
development of particular compounds and technologies for particular indications
and the period of time for which the Company's existing resources will enable
the Company to fund its operations and to meet the initial listing requirements
for the quotation of its securities on the Nasdaq National Market and the
possibility of contracting with other parties additional licenses to develop,
manufacture and market commercially viable products, are forward-looking and
based upon the Company's current belief as to the outcome, occurrence and timing
of future events or current expectations and plans. All such statements involve
significant risks and uncertainties. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates, including, among other things, the ability
to obtain substantial additional funds, obtain and maintain all necessary
patents or licenses, to demonstrate the safety and efficacy of product
candidates at each state of development, to meet applicable regulatory standards
and receive required regulatory approvals, to meet obligations and required
milestones under its license agreements, to be capable of producing drug
candidates in commercial quantities at reasonable costs, to compete successfully
against other products and to market products in a profitable manner. As a
result, there also can be no assurance that these statements included in the
Prospectus will prove to be accurate. In light of the significant uncertainties
inherent in these statements included herein, 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 $160,000. 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.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is quoted on the OTC Bulletin Board under the symbol "AVAX."
The following table sets forth, for the periods indicated, the high and low
closing bid prices for the Common Stock, as reported by the National Quotation
Bureau, for the quarters presented. The prices set forth below represent
inter-dealer quotations, without adjustment for markups, markdowns and
commissions and may not be reflective of actual transactions.
High Low
Fiscal year ended December 31, 1996 3 2 7/8
Fourth quarter
The last reported sale price of the Common Stock on the OTC Bulletin Board on
February 20, 1997, was $3.25 per share. At December 31, 1996, there were
6,222,316 shares of Common Stock outstanding, which were held by approximately
436 shareholders of record.
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
December 31, 1996. This table should be read in conjunction with the Company's
financial statements, and the related notes thereto. See "Financial Statements."
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity
Preferred Stock, $.01 par value:
Authorized Shares - 5,000,000, including Series B- 300,000
shares convertible preferred stock
Issued and outstanding shares - 259,198
(liquidation preference - $34,991,730) 2,592
Common Stock, $.002 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 6,222,316 12,445
Additional paid-in capital 24,002,882
Subscription receivable (4,026)
Deferred compensation (963,424)
Unrealized loss on marketable securities (2,037)
Deficit accumulated during the developmental stage (3,254,022)
Total stockholders' equity $19,794,410
</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 $3,254,022 as of December 31,
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 clinical trials for MelanoVax(TM), and other
preclinical studies and clinical trials for other products that may arise from
the AC Vaccine technology from the compounds licensed from Rutgers and Texas A&M
and other products that it may acquire or develop.
The Company's ability to achieve profitability depends upon, among other things,
its ability to develop products, obtain regulatory approval for its proposed
products, and enter into agreements for product development, manufacturing and
commercialization. The Company's MelanoVax(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 MelanoVax(TM) or any other products that it may
develop.
Plan of Operation
The Company is currently engaged in the development and commercialization of
biotechnology and pharmaceutical products and technologies. In November 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 it will conduct substantial
research and development of the AC Vaccine technology, including, without
limitation, Phase III clinical trials on MelanoVax(TM), the Company's lead AC
Vaccine technology for metastatic melanoma (if FDA approval of such trials is
received). The Company also anticipates that it will expend substantial
resources on the research and development of that same technology for the
treatment of other cancers, which may include ovarian, breast, prostate, lung
and colorectal cancer and acute myologenous leukemia (AML). For example, the
Company is in the preliminary stages of enrolling patients for its Phase II
clinical trial of OVax(TM), its AC Vaccine for ovarian cancer. This trial is
being conducted at TJU under the direction of Dr. David Berd. It is also
expected that during the next 12 months, in order to support these clinical
trial efforts, the Company will be required to expend substantial resources on
the establishment of laboratory facilities for the manufacture of its products.
See "Business--Technology Applications and Product Candidates," "Research and
Development."
In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, in December 1996, the
Company acquired the exclusive worldwide rights to a series of compounds for the
potential treatment of cancer and other infectious diseases from Rutgers.
Additionally, in February 1997, the Company acquired the exclusive worldwide
rights to another series of compounds for the potential treatment of cancer from
Texas A&M. Pursuant to the Rutgers License and the Texas A&M License, the
Company intends to expend substantial resources on the research and development
of these compounds.
While there can be no assurance, the Company may 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
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<PAGE>
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.
During 1996, the Company hired four new employees and it anticipates that
over the next 12 months it may hire approximately three more new employees, and
may establish lab facilities for the clinical development and manufacture of
the AC Vaccine products or any other technologies which may have been, or
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.
Liquidity and Capital Resources
The Company currently anticipates that its current resources should be
sufficient to fund operations for approximately the next 24-36 months based upon
the Company's current operating plan 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, changes in levels of resources that the Company
devotes to the development of manufacturing and marketing capabilities,
competitive and technological advances, status of competitors, and the ability
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 under its current operations plan and/or not need to raise additional
capital. Since the Company has no committed external sources of capital, and
expects no product revenues for the foreseeable future, it will likely require
additional financing to fund future operations. There can be no assurance,
however, that the Company will be able to obtain the additional funds it will
require on acceptable terms, if at all. If adequate funds are not available the
Company may be required to delay, reduce the scope of or eliminate one or more
of its research or development programs; to obtain funds through arrangements
with collaborative partners or others that may require the Company to relinquish
rights to certain technologies, product candidates or products that the Company
would otherwise seek to develop or commercialize itself; or to license the
rights to such products on terms that are less favorable to the Company that
might otherwise be available. See "Risk Factor--Accumulated Deficit; Uncertainty
of Future Profitability."
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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 and other life-threatening
diseases. The Company initially intends to focus its efforts primarily on the
development of immunotherapies and chemotherapies for cancer. Immunotherapy 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 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 immune system to eliminate
the cancer. This technology has emerged from research conducted at TJU and
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, MelanoVax(TM), is currently undergoing
physician-sponsored human clinical trials based on an experimental protocol at
TJU as an outpatient, post-surgical, adjunct therapy for the treatment of
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
stage 3 melanoma. In such ongoing clinical trials at TJU, over 275 melanoma
patients have been treated post- surgically on an outpatient basis with
MelanoVax(TM). In 62 patients with stage 3 melanoma in protocols in which
there has been sufficient time for long-term follow-up, the five-year survival
rate is approximately 60%. This compares with the historical and control group
stage 3 survival rate of approximately 20%, and the survival rate for treatment
with high dose alpha interferon of approximately 32% in stage 3 patients whom
the Company believes to be comparable to those treated with MelanoVax(TM) The
Company believes that the results to date of the ongoing clinical trial
represent the first substantial increase in survival for stage 3 melanoma
patients treated by immunotherapy. In the over 275 patients treated in
studies, the Company believes that only relatively minor side effects, such as
soreness and swelling at the site of the application of the MelanoVax(TM)
vaccine, have been witnessed to date.
The Company also believes that the AC Vaccine technology may have applications
in the treatment of other cancers, which may include ovarian, breast,
prostate, lung and colorectal cancers and acute myologenous leukemia (AML). The
Company intends to fund the preclinical and initial clinical development of this
technology for at least some of these indications. Accordingly, in addition to
continuing the clinical work on MelanoVax(TM), the Company has also entered
into a sponsored research agreement with TJU relating to the development of
additional immunotherapies based on the AC Vaccine technology. For example,
the Company is in the preliminary stages of enrolling patients for its Phase
II clinical trial of OVax(TM), its AC Vaccine for ovarian cancer. This trial
will be conducted at TJU under the direction of Dr. David Berd, the inventor of
the AC Vaccine technology.
In order to contain costs, the Company may continue to 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, chemotherapy 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.
In connection with the Company's strategy to acquire, develop and commercialize
other potential biotechnology products and technologies, the Company recently
licensed from Rutgers University and the University of Medicine
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<PAGE>
and Dentistry of New Jersey (collectively, "Rutgers"), certain patent
applications relating to a series of compounds for the potential treatment of
cancer and infectious diseases (the "Rutgers License"), and from The Texas A&M
University System ("Texas A&M"), an issued U.S. patent and certain patent
applications relating to a series of compounds for the potential treatment of
cancer (the "Texas A&M License"). The Company intends to expend substantial
resources on the research and development of these compounds.
Background and Scientific Rationale of the AC Vaccine Technology
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 metastasised (spread) to other organs and
tissues, surgical removal of the tumor is often effective. Unfortunately, many
cancers are not discovered until metastatic cancer cells from the primary tumor
have already entered the blood or lymphatic system and established new tumors at
distant sites. These cells, and the tumors they form, are difficult to diagnose
and treat with current technology.
As of 1995, approximately 7.4 million 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
this treatment is effective in many types of cancers, in cases in which
removal of the tumor is incomplete or in which the tumor has metastasised,
the patient's prognosis is poor. Chemotherapy and radiation therapy are rather
crude treatments since they kill cells indiscriminately, destroying normal as
well as malignant cells, leading to toxic side-effects and thereby limiting
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 may, therefore, 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, developed to effectively treat the recurrence of
cancer after surgery, is likely to have a sizable market share. Surgery, in
many cases is the first treatment performed on cancer patients, and if such a
treatment following surgery were to prove broadly applicable and safe, its
market potential could be significant while enabling the health care system
to realize significant overall 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 immunotherapies have the potential to be effective and by reason of
their selectivity, relatively safe anticancer therapeutic agents.
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Technology Applications and Product Candidates
The AC Vaccine Technology
The Company's primary 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 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. In one proposed model, 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 would then 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 ovarian, breast, prostate,
lung and colorectal cancer and may have applications in the treatment of acute
myologenous leukemia (AML).
MelanoVax(TM)
General. The Company's lead product, MelanoVax(TM), is a post-surgical
treatment for stage 3 melanoma. Melanoma is a highly malignant tumor that can
spread so rapidly that it can be fatal within months of diagnosis. The incidence
of 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 affects over 200,000 people
in the United States, with approximately 34,000 new cases diagnosed in 1995.
Melanoma patients may be categorized according to the following staging system:
o Stage 1-- lesion less than 1.5mm thickness and no apparent metastasis
o Stage 2-- lesion greater than 1.5mm thickness and local spreading from primary
cancer site
o Stage 3-- metastasis to regional draining lymph nodes and regional spread from
primary cancer site
o Stage 4--distant metastasis
Surgical excision of the tumor mass and any of the nearby lymph nodes into which
there has been metastasis remains the generally accepted treatment to date for
patients with stage 3 melanoma. 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.
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<PAGE>
The five-year survival rate for these patients is believed by the Company to be
approximately 20%. Recently, the FDA approved the use of high doses of alpha
interferon for the post-surgical treatment of melanoma patients. In clinical
studies alpha interferon has demonstrated a five-year survival rate that the
Company believes to be approximately 32% in stage 3 patients whom the Company
believes to be comparable to those treated with MelanoVax(TM). Thus, the Company
believes that there is a clear need for an effective post-surgical treatment of
stage 3 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. Dr. Berd has
been conducting physician-sponsored clinical trials for the treatment of
melanoma using MelanoVax(TM)for approximately the past eight years.
In such ongoing clinical trials at TJU, over 275 melanoma patients have been
treated post-surgically on an outpatient basis
with MelanoVax(TM). In 62 patients with stage 3 melanoma in protocols in
which there has been sufficient time for long-term follow-up, the five-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% in stage 3 patients whom
the Company believes to be comparable to those treated with MelanoVax(TM). The
Company believes that the results to date of the ongoing clinical trial
represent the first substantial increase in survival for stage 3 melanoma
patients treated by immunotherapy. In the over 275 patients treated in
studies, the Company believes that only relatively minor side effects, such as
soreness and swelling at the site of the application of the MelanoVax(TM)
vaccine, have been witnessed to date.
Although TJU and Dr. Berd have conducted the ongoing clinical trials at TJU
pursuant to an FDA-approved, physician- sponsored Investigational New Drug
Application ("IND"), to date the Company has not had any meetings with the
FDA. However, the Company has scheduled a meeting with the FDA to discuss the
clinical results obtained with MelanoVax(TM), the use of such results in
support of the submission of a Company-sponsored IND to the FDA, and to review
its proposed Phase III program for MelanoVaxTM. The purpose of the IND
submission will be to seek FDA approval to enter MelanoVax(TM) into Phase
III 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 MelanoVax(TM). The Company also may pursue a similar regulatory
approval and commercialization strategy for MelanoVax(TM) in Australia,
Canada, Mexico and certain other countries 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.
The Company is in the preliminary stages of enrolling patients for its Phase II
clinical trial of OVax(TM), its AC Vaccine for ovarian cancer. This trial will
be conducted at TJU under the direction of Dr. Berd.
In connection with the Company's development of its regulatory strategy, the
Company has a consulting agreement with Biometric Research Institute ("BRI")
pursuant to which BRI advises and assists the Company in its pursuit of FDA
regulatory approvals.
Research and Development
The TJU License
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 began a research and clinical
study program for the further development of the AC Vaccine technology for
additional cancer targets. In turn, the Company agreed 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
27
<PAGE>
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.
Termination of the TJU License will have a material adverse effect on the
Company's business, financial condition and results of operations. See "Risk
Factors--Dependence on Licenses and Sponsored Research Agreements."
The Rutgers License
In consideration of the license granted to the Company by Rutgers, the Company
has committed to the funding of research for each of the first three years of
the Rutgers License at a rate of $100,000 per year. In addition, the Company is
obligated to spend an aggregate of $200,000 in the first year, $300,000 in the
second year and $500,000 each year thereafter until the first year of commercial
marketing of a product derived from the Rutgers compounds, for the development,
research (including the $100,000 research funding commitment in each of the
first three years), manufacture, regulatory approval, marketing and selling of a
product derived from the Rutgers compounds. If the Company fails to make such
payments in accordance with the terms of the Rutgers License, Rutgers would be
entitled to terminate the agreement and no further research would be performed
thereunder. The termination of the Rutgers License could have a material adverse
effect on the Company. See "Risk Factors--Dependence on Licenses and Sponsored
Research Agreements."
It is expected that the research and development effort with respect to these
compounds will be conducted at Rutgers under the direction of Edmond J. LaVoie,
Ph.D., the originator of the technology underlying the Rutgers License. Dr.
LaVoie is Professor of Medical Chemistry and Chairman of the Department of
Pharmaceutical Chemistry at Rutgers and has agreed to become a member of the
Company's Scientific Advisory Board. See "Management--Scientific Advisory
Board."
The Texas A&M License
In consideration of the license granted to the Company by Texas A&M, the Company
has committed to the funding of research in the amount of $108,750 for each of
the first three years. In addition, the Company is required to achieve certain
milestones toward development of a licensed product within certain specified
time frames. If the Company fails to make such payments or achieve such
milestones in accordance with the terms of the Texas A&M License, Texas A&M
would be entitled to terminate the agreement and no further research would be
performed thereunder. The termination of the Texas A&M License could have a
material adverse effect on the Company. See "Risk Factors--Dependence on
Licenses and Sponsored Research Agreements."
It is anticipated that the research and development effort with respect to the
potential anti-cancer compounds licensed under the Texas A&M License will be
conducted at Texas A&M under the direction of Stephen H. Safe, Ph.D., the
originator of the technology underlying the Texas A&M License. Dr. Safe is Sid
Kyle Professor of Toxicology at Texas A&M and has agreed to become a member of
the Company's Scientific Advisory Board. See "Management--Scientific Advisory
Board."
For fiscal years 1995 and 1996, the Company incurred research and development
expenses of $126,957 and $738,991, respectively. See "Financial Statements."
Although there can be no assurance, the Company intends to spend increasingly
more on research and development in the foreseeable future.
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<PAGE>
Proprietary Rights
The TJU License
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. As
consideration for the TJU License, the Company paid $10,000 to TJU, and 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 would have a material adverse effect on the
Company. See "Risk Factors--Dependence on Licenses and Sponsored Research
Agreements."
The Rutgers License
Pursuant to the Rutgers License, the Company has licensed certain patent
applications relating to a series of compounds for the potential treatment of
cancer and infectious diseases. The Company paid $15,000 as consideration for
the Rutgers License, and has agreed to pay an additional $15,000 license
maintenance fee in each subsequent year. The Company also has agreed to fund
research in the amount of $100,000 for the first three years of the Rutgers
License. The license maintenance fee is not payable in years where research
funding is equal to or greater than $100,000.
The Company has committed to the issuance to Rutgers of warrants to purchase
250,000 shares of Common Stock at a price of $4.12 per share. Such warrants are
exercisable upon the achievement of certain development-related milestones. The
first 150,000 of such warrants will expire in 2006 and the final 100,000 of such
warrants will expire in 2011. These warrants will provide for cashless exercise,
piggyback registration rights and certain anti-dilution rights.
The Company is also obligated to pay certain milestone payments as follows:
$15,000 on the earlier of October 31, 1999 or the date of first filing of an IND
application with the FDA, or comparable international agency, $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country, $45,000 on the earlier of October
31, 2005 or the date of first filing of an NDA application with the FDA, or
comparable international agency and $150,000 on the earlier of October 31, 2008
or the date of receipt by the Company of approval from the FDA or comparable
international agency to market products. In addition, the Company is required to
pay royalties on its worldwide net sales revenue derived from the Rutgers
compounds and a percentage of all revenues received from sublicenses of products
derived from these compounds. Failure to comply with the terms of the Rutgers
License may cause its termination, which would have a material adverse effect on
the Company. See "Risk Factors--Dependence on Licenses and Sponsored Research
Agreements."
The Texas A&M License
Pursuant to the Texas A&M License, the Company has licensed an issued U.S.
patent and certain patent applications relating to a series of compounds for the
potential treatment of cancer. Under the terms of the agreement, the
29
<PAGE>
Company is obligated to pay future milestone payments, royalties on its net
sales revenue derived from these compounds and a percentage of all revenues
received from sublicensees of such compounds. The Company also has agreed to
fund research in the amount of $108,750 for each of the first three years of the
Texas A&M License. Failure to comply with the terms of the Rutgers License may
cause its termination, which would have a material adverse effect on the
Company. See "Risk Factors-- Dependence on Licenses 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 may be, in direct competition with
the Company's AC Vaccine or compounds resulting from development work pursuant
to the Rutgers License or the Texas A&M License. Such future competitor products
and 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 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 such as ovarian,
breast, prostate, lung and colorectal cancer and may have applications in the
treatment of acute myologenous leukemia (AML) 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, any of its
potential products will be approved.
Manufacturing and Marketing
The Company does not currently 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
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<PAGE>
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.
To date, the Company has not entered into any collaborative commercial
manufacturing or marketing agreements for any of its potential 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."
The Company may elect to establish its own manufacturing facilities for the
products and technologies that it may develop. In the event the Company decides
to establish manufacturing facilities, the Company will be required to hire and
train significant numbers of employees and to comply with the extensive cGMP
regulations applicable to such a facility. The establishment of any such
facilities and eventual expansion of operations to commercial levels, as well as
the hiring of qualified employees, could require substantial expenditures. In
addition, if any of the Company's products produced at its facilities were
regulated as biologics, the Company could be required to file with the FDA in
order to obtain an establishment license (or similar license) for its
facilities. Any delay in FDA's approval (or its refusal to grant) such a license
would delay or prevent marketing of the relevant product. See "Risk
Factors--Lack of Manufacturing Facilities."
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, that 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
MelanoVax(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 III clinical trial.
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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.
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 MelanoVax(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 MelanoVax(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 February 24, 1997, the Company had 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 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 laboratory facility for the manufacturing of its potential
products although no such lease or ownership interest is under current
consideration. The research and development work of the Company is currently
being conducted at TJU, Rutgers and Texas A&M pursuant to their respective
license agreements with 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 Manufacturing and Marketing of
Pharmaceutical Products" and "Certain Transactions."
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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.
33
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names and positions of the executive officers
and directors of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C>
Jeffrey M. Jonas, M.D. 43 Chief Executive Officer, President and
Director
Edson D. de Castro 58 Director
John K.A. Prendergast, Ph.D. 43 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. 53 Executive Vice President
</TABLE>
Jeffrey M. Jonas, M.D., has been the Chief Executive Officer, President and
Director of the Company since June 1, 1996. Prior to joining the Company, from
1994 to 1996, Dr. Jonas was the Vice President of Clinical Development 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 a research and clinical
psychopharmacologist in the Boston area. Dr. Jonas has authored a book on
Prozac(TM), and over 100 scientific articles, abstracts 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., Gemini 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 of Palatin Technologies, Inc. From 1993 to 1996, Dr. Spana
was responsible for discovering, evaluating, and commercializing new
biotechnologies through his work at Paramount Capital Investments, LLC where he
was an
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Associate Director. Dr. Spana has been a co-founder of several private
biotechnology firms. 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 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 October 1, 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 October 1, 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 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, Dr. Spana
and Mr. de Castro.
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Scientific Advisory Board
The Company has a Scientific Advisory Board that consists of individuals with
extensive experience in the Company's fields of interest. It is expected that
the Scientific Advisory Board members will meet as a board with management and
key scientific employees of the Company on a semi-annual basis and in smaller
groups or individually on an informal basis. The Company anticipates that the
Scientific Advisory Board members will assist the Company in identifying
scientific and product development opportunities, in reviewing and evaluating
scientists and other employees. Presently, the Scientific Advisory Board members
consists of:
<TABLE>
<CAPTION>
<S> <C>
David Berd, M.D. -- Chairman Clinical Oncologist at the Jefferson Cancer Center of TJU and
Inventor of the Company's AC Vaccine technology.
Edmond J. LaVoie, Ph.D. Professor of Medicinal Chemistry and Chairman of the Department of
Pharmaceutical Chemistry at Rutgers University.
Margalit Mokyr, Ph.D. Professor of Biochemistry at the University of Illinois College of
Medicine.
Stephen H. Safe, Ph.D. Sid Kyle Professor of Toxicology at Texas A&M University.
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.
</TABLE>
Drs. Berd and Weisbach are compensated pursuant to their consulting agreements
with the Company. See "Employment Agreements; Termination and Severance
Arrangements." It is expected that the other scientific advisors will enter
into Scientific Advisory Board agreements pursuant to which they may be
compensated on a per meeting basis and otherwise as shall be determined by the
Board of Directors (or the Compensation Committee).
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 affiliated 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.
36
<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 1996.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal Year Salary Bonus Restricted Common Shares of All Other
Position Stock Award(s) Common Stock Compensation
($) Underlying
Options/SARs
- ------------------------- -------- -------------------- -------------- --------------------- ------------------ --------------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey M. Jonas, M.D. 1996 $117,712.29 $12,500(1) -0- 637,745 -0-
- -- President and Chief
Executive Officer
Carl Spana, Ph.D. --
President 1995 -0- -0- $623.21(2) -0- -0-
Jerry Weisbach, Ph.D. - 1996 $71,330.35(3) -0- -0- -0- -0-
- - Chief Executive
Officer
1995 $50,000 -0- $519.34(4) -0- -0-
1994 -0- -0- -0- -0- $31,250(5)
</TABLE>
1 Represents amount paid to Dr. Jonas as a signing bonus in connection
with his letter of employment. See "Management--Employment Agreements;
Termination and Severance Arrangements."
2 Represents 311,605 shares of Common Stock issued to, and purchased by, Dr.
Spana on September 13, 1995, which shares were valued at December 31, 1995
at $.002 per share.
3 Represents payment of consulting and deferred consulting fees. See
"Management--Employment Agreements; Termination and Severance Arrangements."
4 Represents 259,671 shares of Common Stock granted and purchased at a price
of $.002 per share on 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 of Common Stock, the Company repurchased 155,803 shares of
Common Stock at a price of $.002 per share on March 24, 1996. See
"Management--Employment Agreements; Termination and Severance Arrangements."
5 Represents fees received by Dr. Weisbach pursuant to his consulting
agreement with the Company. See "Management--Employment Agreements;
Termination and Severance Arrangements."
37
<PAGE>
38
<PAGE>
Options/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Shares of Common Stock % of Total
Underlying Options/SARs Options/SARs Granted Exercise or Base
Name Granted to Employees in Fiscal Price ($/share) Expiration Date
Year
- -------------------------- --------------------------- ------------------------- ------------------ ------------------------------
<S> <C> <C> <C> <C>
Jeffrey M. Jonas, M.D. 637,745 55.81% .50 June 1, 2003
- -- President and Chief
Executive Officer
</TABLE>
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 and 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 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 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
39
<PAGE>
terms thereafter at the discretion of both parties and may be terminated upon 30
days' notice by either party. See "Certain Transactions." Dr. Spana's tenure as
Interim President of the Company included the period from March 1996 to June
1996, when the Company did not have a Chief Executive Officer. In connection
with Dr. Jonas' appointment as the President and Chief Executive Officer of the
Company, Dr. Spana has resigned from his position as Interim President.
In May 1996, the Company entered into a consulting agreement with Dr. David Berd
(the "Berd Consulting Agreement"). Pursuant to such consulting agreement, Dr.
Berd is entitled to a $36,000 per year consulting fee payable on a monthly basis
accruing from January 1, 1996, the payment of which commenced upon the
consummation of the Series B Offering. The Berd Consulting Agreement is for a
term of three years subject to early termination upon the happening of certain
events. If Dr. Berd's consulting agreement is terminated without cause, Dr. Berd
will be entitled to six months' severance pay. In addition, Dr. Berd has agreed
to serve as Chairman of the Company's Scientific Advisory Board.
From 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 155,803 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
consideration. 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.
40
<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
$25,800,000. 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 $2,324,000, a non-accountable expense allowance
of approximately $1,033,000 and placement warrants ("Series B Placement
Warrants") to acquire approximately 25,820 shares of Series B Preferred Stock,
exercisable until June 11, 2006 at an exercise price of $110 per share of
Series B Preferred Stock. See "Description of Securities."
An aggregate of 72,798 shares of Common Stock issuable upon conversion of the
shares of Series B Preferred Stock issuable upon exercise of the Series B
Placement Warrants held by non-Paramount registered representatives are being
registered pursuant to the Registration Statement for this Offering. An
aggregate of 1,218,192 shares issuable upon conversion of the shares of Series B
Preferred Stock issuable upon exercise of the Series B Placement Warrants held
by Paramount registered representatives are not being so registered.
Pursuant to the placement agency agreement for the Series B Offering, on June
12, 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 its designees
were granted and sold 1,832,971 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 and to the Company's former President and Chief Executive Officer,
Dayne R. Myers. 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 remained payable to those persons who were record holders of shares of
the Company's Series A Preferred Stock on December 27, 1995. Accordingly, in
January 1997, 55,422 shares of IPI common stock were distributed to the former
holders of Series A Preferred Stock and Dayne Meyers as the first installment
payment. 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
41
<PAGE>
on the Nasdaq National Market. The market price of Interneuron's common stock at
December 31, 1995, and February 22, 1997 was $12.50 and $29.00,
respectively.
Dr. Lindsay A. Rosenwald, a substantial shareholder of the Company, is the
Chairman and sole shareholder of each of the Placement Agent and Paramount
Capital Investments, LLC. Dr. Rosenwald is also Chairman of the Board and a
principal stockholder of Interneuron. Dr. Rosenwald personally collateralized
loans to the Company from NatWest Bank N.A., pursuant to which the Company
incurred principal and interest indebtedness of approximately $55,000. Such
indebtedness was paid in full as of June 30, 1996. Dr. Rosenwald also extended a
line of credit to the Company. As of June 30, 1996, the Company paid the
outstanding principal amount and accrued interest under such line of credit,
which was approximately $250,000. 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, at that
time, the Treasurer of the Company, is Chief Financial Officer of Paramount and
Paramount Capital Investments, LLC. Dr. Carl Spana, a Director of the Company,
was at that time a Vice President of Paramount Capital Investments, LLC.
Dr. John K.A. Prendergast, also a Director of the Company, is a Managing
Director of Paramount Capital Investments, LLC.
In consideration of services rendered on behalf of the Company in connection
with the acquisition and negotiation of the Rutgers License, in February 1997,
the Company agreed to pay Samuel P. Wertheimer, Ph.D., $40,000 and to issue to
Dr. Wertheimer warrants to purchase 25,500 shares of Common Stock at an exercise
price of $3.00 per share, exercisable for seven years. In consideration of
services rendered on behalf of the Company in connection with the acquisition
and negotiation of the Texas A&M License, in February 1997, the Company agreed
to pay Fred Mermelstein, Ph.D., $40,000 and to issue to Dr. Mermelstein warrants
to purchase 25,500 shares of Common Stock at an exercise price of $3.25 per
share, exercisable for seven years. Drs. Wertheimer and Mermelstein are
employees of Paramount Capital Investments, LLC.
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 warrants 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
December 24, 1996 until October 24, 2001. The Meyerson Warrants may be exercised
in whole or in part. Pursuant to Section 2710(c)(7)(A) of the NASD Corporate
Financing Rules, the Meyerson Warrants may be issued to Meyerson and its bona
fide officers and employees only and shall not be sold, transferred, assigned or
pledged or hypothecated by any person for a period of one year. Accordingly, the
Meyerson Warrants will contain an appropriate legend describing the restriction
set forth above the time period for which the restriction is operative. Meyerson
was also paid a fee of $15,000 at the time of its execution of the investment
banking agreement.
Pursuant to the Company's Certificate of Incorporation and Bylaws, the Company
has agreed to indemnify the Directors of the Company to the maximum extent
permissible under Delaware law.
42
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding the beneficial 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 Beneficial Number of Shares Percentage of Class
Owner (1) Title of Stock Beneficially Owned
<S> <C> <C> <C>
Lindsay A. Rosenwald, M.D. (2)
787 Seventh Avenue, Common Stock 1,433,526 23.04%
44th Floor Series B Preferred 10,000 (3) *
New York, NY 10019
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 119,577 1.92%
John Pappajohn (6)
2116 Financial Center Common Stock 377,000 6.06%
Des Moines, IA 50309 Series B Preferred 2,000 *
Carl Spana, Ph.D. Common Stock 129,835 2.09%
John K.A. Prendergast, Ph.D. Common Stock 129,836 2.09%
Edson D. de Castro (7) Common Stock 52,222 *
Michael S. Weiss (8) Common Stock 201,435 3.24%
David L. Tousley (9) Common Stock 31,250 *
Ernest W. Yankee (10) Common Stock 31,250 *
All officers and directors as a group Common Stock 695,402 10.77%
(7 persons) Series B Preferred -0- *
</TABLE>
(See notes on next page)
- -------------------------------------
* Represents less than 1%.
43
<PAGE>
(1) Beneficial ownership is determined in accordance with rules promulgated by
the Securities and Exchange Commission, and include voting and investment power
with respect to shares of Common Stock. Shares of Common Stock subject to
options or warrants currently exercisable or exercisable within 60 days of the
date of this Prospectus, 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 Financing 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 the date of this Prospectus.
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 owed 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 the date of
this Prospectus, upon the exercise of options granted pursuant to his letter of
employment. Excludes 518,168 shares of Common Stock issuable upon exercise of
options granted pursuant to his letter of employment which are not exercisable
within 60 days of the date of this Prospectus.
(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) Represents shares of Common Stock that Mr. de Castro may acquire within 60
days of the date of this Prospectus. Excludes 7,778 shares of Common Stock
issuable upon exercise of options that are not exercisable within 60 days of
the date of this Prospectus.
(8) Excludes (i) 3,000 shares of Common Stock issuable upon exercise of Bridge
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 the date of this Prospectus.
(9) Represents shares that Mr. Tousley may acquire within 60 days of the date
of this Prospectus upon the exercise of options granted pursuant to his letter
of employment. Excludes 218,750 shares of Common Stock issuable upon exercise
of options granted pursuant to his letter of employment which are not
exercisable within 60 days of the date of this Prospectus.
(10) Represents shares that Dr. Yankee may acquire within 60 days of the date
of this Prospectus upon the exercise of options granted pursuant to his letter
of employment. Excludes 218,750 shares of Common Stock issuable upon exercise
44
<PAGE>
of options granted pursuant to his letter of employment which are not
exercisable within 60 days of the date of this Prospectus.
45
<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 February 15, 1997, 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. Thereafter, in July
1996, the Series A Preferred Stock was eliminated pursuant to a Certificate of
Elimination filed by the Company. 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. The first installment of
common stock of IPI was received by these former holders of Series A Preferred
Stock in January 1997. See "Certain Transactions."
46
<PAGE>
47
<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 June 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.
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
48
<PAGE>
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, 75% of the Conversion Shares, without the prior written consent of
the placement agent in the Series B Offering (the "Lock-Up"). Such restrictions
are effective as follows: (i) with respect to 75% of the Conversion
Shares until September 12, 1996 (three months after the completion of the
Series B Offering); with respect to the 50% of the Conversion Shares until
December 12, 1996 (six months after the completion of the Series B Offering);
and with respect to the remaining 25% of the Conversion Shares until March 11,
1997 (nine months after the completion of the Series B Offering). Accordingly,
25% of each of the holders' Conversion Shares were never subject to the Lock-Up.
Certain holders of shares of Series B Preferred Stock have agreed to amend their
subscription agreement with the Company and extend the Lock-Up period. Pursuant
to this amendment, the Lock-Up for such holder's shares of Series B Preferred
Stock has been extended to be in effect as follows: (i) three months following
the listing of the Conversion Shares on a national securities exchange or
initial quotation on the Nasdaq National Market, the Nasdaq Small-Cap Market or
the OTC Bulletin Board ("Listing"), with respect to 75% of the Conversion
Shares; (ii) six months following Listing with respect to 50% of the Conversion
Shares and (iii) nine months following Listing with respect to the remaining 25%
of the Conversion Shares. Accordingly, 25% of such holders' the Conversion
Shares will continue to have never been subject to the Lock-Up.
In consideration of the agreement with the Company to extend the Lock-Up period
for their Conversion Shares, holders of shares of Series B Preferred Stock that
agreed to such extended Lock-Up have the right one year after Listing to have
the Company issue such number of additional shares of Common Stock as shall be
necessary to effect the principles of the original reset provisions contained in
the Certificate of Designations for the Series B Preferred Stock taking into
account any adjustments which may have been previously made at the time of the
Reset Date.
The holders of shares 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.
49
<PAGE>
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 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 February 21, 1997, options to purchase
60,000 shares of Common Stock were outstanding (of which approximately
50,000 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, 250,000 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
placement warrants ("Series B Placement Warrants") to acquire approximately
25,820 shares of Series B Preferred Stock, exercisable until June 11, 2006 at
an exercise price of $110 per share of Series B Preferred Stock. The Series B
Placement Warrants 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."
An aggregate of 72,798 shares of Common Stock issuable upon conversion of the
shares of Series B Preferred Stock issuable upon exercise of the Series B
Placement Warrants held by non-Paramount registered representatives are being
registered pursuant to the Registration Statement for this Offering. An
aggregate of 1,218,192 shares issuable upon conversion of the shares of Series B
Preferred Stock issuable upon exercise of the Series B Placement Warrants held
by Paramount registered representatives are not being so registered.
50
<PAGE>
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 $.02 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
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 177,538 shares of Common Stock are issuable pursuant to the
Series A Placement Warrants at $1.30 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 warrants 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
December 24, 1996 until October 24, 2001. The Meyerson Warrants may be
exercised in whole or in part. Meyerson has acted, and continues to act, as a
market-maker for the trading of the Common Stock on the OTC Bulletin Board.
In connection with the Rutgers License, the Company granted Rutgers warrants
(the "Rutgers Warrants") to purchase shares of Common Stock at $4.12 per share,
which warrants vest from time to time until October 31, 2011. The Rutgers
Warrants may be exercised, in whole or in part and may be exercised pursuant to
a cashless exercise provision.
In consideration of services rendered on behalf of the Company in connection
with the acquisition and negotiation of the Rutgers License, in February 1997,
the Company agreed to issue to Samuel P. Wertheimer, Ph.D., warrants to purchase
25,500 shares of Common Stock at a price of $3.25 per share. Such warrants may
be exercised in whole or in part over a seven-year period. In consideration of
services rendered on behalf of the Company in connection with the acquisition
and negotiation of the Texas A&M License, in February 1997, the Company agreed
to issue to Fred Mermelstein, Ph.D., warrants to purchase 25,500 shares of
Common Stock at a price of $3.25 per share. Such warrants may be exercised in
whole or in part over a seven-year period.
Each of the foregoing warrants contain provisions that generally provide the
holders thereof certain antidilution protection 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
51
<PAGE>
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 an aggregate of 50% of the shares of Common Stock
issuable upon exercise of the Series A Placement Warrants are entitled to
exercise their right to have the shares of Common Stock issuable upon exercise
thereof registered under the Securities Act at any time 180 days after the
Company's initial public offering until August 31, 1999. 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. Holders of the Rutgers Warrants, as well as the warrants
issuable to Drs. Wertheimer and Mermelstein, are entitled to piggyback
registration rights in any registrations subsequent to the first public offering
by the Company.
Registered representatives of Paramount that may have had registration rights
with respect to their ownership of shares of Common Stock (including shares of
Common Stock issuable upon conversion of shares of Series B Preferred Stock,
including shares of Series B Preferred Stock issuable upon exercise of any
Placement Warrants), have waived their rights to have such Common Stock included
in the Registration Statement at this time and are not participating in the
Offering.
Transfer Agent
Presently, the Transfer Agent for the shares of Common Stock is the
Continental Stock Transfer & Trust Company of New York. It is anticipated that
the UMB Bank of Missouri will become the Transfer Agent of the Company on March
1, 1997.
52
<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 below the caption "Amount to be Offered" represents the aggregate
number of shares of (A) Common Stock owned by each Selling Stockholder, (B)
Common Stock issuable upon conversion of the Series B Preferred Stock owned by
each Selling Securityholder, (C) Common Stock issuable upon conversion of the
Series B Placement Warrants and (D) Common Stock issuable upon exercise of
conversion of the Bridge Placement Warrants (assuming for (B) - (D) the initial
conversion/exercise rates under the terms of the Series B Preferred Stock, the
Series B Placement Warrants and the Bridge Placement Warrants, respectively).
<TABLE>
<CAPTION>
Percentage
Owned after
Shares Owned Amount to Shares Owned Offering
Selling Securityholder (1) prior to be Offered after Offering
Offering
<S> <C> <C> <C> <C>
The 1992 Houston Partnership, L.P. 25,500 25,500 0 *
The A.M. Group L.L.C. 63,750 63,750 0 *
Todd D. Aaron, M.D. 12,750 12,750 0 *
Leonard J. Adams 51,000 51,000 0 *
Ross D. Ain 5,100 5,100 0 *
Meir Aliakim 197,115 197,115 0 *
Amram Kass P.C. Defined Benefit Pension 25,500 25,500 0 *
Plan
George Anagnos 12,750 12,750 0 *
Josephine G. Anagnos 12,750 12,750 0 *
Steven Anagnos 12,750 12,750 0 *
Ansec Corp. 102,000 102,000 0 *
The Aries Domestic Fund, L.P. (2) 243,000 243,000 0 *
The Aries Fund, A Cayman Island Trust (2) 452,000 452,000 0 *
Rajiv Bahl 12,750 12,750 0 *
BAM of NY, Inc. Defined Benefit Pension 63,750 63,750 0 *
Plan
Martin Bandier 25,500 25,500 0 *
Banque SCS Alliance (2) 52,000 52,000 0 *
Banque Franck S.A. 51,000 51,000 0 *
Banque Unigestion 153,000 153,000 0 *
Banque Unigestion 76,500 76,500 0 *
Amnon Barness & Caren H. Barness, 12,750 12,750 0 *
JTWROS
Alan R. Batkin 25,500 25,500 0 *
Laurie and Steven Beane 12,750 12,750 0 *
Mark Berg 127,500 127,500 0 *
David J. Bershad 102,000 102,000 0 *
Biowave Investment Partners 25,500 25,500 0 *
Bishops Merchant Group Limited 51,000 51,000 0 *
John V. Bivona 22,950 22,950 0 *
Marcy Blender, Alan Blender 7,650 7,650 0 *
JTWROS
Blair Foster & Co., Inc. (2) 1,850 1,850 0 *
Elliott Broidy 51,000 51,000 0 *
Seymour Buehler 12,500 12,500 0 *
Patrick J. Callahan 12,750 12,750 0 *
M. Rafael Gonzalez Calvillo 5,100 5,100 0 *
53
<PAGE>
Carlos Plancarte Garcia N., Leonor P. De 12,750 12,750 0 *
Morian, JTWROS
Gabriel M. Cerrone 102,000 102,000 0 *
The Aries Fund, A Cayman Island Trust (2) 452,000 452,000 0 *
Chana Sasha Foundation 51,000 51,000 0 *
Andrew and Barbara Cichelli 12,750 12,750 0 *
Cinco de Mayo, Ltd. 25,500 25,500 0 *
Roger and Margaret Coleman 12,750 12,750 0 *
Colony Partners, A California General 25,500 25,500 0 *
Partnership
Robert J. Conrads 25,500 25,500 0 *
Cook & CIE SA 204,000 204,000 0 *
Lilia Cordero de Adame, Lilia M.A. Olvera, 25,500 25,500 0 *
JTWROS
Archibald Cox, Jr. 102,000 102,000 0 *
Credit Lyonnais Suisse (SA) 153,000 153,000 0 *
David Trust 5,100 5,100 0 *
DBRN Securities Inc. 51,000 51,000 0 *
Elke R. de Ramirez 5,100 5,100 0 *
Nathan P. Diamond 12,750 12,750 0 *
Donald G. Drapkin 127,500 127,500 0 *
M. Robert Dussler 2,550 2,550 0 *
Eastside Investment Partners 25,500 25,500 0 *
Elena Edelstein and Marcus Edelstein 12,750 12,750 0 *
Edgewater Private Equity Fund, LP 190,000 127,500 62,500 *
EDN Equities 102,000 102,000 0 *
Ariel Elia 12,750 12,750 0 *
Howard Ellis 5,100 5,100 0 *
Etablissement Occramis 25,500 25,500 0 *
Europa International, Inc. 25,500 25,500 0 *
Joseph A. Fabiani, M.D. 50,750 38,250 12,500 *
Faisal Finance 102,000 102,000 0 *
Laurence D. Fink 102,000 102,000 0 *
Steven B. Fink 12,750 12,750 0 *
Finterbank Zuerich 51,000 51,000 0 *
Firebird Overseas, Ltd. 25,500 25,500 0 *
Alan Fisher 22,950 22,950 0 *
Norman J. Fisher 25,500 25,500 0 *
Joseph H. Flom 25,500 25,500 0 *
Hans-Wolfgang Frick 51,000 51,000 0 *
James P. Frickleton and James R. Bartimus 51,000 51,000 0 *
Michael J. Garnick 101,500 76,500 25,000 *
Marc Gelman 153,000 153,000 0 *
Joseph Giamanco 102,000 102,000 0 *
Richard Goldberg 25,500 25,500 0 *
Harold S. Goldstein 12,750 12,750 0 *
Golex Holding 102,000 102,000 0 *
Ofelia Anton Gomez 10,200 10,200 0 *
Michael J. Gordon 6,375 6,375 0 *
Robert P. Gordon 25,500 25,500 0 *
Peter Grabler 6,375 6,375 0 *
Robert J. Granovsky 25,500 25,500 0 *
Greenwood Partners 127,500 127,500 0 *
James & Nancy Grosfeld, tenants by 102,000 102,000 0 *
entireties
Peter Grossman 12,750 12,750 0 *
Stuart Gruber 51,000 51,000 0 *
Erez & Elyse Halevah 25,500 25,500 0 *
Yonah J. Hamlet, MD Trustee FBO Yonah 19,000 19,000 0 *
J. Hamlet, MD Profit Sharing Plan Dtd.
1/1/86
Harpel Family Partnership 127,500 127,500 0 *
Thomas O. Hecht 25,500 25,500 0 *
54
<PAGE>
Chaim Herman and Denise Herman 5,100 5,100 0 *
Gary Herman 25,500 25,500 0 *
Jack Hirschfield 6,375 6,375 0 *
The Holding Company 51,000 51,000 0 *
The Aries Fund, A Cayman Island Trust (2) 452,000 452,000 0 *
Jeffrey C. Hoos 12,750 12,750 0 *
Irving Huber and Charlotte Huber 12,750 12,750 0 *
IASD Health Services Corp. 102,000 102,000 0 *
Mark & Rebecca Ingerman 25,500 25,500 0 *
J.F. Shea Co., Inc. as Nominee 1996-21 102,000 102,000 0 *
Jackson Hole Investments Acquisitions, 51,000 51,000 0 *
L.P.
Peter L. Jensen 25,500 25,500 0 *
John Osterweis TTEE Osterweis Revocable 12,750 12,750 0 *
Trust dtd 9-13-93
James D. Judd 31,750 25,500 6,250 *
Hyman R. Kahn 51,000 51,000 0 *
Patrick M. Kane 12,750 12,750 0 *
Robert S. Kapito 51,000 51,000 0 *
Donald R. Kendall, Jr. 15,300 15,300 0 *
Daniel Kessel, M.D. 57,250 51,000 6,250 *
Ida Kessel 19,000 12,750 6,250 *
Lawrence J. Kessel 57,250 51,000 6,250 *
Keys Foundation, Curacao, Netherlands, 51,000 51,000 0 *
Antilles
Robert Klein, M.D. 51,000 51,000 0 *
Robert Knox 25,500 25,500 0 *
Arthur or Sean Kohn 25,500 25,500 0 *
Charles Koppelman 51,000 51,000 0 *
Ira L. Kotel 17,034 17,034 0 *
Ted Koutsoubos 51,000 51,000 0 *
Michael and Nicole Kubin 51,000 51,000 0 *
Vincent P. Lambriola 12,750 12,750 0 *
Larich Associates 76,500 76,500 0 *
Legong Investments N.V. 204,000 204,000 0 *
Albert Lemer 12,750 12,750 0 *
Susan Tauber Lemor 12,750 12,750 0 *
Gregory Lenchner 32,900 20,400 12,500 *
Gregory S. Lenchner and Donna Lenchner, 17,850 17,850 0 *
Jointly
Harvey Lenchner 10,200 10,200 0 *
Michael Lenchner 2,550 2,550 0 *
Henry N. Lieberman 25,500 25,500 0 *
Lifelines Care, Inc. 17,850 17,850 0 *
Frank T. Lincoln, Jr. 25,500 25,500 0 *
The Lincoln Tax Advantaged, L.P. 51,000 51,000 0 *
Armand A. Lindenbaum 12,750 12,750 0 *
Lion Tower Corporation 25,500 25,500 0 *
Beverly O. Lobell 25,500 25,500 0 *
J. Jay Lobell 51,000 51,000 0 *
John L. Loeb, Jr. 12,750 12,750 0 *
Luxembrella - All Around Int'l 102,000 102,000 0 *
Herbert M. Lyman 17,750 12,750 5,000 *
The M.L. Lawrence Trust 153,000 153,000 0 *
Marathon Agents Profit Sharing 12,750 12,750 0 *
Michael P. Marcus 102,000 102,000 0 *
Alfons Melohn 153,000 153,000 0 *
Arden Merback 6,375 6,375 0 *
Joseph Merback (2) 7,400 7,400 0 *
Josef Mermelstein 51,000 51,000 0 *
Albert Milstein 25,500 25,500 0 *
Mary Y.Y. Mo 12,750 12,750 0 *
Michael Y.Q. Mo 12,750 12,750 0 *
55
<PAGE>
Zhong-Liang Mo 25,500 25,500 0 *
Richard Molinsky 25,500 25,500 0 *
The Monument Trust Company Limited 51,000 51,000 0 *
Roberto Gonzalez Moreno 51,000 51,000 0 *
Gregory Lenchner 32,900 20,400 12,500 *
Gregory S. Lenchner and Donna Lenchner, 17,850 17,850 0 *
Jointly
Harvey Lenchner 10,200 10,200 0 *
Michael Lenchner 2,550 2,550 0 *
Henry N. Lieberman 25,500 25,500 0 *
Lifelines Care, Inc. 17,850 17,850 0 *
Frank T. Lincoln, Jr. 25,500 25,500 0 *
The Lincoln Tax Advantaged, L.P. 51,000 51,000 0 *
Armand A. Lindenbaum 12,750 12,750 0 *
Lion Tower Corporation 25,500 25,500 0 *
Beverly O. Lobell 25,500 25,500 0 *
J. Jay Lobell 51,000 51,000 0 *
John L. Loeb, Jr. 12,750 12,750 0 *
Luxembrella - All Around Int'l 102,000 102,000 0 *
Herbert M. Lyman 17,750 12,750 5,000 *
Alfred D. Morgan, Trust Administrator 12,750 12,750 0 *
(Trustee) / Margaret Goldwater, Trustee
Robert Mosberg 12,750 12,750 0 *
Eli Moshen 6,375 6,375 0 *
Mova Investments Limited 51,000 51,000 0 *
Arnold Mullen 25,500 25,500 0 *
Arthur J. Nagle 12,750 12,750 0 *
Mechie Nebenzahl 25,500 25,500 0 *
P. Sherrill Neff 12,750 12,750 0 *
New Jersey Wolfson Trust 663,000 663,000 0 *
Kevin P. Newman 6,375 6,375 0 *
Nikki Establishment For Fashion & 25,500 25,500 0 *
Marketing Research
Old Oly, J.V. 25,500 25,500 0 *
Paul D. and Rebecca L. Ostrovsky 12,750 12,750 0 *
Steven N. Ostrovsky 12,750 12,750 0 *
P.A.W. Offshore Fund, Ltd. 51,000 51,000 0 *
Palmetto Partners, Ltd. 76,500 76,500 0 *
John Pappajohn (3) 177,000 102,000 75,000 *
Mark D. Pesonen 25,500 25,500 0 *
Maria Pierce 12,750 12,750 0 *
Porter Partners, L.P. 102,000 102,000 0 *
Charles Potter 12,750 12,750 0 *
Tis Prager 12,750 12,750 0 *
Privat Kredit Bank, Lugano 306,000 306,000 0 *
Propp & Company, Inc. (2) 13,050 13,050 0 *
Abel Quezada Rueda, Mercedes P. Quezada 7,650 7,650 0 *
JTWRS
Michael S. Resnick 12,750 12,750 0 *
Rick Steiner Productions, Inc. 15,300 15,300 0 *
Todd M. Roberts 16,983 16,983 0 *
Linda Gosden Robinson 76,500 76,500 0 *
Rosemary Cass Ltd. Pension Plan 10,200 10,200 0 *
J. Philip Rosen 25,500 25,500 0 *
Paul H. Rosen 5,100 5,100 0 *
Ervin Rosenfeld 51,000 51,000 0 *
Martine Rothblatt 12,750 12,750 0 *
Jeffrey Rothenberg DDS 15,300 15,300 0 *
David W. Ruttenberg 12,750 12,750 0 *
S&M Investments 12,750 12,750 0 *
Leeor Sabbah 153,000 153,000 0 *
M.D. Sabbah 255,000 255,000 0 *
Sagres Group Ltd. 408,000 408,000 0 *
Wayne Saker 51,000 51,000 0 *
Scott G. Sandler 38,250 38,250 0 *
Sarah Trust 5,100 5,100 0 *
Savenna Consultants, Inc. (2) 7,750 7,750 0 *
Roy and Marlena Schaeffer 25,500 25,500 0 *
Howard Schain 25,500 25,500 0 *
Carl M. Schechter 12,750 12,750 0 *
Robin Schlaff 12,750 12,750 0 *
Ralph Schlosstein 51,000 51,000 0 *
Andrew W. Schonzeit 12,750 12,750 0 *
Schwendiman Global Sector Fund L.P. 25,500 25,500 0 *
Scoggin Capital Management, L.P. 76,500 76,500 0 *
Roberto Segovia 10,200 10,200 0 *
Lori Shapero 25,500 25,500 0 *
Leonard P. Shaykin 25,500 25,500 0 *
56
<PAGE>
The Sheila Davis Lawrence Revocable 51,000 51,000 0 *
Trust
L. Kevin Sheridan 16,983 16,983 0 *
Martin Sirotkin 31,750 25,500 6,250 *
Bruce Slovin 127,500 127,500 0 *
Palmetto Partners, Ltd. 76,500 76,500 0 *
John Pappajohn (3) 177,000 102,000 75,000 .39%
Jointly
Harvey Lenchner 10,200 10,200 0 *
Michael Lenchner 2,550 2,550 0 *
Henry N. Lieberman 25,500 25,500 0 *
Lifelines Care, Inc. 17,850 17,850 0 *
Frank T. Lincoln, Jr. 25,500 25,500 0 *
The Lincoln Tax Advantaged, L.P. 51,000 51,000 0 *
Armand A. Lindenbaum 12,750 12,750 0 *
Lion Tower Corporation 25,500 25,500 0 *
Beverly O. Lobell 25,500 25,500 0 *
J. Jay Lobell 51,000 51,000 0 *
John L. Loeb, Jr. 12,750 12,750 0 *
Luxembrella - All Around Int'l 102,000 102,000 0 *
Herbert M. Lyman 17,750 12,750 5,000 *
South Ferry #2, L.P. 585,000 585,000 0 *
Aaron Speisman 12,750 12,750 0 *
Aaron Speisman custodian for Jennifer 12,750 12,750 0 *
Speisman
Aaron Speisman custodian for Joshua 12,750 12,750 0 *
Speisman
William M. Spencer III 51,000 51,000 0 *
Neil and Laurie Spindel 25,500 25,500 0 *
John L. Steffens 51,000 51,000 0 *
Dr. Edward L. Steinberg 12,750 12,750 0 *
Catherine Steinmann 12,750 12,750 0 *
Gabriel Steinmann 12,750 12,750 0 *
Jennifer Steinmann 12,750 12,750 0 *
Joshua Steinmann 12,750 12,750 0 *
Gary J. Strauss 25,500 25,500 0 *
Stome Partners, L.P. 510,000 510,000 0 *
Kaveh Taleghani 12,750 12,750 0 *
Hindy H. Taub 12,750 12,750 0 *
Herman Tauber 88,500 76,000 12,500 *
Myron M. Teitelbaum, M.D. 31,500 31,500 0 *
Termtec, Ltd. 25,500 25,500 0 *
Patricia & Erich Theissen 5,100 5,100 0 *
Mitchell Troyetsky 12,750 12,750 0 *
Thomas R. Ulie (2) 27,000 27,000 0 *
Joseph A. Umbach 25,500 25,500 0 *
United Congregations Mesora 51,000 51,000 0 *
Dan Valahu 12,750 12,750 0 *
Valor Capital Management, L.P. 25,500 25,500 0 *
William J. Vanden Heuvel 12,500 12,500 0 *
Andre Visser (2) 54,000 54,000 0 *
Vivaldi, Ltd. 102,000 102,000 0 *
W & P Bank & Trust Company Ltd. 102,000 102,000 0 *
Allan Warshawsky 12,750 12,750 0 *
Michael Weiner, M.D. 5,100 5,100 0 *
Mark E. Weiss 12,750 12,750 0 *
Melvyn I. Weiss 102,000 102,000 0 *
Robert J. Whetten 51,000 51,000 0 *
Whitcome Family Trust 51,000 51,000 0 *
Tim Winans 12,750 12,750 0 *
Wisdom Tree Associates, LP 76,500 76,500 0 *
Alan Wise/Teri Wise, Jointly 12,750 12,750 0 *
Andrew B. Woldow 12,750 12,750 0 *
James D. Wolfensohn 50,000 50,000 0 *
Aaron Wolfson 51,000 51,000 0 *
Abraham Wolfson 51,000 51,000 0 *
Wolfson Descendents' 1983 Trust 255,000 255,000 0 *
Worldwide Consultants and Finance Ltd. 51,000 51,000 0 *
Peter Young 9,333 9,333 0 *
Richard A. Young 12,750 12,750 0 *
Robert J. Young 12,750 12,750 0 *
Zapco Holdings Settlement 12,750 12,750 0 *
Uzi Zucker 25,500 25,500 0 *
TOTAL 13,796,848 13,560,598 236,250 1.23%
</TABLE>
* Represents less than 1.0 %.
57
<PAGE>
(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.
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 shares of Common Stock by the Selling
Securityholders, or even the potential sale of such shares, may 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.
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. See
"Certain Transactions."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 23,147,489 shares of
Common Stock outstanding or issuable upon the conversion of the Series B
Preferred Stock, the exercise of all outstanding or issuable options and
warrants as of the date of this prospectus. Of these shares, the 13,560,598
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 701,726 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 1,142,745 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 4,101,358 shares of Common Stock are "restricted
securities" and under certain circumstances may, in the future, be sold in
compliance with Rule 144 under the Securities Act, unless they are held by
"affiliates" of the Company (as that term is used under the Securities Act).
Assuming the availability of Rule 144, the Company believes that of the
4,101,358 "restricted" shares of Common Stock, 701,726 shares of Common Stock
is eligible for sale and an additional (i) 208,501 shares of Common Stock will
be eligible for sale in 1997 and (ii) 3,190,131 shares of Common Stock will be
eligible in 1998, in each case pursuant to Rule 144, 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 as currently in effect, 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(k) without regard to
the volume limitations described above. In addition, the Commission has recently
adopted revisions to Rule 144 and Rule 144(k), the effect of which will be to
shorten the holding period under Rule 144 from two years to one year and to
shorten the holding period under 144(k) from three years to two years.
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."
59
<PAGE>
PLAN OF DISTRIBUTION
A total of 13,560,598 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 -- Lock-Up
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.
Certain Selling Securityholders may from time to time purchase shares of Common
Stock in the open market. These Selling Securityholders have been notified that
they should not commence any distribution of Common Stock unless they have
terminated their purchasing and bidding for Common Stock in the open market as
provided in applicable securities regulations.
60
<PAGE>
EXPERTS
The financial statements of AVAX Technologies, Inc. (formerly Walden
Laboratories, Inc.), at December 31, 1996 and for the years ended December
31, 1995 and 1996 and for the period from January 12, 1990 (incorporation) to
December 31, 1996, 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, however 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 is expected to become a reporting company
subject to the informational requirements of the Exchange Act.
61
<PAGE>
FINANCIAL STATEMENTS
AVAX TECHNOLOGIES, INC.
(FORMERLY WALDEN LABORATORIES, INC.)
(A DEVELOPMENT STAGE COMPANY)
YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE PERIOD FROM JANUARY 12, 1990
(INCORPORATION) TO DECEMBER 31, 1996
WITH REPORT TO INDEPENDENT AUDITORS
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Financial Statements
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
CONTENTS
<S> <C>
Report of Independent Auditors.........................................................................F-1
Audited Financial Statements
Balance Sheet as of December 31, 1996..................................................................F-2
Statements of Operations for the years ended December 31, 1995
and 1996 and for the period from January 12, 1990 (incorporation)
to December 31, 1996................................................................................F-3
Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995
and 1996 and for the period
from January 12, 1990 (incorporation) to December 31, 1996..........................................F-4
Statements of Cash Flows for the years ended December 31, 1995
and 1996 and for the period from January 12, 1990 (incorporation)
to December 31, 1996................................................................................F-6
Notes to Financial Statements..........................................................................F-8
</TABLE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
AVAX Technologies, Inc.
We have audited the accompanying balance sheet of AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.) (a development stage company) as of
December 31, 1996, and the related statements of operations, stockholders'
equity (deficit), and cash flows for the years ended December 31, 1995 and 1996,
and for the period from January 12, 1990 (incorporation) to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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.
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, 1996, and the results of
its operations and its cash flows for the years ended December 31, 1995 and
1996, and for the period from January 12, 1990 (incorporation) to December 31,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Kansas City, Missouri
January 29, 1997
F-1
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Balance Sheet
<TABLE>
<CAPTION>
DECEMBER 31,
1996
---------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $13,832,179
Marketable securities 6,134,853
Common stock receivable from a related party (NOTE 2) 2,249,459
Prepaid expenses and other current assets 61,285
---------------------
Total current assets 22,277,776
Furniture and equipment, at cost 45,777
Less accumulated depreciation 2,007
---------------------
Net furniture and equipment 43,770
=====================
Total assets $22,321,546
=====================
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities (NOTE 5) $ 277,677
Amount payable to preferred stockholders (NOTE 2) 2,156,106
Amount payable to Former Officer (NOTE 2) 93,353
---------------------
Total current liabilities 2,527,136
Commitments and contingencies (NOTE 5) Stockholders' equity (NOTES 1, 2, 3, 4,
7, 8 AND 9):
Preferred stock, $.01 par value:
Authorized shares - 5,000,000, including Series B - 300,000
shares
Series B convertible preferred stock:
Issued and outstanding shares - 259,198
(liquidation preference - $34,991,730) 2,592
Common stock, $.002 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 6,222,316 12,445
Additional paid-in capital 24,002,882
Subscription receivable (4,026)
Deferred compensation (963,424)
Unrealized loss on marketable securities (2,037)
Deficit accumulated during the development stage (3,254,022)
---------------------
Total stockholders' equity 19,794,410
=====================
Total liabilities and stockholders' equity $22,321,546
=====================
SEE ACCOMPANYING NOTES.
</TABLE>
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)
TO
DECEMBER 31,
YEAR ENDED DECEMBER 31
1995 1996 1996
--------------------------------------------------------
<S> <C> <C>
Gain from sale of the Product (NOTE 2) $1,951,000 $ $ 1,951,000
-
Costs and expenses:
Research and development 126,957 738,991 2,352,309
Marketing and selling - - 543,646
General and administrative 302,800 1,253,395 2,838,136
--------------------------------------------------------
Total operating income (loss) 1,521,243 (1,992,386) (3,783,091)
Other income (expense):
Interest income - 819,324 878,993
Interest expense (96,962) (353,867) (495,692)
Other, net (43,710) (9,913) 145,768
--------------------------------------------------------
Total other income (expense) (140,672) 455,544 529,069
--------------------------------------------------------
Net income (loss) 1,380,571 (1,536,842) (3,254,022)
Amount payable for liquidation preference
(738,289) (1,131,744) (1,870,033)
-----------------------------------=====================
Net income (loss) attributable to
common stockholders $ 642,282 $(2,668,586) $(5,124,055)
=====================
====================================
Net income (loss) per common share $ .09 $ (.42)
====================================
Weighted average number of shares outstanding
6,774,053 6,370,407
====================================
SEE ACCOMPANYING NOTES.
</TABLE>
F-3
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
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 January 1990 - $ - - $ - 1,165,000 $ 2,330
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 - - - - - -
---------------------------------------------------------------------
Balance 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 - - - - - -
---------------------------------------------------------------------
Balance 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 1995 - - - - 3,554,436 7,109
Amount payable for liquidation preference - - - - - -
Net income - - - - - -
---------------------------------------------------------------------
Balance at December 31, 1995 1,287,500 12,875 - - 5,162,671 10,325
UNREALIZED
ADDITIONAL LOSS ACCUMULATED TOTAL
ON MARKETABLE DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED DEVELOPMENT EQUITY
CAPITAL RECEIVABLE COMPENSATION SECURITIES STAGE (DEFICIT)
----------------------------------------------------------------------------
<S> <C> <C> <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)
----------------------------------------------------------------------------
Balance 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)
----------------------------------------------------------------------------
Balance 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 1995 - (7,109) - - - -
Amount payable for liquidation preference (738,289) - - - - (738,289)
Net income - - - - 1,380,571 1,380,571
----------------------------------------------------------------------------
Balance at December 31, 1995 1,723,657 (7,109) - - (1,717,180) 22,568
</TABLE>
<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 STOCK PREFERRED STOCK COMMON STOCK
------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase of common stock in March 1996 - $ - - $ - (155,803) $ (312)
Payment of subscription receivable - - - - - -
Conversion of Series A preferred stock in June
1996 (1,287,500) (12,875) - - 643,750 1,288
Issuance of common stock and Series B preferred
stock in a private placement in May and June
1996 - - 258,198 2,582 258,198 516
Issuance of common stock and Series B preferred
stock for services in June 1996 - - 1,000 10 1,000 2
Exercise of warrants in June and July 1996 - - - - 312,500 626
Amount payable for liquidation preference - - - - - -
Compensation related to stock options granted in
May and September 1996 - - - - - -
Amortization of deferred compensation - - - - - -
Unrealized loss on marketable securities - - - - - -
Net loss - - - - - -
==================================================================
Balance at December 31, 1996 - $ - 259,198 $2,592 6,222,316 $12,445
==================================================================
DEFICIT
UNREALIZED LOSS ACCUMULATED TOTAL
ADDITIONAL ON MARKETABLE DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED DEVELOPMENT EQUITY
CAPITAL RECEIVABLE COMPENSATION SECURITIES STAGE (DEFICIT)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase of common stock in March 1996 $ $ 312 $ - $ - $ - $ -
-
Payment of subscription receivable - 2,771 - - - 2,771
Conversion of Series A preferred stock in June
1996 11,587 - - - - -
Issuance of common stock and Series B preferred
stock in a private placement in May and June
1996 22,217,397 - - - - 22,220,495
Issuance of common stock and Series B preferred
stock for services in June 1996 99,988 - - - - 100,000
Exercise of warrants in June and July 1996 5,624 - - - - 6,250
Amount payable for liquidation preference (1,131,744) - - - - (1,131,744)
Compensation related to stock options granted in
May and September 1996 1,076,373 - (1,076,373) - - -
Amortization of deferred compensation - - 112,949 - - 112,949
Unrealized loss on marketable securities - - - (2,037) - (2,037)
Net loss - - - - (1,536,842) (1,536,842)
================================================================================
Balance at December 31, 1996 $24,002,882 $(4,026) $ (963,424) $(2,037) $(3,254,022) $19,794,410
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM JANUARY
12, 1990
(INCORPORATION)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
1995 1996 1996
-----------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $1,380,571 $ (1,536,842) $ (3,254,022)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 44,942 164,865 230,261
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 - (298,459) (298,459)
Accretion of interest on amount payable to
preferred stockholders and Former Officer
- 298,459 298,459
Loss on sale or abandonment of furniture and
equipment - 8,156 37,387
Issuance of common stock for services - 100,000 147,000
Changes in operating assets and liabilities:
Prepaid expenses and other current
assets - (61,285) (61,285)
Accounts payable and accrued liabilities 231,756 2,933 277,677
Amount payable to Former Officer 80,522 - 80,522
-----------------------------------------------------------
Net cash used in operating activities (213,996) (1,322,173) (4,494,247)
INVESTING ACTIVITIES
Purchase of marketable securities and short-term
investments - (6,136,890) (7,116,472)
Proceeds from sale of short-term investments - - 979,582
Purchases of furniture and equipment - (45,777) (111,711)
Proceeds from sale of furniture and equipment - - 4,600
Organization costs incurred - - (1,358)
-----------------------------------------------------------
Net cash used in investing activities - (6,182,667) (6,245,359)
</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)
YEAR ENDED DECEMBER 31 TO DECEMBER 31,
1995 1996 1996
-----------------------------------------------------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of notes payable
to related party $ - $ $ 957,557
-
Principal payments on notes payable to related
party - (207,000) (797,000)
Proceeds from loans payable 600,000 400,000 1,389,000
Principal payments on loans payable (339,000) (1,050,000) (1,389,000)
Financing costs incurred (54,000) (36,000) (90,000)
Payments received on subscription receivable - 2,771 2,771
Proceeds received from exercise of stock warrants
- 6,250 6,250
Net proceeds received from issuance of
preferred and common stock - 22,220,495 24,492,207
-----------------------------------------------------------
-----------------------------------------------------------
Net cash provided by financing activities 207,000 21,336,516 24,571,785
-----------------------------------------------------------
-----------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (6,996) 13,831,676 13,832,179
Cash and cash equivalents at beginning
of period 7,499 503 -
-----------------------------------------------------------
===========================================================
Cash and cash equivalents at end of period $ 503 $13,832,179 $13,832,179
===========================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 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
December 31, 1995 and 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).
Also in November 1995, the Company entered into a license agreement with the
Thomas Jefferson University (TJU) to develop, commercially manufacture and sell
products embodying immunotherapeutic vaccines for the treatment of malignant
melanoma and other carcinomas (the Invention) (see NOTE 3).
In December 1996, the Company entered into a license agreement with Rutgers
University (Rutgers) to develop, commercially manufacture and sell products
embodying a series of compounds for the treatment of cancer and infectious
diseases (the Compounds) (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.
F-8
<PAGE>
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the 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 December 31,
1996, substantially all cash and cash equivalents were held in one financial
institution.
MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization and interest on
securities classified as held-to-maturity are included in interest income.
Equity securities are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. Interest and
dividends on securities classified as available-for-sale are included in
interest income.
F-9
<PAGE>
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following is a summary of marketable securities at December 31, 1996:
<TABLE>
<CAPTION>
UNREALIZED ESTIMATED
DESCRIPTION OF SECURITIES COST LOSS FAIR VALUE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Held-to-maturity debt securities:
U.S. Treasury securities $2,126,462 $ - $2,126,462
Other U.S. government securities 2,000,000 - 2,000,000
--------------------------------------------------------
4,126,462 - 4,126,462
Available-for-sale:
Equity securities 2,010,428 (2,037) 2,008,391
--------------------------------------------------------
$6,136,890 $(2,037) $6,134,853
========================================================
</TABLE>
The Company's debt securities all mature in 1997.
DEPRECIATION
Depreciation is computed using the straight-line method over the estimated
useful lives of the furniture and equipment, which range from three to 10 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.
F-10
<PAGE>
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SHARE INFORMATION
Prior to the first closing of a private placement on May 15, 1996 (see NOTE 4),
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.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on 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 4) 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. Series A
convertible preferred stock, actually converted in June 1996, was included in
the calculation of the weighted average number of shares for the year ended
December 31, 1995, as if converted.
The weighted average shares used in calculating 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 and $(.34) for the years ended December 31, 1995 and 1996, respectively, if
the said shares had been converted/issued at the beginning of the respective
periods.
F-11
<PAGE>
1. DESCRIPTION OF BUSINESS 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 has elected to continue to account for its stock-based
compensation plans in accordance with the provisions of APB 25. Net income
(loss) and related per share amounts determined in accordance with the
provisions of SFAS 123 would not materially differ from amounts reported on the
accompanying statements of operations.
2. SALE OF THE PRODUCT
In December 1995, 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,
is fixed, and the number of shares of Stock will vary depending on the quoted
market price of the Stock at such time.
The first installment was paid on January 3, 1997 in the form of a distribution
of IPI stock directly by IPI to the Series A convertible preferred stockholders,
who were holders of record on the closing date of the agreement for sale, and
the Company's former President and Chief Executive Officer (the Former Officer).
Accordingly, the common stock receivable and the payables to preferred
stockholders and the Former Officer related to both installments are reported as
current assets and liabilities, respectively, in the accompanying balance sheet.
F-12
<PAGE>
2. SALE OF THE PRODUCT (CONTINUED)
The sale of the Product was approved by the Company's common and Series A
preferred stockholders subject to the following conditions:
o At approximately the same time each installment is received by the
Company, 95.85% of the Stock will be distributed by the Company, or
directly by IPI, to the Company's preferred stockholders of record
(referred to herein as the holders of Series A preferred stock) at the
time 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) and 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.
o The remaining 4.15% of the Stock (or a cash payment equal to the value
thereof) will be distributed to 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 125,000 shares of common stock (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%. In 1995, 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 present value of the amount payable to the preferred
stockholders, including the accretion of interest thereon, is $2,156,106 at
December 31, 1996, since all of the Company's indebtedness outstanding as of the
date of the sale of the Product has been satisfied through sources other than
the Stock to be received (see NOTE 9).
F-13
<PAGE>
2. SALE OF THE PRODUCT (CONTINUED)
The discounted net present value of the Stock distributable to the Former
Officer as of the date of sale, amounting to $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). The present value of the amount
payable to the Former Officer, including the accretion of interest thereon, is
$93,353 at December 31, 1996.
3. LICENSE AND RESEARCH AGREEMENTS
In November 1995, the Company entered into an agreement with TJU 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 TJU and the
scientific founder (the Scientist). These shares have antidilution 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 derived from the Invention and a percentage of all revenues
received from sublicensees of the Invention.
The Company also entered into a research agreement with TJU to fund a study to
be performed by TJU 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
F-14
<PAGE>
3. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
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.
In December 1996, the Company entered into an agreement with Rutgers for the
exclusive worldwide license to develop, manufacture and sell products embodying
the Compounds. The Company paid cash of $15,000 as consideration for the license
agreement and has agreed to pay $15,000 in each subsequent year as a license
maintenance fee. The Company has agreed to fund research in the amount of one
hundred thousand dollars ($100,000) per year for the next three years. In
addition, the Company is obligated to spend an aggregate of $200,000 in the
first year, $300,000 in the second year and $500,000 each year thereafter until
the first year of commercial marketing of a product derived from the Compounds.
The license maintenance fee shall not be payable in years where research funding
is equal to or greater than $100,000.
The Company has committed to the issuance of warrants to Rutgers to purchase
250,000 shares of common stock at a price of $4.12 per share based on the
achievement of certain development milestones. The first 150,000 warrants will
expire in 2006 and the final 100,000 warrants will expire in 2011. These
warrants, once issued, shall provide for cashless exercise, piggyback
registration rights and certain antidilution rights.
Under the terms of the license agreement, the Company is obligated to pay
certain milestone payments as follows: $15,000 on the earlier of October 31,
1999 or the date of first filing of an Investigational New Drug (IND)
application with the FDA, or comparable international agency; $25,000 on the
earlier of October 31, 2001 or the date of initiation of Phase II trials in the
United States or another major market country; $45,000 on the earlier of October
31, 2005 or the date of first filing of an NDA application with the FDA, or
comparable international agency; and $150,000 on the earlier of October 31, 2008
or the date of receipt by the Company of approval from the FDA, or comparable
international agency, to market products.
F-15
<PAGE>
3. LICENSE AND RESEARCH AGREEMENTS (CONTINUED)
In addition, the Company is obligated to pay royalties on its worldwide net
sales revenue derived from the Compounds and a percentage of all revenues
received from sublicensees of products derived from the Compounds. Such royalty
payments shall be no less than $100,000 in the first year of commercial
marketing, $200,000 in the second year, $250,000 in the third year, $300,000 in
the fourth year, and $350,000 in the fifth and all following years.
4. EQUITY TRANSACTIONS
COMMON AND PREFERRED STOCK
Common stock issued for services in the years 1990 through 1996 were recorded
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.
On November 20, 1995, the Company issued an aggregate of 916,486 shares of
common stock at $.002 per share to TJU 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.
F-16
<PAGE>
4. EQUITY TRANSACTIONS (CONTINUED)
On March 24, 1996, the Company repurchased 155,803 shares of common stock
previously issued to an officer at $.002 per share. The repurchased shares were
canceled.
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 shares (of which 2,500,000
shares were designated as Series A preferred stock and 300,000 shares were
designated as Series B preferred stock) of preferred stock, par value $.01.
Pursuant to a 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 convertible preferred stock was $1 and $99, respectively. In connection
with the private placement, the Company paid $3,357,000 in commissions and
nonaccountable 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 Series B
convertible preferred stock at an exercise price of $110 per share. Such
warrants are exercisable until June 11, 2006. Other share issuance expenses
amounted to $142,000.
Each share of Series B preferred stock is convertible at any time, in whole or
in part, at the discretion of the holders, into common stock at $2 per share
(the Initial Conversion Price), which amounts to 12,959,900 shares at December
31, 1996. Twelve months after the final closing date (the Reset Date), the
Company may, at its option, cause conversion of the preferred stock, in whole or
in part, into common stock at the Initial Conversion Price if the closing price
of the common stock has exceeded 150% of the Initial Conversion Price for at
least 20 trading days in any 30 consecutive trading day period.
The Series B preferred stockholders are entitled to voting rights equivalent to
the number of common shares into which their preferred shares are convertible.
The Series B preferred stockholders are also entitled to receive, in preference
to the holders of common stock, an amount per preferred share of $135 plus any
declared but unpaid dividends.
F-17
<PAGE>
4. EQUITY TRANSACTIONS (CONTINUED)
At the second closing of the private placement on June 11, 1996, the 1,287,500
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
associated with the sale of the Product, as discussed in NOTE 2.
CONVERSION RESET
In accordance with the terms of the placement, the Initial Conversion Price will
be adjusted and reset effective as of the Reset Date if the average closing bid
price for the 30 consecutive trading days immediately preceding the Reset Date
(the 12-Month Trading Price) is less than 135% of the Initial Conversion Price,
or $2.70. If such is the case, the Initial Conversion Price will be reduced to
be equal to the greater of the 12-Month Trading Price divided by 1.35 or 50% of
the Initial Conversion Price (see NOTE 9).
STAGGERED LOCK-UP
Pursuant to the terms of the placement, 25% of each holder's shares of common
stock issuable upon conversion of the Series B preferred shares (the Conversion
Shares) are not subject to any restriction on resale (Lock-up). The remaining
75% of each holder's Conversion Shares are subject to a staggered Lock-up,
whereby 25% of the Conversion Shares are released from the Lock-up every three
months after the final closing, through and including March 11, 1997 (see NOTE
9).
STOCK OPTIONS
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 10 years after the
Plan's adoption date and generally expire 10 years from the date of grant.
F-18
<PAGE>
4. EQUITY TRANSACTIONS (CONTINUED)
The following summarizes activity in the Plan:
OPTIONS
-------------------
Balances at December 31, 1994 552,750
Canceled (492,750)
-------------------
Balances at December 31, 1995 and 1996 60,000
===================
All outstanding options were issued at an exercise price of $.60 per share. At
December 31, 1996, options to purchase 47,778 shares of common stock were
exercisable, and options to purchase 815,000 shares of common stock were
available for grant under the Plan.
Certain officers and employees were also granted stock options in 1996, as
authorized by the Board of Directors, apart from the Plan. In May 1996, the
Comany's President and Chief Executive Officer (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.
In September 1996, certain officers and an employee also received options to
purchase 505,000 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. Because the fair value of the Company's common stock at the date of
grant was determined to be $2 per share, the Company recorded $757,500 as
deferred compensation. Such deferred compensation is being amortized over four
years.
WARRANTS
The Company has issued warrants to purchase 177,538 (adjusted to comply with
anti-dilution provisions of the warrants) (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 $1.30, $5.50 and $.02 per share,
respectively. These warrants are
F-19
<PAGE>
4. EQUITY TRANSACTIONS (CONTINUED)
exercisable at any time and expire in 1997, 1998 and 2006, respectively. In
January and February of 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 October 1996, the Company issued warrants to purchase 100,000 shares of
common stock at $3 per share (see NOTE 7). In December 1996, the Company
committed to the future issuance of warrants to purchase 250,000 shares of the
Company's common stock at a price of $4.12 per share (see NOTE 3). In June and
July of 1996, warrants to purchase 312,500 shares of common stock at $.02 per
share were exercised. Authorized but unissued shares of common stock were
reserved for issuance at December 31, 1996 as follows:
Series B convertible preferred stock (NOTE 4) 12,959,900
Stock option plan 875,000
Options issued to officers and an employee 1,142,745
Warrants to purchase common stock 605,538
Warrants to purchase Series B convertible preferred
stock (NOTE 4) 1,290,990
===================
16,874,173
===================
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities at December 31, 1996 consist of the
following:
Professional fees $199,880
Other 77,797
--------------------
$277,677
===================
6. INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $5,100,000 for federal income tax purposes that expire in varying
amounts through the year 2011, if not utilized.
F-20
<PAGE>
6. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities for federal income tax
purposes are as follows:
DECEMBER 31,
1996
---------------------
Deferred tax assets:
Net operating losses $1,968,000
Capitalized start-up costs 19,000
---------------------
Total deferred tax assets 1,987,000
Deferred tax liabilities:
Gain on sale of the Product treated as an installment
sale for income tax purposes (753,000)
---------------------
Net deferred tax assets 1,234,000
Valuation allowance (1,234,000)
=====================
Net deferred tax assets $ -
=====================
The valuation allowance at December 31, 1994 and 1995 was $1,161,000 and
$647,000, 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-21
<PAGE>
6. INCOME TAXES (CONTINUED)
The following summary reconciles the federal statutory rate with the actual
income tax provision (benefit):
<TABLE>
<CAPTION>
DECEMBER 31
1995 1996
------------------------------------
<S> <C> <C>
Income taxes (benefit) at statutory rate $469,000 $(522,000)
State income taxes, net of federal benefit 64,000 (71,000)
Change in the valuation allowance (514,000) 587,000
Other (19,000) 6,000
------------------------------------
Provision for income taxes (benefit) $ - $ -
====================================
</TABLE>
7. COMMITMENTS
LEASES
The Company leased office facilities on a month-to-month basis through April
1995. Rent expense amounted to approximately $10,000 for the year ended December
31, 1995. In August 1996, the Company entered into a three-year lease for office
facilities. The lease commenced in October with a monthly rental of
approximately $5,400, beginning in the fourth month. Future minimum lease
payments are $64,607 in 1997 and 1998, and $48,455 in 1999.
EMPLOYMENT AND CONSULTING AGREEMENTS
In May 1996, the Company entered into a letter agreement with the President
pursuant to which the President will receive an annual salary of $200,000, a
minimum annual bonus of $25,000 and an additional discretionary bonus of up to
$175,000. The President was also granted options to purchase common stock (see
NOTE 4).
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 $66,000.
F-22
<PAGE>
7. COMMITMENTS (CONTINUED)
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. These
officers were also granted options to purchase common stock (see NOTE 4).
In October 1996, the Company entered into an agreement with an investment banker
pursuant to which the investment banker may, at the Company's request, perform
certain investment banking services for the Company. In connection with this
agreement, the investment banker was granted warrants to purchase 100,000 shares
of common stock at $3 per share (see NOTE 4).
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 under the line of credit during
1995. Borrowings under this line of credit amounted to $207,000 at December 31,
1995, bore interest at 2% above the prime rate (10.5% at December 31, 1995) and
were repaid in full in June 1996.
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,
was repaid in June 1996.
In 1995, the Company obtained eight separate bridge loans totaling $600,000
($150,000 of which was obtained 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 commissions 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 were payable in 12 months. Loans totaling $200,000 were repaid in
January and February of 1996, and loans totaling $250,000 that
F-23
<PAGE>
8. LOANS PAYABLE AND RELATED-PARTY TRANSACTIONS (CONTINUED)
were due in February 1996 were rolled over for another year through February
1997. Warrants to purchase 62,500 shares of common stock at $.02 per share were
granted in connection with the rollover of these loans. 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 of 1996, the Company obtained additional
bridge loans totaling $400,000 ($300,000 of which was obtained from related
parties) with interest payable at 13% per annum and issued additional warrants
to purchase 100,000 shares of common stock at $.02 per share. Also, in
connection with these additional bridge loans, the Company paid commissions
totaling $36,000 and issued warrants to purchase 32,500 shares of common stock
at $.02 per share to the Placement Agent, a related party. 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 12-month period) and reimbursement of certain
expenses. These amounts were recorded as accrued expenses in 1995. 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 to intellectual property created by the former director
prior to or during her term of employment with the Company, other than 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 24 months, plus expenses and success fees.
F-24
<PAGE>
9. SUBSEQUENT EVENT
In January 1997, the Company initiated a revision to the staggered Lock-up and
Conversion Reset provisions of the private placement discussed in NOTE 4.
According to the terms of a letter to the shareholders of the Company, the
Company has requested that holders of the Series B preferred stock agree to a
modification of the original subscription agreement, such that the staggered
Lock-up would expire beginning three months after both listing and effectiveness
under the Securities Act of 1933 of the Company's Registration Statement for its
common stock (Effectiveness). As so modified, upon listing and Effectiveness,
25% of the Conversion Shares will not be subject to any Lock-up provisions. The
remaining 75% of the Conversion Shares will be subject to a staggered Lock-up,
such that every three months after both listing and Effectiveness, 25% of the
Conversion Shares will be released from Lock-up until the ninth month, at which
point, all Conversion Shares will no longer be subject to any Lock-up.
In addition, for those shareholders accepting the Lock-up modifications, the
Company will agree to provide additional reset protection, extending the Reset
Date to 12 months following the later of Effectiveness and listing. The terms of
this modified reset will be the same as the original reset provision, except
that the Company will not adjust the conversion price, but will issue additional
shares of common stock to effect the principles of the reset provision.
F-25
<PAGE>
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not 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.................................... 20
MARKET FOR COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS....................20
DIVIDEND POLICY.................................... 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS......... 22
BUSINESS........................................... 24
MANAGEMENT......................................... 33
CERTAIN TRANSACTIONS............................... 39
PRINCIPAL STOCKHOLDERS............................. 41
DESCRIPTION OF SECURITIES.......................... 43
SELLING SECURITYHOLDERS............................ 49
SHARES ELIGIBLE FOR FUTURE SALES.................. 55
PLAN OF DISTRIBUTION............................... 56
EXPERTS............................................ 57
LEGAL COUNSEL...................................... 57
ADDITIONAL INFORMATION............................. 57
FINANCIAL STATEMENTS .............................. 58
13,560,598 Shares
AVAX Technologies, Inc.
Common Stock
--------------------
PROSPECTUS
February 26, 1997
--------------------
<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. Certain contractual indemnification
provisions contained in the Subscription Agreements of the Series B Offering
(Exhibit 4.6), the Series B Placement Warrants (Exhibit 4.12), the Bridge
Placement Warrants (Exhibit 4.7), the Meyerson Warrants (Exhibit 4.13), the
Shear/Kershman and Castelli Warrants (Exhibit 4.15), the Rutgers Warrants
(Exhibit 10.13) and the warrants to be issued to Drs. Wertheimer and Mermelstein
(Exhibit 4.16) indemnifying against certain liabilities the Company, its
officers, directors, affiliates and/or controlling person, including, in certain
cases, 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
NASD Corporate Financing Rule filing fee....................... 4,966.00
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.................................................. 39,635.64
------------
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 11, 1996 (the "Closing Dates"), the Company
consummated a private placement of an aggregate amount of approximately
$25,800,000 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 who
are included in the list of selling Shareholders because their
ownership of shares of Common Stock issued upon exercise of Bridge
Placements Warrants being registered hereby, and, employees of
Paramount that are not included in the Registration Statement
notwithstanding their purchase of units in the Series B Offering.
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)
thereof and Rule 506
II-2
<PAGE>
of Regulation D promulgated thereunder. Each of such recipients had the
sophistication, knowledge and experience in financial matters as to be
capable of evaluating the merits and risks of its investment in the
Company, and had access to information, and the opportunity prior to
its investment to ask questions of and receive answers from
representatives of the Company, in each case concerning the finances,
operations and business of the Company. In addition, 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 sophistication, 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 access to information, and the opportunity prior to its purchase of
the Common Stock to ask questions of and receive answers from
representatives of the Company, in each case 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
1,832,971 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 sophistication, 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 access to information, and the opportunity prior to its
purchase of the Common Stock to ask questions of and receive answers
from representatives of the Company, in each case 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 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.
II-3
<PAGE>
5. In 1995 and 1996, the Company pursuant to certain bridge financing
transactions issued to only 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
sophistication, 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 access
to information, and the opportunity prior to its purchase of the Common
Stock to ask questions of and receive answers from representatives of
the Company, in each case 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
are required to be affixed to the warrant certificates issuable 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.
7. On December 10, 1996, the Company entered into a license agreement with
Rutgers, the State University of New Jersey and the University of
Medicine and Dentistry of New Jersey (collectively, "Rutgers") pursuant
to which Rutgers licensed to the Company certain patent applications
relating to a series of compounds for the potential treatment of cancer
and infectious diseases (the "Rutgers License"). Pursuant to the
Rutgers License, the Company issued warrants to purchase 250,000 shares
of Common Stock at a price of $4.12 per share to Rutgers (the "Rutgers
Warrants"). The issuance of the Rutgers 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, Rutgers 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 are required to be affixed to the warrant
certificates issued in such transactions. Rutgers had adequate access,
through its negotiations with the Company of the terms of the Rutgers
License, to information about the Company.
8. In consideration of services rendered on behalf of the Company in
connection with the acquisition and negotiation of the Rutgers License,
in February 1997, the Company agreed to pay Samuel P. Wertheimer,
Ph.D., $40,000 and to issue to Dr. Wertheimer warrants to purchase
25,500 shares of Common Stock at an exercise price of $3.00 per share,
exercisable for seven years (the "Wertheimer Warrants"). The issuance
of the Wertheimer 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, Dr. Wertheimer represented his 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 are
required to be affixed to the warrant certificates issued in such
transactions. Dr.
II-4
<PAGE>
Wertheimer had adequate access, through his negotiations with the
Company of the terms of the Rutgers License, to information about the
Company.
9. In consideration of services rendered on behalf of the Company in
connection with the acquisition and negotiation of the Texas A&M
License, in February 1997, the Company agreed to pay Fred Mermelstein,
Ph.D., $40,000 and to issue to Dr. Mermelstein warrants to purchase
25,500 shares of Common Stock at an exercise price of $3.25 per share,
exercisable for seven years (the "Mermelstein"). The issuance of such
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, Dr. Mermelstein represented his 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 are
required to be affixed to the warrant certificates issued in such
transactions. Dr. Mermelstein had adequate access, through his
negotiations with the Company of the terms of the Texas A&M License, to
information about the Company.
II-5
<PAGE>
Item 27. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant,
InterNuria, Inc. and Interneuron Pharmaceuticals, Inc.
* 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
*** 4.5 Certificate of Elimination of the Series A Preferred Stock
** 4.6 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred Stock
and Common Stock.
* 4.7 Form of Placement Warrant Relating to the Bridge Financing.
* 4.8 Warrant for the Purchase of Shares of Common Stock No. 1 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.9 Warrant for the Purchase of Shares of Common Stock No. 2 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.10 Warrant for the Purchase of Shares of Common Stock No. 3 dated July 23, 1992, by and
between the Registrant and certain investors.
* 4.11 Warrant for the Purchase of Shares of Common Stock No. 4 dated September 2, 1992, by
and between the Registrant and certain investors.
* 4.12 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
**** 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.
4.14 Form of Amendment to Subscription Agreement--Lock-Up Provisions.
***** 4.15 Form of Warrant for the Purchase of Common Stock dated February 25, 1997, by and
between the Registrant and Drs. Samuel P. Wertheimer and Fred Mermelstein.
***** 4.16 Form of Warrant for the Purchase of Common Stock dated May 1993, by and between the
Registrant and Shear/Kershman Laboratories, Inc. and Castelli Associates, Inc.
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 Reference is made to Exhibit 2.1.
II-6
<PAGE>
*+ 10.2 Clinical Study and Research Agreement dated November 20,
1995, by and between the Registrant and Thomas Jefferson
University.
* 10.3 The Registrant's 1992 Stock Option Plan.
* 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
* 10.5 Employment Agreement dated August 19, 1991, between the Registrant and Dayne R.
Myers, as amended.
* 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.
+ 10.13 License Agreement dated December 10, 1996, by and
between the Registrant and Rutgers, The State University of
New Jersey and the University of Medicine and Dentistry.
+ 10.14 License Agreement dated February 17, 1997, by and
between the Registrant and The Texas A&M University System.
*** 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 of the Registration Statement.
**** 27.1 Financial Data Schedule.
</TABLE>
* Previously filed with the Registration Statement on Form SB-2 filed
with the Commission on August 1, 1996.
** 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.
II-7
<PAGE>
*** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission on September 23, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement of
Form SB-2 filed with the Commission on November 6, 1996.
***** To be filed by amendment.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
II-8
<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-9
<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 26th day
of February, 1997.
AVAX TECHNOLOGIES, INC.
By: /s/ Michael S. Weiss
Michael S. Weiss
Secretary and Director
In accordance with the requirements of the Securities Act of 1933, as amended,
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Name & Title Date
<S> <C> <C>
/s/ Jeffrey Jonas, M.D.* Jeffery Jonas, M.D. February 26, 1997
President, Chief Executive Officer and Director
/s/ David L. Tousley* David L. Tousley February 26, 1997
Chief Financial Officer
(Principal Financial Officer)
/s/ Edson D. de Castro* Edson D. de Castro February 26, 1997
Director
/s/ John K. A. Prendergast, Ph.D.* John K. A. Prendergast, Ph.D. February 26, 1997
Director
/s/ Carl Spana, Ph.D.* Carl Spana, Ph.D. February 26, 1997
Director
/s/ Michael S. Weiss Michael S. Weiss February 26, 1997
Secretary and Director
</TABLE>
*By: /s/ Michael S. Weiss
Michael S. Weiss
Attorney-in-Fact
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
<S> <C>
* 2.1 Asset Purchase Agreement dated December 27, 1995, by and between the Registrant,
InterNuria, Inc. and Interneuron Pharmaceuticals, Inc.
* 3.1 Certificate of Incorporation of the Registrant, as amended to date.
* 3.2 By-laws of the Registrant, as amended to date.
* 4.1 Reference is made to Exhibits 3.1 and 3.2.
* 4.2 Specimen of Common Stock certificate.
* 4.3 Specimen of Series B Convertible Preferred Stock certificate.
* 4.4 Investors' Rights Agreement dated November 20, 1995, by
and between the Registrant and certain investors.
*** 4.5 Certificate of Elimination of the Series A Preferred Stock
** 4.6 Form of Subscription Agreement, by and between the
Registrant and certain purchasers of Series B Preferred Stock
and Common Stock.
* 4.7 Form of Placement Warrant Relating to the Bridge Financing.
* 4.8 Warrant for the Purchase of Shares of Common Stock No. 1 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.9 Warrant for the Purchase of Shares of Common Stock No. 2 dated June 26, 1992, by and
between the Registrant and certain investors.
* 4.10 Warrant for the Purchase of Shares of Common Stock No. 3 dated July 23, 1992, by and
between the Registrant and certain investors.
* 4.11 Warrant for the Purchase of Shares of Common Stock No. 4 dated September 2, 1992, by
and between the Registrant and certain investors.
* 4.12 Form of Placement Warrant Relating to Offering of Series B Placement Warrants.
**** 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.
4.14 Form of Amendment to Subscription Agreement--Lock-Up Provisions.
***** 4.15 Form of Warrant for the Purchase of Common Stock dated February 25, 1997, by and
between the Registrant and Drs. Samuel P. Wertheimer and Fred Mermelstein.
***** 4.16 Form of Warrant for the Purchase of Common Stock dated May 1993, by and between the
Registrant and Shear/Kershman Laboratories, Inc. and Castelli Associates, Inc.
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
<PAGE>
10.1 Reference is made to Exhibit 2.1.
*+ 10.2 Clinical Study and Research Agreement dated November 20,
1995, by and between the Registrant and Thomas Jefferson
University.
* 10.3 The Registrant's 1992 Stock Option Plan.
* 10.4 Letter of Employment dated May 17, 1996, between the Registrant and Dr. Jeffrey M. Jonas.
* 10.5 Employment Agreement dated August 19, 1991, between the Registrant and Dayne R.
Myers, as amended.
* 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.
+ 10.13 License Agreement dated December 10, 1996, by and
between the Registrant and Rutgers, The State University of
New Jersey and the University of Medicine and Dentistry.
+ 10.14 License Agreement dated February 17, 1997, by and
between the Registrant and The Texas A&M University System.
*** 11.1 Statement Concerning Computation of Per Share Earnings.
* 20.1 Stockholder Information Statement of the Registrant dated June 15, 1995.
23.1 Consent of Roberts, Sheridan & Kotel, a Professional Corporation. Reference is made to
Exhibit 5.1.
23.2 Consent of Ernst & Young LLP, Independent Auditors.
**** 24.1 Power of Attorney. Reference is made to the Signature Page to the Registration Statement.
**** 27.1 Financial Data Schedule.
</TABLE>
o 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.
<PAGE>
*** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission on September 23, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement of
Form SB-2 filed with the Commission on November 6, 1996.
***** To be filed by amendment.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
TO
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
AVAX TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Amendment to
Subscription Agreement--
Lock-Up Provisions
AVAX Technologies, Inc.
4520 Main Street, Suite 930
Kansas City, MO 64111
Dear Sirs:
In connection with my purchase of units consisting of common stock, par
value $.002 per share (the "Common Stock"), and Series B Preferred Stock, par
value $.01 per share (the "Preferred Stock"), of AVAX Technologies, Inc., a
Delaware corporation (the "Company"), pursuant to that certain subscription
agreement between the undersigned and the Company (the "Subscription
Agreement"), I hereby agree to amend Section 1.17 of the Subscription Agreement
so that:
(i) each reference therein to "the Final Closing Date" shall be
deleted and replaced with "the later of Effectiveness and
Listing"; and
(ii) a new sentence shall be added to the end of Section 1.17 as
follows:
For purposes of this Section 1.17, "Effectiveness" shall mean the
effectiveness under the Securities Act of 1933 of the Company's
registration statement for the Conversion Shares; and "Listing"
shall mean listing of the Conversion Shares on a national
securities exchange or initial quotation on the National
Association of Securities Dealers Automated Quotation
National Market(Registration symbol), the Nasdaq Small-Cap Market
or the Over-The-Counter Bulletin Board.
In consideration of the foregoing, the Company agrees that on the date
which is twelve months following the later of Effectiveness and Listing (as such
terms are defined above), it will provide an additional reset protection on the
same terms as the original reset provisions contained in Section 4 of the
Certificate of Designations for the Preferred Stock; provided that in the case
of this additional reset the Company will not adjust the Conversion Price (as
such term is defined in the Certificate of Designations) but will issue
additional shares of Common Stock to effect the principles of said reset
provisions taking into account any adjustments which may have been previously
made at the time of the initial Reset Date (as such term is defined in the
Certificate of Designations). It is understood that only shareholders who
execute a form of this letter will be entitled to this additional reset
protection.
The provisions of this agreement shall be binding upon the undersigned
and the assigns, heirs, and personal representatives of the undersigned and
shall be for the benefit of the Company.
Very truly yours,
______________________
Print Name:
Title:
Agreed and Accepted as of ____________, 1997
AVAX TECHNOLOGIES, INC.
______________________________________
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief Executive Officer
EXHIBIT 5.1
Roberts, Sheridan & Kotel
A PROFESSIONAL CORPORATION
Tower 49
12 East 49th Street
New York, N.Y. 10017
TELEPHONE (212) 299-8600
FACSIMILE (212) 299-8686
WWW.RSKLAW.COM
February 26, 1997
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, as further amended by
Amendment No. 3 thereto filed with the Commission on November 8, 1996, and as
further amended by Amendment No. 4 thereto filed with the Commission on February
26, 1997, under the Securities Act of 1933 (the "Act") for the registration
under the Act of the following securities of the Issuer:
(i) 570,698 shares of common stock, par value $.002 per
share ("Common Stock");
(ii) 12,909,900 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 80,000 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
<PAGE>
2
transactions of the Company (the "Bridge Placement Warrants,"
and together with the Series B Placement Warrants, the
"Placement Warrants").
In that connection, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of certificates of public
officials and corporate 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 570,698 shares of Common Stock which may be sold in
accordance with the provisions of the Registration Statement have been legally
issued and are fully paid and nonassessable.
<PAGE>
3. The 12,909,900 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.
4. The aggregate of up to 57,500 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 22,500 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,
Roberts, Sheridan & Kotel
A Professional Corporation
<PAGE>
EXECUTION COPY
EXCLUSIVE LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is made and is effective as of
this 10th day of December, 1996, by and between both RUTGERS, THE STATE
UNIVERSITY OF NEW JERSEY, having its statewide Office of Corporate Liaison and
Technology Transfer at P.O. Box 1179, ASB Annex II, Bevier Road, Piscataway, New
Jersey 08855-1179 and the University of Medicine and Dentistry, having its
office of Patents and Licensing at 45 Knightsbridge Road, P.O. Box 6810,
Piscataway, New Jersey 08855-6810 (hereinafter collectively referred to as
"Rutgers/UMDNJ"), and AVAX Technologies, Inc., a corporation having a principal
place of business at 5353 Sunset Drive, Kansas City, Missouri 64112 (hereinafter
referred to as "Licensee"). The terms "Licensee" and "Rutgers/UMDNJ" include
their respective Affiliates (as hereafter defined) unless otherwise specified in
the Agreement.
RECITALS
WHEREAS, Certain inventions disclosed under Rutgers' Docket # 94-1003-1
entitled "Noncharged Bisbenzimidazoles and Trisbenzimidazoles as Mammalian
Topoisomerase I Poisons"; Rutgers' Docket # 94-0930-1 entitled "Substituted
Benzimidazoles as Mammalian Topoisomerase I Poisons", Rutgers' Docket #
95-0419-2 entitled "Protoberberines and Related Compounds as Potent Inhibitors
of Mammalian Topoisomerase I", Rutgers' Docket # 95-0419-3 entitled "Substituted
Benzimidazo[2,1-a]-isoquinolines,5,6-Dihydro-benimidazo [2,1-a]-isoquinolines,
and Benzimidazole as Mammalian Topoisomerase I Poisons" and Rutgers' Docket #
96-0508-1, entitled "Substituted Benz[a]acridine Derivatives as Novel
Topoisomerase I Poisons" (hereinafter collectively referred to as the
"Invention") were made in the course of research at Rutgers/UMDNJ by Dr. Edmond
LaVoie and Dr. Leroy Liu (hereinafter, "Inventors");
WHEREAS, Rutgers has been designated by UMDNJ to handle the licensing
of the Invention to Licensee;
WHEREAS, Licensee entered into two Confidentiality Agreements with
Rutgers/UMDNJ one effective February 23, 1995 and the other October 29, 1996
both terminating five (5) years from those respective dates for the purpose of
evaluating the Invention;
WHEREAS, Rutgers/UMDNJ and Licensee will be parties to a research
agreement of even date herewith under which Licensee will fund research by Drs.
LaVoie and Liu related to the Invention, which funding shall be in the amount of
one hundred thousand dollars ($100,000) per year for the next three years from
the effective date of such research agreement;
WHEREAS, Licensee does not now make or sell any products that embody
the invention, but desires to do so;
<PAGE>
WHEREAS, Licensee desires to receive from Rutgers/UMDNJ licenses to
develop, commercially manufacture, and sell products embodying the Invention and
Rutgers/UMDNJ is willing to grant Licensee such licenses;
WHEREAS, Licensee has reviewed certain of the Rutgers/UMDNJ Technology
prior to the date of this Agreement, subject to the confidentiality agreements,
and wishes to obtain a license to the Rutgers/UMDNJ Patent Rights (as
hereinafter defined) and the Rutgers/UMDNJ Technology (as hereinafter defined)
as consideration for Licensee's continuing royalty obligation hereunder; and
WHEREAS, Both parties recognize and agree that royalties due hereunder
will be paid on both pending patent applications and issued patents, as well as
on Rutgers/UMDNJ Technology, all on the terms set forth herein;
NOW THEREFORE, in consideration of the mutual promises and the
covenants herein contained and intending to be bound thereby, the parties hereto
agree as follows:
1. DEFINITIONS
1.01 The "Act" means 35 U.S.C. Section 200 et seq. and the regulations
promulgated thereunder, as in effect from time to time.
1.02 "Affiliate" means, with respect to any Entity (defined in
paragraph 1.04 below), any Entity that directly or indirectly controls, is
controlled by, or is under common control with such Entity. "Control" shall
mean, for this purpose, direct or indirect control of more than 50% of the
voting securities of an Entity or, if such Entity does not have outstanding
voting securities, more than 50% of the directorships or similar positions with
respect to such Entity.
1.03 "Bankruptcy Event" means, with respect to any Entity, a voluntary
or involuntary proceeding by or against such Entity that is instituted in
bankruptcy or under any insolvency law, or that a receiver or custodian is
appointed for such Entity, or that proceedings are instituted by or against such
Entity for corporate reorganization or the dissolution of such Entity, which
proceedings or appointment, if involuntary, shall not have been dismissed within
ninety (90) days after the date of filing or appointment, or that such Entity
makes an assignment for the benefit of creditors, or that substantially all of
the assets of such Entity are seized or attached and not released within ninety
(90) days thereafter.
1.04 "Entity" means a corporation, an association, a joint venture, a
partnership, a trust, a university, a business, an individual, a government or
political subdivision thereof, including an agency, or any other organization
that can exercise independent legal standing.
1.05 "Federal Government Interest" means the interest retained by the
federal government in the Invention pursuant to the Act.
2
<PAGE>
1.06 "Improvements" means any inventions (whether patentable or not),
information and data, in the Licensed Field (defined in paragraph 1.7 below)
that are:
(a) developed by Rutgers/UMDNJ during the term of this Agreement, the
manufacture use or sale of which would infringe an issued or pending
claim within the Rutgers/UMDNJ Patent Rights; or
(b) developed by Rutgers/UMDNJ during the term of the Research
Agreement and in the course of performing the research covered by the
Research Agreement.
1.07 "Licensed Field" means the use of Inventions for all human and
animal uses.
1.08 "Licensed Method" means any process, method, or use that is
covered by Rutgers/UMDNJ Patent Rights or Rutgers/UMDNJ Technology or whose use
or practice would constitute, but for the license granted to Licensee pursuant
to this Agreement, an infringement of any issued or pending claim within
Rutgers/UMDNJ Patent Rights.
1.09 "Licensed Improvements" means those Improvements which are made:
(a) to the Invention, the manufacture, use or sale of which would
infringe an issued or pending claim within the Rutgers/UMDNJ Patent
Rights; and
(b) in the course of performing the research covered by the Research
Agreement.
1.10 "Licensed Product" means any material, substance, composition,
service or kit, that is either:
(a) covered by an issued or pending claim of Rutgers/UMDNJ Patent
Rights or the manufacture, use or sale of which would constitute, but
for the license granted to Licensee pursuant to this Agreement, an
infringement of any such claim; or
(b) developed, made, sold, used, or registered using Rutgers/UMDNJ
Technology, Licensed Method or Licensed Improvements in whole or in
part.
1.11 "Major Market Countries" shall mean each of France, Germany,
Italy, the United Kingdom, the United States of America and Japan.
1.12 "Net Sales" means the total of the gross consideration received
for Licensed Products sold or transferred by Licensee less the sum of the
following (to the extent actually paid or allowed, and net of rebates or
allowances of such deductions):
(a) cash discounts in customary amounts;
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(b) trade or quantity discounts or allowances (including refunds,
rebates, charge backs, and retroactive price adjustments);
(c) sales, use, tariff, or excise taxes imposed upon particular sales;
(d) import/export duties; transportation charges and insurance.
Sales among Licensee and its Affiliates for ultimate third party use shall be
disregarded for purposes of computing Net Sales. At the request of either party,
but in no event more than once per year, royalties shall be valued by an
independent accountant, investment banker or financial consultant selected by
Licensee and reasonably acceptable to Rutgers/UMDNJ to ensure that such
royalties are fairly based on an arms length transaction.
1.13 "Payment Obligations" means the payment obligations of Licensee
pursuant to paragraphs 4.4 and 5.1.
1.14 "First Commercial Sale" means the initial transfer by or on behalf
of Licensee, its Affiliate or its sublicensees of Licensed Products or the
initial practice of a Licensed Method by or on behalf of Licensee, its Affiliate
or its sublicensees in exchange for cash or some equivalent to which value can
be assigned for the purpose of determining Net Sales.
1.15 "Research Agreement" means the research agreement between Licensee
and Rutgers/UMDNJ, substantially in the form of Exhibit A to be attached hereto,
which funds further research in the field of Rutgers/UMDNJ Patent Rights and is
to be executed at the same time as this License Agreement.
1.16 "Rutgers/UMDNJ Patent Rights" means the following:
(a) U.S. Patent Applications Numbers 08/442,857, 08/618,988 and
[60]/011,452, any other patent application owned by Rutgers/UMDNJ that
discloses or claims subject matter contained in Rutgers Files Docket
Number 94-1003-1, 94-0930-1, 95-0419-2, 95-0419-3 or 96-0508-1 and
counterpart foreign patents and patent applications owned by
Rutgers/UMDNJ (which counterparts, including PCT filings, are listed in
Exhibit B), including any reissues, extensions, substitutions,
continuations, continuations-in-part, and divisions thereof; and
(b) all U.S. and foreign patents and patent applications with respect
to Licensed Improvements.
1.17 "Rutgers/UMDNJ Technology" means all tangible information,
Licensed Improvements (other than those contained in the Rutgers/UMDNJ Patent
Rights) and physical objects related to the Invention or to Licensed Product, in
the Licensed Field (other than
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Rutgers/UMDNJ Patent Rights), including but not limited to formulations,
materials, data, drawings and sketches, designs, testing and test results,
regulatory information of a like nature, whether patentable or not, owned by
Rutgers/UMDNJ, which Rutgers/UMDNJ has the right to disclose and license to
Licensee, and which arose in the Inventors' laboratories under the direction of
one or more of the Inventors prior to the effective date of this Agreement or in
the performance of the Research Agreement.
1.18 "Rutgers/UMDNJ Proprietary Technology" means Rutgers/UMDNJ
Technology that is not:
(a) received by Licensee from a third party lawfully in possession of
same and having the right to disclose same; or
(b) now or hereafter in the public domain through no fault of Licensee;
or
(c) independently developed by Licensee as demonstrated by written
evidence without reference to information disclosed to Licensee by
Rutgers/UMDNJ; or
(d) disclosed without confidentiality restrictions by Licensee pursuant
to the prior specific written approval of Rutgers/UMDNJ's Technology
Transfer Department.
1.19 "Warrants" means warrants to be issued by Licensee to
Rutgers/UMDNJ to purchase 250,000 shares of common stock of Licensee at a price
of [***] per share. The first [***] warrants, as set forth in sub-paragraphs
(a) through (d), shall have an expiration date ten (10) years from the effective
date of this Agreement. The final [***] warrants, as set forth in
sub-paragraph (e), shall have an expiration date fifteen (15) years from the
effective date of this Agreement. Such warrants shall vest and shall be issued
to Rutgers/UMDNJ, so long as this Agreement is still in effect, in accordance
with the following schedule:
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(d) 50,000 warrants shall vest upon the earlier of October 31, 2001, or
the date of initiation of Phase II trials (including any trials
designated Phase I/II) in the United States or another Major Market
Country.
(e) 100,000 warrants shall vest upon the earlier of October 31, 2011,
or the first filing a New Drug Application (NDA) with the United States
FDA or its equivalent in another Major Market Country.
Such warrants shall provide for cashless exercise, piggyback registration rights
in any registration subsequent to the first underwritten public offering by
Licensee (subject to pro tanto cutbacks in favor of Licensee and any holder of
demand registration rights, pro rata cutbacks with other holders of piggyback
registration rights, underwriting lockups and other customary terms),
antidilution protection relating to share splits, share recombinations and share
dividends and other provisions protecting the owners of warrants which are
customary and reasonably acceptable to the parties.
2. GRANT
2.1 Subject to the terms and conditions in this Agreement,
Rutgers/UMDNJ hereby grants to Licensee, subject to the Act, the exclusive
worldwide right and license in the Licensed Field under Rutgers/UMDNJ Patent
Rights, Rutgers/UMDNJ Technology and Licensed Improvements to make, have made,
use, offer for sale, import and sell Licensed Products and to use or practice
any Licensed Method with respect to Licensed Products during the term of this
Agreement.
2.2 Subject to paragraph 13.3, Rutgers/UMDNJ expressly reserves the
right to use the Invention, Rutgers/UMDNJ Patent Rights, Rutgers/UMDNJ
Technology, Licensed Products, Licensed Methods and Licensed Improvements solely
for educational and research purposes and to publish the results thereof but
shall have no right to offer for sale, sell or commercialize any Licensed
Product which right will have been exclusively licensed to Licensee hereunder.
2.3 Rutgers/UMDNJ, principally through the Inventors, has disclosed
certain Rutgers/UMDNJ Technology to Licensee subject to the terms of the
Confidentiality Agreements entered into prior to the execution of this
Agreement, some of which Rutgers/UMDNJ Technology was made available to the
public without restriction. Accordingly, Rutgers/UMDNJ principally through the
Inventors shall provide to Licensee the following information:
(a) Within thirty (30) days of the execution of this Agreement, a list
of all prior written publications, oral presentations and any other
public disclosure of the Invention and/or Rutgers/UMDNJ Technology; and
(b) Within four (4) months from the date of execution of this Agreement
and from time to time thereafter, a list of all then existing
Rutgers/UMDNJ Technology, Rutgers/UMDNJ Proprietary Technology and
Improvements disclosed to the Rutgers/UMDNJ Office of Corporate Liaison
and Technology Transfer, or in the case of the Inventors, known to
them.
2.4 Subject to the rights of third parties, Rutgers/UMDNJ hereby agrees
that Licensee shall have a reasonable opportunity (for a period not to exceed
three (3) months from disclosure pursuant to paragraph 2.3) to negotiate a
royalty bearing license to any Improvements in the
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Licensed Field (specifically excluding Licensed Improvements which shall be
subject to this License pursuant to paragraph 2.1).
3. SUBLICENSES
3.1 Rutgers/UMDNJ grants to Licensee the right to grant sublicenses to
third parties under the licenses granted in Article 2, provided that Licensee
has current exclusive rights thereto under this Agreement. To the extent
feasible, sublicenses shall contain all of the obligations of the Licensee to
Rutgers/UMDNJ and to the United States government and be consistent with the
nonmonetary terms of this Agreement.
3.2 Within thirty (30) days after execution or receipt thereof, as
applicable, Licensee shall provide Rutgers/UMDNJ with a copy of each sublicense
issued hereunder and shall deliver copies of all royalty reports received by
Licensee from such sublicensees.
3.3 Upon termination of this Agreement other than by expiration
pursuant to Article 9, any and all sublicenses shall survive such termination.
4. PRECLINICAL DEVELOPMENT FEE, LICENSE MAINTENANCE FEES, EQUITY AND
MILESTONE PAYMENTS
4.1 Licensee agrees to pay to Rutgers/UMDNJ a [***] days of the
execution of this Agreement.
4.2 Licensee agrees to pay to Rutgers/UMDNJ a License Maintenance Fee
of [***] per year at Rutgers/UMDNJ or if such date follows the First Commercial
Sale of Licensed Product by Licensee or its sublicensees. The License
Maintenance Fee is non-refundable and is not an advance against royalties.
4.3 Licensee shall issue the Warrants to Rutgers/UMDNJ in accordance
with the vesting schedule contained in the definition thereof.
4.4 Licensee will pay to Rutgers/UMDNJ semi-annually, concurrently with
its payment of royalties as provided in paragraph 5.1, [***] of all non-royalty
consideration received by Licensee during the two most recently concluded fiscal
quarters from sublicensing or transferring (other than to Affiliates of
Licensee) the rights licensed to Licensee hereunder except for the following:
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Subject to Article 17 of this Agreement, amounts due under this Article 4.4
alone shall not be reduced in the aggregate by more than [***] in any year.
4.5 Licensee shall pay to Rutgers/UMDNJ Milestone Payment Fees, so long
as this Agreement remains in effect, in accordance with the following schedule:
Event Amount
[***]
These Milestone Payment Fees shall be paid to Rutgers/UMDNJ within thirty (30)
days after the occurrence of the events set forth on the schedule above and
shall not be refundable or creditable against royalties. In no event shall any
milestone payment be payable with respect to more than one Licensed Product.
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5. ROYALTIES
5.1 Except as otherwise required by law, Licensee shall pay to
Rutgers/UMDNJ:
(a) a semi-annual royalty based on Net Sales during the two most
recently concluded fiscal quarters calculated as follows:
(i) to the extent a Rutgers/UMDNJ Patent Right underlying a
Licensed Product is unexpired in a country, a royalty of [***]
Subject to Article 17 this Agreement, amounts due under this Article 5.2 alone
shall not be reduced [***]
5.2 No Payment Obligations shall be due with respect to any sale or
sublicense covering any Licensed Product in a country if:
(a) there are no issued Rutgers/UMDNJ Patent Rights underlying such
Licensed Product in such country; and
(b) to the extent that a patent application is pending, there is no
claim within such patent application on which a royalty herein can
reasonably be based which has been pending for less than seven (7)
years since the initial filing date; and
(c) no Rutgers/UMDNJ Proprietary Technology is used with respect to, or
embodied in such Licensed Product.
5.3 Royalties payable to Rutgers/UMDNJ shall be paid semi-annually on
or before June 30 and December 31 of each calendar year. Each such payment will
be for unpaid royalties that accrued within or prior to Licensee's two most
recently completed calendar quarters.
5.4 Licensee shall pay to Rutgers/UMDNJ a minimum annual payment equal
to the amount set forth on the following schedule:
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for the term of this Agreement beginning with the year of First Commercial Sale
of any Licensed Product in a Major Market Country. This minimum annual payment
shall be paid to Rutgers/UMDNJ by December 31 of each year and shall be credited
against the Payment Obligations due and owing for the calendar year in which the
minimum annual payment is supposed to be made. The first year's minimum annual
payment shall be prorated by the fractional number of full months remaining in
that calendar.
5.5 Licensee shall be entitled to credit against the royalty revenue
payable pursuant to paragraph 5.1(a) and (b) in the amount of [***] provided
that in no event shall such credit:
[***]
Within (3) years after receipt of each installment of such credit, Licensee
shall invest one-half of such installment in research or clinical trials at
Rutgers and UMDNJ (to be shared between the parties as they deem appropriate) to
be negotiated in good faith between the parties at that time.
5.6 All amounts due Rutgers/UMDNJ shall be payable in United States
Dollars in New Brunswick, New Jersey. When Licensed Products are sold for monies
other than United States Dollars, the earned royalties will first be determined
in the foreign currency of the country in which such Licensed Products were sold
and then converted into equivalent United States Dollars. The exchange rate will
be the United States Dollar buying rate quoted in the Wall Street Journal on the
last day of the reporting period.
5.7 Royalties earned with respect to sales occurring in any country
outside the United States shall be reduced by any taxes, fees or other charges
imposed by the government of such country on the remittance of income. The
parties shall reasonably cooperate with each other in execution of documents
which will avoid or reduce such taxes, fees and charges. Licensee shall be
responsible for all bank transfer charges.
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5.8 If at any time legal restrictions prevent the acquisition or prompt
remittance of United States Dollars by Licensee with respect to any country
where a Licensed Product is sold, Licensee shall pay royalties due to
Rutgers/UMDNJ from Licensee's other sources of United States Dollars.
5.9 In the event that any patent or any claim thereof included within
the Rutgers/UMDNJ Patent Rights shall be held invalid in a final decision by a
court of competent jurisdiction and last resort and from which no appeal has or
can be taken, all obligation to pay royalties based on such patent or claim or
any claim patentably indistinct therefrom shall cease as of the date of such
final decision. Licensee shall not, however, be relieved from paying any
royalties that accrued before such decision or that are based on another patent
or claim not involved in such decision, or that are based on Rutgers/UMDNJ
Technology.
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6. DILIGENCE
6.1 Licensee, upon execution of this Agreement, shall use all
reasonable efforts to develop, test, obtain regulatory approval, and manufacture
Licensed Products in all Major Market Countries, and any other countries in
which it is deemed reasonable and prudent to do so, in which Rutgers/UMDNJ
Patent Rights exist within a reasonable time after execution of this Agreement
and shall, within a reasonable time after obtaining requisite regulatory
approvals, earnestly and diligently endeavor to market and sell the same in
quantities sufficient to meet the market demands therefor.
6.2 Licensee shall be entitled to exercise prudent and reasonable
business judgment in meeting its diligence obligations hereunder.
6.3 If Licensee or its sublicensees fail to perform any of the
following:
(a) commence commercial marketing of Licensed Products in each Major
Market Country within six (6) months of receiving approval of such
Licensed Product in such country unless there is a significant, prudent
and reasonable business reason not to do so;
(b) reasonably fill the market demand for Licensed Products in each
Major Market Country following commencement of marketing in such
country at all times during the
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exclusive period of this Agreement; or
(c) until the Minimum Payment Obligation's of paragraph 5.4 are
triggered, spend an aggregate of not less than:
(i) $200,000 in Year One;
(ii) $300,000 in Year Two; and
(iii) $500,000 in Year Three, and each year of this
Agreement thereafter
for the development, research, manufacture, regulatory approval,
marketing and selling of Licensed Products (including without
limitation, allocated overhead expenses and Sponsored Research
expenses);
(d) execute the Sponsored Research Agreement within forty-five (45)
days of the execution of this Agreement, or, where good faith
negotiations are continuing, for such longer period of time as agreed
to by and between the parties, providing for the funding of research in
the amount of at least [***] for the first three years;
then Rutgers/UMDNJ shall have the right and option upon sixty (60) days written
notice, either to terminate this Agreement in the countries where Licensee has
failed to perform or to reduce Licensee's exclusive license to a nonexclusive
license in the countries where Licensee has failed to perform, provided that any
such notice must be given within four (4) months after the occurrence or from
the time at which Rutgers/UMDNJ Office of Technology Transfer has or should have
knowledge of the occurrence of the alleged violation complained of in such
notice and Licensee does not cure the matter specified in such notice within
said sixty (60) day period. Should the Licensee fail to cure the matters
specified in such notice within said sixty (60) day period, the termination
shall be effective at the end of said period. This right, if exercised by
Rutgers/UMDNJ, supersedes the rights granted in Article 2 (GRANT).
7. PROGRESS AND ROYALTY REPORTS
7.1 Beginning December 31, 1997, and annually thereafter, Licensee
shall submit to Rutgers/UMDNJ a progress report covering Licensee's activities
related to the development and testing of all Licensed Products and the
obtaining of the governmental approvals necessary for marketing. These progress
reports shall be made for each Licensed Product in each Major Market Country and
for other countries upon request by Rutgers/UMDNJ.
7.2 Subject to applicable law, the progress reports submitted under
paragraph 7.1 shall include sufficient information to enable Rutgers/UMDNJ to
determine Licensee's progress in fulfilling its obligations under Article 6 and
shall contain information with respect to the following topics:
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- summary of work completed
- key scientific discoveries
- summary of work in progress, including product development and
testing and progress in obtaining government approvals
- market plans for introduction of Licensed Products in countries
in which Licensed Product has not been introduced
- aggregate dollar value spent in the reporting period for
research, development, and marketing of Licensed Products
- activities in obtaining sublicensees and activities of sublicensees
- financial statements as of the end of the previous calendar quarter
- activities under the Research Agreement
7.3 Licensee shall have a continuing responsibility to keep
Rutgers/UMDNJ informed of its large/small Entity status (as defined by the
United States Patent and Trademark Office).
7.4 Subject to applicable law, Licensee shall report to Rutgers/UMDNJ
in its immediately subsequent progress or royalty report the date of First
Commercial Sale of each Licensed Product in each country.
7.5 After the First Commercial Sale of a Licensed Product anywhere in
the world by Licensee or its sublicensees, Licensee will make semi-annual
royalty reports to Rutgers/UMDNJ on or before each June 30 and December 31 of
each year. Each such royalty report will cover Licensee's two most recently
completed calendar quarters and will show the following:
(a) the gross sales and Net Sales of each type of Licensed Product and
a clear indication of how Net Sales and other consideration due to
Rutgers/UMDNJ hereunder were calculated;
(b) the royalties and other consideration, in U.S. dollars, payable
hereunder;
(c) the exchange rate used, if any; and
(d) any other information reasonably requested by Rutgers/UMDNJ in
support or explanation thereof.
7.6 If no sales of Licensed Products have been made during any
reporting period, a statement to this effect shall be made by Licensee.
8. BOOKS AND RECORDS
8.1 Licensee shall keep, cause its Affiliates to keep and use its best
efforts to cause its sublicensees to keep complete and accurate books and
records in accordance with generally accepted accounting principles accurately
showing all transactions and information relating to this Agreement.
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Such books and records shall be preserved for at least five (5) years from the
date of the entry to which they pertain and shall be open to inspection by
representatives or agents of Rutgers/UMDNJ reasonably acceptable to Licensee at
reasonable times upon reasonable notice and may be exercised no more than two
times per calendar year.
8.2 The fees and expenses of Rutgers/UMDNJ representatives performing
such an examination shall be borne by Rutgers/UMDNJ. However, if an error in
royalties in an amount equal to the greater of five percent (5%) of the total
royalties due for any year or fifty thousand dollars ($50,000) is discovered,
then the fees and expenses of these representatives shall be borne by Licensee.
9. TERM OF THE AGREEMENT
9.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the provisions of this Agreement, this Agreement
shall be in force from the effective date recited on page one and shall remain
in effect with respect to each Licensed Product in each country of the world
until the longer of:
(a) expiration of the last-to-expire Rutgers/UMDNJ Patent Right
licensed under this Agreement in such country; or
(b) ten years from the date of First Commercial Sale of a Licensed
Product in such country.
9.2 Any expiration or termination of this Agreement shall not affect
the rights and obligations set forth in the following Articles:
Article 8 Books and Records
Article 12 Disposition of Licensed Products on Hand Upon
Termination
Article 13 Use of Names, Trademarks and Confidential Data
Article 14 Representations and Warranties
Article 18 Indemnification
Article 23 Failure to Perform
Article 28 Confidentiality
10. TERMINATION BY RUTGERS/UMDNJ
10.1 If Licensee should materially breach or fail to perform in any
material respect any material provision of this Agreement then Rutgers/UMDNJ may
give written notice of such default to Licensee. If Licensee should fail to cure
such default within sixty (60) days after the effective
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date of such notice, Rutgers/UMDNJ shall have the right to terminate this
Agreement and the licenses herein by a second written notice to Licensee. If a
notice of termination is sent to Licensee, this Agreement shall automatically
terminate on the effective date of such notice. Termination shall not relieve
Licensee of its obligation to pay all amounts due to Rutgers/UMDNJ as of the
effective date of termination and shall not impair any accrued right of
Rutgers/UMDNJ.
10.2 Rutgers/UMDNJ may terminate this Agreement immediately on written
notice to Licensee upon the occurrence of a Bankruptcy Event with respect to
Licensee.
11. TERMINATION BY LICENSEE
11.1 Licensee shall have the right at any time to terminate this
Agreement in whole or as to any portion of Rutgers/UMDNJ Patent Rights by giving
ninety (90) days notice thereof in writing to Rutgers/UMDNJ. If such termination
in whole is within the first year of this Agreement, other than in the first
three (3) months, Licensee shall pay Rutgers/UMDNJ a relicensing fee of Ten
Thousand Dollars ($10,000).
11.2 Any termination pursuant to the above paragraph shall not relieve
Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to
Rutgers/UMDNJ hereunder prior to the time such termination becomes effective,
and such termination shall not affect in any manner any rights of Rutgers/UMDNJ
arising under this Agreement prior to such termination.
12. DISPOSITION OF LICENSED PRODUCTS AND INFORMATION
ON HAND UPON TERMINATION
12.1 Upon termination of this Agreement by either party:
(a) Licensee may sell all previously made or partially made Licensed
Products, but no more (and may complete Licensed Products for which
materials have been ordered or manufactured) within a period of one
hundred and twenty (120) days after the effective date of termination,
provided, however, that the disposition of such Licensed Products shall
be subject to the terms of this Agreement including, but not limited
to, the payment of royalties at the rate and at the time provided
herein and the rendering of reports thereon; and
(b) Licensee shall promptly return, and shall use all reasonable
efforts to cause its sublicensees to return, to Rutgers/UMDNJ all
Rutgers/UMDNJ Technology, and other property belonging to
Rutgers/UMDNJ, if any, that has been provided to Licensee or
sublicensees hereunder, and all copies and facsimiles thereof and
derivatives therefrom (except that Licensee may retain one copy of
written material for record purposes only,
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provided such material is not used by Licensee for any other purpose
and is not disclosed to others).
13. USE OF NAMES, TRADEMARKS, AND CONFIDENTIAL INFORMATION
13.1 Nothing contained in this Agreement shall be construed as granting
any right to Licensee or its Affiliates to use in advertising, publicity, or
other promotional activities any name, trade name, trademark, or other
designation of Rutgers/UMDNJ or any of its units (including contraction,
abbreviation or simulation of any of the foregoing) without the prior, written
consent of Rutgers/UMDNJ; provided, however, that Rutgers/UMDNJ acknowledges and
agrees that Licensee may use Rutgers/UMDNJ's name and the names of Drs. LaVoie
and Liu in various documents used by Licensee for capital raising and financing
without such prior written consent where the use of such names may be required
by law. Rutgers/UMDNJ acknowledges that Drs. LaVoie and Liu may act as
consultants and scientific advisors to Licensee with respect to the licenses
granted to Licensee hereunder, subject to Rutgers/UMDNJ policies.
13.2 Nothing herein shall be deemed to establish a relationship of
principal and agent between Rutgers/UMDNJ and Licensee, nor any of their agents
or employees for any purpose whatsoever. This Agreement shall not be construed
as constituting Rutgers/UMDNJ and Licensee as partners, or as creating any other
form of legal association or arrangement which would impose liability upon one
party for the act or failure to act of the other party.
13.3 In the event that Rutgers/UMDNJ desires to publish or disclose, by
written, oral or other presentation, Licensed Improvements, Rutgers/UMDNJ Patent
Rights, Rutgers/UMDNJ Proprietary Technology or any material information related
thereto which the Inventors reasonably believe jeopardize the aforementioned
rights the Inventors shall notify Licensee and Rutgers/UMDNJ in writing by
facsimile where confirmed by the receiving party, and/or by certified or
registered mail (return receipt requested) of their intention at least fifteen
(15) days prior to any speech, lecture or other oral presentation and at least
60 days before any written or other publication or disclosure. The Inventors
shall include with such notice a description of any proposed oral presentation
or, in any proposed written or other disclosure, a current draft of such
proposed disclosure or abstract. Licensee may request that the Inventors and
Rutgers/UMDNJ, no later than 30 days following the receipt of such notice, delay
such publication or disclosure in order to enable Licensee to request that
Rutgers/UMDNJ file, or have filed on its behalf, a patent application, copyright
or other appropriate form of intellectual property protection related to the
information to be disclosed. Upon receipt of such request, Rutgers/UMDNJ and the
Inventors shall arrange for a delay in publication or disclosure until such time
as Rutgers/UMDNJ has filed, or had filed on its behalf, such patent application,
copyright or other appropriate form of intellectual property protection in form
and in substance reasonably satisfactory to Licensee and Rutgers/UMDNJ. If
neither the Inventors nor Rutgers/UMDNJ receive any such request from Licensee
to delay publication or disclosure, Rutgers/UMDNJ or the Inventors may submit
such material for publication or presentation or make such other publication or
disclosure. If Rutgers/UMDNJ has not filed, or
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had filed on its behalf, such patent application, copyright or other appropriate
intellectual property protection within thirty (30) days of a request by
Licensee to Rutgers/UMDNJ to do so, Licensee shall have the right but not the
obligation to file on behalf of Rutgers/UMDNJ any appropriate intellectual
property protection upon notice to Rutgers/UMDNJ within fifteen (15) days of the
expiration of said thirty (30) day period. Upon receipt of such notice,
Rutgers/UMDNJ shall arrange for a delay in publication or disclosure until such
time as Licensee has filed such patent application, copyright or other
appropriate form of intellectual property protection which Licensee agrees to
file as soon as is reasonably practicable provided, however that said deferral
shall not exceed ninety (90) days from the receipt of such notice.
14. LIMITED WARRANTY
14.1 As of the effective date of this Agreement Rutgers/UMDNJ
represents the following:
(a) Rutgers/UMDNJ has the right to grant the license granted in this
agreement, subject to the Federal Government Interest;
(b) Rutgers/UMDNJ has made an effective election under the Act to
retain title to the Rutgers/UMDNJ Patent Rights;
(c) attached as Exhibit C are copies of all United States Government
funding agreements underlying the Invention and all related progress
reports;
(d) the Rutgers Office of Corporate Liaison and Technology Transfer,
after inquiry of its counterpart at UMDNJ, the Inventors, and the
Office of the General Counsel has no notice of:
(i) any infringement or misappropriation by any third party of
any of the Rutgers/UMDNJ Patent Rights or Rutgers/UMDNJ
Technology;
(ii) any claim by a third party contesting the validity of any
Rutgers/UMDNJ Patent Rights or Rutgers/UMDNJ Technology; or
(iii) any pending or threatened litigation, or contested
administrative proceedings, with respect to the Invention, the
Rutgers/UMDNJ Patent Rights or the Rutgers/UMDNJ Technology;
and
(e) all topoisomerase inhibitors developed or under development by Dr.
LaVoie or Dr. Liu which have been disclosed to Rutgers/UMDNJ Office of
Corporate Liaison and Technology Transfer have been disclosed to
Licensee. Additionally, Rutgers/UMDNJ Office of Corporate Liaison and
Technology Transfer has no knowledge of any other topoisomerase
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inhibitors under development by Drs. LaVoie and Liu.
14.2 The Inventors represent the following:
(a) they have no knowledge of any infringement, misappropriation,
claim, litigation or contested administrative proceeding with respect
to the Invention, the Rutgers/UMDNJ Patent Rights or the Rutgers/UMDNJ
Technology;
(b) any pending or threatened litigation, or contested administrative
proceedings, with respect to the Invention, the Rutgers/UMDNJ Patent
Rights or the Rutgers/UMDNJ Technology;
(c) any claim by a third party contesting the validity of any
Rutgers/UMDNJ Patent rights or Rutgers/UMDNJ Technology; or
(d) all topoisomerase inhibitors developed or under development by the
Inventors have been disclosed to Licensee.
14.3 This license and the associated Invention are provided WITHOUT
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER
WARRANTY, EXPRESS OR IMPLIED. RUTGERS/UMDNJ MAKES NO REPRESENTATION OR WARRANTY
THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY PATENT OR
OTHER PROPRIETARY RIGHT.
14.4 IN NO EVENT WILL RUTGERS/UMDNJ BE LIABLE FOR ANY INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR
MANUFACTURE, SALE, OR USE OF THE INVENTION OR LICENSED PRODUCTS OR LICENSED
METHODS OR RUTGERS/UMDNJ TECHNOLOGY.
14.5 Subject to the provisions of paragraph 14.1, nothing in this
Agreement shall be construed as:
(a) a warranty by Rutgers/UMDNJ as to the validity or scope of any
Rutgers/UMDNJ Patent Rights or Rutgers/UMDNJ Technology;
(b) a warranty that anything made, used, sold or otherwise disposed of
under any license granted in this Agreement is or will be free from
infringement of patents or other intellectual property of third
parties;
(c) an obligation to bring or prosecute actions or suits against third
parties except as provided in Article 17;
(d) conferring by implication, estoppel or otherwise any license or
rights under any
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patents or other intellectual property of Rutgers/UMDNJ, other than
Rutgers/UMDNJ Patent Rights and Rutgers/UMDNJ Technology as defined
herein, regardless of whether such patents are dominant or subordinate
to Rutgers/UMDNJ Patent Rights; or
(e) an obligation to furnish any know-how not provided in Rutgers/UMDNJ
Patent Rights and Rutgers/UMDNJ Technology.
15. PATENT PROSECUTION
AND MAINTENANCE
15.1 Rutgers/UMDNJ, in cooperation with Licensee shall diligently
prosecute and maintain the United States patents comprising Rutgers/UMDNJ Patent
Rights through counsel mutually agreeable to Licensee and Rutgers/UMDNJ. Counsel
shall take instructions from Rutgers/UMDNJ. Additionally, Rutgers/UMDNJ or
patent counsel shall provide a copy of any and all correspondence or other
relevant documentation between Rutgers/UMDNJ and/or patent counsel and the
United States Patent and Trademark Office, any governmental agency or other
party (excluding internally distributed correspondence) where such documentation
pertains to the prosecution and maintenance of the aforementioned United States
patents which documentation shall include but not be limited to all bar dates,
filing dates, notification dates and other relevant dates. Licensee agrees to
keep confidential all documentation relating to the prosecution and maintenance
of Rutgers/UMDNJ Patent Rights so long as it is Rutgers/UMDNJ Confidential
Material.
15.2 Rutgers/UMDNJ shall give due consideration to amending any patent
application to include claims reasonably requested by Licensee to protect the
Licensed Products contemplated to be sold under this Agreement.
15.3 Rutgers/UMDNJ shall cooperate with Licensee in applying for an
extension of the term of any patent included within Rutgers/UMDNJ Patent Rights
if appropriate under any applicable statute. Licensee shall prepare all such
documents, and Rutgers/UMDNJ agrees to execute such documents and to take such
additional action as Licensee may reasonably request in connection therewith.
15.4 All future costs of preparing, filing, prosecuting, defending and
maintaining all United States patent applications and/or patents, including
interferences and oppositions, and, subject to paragraphs 15.5 and 15.6, all
corresponding foreign patent applications and patents covered by Rutgers/UMDNJ
Patent Rights shall be paid by Licensee. In addition, upon presentation of
appropriate evidence of such expense, Licensee shall pay all past patent
prosecution costs for the Rutgers/UMDNJ Patent Rights incurred by Rutgers/UMDNJ
prior to the execution of this Agreement which Rutgers/UMDNJ estimates to be
approximately $23,561.52 based on information currently available to
Rutgers/UMDNJ, which amount shall be due within sixty (60) days of the execution
of this Agreement. Current and future costs shall be payable by Licensee within
sixty (60) days of the billing date. If bills in excess of $10,000 remain
outstanding for more than such 60-day
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period after notice to Licensee then Rutgers/UMDNJ may send a notice of
termination to Licensee referencing such bills and enclosing copies of invoices
against which the same are payable, and unless Licensee pays such bills within
ninety (90) days after the effective date of giving the termination notice in
accordance with Article 19 or is contesting such bills in good faith,
Rutgers/UMDNJ may terminate this Agreement at the end of such 90-day period.
15.5 Rutgers/UMDNJ shall, at the request of Licensee, file, prosecute,
and maintain patent applications and patents covered by Rutgers/UMDNJ Patent
Rights in foreign countries if available. Licensee consents to the filing of all
PCT and foreign patent applications that have already been filed as of the
effective date of this Agreement. Licensee shall notify Rutgers/UMDNJ within six
(6) months of the filing of the corresponding United States application (or,
with respect to United States applications pending as of the date of execution
of this Agreement, within three (3) months of the execution of this Agreement)
of the foreign jurisdictions in which it wishes to seek corresponding patent
protection. This notice shall be in writing. The absence of such a notice from
Licensee shall be considered by Rutgers/UMDNJ to be an election not to request
foreign rights.
15.6 Licensee's obligation to underwrite and to pay patent prosecution
costs shall continue for so long as this Agreement remains in effect, provided,
however, that:
(a) Licensee shall have no such obligation with respect to patent
prosecutions in foreign jurisdictions other than those in process as of
the date of this Agreement or which are designated in a notice to
Rutgers/UMDNJ pursuant to paragraph 15.5; and
(b) Licensee may terminate its obligations with respect to any given
patent application or patent upon three (3) months' written notice to
Rutgers/UMDNJ. Rutgers/UMDNJ shall use reasonable efforts to curtail
patent costs when such a notice is received from Licensee. Licensee
shall promptly pay patent costs incurred prior to the expiration of
such three-month period which cannot be so curtailed. Commencing at the
expiration of such three-month period, Rutgers/UMDNJ may continue
prosecution and/or maintenance of such application(s) or patent(s) at
its sole discretion and expense, and Licensee shall have no further
right or licenses thereunder or related to Rutgers/UMDNJ Technology in
the relevant jurisdiction.
15.7 Rutgers/UMDNJ shall have the right to file patent applications at
its own expense in any country or countries in which Licensee has not elected to
secure patent rights or in which Licensee's patent rights hereunder have
terminated, and such applications and resultant patents shall not be subject to
this Agreement and may be freely licensed by Rutgers/UMDNJ to others together
with Rutgers/UMDNJ Technology in the relevant jurisdiction.
15.8 Rutgers/UMDNJ shall not abandon any patent applications or issued
patent comprising Rutgers/UMDNJ Patent Rights or otherwise fail to prosecute
diligently or maintain any Rutgers/UMDNJ Patent Rights except following at least
forty-five (45) days written notice to Licensee, following which Licensee shall
have the right, but not the obligation, to commence or continue such prosecution
and to maintain any such Rutgers/UMDNJ Patent Rights under its own
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control and expense.
16. PATENT MARKING
16.1 Licensee shall mark all Licensed Products made, used, or sold
under the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
17. PATENT INFRINGEMENT
17.1 In the event that Licensee shall learn of the infringement of any
patent or right licensed under this Agreement, Licensee shall call
Rutgers/UMDNJ's attention thereto in writing. Both parties to this Agreement
agree that during the period and in a jurisdiction where Licensee has exclusive
rights under this Agreement, neither will notify a third party of the
infringement of any of Rutgers/UMDNJ Patent Rights or such other intellectual
property rights without first obtaining consent of the other party, which
consent shall not be unreasonably withheld. Both parties shall use their best
efforts in cooperation with each other to terminate such infringement without
litigation. Rutgers/UMDNJ shall have the first option to undertake the
enforcement of the Rutgers/UMDNJ Patent Rights, provided, however, that Licensee
may join with Rutgers/UMDNJ and its counsel in prosecuting such legal action,
provided, however, that if the use of counsel chosen by Rutgers/UMDNJ would
present such counsel with a conflict of interest then Licensee may obtain
counsel of its choice at its sole expense.
17.2 Licensee may request that Rutgers/UMDNJ take legal action against
the infringement of Rutgers/UMDNJ Patent Rights licensed under this Agreement.
Such request shall be made in writing and shall include reasonable evidence of
such infringement and damages to Licensee. If Rutgers/UMDNJ does not commence a
diligent legal challenge within sixty (60) business days after such request (or
immediately in the event Licensee requests that Rutgers/UMDNJ seek provisional
relief and reasonably demonstrates that such relief is required), and the
infringing activity has not been abated within such time, or if at any time
thereafter Rutgers/UMDNJ does not persist in such diligent legal challenge until
the infringement has been abated, Licensee may, if the infringement occurred in
a jurisdiction where Licensee had exclusive rights under this Agreement, have
control over the prosecution of legal actions relating thereto. However, in the
event Licensee elects to bring suit in accordance with this paragraph 17.2,
Rutgers/UMDNJ may thereafter join with Licensee and its counsel in prosecuting
such legal action, provided, however, that if the use of counsel chosen by
Rutgers/UMDNJ would present such counsel with a conflict of interest then
Rutgers/UMDNJ may obtain counsel of its choice at its sole expense.
17.3 Recoveries or reimbursements from any such litigation or
settlement within the scope of paragraph 17.2 in a jurisdiction in which
Licensee had exclusive rights under this Agreement at the time of the
infringement shall be first applied to reimburse Licensee and/or Rutgers/UMDNJ
for
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out-of-pocket litigation costs (with respect to Licensee, to the extent not
theretofore credited against royalties in accordance with paragraph 17.5) and
then to Rutgers/UMDNJ for any royalties past due or withheld pursuant to
paragraph 17.5. Any remaining recoveries or reimbursements shall be divided
between Licensee and Rutgers/UMDNJ at a rate of 15% to Rutgers/UMDNJ and 85% to
Licensee.
17.4 In the event that a claim or suit is asserted or brought against
Licensee alleging that the manufacture or sale of any Licensed Product by
Licensee or its sublicensees, or the use of such Licensed Product by any
customer of any of the foregoing, infringes proprietary rights of a third party,
Licensee shall give written notice thereof to Rutgers/UMDNJ. Licensee may, in
its sole discretion, modify such Licensed Product to avoid such infringement
and/or may settle on terms that it deems advisable in its sole discretion,
subject to paragraph 17.6. Otherwise, Licensee shall have the right, but not the
obligation, to defend any such claim or suit. In the event Licensee elects not
to defend such suit, Rutgers/UMDNJ shall have the right, but not the obligation
to do so at its sole expense.
17.5 [***] payable to Rutgers/UMDNJ hereunder for such country and
apply the same toward one-half of its actual, reasonable out-of-pocket
litigation costs. If one half of such litigation costs in such country exceed
50% of royalties payable to Rutgers/UMDNJ in any year in which such costs are
incurred than the amount of such costs, expenses and amounts paid in judgement
or settlement, in excess of such 50% of the royalties payable shall be carried
over and credited against royalty payments in future years for such country.
17.6 Licensee shall not settle or compromise any suit in a manner that
imposes any obligations or restrictions on Rutgers/UMDNJ or grants any rights to
the Rutgers/UMDNJ Patent Rights without Rutgers' written permission, which
permission shall not be unreasonably withheld. Rutgers/UMDNJ shall not settle or
compromise any such suit in a manner that imposes any obligations or
restrictions on Licensee without Licensee's written permission, which permission
shall not be unreasonably withheld.
17.7 In any action to enforce any of the Rutgers/UMDNJ Patent Rights,
either party, at the request and expense of the other party, shall cooperate to
the fullest extent reasonably possible. This provision shall not be construed to
require either party to undertake any activities, including legal discovery, at
the request of any third party except as may be required by lawful process of a
court of competent jurisdiction.
17.8 Notwithstanding the foregoing, with respect to any country in
which a third-party commences a legal action in any country in which Licensee
has exclusive rights under this Agreement alleging that the practice of
Rutgers/UMDNJ Patent Rights infringes the third-party's patent rights, Licensee
shall withhold, pending final resolution of the litigation, [***]
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[***] Confidential Treatment requested.
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[***]
18. INDEMNIFICATION AND INSURANCE
18.1 Licensee shall indemnify, hold harmless and defend Rutgers/UMDNJ,
its governors, trustees, officers, employees, students, agents and the Inventors
against any and all claims, suits, losses, liabilities, damages, costs, fees and
expenses (including reasonable attorneys' fees) resulting from or arising out of
the exercise of this license or any sublicense. This indemnification shall
include, but is not limited to, any and all claims alleging products liability.
Notwithstanding the foregoing, Licensee shall not have responsibility to assume
the defense of any claim prosecuted against both Licensee and Rutgers/UMDNJ to
the extent there is an actual or potential conflict of interest requiring
separate representations (it being understood that Licensee shall nevertheless
remain responsible for indemnifying Rutgers/UMDNJ for defense costs to the
extent provided herein). In the absence of such a conflict, any separate
representation of Rutgers/UMDNJ with respect to a claim asserted against both
Licensee and Rutgers/UMDNJ shall, if at Rutgers/UMDNJ's request, be at
Rutgers/UMDNJ's expense.
18.2 Licensee shall, from the commencement of Company sponsored human
clinical trials, at its sole cost and expense, insure its activities in
connection with this Agreement and will maintain and keep in force, with
insurers acceptable to Rutgers/UMDNJ, or an equivalent program of self insurance
acceptable to Rutgers/UMDNJ the following types of insurance:
[***]
(b) It is expressly understood and agreed, however, that the insurance
coverage and limits stated in (a) above shall not in any way limit the
liability of Licensee and that the required insurance shall be primary
coverage. Any insurance Rutgers/UMDNJ may purchase will be excess and
noncontributory. Licensee's liability insurance will be endorsed to
specifically name Rutgers/UMDNJ as an additional insured and provide as
primary coverage.
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[***] Confidential Treatment requested.
<PAGE>
(c) Licensee shall furnish Rutgers/UMDNJ with a Certificate of
Insurance evidencing the coverage and limits required pursuant to (a)
above. The Certificate of Insurance shall:
(i) Provide for thirty (30) day advance written notice to
Rutgers/UMDNJ of cancellation or alteration of policy limits;
(ii) Indicate that Rutgers/UMDNJ has been endorsed as an
additional insured under the coverages referred to above;
(iii) Include a provision that the insurance will be primary
and any valid and collectible insurance or program of
self-insurance carried or maintained by Rutgers/UMDNJ shall be
excess and noncontributory.
18.3 Rutgers/UMDNJ shall promptly notify Licensee in writing of any
claim or suit brought against Rutgers/UMDNJ in respect of which Rutgers/UMDNJ
intends to invoke the provisions of paragraph 18.1. Licensee shall keep
Rutgers/UMDNJ informed on a current basis of its defense of any claims pursuant
to paragraph 18.1. Rutgers/UMDNJ shall provide full cooperation to Licensee in
such defense and make available to Licensee all documentary and other evidence
in its possession with respect thereto. Licensee shall not settle any claim or
suit on terms that impose any obligations or restrictions on Rutgers/UMDNJ
without Rutgers/UMDNJ written permission, which permission shall not be
unreasonably withheld.
18.4 Notwithstanding the foregoing, if the requirements of this Article
18 are not consistent with general industry norms or good business practices at
the time, Rutgers/UMDNJ agrees to negotiate in good faith to modify this Article
18; provided, however, that if the Licensee using good faith reasonable efforts
can not obtain the insurance required by this Article 18 at rates which are
prudent given the Licensee's financial position as determined by the Board of
Directors of Licensee at the time such insurance is required then Rutgers/UMDNJ
may modify or waive the requirements of this Article 18 until the earlier of:
(a) a determination by the Board of Directors of the Licensee that
Licensee's financial position permits it to obtain the insurance
required by this Article 18; and
(b) the First Commercial Sale of any of Licensed Product by Licensee or
its sublicensees.
19. NOTICES
19.1 Any notice or payment required to be given to either party shall
be deemed to have been properly given and to be effective on the date of
delivery if delivered in person, by facsimile where confirmed by the receiving
party or if mailed by registered or certified mail (return receipt requested) to
the respective addresses given below, or to such other address as it shall
designate by
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written notice given to the other party.
In the case of Rutgers/UMDNJ:
Rutgers, The State University of New Jersey
Office of Corporate Liaison and Technology Transfer
P. O. Box 1179
ASB Annex II, Bevier Road, Busch Campus
Piscataway, NJ 08855-1179
Attention: Director
Fax: (908) 445-5670
In the case of Licensee:
President and CEO
AVAX Technologies, Inc.
5353 Sunset Drive
Kansas City, Missouri 64112
Attention: Dr. Jeff Jonas
Fax: (816) 444-8434
With a copy to:
AVAX Technologies, Inc.
787 Seventh Avenue
New York, NY 10019
Attn: Secretary
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Fax: (212) 554-4355
20. ASSIGNABILITY
20.1 This Agreement is binding upon and shall inure to the benefit of
Rutgers/UMDNJ, its successors and assigns, but shall be personal to Licensee and
assignable by Licensee only with the written consent of Rutgers/UMDNJ, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
Licensee may, without such consent, assign this Agreement in whole or in part
to:
(a) a purchaser, merging or consolidating corporation, or acquiror of
substantially all of Licensee's assets or business and/or pursuant to
any reorganization of Licensee qualifying under section 368 of the
Internal Revenue Code of 1986 as amended, as may be in effect at such
time; or
(b) any Affiliate of Licensee so long as Licensee remains responsible
as guarantor for the performance of this Agreement.
21. LATE PAYMENTS
21.1 In the event any amounts due Rutgers/UMDNJ hereunder, including
but not limited to royalty payments, fees and patent cost reimbursements, are
not received when due, Licensee shall pay to Rutgers/UMDNJ interest charges at a
rate of four percent (4%) over the prime lending rate most recently announced by
Citibank, N.A. Such interest shall be calculated from the date payment was due
until actually received by Rutgers/UMDNJ.
22. WAIVER
22.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth shall be
deemed a waiver as to any subsequent and/or similar breach or default.
23. FAILURE TO PERFORM
23.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake legal
action against the other on account thereof, then the prevailing party shall be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
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24. GOVERNING LAWS
24.1 THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW JERSEY, but the scope and
validity of any patent or patent application shall be governed by the applicable
laws of the country of such patent or patent application.
25. FOREIGN GOVERNMENT APPROVAL
OR REGISTRATION
25.1 If this Agreement or any associated transaction is required by the
law of any nation to be either approved or registered with any governmental
agency, Licensee shall assume all legal obligations to do so and the costs in
connection therewith.
26. EXPORT CONTROL LAWS
26.1 Licensee shall observe all applicable United States and foreign
laws with respect to the transfer of Licensed Products and related technical
data to foreign countries, including, without limitation, the International
Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.
27. CONFIDENTIALITY
27.1 Any proprietary or confidential information relating to the
Invention (including but not limited to Rutgers/UMDNJ Technology and patent
prosecution documents relating to Rutgers/UMDNJ Patent Rights) collectively
constitute "Rutgers/UMDNJ Confidential Information." Licensee agrees that it
will not use Rutgers/UMDNJ Confidential Information for any purpose unrelated to
this Agreement or the Research Agreement, and will hold it in confidence during
the term of this Agreement and for a period of five years after the termination
or expiration date of this Agreement. Licensee shall exercise with respect to
such Rutgers/UMDNJ Confidential Information the same degree of care as Licensee
exercises with respect to its own confidential or proprietary information of a
similar nature, and shall not disclose it or permit its disclosure to any third
party (except to those of its employees, consultants, or agents who are bound by
the same obligation of confidentiality as Licensee is bound by pursuant to this
Agreement). However, such undertaking of confidentiality by Licensee shall not
apply to any information or data which:
(a) Licensee receives at any time from a third party lawfully in
possession of same and having the right to disclose same;
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(b) is, as of the date of this Agreement, in the public domain, or
subsequently enters the public domain through no fault of Licensee;
(c) is independently developed by Licensee as demonstrated by written
evidence without reference to information disclosed to Licensee by
Rutgers/UMDNJ;
(d) is disclosed pursuant to the prior written approval of
Rutgers/UMDNJ; or
(e) is required to be disclosed pursuant to law or legal process
(including, without limitation, to a governmental authority) provided,
in the case of disclosure pursuant to legal process, reasonable notice
of the impending disclosure is provided to Rutgers/UMDNJ and
Rutgers/UMDNJ has agreed to such disclosure in writing or has exhausted
its right to contest such disclosure.
27.2 Any proprietary or confidential information or data acquired (from
a source other than Rutgers/UMDNJ) or developed by Licensee and disclosed to
Rutgers/UMDNJ under this Agreement constitute collectively "Licensee's
Confidential Information". Rutgers/UMDNJ agrees that it will not use Licensee's
Confidential Information for any purpose unrelated to this Agreement or the
Research Agreement and that it will hold Licensee's Confidential Information in
confidence during the term of this Agreement and for a period of five years
after the termination or expiration date of this Agreement. Rutgers/UMDNJ shall
exercise with respect to such Licensee Confidential Information the same degree
of care as Rutgers/UMDNJ exercises with respect to its own confidential or
proprietary information of a similar nature, and shall not disclose it or permit
the disclosure of Licensee's Confidential Information to any third party (except
to those of its employees, consultants, or agents who are bound by the same
obligation of confidentiality as Rutgers/UMDNJ is bound by pursuant to this
Agreement). However, such undertaking of confidentiality shall not apply to any
information or data which:
(a) Rutgers/UMDNJ receives at any time from a third party lawfully in
possession of same and having the right disclose same;
(b) is, as of the date of this Agreement, in the public domain, or
subsequently enters the public domain through no fault of
Rutgers/UMDNJ;
(c) is independently developed by Rutgers/UMDNJ as demonstrated by
written evidence without reference to information disclosed to
Rutgers/UMDNJ by Licensee;
(d) is disclosed pursuant to the prior written approval of Licensee; or
(e) is required to be disclosed pursuant to law or legal process
(including, without limitation, to a governmental authority) provided,
in the case of disclosure pursuant to legal process, reasonable notice
of the impending disclosure is provided to Licensee and Licensee has
agreed to such disclosure in writing or has exhausted its right to
contest such disclosure.
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28. INFRINGEMENT UNDER DRUG PRICE COMPETITION ACT
28.1 In the event either party receives notice pertaining to any patent
included within Rutgers/UMDNJ Patent Rights pursuant to the Drug Price
Competition and Patent Term Restoration Act of 1984 (Public Law 98-417,
hereinafter, "the Act"), including but not necessarily limited to notices
pursuant to Sections 101 and 103 of the Act from persons who have filed an
Abbreviated New Drug Application ("ANDA") or a "paper" New Drug Application
("paper NDA"), or in the case of an infringement of Rutgers/UMDNJ Patent Rights
as defined in Section 271(e) of Title 35 of the United States Code, such party
shall notify the other party promptly but in no event later than ten (10) days
after receipt of such notice.
28.2 If Licensee wishes action to be taken against such infringement,
as provided in the Act, Licensee shall request such action by written notice to
Rutgers/UMDNJ. Within [thirty (30)] days of receiving said request,
Rutgers/UMDNJ will give written notice to Licensee of its election to:
(a) commence suit on its own account; or
(b) refuse to participate in such suit.
If Rutgers/UMDNJ elects not to bring such suit and the infringement occurred
during a period that Licensee had exclusive rights under this license, then
Licensee may thereafter bring suit for patent infringement as provided by the
Act. However, in the event Licensee elects to bring suit in accordance with this
paragraph, Rutgers/UMDNJ may thereafter join such suit at its own expense.
28.3 The provisions of paragraphs 17.3 through 17.6 shall likewise
apply to any legal action brought under this Article 28.
28.4 Rutgers/UMDNJ hereby authorizes Licensee to include in any NDA for
a Licensed Product a list of patents included within Rutgers/UMDNJ Patent Rights
identifying Rutgers/UMDNJ as patent owner.
29. ARBITRATION
Except with respect to disputes relating to product liability and other
third party claims, any dispute arising from or relating to this Agreement shall
be determined before a tribunal of three arbitrators in New York, New York in
accordance with the rules of the American Arbitration Association. One
arbitrator shall be selected by Rutgers/UMDNJ, one arbitrator shall be selected
by Licensee and the third arbitrator shall be selected by mutual agreement of
the first two arbitrators. The costs of such arbitration shall be borne by the
nonprevailing party. Judgment on the arbitration
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award may be entered by any court of competent jurisdiction.
30. MISCELLANEOUS
30.1 The headings of the several articles are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
30.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it shall be effective
as of the date recited on page one.
30.3 No amendment or modification hereof shall be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
30.4 This Agreement embodies the entire understanding of the parties
and shall supersede all previous communications, representations or
understandings, either oral or written, between the parties relating to the
subject matter hereof..
30.5 In case any of the provisions contained in this Agreement shall be
held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provisions hereof, but
this Agreement shall be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
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IN WITNESS WHEREOF, both Rutgers/UMDNJ and Licensee have executed this
Agreement, in duplicate originals, by their duly authorized representatives on
the day and year hereinafter written.
AVAX Technologies, Inc. Rutgers, The State
University of New Jersey
By:__________________________ By:___________________________
(Signature) (Signature)
Name: Jeffrey Jonas Name: William T. Adams
Title: President and CEO AVAX Title: Director, Office of
Technologies, Inc. Corporate Liaison and
Technology Transfer
Date:________________________ Date:_________________________
University of Medicine and Dentistry of
New Jersey
By:___________________________
(Signature)
Name: Mr. Frederick Hammond
Title: Senior Vice President for
Administration and Finance
Date:_______________________
AGREED AND ACCEPTED AS TO
PARAGRAPHS 2.3, 13.3 AND 14.2
By:___________________________ By:___________________________
(Signature) (Signature)
Name: Dr. Edmond LaVoie Name: Dr. Leroy Lui
Date:_______________________ Date:_________________________
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LICENSE AGREEMENT
Between
The Texas A&M University System
and
AVAX Technologies, Inc.
This Agreement is made and entered into by and between The Texas A&M University
System (hereinafter referred to as "SYSTEM") with principal offices in College
Station, Texas, and AVAX Technologies, Inc. (hereinafter referred to as
"LICENSEE"), a Delaware corporation with principal offices in Kansas City,
Missouri.
WITNESSETH:
WHEREAS, SYSTEM is the owner of intellectual property and know-how related to
Alkyl- Substituted Dibenzofurans; and
WHEREAS, SYSTEM desires that such intellectual property and know-how should be
commercialized for the public benefit and welfare; and
WHEREAS, LICENSEE has represented that LICENSEE shall commit itself to a
thorough, vigorous, and diligent program of development and commercialization of
the intellectual property so that the public utilization shall result therefrom;
NOW, THEREFORE, in consideration of the mutual covenants and premises contained
herein, the parties hereto agree as follows:
ARTICLE I - DEFINITIONS
1.01 "AFFILIATE" shall mean, with respect to any party, any entity that directly
or indirectly controls, is controlled by, or is under common control with such
party. "Control" shall mean, for this purpose, direct or indirect control of
more than fifty percent (50%) of the voting securities of an Entity or more than
fifty percent (50%) interest in the income of such Entity.
1.02 "MAJOR MARKET COUNTRIES" shall mean the United States, Japan, the United
Kingdom, Germany, Italy and the Netherlands.
1.03 "TECHNOLOGY" shall mean all information, chemicals, and other physical
objects related to the PATENT RIGHTS, including without limitation, any
formulations, materials, drawings,
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testing and test results and regulatory information, whether patentable or not,
owned by SYSTEM as of the date of this Agreement or which arises in the course
of performing the research contemplated by the Sponsored Research Agreement. It
is understood that SYSTEM is not obligated to maintain the TECHNOLOGY as
confidential or proprietary if not patentable either by reason of prior
publication, or in the case of IMPROVEMENTS, by waiver of LICENSEE's option to
support the filing of a patent application by SYSTEM.
1.04 "IMPROVEMENTS" shall mean any inventions, information and data which is
developed by SYSTEM during the term of this Agreement under the Sponsored
Research Agreement for which LICENSEE provides written notice of its election to
fund the filing and prosecution of patent applications.
1.05 "PATENT RIGHTS" shall mean (a) U.S. Patent #5,516,790 entitled "Synthesis
and Application of Alkyl-Substituted Dibenzofurans as Antitumorigenic Agents",
and (b) all other U.S. and foreign patents and patent applications (including
PCT filings) owned by SYSTEM or in which SYSTEM has any interest (to the extent
of such interest) relating to the IMPROVEMENTS as described in Article VI,
including without limitation, any reissues, substitutions, continuations,
continuations-in-part, divisions or extensions thereof.
1.06 "LICENSED PRODUCTS" shall mean any product, process, or composition of
matter, (a) the manufacture, use or sale of which would infringe a valid claim
of any pending patent application or issued patent under PATENT RIGHTS which has
neither expired nor been held invalid by a court of competent jurisdiction from
which no appeal has or may be taken or (b) that is developed, made or sold using
any of the TECHNOLOGY.
1.07 "NET SALES" shall mean LICENSEE's or sublicensees' gross receipts for
LICENSED PRODUCTS less the sum of the following:
(a) sales taxes, import/export taxes, tariff duties and/or use taxes directly
imposed with reference to particular sales;
(b) outbound transportation and insurance prepaid or allowed;
(c) amounts allowed or credited on rejections or returns;
(d) rebates granted and disallowed reimbursements under Medicaid.
No deductions shall be permitted for commissions paid to individuals whether
they be with independent sales agencies or regularly employed by LICENSEE and on
its payroll, or for the cost of collections. LICENSED PRODUCTS shall be
considered sold when collected. Receipts from transactions which are not made at
arm's length shall be assigned the value they would have had in similar
commercial sales made at arm's length. Notwithstanding, LICENSED PRODUCT
transferred between AFFILIATES for which no consideration is exchanged shall be
considered to be sold upon sale to a third party. In the event that LICENSEE
disposes of LICENSED
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PRODUCTS for non-cash consideration, such consideration shall, for purposes of
computing NET SALES, be valued by agreement of SYSTEM and LICENSEE, or if SYSTEM
and LICENSEE are unable to agree on such value within thirty (30) days, by an
independent investment bank mutually agreeable to SYSTEM and LICENSEE, whose
expenses are paid by LICENSEE.
1.08 "EFFECTIVE DATE" shall mean the date this Agreement is executed by the last
party signing hereto.
1.09 "BEST EFFORTS" shall mean the measure of diligence and skill exercised by a
good business person in his/her particular specialty, which must be commensurate
with the duty to be performed and the individual circumstances of the case; not
merely the diligence of an ordinary person or non-specialist.
ARTICLE II - GRANT
2.01 Grant. Except as outlined in paragraph 2.02 and 2.03, SYSTEM grants to
LICENSEE the exclusive worldwide license and right under the PATENT RIGHTS and
IMPROVEMENTS, to make, have made, use, have used, sell and have sold, the
LICENSED PRODUCTS, and to grant sublicenses of the same scope, to the end of the
term of this Agreement as prescribed in paragraph 9.01.
2.02 Reservation. SYSTEM, on behalf of itself, reserves an irrevocable,
nonexclusive, nontransferable, royalty-free right to PATENT RIGHTS for research
and educational purposes only, and not for commercial purposes.
2.03 Government Rights. The U.S. Government retains a royalty-free, nonexclusive
license to PATENT RIGHTS, in accordance with the provisions of 35
U.S.C.ss.200-212, in light of funding provided to TAMUS which contributed to the
development of the PATENT RIGHTS.
2.04 Disclosure. SYSTEM will disclose to LICENSEE in writing all of the
TECHNOLOGY existing as of the date of this Agreement within thirty (30) days of
the EFFECTIVE DATE and will in the future disclose TECHNOLOGY to LICENSEE from
time to time as it is created.
ARTICLE III - CONSIDERATION
3.01 License Fee. LICENSEE's requirement to pay a license fee or other
"up-front" considerations upon execution of this Agreement is hereby waived in
recognition of LICENSEE's support of SYSTEM's research for the development of
LICENSED PRODUCTS. Such support shall be provided in the form of a research
contract to be awarded to the Texas Agricultural Experiment Station ("TAES") (a
member of SYSTEM) in an amount not less than $108,750 per year (including
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indirect costs calculated at the federally audited rate of forty-five percent
(45%)) for a period of 3 years, the scope of work for such research to be
determined mutually by TAES and LICENSEE.
3.02 Milestone Payments. As an additional consideration for the license granted
herein, LICENSEE shall make the following payments upon completion of relevant
milestones in accordance with the following schedule:
[***]
3.03 Running Royalty Rate. As additional consideration for the license granted
herein, LICENSEE shall remit to SYSTEM a royalty of [***] of NET SALES of
LICENSED PRODUCTS by LICENSEE or its AFFILIATES.
3.04 Sublicensing Royalty. As additional consideration for the license granted
herein, LICENSEE shall remit to SYSTEM [***].
3.05 Minimum Annual Consideration. In order to maintain this exclusive license
to PATENT RIGHTS, LICENSEE shall pay SYSTEM a Minimum Annual Consideration in
accordance with the following schedule:
[***]
In the event that royalties for the Calendar Year do not achieve the required
minimum, LICENSEE's royalty payment for the last quarter of the Calendar Year
shall include payment of the balance needed to achieve the Minimum Annual
Consideration for the Calendar Year.
3.06 Patent Expenses. LICENSEE shall reimburse SYSTEM for its documented
out-of-pocket expenses incurred in the maintenance of PATENT RIGHTS as further
described in Article VI.
3.07 Sublicense Fees. LICENSEE shall remit to SYSTEM [***] as consideration for
the grant or maintenance of a sublicense. As used herein, sublicense fees are
separate and distinct from royalties collected on NET SALES made by sublicensees
and shall mean any amount or consideration collected from any sublicensee which
is charged for the initial granting or the periodic maintenance of the
sublicense, excluding: milestone payments royalty percentages and payments and
funding for research, development, clinical trials, purchases of LICENSEE's
equity by a sublicensee, or prepaid royalties received from a sublicensee. Such
sublicense fees shall not be creditable against Minimum Annual Consideration.
ARTICLE IV- SUBLICENSES
4.01 Sublicenses. LICENSEE shall have the right to grant royalty-bearing
sublicenses consistent with this Agreement, the nonmonetary terms of such
sublicenses shall be consistent with the terms
[***] Confidential Treatment requested
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of this Agreement and shall not prevent LICENSEE from carrying out its
obligations under this Agreement.
4.02 Reporting. LICENSEE shall provide SYSTEM with copies of all executed
sublicenses and of such portions of sublicensees' quarterly reports as are
pertinent to calculation of SYSTEM's consideration hereunder.
4.03 Non-cash transactions. In the event that LICENSEE grants a sublicense for
non-cash consideration, such consideration shall, for purposes of computing NET
SALES, be valued by agreement of SYSTEM and LICENSEE, or if SYSTEM and LICENSEE
are unable to agree on such value within thirty (30) days, by an independent
investment bank mutually agreeable to SYSTEM and LICENSEE, whose expenses are
paid by LICENSEE.
4.04 Sublicense obligations. LICENSEE agrees that any sublicenses granted by it
shall provide that the obligations to SYSTEM identical to those of Article XI,
and paragraphs 13.01 and 13.02 of this Agreement shall be binding upon the
sublicensee(s) as if it were a party to this Agreement.
ARTICLE V - DUE DILIGENCE
5.01 Best Efforts. LICENSEE shall use its BEST EFFORTS to bring one or more
LICENSED PRODUCTS to market in the United States through a thorough, vigorous
and diligent program for exploitation of the PATENT RIGHTS.
5.02 Milestones. In addition, LICENSEE shall adhere to the following milestones:
[***]
1In the event that the results of the toxicity evaluation require reformulation
or additional testing, the milestone shall be extended until the completion of a
toxicity evaluation which provides a safety level acceptable to the FDA.
2In the event that LICENSEE is allowed to and chooses to conduct a combined
Phase II/III investigation which is approved by the FDA, the completion of such
an investigation shall be deemed to satisfy the requirements of this milestone.
5.03 Failure to Accomplish Milestones. Should LICENSEE fail to achieve
milestones specified in paragraph 5.02 above, or fail to achieve sales of
LICENSED PRODUCTS for any two consecutive years once sales begin, SYSTEM, at its
sole option, may terminate this Agreement in accordance with paragraph 9.03, may
amend the grant made in paragraph 2.01 to non-exclusive, may renegotiate the
milestone, or may waive the milestone requirement. In making any of these
determinations, SYSTEM shall take into account the normal course of product
development conducted with sound and reasonable business practices and judgment
and shall take into account the reports provided
[***] Confidential Treatment requested
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hereunder by LICENSEE. Notwithstanding the foregoing, in the event that
LICENSEE's diligent efforts are delayed by the action of the FDA which prevents
completion of one of the above milestones, the time line for the milestone, and
any subsequent milestones shall be extended by the documented period of
regulatory delay, provided that LICENSEE uses BEST EFFORTS to cure the
deficiency(ies) cited by the FDA in requiring such delay.
5.04 Milestone Extensions. If, despite its diligent efforts and continued
development activities, LICENSEE is unable to achieve the milestones in
paragraph 5.02 above, LICENSEE may extend the deadlines for such milestones for
a period of no more than eighteen (18) months by making extension fee payments
of One Thousand Dollars ($1,000) per month. LICENSEE shall have the opportunity
to purchase such an extension only once for any one of the above milestones, and
shall be able to purchase no more than three extensions during the term of this
Agreement. In order to effect such extension, LICENSEE shall provide a written
request to SYSTEM identifying the length of the extension requested, and remit
to SYSTEM payment of the fee for the first month of the extension no less than
thirty (30) days prior to the deadline for the milestone, which if extended for
more than one month, payments for the additional months of the extension shall
be due thirty (30) days prior to the first day of each month of the extension.
ARTICLE VI - PATENTS
6.01 U. S. Patent Maintenance. SYSTEM shall maintain the U.S. patent identified
in PATENT RIGHTS as of the EFFECTIVE DATE.
6.02 U. S. Patent Prosecution for IMPROVEMENTS. Upon the identification of
IMPROVEMENTS resulting from the Sponsored Research Agreement and election by
LICENSEE to fund prosecution of patent application(s) for such IMPROVEMENTS in
accordance with the Sponsored Research Agreement, SYSTEM shall proceed in the
filing and the prosecution-to- completion of one or more U.S. patent
applications for the protection of IMPROVEMENTS. "Prosecution-to-completion"
shall mean prosecution of the original application, and any continuing
application which SYSTEM and LICENSEE shall unanimously elect to file, to
issuance or to a final rejection and an appeal to the Board of Patent Appeals
and Interferences. SYSTEM is not required to, but may at its discretion, pursue
an appeal to the Federal Circuit or a civil action for a patent. SYSTEM shall
maintain any U.S. patent resulting from the prosecution described hereinabove.
6.03 Foreign Patent Applications. At its sole discretion and expense, LICENSEE
may authorize SYSTEM to file and prosecute foreign patent applications
corresponding to the above-referenced U. S. application(s).
(a) Election not to file. LICENSEE will inform SYSTEM no later than nine (9)
months following the date of filing for each U. S. Patent Application as to its
selection of foreign countries in which it intends to seek corresponding patent
protection for the PATENT RIGHTS. In the event that LICENSEE elects for SYSTEM
to file an application under the Patent Cooperation Treaty, LICENSEE shall
provide notice as to the countries in which national stage filings are to be
selected
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no less than two (2) months prior to the deadline for such national stage
filings. SYSTEM shall then have the right to file corresponding foreign patent
applications at its own expense in those foreign countries not selected by
LICENSEE, and such filings shall be excluded from PATENT RIGHTS.
(b) Prosecution and Maintenance of Foreign Patents. Should LICENSEE select a
country in which to file corresponding foreign patent application(s), and
subsequently elects not to continue to reimburse SYSTEM for the diligent
prosecution and maintenance of such foreign patent(s) or patent application(s),
it shall so notify SYSTEM at least three (3) months prior to taking (or not
taking) any action which would result in abandonment, withdrawal, or lapse of
such foreign patents or applications. SYSTEM shall then have the right to
continue maintenance or prosecution of such foreign patent or application at its
own expense. However, expenses incurred prior to the point of LICENSEE taking
(or not taking) such action shall remain the responsibility of LICENSEE.
6.04 Financial Responsibility. LICENSEE shall reimburse SYSTEM for all
documented patent expenses resulting from the prosecution and maintenance
described in 6.01,6.02 and 6.03 hereinabove within thirty (30) days of receipt
of SYSTEM's invoices.
6.05 Information. SYSTEM shall keep LICENSEE promptly and fully informed of the
course of patent prosecution or other proceedings. SYSTEM shall disclose to
LICENSEE the complete texts of all patent applications filed by SYSTEM under the
PATENT RIGHTS, all office actions, responses thereto, and any other official
proceedings regarding PATENT RIGHTS. Furthermore, SYSTEM shall provide LICENSEE
with proposed responses to such actions and official proceedings in sufficient
time for LICENSEE to review and provide comments regarding such actions to
SYSTEM or patent counsel designated by SYSTEM.
6.06 Proprietary Rights. All PATENT RIGHTS and other property rights hereunder
are vested in and owned by SYSTEM.
6.07 Trademarks. It is understood by the Parties that LICENSEE shall have the
right to select, own and use its own trademarks on the LICENSED PRODUCTS.
However, nothing herein shall be construed as granting to LICENSEE any license
or other right under any trade name, trademark, or service mark owned or
licensed by SYSTEM. Neither shall SYSTEM have any rights to trade names,
trademarks, or service marks owned by LICENSEE.
ARTICLE VII - PAYMENTS AND REPORTS
7.01 When Royalty payments are due. Royalty payments shall be made quarterly.
Royalty payments shall be made to SYSTEM, in College Station, Texas, not later
than forty-five (45) days after the last day of the calendar quarter in which
they accrue.
7.02 Royalty reports. With each quarterly royalty payment, LICENSEE, its
AFFILIATES or sublicensees shall provide information sufficient to allow SYSTEM
to calculate the royalty due that
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quarter. This information shall include, at a minimum, sales receipts,
sublicensee reports, deductions permitted under this Agreement and royalty due.
No quarterly reports are due until sales of LICENSED PRODUCTS begin. After
product sales begin, if no royalties accrued during the quarter, LICENSEE, its
AFFILIATES or sublicensees shall submit a report to that effect.
7.03 Currency. Payments shall be in United States dollars. If any currency
conversion shall be required in connection with the payment of royalties
hereunder, such conversion shall be made using the exchange rate prevailing at
the Chase Manhattan Bank (N.A.) on the last business day of the calendar quarter
reporting period to which royalty payments relate.
7.04 Inspection of books and records. At its own expense, SYSTEM may annually
inspect LICENSEE's books and records as needed to determine royalties payable.
LICENSEE shall maintain such books and records for at least three (3) years
following the dates of the underlying transactions. Any such inspections shall
be in confidence and conducted during ordinary business hours, and SYSTEM will
provide LICENSEE prior notice of two (2) weeks before making such inspections.
SYSTEM may employ a Certified Public Accountant approved by LICENSEE, which
approval shall not be unreasonably withheld, for this purpose; if it does so,
and if the sum of all royalty payments for the preceding four (4) quarters is
determined less than the royalties due SYSTEM by five percent (5%) or more, then
LICENSEE shall pay the documented expenses of the accountant.
7.05 Interest charges. Overdue royalty payments shall bear interest until
payment at a per annum rate which is the lesser of eighteen percent (18%) or the
maximum allowed by Texas Law on the due date. The payment of such interest shall
not foreclose SYSTEM from exercising any other rights it may have as a
consequence of the lateness of any payment.
ARTICLE VIII - TERMINATION
8.01 Expiration. This Agreement, unless sooner terminated as provided herein,
shall remain in effect until the expiration of the last to expire of a patent
under PATENT RIGHTS. Furthermore, LICENSEE's obligation to pay royalties on NET
SALES of LICENSED PRODUCTS in any country shall terminate (a) upon the
expiration of the last issued PATENT RIGHT covering sales in such country; or
(b) if there are no issued PATENT RIGHTS covering sales in such countries, seven
years after the initial delivery of such LICENSED PRODUCT by SYSTEM.
8.02 Termination by Licensee. LICENSEE may terminate this Agreement by providing
written notice to SYSTEM at least ninety (90) days before the termination is to
take effect.
8.03 Termination by SYSTEM. If LICENSEE defaults in making payments under this
Agreement, fails to achieve due diligence requirements specified in Article V,
or otherwise materially breaches this Agreement, SYSTEM shall give LICENSEE
written notice of the breach. LICENSEE shall have a period of sixty (60) days
from receipt of the notice to cure the breach. If
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LICENSEE does not cure the breach within this period, SYSTEM may terminate this
Agreement by giving written notice of its election to do so.
8.04 Return of rights. Should this Agreement be terminated under paragraphs 8.02
or 8.03 above, any and all rights, licenses and claims hereunder shall be
returned by LICENSEE to SYSTEM. Notwithstanding the foregoing, upon termination
of this Agreement by either party, LICENSEE may sell all previously or partially
made LICENSED PRODUCTS (including completion of work in progress), but no more,
within a period of time not to exceed one hundred twenty (120) days after the
effective date of termination, provided, however, that the disposition of such
LICENSED PRODUCTS shall be subject to the terms of this Agreement including, but
not limited to, the payment of royalties at the rate and time provided herein.
8.05 Survival of sublicenses. Any sublicense granted by LICENSEE under this
Agreement shall survive termination of this Agreement in accordance with the
terms hereof. Upon termination of this Agreement under paragraphs 8.02 or 8.03
above, LICENSEE shall assign to SYSTEM all of its rights in such sublicenses,
and to the extent permitted by law, SYSTEM shall assume the obligations of
LICENSEE.
8.06 Other matters surviving termination. All accrued obligations and claims,
including royalty obligations and claims or causes of action for breach of this
Agreement, shall survive termination of this Agreement. Obligations of
confidentiality shall survive termination of this Agreement. This section
controls in the case of a conflict with any other section of this Agreement.
ARTICLE IX - ENFORCEMENT OF PATENT RIGHTS.
9.01 Notice of Infringement. SYSTEM and LICENSEE shall promptly notify one
another in writing of any alleged infringement of PATENT RIGHTS. No later than
thirty (30) days after receipt of such notice, SYSTEM and LICENSEE shall confer
and formulate a strategy for resolving the alleged infringement.
9.02 Legal Process. LICENSEE shall have the right, but no obligation, to pursue
legal process to redress the alleged infringement. Upon SYSTEM' written consent,
LICENSEE may bring such process in the name of SYSTEM and may make SYSTEM a
party plaintiff or otherwise appropriate participant in such process. LICENSEE
shall pay SYSTEM' legal expenses incurred in any such process (not instituted or
maintained by SYSTEM as described in paragraph 9.05), and shall indemnify SYSTEM
against any order for costs that may be made against SYSTEM in such proceedings.
9.03 Monetary Recovery. Any monetary recovery for an infringement in a suit
brought by LICENSEE shall first be applied to LICENSEE's documented legal
expenses in such suit, and the remainder shall be shared with SYSTEM in the
ratio of 96% to LICENSEE and 4% to SYSTEM.
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9.04 Cooperation. SYSTEM and LICENSEE shall cooperate in any legal process
concerning alleged infringement of PATENT RIGHTS. Each party shall, to the
fullest extent possible, make available its employees, records, information and
the like as relevant to the legal process.
9.05 Action by SYSTEM. Should LICENSEE choose not to pursue legal action to
redress the alleged infringement, SYSTEM may do so at its own expense. Any
monetary recovery resulting from pursuit of redress solely by SYSTEM shall be
considered SYSTEM' recovery with no obligations to LICENSEE.
ARTICLE X - OBLIGATIONS OF CONFIDENTIALITY
10.01 Confidential information identified. These obligations of confidentiality
cover all information which any party to this Agreement discloses to any other
party, provided that the information concerns or arises out of the INVENTION or
this Agreement and is made in a written document marked "Confidential." This
information is called the "CONFIDENTIAL INFORMATION" in this section. Patent
applications filed by SYSTEM for INVENTION shall be considered as CONFIDENTIAL
INFORMATION. However, the following classes of information are specifically
excluded from this definition of "CONFIDENTIAL INFORMATION":
(a) Information which is available to the public at the time it is disclosed,
(b) Information which becomes available to the public without a breach of this
Agreement,
(c) Information which the recipient already possesses at the time it is
disclosed,
(d) Information which is internally developed by the recipient independently of
and wholly without knowledge of the CONFIDENTIAL INFORMATION, and
(e) Information which is lawfully disclosed to the recipient by a third party
which makes such disclosure without a breach of any secrecy Agreement.
(f) Information that is approved for public disclosure by SYSTEM, and
(g) Information that is required to be disclosed by legal, administrative or
judicial process, provided that the recipient shall provide the disclosing party
the opportunity to appeal such requirement.
10.02 Secrecy. The recipient shall hold the CONFIDENTIAL INFORMATION in
confidence and shall not disclose it nor permit it to be disclosed to any other
party. The recipient shall use the CONFIDENTIAL INFORMATION solely for the
purposes of this Agreement.
10.03 Protective Measures. To protect the confidentiality of the CONFIDENTIAL
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INFORMATION, the recipient shall take the same measure which it takes to protect
the confidentiality of its own confidential information, and shall take those
measures which a prudent business person would take to protect valuable, secret,
proprietary information.
ARTICLE XI - LIABILITY
11.01 Patent Infringement Indemnification. Other than as a result of SYSTEM's
negligence or willful misconduct, LICENSEE shall at all times during the term of
this Agreement and thereafter, indemnify, defend and hold harmless SYSTEM, its
regents, officers, employees, and affiliates, against any claim, proceeding,
demand, liability, or expense (including legal expenses and reasonable
attorney's fees) which relates to any action brought by a third party alleging
infringement of a domestic or foreign patent as a result of the activities of
LICENSEE or sublicensee(s) under this Agreement.
11.02 Product Liability and Indemnification. Other than as a result of SYSTEM's
negligence or willful misconduct, LICENSEE shall at all times during the term of
this Agreement and thereafter, indemnify, defend and hold harmless SYSTEM, its
regents, officers, employees, and affiliates, against any claim, proceeding,
demand, liability, or expenses (including legal expenses and reasonable
attorney's fees) which relates to injury to persons or property, or against any
other claim, proceeding, demand, expense and liability of any kind whatsoever
resulting from the production, manufacture, sale, use, lease, consumption or
advertisement of LICENSED PRODUCTS or arising from any obligation of LICENSEE or
sublicensee(s) hereunder.
11.03 Allegation of Infringement by a Third Party. In the event a third party
alleges infringement of its patent or other intellectual property rights as a
result of LICENSEE's manufacture, use or sale of LICENSED PRODUCT, and LICENSEE
elects to litigate such alleged infringement, LICENSEE may credit up to fifty
percent (50%) of any litigation costs incurred in such litigation and all
amounts paid by LICENSEE in judgment or settlement of such litigation against
royalties payable to SYSTEM hereunder and apply the same toward one-half of its
actual, reasonable out-of-pocket litigation costs. If one half of such
litigation costs exceed fifty percent (50%) of royalties payable to SYSTEM in
any year in which such costs are incurred then the amount of such costs,
expenses, and amounts paid in judgment or settlement, in excess of such fifty
percent (50%) of the royalties payable shall be carried over and credited
against royalty payments in future years. Notwithstanding, in the event that
LICENSEE succeeds in such litigation and receives a settlement or judgment from
such third party, such settlement or judgment shall first be applied to the
payment of the royalties which were previously withheld based upon the crediting
of LICENSEE's litigation costs, and the remainder shall be shared with SYSTEM in
the ratio of 96% to LICENSEE and 4% to SYSTEM.
11.04 Representation. SYSTEM represents that it owns and has title to the PATENT
RIGHTS and has the full right and power to grant the license set forth in
paragraph 2.01, and that there are no outstanding agreements, assignments, or
encumbrances inconsistent with the provisions of this
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Agreement. To SYSTEM's knowledge and belief, SYSTEM has all right, title, and
interest in and to the PATENT RIGHTS, including exclusive, absolute, irrevocable
right, title and interest thereto, free and clear of all liens, charges,
encumbrances or other restrictions or limitations of any kind whatsoever and to
SYSTEM's knowledge and belief there are no licenses, options, restrictions,
liens, rights of others, disputes, royalty obligations, proceedings or claims
relating to, affecting, or limiting its rights or the rights of the LICENSEE
under this Agreement with respect to, or which may lead to a claim of
infringement or invalidity regarding any part or all of the PATENT RIGHTS and
their use as contemplated in the underlying patent applications as presently
drafted. To the SYSTEM's knowledge and belief there is no claim, pending or
threatened or infringement, interference, or invalidity regarding, any part or
all of the PATENT RIGHTS and their use as contemplated in the underlying patent
applications as presently drafted. SYSTEM MAKES NO OTHER REPRESENTATIONS AND
EXTENDS NO OTHER WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING
BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, NOR DOES SYSTEM ASSUME ANY OBLIGATIONS WITH RESPECT TO INFRINGEMENT OF
PATENT RIGHTS OR OTHER RIGHTS OF THIRD PARTIES DUE TO LICENSEE'S ACTIVITIES
UNDER THIS AGREEMENT.
ARTICLE XII - NOTICES
12.01 Notice of Publication. In the event that SYSTEM desires to publish or
disclose, by written, oral or other presentation, any information related to
PATENT RIGHTS, TECHNOLOGY and/or IMPROVEMENTS, SYSTEM shall notify LICENSEE in
writing of its intention at least sixty (60) days before such publication or
disclosure. SYSTEM shall include with such notice a description of any proposed
oral presentation, or in any proposed written or other disclosure, a current
draft of such proposed disclosure. LICENSEE may request that SYSTEM, no later
than thirty (30) days following the receipt of such notice, delay such
publication or disclosure in order to enable LICENSEE to authorize the filing of
a patent application or other appropriate form of intellectual property
protection related to the information to be disclosed. Upon receipt of such
request, SYSTEM shall arrange for a delay in publication or disclosure not to
exceed ninety (90) days. If SYSTEM has not received any such request from
LICENSEE to delay publication or disclosure, SYSTEM may submit such material for
publication or presentation or make such other publication or disclosure
provided that SYSTEM first confirms that LICENSEE has received any materials
submitted to it.
12.02 Notices. Payments, notices, or other communications required by this
Agreement shall be sufficiently made or given if mailed by certified First Class
United States mail, postage pre-paid, or by U.S. Express Mail, or by commercial
overnight courier service, addressed to the address stated below, or to the last
address specified in writing by the intended recipient.
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(a) If to SYSTEM: Executive Director
Technology Licensing Office
The Texas A&M University System
College Station, Texas 77843 USA
(b) If to LICENSEE: Dr. Jeffrey Jonas, M.D.
President and CEO
Avax Technologies, Inc.
5353 Sunset Drive
Kansas, City, Missouri 64112
ARTICLE XIII - MISCELLANEOUS PROVISIONS
13.01 Export Controls. It is understood that SYSTEM is subject to United States
laws and regulations controlling the export of technical data, computer
software, laboratory prototypes and other commodities, and that its obligations
hereunder are contingent on compliance with applicable United States export laws
and regulations. The transfer of certain technical data and commodities may
require a license from the cognizant agency of the United States Government
and/or written assurances by LICENSEE that LICENSEE shall not export data or
commodities to certain foreign countries without prior approval of such agency.
SYSTEM neither represents that a license shall not be required nor that, if
required, it shall be issued.
13.02 Non-Use of Names. LICENSEE shall not use the names of The Texas A&M
University System, nor of any of its employees or components, nor any adaptation
thereof, in any advertising, promotional or sales literature without the prior
written consent obtained from SYSTEM in each case, except that LICENSEE may
state that it is licensed by SYSTEM under one or more of the patents and/or
applications comprising the PATENT RIGHTS, and provided, however, that SYSTEM
acknowledges and agrees that LICENSEE may use SYSTEM's name and the name of its
employees in various documents used by LICENSEE for capital raising and
financing without such prior written consent to the extent that the use of such
names is required by law or regulation of the U.S. Securities and Exchange
Commission.
13.03 Assignment of this Agreement. This Agreement, with the rights and
privileges it creates, are assignable only with the written consent of both
parties.
13.04 Force majeure. Each party shall be excused from any breach of this
Agreement which is proximately caused by government regulation, war, strike, act
of God, or other similar circumstance normally deemed outside the control of
well-managed businesses.
13.05 Execution and modification. This Agreement will become binding only when
signed by both parties. It may be modified or amended only by a writing signed
by the parties.
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<PAGE>
13.06 Entire Agreement. This Agreement contains the entire understanding of the
parties with respect to the subject matter hereof and supersedes all other
written and oral agreements between the parties except for the Sponsored
Research Agreement referred to above, a copy of which is attached to this
Agreement, with respect to the subject matter hereof.
13.07 Headings. Headings appear solely for convenience of reference. Such
headings are not part of this Agreement and shall not be used to construe it.
13.08 Provisions. If any provision or provisions of this Agreement shall be held
to be invalid, illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties have caused this Agreement to become effective
as of the date last executed below by a signatory to this Agreement.
AVAX TECHNOLOGIES, INC. THE TEXAS A&M UNIVERSITY SYSTEM
/s/ Jeff Jonas (signature appears here)
By: Barry B. Thompson
President Chancellor
Date: 2 / 4 / 97 Date: 2 / 17 / 97
14
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 29, 1997, in Amendent No. 4 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 13,560,598
shares of common stock.
Ernst & Young LLP
Kansas City, Missouri
February 21, 1997
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE
COMPANY'S REGISTRATION STATEMENT ON FORM SB-2, FILE NO. 333-09349
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0001015441
<NAME> AVAX TECHNOLOGIES
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