<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
AMENDMENT NO. 6
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------
AVAX TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
-----------
<TABLE>
<CAPTION>
DELAWARE 8731 13-3575874
<S> <C> <C>
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4520 MAIN STREET
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)
-----------
JEFFREY M. JONAS, M.D.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
4520 MAIN STREET
SUITE 930
KANSAS CITY, MO 64111
(816) 960-1333
(Name, address and telephone number of agent for service)
-----------
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
-----------
APPROXIMATE DATE OF PROPOSED SALE TO THE
PUBLIC: FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF
THIS REGISTRATION STATEMENT.
-----------
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: |_|
<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>
- ------------------------------------------------------------------------------
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
Cover of Prospectus .................................. Front of Registration Statement and Outside Front
Cover of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................ Inside Front Cover Page of Prospectus
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................... Company Summary
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
Operation............................................. Management's Discussion and Analysis of
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
Stockholder Matters................................... Prospectus Summary; Market for Common Equity
and Related Stockholder Matters; Description of
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>
A redherring appears on left-side of page rotated and reads as follows:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
PROSPECTUS
Subject to Completion, Dated May 7, 1997
6,780,299 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) 285,199 shares of the Company's
common stock, par value $.004 per share (the "Common Stock"); (ii) 6,447,450
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) 47,650 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 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 Regulation M promulgated 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. Unless otherwise
indicated to the contrary, all information in this Prospectus
gives effect to a two-for-one reverse split of the Common Stock to
be effected at the close of business on May 13, 1997.
The Company has been granted conditional approval for listing and quotation of
the Common Stock on the Nasdaq SmallCap Market under the symbol "AVAX." There
can be no assurance that the Company will satisfy the conditions of such
approval. Prior to the Offering, shares of Common Stock that were freely
tradeable pursuant to Rule 144(k) under the Securities Act of 1933 have been
traded on the OTC Bulletin Board Service (the "OTC Bulletin Board") under the
symbol "AVAX". The last reported sale price of the Common Stock on the OTC
Bulletin Board on May 6, 1997, was $5.125 per share. 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." There can be no assurance that an active trading market
in the Company's securities will develop or be sustained.
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 ________, 1997
<PAGE>
AVAILABLE INFORMATION
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. For further information about the
Company and the securities offered hereby, reference is made to the Registration
Statement and to the financial statements and exhibits filed as a part thereof.
The statements contained in this Prospectus as to the contents of any contract
or any other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. The Registration Statement, 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. UNLESS
OTHERWISE INDICATED TO THE CONTRARY, THE INFORMATION IN THIS PROSPECTUS GIVES
EFFECT TO A TWO-FOR-ONE REVERSE STOCK SPLIT OF THE COMMON STOCK TO BE EFFECTED
AT THE CLOSE OF BUSINESS ON MAY 13, 1997.
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.
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 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, M-Vax(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
M-Vax(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 M-Vax(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 M-Vax(TM) vaccine, have been witnessed to date.
TJU and Dr. David Berd, the inventor of the AC Vaccine technology, have
conducted the ongoing clinical trials at TJU pursuant to an FDA-approved,
physician-sponsored Investigational New Drug Application ("IND"). The Company
has recently met with the FDA to discuss the clinical results obtained with
M-Vax(TM), the use of such results in support of the submission of a
Company-sponsored IND to the FDA, and to review its proposed development
program, which includes Phase III clinical trials for M-Vax(TM). Depending upon
the results of such clinical trials, 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 M-Vax(TM). The Company also may
pursue a similar regulatory approval and commercialization strategy for
M-Vax(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.
3
<PAGE>
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 myelogenous 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 M-Vax(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 O-Vax(TM), its AC Vaccine for ovarian cancer. This trial will be conducted at
TJU under the direction of Dr. Berd.
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 Street, Suite 930, Kansas City,
Missouri 64111. Its telephone number at that address is (816) 960-1333.
M-Vax(TM) and O-Vax(TM) are trademarks of the Company. This Prospectus also
includes trademarks of other companies.
4
<PAGE>
OFFERING SUMMARY
<TABLE>
<S> <C>
Common Stock Outstanding
as of May 6, 1997: 3,136,008 shares of Common Stock, including 285,199 shares of currently outstanding
shares of Common Stock directly held by the Selling Securityholders.1
Common Stock Offered
by Selling Securityholders: 6,780,299 shares of Common Stock.
Risk Factors: The securities offered hereby involve a high degree of risk. See "Risk Factors."
OTC Bulletin Board AVAX.
and Nasdaq
SmallCap Market Symbol:
Use of Proceeds: The Company will not receive any proceeds from the sale of shares of Common Stock.
The Company is not expected to receive any proceeds from the exercise of the
Placement Warrants since the Placement Warrants may be exercised pursuant to a
cashless exercise provision. In the event that the Placement Warrants are exercised for
cash, the Company intends to use such net cash proceeds (after estimated offering
expenses of this Offering of approximately $300,000) for general working capital
purposes. Proceeds, if any, from the exercise for cash of all the Placement Warrants,
before deduction of estimated expenses of this Offering, would be approximately
$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."
</TABLE>
- -----------------------------
1 Does not include (i) 6,479,950 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series B Preferred Stock,
(ii) 676,745 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)
30,000 shares of Common Stock issuable upon exercise of outstanding
stock options at an exercise price of $1.20 per share under the
Company's 1992 Stock Option Plan, (iv) 407,500 shares of Common Stock
reserved for issuance of future options under the Company's 1992 Stock
Option Plan, (v) 623,872 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 277,168
shares of Common Stock issuable upon exercise of other warrants to
purchase shares of Common Stock. See "Executive Compensation" and
"Description of Securities."
5
<PAGE>
SUMMARY OF FINANCIAL DATA
The following table presents historical financial information derived from the
financial statements of the Company.
Year Ended December 31
1995 1996
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)....... .18 (.84)
Weighted average number of shares
outstanding............................ 3,387,026 3,185,203
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
- -------------
(1) See Note 1 to Financial Statements for an explanation of the
determination of shares used in computing Net income (loss) per common
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 M- VaxTM 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 M-VaxTM 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 M-VaxTM 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 M-Vax(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 M-Vax(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, TJU and Dr. David Berd, the inventor
of the AC Vaccine technology, have conducted the ongoing clinical trials at TJU
pursuant to an FDA-approved physician sponsored Investigational New Drug
Application ("IND"). The Company has recently met with the FDA to discuss the
clinical results obtained with M-Vax(TM), the use of such results in support of
the submission of a Company-sponsored IND to the FDA, and to review its proposed
development program, which includes Phase III clinical trials for M-Vax(TM).
Prior to marketing M-Vax(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 immunotherapy or other
biotechnology 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, AND 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
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 M-Vax(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 May 1,
1997, the Company had only five 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 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
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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, re-examination,
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 five 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 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.
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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 M-Vax(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. 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 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
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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, as well as the potential
anti-cancer and anti-infective technology licensed pursuant to the Rutgers
License and the potential anti-cancer technology licensed pursuant to the Texas
A&M License. See "Business." From time to time, if and when the Company's
resources allow, the Company may explore the acquisition and subsequent
development and commercialization of additional biomedical and pharmaceutical
products and technologies. However, there can be no assurance that the Company
will be able to identify any additional products or technologies and, even if
suitable products or technologies are identified, 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 of the Company are officers of Paramount Capital
Investments, LLC. See "Management." Paramount Capital Investments, LLC, is a
merchant bank specializing in biotechnology companies. In the regular course of
its business, Paramount Capital Investments, LLC, identifies, evaluates and
pursues investment opportunities in biomedical and pharmaceutical products,
technologies and companies. Generally, Delaware corporate law requires that any
transactions between the Company and any of its affiliates be on terms that,
when taken as a whole, are substantially as favorable to the Company as those
then reasonably obtainable from a person who is not an affiliate in an
arms-length transaction. Nevertheless, neither Paramount Capital Investments,
LLC, nor any other person is obligated pursuant to any agreement or
understanding with the Company to make any additional products or technologies
available to the Company, and there can be no assurance, and purchasers of the
Common Stock should not expect, that any biomedical or pharmaceutical product or
technology identified by Paramount Capital Investments, LLC, or any other person
in the future will be made available to the Company. In addition, certain of the
officers, directors, consultants and advisors to the Company may from time to
time serve as officers, directors, consultants or advisors to other
biopharmaceutical or biotechnology companies. There can be no assurance that
such other companies will not in the future have interests in conflict with
those of the Company.
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CONTROL BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS
The Company's directors, executive officers and principal stockholders
beneficially own approximately 64.80% of the outstanding shares of Common Stock.
Accordingly, the Company's executive officers, directors, principal stockholders
and certain of their affiliates have the ability to exert substantial influence
over the election of the Company's Board of Directors and the outcome of issues
submitted to the Company's stockholders. See "Principal Stockholders."
VOLATILITY OF STOCK PRICE
The market price of the Common Stock like that of many other development-stage
public pharmaceutical or biotechnology companies, may be highly volatile.
Factors such as announcements of technological innovations or new commercial
products by the Company or its competitors, disclosure of results of preclinical
and clinical testing, adverse reactions to products, governmental regulation and
approvals, developments in patent or other proprietary rights, public or
regulatory agency concerns as to the safety of any products developed by the
Company and general conditions may have a significant or adverse effect on the
market price of the Common Stock. Also, the trading price of the Common Stock
may respond to quarterly variations in operating results, announcements of
innovations or new products by the Company or its competitors and other events
or factors, including, but not limited to, the sale or attempted sale of a large
amount of such securities into the market. In addition, market fluctuations may
adversely affect the market prices of such securities. See "Description of
Securities."
POTENTIAL ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
As of May 6, 1997, 3,136,008 shares of Common Stock were issued and outstanding
of which the Company believes that 2,127,654 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 2,127,654 "restricted" shares of
Common Stock, approximately 1,125,992 shares of Common Stock are presently
eligible for sale and an additional (i) approximately 928,285 shares of Common
Stock will be eligible for sale in the latter part of 1997 and (ii)
approximately 746,681 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 one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of one
percent of the total number of outstanding shares of the same class, or if the
Common Stock is quoted on the Nasdaq National Market or Nasdaq SmallCap 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 two years is entitled
to sell such shares under Rule 144(k) without regard to the volume limitations
described above.
In addition, the Company has issued and outstanding or issuable warrants and
options to purchase an aggregate of 950,891 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.
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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 the
Nasdaq SmallCap Market when 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
The Company has been granted conditional approval for listing and quotation of
the Common Stock on the Nasdaq Small Cap Market. There can be no assurance that
the Company will satisfy the conditions of such approval. 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. 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 SMALLCAP 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. Although the
Common Stock has been conditionally approved for listing and quotation on the
Nasdaq SmallCap Market, there can be no assurance that the Company will satisfy
the conditions of such approval.
If the conditions to receive such approval are met, continued inclusion of the
Common Stock on the Nasdaq SmallCap Market currently requires that: (i) the
Company have total assets of $2,000,000 and capital and surplus of at least
$1,000,000; (ii) the Company's public float have a market value of at least $1
million; (iii) the minimum bid price for the Common Stock be at least $1.00 per
share; and (iv) the Common Stock have at least two active market makers. A
deficiency in either the market value of the public float or the bid price
maintenance standard will be deemed to exist if the issuer fails the individual
stated requirement for 10 consecutive trading days. If an issuer falls below the
bid price maintenance standard, it may remain on the Nasdaq SmallCap Market if
the market value of the public float is at least $1,000,000 and the issuer has
$2,000,000 in equity. Recently, the Nasdaq SmallCap Market has proposed new
maintenance criteria which, if implemented, would eliminate the exception to the
$1.00 per share minimum bid price and require, among other things, $2,000,000 in
net tangible assets, $1,000,000 market value of the public float and adherence
to certain corporate governance provisions. There can be no assurance that the
Company and the Common Stock will continue to satisfy the requirements for
maintaining a listing on the Nasdaq SmallCap 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 SmallCap 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,"
and the Company would be required to comply with the Nasdaq SmallCap Market's
initial listing criteria in order to have the Common Stock approved for listing
and quotation thereon. 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
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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 SmallCap 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. Thus, if the price per share
of the Common Stock were to be less than $5.00 per share and the Company was
unable to continue to meet the requirements for listing on the Nasdaq SmallCap
Market, failure to qualify under one of the foregoing exceptions would 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 is 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 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."
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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 25
shares of Common Stock per share of Series B Preferred Stock, corresponding to a
conversion price equal to $4.00 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
Certain of the statements set forth in this Prospectus, including, without
limitation, the Company's research and development programs, the possible filing
of INDs or NDAs for M-Vax(TM) or any other products the Company may develop, 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 continuing listing requirements for the quotation of its securities on the
Nasdaq SmallCap 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. Although the Company believes that its assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could
prove inaccurate and, therefore, 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.
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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 has been publicly traded on the OTC Bulletin Board under the
symbol "AVAX" since December 19, 1996. 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, may not be reflective of actual
transactions and reflect a two-for-one reverse split of the Common Stock
to be effected at the close of business on May 13, 1997.
High Low
Fiscal year ended December 31, 1997
First quarter $6 3/4 $5 1/2
Second Quarter (through May 2, 5 7/8 4 1/4
1997)
Fiscal year ended December 31, 1996
Fourth quarter 6 5 3/4
The last reported sale price of the Common Stock on the OTC Bulletin Board on
May 2, 1997, was $5.125 per share. At May 2, 1997, there were 3,136,008 shares
of Common Stock outstanding, which were held by approximately 450 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>
<S> <C>
Stockholders' equity
Preferred Stock, $.01 par value:
Authorized Shares - 5,000,000, including Series B
convertible preferred stock-
300,000 shares
Issued and outstanding shares - 259,198
(liquidation preference - $34,991,730) 2,592
Common Stock, $.004 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 3,136,008 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 M-Vax(TM), and other
preclinical studies and clinical trials for other products that may arise from
the AC Vaccine technology and 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 M-Vax(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 M-Vax(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 be engaged primarily in the
development and commercialization of the AC Vaccine technology, as well as the
potential anti-cancer and anti-infective technology licensed pursuant to the
Rutgers License and the potential anti-cancer technology licensed pursuant to
the Texas A&M License. See "Business." 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
M-Vax(TM), the Company's lead AC Vaccine technology for metastatic melanoma. 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 myelogenous leukemia (AML). For example, the Company is in the
preliminary stages of enrolling patients for its Phase II clinical trial of
O-Vax(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" and "Manufacturing and Marketing."
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 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
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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 the past 12 months, the Company hired five new employees and it
anticipates that over the next 12 months it may hire approximately two 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, M-Vax(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
M-Vax(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 M-Vax(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 M-Vax(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 myelogenous 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 M-Vax(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 O- Vax(TM), its AC Vaccine for ovarian cancer. This trial is being 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"), and from The Texas A&M University System
("Texas
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<PAGE>
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.
25
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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
myelogenous leukemia (AML).
M-VAX(TM)
GENERAL. The Company's lead product, M-Vax(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. 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
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Company believes to be approximately 32% in stage 3 patients whom the Company
believes to be comparable to those treated with M-Vax(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 M-Vax(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 M-Vax(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 M-Vax(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
M-Vax(TM) vaccine, have been witnessed to date.
TJU and Dr. Berd have conducted the ongoing clinical trials at TJU pursuant to
an FDA-approved, physician-sponsored Investigational New Drug Application
("IND"). The Company has recently met with the FDA to discuss the clinical
results obtained with M-Vax(TM), the use of such results in support of the
submission of a Company-sponsored IND to the FDA, and to review its proposed
development program, which includes Phase III clinical trials for M-Vax(TM).
Depending upon the results of such clinical trials, 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 M-Vax(TM).
The Company also may pursue a similar regulatory approval and commercialization
strategy for M-Vax(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 O-Vax(TM), its AC Vaccine for ovarian cancer. This trial is
being conducted at TJU under the direction of Dr. Berd.
TOPOISOMERASE INHIBITORS
The Rutgers License relates to a series of novel anticancer compounds being
prepared and studied under the direction of Professors Edmund La Voie and Leroy
Lui at Rutgers University (the "Rutgers Compounds"). The Rutgers Compounds have
proven effective on animal models during preclinical studies, and, although
there can be no assurance, the Company believes that they may be effective on
humans. The Rutgers Compounds fall into three distinct and varied chemical
classes, and have been shown to inhibit topoisomerase I or topoisomerase II
activities, depending on the exact structure. Topoisomerases are key enzymes
needed for remolding DNA, a necessary function for malignant tumor growth.
Inhibitors of these enzymes have been proven to be clinically-useful anticancer
therapies. In addition to having topoisomerase- inhibiting characteristics, some
of the Rutgers compounds have shown activity against fungal as well as parasitic
organisms. Both United States and non-U.S. patents have been filed for the
Rutgers Compounds and their anticancer and anti-infective uses. Although such
compounds are in an early stage of preclinical development, the Company intends
to pursue development of one or more of these compounds. However, there can be
no assurance that any such compounds will ultimately reach a stage of clinical
testing or commercialization. See "Risk Factors--Technological Uncertainty and
Early Stage of Product Development," "Government Regulation; No Assurance of
Product Approval" and "Uncertainty Regarding Patents and Proprietary Rights."
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NOVEL ANTI-ESTROGENS
The Texas A&M License relates to a series of novel anticancer compounds (the
"Texas A&M Compounds") being prepared and studied under the direction of
Professor Stephen Safe at Texas A&M University. The unique activity against
solid tumors exhibited by the Texas A&M Compounds can be classified as
anti-estrogen, although they appear to act indirectly on the estrogen receptor
through a novel pathway. Anti-estrogens have been proven to be clinically-useful
anticancer therapies. United States patents for both the Texas A&M Compounds and
their anticancer uses have been filed. Although non-U.S. patent filings have not
yet been made, the Company expects that foreign patent coverage eventually will
be pursued. Although such compounds are in a early stage of preclinical
development, the Company intends to pursue development of one or more of these
compounds. However, there can be no assurance that any such compounds will
ultimately reach a stage of clinical testing or commercialization. See "Risk
Factors--Technological Uncertainty and Early Stage of Product Development,"
"Government Regulation; No Assurance of Product Approval" and "Uncertainty
Regarding Patents and Proprietary Rights."
RESEARCH AND DEVELOPMENT
AUTOLOGOUS CELL VACCINES
In connection with the TJU License entered into in November 1995, 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 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."
TOPOISOMERASE INHIBITORS
In consideration of the license granted to the Company by Rutgers in December
1996, 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 co-originator of the technology underlying the Rutgers License. Dr.
LaVoie is Professor of Medicinal 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."
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NOVEL ANTI-ESTROGENS
In consideration of the license granted to the Company by Texas A&M in February
1997, 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.
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
229,121.5 shares of Common Stock at a price of $.004 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
125,000 shares of Common Stock at a price of $8.24 per share. Such warrants are
exercisable upon the achievement of certain development-related milestones. The
first 75,000 of such warrants will expire in 2006 and the final 50,000 of such
warrants will expire in 2011. These warrants will provide for cashless exercise,
piggyback registration rights and certain anti-dilution rights.
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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 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
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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
myelogenous 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 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 the 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" "--Dependence on Others for Clinical
Development of, and Regulatory Approvals for Manufacturing and Marketing of
Pharmaceutical Products."
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
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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
M-Vax(TM) human clinical trials are being conducted by TJU under the supervision
of Dr. David Berd. Even if the Company eventually receives FDA approval of an
NDA to commercialize any of its products, there can be no assurance that the
Company will be able to successfully manufacture such product at a commercially
acceptable cost.
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
The Company does not expect to encounter significant difficulties in obtaining
raw materials for M-Vax(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 M-Vax(TM) or any other AC Vaccine technology.
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 May 1, 1997, the Company had five 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. Its other consultants, scientific advisors, part-time officers
and directors 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."
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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, and Regulatory Approvals for, and Manufacturing and Marketing of
Pharmaceutical Products" and "Certain Transactions."
LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal actions which may
have a material adverse affect on the Company's business.
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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:
Name Age Position
Jeffrey M. Jonas, M.D. 44 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 31 Secretary and Director
David L. Tousley, C.P.A. 41 Chief Financial Officer
Ernest W. Yankee, Ph.D. 53 Executive Vice President
JEFFREY M. JONAS, M.D., has been the Chief Executive Officer, President and
Director of the Company since June 1, 1996. Prior to joining the Company, from
1994 to 1996, Dr. Jonas was the Vice President of Clinical Development 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 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
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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 five 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.
35
<PAGE>
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>
<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- 318,872.5 -0-
- -- President and Chief
Executive Officer
Carl Spana, Ph.D. -- 1995 -0- -0- $623.21 2 -0- -0-
President
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 155,802.5 shares of Common Stock issued to, and purchased
by, Dr. Spana on September 13, 1995, which shares were valued at
December 31, 1995 at $.004 per share.
3 Represents payment of consulting and deferred consulting fees. See
"Management--Employment Agreements; Termination and Severance
Arrangements."
4 Represents 129,835.5 shares of Common Stock granted and purchased at a
price of $.004 per share on September 13, 1995, which shares were
valued at December 31, 1995 at $.004 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 77,901.5 shares of Common Stock at a price of $.004 per
share on March 24, 1996. See "Management--Employment Agreements;
Termination and Severance Arrangements."
5 Represents fees received by Dr. Weisbach pursuant to his consulting
agreement with the Company. See "Management--Employment Agreements;
Termination and Severance Arrangements."
37
<PAGE>
Options/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
Shares of Common Stock % of Total
Underlying Options/SARs Options/SARs Granted Exercise or Base
Name Granted to Employees in Fiscal Price ($/share) Expiration Date
Year
- -------------------------- --------------------------- ------------------------- ------------------ ------------------------------
<S> <C> <C> <C> <C>
Jeffrey M. Jonas, M.D. 318,872.5 55.81% 1.00 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 for
an initial term of four years, 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 318,872.5 shares of Common Stock at an exercise price of
$1.00. 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. In the
event that a Change of Control (as defined in the Jonas Employment Letter)
occurs and, prior to the expiration of the initial term of the Jonas Employment
Letter, Dr. Jonas' employment thereunder is terminated by the Company without
cause or by Dr. Jonas with cause, all options previously granted to Dr. Jonas
which remain unvested will immediately vest.
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 for an initial term of
four years. 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 125,000 shares of Common Stock at an exercise price
of $1.00 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. In the event
that a Change of Control (as defined in the Tousley Employment Letter) occurs
and, prior to the expiration of the initial term of the Tousley Employment
Letter, Mr. Tousley's employment thereunder is terminated by the Company without
cause or Mr. Tousley with cause, all options previously granted to Mr. Tousley
which remain unvested will immediately vest.
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 for an initial term of
four years. 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 125,000 shares of Common Stock at an exercise price of $1.00
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. In the event that a Change of
Control (as defined in the Yankee Employment Letter) occurs and, prior to the
expiration of the initial term of the Yankee
38
<PAGE>
Employment Letter, Dr. Yankee's employment thereunder is terminated by the
Company without cause or by Dr. Yankee with cause, all options previously
granted to Dr. Yankee which remain unvested will immediately vest.
On February 22, 1996, the Company entered into a consulting agreement (the
"Spana Consulting Agreement") with Dr. Carl Spana, a Director and the then
Interim President of the Company. Pursuant to the Spana Consulting Agreement,
Dr. Spana is entitled to a consulting fee of $25,000 per annum payable on a
monthly basis, commencing upon the consummation of the Series B Offering. The
Spana Consulting Agreement is for an initial term of three years, and is
renewable for one year terms thereafter at the discretion of both parties and
may be terminated upon 30 days' notice by either party. See "Certain
Transactions." 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. At the time of Dr. Jonas' appointment as the President and
Chief Executive Officer of the Company, Dr. Spana 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 129,835.5 shares of Common Stock, which shares were valued
at December 31, 1995 at $.004 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 77,901.5 shares of Common Stock previously issued to Dr.
Weisbach at a price of $.004 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.
39
<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."
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 229,121.5 shares of Common Stock at a price of
$.004 per share. In connection therewith, The Castle Group and its designees
were granted and sold 966,485.5 shares of Common Stock of the Company at a price
of $.004 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 on the Nasdaq
National Market. The market price of Interneuron's common stock at December 31,
1995, and May 2, 1997 was $12.50 and $15.50, 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,
40
<PAGE>
for a bridge financing for the Company as to which Paramount was paid $90,000 in
commissions and received warrants to purchase 31,250 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, on February 13,
1997, the Company agreed to pay Samuel P. Wertheimer, Ph.D., $40,000 and to
issue to Dr. Wertheimer warrants to purchase 12,750 shares of Common Stock at an
exercise price of $6.00 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, on February 13, 1997, the Company
agreed to pay Fred Mermelstein, Ph.D., $40,000 and to issue to Dr. Mermelstein
warrants to purchase 12,750 shares of Common Stock at an exercise price of $6.00
per share, exercisable for seven years. Drs. Wertheimer and Mermelstein are
employees of Paramount Capital Investments, LLC.
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.
41
<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 PERCENTAGE OF CLASS
OWNER (1) TITLE OF STOCK SHARES BENEFICIALLY OWNED
<S> <C> <C> <C>
Lindsay A. Rosenwald, M.D. (2)
787 Seventh Avenue, Common Stock 691,763 22.06%
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 426,992 13.61%
New York, NY 10006
Thomas Jefferson University
Office of Technology Transfer
1020 Locust Street Common Stock 229,121 7.31%
Philadelphia, PA 19107 David Berd, M.D.
c/o Thomas Jefferson University
Office of Technology Transfer Common Stock 229,121 7.31%
1020 Locust Street
Philadelphia, PA 19107
Jeffrey M. Jonas, M.D. (5) Common Stock 79,718 2.54%
Carl Spana, Ph.D. Common Stock 64,917 2.07%
John K.A. Prendergast, Ph.D. Common Stock 64,918 2.07%
Edson D. de Castro (6) Common Stock 27,778 *
Michael S. Weiss (7) Common Stock 100,717 3.21%
David L. Tousley (8) Common Stock 23,437.5 *
Ernest W. Yankee (9) Common Stock 23,437.5 *
All officers and directors as a group Common Stock 384,921.5 11.70%
(7 persons) Series B Preferred -0- *
</TABLE>
(See notes on next page)
- -------------------------------------
* Represents less than 1%.
42
<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 106,520 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) 17,000 shares of Common Stock issuable
upon exercise of Bridge Financing Placement Warrants and (ii) approximately
307,570 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 56,250 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 291,700 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 239,154.5 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) Represents shares of Common Stock that Mr. de Castro may acquire within 60
days of the date of this Prospectus. Excludes 2,222 shares of Common Stock
issuable upon exercise of options that are not exercisable within 60 days of the
date of this Prospectus.
(7) Excludes (i) 1,500 shares of Common Stock issuable upon exercise of Bridge
Placement Warrants and (ii) approximately 43,296.5 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.
(8) 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 101,562.5 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.
(9) 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 101,562.5 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.
43
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue up to 50,000,000 shares of Common Stock, par
value $.004 per share, and 5,000,000 shares of preferred stock, par value, $.01
per share, of the Company. As of May 6, 1997, 3,136,008 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 300,000 are designated as Series B Preferred
Stock and 259,198 of which 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 321,875 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."
44
<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 25
shares of Common Stock based upon an initial conversion price of $4.00 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 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
45
<PAGE>
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") 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
were 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, and as of
March 11, 1997, the Lock-Ups expired..
However, holders of approximately 94% of the shares of Series B Preferred Stock
agreed to amend their subscription agreements with the Company to extend the
Lock-Up period. Pursuant to this amendment, the Lock-Up for such holders' shares
of Series B Preferred Stock has been extended to be in effect as follows: (i)
three months following the later of the effectiveness under the Securities Act
of 1933 of the Registration Statement ("Effectiveness") and the listing of the
Conversion Shares on a national securities exchange or initial quotation on the
Nasdaq SmallCap Market ("Listing"), with respect to 75% of the Conversion
Shares; (ii) six months following the later of Effectiveness and Listing with
respect to 50% of the Conversion Shares and (iii) nine months following the
later of Effectiveness and Listing with respect to the remaining 25% of the
Conversion Shares. Accordingly, 25% of such holders' Conversion Shares continue
to have never been subject to the Lock-Up. The Conversion Shares of holders that
have not agreed to amend their subscription agreement are not subject to any
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 the later of
Effectiveness and 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.
In addition, in connection with the Company's application for listing and
quotation of the Common Stock on the Nasdaq Small Cap Market, pursuant to the
request of Nasdaq, the Company obtained from the officers and directors of the
Company, and certain employees of Paramount and its affiliates, agreements
locking-up all securities and derivative securities of the Company held by such
individuals for a period of two years from the later of Effectiveness and
Listing. Such agreements may be waived in whole or in part at the option
of the Company.
1992 STOCK OPTION PLAN
A total of 437,500 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.
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<PAGE>
The AVAX Option Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
nonqualified stock options to employees, directors and consultants of the
Company. Incentive stock options may be granted only to employees. The AVAX
Option Plan is administered by the Board of Directors of the Company (or a
Committee thereof) which determines the terms of the options granted, including
the exercise price, the number of shares subject to the option, and the schedule
on which the option becomes exercisable.
The AVAX Option Plan requires that the exercise price of incentive stock options
granted to employees of the Company who at the time of the grant of such
incentive stock option own stock representing more than 10% of the voting power
of all classes of stock of the Company or any parent or subsidiary, must be at
least equal to 110% of the fair market value of such shares on the date of
grant. The AVAX Option Plan also requires that the exercise price of incentive
stock options granted to any other employee of the Company 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 granted by the Company must be
equal to 85% of the fair market value per share 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 May 1, 1997, options to purchase 30,000
shares of Common Stock were outstanding (of which approximately 26,666.5 were
vested) at a weighted average price of $2.40 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 received share options to acquire 318,872.5, 125,000 and 125,000
shares of Common Stock, respectively, at an exercise price of $1.00 per share.
In connection with her letter of employment entered into on August 23, 1996,
another employee of the Company received share options to acquire 2,500 shares
of Common Stock at an exercise price of $1.00 per share. All the foregoing share
options will vest at a rate of 1/16 per quarter over the four-year period
following the effective date of the applicable letters of employment and are
exercisable for a period of seven years.
In connection with his letter of employment, effective February 10, 1997, one
other employee of the Company has received share options to purchase 52,500
shares of Common Stock at an exercise price equal to $6.00 per share. Such
exercise price was equal to the fair market value of a share of Common Stock on
the date the option was granted to such employee. The share options issued to
such employee will vest, with respect to 30,000 of such shares, at a rate of 1/6
every six months over a three-year period following the effective date of his
letter of employment. The remaining 22,500 shares will vest upon the occurrence
of certain milestone events relating to the Company's manufacturing program.
47
<PAGE>
As of May 1, 1997, options to purchase 91,351 shares of Common Stock were vested
with respect to such employees with a weighted average price of $2.00 per share
and no such options had been exercised.
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 36,399 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 609,096 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.
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 31,250 newly issued shares of Common
Stock. Each Bridge Placement Warrant entitles the registered holder thereof to
purchase Common Stock at a price of $.04 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 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 7,750 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 $11.00 per share, at any time
until April 30, 1998. The Castelli and Shear/Kershman Warrants may be exercised
in whole or in part.
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 88,769 shares of Common Stock are issuable pursuant to the Series
A Placement Warrants at $2.60 per share. In April 1997, Ladenburg was issued
24,850.5 shares of Common Stock pursuant to the cashless exercise provision of
the Series A Placement Warrants. The Series A Placement Warrants may be
exercised, in whole or in part, and may be exercised pursuant to a cashless
exercise provision.
In consideration for certain investment banking and financial advisory services
that may be rendered on a non-exclusive basis by Hill, Thompson, Magid & Co.
("HTM"), the Company granted HTM warrants (the "HTM Warrants") to acquire 50,000
shares of Common Stock, which warrants shall vest from time to time through
April 17, 1998. The HTM Warrants entitle the registered holder to purchase
Common Stock at a price of $8.00 per share, at any time from July 17, 1997 until
July 17, 2002. The HTM Warrants may be exercised in whole or in part.
In consideration for certain investment banking and financial advisory services
to have been rendered on a non-exclusive basis by M.H. Meyerson & Co., Inc.
("Meyerson"), the Company granted Meyerson warrants (the "Meyerson Warrants") to
acquire 25,000 shares of Common Stock on October 24, 1996. The Company
terminated the agreement with Meyerson
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<PAGE>
on April 17, 1997, and, accordingly, the Meyerson Warrants vested with respect
to the right to purchase up to 25,000 shares. Pursuant to the Meyerson Warrants,
the registered holder is entitled to purchase up to 25,000 shares of Common
Stock at a price of $6.00 per share, at any time from December 24, 1996 until
October 24, 2001. Meyerson was also paid a fee of $15,000 at the time of its
execution of the investment banking agreement.
Pursuant to Section 2710(c)(7)(A) of the NASD Corporate Financing Rules, the HTM
Warrants and the Meyerson Warrants were issued to HTM and Meyerson and certain
of their respective bona fide officers and employees only and may not be sold,
transferred, assigned or pledged or hypothecated by any person for a period of
one year from the date of issuance. Accordingly, the HTM Warrants and the
Meyerson Warrants contain an appropriate legend describing the restriction set
forth above for the period in which such restriction is operative.
In connection with the Rutgers License, the Company granted Rutgers warrants
(the "Rutgers Warrants") to purchase 125,000 shares of Common Stock at $8.24 per
share, which warrants vest from time to time until October 31, 2011, subject to
the achievement of certain milestones. 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, on February 13,
1997, the Company agreed to issue to Samuel P. Wertheimer, Ph.D., warrants to
purchase 12,750 shares of Common Stock at a price of $6.00 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, on February 13, 1997,
the Company agreed to issue to Fred Mermelstein, Ph.D., warrants to purchase
12,750 shares of Common Stock at a price of $6.00 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 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
49
<PAGE>
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 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
The Transfer Agent for the shares of Common Stock is UMB Bank of Missouri.
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<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," represent the aggregate number
of shares of (A) Common Stock owned by each Selling Stockholder, (B) Common
Stock issuable upon conversion of the Series B Preferred Stock owned by each
Selling Securityholder, (C) Common Stock issuable upon conversion of the Series
B Placement Warrants and (D) Common Stock issuable upon exercise of conversion
of the Bridge Placement Warrants (assuming for (B) - (D) the initial
conversion/exercise rates under the terms of the Series B Preferred Stock, the
Series B Placement Warrants and the Bridge Placement Warrants, respectively).
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- --------
<S> <C> <C> <C> <C>
The 1992 Houston Partnership, L.P. 12,750 12,750 0 *
The A.M. Group L.L.C. 31,875 31,875 0 *
Todd D. Aaron, M.D. 6,375 6,375 0 *
Leonard J. Adams 25,500 25,500 0 *
Ross D. Ain 2,550 2,550 0 *
Kenneth G. Alberstadt 1,675 1,675 0 *
Meir Aliakim 98,557.5 98,557.5 0 *
Amram Kass P.C. Defined Benefit Pension 12,750 12,750 0 *
Plan
George Anagnos 6,375 6,375 0 *
Josephine G. Anagnos 6,375 6,375 0 *
Steven Anagnos 6,375 6,375 0 *
Ansec Corp. 51,000 51,000 0 *
The Aries Domestic Fund, L.P. (2) 121,500 121,500 0 *
The Aries Fund, A Cayman Island Trust (2) 226,000 226,000 0 *
Rajiv Bahl 6,375 6,375 0 *
BAM of NY, Inc. Defined Benefit Pension 31,875 31,875 0 *
Plan
Martin Bandier 12,750 12,750 0 *
Banque SCS Alliance (2) 26,000 26,000 0 *
Banque Franck S.A. 25,500 25,500 0 *
Banque Unigestion 76,500 76,500 0 *
Banque Unigestion 38,250 38,250 0 *
Amnon Barness & Caren H. Barness, 6,375 6,375 0 *
JTWROS
Alan R. Batkin 12,750 12,750 0 *
Laurie and Steven Beane 6,375 6,375 0 *
Mark Berg 63,750 63,750 0 *
David J. Bershad 51,000 51,000 0 *
Biowave Investment Partners 12,750 12,750 0 *
Bishops Merchant Group Limited 25,500 25,500 0 *
John V. Bivona 11,475 11,475 0 *
Marcy Blender, Alan Blender 3,825 3,825 0 *
JTWROS
Blair Foster & Co., Inc. (2) 925 925 0 *
Elliott Broidy 25,500 25,500 0 *
Seymour Buehler 6,250 6,250 0 *
Patrick J. Callahan 6,375 6,375 0 *
M. Rafael Gonzalez Calvillo 2,550 2,550 0 *
Carlos Plancarte Garcia N., Leonor P. De 6,375 6,375 0 *
Morian, JTWROS
Gabriel M. Cerrone 51,000 51,000 0 *
Chana Sasha Foundation 25,500 25,500 0 *
</TABLE>
51
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- --------
<S> <C> <C> <C> <C>
Andrew and Barbara Cichelli 6,375 6,375 0 *
Cinco de Mayo, Ltd. 12,750 12,750 0 *
Roger and Margaret Coleman 6,375 6,375 0 *
Colony Partners, A California General 12,750 12,750 0 *
Partnership
Robert J. Conrads 12,750 12,750 0 *
Cook & CIE SA 102,000 102,000 0 *
Lilia Cordero de Adame, Lilia M.A. Olvera, 12,750 12,750 0 *
JTWROS
Archibald Cox, Jr. 51,000 51,000 0 *
Credit Lyonnais Suisse (SA) 76,500 76,500 0 *
David Trust 2,550 2,550 0 *
DBRN Securities Inc. 25,500 25,500 0 *
Elke R. de Ramirez 2,550 2,550 0 *
Nathan P. Diamond 6,375 6,375 0 *
Donald G. Drapkin 63,750 63,750 0 *
M. Robert Dussler 1,275 1,275 0 *
Eastside Investment Partners 12,750 12,750 0 *
Elena Edelstein and Marcus Edelstein 6,375 6,375 0 *
Edgewater Private Equity Fund, LP 95,000 63,750 31,250 *
EDN Equities 51,000 51,000 0 *
Ariel Elia 6,375 6,375 0 *
Howard Ellis 2,550 2,550 0 *
Etablissement Occramis 12,750 12,750 0 *
Europa International, Inc. 12,750 12,750 0 *
Joseph A. Fabiani, M.D. 25,375 19,125 6,250 *
Faisal Finance 51,000 51,000 0 *
Laurence D. Fink 51,000 51,000 0 *
Steven B. Fink 6,375 6,375 0 *
Finterbank Zuerich 25,500 25,500 0 *
Firebird Overseas, Ltd. 12,750 12,750 0 *
Alan Fisher 11,475 11,475 0 *
Norman J. Fisher 12,750 12,750 0 *
Joseph H. Flom 12,750 12,750 0 *
Hans-Wolfgang Frick 25,500 25,500 0 *
James P. Frickleton and James R. Bartimus 25,500 25,500 0 *
Michael J. Garnick 50,750 38,250 12,500 *
Marc Gelman 76,500 76,500 0 *
Joseph Giamanco 51,000 51,000 0 *
Richard Goldberg 12,750 12,750 0 *
Harold S. Goldstein 6,375 6,375 0 *
Golex Holding 51,000 51,000 0 *
Ofelia Anton Gomez 5,100 5,100 0 *
Michael J. Gordon 3,187.5 3,187.5 0 *
Robert P. Gordon 12,750 12,750 0 *
Peter Grabler 3,187.5 3,187.5 0 *
Robert J. Granovsky 12,750 12,750 0 *
Greenwood Partners 63,750 63,750 0 *
James & Nancy Grosfeld, tenants by 51,000 51,000 0 *
entireties
Peter Grossman 6,375 6,375 0 *
Stuart Gruber 25,500 25,500 0 *
Erez & Elyse Halevah 12,750 12,750 0 *
Yonah J. Hamlet, MD Trustee FBO Yonah 9,500 9,500 0 *
J. Hamlet, MD Profit Sharing Plan Dtd.
1/1/86
Harpel Family Partnership 63,750 63,750 0 *
Thomas O. Hecht 12,750 12,750 0 *
Chaim Herman and Denise Herman 2,550 2,550 0 *
Gary Herman 12,750 12,750 0 *
Jack Hirschfield 3,187.5 3,187.5 0 *
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- --------
<S> <C> <C> <C> <C>
The Holding Company 25,500 25,500 0 *
Jeffrey C. Hoos 6,375 6,375 0 *
Irving Huber and Charlotte Huber 6,375 6,375 0 *
IASD Health Services Corp. 51,000 51,000 0 *
Mark & Rebecca Ingerman 12,750 12,750 0 *
J.F. Shea Co., Inc. as Nominee 1996-21 51,000 51,000 0 *
Jackson Hole Investments Acquisitions, 25,500 25,500 0 *
L.P.
Peter L. Jensen 12,750 12,750 0 *
John Osterweis TTEE Osterweis Revocable 6,375 6,375 0 *
Trust dtd 9-13-93
James D. Judd 15,875 12,750 3,125 *
Hyman R. Kahn 25,500 25,500 0 *
Patrick M. Kane 6,375 6,375 0 *
Robert S. Kapito 25,500 25,500 0 *
Donald R. Kendall, Jr. 7,650 7,650 0 *
Daniel Kessel, M.D. 28,625 25,500 3,125 *
Ida Kessel 9,500 6,375 3,125 *
Lawrence J. Kessel 28,625 25,500 3,125 *
Keys Foundation, Curacao, Netherlands, 25,500 25,500 0 *
Antilles
Robert Klein, M.D. 25,500 25,500 0 *
Robert Knox 12,750 12,750 0 *
Arthur or Sean Kohn 12,750 12,750 0 *
Charles Koppelman 25,500 25,500 0 *
Ira L. Kotel 8,517 8,517 0 *
Ted Koutsoubos 25,500 25,500 0 *
Michael and Nicole Kubin 25,500 25,500 0 *
Vincent P. Lambriola 6,375 6,375 0 *
Larich Associates 38,250 38,250 0 *
Legong Investments N.V. 102,000 102,000 0 *
Albert Lemer 6,375 6,375 0 *
Susan Tauber Lemor 6,375 6,375 0 *
Gregory Lenchner 16,450 10,200 6,250 *
Gregory S. Lenchner and Donna Lenchner, 8,925 8,925 0 *
Jointly
Harvey Lenchner 5,100 5,100 0 *
Michael Lenchner 1,275 1,275 0 *
Henry N. Lieberman 12,750 12,750 0 *
Lifelines Care, Inc. 8,925 8,925 0 *
Frank T. Lincoln, Jr. 12,750 12,750 0 *
The Lincoln Tax Advantaged, L.P. 25,500 25,500 0 *
Armand A. Lindenbaum 6,375 6,375 0 *
Lion Tower Corporation 12,750 12,750 0 *
Beverly O. Lobell 12,750 12,750 0 *
J. Jay Lobell 25,500 25,500 0 *
John L. Loeb, Jr. 6,375 6,375 0 *
Luxembrella - All Around Int'l 51,000 51,000 0 *
Herbert M. Lyman 8,875 6,375 2,500 *
The M.L. Lawrence Trust 76,500 76,500 0 *
Marathon Agents Profit Sharing 6,375 6,375 0 *
Michael P. Marcus 51,000 51,000 0 *
Alfons Melohn 76,500 76,500 0 *
Arden Merback 3,187.5 3,187.5 0 *
Joseph Merback (2) 3,700 3,700 0 *
Josef Mermelstein 25,500 25,500 0 *
Albert Milstein 12,750 12,750 0 *
Mary Y.Y. Mo 6,375 6,375 0 *
Michael Y.Q. Mo 6,375 6,375 0 *
Zhong-Liang Mo 12,750 12,750 0 *
Richard Molinsky 12,750 12,750 0 *
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
- ---------------------- ----------------- ---------- -------------- --------
<S> <C> <C> <C> <C>
The Monument Trust Company Limited 25,500 25,500 0 *
Roberto Gonzalez Moreno 25,500 25,500 0 *
Alfred D. Morgan, Trust Administrator 6,375 6,375 0 *
(Trustee) / Margaret Goldwater, Trustee
Robert Mosberg 6,375 6,375 0 *
Eli Moshen 3,187.5 3,187.5 0 *
Mova Investments Limited 25,500 25,500 0 *
Arnold Mullen 12,750 12,750 0 *
Arthur J. Nagle 6,375 6,375 0 *
Mechie Nebenzahl 12,750 12,750 0 *
P. Sherrill Neff 6,375 6,375 0 *
New Jersey Wolfson Trust 331,500 331,500 0 *
Kevin P. Newman 3,187.5 3,187.5 0 *
Nikki Establishment For Fashion & 12,750 12,750 0 *
Marketing Research
Old Oly, J.V. 12,750 12,750 0 *
Paul D. and Rebecca L. Ostrovsky 6,375 6,375 0 *
Steven N. Ostrovsky 6,375 6,375 0 *
P.A.W. Offshore Fund, Ltd. 25,500 25,500 0 *
Palmetto Partners, Ltd. 38,250 38,250 0 *
John Pappajohn (3) 83,500 51,000 32,500 *
Mark D. Pesonen 12,750 12,750 0 *
Maria Pierce 6,375 6,375 0 *
Porter Partners, L.P. 51,000 51,000 0 *
Charles Potter 6,375 6,375 0 *
Tis Prager 6,375 6,375 0 *
Privat Kredit Bank, Lugano 153,000 153,000 0 *
Propp & Company, Inc. (2) 6,525 6,525 0 *
Abel Quezada Rueda, Mercedes P. Quezada 3,825 3,825 0 *
JTWRS
Michael S. Resnick 6,375 6,375 0 *
Rick Steiner Productions, Inc. 7,650 7,650 0 *
Todd M. Roberts 8,491.5 8,491.5 0 *
Linda Gosden Robinson 38,250 38,250 0 *
Rosemary Cass Ltd. Pension Plan 5,100 5,100 0 *
J. Philip Rosen 12,750 12,750 0 *
Paul H. Rosen 2,550 2,550 0 *
Ervin Rosenfeld 25,500 25,500 0 *
Martine Rothblatt 6,375 6,375 0 *
Jeffrey Rothenberg DDS 7,650 7,650 0 *
David W. Ruttenberg 6,375 6,375 0 *
S&M Investments 6,375 6,375 0 *
Leeor Sabbah 76,500 76,500 0 *
M.D. Sabbah 127,500 127,500 0 *
Sagres Group Ltd. 204,000 204,000 0 *
Wayne Saker 25,500 25,500 0 *
Scott G. Sandler 19,125 19,125 0 *
Sarah Trust 2,550 2,550 0 *
Savenna Consultants, Inc. (2) 3,875 3,875 0 *
Roy and Marlena Schaeffer 12,750 12,750 0 *
Howard Schain 12,750 12,750 0 *
Carl M. Schechter 6,375 6,375 0 *
Robin Schlaff 6,375 6,375 0 *
Ralph Schlosstein 25,500 25,500 0 *
Andrew W. Schonzeit 6,375 6,375 0 *
Schwendiman Global Sector Fund L.P. 12,750 12,750 0 *
Scoggin Capital Management, L.P. 38,250 38,250 0 *
Roberto Segovia 5,100 5,100 0 *
Lori Shapero 12,750 12,750 0 *
Leonard P. Shaykin 12,750 12,750 0 *
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Percentage
Shares Owned Amount to Shares Owned Owned after
Selling Securityholder (1) prior to Offering be Offered after Offering Offering
<S> <C> <C> <C> <C>
The Sheila Davis Lawrence Revocable 25,500 25,500 0 *
Trust
L. Kevin Sheridan, Jr. 6,816.5 6,816.5 0 *
Martin Sirotkin 15,875 12,750 3,125 *
Bruce Slovin 63,750 63,750 0 *
South Ferry #2, L.P. 292,500 292,500 0 *
Aaron Speisman 6,375 6,375 0 *
Aaron Speisman custodian for Jennifer 6,375 6,375 0 *
Speisman
Aaron Speisman custodian for Joshua 6,375 6,375 0 *
Speisman
William M. Spencer III 25,500 25,500 0 *
Neil and Laurie Spindel 12,750 12,750 0 *
John L. Steffens 25,500 25,500 0 *
Dr. Edward L. Steinberg 6,375 6,375 0 *
Catherine Steinmann 6,375 6,375 0 *
Gabriel Steinmann 6,375 6,375 0 *
Jennifer Steinmann 6,375 6,375 0 *
Joshua Steinmann 6,375 6,375 0 *
Gary J. Strauss 12,750 12,750 0 *
Stome Partners, L.P. 255,000 255,000 0 *
Kaveh Taleghani 6,375 6,375 0 *
Hindy H. Taub 6,375 6,375 0 *
Herman Tauber 38,000 38,000 0 *
Myron M. Teitelbaum, M.D. 15,750 15,750 0 *
Termtec, Ltd. 12,750 12,750 0 *
Patricia & Erich Theissen 2,550 2,550 0 *
Mitchell Troyetsky 6,375 6,375 0 *
Thomas R. Ulie (2) 13,500 13,500 0 *
Joseph A. Umbach 12,750 12,750 0 *
United Congregations Mesora 25,500 25,500 0 *
Dan Valahu 6,375 6,375 0 *
Valor Capital Management, L.P. 12,750 12,750 0 *
William J. Vanden Heuvel 6,250 6,250 0 *
Andre Visser (2) 27,000 27,000 0 *
Vivaldi, Ltd. 51,000 51,000 0 *
W & P Bank & Trust Company Ltd. 51,000 51,000 0 *
Allan Warshawsky 6,375 6,375 0 *
Michael Weiner, M.D. 2,550 2,550 0 *
Mark E. Weiss 6,375 6,375 0 *
The M and B Weiss Family Limited 51,000 51,000 0 *
Partnership of 1996
Robert J. Whetten 25,500 25,500 0 *
Whitcome Family Trust 25,500 25,500 0 *
Tim Winans 6,375 6,375 0 *
Wisdom Tree Associates, LP 38,250 38,250 0 *
Alan Wise/Teri Wise, Jointly 6,375 6,375 0 *
Andrew B. Woldow 6,375 6,375 0 *
James D. Wolfensohn 25,000 25,000 0 *
Aaron Wolfson 25,500 25,500 0 *
Abraham Wolfson 25,500 25,500 0 *
Wolfson Descendents' 1983 Trust 127,500 127,500 0 *
Worldwide Consultants and Finance Ltd. 25,500 25,500 0 *
Peter Young 4,666.5 4,666.5 0 *
Richard A. Young 6,375 6,375 0 *
Robert J. Young 6,375 6,375 0 *
Zapco Holdings Settlement 6,375 6,375 0 *
Uzi Zucker 12,750 12,750 0 *
TOTAL 6,887,174 6,780,299 106,875 1.11%
- -----
</TABLE>
* Represents less than 1.0 %.
55
<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."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALES
Upon completion of the Offering, the Company will have 11,609,677.5 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 6,780,299
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 approximately 1,125,992 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 437,500 shares of Common Stock have been reserved for
issuance, and has also reserved 623,872 shares of Common Stock for issuance
pursuant to the employment arrangements among the Company and Dr. Jonas, Mr.
Tousley, Dr. Yankee and two other non-executive employees.
SALES OF RESTRICTED SHARES
The Company believes that 2,127,654 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
2,127,654 "restricted" shares of Common Stock, approximately 1,125,992 shares of
Common Stock is eligible for sale and an additional (i) approximately 928,285
shares of Common Stock will be eligible for sale in 1997 and (ii) approximately
746,681 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 one year
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 the average weekly trading volume of the Common Stock on
the Nasdaq SmallCap Market 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 two years is entitled
to sell such shares under Rule 144(k) without regard to the volume limitations
described above. Certain shares eligible for sale under Rule 144 remain subject
to certain lock-up restrictions. See "Lock-Up Agreements."
Prior to the Offering, there has been only a limited public market for the
Common Stock on the OTC Bulletin Board, and no predictions can be made of the
effect, if any, that the sale or availability for sale of restricted shares or
locked-up shares will have on the market price of the Common Stock on any market
upon which the Common Stock shall be listed. 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."
57
<PAGE>
PLAN OF DISTRIBUTION
A total of 6,780,299 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 shares of Common Stock
may be subject to lock-up agreements. 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.
The Company will advise the Selling Securityholders that no NASD member
participating in the offering of the shares of Common Stock being offered hereby
by the Selling Securityholders may receive compensation in excess of 8% of the
proceeds of the sale of such shares. In addition, the terms and arrangements of
any underwritten offering must be filed with the NASD for its review pursuant to
Section 2710 of the NASD's Corporate Financing Rules.
The Company will inform the Selling Securityholders that the anti-manipulation
provisions of Regulation M promulgated 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, including, without limitation,
Regulation M.
58
<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
25,500 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.
59
<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
CONTENTS
<TABLE>
<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, except for Note 1
as to which the date is May 7, 1997
F-1
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Balance Sheet
DECEMBER 31,
1996
----------
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, $.004 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 3,111,158 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.
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> <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 $ .19 $ (.84)
============ ==============
Weighted average number of shares outstanding
3,388,316 3,185,203
============ ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
<TABLE>
<CAPTION>
Statements of Stockholders' Equity (Deficit)
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCKS PREFERRED STOCK COMMON STOCK
------------------------ ------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ---------- ------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for services in -- $ -- -- $ -- 582,500 $ 2,330
January 1990
Net loss -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balance at December 31, 1990 -- -- -- -- 582,500 2,330
Issuance of common stock for services in -- -- -- -- 230,000 920
August 1991
Net loss -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balance at December 31, 1991 -- -- -- -- 812,500 3,250
Conversion of note payable to related party
to common stock in June 1992 -- -- -- -- 22,913 92
Issuance of common stock for services in May
and June 1992 -- -- -- -- 264,185 1,056
Issuance of Series A convertible preferred
stock, net of issuance cost in June, July 1,287,500 12,875 -- -- -- --
and September 1992
Net loss -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balance at December 31, 1992 1,287,500 12,875 -- -- 1,099,598 4,398
Issuance of common stock for services in July
and November 1993 -- -- -- -- 8,717 35
Net loss -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balances at December 31, 1993 1,287,500 12,875 -- -- 1,108,315 4,433
Issuance of common stock for services in July -- -- -- -- 3,750 15
1994
Net loss -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balances at December 31, 1994 1,287,500 12,875 -- -- 1,112,065 4,448
Common stock returned and canceled in April
and May 1995 -- -- -- -- (307,948) (1,232
Shares issued in September and November 1995 -- -- -- -- 1,777,218 7,109
Amount payable for liquidation preference -- -- -- -- -- --
Net income -- -- -- -- -- --
------------- ---------- ------------- ----------- -------------- ----------
Balances at December 31, 1995 1,287,500 12,875 -- -- 2,581,335 10,325
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DEFICIT
UNREALIZED ACCUMULATED TOTAL
ADDITIONAL LOSS ON DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED MARKETABLE DEVELOPMENT EQUITY
CAPITAL RECEIVABLE COMPENSATION SECURITIES STAGE (DEFICIT)
------------- -------------- --------------- -------------- --------------- -----
<S> <C> <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 5,830 -- -- -- -- 6,750
August 1991
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 2,258,837 -- -- -- -- 2,271,712
and September 1992
Net loss -- -- -- -- (607,683) (607,683)
------------- ------------ -------------- -------------- -------------- -----------
Balance at December 31, 1992 2,432,496 -- -- -- (706,376) 1,743,393
Issuance of common stock for services in July
and November 1993 24,965 -- -- -- -- 25,000
Net loss -- -- -- -- (1,610,154) (1,610,154)
------------- ------------ -------------- -------------- -------------- ------------
Balances at December 31, 1993 2,457,461 -- -- -- (2,316,530) 158,239
Issuance of common stock for services in July 4,485 -- -- -- -- 4,500
1994
Net loss -- -- -- -- (781,221) (781,221)
------------- ------------ -------------- -------------- -------------- ------------
Balances at December 31, 1994 2,461,946 -- -- -- (3,097,751) (618,482)
Common stock returned and canceled in April
and May 1995 -- -- -- -- -- (1,232)
Shares issued in September and November 1995 -- (7,109) -- -- -- --
Amount payable for liquidation preference (738,289) -- -- -- -- (738,289)
Net income -- -- -- -- 1,380,571 1,380,571
------------- ------------ --------------- ------------- -------------- ------------
Balances at December 31, 1995 1,723,657 (7,109) -- -- (1,717,180) 22,568
</TABLE>
F-4
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
SERIES A SERIES B
CONVERTIBLE CONVERTIBLE
PREFERRED STOCKS PREFERRED STOCK COMMON STOCK
------------------------ ------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ---------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase of common stock in March 1996 -- $ -- -- $ -- (77,901) $ (312)
Payment of subscription receivable -- -- -- -- -- --
Conversion of Series A preferred in June (1,287,500) (12,875) -- -- 321,875 1,288
1996
Issuance of common stock and Series B
preferred stock in a private
placement in May -- -- 258,198 2,582 129,099 516
and June 1996
Issuance of common stock and Series B
preferred stock for services in -- -- 1,000 10 500 2
June 1996
Exercise of warrants in June and July -- -- -- -- 156,250 626
1996
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 3,111,158 $ 12,445
============= ========== ============ ============ ============= ============
</TABLE>
<TABLE>
<CAPTION>
DEFICIT
UNREALIZED ACCUMULATED TOTAL
ADDITIONAL LOSS ON DURING THE STOCKHOLDERS'
PAID-IN SUBSCRIPTION DEFERRED MARKETABLE 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 in June 11,587 -- -- -- -- --
1996
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 99,988 -- -- -- 100,000
June 1996
Exercise of warrants in June and July 5,624 -- -- -- 6,250
1996
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) $ 19,749,410
============ ============== ========== ============= ============= ==============
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Statements of Cash Flows
<TABLE>
<CAPTION>
PERIOD FROM JANUARY
12, 1990
(INCORPORATION)
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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. Pursuant to an amendment to the Company's certificate of incorporation
dated May 7, 1997, a second 1-for-2 reverse split of the Company's common stock
will be effected at the close of business on May 13, 1997. All outstanding share
and per share amounts included in the accompanying financial statements have
been adjusted to reflect both 1-for-2 reverse stock splits.
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 $3.92 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 (320,663.5 shares at $3.92
per share) to repay certain debt of $1,257,000. Net income (loss) per share
would have been $.20 and $(.72) 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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:
(bullet) 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.
(bullet) 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 62,500 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 ($80,522) based on the fair value of
the Company's common stock ($.004 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 458,243 shares of common stock at
$.004 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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
125,000 shares of common stock at a price of $8.24 per share based on the
achievement of certain development milestones. The first 75,000 warrants will
expire in 2006 and the final 50,000 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 111,330 shares
of common stock and options to purchase 62,500 shares of common stock. The
common stock returned was valued at $.004 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 196,618 shares of the Company's common
stock owned by her and her family. The common stock was valued at $.004 per
share and was canceled.
On September 13, 1995, the Company issued 402,490 shares of common stock to
officers of the Company at $.004 per share.
On November 20, 1995, the Company issued an aggregate of 458,243 shares of
common stock at $.004 per share to TJU and the Scientist (see NOTE 3). In
addition, on November 20, 1995, the Company issued, in aggregate, an additional
916,485 shares to a principal stockholder, a third party designated by the
principal stockholder, and an officer, at $.004 per share.
F-16
<PAGE>
4. EQUITY TRANSACTIONS (CONTINUED)
On March 24, 1996, the Company repurchased 77,901 shares of common stock
previously issued to an officer at $.004 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 $.004, 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 129,099 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 500
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 $4 per share
(the Initial Conversion Price), which amounts to 6,479,950 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 321,875
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 $5.40. 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 437,500 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
4. EQUITY TRANSACTIONS (CONTINUED)
The following summarizes activity in the Plan:
OPTIONS
-----------------
Balances at December 31, 1994 276,375
Canceled (246,375)
-----------------
=================
Balances at December 31, 1995 and 1996 30,000
=================
All outstanding options were issued at an exercise price of $1.20 per share. At
December 31, 1996, options to purchase 23,889 shares of common stock were
exercisable, and options to purchase 407,500 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 318,873 shares of common stock at $1.00 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 $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 252,500 shares of common stock at $1.00 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 $4 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 88,769 (adjusted to comply with
anti-dilution provisions of the warrants) (June, July and September 1992), 7,750
(May 1993), and 90,000 (January, February and August 1995) shares of the
Company's common stock at a price of $2.60, $11.00 and $.04 per share,
respectively. These warrants are
F-19
<PAGE>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 97,500
shares of the Company's common stock at a price of $.04 per share. Such warrants
are exercisable at any time and expire in 2007.
In October 1996, the Company issued warrants to purchase 50,000 shares of common
stock at $6 per share (see NOTE 7). In December 1996, the Company committed to
the future issuance of warrants to purchase 125,000 shares of the Company's
common stock at a price of $8.24 per share (see NOTE 3). In June and July of
1996, warrants to purchase 156,250 shares of common stock at $.04 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) 6,479,950
Stock option plan 437,500
Options issued to officers and an employee 571,373
Warrants to purchase common stock 302,769
Warrants to purchase Series B convertible preferred
stock (NOTE 4) 645,495
============
8,437,087
============
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
6. INCOME TAXES (CONTINUED)
The following summary reconciles the federal statutory rate with the actual
income tax provision (benefit):
DECEMBER 31
1995 1996
---------------- --------------
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) $ - $ -
=============== ==============
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 50,000 shares
of common stock at $6 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 75,000 shares of common stock at $.04 per share. In
connection with these loans, the Company paid commissions totaling $54,000 and
issued warrants to purchase 15,000 shares of common stock at $.04 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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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 31,250 shares of common stock at $.04 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 50,000 shares of common stock at $.04 per share. Also, in connection
with these additional bridge loans, the Company paid commissions totaling
$36,000 and issued warrants to purchase 16,250 shares of common stock at $.04
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>
AVAX Technologies, Inc.
(formerly Walden Laboratories, Inc.)
(a development stage company)
Notes to Financial Statements (continued)
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
relates or an offer to sell, or a solicitation of an offer
to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any
jurisdiction in which such 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
AVAILABLE INFORMATION................................2
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
CAPITALIZATION......................................21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS..........22
BUSINESS............................................24
MANAGEMENT..........................................34
CERTAIN TRANSACTIONS................................40
PRINCIPAL STOCKHOLDERS..............................42
DESCRIPTION OF SECURITIES...........................44
SELLING SECURITYHOLDERS.............................51
SHARES ELIGIBLE FOR FUTURE SALES...................57
PLAN OF DISTRIBUTION................................58
EXPERTS.............................................59
LEGAL COUNSEL.......................................59
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . F-1
6,780,299 SHARES
AVAX TECHNOLOGIES, INC.
COMMON STOCK
____________________
PROSPECTUS
, 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 HTM Warrants (Exhibit 4.5), the Meyerson
Warrants (Exhibit 4.13), the Shear/Kershman and Castelli Warrants (Exhibit
4.16), the Rutgers Warrants (Exhibit 4.17) and the warrants to be issued to Drs.
Wertheimer and Mermelstein (Exhibit 4.15) 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 of 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 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
II-2
<PAGE>
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 229,121.5 shares of
Common Stock at a price of $.004 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 916,485.5
of Common Stock of the Company at a price of $.004 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.
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 156,250 shares of Common Stock at an exercise
price of $.004 per share. In June 1996, such bridge notes were paid
II-3
<PAGE>
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 31,250 shares of Common Stock at an exercise price of $.004
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 performed
certain investment banking and financial advisory services on a non-
exclusive basis for the Company (the "Meyerson Investment Banking
Agreement"). Pursuant to the Meyerson Investment Banking Agreement,
which was terminated by the Company on April 17, 1997, Meyerson
acquired warrants to purchase an aggregate of 50,000 shares of Common
Stock of the Company at an exercise price of $6.00 per share. At the
time of the Company's termination, 25,000 of the Meyerson Warrants had
vested. 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 125,000 shares
of Common Stock at a price of $8.24 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
12,750 shares of Common Stock at an exercise price of $6.00 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. Wertheimer had adequate access, through his
negotiations with the Company of the terms of the Rutgers License, to
information about the Company.
II-4
<PAGE>
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
12,750 shares of Common Stock at an exercise price of $6.00 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.
10. 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 "Series A
Offering"), 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. In April
1997, Ladenburg was issued 24.850.5 shares of Common Stock pursuant to
the cashless exercise provision of its Series A Placement Warrants. The
issuance of the Series A Placement 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, each of Ladenburg and D. H. Blair 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. Ladenburg and D. H. Blair
each had adequate access, through their negotiations with the Company
as placement agents in the Series A Offering, to information about the
Company.
11. On April 17, 1997, the Company entered into an agreement with Hill,
Thompson, Magid & Co. ("HTM"), pursuant to which HTM may perform
certain investment banking and financial advisory services on a
non-exclusive basis for the Company (the "HTM Investment Banking
Agreement"). Pursuant to the Investment Banking Agreement, the Company
granted to HTM warrants to purchase an aggregate of 50,000 shares of
Common Stock of the Company at an exercise price of $8.00 per share.
The issuance of the HTM 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, HTM 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. HTM had adequate access, through its negotiations with
the Company of the terms of the HTM Investment Banking Agreement, 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.
o 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 Form of Warrant for the Purchase of Shares of Common Stock,
by and between the Registrant and designees of Hill,
Thompson, Magid & Co.
** 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, by and between the Registrant and
Drs. Samuel P. Wertheimer and Fred Mermelstein.
4.16 Form of Warrant for the Purchase of Common Stock, by and between the Registrant and
Shear/Kershman Laboratories, Inc. and Castelli Associates, Inc.
4.17 Warrant for the Purchase of Common Stock dated December 10,
1996, by and between the Registrant and Rutgers, The State
University of New Jersey and The University of Medicine and
Dentistry of New Jersey.
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
</TABLE>
II-6
<PAGE>
<TABLE>
<S> <C>
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.
o 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.
o o10.11 Letter of Employment dated September 13, 1996, between the Registrant and David L.
Tousley.
o o10.12 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.
10.15 Investment Banking Services Agreement dated April 17, 1997,
by and between the Registrant and Hill, Thompson, Magid &
Co.
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>
II-7
<PAGE>
* Previously filed with the Registration Statement on Form SB-2 filed
with the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission in September 23, 1996 and which
superseded such exhibit as previously filed with the Registration
Statement on Form SB-2 filed with the Commission on August 1, 1996.
*** Previously filed with Amendment No. 1 to the Registration Statement on
Form SB-2 filed with the Commission on September 23, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement on
Form SB-2 filed with the Commission on November 6, 1996.
***** Previously filed with Amendment No. 4 to the Registration Statement on
Form SB-2 filed with the Commission on February 26, 1997.
++ Previously filed with Amendment No. 5 to the Registration Statement on
Form SB-2 filed with the Commission on April 4, 1997.
bullet Supersedes such exhibit as previously filed with the Registrant
Statement on Form SB-2 filed with the Commission on August 1, 1996.
bullets Supersedes such exhibit as previously filed with Amendment No. 1 to
the Registration Statement on Form SB-2 filed with the Commission on
September 23, 1996.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
II-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 May 7, 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> <C>
/s/ Jeffrey Jonas, M.D.* Jeffery Jonas, M.D. May 7, 1997
President, Chief Executive Officer and Director
/s/ David L. Tousley* David L. Tousley May 7, 1997
Chief Financial Officer
(Principal Financial Officer)
/s/ Edson D. de Castro* Edson D. de Castro May 7, 1997
Director
/s/ John K. A. Prendergast, Ph.D.* John K. A. Prendergast, Ph.D. May 7, 1997
Director
/s/ Carl Spana, Ph.D.* Carl Spana, Ph.D. May 7, 1997
Director
/s/ Michael S. Weiss Michael S. Weiss May 7, 1997
Secretary and Director
</TABLE>
*By: /s/ Michael S. Weiss
Michael S. Weiss
Attorney-in-Fact
II-10
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
EXHIBITS
TO
AMENDMENT NO. 6
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
AVAX TECHNOLOGIES, INC.
<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.
o3.1 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 Form of Warrant for the Purchase of Shares of Common Stock,
by and between the Registrant and designees of Hill,
Thompson, Magid & Co.
** 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 26, 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.
4.17 Warrant for the Purchase of Common Stock dated December 10,
1996, by and between the Registrant and Rutgers, The State
University of New Jersey and The University of Medicine and
Dentistry of New Jersey.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.1 Opinion of Roberts, Sheridan & Kotel, a Professional Corporation.
10.1 Reference is made to Exhibit 2.1.
*+ 10.2 Clinical Study and Research Agreement dated November
20, 1995, by and between the Registrant and Thomas Jefferson
University.
* 10.3 The Registrant's 1992 Stock Option Plan.
o 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.
o o 10.11 Letter of Employment dated September 13, 1996, between the Registrant and David L.
Tousley.
o o 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.
10.15 Investment Banking Services Agreement dated April 17, 1997,
by and between the Registrant and Hill, Thompson, Magid &
Co.
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.
<PAGE>
* Previously filed with the Registration Statement on Form SB-2 filed
with the Commission on August 1, 1996.
** Previously filed with Amendment No. 1 to the Registration Statement of
Form SB-2 filed with the Commission in September 23, 1996 which
superseded such exhibit as previously filed with the Registration
Statement on Form SB-2 filed with the Commission on August 1, 1996.
*** Previously filed with Amendment No. 1 to the Registration Statement
on Form SB-2 filed with the Commission on September 23, 1996.
**** Previously filed with Amendment No. 2 to the Registration Statement
on Form SB-2 filed with the Commission on November 6, 1996.
***** Previously filed with Amendment No. 4 to the Registration Statement
on Form SB-2 filed with the Commission on February 26, 1997.
</TABLE>
++ Previously filed with Amendment No. 5 to the Registration Statement
on Form SB-2 filed with the Commission on April 4, 1997
(bullet) Supersedes such exhibit as previously filed with the Registrant
Statement on Form SB-2 filed with the Commission on August 1, 1996.
(bullets) Supersedes such exhibit as previously filed with Amendment No.1 to
the Registration Statement on Form SB-2 filed with the Commission on
September 23, 1996.
+ Confidential treatment requested as to certain portions of these
exhibits. Such portions have been redacted.
<PAGE>
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
WALDEN LABORATORIES, INC.
The undersigned, being over the age of eighteen (18), in order to form a
corporation for the purposes hereinafter stated, under and pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the corporation is Walden Laboratories, Inc.
SECOND: The registered office of the Corporation is to be located at 32
Loockerman Square, Suite L-100 in the City of Dover, in the County of Kent, in
the State of Delaware. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH: (A)(1) The aggregate number of shares which the Corporation shall
have authority to issue is Twenty Five Million (25,000,000), of which Five
Million (5,000,000)
<PAGE>
shares, having a par value of $.01 per share, shall be designated "Preferred
Stock" and Twenty Million (20,000,000) shares, having a par value of $.001 per
share, shall be designated "Common Stock."
(2) Authority is hereby expressly granted to the Board of Directors from
time to time to issue the Preferred Stock as Preferred Stock of any series and,
in connection with the creation of each such series, to fix by the resolution or
resolutions providing for the issue thereof, the number of shares of such series
and the designations, powers, preferences, rights, qualifications, limitations
and restrictions of such series, to the full extent now or hereafter permitted
by the laws of the State of Delaware.
FIFTH: The name and address of the incorporator is Sherri Rosen and her
mailing address is c/o Bachner, Tally, Polevoy & Misher, 380 Madison Avenue, New
York, New York 10017.
SIXTH: The following provisions are inserted for the management of the
business and for the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) The number of directors of the Corporation shall be such as from time
to time shall be fixed by, or in the
-2-
<PAGE>
manner provided, in the by-laws. Election of directors need not be by ballot,
unless the by-laws so provide.
(2) The stockholders of the Board of Directors of the Corporation shall
have the power, without the assent or vote of the stockholders:
(a) to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation; to fix and vary the amount to be reserved for any proper
purpose; to authorize and cause to be executed mortgages and liens upon all
or any part of the property of the Corporation; to determine the use and
disposition of any surplus or net profits; and to fix the times for the
declaration and payment of dividends; and
(b) to determine from time to time whether, and to what extent, and at
what times and places, and under what conditions and regulations, the
accounts and books of the Corporation (other than the stock ledger) or any
of them, shall be open to the inspection of the stockholders.
(3) The directors in their discretion may submit any contract or act for
approval or ratification at any annual meeting of the stockholders or at any
meeting of the stockholders called for the purpose of considering any such act
or contract, and any contract or act that shall be approved or be ratified by
the vote of the holders of a majority of the stock of the Corporation which is
represented in person or by proxy at such meeting and entitled to vote thereat
(provided that a lawful quorum of stockholders be there represented in person or
by proxy) shall be as valid and a binding upon the Corporation and upon all the
stockholders as though it had been
-3-
<PAGE>
approved or ratified by every stockholder of the Corporation, whether or not the
contract or act would otherwise be open to legal attack because of directors'
interest, or for any other reason.
(4) In addition to the powers and authorities hereinfore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this certificate, and to any by-laws from time to time made by the
stockholders; provided however, that no by-laws so made shall invalidate any
prior act of the directors which would have been valid if such by-laws had not
been made.
SEVENTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, each person who is or was a director or
officer of the Corporation and the heirs, executors and administrators of such a
person.
EIGHTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or
-4-
<PAGE>
any class of them, any court of equitable jurisdiction within the State of
Delaware, may, on application in a summary way of the Corporation or of any
creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Corporation under the provisions of Section 291 of
Title 8 of the Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for the Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors
or class of creditors, and/or of the stockholders or a class of stockholders of
the Corporation, as the case may be, to be summoned in such manner as the said
court directs. If a majority in number representing three-fourths in value of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
NINTH: The personal liability of directors of the Corporation is hereby
eliminated to the fullest extent
-5-
<PAGE>
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware as the same may be amended and supplemented.
TENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation in the manner now
or hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS THEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 18th day of
September, 1992.
/s/ Sherri Rosen
------------------------------------
Sherri Rosen
Bachner, Tally, Polevoy & Misher
380 Madison Avenue
New York, New York 10017
-6-
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
DESIGNATION OF "WALDEN LABORATORIES, INC.", FILED IN THIS OFFICE ON THE
TWENTY-SIXTH DAY OF OCTOBER, A.D. 1992, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
[Seal]
AUTHENTICATION: 7942204
DATE: 05-10-96
<PAGE>
CERTIFICATE OF DESIGNATION OF POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL
OR OTHER RIGHTS, OF SERIES A CONVERTIBLE
PREFERRED STOCK OF WALDEN LABORATORIES, INC.
a Delaware Corporation
(Pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware)
------------------------
Walden Laboratories, a corporation organized and existing under the laws of
the State of Delaware, DOES HEREBY CERTIFY THAT:
FIRST: Walden Laboratories, Inc. (the "Corporation"), was incorporated in
the State of Delaware on September 18, 1992.
SECOND: Pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation under the provisions of Section
151 of the General Corporation Law of the State of Delaware, on September 18,
1992, all of the Directors of the Corporation duly adopted, by written consent
pursuant to the provisions of Section 141(f) of the Delaware General Corporation
Law, the following resolution with the same force and effect as if same had been
adopted at a meeting of the Board of Directors duly called therefor, which
resolution is still in full force and effect and is not in conflict with any
provisions of the Certificate of Incorporation or By-Laws of the Corporation:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation by Section 151 of the General Corporation Law
of the State of Delaware and in accordance with the provisions of its
Certificate of Incorporation, a class of preferred stock of the Corporation
to be known as Series A Convertible Preferred Stock, par value $.01 per
share (the "Series A Preferred Stock") is hereby created and provided for,
to be limited in amount to Two Million Five Hundred Thousand (2,500,000)
shares and the Board of Directors hereby fixes, states and expresses the
terms, designation, relative rights, preferences and limitations of such
class, which shall be filed with the Secretary of State of the State of
Delaware, in the particulars required by, but not specifically set forth,
in said Certificate of Incorporation, or any amendment thereto, as follows:
<PAGE>
(B) Series A Convertible Preferred Stock. A series of Preferred Stock is
hereby created to be limited in amount to 2,500,000 shares of the
authorized but unissued Preferred Stock of the Corporation. The
designations, powers, preferences, rights, qualifications, limitations, and
restrictions of this series, are as follows:
(1) Designation of Series. The designation of the series of preferred
stock created hereby shall be Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"). The shares of the
Series A Preferred Stock shall be fully paid and non-assessable. The number
of shares of Series A Preferred Stock may be decreased (but not below the
number of shares then outstanding) or increased by a certificate executed,
acknowledged, filed, and recorded in accordance with the General
Corporation Law of the State of Delaware setting forth a statement that a
specified decrease or increase thereof, as the case may be, had been
authorized and directed by a resolution or resolutions adopted by the Board
of Directors pursuant to authority expressly vested in it by the provisions
of the Certificate of Incorporation of the Corporation.
(2) Dividend Provisions. The holders of the shares of Series A
Preferred Stock shall be entitled to receive dividends when and as declared
by the Board of Directors; provided, however, that no dividends shall be
declared or paid on the Common Stock during any fiscal year unless the
Board of Directors during such fiscal year shall have declared and made
payment of a dividend on the Series A Preferred Stock, which dividend shall
be greater than or equal to the dividend declared and paid on the Common
Stock.
(3) Conversion. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Subject to subsection 3(c), each share of Series
A Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the
office of this Corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original
Series A Issue Price, which is $2.00 per share, by the
-2-
<PAGE>
Conversion Price at the time in effect for such share (the "Conversion
Price"). The initial Conversion Price per share for shares of Series A
Preferred Stock shall be $2.00; provided, however, that the Conversion
Price shall be subject to adjustment as set forth in subsection 3(c).
(b) Mechanics of Conversion. Before any holder of Series A Preferred
Stock shall be entitled to convert the same into shares of Common
Stock, it shall surrender the certificate or certificates therefor,
duly endorsed, at the office of this Corporation or of any transfer
agent for Series A Preferred Stock, and shall give written notice by
mail, postage prepaid, to this Corporation at its principal corporate
office, of the election to convert the same and shall state therein
the name or names in which the certificate or certificates for shares
of Common Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such
holder of the Series A Preferred Stock, or to the nominee or nominees
of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid.
Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of such surrender of the shares of
the Series A Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock as of such date.
(c) Conversion Price Adjustments of Preferred Stock. The Conversion
Price of the Series A Preferred Stock shall be subject to adjustment
from time to time as follows:
(i) In the event the Corporation should at any time or from time
to time after the issue date of the Series A Preferred Stock
effect a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible
into, or entitling the holder
-3-
<PAGE>
thereof to receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock
Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price
shall be appropriately decreased to an amount equal to the
Conversion Price in effect on the record date (or the date of
such dividend, distribution, split or subdivision) multiplied by
a fraction, the numerator of which shall be the number of shares
outstanding before the dividend, subdivision, distribution or
split and the denominator of which shall be the number of shares
outstanding after the dividend, subdivision or split.
(ii) If the number of shares of Common Stock outstanding at any
time after the issue date of the Series A Preferred Stock is
decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the
Conversion Price for such Preferred Stock shall be appropriately
increased to an amount equal to the Conversion Price in effect on
the record date (or the date of such combination) multiplied by a
fraction, the numerator of which shall be the number of shares
outstanding before the combination and, the denominator of which
shall be the number of shares outstanding after the combination.
(iii) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of
at least .05% in the Conversion Price; provided, however, that
any adjustments which by reason of this subparagraph (iii) are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under
subparagraph (c) of this Section (3)
-4-
<PAGE>
shall be made to the nearest cent or to the nearest one hundredth
of a share, as the case may be.
(iv) No fractional shares or scrip representing fractional shares
of Common Stock shall be issued upon conversion of Series A
Preferred Stock. Instead of any fractional share of Common Stock
which would otherwise be issuable upon conversion of Series A
Preferred Stock (or specified portions thereof), the Corporation
shall pay in cash to the holders of such Series A Preferred Stock
in respect of such fraction of a share, an amount equal to the
same fraction of the fair market value per share of Common Stock
as determined by the Board of Directors in its sole discretion.
(d) Mergers and Consolidations. In the case of any consolidation or
any merger of the Corporation with or into another Corporation (other
than a consolidation or merger in which the Corporation is the
continuing corporation), the corporation resulting from such
consolidation or surviving such merger shall make suitable provision
so that the Series A Preferred Stock shall thereafter be convertible
into the kind and amount of shares of stock, other securities, or
property receivable upon such consolidation or merger by a holder of
the number of shares of Common Stock into which such Series A
Preferred Stock might have been converted immediately prior to such
consolidation or merger. The provisions of this subsection shall apply
to successive consolidations and mergers.
(e) Recapitalization. In the case of a recapitalization of the
Corporation affecting its outstanding shares of Common Stock, each
share of Series A Preferred Stock shall thereafter be convertible into
the kind and amount of shares of stock, other securities, or property
receivable upon such recapitalization by a holder of the number of
shares of Common Stock into which such Series A Preferred Stock might
have been converted immediately prior to such recapitalization.
(f) Automatic Conversion. In the event of either (i) an initial public
offering ("IPO") of the
-5-
<PAGE>
Corporation's equity securities or (ii) the achievement by the Company
of a net worth (which for the purpose hereof shall mean the amount by
which the Company's assets exceed liabilities) equal to or greater
than $10,000,000 (the "Net Worth"), each share of Series A Preferred
Stock shall be automatically converted at the closing of the IPO or
achievement of the Net Worth, without any action by the holder
thereof, into shares of duly authorized, fully paid and non-assessable
shares of Common Stock at the Conversion Rate, subject to adjustment
as provided in subparagraph (c) of this Section (3), plus cash in lieu
of fractional shares.
(g) No Impairment. This Corporation will not by amendment of its
Certificate of Incorporation of through any reorganization,
recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation,
but will at all times in good faith assist in the carrying out of all
the provisions of this Section 3 and in the taking of all such action
as may be necessary or appropriate in order to protect the Conversion
Rights of the holders of the Series A Preferred Stock against
impairment.
(h) Certificates as to Adjustment. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of Series A
Preferred Stock pursuant to this Section 3, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each
holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon
the written request at any time of any holder of Series A Preferred
Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (a) such adjustment and readjustment, (b)
the Conversion Price at the time in effect, and (c) the number of
shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of the
Series A Preferred Stock.
-6-
<PAGE>
(i) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock,
such number of its shares of Common Stock as shall from time to time
to be sufficient to effect the conversion of all outstanding shares of
the Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series
A Preferred Stock, in addition to the other remedies as shall be
available to the holder of such Series A Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
(4) Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of this
Corporation, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, and prior and in
preference to any distribution of any of the assets of this
Corporation to the holders of Common Stock, if any, by reason of their
ownership thereof, an amount per share equal to the sum of $2.00 for
each outstanding share of Series A Preferred Stock and all accrued but
unpaid dividends per share since the date of issuance of any Series A
Preferred Stock, and no more; provided, however, that the holders of
the Series A Preferred Stock shall be given prior written notice of
any such liquidation, dissolution or winding up of the Corporation of
at least ten business days during which such holders may exercise the
conversion rights under Section 3 hereof. If such notice of the Series
A Preferred Stock shall be entitled to receive the amount that such
holders would have received had their shares been converted
immediately prior to liquidation, dissolution or winding up of the
amount payable under the first sentence of this subsection.
-7-
<PAGE>
(b) A consolidation or merger of this Corporation with or into any
other corporation or corporations, or a sale, conveyance or
disposition of all or substantially all of the assets of this
Corporation or the effectuation by the Corporation of a transaction or
series of related transactions in which more than 50% of the voting
power of the Corporation is disposed of, shall not be deemed to be a
liquidation, dissolution or winding up within the meaning of this
Section 2, but shall instead be treated pursuant to subsection 3(e)
hereof.
(5) Preferred Stock--General Voting Rights. The holder of each share
of Series A Preferred Stock shall be entitled to vote on all matters and
shall be entitled to the number of votes equal to the largest number of
full shares of Common Stock into which such shares of Series A Preferred
Stock could be converted, pursuant to the provisions of Section 3 hereof,
at the record date for the determination of the shareholders entitled to
vote on such matters or, if no such record date is established, at the date
such vote is taken or any written consent of shareholders is solicited.
Except as required by law or as set forth in Section (6) below, the holders
of shares of Series A Preferred Stock and Common Stock shall vote together
and not as separate classes.
(6) Protective Provisions. So long as shares of Series A Preferred
Stock are outstanding, this Corporation shall not without first obtaining
the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock voting seperately as a class:
(a) alter or change the rights, preference or privileges of the shares
of such Series A Preferred Stock so as to affect adversely the shares;
or
(b) increase the authorized number of shares of Series A Preferred
Stock.
(7) Notices. Any notice required by these provisions to be given to
the holders of shares of Series A Preferred Stock shall be deemed given if
sent U.S. certified mail, return receipt requested and postage prepaid, or
by overnight courier and addressed to each holder of record at its address
appearing on
-8-
<PAGE>
the books of the Corporation. The date of any such notice shall be deemed
to be the date on which it is received.
IN WITNESS WHEREOF, the undersigned have executed this Certificate in the
name and on behalf of Walden Laboratories, Inc. on the 22nd day of October, 1992
and the statements contained herein are affirmed as true under penalties of
perjury.
WALDEN LABORATORIES, INC.
By: /s/ Dayne R. Myers
-----------------------
Dayne R. Myers
President
ATTEST:
By: /s/ Judith Wurtman
-----------------------
Judith Wurtman, Ph.D.
Secretary
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<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF OWNERSHIP,
WHICH MERGES:
"APPEX TECHNOLOGIES, INC.", A NEW YORK CORPORATION, WITH AND INTO "WALDEN
LABORATORIES, INC." UNDER THE NAME OF "WALDEN LABORATORIES, INC.", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED IN THIS OFFICE THE TWENTY-SIXTH DAY OF OCTOBER, A.D. 1992, AT 9:01 O'CLOCK
A.M.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
[Seal]
AUTHENTICATION: 7942205
DATE: 05-10-96
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
of
APPEX TECHNOLOGIES, INC.
(a New York corporation)
into
WALDEN LABORATORIES, INC.
(a Delaware corporation)
It is hereby certified that:
1. APPEX Technologies, Inc. (hereinafter called the "Corporation") is a
corporation of the State of New York, the laws of which permit a merger of a
corporation of that jurisdiction with a corporation of another jurisdiction.
2. The corporation hereby merges itself into WALDEN LABORATORIES, INC., a
corporation of the State of Delaware.
3. The following is a copy of the resolutions adopted on the 18th day of
September, 1992, by the Board of Directors of the Corporation to merge the
Corporation into WALDEN LABORATORIES, INC.:
RESOLVED, that the Corporation reincorporate in the State of Delaware
by merging itself, as one-hundred percent owner and sole shareholder, into
its wholly-owned subsidiary, WALDEN LABORATORIES, INC. pursuant to the laws
of the State of New York and the State of Delaware as hereinafter provided,
so that the separate existence of the Corporation shall cease as soon as
the merger shall become effective, and thereupon the Corporation and WALDEN
LABORATORIES, INC. will become a single corporation, which shall continue
to exist under, and be governed by, the laws of the State of Delaware; and
it is further
RESOLVED, that an Agreement and Plan of Merger setting forth the terms
and conditions of the proposed merger be submitted to the shareholders of
the Corporation for their approval; and it is further
RESOLVED that the terms and conditions of the proposed merger are as
follows:
(a) From and after the effective time of the merger, all of the
estate, property, rights,
<PAGE>
privileges, powers, and franchises of the Corporation shall become vested
in and be held by WALDEN LABORATORIES, INC. as fully and entirely and
without change or diminution as the same were before held and enjoyed by
the Corporation, and WALDEN LABORATORIES, INC. shall assume all of the
obligations of the Corporation.
(b) No pro rata issuance of the shares of stock of WALDEN
LABORATORIES, INC. which are owned by the Corporation immediately prior to
the effective time of the merge shall be made, and such shares shall be
surrendered and extinguished.
(c) Each share of Common Stock, $.001 par value, and each share of
Preferred Stock, $.01 par value, of the Corporation which shall be issued
and outstanding immediately prior to the effective time of the merger shall
be converted on a one for one basis into the issued and outstanding shares
of Common Stock, $.001 par value or Preferred Stock, $.01 par value, as the
case may be, of WALDEN LABORATORIES, INC., and, from and after the
effective time of the merger, the holder of all of said issued and
outstanding shares of Common Stock or Preferred Stock of the Corporation
shall automatically be and become the holder of shares of WALDEN
LABORATORIES, INC. upon the basis above specified, whether or not
certificates representing said shares are then issued and delivered. Each
share of Common Stock or Preferred Stock of the Corporation which shall be
issued and held by it as treasury shares immediately prior to the effective
time of the merger shall be converted into the shares of WALDEN
LABORATORIES, INC. and shall be held in the treasury of WALDEN
LABORATORIES, INC. until sooner disposed of. In addition, any and all
options to purchase Common Stock of the Corporation shall, upon the
effective date of the merger, be converted into options to purchase Common
Stock of WALDEN LABORATORIES, INC.
(d) After the effective time of the merger, each holder of record of
any outstanding certificate or certificates theretofore representing Common
Stock or Preferred Stock of the Corporation may surrender the same to
WALDEN LABORATORIES, INC. and such holder shall be entitled upon such
surrender to receive in exchange therefor a certificate of certificates
representing the appropriate number of shares of Common Stock or Preferred
Stock, as the case may be, of WALDEN LABORATORIES, INC. Until so
surrendered, each outstanding certificate, which prior to the
-2-
<PAGE>
effective time of the merger represented one or more shares of Common Stock
or Preferred Stock of the Corporation, shall be deemed for all corporate
purposes to evidence ownership of an appropriate number of shares of Common
Stock or Preferred Stock, as the case may be, of WALDEN LABORATORIES, INC.
(e) Authority is hereby expressly granted to the Board of Directors
from time to time to issue the Preferred Stock as Preferred Stock of any
series and, in connection with the creation of each such series, to fix by
the resolution or resolutions providing for the issue of shares thereof,
the number of shares of such series and the designations, powers,
preferences, rights, qualifications, limitations and restrictions of such
series, to the full extent now or hereafter permitted by the laws of the
State of Delaware.
(f) From and after the effective time of the merger, the Certificate
of Incorporation and By-laws of WALDEN LABORATORIES, INC. shall continue to
be the Certificate of Incorporation and By-laws of WALDEN LABORATORIES,
INC. as in effect immediately prior to such effective time.
(g) The members of the Board of Directors and officers of the
Corporation shall be the members of the Board of Directors and the
corresponding officers of WALDEN LABORATORIES, INC. immediately before and
after the effective time of the merger.
(h) From and after the effective time of the merger, the assets and
liabilities of the Corporation and of WALDEN LABORATORIES, INC. shall be
entered on the books of WALDEN LABORATORIES, INC. at the amounts at which
they shall be carried at such time on the respective books of the
Corporation and of WALDEN LABORATORIES, INC., subject to such
inter-corporate adjustments or eliminations, if any, as may be required to
give effect to the merger; and, subject to such action as may be taken by
the Board of Directors of WALDEN LABORATORIES, INC., in accordance with
generally accepted accounting principles, the capital and surplus of the
Corporation shall be equal to the capital and surplus of the Corporation
and of WALDEN LABORATORIES, INC.
RESOLVED that the effective time of the Certificate of Ownership and
Merger setting forth a copy of these resolutions shall be the date of
filing the Certificates of Ownership and Merger with the
-3-
<PAGE>
Secretary of State of Delaware, and that, insofar as the General
Corporation Law of the State of Delaware shall govern the same, said time
shall be the effective merger time; and it is further
RESOLVED that the proper officers of the Corporation be and they
hereby are authorized and directed to make and execute a Certificate of
Ownership and Merger setting forth a copy of these resolutions to merge the
Corporation into WALDEN LABORATORIES, INC. on the date of adoption thereof,
and the cause the same to be filed and recorded as provided by law, and to
do all acts and things whatsoever, within the States of New York and
Delaware and in any other appropriate jurisdiction, necessary or proper to
effect this merger.
4. The proposed merger herein certified has been adopted, approved,
certified, executed, and acknowledged by the Corporation in accordance with the
laws under which it is organized.
Signed and attested to on October 22, 1992.
Attested to:
/s/ Judith Wurtman /s/ Dayne R. Myers
- -------------------------------- ------------------------------
Judith Wurtman, Ph.D. Dayne R. Myers
Secretary President
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
BE IT REMEMBERED, that, on October 22, 1992, before me, a Notary Public
duly authorized by law to take acknowledgment of deeds, personally came Dayne R.
Myers, Chairman of the Board of APPEX Technologies, Inc, and Judith Wurtman,
Ph.D., Secretary of APPEX Technologies, Inc., who duly signed the foregoing
instrument before me and acknowledged that such instrument as executed is the
act and deed of said corporation, that their signing is their act and deed, and
that the facts stated therein are true.
GIVEN under my hand on October 22, 1992.
/s/ Sherri Rosen
------------------------------------
Notary Public
SHERRI ROSEN
Notary Public, State of New York
No. [ILLEGIBLE]
Qualified in Queens County
Certificate Filed in New York County
Term Expires December 31, 1992
-4-
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF WALDEN LABORATORIES, INC.
Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware
WALDEN LABORATORIES, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:
1. The name of the Corporation is WALDEN LABORATORIES, INC.
2. The original Certificate of Incorporation of the Corporation was filed
under the name Walden Laboratories, Inc., with the Secretary of State of the
State of Delaware on September 18, 1992, and amended on October 26, 1992.
3. The Certificate of Incorporation of the Corporation, as heretofore
amended, is hereby amended as follows:
Section 4 of the Certificate of Designation of Powers, Designations,
Preferences and Relative Participating, Optional or Other Rights, of Series A
Convertible Preferred Stock of the Corporation is hereby amended to read as
follows in its entirety:
"In the event of any liquidation, dissolution or winding up of this
Company, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, and prior and in preference to any
distribution of any of the assets of this Company to the holders of Common
Stock, if any, by reason of their ownership thereof, an amount per share equal
to the sum of $2.00 for each outstanding share of Series A Preferred Stock and
all accrued but unpaid dividends per share since the date of issuance of any
Series A Preferred Stock, and no more; provided, however, that (A) at the time
of the first installment distribution of shares of common stock of Interneuron
Pharmaceuticals, Inc. ("IPI") (or cash in lieu thereof), to the holders of the
Series A Preferred Stock in connection with the transactions contemplated by the
Asset Purchase Agreement dated November 12, 1995 (the "Asset Purchase
Agreement"), by and among
<PAGE>
to the immediately preceding clause (A), shall be further reduced to $.2304;
provided further, however, (1) that if at the time of each such installment, any
of the Company's indebtedness outstanding on the Closing Date (as defined in the
Asset Purchase Agreement) is then due and payable, then to the extent the
Company causes such indebtedness to be paid or provided for by redirecting a
portion of the common stock of IPI to satisfy such indebtedness, the amount paid
to the holders of Series A Preferred Stock, and the related reductions in the
liquidation preference pursuant to clauses (A) and (B) above, shall be
appropriately reduced; and (2) the holders of the Series A Preferred Stock shall
be given prior written notice of any such liquidation, dissolution or winding up
of the Company of at least 10 business days during which such holders may
exercise the conversion rights under Section 3 hereof. If such notice is not
given or is not feasible, the holders of the Series A Preferred Stock shall be
entitled to receive the amount that such holders would have received had their
shares been converted immediately prior to liquidation, dissolution or winding
up of the Company, is such amount is greater than the amount payable under the
first sentence of this subsection.".
4. This Certificate of Amendment and the amendments provided for herein
shall become effective at, and not until, 10:00 a.m. (Delaware time) on December
22, 1995.
5. The foregoing amendment was duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Walden Laboratories, Inc. has caused this Certificate
of Amendment to be signed this December 21, 1995.
by
/s/ Lindsay A. Rosenwald
------------------------------------
Name: Lindsay A. Rosenwald
Title: Chairman
Attest:
by
/s/ Michael S. Weiss
- --------------------------------------
Name: Michael S. Weiss
Title: Secretary
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF RENEWAL OF
"WALDEN LABORATORIES, INC." , FILED IN THIS OFFICE ON THE TWENTY-SIXTH DAY OF
MARCH, A.D. 1996, AT 1:30 O'CLOCK P.M.
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
[Seal]
AUTHENTICATION: 7942207
DATE: 05-10-96
<PAGE>
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
Walden Laboratories, Inc., a corporation organized under the laws of Delaware,
the Certificate of Incorporation of which was filed in the office of the
Secretary of State on the 18th day of September, 1992 and thereafter forfeited
pursuant to Section 136(c) of the General Corporation Law of Delaware for
non-payment of taxes, now desiring to procure a revival of its Certificate of
Incorporation, hereby certified as follows:
1. The name of the corporation is Walden Laboratories, Inc.
2. Its registered office in the State of Delaware is located at Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle and
the name of its registered agent at such address is THE CORPORATION TRUST
COMPANY.
3. The date when revival of the Certificate of Incorporation of this
corporation is to commence is the 29th day of February 1996, the same being
prior to the date of the forfeiture of the Certificate of Incorporation. Revival
of the Certificate of Incorporation is to be perpetual.
4. This corporation was duly organized under the laws of Delaware and
carried on the business authorized by its Certificate of Incorporation until the
1st day of March, 1996, at which time is Certificate of Incorporation became
forfeited for non-payment of taxes and this Certificate for Renewal and Revival
is filed by authority of the duly elected directors of the corporation in
accordance with the laws of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Walden Laboratories, Inc., in compliance with
Section 313 of the General Corporation Law of Delaware has caused this
Certificate to be signed by Michael S. Weiss, its acting Secretary, this 26th
day of March, 1996.
WALDEN LABORATORIES, INC.
By /s/ Michael S. Weiss
-----------------------
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF WALDEN LABORATORIES, INC.
Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware
WALDEN LABORATORIES, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:
1. The name of the Corporation is WALDEN LABORATORIES, INC.
2. The original Certificate of Incorporation of the Corporation was filed
under the name Walden Laboratories, Inc., with the Secretary of State of the
State of Delaware on September 18, 1992, and amended on October 26, 1992 and
December 21, 1995.
3. ARTICLE FIRST of the Certificate of Incorporation as heretofore amended
is hereby amended to read as follows in its entirety:
"FIRST. The name of the corporation is AVAX Technologies, Inc."
4. The foregoing amendment was duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Walden Laboratories, Inc. has caused this Certificate
of Amendment to be signed this March 25, 1996.
WALDEN LABORATORIES, INC.
by
/s/ Carl Spana
------------------------------------
Name: Carl Spana
Title: President
Attest:
by
/s/ Michael S. Weiss
- --------------------------------------
Name: Michael S. Weiss
Title: Secretary
<PAGE>
CERTIFICATE OF CORRECTION FILED
TO CORRECT A CERTAIN ERROR IN
THE CERTIFICATE OF AMENDMENT TO
THE CERTIFICATE OF INCORPORATION OF
AVAX TECHNOLOGIES, INC.
FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON DECEMBER 21, 1995
Avax Technologies, Inc. (f/k/a Walden Laboratories, Inc.) (the "Company"),
a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware ("GCL"), hereby certifies that:
1. The name of the corporation is AVAX Technologies, Inc.
2. That a Certificate of Amendment to the Certificate of Incorporation of
the Company was filed with the Secretary of State of Delaware on December 21,
1995 and that said Certificate required correction as permitted by Section 103
of the GCL.
3. The defect of the said Certificate to be corrected is as follows:
the 12th through the 16th lines of the section to be amended, Section 4,
were inadvertently omitted.
4. Article 3, containing Section 4 of the Certificate is corrected to read
as follows:
3. The Certificate of Incorporation of the Corporation, as heretofore
amended, is hereby amended as follows:
Section 4 of the Certificate of Designation of Powers, Designations,
Preferences and Relative Participating, Optional or Other Rights, of Series A
Convertible Preferred Stock of the Corporation is hereby amended to read as
follows in its entirety:
"In the event of any liquidation, dissolution or winding up of this
Company, either voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive, and prior and in preference to any
distribution of any of the assets of this Company to the holders of Common
Stock, if any, by reason of their ownership thereof, an amount per share equal
to the sum of $2.00 for each outstanding share of Series A Preferred Stock and
all accrued but unpaid dividends per share since the date of issuance of any
Series A Preferred Stock, and no more; provided, however, that (A) at the time
of the first installment distribution of shares of common stock of Interneuron
Pharmaceuticals, Inc. ("IPI") (or cash in lieu thereof), to the holders of the
Series A Preferred Stock in connection with the transactions contemplated by the
Asset Purchase Agreement dated November 14, 1995 (the "Asset Purchase
Agreement"), by and among the Company, IPI and InterNutria, Inc., a subsidiary
of IPI (such transactions, the "Sale"), the $2.00 amount referred to above shall
be reduced to $1.1523, and (B) at the time of the
<PAGE>
2
second installment distribution of shares of common stock of IPI (or cash in
lieu thereof) to the holders of the Series A Preferred Stock in connection with
the Sale, the $2.00 amount referred to above, which shall previously have been
reduced to $1.1523 pursuant to the immediately preceding clause (A), shall be
further reduced to $.2304; provided further, however, (1) that if at the time of
each such installment, any of the Company's indebtedness outstanding on the
Closing Date (as defined in the Asset Purchase Agreement) is then due and
payable, then to the extent the Company causes such indebtedness to be paid or
provided for by redirecting a portion of the common stock of IPI to satisfy such
indebtedness, the amount paid to the holders of Series A Preferred Stock, and
the related reductions in the liquidation preference pursuant to clauses (A) and
(B) above, shall be appropriately reduced; and (2) the holders of the Series A
Preferred Stock shall be given prior written notice of any such liquidation,
dissolution or winding up of the Company of at least 10 business days during
which such holders may exercise the conversion rights under Section 3 hereof. If
such notice is not given or is not feasible, the holders of the Series A
Preferred Stock shall be entitled to receive the amount that such holders would
have received had their shares been converted immediately prior to liquidation,
dissolution or winding up of the Company, if such amount is greater than the
amount payable under the first sentence of this subsection."
IN WITNESS WHEREOF, the Company has caused this Certificate to be signed by
Carl Spana, its interim President attested by Michael S. Weiss, its Secretary,
this 14th day of May 1996.
By
/s/ Carl Spana
------------------------------------
Name: Carl Spana
Title: Interim President
ATTEST:
By
/s/ Michael S. Weiss
- --------------------------------------
Name: Michael S. Weiss
Title: Secretary
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF AVAX TECHNOLOGIES, INC.
Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware
AVAX TECHNOLOGIES, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT:
1. The name of the Corporation is AVAX TECHNOLOGIES, INC.
2. The original Certificate of Incorporation of the Corporation was filed
under the name Walden Laboratories, Inc., with the Secretary of State of the
State of Delaware on September 18, 1992, and amended on October 26, 1992,
December 21, 1995 and March 26, 1996.
3. The Certificate of Incorporation of the Corporation, as heretofore
amended, is hereby amended as follows:
Article 4(A)(1) is hereby amended to read in its entirety as follows:
"FOURTH: (A)(1) The aggregate number of shares which the Corporation
shall have authority to issue is Fifty Five Million (55,000,000), of which
Five Million (5,000,000) shares, having a par value of $.01 per share,
shall be designated "Preferred Stock" and Fifty Million (50,000,000)
shares, having a par value of $.002 per share, shall be designated "Common
Stock.
Upon the foregoing amendment becoming effective, each share of common
stock, par value $0.001 per share ("Common Stock"), of the Corporation,
outstanding immediately prior to the effectiveness of this Certificate of
Amendment shall be reclassified as, and become, one half (1/2) of a share
of Common Stock of the Corporation and the number of shares of Common Stock
of the Corporation represented by each stock certificate representing
Common Stock of the Corporation outstanding immediately prior to the
effectiveness of this Certificate of Amendment shall be proportionately
adjusted by dividing each such number by 2, with each share thereupon
having a par value of $.002."
<PAGE>
4. The foregoing amendment was duly adopted in accordance with Section 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, AVAX Technologies, Inc. has caused this Certificate of
Amendment to be signed this May 9, 1996.
by
/s/ Carl Spana
-------------------------
Name: Carl Spana
Title: President
Attest:
by
/s/ Michael S. Weiss
- --------------------------------------
Name: Michael S. Weiss
Title: Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
SERIES B CONVERTIBLE PREFERRED STOCK
of
AVAX TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
AVAX TECHNOLOGIES, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Certificate of Incorporation of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution establishing a
series of 250,000 shares of Preferred Stock of the Corporation designated as
"Series B Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, as
amended, a series of Preferred Stock, par value $.01 per share, of the
Corporation is hereby established and created, and that the designation and
number of shares thereof and the voting and other powers, preferences and
relative, participating, optional or other rights of the shares of such
series and the qualifications, limitations and restrictions thereof are as
follows:
Series B Convertible Preferred Stock
1. Designation and Amount. There shall be a series of Preferred Stock
designated as "Series B Convertible Preferred Stock" and the number of shares
constituting such series shall be 250,000. Such series is referred to herein as
the "Series B Convertible Preferred Stock". Such number of shares may be
increased or decreased by resolution of the Board of Directors of the
Corporation; provided, however, that no decrease shall reduce the number of
shares of Series B Convertible Preferred Stock to less than the number of shares
then issued and outstanding.
2. Dividends. Subject to the prior and superior rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to the
shares of Series B Convertible Preferred Stock with respect to dividends and
distributions, the holders of shares of Series B Convertible Preferred Stock,
shall be entitled to receive dividends and distributions, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose. If the Corporation declares a dividend or distribution on the common
stock, par value $.001 per share (the "Common Stock"), of the Corporation, the
holders of shares of Series B Convertible Preferred Stock shall be entitled to
receive for each share of Series B Convertible Preferred Stock a dividend or
distribution in the amount of the dividend or distribution that would be
received by a holder of the Common Stock into which such share of Series B
<PAGE>
Convertible Preferred Stock is convertible on the record date for such dividend
or distribution. If the Corporation declares a dividend or distribution on any
other class or series of preferred stock, the holders of shares of Series B
Convertible Preferred Stock shall be entitled to receive a dividend or
distribution in an amount per share in proportion to the dividend or
distribution declared on a share of such other class or series based upon the
liquidation preference of a share of the Series B Convertible Preferred Stock
relative to that of a share of such other class or series, unless the holders of
at least 66-2/3% of the outstanding shares of Series B Convertible Preferred
Stock consent otherwise. In any such case, the Corporation shall declare a
dividend or distribution on the Series B Convertible Preferred Stock at the same
time that it declares a dividend or distribution on the Common Stock or such
other class or series of preferred stock and shall establish the same record
date for the dividend or distribution on the Series B Convertible Preferred
Stock as is established for such dividend or distribution on the Common Stock or
such other class or series of preferred stock. Each such dividend or
distribution will be payable to holders of record of the Series B Convertible
Preferred Stock as they appeared on the records of the Corporation at the close
of business on the record date declared for such dividend or distribution, as
shall be fixed by the Board of Directors. If the corporation declares or pays a
dividend or distribution on the Series B Convertible Preferred Stock as a result
of the declaration or payment of a dividend or distribution on the Common Stock
or any other class or series of preferred stock as described above, the holders
of the Series B Convertible Preferred Stock shall not be entitled to any
additional dividend or distribution solely because such first dividend or
distribution also required the declaration or payment of a dividend or
distribution on any other class or series of preferred stock. Any reference to
"distribution" contained in this Section 2 shall not be deemed to include any
distribution made in connection with any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary.
3. Liquidation Preference. In the event of (i) a liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, (ii) a sale
or other disposition of all or substantially all of the assets of the
Corporation or (iii) any consolidation, merger, combination, reorganization or
other transaction in which the Corporation is not the surviving entity or the
shares of Common Stock constituting in excess of 50% of the voting power of the
Corporation are exchanged for or changed into other stock or securities, cash
and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and
(iii) being collectively referred to as a "Liquidation Event"), after payment or
provision for payment of debts and other liabilities of the Corporation, the
holders of the Series B Convertible Preferred Stock then outstanding shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether such assets are capital, surplus, or
earnings, before any payment or declaration and setting apart for payment of any
amount shall be made in respect of the stock junior to the Series B Convertible
Preferred Stock, an amount equal to $135.00 per share plus an amount equal to
all declared and unpaid dividends thereon; provided, however, in the case of
Section 3(iii) above, such $135.00 per share may be paid in cash and/or
securities (valued at the closing price (as defined in Section 5) of such
security) of the entity surviving such Merger Transaction. If upon any
Liquidation Event, whether voluntary or involuntary, the assets to be
distributed to the holders of the Series B Convertible Preferred Stock shall be
insufficient to permit the payment to such shareholders of the full preferential
amounts aforesaid, then all of the assets of the Corporation to be distributed
shall be so distributed ratably to the holders of the Series B Convertible
Preferred Stock on the basis of the number of shares of Series B Convertible
Preferred Stock held. A consolidation or merger of the Corporation with or into
another corporation, other than in a transaction described in Section 3(iii)
above, shall not be considered a liquidation, dissolution or winding up of the
Corporation or a sale or other disposition of all or substantially all of the
assets of the Corporation and accordingly the Corporation shall make appropriate
provision to ensure that the terms of this Certificate of Designations survive
such transaction. All shares of Series B Convertible Preferred Stock shall rank
as to payment upon the occurrence of any of the events described in Sections
3(i), (ii) and (iii) above senior
2
<PAGE>
to the Common Stock as provided herein and, unless the terms of such series
shall provide otherwise, senior to all other series of the Corporation's
preferred stock, including the Series A Convertible Preferred Stock.
Notwithstanding the foregoing, the holders of the Series B Convertible Preferred
Stock shall not be entitled to any of the shares of Common Stock of Interneuron
Pharmaceuticals, Inc. payable to the holders of Series A Convertible Preferred
Stock, par value $.01 per share ("Series A Convertible Preferred Stock"), of the
Corporation pursuant to Section 4(a) of the Certificate of Designations for the
Series A Convertible Preferred Stock.
4. Conversion.
(a) Right of Conversion. The shares of Series B Convertible Preferred Stock
shall be convertible, in whole or in part, at the option of the holder thereof
and upon notice to the Corporation as set forth in paragraph (b) below, into
fully paid and nonassessable shares of Common Stock and such other securities
and property as hereinafter provided. The shares of Series B Convertible
Preferred Stock shall be convertible initially at the rate of 50 shares of
Common Stock for each full share of Series B Convertible Preferred Stock and
shall be subject to adjustment as provided herein. For purposes of this
resolution, the "conversion rate" applicable to a share of Series B Convertible
Preferred Stock shall be the number of shares of Common Stock and number or
amount of any other securities and property as hereinafter provided into which a
share a Series B Convertible Preferred Stock is then convertible and shall be
determined by dividing $100.00 by the then existing conversion price. The
initial conversion price shall be $2.00 (the "conversion price").
Subject to adjustment pursuant to the provisions of paragraph (c) below,
the conversion price in effect immediately prior to the date that is 12 months
after the Final Closing Date (as such term is defined in the Confidential
Private Placement Memorandum dated March 26, 1996) of the issuance and sale of
the Series B Convertible Preferred Stock (the "Reset Date") shall be adjusted
and reset effective as of the Reset Date if the average closing bid price of the
Common Stock for the 30 consecutive trading days immediately preceding the Reset
Date (the "12-Month Trading Price") is less than 135% of the then applicable
conversion price (a "Reset Event"). Upon the occurrence of a Reset Event, the
conversion price shall be reduced to be equal to the greater of (A) the 12-Month
Trading Price divided by 1.35 and (B) 50% of the then applicable conversion
price. If there is any change in the conversion price as a result of the
preceding sentence, then the conversion rate shall be changed accordingly, and
shall be determined by dividing the new conversion price into $100.00. The
Corporation shall prepare a certificate signed by the principal financial
officer of the Corporation setting forth the conversion rate as of the Reset
Date, showing in reasonable detail the facts upon which such conversion rate is
based, and such certificate shall forthwith be filed with the transfer agent of
the Series B Convertible Preferred Stock. Notwithstanding the provisions of
subparagraph (vi) of paragraph (c) below, a notice stating that the conversion
rate has been adjusted pursuant to this paragraph, or that no adjustment is
necessary, and setting forth the conversion rate in effect as of the Reset Date
shall be mailed as promptly as practicable after the Reset Date by the
Corporation to all record holders of the Series B Convertible Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the
Corporation.
The "closing bid price" for each trading day shall be the reported closing
bid price on the NASDAQ Small-Cap Market or the NASDAQ National Market System
(collectively referred to as, "NASDAQ") or, if the Common Stock is not quoted on
NASDAQ, on the principal national securities exchange on which common stock is
listed or admitted to trading (based on the aggregate dollar value of all
securities listed or admitted to trading) or, if not listed or admitted to
trading on any national securities exchange or quoted on NASDAQ, the closing bid
price in the over-the-counter market as furnished by any NASD member firm
selected from time to time by the Corporation for that purpose,
3
<PAGE>
or, if such prices are not available, the fair market value set by, or in a
manner established by, the Board of Directors of the Corporation in good faith.
"Trading day" shall mean a day on which the national securities exchange or
NASDAQ used to determine the closing bid price is open for the transaction of
business or the reporting of trades or, if the closing bid price is not so
determined, a day on which NASDAQ is open for the transaction of business.
(b) Conversion Procedures. Any holder of shares of Series B Convertible
Preferred Stock desiring to convert such shares into Common Stock shall
surrender the certificate or certificates evidencing such shares of Series B
Convertible Preferred Stock at the office of the transfer agent for the Series B
Convertible Preferred Stock, which certificate or certificates, if the
Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in
blank, accompanied by irrevocable written notice to the Corporation that the
holder elects so to convert such shares of Series B Convertible Preferred Stock
and specifying the name or names (with address) in which a certificate or
certificates evidencing shares of Common Stock are to be issued. The Corporation
need not deem a notice of conversion to be received unless the holder complies
with all the provisions hereof. The Corporation will instruct the transfer agent
(which may be the Corporation) to make a notation of the date that a notice of
conversion is received, which date shall be deemed to be the date of receipt for
purposes hereof.
The Corporation shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Convertible Preferred Stock
accompanied by the written notice and compliance with any other conditions
herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series B Convertible Preferred Stock were so
surrendered, or to the nominee or nominees of such person, certificates
evidencing the number of full shares of Common Stock to which such person shall
be entitled as aforesaid, together with a cash adjustment of any fraction of a
share as hereinafter provided. Subject to the following provisions of this
paragraph, such conversion shall be deemed to have been made as of the date of
such surrender of the shares of Series B Convertible Preferred Stock to be
converted, and the person or persons entitled to receive the Common Stock
deliverable upon conversion of such Series B Convertible Preferred Stock shall
be treated for all purposes as the record holder or holders of such Common Stock
on such date; provided, however, that the Corporation shall not be required to
convert any shares of Series B Convertible Preferred Stock while the stock
transfer books of the Corporation are closed for any purpose, but the surrender
of Series B Convertible Preferred Stock for conversion during any period while
such books as if the surrender had been made on the date of such reopening, and
the conversion shall be at the conversion rate in effect on such date. No
adjustments in respect of any dividends on shares surrendered for conversion or
any dividend on the Common Stock issued upon conversion shall be made upon the
conversion of any shares of Series B Convertible Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that if
the Corporation has sent notice of an event pursuant to Section 4(g), a holder
of Series B Convertible Preferred Stock may, at its election, provide in its
notice of conversion that the conversion of its shares of Series B Convertible
Preferred Stock shall be contingent upon the occurrence of the record date or
effectiveness of such event (as specified by such holder), provided that such
notice of conversion is received by the Corporation prior to such record date or
effective date, as the case may be.
(c) Certain Adjustments of Conversion Rate. In addition to adjustment
pursuant to paragraph (a) above, the conversion rate (and the corresponding
conversion price) shall be subject to adjustment from time to time as follows:
4
<PAGE>
(i) In case the Corporation shall (A) pay a dividend in Common Stock
or make a distribution in Common Stock, (B) subdivide its outstanding
Common Stock, (C) combine its outstanding Common Stock into a smaller
number of shares of Common Stock or (D) issued by reclassification of its
Common Stock other securities of the Corporation, then in each such case
the conversion rate in effect immediately prior thereto shall be adjusted
so that the holder of any shares of Series B Convertible Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the kind
and number of shares of Common Stock or other securities of the Corporation
which such holder would have owned or would have been entitled to receive
immediately after the happening of any of the events described above had
such shares of Series B Convertible Preferred Stock been converted
immediately prior to the happening of such event or any record date with
respect thereto. Any adjustment made pursuant to this subparagraph (i)
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.
(ii) In case the Corporation shall issue rights, options, warrants or
convertible securities to all or substantially all holders of its Common
Stock, without any charge to such holders, entitling them to subscribe for
or purchase Common Stock at a price per share which is lower at the record
date mentioned below than the closing bid price (as defined in Section 4)
for the trading day immediately prior to such record date (the "Current
Market Price"), then the conversion rate shall be determined by multiplying
the conversion rate theretofore in effect by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants or
convertible securities plus the number of additional shares of Common Stock
offered for subscription or purchase, and of which the denominator shall be
the number of shares of Common Stock outstanding immediately prior to the
issuance of such rights, options, warrants or convertible securities plus
the number of shares which the aggregate offering price of the total number
of shares offered would purchase at such Current Market Price. Such
adjustment shall be made whenever such rights, options, warrants or
convertible securities are issued, and shall become effective immediately
and retroactive to the record date for the determination of stockholders
entitled to receive such rights, options, warrants or convertible
securities.
(iii) In case the Corporation shall distribute to all or substantially
all holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions out of earnings) or rights,
options, warrants or convertible securities containing the right to
subscribe for or purchase Common Stock (excluding those referred to in
subparagraph (ii) above), then in each case the conversion rate shall be
determined by multiplying the conversion rate theretofore in effect by a
fraction, of which the numerator shall be the then fair value as determined
in good faith by the Corporation's Board of Directors on the date of such
distribution, and of which the denominator shall be such fair value on such
date minus the then fair value (as so determined) of the portion of the
assets or evidences of indebtedness so distributed or of such subscription
rights, options, warrants or convertible securities applicable to one
share. Such adjustment shall be made whenever any such distribution is made
and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) Upon the expiration of any rights, options, warrants or
conversion privileges, if such shall not have been exercised, the
conversion rate shall, upon such expiration, be readjusted and shall
thereafter be such as it would have been had it been originally adjusted
(or had the original adjustment not been required, as the case may be) on
the basis of (A) the fact that
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<PAGE>
Common Stock, if any, actually issued or sold upon the exercise of such
rights, options, warrants or conversion privileges, and (B) the fact that
such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Corporation upon such exercise plus
the consideration, if any, actually received by the Corporation for the
issuance, sale or grant of all such rights, options, warrants or conversion
privileges whether or not exercised.
(v) No adjustment in the conversion rate shall be required unless such
adjustment would require an increase or decrease of at least 1% in such
rate; provided, however, that the Corporation may make any such adjustment
at its election; and provided, further, that any adjustments which by
reason of this subparagraph (v) are not required to be made shall be
carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 4 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be.
(vi) Whenever the conversion rate is adjusted as provided in any
provision of this Section 4:
(A) the Corporation shall compute (or may retain a firm of
independent public accountants of recognized national banking (which
may be any such firm regularly employed by the Corporation) to
compute) the adjusted conversion rate in accordance with this Section
4 and shall prepare a certificate signed by the principal financial
officer of the Corporation (or cause any such independent public
accountants to execute a certificate) setting forth the adjusted
conversion rate and showing in reasonable detail the facts upon which
such adjustment is based, and such certificate shall forthwith be
filed with the transfer agent of the Series B Convertible Preferred
Stock; and
(B) a notice stating that the conversion rate has been adjusted
and setting forth the adjusted conversion rate shall forthwith be
required, and as soon as practicable after it is required, such
notices shall be mailed by the Corporation to all record holders of
Series B Convertible Preferred Stock at their last addresses as they
shall appear in the stock transfer books of the Corporation.
(vii) In the event that at any time, as a result of any adjustment
made pursuant to this Section 4, the holder of any shares of Series B
Convertible Preferred Stock thereafter surrendered for conversion shall
become entitled to receive any shares of the Corporation other than shares
of Common Stock or to receive any other securities, the number of such
other shares or securities so receivable upon conversion of any share of
Series B Convertible Preferred Stock shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable
to the provisions contained in this Section 4 with respect to the Common
Stock.
(d) No Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of Series B
Convertible Preferred Stock. If more than one certificate evidencing shares of
Series B Convertible Preferred Stock shall be surrendered for conversion at one
time by the same holder, the number of full shares issuable upon conversion
thereof shall be computed on the basis of the aggregate number of shares of
Series B Convertible Preferred Stock so surrendered. Instead of any fractional
share of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Convertible Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the same
fraction of the market
6
<PAGE>
price per share of Common Stock (which shall be the closing price as defined in
Section 5) at the close of business on the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at
all times reserve and keep available, out of its authorized and unissued stock,
solely for the purpose of effecting the conversion of the Series B Convertible
Preferred Stock, such number of shares of its Common Stock free of preemptive
rights as shall from time to time be sufficient to effect the conversion of all
shares of Series B Convertible Preferred Stock from time to time be sufficient
to effect the conversion of all shares of Series B Convertible Preferred Stock
from time to time outstanding at the then existing conversion price. The
Corporation shall use its best efforts from time to time, in accordance with the
laws of the State of Delaware, to increase the authorized number of shares of
Common Stock if at any time the number of shares of Common Stock not outstanding
shall not be sufficient to permit the conversion of all the then-outstanding
shares of Series B Convertible Preferred Stock.
The Corporation shall pay any and all issue or other taxes that may be
payable in respect of any issue or delivery of shares of Common Stock on
conversion of the Series B Convertible Preferred Stock. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue or delivery of Common Stock (or other securities
or assets) in a name other than that in which the shares of Series B Convertible
Preferred Stock so converted were registered, and no such issue or delivery
shall be made unless and until the person requesting such issue has paid to the
Corporation the amount of such tax or has established, to the satisfaction of
the Corporation, that such tax has been paid.
Notwithstanding anything to the contrary herein, before taking any action
that would cause an adjustment reducing the conversion rate or before any such
adjustment is made as a result of a Reset Event, in either event, such that the
effective conversion price (for all purposes an amount equal to $100.00 divided
by the conversion rate as in effect at such time) would be below the then par
value of the Common Stock, the Corporation shall take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at the conversion rate as so adjusted.
(f) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other
distribution) on its Common Stock; or
(ii) the Corporation shall authorize the granting to all the holders
of Common Stock as a class of rights or warrants to subscribe for or
purchase any shares of stock of any class or of any other rights or
warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in
par value, or from par value to no par value, or from no par value to par
value), or of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
(iv) of a Liquidation Event;
then the Corporation shall cause to be filed with the transfer agent for the
Series B Convertible Preferred Stock, and shall cause to be mailed to the
holders of record of the Series B Convertible Preferred Stock, at their last
addresses as they shall appear upon the stock transfer books of the Corporation,
at least 20
7
<PAGE>
days prior to the applicable date hereinafter specified, a notice stating (x)
the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution or granting of rights or warrants or, if a record is not
to be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distribution, rights or warrants are to be determined
and a description of the cash, securities or other property to be received by
such holders upon such dividend, distribution or granting of rights or warrants
or (y) the date on which such Liquidation Event or reclassification or share
exchange is expected to become effective, the date as of which it is expected
that holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon such
exchange, dissolution, liquidation or winding up and the consideration,
including securities or other property, to be received by such holders upon such
event.
(g) Other Changes in Conversion Rate. The Corporation from time to time may
increase the conversion rate by any amount for any period of time if the period
is at least 20 days and if the increase is irrevocable during the period.
Whenever the conversion rate is so increased, the Corporation shall mail to
holders of record of the Series B Convertible Preferred Stock a notice of the
increase at least 10 days before the date the increased conversion rate takes
effect, and such notice shall state the increased conversion rate and the period
it will be in effect.
The Corporation may make such increases in the conversion rate, in addition
to those required or allowed by this Section 4, as shall be determined by it, as
evidenced by a resolution of the Board of Directors, to be advisable in order to
avoid or diminish any income tax to holders of Common Stock resulting from any
dividend or distribution of stock or issuance of rights or warrants to purchase
or subscribe for stock or from any event treated as such for income tax
purposes.
(h) Ambiguities/Errors. The Board of Directors of the Corporation shall
have the power to resolve any ambiguity or correct any error in the provisions
relating to the convertibility of the Series B Convertible Preferred Stock, and
its actions in so doing shall be final and conclusive.
5. Mandatory Conversion at Option of Corporation. At any time on or after
the Reset Date, the Corporation, at its option, may cause the Series B
Convertible Preferred Stock to be converted in whole, or in part, on a pro rata
basis, into fully paid and nonassessable shares of Common Stock and such other
securities and property as herein provided if the closing price of Common Stock
shall have exceeded 150% of the then applicable conversion price for at least 20
trading days in any 30 consecutive trading day period. Any shares of Series B
Convertible Preferred Stock so converted shall be treated as having been
surrendered by the holder thereof for conversion pursuant to Section 4 on the
date of such mandatory conversion (unless previously converted at the option of
the holder).
Not more than 60 days nor less than 10 days prior to the date of any such
mandatory conversion, notice by first class mail, postage prepaid, shall be
given to the holders of record of the Series B Convertible Preferred Stock to be
converted, addressed to such holders at their last addresses as shown on the
stock transfer books of the Corporation. Each such notice shall specify the date
fixed for conversion, the place or places for surrender of shares of Series B
Convertible Preferred Stock, and the then effective conversion rate pursuant to
Section 4.
The "closing price" for each trading day shall be the reported last sales
price regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on NASDAQ or, if the Common Stock is not quoted on NASDAQ, on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading (based on the aggregate dollar value of all securities listed or
admitted to trading) or, if not
8
<PAGE>
listed or admitted to trading on any national securities exchange or quoted on
NASDAQ, the average of the closing bid and asked prices in the over-the-counter
market as furnished by any NASD member firm selected from time to time by the
Corporation, for that purpose, or, if such prices are not available, the fair
market value set by, or in a manner established by, the Board of Directors of
the Corporation in good faith. "Trading day" shall have the meaning given in
Section 4(a).
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given by the Corporation on the date deposited in the
mail, whether or not the holder of the Series B Convertible Preferred Stock
receives such notice; and failure properly to give such notice by mail, or any
defect in such notice, to the holders of the shares to be converted shall not
affect the validity of the proceedings for the conversion of any other shares of
Series B Convertible Preferred Stock. On or after the date fixed for conversion
as stated in such notice, each holder of shares called to be converted shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice for conversion. Notwithstanding that the certificates
evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all rights
whatsoever with respect to the shares so called for conversion (except the right
of the holders to convert such shares upon surrender of their certificates
therefor) shall terminate.
6. Voting Rights.
(a) General. Except as otherwise provided herein, in the Certificate of
Incorporation, as amended, or the Bylaws of the Corporation, the holders of
shares of Series B Convertible Preferred Stock, the holders of shares of Common
Stock and the holders of any other class or series of shares entitled to vote
with the Common Stock shall vote together as one class on all matters submitted
to a vote of stockholders of the Corporation. In any such vote, each share of
Series B Convertible Preferred Stock shall entitle the holder thereof to cast
the number of votes equal to the number of votes which could be cast in such
vote by a holder of the Common Stock into which such share of Series B
Convertible Preferred Stock is convertible on the record date for such vote, or
if no record date has been established, on the date such vote is taken. Any
shares of Series B Convertible Preferred Stock held by the Corporation or any
entity controlled by the Corporation shall not have voting rights hereunder and
shall not be counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in paragraph (a)
of this Section 6, so long as 50% of the shares of Series B Convertible
Preferred Stock (including those shares of Series B Convertible Preferred Stock
issued or issuable upon the exercise of the placement agent warrants issued in
connection with the offer and sale of the Series B Convertible Preferred Stock)
shall be outstanding, the Corporation shall not, without the affirmative vote or
consent of the holders of at least 66-2/3% of all outstanding Series B
Convertible Preferred Stock voting separately as a class, (i) amend, alter or
repeal any provision of the Certificate of Incorporation, as amended, or the
Bylaws of the Corporation so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions of the Series B
Convertible Preferred Stock, (ii) declare any dividend or distribution on the
Common Stock or any other class or series of preferred stock or authorize the
repurchase of any securities of the Corporation, except distributions of Common
Stock of Interneuron Pharmaceuticals, Inc. payable to the holders of the Series
A Convertible Preferred Stock of the Corporation pursuant to Section 4(a) of the
Certificate of Designations for the Series A Convertible Preferred Stock or
(iii) authorize or issue, or increase the authorized amount of, any additional
class or series of stock, or any security convertible into stock of such class
or series, (A) ranking prior to, or on a parity with, the Series B Convertible
Preferred Stock upon liquidation, dissolution or winding up of the Corporation
or a sale of all or substantially all of the assets of the Corporation or (B)
providing for the payment of any dividends
9
<PAGE>
or distributions. A class vote on the part of the Series B Convertible Preferred
Stock shall, without limitation, specifically not be deemed to be required
(except as otherwise required by law or resolution of the Corporation's Board of
Directors) in connection with: (a) the authorization, issuance or increase in
the authorized amount of Common Stock or of any shares of any other class or
series of stock ranking junior to the Series B Convertible Preferred Stock in
respect of distributions upon liquidation, dissolution or winding up of the
Corporation; (b) the authorization, issuance or increase in the amount of the
Series B Convertible Preferred Stock or any bonds, mortgages, debentures or
other obligations of the Corporation (other than bonds, mortgages, debentures or
other obligations convertible into or exchangeable for or having option rights
to purchase any shares of stock of the Corporation the authorization issuance or
increase in amount of which would require the consent of the holders of the
Series B Preferred Stock); or (c) any consolidation or merger of the Corporation
with or into another corporation, a sale or transfer of all or part of the
Corporation's assets for cash, securities or other property, or a compulsory
share exchange.
7. Outstanding Shares. For purposes of this Certificate of Designations,
all shares of Series B Convertible Preferred Stock shall be deemed outstanding
except (i) from the date, or the deemed date, of surrender of certificates
evidencing shares of Series B Convertible Preferred Stock, all shares of Series
B Convertible Preferred Stock converted into Common Stock, (ii) from the date of
registration of transfer, all shares of Series B Convertible Preferred Stock
held of record by the Corporation or any subsidiary of the Corporation and (iii)
any and all shares of Series B Convertible Preferred Stock held in escrow prior
to delivery of such stock by the Corporation to the initial beneficial owners
thereof.
8. Status of Acquired Shares. Shares of Series B Convertible Preferred
Stock received upon conversion pursuant to Section 4 or Section 5 or otherwise
acquired by the Corporation will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Series B Convertible Preferred Stock.
9. Preemptive Rights. The Series B Convertible Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the Corporation.
10. Severability of Provisions. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.
10
<PAGE>
IN WITNESS WHEREOF, AVAX Technologies, Inc. has caused this certificate to
be signed on its behalf by Carl Spana, Ph.D., its Interim President, this
fourteenth day of May, 1996.
AVAX TECHNOLOGIES, INC.
By: /s/ Carl Spana
-----------------------------
Name: Carl Spana, Ph. D.
Title: Interim President
11
<PAGE>
AMENDED CERTIFICATE OF DESIGNATIONS
OF SERIES B CONVERTIBLE PREFERRED STOCK
OF AVAX TECHNOLOGIES, INC.
AVAX Technologies, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY, that the
Certificate of Designations of Series B Preferred Stock, of the Corporation
filed with the Secretary of State of the State of Delaware is amended as
follows:
1. The introductory paragraph is hereby amended (i) by deleting the
number "250,000" appearing on the fifth line thereof and substituting the
number "300,000";
2. Section 1 is hereby amended by deleting the number "250,000"
appearing on the third line thereof and substituting therefor the number
"300,000."
The foregoing amendments were duly adopted pursuant to the authority vested
in the Board of Directors of the Company (the "Board") by the Certificate of
Incorporation of the Corporation, as amended, and Section 151 of the General
Corporation Law of the State of Delaware and in accordance with resolutions duly
adopted by, authorized and directed by the Board.
IN WITNESS WHEREOF, AVAX Technologies, Inc. has caused this certificate to
be signed by an authorized officer of the Corporation this 5th day of June,
1996.
AVAX TECHNOLOGIES, INC.
By: /s/ Michael S. Weiss
------------------------------
Name: Michael S. Weiss
Title: Secretary
<PAGE>
CERTIFICATE SETTING FORTH A RESOLUTION
ADOPTED BY THE BOARD OF DIRECTORS WITH
RESPECT TO SERIES A CONVERTIBLE
PREFERRED STOCK
OF
AVAX TECHNOLOGIES, INC.
Pursuant to Section 151 of the General
--------------------------------------
Corporation Law of the State of Delaware
----------------------------------------
--------------------------------------
AVAX Technologies, Inc., a corporation organized and existing by virtue of
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that the following resolution was duly adopted by action by
unanimous written consent of the Board of Directors of the Corporation on July
12, 1996:
"RESOLVED, that pursuant to the authority expressly granted to and vested
in the Board of Directors by the provisions of Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors hereby states
that none of the authorized shares of Series A Convertible Preferred Stock of
the Corporation are outstanding and that none will be issued.
When this certificate becomes effective in accordance with the provisions
of Sections 103 and 151 of the General Corporation Law of the State of Delaware,
all references in the Corporation's Certificate of Incorporation, as amended
through the date hereof, to the Series A Convertible Preferred Stock will be
eliminated and the number of shares of capital stock previously authorized as
Series A Convertible Preferred Stock shall become authorized but unissued shares
of undesignated Preferred Stock of the Corporation."
<PAGE>
IN WITNESS WHEREOF, the undersigned has signed his name, this 20th day of
September, 1996, and by such act affirms under penalties of perjury, that this
instrument constitutes the act and deed of the Corporation and that the facts
stated herein are true".
AVAX TECHNOLOGIES, INC.
By /s/ Jeffrey M. Jonas, M.D.
--------------------------------------------
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief Executive Officer
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
AVAX TECHNOLOGIES, INC.
Pursuant to Section 242 of the
General Corporation Law of the
State of Delaware
AVAX Technologies, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY, that the Certificate of Incorporation of the Corporation filed with the
Secretary of State of the State of Delaware is amended as follows:
1. The name of the Corporation is AVAX Technologies, Inc.
2. The original Certificate of Incorporation of the
Corporation was filed under the name Walden Laboratories, Inc., with the
Secretary of State of the State of Delaware on September 18, 1992, and amended
on October 26, 1992, December 21, 1995, March 25, 1996, May 9, 1996, May 14,
1996, June 5, 1996 and September 20, 1996.
3. The Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby amended as follows:
Article 4(A)(1) is hereby amended to read in its entirety as
follows:
"FOURTH: (A)(1) The aggregate number of shares which the
Corporation shall have authority to issue is Fifty Five Million
(55,000,000) shares, of which Five Million (5,000,000) shares, having a
par value of $.01 per share, shall be designated "Preferred Stock" and
Fifty Million (50,000,000) shares, having a par value of $.004 per
share, shall be designated "Common Stock."
Upon the foregoing amendment becoming effective, each share of
common stock, par value $.002 per share ("Common Stock"), of the
Corporation, outstanding immediately prior to the effectiveness of this
Certificate of Amendment shall be reclassified as, and become, one half
(1/2) of a share of Common Stock of the Corporation and the number of
shares of Common Stock of the Corporation represented by each stock
certificate representing Common Stock of the Corporation outstanding
immediately prior to the effectiveness of this Certificate of Amendment
shall be proportionately adjusted by dividing each such number by 2,
with each share thereupon having a par value of $.004."
4. The foregoing amendment was duly adopted in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
5. This Certificate of Amendment and the amendments provided
for herein shall become effective at, and not until, 5:00 p.m. (New York Time)
on May 13, 1997.
<PAGE>
IN WITNESS WHEREOF, AVAX Technologies, Inc. has caused this
Certificate of Amendment to be signed this 7th day of May, 1997.
AVAX TECHNOLOGIES, INC.
By: /s/ Jeffrey M. Jonas, M.D.
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief
Executive Officer
2
<PAGE>
EXHIBIT 4.5
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE. NEITHER SUCH WARRANTS NOR SUCH SECURITIES MAY
BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
AVAX TECHNOLOGIES, INC.
Warrants To Purchase Shares Of Common Stock
No. [ ] Shares
This Warrant Certificate dated April 17, 1997, certifies that
[Hill, Thompson Magid & Co.], or registered assigns (the "Holder"), is the owner
of [ ] warrants (the "Warrants") (subject to adjustment as provided herein),
each of which represents the right to subscribe for and purchase, at any time
on or prior to July 17, 2002 (the "Expiration Date"), from AVAX Technologies,
Inc., a Delaware corporation (the "Company"), one share of Common Stock, par
value $.002 per share, of the Company (the "Common Shares") at a per share
exercise price (the "Exercise Price") of $4.00 (subject to adjustment as
provided herein). Such Warrants shall vest and become irrevocable as follows:
50% of such Warrants on June 17, 1997, 25% of such Warrants on October 17, 1997
and an additional 25% Warrants on April 17, 1998 provided that no Warrants shall
vest from and after the termination of the Investment Banking Agreement dated
April 17, 1997, between AVAX Technologies, Inc. and Hill, Thompson, Magid & Co.
(the "Agreement").
The Warrants represented by this Warrant Certificate are
subject to the following provisions, terms and conditions:
SECTION 1. Exercise. (a) The Warrants may be exercised,
in whole or in part, on or prior to the Expiration Date, by the Holder:
(i) by surrender of this Warrant Certificate (with the
subscription form attached hereto duly executed) at the
principal office of the Company at 4520 Main Street, Suite
930, Kansas City, Missouri (or such other office or agency of
the Company as may be designated by notice in writing to the
Holder at the address of such Holder appearing on the books of
the Company), accompanied by proper payment of the aggregate
Exercise Price, or the proportionate part thereof if the
Warrants are exercised in part, in cash or by official bank or
certified check made payable to the
<PAGE>
Company. Upon such payment, the Common Shares so purchased
shall be deemed (retroactively) to have been issued to the
Holder as the record owner of such Common Shares as of the
close of business on the Exercise Date. Certificates
representing the Common Shares so purchased, together with any
cash for fractional Common Shares paid pursuant to Section 5,
shall be delivered to the Holder promptly and in no event
later than 10 days after payment of the Exercise Price; or
(ii) by the surrender of this Warrant Certificate (with the
cashless exercise form attached hereto duly executed) (a
"Cashless Exercise") at the principal office of the Company at
4520 Main Street, Suite 930, Kansas City, Missouri (or such
other office or agency of the Company as may be designated by
notice in writing to the Holder at the address of such Holder
appearing on the books of the Company). Such presentation and
surrender shall be deemed a waiver of the Holder's obligation
to pay the aggregate Exercise Price, or the proportionate part
thereof if this Warrant is exercised in part. In the event of
a Cashless Exercise, the Holder shall exchange its Warrant
Certificate for that number of shares of Common Stock
determined by multiplying the number of Common Shares subject
to such Cashless Exercise by a fraction, the numerator of
which shall be the difference between the then current market
price per share of the Common Stock and the per share Exercise
Price, and the denominator of which shall be the then current
market price per share of the Common Stock. For purposes of
any computation under this Section, the then current market
price per share of Common Stock at any date (the "Market
Price") shall be deemed to be last sale price of the Common
Stock on the business day prior to the date of the Cashless
Exercise or, in case no such reported sales take place on such
day, the average of the last reported bid and asked prices of
the Common Stock on such day, in either case on the principle
national securities exchange on which the Common Stock is
admitted to trading or listed, or if no listed or admitted to
trading on any such exchange, the representative closing bid
price of the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ"), or other similar organization if NASDAQ is
no longer reporting such information, or if not so available,
the fair market price of the Common Stock as determined by the
Board of Directors.
(b) In the event of any partial exercise of this Warrant
Certificate, the Company shall deliver to the Holder, together with the Common
Shares issuable upon such partial exercise, a new Warrant Certificate of like
tenor evidencing the Warrants remaining unexercised.
SECTION 2. Reservation of Shares; Payment of Taxes. (a) The
Company covenants that it will at all times reserve and keep available out of
its authorized Common Stock, solely for the purpose of issue upon exercise of
Warrants, such number of Common Shares as shall then be issuable upon the
exercise of all outstanding Warrants. The Company covenants that all Common
Shares which shall be issuable upon exercise of the Warrants shall, at the time
of delivery (assuming full payment of the Exercise Price thereof), be duly and
validly issued, fully paid, nonassessable and free from all issuance taxes,
liens and charges with respect to the issue thereof (other than those which the
Company shall promptly pay or discharge).
2
<PAGE>
(b) The Company shall pay all documentary, stamp or similar
taxes and other similar governmental charges that may be imposed with respect to
the issuance or delivery of any Common Shares upon exercise of the Warrants;
provided, however, that if the Common Shares are to be delivered in a name other
than the name of the Holder, no such delivery shall be made unless the person
requesting the same has paid to the Company the amount of transfer taxes or
charges incident thereto, if any.
SECTION 3. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and deliver
to the Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 4. Anti-Dilution Provisions. (a) In the case the
Company shall hereafter (i) pay a dividend or make a distribution on its capital
stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Exercise
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 4(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) In the case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in the case of any sale or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification consolidation, merger, statutory exchange, sale
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section 4 with
respect to the rights and interests thereafter of the Holder of this Warrant to
the end that the provisions set forth in this Section 4 shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property thereafter deliverable on
the exercise of this Warrant. The above provisions of this Subsection 4(b) shall
similarly apply to successive reorganizations,
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<PAGE>
reclassifications, consolidations, mergers, statutory exchanges, sales or
conveyances. The issuer of any shares of stock or other securities or property
thereafter deliverable on the exercise of this Warrant shall be responsible for
all of the agreements and obligations of the Company hereunder. Notice of any
such reorganization, reclassification, consolidation, merger, statutory
exchange, sale or conveyance and of said provisions so proposed to be made,
shall be mailed to the Holders of the Warrants not less than 30 days prior to
such event. A sale of all or substantially all of the assets of the Company for
a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(c) Whenever the Exercise Price is adjusted as provided in
this Section 4 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 4, the Company shall promptly mail to the
Holders of the warrants a certificate of the Company's chief financial officer
setting forth the Exercise Price and the number of Common Shares after such
adjustment or the effect of such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same,
and, at the request of the Holder of any Warrant, obtain, at the Company's
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) to such effect and cause of such certificate to be mailed to the
Holders of the Warrants.
(d) In case any event shall occur as to which the other
provisions of this Section 4 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Common Shares subject to all outstanding
Warrants may appoint a firm of independent public accountants of recognized
national standing reasonably acceptable to the Company, which shall give their
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Warrants. Upon receipt of such opinion, the Company
will promptly mail a copy thereof to the Holder of this Warrant and shall make
the adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by such Holders.
(e) No adjustments in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least $0.05
per share of Common Stock. All calculations under this Section 4 shall be made
to the nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 4 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
required by this Section 4 as it in its discretion shall deem to be advisable in
order that any stock dividend, subdivision of shares or distribution of rights
to purchase stock or securities convertible or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
SECTION 5. Fractional Shares. The Company may, but shall not
be required to, issue fractional Common Shares on exercise of the Warrants. The
number of full Common Shares which shall be issuable upon such exercise of
Warrants by the Holder shall be computed on the basis of the aggregate number of
whole Common Shares purchasable on exercise of all Warrants held by the Holder.
If any fraction of a Common Share would, except for the provisions of this
Section 6,
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<PAGE>
be issuable on the exercise of Warrants, the Company may if it elects
pay an amount in cash calculated by it to be equal to the then fair value of one
Common Share, as determined by the Board of Directors of the Company in good
faith, multiplied by such fraction computed to the nearest whole cent.
SECTION 6. Warrant Holders Not Deemed Stockholders. The Holder
shall not, as the holder of Warrants, be entitled to receive dividends or be
deemed the holder of Common Shares that may at any time be issuable upon the
exercise of such Warrants for any purpose whatsoever.
SECTION 7. Governing Law. This Warrant Certificate shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
SECTION 8. Assignment. This Warrant Certificate may not be
assigned in whole or in part or transferred by the Holder without the prior
written consent of the Company and any such purported transfer without such
prior written consent shall be null and void ab initio.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of the date first above written.
AVAX TECHNOLOGIES, INC.
By: /s/ Jeffrey M. Jonas, M.D.
_______________________________
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief
Executive Officer
<PAGE>
SUBSCRIPTION FORM
The undersigned Holder, pursuant to the provisions of the
foregoing Warrant Certificate, hereby irrevocably elects to subscribe for and
purchase __________ shares of the Common Stock of AVAX Technologies, Inc.
issuable upon the exercise of such Warrants, and makes payment thereof in full
at the price per share provided by said Warrant Certificate.
Dated: ___________________ Signature: ________________________________
Address: ________________________________
________________________________
CASHLESS EXERCISE
The undersigned Holder, pursuant to the provisions of the
foregoing Warrant Certificate, hereby irrevocably elects to exchange its
Warrants for _________ shares of Common Stock of AVAX Technologies, Inc.
pursuant to the Cashless Exercise provisions of said Warrant Certificate.
Dated: _______________ Signature: ________________________________
Address: ________________________________
________________________________
EXHIBIT 4.16
THESE WARRANTS AND THE SHARES OF COMMON STOCK ISSUABLE UPON THEIR EXERCISE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR OTHERWISE
TRANSFERRED, DISPOSED OF OR OFFERED FOR SALE, IN WHOLE OR IN PART, UNTIL (1) A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS HAS BECOME EFFECTIVE WITH RESPECT THERETO, OR (2) WALDEN
LABORATORIES, INC. HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IT TO THE EFFECT THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
Void after 5:00 p.m. New York Time, on April 30, 1998.
Warrant to Purchase Shares of Common Stock.
WARRANT TO PURCHASE COMMON STOCK
OF
WALDEN LABORATORIES, INC.
This is to Certify That, FOR VALUED RECEIVED, [Shear/Kershman
Laboratories, Inc./Castelli Associates, Inc.], or assigns ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from Walden
Laboratories Inc., a Delaware corporation (the "Company"), [ ]
fully paid, validly issued and nonassessable shares of Common Stock, par value
$.001 per share, of the Company ("Common Stock") at a price of $[ ] per
share at any time or from time to time during the period from May 1, 1993 to
April 30, 1998, subject to the limits on exercisability set forth in
Section (a)(2) hereof, but not later than 5:00 p.m. New York City Time,
on April 30, 1998. This Warrant is being issued to [ ] in
consideration of the provision of consulting services to the Company by [ ]
The number of shares of Common Stock to be received upon the exercise
of this Warrant and the price to be paid for each share of Common Stock may be
adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise, and as adjusted from time to time, are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price
of a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price."
<PAGE>
(a) EXERCISE OF WARRANT.
(1) This Warrant may be exercised in whole or in part any
time or from time to time on or after May 1, 1993 and until April 30, 1998 (the
"Exercise Period"), subject to the provisions of Section (a)(2) hereof;
provided, however, that if either such day is a day on which banking
institutions in the State of New York are authorized by law to close, then on
the next succeeding day which shall not be such a day. This Warrant may be
exercised by presentation and surrender hereof to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed and accompanied by payment of the Exercise
Price for the number of Warrant Shares specified in such form. As soon as
practicable after each such exercise of the warrants, the Company shall issue
and deliver to the Holder a certificate or certificates for the Warrant Shares
issuable upon such exercise, registered in the name of the Holder or its
designee, and which certificates shall bear a legend substantially similar to
the legend affixed to this certificate. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable thereunder. Upon receipt
by the Company of this Warrant and full payment of the Exercise Price at its
office, or by the stock transfer agent of the Company at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder or record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
(2) This warrant is exercisable in installments as follows:
warrants to purchase [ ]
Warrant Shares shall become exercisable, on a cumulative basis, on
each of the first eleven monthly anniversaries of the date of this Warrant and
warrants to purchase
Warrant Shares shall become exercisable on the one year anniversary of the date
of this Warrant, provided that on such date [ ] shall
continue to provide consulting services to the Company. No Warrants shall
become exercisable after the date [ ] ceases to
provide consulting services to the Company.
(b) RESERVATION OF SHARES. The Company shall at all times reserve
for issuance and/or delivery upon exercise of this Warrant such number of
shares of its Common Stock as shall be required for issuance and delivery upon
exercise of the Warrants.
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<PAGE>
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ system, the current market value
shall be the last reported sale price of the Common Stock on such
exchange or system on the last business day prior to the date of
exercise of this Warrant or if, no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange or
system; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current market value shall be the
mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the
date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount, not less than book value
thereof as at the end of the most recent fiscal year of the Company
ending prior to the date of the exercise of the Warrant, determined
in such reasonable manner as may be prescribed by the Board of
Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant
is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed with signature guaranteed and
funds sufficient to pay any transfer tax, the Company shall, without charge,
execute and deliver a new warrant in the name of the assignee named in such
instrument of assignment and this Warrant shall promptly be cancelled, provided,
that prior to such assignment, the Company
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<PAGE>
receives from the Holder an opinion of counsel that such assignment, as
contemplated by the Holder, would not violate applicable federal and state
securities laws. Such counsel and opinion (in form and substance) shall be
reasonably satisfactory to the Company. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged.
Upon receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Warrant so lost, stolen, destroyed, or
mutilated shall be at any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof,
be entitled to any rights of a shareholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in the
Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any
time and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening
of certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or
reclassify its outstanding shares of Common Stock into a smaller number
of shares, the Exercise Price in effect at the time of the record date
for such dividend or distribution or of the effective date of such
subdivision, combination or reclassification shall be adjusted so that
it shall equal the price determined by multiplying the Exercise Price
by a fraction, the denominator of which shall be the number of shares
of Common Stock outstanding after giving effect to such action, and
the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be
made successively whenever any event listed above shall occur.
-4-
<PAGE>
(2) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Subsection (1) above, the number of
Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Shares initially issuable
upon exercise of this Warrant by the Exercise Price in effect on the
date and dividing the product so obtained by the Exercise Price, as
adjusted.
(3) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least
fifteen cents ($0.15) in such price; provided, however, that any
adjustments which by reason of this Subsection (3) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this
Section (f) to the contrary notwithstanding, the Company shall be
entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section (f), as
it shall determine, in its sole discretion, to be advisable in order
that any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter
made by the Company shall not result in any Federal Income Tax
liability to the holders of Common Stock or securities convertible
into Common Stock (including Warrants).
(4) Whenever the Exercise Price is adjusted, as herein provided,
the Company shall promptly cause a notice setting forth the adjusted
Exercise Price and adjusted number of Shares issuable upon exercise of
each Warrant, and, if requested, information describing the
transactions giving rise to such adjustments, to be mailed to the
Holders at their last addresses appearing in the Warrant Register, and
shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified
public accountants selected by the Board of Directors (who may be the
regular accountants employed by the Company) to make any computation
required by this Section (f), and a certificate signed by such firm
shall be conclusive evidence of the correctness of such adjustment.
(5) In the event that at any time, as a result
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<PAGE>
of an adjustment made pursuant to Subsection (1) above, the Holder of
this Warrant thereafter shall become entitled to receive any shares of
the Company, other than Common Stock, thereafter the number of such
other shares so receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) above.
(6) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant,
Warrants theretofore or thereafter issued may continue to express the
same price and number and kind of shares as are stated in the similar
Warrants initially issuable pursuant to this Agreement.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of the foregoing Section, the Company
shall forthwith file in the custody of its Secretary or an Assistant Secretary
at its principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercie Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall
be outstanding, (i) if the Company shall pay any dividend or make any
distribution upon the Common Stock or (ii) if the Company shall offer to the
holders of Common Stock for subscription or purchase by them any share of any
class or any other rights or (ii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger
of the Company with or into another corporation, sale, lease or transfer of all
or substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, then in any such case, the Company shall
cause to be mailed by certified mail to the Holder, at least fifteen days prior
to the date specified in (x) or (y) below, as the case may be, a notice
containing a brief description of the proposed action and stating the date on
which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger,
-6-
<PAGE>
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(1) The Company agrees that, at any time during the period
commencing eighteen (18) months after the consummation of an
initial public offering of the Company's securities and ending on
April 30, 1998, he Company shall advise the Holder of this
Warrant or of the Warrant Shares or any then holder of Warrants or
Warrant Shares (such persons being collectively referred to
herein as "holders") by written notice at least two weeks prior
to the filing of any registration statement under the Securities
Act of 1933 (the "Act") (other than a registration statement on
Form S-4 or Form S-8 or any other form which does not include
substantially the same information as would be required in a form
for the general registration of securities) covering securities
of the Company and will include in any such registration statement
such information as may be required to permit a public offering of
the Warrant Shares, provided, however, that if, in the opinion of
the Company's managing underwriter, if any, for such offering, the
inclusion of all or a portion of the Warrant Shares requesting to
be registered, when added to the securities being registered by
Company or the selling shareholder(s), if any, will exceed the
maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market
value, or (ii) without otherwise materially adversely affecting
the entire offering, then the Company may include from such
offering all or a portion of the Warrant Shares requested to be
registered. The Company shall supply prospectuses and other
documents as the Holder may request in order to facilitate the
public sale or other disposition of the Warrant Shares, qualify
the Warrant Shares for sale in such states as any such holder
reasonably designates and do any and all other acts and things
which may be necessary or desirable to enable such Holders to
consummate the public sale or other disposition of the Warrant
Shares. Notwithstanding the provisions of this Subsection (1) of
this Section (i), the Company shall have the right at any time
after it shall have given written notice pursuant to this
Subsection (1)
-7-
<PAGE>
of this Section (i) (irrespective of whether a written request
for inclusion of any such securities shall have been made) to
elect not to file any such proposed registration statement, or
to withdraw the same after the filing but prior to the effective
date thereof.
(2) The following provision of this Section (i) shall also be
applicable:
(A) Following the effective date of a registration
statement which includes any Warrant Shares, the Company shall
upon the request of any owner of Warrant Shares forthwith supply
such a number of prospectuses meeting the requirements of the
Act, as shall be requested by such owner to permit such holder
to make a public offering of all Warrant Shares from time to time
offered or sold to such holder, provided that such holder shall
from time to time furnish the Company with such appropriate
information (relating to the intentions of such holder) in
connection therewith as the Company shall request in writing.
(B) The Company shall bear the entire cost and expense of
any registration of securities initiated by it under Subsection
(1) of this Section (i) notwithstanding that Warrant Shares
subject to this Warrant may be included in any such registration.
Any holder whose Warrant Shares are included in any such
registration statement pursuant to this Section (i) shall,
however, bear the fees of his own counsel and any registration
fees of his own counsel and any registration fees, transfer taxes
or underwriting discounts or commissions applicable to the
Warrant Shares sold by him pursuant thereto.
WALDEN LABORATORIES, INC.
By /s/ Dayne R. Myers
____________________________________
Dayne R. Myers, President
[SEAL]
Dated: May 1, 1993
Attest:
___________________________________
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<PAGE>
PURCHASE FORM
Dated _____________, 199__
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing _________ shares of Common Stock and hereby
makes payment of ____________________________________ in payment of the actual
price thereof.
-----------
Instructions for Registration of Stock
Name__________________________________________________________________________
(Please typewrite or print in block letters)
Address________________________________________________________________________
Signature________________________________________________________
____________
ASSIGNMENT FORM
FOR VALUED RECEIVED, ________________________________________
hereby sells, assigns and transfers unto
Name_______________________________________________________________________
(Please typewrite or print in block letters)
Address_____________________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent
of shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint Attorney,
to transfer the same on the books of the Company with full power of
substitution in the premises.
Date _____________________, 199_
Signature___________________________
<PAGE>
EXHIBIT 4.17
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE. NEITHER SUCH WARRANTS NOR SUCH SECURITIES MAY
BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS MAY BE
SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT THAT ANY SUCH TRANSFER
SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER.
AVAX TECHNOLOGIES, INC.
Warrants To Purchase Shares Of Common Stock
No. RU-2 250,000 Shares
This Warrant Certificate dated December 10, 1996, certifies
that RUTGERS, THE STATE UNIVERSITY OF NEW JERSEY/UNIVERSITY OF MEDICINE AND
DENTISTRY ("Rutgers"), or registered assigns (the "Holder"), is the owner of
250,000 warrants (the "Warrants") (subject to adjustment as provided herein),
each of which represents the right to subscribe for and purchase, from AVAX
Technologies, Inc., a Delaware corporation (the "Company"), one share of Common
Stock ("Common Stock"), par value $.002 per share, of the Company (the Common
Stock issuable upon such exercise is referred to herein as the "Common Shares")
at a per share exercise price (the "Exercise Price") of $4.12 (subject to
adjustment as provided herein). The Warrants shall expire (the "Expiration
Date") and shall vest and become exercisable in accordance with Section 1.19 of
the Exclusive License Agreement, dated as of December 10, 1996, between the
Company and Rutgers.
The Warrants represented by this Warrant Certificate are
subject to the following provisions, terms and conditions:
SECTION 1. Exercise. (a) The Warrants may be exercised, in
whole or in part, on or prior to the Expiration Date, by the Holder:
(i) by surrender of this Warrant Certificate (with the
subscription form attached hereto duly executed) at the
principal office of the Company at 4520 Main Street, Suite
930, Kansas City, Missouri (or such other office or agency of
the Company as may be designated by notice in writing to the
Holder at the address of such Holder appearing on the books of
the Company), accompanied by proper payment of the aggregate
Exercise Price, or the proportionate part thereof if the
Warrants are exercised in part, in cash or by official bank or
certified check made payable to the Company. Upon such
payment, the Common Shares so purchased shall be deemed
<PAGE>
(retroactively) to have been issued to the Holder as the
record owner of such Common Shares as of the close of business
on the Exercise Date. Certificates representing the Common
Shares so purchased, together with any cash for fractional
Common Shares paid pursuant to Section 5, shall be delivered
to the Holder promptly and in no event later than 10 days
after payment of the Exercise Price; or
(ii) by the surrender of this Warrant Certificate (with the
cashless exercise form attached hereto duly executed) (a
"Cashless Exercise") at the principal office of the Company at
4520 Main Street, Suite 930, Kansas City, Missouri (or such
other office or agency of the Company as may be designated by
notice in writing to the Holder at the address of such Holder
appearing on the books of the Company). Such presentation and
surrender shall be deemed a waiver of the Holder's obligation
to pay the aggregate Exercise Price, or the proportionate part
thereof if this Warrant is exercised in part. In the event of
a Cashless Exercise, the Holder shall exchange its Warrant
Certificate for that number of shares of Common Stock
determined by multiplying the number of Common Shares subject
to such Cashless Exercise by a fraction, the numerator of
which shall be the difference between the then current market
price per share of the Common Stock and the per share Exercise
Price, and the denominator of which shall be the then current
market price per share of the Common Stock. For purposes of
any computation under this Section, the then current market
price per share of Common Stock at any date (the "Market
Price") shall be deemed to be last sale price of the Common
Stock on the business day prior to the date of the Cashless
Exercise or, in case no such reported sales take place on such
day, the average of the last reported bid and asked prices of
the Common Stock on such day, in either case on the principle
national securities exchange on which the Common Stock is
admitted to trading or listed, or if no listed or admitted to
trading on any such exchange, the representative closing bid
price of the Common Stock as reported by the National
Association of Securities Dealers, Inc. Automated Quotations
System ("NASDAQ"), or other similar organization if NASDAQ is
no longer reporting such information, or if not so available,
the fair market price of the Common Stock as determined by the
Board of Directors.
(b) In the event of any partial exercise of this Warrant
Certificate, the Company shall deliver to the Holder, together with the Common
Shares issuable upon such partial exercise, a new Warrant Certificate of like
tenor evidencing the Warrants remaining unexercised.
SECTION 2. Reservation of Shares; Payment of Taxes. (a) The
Company covenants that it will at all times reserve and keep available out of
its authorized Common Stock, solely for the purpose of issue upon exercise of
Warrants, such number of Common Shares as shall then be issuable upon the
exercise of all outstanding Warrants. The Company covenants that all Common
Shares which shall be issuable upon exercise of the Warrants shall, at the time
of delivery (assuming full payment of the Exercise Price thereof), be duly and
validly issued, fully paid, nonassessable and free from all issuance taxes,
liens and charges with respect to the issue thereof (other than those which the
Company shall promptly pay or discharge).
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<PAGE>
(b) The Company shall pay all documentary, stamp or similar
taxes and other similar governmental charges that may be imposed with respect to
the issuance or delivery of any Common Shares upon exercise of the Warrants;
provided, however, that if the Common Shares are to be delivered in a name other
than the name of the Holder, no such delivery shall be made unless the person
requesting the same has paid to the Company the amount of transfer taxes or
charges incident thereto, if any.
SECTION 3. Loss or Mutilation. Upon receipt by the Company of
evidence satisfactory to it of the ownership of and loss, theft, destruction or
mutilation of this Warrant Certificate and (in case of loss, theft or
destruction) of indemnity satisfactory to it, and (in the case of mutilation)
upon surrender and cancellation thereof, the Company shall execute and deliver
to the Holder in lieu thereof a new Warrant Certificate of like tenor
representing an equal aggregate number of Warrants. Applicants for a substitute
Warrant Certificate shall comply with such other reasonable regulations and pay
such other reasonable charges as the Company may prescribe.
SECTION 4. Anti-Dilution Provisions. (a) In the case the
Company shall hereafter (i) pay a dividend or make a distribution on its capital
stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common
Stock into a greater number of shares, (iii) combine its outstanding shares of
Common Stock into a smaller number of shares or (iv) issue by reclassification
of its Common Stock any shares of capital stock of the Company, the Exercise
Price shall be adjusted so that the Holder upon the exercise hereof shall be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Warrant been exercised immediately prior thereto. An adjustment made
pursuant to this Subsection 4(a) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification.
(b) In the case of any capital reorganization or
reclassification, or any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in the case of any sale or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), the Holder of this Warrant shall have the right
thereafter to receive on the exercise of this Warrant the kind and amount of
securities, cash or other property which the Holder would have owned or have
been entitled to receive immediately after such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
had this Warrant been exercised immediately prior to the effective date of such
reorganization, reclassification consolidation, merger, statutory exchange, sale
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section 4 with
respect to the rights and interests thereafter of the Holder of this Warrant to
the end that the provisions set forth in this Section 4 shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property thereafter deliverable on
the exercise of this Warrant. The above provisions of this Subsection 4(b) shall
similarly apply to successive reorganizations, reclassifications,
consolidations, mergers, statutory exchanges, sales or conveyances. The issuer
of
3
<PAGE>
any shares of stock or other securities or property thereafter deliverable on
the exercise of this Warrant shall be responsible for all of the agreements and
obligations of the Company hereunder. Notice of any such reorganization,
reclassification, consolidation, merger, statutory exchange, sale or conveyance
and of said provisions so proposed to be made, shall be mailed to the Holders of
the Warrants not less than 30 days prior to such event. A sale of all or
substantially all of the assets of the Company for a consideration consisting
primarily of securities shall be deemed a consolidation or merger for the
foregoing purposes.
(c) Whenever the Exercise Price is adjusted as provided in
this Section 4 and upon any modification of the rights of a Holder of Warrants
in accordance with this Section 4, the Company shall promptly mail to the
Holders of the warrants a certificate of the Company's chief financial officer
setting forth the Exercise Price and the number of Common Shares after such
adjustment or the effect of such modification, a brief statement of the facts
requiring such adjustment or modification and the manner of computing the same,
and, at the request of the Holder of any Warrant, obtain, at the Company's
expense, a certificate of a firm of independent public accountants of recognized
standing selected by the Board of Directors (who may be the regular auditors of
the Company) to such effect and cause of such certificate to be mailed to the
Holders of the Warrants.
(d) In case any event shall occur as to which the other
provisions of this Section 4 are not strictly applicable but as to which the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles hereof then, in each such case, the Holders of Warrants representing
the right to purchase a majority of the Common Shares subject to all outstanding
Warrants may appoint a firm of independent public accountants of recognized
national standing reasonably acceptable to the Company, which shall give their
opinion as to the adjustment, if any, on a basis consistent with the essential
intent and principles established herein, necessary to preserve the purchase
rights represented by the Warrants. Upon receipt of such opinion, the Company
will promptly mail a copy thereof to the Holder of this Warrant and shall make
the adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by such Holders.
(e) No adjustments in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least $0.05
per share of Common Stock. All calculations under this Section 4 shall be made
to the nearest cent or to the nearest 1/100th of a share, as the case may be.
Anything in this Section 4 to the contrary notwithstanding, the Company shall be
entitled to make such reductions in the Exercise Price, in addition to those
required by this Section 4 as it in its discretion shall deem to be advisable in
order that any stock dividend, subdivision of shares or distribution of rights
to purchase stock or securities convertible or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
SECTION 5. Registration Under Securities Act of 1933. (a) The
Company agrees that, if at any time subsequent to the first underwritten public
offering of Common Stock by the Company registered under the Act, the Board of
Directors of the Company shall authorize the filing of a registration statement
under the Act (other than a registration statement on Form S-8, S-4 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities) in connection
with the proposed offer of any of its securities
4
<PAGE>
by it or any of its stockholders, and the Holder and/or the Holders of any other
Common Shares which have not previously been registered under the Act or which
are not freely transferable without registration under the Act due to the lapse
of time or otherwise and who or which shall hold greater than 50% of the Common
Shares issued or is issuable upon the exercise of the Warrants, shall request
that their Common Shares be included in such registration statement, the Company
will (i) promptly notify each Holder of the Warrants and each holder of Common
Shares that such registration statement will be filed and that the Common Shares
which are then held, and/or may be acquired upon exercise of the Warrants by the
Holder and such holders will be included in such registration statement at the
Holder's and such holders' request, (ii) cause such registration statement to
cover all such Common Shares which it has been so requested to include, (iii)
use reasonable efforts to cause such registration statement to become effective
as soon as practicable and (iv) use reasonable efforts to take all other action
necessary under any Federal or state law or regulation of any governmental
authority to permit all such Common Stock which it has been so requested to
include in such compliance with each such Federal and state law and regulation
of any governmental authority for the period necessary for the Holder and such
Holders to effect the proposed sale or other disposition; provided, however,
that the foregoing shall be subject to Section 5(f).
(b) Whenever the Company is required pursuant to the
provisions of this Section 5 to include in a registration statement Common
Shares, the Company shall (i) furnish each Holder of any such Warrants Shares
and each underwriter of such Common Stock with such copies of the prospectus,
including the preliminary prospectus, conforming to the Act (and such other
documents as each such Holder or each such underwriter may reasonably request)
reasonably requested for the purposes of facilitating the sale or distribution
of such Common Stock, (ii) use reasonable efforts to register or qualify such
Common Stock under the blue sky laws (to the extent applicable) of such
jurisdiction or laws (to the extent applicable) or such jurisdiction or
jurisdictions as the Holders of any Common Stock and each underwriter of such
Common Stock being sold by such Holders shall reasonably request and (iii) take
such other actions as may be reasonably necessary or advisable to enable such
Holders and such underwriters to consummate the sale or distribution in such
jurisdiction that such Common Stock be sold; provided, however, that the
foregoing "piggyback" registration right shall be subject to the cut back in the
sole discretion of the underwriter for the Company.
(c) The Company shall pay all expenses incurred in connection
with any registration statement or other action pursuant to the provisions of
this Section 5, other than underwriting discounts and applicable transfer taxes
relating to the Common Shares.
(d) The Company will indemnify the holders of Common Shares
which are included in each registration statement referred to in Section 5(a)
and the underwriters, if any, of such Common Stock, substantially to the same
extent as is customary for indemnification and contribution provisions in favor
of underwriters and selling shareholders of similar offerings, and such Holders
will indemnify the Company (and the underwriters, if applicable) with respect to
information furnished by them in writing to the Company for inclusion therein
substantially to the same extent as the underwriters indemnify the Company.
5
<PAGE>
(e) If the Company shall at any time have completed a public
offering of shares of its Common Stock, it shall thereafter take such steps as
may be necessary to register its Common Stock, as the case may be, under Section
12 of the Securities Exchange Act of 1934, as amended, to maintain such status,
and to file with the Securities and Exchange Commission all current reports and
the information as may be necessary to enable the Holder to effect sales of its
shares in reliance upon Rule 144 promulgated under the Act.
(f) If at any time subsequent to the first underwritten public
offering of Common Stock by the Company registered under the Act, the Board of
Directors of the Company shall authorize the filing of a registration statement
under the Act (other than a registration statement on Form S-8, S-4 or other
form which does not include substantially the same information as would be
required in a form for the general registration of securities), and if the Board
of Directors resolves, or the managing underwriter(s) advise the Company in
writing, that in its or their good faith judgment the amount of securities
requested to be included in such registration exceeds the amount of such
securities which can be sold successfully in such offering at the desired price,
the Company will be obligated to only include in such registration the amount of
securities requested to be included which in the judgment of the Board of
Directors or such underwriter(s) can be sold, in the following order: (i) first,
all the securities the Company proposes to sell, (ii) second, all the Common
Stock requested to be included by holders having the right to demand such
registration, (iii) third, subject to the terms of any other agreement to which
the Company is a party, all the Common Shares and other shares of Common Stock
requested to be included in such registration pursuant to piggyback registration
rights (including the Common Shares), pro rata among the holders thereof on the
basis of the total number of shares of Common Stock requested by such piggyback
holders to be so registered, and (iv) fourth, any other securities requested to
be included in such registration, pro rata among the holders thereof on the
basis of the amount of such securities then owned by such holders. Accordingly,
if the amount of shares of Common Stock included in the registration pursuant to
clauses (i) and (ii) exhausts the amount that can be sold successfully in the
good faith judgment of the Board of Directors or the managing underwriter(s),
then the Holders and each holder of Common Shares will not be entitled to
participate in such registration.
SECTION 6. Fractional Shares. The Company may, but shall not
be required to, issue fractional Common Shares on exercise of the Warrants. The
number of full Common Shares which shall be issuable upon such exercise of
Warrants by the Holder shall be computed on the basis of the aggregate number of
whole Common Shares purchasable on exercise of all Warrants held by the Holder.
If any fraction of a Common Share would, except for the provisions of this
Section 6, be issuable on the exercise of Warrants, the Company may if it elects
pay an amount in cash calculated by it to be equal to the then fair value of one
Common Share, as determined by the Board of Directors of the Company in good
faith, multiplied by such fraction computed to the nearest whole cent.
SECTION 7. Warrant Holders Not Deemed Stockholders. The Holder
shall not, as the holder of Warrants, be entitled to receive dividends or be
deemed the holder of Common Shares that may at any time be issuable upon the
exercise of such Warrants for any purpose whatsoever.
6
<PAGE>
SECTION 8. Governing Law. This Warrant Certificate shall be
governed by and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws.
SECTION 9. Assignment. This Warrant Certificate may not be
assigned in whole or in part or transferred by the Holder without the prior
written consent of the Company and any such purported transfer without such
prior written consent shall be null and void ab initio.
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed as of the date first above written.
AVAX TECHNOLOGIES, INC.
By: /s/ Jeffrey M. Jones, M.D.
_______________________________
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief
Executive Officer
7
<PAGE>
SUBSCRIPTION FORM
The undersigned Holder, pursuant to the provisions of the
foregoing Warrant Certificate, hereby irrevocably elects to subscribe for and
purchase __________ shares of the Common Stock of AVAX Technologies, Inc.
issuable upon the exercise of such Warrants, and makes payment thereof in full
at the price per share provided by said Warrant Certificate.
Dated: ___________________ Signature: _______________________
Address: _______________________
_______________________
CASHLESS EXERCISE
The undersigned Holder, pursuant to the provisions of the
foregoing Warrant Certificate, hereby irrevocably elects to exchange its
Warrants for _________ shares of Common Stock of AVAX Technologies, Inc.
pursuant to the Cashless Exercise provisions of said Warrant Certificate.
Dated: _______________ Signature: ________________________________
Address: ________________________________
________________________________
<PAGE>
<PAGE>
EXHIBIT 5.1
May 7, 1997
AVAX Technologies, Inc.
4520 Main Street, Suite 930
Kansas City, 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 August 1, 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, as
further amended by Amendment No. 4 thereto filed with the Commission on February
26, 1997, as further amended by Amendment No. 5 thereto filed with the
Commission on April 4, 1997 and as further amended by Amendment No. 6 hereto
filed with the Commission on May 7, 1997, under the Securities Act of 1933
(the "Act") for the registration under the Act of the following securities
of the Issuer:
(i) 285,199 shares of common stock, par value $.002 per share
("Common Stock");
(ii) 6,447,450 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 47,650 shares of Common Stock issuable upon (a)
the conversion of shares of Series B Preferred Stock issuable
upon exercise of the warrants issued to the placement agent
and/or its designees relating to the offering of the Series B
Preferred Stock (the "Series B Placement Warrants") and (b)
exercise of warrants issued to the placement agent and/or its
designees for certain bridge financing transactions of the
Company (the "Bridge Placement Warrants," and together with
the Series B Placement Warrants, the "Placement Warrants").
<PAGE>
2
In that connection, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of certificates of public
officials and corporate records, instruments and documents of or affecting the
Issuer, including, without limitation, (i) the Certificate of Incorporation of
the Issuer, as amended to date; (ii) the Bylaws of the Issuer, as amended to
date; (iii) resolutions adopted by the Board of Directors and Stockholders of
the Issuer; (iv) the Certificate of Designations for the Series B Preferred
Stock; (v) a form of specimen stock certificate for the Common Stock; (vi) a
form of specimen stock certificate for the Series B Preferred Stock; (vii) a
form of the Series B Placement Warrant; and (viii) a form of the Bridge
Placement Warrant. We have also examined originals or copies, certified or
otherwise identified to our satisfaction, of certificates of officers of the
Issuer, and have reviewed such questions of law and made such other inquiries,
as we have deemed necessary or appropriate for the purpose of rendering this
opinion.
In rendering our opinion, we have relied, as to matters of
fact, upon representations and warranties of the Issuer and upon such
certificates and other instruments of officers of the Issuer and public
officials as we have deemed necessary or appropriate for the purpose of
rendering this opinion, in each case without independent investigation or
verification. Additionally, without any independent investigation or
verification, we have assumed (i) the genuineness of all signatures, (ii) the
authenticity of all documents submitted to us as originals and the conformity
with the original documents of all documents submitted to us as certified,
conformed or photostatic copies, (iii) the authority of all persons signing any
document other than the officers of the Issuer, where applicable, signing in
their capacity as such, (iv) the enforceability of all the agreements we have
reviewed in accordance with their respective terms against the parties thereto,
and (v) the truth and accuracy of all matters of fact set forth in all
certificates and other instruments furnished to us.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that:
1. The Issuer is a corporation duly incorporated and is in
good standing under the laws of the State of Delaware.
2. The 285,199 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.
3. The 6,447,450 shares of Common Stock issuable upon
conversion of currently outstanding shares of Series B Preferred Stock have been
duly authorized for issuance, and when issued upon conversion of the Series B
Preferred Stock will be legally issued, fully paid and nonassessable.
<PAGE>
3
4. The aggregate of up to 36,400 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 11,250 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>
<PAGE>
Exhibit 10.4
AVAX TECHNOLOGIES, INC.
375 PARK AVENUE, SUITE 1501
NEW YORK, NEW YORK 10152
May 17, 1996
VIA FACSIMILE
(816) 444-8434
Jeffrey M. Jonas, M.D.
Dear Jeffrey:
It was a pleasure speaking with you again about the possibility of your
joining AVAX Technologies, Inc. (the "Corporation") as President, Chief
Executive Officer and Director. Accordingly, I would like to extend to you
the following offer of employment:
1. A base salary of $200,000 per annum, subject to semiannual review
commencing twelve months from the original date of employment. In
addition, you shall be entitled to a $12,500 signing bonus payable
within 30 days of the signing of this Agreement. In the event you are
terminated without cause or you terminate your employment for cause,
you shall be entitled to receive as severance the base salary for one
year following such termination, subject to set-off for amounts earned
from alternative employment. At the end of your first year of
employment, you shall be entitled to a bonus of $25,000. In addition,
at the discretion of the Board of Directors, you shall also be
eligible for a bonus of up to $175,000.
2. Options to purchase 637,745 of the shares of Common Stock of the
Corporation (representing 5% of the anticipated 12,745,902
fully-diluted shares of common stock of the Company to be outstanding
if the Company raises $12,000,000 during the current private placement
offering (the "Offering"), exercisable for 7 years at an exercise
price equal to $.50. Your options shall vest and be exercisable
(subject to resale restrictions for a period of up to 18 months
following any public offering), and provided you are still employed by
the Corporation on such dates, one-sixteenth each quarter until the
fourth anniversary
<PAGE>
of the commencement of such employment, at which point all remaining
shares shall be vested. In the event that the Offering is for less
than $12,000,000 the Company shall have the right to repurchase for
$.001 per share the number of shares underlying the Options needed to
adjust the Options granted such that you will have options to purchase
5% of the outstanding shares of common stock of the Company at the
close of the current Offering.
In addition to the foregoing stock options you shall be entitled to
additional stock options from time to time at the discretion of the
Board of Directors.
3. The Corporation shall reimburse you for all normal, usual and
necessary expenses incurred by you in furtherance of the business and
affairs of the Corporation, including reasonable travel (including
cost of reasonable lodging and transportation between New York and
Kansas City as necessary), against receipt by the Corporation of
appropriate vouchers or other proof of the CEO's expenditures and
otherwise in accordance with such Expense Reimbursement Policy as may
from time to time be adopted by the Board of Directors of the
Corporation.
4. It is the intention that the Company will be located in Kansas City or
such other location that you deem advisable. Please be aware, however,
that it is expected that Board of Director's meetings will be held in
New York every other month.
5. You shall be, during the time of your employment, entitled to
vacations of not less than three (3) weeks per annum.
6. The Corporation shall make available to you and your dependents, such
paid medical, long-term disability, life insurance up to $200,000 and
such other health benefits as the Corporation makes available to its
other senior officers and directors.
7. Your start date shall be June 1, 1996.
8. Please be aware that the foregoing offer is subject to the
satisfactory completion by us of our reference due diligence process.
<PAGE>
9. The parties intend that an employment agreement satisfactory to the
Company and you will be signed within a reasonable time after the
commencement of your employment and will contain the foregoing
provisions and additional provisions relating to, without limitation,
confidentiality of certain information and restrictions on activities
in competition with the Company.
Sincerely,
/s/ Carl Spana
--------------------
Carl Spana, Ph.D.
Interim President
AGREED AND ACCEPTED:
/s/ Jeffrey Jonas
- ----------------------
Jeffrey M. Jonas, M.D.
<PAGE>
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
April 7, 1997
Dr. Jeffrey Jonas
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
Dear Jeff:
This will confirm our agreement to amend to your letter of employment
dated May 17, 1996 to add the following paragraphs 10 and 11:
10. The initial term of your employment agreement will expire on March 31,
1999. In the event that a Change of Control (as hereafter defined) occurs and,
prior to the expiration of the initial term, your employment is terminated by
the Company without cause or by you with cause, (i) you will be entitled to
two times your base salary in effect at the time of the Change of Control or
at the time of termination, whichever is higher, and (ii) all options granted
to you in paragraph 2 that have not yet vested shall immediately vest. A
"Change of Control" shall be deemed to have occurred in the event either:
(a) any person or group acquires beneficial ownership of more than 50%
of the then outstanding shares of the Company's common stock, provided
that (i) the acquisition of common stock by the Company, any of its
employee benefit plans or Paramount Capital, Inc. or any of its non-
operating company affiliates shall not constitute a Change of Control
and (ii) the acquisition of common stock from the Company by any person
or group shall not constitute a Change of Control if at both the time such
person or group agreed to acquire such common stock and the time such
acquisition is consummated the market capitalization of the Company is
less than $100 million; or
(b) a merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination")
is consummated unless, following such Business Combination, at least a
majority of the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the Company at
the time of the initial action of the Board of Directors providing for
such Business Combination.
<PAGE>
For purposes of clause (a)(i) above, the "non-operating company affiliates" of
Paramount shall mean all affiliates of Paramount that are not primarily engaged
in product development and shall include, without limitation, Paramount Capital
Asset Management ("Asset Management") and any investment funds now existing or
hereafter created which are owned or managed by Paramount, Asset Management or
by any of Paramount's or Asset Management's officers, directors or shareholders,
including without limitation The Aries Domestic Funds, L.P. and The Aries Fund,
a Cayman Islands Trust. For purposes of clause (a)(ii) above, the market
capitalization of the company shall be determined by treating all equity
securities of the Company convertible into common stock as having been
converted regardless of their conversion price; by treating all warrants for
the Company's common stock held by Paramount and its officers, directors and
employees outstanding options and warrants for the Company's common stock
as having been exercised to the extent their exercise price was less than the
market price for the Company's common stock at the time of determination; and
by treating all debt securities of the Company convertible into common stock
as having been converted only to the extent their conversion price was less
than the market price for the Company's common stock at the time of
determination.
You shall be entitled to terminate your employment for cause following a
Change of Control if (a) the Company does not provide you with a position,
authority or duties at least equivalent to the most significant position,
authority or duties held by you during the 120 days ending on the date of
the Change of Control or (b) the Company requires you to be based at any
office other than in Kansas City, Mo. or requires you to travel outside the
Kansas City area for more than 30 business days in any 40-business day
period, in each case if such circumstance is not remedied within five business
days after written notice from you.
11. All shares of the Company's common stock acquired by you pursuant to the
exercise of the options referenced in paragraph 2 or any other options grant
to you shall be subject to an unconditional lock-up for a period of two years
from the later of the effectiveness of the initial registration statement
relating to the common stock or the initial listing of such common stock on
NASDAQ or any securities exchange. The OTC electronic bulletin board shall
not be deemed a securities exchange for this purpose.
Very truly yours,
/s/ Carl Spana
------------------------
Carl Spana
Director
Agreed:
/s/ Jeffrey M. Jonas, M.D.
- ---------------------------
Dr. Jeffrey Jonas
<PAGE>
EXHIBIT 10.11
AVAX TECHNOLOGIES, INC.
5353 SUNSET DRIVE
KANSAS CITY, MO 64112
(816) 444-7778
September 13, 1996
Mr. David L. Tousley
51 Fairview Drive
Hackettstown, NJ 07840
Dear David:
It was a pleasure speaking with you again about the possibility of your
joining AVAX Technologies, Inc., a Delaware corporation (the "Corporation").
Accordingly, I would like to extend to you the following offer of employment:
1. You shall be employed as the Chief Financial Officer of the
Corporation, and as such you will perform such tasks and have such
responsibilities as the President and Chief Executive Officer of
the Corporation shall determine in his discretion. Initially, you
will report to the President and Chief Executive Officer of the
Corporation; provided that as the Corporation employs additional
personnel your responsibilities and reporting may be adjusted in
the discretion of the President and Chief Executive Officer of the
Corporation. Your employment hereunder shall be for a term of four
years from the Effective Date (as defined in Section 6) unless
sooner terminated pursuant hereto. From and after the fourth
anniversary of the Effective Date, such employment shall be
renewable each year by the Corporation at its option on or prior
to each annual anniversary. If the Corporation does not wish to
continue your employment for the period following the fourth
anniversary of the Effective Date, the Corporation will either
provide you with notice of its intention not to continue your
employment at least six months prior to the fourth anniversary of
the Effective Date, or continue your employment for six months
after the date on which it provides such notice.
2. Commencing on the Effective Date, you shall be employed by the
Corporation at a rate of $150,000 per year, payable in accordance
with the Corporation's normal payroll and withholding practices.
In addition, at the end of the first year of employment hereunder
you shall, at the discretion of the Board of Directors of the
<PAGE>
2
Corporation, be eligible for a bonus of up to 100% of your base
salary (on the basis of the Board's determination of your
performance and the performance of the Corporation), with a
minimum payment of $25,000, which minimum payment shall not be
subject to the discretion of such Board. You may also be entitled
to such additional compensation in the form of bonuses, raises or
otherwise as the Board of Directors of the Corporation shall in
its discretion determine.
3. You will be entitled to nontransferable options to purchase
250,000 shares of Common Stock, par value $.002 per share, of the
Corporation ("Common Stock"), exercisable for seven years at an
exercise price equal to $.50 per share of Common Stock. Your
options shall vest and be exercisable (subject to resale
restrictions for a period of up to 18 months in connection with
and following any public offering, which may be imposed by the
Corporation or the managing underwriter(s) of such offering),
provided you are still employed by the Corporation on such dates,
at the rate of one-sixteenth of such amount of options per quarter
until the fourth anniversary of the Effective Date at which point
all remaining options shall be vested. Upon termination of
employment, such vested options shall be exercisable for up to 30
days thereafter; provided, however, that if such termination is
"for cause" pursuant to Section 7(iv)-(vii) below, all options
hereunder, including vested options, shall be forfeited and of no
force and effect. The tax consequences to you of the grant,
vesting or exercise of any such options or the sale of any shares
of Common Stock issuable pursuant to such options shall be your
personal responsibility and not that of the Corporation.
4. During the term of your employment, you shall be entitled to
vacation of not less than two weeks per annum but no more than
four weeks per annum, at such time and in such amount as may be
agreed by you and the President and Chief Executive Officer of the
Corporation.
5. The Corporation may make available to you such paid medical,
disability, life insurance, pension and such other health benefits
as the President and Chief Executive Officer of the Corporation
shall determine; provided that during the term of your employment
pursuant to this letter, you shall be entitled to participate in
all employee benefit plans of the Corporation (including, without
limitation, any pension, retirement or other plans) subject to the
eligibility, enrollment and other requirements of such plans, and
you shall be entitled to maintain the same type and amount of
benefits thereunder as are generally available to other senior
executives of the Corporation under such plans. Until such time as
the Corporation implements its own medical insurance plan, the
Corporation shall reimburse you for COBRA premiums paid by or
through your former employer upon presentation of reasonable
documentation therefor.
<PAGE>
3
6. Your employment start date shall be October 1, 1996, or such
earlier date as may be agreed by you and the President and Chief
Executive Officer of the Corporation (the "Effective Date").
7. Your employment hereunder may be terminated at any time and for
any or no reason by the Corporation for cause or without cause to
do so. If you are terminated without cause you shall be entitled
to your base salary and benefits pursuant to Section 2 and Section
5 until the earlier of (x) the six month anniversary of the date
of such termination and (y) the date on which you obtain alternate
employment. You agree to use your best efforts in any such case to
obtain alternate employment as promptly as practicable.
Termination of your employment by the Corporation shall constitute
a termination "for cause" for any of the following reasons: (i)
conviction of any felony, or of any misdemeanor involving moral
turpitude; (ii) habitual use of drugs without a prescription;
(iii) habitual or excessive use of alcohol; (iv) acts or omissions
involving willful or intentional malfeasance or misconduct that is
injurious to the Corporation, monetarily, reputationally or
otherwise; (v) commission of an act of fraud against the
Corporation; (vi) breach of the fiduciary duty you would owe
toward the Corporation and its shareholders as if you were a
director of the Corporation; or (vii) acts or omissions
constituting a material breach of your obligations under this
letter or the agreement or agreements to be entered into pursuant
to Section 9 below. In the event of any termination for cause, the
Corporation shall pay your base salary under Section 2 hereof
through the date of termination and all other compensation
including, without limitation, bonuses and option grants shall not
be payable, except that if such termination for cause is pursuant
to only Section 7(i)-(iii), you will be entitled to exercise your
vested options in accordance with Section 3 above. Except as
otherwise specifically set forth herein, all rights of yours, and
all obligations of the Corporation under this letter agreement,
shall cease and terminate on, and as of, the date of termination
of employment.
8. Upon four weeks' prior written notice to the Corporation (or such
shorter period of time as the Corporation in its discretion shall
designate), you shall have the right to terminate your employment,
in which event you shall be entitled to no further compensation or
other benefits in respect of any period subsequent to the
effective date of such termination.
9. The parties intend that an employment agreement and possibly
related agreements will be signed within a reasonable time after
the Effective Date and will contain the foregoing provisions and
additional provisions relating to, without limitation, the matters
set forth in Section 3, confidentiality and ownership of certain
information and intellectual property, nonsolicitation of
Corporation employees and restrictions
<PAGE>
4
on activities in competition with the Corporation, in form and
substance reasonably acceptable to the Corporation and its
counsel.
10. You represent and warrant to the Corporation that neither the
execution and delivery of this letter of employment nor the
consummation of the transactions contemplated hereby nor the
compliance by the parties with the provisions hereof will violate
or result in any conflict with or constitute a breach of default
(with or without notice or the passage of time or both) under any
agreement or instrument or other obligation (including, without
limitation, as to noncompetition) to which you are a party or by
which you are bound.
11. The Corporation shall reimburse you for all reasonable expenses
incurred by you in moving you and your family from Hackettstown,
New Jersey to Kansas City, Missouri, upon presentation of
reasonable documentation therefor. The Corporation shall also
reimburse you for the reasonable and necessary closing costs
incurred by you in connection with the sale of your current home
in Hackettstown, New Jersey, as well as up to 50% of your
realtor's fee in connection therewith, in each case upon
presentation of reasonable documentation therefor, up to a maximum
aggregate reimbursement of $10,000 for such closing costs and
realtor's fee. In addition, the Corporation shall, upon
presentation of reasonable documentation therefor, reimburse you
for all reasonable temporary lodging expenses incurred by you and
your family until the earlier of (a) such time as you acquire
permanent residence in the Kansas City, Missouri area and (b)
March 30, 1997. You agree to use reasonable efforts to find such
permanent residence as promptly as practicable following the
Effective Date; it being acknowledged that your ability to do so
will be impacted by your need to sell your existing residence in
Hackettstown, New Jersey at or prior to the time of your purchase
of a residence in the Kansas City, Missouri area.
12. (a) This agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard
to such State's principles of conflict of laws.
(b) This agreement contains the entire understanding of the
parties with respect to your employment by the Corporation. There
are no other restrictions, agreements, promises, representations,
warranties, covenants or undertakings (written or oral) between
the parties with respect to the subject matter hereof other than
those expressly set forth herein. This agreement may not be
altered, modified, or amended except by written instrument signed
by the parties hereto.
(c) The failure of a party to insist upon strict adherence to any
term of this agreement on any occasion shall not be considered a
waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any
other term of this agreement.
<PAGE>
5
(d) In the event that any one or more of the provisions of this
agreement shall be or become invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the
remaining provisions of this agreement shall not be affected
thereby.
(e) Any dispute between the parties to this agreement arising from
or relating to the terms of this agreement or your employment,
including the terms and conditions of such employment, shall be
submitted to binding arbitration in either New York City or Kansas
City, Missouri, under the auspices of the American Arbitration
Association.
(f) This agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs,
representatives, successors and assigns, whether by contract or
operation of law or otherwise.
(g) This agreement may be signed in counterparts, each of which
shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument. This agreement
shall become effective when each party hereto shall have received
a counterpart hereof signed by the other party hereto.
If this letter agreement meets with your approval and you desire to
accept this offer of employment on the terms and conditions set forth herein,
please execute the enclosed copy of this letter and return it to me as soon as
possible. We look forward to having you join our team.
Sincerely,
/s/ Jeffrey M. Jonas
Jeffrey M. Jonas, M.D.
President and Chief Executive Officer
AGREED AND ACCEPTED
AS OF SEPTEMBER 16, 1996:
/s/ David L. Tousley
David L. Tousley
<PAGE>
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
April 7, 1997
Mr. David Tousley
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
Dear Dave,
This will confirm our agreement to amend to your letter of employment
dated September 13, 1996, to add the following paragraphs 13 and 14:
13. In the event that a Change of Control (as hereafter defined) occurs and,
prior to the expiration of the initial term, your employment is terminated
by the Company without cause or by you with cause, all options granted to you
in paragraph 3 that have not yet vested shall immediately vest. A "Change of
Control" shall be deemed to have occurred in the event either:
(a) any person or group acquires beneficial ownership of more than 50%
of the then outstanding shares of the Company's common stock, provided
that (i) the acquisition of common stock by the Company, any of its
employee benefit plans or Paramount Capital, Inc. ("Paramount") or any
of its non-operating company affiliates shall not constitute a Change of
Control and (ii) the acquisition of common stock from the Company by any
person or group shall not constitute a Change of Control if at both the
time such person or group agreed to acquire such common stock and the
time such acquisition is consummated the market capitalization of the
Company is less than $100 million; or
(b) a merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination")
is consummated unless, following such Business Combination, at least a
majority of the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the Company at
the time of the initial action of the Board of Directors providing for
such Business Combination.
For purposes of clause (a)(i) above, the "non-operating company affiliates"
of Paramount shall mean all affiliates of Paramount that are not primarily
engaged in product
<PAGE>
development and shall include, without limitation, Paramount
Capital Asset Management ("Asset Management") and any investment funds now
existing or hereafter created which are owned or managed by Paramount, Asset
Management or by any of Paramount's or Asset Management's officers, directors
or shareholders, including without limitation The Aries Domestic Funds, L.P.
and The Aries Fund, a Cayman Islands Trust. For purposes of clause (a)(ii)
above, the market capitalization of the Company shall be determined by treating
all equity securities of the Company convertible into common stock as having
been converted regardless of their conversion price; by treating all warrants
for the Company's common stock held by Paramount and its officers, directors
and employees as having been exercised regardless of their exercise price; by
treating all other outstanding options and warrants for the Company's common
stock as having been exercised to the extent their exercise price was less than
the market price for the Company's common stock at the time of determination;
and by treating all debt securities of the Company convertible into common
stock as having been converted only to the extent their conversion price
was less than the market price for the Company's common stock at the time of
determination.
You shall be entitled to terminate your employment for cause following a
Change of Control if (a) the Company does not provide you with a position,
authority or duties at least equivalent to the most significant position,
authority or duties held by you during the 120 days ending on the date of the
Change of Control or (b) the Company requires you to be based at any office
other than in Kansas City, Mo. or requires you to travel outside the Kansas
City area for more than 30 business days in any 40-business day period, in
each case if such circumstance is not remedied within five business days after
written notice from you.
14. All shares of the Company's common stock acquired by you pursuant to the
exercise of the options referenced in paragraph 3 or any other options grant
to you shall be subject to an unconditional lock-up for a period of two years
from the later of the effectiveness of the initial registration statement
relating to the common stock or the initial listing of such common stock on
NASDAQ or any securities exchange. The OTC electronic bulletin board shall
not be deemed a securities exchange for this purpose.
Very truly yours,
/s/ Carl Spana
--------------------
Carl Spana
Director
Agreed:
/s/ David L. Tousley
- ---------------------
David Tousley
EXHIBIT 10.12
AVAX TECHNOLOGIES, INC.
5353 SUNSET DRIVE
KANSAS CITY, MO 64112
(816) 444-7778
September 13, 1996
Ernest W. Yankee, Ph.D.
9033 West R Avenue
Kalamazoo, MI 49009
Dear Ernie:
It was a pleasure speaking with you again about the possibility of your
joining AVAX Technologies, Inc., a Delaware corporation (the "Corporation").
Accordingly, I would like to extend to you the following offer of employment:
1. You shall be employed as an Executive Vice President of the
Corporation, and as such you will perform such tasks and have such
responsibilities as the President and Chief Executive Officer of the Corporation
shall determine in his discretion. Initially, you will report to the President
and Chief Executive Officer of the Corporation and it is anticipated that you
will initially oversee the medical and regulatory aspects of the Corporation's
business; PROVIDED that as the Corporation employs additional personnel your
responsibilities and reporting may be adjusted in the discretion of the
President and Chief Executive Officer of the Corporation. Your employment
hereunder shall be for a term of four years from the Effective Date (as
defined in Section 6) unless sooner terminated pursuant hereto. From and after
the fourth anniversary of the Effective Date, such employment shall be
renewable each year by the Corporation at its option on or prior to each
annual anniversary.
2. Commencing on the Effective Date, you shall be employed by the
Corporation at a rate of $145,000 per year, payable in accordance with the
Corporation's normal payroll and withholding practices. In addition, at the end
of the first year of employment hereunder you shall, at the discretion of the
Board of Directors of the Corporation, be eligible for a bonus of up to 75% of
your base salary (on the basis of the Board's determination of your performance
and the performance of the Corporation), with a minimum payment of $25,000,
which minimum payment shall not be subject to the discretion of such Board. You
may also be entitled to such additional compensation in the form of bonuses,
raises or otherwise as the Board of Directors of the Corporation shall in its
discretion determine.
<PAGE>
2
3. You will be entitled to nontransferable options to purchase 250,000
shares of Common Stock, par value $.002 per share, of the Corporation ("Common
Stock"), exercisable for seven years at an exercise price equal to $.50 per
share of Common Stock. Your options shall vest and be exercisable (subject to
resale restrictions for a period of up to 18 months in connection with and
following any public offering, which may be imposed by the Corporation or the
managing underwriter(s) of such offering), provided you are still employed by
the Corporation on such dates, at the rate of one-sixteenth of such amount of
options per quarter until the fourth anniversary of the Effective Date at which
point all remaining options shall be vested. Upon termination of employment,
such vested options shall be exercisable for up to 30 days thereafter; provided,
however, that if such termination is "for cause" pursuant to Section 7(iv)-(vii)
below, all options hereunder, including vested options, shall be forfeited and
of no force and effect. The tax consequences to you of the grant, vesting or
exercise of any such options or the sale of any shares of Common Stock issuable
pursuant to such options shall be your personal responsibility and not that of
the Corporation.
4. During the term of your employment, you shall be entitled to vacation
of not less than two weeks per annum but no more than four weeks per annum, at
such time and in such amount as may be agreed by you and the President and Chief
Executive Officer of the Corporation.
5. The Corporation may make available to you such paid medical,
disability, life insurance, pension and such other health benefits as the
President and Chief Executive Officer of the Corporation shall determine. Until
such time as the Corporation implements its own medical insurance plan, the
Corporation shall reimburse you for COBRA premiums paid by or through your
former employer upon presentation of reasonable documentation therefor.
6. Your employment start date shall be October 1, 1996, or such earlier
date as may be agreed by you and the President and Chief Executive Officer of
the Corporation (the "Effective Date").
7. Your employment hereunder may be terminated at any time and for any or
no reason by the Corporation for cause or without cause to do so. If you are
terminated without cause you shall be entitled to your base salary and benefits
pursuant to Section 2 and Section 5 until the earlier of (x) the six month
anniversary of the date of such termination and (y) the date on which you obtain
alternate employment. You agree to use your best efforts in any such case to
obtain alternate employment as promptly as practicable.
Termination of your employment by the Corporation shall constitute a
termination "for cause" for any of the following reasons: (i) conviction of any
felony, or of any
<PAGE>
3
misdemeanor involving moral turpitude; (ii) habitual use of drugs without a
prescription; (iii) habitual or excessive use of alcohol; (iv) acts or
omissions involving willful or intentional malfeasance or misconduct that is
injurious to the Corporation, monetarily, reputationally or otherwise;
(v) commission of an act of fraud against the Corporation; (vi) breach of the
fiduciary duty you would owe toward the Corporation and its shareholders as if
you were a director of the Corporation; or (vii) acts or omissions
constituting a material breach of your obligations under this letter or the
agreement or agreements to be entered into pursuant to Section 9 below. In
the event of any termination for cause, the Corporation shall pay your base
salary under Section 2 hereof through the date of termination and all other
compensation including, without limitation, bonuses and option grants shall
not be payable, except that if such termination for cause is pursuant to
only Section 7(i)-(iii), you will be entitled to exercise your vested options
in accordance with Section 3 above. Except as otherwise specifically set
forth herein, all rights of yours, and all obligations of the Corporation
under this letter agreement, shall cease and terminate on, and as of, the
date of termination of employment.
8. Upon four weeks' prior written notice to the Corporation (or such
shorter period of time as the Corporation in its discretion shall designate),
you shall have the right to terminate your employment, in which event you shall
be entitled to no further compensation or other benefits in respect of any
period subsequent to the effective date of such termination.
9. The parties intend that an employment agreement and possibly related
agreements will be signed within a reasonable time after the Effective Date and
will contain the foregoing provisions and additional provisions relating to,
without limitation, the matters set forth in Section 3, confidentiality and
ownership of certain information and intellectual property, nonsolicitation of
Corporation employees and restrictions on activities in competition with the
Corporation, in form and substance acceptable to the Corporation and its
counsel.
10. You represent and warrant to the Corporation that neither the
execution and delivery of this letter of employment nor the consummation of the
transactions contemplated hereby nor the compliance by the parties with the
provisions hereof will violate or result in any conflict with or constitute a
breach of default (with or without notice or the passage of time or both) under
any agreement or instrument or other obligation (including, without limitation,
as to noncompetition) to which you are a party or by which you are bound.
11. The Corporation shall reimburse you for all reasonable expenses
incurred by you in moving you and your family from Kalamazoo, Michigan to Kansas
City, Missouri, upon presentation of reasonable documentation therefor. The
Corporation shall also reimburse you for the reasonable and necessary closing
costs incurred by you in
<PAGE>
4
connection with the sale of your current home in Kalamazoo, Michigan, as well
as up to 50% of your realtor's fee in connection therewith, in each case upon
presentation of reasonable documentation therefor, up to a maximum aggregate
reimbursement of $10,000 for such closing costs and realtor's fee. In addition,
the Corporation shall, upon presentation of reasonable documentation therefor,
reimburse you for all reasonable temporary lodging expenses incurred by you and
your family until the earlier of (a) such time as you acquire permanent
residence in the Kansas City, Missouri area and (b) March 30, 1997. You agree to
use reasonable efforts to find such permanent residence as promptly as
practicable following the Effective Date; it being acknowledged that your
ability to do so will be impacted by your need to sell your existing residence
in Kalamazoo, Michigan at or prior to the time of your purchase of a residence
in the Kansas City, Missouri area.
12. (a) This agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to such State's
principles of conflict of laws.
(b) This agreement contains the entire understanding of the parties
with respect to your employment by the Corporation. There are no other
restrictions, agreements, promises, representations, warranties, covenants or
undertakings (written or oral) between the parties with respect to the subject
matter hereof other than those expressly set forth herein. This agreement may
not be altered, modified, or amended except by written instrument signed by the
parties hereto.
(c) The failure of a party to insist upon strict adherence to any
term of this agreement on any occasion shall not be considered a waiver of such
party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this agreement.
(d) In the event that any one or more of the provisions of this
agreement shall be or become invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions of this
agreement shall not be affected thereby.
(e) Any dispute between the parties to this agreement arising from or
relating to the terms of this agreement or your employment, including the terms
and conditions of such employment, shall be submitted to binding arbitration in
either New York City or Kansas City, Missouri, under the auspices of the
American Arbitration Association.
(f) This agreement shall inure to the benefit of, and be binding
upon, the parties hereto and their respective heirs, representatives, successors
and assigns, whether by contract or operation of law or otherwise.
<PAGE>
5
(g) This agreement may be signed in counterparts, each of which shall
be an original, with the same effect as if the signatures thereto and hereto
were upon the same instrument. This agreement shall become effective when each
party hereto shall have received a counterpart hereof signed by the other party
hereto.
If this letter agreement meets with your approval and you desire to
accept this offer of employment on the terms and conditions set forth herein,
please execute the enclosed copy of this letter and return it to me as soon as
possible. We look forward to having you join our team.
Sincerely,
/s/ Jeffrey M. Jonas, M.D.
--------------------------
Jeffrey M. Jonas, M.D.
President and Chief Executive Officer
AGREED AND ACCEPTED
AS OF SEPTEMBER 17, 1996:
/s/ Ernest W. Yankee, Ph.D.
- --------------------------
Ernest W. Yankee, Ph.D.
<PAGE>
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
April 7, 1997
Ernest W. Yankee, Ph.D.
AVAX Technologies, Inc.
4520 Main Street
Suite 930
Kansas City, Missouri 64111
Dear Ernie,
This will confirm our agreement to amend to your letter of employment
dated September 13, 1996, to add the following paragraphs 13 and 14:
13. In the event that a Change of Control (as hereafter defined) occurs and,
prior to the expiration of the initial term, your employment is terminated
by the Company without cause or by you with cause, all options granted to you
in paragraph 3 that have not yet vested shall immediately vest. A "Change of
Control" shall be deemed to have occurred in the event either:
(a) any person or group acquires beneficial ownership of more than 50%
of the then outstanding shares of the Company's common stock, provided
that (i) the acquisition of common stock by the Company, any of its
employee benefit plans or Paramount Capital, Inc. ("Paramount") or any
of its non-operating company affiliates shall not constitute a Change of
Control and (ii) the acquisition of common stock from the Company by any
person or group shall not constitute a Change of Control if at both the
time such person or group agreed to acquire such common stock and the
time such acquisition is consummated the market capitalization of the
Company is less than $100 million; or
(b) a merger, consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business Combination")
is consummated unless, following such Business Combination, at least a
majority of the members of the Board of Directors of the surviving entity
or transferee were members of the Board of Directors of the Company at
the time of the initial action of the Board of Directors providing for
such Business Combination.
For purposes of clause (a)(i) above, the "non-operating company affiliates"
of Paramount shall mean all affiliates of Paramount that are not primarily
engaged in product
<PAGE>
development and shall include, without limitation, Paramount
Capital Asset Management ("Asset Management") and any investment funds now
existing or hereafter created which are owned or managed by Paramount, Asset
Management or by any of Paramount's or Asset Management's officers, directors
or shareholders, including without limitation The Aries Domestic Funds, L.P.
and The Aries Fund, a Cayman Islands Trust. For purposes of clause (a)(ii)
above, the market capitalization of the Company shall be determined by treating
all equity securities of the Company convertible into common stock as having
been converted regardless of their conversion price; by treating all warrants
for the Company's common stock held by Paramount and its officers, directors
and employees as having been exercised regardless of their exercise price; by
treating all other outstanding options and warrants for the Company's common
stock as having been exercised to the extent their exercise price was less than
the market price for the Company's common stock at the time of determination;
and by treating all debt securities of the Company convertible into common
stock as having been converted only to the extent their conversion price
was less than the market price for the Company's common stock at the time of
determination.
You shall be entitled to terminate your employment for cause following a
Change of Control if (a) the Company does not provide you with a position,
authority or duties at least equivalent to the most significant position,
authority or duties held by you during the 120 days ending on the date of the
Change of Control or (b) the Company requires you to be based at any office
other than in Kansas City, Mo. or requires you to travel outside the Kansas
City area for more than 30 business days in any 40-business day period, in
each case if such circumstance is not remedied within five business days after
written notice from you.
14. All shares of the Company's common stock acquired by you pursuant to the
exercise of the options referenced in paragraph 3 or any other options grant
to you shall be subject to an unconditional lock-up for a period of two years
from the later of the effectiveness of the initial registration statement
relating to the common stock or the initial listing of such common stock on
NASDAQ or any securities exchange. The OTC electronic bulletin board shall
not be deemed a securities exchange for this purpose.
Very truly yours,
/s/ Carl Spana
--------------------
Carl Spana
Director
Agreed:
/s/ Ernest W. Yankee, Ph.D.
- ---------------------------
Ernest W. Yankee, Ph.D.
INVESTMENT BANKING AGREEMENT (this
"Agreement") dated April 17, 1997, between AVAX
TECHNOLOGIES, INC., a Delaware corporation ("AVAX"),
and HILL, THOMPSON, MAGID & CO. ("HTM").
In consideration of the mutual covenants contained herein and intending to
be legally bound thereby, AVAX and HTM hereby agree as follows:
SECTION 1. For a period of one year from the date hereof, at the written
request of AVAX, HTM will perform investment banking services for AVAX on the
terms set forth below. Such services will be performed on a best efforts basis,
and will include, without limitation, assistance to AVAX in mergers,
acquisitions and internal capital structuring and the placement of new debt and
equity issues of AVAX, all with the objective of accomplishing AVAX's business
and financial goals. In each instance, HTM shall endeavor, subject to market
conditions, to assist AVAX in identifying sources of private and institutional
funds; to provide planning, structuring, strategic and other advisory services
to AVAX; and to assist in negotiations on behalf of AVAX. In each instance, HTM
will render such services as to which AVAX and HTM mutually agree and HTM will
exert its best efforts to accomplish the goals agreed to by HTM and AVAX. No
provision in this Agreement shall be construed as to require AVAX to pay any fee
or other compensation (other than as set forth in Sections 3 and 6) to HTM on
account of the services to be provided by HTM as set forth in this Section 1 or
as otherwise contemplated by this Agreement unless such fee or compensation is
set forth in a separate written agreement between AVAX and HTM as contemplated
by Section 6. In addition, the relationship set forth herein is nonexclusive in
nature and nothing contained herein shall require AVAX to request or utilize the
services of HTM as set forth herein and AVAX may without restriction retain
others to perform the same or similar services without incurring any obligation,
financial or otherwise, to HTM.
SECTION 2. In connection with the performance of this Agreement, HTM and
AVAX shall comply with all applicable laws and regulations, including, without
limitation, those of the National Association of Securities Dealers, Inc.
("NASD"), and the Securities and Exchange Commission ("SEC").
SECTION 3. In consideration of the services previously rendered and to be
rendered by HTM hereunder, HTM is hereby granted Warrants in the form attached
as Exhibit A hereto to purchase, at a price of $4.00 per share, a total of
100,000 shares of Common Stock, par value $.002 per share ("Common Stock") of
AVAX. Such Warrants ("HTM Warrants") may be exercised at any time from July 17,
1997 to and including July 17, 2002. The HTM Warrants will be issued to the NASD
registered representatives of HTM in the names and amounts set forth on Schedule
3 hereto. Such Warrants shall vest and become irrevocable as follows: 50% of
such Warrants (50,000 in the aggregate) 60 days after the date of this
Agreement; 25% of such Warrants (25,000 in the aggregate) 180 days after the
date of this Agreement, and an additional 25% of such Warrants (25,000 in the
aggregate) 365 days after the date of this Agreement. The Warrants and the
shares of Common Stock issuable upon exercise of the Warrants shall contain a
legend satisfactory in form and substance to AVAX and its counsel. HTM
understands that the HTM Warrants have
<PAGE>
not been registered under the Securities Act of 1933 (the "Act") by reason
of a claimed exemption under the provisions of the Act which depends, in part,
upon the investment intention of HTM. In this connection, HTM hereby represents
that (a) HTM is acquiring the HTM Warrants for investment purposes only and not
with a view to or for sale in connection with any distribution of the HTM
Warrants; (b) HTM was not formed for the purpose of acquiring the HTM Warrants;
(c) HTM has such sophistication, knowledge and experience in financial and
business matters as to be capable of evaluating the merits and risks of its
investment; (d) HTM has 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 (e) it has had access to information, and the opportunity prior
to its purchase of the HTM Warrants to ask questions of and receive answers from
representatives of AVAX, in each case concerning the finances, operations and
business of AVAX. HTM understands that Rule 144 promulgated under the Act
requires, among other conditions, an extensive holding period prior to the
resale (in limited amounts) of securities acquired in a non-public offering
without having to satisfy the registration requirements under the Act and that
the warrants and the shares of Common Stock issuable upon exercise of the
Warrants will not be entitled to registration rights.
SECTION 4. Pursuant to Section 2710(c)(7)(A) of the NASD Corporate Financing
Rules, the HTM Warrants may be issued to HTM 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 from the date hereof.
Accordingly, the HTM Warrants and the shares of Common Stock issuable upon
exercise of the Warrants will contain an appropriate legend describing the
restriction set forth above the time period for which the restriction is
operative.
SECTION 5. If AVAX should, at any time, or from time to time hereafter, effect a
stock split, a reverse stock split of its shares of Common Stock, or a
recapitalization of its shares of Common Stock, the terms of the HTM Warrants
shall be proportionately adjusted to prevent the dilution or enlargement of the
rights of the holders thereof.
SECTION 6. HTM shall be entitled to normal and ordinary compensation, to be
negotiated and set forth in a separate written agreement between HTM and AVAX,
arising out of any transactions that are proposed or executed by HTM and
consummated by AVAX, or are executed by HTM at AVAX's request, during the term
of this Agreement. In addition, upon reasonable presentation or reasonable
documentation therefore, HTM shall be reimbursed by AVAX for any reasonable
out-of-pocket expenses that HTM may incur in connection with rendering any
service to or on behalf of AVAX that is approved, in writing, in advance by the
Chief Executive Officer of AVAX.
SECTION 7. AVAX agrees to indemnify and hold HTM and its directors, officers and
employees harmless from and against any and all losses, claims, damages,
liabilities, costs or expenses arising out of any action or cause of action
brought against HTM in connection with its rendering services under this
Agreement except for any losses, claims, damages, liabilities, costs or expenses
resulting from any violation by HTM of applicable laws and regulations
including, without limitation, those of the NASD and the SEC or any state
securities commission or from any act of
2
<PAGE>
HTM involving gross negligence or willful misconduct and except that AVAX
shall not be liable for any amount paid in settlement of any claim that is
settled without its prior written consent.
SECTION 8. HTM shall enter into a confidentiality agreement with the
Company in substantially the form attached as Exhibit B hereto.
SECTION 9. HTM agrees to indemnify and hold AVAX and its directors,
officers and employees harmless from and against any and all losses, claims,
damages, liabilities, costs or expenses resulting from any violation by HTM of
applicable laws and regulations including, without limitation, those of the
NASD, the SEC, any state securities commission or from any act of HTM involving
gross negligence or willful misconduct.
SECTION 10. HTM acknowledges that certain of the information that it has
and will be obtaining about AVAX in connection with the transactions
contemplated by this Agreement may constitute material non-public or "inside"
information about AVAX, and that the use or misuse of such information might
involve serious legal consequences. HTM recognizes it responsibility for
compliance with Federal securities laws in connection with any such activities.
SECTION 11. Nothing contained in this Agreement shall be construed to
constitute HTM as a partner, employee, or agent of AVAX; nor shall either party
have any authority to bind the other in any respect, it being intended that HTM
is, and shall remain, an independent contractor.
SECTION 12. This Agreement may not be assigned by either party hereto (and
any purported assignment shall be void ab initio), shall be interpreted in
accordance with the laws of the State of New York, and shall be binding upon the
successors of the parties. Either party may terminate this investment banking
contract at any time; provided, however, that Warrants legally vested in
accordance with paragraph 3 will remain vested and all unvested Warrants will be
canceled.
SECTION 13. If any paragraph, sentence, clause or phrase of this Agreement
is for any reason declared to be illegal, invalid, unconstitutional, void or
unenforceable, all other paragraphs, sentences, clauses or phrases hereof not so
held shall be and remain in full force and effect.
SECTION 14. None of the terms of this Agreement shall be deemed to be
waived or modified except by an express agreement in writing signed by the party
against whom enforcement of such waiver or modification is sought. The failure
of either party at any time to require performance by the other party of any
provision hereof shall, in no way, affect the full right to require such
performance at any time thereafter. The waiver by either party of a breach of
any provision hereof shall not be deemed or held to be a waiver of any
succeeding breach of such provision or as a waiver of the provision itself.
SECTION 15. Any dispute, claim or controversy arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in New
York City, New York, in
3
<PAGE>
accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The parties hereto agree that they will abide by and
perform any award rendered by the arbitrator(s) and that judgment upon any such
award may be entered in any Court, state or federal, having jurisdiction over
the party against whom the judgment is being entered. Any arbitration demand,
summons, complaint, other process, notice of motion, or other application to an
arbitration panel, Court or Judge, and any arbitration award or judgment may be
served upon any party hereto by registered or certified mail, or by personal
service, provided a reasonable time for appearance or answer is allowed.
SECTION 16. Any notice required to be given or delivered to AVAX under the
terms of this Agreement shall be in writing and addressed to AVAX at 4520 Main
Street, Suite 930, Kansas City, MO, 64111, Attention: Jeffrey M. Jonas, M.D.,
with a copy to Roberts, Sheridan & Kotel, a Professional Corporation, Tower
Forty-Nine, 12 East 49th Street, 30th Floor, New York, N.Y. 10017, Attention:
Ira L. Kotel, Esq. or such other address as shall be provided in writing to HTM.
Any notice required to be given or delivered to HTM shall be in writing and
addressed to HTM at 30 Montgomery Street, Jersey City, N.J. 07302, Attention:
Anthony Broy, or such other address as shall be provided in writing to AVAX. All
notices shall be deemed effective upon personal delivery or upon deposit in the
U.S. mail, postage prepaid and properly addressed to the party to be notified.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year set forth above.
AVAX TECHNOLOGIES, INC.,
By: /s/ Dr. Jeffrey M. Jonas
Name: Dr. Jeffrey M. Jonas
Title: President and Chief
Executive Officer
HILL, THOMPSON, MAGID & CO.,
By: /s/ Anthony Broy
Name: Anthony Broy
Title: President
<PAGE>
Schedule 3
HTM WARRANT DISTRIBUTION
Recipient Amount of Warrants Received*
Nicholas Ponzio 50,000
Anthony Broy 12,500
Sylvia Biggerstaff 12,500
Eric Limas 12,500
Jon Blauner 12,500
* Such Warrants shall vest in accordance with the fourth sentence of Section 3
herein.
<PAGE>
EXHIBIT B
CONFIDENTIALITY AGREEMENT (this "Agreement")
dated as of April 17, 1997, between
AVAX TECHNOLOGIES, INC.,
a Delaware corporation ("AVAX"), and HILL, THOMPSON,
MAGID & CO. (the "Recipient").
In connection with services to be rendered unto AVAX by the Recipient
pursuant to that certain Investment Banking Agreement (the "Investment Banking
Agreement") dated April 17, 1997, the Recipient desires to receive information
about AVAX's business and technology. In order to facilitate the exchange of
Confidential Information (as defined below) relating to such business and
technology, the Recipient agrees for the benefit of AVAX as follows:
1. AVAX may make Confidential Information concerning itself available to
the Recipient exclusively for the purpose of performing its services under the
Investment Banking Agreement. Such Confidential Information may be provided
directly by AVAX or on behalf of AVAX by one of its Representatives (as defined
below). "Confidential Information" means any and all information (including,
without limitation, information relating to products, processes, technologies,
compounds, inventions, know-how, designs, specifications, formulas, methods,
samples, biological, chemical or other materials, developmental or experimental
work, improvements, discoveries, past, current, planned and future research and
clinical or other data, databases, software, manuals, internal policies and
procedures, patent applications, licenses, research and development agreements,
term sheets, prices, costs, financial information, budgets, projections,
marketing, selling and business plans, vendors, suppliers, customers, and
information regarding the skills and compensation of Representatives of AVAX or
its affiliates) that AVAX or its Representatives furnish or otherwise make
available to the Recipient directly or indirectly, together with all analyses,
compilations, studies or other documents prepared by the Recipient or its
Representatives which contain or otherwise reflect or are derived from such
information. Notwithstanding the foregoing, the term "Confidential Information"
does not include information which (i) is already in the Recipient's possession
or control prior to the date of disclosure (provided that if such information is
known by the Recipient to be subject to another confidentiality agreement with
or other contractual, legal or fiduciary obligation of secrecy to AVAX or any of
its Representatives, nothing in this Agreement shall abrogate such other
agreement or obligation), (ii) was or becomes generally available to the public
other than as a result of a disclosure by the Recipient or any of its
Representatives or (iii) becomes available to the Recipient on a
non-confidential basis from a source other than AVAX or any of its
Representatives, provided that such source is not prohibited by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of nondisclosure to AVAX or any of its Representatives.
2. The Recipient hereby agrees that Confidential Information received
pursuant to this Agreement will be used exclusively for the purpose of
performing its services under the Investment Banking Agreement, and that such
information will be kept confidential by the Recipient, provided that any such
Confidential Information may be disclosed by the Recipient to its directors,
officers, employees, consultants, attorneys, accountants, advisors, affiliates
and
<PAGE>
agents and other parties who need to know such Confidential Information in
order for the Recipient to evaluate AVAX (each a "Representative").
3. The Recipient shall inform each of its Representatives that receives any
Confidential Information of the confidential nature of such information and
shall direct each Representative to treat such information in accordance with
the terms of this Agreement, including, without limitation, not disclosing any
such Confidential Information to any person. The Recipient agrees, at its sole
cost and expense, to take all reasonable measures, including, without
limitation, court proceedings, to restrain its Representatives from unauthorized
disclosure or use of the Confidential Information. The term "person" as used in
this letter shall be broadly interpreted to include without limitation any
corporation, company, governmental agency or body, partnership or individual.
4. The Recipient acknowledges that it is aware, and that it will advise
each of its Representatives that is provided any Confidential Information that
the United States securities laws provide that any person who has received
directly or indirectly from an issuer such as AVAX material, non-public
information is prohibited from purchasing or selling securities of such issuer
or from communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell such securities, and that violation of such prohibition may involve severe
civil and criminal penalties.
5. Except as may otherwise be provided in writing in connection with a
specific transaction, the Recipient acknowledges that neither AVAX nor any of
its Representatives will be deemed to have made any representation or warranty
as to the accuracy or completeness of any information provided pursuant to this
Agreement. The Recipient agrees that neither AVAX nor its Representatives shall
have any liability to the Recipient or any of its Representatives resulting from
the receipt or use of the Confidential Information except as may be explicitly
set forth in any definitive agreement relating to any transaction.
6. Upon written notice by AVAX, the Recipient shall promptly redeliver to
AVAX, or, if requested by AVAX, promptly destroy all written Confidential
Information and any other written material containing any information included
in the Confidential Information (whether prepared by AVAX, the Recipient, any
Representative of any party or a third party), and will not retain any copies,
extracts or other reproductions in whole or in part of such written Confidential
Information or written material (and upon request certify such redelivery or
destruction to AVAX in a written instrument reasonably acceptable to AVAX and
its counsel). Upon request of AVAX, all documents, memoranda, notes and other
writings or analyses prepared by the Recipient or its Representatives based on
the Confidential Information shall be destroyed, and such destruction shall be
certified to AVAX in a written instrument reasonably acceptable to AVAX and its
counsel.
7. In the event that the Recipient or any of its Representatives is
requested or required (by oral questions, deposition, interrogatories, requests
for information or documents, subpoena, civil investigative demand or other
process) to disclose all or any part of any Confidential Information, the
Recipient will provide AVAX with prompt notice of such request
2
<PAGE>
or requirement so that AVAX may seek an appropriate protective order or
waive compliance with the provisions of this Agreement, as well as notice of the
terms and circumstances surrounding such request or requirement. In such case,
the parties will consult with each other on the advisability of pursuing any
such order or other legal action or available steps to resist or narrow such
request or requirement. If, failing the entry of a protective order or the
receipt of a waiver hereunder, the Recipient is, in the opinion of counsel,
legally compelled to disclose Confidential Information, the Recipient may
disclose that portion of the Confidential Information which counsel advises the
Recipient that it is legally compelled to disclose. In any event, the Recipient
will use its best efforts to obtain and will not oppose action by AVAX to obtain
an appropriate protective order or other reliable assurance that confidential
treatment will be accorded the disclosure of such information. The Recipient
will cause its Representatives to comply with this paragraph.
8. It is understood and agreed that any and all proprietary rights,
including, but not limited to, patent rights, trademarks and other intellectual
property or proprietary rights, in and to the Confidential Information disclosed
by AVAX to the Recipient shall be and remain in the possession of AVAX and the
Recipient shall have no right, title or interest in or to any of such
Confidential Information. The Confidential Information will be disclosed with
the express understanding that neither party will be obligated to enter into any
further agreement relating to the Confidential Information. In addition, nothing
in this Agreement shall be construed as the granting of a license by AVAX to the
Recipient.
9. This Agreement constitutes the entire agreement of the parties
pertaining to its subject matter, and all prior or contemporaneous
understandings or agreements, whether written or oral, between the parties with
respect to such subject matter are hereby superseded in the entirety. The
parties have made no agreements, representations or warranties relating to the
subject matter of this Agreement that are not set forth herein and no agreement,
understanding or promise subsequent to the date hereof relating to the subject
matter of this Agreement, the Confidential Information or otherwise between or
by any of the parties hereto shall be binding upon either party unless in
writing and executed by both the parties and neither party shall be entitled to
rely on oral statements made by the other party which are not contained in a
written agreement between such parties. The Agreement set forth herein may be
modified, amended or waived only by separate written agreement of each of the
parties expressly so modifying, amending or waiving such Agreement. The waiver
by either party of compliance with any provision of this Agreement by the other
party shall not operate or be construed as a waiver of such party of a provision
of this Agreement.
10. The Recipient may not assign its rights or obligations hereunder.
Nothing in this Agreement, express or implied, is intended to confer on any
person other than the parties and their respective permitted successors and
assigns any rights or remedies under or by virtue of this Agreement, and no
person shall be entitled to assert any rights as a third party beneficiary
hereunder.
11. Any notice, request or other document to be given hereunder to a party
hereto shall be effective when received and shall be given in writing and
delivered in person or sent by
3
<PAGE>
overnight courier, registered or certified mail, postage prepaid, or by
telecopy (receipt confirmed) as follows:
If to AVAX:
Jeffrey M. Jonas, M.D.
President and Chief Executive Officer
AVAX Technologies, Inc.
Twentieth Century Tower II
4520 Main Street, Suite 930
Kansas City, MO 64111
Telephone: (816) 960-1333
Telecopy: (816) 960-1334
With a copy to:
Ira L. Kotel, Esq.
Roberts Sheridan & Kotel
A Professional Corporation
Tower Forty-Nine
12 East 49th Street, 30th Floor
New York, N.Y. 10017
Telephone: (212) 299-8600
Telecopy: (212) 299-8686
If to Recipient:
Mr. Nicholas D. Ponzio, Jr.
Hill, Thompson, Magid & Co.
30 Montgomery Street
Jersey City, N.J. 07302
Telephone: (201) 434-6900
Telecopy: (201) 434-1892
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties
hereto.
12. The Recipient agrees that monetary damages would not be a sufficient
remedy for any breach of this Agreement by it or any of its Representations and
that AVAX will be entitled to specific performance and injunctive relief as
remedies for any such breach. Such remedies shall not be deemed to be the
exclusive remedies for a breach of this Agreement but
4
<PAGE>
shall be in addition to all other remedies available at law or equity.
13. This letter shall be governed by, and construed in accordance with, the
laws of the State of New York, without reference to the conflict of law
principles of such State to the extent that the laws of any other jurisdiction
would be applicable in lieu thereof. The parties irrevocably and unconditionally
agree that the exclusive place of jurisdiction for any action, suit or
proceeding ("Actions") relating to this Agreement shall be in the courts of the
United States of America sitting in the Borough of Manhattan in the City of New
York or, if such courts shall not have jurisdiction over the subject matter
thereof, in the courts of the State of New York sitting therein, and each such
party hereby irrevocably and unconditionally agrees to submit to the
jurisdiction of such courts for purposes of any such Actions. If such State
court also does not have jurisdiction over the subject matter thereof, then such
an action, suit or proceeding may be brought in the federal or state courts
located in the states of the principal place of business of any party hereto.
Each party irrevocably and unconditionally waives any objection it may have to
the venue of any Action brought in such courts or to the convenience of the
forum. Final judgment in any such Action shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment, a certified or true copy of
which shall be conclusive evidence of the fact and the amount of any
indebtedness or liability of any party therein described.
14. In the event that any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provision hereof.
15. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but both of which together shall
constitute one and the same instrument.
5
<PAGE>
IN WITNESS WHEREOF, AVAX and the Recipient have caused this Agreement to be
executed by their respective authorized officers as of the date first set forth
above.
AVAX TECHNOLOGIES, INC.
By: /s/ Jeffrey M. Jonas, M.D.
Name: Jeffrey M. Jonas, M.D.
Title: President and Chief Executive Officer
HILL, THOMPSON, MAGID & CO.
By: /s/ Anthony Broy
Name: Anthony Broy
Title: President
6
<PAGE>
<PAGE>
<PAGE>
AVAX TECHNOLOGIES, INC. EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
MONTH OF MONTHS O/S WEIGHTED YEAR YEAR YEAR
ISSUANCE FOR NUMBER OF EACH GIVE AVERAGE ENDED ENDED ENDED
F/S PURPOSES SHARES YEAR SHARES 1994 1995 1996
------------ ------ ---- ------ ---- ---- ----
<S> <C>
January '90 582,500 582,500 582,500 582,500
August '91 230,000 230,000 230,000 230,000
June '92 287,098 287,098 287,098 287,098
Series A Preferred:
June '92 259,375 (a) (a)
July '92 59,375
Sept '92 3,125
321,875 321,875
-------------
July '93 7,359
November '93 1,359
8,718 8,718 8,718 8,718
--------------
July '94 3,750 5.5 1,719 1,719 3,750 3,750
April '95 (111,330) 8.5 (78,858) (78,858)
May '95 (196,618) 7.5 (122,886) (122,886)
September '95 402,490 3.5 117,393 (b)
November '95 1,374,729 2.5 286,402 (b)
--------
1,469,271 202,050 1,469,271
------------- --------
March '96 (77,901) 9.5 (61,672)
May & June '96 321,875 7 187,760
May & June '96 129,099 7 75,308
June '96 500 6.5 271
July '96 (d) 46,875 5.5 21,484
420,448 223,152 223,152
------------- --------
Cheap Shares:
September and
November '95 1,777,218
Treasury Shares (1,814)
1,775,405 1,775,405 1,775,405
-------------
June '96 9,375
Treasury Shares (96)
9,279 9,279 9,279 9,279
--------------
CheapWarrants (c):
January and February '96
and August '95 120,000
Treasury Shares (1,225)
118,776 118,776 118,776 118,776
-------------
June, July and
September '92 warrants
additional warrants
issued under
anti-dilution provisions
within one year of IPO 63,112
Treasury Shares (47,978)
15,134 15,134 15,134 15,134
-------------
Cheap Options (e)
May '96 318,873
Treasury Shares (81,345)
237,527 237,527 237,527 237,527
-------------
</TABLE>
<PAGE>
AVAX TECHNOLOGIES, INC. EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE (CONTINUED)
<TABLE>
<S> <C> <C>
Weighted Average Shares 3,266,154 3,388,316 3,185,203
Net Income (Loss) Attributable to Common Stockholders (781,221) 642,282 (2,668,586)
Net Income (Loss) Per Share $ (0.24) $ 0.19 $ (0.84)
</TABLE>
(a) - Not included because it would be anti-dilutive
(b) - see cheap shares
(c) - represents bridge loan warrants (100,000) issued within one
year of IPO, exercised after June '96
Also includes 20,000 bridge placement warrants issued
within one year of IPO, not yet exercised, and excludes 11,250 bridge
placement warrants issued prior to June '95, not yet exercised (20,000 +
11,250 = 31,250 total bridge placement warrants)
(d) - represents the non-cheap portion of the bridge warrants exercised in July
issued prior to June '95 (9,375 + 100,000 + 46,875 = 156,250 total bridge
warrants) (e) - 252,500 options issued to Officers and an employee in
September not considered cheap options since issued subsequent to IPO and
not included in 1996 because it would be anti-dilutive
<PAGE>
AVAX TECHNOLOGIES, INC. EXHIBIT 11
COMPUTATION OF SUPPLEMENTARY EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
MONTH OF MONTHS O/S WEIGHTED YEAR YEAR YEAR
ISSUANCE FOR NUMBER OF EACH GIVE AVERAGE ENDED ENDED ENDED
F/S PURPOSES SHARES YEAR SHARES 1994 1995 1996
------------ ------ ---- ------ ---- ---- ----
<S> <C>
Net Income (Loss) Attributable to Common Stockholders 642,282 (2,668,586)
Interest on Debt Repaid 96,962 55,247
Deferred Financing Cost related to Debt Repaid 12,562
Supplementary Net Income (Loss) 751,806 (2,613,339)
Weighted Average Shares 3,388,316 3,185,203
Additional Shares:
Conversion of Series A Preferred (e) 321,875
Less:Series A Preferred included in primary calculation (187,760)
Common Stock Equivalents sold to retire debt 320,664 320,664
Supplementary Weighted Average Shares 3,708,980 3,639,982
Supplementary Net Income (Loss) per share $ 0.20 $ (0.72)
(e) - Included in weighted average shares for primary calculation
</TABLE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 29, 1997, in Amendent No. 6 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 6,780,299
shares of common stock.
Ernst & Young LLP
Kansas City, Missouri
May 7, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<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
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,832,179
<SECURITIES> 6,134,853
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22,277,776
<PP&E> 45,777
<DEPRECIATION> 2,007
<TOTAL-ASSETS> 22,321,546
<CURRENT-LIABILITIES> 2,527,136
<BONDS> 0
0
2,592
<COMMON> 12,445
<OTHER-SE> 19,794,410
<TOTAL-LIABILITY-AND-EQUITY> 22,321,546
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 455,544
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (353,867)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,536,842)
<EPS-PRIMARY> (.84)
<EPS-DILUTED> 0
</TABLE>
